Category : Author / Iain Mackintosh

Charity Finances

The chief executive of a UK charity has been quoted as saying earlier this year that she expected soaring prices and falling real household incomes to have a worse effect on the fundraising income of charities than the pandemic. An economic think tank has said that it expects that, due to falling income and inflation, charity income will reduce by billions of pounds in 2022 and subsequently, and that as a result, charities’ reserves will shrink. Operating costs of charities have been rising, and these include, depending on the particular services provided by a charity, its costs of purchasing food, energy for heating and lighting, fuel for travel and delivery of services, and staff pay.

For some charities, it will be impossible to survive this crisis even if they do all they can to make cost savings and other changes. For others, they will survive but will be financially squeezed to an extent that they have never been before. The financial prognosis for charities is not looking good and it appears that for the remainder of 2022 and into the new year, the situation will worsen for charities and their beneficiaries.

Beneficiaries’ Needs

Against that background, however, more people are in need of the type of help that charities have hitherto provided, but will charities be able to cope with that demand? Charities’ beneficiaries are already suffering from the ongoing cost of living crisis, and that suffering is being aggravated by charities’ inability to provide them with the help that they need. The worsening financial pressures on the charity sector on the one hand, and, the increasing needs of existing and potential beneficiaries on the other, has created a perfect storm.

Staff Pay

Staff pay forms a substantial portion of many charities’ total operating costs. It is estimated by the Living Wage Foundation that over 14% of third sector workers are paid less than what it calculates is a “real living wage” (a figure which is higher than the legal minimum wage) but charity staff members need pay rises to keep their heads above water. However, charity pay levels are not rising in line with pay in other sectors simply because charities cannot afford such pay rises. Falling levels of fundraising from donations and events limit or prevent the ability to increase pay, and that means that charity pay levels cannot compete with pay levels offered by those other sectors. The result is that charities face difficulties when recruiting (and trying to retain) staff, and this in turn adversely affects the help that charities are able to offer to beneficiaries.

Trustees and Volunteers

Staff pay is not the only manpower issue: whether or not charities employ paid staff, many charities are dependent on input from volunteers and trustees. Those charities now face greater difficulty not only when recruiting volunteers and trustees but also in trying to retain them, due to the increasing financial pressures that existing and potential volunteers and trustees themselves are experiencing. It may be that this is tending to push actual and potential volunteers and trustees towards finding paid work rather than volunteering their time.

The Issue of Reimbursement of Expenses

A charity might adopt the practice of reimbursing expenses that volunteers and trustees incur on travel between home and the charity’s base as well as travel expenses incurred in the course of volunteering and carrying out trustee duties. If a charity reimburses such costs and expenses, that might help a charity attract and keep volunteers and trustees, but there nevertheless remains a problematic aspect where an individual uses their own vehicle.

A volunteer or trustee who uses their own vehicle might receive an allowance based on the relevant mileage driven by them, and charities, like any other organisations, will adopt a fixed sum per mile allowance that is equal to (or less than) the mileage rate set by HMRC for the purpose. If a charity or other organisation pays any volunteer or trustee at a higher rate than the HMRC rate, however, the excess over the HMRC rate is deemed by HMRC to be income in the hands of the individual receiving the payment and, as a result, subject to income tax. Therefore, in practice, charities will pay a mileage rate equal to the HMRC set rate, no more, no less.

The problem is that the HMRC rate was fixed in April 2012, and it has not yet increased to take account of inflation. (The price of fuel, running costs, insurance, and depreciation are all supposed to be covered by the mileage rate, but those costs have all risen considerably since 2012.)

The consequence for volunteers or trustees is that when they receive payment at that rate, they are not fully compensated for the cost of using their own vehicle. This is not conducive to encouraging individuals to join or stay with the charity, because many cannot afford or are unwilling to be out of pocket as a result of their work for the charity. A group of eleven charities wrote to the Chancellor in July 2022 about this problem, asking him to increase the HMRC mileage rate, and a petition to HM Government to the same effect ran until mid-August 2022. The trade union Unison considers that the rate per mile for use of a car or van should be increased from the present rate (45p per mile) to 59p per mile. At the time of writing, there has been no indication that there will be any movement on the HMRC rate.

Simply-Docs Expenses Document Templates

Amongst Simply-Docs’ numerous charity documents, there are a number of templates which are designed to be used to establish a charity’s policy on the reimbursement of expenses incurred by trustees, volunteers, and employees. They are accompanied by corresponding template expense claim forms. Together, these documents cover the whole range of expenses which a charity might reimburse:

• Charity Trustees Expenses Policy
• Charity Trustees Expenses Claim Form
• Charity Volunteer Expenses Policy
• Charity Volunteer Expenses Claim Form
• Charity Employees Expenses Policy
• Charity Employees Expenses Claim Form

Further to our previous post on the New Registration Requirements for Overseas Entities Buying Land in the UK, the Register of Overseas Entities (“ROE”) at Companies House is now live and was launched on 1 August 2022.

