Log in   Register
Falco legal training

Training delivered by an expert with passion and humour

Model Commercial Lease: four-month review 29 October 2014

The Model Commercial Lease (MCL) documents were released on 10 July, and have therefore been available for use for almost four months.

At its next meeting, in the middle of November, the MCL working group is planning to review all the comments that have been received from users.

It would therefore be very helpful if users could provide their comments for this purpose by Monday 10 November.

The working group would also be very interested in hearing about:

(a)  any transactions in which the MCL documents have been used, and how negotiations proceeded; and

(b)  whether firms are adopting the MCL suite of documents as their standard templates and, if so, whether they are making any changes to the published versions of the documents.

Please use the feedback/contact form on the MCL website for this purpose.

 

Share

Top of page

Looking for last minute CPD hours ? 28 October 2014

Those of us who have already amassed our 16 CPD hours this year are not particularly concerned about the imminence of the last day of the CPD year – Friday 31 October 2014. However, there are some folk who have not yet reached 16 hours.  This blog article is for you, so long as your firm subscribes to the Practical Law website and the webinars mentioned below are suitable for your needs, based on your existing level of knowledge of the topics.  (Some of them definitely will be, whatever your level of qualification.)

And of course if you have already amassed your 16 hours for this year, there is nothing to stop you using the information in this e-mail to start obtaining next year’s CPD hours at the start of the next CPD year.  Just return to this e-mail on 1 November.

What follows may look like an advertisement for Practical Law, but it’s actually an advertisement for my participation in a couple of these recorded webinars.

WEBINARS ON TOPICAL REAL ESTATE ISSUES

Practical Law Property has released a series of webinars on topical real estate issues – entirely free to subscribers to Practical Law Property.  The webinars build on the series of face to face lectures that Practical Law Property offered in October 2013, and are said to be targeted at trainees and those with 0-2 years PQE.  However, in my view everyone would benefit from listening to the majority of the webinars, particularly those who are not fully up to speed with issues involving flooding, green leases and environmental issues.  My webinar on Covenants affecting Freehold Land is suitable for everyone, of whatever level of qualification.

The topics covered in these free webinars are as follows:

  • Flooding Part 1: Why it matters to lawyers
  • Flooding Part 2: What lawyers need to do about it
  • EPCs and DECs: Essentials for real estate lawyers.
  • Green Leases: What to look for and how to amend them
  • Environmental issues for real estate lawyers
  • Business leases: security of tenure
  • Covenants affecting freehold land *
  • Agreements for lease **

 

With a couple of exceptions, the presenter for all these webinars is the very knowledgeable Sue Highmore of Practical Law.  The webinar with one asterisk next to it is a webinar from me (from my Ten Important Pointers series of training sessions), and the one with two asterisks is a joint presentation from me and Sue Highmore.

ACCESSING THE WEBINARS

The webinars are hosted on www.legalpd.com, the new learning solution launched in September 2014 by Practical Law.

What follows sounds much more complicated than it is.  All you are doing is setting up a personal account with a username and password.  Then you log back into the site to access the webinars.

Subscribers to Practical Law Property can access the webinars, free of charge, by following these instructions:

  • Go to www.legalpd.com/content?SN=property
  • Choose a webinar from the free series (identified by the FREE icon)
  • Click on “Buy Now/ Add to Pass”
  • Enter your email address in the New User box and follow the instructions on-screen to register
  • Select “Invoice Me” on the confirmation page (Note: the “total” should show as “£0.00 + VAT”; you will not be charged for the webinar)

Once you have registered, you only need to re-enter your password to access the other free webinars in the series.

Practical Law Property would like your feedback on these webinars and whether you would like to see further webinars.

OBTAINING CPD HOURS

If you want to obtain CPD hours, you need to watch a webinar and then complete a short quiz (achieving a mark of at least 3 out of 5).  I completed a quiz from the Agreement for Lease webinar (which admittedly I jointly wrote and presented) and got 100% !!  My certificate is proudly displayed below.

