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Monthly Archives: March 2020

Minimum Energy Efficiency Standards – Changes from 1 April

Energy Efficient Housing

The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (‘the 2015 Regulations’) established the new Minimum Energy Efficiency Standards (MEES) in the residential private rented sector. Since 1 April 2018 it has been unlawful for a landlord in England or Wales to enter into a new letting (or extend or renew an existing letting) of a residential property with an F or G energy efficiency rating unless an exemption has been registered.

The 2015 Regulations were amended in 2019 by The Energy Efficiency (Private Rented Property) (England and Wales) (Amendment) Regulations 2019 which imposed a requirement on landlords to contribute to the cost of improving their sub-standard property (F or G rating) up to the value of £3,500 (inclusive of VAT) unless an exemption could be sought.

Extending MEES From April 2020

From 1 April 2020, all existing tenancies are now caught by the Act, and it will be unlawful for landlords to rent out homes that are required to have an energy efficiency rating of F or G unless an exemption has been registered.

Landlords who let F or G-rated properties without having registered a valid exemption will be liable to financial penalties of up to £4,000 as well as “publication penalties”. A publication penalty means that the local authority will publish details of the landlord’s breach on a publicly accessible part of the National PRS Exemptions Register.

By now, landlords should have taken steps to ensure that their properties are up to standard or, alternatively, have claimed an exemption. Detailed information can be found on the gov.uk website, here.

Coronavirus, Commercial Contracts, and Force Majeure

As cases of the novel coronavirus, or COVID-19, continue to increase, having now reached pandemic status, as defined by the World Health Organization, many businesses are feeling the impact. This is perhaps most keenly felt where employees are concerned, either with staff taking sick leave, or with the need to increase home-working. As the impact worsens, however, it is likely to start impacting more supply chains and other areas in which contracts play a key role.

The basic principle that applies to commercial contracts that are subject to English law is that the parties remain bound to perform their obligations under them although it might have become more difficult or expensive to do so. However, many commercial contracts include provisions which expressly provide a right to terminate or some other right or remedy in particular circumstances described by the contract. The most common provisions of this type found in commercial contracts governed by English law are force majeure clauses, which excuse performance in the circumstances stated in the clause.

An important question that businesses should be considering now is whether COVID-19 amounts to a force majeure event under the terms of any force majeure clause that is included in any current contract that they have with another party, and if so, how does it apply to the circumstances?

What is Force Majeure?

The term “force majeure” originates in French, meaning “superior force”. A force majeure clause in a contract is designed to relieve the parties from their contractual obligations when events beyond their control (or reasonable control) prevent or hinder their performance of those obligations.

Rather than bringing the contract to an end, the party affected by the force majeure event will often be excused from performance by a force majeure clause in the contract for the resulting delay or non-performance, and the time within which performance is required will be extended. It is also quite common for force majeure clauses to allow one or both parties to terminate the contract – but do not state that the contract automatically ends – if the force majeure event and its effects on performance continue for a certain period of time.

Contracts under English law must include specific provisions covering force majeure if the parties want to be able to rely on such exemptions from a contractual obligation. English law does not apply any doctrine of force majeure or imply any force majeure term or effect in any contract; whether a force majeure consequence arises in relation to a contract will depend on the precise circumstances and wording of the force majeure clause, if any.

Since the courts will generally prefer to enforce the performance of a contract, the party seeking to rely on a force majeure clause will usually not be able to do so unless it shows that the clause applies. Unless the contract expressly says otherwise, it will have to show that performance is legally or physically impossible, not just that it is commercially impractical or uneconomic to perform.

Is the Coronavirus a Force Majeure Event?

Whether or not the impact of COVID-19 amounts to a force majeure event will ultimately come down to the wording of the relevant clauses in the contract. Some force majeure clauses are more specific than others. If a list of possible events is included in the clause, the question will be whether or not the virus falls within one of those events. Until recently, for example, a general reference to “pandemics” would not have been helpful; however, as the World Health Organisation has now classified COVID-19 as a pandemic, such a reference in a force majeure clause would be more likely to be useful. Alternatively, the clause might include other, more general events such as “act of god”, and/or a catch-all provision such as, “any other event which is beyond the reasonable control of the effected party whether of a similar or dissimilar nature to any of the foregoing events”, but such provisions are not a guarantee of success. In any event, it will be for the party claiming that a force majeure clause covers COVID-19 and the particular circumstances relating to the contract to demonstrate that the clause does cover it.

