Dilapidations at end of lease

Dilapidations are the costs to the tenant of putting a property back into repair, including reinstating tenant’s alterations, at the end of a lease. There appears to be an increase in disagreements between landlords and tenants about dilapidations. This is believed to be linked to leases generally becoming shorter in term, in which case any degradation to the property during the currency of the lease is harder to justify.

In almost all cases a commercial tenant will have an obligation in its lease to return the leased property to the landlord in the condition and standard of repair dictated by the lease during its term and on expiry. If you are tenant looking to vacate the property at the end of a lease’s term, here are five key points:

  1. Check the lease and the lease plan so you understand what actually comprises the leased property. Cross-check the way the property is described in words in the lease. Where you are leasing the entire building there may not be so much of an issue. However, in a multi level or multi-let environment, it pays to be clear.

  2. Take a look at your lease to see whether your liability is linked to a “schedule of condition” or inventory of some kind agreed at the commencement of the term. This is potentially a list or may also be or include images. It should provide the information you need on the minimum standard of repair to which the property should be returned.

  3. Generally speaking, the obligation to repair means remedying any defects in the property by renewing or replacing parts of it.  It does not require the tenant to make improvements or renew or replacing the whole of the property. It should be noted that the contractual requirement to “to keep in repair” imposes an obligation on the tenant to “put” the property into repair. In reality this may mean putting the property in a better state it was in compared to when the tenancy commenced.

  4. At the end of the term it is possible that a landlord may make a claim for damages for dilapidations after the property is returned to it. If the landlord brings a claim of this nature, the damages may be for the cost of any required rectification works and potentially also for loss of rent while the works are being performed. It is a good idea to keep records of the state the property is left in by taking photographs to provide evidence to deal with any such claim. These may show that works are not required.

  5. Attempt to resolve any potential issues in a reasonable and appropriate period of time before the end of the lease. Contact your landlord so that you can have a reasonable dialogue about it, based on an objective assessment of the property. Where you have doubts, it may pay to consult a solicitor or a property surveyor.

 

Mr. San Chima
san@adamslaw.co.uk

New rules for immigration visitor visas

Taking effect from 24 April 2015, various changes have been made to the visitor visa categories of the UK’s immigration regulations, known as the Immigration Rules. The rules find themselves in the newly coined “Appendix V” of a larger volume of all of the Immigration Rules.

The gist of the changes has been to simplify the visitor category. “Visitor” now acts as a broad rubric for a number of permissible activities, instead of having visitors apply for different visas for each type of activity. This will be of particular interest to people regularly travelling to the UK for work or business purposes.

Some guidance can be gained from the introductory paragraph, which states that a visitor is a person who is coming to the UK, usually for up to six months, for a temporary purpose for example as a tourist, to visit friends or family or to carry out a business activity. It should be noted that visitors as defined are not permitted to study or work in the United Kingdom unless specifically authorised to do so under one of the sections of the Immigration Rules.

Part V1 sets out the differences between visa nationals and non-visa nationals and the permission required to enter the United Kingdom. It describes how the fifteen previous visitor types have been replaced by four new simplified categories. As it happens, the majority of the categories have actually become subcategories of the new visitor (standard) category. Part V1 contains guidance and notes on multiple entry. There have been no changes in the maximum permitted length of stay for a visitor coming to the United Kingdom.

Visitors cannot study or work in the UK unless specifically permitted to do so by the Immigration Rules. As the rules now stand, there are four new visitor categories, refined down from fifteen previously. These are:

  1. Visitor (standard);
  2. Visitor for marriage or civil partnership;
  3. Visitor for permitted paid engagements; and
  4. Transit visitor.

Under the visitor (standard) category it is now permissible for all visitors to perform permitted activities which were not originally required to be declared on the visa application for the visit. The complete list of permissible activities is located towards the end of Appendix V. The list of permitted activities now includes for example Employees of a non-UK company delivering global training to staff of a multinational corporation based in the United Kingdom. Notably, Employers may be asked to provide undertakings requiring them to accommodate and maintain their “visitor” for the duration of the visitor’s stay.

