Insight Article Archives

Understanding leasehold property

Posted on July 30, 2018 - 9:01 am by Penny Dewar

The Government has announced plans to tackle unfair leaseholder arrangements on newbuild properties, but in the meantime, as the housing market gets into full swing, it’s worth understanding the difference between freehold and leasehold property.

Increasing property prices and high population densities have seen a big increase in the number of leasehold properties across the country, as houses are split into flats and new apartment blocks are built, so there are now 1.4 million leasehold houses across England.

While leasehold arrangements are generally seen as a simple route to managing multiple occupancy buildings, over the past twenty years, there has been a big increase in the number of houses being sold by developers on a leasehold basis. These sales have seen ground rents being set at much higher levels than the ‘peppercorn’ arrangements that were typical previously and with scheduled increases. In the worst examples, leases include terms to allow the ground rent to double every ten years.

The new measures announced by the Government will target such practices, including a ban on leaseholds for almost all newbuild houses, and changes will also be made so that ground rents on new long leases – for both houses and flats – are set to zero. The Government says that it will also make it cheaper and easier for existing leaseholders to buy out their freehold, and there will be redress routes for those facing the most onerous terms.

We must wait for the details and timetable for the introduction of these changes, which are anticipated to happen during 2018, but in the meantime, whether buyer or seller, it is worth being prepared by understanding the basis on which a property is being sold. For prospective buyers, knowing the right questions to ask could save a lot of wasted time and resources. For sellers, it can ease a sale if you pre-empt any concerns and know the answers to the questions you may be asked.

What form of ownership?

It’s important to check exactly what form the ownership takes and then ask the right questions.

Freeholds

You will own the property and the land it sits on, but there may be other responsibilities that are not so obvious, such as contributing towards the maintenance of a private shared access road.

Shared freeholds

You will own your personal space in the property and generally a share of the land and the shared spaces. Any maintenance is likely to be subject to agreement between all the freeholders and the cost shared between everyone.

Leaseholds

You will be buying the right to live in the property for the remaining duration of the lease, with the land, the structure of the building and shared spaces owned by the freeholder, who may be an individual landlord or a property management company. They will hold the building insurance and consult with leaseholders about any required works, collecting service charges from each leaseholder to pay for all maintenance and managing such work. The owner of a leasehold property is effectively a tenant in a very long-term rental, having to pay an annual ground rent and ask for consent to make any changes to the property.

It’s a lease, so how long does it have to run?

Leases of between 99 and 999 years are commonly granted, and generally, the value of a property will reduce as the lease gets closer to the end but don’t expect to snap up a bargain if you’re looking for a mortgage as lenders are unlikely to make a loan on a property with anything less than 25 years left to run. If a property has only a short time left on the lease, you can ask the seller to seek an extension and transfer to you the benefit (in a Contract) of a notice served on the landlord seeking a lease extension but expect to pay a premium (to the Landlord) for the benefit following the purchase of the Property pursuant to the relevant statutory procedure.

How much is the ground rent?

Normally ground rent will apply only if it’s a leasehold property. Ground rent can be a fixed charge or one that will change over time, so check out how much is being paid currently, but look through the small print as well to be sure there are no big increases on the way. If any escalation is written in, it should not allow for a rise above the retail price index. Again, if you are seeking a mortgage, a lender will be looking to see affordability not just in the headline purchase price but also in the ongoing costs of ground rent and service charges.

How much are the service charges?

Service charges can strike fear in the hearts of leaseholders, even when they have very deep pockets, as all work is likely to be relative to the size and standing of the overall building. Be quick to ask for evidence of the service charge budget and the accounts for the past three years, and don’t be afraid to ask around about the freeholder. The agent may assure you it’s a big property management company with the right infrastructure, but if research shows they have a poor reputation in getting work done or in the amounts being charged, you’ll be glad you checked.

Are repairs and maintenance up to date?

Look at how well things are maintained as you view the property, and then check it against those service charge accounts you’ve asked for. If everywhere is looking a bit run down, there’s no evidence of regular work being done in the accounts, and there’s very little being held in the pot for future works, you can expect a big bill or an increasingly rundown environment. A survey is just as important when buying a flat as when buying a house. And, importantly, be clear about the proportion you must contribute.

And finally, for the seller, it’s always a good idea to get your ‘house in order’ by tackling paperwork before the sale board goes up. There are forms requiring detailed information about the property itself and one covering all the fixtures and fittings. If it’s a leasehold property, you will have to complete one covering details around the lease, such as the rent, service charges, insurance and future work. By working with your lawyer in advance to prepare all the forms that will be required, you’ll be well prepared to answer all the questions your potential buyer may have for you.

