Ask our Experts
by David Gordon, September 26th, 2011
Q. I have agreed to take a 5 year lease on some retail premises and the Landlord has indicated that the lease “will exclude the Landlord and Tenant Act 1954”. What does this mean?
Under the 1954 Act, subject to a few exceptions, if you are a business tenant then, at the end of the lease, there are only limited grounds (some of which involve the payment of compensation) upon which the landlord can require you to vacate.
However, there is a procedure whereby the “security of tenure” provisions of the 1954 Act can be excluded by agreement between the parties at the start of the lease. If they are excluded then, unless you agree with the landlord terms for your continued occupation, you must vacate at the end of the lease and no compensation will be payable.
In many instances this is not a problem for the tenant but, in the retail sector, it can be. During the lease, customers will automatically come to know where you are and associate you with particular premises. Consequently if you have to move at the end of the lease, there will not only be disruption and cost to your business but there would also be nothing to prevent the landlord letting the premises to a similar business which then ends up taking your customers.
By David Gordon
Benefits of becoming a “Limited Liability Partnership”
by David Gordon, July 22nd, 2011
I am often asked by clients what the advantages are to becoming a “Limited Liability Partnership” rather than remaining in a normal partnership.
As a straightforward partnership, of say two partners, each partner is liable in full for all the debts and liabilities of the partnership. If things go badly wrong and one partner just disappears, the remaining partner is left to carry the can in full for all the liabilities of the partnership. Although the remaining partner is generally entitled to a contribution from the other partner, this is not much help if the other partner has disappeared.
A Limited Liability Partnership (“LLP”) is like a company and is a separate legal entity. With a few exceptions, in an LLP, the individual partners are not personally liable for the debts and liabilities of the business. Instead, it is the LLP which is responsible and if the LLP is not able to satisfy its debts and liabilities from its own assets, it can be put it into insolvency. The big advantage is that, generally, each partner’s own personal assets, such as their house, are not at risk as they do not form part of the assets of the LLP.
Whilst there are some relatively minimal additional costs associated with being an LLP, from a tax point of view, each partner is taxed on pretty well the same basis as is the current position. However by becoming an LLP, individual partners may be able to sleep a little better at night.
By David Gordon
I’m a Hotelier, Get me out of here !!
by David Gordon, July 7th, 2011
For most hoteliers the last couple of years have been more than a struggle. Indeed for some, including a number of high profile operators and suppliers, the pressures on the sector have proved too much and they have gone to the wall.
For those that have survived, particularly in the “independent” sector, the combined effects of a global recession, huge expansion by the national “budget” and “mid-market” chains, VAT rises, falling room and yield rates, increased labour and supplier costs and tightening bank controls have seen many wanting to try and get out of the sector before it is too late.
Unfortunately, the banking crisis and lack of confidence in the sector has seen sales hard to come by. Lending, despite what the banks may say, is still hard to come by for many potential buyers and so, if you are looking to sell, you need to maximise the chances of not only finding a purchaser but also getting the whole deal through as quickly as possible.
Decorators always say that the quality of the eventual finish is directly proportionate to the time spent on preparation. The same is true if you are looking to sell any business, not just in the hotel sector.
The first thing to do is to set yourself a realistic timetable. Allow yourself plenty of time to prepare for the sale before even looking to go to the market. There is nothing worse than seeing a hotel gradually decline whilst it sits endlessly on the market. Everyone eventually knows its for sale, the seller gets more desperate, its asking price steadily falls and eventually, as losses mount up, the doors are locked and the windows boarded up. This will put off almost all potential purchasers other than those who simply see the property as a “development site”
Start to think about some of the following – Is the hotel looking presentable? Are management accounts up to date? Are all your policies in written form and up to date? Does the website look sensible? Are all your supply contracts in place and up to date? Have you got written contracts and policies for all your employees? Is title to the bricks and mortar “clean” and any property related information ready to be presented to a purchaser?
Above all, choose any agents carefully. Do they properly recognise that they are acting for you and not some bank of “clients” who regularly buy hotels? Check out what they have on the market. Is it similar to the type of establishment that you are looking to sell? How interested are they in the state of your business and whether you are properly prepared for the sale process? What deals have they done in your area recently? Ask to be put in touch with some of their previous clients. Those professional agents with a knowledge of the sector and the market place may not be the cheapest but a few extra pounds spent on the right agents will pay dividends in the long run.
It’s a tough market out there but preparing the business for sale is absolutely key and the sooner advice is sought from those who can assist in the process the better.
Good Luck !!
By David Gordon
OFT gets tough on debit and credit card charges
by David Gordon, July 5th, 2011
Many in the travel industry will have seen the announcement last week that the Office of Fair Trading (“OFT”) have come out in favour of a complaint that hidden or excessive credit and debit card fees were unfair. Whilst this is likely to be of immediate interest to those in the travel sector, I suspect that the ruling has far wider implications for all those selling goods and/or services via the internet.
