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Update on Taylor Review and Employee Status in 2018

12/02/2018 | Noel Deans & Sean Field-Walton
In 2017, the “gig economy” evolved into more than a mere buzzword. Numerous discussions and several legal cases grappled with worker status generally and across various contexts which is indicati

In 2017, the “gig economy” evolved into more than a mere buzzword. Numerous discussions and several legal cases grappled with worker status generally and across various contexts which is indicative of the lack of clarity in the area. As it stands, determining employee status turns on questions of mutuality of obligation, personal service and control. All of these, unsurprisingly, have their own epilogue of related case law attempting to reach an understanding of what exactly each of those phrases means for businesses and employees.

Significant decisions in the area have seen what may on the face of it be divergent outcomes. Uber drivers have been held to be “workers” under the Employment Rights Act 1996 (the “ERA”), Deliveroo drivers were considered not to be “workers” for the purposes of a Union’s application for compulsory recognition under Schedule A1 of the Trade Union and Labour Relations (Consolidation) Act 1992 (the “TULRC”) and plumbers have been held to be “workers” for the purposes of the ERA and the Working Time Regulations 1998 as well as an employee within the extended meaning of that term in the Equality Act 2010. Other decisions such as King v Sash Window Workshop Ltd and another have extended, or arguably just confirmed how existing rights apply. In this case, Mr King’s contract described itself as a “self-employed commission-only contract”. Under that contract, Mr King was paid on a commission-only basis. The Court of Justice of the European Union held that Mr King, despite having been described as self-employed and led to believe he could not take paid leave was actually a “worker” and was therefore entitled to carry over or be paid for the entire sum of that unpaid holiday. This clarified that the right to carry over is not only limited to cases involving sickness or maternity leave. Taken together with the decisions conferring “worker” status on new sections of workers, potentially large retrospective liabilities could be created and businesses may be concerned to understand what are their actual and/or likely exposures are.

As such, it is with perhaps renewed force that we can reflect on the Taylor Review of Modern Working Practices (the “Taylor Review”) published in 2017 and one of its central recommendations which was to codify the case law principles governing “employee” status into primary legislation.

On 7 February 2018 the Government published their response to the Taylor Review which acknowledged the lack of clarity and certainty over employment status (the “Response”). Therefore, this is an area we will closely monitor as 2018 develops.

One thing is for certain; the prevailing wind is in favour of extending or granting new rights to workers who previously would have been considered “casual”. Albeit they may seem minor adjustments, simple proposals accepted by the Response that would among other things oblige employers to provide written particulars and payslips to workers, are new compliance burdens should not be underestimated. Seeing as the general thrust for recognition of workers’ rights seems only to be increasing this may be an area where companies, especially those offering shares on public markets, should be particularly attuned to the risk of reputational damage and consider seeking specialist legal advice in this regard.

Employers may be relieved, however, that in the Response the Government has confirmed it will not (at least for now) be reversing the burden of proof where employment status is in dispute. It will remain the employee’s duty to prove their alleged status. Similarly, the Government has confirmed that despite some rumbles in the area of non-compete restrictions it does not propose to take any action in this area seeing as such restrictions were considered valuable by most respondents to consultations.

Seeing as the advent of both the GDPR and implementation of the extended Senior Managers & Certification Regime are not far off the horizon and given the ripeness and appetite for change in the area of employment status businesses may be prudent to seek specialist legal advice in these areas.

Our employment department has experience and expertise in all of the above areas.

If you would like any further information, please contact Noel Deans at noeld@rosenblatt-law.co.uk or on 0207 955 1413.

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

Residential Leasehold extensions – valuation and interpretation issues

30/01/2018 | Caroline DeLaney
Owners of leasehold flats have a statutory right to extend their lease under the Leasehold Housing and Urban Development Act 1993.  The procedure of lease valuation is becoming increasingly complex

Owners of leasehold flats have a statutory right to extend their lease under the Leasehold Housing and Urban Development Act 1993.  The procedure of lease valuation is becoming increasingly complex but the principles behind valuation are rarely decided by the courts.  In a recent news piece for Lexis Nexis, Caroline DeLaney looks at the first case of its kind – The Crown Estate Commissioners v Whitehall Court London Limited

 

  • What is the significance of this case? Why is it important for practitioners?

 

This case is an appeal from the First Tier Tribunal (Property Tribunal) to the Upper Chamber (Land Chamber) concerning the apportionment of the premium to be paid by a residential tenant for a lease extension under the Leasehold Reform Housing and Urban Development Act 1993 (the 1993 Act) between the freehold owner, the Crown Estate Commissioners, and the head leasehold owner, Whitehall Court London Limited.  Whitehall Court is a well-known Victorian mansion block containing  high value residential flats and offices as well as the Farmers’ Club and is located close to Horseguards Parade in London.