Overseas entities who purchased a freehold estate or a lease (with a term of more than 7 years) in the UK, on or after 1 January 1999, now have six months to register on to the ROE. The deadline for registration is 31 January 2023.

An overseas entity (or an officer of that entity who is in default), who fails to comply with the registration requirements will commit a criminal offence, punishable by: 1) a daily fine not exceeding £2,500; 2) imprisonment of up to five years; or 3) both.

Overseas entities will need to provide “required information” of the overseas entity, as set out in the Economic Crime (Transparency and Enforcement) Act 2022 (“the Act”), and also “required information” of their registrable beneficial owners, which is also set out in the Act. This information will need to be verified by a third party who is either an external accountant, independent legal professional, or an estate agent or letting agent who is regulated by HMRC.  This verification lasts for three months from the date it is made, and the person providing the verification will need to retain this information for a period of 5 years. For those professionals who may be required to complete verification checks, technical guidance is available; Register of Overseas Entities: guidance on registration and verification.

Overseas entities who are required to register should act now and seek independent legal advice if they have any concerns about the ROE.

Further guidance can be found on the Government website.

Under the UK General Data Protection Regulation (UK GDPR) and the Data Protection Act 2018 (DPA), any business or organisation which suffers a personal data breach is required to carry out an assessment. Depending on the seriousness, it may be necessary to report a breach to the Information Commissioner’s Office (ICO). In this post, we will explain the circumstances under which it may be necessary to report personal data breaches, how to report them, and we will look at some of the potential consequences.

What is Considered a Data Breach?

The ICO defines a personal data breach as: “a breach of security leading to the accidental or unlawful destruction, loss, alteration, unauthorised disclosure of, or access to, personal data.”

In order to be considered a data breach under the regulations, the data which has been breached should have been of a personal nature; general data which does not relate to an identifiable living individual is not covered under the UK GDPR or DPA.

Data breaches are often caused by a cyberattack. In this case, malicious hackers might target a business and attempt to extract information held, for example, in databases. Alternatively, the organisation may fall victim to a computer virus which is circulating online, inadvertently enabling a trojan horse to automatically gain access to confidential data (when an employee accidentally clicks on a link in a spam email, for example).

That being said, a data breach does not always have to be the result of a cyberattack, or even occur online. There have been several publicised cases where members of staff have forgotten a USB stick or paper files containing personal data on a train or other public places. These are also considered to be data breaches, as are cases where an employee has accidentally emailed confidential files to an unintended recipient who is not authorised to access the personal data inside.

It’s also worth noting that the data does not necessarily need to fall into the wrong hands to be considered a data breach. If an authorised person deliberately or mistakenly alters or deletes personal data improperly, this also contravenes the rules.

How Serious are Data Breaches?

Depending on the circumstances, the ICO may fine any organisation which suffers a data breach up to a maximum of £17.5 million or 4% of its annual global turnover (whichever is higher). British Airways was fined £20 million for infringements of the GDPR in relation to a data breach in 2018 which exposed names, addresses, and payment card details of customers and staff.

In addition to potential ICO penalties, businesses in certain sectors may also have to contend with their own regulatory bodies. For example, law firms which suffer a data breach as a result of failure to implement sufficient cybersecurity measures may face enforcement action from the Solicitors Regulation Authority (SRA).

Furthermore, businesses which are publicly exposed as having incurred a significant data breach will inevitably suffer a certain degree of reputational damage. This can result in loss of clients and potentially missing out on future business opportunities.

Finally, data breaches which involve a cyberattack will result in damage to IT infrastructure, and there will often be extensive work which needs to be carried out to rebuild security protocols, issue new passwords and so on.

What is the Maximum Fine for a Data Breach?

The “higher maximum level” of fine for breaching the UK GDPR is £17.5 million or 4% of its annual global turnover (whichever is higher). This level can apply to infringement of key aspects of the UK GDPR including the data protection principles, the rights of individuals, and provisions relating to the transfer of personal data to third countries.

The “standard maximum level” of fine – which applies to other types of infringement (such as those relating to certain obligations of controllers and processors, and certain obligations of certification and monitoring bodies) – is the higher of £8.7 million or 2% of the total annual worldwide turnover in the preceding financial year.

A number of factors will be considered when deciding whether or not to impose a fine and how much the fine will be. Some key factors taken into consideration will include (note that this is not an exhaustive list):

• The nature, gravity, and duration of the infringement, taking into account the nature, scope or purpose of the personal data processing involved, the number of individuals affected, and the level of damage suffered by them;
• The intentional or negligent nature of the infringement;
• Action taken to mitigate the damage suffered by individuals;
• The degree of responsibility taking account of the technical and organisational measures implemented by the data controller and/or processor involved;
• Previous infringements;
• The degree of co-operation with the ICO in remedying the infringement and mitigating its adverse effects;
• The categories of personal data affected by the infringement;
• The manner in which the infringement became known to the ICO (whether or not the organisation responsible for the breach notified the ICO themselves, for example);
• Compliance with approved codes of conduct; and
• Other aggravating or mitigating factors.