Also of key importance will be the parties’ knowledge at the time the contract was formed. Some force majeure clauses refer to “unforeseeable events”. In such cases, the parties’ prior knowledge of outbreaks of COVID-19 in the relevant areas will be an important consideration. If the parties knew of the outbreak of the virus when the contract was formed and did not make an express reference to it in the force majeure clause, the courts may not subsequently allow a party to the contract to rely on it as a force majeure event under any non-COVID-19 wording in the clause.

Even where it is possible to rely on a force majeure clause with respect to COVID-19, such clauses should be handled with care and do not necessarily represent an “easy way out”. There may, for example, be an obligation to mitigate the impact of the force majeure event (express or implied); the scope of the clause may be limited; and there may be time limits.

Depending upon the wording of a force majeure clause, then, it may indeed be the case that the coronavirus amounts to a force majeure event. Nevertheless, force majeure clauses are not designed to be, and are not, easy get-out clauses. They cannot be used to avoid liability for contractual breaches that would have occurred in any case or which were not caused by force majeure, and many will include limitations to ensure that contracts cannot be prematurely terminated simply because performance has become tricky.

Frustration

Where there is no force majeure or other helpful clause in a contract, or where there is such a clause but it does not cover COVID-19 and the particular circumstances, the English law doctrine of “frustration” might apply in certain very exceptional circumstances. Under this doctrine, if an unforeseen event renders a contract impossible to perform or transforms the obligations under it into something radically different, the contract is, in law, deemed to terminate. This occurs automatically, not by virtue of any termination by either party. Frustration only occurs if, on a strict view of a situation, there is such impossibility or transformation of obligations: if the performance of contractual obligations simply becomes more difficult or expensive, that is very unlikely to be sufficient for the doctrine of frustration to apply. If frustration does apply, it may be difficult to ascertain what financial adjustments between the parties are required to be made under contract law.

Complexity of Issues Requires Proper Legal Advice

Interpreting the scope and effect of any force majeure clause or reaching a view as to whether frustration applies in any situation may be a complicated, difficult, and uncertain legal matter. Similarly, reaching a view as to the financial effect on the parties of the application of a force majeure clause or frustration will also be a complex, difficult, and uncertain issue.

As well as considering suspension or the ending of a contract, it will be necessary to consider whether there is a liability to refund payments already made under the contract or to pay for value received or money expended before the suspension or termination. Therefore, in all cases you should seek appropriate professional independent legal advice as to where you stand in relation to COVID-19 and its effects on the performance of any commercial contract.

Budget 2020 – Extraordinary Measures and the Coronavirus

Downing Street & Whitehall

In the Budget address on 11 March, Rishi Sunak, Chancellor of the Exchequer, announced £7 billion of extraordinary measures to support the economy through the coronavirus (COVID-19) crisis.

The following key measures were announced:

  • The cost of statutory sick pay (SSP) for coronavirus-related absence of up to 14 days will be refunded by the government. This applies to businesses with fewer than 250 employees.
  • SSP will be available “to all those advised to self-isolate even if they haven’t yet presented with symptoms”. This will apply from day one of sickness.
  • Employees will be able to obtain a sick note (fit note) from the NHS non-emergency service (111), which they can use as evidence for absence from work. This initiative is intended to take pressure off local GPs.

The self-employed and those working in the gig economy are not eligible for SSP and so the government has made it quicker and easier to access benefits.

Additional financial support is being made available under a new temporary Coronavirus Business Interruption Loan Scheme with banks offering loans of up to £1.2m to support SMEs.

A special HMRC helpline has also been set up to assist businesses and self-employed individuals in financial difficulties with and outstanding tax liabilities. Those concerned about their ability to pay tax due to the coronavirus can contact HMRC’s helpline on 0800 0159 559.

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