Why is the law changing?
Under current law, married couples need to evidence the irretrievable breakdown of the marriage by relying on one of five ‘facts’ – unreasonable behaviour, adultery, desertion, two years separation with consent or five years separation. Because the minimum period of separation is two years (with consent) or more, couples must either rely on ‘unreasonable behaviour’ or ‘adultery’ to evidence the irretrievable breakdown of the marriage. That can sometimes put couples in a difficult position and cause a strain on what may be a civil relationship.
In 2018 the Court of Appeal unanimously rejected an appeal by Mrs Owens (Owens v Owens 2018) to divorce her husband following their 39-year marriage, despite being ‘desperately unhappy’. Mrs Owens’ was forced to remain married to her husband until they had been separated for five years, when she no longer needed to obtain her husband’s consent. The unusual ruling of the Court of Appeal called for a new system to be introduced.
The Divorce, Dissolution and Separation Act 2020 introduced no-fault divorce to enable married couples to divorce without having to lay blame on one another. The new legislation comes into force on 6 April 2022 and should encourage a more constructive approach to divorce and separation.
What is no fault divorce?
From 6 April 2022 married couples will no longer need to prove the breakdown of the marriage by citing one of the above five facts. Couples will also be able to jointly file for divorce rather than it being solely down to one person to bring the case.
Under the current system, one person submits a divorce petition, and the respondent must confirm whether they contest the proceedings or not. The new procedure will take away this option to ensure we do not have any further situations like the above case.
The current wording of the divorce process is also considered archaic so that is being brought up to date and terminology such as ‘Decree Nisi’ will become the ‘conditional order’ and ‘Decree Absolute’ will become the ‘final order’.
How can I apply?
Between 1 April and 5 April, the online divorce portal will be offline. Any applications submitted on or before 5 April will be dealt with under the existing law. On 6 April people will be able to apply online via the www.gov.uk website.
If a sole application is made a copy of the application will be sent to the respondent. From the date of issue of the application the parties will need to have a ’20-week cooling off period’ before they are able to apply for the Conditional Order. From the date of the Conditional Order being made, the parties must then wait 6 weeks before applying for the Final Order to conclude the marriage.
How much will it cost?
The current cost of issuing divorce proceedings is £593. There is no information yet that this will change.
Will the Court consider how we separate our finances?
Splitting the finances is an unavoidable task if you want to provide security for yourself. Although much more streamlined and conciliatory, the divorce process itself will not resolve how you will go about splitting the matrimonial finances and/or protecting yourself once a Final Order has been granted.
If you cannot reach an agreement either directly or via mediation, negotiations through solicitors may be required and/or an application to the court.
How do I know what I am entitled to?
It is important you understand the options available before deciding how to deal with the financial arrangements between you. Married couples have the right to make financial claims against each other in respect of the following;
Property adjustment orders (i.e. orders for sale of properties or transfer of ownership)
Lump sum orders (payments of capital)
Maintenance (i.e. income payments)
Pension sharing orders
Regarding the financial arrangements between spouses, the court takes various matters into account when considering what orders should be made. The Court considers all the circumstances of the case, gives first consideration to the welfare of any children of the family under the age of 18 and in particular, the Court has regard to the following matters which are set out in Section 25 of the Matrimonial Causes Act 1973;
The income, earning capacity, property, and other financial resources which each spouse has or is likely to have in the foreseeable future including, in the case of earning capacity, any increase in that capacity which would be in the opinion of the Court reasonable to expect a person to take steps to acquire.
The financial needs, obligations, and responsibilities which each spouse has or is likely to have in the foreseeable future.
The standard of living enjoyed by the family before the breakdown of the marriage.
The ages of each spouse and the duration of the marriage.
Any physical and mental disability of each spouse.
Contributions which each spouse has made or is likely to make in the foreseeable future to the welfare of the family, including any contribution by looking after the home or caring for the family.
The conduct of each spouse, if that conduct is such that it would be in the opinion of the Court to be inequitable to disregard.
The value to each spouse of any benefit which one spouse because of a divorce will lose his chance of acquiring (most usually pension provision).
The aim of the Court is to achieve fairness. A key factor when determining matters is the reasonable needs of yourself and your spouse. The Courts also take into consideration the concepts of ‘needs’, ‘compensation’ and ‘sharing.’
Before you can fully understand how the matrimonial finances should be divided there should be some form of financial disclosure between you. That will enable you/your solicitor to understand exactly what is in the matrimonial pot to be shared and the most appropriate way of doing so in order to meet your respective income and capital needs.