Fines under the UK GDPR must be “effective, proportionate, and dissuasive”. In practice, both of these maximum levels of fine only apply to the largest companies with the most significant infringements, caused by egregious data protection failings. The ICO notes that: “Any penalty that we issue is intended to be effective, proportionate and dissuasive, and will be decided on a case-by-case basis.”

When should a Data Breach be Reported?

Any business which suffers a personal data breach is required to carry out an assessment of the likelihood of any risk to the rights and freedoms of individuals. If a risk is considered to be likely, the data breach should be reported to the ICO.

Who Should You Report a Data Breach To?

The ICO should be notified within 72 hours of awareness of any reportable breach. Follow the ICO’s guidance on breach notification on their website.

In addition to notifying the ICO, any individuals whose data has been involved in the breach should also be personally notified if the breach is likely to result in a high risk to the rights and freedoms of these individuals.

What Processes Should You Have in Place to Report a Data Breach?

Businesses should put in place data breach policies which cover the following steps:

• Initial reporting – there should be a process for staff to report any suspected breach to management.
• Assessment – how a breach is recorded and assessed to determine whether it needs to be reported to the ICO etc.
• ICO reporting – the process for reporting relevant data breaches to the ICO.
• Individual notification – process for reporting data breaches to the individuals involved (where it meets the threshold).

Simply-Docs has a wide array of documents and policies relating to data breaches and other key areas of data protection.

What Happens After You’ve Reported a Data Breach?

Aside from reporting relevant data breaches, organisations will have a lot of work to do following a data breach, particularly where this is the result of a cyberattack.

An investigation should be carried out to find out exactly what caused the data breach. The immediate issues should be resolved, new passwords issued where relevant, and disciplinary action taken if appropriate.

New measures should also be put in place to avoid similar data breaches occurring in future, which may involve updating company policies, upgrading software, and carrying out staff training.

When starting out in business there are many decisions to be made, some of which can have a significant impact on the success of the new venture. Legal issues are particularly important, and entrepreneurs should spend some time considering this aspect. In this post, we will examine some of the legal decisions facing new businesses and provide a few legal tips for startups.

Choose The Correct Business Type

One of the first steps of setting up a business is deciding on its legal operating structure. The vast majority of businesses in the UK fall under one of the following models:

1. Sole trader

If an individual starts carrying out business activities on their own, without setting up a formal business structure such as a limited company, they will automatically be classed as a sole trader. In this case, there is no legal distinction between the individual and their business. Sole traders are therefore entirely responsible for the legal aspects of their business, notably any debts incurred.

2. Limited company

Anyone starting a business on their own or jointly with other entrepreneurs can choose to set up a limited company. This puts the business on a more formal footing and requires registration with Companies House along with a range of annual filings. Crucially, a limited company is considered to be a legal entity in its own right and essentially protects the business owners from debts built up by the company (beyond their initial capital investment). The business owners of a limited company will hold shares and will often also be company directors.

3. Partnership

If two or more people set up a business together without registering it as a limited company or LLP (see below), they will automatically be classed as an ordinary partnership. Partners are considered to be jointly and severally liable for any debts and obligations of their business; each and every partner is responsible for the acts, omissions, and debts of the partnership. There is therefore no protection from liability, as would be the case with a limited company.

4. Limited liability partnership (LLP)

A relatively new type of business structure which has become increasingly popular, especially amongst professional services providers such as lawyers and accountants, is the Limited Liability Partnership (LLP). An LLP needs to be registered with Companies House and combines the benefits of limited liability for business owners with the flexibility of ordinary partnerships.

Simply-Docs has a range of documents which can help with starting a business and company formation.

Distinguish Your Employee Types

When a business requires extra resources, it will need to decide whether to subcontract out the work, bring in temps or agency workers, or take the step of employing new members of staff. It is vital to determine the status of each individual who carries out work for the business, namely whether they are:

• a contractor;
• a worker; or
• an employee.

In the case of employees and, to some extent, workers, the business will have extensive legal responsibilities including:

• national minimum wage;
• sick pay and annual leave;
• maternity and paternity rights;
• protection from discrimination; and
• health and safety duties.

Employees are entitled to receive a “written statement of employment particulars” on the first day that they start work. It’s best practice to include this as part of a more comprehensive employment contract, which outlines the various rights and responsibilities of both the employee and employer.

Simply-Docs has a variety of employment contract templates and related documentation.

Ensure The Right Agreements Are in Place

Where two or more people start a business together, they should consider putting in place relevant agreements to set out the basis of their business relationship, such as a:

• shareholders agreement – in the case of a limited company; or
• partnership agreement – in the case of a business partnership.

Although these agreements are not mandatory, they help to ensure that each party knows where they stand and can avoid potential disputes arising further down the line.

Protect Your Intellectual Property

Although intellectual property (IP) is typically associated with creative industries, most businesses have IP of one form or another, such as:

• copyright – this covers literary, dramatic, musical, and artistic works, as well as computer software and databases;
• design rights – IP can include both registered and unregistered designs;
• patents – this is a highly specialised form of IP which covers inventions;
• trade marks – these include logos, slogans, and symbols which help to build a business’s brand and distinguish their products and services from those of competitors; and
• trade secrets – although it’s not possible to register a trade secret as a form of IP, non-disclosure agreements (NDAs) can help provide protection.

