March 2009 News Articles
Failure to follow lease provisions costs landlord £263,117
A recent case in the Court of Appeal highlights the need for landlords to make sure they follow the provisions of the lease when making service charges.
Failure to do so has cost Leonora Investments Co Ltd £263,117. Leonora was the landlord of an office block in Croydon. In 2000 it let four floors to engineering consultancy Mott MacDonald.
The leases contained specific provisions for the payment of service charges. The Schedule of Services stated: “The Landlord will (unless prevented by causes beyond its control) prepare and send to the Tenant a statement of actual Service Costs and Service Charge for each Service Charge Year as soon as practicable after the end of such year and in the event of the Service Charge for the Premises exceeding the aggregate amount paid by the Tenant for such year the Tenant will pay the balance due to the Landlord within 14 days of demand and in the event of the aggregate amount being greater the excess will be credited by the Landlord by way of a set-off against the next instalment of Service Charge due from the Tenant.”
This set out a clear method of payment. However, the landlord then set about some substantial renovations to all four floors which it regarded as outside the normal service costs so it decided to send separate invoices outside the provisions laid down in the schedule.
The tenant refused to pay so the landlord sued.
The Court of Appeal has now ruled in favour of the tenant. In giving his judgment Lord Justice Tuckey said the issue boiled down to a simple question: what does the Lease say has to happen before the Tenant is obliged to pay Service Charge?” He said the answer was in paragraphs 1 to 3 of the Schedule dealing with Service Charges. “They prescribe the contractual route down which the Landlord must travel to be entitled to payment”.
This meant the landlord should have followed the provisions of the lease. In failing to do so it had lost the right to charge for the work.
The ruling may seem harsh but with so much at stake it is essential that landlords take legal advice before deviating from the exact terms of the lease.
Battling to save a failing business can put directors at risk
As the recession deepens, more and more company directors could find themselves battling to keep their businesses afloat.
While they will naturally want to do everything possible to come through these current economic difficulties, they must guard against soldiering on for too long trying to rescue a business which has no chance of survival.
If they do they could be accused of wrongful trading and run the risk of financial ruin as they become liable for the debts of their business – even if it is a limited liability company.
The danger is that some directors may fail to recognise or refuse to accept that their business has no chance of avoiding insolvency. Understandably, they may have an emotional attachment to a firm they have set up themselves and feel a tremendous loyalty to their staff. Or they may be trying to avoid having to pay back company loans which they have personally guaranteed.
This can make them carry on regardless, hoping against hope that things will improve even though that can sometimes makes things worse because the law is quite clear about what should happen in these circumstances.
As soon as a company becomes insolvent, directors have a legal duty to protect the interests of creditors. When formal insolvency procedures get underway, the behaviour of directors over the previous few years could come under investigation.
They could become liable for wrongful trading if it’s found that they continued entering into contracts or accepting credit after they knew or should have known there was no reasonable chance of avoiding insolvent liquidation.
The court could then order them to use their personal assets to help settle the company’s debts.
Directors of insolvent companies are also obliged to treat all creditors equally so they must not give preferential treatment to friends or a company that is threatening to sue them.
The problem for many directors is identifying the point at which they become insolvent so they should seek professional help as soon as problems start to emerge.
Persistence is a good quality in business but directors must also recognise when the cause may be lost and then make sure they meet their obligations.
Please contact us if you would like more information.
Women police officers lose appeal over equal pay
The Court of Appeal has ruled that a police force was entitled to pay two of its women officers less than their male colleagues who worked night shifts.
The two female officers did not have to work nights because of their child care responsibilities. Consequently, they did not qualify for the extra payments made to officers who did work unsocial hours.
The officers argued that the enhanced payment scheme amounted to indirect discrimination against women because they were less able to work the night shifts due to their family commitments and the difficulty of child care arrangements.
The Employment Tribunal ruled in their favour saying that although it was a legitimate objective for an employer to want to reward night working, in this case it could have been achieved by less discriminatory methods.
