The dangers of DIY leases

Gemma. March blog photo

The dangers of DIY leases

It may be tempting for both landlords and tenants of commercial properties to try and save money on legal costs by dealing with the matter between themselves. There are a number of downfalls that a landlord / tenant may fall foul of. Commercial property Solicitor, Gemma Eastham, looks at the pitfalls.

SDLT liability – tenants

Whether SDLT will be payable will generally by determined by whether a premium is being paid for the grant or assignment of the lease, the value of the annual rent per annum and the length of the lease.

Where no SDLT is payable, a tenant may still be required to notify HMRC (submit a return to HMRC).

Failure to submit a return and pay the duty (if any) within 14 days of the effective date of the transaction will lead to a fixed penalty of £100 and interest being charged on any SDLT and if the date of submission is more than 3 months after the filing date, the fixed penalty will increase to £200.

When do you need to register a lease at H.M Land Registry?

Leases granted for a period of more than seven years and certain other types of leases need to be registered at HM Land Registry.

It is worth pointing out that any easements contained in a lease, such as rights to access the demised premises through common areas or the use shared facilities, i.e car parks, will not take effect at law unless they are registered, even where the lease itself does not require registration.  For a tenant, it is therefore important to ensure that any registration requirements are adhered to.

Unwritten tenancies

Unwritten tenancies are dangerous for both parties to a commercial tenancy because there is no clear record of the terms that have been agreed.

A landlord, for example, will have no right to forfeit the tenancy in the event of a breach of the terms of the agreement because an express forfeiture clause is required for this.

With a business tenancy it is important to ascertain whether the agreement is within the security of tenure provisions contained in the Landlord and Tenant Act 1954 (the right for the tenant to renew the tenancy at the end of the term).  If there is no express clause excluding these provisions in the agreement and the Landlord and Tenant Act 1954 has not been ‘contracted out’, the tenancy will be deemed to be within the Act.

This means that the tenant will generally be entitled to request a new lease from the landlord at the end of the contractual term of the existing lease. The landlord would only be able to bring the tenancy to an end by serving notice on the tenant in the prescribed form, which requires the landlord to give the tenant not less than 6 months’ notice.

This may affect any provisions which have been agreed between the landlord and tenant.

For example, a landlord and tenant may have verbally agreed that either party can bring a lease to an end by giving one month’s notice to the other party. Legally, the landlord would not be able to rely on this provision and would need to follow the above statutory procedure (6 months’ notice).

The full extent of this topic could be covered in something far longer than a blog, but these are some key areas that both landlords and tenants should consider before proceeding. Seeking appropriate legal advice at the outset could potentially save a landlord and/or tenant money in the long run. Legal advice is always recommended.

For further information, please contact our Commercial team at MBH Solicitors:

http://www.wigansolicitors.com Tel: 01942 206060 Address: 26 Bridgeman Terrace, Wigan WN1 1TD.

 

 

I want to sell my leasehold property but I do not have long left on my lease

A property with a limited number of years left on the lease may be hard to sell because prospective buyers are likely find it difficult to obtain a mortgage.

Mortgage lenders are reluctant to lend money to a prospective buyer unless the lease has a requisite number of years left on the lease.

If you are struggling to sell your property, you may wish to purchase the freehold title or extend the lease.

Can I extend my lease?

Various factors are taken in to account, the main factor being that you must have owned your property for a minimum of two years and you must have been granted a lease of 21 years or more.

You cannot extend your lease if your lease has already expired, if the lease has been extended previously or of your landlord is a charitable trust.

How much will it cost me?

If you are looking to extend the lease of your house, generally you do not have to pay a premium, however, your landlord may ask for their representatives legal costs to be paid on their behalf. Your ground rent may also increase to a modern rent, from the date which your additional 50 years term begins.

What do I need to know?

You are entitled to extend your lease for a period of 50 years, in addition to the unexpired term of your original lease.

If the terms between you and your landlord cannot be agreed, or if your landlord refuses to extend your lease, then you can make an application to the First Tier Tribunal where the terms and price can be decided.

If you and your landlord have agreed to extend your lease for a further 50 years or for a longer period, we are happy to help guide you through the process, from the beginning to the end.

For further information, please contact our Commercial team at MBH Solicitors:

http://www.wigansolicitors.com Tel: 01942 206060 Address: 26 Bridgeman Terrace, Wigan WN1 1TD.