It’s vital that a business understands its IP and protects it where possible to ensure that competitors don’t capitalise on, or misappropriate its work. Although some forms of IP such as copyright do not require registration, it may become necessary to enforce such IP rights using infringement notices or a cease and desist letter.

Ensure You Have the Correct Legal Support

Depending on the nature of the business, different levels of legal support may be required. Heavily regulated sectors will often need substantial advice from a law firm, particularly when starting out, and larger organisations may even have an in-house legal team. Most SMEs, however, will be able to prevent many legal headaches by putting in place suitable documentation.

Simply-Docs has a wide range of legal document templates which can help many different types of business get on top of key legal issues and avoid disputes.

FAQs

What Legal Documents Are Needed to Start a Business?

This entirely depends on the legal framework of the business, whether it has any employees or valuable IP, and the sector in which it operates. It’s worth perusing the range of legal documents available from Simply-Docs to find out if any are suitable for your particular business.

What Are Legal Issues in Business?

Legal issues in business generally involve rules and regulations set out by a range of government legislation, as well as a number of important aspects involving contracts and terms & conditions. We stay on top of the latest regulatory updates so you can rest assured that our legal documents will have you covered.

What Legal Issues Do Small Businesses Face?

Although larger companies tend to face more regulatory hurdles, SMEs are also exposed to the full gamut of business legislation, from the Companies Act 2006 to the Equality Act 2010.

What Legal Services Do Businesses Need?

The legal support requirements of each organisation are unique, depending on their size, sector, and nature of their business. Although most SMEs will require advice from a solicitor at some point, many will be able to avoid legal issues from arising, particularly if they put the right documentation in place.

Government Proposes a Fairer Private Rented Sector

After a policy decision was announced that Section 21 “no-fault” evictions would be abolished three years ago, the Government has published a white paper which promises a “new deal” for renters in England. The white paper sets out a plan of action (which is summarised below) to address the imbalance between tenants and landlords in the private rented sector. A draft bill is expected to be published later this year.

The main takeaways are:

1. Section 21 “no-fault” evictions are to be banned

The Government states that as tenant demand has grown in recent decades, and the renter demographic has changed, renters are now looking for more security and stability from their rented accommodation. According to Government research more than 1/5^th of renters moved because their landlord asked them to leave or because their fixed term ended. Abolishing “no-fault” evictions will give tenants greater security.

2. Changes to Section 8 grounds and court reforms

If Section 21 “no-fault” eviction notices are to be abolished, the Government acknowledges that changes need to be made to the grounds for possession under Section 8. New (and reformed) grounds are to be created:

• Strengthening the mandatory grounds of criminal behaviour/serious antisocial behaviour;
• New mandatory ground for repeated arrears (tenants must have been in at least 2 months’ arrears three times in the previous three years) regardless of whether they are in arrears at the time of the hearing;
• Reformed “moving in” ground (to include close family members who want to live in the property); and
• New mandatory ground if the owner wishes to sell the property.

Reforms to the court process are also needed to make this more efficient and effective. Claim forms are to be simplified and streamlined, and there is to be a new online process for court possession, which will make it easier and more efficient. Certain cases are also to be prioritised.

3. Fixed term tenancies to be abolished and all tenancies in writing

Landlords will not be able to create fixed term tenancies.

All tenancies are to be periodic and can be terminated by the tenant serving two months’ notice to end the tenancy at any time. Landlords will only be able to end the tenancy using one of the grounds under Section 8 of the Housing Act 1988 (as amended). The Government wants to increase flexibility for tenants, especially if the property is unsafe.

Currently, an assured shorthold tenancy can be made orally. Under the new proposals all tenancies must be in writing.

4. Decent Homes

The Government state that 21% of private rented homes are non-decent, especially in areas of the North of England.

Landlords will be required by law to meet the Decent Homes Standard. It is not confirmed what the Decent Homes Standard will entail but it is likely to include minimum EPC levels of C by 2030 where practical, and where it is cost effective.

Rent repayment orders are to be made if a tenant is living in a non-decent home.

5. Tenants to have a right to request a pet

Tenants will have a right to request a pet in their house which the landlord must consider and cannot unreasonably refuse. Landlords will be able to request that the tenant purchase pet insurance to protect against damage to the property.

6. Landlords to be members of a mandatory redress scheme

There is to be a new private renters’ ombudsman which will enable disputes between tenants and landlords to be resolved without going to court (using alternative dispute resolution and mediation) and which will also be cheaper.

7. New property portal

There is to be a new portal which can be used by landlords, tenants, and local authorities. Tenants will be able to check landlords’ compliance, landlords can understand their responsibilities better by having all the information on the portal, and councils can better crack down on criminal landlords.

8. No ban on letting to families or those in receipt of benefits

Landlords will be prohibited from imposing a blanket ban on lettings to families with children or those in receipt of benefits.