However, that decision was then overturned by the Employment Appeal Tribunal (EAT) which held that enhanced payments were acceptable if they were intended to achieve a legitimate objective and if they were proportionate in achieving that objective. It held that such an objective could not be achieved if people who did not work nights were paid the same as those who did.
That decision has now been upheld by the Court of Appeal which said that the main issue had to be the aim of the employer. In this case, the Chief Constable believed that there should be an enhanced payment for night working. As the EAT had pointed out, this could hardly be achieved if people were paid the same whether they worked nights or not.
With so much attention recently focusing on women winning long and complex equal pay claims, this fairly straightforward ruling will no doubt be welcomed by many employers. However, each case will be decided on its own individual circumstances so it is important to check the legal position before making any decisions on potentially discriminatory pay awards.
Builders win dispute with contractor over payments
It is always advisable for businesses to draw up a contract before beginning work for a client, especially if it is a large project involving significant sums of money.
However, even if there is no written contract, it is still possible to take legal action to recover money due as was shown in a recent case involving a firm of builders.
The builders had agreed to refurbish a house and outbuildings for a contractor. There was no written contract but the builders issued statements of account for the work as it was carried out and the contractor made regular payments.
A dispute then arose about the amount being charged. The contractor refused to make further payments and the builders were ordered off the site.
The builders contended that the contractor had agreed to pay the amounts shown in the statements of account and should honour that agreement. The contractor argued that the project was to be carried out on a cost plus basis. The amounts he had already paid were not in response to the individual invoices but on account for the final bill.
The builders also argued that they had been wrongfully expelled from the site and were entitled to compensation for the loss of profit on the work they had been asked to do. The contractor counter claimed saying some of the work was defective and he was entitled to end the contract because of the builder’s delay in completing the work.
In the absence of a written contract, the court had to decide whether the contractor had agreed to pay the prices as they were set out in the statements of account or whether he had merely agreed to pay a reasonable price on a cost plus basis.
The court held that the payment procedure had changed as the project progressed. It began with the contractor paying individual invoices but then changed to a system by which he agreed to pay a reasonable price for the whole project. That, however, was overtaken by him ordering the builders off the site in the course of the dispute. The court considered the expulsion to be unjustified because there had been no delay or other problem that entitled the contractor to terminate the contract.
The builders were therefore entitled to recover their losses for the uncompleted work.
It would have helped, of course, if the terms of payment and other issues had been written into an agreement before work began, but the case shows that the courts can still help when disputes arise.
Stereo system patent revoked for being too obvious
A patent for a system providing stereo sound to several rooms has been revoked because a court considered it too obvious to warrant legal protection.
The system involved using amplifiers and Cat 5 cables to provide sound to several rooms from a single source. The patent was challenged by a group of electronic companies. They submitted that it should be ruled invalid because there was no original invention or concept involved.
They said that the techniques used would be obvious to anyone skilled in electronics even if they were unaware of the patented system. The patent holder submitted that the possibility of using Cat 5 cables to transmit audio signals was not generally known before it developed its system.
The court held that a patent would be invalid for lack of inventiveness if the new development it tried to protect would have been obvious to a skilled professional who was not aware of that development.
The judge said the fact that an invention was simple did not mean it was obvious. One of the difficulties for the court in dealing with the case was that a simple invention may seem obvious once someone has thought of it and explained it. It was important to guard against the use of hindsight.
However, in this case, the evidence from electronics experts was that a person skilled in the profession would have been aware of the characteristics of the equipment involved and how it could be used to achieve the desired effect. That meant that the invention was obvious and the patent had to be revoked.
Court says same complaint by tenant cannot be heard twice
A tenant has failed in her attempt to bring court proceedings for a second time in relation to a problem with dampness in her flat.
The court ruled that as the case had already been dealt with once it should be not be heard again and so was struck out.
The case involved Ealing Borough Council and one of its tenants. The tenant had experienced problems with dampness in her flat and so had started proceedings alleging that Ealing had breached its duty under the Landlord and Tenant Act 1985.
She did not produce any expert evidence as to the cause of the problem. The judge then found that there was no evidence of structural damage and the most likely cause of the dampness was condensation. The tenant’s claim therefore failed.
