In my earlier blog Dilapidations - the rights and wrongs, I explained how a dilapidations claim (from a landlord to a tenant of a leased business premises, when the lease is terminated) is based on what is reasonable in the circumstances.
Here are my 10 key tips for tenants wanting to keep dilapidations claims to the bare minimum.
Further reading on Law Donut:
Leasing business premises is so utterly different from renting a house. When the lease ends, a business can expect to pay hefty dilapidations costs, which the landlord theoretically then spends on returning the premises to its original standard of decoration, reinstatement and repair. Or the the tenant can opt to do the works itself.
There was a time, not so long ago, when landlords were able to profit through highly inflated dilapidations claims. Then the tide turned and tenants were given protection. So now, provided the tenant is properly advised, dilapidations costs are far more reasonable. Furthermore, whereas the key issue used to be returning the premises to their original state, the legal focus is now on the issue of the landlord’s ‘loss’.
Take the example of an office that is going to be converted into a flat. In the old days, the landlord could have expected to reach a financial settlement with the tenant and then put that money towards the cost of the property conversion. But nowadays a well-advised tenant would start by asking the landlord for a Declaration of Intention for the future use of the premises. If the conversion to a flat is revealed, the tenant may be able to leave without paying any dilapidations costs at all, because the landlord cannot claim a loss (the building will be converted anyway).
Similarly, if a roof is leaking and the landlord is contractually responsible for that roof, the tenant can reasonably claim that it would be pointless to redecorate an area that will soon have water damage.
One can also commission a ‘section 18 valuation’, which puts a figure on the value of the building now and a theoretical figure of value if it was in full repair. The difference between the two figures then creates a cap as to what the landlord is allowed to claim.
But when it comes to small businesses, dilapidations should be more straightforward than this. The key question is, given the terms of the lease – what is reasonable?
Generally, there will be a requirement to repair and redecorate (internally, and sometimes externally — the lease should make it crystal clear what is and is not included, for example, roofing, drains, boilers, etc). The lease should also detail the professional fees the tenant is obliged to pay as part of the dilapidations claim.
But let’s get back to the question of what is reasonable. Take, for example, a lease that stipulates that the tenant must wash the windows every month and use two coats of paint when redecorating every three years. If the windows are clean and the rooms do not need decorating, the landlord has no grounds for complaint. And if the tenant buys good quality paint, one coat of that paint may be better than three coats of watered-down cheap paint. The key point is, does the property look as it should or have you, the tenant, done something (or omitted to do something) that devalues it?
In my next blog I’ll outline my tips for tenants on how to keep dilapidations costs down to the bare minimum.
Mark Humphries is an associate director of chartered surveyors CS2 (Bristol office).
Further reading on Law Donut:
Any business’s daily operations can have an adverse effect on the health of not just the environment, but also on your workers and neighbours.
Most rules placed on businesses are designed to prevent noise, air, water, and land pollution. Whether you operate a small business or large-scale industrial business, some environmental rules almost certainly apply to your business - here are the central environmental regulations that you may well need to check out.
Air pollution can come from a variety of sources in your business, and some activities - installation of furnaces, chimney smoke, and sulphur content of fuels - are regulated to limit air pollution caused by businesses. Burning waste oil or producing fuel is also regulated above and beyond standard air pollution controls.
You may need to make modifications to your equipment or apply for a permit. For example, you will need environmental permits if your business has appliances that when combined have a thermal input of 50 megawatts or more.
If your business is located in a smoke control area, such as most cities, you will need to meet stricter air pollution prevention guidelines. To find out if you are located in a smoke control area, contact your local authority.
Waste disposal regulations apply to all waste your business produces, as regulated by The Waste (England and Wales) Regulations 2011. This mandates how waste is stored, transported, and disposed of. When storing waste, it must be kept in labelled, secure containers so that it does not blow away, get rained on, or leak out. Containers should be stored on impermeable surfaces to prevent contents from contaminating the ground or groundwater or flowing into drains.
Thanks to a recent legal change, only registered waste carriers may transport your waste, unless you transport it yourself following the rules, and most waste management facilities need an environmental permit. It is your responsibility to keep documented proof that your waste transporter and disposal collection facility have the appropriate registrations and permits. When setting up waste transport and disposal, ask to see the registration and permits and make copies for your own records.
Few businesses are exempt from the Waste Electrical and Electronic Equipment Regulations 2006 (WEEE). The regulations apply to any business that manufactures, imports, exports, sells, or uses electronic equipment, such as computers, mobiles, or household and industrial appliances.
WEEE rules act to stop mercury, lead, and cadmium found in electronic equipment from being disposed of in landfills where they leach into the ground and poison the earth and water. The rules also aim to increase recycling.
