New Law to Help Self Builders moves forward

A Government bill to help enable more people to build their own homes has passed its final stage in the House of Commons. It has all party support and goes to the House of Lords this week.

The purpose of the Self Build and Custom Housebuilding Bill – the brainchild of South Norfolk MP Richard Bacon – is to make it easier for an individual or a group of individuals to obtain land in order to build a house to live in. It places a duty on local councils to keep a register of people who wish to build their own home and who are actively seeking to acquire serviced plots of land in the local authority’s area. The Bill then requires each local council to take account of its ‘self build register’ when exercising the functions of planning, housing, regeneration and the disposal of land.

In Laying the Foundations: a Housing Strategy for England (2011), the Government set out plans to enable more people to build or commission their own home – there is an aspiration to double the size of the self-build market, creating up to 100,000 additional self-build homes over the next decade. Various measures have been introduced to ease the path for those wanting to build their own home including (repayable) funding; an exemption from the Community Infrastructure Levy; amendments to planning guidance; and improved access to public sector land.

Our thanks to NACSBA , the National Custom & Self Build Association, for this information.

What You Need to Know about Leasing a Shop

Guest post by Judith Long

Taking on a business lease can be one of the most significant financial commitments that your business will make.  It is important for a tenant to be aware of the key provisions of its business lease so that it can check what the respective rights and obligations of the business and the landlord are and be aware of the procedures to follow in case there is a problem.

What’s in a Shop Lease?

The lease will normally include the following:

  • Details of the premises.
  • The term of the lease – this will usually be 3 or 5 years or a multiple thereof.
  • Whether the lease is renewable at the end of the term.
  • Whether lease can be assigned during the term together with any conditions.
  • Whether part of the premises can be sublet.
  • The amount of the rent, including details of any rent reviews.
  • The amount and the terms of any rent deposit.
  • Whether a personal guarantee is required.
  • Details of any works that will be the landlord’s responsibility during the tenancy.
  • Details of any service or other charges that may be payable to the landlord during the tenancy.
  • Details of any works that will be the tenant’s responsibility during the tenancy.
  • Details of remedial work that will be required at the termination of the lease.
Check your shop lease before signing to avoid nasty surprises later on!

Check your shop lease before signing, to avoid nasty surprises later on

Things to Consider when Leasing a Shop

The matters set out below are the sort of things you may need to think carefully about and to negotiate with the landlord before agreeing to the lease.

a.      Check the length of the lease.  The tenant should know when the term will end and whether it can be terminated earlier by either party.  The right to terminate early is usually referred to as a break clause.  Tenant break clauses are commonly linked to rent reviews so that, if the rent is likely to be unacceptable to the tenant, it can terminate the lease and limit its financial responsibilities.

b.      Check the position on security of tenure.  Business tenants generally have the right to renew their lease at the end of the contractual term (subject to certain exceptions).  Note, however, that the lease can be contracted out of the security of tenure provisions, in which case there will be no right of renewal at the end of the term and the property must be vacated.

c.      If the lease provides for a rent review, consider whether this should be a simple inflation-linked increase or linked to comparable premises in the open market.

d.      Are you required to give a rent deposit or a personal guarantee?  If so, think carefully about the impact on cash flow and personal liability as a guarantor.  Many start-up businesses prefer to take a lease in the name of a company with a cash rent deposit.

e.      If giving a rent deposit, consider whether it should be released if you prove to be a good tenant and your accounts show that your business is on a sound footing.

f.       The lease is likely to contain a number of restrictions in connection with assignment and sub-letting.  These provisions should be carefully considered.

g.      If you intend to carry out work to the premises, it is best to agree these at the outset and document them as part of the initial deal or you may need to obtain landlord’s permission incurring additional costs and delays.

h.      Even if the premises aren’t in a good state of repair at the beginning of the lease, the repair clause might require you to hand them back to the landlord in a good state of repair. Therefore it is wise to ask your landlord for your repairing obligations to be limited to the current state of the premises recorded in a detailed Schedule of Condition supported by photographs.

i.       Find out what your business rates liability will be.  Check whether the premises are separately rated.

j.       If the premises are part of a larger building, check the service charge accounts for at least the previous 3 years and try to negotiate a cap on the service charge for at least part of the term.

k.      Check whether the premises have their own meters and mains supplies or are these located in a part of the building you can’t reach?

l.       Would you require parking facilities or 24-hour access?