For more information on leasehold properties, speak to John Gillette.

Note: This article is not legal advice; it provides information of general interest about current legal issues.

Voluntary workers

Posted on July 27, 2018 - 1:49 pm by Penny Dewar

A volunteer is anyone who carries out unpaid work for a charity, fundraising body or voluntary organisation. If you hire voluntary workers for your organisation, there are certain things you need to be aware of. If you happen to be a volunteer, it pays to know your rights, too. We’ve outlined some of the legalities to help you both stay on the right side of the law.

Do voluntary workers have a contract?

Although voluntary workers don’t have a contract of employment, most voluntary organisations provide volunteers with a ‘Volunteer Agreement’, which is similar to a job description. Organisations will want to avoid creating legally binding relations with volunteers that could give them worker or employee status. As such, volunteer agreements are generally short and informal in style, often phrased in terms of hopes and expectations rather than obligations. It should set out details of the organisation’s insurance cover, and any health and safety issues.

It should also outline any training you will receive as a volunteer, any expenses that will be covered, the level of support and supervision volunteers can expect to receive in their role, and how any disputes will be resolved. A volunteer agreement is not compulsory, however.

What expenses can volunteers be paid?

Volunteers are excluded from the National Minimum Wage requirements, but they can still be paid expenses such as the cost of travel, meals at work, etc. They may also be offered training, but it’s important to note that offering paid training that is not relevant to their volunteering role could mean they are classed as a worker or employee. Offering other expenses, for example, subsidised or free childcare at times when they are not volunteering, could also mean they will be classed as an employee or worker, rather than as a volunteer.

Expenses should normally be supported by receipts or a reasonable estimate. If volunteers receive any other payment, benefit or reward, they may be classed as a worker or employee and entitled to the national minimum wage. This could also apply if the organisation has promised them paid work in future. Volunteers are still eligible to claim benefits in most cases if they are only being paid expenses such as travel expenses.

What age should you be to volunteer?

There is no upper age limit in place to be a volunteer, but children under the age of 14 cannot work on a paid or voluntary basis for a profit-making organisation without special dispensation. In some cases, insurance companies may have age limits in place which may mean voluntary workers under the age of 16 or over the age of 80 are not covered.

What are your responsibilities as an employer?

There are certain legal responsibilities that you should be aware of if you are a charity or voluntary organisation employing volunteers. Firstly, you have an obligation not to discriminate when determining who to offer paid employment to. This means that you should not take into account volunteer performance when deciding whether or not to offer a voluntary worker a paid job.

Volunteer workers are covered by government health and safety legislation and you have a responsibility to resolve any health and safety issues. Employers must also protect personal data and ensure that consideration has been given to both the personal data of the volunteer and what access (and why) the volunteer may have to personal data held by the organisation generally.

Insurance cover

All organisations employing volunteers must have professional indemnity cover in place. This will cover you if a volunteer becomes injured and makes a claim or if a claim is brought against you because of the actions of a voluntary worker. You should have a specific procedure in place to deal with volunteer grievances or disciplinary issues that may arise.

Bear in mind that even if you only use volunteer workers, you will still need to have compulsory Employer’s Liability Cover by law.

Finally, if your volunteers work with children or vulnerable adults, you may also need to carry out a CRB check to ensure that they are fit to do so.

If you hire voluntary workers, or you are a volunteer talk to employment lawyer Karen Cole today.

Note: This is not legal advice; it provides information of general interest about current legal issues.

Dealing with employee theft

Posted on July 27, 2018 - 9:28 am by Penny Dewar

According to a poll commissioned by office furniture supplier Kit Out My Office, more than two-thirds of UK office workers have admitted to stealing from their employers and colleagues at some time during their careers. With the cost of stolen items averaging at £12.50 and an estimated 15 million workers having confessed to employee theft, the cost to UK employers adds up to £190 million each year. For employers, dealing with employee theft can be a difficult process. What should you do if you suspect one of your workers is stealing from your business?

Suspicion vs facts

Theft of any sort is a serious accusation to make. If, as an employer, you suspect an employee of theft, then obtaining evidence is a crucial part of the procedure. Evidence may prove your suspicions to be wrong, or they may prove them to be right. However, making an accusation of employee theft without substantial proof can leave you open to litigation. Suspicion is one thing. Solid facts are another.