How WEEE affects a business greatly depends on whether your company produces or uses the electronics and when those electronics were purchased. In most cases, electronic equipment sold after 13 August 2005 becomes the producer’s responsibility for proper disposal and recycling.
While being a statutory nuisance, isn’t strictly defined, Business Link explains that “A nuisance can be any action or failure to act, which interferes with people's use and enjoyment of land or property, or that could have a negative effect on health.”
Excessive noise, vibrations, smoke, odours, stagnant water, insect infestations, litter, an unkempt property, and bright lights are just some of statutory nuisances that are regulated by the Noise and Statutory Nuisance Act of 1993. Local environmental health officers and individual neighbours can bring statutory nuisance complaints via abatement notices and through the courts.
Any liquid other than water – such as cooking oils or detergents - that end up in the sewage system, on the ground, in local waterways, or otherwise discharged from your business is a trade effluent, regulated by The Trade Effluents (Prescribed Processes and Substances) Regulations 1989.
Trade effluents can also include solids in liquids and chemicals. You will need a consent or agreement with your water and sewerage company to get rid of them, and you may also need an agreement with the Environment Agency.
Of course, some liquids cannot be disposed of through the sewage system without first being treated onsite, or must be disposed of as a hazardous waste material. The Environment Agency and water and sewerage company can help businesses determine how they can dispose of waste liquids.
Including boxes, crates, bags, and binding materials, whether you use packaging in the products you sell or take delivery of a lot of packaged items, you need to work to reduce and recycle that packing material.
Packaging is anything that’s designed to contain or carry an item, and the rules require a certain percentage be recyclable and other properties of the material to limit its disposal in landfills. To comply with packaging regulations, keep documentation and information about the packaging design and how you recycle or otherwise dispose of your packaging.
Hazardous substances include such daily materials such as solvents, pesticides, oil, and electrical components. If you use these at work, you will be required to comply with regulations mandated by the Planning (Hazardous Substances) Act 1990 on all aspects of their use, storage, transport, and disposal to protect the environment and the people that come in contact with the substances.
What substances your business uses and how you use them will determine which specific rules affect you. You may need to comply with the Registration, Evaluation and Authorisation of Chemicals (REACH) Regulations, Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (RoHS) Regulations, and the Chemicals Regulation Directorate (CRD).
For many of these regulated business activities, a permit through the Environment Agency is required. Noncompliance for any environmental regulations can result in costly fines.
Kathryn Skinner is a waste management and environmental expert for General Waste Collection.
In the aftermath of the rioting throughout England this week – well, what we’re hoping is the aftermath – thousands of businesses are facing eye-watering cash losses. With estimates that, for example, one in ten of the UK’s leisure and retail business have been hit by sudden disaster, many firms who have been spared to date are concerned. But forewarned is forearmed.
Find out how to protect your firm now with our pick of the best web action guides – and, if you’re already facing the clean-up, the final factsheet takes you through the maze of getting your business back on its feet.
And if the worst happens…
As I was browsing for a new console this week, the shop assistant came up to me and asked if I was planning to make my purchase “eco-conscious”. “I just want to play games on it!” was my response.
As a consumer, am I all that bothered about the carbon footprint of my PS3? I’m far too busy deciding whether to buy FIFA 10 or PES. (Think I’m going with the latter). But it got me thinking about how small businesses manage the current drive to be ‘green’. With daily to-do-lists stretching longer than your average motorway tailback, do owner-managers really have time to commit to the environment, especially when customers need serving and cashflow looking after?
I’m not against going green – who could be, really. Many companies see an upside from being environmentally friendly, and we all benefit from a spot of simple recycling. Increasing environmental regulation, however, adds yet more pressure to small firms who are already overrun with red tape. Is there a better way to help small businesses achieve environmental harmony without burdening them with yet more legislation?
The Law Donut has some excellent (and simple) advice on how your business can meet environmental obligations.
2009 has been a fantastic year for the Law Donut team. Before we take a festive break from giving you the best free legal advice, news and resources online, we’d like to wish you, our readers, a Happy Christmas and a particularly successful 2010.
As an ever-growing club, your questions, contributions and witty-but-wise comments make our jobs worthwhile. If you need us over Christmas, the Law Donut website will be fully active, but this is our last blog this year.
We’ll be back with lots of new content on the blog and Twitter @LawDonut on Monday 4 January, 2010. We’d also like to thank our sponsors, who have greatly contributed to the success of the Law Donut so far, and of course, our experts and bloggers, who keep us all enlightened and informed through many a legal dilemma – as well as providing us all with a great read.