A transcript of each webinar is also provided on the website.

CPD certificate_150

Share

Top of page

CRELA event on 2 December 2014: “Social media – You mean it’s just a conversation?” 24 October 2014

Here is a “Don’t miss” event if ever there was one, ignoring for the moment that I have organised it, and will be chairing it.  Despite that, I still maintain that it is going to be well worth attending.

On the evening of Tuesday 2 December 2014, the Commercial Real Estate Legal Association (CRELA) has arranged for Helen Hammond of Elephant Creative to speak on the subject of  “Social media: you mean it’s just a conversation?“.

With a view to attracting more real estate lawyers to join CRELA, the talk is open to everyone, whether or not a member of CRELA.  Tickets for CRELA members cost just £25 plus VAT, and tickets for CRELA members’ guests and for non-members cost just £30 plus VAT.

The event is kindly being hosted for CRELA by Berwin Leighton Paisner at Adelaide House, London Bridge, London EC4R 9HA.  Registration opens at 5.45 pm and the session starts at 6.15 pm.

Social media?  What’s that all about then?

Using her many years’ experience of advising professionals, Helen Hammond will take a practical, no-nonsense path through a selection of the most important social media tools available. She will provide a clear set of recommendations for their use as well as debunking some of the myths about the audiences currently using them (teenagers ??!) and their roles within traditional legal marketing and business development.

Using relevant case studies Helen will also demonstrate how lawyers are currently using social media to underpin cross-selling, client care and business development as well as thought-leadership, PR and knowledge management.  This session is designed to explain, at last, why you must not miss out on social media and what steps you need to take, right away.

Helen Hammond is Managing Director at Elephant Creative.   Working with leading law firms in the UK and elsewhere, she specialises in delivering common-sense, practical advice, focused on clear business development objectives.

How to book your tickets

This is going to be a very popular event and you need to book in advance.  You can find details of how to book on the CRELA website.

About CRELA

The objects of CRELA are:

  • to promote specialist non-contentious commercial real estate legal skills within the property industry and among others with interest in real estate;
  • to provide a forum in which members can share knowledge and information with a view to improving and enhancing transactional and other procedures for the benefit of practitioners and clients;
  • to provide a network for social, educational and training events.

 

Membership is open to lawyers who mainly undertake non-contentious transactional and advisory work relating to commercial real property (other than lawyers who are specialists in environmental law, planning, construction or residential property).  Professional support lawyers and in-house lawyers who qualify for membership are most welcome.

Share

Top of page

North East Property Buyers Litigation: Supreme Court decision 23 October 2014

Yesterday the Supreme Court handed down its decision in the North East Property Buyers Litigation (Scott v Southern Pacific Mortgages Ltd [2014] UKSC 52).  This was one test case arising out of a series of transactions in which owners of properties who were having difficulty repaying their mortgages were persuaded to sell their homes (at considerable discounts) to an organisation called North East Property Buyers (NEPB), in exchange for the promise of being allowed to stay in the property either for a fixed term or (in many cases, including this one) indefinitely.  Apparently there are another 90 or so cases in the Newcastle area involving NEPB and some 20 different lenders, but also many other cases in other parts of England involving similar schemes.

In fact, the paperwork was at odds with the transaction that the seller expected to be entering into. The houses were actually being sold to individual nominees, with the transactions being financed by buy-to-let mortgages.  The lenders were being told that the properties were being acquired with vacant possession and were then going to be let.  In fact the sellers remained in possession at the time of the sale, and were granted assured shorthold tenancies after completion.

So – when the nominee owner fell into arrears and the lender sought possession, whose rights should take precedence ?  The innocent seller or the innocent lender ?  An age-old question of which of two innocent people should suffer loss due to the fraudulent behaviour of a third party (and, it seems, some very nefarious solicitors).

