In these tough times for commercial tenants, the right to terminate a lease early by exercising a break clause is extremely valuable if the tenant is wishing to downsize in order to cut costs.

However, it is common for break clauses in commercial leases to be tightly drafted by the landlord’s advisers and they are often conditional upon the tenant having paid all sums due under the lease, there being no subsisting breach of the lease terms, and the tenant giving vacant possession at the break date.

In the case of NYK Logistics (UK) Limited v Ibrend Estates BV, decided last week, the Court of Appeal gave a stark reminder of what is meant by vacant possession. In that case, the tenant, NYK, was carrying out repairs to the property running up to the break date and asked the landlord for confirmation that they could remain in the property for a couple of weeks after the break.

The landlord did not respond to this request, and when the tenant came to hand the keys back after the break date had passed the landlord claimed that the tenant had failed to comply with a condition of the break which was that the tenant must give vacant possession on the break date itself. NYK claimed they were not in occupation on the break date, but were merely carrying out a few outstanding works.
The Court of Appeal decided against NYK, and concluded that at the moment vacant possession is required to be given:

• the property must be empty of people
• the landlord must be able to assume and enjoy immediate and exclusive possession, occupation and control
• the property must be empty of chattels (furniture, moveable plant and machinery and other moveable property and items)

Given NYK had not handed the keys back on the break date itself, they had retained their security guards to control access to the building, and had continued to carry out works to the property past the break date, vacant possession had not been given.  The result is that NYK are now liable for all the rent, business rates and other covenants of the lease up to the end of the contractual lease term.

This serves as a reminder that exercising a break in a lease is often a technical exercise and we would advise all tenants seeking to do so to take legal advice, or they may find themselves in the same position as NYK.

For advice on this, or any other commercial property matter, please contact John Chesworth on 01772 258321.

We’ve seen and heard much in recent days about the rising use of injunctions to ‘gag’ the press, but what exactly are they?

Put simply, an injunction is a court order requiring the person, or people, on the receiving end to refrain from doing certain unlawful acts.

An injunction is usually granted after the unlawful act has been committed.  However, where it can be demonstrated an unlawful act is about to be committed, a court can grant an injunction to prevent it from being committed in the first place.

Injunctions are in the news because they are increasingly being used to prevent the publication of news stories relating to the private lives of public figures. However, they have also been used to ‘gag’ the press from reporting adverse stories regarding companies, most notably Trafigura which in 2009 sought to prevent the Guardian publishing details of a report that it had commissioned into a toxic-dumping incident in Ivory Coast.

The first thing a claimant seeking an injunction must persuade the court is that an unlawful act is about to be committed. Looking at celebrities and their private lives, injunctions are sometimes granted if the claimant can argue a story about to be printed is untrue and will cause damage to their reputation, because publication could amount to defamation.

However, since the Human Rights Act 1998 came into force, celebrities have increasingly been seeking to rely on the right to a private life enshrined in Article 8 as a basis for a ‘gagging order’ to prevent publication of stories about their personal affairs.

When considering whether to grant an injunction, the court has to balance the individual’s right to privacy with the right to freedom of expression contained in Article 10. As a result the courts have been willing to grant such ‘gagging orders’ in cases where they consider that the publishing of the story is not within the public interest.

In England and Wales judges are responsible for carrying out the balancing act between the right to privacy of the individual and the freedom of the press on a case-by-case basis, and this can lead to uncertain outcomes and is extremely costly. The cost of obtaining a super injunction, estimated to be in the region of £30,000 for the first application to court, means only wealthy individuals can apply for such injunctions and can, in effect, buy their privacy, whereas less wealthy people are not able to pay to enforce their right to privacy.

For these reasons, many commentators have called for parliament to look at whether a UK privacy law should be enacted so there is some clarity as to the circumstances under which the press should be prevented from publishing a story.

In the commercial world, the publication of confidential information could amount to a breach of contract or other duty owed between an individual and a corporate entity. If such an obligation were about to be breached by publication, such publication could be restrained by an injunction if the court thought it just to do so.

So what makes a super injunction, super? The term super injunction is a tag that has been given by the media to injunctions where part of the order prevents publication of the details of the case itself or even that the injunction has been made at all. The Guardian estimates that in the last 18 months 20 super inunctions have been granted, but this is a guess based on information leaked to them, as no one can be certain how many have been granted. One such injunction we do know has been granted was in favour of Andrew Marr, the BBC journalist, who has now decided to waive the privacy afforded to him under pressure from other journalists such as Private Eye’s Ian Hislop, who argue the use of super injunctions is curtailing the press freedom that journalists are trying to protect.

For the time being super injunctions are here to stay, and will no doubt be continued to be used in privacy cases until parliament enacts specific legislation to cover when it will be lawful to curb the freedom of the press.