Businesses that sign (or ‘execute’) contracts and documents virtually, using email or fax, can now refer to a new Law Society guide on how to avoid the legal problems that can arise. The guide, 'Guidance on execution of documents at virtual signing or closing', sets out suggested ways to deal with electronic or virtual execution of simple contracts:
The guide specifies the steps required for each (including that all the parties’ lawyers agree in advance which route to take, and that all documents are Microsoft Word or Adobe .pdf files) to make sure that the parties can prove the document was validly signed. While it is not legally binding, it provides valuable guidelines for company officers and their advisers. Only the first option can be used with other documents – such as leases or documents disposing of land, guarantees or other documents that have to be executed as deeds - but there are also additional legal formalities for deeds that mean they should not ordinarily be executed without legal advice in any event. Download the guidance at the City Solicitors website.
When you operate a small business you need to have lots of different relationships with different people. Clearly, you have relationships with customers. You'll probably have a series of relationships with buyers. You will undoubtedly have varying relationships with prospects and contacts. There will also be key relationships with business advisors.
But there are few that as are important as good working relationship with a lawyer, which means that your choice of legal advisor is something that you need to get absolutely right. It’s not enough that your legal adviser has the skill and experience that you need. He or she also needs to be someone that can relate to you and your business.
Consider your first meeting with a new prospective lawyer as a blind date. You need to make sure you're comfortable with them and also that they feel that they can work successfully with you. Don't be afraid to ask questions - consider how they communicate, how they work, and also key business details (such as how their charges work and who will be working on legal matters when you're not actively meeting with them). It’s absolutely imperative that you “check out” your potential legal advisor properly. This is potentially one of your most important business relationships and could last years or even decades. It’s not enough that a potential lawyer will do the job. You need to be able to develop high levels of trust with this key person. I would even go as far as saying you should trust your instincts.
Just like a blind date, finding the perfect legal adviser might take a bit of time and effort. But rest assured that, it will be worth it in the long run and, who knows, it just could be find love at first site.
If you run a small business and you cringe at the thought of having to do anything to do with legal contracts, terms of business, disputes, leases or anything else to do with the law, rest easy - you're not alone.
In my experience, the vast majority of people in business find most things legal to be complicated, boring, annoying or even a bit scary. So business people tend to do what humans like to do when things are a little uncomfortable: hide, ignore it, and generally avoid dealing with the uncomfortable stuff. I've been involved in many businesses both as an owner and as an advisor. But I've also been a practicing lawyer and I understand just how beneficial good legal "cover" can be in almost any business.
As boring, inconvenient or dry as it may be at times the reality is that getting your legal ducks in a row is one of the most crucial parts of running a successful business (new or established). You just never know what is around the corner, or what protection you might need.
At times it can seem that there is so much in the way of compliance, rules and regulations you need to worry about - and in a lot of ways, there is. But it’s also really important to remember that basically business is all about relationships. So when good relationships go sour, if you don't have your legal i's dotted and t's crossed, then you could be in big trouble. It's essential that you develop a great working relationship with a practical, business-minded legal advisor. That way, you can be assured that any legal queries you might have can be answered quickly and that the legal side of your business is water-tight. It also means that you can spend less time being caught up dealing with the legal issues, and get on to the fun stuff! Because really, that’s what running a business is all about.
Employers whose consultants or contractors learn how to do something while working for them will welcome a recent court decision giving guidance on when the consultant or contractor can use that information when doing work for a rival business, and when they can’t.
A consultant helped a company develop a new product – a mosquito net impregnated with insecticide to kill the mosquitos. In the course of that work, the company created a database, which included information about the formulae for different pesticides, and test results. The consultant resigned, but then helped a rival business (set up by two ex-employees) develop a similar product. The first company claimed he had used confidential information and trade secrets contained in the database. There had been no written consultancy agreement with the first company, containing confidentiality clauses, so the first company claimed he owed it an implied duty to keep its confidential information secret, which he had breached.
Ordinarily, the implied duty applies only to employees. A consultant (or any other non-employee) is under no implied duty of confidentiality; there has to be an express agreement. The consultant also argued that he was just using skills and experience gained in his work as a consultant. The law protecting confidential information does not go so far as to stop someone from using their skills and experience, even if they gained some or all of it working for you, in some future employment or business enterprise. However, the court said that where a business can show that the consultant’s role is analogous to that of an employee, the implied duty of confidentiality could apply. In this case, the consultant was brought in specifically to develop the new product, and paid to do so. He was supervised like a senior employee, worked hand-in-hand with employees on aspects of the development, knew that most of the information in the database came from work and tests paid for by the company, and knew (from steps taken to make sure other outsiders kept the information confidential) that it was confidential.
Importantly, he appreciated the commercial importance to the business of the launch of the new product, so that it was likely he realised that information associated with it was confidential. The court also said that the information in the database, including formulae and conclusions drawn from tests, could be trade secrets, and could be distinguished from the general knowledge, skill and experience of a consultant in this area. While the first company won, the case makes clear the importance of a written agreement containing confidentiality clauses when any outsider will, or might, have access to your business’s confidential information or trade secrets.
