Struggling businesses dealt a double blow when landlords won’t let go

Hard hit businesses are being dealt a double blow as landlords refuse to accept break clauses when rents have been late, and experts are now warning companies to check the small print before signing new leases.

The alert follows a court ruling where tenants were left unable to end a lease because they had not complied with the small print on interest payments for late rent.

Commercial leases are normally granted for a specified period, such as seven years or fifteen years. A long lease gives security both to the landlord and to the tenant, but being able to end the lease early gives flexibility in case circumstances change.

That’s why many commercial leases contain a so-called ‘break clause’, which allows either the landlord or the tenant to terminate the lease early on an agreed date.

But the lease is likely to say that the tenant can only terminate the lease if the rent is paid up to date and all the other tenant obligations have been complied with.

This was the case in Avocet Industrial Estates LLP v Merol Ltd, where Merol’s right to end the lease early was on condition that all money due to the landlord under the lease had been paid at the break date. As tenants, Merol had often been late in paying the rent, and although it was up to date at the time of the break clause, the lease also stated that interest was payable on any rent paid late. Although Avocet had never demanded interest, when Merol tried to terminate the lease the landlord claimed that the tenant had lost their right, because interest had not been paid on the late rents.

Despite the interest amounting to just £130, compared with an annual rent of £67,500, the High Court judge came down on Avocet’s side, saying that the amount of interest being small made no difference and that the terms of the break clause should be strictly applied.

According to Hannah Collins, commercial property law expert with Breeze & Wyles Solicitors LLP, the ruling in this latest case comes as no surprise in current economic conditions.

Said Hannah: “This case may seem harsh, but although break clauses are becoming common, the right to end a lease early is still a privilege, so any conditions must be satisfied to the letter. In this climate, landlords want to hold on to tenants, so planning for break clauses needs careful thought - even before the lease is entered into.

“When negotiating terms with a landlord, it’s vital for a tenant to be sure that they are going to be able to comply with all the conditions – all too often we see a lease where the landlord goes for a general catch-all clause that is almost impossible to meet, as compliance could fall down over a piece of sticky tape left on the wall.

“And when it comes to exercising the right, the best thing is for a tenant to take a good look at their lease, check their payment history and if possible rectify anything so they are up to date before they give notice. What most tenants don’t realise is that it is their responsibility to make sure they have strictly complied with all the conditions and that they cannot assume all is well just because the landlord has said nothing.

“The outcome for Merol gives a stark warning to tenants of what happens otherwise.”

Avocet Industrial Estates LLP v Merol Ltd [2011] EWHC 3422 (Ch)

ENDS

Web site content note:

This is not legal advice; it is intended to provide information of general interest about current legal issues.

What's in it for me? Creating value from Intellectual Property

What's in it for me?
Creating value from Intellectual Property

“Whether a start up or a multi million pound business your
Intellectual Property is your most valuable asset.” Brendan O’Brien - Director

Using a series of case studies Sarah Staines of Breeze & Wyles Solicitors LLP
will demonstrate the very real value of intellectual property in the operation of any business.

You are invited to a free seminar at Breeze & Wyles Solicitors LLP new offices

at

2nd Floor Stag House
Old London Road Hertford SG13 7LA

on

27 March 2012 at 12.30 pm

Spaces are limited to 25 attendees.
Please respond by 7 March 2012
by e mail to Nick Gething at nick.gething@breezeandwyles.co.uk or
by telephone on 01992 558411


Telephone Techniques to Debt Recovery - Know your customer.

Before you make telephone contact, you should make sure that you know all of the following information:

1) Who is the decision maker in the business? Remember if you don't involve a that person in the process then you wont get the answer that you need and the answers to the remainder of the questions in this document cannot be relied on.

2) Have Payments been getting slower over time? This will mean that the debtor is now struggling and their financial difficulties may be getting worse to the extent that recovery from this debtor is of paramount importance.

3) Have a positive attitude. Calling customers / debtors and reminding them of their unpaid bill is not always a fun-filled task. But it never has to be an unpleasant experience. Be upbeat and professional. Your mood will be contagious. If you sound interested and enthusiastic about your job, you are much more likely to get a positive and satisfying result. Remember, if you don't sound interested in what you are saying, the other party will not be interested in hearing it.

4) Actively listen to debtors. As soon as you get through to your customer, listen, listen, listen! Be sure to listen to their name and to make a note of it for use during the call and for the next call if needed. Listen to the mood of your customer. Their mood will to some degree affect the pace and tone of the call. Listen to what they do say and what they don't say. Writing a cheque does not necessarily mean a cheque is being sent! Take notes and refer to existing notes. That way you will stay focused and be an active listener throughout.

5) Ask debtors the right questions. One of the most common questions asked by debt collectors is "When will you be sending a cheque?" It is also one of the dumbest questions because it abdicates control of the outcome. The only time to ask a customer when they plan to send a cheque is when you are not concerned by whatever date they give you. If all you are doing is cash forecasting, the question is fine, but if you are trying to facilitate fast payment it is the wrong question. A better question might be, "Will you be mailing the cheque today?" or less assertively, "Will you be sending payment this week?" In both of these examples you are still maintaining control of the time frame and are less likely to be manipulated by the answer.

6) Follow up the debt collection process progressively. Each debt recovery call to your customer should have a theme.

Call 1. Give the Debtor the benefit of the doubt. Remember some customers / debtors will pay you because you brought the matter to their attention.

Call 2. Then become firm and assertive. If the first style doesn't work, your next call will be designed to cause the customer to pay you to get you off their back.

Call 3. Some customers / debtors will only pay when you explain the consequence of non-payment so tell them what happens next. If you have to make a third call about a overdue bill, that is the time to apply this kind of pressure. At the outset of this call you should make sure you are aware of the consequences that you will use to negotiate on with the debtor. For example, you may be able to talk about the suspension of services, taking legal action, recovering assets, or the effect that non-payment will have on their credit rating.