Written by our Gemma Eastham, Commercial Property Solicitor

What is an option agreement and how can it benefit you?

What is an option agreement?

An option agreement is a contract between the landowner and a potential purchaser / developer of the land or property, which grant the purchaser / developer an option to purchase the land / property at anytime during an agreed ‘option period’ in return for an ‘option fee’.

When is an option agreement used?

Option agreements are used where a purchaser / developer is interested in purchasing a property / land for residential and/or commercial development and it is common for the purchaser / developer to use the option period to apply for and secure any necessary planning permissions required to proceed with their development, in addition to any finance.

Are there any benefits of an option agreement?

Yes. There are many benefits for both the landowner and the purchaser/developer:

Landowner:

  • A landowner can secure the final purchase price. If the value of the property decreases before the option agreement comes to an end, this will not affect the seller – the price agreed will remain (subject to the clauses stated in the agreement)
  • The landowner can continue to use the property during the option period
  • The purchaser/landowner is liable to pay the cost of obtaining any planning permission / surveyors during the option period

Purchaser/developer:

  • A purchaser/developer can secure the final purchase price. It can be negotiated that the buyer pays the agreed purchase price, even if the value of the property increases during the option period
  • A purchaser/developer has time to instruct surveyors / architects, apply for planning permission and / or raise finance during the option period
  • An option agreement prevents the landowner from selling the land / property to anybody else during the option period

What are the risks?

Planning permission may not be granted to the purchaser / developer to develop the land. In this case, the purchaser / developer is unlikely to exercise their option to purchase the land / property within the option period, therefore a sale is not guaranteed at the end of the option period.

This is a risk for the seller as they will be entering into an agreement for a number of years, restricting the landowner from selling the property / land to any other potential purchaser / developer, without the guarantee of a sale at the end of the option period.

Careful consideration must be given when drafting and negotiating Option agreements. It is strongly recommended that any buyer or seller works with a trusted commercial property solicitor.

For further information, please contact Gemma Eastham, Commercial Property Solicitor at MBH Solicitors who will be pleased to assist you:

www.wigansolicitors.com Tel: 01942 206060 Address: 26 Bridgeman Terrace, Wigan WN1 1TD.

The importance of Shareholders’ Agreements

Q: I would like a colleague to come on board as a director and shareholder in our business but I have invested more time and money in it to date. How can we reflect fairly our respective inputs?

Setting up a company with a friend, or having another party join you as a director, is an exciting time for a business. Sharing the workload and ideas can help to propel you forwards much more quickly than through the work of just one director. However, it’s important to protect both parties’ position to ensure that the partnership and the company can develop smoothly.

Shareholders’ Agreements

Trust in any working relationship is key but you should always ensure that, in case anything does go wrong, you both have clearly defined rights. A shareholders’ agreement is a vital document in many organisations; it can be made between any or all shareholders of a business and will protect investment, set out how the company is to run and ensure fair treatment of all investors and stakeholders.

What can it contain?

The agreement may include provisions such as:

  • shareholders’ rights;
  • the obligations of each shareholder and their specific roles;
  • how shares are to be bought and sold;
  • how dividends are to be calculated and paid;
  • the voting rights of each shareholder;
  • how decisions are to be made;
  • how the company will be run, including appointing or removing directors, making financial decisions and making decisions as to the trade and nature of the business; and
  • how disputes are to be resolved.

Agreements should cover minority shareholders (those who own less than 50%) and protect their interests insofar as is possible. This may include allowing for some voting rights for important decisions so that minority shareholders still have a say in, for example, how the business is to be run, whether new shares should be issued or whether new directors should be appointed.

As a majority shareholder, you may want to include provisions that allow you to require a minority shareholder to sell their shares. This will prevent you from being held back when making a business-critical decision at a time of your choosing.

Shareholders, especially those with a minority shareholding, should be prevented from disclosing confidential information or working with a competitor and an agreement should set out when, how and, most importantly, to whom, shares can be sold. You will likely wish to prevent shares being sold by another shareholder to a competitor and this can be incorporated within the agreement, as well as setting out how share values are to be calculated.

The company already has Articles of Association. Why do we need this as well? 