Conducting an investigation

Many employers are unaware that they have a legal right to launch an investigation should they suspect an employee of stealing. The investigation must be seen to be fair and based on evidence alone. It is crucial that any investigation is also reasonable. Should the case reach an Employment Tribunal or result in the employee’s dismissal, the presiding judge will need to see a demonstration of fairness and impartiality.

The first step is to appoint an investigator. This can be someone within the office or, if it is appropriate, an external party. Your company likely has specific policies on tackling issues of this sort. However, if not, the chosen investigator should be briefed on certain aspects of the inquiry, including:

a timeframe in which to conduct the research;
guidelines on their responsibility as an investigator;
how their evidence will be presented;
minimising the investigation’s impact on employees’ morale; and
minimising the investigation’s impact on the day-to-day running of the business.

It is worth remembering that, ultimately, the employer bears full responsibility for the investigation’s manner, fairness and impartiality. CCTV can be an important tool in uncovering the truth of the matter, as can computer records. The chosen investigator should be given access to both.

Following up on the results of the investigation

If the evidence proves the employer’s suspicions to be groundless, then the situation should finish there. Should the employee become aware that they are or have been investigated, the best procedure is complete transparency. If appropriate, you might need to present them with the evidence that presented the grounds for suspicion.

If the investigation provides firm evidence of employee theft, you must decide what to do next. Most companies have protocols and procedures to follow. As a rule of thumb, the next step is to report the findings and present the proof to the company’s legal advisor. Smaller companies, who may not have representatives of this sort, are advised to seek the services of an employment lawyer. It is crucial to take advice at an early stage to ensure the disciplinary procedure is handled properly.

Interviewing the accused

Reporting employment theft to the police is at the employer’s discretion. This can result in criminal proceedings and either a financial fine or, in some cases, a prison sentence. However, most cases of employee theft are dealt with internally, either resulting in disciplinary action or dismissal.

Prior to any action being taken, it is strongly advised that the accused is interviewed. This gives them the opportunity to give their side of the story and is part of the process of fairness and impartiality. The interview should be conducted calmly and reasonably, and evidence supporting the accusations should be presented. Should the theft be proven, the employer should consult a legal advisor once again.

While it might seem a long road to take, riddled with procedure and red tape, ensuring that your investigations follow the appropriate guidelines and advice is as much a protective measure as it is the path to bringing a thief to justice.

Speak to employment lawyer Karen Cole today if you have concerns over theft at work.

Note: This article is not legal advice; it provides information of general interest about current legal issues.

Sign of the times

Posted on May 16, 2018 - 9:34 am by Penny Dewar

It all depends on how large the sign is and whether it is illuminated or a simple temporary banner. Illuminated signs may need permission, no matter how small they are. If you want to display an advertisement on the front of your property larger than 0.3sq metres, then you might need to apply for advertisement consent.

What if it is only temporary?

If you are putting on a local event such as a fair or street party, you can put up temporary signage up to 0.6sq metres without needing permission. Selling your house? Then ensure your estate agent’s board is no bigger than 0.5sq metres. Temporary signage should only be up for a short time. If they are up for a prolonged period, then you might find yourself on the wrong end of a fine.

Complying with advertisement permission

If you plan to erect signage outside your business, you must ensure it meets certain criteria. There are five ‘standard conditions’ that all professional advertising boards and business signs must meet:

It must be kept clean. If your sign starts to look dirty and tatty, you may be asked to take it down or replace it.
It must be in a safe condition – damaged signs pose a risk to the public, especially if they are large and heavy. Check regularly that your sign is safe and secure, or you could end up with a visit from the Health and Safety Executive or a council representative.
It must have permission from the landowner to be there – this includes the Highways Agency if signage is being displayed at the side of the road on Highways Agency land.
It must not block or hinder the interpretation of other signs, such as road, rail, waterway or aircraft signs, or make it hazardous to use these forms of transport within the vicinity of the sign.
It must be removed if the planning authority withdraws permission for the sign.

Advertising that does not need permission

Not all advertising needs permission. Many signs can be erected without the need for consent, including:

advertisements on enclosed land;
advertisements on moving vehicles;
advertisements which are an integral part of the building’s fabric;
advertisements displayed on items such as petrol pumps or vending machines; and
advertisements displayed inside a building.

Certain conditions still apply to these types of advertisements and signs, including the size of the lettering, what goods or services they advertise, and whether the signage is illuminated.

You will probably need permission for adverts on the gable ends of buildings, some fascia signs and those that project out (where the top edge is more than 4.6m above ground level).

It is usually advisable to check before you put up an advertising board, sign or even a temporary poster.

Speak to commercial real estate partner John Gillette for more information.