The tenant then tried to make a second claim, calling on expert evidence suggesting that the most likely cause of the dampness was the fact that there was no membrane under the floor. However, the county court struck out her claim on the grounds of res judicata – a legal principle that prevents courts from hearing the same case twice. It’s designed to ensure a finality to legal proceedings.
The tenant appealed to the High Court saying the principle should be set aside because the Landlord and Tenant Act 1985 placed a continuing duty on landlords to keep properties in good repair. Therefore, to continue with the principle would frustrate the will of Parliament.
The High Court dismissed her appeal, however, saying it was in the public interest that there should be a finality to litigation and there was no reason why res judicata should not apply to the Landlord and Tenant Act.
Northern Rock to pump £14bn into new mortgage lending
Northern Rock is to increase its mortgage lending by up to £14bn over the next two years.
The nationalised bank plans to make £5bn available this year and a further £9bn in 2010. The Chancellor Alistair Darling says this is one of a series of moves designed to rebuild the banking sector and revitalise the housing market by making more mortgages available.
Some mortgages will be provided at up to 90% of the value of the property being purchased. The average value of new mortgages is currently £112,000. At that rate, the extra £5bn being made available this year could fund the purchase of 44,600 homes of average size.
Announcing the increased funding, a Government statement said ministers wanted to see a well functioning mortgage market where “lenders lend responsibly and borrowers have access to a wide range of mortgages that they can afford to repay”.
The extra funding from Northern Rock may not have a dramatic effect on the depressed property market but it is nevertheless a step in the right direction and gives some ground for optimism for those looking to buy or sell a house.
Both buyers and sellers who are thinking of re-entering the market may find that the system has changed considerably since the last time they moved home – mainly because of the introduction of Home Information Packs (HIPs).
HIPs are intended to simplify and speed up the process by obliging the vendor to provide potential buyers with important information such as the results of local searches and evidence of title as soon as the property is put on the market. This was the kind of information that each buyer used to have to find out for themselves.
Anyone selling a home regardless of its size must now provide a HIP for potential buyers.
Please contact us if you would like more details about HIPs or any aspect of buying and selling a house.
Avoid the legal pitfalls if you rent out your home
More and more homeowners who can’t sell their properties in the current downturn are starting to rent them out to tenants instead, according to new research.
A survey by the LV insurance company, formerly known as Liverpool Victoria, showed there was a 56% increase in the number of properties available for rent in the final three months of last year. Nearly nine out of ten of those properties belonged to homeowners who had decided to let rather than sell in a depressed market.
Letting a property in this way will have some advantages but people new to the market should make sure they are meeting all the legal requirements that go with being a landlord. According to the LV research, many are not. For example, only 27% have signed up to a Tenancy Deposit Scheme (TDS) even though they are obliged to do so by law and risk being fined if they fail to comply.
The scheme is designed to protect a tenant’s deposit in the event of a dispute. If a landlord fails to sign up to a TDS then the tenant can apply for a county court order forcing him to do so. In these circumstances, the landlord may find himself being forced to pay the tenant an amount equal to three times the deposit.
New landlords who haven’t already done so should select a suitable scheme as soon as possible. If they keep a tenant’s deposit without registering with an approved scheme they could lose thousands of pounds.
There are other legal requirements depending on the kind of property you own and an array of potential pitfalls. For example, the LV research says that 20% of tenancies end in dispute.
All landlords run the risk of sometimes having to deal with problem tenants. Some may fail to keep up with the rent or not treat your property as well as they should. In these circumstances you may need legal advice so you can take action to recover rent arrears or to recover your property from bad tenants when necessary.
Please contact us if you would like more information about tenancy deposit schemes or any aspect of property law.
Man successfully challenges his uncle’s ‘second will’
A man has successfully challenged the validity of a second will made by his uncle at a time when his health was failing and he was no longer able to read.
The court heard that the uncle had made his first will when he was in good health and there was no doubt that he knew what he was doing. This will left all his estate to his nephew who was also appointed as sole executor.
Later, however, the uncle’s health began to deteriorate and one of his friends began to act as his carer, managing his financial affairs including drawing his pension.
