Industry comment, updates and news from the Websters team.
King & Wood Mallesons has reported that CRAR (Commercial Rent Arrears Recovery) – the new rules for seizing a tenant’s goods – comes into force on 6 April 2014 in England & Wales, replacing the ancient common law rules of distress for rent. CRAR is designed to be fairer to tenants, but will it be an effective remedy for landlords and are there any alternatives?
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Shoosmiths has reported that, in Siemens Hearing Instruments Limited v Friends Life Limited, the High Court has held that a break notice which failed to comply with the express provisions of the break clause was nonetheless valid. The key lesson for landlords is to ensure that, if you intend to make non-compliance with the terms of a break clause fatal, you must say so. From the tenants point of view, not a great deal has changed. It is essential to follow break clauses to the letter but, if something goes awry, the language of the clause may just be flexible enough to rescue the break.
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Hill Dickinson has recently focused on the problems of dilapidation, when a new lease is negotiated. In this case, the main focus of tenants and landlords is upon the financial payments to be made throughout the lease term, such as rent and service charge. Quite often the parties do not realise that failure to understand and deal with dilapidations, which are essentially the breach of repairing/decorating obligations within the lease, can have serious financial implications in the future.
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Websters has been specialising in the production and audit of service charge accounts for nearly forty years. When we started this work, service charge audits were frequently undertaken as part of the property owner’s general annual audit. This was not a satisfactory situation because specialist knowledge is needed for accurate service charge accounting assessment. Some of the advantages of an audit are:-
We now act for a very large number of landlords, who recognise that independently audited accounts can remove a major cause of conflict with their tenants
A landlord often supplies services, other than rent, such as insurance, water and electricity. Some services may not be standard-rated as a stand-alone supply and Pearson has reported that barristers, who were tenants at the Middle temple, found that problems arose when their landlord supplied a ‘mixture’ of services. VAT law has a preference for treating ‘bundles’ of supplies as a single supply where splitting them would be regarded as ‘artificial’. When a mixed supply is deemed to be a single supply, the predominant supply will determine the VAT rate charged.
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In Read Smith‘s Real Estate Legal Update, it was noted that some of the highest profile corporate occupiers have on-going programmes for reducing power consumption and improving their impact on the environment but others may be persuaded by the costs savings or required by some of these new laws and regulations to turn green.
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Joanna Nicholls of Howes Percival has reported that, from 1 January 2015, it will be illegal to use the hydrochlorofluorocarbon (HCFC) gas R22 in either its newly produced ‘virgin’ or recycled form. R22 gas is a commonly used coolant in older air conditioning systems so its ban will have a significant impact as these systems will either have to be converted or replaced. The key question for landlords and tenants is who will pay?
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Anna Rutherford of Speechly Bircham notes that the Taking Control of Goods Regulations 2013 made on 26 July 2013 provide further detail on the Commercial Rent Arrears Recovery (CRAR) procedure which comes into force next April. There has been uncertainty and speculation concerning the new regime which replaces the existing law on seizure and sale of goods and the archaic law of distress. CRAR seeks to provide a unified procedure for enforcement agents to follow. Since the Regulations cover specific amounts of rent only, commercial Landlords might be advised to refrain from offering inclusive rents, without detailing separate sums for rent and service charge.
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When we started specialising in service charge audits they were frequently undertaken as part of the property owner’s general annual audit. This was not a satisfactory situation because specialist knowledge is needed for accurate service charge accounting assessment. Some of the advantages of an audit are:-
Since that time many large landlords in the UK have moved to providing independent audited accounts for their service charges thus removing one cause of landlord / tenant conflict
Elisons has reported that, in Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd and another [2013] EWHC 1279 (Ch), where the tenant exercised a break clause part-way through a quarter, having paid the rent for the full quarter, the High Court implied a term into the lease entitling the tenant to a repayment of the rent from the break date to the end of the quarter. This decision is a departure from the widely-accepted view that, in the absence of an express provision in the lease, a tenant will not be entitled to a refund of any rent paid that relates to the period after a break date.
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