A shareholders’ agreement and the company’s Articles should reflect and be consistent with each other. The primary difference between the two is confidentiality; a shareholders’ agreement is a private contract between shareholders and only those party to it need to know the information it contains. Articles of Association are filed at Companies House and are publically available; therefore anyone can find out what is in that document. Further, Articles of Association are often drawn up using a template document which doesn’t consider closely the needs of your specific business. A shareholders’ agreement is far more tailored to suit your situation. 

Do we need to put the agreement in place now? 

You are well advised to put the agreement in place as early as you can in your working relationship. As with any legal document, if it’s put off and delayed, you may find that you need it before you have any firm terms in place. Make your shareholders’ agreement a priority so you know you’ll be protected right from the outset.

Is a shareholders’ agreement legally binding?

The agreement will form a contract between shareholders which can be relied upon and considered by a court; it’s therefore important to ensure that it is properly drafted, signed and dated to create a binding document that accurately reflects all parties’ interests.

 

Mark Boon, partner at MBH, deals with company commercial matters and will be happy to discuss any issues affecting your business, partnership or limited company. Contact Mark to make an appointment on 01942 206060.

 

About MBH

McCarthy Bennett Holland, established in Wigan since 1971, offers a personal service across a wide range of legal practice areas, including residential and commercial property, family and matrimonial, wills and probate, employment, personal injury and company commercial.

Contact Mark Boon to discuss your commercial or other legal requirements in confidence at:

www.wigansolicitors.com
Tel: 01942 206060
Address: 26 Bridgeman Terrace, Wigan WN1 1TD
Twitter: @MBHSolicitors

Dealing with directors’ disputes

It’s a fact of life that directors and shareholders of businesses won’t always get on; the close working partnerships that these roles require can put a great deal of strain on a relationship, particularly where livelihoods and income are concerned. But what are the most common causes of dispute and how can they be managed?

Grounds for disagreement

There are countless reasons why directors and shareholders may disagree, such as:

  • Financial reward; is one director receiving a greater share? If so, is that share justified or is it unfair?
  • Business strategy; is the direction the business is taking agreed by all parties or do some feel that change is necessary (or to be avoided)?
  • Behaviour of one party; for example, is one director not acting within the best interests of the company? Do they have sideline interests or investments which conflict with their role?
  • Unequal contributions; this may be financial or in terms of time spent working in the business, but if one or more parties feel that another is not pulling its weight in contribution, this can lead to discontent.
  • Share pricing; if and when shares are bought or sold, some directors and/or shareholders may feel that the pricing is incorrectly calculated.

Avoiding disputes

Key to any successful relationship is good communication. Directors should prepare themselves properly prior to board meetings and perhaps even discuss some trickier points beforehand to enable the meetings to be as productive as possible. During board meetings, ensure that proceedings run smoothly with time controlled and the agenda observed. Voting should be efficient and conducted at the right time once an issue has been discussed appropriately.

Non-executive directors can add a different dimension to a board; they may have particular business expertise which can assist in decision-making and, as they do not have a personal stake in the company, can offer advice which is unbiased and more practically-led.

Managing a disagreement

The first port of call for guidance should be the company’s own Articles of Association and/or any shareholders’ agreement which may have been prepared. Both documents should contain a procedure for managing conflict between directors and may allow, for example, for decisions to be passed by a majority.

In the absence of any other procedure, and in the interests of equality, directors generally have one vote each during a meeting. If there is an even split, the chair may be given the casting vote. There are some company decisions which also require the approval of shareholders, such as:

  • the appointment or removal of directors;
  • declaration of dividends;
  • proposed changes to Articles of Association or the company’s trading model;
  • any proposal to wind up the company; and
  • proposed property transactions

Termination

If, as a shareholder or director, you feel you want to terminate the relationship, there are a number of ways to deal with this depending on your role; you may be a director, employee or shareholder and you will need to ascertain this. Resignation can, and likely will, impact on your employment rights and you may also be required to sell your shares on departure.

If you are a shareholder, the clearest way to exit will be to sell your shares; the Articles and any shareholders’ agreement will deal with the process for this, including anyone who is to be offered the shares in preference to others. Directors are able to resign and the process is straightforward for this, although you are recommended to seek legal advice to ensure that you are excluded from any future liability in respect of decisions made during your directorship.

 

Mark Boon, partner at MBH, deals with company commercial matters and will be happy to discuss any issues affecting your business, partnership or limited company. Contact Mark to make an appointment on 01942 206060.