In essence there has been a reorganisation and update of the former Appendix 1, which has been removed from the rules. Visitors Appendix 2 to the Immigration Rules for visitors outlines the visa national countries, listing the exceptions for nationals of particular countries and updating some country names to reflect any new status. Some aspects which have been deemed not to be visitor related have been shifted to a different part of the rules.

 

Mr. Sanjeev Bakhshi
sanjeev@adamslaw.co.uk

Recent employment case confirms commission to be include in holiday pay

In a recent decision The Employment Tribunal has determined that UK law should be construed to include commission in the calculation of entitlement to holiday pay.

The claimant Mr Lock was a salesperson for British Gas. He received a relatively low rate of basic pay, on top of which he received commission for successful sales to customers who signed up to be supplied by British Gas. The essence of Mr Lock’s contention was that while he took holiday leave, he was not in a position to generate commission. He contended that the calculation of his holiday pay ought to have taken into account what he would have earned from commission during the time he was taking a holiday.

When the proceedings were initially started in 2010, the Employment Tribunal referred to the matter to the Court of Justice of the European Union (the “CJEU”) the question of whether the United Kingdom ought to take commission into account in the legislation setting out how holiday pay is calculated.

The CJEU ruled on the issue in 2014. It determined that, under applicable European law, an employer should take into account commission when calculating holiday pay. In reaching this decision the CJEU did not provide additional guidance on how this was to be achieved. With regards to this aspect, it remitted the case back to the Employment Tribunal.

It appears that the Employment Tribunal will determine this issue in a number of steps. It has published one judgment and intends to issue a second judgment which will explain the appropriate period for calculating commission and what remuneration is actually owing to the claimant.

The first, recently delivered judgment, is principally concerned with whether the Court should construe the Working Time Regulations (“WTR”) in a certain way to be consistent with relevant European law. The tribunal found that it was able to construe the WTR to include commission. In reaching this conclusion it took a similar approach to a recent, similar case, Bear Scotland, which concerned the treatment of overtime in the calculation of holiday pay.

In this particular case, the tribunal determined that the claimant’s holiday remuneration ought to be calculated according to his normal working hours at his average actual hourly rate of pay (including commission), instead of basic pay only.

The tribunal therefore adopted a submission from Counsel as to what should be inserted into the regulations so that they would be construed consistently with the relevant EU law.

In a sense this is an unremarkable decision because it simply does what was required by the CJEU decision. The more interesting part of the decision will probably be the second part which should deal with the practicalities of implementing the principal established in the first decision.

It certainly is the case that there are many practicalities to be worked through. These include:

  • How work with irregular hours, such as shift work might require a different calculation;
  • How different commission schemes should be treated, for example, where there are targets which already take into account the fact that the employee will be on holiday for part of the relevant period;
  • How bonuses might be treated. This may require a clear distinction to be made between a commission and bonus, which may be a difficult issue of principle.

Generally speaking, employers would be well-advised to include commission in the calculation of holiday pay, unless it is clearly the case that it is already taken into account by compensating for time taken for holidays. However, as illustrated above there are still some issues to be worked through regarding what should actually be happening in practice. Employers would be well-advised therefore to check their practices following delivery of the second Lock decision.

There is a clear case for arguing that the commission scheme already compensates for holidays.  That said, there is still room for much debate over the precise calculation method and its implementation in practice.

 

Mr. James Smith
jsmith@adamslaw.co.uk

New pension rules for those aged over 55

From 6 April, new pension rules will give people over 55 more freedom regarding how they access their pension savings. Specifically, people over 55 will have the ability to draw an income from their fund at any time they want, or “cash-in” their entire fund.

This new power applies only to Defined Contribution schemes. These include both occupational and person pension schemes. If a person has a final salary pension, they will need to transfer their pension to a DV arrangement to take advantage of these changes. Notably this kind of transfer is not available to members of any unfunded public sector schemes such as the NHS Pension scheme.

The Government has acknowledged that the person on the street has very little comprehension of pensions. It has created the “Pension Wise” service which will be provided through the Citizens Advice Bureau and made available via the Pension Wise website. Its services are provided free of charge to members of the public. It provides general guidance only and not detailed advice on a person’s specific situation. Some have questioned the utility of a service of this kind, but it is better than nothing and should at least create general awareness.