9. Rent Review

All rent increases will need to be undertaken via the Section 13 process, which can take place annually, but other rent review clauses are banned.

The Government is unlikely to make any changes to tenancy deposits at this stage, but it will be closely monitored.

Whilst some change may be welcome, landlords are likely to be concerned about these proposals, which will fundamentally change the private rented sector in England. Landlords may look to sell up at a time when demand from tenants for rental properties is high. This will only seek to drive up rental prices even further.

From 30 June 2022, anyone buying a new long residential lease in England or Wales (which has been granted for a premium) will not be charged ground rents under the Leasehold Reform (Ground Rent) Act 2022.

Ground rents are often found in long leases (granted for a term of more than 21 years) and are annual payments a tenant must make to its landlord, which gives the landlord an incentive to retain some interest in the property. Some leases contain mechanisms for ground rents to increase over decades which can make the payments quite substantial. This has become problematic for prospective purchasers who cannot get funding as banks are refusing to lend because of the increased liability of ground rents.

Following a consultation on leasehold reform undertaken in 2018, (the subject of our previous blog post on the Government response), this change has been introduced to make leasehold ownership fairer and more transparent for tenants.

The Act will only affect new leases and not existing tenancies. If a new lease is granted, or the term of an existing lease is extended, or additional land is added to the demise (a deemed surrender and regrant), a landlord will need to ensure that no ground rents are charged, or they may face penalties of up to £30,000.

A new long residential lease can make provision for collection of a ground rent, but this must be a peppercorn rent (which has no value). If a landlord can recover administrative charges from the tenant, these cannot relate to any collection of the ground rent.

This change is part of the Government’s wider focus on leasehold reform to create a fairer housing system. The Government is also considering reform of the enfranchisement rules (which govern the extension of a lease or the purchase of the freehold), and right to manage (taking control of the management of their building). Further changes on leasehold reform are not expected until next year.

New Registration Requirements for Overseas Entities Buying Land in the UK

For several years, the UK government has sought to cut property fraud and money laundering activity in the UK. One key element they have focused on is making the ownership of property in the UK more transparent. Overseas entities have sought to invest in property in UK, but the ultimate beneficial owners of these overseas entities are often not known. The proposals for an overseas entities register were put forward in a government bill in 2018, but have now been passed into law under the Economic Crime (Transparency and Enforcement) Act 2022 (“the Act”).

The Act, (which, for the main part, is not yet in force) creates a new registration requirement at Companies House for any overseas entity who:

• Is buying a freehold property or a lease (with a term of more than 7 years) in the UK; or
• Owns a freehold property or a lease (with a term of more than 7 years) in the UK, which was purchased on or after 01 January 1999.

Once the relevant provisions of the Act are in force, an overseas entity will be required to register at Companies House and provide the required information about their beneficial owners.

A beneficial owner is anyone who holds:

• More than 25% of the shares or voting rights in the overseas entity;
• Has the right to exercise, or actually exercises, significant influence or control over the overseas entity;
• Holds the right to appoint or remove a majority of the board of directors of the overseas entity.

This works on the same principle as the PSC register (people with significant control).

Once registered at Companies House, the overseas entity will be issued an overseas entity ID number. This ID will then be provided to HM Land Registry to enable land transactions to be registered.

There will be a six month transitional period from the date the Act commences for overseas entities to register at Companies House.

During this six month window, HM Land Registry will register a restriction on the registered title of land owned by an overseas entity. This restriction will limit the overseas entity’s ability to transfer, let (for more than 7 years) or charge the property unless they have complied with the registration requirements. Some exceptions will apply, but these are beyond the scope of this post.

There is a further obligation on overseas entities to ensure that the register at Companies House is up-to-date, and they will be required to update this information annually.

Failing to comply with the registration requirements under the Act can result in a criminal offence, with the penalties for non-compliance of the Act including fines and imprisonment.

We will continue to monitor this and update our portfolios if and when necessary, once the implementation dates are known and if any supporting legislation is passed following the Act receiving Royal Assent.

The Renting Homes (Wales) Act 2016 (“the Act”) (passed six years ago) will be coming into force on 15 July 2022. This Act will fundamentally change the current system for letting residential property in Wales.

The change has been introduced to simplify the letting process and make it easier for contract-holders (the new term for tenant) and landlords by having one overarching Act in place which sets out the parties’ rights and obligations, (as opposed to various pieces of legislation).

For the purposes of this post, we will be looking at occupation contracts (which are the new form of tenancy agreement) which will replace most assured shorthold tenancy agreements and licences to occupy in Wales.

Standard vs. Secure

There are two types of occupation contracts: 1) Standard; and 2) Secure.

Secure occupation contracts are intended for use by community landlords. As a result, we will be focusing on standard occupation contracts, which are to be used by private landlords.

Fixed Term vs. Periodic

Standard occupation contracts can either be for a fixed term (an agreed period of either months or years (less than 7 years)) or periodic (week to week or month to month). A fixed term contract will become a periodic contract on expiry of the term if the contract-holder remains in occupation.