Note: This is not legal advice; it is intended to provide information of general interest about current legal issues.

Contract formation

Posted on May 14, 2018 - 6:14 pm by Penny Dewar

Under English law, contracts can be made orally, which frequently happens in a dynamic business environment. However, whether a binding agreement has been made depends upon the core principles of a contract being satisfied. Generally speaking, for a contract to be valid and binding, there must be:

an offer from one party and acceptance of that offer by the other;
a mutual intention between the parties to create legal relations;
some form of “consideration” passing one way and the other (e.g. money or services); and
certainty as to the terms of the contract.

Provided that these principles are complied with, a binding contract can be made at any time, in any place and in almost any manner.

These core principles of English contract law were explored in the case of MacInnes v Gross. The case concerned an investment banker (MacInnes) and the ultimate majority stakeholder in the RunningBall Group (Gross), a real-time sports data provider.

“The case sheds light on the pitfalls of relying on oral or otherwise informal arrangements made in casual settings.”

MacInnes sued Gross for €13.5m, alleging that Gross breached an oral agreement between the two whilst having dinner in Mayfair in March 2011.

MacInnes alleged that he and Gross had struck a legally binding contract at dinner, where MacInnes would assist Gross in the sale of his stake in the RunningBall Group in exchange for 15% of the difference between the actual sale price of the business and the lower of either 100m Swiss Francs or eight times the business’ 2011 earnings before interest and tax. Gross denied that such an agreement existed and said that all that had taken place was an informal meeting over dinner, at which some headline commercial terms had been discussed.

Gross accepted that when the pair met in Mayfair, there was a discussion about the future of the RunningBall Group and the possibility of MacInnes supporting the business. Gross also accepted that there was a discussion about the possibility of MacInnes participating in the benefit of a sale of the RunningBall Group. However, Gross said that all such discussions were predicated on the basis that MacInnes would invest in the RunningBall Group by buying shares at a preferential rate based on an agreed formula. Clearly, the claims being put forward by the parties, whilst broadly similar in terms of context, were significantly different in terms of substance.

Interestingly, MacInnes emailed Gross following the meeting in March 2011, setting out certain observations concerning the RunningBall Group and the options that were open to Gross regarding a possible sale. Crucially, that email contained two paragraphs concerning MacInnes’ potential role. That email was the only contemporaneous record of the discussions that had taken place over dinner and set out that MacInnes was delighted that he and Gross were “agreed on headline terms”. Contrast this to the recent case of Blue v Ashley involving Sports Direct’s CEO Mike Ashley, where no paper or electronic trace could be found evidencing the alleged contract.

Around nine months later, it became clear that a sale of the RunningBall Group was beginning to crystallise. At that point, MacInnes emailed Gross, forwarding his previous email and stating that he was conscious that their agreement had worked in his favour. MacInnes went on to say that the two of them should be “completely aligned” going forwards, and Gross replied that they needed to make a “proper contract”. MacInnes never responded to that statement, notwithstanding his obvious contention that a “proper contract” had already been made.

As time passed, MacInnes’ role in the sale of the RunningBall Group became increasingly limited; by its sale, he was almost entirely peripheral. Broadly, the terms agreed upon for the sale were:

€20m cash;
€50m worth of shares in the buying entity; and
deferred consideration depending on the company’s subsequent performance (initially subject to a hold-back).

On that basis, MacInnes demanded payment for €13.5m as the “objective market value of his services”, referencing the formula agreed by the parties under the alleged contract made in March 2011.

The Court was, therefore, required to determine whether a legally binding contract had indeed been made when MacInnes met with Gross in March 2011.

Unfortunately for MacInnes, the Court favoured Gross without much hesitation. Indeed, the judge was “firmly of the view that no binding contract was made [and that] there was no intention to create legal relations.”

Interestingly, the judge affirmed that “the mere fact that the discussion took place over dinner in a smart restaurant does not, of itself, preclude the coming into existence of a binding contract. A contract can be made anywhere, in any circumstances. But I consider that the fact that this alleged agreement was made in a highly informal and relaxed setting means that the court should closely scrutinise the contention that, despite the setting, there was an intention to create legal relations.”

“The key takeaway from this case is that relying on informal arrangements is simply not worth the risk. Unfortunately, Mr MacInnes learned the hard way that legal agreements should be documented in writing with the benefit of clear and considered legal advice.”

For more information on contract formation, speak to corporate lawyer Veronica Hartley today.

Note: This is not legal advice; it is intended to provide information of general interest about current legal issues.

Share schemes: a perk or a pain?