These new rules have followed the roll out of automatic enrolment which has seen over five million working people enrolled in a workplace pension scheme. It seems probable that this new approach to accessing a pension from 55 will increase interest and awareness in retirement savings.

These changes may have consequences for the workplace. Some working people may wish to cash in their pensions once they reach 55 to pay down debt or improve their living standards. This may leave little or no money in the fund for their eventual retirement. This may result in these people having to working beyond usual retirement age. This can create an issue for employers.

On the same theme, workers with better rates of saving may look to draw down their pension to permit partial retirement, off the back of which they may request flexible working. This also introduces issues for employers who may be obliged to consider and then accommodate such a request.

An employer should consider how it communicates information about the change. It should also give thought to whether it will be offered via the employer’s existing workplace pension arrangements to workers.

An employer would be best placed to refer workers to Pension Wise in the first instance. However, as noted earlier, it only provides very general guidance. Time will tell what the issues prove to be, but at the very least employers should prepare themselves for potential flexible working requests from staff around the relevant age.

 

Mr. Antony Marquis
amarquis@adamslaw.co.uk

Protecting your online identity: four tools to protect yourself

We live in the future, and the benefits are legion. Technology such as social media (Facebook, Twitter, Linkedin, Instagram and so on) coupled with mobile communications technology creates a multitude of opportunities to interact positively with a global audience. What is good about it can also be its chief negative. Social media’s potential anonymity, coupled with a desire to harm someone, can be damaging, particularly to a person’s reputation. Harmful behaviour includes blackmail and harassment. The wrongdoer in this instance is likely attempt to cover their tracks by using, amongst other things, a proxy server, fake accounts/ email addresses and disposable hardware such as an unregistered mobile phone. Reputational damage is a key concern because the impact can be immediate whereas mitigating the damage (and removing instances of the offending information) may be a costly and time-consuming process.

An easy recent example is the recent high profile hacking of celebrities’ “cloud” accounts, resulting in dissemination of intimate images that were intended to be kept private. Anonymity is the central concept, both from the point of view of the hacker, anyone hosting the images and, generally speaking the people who choose to look at them. In entertainment, an affect person may feel that there is no such thing as bad publicity. The considerations are of course different for a business, for which bad publicity is just that; bad publicity.

For a person or business to protect themselves against these kinds of threats is a truly modern problem. One might say there are three aspects to the issue; keeping important information private, what to do when there the information has been compromised and finally what if anything should be done to investigate any such compromise. Here are some things to think about:

1. Safeguard important information:
Whether you are an individual or a business, have a policy on information security, and consciously implement it. This does not have to cost the earth, and there are a number of readily available, cost-effective tools, including encryption (such as Windows Bitlocker) or “two step authentication” (via a free mobile app such as Google Authenticator). Two step authentication requires the user to enter a code which changes every thirty seconds when he or she logs into an account from a new device for the first time. Popular information and document management systems such as Dropbox and Evernote offer two step authentication using Google Authenticator.

2. Don’t just curate your public profile – actively protect it!
If you have an internet profile of some kind (via Linkedin, or otherwise) then actively protect it. It is your public message to the world. Ensure to that everything that it published through this channel is professional and “on-message.” This may be less of a concern for an individual. For businesses, managers and owners should consider the extent to which it is appropriate to require employees to reflect their professional personas via social media. This may include a policy on how the company is described on Linkedin, for example (including the use of any brands or logos, etc) and having a policy on making personal statements where there is an apparent link to the company.

3. Be ready for the worst
Consider in advance how you or your business would react if it was subject to hacking or a sustained attack on your reputation. What would you do if you were locked out of key accounts, or negative information circulated on the internet gained public attention? Have a policy which considers your internal response (resetting passwords, communicating with any websites involved) and an external one, which may include having a pre-existing relationship with a public relations/ communications firm, and a law firm.

Fight back!
A properly conducted forensic examination coupled with a legal strategy can yield surprisingly effective results. This may involve communicating constructively with internet service providers and social media hosts, together with judicious use of Court applications to require people or organisation to provide information or documents. This can sometimes create a trail which leads to the detection of the wrongdoer.

 

Mr. Sebastian Szulkowski
Sebastian@adamslaw.co.uk

Key concepts in Islamic Finance

In global terms, the Islamic financial services market is estimated to be worth around one trillion dollars (US). The potential for future growth means that investors are looking for further opportunities presented by Shari’a compliant financial products and services.