Please note that the above are just some of the matters which you need to consider before leasing a shop and this guide is not intended to be exhaustive.  Landlord and tenant law is a complex area of law and specialist legal advice is always recommended before entering into a lease whether you are a landlord or a tenant.

 

About Judith Long

Judith Long, property lawyer

Judith Long, commercial and property lawyer

Judith is a solicitor with her own practice and her specialist skills include all aspects of commercial property law and business law. With nearly 30 years experience in the law, she has worked in industry as well as private practice.

Her practice was formed in 1997 and she provides specialist business legal services to public and private institutions and individuals.  For more information see www.judithmlongsolicitors.co.uk

What You Need to Know About Assigning a Lease

Guest post by Judith Long

If you are renting a business property, you might come to a point where you want to move on. What are your options if you still have a lease running?

 

Does your lease lock you in? Check for lease assignment conditions before you sign.

Does your lease lock you in?

Firstly let’s look at what it means for a tenant to assign a lease:

  • When a tenant sells their interest in a lease, the sale is referred to as an assignment.
  • The seller (the tenant) can sell only the unexpired remainder of the term granted by the lease.
  • The terms of the lease are not open to negotiation by the buyer because the lease is already in existence and the buyer (the assignee) must take it or leave it as it stands.

What Will the Landlord Expect?

The lease that you, as the outgoing tenant, are selling will almost certainly include a clause stating that the landlord’s consent to the assignment will be required.  So do check your lease carefully – assignments are usually dealt with in a specific clause that is variously called ‘alienation’, ‘dealings’ or transfers’.  The consent process will usually involve you entering into a formal licence to assign with the landlord before the assignment can be progressed.

Unsurprisingly, the landlord is likely to require various checks on the proposed new tenant, possibly including some financial assurances or guarantees.  This can be the cause of some delay.

The lease is also likely to require you and your assignee to satisfy other conditions before the assignment is allowed depending on when your lease was granted:

  • If a lease was granted before 1 January 1996, then the law provided that the original tenant remained potentially liable for payment of the rent and to observe and perform the other lease covenants for the whole term even if the lease had been assigned many times.  In such leases, sometimes called ‘old leases’ by lawyers, because the landlord has the comfort of original tenant liability and the potential liability of successive assignees for the duration of the term, the main requirement will be to get landlord’s consent and enter into the licence to assign.
  • Leases granted on or after 1 January 1996 – still sometimes called ‘new leases’ don’t make the original tenant potentially liable for the whole term, because the law was changed from that date.  The law, however, allows landlords to require an assigning tenant to enter into an ‘authorised guarantee agreement’ (usually referred to as an ‘AGA’) under which the outgoing tenant guarantees the obligations of its immediate assignee but not any future assignees.

Any guarantor that you provided when you entered into the lease would also be required to enter into an AGA to underwrite your own AGA obligations.

There may be other conditions to comply with – the most common being getting a direct covenant with the landlord from the assignee (which is given in the licence to assign and will last for the duration of the term) and a requirement for the assignee to provide a third party guarantee also for the remaining duration of the term.

What Will your Buyer, the New Tenant, Expect?

The buyer (the assignee) will also raise enquiries and is likely to want to check at a minimum:

  • The lease terms they will take over.
  • That you are paid up-to-date on rent, service charges and outgoings.
  • That the landlord agrees you are not in breach of the lease.
  • The property title at HM Land Registry.
  • Replies to pre-contract property enquiries.

Your rent deposit will also need to be returned and apportionments worked out if you have paid rent and service charge to the next quarter day.

Please note that this guide is not intended to be exhaustive and specialist legal advice is always recommended before assigning a lease. If you are looking for example Lease Assignments, ContractStore has suitable templates to download, including:

 

About Judith Long

Judith Long, property lawyer

Judith Long, property lawyer

Judith is a solicitor with her own practice and her specialist skills include all aspects of commercial property law and business law. With nearly 30 years experience in the law, she has worked in industry as well as private practice.

Her practice was formed in 1997 and she provides specialist business legal services to public and private institutions and individuals.  For more information see www.judithmlongsolicitors.co.uk

Why Self Builders Need to Put It In Writing

It can be very rewarding to live in a home that you were involved in designing. But before you become a self-builder, it’s good to realise that construction is a complex business.

You not only have to grapple with the planning regulations and the intricacies of design, but there is a lot of work needed to co-ordinate the various suppliers and contractors if the project is not to run into difficulties.

The Self Build Dream can be wonderful but vulnerable to problems

The Self Build Dream can be wonderful – just make sure you avoid legal problems.*

And while a lot of decisions will be made on site to deal with one-off problems as they arise, it is still essential to have the basic arrangements with your architect, suppliers and builders confirmed in writing before you start.

