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The Register of Overseas Entities – Buying Land in the UK

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.

Occupation Contracts – The New Form of Tenancy Agreement Under the Renting Homes (Wales) Act 2016

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.

Why You Should be Looking at ESG – Environmental, Social and Governance

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.

Formalities for Signing Tenancy Deposit Protection Prescribed Information

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.

Anticipated Changes for Property in 2022

2022 is set to see more legislative and regulatory change for both residential and commercial property in England and Wales.

In this blog post we look at anticipated changes and recent government announcements. It is not a conclusive list, and we have focused on those matters of particular relevance to our customers. As we have seen over the past two years, legislative changes are frequent, and introduced often with little notice.

Residential

Residential Property Outlook 2022

Renting Homes (Wales) Act 2016

It has been announced that this Act will finally come into force in July 2022. This Act will fundamentally change all aspects of renting residential property in Wales. Model contracts will be available and will give tenants in Wales a minimum 12-month contract with eviction notice periods of 6 months for “no-fault evictions”. Further legislation will be introduced to put in place additional measures to support the existing legislation.

Carbon Monoxide Alarms

The government intends to extend the 2015 regulations so that landlords must install a carbon monoxide alarm in any room with a fixed combustion appliance (excluding gas cookers). Legislation only currently requires landlords to fit an alarm where there is a solid fuel burning source. Landlords will be required to repair or replace smoke and carbon monoxide alarms once they have been informed by the tenant that they are faulty.

Right to Rent

On 5 April 2022, the temporary measures introduced during the coronavirus pandemic are set to end. Updated guidance will be published before 6 April 2022, as the way in which checks of biometric residence cards and permits, and frontier worker permits are set to change. These checks will be done using the Home Office online service only.

Eviction Notice Periods (Wales)

The modified notice periods in Wales were extended until 24 March 2022. Save for any further legislation being introduced, the notice periods will then revert to pre-pandemic lengths.

Renters’ Reform Bill

Draft legislation is anticipated relating to the abolition of section 21 notices, the introduction of a lifetime tenancy deposit, and changes to the court procedure for eviction cases. This Bill may also deal with the question of whether landlords will be required to be members of a redress scheme (which deals with complaints) or an obligation for private landlords in England to be registered.

Minimum Energy Efficiency Standards

The government is committed to raising the minimum energy efficiency rating from E to C by 2028. We may see draft proposals from the government this year.

Anti-Money Laundering (AML) and Agents

Agencies which are regulated for AML purposes and earn over £10.2million will be liable to pay a levy which is intended to be used to tackle money laundering in the UK. The amount of the levy varies depending on the revenue of the company. This levy is part of the Finance Bill 2021-22 which is making its way through Parliament. This provision is intended to commence in April 2022.

Letting agency business guidance for money laundering supervision is still awaited.

Regulation of Property Agents

It is still uncertain whether steps will be taken to regulate property agents. A report was published in 2019 by the working group RoPA (Regulation of Property Agents). There has been little progression since the report was published. This question may be addressed in the Renters’ Reform Bill.

Leasehold Reform (Ground Rent) Bill 2021-22

Ground rents payable in new long leases must be one peppercorn (unless the property is exempt). This Bill is likely to be passed this year.

Building Safety Bill 2021-22

This Bill will have a significant impact on those constructing premises, those involved in property management and health and safety of ‘higher-risk buildings’ (buildings with at least two residential units and at least 18 meters in height or seven storeys). The Bill currently proposes a New Homes Ombudsman scheme, with a new code of practice on standards of construction, increased obligations under the 2005 Fire Safety Order and restrictions on landlords and developers recouping remedial costs from tenants.

Commercial

Commercial Property Outlook 2022

Moratorium on Forfeiture Proceedings, Commercial Rent Arrears Recovery (CRAR), and Winding Up Petitions

The moratorium on forfeiture proceedings for commercial leases (for non-payment of rent) in England and Wales is in place until 25 March 2022. The use of the CRAR regime was also extended. 554 days’ rent needs to remain unpaid for a landlord to exercise CRAR. The ban on landlords issuing a winding-up petition for debts relating to rent or other sums payable by a tenant under a business lease (among other conditions) is due to expire 31 March 2022.

Commercial Rent (Coronavirus) Bill 2021-22

This Bill addresses the issue of commercial rent arrears built up during the pandemic and will establish a binding arbitration procedure to resolve ongoing disputes. This Bill is progressing through Parliament and is expected to come into force in England and Wales from 25 March 2022.

Charities Bill 2021-22

The Bill aims to make land disposal for charities easier. It aims to give greater flexibility, remove certain prescriptive requirements, and make the legal framework for disposing of charity property clearer and less burdensome.

