December Business Client Web Articles
Articles included
Fears over red tape ‘prevent businesses expanding'
Many firms are choosing not to expand because of concerns over complex regulations, according to research by the Federation of Small Businesses (FSB).
A survey of its members showed that 27% of those who wanted to expand did not go ahead because they are afraid of tackling the regulations involved. The same survey revealed that half of the businesses planning to downsize or close said their decision was strongly influenced by regulatory burdens.
The FSB has called on the Government to put a freeze on all new regulations – a move it estimates would help to create 258,000 jobs and prevent a further 55,000 from being lost.
The Government has given no indication that it is prepared to introduce a freeze although it says it has saved businesses £3bn a year through its programme to simplify regulations and remove unnecessary paperwork.
In spite of this, small businesses are spending a total of £12bn a year on complying with various regulations, according to research by the Forum of Private Business (FPB).
A recent FPB survey of its members shows that employers in small to medium sized firms are spending an average of 37 hours a month on compliance.
Employment law provides the greatest challenge and costs small businesses £2.4bn a year dealing with issues such as dismissals and redundancy, discipline, absence controls and management, parental leave and holidays.
Health and safety administration costs £1.2bn and small firms also find themselves bogged down in tax administration, building and property regulations, and equality and diversity.
The costs seem enormous when quoted in this way and it’s not surprising that many firms will try to save money by dealing with these issues in-house. However, it is usually more cost-effective and safer to get good legal advice to ensure that compliance matters are dealt with quickly and correctly.
This can save money in the long term and reduce the risk of creating problems unnecessarily – particularly in the area of employment law where failure to follow the correct procedures can lead to costly tribunal claims.
Please contact us if you would like more information about compliance with the various regulations affecting business.
Who pays when actual costs exceed the estimates in the contract?
The wording of a contract has prevented a property developer from getting a full rebate on a project where some of the costs exceeded the estimates.
The company had bought a site which needed remediation work before it could be used. The purchase price was based on the notional value of the site once that work had been carried out.
The contract called for the estimated costs of this work to be agreed between the developer and the site owners within six months. These costs would then be deducted from the notional value of the site to arrive at an actual purchase price.
A second clause in the contract stated that the owners would bear any costs that the developers incurred in getting approvals relating to water supplies and the construction of a link road. It was estimated that this would take about five months.
In the event, it took longer and so the cost of obtaining the approvals was higher than estimated. The developer tried to get a rebate arguing that the clause in the contract relating to approvals allowed for actual costs rather than estimated costs to apply.
However, the judge held that the clause dealt with estimated costs in the same way as the rest of the contract.
That decision has been upheld by the Court of Appeal. It held that the cost of the approvals only differed from other costs in that they depended on third parties. It was always possible, therefore, that issues might arise that had not been anticipated. However, there was nothing in the contract to suggest that the cost of obtaining approvals should be treated any differently to other costs.
If the developer had wanted them to be treated differently it should have said so using “express language” in the contract.
Please contact us if you would like more information about matters relating to contracts.
Landlord loses appeal over repossession of premises
A landlord has lost his appeal to repossess premises that he wanted to use to set up a business.
The court ruled that he had not shown sufficient intention to occupy the building for the purposes of the Landlord and Tenant Act 1954 (the Act).
The premises were occupied by a tenant who had been running a small news agency since 1991. When the tenant applied to renew the lease, the landlord objected on the grounds that he wanted to set up a news agency himself on the premises.
The landlord accepted that to satisfy the requirements of the Act, he would have to show that he genuinely intended to use the premises to run the business and that he was capable of putting that intention into effect. He gave an undertaking that he would not use the premises for any purpose other than running a news agency for two years.
However, the judge ruled against the landlord because he thought his intention was only temporary and it was highly likely that he would sell the premises or grant a lease at the end of the two years.
The Court of Appeal has now upheld that decision. It said that if the landlord succeeded in meeting the requirements of the Act then the tenant would have no right to renew the lease and would have to vacate the premises. The goodwill that had been built up by the business would be lost or acquired by the landlord.
The tenant could suffer a substantial loss and the courts had therefore set a high benchmark for establishing the seriousness of the landlord’s intentions and capabilities. There had to be real substance in the intention to set up a new business and the occupation of the premises had to be more than short term.
In this case, the judge was entitled to conclude that the landlord had not provided sufficient proof of his intention to occupy the premises in the way he had described.
Please contact us if you would like more information about commercial leases and landlord and tenant issues.
Crane owners cannot avoid responsibility for their negligence
The owners of a crane have been told they cannot pass on responsibility for their negligence to another company following an incident in which an operator was seriously injured.
The case centred on a dispute between the owners of the crane and a company which had hired it for use on a project at an electricity sub-station. The owners also supplied an experienced operator.
The contract contained clauses stating that the operator was to be regarded as working for the hirer while the work was being carried out. The hirer also had to indemnify the owner for any claims for damage or personal injury that might arise relating to the crane and the actions of the operator.
On the first day of the project the operator fell from the crane and was seriously injured. He made a claim against the owners for negligence and breach of statutory duty. The owners then began proceedings against the hirer based on the indemnity clauses.