The main reasons for this are:

  • To record the precise scope of work that you are getting for your money, not just a 200m3 building but the design and specifications as well
  • To confirm the price and the payment terms
  • To identify the time frame for the work
  • To provide a framework for dealing with issues that might arise during the life of the contract (changes, unforeseen problems etc.)

You do not need an overly complicated contract – but you do need one that is written by a professional who understands the type of issues that can occur and how they can best be dealt with.

And of all the things that you pay for to achieve your dream home a self-build contract is going to be one of the cheapest and will give you real value for money. High quality

ContractStore sells a range of contract documents for self-builders: click here to find them here.  They are much easier to complete than your new home is going to be!

Best of all, during National Selfbuild Week we are offering a 50% discount on all self-build contracts.

Developed with Self Build Zone, our contract templates are written by expert construction lawyers for the lay person to use – just download and edit in your word processor.

So there is no longer any reason to leave your project – or your finances – vulnerable to legal disputes!

*Photo of Adrian Leaman © Sarah Dixon 2011

Parent Company Guarantees

Parent Company Guarantee templateIt has become common practice for a client in the UK construction industry to require its contractor to provide security. Performance Bonds and Parent Company Guarantees are two forms of contract to handle this requirement.

Especially in times of uncertainty, anyone awarding a valuable contract will need to think about the financial and technical capacity of the contractor, not least in the building industry where insolvency is all too common.

Partly in consequence of this risk, it has become common practice for a client in the UK construction industry to require its contractor to provide security – in the form of a performance bond and, especially where the company entering into the contract has limited assets but is part of a larger group, a guarantee from its parent company.

These requirements are usually included as a term in the contract between the client and the contractor and it is sometimes a condition of receiving payment under the contract that the performance bond and parent company guarantee are in place.

Who Will Provide the Guarantee?

It is usual for the ultimate holding company of the contractor to be asked for the guarantee, but this is not always the case.

For example, if there is an intermediate company within a group which has sufficient assets, the client might be willing to accept such a company. Moreover, sometimes this is to the advantage of the beneficiary, i.e. the client.

For example, if a contracting company incorporated in England is ultimately owned by a US corporation, the UK client needs to consider whether it may have difficulties in enforcing the guarantee if for any reason the parent company does not pay when called upon to do so. The chances are that legal proceedings in the United States could be necessary. So, if in the group that owns the English contracting company, there is an English “parent” that has adequate assets, the guarantee might best be obtained from that English parent.

Formation of a Contract

A parent company guarantee creates a contract between the client and the guarantor. It will specify the guarantor’s duties and usually have an end date – e.g. the date of completion of the project, after which it ceases to have any effect. The guarantor will specify when it comes into effect and what are the guarantor’s obligations – e.g. to take over the project from its subsidiary if the subsidiary becomes insolvent or ceases to perform its contract.

Often there is a wide indemnity clause under which the guarantor indemnifies the client against all losses it suffers as a result of the subsidiary’s default. If you represent a parent company being asked to provide a guarantee, you should try to ensure that your liability is no greater than that of your subsidiary under its contract with the client. In other words, if the contractor’s liability is limited to a fixed amount, this should apply to the guarantee. And if the contractor is owed money by the client, it can be useful for the guarantee to give the guarantor the right to withhold an equivalent amount from what it has to pay the client under its guarantee. Without appropriate wording, the guarantor can find itself liable for more than its subsidiary.

When is a Guarantee Not a Guarantee?

Parent company guarantees do, of course, come with the risk that if the contractor company is in trouble, its parent may be in trouble as well, so a call on the guarantor can turn out to be worth less than it seemed. Which only goes to underline the fact that due diligence is needed before any major contract is signed.

For a balanced form of PCG: http://www.contractstore.com/B149-parent-company-guarantee

For a performance bond template: http://www.contractstore.com/B146-bond

Defective Premises – A House Buyer does not always have rights against a builder responsible for defects.

If you buy a house that turns out to be defective, under the Defective Premises Act of 1974 you might have a claim against the original builder. But in a new case the Court of Appeal has decided that if the builder refurbished a house, instead of building a new one, the Act does not apply.

The Act says that any person who takes on work for, or in connection with the provision of a dwelling, (including the erection, conversion or enlargement of a building), owes a duty to anyone who later acquires an interest in the dwelling, to see that the work he takes on is done in a workmanlike and professional manner.