Posted on May 9, 2018 - 9:08 am by Penny Dewar

So, if you decide to set up a share scheme, what should you consider before you start issuing certificates to your workers? Here’s a quick look at the perks and pains of share schemes.

Why do it?

Firstly, you need to ask yourself why you’re considering a share scheme. You could be doing it to:

incentivise your workforce so that they are more invested in the company and its success;
recruit or retain key personnel;
reduce employment costs/employee remuneration;
succession planning.

What scheme?

The most popular scheme for employers is an Enterprise Management Incentive (EMI). The relief is in the form of EU state aid to companies granting EMI options. However, the current approval expired on 6 April 2018, and the EU Commission has not yet extended the relief. Therefore, EMI options granted on or after 7 April 2018 may be treated as unapproved options. It is still worthwhile considering EMIs, however, as it would seem likely that contingency provisions will be put in place in due course.

A Share Incentive Plan (SIP) is also a fairly common mechanism. However, employees cannot be differentiated between, and if operated, a SIP must be offered to all UK employees. A SIP can include free shares, partnership shares or matching shares. Free shares can be given to an employee (up to £3,600 per year) and can be linked to performance. Matching shares provided that the company may agree to give additional free shares to employees who purchase shares.

An alternative is a Save as you Earn scheme (SAYE). This carries two elements; a savings arrangement and an option. The company must be listed on a recognised stock exchange or be independent. The employee saves between £5-500 per month (after tax) for three or five years.

These are attractive as they allow the employee to save without paying Income tax or NI on the difference between the price paid for the shares and their value.

Those mentioned are examples of the most common schemes, but more are available, and you should take specific advice on the scheme best suited for your company’s circumstances.

What are the advantages?

Providing company shares to your employees demonstrates that you’re serious about growing your business and want each employee to participate in that expansion.

It shows that you value your employees, and are in it for the long haul, rather than just short-term gain. Giving up a certain amount of ownership of your business (although still retaining overall control) builds trust and increases commitment from all parties.

You may get corporation tax relief on the cost of setting up a share scheme and the cost of providing free and matching shares. You don’t pay the employer’s NI on shares or options as long as all the relevant criteria are met. Taxation on share schemes, however, can get complicated, so expert advice from lawyers and accountants is crucial to ensure you stay on top of your obligations.

What are the disadvantages?

Logistically, providing employee shares can be a nightmare. Top of the list is administrative costs (both time and money). Before you decide to set up a share scheme, it’s important to talk the idea through with a solicitor to look at the pros and cons, what type of share option is best and how to set it up. It’s not just the short-term set-up costs you need to consider, either, but the long-term management and documentation.

The more shares you issue, the less control you have over your business. Remember that you’ll need 75% of the voting shares if you want to control important company decisions.

Remember that shares can go down as well as up. And if your employees’ shares start to drop in value, that could impact on morale. Not only are they seeing their investment decline, but it could indicate deeper problems within the company. Share value acts as a litmus for the health of a company. You’ll also have to ensure your employees have realistic expectations of the performance of their shares. Unless they work for Google, a few free shares in a company will not see them through retirement!

Share schemes are a great way to reward loyalty and stimulate growth. They have their downsides, but overall, they’re popular perks with employees and, done well, are fairly painless for bosses too.

For more information, speak to Karen Cole today.

Note: This is not legal advice; it is intended to provide information of general interest about current legal issues.

How can you protect your business when customers call in the bailiffs?

Posted on May 2, 2018 - 5:58 pm by Penny Dewar

If the judge rules against you, and your ex-customer wins either their money back, damages, or both, you will need to pay up. If you cannot pay, or will not pay, it is likely that the bailiffs will come knocking.

So, what can you do to help protect your business when this happens?

Stopping bailiffs at the door

Bailiffs cannot attempt to take control of goods without giving notice in advance. If you have not received this notification seven clear days ahead of their visit, then they cannot enter your property.

Next, check that the bailiff has the correct documentation and is authorised to execute a Writ of Control or a Warrant of Execution. Without it, they cannot take anything out of your property.

The only ‘bailiffs’ who can enter your building without notice are High Court enforcement officers These are court-appointed enforcement officers who take over when a claimant has escalated a claim straight to the High Court. They usually arrive without notice but will still need to have a court order to seize goods.

Can bailiffs take anything they want?

What the bailiffs can take depends on whether you operate as a sole trader or as a limited company.

Sole traders

If you are a sole trader your business debts are treated the same as your personal debts. An Enforcement Agent can seize goods that will raise enough money to cover the debt, plus interest, and their fees.