The appeal involves technical valuation issues and the tenant did not take part in the appeal as the premium and terms of the extended lease had already been agreed.  The issue in dispute before the Upper Chamber was the allocation of the premium between the freeholder and the head leaseholder.  The 1993 Act allows the freeholder to agree terms with the flat-owner without the agreement of the intermediate lessee but the Crown Estate Commissioners chose not to utilize these statutory provisions and referred the matter to the tribunal instead.

The case is significant because there is little case law on valuation issues under the 1993 Act, particularly at appeal level.  It considers for the first time the valuation assumption of Schedule 6 para 3 (1) (b) of the 1993 Act.

The case is also of interest to practitioners because it considers the arrangements between freeholder and intermediate leaseholder in a mixed- use building where they agree that value can be increased and then shared between them by, for instance, the charging of premiums for change of use, corridor leases and other alterations and retrospective licences and premiums. The case undertakes an exercise in lease interpretation and offers a view on what it calls the “torrential style” of lease drafting.  It considers the definition of “Net Receipts” and looks at the individual categories of receipts that the parties dispute.

 

  • How helpful is this judgment in clarifying the law in this area? Are there any remaining grey areas?

 

The judgment is helpful as it confirms for the first time the valuation assumption of the 1993 Act.  The valuation point before the Upper Chamber was whether the “no- Act” rights assumption extends only to the flat that is applying for the lease extension or whether it extends to the whole block in which the flat is located.  The judgment looks at the authorities quoted by the parties and concludes that commentators such as Hague and Woodfall recite the legislation without actually reaching a conclusion and also that there is no case law on point.

The judgment concludes that the authority on the interpretation of the 1993 Act requires it to apply the 1993 Act fairly against the tenant, but at the same time not to stretch the intention of Parliament and give the tenant an advantage beyond what was intended.

In a similar way to the application of the “presumption of reality” in rent reviews, the Upper Chamber Appeal concludes that “the presence of artificial assumptions necessarily displaces the presumption that any valuation is to be conducted on the basis of reality; but statutory assumptions should not be pressed beyond their natural limits and should be applied to reach a price for the relevant interest that corresponds to market reality as closely as those assumptions permit.”  The tribunal concludes that the “no-Act” rights assumption applies to the whole building, not just the flat.

The judgment contains detailed analysis of the valuation behind this general principle which will be of interest to valuers.

In addition to its decision on the valuation principle, the Upper Chamber considers the interpretation of the specific provisions of the lease in question.  It discusses what it refers to as the “torrential” style of drafting whereby the drafter attempts to cover all possible types of Net Receipts.  It concludes that the whole purpose of that drafting technique is not to miss anything out. The draftsman had tried to pick everything up in the “torrent” and the Upper Chamber concluded that this meant that it would cover categories of Net Receipts not necessarily expressly referred to in the lease.

 

  • What are the practical implications of the judgment? What should practitioners be mindful of when advising in this area?

 

The decision in this case focuses primarily on the issue of valuation and so the practical implication of the case is primarily for valuers rather than legal practitioners.  The supplementary point on the interpretation of the lease, although specific to the drafting of the particular lease and the value sharing assumptions provided for in it, is a useful reminder to practitioners as to how the court approaches the question of interpretation.

 

  • How does this case fit in with other developments in this area of the law? Do you have any predictions for future developments in this area?

 

The decision as a valuation case is consistent with the principles applied in other areas of valuation.  It adopts the favoured interpretation of statutes – to reach a conclusion on the wording of the statute that does not go beyond the intentions of Parliament.  In the case of the valuation itself, it follows the same approach as in other areas, the most obvious being valuation on rent reviews.  It endorses the approach, that there is a “presumption of reality” that should only be departed from in the case of express provisions instructing the valuer to do so.

The decision as an interpretation case is consistent with the principles of general contractual interpretation with the Upper Chamber trying to follow what the lease drafter intended.

In the case of both, future cases will hopefully endorse this consistency of approach.

This commentary was first written for Lexis Nexis on 1 December 2017 and published on the following link (Lexis Nexis subscription required) 

www.lexisnexis.com/uk/lexispsl/propertydisputes/document/412012/5R31-C4M1-DYW7-W3JG-00000-00/Examining_the_valuation_and_apportionment_of_premium__Crown_Estate_Commissioners_v_Whitehall_Court_London_

 

 

 

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.

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