Written Statements

Occupation contracts must be in writing and must contain certain terms. Landlords must give their contract-holder a written statement setting out the terms of the occupation contract within 14 days of the date the contract-holder is entitled to begin occupying the property.

Written statements must be used for standard occupation contracts entered into on or after 15 July 2022. In the case of existing tenancies and licences that fall within the definition of an “occupation contract”, these will automatically convert to occupation contracts on 15 July 2022, and landlords will need to provide a written statement to the contract-holder within 6 months (no later than 14 January 2023).

Written statements can be issued in hardcopy or, if agreed by the contract-holder, can be sent electronically.

Terms

These are broken down into four categories:

• Key matters – information about the property, occupation date, amount of rent or other consideration.
• Fundamental Terms – these are the essential rights and obligations of landlords and contract-holders.
• Supplementary Terms – these are practical matters to make the occupation contract work, access for repair
• Additional Terms – other agreements not dealt with elsewhere (for example the keeping of pets).

Model Written Statements

Model written statements for both periodic and fixed term standard occupation contracts have now been published by the Welsh Government. The model statements incorporate all the fundamental and supplementary provisions to be included (without modification). The model statements can be found here.

When an existing tenancy is converted to a standard occupation contract, the existing terms of the tenancy will apply unless they conflict with the fundamental terms. Supplementary terms will be included unless they conflict with the terms of the existing tenancy.

Joint Contract-Holder

Parties can be added to the contract as joint contract-holders with the consent of the landlord. A contract-holder can leave the contract without the tenancy ending.

Succession

On the death of a sole contract-holder, the contract will terminate unless there is someone who qualifies to succeed the contract-holder.

Termination

A contract-holder cannot be evicted without a court order unless the contract-holder abandons the dwelling.

For no-fault evictions, the minimum notice period is six months. A landlord will not be able to give a possession notice until 6 months after the contract starts. This will give contract-holders a minimum 12-month contract.

A landlord can still terminate early if the contract-holder is in breach of contract. Typical grounds include serious arrears of rent (if the rent is paid monthly, at least two months’ rent unpaid), anti-social behaviour, or failing to take proper care of the property. A court must find it reasonable to evict the contract-holder.

Most grounds require one month’s notice; however, where there are grounds of anti-social behaviour and other prohibited conduct, the landlord can make a possession claim on or after the day on which the possession notice is served. Where there are serious rent arrears, the notice period is 14 days.

Fundamental changes are being made to how the private rented sector will operate in Wales. This blog post is only a high-level summary on occupations contracts. For more information on this and other key changes being introduced please read Renting Homes (Wales) Act 2016. We will be producing more detailed guidance and publishing new templates for Wales over the coming months.

What is ESG About?

“ESG” stands for “Environmental, Social and Governance”. The ESG acronym is being increasingly used as a shorthand term for a wide range of issues relevant to how a business can have a net positive impact on the world and how it can demonstrate that it is having that impact.

All ESG issues relate in some way to the running and resilience of a business and what that business must do to be a “good corporate citizen”. ESG issues are usually listed under three broad headings: “Environmental”, “Social”, and “Governance”, but there is a degree of overlap between issues that fall under each of those headings.

Origin of ESG

There is a growing body of standards and requirements that regulate this area, some legally binding, others not. ESG did not come from any single source, but rather it was a development sparked by institutional investors demanding that if they are to invest in a business, it must meet certain standards in a variety of areas, depending on the type of business in question.

Being a Good Corporate Citizen

ESG establishes what a business needs to do to be a “good corporate citizen”.

A business firstly needs to comply with all measures having the force of law that are applicable to it, including statute and common law, regulatory rules, and other legal obligations or duties (see “Legal Compliance”, below). Increasingly though, legal compliance alone is regarded as insufficient, and the ESG concept embraces a good deal more.

ESG secondly recognizes that, in the interests of stakeholders (such as suppliers, customers, tenants, employees, shareholders, investors, suppliers of finance, neighbours, and the community at large), businesses should, in relation to their activities and conduct, also meet other relevant domestic (and often international) codes, standards, and behaviours, including appropriate standards of business ethics and morality, as well as others’ reasonable requirements and expectations. More widely, it also embraces “sustainability”, i.e., a business’s efforts to reduce its negative impacts and increase its positive impacts on the world around it.

Resilience

The “good corporate citizen” and sustainability aims are important aspects of ESG, but ESG is ultimately about resilience of businesses. The Covid-19 pandemic has led to an increased focus on business resilience. If a business complies with ESG “good corporate citizen” and sustainability principles, laws, and behaviours, it not only benefits stakeholders and the environment, but it also renders it more resilient, i.e., more likely to survive and succeed. In contrast, failure to comply can ultimately damage the business, its goodwill and reputation, or it can prevent it from meeting its maximum potential (see “Why should you take ESG on board?”, below).

