Exploring Early Termination Options in English Commercial Leases

Exploring Early Termination Options in English Commercial Leases

Commercial leases are typically long-term agreements, but situations can arise where tenants or landlords need to end the lease prematurely. In English law, there are several options available for early lease termination, but they often come with legal complexities. Let’s delve into some of these options:

  1. Break Clauses: Break clauses are contractual provisions within a lease that allow either the landlord or tenant to terminate the lease on specified dates. They can be fixed or rolling (usually on anniversaries of the lease start). However, they must be exercised strictly in line with the lease terms.
  2. Surrender Agreement: A surrender agreement is a mutual agreement between the landlord and tenant to terminate the lease before its expiry date. This can be a flexible option if both parties agree, but it’s essential to document the terms and conditions of the surrender carefully.
  3. Assignment or Subletting: Tenants may explore the possibility of assigning or subletting the lease to a third party, provided the lease allows it. If a suitable replacement tenant is found, this can be a viable way to exit the lease.
  4. Frustration of the Lease: In exceptional cases, a lease may be considered frustrated due to unforeseen events (e.g., destruction of the property). This can lead to lease termination, but it’s a rare and legally complex scenario.
  5. Rent Deposit Use: If a tenant has a rent deposit, the landlord may agree to use it to cover rent payments in lieu of notice, which can facilitate an early exit.
  6. Lease Re-negotiation: In some cases, landlords and tenants may negotiate a new lease agreement with different terms that facilitate early termination.

It’s crucial to note that lease termination can have financial and legal implications, and the specific method chosen must align with the lease terms and legal requirements. Seeking legal advice and carefully reviewing the lease agreement is essential when considering early lease termination. Each situation is unique, and the appropriate option will depend on individual circumstances and the willingness of both parties to cooperate.

If you have any questions, please contact our property team on 01206 577676 or visit our website.

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Understanding the Responsibilities of a Commercial Landlord in English Law

Understanding the Responsibilities of a Commercial Landlord in English Law

Leasing a commercial property in England comes with a set of legal obligations for landlords. Understanding these responsibilities is vital for both maintaining good landlord-tenant relationships and adhering to English law. Here, we’ll delve into the key responsibilities of a commercial landlord:

  1. Compliance with Lease Terms: Landlords must adhere to the lease agreement, which outlines terms related to rent, repairs, and maintenance. Failure to comply may result in legal consequences.
  2. Property Maintenance: Landlords are responsible for maintaining the property’s structure and common areas. This includes addressing structural issues, ensuring safety compliance, and providing essential services.
  3. Repairs and Upkeep: Landlords must respond promptly to repair requests from tenants, particularly for essential services such as heating, plumbing, and electrical systems.
  4. Health and Safety Compliance: Compliance with health and safety regulations is imperative. This includes fire safety, asbestos management, and building codes.
  5. Insurance and Liability: Landlords must ensure the property is adequately insured. Liability for injuries or damages is a significant concern, and proper insurance coverage is essential.
  6. Rent Collection: Timely rent collection is a fundamental duty. Late payments, arrears, or disputes should be addressed through established procedures.
  7. Evictions and Terminations: In cases of tenant breaches or lease terminations, landlords must follow proper legal procedures and court processes.
  8. Accessibility and Disability Laws: Ensuring the property’s accessibility for individuals with disabilities is mandatory, in accordance with disability discrimination laws.
  9. Compliance with Planning and Use Classes: Landlords must comply with local planning, including Use Classes, which define the property’s allowed usage.
  10. Security: Implementing security measures to safeguard the property and its occupants is crucial, including burglar alarms and secure access.
  11. Tenant Privacy: Respecting tenant privacy is a legal obligation, and access to the property must be arranged with proper notice.
  12. Environmental Responsibilities: Managing environmental issues, waste disposal, and sustainability measures is vital, especially in today’s environmentally conscious world.
  13. Energy Efficiency: Meeting energy efficiency and environmental performance standards is becoming increasingly important, with an obligation to keep the property energy-efficient.

Understanding and fulfilling these responsibilities is not only required by English law but also essential for maintaining a positive landlord-tenant relationship. Failure to meet these obligations can lead to legal disputes and potential financial repercussions. Landlords should seek legal guidance and stay updated on relevant laws and regulations to ensure compliance with their duties.

Please contact our property team on 01206 577676 with any questions. 