If you would like advice on this, or any other legal issue, call Harrison Drury Solicitors on 01772 258321.

But the legal community has paid closer scrutiny this week to a case in the European Court of Human Rights (ECHR) involving the supermodel which threatens to change radically the way litigation is funded in the UK.

Lawyers representing Mirror Group Newspapers successfully overturned an earlier ruling which had required MGN to pick up the lawyers’ success fee element in Ms Campbell’s £1million ‘no win, no fee’ legal bill.

In the earlier case, The Daily Mirror was ordered to pay £3,500 compensation to Miss Campbell for publishing “offensive and distressing” pictures of her back in 2001. But it also had to pay her costs, which included ‘success fees’ of more than £365,000 agreed by the model with her lawyers.

Success fees became recoverable following the introduction of conditional fee arrangements, commonly known as ‘no win, no fee’ agreements. The rules provide that a successful claimant can recover from the defendant the success fee payable to their lawyer under the ‘no win, no fee’ agreement. This often means legal costs payable by the defendant are many times greater than the actual compensation payable.

Though judges upheld Campbell’s claim for breach of her right to respect for her private life, the ECHR ruled that the £365,000 success fees were “disproportionate” and went against the newspaper’s right to freedom of expression.

The reason this case is so important is because of a recent report by Lord Justice Jackson into civil justice costs, in which he recommended success fees should be restricted to a maximum 25 per cent of the damages awarded to the claimant. Lord Justice Jackson also recommends that success fees should no longer be payable by the defendant, but paid from the claimant’s own compensation.

Indeed, in the Campbell case, the judges said the Ministry of Justice had already acknowledged the costs burden had become excessive and that “the balance had swung too far in favour of claimants and against the interests of defendants, particularly in defamation and privacy cases”.

The ruling in the Campbell case will put pressure on the Government to accept Lord Justice Jackson’s proposals, not only relating to privacy and defamation cases, but across the whole spectrum of civil disputes, and we may well be seeing a radical change to the way Civil Justice is funded during 2011.

In HD is the Harrison Drury enewsletter – welcome to our first edition. The aim of our regular bulletin is not to bore you with legal jargon, but to provide some helpful information and advice on business issues, some background information on our services and details of how we have delivered results for clients – which is what we are all about.

While the origins of Harrison Drury date back to 1901 the past three years has seen the firm undergo a huge transformation. Our aim is to be a diverse, high quality provider of legal services to businesses as well as offering a discreet private client service.

As part of our transformation, as many of you already know, we have strengthened the team across all areas and our commercial team is now a genuine full legal service provider to businesses. As such, we have brought to the firm Roger Spence to head up our new employment law division, Owen McKenna as commercial property partner, Andrew Bartlett who heads up our Garstang office, and recently David Filmer, our company and commercial solicitor. They are high quality additions who represent our mission to provide clients with the best lawyers in the region without having to go to the biggest law firms.

Two of our new additions cover important legal issues in this edition. Roger Spence talks about our new HR Compass service while David Filmer looks at what businesses can learn from the recent Liverpool FC takeover battle.

Both issues highlight the need to have the right protection and agreements in place to prevent legal issues becoming disruptive problems for your business. As we are still in the depths of the economic downturn, we have seen gaps in terms and conditions, policies, procedures and agreements get ruthlessly exposed, often to the detriment of our clients’ business and in many cases their personal lives.

So why not take advantage of our free review of employment contracts and handbooks, and terms and conditions. David and his team also offer a free review of shareholder agreements.

I hope you find our bulletin useful and please contact any one of our team if you need any help or information.

Best wishes.

In HD news articles:
Welcome to our enewsletter, In HD, issue one
Remove the burden and risk of employment claims
Case study: contract guards against unfair competition
Don’t let boardroom disputes become a turf war
Delivering results: testimonial

The Preston salon, called Bonce, started trading in 2007 – a year before its namesake in Birmingham was launched. However, the Midlands salon had trademarked the name, whereas the Preston hairdresser had no legal protection.

As a result, the Preston salon had to spend £1,000 on new signs and price lists – not to mention concerns that clients may have thought the salon was in the hands of a new owner.

How to stop your hard-earned reputation from dissolving overnight

This case vividly illustrates the importance of trademarking your brand – a quick, straightforward and inexpensive process, whether you are a sole trader or a larger company.

For £750 you can obtain legal protection, which is considerably cheaper than having to change the name of your business.

This can be extremely damaging, particularly if you have built up goodwill around your brand over a number of years. In addition, you must take into account potential legal costs, disruption to trade, and the significant amount of management time spent on developing a fresh brand.