Legal Compliance

As to ESG-related standards, codes, behaviours and other requirements which do not have the force of law, these are so numerous and wide-ranging that it would not be practicable to set out here even a small portion of them as examples. Whether any particular requirements of that nature are relevant to a business will depend on many factors including the size and type of business.

As to ESG-related obligations and regulation of businesses which do have the force of law, although they are only a part of the totality of ESG requirements, standards, codes, and behaviours, they are set to keep increasing. Such legal measures are already considerable and wide-ranging, and the following offers no more than a flavour of just a few of them that might be relevant to businesses. Such legal measures include:

• Companies Acts requirements for certain companies to issue statements and reports on dealing with various ESG issues (including climate-related, environmental, and other non-financial matters such as social and employee-related matters disclosures, as well as financial matters);
• Bribery Act;
• Modern Slavery Act;
• Equality Act;
• Health & Safety at Work Act;
• Common law obligations and duties, e.g., the law relating to negligence, nuisance;
• Consumer Protection Act (product liability);
• Environment Act, Environmental Permitting (England and Wales) Regulations, Environmental Damage (Prevention and Remediation) Regulations, Water Resources Act, and various other environment law statutes.

What is the Subject Matter of ESG?

ESG brings together disparate elements, a number of which are outlined below. The following lists include some key ESG areas, but are by no means a comprehensive listing of ESG elements. However, this does illustrate the breadth of topics falling under the ESG umbrella. Whilst a variety of separate issues fall under that umbrella, those issues are increasingly linked to each other.

It should be emphasized though that not all of the following elements of ESG will be applicable to all businesses. Whether any particular ESG element, issue, or risk is relevant to a particular business will depend on various factors including the type of business, its size, whether it is a company or is in unincorporated form, whether it has shares that are publicly traded, whether it is engaged in an activity that is highly regulated, whether it operates outside the UK, or whether it has dealings with anyone outside the UK.

Environmental Elements of ESG

This aspect of ESG focuses on improving the environmental performance of a business. It measures a business’s impact on the natural environment and the natural environment’s impact on the business, for instance, through physical climate risks. It takes into account factors including a business’s carbon footprint, its impact on biodiversity, and its production of waste and pollution. It includes the following topics:

• climate change;
• greenhouse gas emissions (in particular carbon dioxide);
• emissions to air, water, and land;
• product carbon footprint;
• pollution and waste (toxic emissions and waste, packaging material and waste, electronic waste);
• biodiversity;
• deforestation and land use;
• treatment of animals;
• energy efficiency;
• raw material sourcing;
• resource depletion (including water);
• recycling;
• environmental opportunities (clean tech, green building, renewable energy).

Social Elements of ESG

This aspect of ESG focuses on a business’s impact on people. It measures how a business treats people such as employees, customers, and the communities in which it operates. It includes the following topics:

• human resources and hiring;
• human rights (including modern slavery and child labour);
• supply chain labour standards;
• health and safety;
• product safety, quality, and liability;
• chemical safety;
• financial product safety;
• wide ranging diversity and inclusion requirements, including anti-discrimination and anti-harassment (D&I);
• equal pay;
• privacy and data security;
• conflict zones and conflict minerals;
• controversial sourcing;
• stakeholder/community relations and engagement;
• customer satisfaction;
• company cultures;
• employee advancement opportunities;
• employee education and welfare;
• philanthropy (e.g., donations to local community, employee volunteering programmes).

Governance Elements of ESG

This aspect of ESG focuses on a business’s leadership and structure. It measures how a business operates in terms of audits, board diversity, internal controls, and shareholder rights. It includes the following topics:

• bribery and corruption;
• executive pay;
• board independence;
• business ethics;
• board composition and audit committee diversity and structure;
• financial system instability;
• tax transparency;
• political contributions;
• whistleblowing;
• conflicts of interest;
• anti-money laundering;
• anti-competitive practice.

Why Should You Take ESG on Board?

ESG is inevitably relevant to larger businesses, but it is also increasingly becoming more material to start ups and smaller organizations. Businesses should be seriously considering ESG in view of the potential positive impact on it of taking ESG on board on the one hand and the potential negative impact of not doing so on the other.

What, then, might such positive and negative impacts be?

Positive impacts of adopting ESG

• meeting shareholder activists’ expectations or requirements so that they are kept “on-side” and supportive of the business;
• encouraging potential investors to invest in the business. Many major banks and investors include ESG investing criteria in their processes and products;
• improving relations with regulators/government;
• enabling the business to contract with those suppliers and customers who require their business partners to adhere to ESG standards;
• attracting and retaining employee or volunteer talent;
• better productivity;
• positively influencing customer sentiment;
• achieving costs savings (e.g., reduced waste or energy consumption).

Negative impacts of not adopting ESG

• harming or failing to improve reputation or morale of staff;
• failing to realize full potential sales turnover;
• dissuading potential investors from taking, retaining, or increasing a stake in that business;
• loss of opportunities to tender for contracts due to failure to meet ESG standards required by tender conditions;
• failing to attract investment or to meet qualifying conditions for grants or other financing;
• incurring additional costs, expenses, fines, or other penalties;
• incurring additional legal liabilities.