Islamic principles are known as Shari’a. They are based on a number of sources including the Holy Qu’ran and Sunna, the living tradition of the Prophet Mohammed. Over time, Islamic financial structures have been developed in line with Shari’a. These are some of the key concepts:

Riba (interest)
Shari’a holds that money has no value itself, which is to say it holds no intrinsic value. It only facilitates an exchange of things that do have value. The payment and receipt of interest (riba) under Islamic law is prohibited and any obligation to pay interest is considered to be void. Shari’a stipulates that any return to a financier be earned by way of profit.

Maisir (speculation)

According to Shari’a, any contract that involves speculation is void. This does not forbid the general commercial uncertainty which is a facet of most commercial transactions. Instead, Shari’a forbids speculation which is in the nature of gambling. The question is whether something arises from productive effort or force rather than chance. In commerce, the distinction may often be a fine one. Each transaction will need to be considered on its own merits.

Uncertainty (gharrar)
Shari’a is concerned with any fundamental aspect of a contract which is not agreed with sufficient certainty. This will render is void. Fundamental terms are the usual suspects of subject matter, time for delivery, or price. The English legal approach of ascertaining whether there is some kind of machinery by which the uncertainty can be cured is not taken.

Another relevant aspect is that Shari’a does not permit uncertainty in the subject matter of a contract. A insurance arrangement in its standard form is prohited on the basis of, amongst other factors, uncertainty (gharrar) as to whether the relevant insured event will happen or not.

Unjust enrichment
A contract where one party is deemed to have made an unjust gain at the expense of another is also considered to be void. It is not always clear what may amount to unjust enrichment of this kind and each transaction must be considered individually. The principle of unjust enrichment includes undue influence by one party over another.

To comply with Shari’a law a number of financing techniques have been developed. These include:

Murabaha (cost plus financing)
This is evident in trade financing contracts. The financier will purchase the asset from the supplier (either directly or indirectly via an agent) and will then on-sell the asset to the client at an agreed marked-up price. The financier may hold title to the asset for only a short period. The profit generated by the financier is nonetheless thought of as a profit derived from a sale of goods transaction. It is not therefore prohibited as interest paid on monies lent (riba).

Ijara (lease)
This may be thought of as a medium between a conventional operating and finance lease.

Rental payments under an ijara will reflect an agreed profit element and comparisons with rentals on conventional leases can be made easily. Different a finance lease contract, obligations such as insurance or undertaking maintenance to the leased asset remain with the lessor. The lessee will only remain responsible for the payment of rent for as long as the asset is being used. If the lessee is no longer able to use the asset – if it is destroyed, for example – then the obligation to pay rent will end.

 

Mr. Ruhel Alom
ruhel@adamslaw.co.uk

Involved in civil litigation? Fail to mediate at your peril

In the case of PGF II SA v OMFS Company 1 Limited [2013] EWCA Civ 1288, Lord Justice Briggs found the dispute “eminently suited to mediation”. Claimant PGF’s offer to mediate was not taken up by the defendant, which Briggs LJ determined was an “unreasonable refusal” to mediate, requiring a costs sanction. The case now stands for the proposition that or a failure to respond to an offer to mediate may expose a litigant, including a successful one, to a potential costs order.

Some commentators say that judicial attitudes in general are changing, as lawyers coming to the bench now will have had more exposure to mediation in their own practice. It is also said that in certain kinds of civil litigation, particularly commercial litigation, mediation is now almost obligatory. Consider the recent case of Northrop Grumman Mission Systems Europe Ltd v BAE Systems (AI Diriyah C4I) Ltd (No 2) [2014] EWHC 3148 (TCC) where Mr Justice Ramsey held that it was unreasonable for BAE, the successful party, to refuse to mediate. On the facts of the case, this did not result in BAE paying costs, but arguably it lost the potential benefit of an earlier settlement offer on costs, so there was a sanction of some kind.

There are trends in mediation practice which may make it increasingly attractive to potential participants. One of them is flexibility which may involve adapting or inventing the process to be used for a particular dispute. This may permit more time to be spent on others, which stands in contrast to a trial where all allegations must be proved an in a sense enjoy equal airtime. This may also lead to costs-savings, permitting parties to be robust and pragmatic when it is to their mutual advantage.