By way of background, the OFT’s ruling was the result of a “super-complaint” raised by the “Which?” organisation who asked the OFT to investigate the practice, adopted by a number of travel companies, particularly airlines, of imposing excessive or misleading card transaction fees on top of the basic sale price. Indeed the OFT estimated that, in 2009, the airline industry alone charged consumers in the region of £300m in card payment surcharges.
The OFT has, not for the first time, sided with the consumer. Whilst it might be regarded as fair to pass on charges imposed by the various card companies, it would appear that the OFT will not tolerate situations where suppliers either seek to hide charges or, effectively make a substantial mark-up on such charges by imposing inflated fees on the consumer.
Clearly, with the internet now an established means of purchasing goods or services, consumers have little option but to pay by card and this will become even more so with the abolition of cheques in due course. Often credit and debit card fees, regardless of their level, are hidden right at the end of the “purchase process”. The consumer may have filled in a number of “pages” before, at the very end, being told about such charges.
In the light of the OFT ruling, I would suggest that all web-based suppliers, particularly those in the travel sector, need to urgently adjust the way their website is set up so that it is absolutely clear, at the outset of a transaction, what further fees will be payable in relation to any purchases (over and above the basic sale price). I would suggest that the same also goes for any delivery charges that suppliers want to make. In addition any such charges must be set at a reasonable level and I believe that it will be open for suppliers to have regard, in setting any such charges, to the level of charges being imposed on them by the relevant card suppliers.
The OFT have warned that they will take enforcement action against any businesses that do not respond to the announcement made by the OFT last week and whilst the OFT ruling is, at this stage, directed at the travel industry in particular, I think it has far wider implications in relation to all internet-based suppliers and we will have to wait to see how quickly the OFT starts to take enforcement action and which particular sectors they look to target initially.
It also remains to be seen which industries take the approach of absorbing card charges within the basic sale price and which choose to continue to make extra charges and, if so, at what level.
By David Gordon
HOTELIERS – be careful what you are signing
by David Gordon, May 23rd, 2011
As a Director of a Hotel Company, I am often asked to put on my solicitor’s hat and advise on various contracts that the general managers want to sign or, worse, signed some years ago and which they now want to get out of.
In the dim distant past, hotels operated with a leather-bound reservations book, a telex machine and a few phone lines provided by British Telecom. Times have changed and there are precious few in the industry who are now able to operate successfully without complex computer, data and telecommunication systems.
The leisure market is awash with suppliers offering reservation and GDS systems, website hosting, telephone systems and maintenance contracts etc and whilst they supply services that the industry cannot do without, hotel owners need to pay attention to the small print.
A particular bugbear of mine is clauses hidden in the small print of contracts which artificially extend the contract beyond the period that the customer is expecting.
Salesmen often secure the sale on the basis that the customer has to sign up for a minimum period. This is understandable if the supplier has to make a significant investment in time and money to set up the services being offered. Let’s say the supplier is going to provide GDS services for a hotel. It will take time to build the profile and develop the relationship with those “on the ground”, so it might be reasonable for the hotel to commit to a minimum contract period of, say 1 or 2 years and indeed, the longer the hotel is prepared to commit to, the lower the unit price sometimes.
However hoteliers need to watch out for clauses (often in the small print) along the lines of,
“This contract is for the minimum period set out overleaf and will thereafter continue until terminated by the Customer giving not less than 90 days notice such notice to expire on an anniversary of the date of this Contract”
Readers will hopefully see the problem. If you forget to give the 90 days notice, thinking the contract just finishes at the end of the minimum term, it can come as a bit of shock to find that the contract now rolls on for another year.
Almost always there is no justification for the contract to roll-on for annual periods. Whilst I can see that, in certain circumstances, a minimum period is required, clauses such as the one above are generally included to give the supplier (who generally wants to keep the contract going for as long as possible) an advantage. Essentially the supplier is relying on the hotelier forgetting to serve any notice.
In contract negotiations I have often adopted the stance of, “why does the contract need to run on for further periods of one year after the minimum term?” The supplier rarely has a reasoned answer and can usually be persuaded to adopt a clause whereby, after the minimum period has elapsed, the customer can terminate at any time on, say, 90 days notice.
In essence, hoteliers must read the small print and check when they can get out of contracts before putting pen to paper. Once the contract is signed, get your diary out and make sure you do not miss any key dates for terminating.
By David Gordon
Ask our experts
by David Gordon, May 13th, 2011
I am in a business partnership with 3 others partners and one has mentioned that we might like to consider becoming a “Limited Liability Partnership”. What are the advantages?