In 2007, Mr. & Mrs. Jenson bought a house in Battersea from Mr. Green who, before selling it, had had substantial refurbishment work carried out. Mr. Faux was Mr. Green’s project manager responsible for the work which cost around £400,000. After they bought the house the basement flooded and the Jensons sued Mr. Faux for damages under the Defective Premises Act.

The Court of Appeal decided that Mr. Faux was not liable. Although there was a major revamp of the house, including some enlargement, they held that Mr. Faux was not responsible for ‘the provision of a dwelling”. What he did was improve an existing dwelling, not provide a new one.

So, beware of the risks if you buy a converted house: if it was previously an office building or warehouse, or if you buy a flat that has been created out of a larger house, you may have a claim against the original builder if defects appear. But if the dwelling you bought is just an improved version of the original, you need to get a survey before you buy, and the old rule of ‘caveat emptor’ or ‘let the buyer beware’ applies. For more details of this case – http://www.bailii.org/ew/cases/EWCA/Civ/2011/423.html

On Demand Performance Bonds – How to make them less of a threat

Contractors tend to be wary of  ‘on demand’ performance bonds as there is usually no protection against the bond being called unfairly. The courts have generally refused to prevent a bond from being called except in the case of proven fraud.

But a new case this month, Simon Carves v. Ensus UK,  suggests that if the underlying contract contains restrictions on the client’s right to call the bond, then the English courts will grant an injunction preventing payment.   For more details, see this article on Giles Dixon’s website.

Travis Perkins Building Contracts into Business

We’ve partnered up with Travis Perkins to bring construction companies the great news that they can wave goodbye to high legal costs. Travis Perkins is a leading supplier to the UK building and construction industry, offering more than 100,000 product lines to professionals and self-builders.

The new partnership between Travis Perkins and ContractStore.com focuses on a range of low-cost specialist contracts for the construction industry, including Terms & Conditions, Collateral Warranties, and contracts for Supply of Works and Services.

A Start-Up Pack for Builders is also available, containing the key document templates for running a construction business.

Although written by expert lawyers, these documents come without the hefty High Street price tag, providing large organisations through to self employed contractors with the opportunity to be legally protected as they prepare for the upturn.

With a recent survey by Close Invoice Finance revealing that almost a quarter of SMEs in the South East have to wait for payment over 31 days after the agreed terms, Giles Dixon, founder of ContractStore.com believes that many in the construction industry, particularly self-employed contractors and smaller outfits, could be exposing themselves to bad debt and crippling cash flow issues in 2010 by failing to have adequate contracts and terms in place.

“The recession may be over but it will be some time before we start to see improvements in day to day business. Stabilising cash flow is a huge issue for most businesses at the moment and absolutely paramount for those working in construction and isn’t helped when customers can easily default without consequence.

“This new partnership with Travis Perkins is designed to help those in the industry to obtain adequate legal protection and minimise risk of disruption to the business for an affordable price,” says Dixon.

Contact us if you’d like to know more or browse our construction documents.

New December Regulation Surprise for Small Businesses

Costly legal fees are history with new virtual service for Construction Industry

The construction industry is waving goodbye to expensive legal fees thanks to a new partnership that delivers professionally drafted legal documents online for a fraction of the price found on the High Street.

The new partnership between Travis Perkins and ContractStore.com brings a range of low-cost specialist contracts for the construction industry, including Terms & Conditions, Collateral Warranties, and contracts for Supply of Works and Services.

A Start-Up Pack for Builders is also available, with the key document templates for running a construction business. Although written by expert lawyers, these documents come without the hefty High Street price tag, providing large organisations through to self employed contractors with the opportunity to be legally protected as they prepare for the upturn.

With a recent survey by Close Invoice Finance revealing that almost a quarter of SMEs in the South East have to wait for payment over 31 days after the agreed terms, Giles Dixon, founder of ContractStore.com believes that many in the construction industry, particularly self-employed contractors and smaller outfits, could be exposing themselves to bad debt and crippling cash flow issues in 2010 by failing to have adequate contracts and terms in place.

The recession may be over but it will be some time before we start to see improvements in day to day business. Stabilising cash flow is a huge issue for most businesses at the moment and absolutely paramount for those working in construction and isn’t helped when customers can easily default without consequence. This new partnership with Travis Perkins is designed to help those in the industry to obtain adequate legal protection and minimise risk of disruption to the business for an affordable price,” says Dixon.

Firms can save even more money too, as if documents are ordered via www.contractstore.com/travisperkins, a further 15% discount will be added.