There is a growing realisation that mediation can be successful by recreating the atmosphere of a settlement on the steps of the Courthouse. These circumstances are not so much trepidation about the judge and the slings and arrows of a trial so much as a gathering together of key stakeholders who have been briefed on the risks of litigation and have the requisite authority to make decisions.

Cutting against the characterisation of mediation as being increasingly part of the ‘litigation’ process, is a structure that can remove some of the heat of the disagreement at the start. Stephen King of Payne Hicks Beach explains: ‘I have noticed an increased use of dispensing with a joint opening session, in circumstances where emotions run high and where clashes can stoke up the fire rather than lead towards a resolution.’ It is a practice noted by others.

As with anything, mediation is in a state of on-going evolution. Some have noted a rise in evaluative mediation; where the mediator offers a view on the arguments. The Manchester Technology and Construction Court’s offer a judicial mediation pilot project, where judges act as mediators. They tend to be more evaluative in their style. There are some indications of success in the pilot.

The Courts are moving closer and closer to compulsory mediation. Where an offer to mediate is made, it must be taken seriously. Where there is a refusal and the issue of costs is raised consequently, it will be necessary to show cogent reasons why the refusal was justified.

 

Mr. Antony Marquis
amarquis@adamslaw.co.uk

Is your pension available to creditors?

The English High Court has ruled that a trustee in bankruptcy should not be permitted to have access to a bankrupt person’s pension scheme savings to discharge debts before the pension becomes payable.

The Court has ruled that the Insolvency Act 1986 does not give the Court the ability to issue an “Income Protection Order” (“IPO”) against a pension for which payments had not yet begun. This ruling was out of line with an earlier decision, so the issue may not be regarded as settlement until it is considered by the Court of Appeal.

Pension providers will most likely believe the decision was the correct one to make in the circumstances. The general effect of the legislation is to protect pension money from a trustee in bankruptcy unless the person has already started to receive payments under his or her pension. A 2012 case indicated that a Court could compel a bankrupt member of a pension scheme to exercise an option to begin to be paid a pension not yet accessed. There has been a certain amount of disapproval of this earlier decision.

It is commonplace for savers to have the right to take some benefits from age 55. As a consequence, the trustee in bankruptcy may, potentially, have access to this money. Further, from April this year, scheme participants will have significantly greater freedom to “cash out” their pension.

Under the relevant provision of the legislation, a trustee in bankruptcy may apply to the Court for an IPO to receive income from the bankrupt’s estate for a particular period of time. A Court may make an IPO in respect of any income a bankrupt is entitled to receive, including pension payments.

In the case at hand, the trustee had applied to the Court for an IPO against various pension policies held by the bankrupt. None of them were payable. One had a large sum of money.

In its decision the Court noted that before the earlier decision, HMRC and other government bodies treated pensions that were in payment, and those that were not yet in payment, differently. He attributed this to the fact that once a pension is in payment, the sums payable will be known, whereas before a pension is in payment, the sums to be paid are uncertain. It also can involve a number of elections on the part of the pension holder.

The Court stated:

Mr Henry is not entitled to payment under his pensions ‘merely by asking for payment’. There is a considerable variety of options open to him. It would only be after he had made elections that any payment would be due to him. Only then would he become entitled to any payment. I do not consider that there is any power in the court under section 310 or in the trustee to require Mr Henry to elect in any particular way.

In effect then, the bankrupt’s pension was not “brought forward” to make it available to creditors. Until the Court of Appeal determines the issue, there will be uncertainty about whether this reflects the correct position at law.

 

Mr. San Chima
san@adamslaw.co.uk

Be careful what you wish for: statutory inheritance claims

In 2001, Patricia Wright wrote a letter to her mother, Mary Waters. In the letter, Ms Wright stated that she did not want to stay in touch, and that she wished her mother were dead. Ms Wright did not make any attempts to repair the relationship, and the pair had no contact before Ms Waters died.

Ms Waters did not leave anything to Ms Wright under her will. After Ms Waters’ death, Ms Wright applied to the Court for relief under the Inheritance (Provision for Family and Dependants) Act 1975 (the “Act”) having been left out of the will.

