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Unwanted “Pop-ups” – what to do with Christmas Squatters

14/12/2017 | Caroline DeLaney
The decorations are up and Christmas trading is in full swing.  Unfortunately, rogue traders are hoping to cash in on the Christmas spirit. Property owners and retailers need to take extra care o

The decorations are up and Christmas trading is in full swing.  Unfortunately, rogue traders are hoping to cash in on the Christmas spirit.

Property owners and retailers need to take extra care of their empty units or there is a risk that they will fall victim to ‘fly traders’ looking for the ultimate in rent-free “pop-up” shops.

These specialist squatters break into vacant units with the specific purpose of trading for the Festive period, usually vacating after the January sales.  Owners are faced with the dilemma of what to do with their new unwanted occupiers.

Property owners with vacant property need to be vigilant.  So too do retailer tenants with surplus stores. This can present an additional problem for property owners if their tenants will not or cannot take responsibility for unoccupied units. For instance retailers that have gone into administration or are undertaking store closure programmes. In those cases, the landlord may want the trespassers out, but has no right to take action because the property is still let to the tenant.

So what can be done about unwelcome occupiers?

Unfortunately, the criminalisation of squatting introduced in 2012 only applies to squatting in residential premises.  Although the lobbying for the extension of the law to commercial premises is gaining pace, we are currently left with a range of options with fewer teeth.

These include:

  1. Persuasion. Ask the traders to leave. Chances of success? Remote.
  2. Contact the police. Most of the time, the police will be uninterested in shop squatters unless there is public disorder or a criminal act has clearly taken place – for instance, you have seen them breaking in and there is evidence of criminal damage. The police are most likely to consider it a civil matter. Chances of success? Unlikely.
  3. Employ private bailiffs. The common law allows you to use “reasonable force” to remove trespassers from your property. There are bailiffs who specialise in this self-help remedy and you should only use licensed experienced professionals. These rights must be exercised with caution because if the bailiffs exceed reasonable force, you are responsible for their actions. Chances of success? Pretty good although the more experienced the squatters, the trickier it becomes. The plus side is that bailiffs are quick and a cost effective solution. The down side is the criminal and civil sanctions that may be brought against you if it goes wrong.
  4. Pursue court possession proceedings. Once upon a time an action for trespass could be brought in the High Court with minimal notice and expense. An order for possession was easy to obtain and efficiently enforced by High Court sheriff’s officers. Successive law reforms over the years, however, have pushed possession proceedings into the County Court. The County Court is slow and can take at least a week (usually more) to get a first hearing date. Not only is this action time consuming, it is expensive and can run into several thousand pounds, particularly if experienced fly traders actually defend the hearing. It does not take much – a scribbled ‘tenancy agreement’ – to get the Court to adjourn the hearing so that full evidence can be put before it. This will get the trader through to the New Year, when he will mysteriously vanish. Chances of success? Ultimately extremely good, but expensive and usually too slow.
  5. Do nothing. This may be unappealing however given that most fly traders will vacate after the January sales and providing that they are not a security risk and do not damage the premises, sometimes it is better simply to wait it out. In the case of an absentee tenant, by the time the landlord has got the tenant to take action, the New Year will have arrived and the squatters already gone.

Sadly none of these options are ideal. There is no guaranteed way to secure eviction just as we can never be sure of snow on Christmas Day.  As always, prevention remains the best cure and in the run up to Christmas it is far better to ensure that your vacant premises are properly secured against unwanted guests.

Caroline DeLaney is Head of Real Estate Disputes. 

For more information on this or any other real estate related dispute please contact her on carolined@rosenblatt-law.co.uk or +44 (0)207 955 1423

Beware of the budget – a reminder to professionals to listen to your clients – Riva Properties Ltd and Others v Foster + Partners Ltd [2017] EWHC 2574 (TCC)

28/11/2017 | Louisa Hartley
Summary A Defendant firm of architects has recently been ordered to pay £3.6m to a Claimant for professional negligence arising out of a failure to advise on the cost of a design but were found n

Summary

A Defendant firm of architects has recently been ordered to pay £3.6m to a Claimant for professional negligence arising out of a failure to advise on the cost of a design but were found not to be liable for loss of profits as the chain of causation was broken due to the global financial crisis.