To cut a long story short, the Supreme Court held that the lender’s rights prevailed.  The seller’s argument was that she had an equitable interest in the property (arising out of NEPB’s assurance that she could stay in it indefinitely after the sale) from the moment of exchange of contracts, which amounted to an overriding interest by virtue of her occupation and that this gave her priority over the lender.

The Supreme Court held that the seller could not acquire any equitable interest in the property until the buyer acquired the legal title.  At the time of exchange of contracts, all that arose was a personal contractual right against the buyer, not a proprietorial right.   But at completion, since the finance was being provided by the lender contemporaneously with the purchase, and to enable the purchase to take place, there was no moment during which the seller’s rights had the opportunity to take priority over the lender’s rights.  The purchase and the mortgage constituted one indivisible transaction in accordance with the House of Lords decision in Abbey National Building Society v Cann [1991] 1 AC 56.

Two of the Justices (Lord Collins, with whom Lord Sumption agreed) also considered that, even if (which was not the case) the seller had obtained a proprietorial interest at the time of the contract, it would not still have resulted in the seller having priority over the lender.  This was strictly obiter, given the finding that no proprietorial interest did arise on exchange of contracts.

The other three Justices (Lady Hale, with whom Lord Wilson and Lord Reed agreed) said that they would have taken a different view on the indivisibility of the transaction (ie whether the contract, the transfer and the charge were all effectively one transaction) if a proprietorial interest had arisen on exchange of contracts.  However, again this was immaterial to the actual decision given that they too held that in this case the seller did not obtain any proprietorial interest (and hence there was no overriding interest by virtue of occupation) until the buyer had completed the acquisition of the property, by which time the lender’s rights had prevailed in accordance with Abbey National Building Society v Cann.  (The fact that the two Justices openly differed in their views on the second issue might be thought surprising, given that both accepted that the position was unlikely to arise in practice.)

In her conclusion, Lady Hale made it clear that she was not happy with the conclusion that the court had been required to find (and in particular the “all or nothing” approach of the decision in Abbey National Building Society v Cann, which ignores the relative “innocence” of the parties), and she hopes that this issue will be considered by the Law Commission in its forthcoming review of the Land Registration Act 2002.  Both Lord Collins and Lady Hale expressed sympathy for the victims of the fraud but emphasised the importance of ensuring that the land registration system provides certainty for both buyers and lenders.

This article is merely a (relatively) short summary of the decision, based on the Press Summary very helpfully prepared by the Supreme Court itself.  We now need to analyse the speeches in detail.  On a first inspection, there seem to be some particularly interesting observations on the nature of the respective interests of a seller and buyer during the period between exchange of contracts and completion.  It is often said that the seller becomes a trustee for the buyer, but this is not a conventional trustee-beneficiary relationship.  That can be the subject of a separate article next week.

You can download the transcript from the Supreme Court website here.

Share

Top of page

Transitional arrangements for the CPD changes in November 2016 22 October 2014

You will remember that the CPD regime is changing with effect from November 2016 (or, as the Solicitors Regulation Authority (SRA) puts it, there is to be “a new approach to continuing competence”).

Last week (on 15 October) the SRA issued a bulletin on the changes which you can see here:

Moving towards a new approach to continuing competence: Information for the CPD year 2014/15

The new approach will need to be adopted by all solicitors from 1 November 2016.  It will require us to comply with Principle 5 in the SRA’s Code of Conduct 2011 (“You must provide a proper standard of service to your clients”) by:

  • reflecting on the quality of our practice by reference to the SRA’s proposed Competence Statement for solicitors (see below) and addressing identified learning and development needs; and
  • making an annual declaration that we have considered our training needs and taken measures to maintain our competence.

This will replace the current requirement that we must undertake 16 hours of CPD annually.

You can read my blog article dated 24 May 2014 to find out more about the changes.