The Act provides a mechanism for a family member or a dependant to make a claim for “reasonable financial provision” from the deceased’s estate. Where the application is made by the offspring of the deceased, this means financial provision for the person’s maintenance. The Act permits the court to take into account a range of considerations when determining whether “reasonable financial provision” was made under the will, and then to balance these various considerations. When performing this exercise, the Court is essentially applying its judgment in a discretionary way.

Ms Wright was an adult claimant with a child and grandchildren. Even though it is the case that an adult claimant does not need to prove special circumstances or breach of a specific obligation by the deceased, generally speaking, the Court does not look favourably on financially independent adult offspring claimants. However, in this particular case Ms Wright was not financially independent. There was evidence she had various medical ailments including heart disease and depression, amongst other things. Usually this is the kind of thing that works in an applicant’s favour.

In terms of exercising the discretion referred to earlier, the judge was entitled to consider Ms Wright’s conduct toward her mother. In particular, the Act required the judge hearing the case to take into account “any other matter, including the conduct of the applicant or any other person, which in the circumstances of the case the court may consider relevant.” This acts as a “catch all” provision which permits the Court to consider the conduct of the applicant.

The judge put emphasis on the claimant’s conduct in writing the letter and stating that her mother was dead; a letter the Court described as extreme. In exercising its discretion the Court determined that this conduct outweighs the other considerations which worked in her favour: her ill-health, her financial circumstances and other factors.

Accordingly, Ms Wright’s statutory claim failed: the Judge concluded that it was reasonable for Ms Waters to have excluded Ms Wright from her will.

Anyone considering a statutory claim under the Act should speak with a solicitor, who can make a preliminary assessment of all relevant matters, including any aspect of the person’s conduct which might be relevant to the exercise of the Court’s discretion in deciding whether to grant relief. It should be noted that behaviour the Court construes negatively may have the effect of reducing the financial provision rather than removing it altogether.

Mr. Richard Dale
rdale@adamslaw.co.uk

Employer note: is being obese a disability? Sometimes, says European Court

The European Union Court of Justice has recently determined that, in certain circumstances, obesity may be regarded a disability in the employment context.

The case in question concerned a Danish overweight childcare worker who instigated a discrimination claim against his employers following his dismissal. The claimant said he was dismissed because of his weight whereas the employer contended it was due to reduced demand for child care services.

The Court ruled that discrimination on the basis of obesity, of itself, was not unlawful. However, where obesity leads to some other condition –depression for example – the employee’s obesity may fall within the concept of disability as the terms is understood in the relevant EU directive.

So, where an individual’s obesity affects that person’s participation in working life by way of reduced mobility, for example, preventing that person from carrying out their duties or causing discomfort when engaging in work then the individual may be disabled person for the purposes of the EU directive. Arguably, the real issue is the way the obesity affects the person, rather the fact that the person is obese.

This decision does not alter UK law in respect of the issue as to whether someone is disabled for the purposes of the Equality Act 2010, the relevant local legislation. To satisfy the requirements of disability discrimination legislation a person still needs to be able to prove that he or she has a physical or mental impairment which has a material adverse impact on his or her ability to perform their everyday duties and which is sufficiently long term (i.e., having lasted or likely to last at least twelve months). In essence, the European Court has determined that obesity itself is not a disability, but instead that its effects can result in a person being disabled for the purposes of the relevant disability discrimination laws. If a person’s obesity results in a specific adverse condition– such as, for example, a problem with mobility, or depression – then the Equality Act 2010 may be triggered, depending on the particular circumstances.

In general terms, employers should appreciate that an employee’s obesity may result in the person being deemed to be disabled for the purposes of the Equality Act. This could enliven the duty to make “reasonable adjustments” for the employee. These could concern issues of access to the work place, seating and other logistical arrangements which relate to the discharge of the employee’s function.

Whether the legislation applies in a particular situation will require careful scrutiny. However, as a matter of generality, it would pay for responsible managers of people to put this issue “on the radar”. Careful managers will think ahead about employees who might potentially attempt to claim they are disabled at some time in the future.

If you have any questions about any of these issues, please contact Adams Law partner Antony Marquis at amarquis@adamslaw.co.uk.