Background

In 2007 Mr Dhanoa, through one of the Claimant companies, purchased land near Heathrow with the view to building a large 5* hotel on it. Foster + Partners Ltd (“Fosters”) were instructed as the architect and after being advised by them that the design for the hotel could be value engineered down from a cost of £195m Mr Dhanoa increased his budget from £75m to £100m. It then transpired that the cost of building the hotel could not be reduced and funding was not obtained by the Claimant due to the high build cost. Mr Dhanoa brought a claim for breach of contract against Fosters.

The claim

Mr Dhanoa claimed that Fosters had failed to take into account the budget in its design and were negligent in failing to advise that it was impossible to value engineer the design down from £195m to £100m. Damages sought were for professional fees incurred in producing the design and carrying out the value engineering exercise and loss of profits.

Issues

The two main issues in the case were firstly, whether Fosters had an obligation to give advice on the budget and secondly, what impact the global financial crisis had on the claim.

Obligation to advise

Fosters argued that there was no budget and if there was, this had not been communicated to them. They also submitted that they were under no obligation to find out if there was a budget nor to give advice on costs. It was accepted by Fraser J that the budget of £70m – £100m had been communicated to Fosters and that this was a key constraint that should have been identified by them. The duty to identify a fundamental and critical constraint arose from the RIBA Job Book; the Royal Institute of British Architects’ long-established and recognised standard reference for construction projects containing key obligations of an architect. By ignoring the budget in producing its design Fosters had not shown the required skill and care and had therefore breached that duty.

In addition, Fraser J found that Fosters were under a duty to warn that the value engineering exercise to reduce the cost of building the hotel down to £100m was impossible. It was accepted that they had advised the Claimant that this was possible and therefore they were negligent for failing to warn otherwise.

Impact of the global financial crisis

Fraser J identified three factors relating to causation;

  1. the global financial crisis
  2. lack of cash available to Mr Dhanoa
  3. cost of the design

It was decided that even if the hotel could have been constructed for £100m, the financial crisis and lack of cash available as a result of this would have prevented Mr Dhanoa from borrowing the amount he needed to fund the project in any event. This was the cause of lost profits.

Decision

The Court found that Fosters had been professionally negligent in failing to identify and consider the budget in its design of the hotel and in failing to advise that the cost of the design could not be value engineered down to £100m. Fosters were therefore ordered to pay compensatory damages in the round sum of £3.6m. However, the chain of causation was broken due to the global financial crisis and a £100m hotel would not have been possible to build due to a lack of funding at the time. Therefore, the Claimant’s claim for professional fees succeeded but the claim for loss of profits amounting £16m failed.

Although specific on its facts, this case is a reminder to construction professionals that budget is a key consideration in the design of a project, although an architect will not necessarily be negligent if the costed design exceeds the budget. The scope of service to be provided by the professional should be reviewed and tailored for each specific project. It is also equally important to manage client expectations regarding what is and is not achievable and to communicate effectively with others throughout a project’s lifetime.

This article should not be taken as definitive legal advice on any of the subjects covered. If you do require legal advice in relation to any of the above, please contact Stuart Nash of these offices on 020 7955 1492 or by e-mail at stuartn@rosenblatt-law.co.uk

UK Commercial Property held offshore in HMRC’s sights

24/11/2017 | Philip Alfandary
This year’s autumn budget brings unwelcome news for foreign investors in UK commercial property. With effect from April 2019, capital gains realized by non-residents from disposals of UK commerc

This year’s autumn budget brings unwelcome news for foreign investors in UK commercial property.

With effect from April 2019, capital gains realized by non-residents from disposals of UK commercial property will fall within the UK tax net. This will apply to such gains made by both companies and individuals.

What’s the present position?

Only where a non-resident carries on a trade in the UK through a permanent establishment here will a disposal of UK commercial property attract UK tax on any gain arising (and only then when it is used for that trade).

Otherwise, only gains arising on the disposal of UK residential property held by non-residents can fall into charge to UK tax.

The rate of tax depends on whether the non-resident disposing of the property is a company -in which case the rate is the corporation tax rate, 19% – or an individual – in which case capital gains tax rates apply. To complicate matters, where the residential property is a higher value one and is owned by a company, an alternative rate of 28% can apply.

The changes in detail

Non-UK residents will be brought within the scope of UK corporation tax or capital gains tax (CGT) on gains arising on the disposal of UK commercial property.