If you’ve received notice in advance that bailiffs have been instructed it is a good idea to get legal advice as quickly as possible. Even if the debt is a business debt, the bailiff can take items from your home. This can include any jointly-owned items as well as items that you own outright, cash and cheques.

There are certain items the bailiff cannot take, including:

anything belonging to a child;
hire-purchase items that have outstanding finance, or are leased; and
items that are considered essential for everyday life such as a washing machine or cooker.

The bailiff also cannot take anything that is considered essential for work or study, such as your computer or tools, up to a value of £1,350. Any items worth more than this can still be seized.

If the bailiff wants to take something that you think is exempt, you’ll need to prove it. For example, you will need to prove items are worth less than £1,350 by showing the bailiff receipts. Or if they want to take something you need for work, show them order forms and explain why you need the item.

Limited companies

If the debt is against a limited company, then only goods that belong directly to the company can be removed.

Bailiffs can take money, office equipment, stock and/or machinery of any value. They cannot take any goods that are leased or on hire-purchase. You’ll need to show proof that items are leased or on hire-purchase to prevent the bailiffs from taking them or adding them to a Controlled Goods Agreement.

Depending on the situation, there may be other options to explore with your solicitor. This could include setting up an informal arrangement. This is a non-insolvency arrangement, which might be suitable if you have short-term cash-flow problems.

What is a controlled goods agreement?

If you cannot pay the money demanded immediately, but you can repay it in instalments, you could negotiate to enter into an agreement called a ‘controlled goods agreement’.

This means that the bailiff will identify goods or property that could cover the value of the debt (plus fees and interest). They will visit your business property to draw up a list of assets that will be controlled under the controlled goods agreement. You will not be able to sell, remove, or give away these items, but you will still be able to use them, which can be a lifeline for businesses if you depend on these to operate. However, if you miss any payment, the bailiffs can return and take them away.

Legal support

If your business has received an advance notice of debt collection, do not ignore it. Professional legal support can help you to get through these difficult times. It can:

take control of the situation, freeing up your time so you can concentrate on getting your business back on track;
ensure you benefit from expertise to help negotiate a stronger deal; and
give you honest, unbiased advice, free from the emotional attachment that you may have to your business. This can help you to make the right decisions for your business and your family.

For more information, speak to Laura St-Gallay.

Note: This is not legal advice; it is intended to provide information of general interest about current legal issues.

Part 2: Crossing and dotting makes for clear contracts

Posted on April 29, 2018 - 4:47 pm by Penny Dewar

The basic requirements of a contract are that both sides have reached an agreement, which is intended to be legally binding, is supported by consideration, and is sufficiently certain and complete to be enforceable.

Looking at those components in turn, in the case of Blue v Ashley, Judge Leggatt revisited the evidence against each of the textbook requirements for a binding contract:

Agreement when an offer is made and accepted

The necessary agreement is reached either by the parties signing a document containing agreed terms or by one party making an offer which the other accepts by words or conduct. Typically, acceptance is at the point of promising to do something, except in ‘unilateral contracts’ where the contract is established when the recipient of an offer starts to perform the action required to earn the reward. In this case, it was argued that this was a unilateral contract, and the acceptance took place when he started work directed towards increasing the share price value. But the judge highlighted that an offer may not always be intended: “There can be circumstances in which a person uses the language of offer without expressing a genuine willingness to be bound”, giving the example of someone saying at a party they will give you a million pounds if you can speak for a minute on a topic, in which circumstances no-one would reasonably think the words were meant to be taken seriously or to be legally binding.

Intention to create a legally binding contract

Even when a person makes a real offer which is accepted, it does not necessarily follow that a legally enforceable contract is created. It is a further requirement of such a contract that the offer, and the agreement resulting from its acceptance, must be intended to create legal rights and obligations which are enforceable in the courts and not merely moral obligations.

Factors that may show that an agreement was not intended to be legally binding include where it is made in a social context if it was expressed in vague language, or if the promise was made in anger or jest. For example, Justice Leggat said: “if two people agree to meet for a drink at an appointed place and time and one does not turn up, no one supposes that the other could sue to receive his wasted travel expenses.” There must be the intention for a legally binding contract to be created.

Consideration

To be legally binding, an agreement must traditionally be supported by consideration, as English law will not enforce a promise for which nothing has to be done in return. So, if the offer to pay £15 million on the Sports Direct share price reaching £8 per share was simply accepted by Mr Blue, and he did not need to commit to doing anything to achieve the outcome, it would not give rise to a legally binding contract. But to qualify for the payment, Mr Blue had to “get” the Sports Direct share price to £8, undertaking work which was aimed at increasing the share price to that level, so the requirement of consideration could be demonstrated.