Limited company directors, appointed to represent an investor, or some other outsider, must still put the company’s interests above those of whoever appointed them if there is a conflict, the court of appeal has confirmed.
Every director owes statutory duties to their company, such as the duty to act in the way they consider, in good faith, most likely to promote the success of the company for the benefit of its members as a whole. However, sometimes particular shareholders have the right to nominate a director or directors to the board of a company. For example, in a joint venture company, each of the joint venturers often has a right to nominate ‘their’ directors’ to the board.Substantial outside investors in a company, such as venture capitalists, also often insist on the right to nominate a director to the board, as one of the conditions of investing. In these cases, the shareholders often think of the director they appoint as being there to represent their interests. In these situations, there can be a conflict between the director’s legal duties to the company, and the expectations of those appointing them that the director will look after their interests.
The court of appeal has recently confirmed that a director’s duties owed to their company are always paramount, and override the interests of the shareholder nominating them. In the particular case, Neath and Swansea rugby clubs had set up a joint venture company called Neath-Swansea Ospreys Limited (‘Ospreys’). Neath had nominated a director to its board. An owner of Neath rugby club alleged that the actions taken by the nominated director, while acting as a director of Osprey, breached his duties to his nominator, Neath. The court of appeal said that, when acting as a director of Osprey, the director’s legal duties were owed to Osprey, and he had to act accordingly. He owed no duty to the organisation that nominated him. So, if he believed a particular decision was in the best interests of Osprey, he had to support it, even if it was contrary to the interests of his nominator, Neath.
Where one child seems to have benefited disproportionately from a parent’s generosity, it can lead to allegations of undue influence from brothers and sisters who have lost out. A recent case shows how inequalities can be justified and how a parent can take steps to reduce such disputes after their death.
A son appointed as her attorney by his mother sold her house in 1993. However, she personally dealt with the solicitor handling the sale, including instructing him to pay the proceeds of the sale to her son.
The woman’s daughter claimed a share in the proceeds of sale. She said that her brother had used undue influence over their mother in order to get the entire sale proceeds.
There was no evidence of overt acts of improper pressure or coercion by the son, so the onus was on the daughter to present evidence that raised a presumption of undue influence.
Twofold test for presumption
A parent’s failure to treat their children equally is not, in itself, evidence of undue influence. Rather, she needed to show there was “a relationship of trust and confidence” between her mother and brother (that is, that there was some dependency of the mother on the son – for example, because she was older and relied on his judgment or acumen), and that the transaction itself “called for an explanation”.
Evidence from the solicitor who handled the sale was that the mother was aware of what she was doing, and the consequences. The effect had been explained to her, and she had understood. Further evidence also showed that she was a woman of strong character, and that she had not subsequently shown any remorse over the gift. There was no evidence of dependency.
The sum involved was substantial, and giving it to her son left the mother unable to afford a property of her own, so the transaction did call for some explanation. Significantly, however, evidence was also given that the mother was aware that her son had lent the daughter money for her business, which had subsequently failed. This provided a possible explanation for the transaction.
Other common instances where parents may treat children unequally are where one child has already received money – for example, to help buy a house or pay for a course. Another is where one child has given up time or an opportunity to look after or help the parent. In these circumstances it is reasonable to reward them, at the expense of their siblings. Or the inequality may be a punishment for the child’s behaviour.
Overall, the court decided that there was no undue influence.
A parent making unequal provision for their children (or grandchildren) should state in writing – for example, in their will, or in a separate letter of guidance to executors:
Those contemplating marriage or civil partnership, and couples with an existing pre-nuptial agreement will take note of a recent Privy Council decision that, while pre-nuptial agreements continue to be of limited effect, agreements made after a marriage or civil ceremony can be valid and enforceable.
A recent case has highlighted that, while pre-nuptial agreements are still not legally binding (just a factor the court can take into account when deciding how to apportion assets), post-nuptial agreements are more likely to be enforceable.
A couple had entered into a pre-nuptial agreement on their wedding day. However, they varied the agreement twice – after they were married, which made the new terms a post-nuptial agreement.
They divorced a decade later. The husband argued his former wife should get £1.89m under the variations. The wife claimed £5.5m, and argued the variations should be disregarded as she was under unfair pressure when they were made.
The decision distinguished between pre-nuptial and post nuptial agreements. Post-nuptial agreements were made when the parties had already undertaken the obligations and responsibilities of marriage, so the couple concerned were making a contract regarding their life together. Such an agreement was enforceable provided that its purpose was not to try to oust the court’s jurisdiction. The court therefore took the view that the variations were valid and enforceable as they were made after the marriage.