Minimum Energy Efficiency Standards

From 01 April 2023, it will be unlawful for a landlord to continue to let commercial property with an Energy Performance Certificate (‘EPC’) rating of ‘F’ or ‘G’ unless an exemption applies and has been registered.

The Government intends to make it unlawful to let commercial property with an EPC rating of below B by 2030. Proposals to address this are likely to be published this year.

Here at Simply-Docs we will continue to monitor the development and progress of these proposed legislative and regulatory changes and will update the portfolio and notify you when necessary.

Draft Bill for Ring-Fencing Commercial Rent Debt Now Published

Parliament

Following up on September’s post, New Rent Debt Ring-Fencing Legislation, (which looked at the Government’s intention to set out legislation to deal with commercial rent arrears built up during the pandemic), this post looks at the Government’s much-anticipated draft Bill to address this issue.

The Bill (expected to come into force in England and Wales from 25 March 2022), introduces a binding arbitration procedure for landlords and tenants who cannot reach an agreement on how to deal with the rent arrears.

There has been lots of hype and commentary surrounding the Bill. This post sets out the key points from the Bill. Note that this is subject to change as the Bill progresses through Parliament.

Commercial landlords should be aware of the proposals as these are likely to impact negotiations with a tenant and what enforcement action a commercial landlord may consider in the future.

The Arbitration Procedure

1. Once the Bill becomes law, there will be a six-month window within which either party can refer the matter to arbitration.
2. One party states their intention to refer the matter for arbitration to the other (which is to be supported by a proposal for how to resolve the debt). The corresponding party then has 14 days to respond. Upon receipt of a response (or at the end of 28 days from notifying the respondent), the first party may refer the matter for arbitration which must be accompanied by a formal proposal for how to resolve the debt.
3. The arbitrator will consider the matter and make a binding award which may:
– Write off the whole or part of the debt;
– Give the tenant time to pay (up to a period of 24 months from the date of the award);
– Allow the tenant to pay by instalments; and/or
– Reduce the interest which has accrued, or which may be written off.
4. The arbitrator may dismiss the referral if the tenant’s business is not viable (or would not be viable even if an award were made), or the debt in question is not a ‘protected rent debt.’
5. In making the award, an arbitrator is required to follow certain principles and may consider certain factors which are set out in further detail in the new Code of Practice (which is discussed below).
6. The arbitrator must make their award within 14 days of a hearing, or as soon as reasonably practicable.
7. Each party must incur their own legal fees. The initiating party must pay the arbitrator’s fees, but once an award is made, the cost may be split between the parties unless decided otherwise by the arbitrator.

Protected Rent Debts

1. A matter can only be referred to arbitration if it relates to a ‘protected rent debt’, which means the debts arose because of the closure of and/or severe restrictions placed on businesses during the pandemic.
2. The period of closure starts from 21 March 2020 and ends on the earlier of:
a. 18 July 2021 (England) and 07 August 2021; or
b. The last day on which the relevant business was subject to restrictions (these are set out in the new Code of Practice). Periods in between where businesses were allowed to trade are to be included.
3. Principal rent, interest, service charge, and VAT can be protected rent debts.

Temporary Moratorium

This Bill is due to commence from 25 March 2022 to coincide with the expiry of the current moratorium on forfeiture proceedings and restrictions on the exercise of Commercial Rent Arrears Recovery (CRAR). There will be a temporary moratorium, which means landlords will not be able to:

1. forfeit the lease;
2. exercise CRAR;
3. serve a winding-up petition;
4. serve a bankruptcy petition;
5. issue debt claims; and/or
6. draw-down on the tenant’s deposit,

in relation to protected rent debts until an award has been made by the arbitrator, or until the six-month window has passed and no arbitration has been sought.

A key point to note is once the Bill becomes law, if a debt claim was made for protected rent debts on or after 10 November 2021, either party can request that the claim be stayed. If a judgment was made (for protected rent debts) on or after 10 November 2021, it will not be enforced.

New Code of Practice for Commercial Property Relationships Following the COVID-19 Pandemic

A new code of practice (which replaces the current code) now applies to negotiations between landlords and tenants dealing with rental arrears. The code also sets out a framework for the arbitration process and how this will work once the Bill becomes law. The code is not binding, but the Government strongly advises that the parties follow it.

This post is a high-level summary and only covers the key issues. A link to the code can be found here.  The Bill can be found here.

The Government is also asking people who have expertise or a special interest in the Bill to submit their views to the House of Commons Public Committee. A link to the consultation can be found here. The consultation closes at 5.00pm on 16 December.