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Unlocking Potential – Option Agreements from a Developer’s Perspective

Unlocking Potential – Option Agreements from a Developer’s Perspective

Option agreements are powerful tools in the world of real estate development, providing developers with flexibility, security, and strategic advantages. From a developer’s standpoint, option agreements are invaluable for navigating the complex terrain of property acquisition and development. Let’s delve into the key aspects of option agreements and why they matter.

Firstly, option agreements offer developers the exclusive right to purchase a property a predetermined price / pricing mechanism within a specified timeframe.  This exclusivity minimises competition allowing developer to conduct due diligence and secure financing without the fear of losing the property to other buyers.  An additional key feature of an option agreement is the period during which the developer can assess the property’s potential for development. This due diligence phase gives developers time to submit a planning application and uncover potential challenges or opportunities (such as contaminated land, flooding or issues with road or utility access) of the site. If the initial period is long enough it also gives developers the ability to delay a project until costs come down or the planning environment changes.  It is key that an option agreement allows rather than compels the developer to purchase the land.

Option agreements typically require a nominal fee (paid by the developer to the landowner) on exchange in order to secure the agreement in the first instance. While they are sometimes a significant sum, it can be a cost-effective way for developers to control a property / their commercial position without the hefty upfront costs of a full purchase.

From a strategic standpoint, option agreements allow developers to time their acquisitions to market conditions and project timelines, reducing financial risks. Option agreements also empower developers to navigate the complexities of property development with confidence. They provide exclusivity, due diligence opportunities, cost-efficiency, and strategic advantages that make them an invaluable tool for developers seeking to unlock the full potential of their projects.

For more information or to find out how we can help please visit our property team web page or call us on 01206 577676.

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Contact us on 01206 577676 or you can email [email protected]

Can Directors be held liable for a company’s conduct?

Can Directors be held liable for a company’s conduct?

You may be aware that a company has a separate legal personality from its shareholders and directors. Just like a person, a company can own property, enter into contracts, borrow money, sue and be sued.  But does this mean that directors can never be held liable for their company’s conduct?

The short answer is no.  As we looked at in our last commercial blog, directors of a company are subject to various statutory duties owed to their company under the Companies Act 2006.  If a director breaches his duties, the company may take action against him.  The director may be required to account for profits, return property or pay compensation to the company.   Alternatively, shareholders may by way of resolution ratify or in other words sanction the director’s behaviour meaning that they and therefore the company cannot subsequently take action against him. Because of this, if a director is also a majority shareholder, he might feel that he can breach his duties as director, yet sanction them as shareholder, thus avoiding liability for his actions. This shouldn’t be relied upon.  Share ownership of a company can change affecting the level of control he has, or he may fall out with other shareholders he has previously depended on to vote in his favour. A minority shareholder can also bring what is known as a ‘derivative claim’ against the company for any perceived wrong-doing.

Aside from a breach of directors’ duties, a director may also find himself liable under the terms of a contract. When a director enters into a contract he does so as an agent on behalf of the company. This means the company is a party to and may be sued for breach of contract, not the director.   However, the director must ensure that whomever he is dealing with is aware of this, and correspondence and stationery should indicate the same.  They must also ensure that when entering into third party contracts, that they do not exceed their authority to do so.  A distinction in law is made between a director’s actual and apparent authority. His actual authority is that authorised by the company. His apparent authority is that ostensibly and outwardly shown. If he exceeds his actual authority, but does not exceed his apparent authority, the contract will be binding on the company.  The director will be liable to the company to indemnify them for any loss suffered. If he exceeds his actual and apparent authority, the contract will not be binding on the company. The director will be personally liable to the third party for any loss suffered.

Alongside this the director may be liable for negligent or fraudulent misrepresentation. In the landmark case of Contex Drouzhba Ltd v Wiseman, the defendant director agreed to pay the claimant for a shipment of goods within 30 days, knowing that his company was insolvent and unable to meet this obligation. He had fraudulently misrepresented them and was liable for damages, a decision upheld by the Court of Appeal which stated, “where fraud is committed by a director, his status as director of the company cannot act as a shield from the liability for his own fraud”. 

Directors may also be personally liable if, as is often the case, they give personal guarantees as security for a loan to the company. If the company defaults on that loan, the personal guarantee can be enforced against the director’s own assets. In a worst-case scenario, he may lose his home or be declared bankrupt. What this begins to show is that a director, as agent of a company, cannot hide behind it.  There are various ways, not all them covered here, that a director can find himself personally liable. For further information on directors’ liabilities, please don’t hesitate to contact our Commercial solicitor, David Cammack.  Please call 07909 564799 or e-mail [email protected].