  • Additionally, the new regime will apply to ‘indirect disposals’ as well.  This means that where a non-resident company (or other entity) is ‘property rich’-broadly, where 75% or more of its gross asset value is represented by UK immovable property – a sale of an interest in that company can trigger a charge on the non-resident holding the interest.  The charge will apply where the non-resident  holds a 25% or greater interest in the company, or has held such an interest in the past five years.
  • There will be an obligation on certain advisors who have sufficient knowledge of such indirect disposals to report them within 60 days, unless they are reasonably satisfied that the non-resident has reported already.
  • There will be an obligation on certain advisors who have sufficient knowledge of such indirect disposals to report them within 60 days, unless they are reasonably satisfied that the non-resident has reported already.
  • Historic growth in value in such properties up to the point the charge comes into force will be not be taxed. The value of interests in commercial properties will be rebased to April 2019 for the purposes of working out what gain the tax will apply to.

Comment

The proposals represent a significant change in taxing chargeable gains on immovable property, and will create a single regime for disposals of interests in both residential and commercial property.

Commercial property is widely held through offshore vehicles, and this measure will mean that future increases in value from 2019 will become taxable (on a disposal). This will obviously have an impact on how some multinationals hold property. While there will be specific exemptions for certain types of investors, it is likely that existing tax exempt vehicles such as Real Estate Investment Trusts, which are government approved creations of statute, may become more attractive.

Cladding – how the future looks

26/09/2017 | Elizabeth Weeks
The construction industry continues to focus on the ongoing review of cladding materials and their use as part of the fall-out from the Grenfell Tower fire. Renovation of Grenfell Tower saw new cladd

The construction industry continues to focus on the ongoing review of cladding materials and their use as part of the fall-out from the Grenfell Tower fire. Renovation of Grenfell Tower saw new cladding and insulation fitted to its exterior and it is suspected that the materials used were flammable and acted as a catalyst in spreading the fire. The Government has now approved the public inquiry’s terms of reference which include:

  • the design and construction of the building, including its refurbishment and management; and
  • the scope and adequacy of Building Regulations, including guidance on fire safety and other legislation, guidance and industry practice relating to the design, construction, equipping and management of high rise residential buildings.

 

It is worth noting that the inquiry’s remit falls short of examining the wider construction industry and the existing procurement landscape. That is to say that the inquiry will not deal with the often complicated division of design responsibility on a construction project and the different routes by which a construction project can be structured. Industry commentators have speculated that addressing those type of concerns would have assisted in dealing with the context of the procurement decisions taken in relation to Grenfell Tower and its refurbishment. Nevertheless, as a result of this recent tragedy, many in the construction industry have been undertaking a whole-scale review of their cladding works, materials and contractual responsibilities.

The majority of construction contracts require a contractor, sub-contractor or consultant to comply with good industry practice, undertake work with reasonable skill and care and comply with all relevant statutory requirements, which here would include compliance with Building Regulations. Additionally construction contracts usually contain clauses which prohibit the use and specification for use of deleterious materials. “Deleterious materials” is then usually defined as being those which are known or generally known to be or suspected of posing a health and safety threat, posing a threat to the structural stability or durability of the works or project and failing to be in accordance with industry standards and codes of practice.

It would be prudent for those involved in the review of existing cladding or specifying cladding materials for use in future projects to ensure that their contracts include adequate wording concerning the use and/or specification for use of deleterious materials. In terms of future projects it would be worth considering whether such contractual provisions are drafted widely enough to capture any particular concerns about cladding materials and whether these would be considered “deleterious” for the purposes of the contract. The requirement prohibiting the use of deleterious materials will generally be the more onerous contractual requirement.

As a consequence of testing and/or review, should it be found on a project that cladding has been installed in breach of these contractual obligations then responsibility will lie with the construction professional concerned. Formal legal proceedings may ensue if the relevant professional, more likely its insurers refuse to accept that responsibility and consequently pay out. In addition, the majority of construction contracts have either 6 or 12 year limitation periods, meaning that after that specified period of time, a claim under that contract would not be able to be brought. In identifying any possible issues, it would be prudent to ensure when contractual documentation was entered into in the event of a possible claim and whether this remains viable. As part of this exercise it would also be worthwhile to check that adequate insurance provisions are in place, particularly in the scenario of multiple sites. As part of that exercise a review of other security documentation (by way of example parent company guarantees and/or bonds) in place or to be put in place would ensure that the financial security and construction assurance on a project has been further assessed.

If you would like any further information, please contact Elizabeth Weeks on 0207 955 1469.