Adopting an ESG Policy and ESG Strategy

Adopting, publishing, and implementing an appropriate ESG policy can assist a business to identify and state clearly those factors that pose a risk to the business, i.e., factors that can directly or indirectly harm the business in any way. Such risks include the risk of litigation or liability; regulatory enforcement; risk of physical damage, loss, personal injury, or harm to health; commercial risk; and reputational risk. Identifying risks is the first step to minimizing them and planning for the eventuality that they materialize.

If a business additionally includes in its ESG policy a commitment to measure its degree of compliance with the policy (and report to its board or publicly on its compliance), it will not only have a basis for informing stakeholders and others about the extent of that compliance, but it will also highlight for itself and others how it is mitigating risks. In short, adoption, publication, and implementation of an ESG policy can aid business resilience.

Once a business has formulated an ESG policy, it needs to work out and document a strategy for implementing it. This will entail creating processes for doing so, including the means for measuring and reporting periodically on progress in implementing its ESG policy. In that connection, it should specify – using clear metrics – what will be achieved and when it will be achieved.

Prudence dictates that a business firstly ensures that the ESG policy that it formulates is consistent with its culture and values. Secondly, it must be realistic: a business may be tempted to cover a very wide range of matters, but should only say what it can realistically do, only set targets and timescales that it reasonably expects to achieve, and be prepared to report on why it has not achieved them. Otherwise, it will have failed to comply with its own ESG policy, producing a damaging effect to its reputation and its success.

Supply Chain

For many businesses and other organizations, being able to meet some of the aims set out in their ESG policy depends to a significant extent on taking steps to ensure that companies in their supply chain comply with aspects of their customer’s ESG policy.

A business might carry out due diligence checks or take other steps to assess prospective suppliers’ management of ESG issues. Some businesses have a supplier code of conduct (covering a range of ESG criteria) to which they require suppliers to sign up. Many businesses include a standard “compliance with ESG and other policies” clause in their contracts with suppliers that obliges suppliers to comply with ESG-related policies which the business lists in a schedule attached to the contract. This might be combined with a “self-certification” clause whereby the supplier certifies periodically that it and its subcontractors are meeting the compliance requirements. Some businesses include an audit clause in their supply agreements giving them a right to audit aspects of the supplier’s provision of the goods or services under the contract. In each case, the contract can specify the consequences (e.g., termination, remediation) of the supplier’s non-compliance with ESG clauses in the contract.

Conclusion

It can be seen from the above that ESG is not, and should not be treated as, just a “box-ticking” or “flavour-of-the month” topic. In the interests of the long-term survival and success of any business, it should be seriously considering how ESG is relevant to it.

Simply-Docs ESG Materials

There are currently a number of template environmental policies and environmental policy statements available to download. Whilst these specifically cover environmental matters and can assist with implementation of some environmental aspects of ESG, those templates are not designed to cover other ESG issues as well. However, from time to time, templates and checklists will be added to the website to deal with Social and Governance issues as well as Environmental issues. The first of these, a template set of Company Directors’ Board Minutes adopting an ESG strategy, is available here.

Since 06 April 2007, landlords of assured shorthold tenancies in England and Wales have been legally required to protect their tenants’ deposits in an authorised tenancy deposit scheme within 14 days of receipt of the deposit monies. Landlords must also provide tenants with prescribed information about the scheme (which contains a confirmatory certificate from the landlord) within 30 days of the deposit being received. If the legislation is not complied with the landlord may be prevented from serving a valid section 21 notice to recover possession of the property and/or the landlord may have to pay a fine.

The case of Northwood Solihull v Fearn & Ors called into question the signing of prescribed information by a corporate landlord or agent. The prescribed information had been certified by the property manager who was authorised to sign this document. The tenants argued that the prescribed information had not been validly executed which in turn invalidated their eviction notice. This case also looked at the execution of section 8 possession notices, but that is beyond the scope of this post.

In January 2020, the High Court ruled that where the landlord is a corporate landlord, they must sign the prescribed information in accordance with s44 of the Companies Act 2006 which requires signatures from two directors, or a director and company secretary, or a director who signs in the presence of a witness. The High Court held that the prescribed information had not been signed in accordance with s44 of the Companies Act 2006 and was therefore not valid.

The Court of Appeal overturned this decision (which will be welcomed by landlords and letting agents) and held that the prescribed information can be validly signed by an authorised individual on behalf of a corporate landlord or agent. It can also be signed in accordance with s44 of the Companies Act 2006. The Court of Appeal also confirmed that if the prescribed information had not been signed by an authorised individual on behalf of a corporate landlord or agent, nor signed in accordance with s44 of the Companies Act 2006, it wouldn’t necessarily invalidate the document. Each case would be considered on its own merits, taking into consideration the specific facts of that case.

Note that it has now been announced that the Renting Homes (Wales) Act 2016 (which will change all aspects of renting residential property in Wales), is due to come into force 15 July 2022. This Act will introduce a new tenancy deposit scheme in Wales. We will be producing further content on the new rules for Wales in due course.