Certainty and completeness of terms

Even if there is an agreement and an intention to create legal relations, a contract will be unenforceable if its terms are too vague or uncertain. It is another ground on which Mr Ashley disputed Mr Blue’s claim.

For more information on how to minimise the risk of commercial disputes, contact M. Qaiser Khanzada.

Note: This article is not legal advice; it provides information of general interest about current legal issues.

Part 1: Crossing and dotting makes for clear contracts

Posted on April 29, 2018 - 4:18 pm by Penny Dewar

He must have weighed up the risk, and as he is already a very wealthy man with a fortune of some $21 billion, he will not go hungry while labouring away for the next decade, but one hopes he has put in place a very clear contract. It may seem surprising, but all too often, such agreements are made on a so-called ‘gentleman’s agreement’, which is challenged later, leading to battles fought in court.

In February, art dealer Simon de Pury won his action in the High Court for payment of a $10 million commission over the sale of a famous painting by Gaugin – money that he claimed he was owed under a gentleman’s agreement with the seller.

But when a former investment banker claimed that Mike Ashley, the chief executive of Sports Direct, had agreed to pay him a £15 million bonus if the Sports Direct share price doubled within three years, a High Court judge ruled that the requirements for a binding contract had not been satisfied.

Both cases are interesting, not least because of the high stakes and colourful characters involved, with sensational details and claims of misbehaviour made in court, but also because they take us back to the fundamentals of contract law, something the judge revisited in detail when summing up in Blue v Ashley.

Jeffrey Blue was providing consultancy services to Mr Ashley and had been asked to find a new corporate broker. As a result, he, Mr Ashley and three representatives of a potential corporate broker got together on 24 January 2013 at the Horse and Groom pub.

Blue claimed that Mike Ashley had agreed on that night to pay him a bonus of £15 million if he helped to raise Sports Direct shares from £4 to £8 over a three-year period. He claimed the conversation had formed a legally enforceable contract. Still, the circumstances that surrounded the conversation were a significant factor in Mr Blue losing his case, as it took place during a heavy drinking session in a pub.

The judge dismissed the claim, saying the agreement was “not a serious discussion… but was banter in which Mr Ashley was displaying his wealth and scale of ambitions”, not a contract, and “that there was no one present in the Horse & Groom pub who thought that it was genuine… they all thought that it was a joke”. Justice Leggatt summed up his judgement by saying that “the fact that Mr Blue has since convinced himself that the offer was a serious one and that a legally binding agreement was made, shows only that the human capacity for wishful thinking knows few bounds”.

But the ‘wishful thinking’ required a High Court judgement to settle the dispute, and nowadays, when we are all involved in communicating in so many ways – email, text, voicemails – and in so many different environments, including the corner coffee shop, it’s worth revisiting what does constitute a binding contract.

Under English law, it is possible to make a contract without any formality, simply by word of mouth, but if there is no written record, the existence and terms of a contract may be harder to prove. In such a case, an agreement may be unenforceable on the grounds of uncertainty. And because the value of a written contract is well-recognised, not putting things in writing in a business context may undermine later claims, as happened in the Blue v Ashley case. Indeed, one of the requirements for a binding contract is an intention to enter into legal relations, and not recording an agreement in writing might itself suggest that there was no such intention.

In looking for evidence of what was intended and understood by the two men, the judge highlighted how unusual it was to have a claim for millions of pounds based entirely on a word-of-mouth agreement, with no other record existing. As he said: “In the twenty-first century, the prevalence of emails, text messages and other forms of electronic communication is such that most agreements or discussions which are of legal significance, even if not embodied in writing, leave some form of electronic footprint.”

This case had no such footprint, with the only source of evidence being what was said in the pub as recalled by the different people present and with no later conversations recorded or referred to in any written exchange. This led the judge to conclude that Mr Blue did not take the offer to be a serious one at the time, saying: “I cannot believe that if Mr Blue had thought at the time he had made a contract with Mr Ashley under which he potentially stood to receive £15 million, he would have regarded it as unnecessary for months afterwards to ever check that Mr Ashley recalled what had been said.”

By contrast, the legal action over the gentleman’s agreement concerning the sale of the Gaugin painting between former Sotheby’s executive Ruedi Staechelin and the husband and wife team of art dealer and auctioneer Simon and Michaela de Pury, although not written into a formal contract was covered by a series of emails and other communications.