As a straightforward partnership, each of you are liable in full for all the debts and liabilities of the partnership. If things go badly wrong and, say, your other partners just disappeared, this could bankrupt you. Although you may seek to get a contribution from your other partners, this is going to be difficult if you cannot find them or they too are bankrupt.
A Limited Liability Partnership (“LLP”) is like a company and is a separate legal entity. In the circumstances, with a few exceptions, the individual partners are not personally liable for the debts and liabilities of the business. Instead, it is the LLP which is responsible and if the LLP is not able to satisfy its debts and liabilities from its own assets, it can be put it into insolvency. The big advantage is that, generally, each partner’s own personal assets, such as their house, are not at risk as they do not form part of the assets of the LLP.
Whilst there are some relatively minimal additional costs associated with being an LLP, from a tax point of view, each of you will be taxed on pretty well the same basis as is the current position. However by becoming an LLP, you may be able to sleep a little better at night.
By David Gordon
How secure are your travel systems?
by David Gordon, March 28th, 2011
There was a time when stories about computer hacking were limited to Hollywood tales of young teenagers, sitting in their bedrooms late at night, quietly hacking into the Pentagon’s computer systems whilst the parents sat downstairs watching TV.
However computer hacking is a now world-wide billion dollar business and all businesses face the ever-present threat of having their IT systems and data compromised.
In the last few days TripAdviser has become the latest in a succession of recent victims, following on from recent announcements by RSA Security and Play.com.
TripAdvisor have confirmed that their computer systems were hacked into and, apparently, the hackers were able to obtain email details in relation to a number of its users.
Whilst I understand that arrangements have been made to secure TripAdvisor’s site, there are clearly lessons to be learnt by all businesses, whether in the Travel sector or otherwise.
TripAdviser confirmed that no credit card details, other financial information or passwords were taken but those users who did have their addresses stolen will almost certainly find themselves being subjected to increased SPAM emails offering everything from easy money-making schemes, Rolex watches and Russian wives.
These recent incidents of hacking are a timely reminder to all businesses that, not only do they need to have stringent Privacy and Data Protection Policies in place in relation to the use of websites and the collection of individuals’ data generally but, and possibly more importantly, they need to make doubly sure that their IT systems are as secure as reasonably possible. Any business that suffers an attack from hackers will not only find it time-consuming to deal with the loss or corruption of data but will also be lumbered with the added burdens of dealing with adverse publicity and placating the concerns of clients or customer’s whose details may have been stolen.
In the Travel sector, operators and agents routinely collect very personal details (passport numbers, full names etc) and any theft of such information will be the ideal ingredients for a subsequent “identity theft”. In the circumstances the Information Commissioner is going to take a very dim view if such details are not kept secure and substantial fines can be levied if security deficiencies are found.
It remains to be seen whether any formal action will be taken against TripAdviser but the message is clear – “Hackers are out there, they want your data and it is your responsibility to have systems and procedures in place to protect the security of that data”.
Is the Bribery Act 2010 in force yet?
by David Gordon, March 15th, 2011
The short answer is “no” but it’s coming. 
The existing law on bribery is based on statutes dating back to the 19th Century and, having waited over 100 years for reform, it appears that we are going to have to wait a little longer.
Although the Bribery Act 2010 was passed in the last few days of the Labour government, it is still not “in force”. After months of speculation, discussion and heated debate, the Ministry of Justice announced last month that the implementation of the Bribery Act 2010 (which was due to happen in April 2011) is going to be subject to further delays and the coming into force of the Act is now, possibly, going to be as late as the end of 2011.
There appears to be the political will to bring the Bribery Act into force but businesses now have to wait for the Ministry of Justice to issue final guidance on how the Act will be applied and, in particular, what will be “adequate procedures” for businesses to adopt for the purposes of defending any prosecution for “failing to prevent bribery”.
Under the Act, this new offence of “failing to prevent bribery” is said by its detractors to threaten the future of corporate hospitality and the like which, though commonplace across almost every industry, could be seen as a means of securing an advantage from a current or potential client.
Scare stories abound. There was even a lovely tale last month of members of a bowls club in Norfolk being told by their local parish council to stop their traditional Christmas practice of giving supermarket vouchers to groundstaff on the basis that this could amount to bribery.
Ken Clarke, the Minister of Justice, has sought to reassure “honest” businesses that the Act will not result in them having to spend huge sums on new policies etc and that the guidance, when issued, will be “very clear”. However he also added that “there will be no backing down from the principles of the Act at all”.
Once the final guidance is published, businesses will be given a three month “notice period”, prior to the Act coming into force, in order to allow them time to introduce or update their anti-bribery policies.
So what can realistically be expected of the guidance? Is the grim reaper really knocking at corporate hospitality’s door or is it all just media hype, stirred up by business lawyers wanting to make a fast buck by scaring their clients?