Transitional provisions

The SRA must know that solicitors love transitional provisions, so they have given us some.  We can choose to move to the new approach from 1 April 2015 – nineteen months ahead of the changeover date.  From that date, we have a choice whether to follow the current approach or the new approach.  And we don’t need to tell the SRA which we are doing !

Don’t rely just on what I have written in this blog because (1) it’s only a summary (2) it’s only my understanding and (3) I don’t think it’s been embedded in law yet so I don’t there are any source materials to consult.

Current approach

Those of us who choose to continue with the current approach until November 2016 must continue to obtain 16 hours of CPD each year (November to October) and certify as such.

Adopting the new approach early

This is complicated, so pay attention.

If you adopt the new approach before 31 October 2015, you will need to provide a declaration that you have considered your learning and development needs and taken measures to maintain your competence for the 2014/15 and 2015/16 practising years.

If you adopt the new approach after 31 October 2015, you will need to provide a declaration that current CPD requirements have been met for the 2014/15 practising year.  You will also need to provide a declaration that you have considered your learning and development needs and taken measures to maintain your competence for the 2015/16 practising year.

What will happen if you decide to adopt the new approach from, say, 1 April 2015 (ie part-way through a practising year)?  What happens in the first five months of the 2014/15 practising year?  The SRA’s document merely says that “we do not expect solicitors to pro rata (sic) their 16 hours CPD requirement before moving to the new approach”.  What this means is a mystery to me at the moment.  It seems to suggest that no CPD at all is needed between November 2014 and March 2015, but this sounds so unlikely that it surely cannot be what the SRA intends.

This is all subject to four caveats.

First, details of the form of the declaration that we will need to provide annually are awaited.

Secondly, the SRA says that in Spring 2015 it will be publishing a toolkit outlining good practice in learning and development.  That is all that we have been told at the moment.  Will it first be issued in draft so that we comment on it?  Who knows.

Thirdly, from 1 November 2014 it appears that it will no longer be necessary for solicitors to undertake any accredited training – even though the regulations that lay down this requirement will not have been amended by 1 November (so this is something of a mystery).  This is an extremely complex and widely misunderstood requirement.  Currently at least four hours (out of the required 16 hours) must be accredited training lasting at least an hour, provided by accredited trainers or within organisations that have been accredited (although certain organisations – including those that have Lexcel or Investors in People accreditation –  seem to be exempt from this requirement by regulation 17 of Part 3 of the Solicitors Training Regulations 2011).  From 1 November 2014 the SRA will cease to recognise accredited training and will no longer accept applications from trainers for accreditation (this particular change is a good thing for Falco Legal Training Limited, which has never been accredited, because it would cost me money and consume my time).

Fourthly, we are awaiting something called the “Competence Statement” from the SRA, defining the competencies that practising solicitors are required to maintain.  I have not yet seen a draft version, but my suspicion is that it is going to be extremely vague, saying that solicitors need to be honest and truthful and that kind of stuff and listing a few specific competencies such as understanding the money laundering responsibilities.  But I do not think that it is likely to go into any detail in relation to, say, landlord and tenant law.  If a firm wants to say that a 2 year PQE has to understand the security of tenure provisions in the Landlord and Tenant Act 1954, that will be for the firm to stipulate.  But where the Competence Statement does identify a particular risk, the SRA says that it will “expect solicitors to be able to demonstrate that they have considered their learning and development needs and taken appropriate steps to address them, so as to ensure a proper standard of service for clients”.

So now we await the Competence Statement and the promised toolkit outlining good practice in learning and development.  They are expected in Spring 2015.

Share

Top of page

A tale of unacceptable planning conditions 21 October 2014

Contracts for sale and purchase subject to the grant of a satisfactory planning consent are relatively common.  Developers are prepared to pay a higher price when they know that a site comes with planning consent.  Obviously the seller needs to make a decision – accept a lower price today, or the hope of a higher price tomorrow, in the event that planning consent is forthcoming.