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‘With great power comes great responsibility’ – a directors duties

‘With great power comes great responsibility’ – a directors duties

Directors, or officers of the company as they are otherwise known, are as important as the shareholders of a company, if not more so. They are responsible for the day-to-day management of the company, and collectively make important decisions at board meetings. They will decide for example whether to employ executive staff or enter into a contract with a third party.

But with great power comes great responsibility and, for this reason, a series of statutory duties are imposed on directors by law under the Companies Act 2006. These duties are owed by the directors to the company rather than to the shareholders themselves. Every director needs to be familiar with these duties, so as not to breach them and risk incurring personal liability.

The duties of a director are as follows:

Duty to act within their powers

A director must act in accordance with the company’s constitution, and only exercise powers for the purposes for which they are conferred.  A company’s constitution is widely defined and includes the company’s articles of association. If there are restrictions on how the director must operate contained within a shareholders agreement, the director’s service agreement, the bank mandate, specific board minutes or other company documents, then the director needs to act accordingly.

Whether a director has exercised his powers for the purposes for which they were given is dependent on the facts. A court would decide firstly what was the purpose of the power, and secondly whether the director used the power for that purpose when he exercised it.

Duty to promote the success of the company

A director must act in a way he considers (in good faith and honesty) would be most likely to promote the overall success of the company, including its profitability. A director should take into account the long-term consequences of any decision, the interests of employees, working relationships with customers and suppliers, the impact on the community and the environment, the company’s reputation and the need to act fairly between shareholders.

This is what is known as a subjective test. This means that the court would ask whether the director honestly believed that an action taken by the company would most likely promote the success of the company, rather than whether he should have believed it, or whether the action actually did promote the success of the company.

Duty to exercise independent judgment

A director must act independently in his decision-making. He cannot for example agree with a third party (such as a shareholder, customer or supplier) to vote in a given way at a board meeting.  For the avoidance of doubt, this will not prevent a director from taking professional advice, be it legal or financial, but it is for him to decide whether to act upon it.

Duty to exercise reasonable care, skill and diligence

A director must exercise reasonable care, skill and diligence, at a level that would be exercised by a reasonably diligent person with both (a) the general knowledge, skills and experience that may be reasonably expected and (b) the general knowledge, skills and experience that the director actually has (e.g. if he has a particular area, or high level, of expertise).

What may be reasonably expected of the director is again fact-dependent and will vary based on, for example, the size, sophistication and success of the company.  Only if the director’s actual knowledge, skills and expertise are higher than those reasonably expected, will he be judged to a higher standard. Directors cannot avoid liability for this duty by simply delegating their responsibilities or being inactive.

Duty to avoid conflicts of interest

This is an important duty, and one that we see directors breach most often. A director must avoid a situation in which he has, or could have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company.

This applies to the exploitation of any information, opportunity or property. An example might be if a director had obtained information by virtue of his being a director, and used this information for his own personal advantage, for example by entering into a contract under his own name, rather than that of the company’s; or buying a property when the company might have invested in it instead.  Effectively he is taking advantage of his position to put his interests before those of the company. It is irrelevant if the company first had sight of the business opportunity and for whatever reason declined to act on it.

If a director is in breach of this duty, he will be obliged to account to the company for any profits he makes, unless his actions were authorised by the company (meaning its shareholders, acting by majority).  Some directors have tried to circumvent this duty by resigning from their company before exploiting a business opportunity elsewhere. However, such a director may still be liable if the intention to do this can be shown.

Duty not to accept a benefit from third parties

A director must not accept a benefit from a third party that is given by reason of (a) his being a director, or (b) his doing or not doing anything as a director.  There will be no breach of this duty if the acceptance of the benefit cannot reasonably be regarded as likely to give rise to a conflict of interest, for example normal corporate hospitality.

As a matter of good practice, companies should also ensure that any benefit received does not amount to an offence under the Bribery Act 2010, as it is punishable by an unlimited fine and up to 10 years’ in prison.

Duty to declare their interest in a proposed transaction or arrangement with the company           

A director in any way directly or indirectly interested in a proposed transaction or arrangement with the company must declare the nature and extent of that interest to the other directors.  An example of this would be if the company was seeking to purchase land, which the director owned or co-owned. The company would want the lowest price, whereas the director in his personal capacity would seek the highest. This would clearly give rise to a conflict of interest and become problematic.  A director must therefore declare his interest as soon as possible, either at a board meeting or in writing. There is another similar provision contained in the Companies Act 2006 whereby a director must declare their interest in an existing transaction or arrangement with the company.