The Tahitian period painting, Nafea faa Ipoipo (When Will You Marry), was owned by Mr Staechelin, who Mr De Pury approached to see if he might be interested in selling the work. Staechelin said he would not accept less than $250 million for it, net of commission. The sale took some time to go through but was eventually made in 2014 when it was sold to the emir of Qatar, Sheikh Tamim bin Hamad al-Thani for $210 million.

When the de Purys claimed the $10 million commission, they said they were owed for helping negotiate the sale; they were sent away. Mr Staechelin’s lawyer argued that they had known the Qataris would not pay more than $210 million but had encouraged the negotiations by saying they were willing to pay $230 million, so they had breached their fiduciary duty and forfeit any right to commission if it had ever existed. The judge did not agree, upholding the claim of a legally binding contract for the commission to be paid, so there was a happy outcome for the de Pury’s, but only after three years of legal action.

So, is it the case that when it comes to a verbal contract – or gentleman’s agreement – sometimes you win, and sometimes you lose? No, it’s not that simple.

These two cases arrived in the High Court because of their individual and complex circumstances. The outcomes extended well beyond a simple review of whether something was written down or not. It is always good practice to record any verbal agreement in writing, whether millions or hundreds of pounds are involved, and ideally, have it signed by all parties if you want to rely on it later.

For more information on minimising the risk of disputes over commercial contracts, contact M. Qaiser Khanzada.

Note: This is not legal advice; it is intended to provide information of general interest about current legal issues.

Can pre-nups help to save your marriage?

Posted on April 13, 2018 - 2:14 pm by Penny Dewar

If you’re tying the knot this year, it’s likely you’ve spent time carefully planning everything from bouquets to bunting. But have you given a second thought to a pre-nuptial agreement?

Some couples just don’t want to think about what happens if there isn’t a fairy-tale ending. But what if a pre-nuptial agreement (a’pre-nup’) could help strengthen your marriage?

Image by Viktoriya Kirilova ID 18849967 Dreamstime

What can a pre-nup do?

A pre-nup is a legal agreement designed to make things easier to sort out if the marriage breaks down. It can:

protect any pre-existing fortune from being split
protect a spouse from their partner’s debt
provide for children from a previous relationship
keep family property within the family
help prevent solicitor fees from mounting up

A pre-nup is enforceable in the UK, although judges still have the discretion to ignore it, especially if it is unfair to any children of the marriage.

So how could a pre-nup help save your marriage?

There’s a saying that goes, ‘Money makes people funny.’ People have different attitudes to money, which can cause arguments even among close family and friends. Money is the leading cause of stress in relationships – and that stress can sometimes strain a relationship to breaking point.

That’s where a pre-nuptial agreement could help a marriage to last longer. With a pre-nup, you have clearly outlined your approach to handling your finances in advance. It will mean you’ve already agreed on many financial issues, such as whether school fees should be paid and how any inheritance should be handled. Deciding on these financial arrangements in advance could help prevent future arguments leading to divorce.

Is a pre-nup for you?

You might feel that you don’t have enough money to warrant a pre-nup when you marry, but who knows what the future may bring?

To decide if a pre-nup is for you, speak to one of our family lawyers. They are no longer just the preserve of celebrities and the super-rich. Anyone can benefit from the peace of mind that a pre-nuptial agreement can bring, but they may be especially relevant if:

you’ve built up a business and don’t want to have to sell it if you divorce;
you want to ensure that any children from a previous relationship will not lose any inheritance rights;
you have or are likely to inherit a family home that you would want to keep in the family.

A pre-nuptial agreement can also give you extra peace of mind if you have concerns over your partner’s debt. That’s because a ‘debt clause’ can be included to protect you from being liable for that debt.

Do I need legal help?

Yes. To comply with the law, a pre-nuptial agreement must be drawn up and signed by a qualified solicitor, like Pippa Marshall. There’s no ‘one-size-fits-all,’ so speaking to a family lawyer like Pippa is a good idea. She has the expert knowledge and understanding of this niche area to meet your needs effectively.

In most cases, a pre-nup will list each partner’s assets and how they will be handled if a divorce happens. All assets and property must be fully disclosed, and both parties must confirm that they voluntarily agree. You and your partner must use separate solicitors, and it should be signed at least 21 days before the marriage.

What happens if you change your mind?

Your pre-nup can be changed anytime as long as you agree. If you’re already married, you could consider a post-nuptial agreement anytime.

Contact family solicitor Pippa Marshall today.

Note: This is not legal advice; it is intended to provide information of general interest about current legal issues.

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