This article should not be taken as definitive legal advice on any of the subjects covered. If you do require legal advice, please contact Rosenblatt as above. 

This article was first published in Emap’s Construction News on 7 September 2017.

UPDATES TO THE PSC REGIME

09/08/2017
On 6 April 2016, the Small Business, Enterprise and Employment Act 2015 brought into effect changes to the Companies Act 2006 that required certain U.K. companies and LLPs to keep and maintain a regi

On 6 April 2016, the Small Business, Enterprise and Employment Act 2015 brought into effect changes to the Companies Act 2006 that required certain U.K. companies and LLPs to keep and maintain a register of any persons exercising significant control over that company or LLP (“PSCs”). Please click here to refer to our e-bulletin for further information regarding the introduction of the PSC regime.

On 26 June 2017, significant changes to the PSC regime were introduced following the U.K.’s transposition of the European Union’s Fourth Anti Money Laundering Directive (“4AMLD”) through the enactment of the Information about People with Significant Control (Amendment) Regulations 2017 and the Scottish Partnerships (Register of People with Significant Control) Regulations 2017 (together, the “2017 Regulations”). This article provides a summary of the principal changes introduced by the 2017 Regulations.

Key changes

Extension of the PSC regime

Previously, companies subject to Chapter 5 of the Disclosure Rules and Transparency Rules were not subject to the PSC regime. However, with effect from 24 July 2017, only those companies whose voting shares are admitted to trading on a regulated market within the European Economic Area will now fall outside the PSC regime.

The significance of this change is that companies listed on prescribed markets such as AIM and the NEX Exchange now fall within the scope of the PSC regime. Companies whose shares are admitted to trading on the London Stock Exchange’s Main Market will continue to fall outside the scope of the PSC regime.

With effect from 24 July 2017, certain unregistered companies that previously fell outside the PSC regime will also be required to keep and maintain a PSC register. Additionally, Scottish partnerships comprised entirely of corporate bodies and Scottish limited partnerships (“Eligible Scottish Partnerships”) will also be required to file information regarding their PSCs at Companies House (but will not have to maintain a PSC register).

Timescales for delivering PSC information to Companies House

Previously, a company’s / LLP’s PSC information was required to be updated on an annual basis through the filing of the annual Confirmation Statement at Companies House (unless an entity had already elected to maintain its PSC register at Companies House).

However, from 26 June 2017 (or 24 July 2017 for those entities mentioned in the previous section other than Scottish Eligible Partnerships), and in a move towards the event-driven filing requirements of 4AMLD, an entity falling within the PSC regime must now:

  • amend its PSC register within 14 days of receiving information regarding any relevant changes to the information entered on its PSC register; and
  • file notification of any such relevant changes at Companies House within 14 days of updating its PSC register.

Scottish Eligible Partnerships had 14 days from 24 July 2017 to file information regarding their PSCs at Companies House and are required to file notification of any subsequent relevant changes to that information within 14 days of receipt of that information.

Failure to comply with these timescales will constitute a criminal offence.

Practical considerations

AIM and NEX Exchange-listed companies should be aware of the burdensome obligation of having to comply with the requirements of both Chapter 5 of the Disclosure and Transparency Rules and the PSC regime, Such companies, along with Eligible Scottish Partnerships and unregistered companies that are now subject to the PSC regime, should begin making enquiries to identify whether they have any PSCs and subsequently update their registers (other than Eligible Scottish Partnerships) and make filings at Companies House.

Additionally, given the shift towards events-driven filings and the stringent timescales introduced through the implementation of 4AMLD, those entities subject to the PSC regime should review and consider who may constitute a PSC on an ongoing basis to ensure that all amendments to its PSC register, and any related filings at Companies House, are made within the statutory timescales.

Future changes

Whilst both companies and legal practitioners alike are still becoming accustomed to the changes to the PSC regime introduced by the transposition of 4AMLD, it is interesting to note that the Fifth Anti Money Laundering Directive (“5AMLD”) is on the horizon, which proposes to introduce even greater transparency on the identity of beneficial owners. Whilst not yet confirmed, 5AMLD could result in a lessening of the thresholds that need to be met by a person in order to constitute a PSC.

The extent to which any such changes will be introduced into U.K. law could well depend upon the timing of the European Union’s implementation of 5AMLD given the U.K’s impending departure from the European Union.

Further developments regarding 5AMLD are expected over the upcoming months.

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