And there is a fundamental difficulty with such contracts, which is that it is difficult to predict with certainty the conditions that the local authority will attach to any planning consent that is granted.  A large supermarket would not be happy with a planning condition restricting deliveries to the period between, for example, 11 am and 4 pm.  So it is conventional in such contracts to include a definition of “Unacceptable Planning Condition”.  If there is one of these, then the buyer is entitled to pull out of the deal and the seller is left with the property (but also a planning permission obtained at the buyer’s cost).

The contract will normally provide that if the parties cannot agree whether a condition is an Unacceptable Planning Condition, the decision is made by an independent third party.  All very standard stuff.

As is what typically happens in practice, as demonstrated by the recent case of Rentokil Initial 1927 Ltd v Goodman Derrick LLP [2014] EWHC 2994 (Ch).  It seems to be not uncommon (to put it mildly), in the case of contracts subject to the grant of planning consent, for the buyer/developer to claim that there are Unacceptable Planning Conditions, whatever conditions are imposed, in an attempt to force the seller to drop the price.  In this case a developer (whom we shall call “TW”) agreed terms with Rentokil to acquire the property for residential development, subject to planning.  Rentokil’s solicitor, Mr Kendrick of Goodman Derrick, was well aware of the propensity of developers to claim to see Unacceptable Planning Conditions around every corner, and agreed with TW provisions that gave Rentokil the best protection it could practically expect.  In particular, he refused to allow the definition to be so one-sided as to give TW effectively merely an option to acquire the site.

Planning consent was eventually granted (after several attempts) in December 2008.  By then the financial crisis had started and property prices had dropped (the judge said “the property market had by that stage entered into a period of historic decline”).  It appears that TW then recalculated its figures and decided it did not want the site after all.  It claimed to see Unacceptable Planning Conditions.

Once TW had claimed that the planning consent contained Unacceptable Planning Conditions, the question of whether the conditions were unacceptable in the terms of the contract had to be decided by a third party.  Mr Brown, Rentokil’s group legal director, became concerned that TW would not have the funds to complete the purchase, given the financial crisis, and negotiated a new deal under which TW were to acquire the property unconditionally for a price reduced by £1.8 million.  Then he claimed that Goodman Derrick, his retained solicitors, had been negligent when settling the form of the contract, making it too easy for TW to claim there were Unacceptable Planning Conditions.  He sought compensation in the form of the £1.8 million that Rentokil had forgone.

Based on the evidence that the judge heard from Mr Brown, Mr Kendrick, Mr Steele of Rapleys (Rentokil’s planning consultant) and others, Rentokil’s claim against Goodman Derrick failed.

Judges at first instance set great store by the evidence given by the parties in this sort of case, and by contempory documentation.  This was particularly relevant in this case for two reasons.  First, Mr Brown claimed that he had relied entirely on Goodman Derrick for advice on the structure of the deal, and he had not appreciated the risks of entering into a conditional contract.  In a 50 page decision, the judge decided that this was not the case.  The contemporary evidence showed that Mr Brown had been involved in the minutiae of the negotiations throughout the transaction and had a clear understanding of the risks.

Secondly, the judge held that if the arbitration concerning whether or not there were Unacceptable Planning Conditions had been completed, the third party would have found that the conditions were not unacceptable ones.  Rentokil would have won and TW would have been forced to complete the purchase.  The reason for Mr Brown’s agreement of a reduced price with TW was because he was afraid that TW would not have the funds to complete at the full price.

For both reasons, therefore, the action against Goodman Derrick failed.

In passing

The case reminds us of two age-old rules.

First, remember when writing any letter (or, in this modern era, e-mail), it might possibly end up being read out in court.  Mr Steele’s e-mail to Mr Brown, anticipating the possibility that TW might be looking for an exit, arguably fails that test.  Mr Brown wrote:

“In view of the softening of the market generally and recent difficulties that [TW] appear to be in, please be particularly alive to the possibility of some slowing of their activity. Please let me know if this is, or becomes apparent. At the moment it seems as if they are still proceeding but I’m always waiting for the call from them wishing to renegotiate.”

