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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.

Brexit and the British Legal Sector: Uncertainties, Solutions and Jewels in Crowns

12/06/2017 | Tom Spiller
The use of the legal sector by domestic and international parties is a huge contributor to the British economy in terms of: Jobs - with over 300,000 people directly employed; GDP - generating

The use of the legal sector by domestic and international parties is a huge contributor to the British economy in terms of:

  • Jobs – with over 300,000 people directly employed;
  • GDP – generating roughly 1.6% at around £30.6 billion per year; and
  • International trade – with an annual surplus of approximately £3 billion.

(more…)

Can’t pay or won’t pay – Court confirms insolvency proceedings are not appropriate for enforcing debts due under construction contracts

05/06/2017 | Elizabeth Weeks & Joshua Heavyside
Parties should settle construction disputes through adjudication or Court proceedings, according to High Court Judge Daniel Alexander QC, sitting as a Deputy Judge of the Chancery Division, has prov

Parties should settle construction disputes through adjudication or Court proceedings, according to High Court Judge

Daniel Alexander QC, sitting as a Deputy Judge of the Chancery Division, has provided further clarification on the appropriate avenue for parties to contest debts arising from construction contracts. In his Judgment in the recent decision, Breyer Group plc v RBK Engineering Ltd [2017] EWHC 1206 (Ch) (19 May 2017), Alexander QC stated that it would constitute “an abuse of process” for a party to pursue a winding up petition against a debtor in circumstances where it is “not a case of can’t pay, but won’t pay.” The proper place to settle such a dispute is either through adjudication or Court proceedings.

Origins of the dispute

Breyer Group plc (“Breyer”) was a contractor on a building project and had appointed RBK Engineering Ltd (“RBK”) in May 2015 as a sub-contractor to carry out certain refurbishment and electrical works. The appointment was formalised at the time by a contract between the parties containing standard terms and conditions, including terms relating to payment (including interim payment) and an express dispute resolution clause.

The work performed by RBK continued beyond the term of the contract, late into 2016. However, although a subsequent draft contract was never signed by either Breyer or RBK, it was clear both parties considered the relationship to be governed by the terms of the original contract.

By the end of 2016, a dispute had arisen between the parties with Breyer contesting the contents of RBK’s payment applications and alleging that RBK had carried out defective works, which Breyer would have to remedy at its own cost. In December 2016 the parties entered into a settlement agreement, which included provisions setting out a number of payments to be made by Breyer to RBK. Ultimately however, on 1 March 2017, when the final payment was due, Breyer served a Pay Less Notice on RBK, which in fact required RBK to settle a small balance to Breyer arising from the defects which had been disputed between the parties.

The winding up petition

The parties failed to reach agreement and on 22 March 2017 RBK filed a winding up petition against Breyer, claiming the contractor was indebted to it in the sum of £258,729.16. However, following the application of Breyer and an assessment of its finances, the Deputy Judge elected to strike out the winding up petition.

Alexander QC’s Judgment

In his Judgment, Alexander QC concluded that Breyer was “plainly not insolvent in the sense of being unable to pay the alleged debt.” Rather, a “genuine dispute” had arisen between the parties, to which Beyer had arguable defences and substantial cross-claims of its own.  Breyer’s position was predicated on its concerns regarding the quality of RBK’s electrical works, together with a dispute about which contract terms were operative. To therefore continue insolvency proceedings in such circumstances would be “oppressive” and an inappropriate forum for settling the dispute. Instead, Alexander QC held, the dispute could be readily resolved either through adjudication or Court proceedings.

In conclusion, where a dispute is purely about money and late payment, issuing a statutory demand for payment can be a cost effective and straightforward way to seek to extract timely settlement. However, should a dispute resulting in unpaid monies actually concern “won’t pay” issues, as was the case in Breyer, then the Court has made clear that the proper forum to seek resolution is adjudication or litigation. It appears as though the Court has one eye on seeking to dissuade parties from using the commercial threat of a winding up petition in circumstances where there are more substantive issues to be ventilated.

Adjudication

Adjudication is a prescribed “fast track” procedure designed to settle disputes arising from a construction contract. Adjudication is available to all parties to a construction contract, unless one of the contracting parties is a residential occupier or another exclusion is applicable. Statutory adjudication was introduced by the Housing Grants, Construction and Regeneration Act 1996 (the “Construction Act”), with the Scheme for Construction Contracts Regulations 1998 (the “Scheme”) providing the procedural fall back in the event that the construction contract in question does not contain all of the adjudication provisions of the Construction Act.

Pursuant to the Construction Act, any party to a construction contract has the right to refer a dispute to adjudication. Typically, adjudication will last only 28 days, although it is possible for the parties to extend this period by agreement.

Under the Scheme, the parties appoint an adjudicator to consider the issues in dispute, with the decision treated as interim-binding (unless the construction contract provides otherwise), meaning an adjudication decision is binding until finally determined by legal proceedings, arbitration or agreement. A successful party will most commonly seek to enforce an adjudicator’s decision in the Technology and Construction Court.

Rosenblatt offers expertise on all forms of construction disputes, including adjudication and arbitration, as well as court proceedings in complex and multijurisdictional litigation, supported by its Dispute Resolution team. The firm has extensive experience in the Technology and Construction Court. Rosenblatt’s Construction and Projects team also provides expert advice on non-contentious construction matters, working closely with its Real Estate department. For more information, please contact Rosenblatt’s Construction and Projects team.

The content of this bulletin should not be construed as legal advice. If you do require legal advice, please contact a solicitor at Rosenblatt.

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