7) Always keep your word with the debtor. Credibility is one of the most important aspects of a debt Recovery call. Your customer must always believe you mean what you say. If you promise action will be taken on a given date you must take that action, or don't say it. Also, be sure that other departments in your company support your actions. There is nothing worse than telling a customer a certain course of action will happen only to be overridden by another department or authority. Remember, when people know that you always do what you say you are going to do, they take you very seriously.
8) Always remain calm with the debtor. Do not allow an angry customer to aggravate you. Sometimes debtors think the best defence is a good offense. They will become angry in order to deflect you from your goal of getting paid. Do not be tempted into an argument. That just gives the customer a reason not to pay. Remain calm, be polite and stay focused. You are in the right. Ultimately, a firm but fair approach will get results.

9) Get a commitment from the debtor. Your ideal debt recovery call will get the customer to commit to pay in full today. If that is not possible, get a commitment to something! Any call that does not result in a commitment to pay is a wasted call. The only exception to this is with the true "Can't Pay Debtors". In those instances you should ensure you are provided with evidence of why they can't pay.

10) Summarise every part of the debt recovery process carefully. Did you ever receive a payment promise and the cheque didn't show up? If so, it may be that the customer forgot your call the moment they put down the phone or they decided you were not that concerned about the outcome. Never leave the customer unsure about your expectations. Summarize the agreement carefully, going over each point. If the solution was complex put your summary in writing.


Merger and Acquisitions: What is in it for me?

The reasons to consider an acquisition are relatively small in number and are set out below. However, it is important that this is a process of deliberation, involving good preparation and timing. More often that not it a decision to acquire is a snap decision based on spurious information which leads to wasted time and a loss of management focus.

The reasons are to:

* increase market share by acquiring a business of company that has contracts that you want. For instance, a generalist manufacturer may wish to sell its product to, say, the public sector but has not track record. An acquisition may provide this opportunity;

* deliver your goods and services in a geographical location where you do not currently do business. A UK manufacturer selling to the UK market may wish to sell into Europe but is challenged by the cost of transport. This could be resolved by an acquisition of a similar company on the continent.

* develop business in a new market sector. Businesses may have capabilities in one area but need production capability in another to compliment what they do already.

* develop new business or production capabilities. For instance, in professional services where there has in recent times been a move away from generalist service to specialism this means that a business may need to acquire another to obtain that skill set;

In seventy five percent of cases an acquisition is likely to lose the buyer shareholder value. Why? The outcome should be better than the combination of the two companies. In the merger of Sprint and Nextel (a major US telecoms merger) the end result was worse than the combination and in fact was worse than any one of the participants as little thought was given to the combination of two very large organisations and their cultures in advance of the deal. The majority of post completion management time was spent unpicking the deal and putting it right.

So how do you give the outcome the best chance of success?

Do not ignore the due diligence process as a legal concept for the lawyers. It is perhaps the most important part of the process as it enables the buyer to ensure that sufficient information is generated to inform the post completion ‘integration plan’, a document which should be created before completion, not after as in many cases. When buying another business you should consider:

1. How each business obtains its clients and what incentives they offer to achieve this?

2. What cost savings can be achieved as part of the process of integration to ensure that the whole is more profitable then the individual businesses combined?

3. What impact will the merger have on the relationships between the key clients of each of the merging businesses?

4. As a result of point 3 which people ‘Key Men’ can you not afford to lose in the short term despite point 2?

5. What development opportunities do you have as a result?


Severe weather calls for creative minds to minimise risk

As severe weather warnings sweep the country, employers are being encouraged to double check their risk assessments.

And following an important decision by the High Court last year, there’s a reminder that risk analysis is not a question of dull probability and companies should use their most imaginative staff to dream up unlikely scenarios to protect employees.

The High Court case involved a plumber employed by the University of Anglia, who was asked to mend a leaky radiator in the University library. He found that the dripping radiator had soaked the surrounding floor, so to avoid getting his clothes wet he covered the area with plastic bin bags before lying down to carry out the repair.

But when he had finished the repair and stood up, he slipped on the wet bin bags and fell heavily, hitting his face and damaging his teeth.

He sued the University, arguing that he should have been provided with waterproof clothing – saying that the need would have been identified if the University had carried out a proper risk assessment and considered the risk of his working in wet conditions.

The case was heard first in the County Court, where the judge said that the University should have provided a waterproof mat as a matter of health and safety, not just comfort, as the plumber might have caught a cold if he had spent the rest of the day in wet clothes. But the judge also decided that there was 50% contributory negligence on the part of the plumber himself.

The University appealed, arguing that there was no foreseeable risk of injury from damp clothes, merely a risk of discomfort, but the High Court dismissed this and upheld the original decision.

Said Jane Dismore, employment expert with Breeze & Wyles Solicitors : “This case illustrates how tough the courts continue to be when it comes to cases of employers’ liability. What may seem to be minor details can have major consequences and employers need to think far outside the obvious.

“You may think that the plumber brought his injuries upon himself, as he took the decision to put bin liners on the floor. But although the resulting accident was caused by a freak of chance, it is not unforeseeable that plumbers will get their clothes wet. With the severe weather forecasts for February, it’s worth taking some time out to see where you might need to review and update your risk assessments and processes.

“You need to cover all bases as far as possible, as well as keeping up to date with current requirements. And the people doing the job are often best equipped to identify the risks, so it’s worth involving relevant staff in the process.”

Spalding v University of East Anglia [2011] EWHC 1886 (QB)

ENDS

Web site content note:
This is not legal advice; it is intended to provide information of general interest about current legal issues.