However, the court ruled against the owners on the basis that the indemnity clauses only covered claims that might arise out of the operator’s actions. They did not cover claims that might arise out of the owner’s negligence in respect of the crane.
That decision has now been upheld by the Court of Appeal. In giving their ruling, the Appeal Court judges stressed that if a company wanted to limit its liability when entering into a contract then it must do so in clearly stated terms.
The crane owners had failed to do this because their indemnity clauses were wide and did not specifically cover their own negligent acts.
Please contact us if you would like more information about contract issues and professional negligence.
OFT investigates high cost of corporate insolvency
The Office of Fair Trading (OFT) is carrying out a market study into the way corporate insolvencies are conducted in the UK.
It follows concerns among ministers and the Insolvency Service itself that the system is not working as fairly and as efficiently as it should. The World Bank recently published a report showing that the cost of closing a business in the UK is higher than in many other countries with similar or even better recovery rates.
The study will examine the structure of the market and look for features such as higher fees or lower recovery rates that could be detrimental to certain groups of creditors.
The study covers all of the UK with the OFT collecting and analysing information from various professions including law firms, accountants, government regulators and trade bodies.
Clive Maxwell, OFT Senior Director of Services, said: “We want to identify any potential problems within the corporate insolvency market to ensure that firms and practitioners are competing freely and that the market is working well for the end consumers.”
We shall keep clients informed of developments.
Local authority fails to stop green belt development
A local authority has failed to overturn a planning inspector’s decision to allow a homeowner to extend his property in a green belt area.
The homeowner had applied to Guildford Borough Council for permission to build a two-story extension. The property had already been extended twice before.
When making the new application the homeowner referred to other properties in the area which had been granted permission for larger extensions than the one he was proposing.
The authority refused permission on the grounds that the extension was a disproportionate addition to the existing property. It would also affect the openness of the green belt which was an area of outstanding natural beauty.
That decision was overturned by the planning inspector who concluded that the extension would not have an adverse effect on the landscape if it was built with appropriate materials.
The authority took the case to the High Court on the grounds that the inspector had misdirected himself in relation to its green belt policy.
The judge said it was necessary to consider the way the authority had dealt with similar applications in the same area. The principles of public law required a consistency of approach.
The authority had granted permission for extensions which were larger than the one proposed by the homeowner in this case. The inspector had been entitled to take this into account and had not misdirected himself in law. His decision should therefore be allowed to stand.
Should a company 'sign' or 'execute' a leasehold enfranchisement notice?
A company wishing to take part in a leasehold enfranchisement could do so by authorising someone to sign the initial notice on its behalf.
There was no need to comply with more complex “execution” procedures laid down in the Companies Act 1985.
That was the ruling of Central London County Court in an enfranchisement involving a block of flats. The nominated purchaser comprised of four lessees of those flats – three individuals and one company.
The initial notice was signed by the three individuals and the company authorised one of its directors to sign on its behalf. The owner sought a declaration that the notice was invalid.
It submitted that in order for a company to satisfy the requirements of the Leasehold Reform, Housing and Urban Development Act 1993, it would need to comply with the formal requirements for the execution of documents laid down in the Companies Act 1985. It argued that merely signing the document in the same way as an individual lessee would not be sufficient.
The court, however, rejected this argument. It held that the 1993 Act did not require that such documents should be “executed” as outlined in the Companies Act. It pointed out that there was significant difference in meaning between “executed” and “signed”.
The word executed related to more formal situations and so would be used in connection with deeds and similar documents. The word signed could be defined by its ordinary, everyday meaning. The 1993 Act required that a document should merely be signed.
A company could therefore authorise an officer to sign on its behalf and the notice would be valid.
Equality Bill introduces protection against 'dual discrimination'
The new Equality Bill, which is now making its way through parliament, has been amended to provide protection against dual discrimination.
Ministers believe the new protection is necessary because at present, people can only bring individual claims for each form of discrimination such as age, race, disability etc. The Government says this can sometimes make it difficult to prove that they were discriminated against on that one individual area alone.
The dual approach will allow people to bring claims on the basis that they were discriminated against for a combination of reasons. Ministers give this example of how the kind of case the new approach might cover: “a black woman who is discriminated against because her employer has particular stereotyped attitudes towards black women - as opposed to black men or white women - could bring a single claim for combined race and sex discrimination.”
The Equality Bill will replace nine other pieces of legislation and approximately 100 measures relating to equality introduced over the last 40 years.
One of the key aims of the Bill is to narrow the pay gap between men and women. To this aim,
secrecy clauses in employment contracts will be banned so that employees can compare wages if they wish, enabling women to take action if they find they are being paid less than men for doing the same work.
Firms may also need to consider equality issues when tendering for contracts with public bodies. Organisations such as local authorities will be encouraged to use procurement as a way of promoting equality within private sector firms.
There will also be more protection for carers against discrimination. It is currently illegal to discriminate against someone because of their association with a person of another race, religion or sexual orientation. The Equality Bill will extend this protection so it relates to age, disability and sex or gender reassignment. It means, for example, that an employer could not refuse to promote someone just because they were the carer of an elderly relative.
Firms may wish to re-assess their equality policies in light of the new measures in the Bill. Please contact us if you would like more information.
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