We will continue to monitor the progress of the Bill through Parliament and will publish further updates as and when necessary.

Working from Home & IP: Who Owns What?

Home Working

When the Covid-19 pandemic began, thousands left their workplaces behind and began working from home. Over the past 18 months or so, working from home has not only become commonplace but now, as employees return to their normal places of work, it has become the preference for many. Working from home has made the long-elusive work-life balance much easier to strike. In many cases, working conditions are more comfortable and convenient, common workplace annoyances are reduced or even removed, and according to some studies, productivity rates have improved (in the interests of balance, however, it should also be noted that there are those who say the opposite).

Whatever the productivity merits, there are some employees who have become so attached to working from home that – according to a recent opinion piece in The Guardian (available here) – they are prepared to accept pay cuts to continue working at home instead of returning to the office. The merits of this approach warrant their own discussion, which we will save for another time. What is important, though, is that if greater numbers of employees are likely to make a permanent switch to working from home, some formalities that might have been overlooked in the scramble to lockdown last year must be addressed.

One of those formalities is copyright and intellectual property more broadly. The default position on copyright ownership is that works created by employees in the course of their employment belong to their employer unless there is an express agreement to the contrary (for example, a provision in an employment contract). In the case of self-employed consultants, the default position for commissioned copyright works is that the creator of the work is the owner, unless it is agreed otherwise in writing. Whether a commissioned work is assigned to the commissioning party or merely licensed to them should be dealt with in the contract.

So far so good. What happens, though, when an employee is working from home and creates something outside of their normal working hours, using their own computer?

Penhallurick v MD5 Ltd

Earlier this year, the High Court considered a case in which a former employee of MD5 Ltd, Mr Penhallurick, had developed a piece of software for use in forensic computers along with a graphical user interface and a user guide. Much of the work had been done outside of Mr Penhallurick’s normal office hours, at home, and using his own computer. The court nevertheless held that MD5 Ltd owned the copyright in the works in question.

A key factor in this decision was the fact that Mr Penhallurick’s normal job duties entailed the creation of the same kind of software. Consequently, there was a “strong and primary indication” that this work, even though it was outside of his normal hours, undertaken at home, and using his own computer, nevertheless formed a part of the course of Penhallurick’s employment.

“…in my view the place where the employee chooses to do the work will not generally make any difference. The same applies to the ownership of the tools the employee chooses to use.” – Judge Hacon

It is also important to note that the work in question was undertaken several years ago, long before the massive growth in working from home caused by the pandemic. If this reasoning applies to work undertaken at home under “normal” circumstances, then one would arguably expect it to be even more likely to apply to work undertaken at home under “new normal” circumstances. (Author’s note: Sorry, you knew we were going to say “new normal” somewhere here, didn’t you?)

With this in mind, then, whether you are dealing with an employee or taking on a contractor, it is important to consider copyright ownership from the beginning, particularly where the individual concerned will be creating some form of copyright works for you. Ensure that a proper contract is in place which clearly defines the individual’s role and duties and, if necessary, addresses copyright ownership and any other applicable IP rights.

If working from home is set to remain a preferred and more common way to work, be it fully or partly with time divided between home and the office, it is even more important to be clear on what constitutes “work in the course of employment”. Working from home is inherently flexible. In many cases, it makes little difference to an employer or to the resulting work whether it is done at 3pm or 11pm. If an employee’s previous office hours were 9am to 6pm, however, there is potential for confusion unless their contract of employment is amended accordingly.

Last year, we witnessed a proverbial stampede for the exit as employees left their offices behind and set up shop on the sofa with a laptop, clad in their finest pyjamas. Understandably, there was insufficient time (not to mention considerable panic and uncertainty over what damage the virus might do to businesses and the global economy as a whole) to get the formalities and legalities in order. Now, however, it is time to take a step back and get things sorted out.

New Rent Debt Ring-Fencing Legislation

New Legislation to Ringfence Commercial Rent Debt Accrued During the Pandemic

The Government has announced that they will introduce new legislation to deal with the commercial rent arrears which have built up as a result of the Covid-19 pandemic.

The legislation is expected to be introduced before the end of the moratorium on forfeiture proceedings for non-payment of rent (25 March 2022).