Of course, the Preston salon could have taken the case to court, but there was no guarantee of success and the legal costs could have been ruinous. In contrast, bringing a legal case based upon infringement of a registered trademark is a far simpler and more economic exercise…

One easy step to full trademark protection

As proactive commercial lawyers, we take you through the entire trademarking process. This involves an initial search of the register to make sure the identity can be used in your sector. Next, the trademark is published by the Intellectual Property Office and there is a period during which any objections can be made. Typically, the whole procedure takes around three months.

How trademarking pays for itself

This means that if someone claims you are trying to pass yourself off as them, you have a strong defence if your trademark was registered before they began trading with a similar name or brand. Conversely, if you discover someone else is passing their business off as yours, you have an immediate legal solution. It should be kept in mind, though, that you cannot trademark family names or general descriptive terms, for example Hairdressers R Us.

If you require advice on trademarks please contact John Chesworth on tel:01772 208070 email: john.chesworth@harrison-drury.com

Welcome to our enewsletter, In HD, issue one

Remove the burden and risk of employment claims

Case study: contract guards against unfair competition

Don’t let boardroom disputes become a turf war

Delivering results: testimonial

By John Chesworth, managing partner and head of commercial property, Harrison Drury Solicitors

If the noises are right, planning permission for the Tithebarn scheme will be granted. However, this does not necessarily spell the end for the challenges from neighbouring councils.

Potential appeal

There will be a six week period from the date the planning permission is granted within which aggrieved parties can challenge the decision. An aggrieved party is someone who has a real and genuine interest in seeking to overturn the decision as opposed to what the courts describe as a mere busybody. In the case of Tithebarn it would be difficult to argue that no council had the right to bring a challenge, but they will have some steep hurdles to overcome if that challenge is to be successful.

Once the six week period has passed, the planning permission will be safe. If an application for statutory review is made, then it could be months before it is finally dealt with by the courts.

Given the hostility of the neighbouring councils towards Tithebarn, a statutory review it is certainly not out of the question.

Site assembly

Once the planning issues are settled, there remain a number of matters for the Tithebarn team to deal with, the main one being site assembly. A number of plots of land within the scheme are already owned by Preston City Council or the development consortium itself. However, there will need to be a large scale compulsory purchase of other plots of land.

The first step in this process will be the making of a compulsory purchase order (CPO), and there will be a further public inquiry before that is confirmed by the Secretary of State.

This process will take at least six to twelve months and the only people allowed to object to the making of the order will be people directly affected, being those who will have to sell their property and/or businesses to the Tithebarn scheme as a result of the CPO. Once the CPO is confirmed by the Government, the Tithebarn team then have the right to acquire land and will do so by serving notices on those affected as and when it is needed for the development.

If the compulsory purchase goes ahead, it is likely to be done in stages, with the first properties to be acquired being in areas where building work will first commence. At present this is likely to be around the site of the proposed new bus station in the vicinity of Manchester Road. In my opinion, these first compulsory purchases will start sometime in 2012.

The Tithebarn team have estimated a build time of four years, meaning that the development will be up and running in 2017/2018 if construction starts in 2013.

Funding

All of the above assumes that the Tithebarn team have the finance available to fund the project.  I very much doubt that the CPO process will commence before funding is guaranteed, as money will be needed to acquire the site in the first instance. Perhaps the main battle for the Tithebarn team will be funding.

In these times of austerity, one hopes that the financial markets can look at the project with a long term perspective. In 2018 we will surely be out of the present financial crisis and demand for the shops, restaurants and leisure facilities that are proposed in the scheme should be there in abundance.

Those who selected Preston as the location for the proposed development did so for sound reasons which have not become bad overnight.

As a proud Prestonian, I am buoyed by the news have been granted planning permission. But there is a long we to go before we pop open the corks.

1. It’s the law 

A tenancy for a period of three years or over has to be made by deed, so if you have verbally agreed a five year term, the tenant could potentially walk liability free at any time if you have not entered into a formal lease made by deed. 

2. Protection  

If you want to ensure you are able to get the property back from the tenant at the end of the lease term it is essential you have a written lease. If the lease is a periodic lease, that is, it runs from month to month or year to year, or is for a fixed term of over 12 months, it will be protected by the provisions of the Landlord and Tenant Act 1954.  

This protection restricts the rights of the landlord to get the property back at the end of the lease term, and also allows the tenant to apply for a new lease which the landlord can only object to on specific grounds. The landlord and tenant can agree that this protection does not apply, but they must follow a procedure which requires there to be a lease in writing. 

3. Insurance, Repairs and decoration

In most commercial leases the obligation to insure, repair and redecorate is placed upon the tenant. The extent of the obligation is up for negotiation, but at the very least a tenant should be made liable to pay for the buildings insurance on the property, keep the property in at least as good a state as it was at the start of the lease, making good any damage including that through wear and tear, and to decorate the property before handing it back. This will make it much easier for you when seeking to re-let the property, and if the tenant has failed to comply with its repairing and redecorating obligations at the end of the lease term, you can claim against the tenant for the loss suffered, which is usually the cost of carrying out the repairs and decoration.