The uncle then made a second will dividing his estate into three parts. His nephew was to receive half the estate while the carer and another friend were to each to receive a quarter. At the time he made this will, the uncle had medical conditions that affected both his hearing and his ability to read. However, the solicitor who drew up the will was satisfied that he had sufficient testamentary capacity and so knew what he was doing.
Later, the carer wrote to the solicitor saying that the uncle wanted to execute a codicil – that is to make an amendment – to change this second will. This change would give half the estate to the carer and reduce the nephew’s share to 25%. The uncle was unable to read the wording of this change and so the solicitor had to read it to him.
When the uncle died, the nephew challenged this second will and the codicil on the basis that they had been brought about by the intervention of the carer. He submitted that his uncle had been too ill to approve them.
The court held that if a person, as in the case of the carer, had helped to draw up a will in which he was a beneficiary then there was an onus on him to demonstrate that the process was legitimate. The court had to be confident that the will represented the deceased person’s true wishes and that he had not been not been unduly influenced by anybody else.
In this case, the second will and codicil had been influenced by the carer at a time when the uncle’s health was failing. The carer had not given any reason for the nephew’s share being reduced and had failed to establish that the second will truly represented the uncle’s wishes.
Therefore, the court ruled that the second will was invalid and the first will, leaving everything to the nephew, should be re-instated.
Declaration of trust protects wife’s house from husband’s creditors
A court has ruled that a woman should be allowed to keep her family home even though her husband’s creditors wanted it to be sold to help clear his debts.
It is an unusual case and illustrates the benefits that can arise from making a declaration of trust.
The husband had bought the house several years before in his own name. However, he had an alcohol problem and also liked gambling. Eventually, his wife became concerned about the family’s financial security. To protect her future, she insisted that her husband made a declaration of trust in her favour which effectively handed the house over to her.
At the time this was done the husband had no significant debts and was able to meet all his mortgage payments. That changed a few years later, however, when he fell into serious debt and was declared bankrupt.
The trustees in the bankruptcy applied for an order setting aside the declaration of trust the husband had made regarding the house and his wife. They argued that it had simply been a way of putting the property beyond the reach of his creditors.
The husband denied this and said the declaration had been made at his wife’s insistence. She had threatened to divorce him if he didn’t sign over his interest in the family home to her. The only reason she had in taking such assertive action was to maintain her family’s financial security.
The court ruled in the family’s favour. The judge said he was satisfied that the main reason for the husband’s action was to maintain his marriage. The effect was to place the house beyond the reach of the creditors, but while that might now be a beneficial consequence of the declaration of trust, it was not the reason for making it in the first place.
The ruling does not mean, of course, that a person facing financial difficulties can avoid creditors by simply placing assets in someone else’s name. However, it does show that a declaration of trust made in good faith can help to protect a family’s financial security.
Please contact us if you would like more information.
Neighbours stop house extension that would spoil scenic views
A group of neighbours on a housing development have successfully taken legal action to prevent the building of a three-storey extension which they feared would spoil the view from their homes.
The houses on the development had been sold subject to two restrictive covenants. The first was that homeowners could not erect buildings without the approval of the management company; the second prevented homeowners doing anything that would annoy or create a nuisance to other people on the estate.
One homeowner was then granted planning permission to build a three-story extension. He also obtained approval from the management company on condition that the development would be in keeping with existing properties and the boundaries would not be altered.
However, the neighbours objected because they felt the extension would spoil their views over a nearby river and so breach the covenant by causing an annoyance. The homeowner argued that the permission granted by the management company should take priority over the nuisance and annoyance element of the covenant and so the development should be allowed to go ahead.
The court, however, ruled in favour of the neighbours. The judge held that there was no reason why both elements of the covenant should not apply so that a development could only go ahead if it had the approval of the management company and did not cause a nuisance to others on the estate.
The next issue to resolve was whether or not the interference with the scenic views would cause annoyance. The judge held that most reasonable people would say that it would indeed cause annoyance within the meaning of the covenant and the development should therefore not be allowed to go ahead.