The key proposals are as follows:

  • To ringfence commercial rent arrears that built up since March 2020 (due to business closures), until restrictions for their sector were lifted. Once the arrears are ringfenced, landlords will not be able to forfeit the lease for non-payment of these arrears or take insolvency proceedings against the tenant for this debt.
  • To encourage landlords and tenants to negotiate in good faith and reach a solution where possible, using the principles set out in the revised Code of Practice (referred to below).
  • Landlords are expected to “share the financial burden with tenants” and “defer or waive entirely an appropriate proportion” of those ringfenced arrears.
  • Where the parties can’t agree on how to settle the rent arrears, the last resort will be for the parties to undertake a binding arbitration.
  • The voluntary Code of Practice introduced last year will be revised and strengthened to set out the principles that the parties and arbitrators should follow, and the revised Code will become mandatory by putting it into legislation. If parties don’t negotiate in good faith, they may be penalised.
  • To ensure that tenants should pay any rents which accrued before the pandemic and any rents payable since the restrictions were lifted. Now that all restrictions have been lifted, tenants in England should be paying their rents henceforth.

At this stage, the Government has only made an announcement and the finer details of the proposed legislation are not yet known. Many questions remain unanswered, for example:

  • How will the ringfencing of rents work in practice?
  • When are the restrictions deemed to have been lifted?
  • The restrictions were not continuous, so how will the Government treat those periods where lockdown was eased for a few months?
  • Will those businesses which were not forced to close, but which have been indirectly affected by the pandemic be able to benefit?
  • Precise details of how the arbitration process will operate in practice are also not yet known.

Both parties will have to wait for further details to find out exactly what is proposed under the legislation. Tenants should continue to pay their rent where they are able to do so. Where tenants cannot pay their arrears, the Government is encouraging the parties to come together to negotiate in good faith and find solutions as soon as possible.

The IR35 Rules Have Changed Again – Should You be Worried?

HMRC Sign

Changes to the IR35 rules came into effect on 6 April 2021. This has caused quite a commotion but why, and should you be concerned? In this post, we will explore the latest changes and their impact.

Media coverage of the impact of the changes

Much of the media coverage over the past months about the IR35 rules has concentrated on the effect of the changes to the rules rather than the IR35 regime as a whole. Various commentators have been emphasising that not only freelance individuals but also their business clients need to consider the impact of the changes on them. In particular, the media have quite rightly focused on whether and how freelancers and their clients are affected by the rule changes, and what action they need to take in response.

If you have seen some of that coverage, you might be forgiven for concluding that the changes will affect all freelancers and their clients from 6 April 2021. We wonder whether the media coverage has focused too much on where the rule changes do impact on the world of freelance work without also clarifying those who won’t be affected.

To redress the balance, we invite you to consider the following situations in which, although the IR35 regime does or might apply, the rule changes themselves will not have any impact on a freelancer and/or their clients.

To keep things simple for our present purposes, we will look only at private sector clients. (Other rules apply to public sector clients.)

Where do the changes not impact on freelancers and their business clients?

If, as a freelancer, you only work for a client as a self-employed individual but do not provide your services to them through a personal services company (“PSC”) or other intermediary company, IR35 rules (pre- or post-April 2021) do not impact on how you have to be paid by a client. In short, IR35 will not apply to you or your client at all if you do not use any type of intermediary company. You will, however, still need to satisfy yourself and HMRC that you are genuinely self-employed, and not in law an employee of a client in order to be paid gross by your client.

So, do IR35 rules apply to a freelancer and/or their client where the freelancer does work for them through a PSC? Possibly. The IR35 rules both pre- and post-6 April can, but do not necessarily, still apply to them. However, there is a distinction between the pre- and post-April situation, as follows.

The new rules only relate to the mechanics of determining a freelancer’s status

The rules both pre- and post-April are concerned with the status of the freelancer, namely whether or not they are to be treated as if they were employed rather than self-employed, and the consequences to how they are to be paid where they have to be treated as if employed. The effect of the 6 April rule changes is to add to that pre-April regime an additional layer of rules which apply in some cases. The changes are not about whether the freelancer is to be treated as if employed or self-employed, but instead on how that status is to be ascertained. In some cases – outlined below – but only in those cases, instead of the PSC having to determine that status, it is the client’s responsibility to do so, where so required by the changes.

This switch in responsibility to the client only applies where it is “medium” or “large”. Factors such as size, turnover, etc. of the individual freelancer and their PSC (and any other intermediary companies) are not relevant for this purpose.

The key test of whether the rule changes affect the freelancer or the client is whether the client is “small”. If it is, the PSC has the legal responsibility to determine the freelancer’s status vis-à-vis that client, just as the PSC did before 6 April. As you will see from the test outlined below, many of our customers and other readers will be “small” business clients, or they will be freelancers or PSCs working for business clients who are “small”. In that case, the changes do not affect them in relation to a work engagement. A client is small if it is in the private sector and at least two of the following apply to it:

  • its annual turnover is less than £10.2 million;
  • its balance sheet total is less than £5.1 million;
  • its employees number less than an average of 50 in the year.