 If there is no written lease the tenant has no obligation to contribute towards insurance or do anything to the premises, other than to avoid deliberate damage.  In this situation you will be out of pocket for the insurance premium and may find yourself with a steep clean up and decorating bill before you can re-let.

4. Use 

The only way you can restrict what the tenant does in your property is to have limitations in your written lease regarding what the tenant can an cannot do on the property.  This can prevent the tenant doing something on the property which may be a nuisance to you or your other tenants, and could depress rental values on your other properties or stigmatise the property they are occupying.

5. Termination 

A properly drafted commercial lease will have a provision that the landlord can get his property back if the rent is a specified number of days late, usually somewhere between 7 and 28 days. It also should state that where there has been any other breach of the lease terms, or the tenant has become insolvent, the landlord has a right to terminate the lease. This powerful remedy is known as the forfeiture clause, and only exists if it has been properly agreed, and it will be difficult to argue it has been agreed unless it is contained within a written lease.

If there is no forfeiture provision, the landlord would have to go to court and argue that there has been a fundamental breach of contract entitling the landlord to break the tenancy, but this is by no means certain to succeed.  An express forfeiture provision is essential to the proper management of commercial property.

The above are clear illustrations of the need to have a properly drafted commercial lease.  The cost of getting the lease properly drafted will be saved many times over if there is a dispute with the tenant, and in relation to costs, the lease usually provides that the tenant should be responsible for the landlord’s management costs associated with the property itself.

With many businesses struggling at present it is not uncommon for rents to go unpaid giving landlords the right to terminate the lease by re-entry.  Unless there is a cue of tenants waiting to fill the vacant property some landlords take the view that it is better to give the tenant some breathing space and assist their recovery by taking a flexible approach to the recovery of arrears.  At the very least this avoids a potential business rates liability for the landlord.

For landlords who want to evict tenants with a poor payment record, the power of forfeiture for non-payment of rent is a weapon that is generally available to them and depending on the terms of the specific lease will allow a landlord to change the locks to the tenanted property if rent is anywhere between 7 – 28 days overdue.   However, landlords who think that they have got rid of the tenant for good once they have retaken possession need to think again.

Forfeiture for non-payment of rent is viewed by the law as a method by which the landlord can ensure he gets his rent paid.  Therefore, if the tenant can come up with the payment of the arrears, and the costs the landlord has incurred in the eviction, they will usually be allowed back into the property if they act quickly.  This procedure available to tenants who have had their leases terminated is known as relief from forfeiture.

So, the good news for tenants who have been evicted and have the money available to pay the arrears plus costs, is that the law can help you get back into your property even if the landlord doesn’t want you back.   The lesson for landlords is to remember that the quick fix of forfeiture by re-entry does not necessarily mean you can wave good bye to your tenant for good.

A national estate agent, Foxtons, has received a severe reprimand in a High Court ruling that gives some welcome good news to residential landlords.   This ruling may effect many buy to let landlords who are considering selling to their existing tenants, or are simply agreeing to continuations of an initial term with the same tenant.

A residential landlord seeking to use Foxtons’ agency services will have fully appreciated that if Foxtons found them a tenant then there would be commission to pay to Foxtons for putting together that initial deal.  What the landlord would perhaps not expect, is that if, without any further input from Foxtons, the tenant stayed on after the initial period of the tenancy, or the tenant ultimately bought the property from the landlord, Foxtons would be entitled to further commission.  However, this is exactly what Foxtons’ standard terms of business allowed them to do, including charging 2.5% on a sale of the property to the tenant where they had nothing to do with negotiating the sale.

To residential landlords, and I would say to most independent observers, this does not appear fair.  Enter the Office of Fair Trading, who took the matter to the High Court arguing the above provisions flouted the Unfair Terms in Consumer Contracts Regulations 1999. Mr Justice Mann sitting in the High Court ruled that the offending provisions in Foxtons’ terms of business, were not in plain language so they could be readily understood by Foxtons’ customers, they were not adequately brought to the attention of landlords when they signed up with Foxtons, and as years went by, they became more and more unfair, as in theory, Foxtons could get a commission for a transaction, such as the sale of the property in which they had played no part, many years after the first residential tenancy.

Accordingly, the terms referred to above were ruled unfair and the Office of Fair Trading will now seek an injunction against Foxtons to prevent them using them in the future, although I would expect that Foxtons will now change those terms unless they are planning to take the case to the Court of Appeal.

So a bit of good news for residential landlords, and it is good to see the law correcting what, to most people, must seem a grossly unfair attempt to obtain commission that Foxtons had done nothing to earn.