I expect that the final guidance will not see the end of normal corporate hospitality. Indeed I hope it doesn’t, as many such events are a valuable marketing tool for all businesses. We may though see some scaling back on expenditure on some of the more lavish events.
In practical terms, taking a client to lunch will almost certainly be acceptable. Jetting them off to the Monaco for a stay in a 5 star Hotel for a week with a view of the Grand Prix and an unlimited supply of gambling chips may not. The problem arises in the large grey area between these two extremes.
The Act will almost certainly be in force by the end of the year, if not before. As Ken Clarke has indicated, “honest” businesses do not need to be alarmed but all businesses (large or small) do need to start getting on with preparing written policies to prevent bribery. These policies may need to be adapted slightly once the final guidance is issued but I doubt it. Such policies need to be proportionate to the particular business, written clearly and concisely and based on a genuine intention to eliminate the possibility of bribery and corruption in the business. It will then be a question of making all staff aware of the policies and, subsequently monitoring and enforcing the policies.
In short, once the Act is in force, failure to have anti-bribery policies in place or failure to enforce such policies will lay a business open to the risk of prosecution if bribery or corruption is found to have taken place. Businesses beware!
£385,000 FINE IN FIRST CORPORATE MANSLAUGHTER PROSECUTION
by David Gordon, February 18th, 2011
The Corporate Manslaughter and Corporate Homicide Act 2007 (the “Act”) came into force in April 2008 but it has taken nearly three years for the first prosecution to come to trial and this has resulted in a very substantial fine being imposed on the Defendant.
On 15 February 2011, a jury at Winchester Crown Court found Cotswold Geotechnical (Holdings) Limited guilty of corporate manslaughter in the first conviction secured under the Act. Two days later, in sentencing, the Court fined Cotswold £385,000.
The case was brought against Cotswold following the death of one of its employees, Alexander Wright, in 2008. Mr Wright was undertaking an investigation into ground conditions at the bottom of a 3.8m trench on a building site. Apparently the walls of the trench were not supported and, unfortunately, one wall collapsed burying and thereby suffocating Mr Wright.
The prosecution successfully claimed that Cotswold’s systems were substantially defective in that they had failed to take all reasonably practicable steps to protect their employee from an unsafe system of work. The Court heard that it was well recognised within the building industry that persons should not enter excavations which were deeper than 1.2m unless the excavations were properly supportive.
The prosecution was based on Section 1 of the Act and, in finding Cotswold guilty, the jury were satisfied that:-
1. Cotswold’s conduct caused Mr Wright’s death and amounted to a gross breach of their duty of care to him, and
2. a substantial reason for this was the way in which Cotswold’s management managed or organised its activities.
When the Act was passed most commentators felt that the Act was principally aimed at larger organisations. The Act was, to an extent, a reaction to large scale railway disasters and the like. However, Cotswold is not a large business and, indeed, had just one director. Consequently the Cotswold case shows that no business can ignore the duty of care that it owes to its employees. It also demonstrates that all businesses (whether large or small) need to concentrate on establishing a health and safety culture which is taken seriously by all within its organisation.
No doubt the Cotswold case will not be the last of its kind and it remains to be seen what level of fine we start to see when larger organisations are prosecuted under the Act. Sentencing guidelines indicate that fines should start at £500,000 for corporate manslaughter and it is only the fact that Cotswold was such a small company that prevented the fine being higher.
As an aside, an additional prosecution for manslaughter was brought against the sole director, Peter Eaton, but the judge declared that he was too ill to stand trial and so only Cotswold have been prosecuted to date.
We all chuckle from time to time about “health and safety” being “red tape, bureaucracy gone mad etc” but this case is a timely reminder to all owners, directors and senior managers that they need to continue to be wary of the employer’s duty of care to its employees and others and, indeed, their own personal exposure to prosecution for manslaughter where death results from a failure to have in place a robust health and safety policy, which, in turn, is adhered to.
Ask the Expert
by David Gordon, February 4th, 2011
Q. My business partner and I have run a small business through a limited company for the last four years. We each own 50% of the shares and get on very well. My business partner has said that we should have a “shareholders’ agreement”. What is a shareholders’ agreement and why do we need one?
A shareholders’ agreement is basically a contract between each of the shareholders which sets out precisely what has been agreed between them. The agreement usually deals with matters such as what each of you will put in by way of time and/or money, what each of you will get out by way of salary and/or dividends and, most importantly, what happens if just one of you dies, falls ill or just wants to retire or sell.
Your business partner is quite right that you should have a shareholders’ agreement. Whilst you agree on everything and remain in good health, you will probably never have cause to look at it.
However, what will happen if you start to disagree, fall ill, want to retire or just want to take the company in different directions? A well-drafted shareholders’ agreement will often provide the answer and protect not only the individual shareholders but also the business.
For more information please call on 01273 223210 or email dgordon@mayowynnebaxter.co.uk.
by David Gordon