Homeowner wins dispute over builder’s unfair contract terms
A recent dispute between a homeowner and a builder has highlighted the fact that consumers are not necessarily bound by a contract if the terms are considered by the courts to be unfair.
This can apply even if the consumer has signed the contract confirming that they have read and understood it.
The case involved a homeowner who engaged a builder to add an extension to her bungalow. She signed a contract saying that if a dispute were to arise between them then it should be resolved in accordance with the Arbitration Act 1950. This effectively meant that rather than going to court, they would appoint an arbitrator to settle the matter.
A disagreement then arose over the cost of the work. When negotiations broke down, the builder sent a Notice of Arbitration. The homeowner refused to take part in appointing an arbitrator because she wanted the dispute to be settled through the courts. The builder appointed an arbitrator without her. The arbitrator later found in favour of the builder.
The homeowner refused to accept this and took the matter to court.
The case centred on provisions in the Unfair Terms in Consumer Contracts Regulations 1999. It states that: "A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations under the contract to the detriment of the consumer."
The judge held that the arbitration clause was unfair because it was intended to remove the homeowner’s right to take legal action through the courts. It also created an imbalance between her as just a layperson and the builder as an experienced professional – particularly as she would have had to pay the arbitrator a fee of £2,000 to settle a dispute about a sum of only £5,000.
Of course, consumers should always read the small print and understand what they are signing because on most occasions they will be bound by the terms of the contract. However, when those terms are considered to be unfair as in this case, it is possible to take legal action and win.
Please contact us if you would like more information.
Family lawyers oppose ‘draconian’ measures against absent parents
The family lawyers’ association, Resolution, is urging the Government to drop plans that would give civil servants increased powers to clamp down on parents who fall behind with child maintenance payments.
The proposal, which Resolution describes as draconian, is contained in the Welfare Reform Bill now making its way through parliament. It would allow the Child Maintenance and Enforcement Commission (CMEC) to confiscate the driving licence or passport of defaulting parents without the need to obtain a court order.
The Department for Work and Pensions says the measure would only be used as a last resort after all other sanctions to make parents pay had failed. It believes that allowing civil servants to take such direct action would be faster and easier and beneficial to the taxpayer. It will be tested in certain areas of the country before being adopted nationally.
Work and Pensions Secretary James Purnell said: "We are supporting parents in these tough times, but for those who choose not to support their own kids, we will not stand by and do nothing.
"If a parent refuses to pay up then we will stop them travelling abroad or even using their car.”
However, the new powers are opposed by Resolution. A spokesman said: “We agree with the government’s aim that all parents meet their pastoral and financial responsibilities toward their children. However it is well known that the administration of child support in this country is riddled with errors and bureaucratic failures.
“Until the system is fixed, running smoothly and has public confidence there can be no justification for not allowing a right to challenge such draconian measures in the courts.”
The subject of child maintenance payments often evokes strong feelings on both sides of the argument. Many parents, usually but not always mothers, can suffer great hardship when their former partner fails to pay child maintenance. On the other hand, many other parents, usually but not always fathers, often feel they are being hounded unfairly.
Whatever view one takes there is little doubt that there is a determination on behalf of the Government and CMEC to make sure more parents face up to their responsibilities. Parents on both sides of the argument who are affected by these issues should seek legal advice to protect their interests.
Please contact us if you would like more information about child maintenance payments or any aspect of family law.
Injured motorcyclist receives £450,000 in compensation
A motorcyclist who sustained physical and psychological injuries in a road accident has received £450,000 in compensation.
The motorcyclist was involved in a collision with a car which emerged in front of him from a side road in 2004. He suffered multiple injuries including fractures to both wrists and his right leg. He was left with permanent scarring and deformity. He still suffers pain and has restricted movement in both wrists together with other complications.
He can no longer continue his career as a bench joiner and will have to do lighter work instead.
Liability for the accident was disputed with the car driver claiming that the motorcyclist had been speeding.
The two sides have now reached an out of court settlement in which it was agreed that the motorcyclist was 20% liable for the accident. He is to receive a total of £450,000 in compensation for his injuries, suffering and loss of earnings.