About MBH

McCarthy Bennett Holland, established in Wigan since 1971, offers a personal service across a wide range of legal practice areas, including residential and commercial property, family and matrimonial, wills and probate, employment, personal injury and company commercial.

Contact Mark Boon to discuss your commercial or other legal requirements in confidence at:

www.wigansolicitors.com
Tel: 01942 206060
Address: 26 Bridgeman Terrace, Wigan WN1 1TD
Twitter: @MBHSolicitors

What to look for when investing in a small business

Q: I am interested in buying a local business. I’m not sure what I should be looking for and would like some guidance on the legal steps to take.

Buying or investing in a business is a serious financial commitment, requiring a great deal of research to answer questions that you and your funder may have. The process can be complex but here we discuss the basics that you need to consider.

Know what you are buying

The first thing you need to know is whether the business trades as a limited company or as an unincorporated business, for example a sole trader or a partnership using a trading name.

If you are buying from a limited company, are you purchasing the shares in the company ie. taking over the whole company as a going concern or simply purchasing the assets of the limited company and leaving the company itself in the ownership of the seller? If you purchase assets from the limited company you will not buy the company outright. In the case of an unincorporated business you probably intend to take over the business as a going concern. Either way you will need to obtain the advice of a reliable accountant who can advise as to the nature and value of the business and therefore what a reasonable price to pay will be. In order to do so, you will need to have seen the business’ accounts but if a sale has been agreed in principle, the seller should be willing to disclose this important information.

Know the risks

Whilst it’s important to know how successful the business is in terms of turnover and profit, perhaps even more crucial is to understand its debts. To whom does the business owe money? Are there any shortfalls in the accounts? Is the business able to meet its outgoings each month? You will assume these debts on a purchase of the shares in a limited company so you need to know what your liabilities will be.

Likewise, check who owes the business money; do they have a lot of bad debt? This will reduce the value of the shares in a limited company. In an unincorporated business you don’t have to buy the business’ debts but if you do, you may be able to negotiate a reduced price to reflect the fact that not all of these will be paid.

You might also want to know why the seller has decided to sell; are they retiring? Has business faltered? These issues may affect the price you are willing to pay.

Check the business’ property agreements

If the business operates from a commercial premises, make sure you review the relevant lease or title documents to ensure that the property can be transferred to you on completion of your acquisition if necessary. In some cases, such as a full share sale, you will not need to complete any further documentation as you will be acquiring the limited company that already occupies or owns the property but if you are only buying assets you will need to ensure that leases or freeholds are transferred to you.

Agree the terms of the deal at the outset

Once you have an agreement in principle with the seller, draft and agree ‘Heads of Terms’ between you. You may wish to instruct a solicitor at this stage. This should contain all the key terms of the deal, including price, what you are buying, timescale, conditions to the deal (such as information and documents to be disclosed) and, often, exclusivity and confidentiality clauses which ensure that the seller cannot offer the sale to anyone else on the understanding that both parties will not publicise the terms of the deal.

The legal process

Once Heads of Terms and if it is desired an exclusivityand/or confidentiality agreement is in place your solicitor will draft the purchase agreement and issue this to the seller. You will need to complete due diligence and disclosure, ensuring that you have received all relevant information from the seller to enable you to consider fully your purchase. This may include financial information, details of employees, property documentation and supplier contracts. As part of the sale agreement, you may wish to request an indemnity from the seller which will cover you in the event that they have not revealed to you something which later proves to be costly.

Your solicitor will work closely with your accountant to ensure that tax issues are addressed; for example, you may need to consider Capital Gains Tax or Stamp Duty Land Tax implications on your purchase. Similarly, if you are using a lender, solicitors acting for them will need to see and approve all documentation. Once the sale agreement and the disclosure exercise have been agreed, you can proceed to completion of your purchase.

Mark Boon, a partner at McCarthy Bennett Holland, is experienced in advising entrepreneurs on business sales and purchases, whether as a sole trader, partnership or limited company. To make an appointment, call 01942 206060.

About MBH

McCarthy Bennett Holland, established in Wigan since 1971, offers a personal service across a wide range of legal practice areas, including residential and commercial property, family and matrimonial, wills and probate, employment, personal injury and company commercial.

Contact Mark Boon to discuss your company commercial or other legal requirements in confidence at:

www.wigansolicitors.com
Tel: 01942 206060
Address: 26 Bridgeman Terrace, Wigan WN1 1TD
Twitter: @MBHSolicitors

Small business workshop: setting up a limited company

Q: I am starting my own small business. Should I set up a limited company? What would the benefits be and how would I go about it?