Does IR35 apply at all if the client is exempt as “small”?

Where the exemption applies, it only has the effect of releasing the client from the duty under the post-April IR35 rules to determine the freelancer’s status. In other words, the “exemption” does not take the IR35 regime out of the picture altogether. This means that even if the client is “exempt”, the pre-April IR35 rules will still apply where they require the freelancer to be treated as if employed, with the result that the client has to pay the PSC less PAYE deductions.

Conversely, if the exemption does not apply, it is the client under the post-April IR35 rules that has to determine the freelancer’s status under the pre-April IR35 rules. However, if the client then determines that the freelancer is to be treated under the pre-April IR35 rules as self-employed, the client can make gross payments, i.e. it will not have to pay the PSC less PAYE deductions.

In short, whether the client is exempt and what the freelancer’s status is are two separate questions. The freelancer’s status has to be determined in each case according to the same criteria, and the question of exemption is only relevant to ascertain whether it is the client or the PSC which has to determine the freelancer’s status.

Conclusion

Views about the IR35 regime as a whole cover a broad spectrum. Many who are in favour of the IR35 regime (including the new rules) may hold that view because they are not themselves freelancers, PSCs, or clients of either, and they are not burdened with its direct effects. They simply see IR35 as a good and effective measure to prevent tax avoidance by freelancers. At the other end of the spectrum, many freelancers using PSCs and their clients see IR35 as an unfair set of measures, and would gladly abolish IR35 completely.  Freelancers and their clients alike see IR35 as creating an unacceptably high tax bill for freelancers and a heavy administrative burden for freelancers, PSCs, and their clients.

IR35 and self-employment template documents and guidance notes

We have a wide range of materials on our website which can help you with IR35 and self-employment issues. We recommend that you read our business information pages which you can see here: Business Information pages on Employment and Self-employment and here: Business Info on IR35 and that you also look at our guidance notes and range of template documents that you can use to create forms of agreement between a client and a freelance worker or intermediary company which you can see here: Self-Employment and Freelancer Contracts and here: IR35 And Other Company Contracts. These templates also include a form of IR35 Status Determination Statement template which is designed to save time when a client has to complete a status determination statement to comply with the post April 2021 IR35 rules.

Renting Homes (Amendment) (Wales) Act 2021

Row of houses

The Renting Homes (Amendment) (Wales) Bill gained Royal Assent on 07 April 2021 (‘the Amendment Act’). The Amendment Act amends certain provisions of the Renting Homes (Wales) Act 2016 (‘the 2016 Act’). The 2016 Act (when it comes into force) will significantly reform housing law and practice in Wales. No date has been set for when the 2016 Act will come into force, but it is expected to come into force early 2022.

The Amendment Act gives residential tenants in Wales greater security. Residential tenancies in Wales will change to give tenants:

  • A minimum 12-month contract;
  • Minimum notice periods to evict tenants will be extended from two to six months in the case of “no fault evictions” (section 21); and
  • Landlords will only be able to serve an eviction notice six months after tenants have moved in (as opposed to four months).

A tenant will therefore be able to move in and spend a year in a property before the landlord can take possession.

When the 2016 Act comes into force, it will simplify and standardise tenancy agreements to make them easier to understand and reduce legal costs. Some of the key provisions of the 2016 Act are as follows:

  • Create a new model written statement, a “standard occupation contract”, modelled on the present assured shorthold tenancy (AST);
  • Many licences will be converted into occupation contracts;
  • The occupation contracts will include certain terms that cannot be varied unless the variation improves the tenant’s or licensee’s position; and
  • It will introduce a new tenancy deposit scheme which will apply to all occupation contracts.

Consultation

The Welsh Government has the power to prescribe model written statements and has now launched a consultation seeking views on:

  • The draft Renting Homes (Model Written Statements) (Wales) Regulations; and
  • The draft Renting Homes (Explanatory Information for Written Statements) (Wales) Regulations

Any interested parties can respond to the consultation and views are being sought on the design, structure, and order of the draft model statements and explanatory information. The terms of the statements are pre-determined (by the 2016 Act). You can read the consultation document and respond online here. The consultation closes on 16 June 2021.

The aim of the 2016 Act is to streamline the housing process in Wales; however, opinion is divided with some stating that these changes will significantly inhibit a landlord’s ability to recover possession even from a problem tenant. This is likely to have a negative consequence for the wider sector with landlords leaving the market when demand for lettings is high.

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