So you can see that there are a number of duties and a common theme to some of them is that the director must not take advantage of the company. A sole director who is also the sole shareholder still owes these duties, even if there are no other shareholders who might object to his taking advantage of the company. Even in that context, his duties become more relevant if the company gets into financial difficulty, so in effect he owes some of these duties to its creditors. Our next blog article will look into this area in more detail.

For further information on directors’ duties, please don’t hesitate to contact our commercial solicitor, David Cammack.  Please call 07909 564799 or e-mail [email protected].

For more information

Contact us on 01206 577676 or you can email [email protected]

Enhancing Corporate Transparency: The Economic Crime and Corporate Transparency Bill

Enhancing Corporate Transparency: The Economic Crime and Corporate Transparency Bill

Upcoming changes to Companies House

The Economic Crime and Corporate Transparency Bill, which will come into force in due course, is set to make the ownership of small to medium-sized, limited companies more transparent and improve the accuracy of the company register, as well as tackle economic crime. Companies House has been given a budget of £83 million to implement changes so that it can meet this aim.

Following implementation of the Economic Crime and Corporate Transparency Bill, Companies House will be assigned a far more active role in ensuring that the register consists of reliable data regarding companies and their people. As well as this, Companies House must place focus on upholding the integrity of the register to provide better transparency.

Two of the key problems since the scrapping of the old Annual Return following implementation of the Companies Act 2006 are:

  • the Confirmation Statement, with its bands of percentage ownership, 25%+ to 50%, 50%+ to 75% and 75%+, serve to obscure the underlying ownership more than clarify it, and in the author’s opinion was a big step backwards; and
  • people very often get their Confirmation Statement and PSC filings wrong when declaring what the share ownerships are, something the author has seen frequently. The many PSC forms available also often seem confusing.

For example, shareholdings under 25% are simply not declared, so the public do not know who owns smaller shareholdings. A company with 5 owners who each hold say 20% will not have any PSCs and so the public will be entirely in the dark as to its ownership. The Annual Return stated the complete ownership of all shares in a company and was a superior document that could have simply been built on by a requirement that beneficial ownerships are also declared.

So how is the government correcting these and other errors?

To uphold accuracy and reliability of the register, Companies House will be entrusted to query filings which appear suspicious, even before a company is incorporated. For example, where numerous, repeated applications are made to register a company name but there is already a company with a similar name in the register. If a filing does seem suspicious, Companies House will be able to request further evidence to support the legitimacy of that company or it can reject these applications where justified.

Data sharing will be made available to Companies House, which will enable it to compare the data submitted to it against private and public sectors. These could include law enforcement bodies, government bodies and regulatory bodies. By allowing data-sharing, suspicious filing can be identified more easily, which could lead to a reduction in economic criminal activity.

To further aid the reduction in economic criminal activity, there will be a requirement of identity verification for anyone who sets up, manages or controls a company. This applies to directors, people with significant control (PSCs) and individuals acting on behalf of the company. If identification is not successfully obtained by the end of a set period, this may lead to criminal sanctions, in addition to possible civil penalties.

To increase transparency, companies will need to submit information about their shareholders on a one-off basis to Companies House. However, there will be more extensive rights introduced, so that applications can be made for certain personal information to be suppressed from the public register.

A corporate director will only be retained or appointed following the introduction of the Economic Crime and Corporate Transparency Bill if all directors of their company are individual people who are able to have their identity verified. Therefore, a corporate director cannot itself have a corporate director for their own company. Further, all corporate directors must be UK companies or registered entities – overseas corporate directors will not suffice.

Electronic filing will be implemented using the system iXBRL. Key information, including company accounts, will be easily identifiable, as information will be fully tagged. Small and micro companies must file a full balance sheet, alongside a profit and loss account. Small companies will also need to file a directors’ report with their accounts.

A new register will be created which will contain information regarding overseas entities. The aim is that it will include better information about beneficial owners and necessitate overseas entities to register if they own land. Should there be non-compliance, criminal penalties will follow.

Hopefully, the Economic Crime and Corporate Transparency Bill will transform Companies House, ensuring that that fraudulent activity is more easily identifiable, to allow the register to be as transparent, reliable and accurate as possible.

If you’d like to know more about how this may affect you and your business, please don’t hesitate to contact our commercial solicitor, David Cammack.  Please call 07909 564799 or e-mail [email protected].

For more information

Contact us on 01206 577676 or you can email [email protected]