Mr Steele wrote back:

“Your thoughts are well founded and we are of course alive to the possibility that they will try and f*ck up the planning appeal …”

(Disappointingly, the transcript gives no clue whether the asterisk was in the original e-mail or was inserted by the judge in his transcript.  My guess is that it was in the original e-mail, but I’m still not convinced that it was an appropriate comment to write.)

Secondly, double-check the drafting of the contract.  An unfortunate formatting error crept into one of the already-complex provisions.  One of the Unacceptable Planning Conditions, number 11, started off as this:

“11 Imposing an obligation: —

11.1 which cannot be complied with without the agreement of a Competent Authority or third party (including without limitation one requiring the construction of highway or drainage works) or

11.2 which prevents the commencement of the carrying out of and/or the use or occupation of the whole or any part of the Development unless and until a condition has been complied with which cannot be satisfied without the agreement of the Competent Authority or third-party

and which cannot in the reasonable opinion of the Buyer be obtained on terms or at a cost or within a timescale acceptable to the Buyer.”

but after the contract had been revised, it accidentally became:

“10. Imposing an obligation: —

10.1 which cannot be complied with without the agreement of a Competent Authority or third party (including without limitation one requiring the construction of highway or drainage works) or

10.2 which prevents the commencement of the carrying out of and/or the use or occupation of the whole or any part of the Development unless and until a condition has been complied with which cannot be satisfied without the agreement of the Competent Authority or third-party and which cannot in the reasonable opinion of the Buyer be obtained on terms or at a cost or within a timescale acceptable to the Buyer.”

In other words, the independent wording at the end, governing both parts of the clause, became joined to the second part of the clause.

TW then claimed that the wording starting “and which cannot …” applied only to the second limb and not the first, whereas as originally drafted the wording had applied to both limbs.  This led to the point having to be discussed in court, and the judge had to decide on the point.  He decided on Rentokil’s analysis (ie the wording as originally drafted).  No harm done, you might think – but the error gave TW one more reason to try to argue that the planning conditions were unacceptable, and wasted a lot of the court’s time.

Ending a sentence with a hanging clause is a classic piece of lousy drafting, because of the potential ambiguity that it can create.  The example I use in my drafting course is:

“Any solicitor is entitled to time off in lieu when attending a conference or a seminar arranged by the Law Society.”

So – I am attending a conference but it has not been arranged by the Law Society.  Am I entitled to time off in lieu ?  No-one knows.  The court is unlikely to need to interpret that sentence but in a similar situation – such as the provision above – it needs to work out what it thinks the parties must have intended.  Which, of course, might not be what they had actually intended.

The solution is to rephrase the sentence, depending on what is meant:

Either

“Any solicitor is entitled to time off in lieu when attending a conference or a seminar, in either case arranged by the Law Society.”

Or

“Any solicitor is entitled to time off in lieu when attending a seminar arranged by the Law Society or a conference.”

End of lecture.

Share

Top of page

Commercial Leases Best Practice – Morning Briefing 20 October 2014

Falco Legal Training’s blog is back, after a break for an exciting holiday in South America.

This is an announcement about a training session that takes place on Thursday this week.

Join Nick Darby (Dentons) and me on Thursday morning this week for a RICS CPD Foundation course “Commercial Leases Best Practice“.  Nick will be talking about the Code for Leasing Business Premises 2007 and the RICS Small Business Retail Lease (which he prepared for the RICS), and I will be talking about the Model Commercial Lease (which I had a hand in writing, and for which I run the website).

There will also be a session on the Better Buildings Partnership Green Leases Toolkit, comprising an introduction to the subject of green leases and why businesses might consider adopting them.

Places are still available.  More information, including how to book, is on this page on the RICS CPD Foundation’s website:

Commercial Leases Best Practice – Morning Briefing

Share

Top of page