How you structure your new business will depend on your anticipated turnover and how comfortable you are in managing paperwork. The nature of your business will determine the tax you pay, how you can pay yourself from the business’ profits and what happens if your business makes a loss.

There are several business structures you might want to consider:

  • Sole trader
  • Partnership
  • Limited Company

Sole Trader

 Anyone can set up a business and start trading as a sole trader without any requirement for formal paperwork. You will run your own business and work for yourself, although you are able to employ staff. Once you have paid tax, you are entitled to keep any profits. You are personally responsible for your business and for any losses sustained by it as your liability is unlimited; this means that you must pay for any losses made by the business out of your own pocket. As a result, sole traders are exposed to greater financial risk than those running limited companies.

Trades such as plumbers, electricians and photographers often operate as sole traders, as well as those in the beauty industry.

As a sole trader, you must send an annual Self Assessment tax return to HM Revenue & Customs and pay National Insurance and Income Tax on your business’ profits. If your takings for the year will exceed £81,000 you must also register for VAT.

Partnership

Instead of setting up your business on your own, you could set up with someone else or even a number of people. In this way you can share the risks and help each other.

You should ask a solicitor to put in place a Partnership Agreement which will set out your relationship to each other, who does what, what hours each partner is expected to work, whether you are putting similar or different amounts of capital into the business and how your profits should be shared.

Like a sole trader, the individual partners in the Partnership remain responsible personally for their actions but they also become responsible individually and jointly for the actions of the Partnership. For that reason, the partners in a Partnership have to have a good working relationship and be able to trust each other. In many cases people get together in business as a Partnership to see whether they can work together and then later become incorporated as a Limited Company.

Limited Company

If you set up a limited company, your personal finances will be kept separate from those of the business. The business itself is responsible for any losses sustained and your liability will be limited to the investment you have made into the company by the purchasing of shares.

Your limited company will have ‘members’ who own shares in the company. If you are a director, you may own shares but you do not necessarily need to do so.

Much greater responsibility comes with directorship of a limited company; you must make decisions for the benefit of the company and try to make it a success for the benefit of its members. You will keep company accounts and records and report to Companies House and HM Revenue & Customs. You are legally responsible for the management of your company and its paperwork.

If a limited company sustains losses or fails, directors are not personally responsible provided that they have complied with all of their directors’ duties.

When setting up your company, you must register it with Companies House and advise HM Revenue & Customs when trading commences. Annually, you must:

  • prepare statutory accounts;
  • submit an Annual Return to Companies House;
  • submit a Company Tax Return to HMRC

Again, if you anticipate your turnover to reach or exceed £81,000 per year you must register for VAT (although it is possible for any business to register for VAT even if turnover is less than this threshold). Directors of limited companies must complete an annual Self Assessment and pay tax and National Insurance through PAYE if you receive a salary from the company.

  • Other benefits of a limited company:

As a limited company, you are likely to pay less personal tax than a sole trader or in a Partnership; limited companies pay Corporation Tax and small businesses benefit from a ‘small profits rate’ set at 20%. Directors often choose to take a minimum level of salary with further income from dividends, which minimises National Insurance Contributions and therefore means that directors can keep more of their income.

A limited company brings with it an extra level of professionalism and, if you are working with bigger companies, they may wish only to deal with a limited company rather than a sole trader. You are also able to protect your business’ name with registration at Companies House, avoiding any potential conflicts in the future if you discover another business is operating with the same name.

Mark Boon is a partner at McCarthy Bennett Holland and is experienced in advising entrepreneurs on the set-up of their business, whether as a sole trader, partnership or limited company. Mark will complete the company formation procedures and can advise shareholders and directors where more than one person is involved in the business.

About MBH

McCarthy Bennett Holland, established in Wigan since 1971, offer a personal service across a wide range of legal practice areas, including residential and commercial property, family and matrimonial, wills and probate, employment, personal injury and company commercial.

Contact Mark Boon partner at MBH Solicitors, to discuss your company commercial or other legal requirements in confidence at:

www.wigansolicitors.com
Tel: 01942 206060
Address: 26 Bridgeman Terrace, Wigan WN1 1TD
Twitter: @MBHSolicitors