Once you are happy that you understand both of your financial positions you can consider putting forward proposals for settlement.
What if we can’t agree how to split the finances?
If you are unable to agree between you and solicitor’s negotiations prove unsuccessful, an application to the court for financial remedy may be required. This should not be considered as a hostile step as it will ensure a timely resolution to proceedings.
The court will make directions as to the evidence required from both of you and set dates for when the evidence should be provided. There will be various hearing dates set to progress your case through to resolution.
What do we do if we have reached an agreement between ourselves?
If you have reached an agreement, you are both happy with, you should contact one of our expert family law advisors who will be able to convert the agreement into a legally binding Consent Order and prepare the accompanying documents for the court’s consideration. Approval of the Consent Order is not a rubber-stamping exercise, so it is important your agreement is presented in the best way possible to explain any imbalance.
What are the risks if we do not formalise our financial agreement?
Even if you do not have any marital assets to split, it is still important to file a Consent Order with the court to provide for a clean break between you. If you do not you leave yourself open to a claim from your former spouse at any time. This is particularly important if your financial position changes further down the line.
What should I do if I want to deal with the divorce myself but need help to resolve the financial aspects of my marriage?
Our family team are experts in our field and that means you can come to us knowing we have the attitude and professionalism to make your situation better. Whether you have reached an agreement between you, or you need advice on what you should do, we will be able to advise you on how best to deal with your situation and reach a timely resolution.
To find out more about the services we can offer, please do contact our experienced Family team at Mayo Wynne Baxter by telephone on 0800 84 94 101.
Facing disputes or challenges can feel overwhelming, but our team is here to provide clarity and support.
What is contentious probate?
Contentious probate is an umbrella term that generally covers any dispute involving the estate of someone who has died. “Probate” refers to the proving of a Will, which can be disputed or contested.
Contents
Common Reasons For Will Disputes
Common matters dealt with by contentious probate lawyers are disputes over the validity of a Will. Grounds for contesting a Will are:
Lack of mental capacity
The definition of mental capacity that applies to Wills is that a person must be able to:
Understand the nature of making a Will and its effects.
Understand the extent of the property of which they are disposing.
Comprehend and appreciate the claims they give effect to.
Must not be affected by any disorder of the mind or insane delusion.
Determining capacity is not always straightforward. For example, if someone is living with a memory impairment such as dementia, it may indicate that they do not have capacity; however, such a diagnosis does not automatically mean that they do not have the level of mental capacity required by law to make a Will. These claims tend to rely on witness and medical evidence to determine whether the Deceased had the necessary mental capacity at the time of making the Will.
Undue influence
In this context, it generally means someone is being accused of ‘poisoning the mind’ of the Deceased against another family member. This claim has a high threshold of proof, and it will usually depend on the individual facts whether or not a claim is likely to succeed.
Lack of knowledge and approval of the contents of the Will / their assets, and Fraud
If a Will is found to be invalid due to any of the above, the last validly executed Will will be followed instead. Or, if there is no Will, the intestacy rules will apply. The intestacy rules set out which family members will inherit the estate if no valid Will is left, i.e., if you have a husband, wife, or civil partner, they will inherit first.
This is a complex area of law; it is important to take legal advice as early as possible. Consider reaching out to one of our expert contentious probate solicitors: get in touch and we can answer your questions and show you how we can help.
Claims under the Inheritance (Provision for Family and Dependants) Act 1975 (“the Inheritance Act”).
The Inheritance Act allows for certain categories of people to make a claim against an estate if they feel they have not been left reasonable financial provision by the Deceased i.e. they are struggling financially and they feel they should have been left more.
Who can make a claim under the Inheritance Act?
The categories of people who can potentially bring a claim are:
Spouse or civil partner of the Deceased;
Former spouse or civil partner of the Deceased (as long as they have not remarried);
A person living with the Deceased for 2 years prior to death as if they were a spouse or civil partner;
A child of the Deceased;
A person who was treated as a child by the Deceased and
Anyone who was being maintained by the Deceased at the time of their death.
It is important to take legal advice early if you think you may have such a claim as there is a strict deadline for issuing Inheritance Act claims at Court.
Disputes with Executors / Administrators
Executors are appointed by the Deceased under a Will to administer their estate. They can appoint either lay people or professionals such as Solicitors.
An Administrator does the same role as an Executor but under a different name; Administrators are appointed when there isn’t a Will.
Whether acting as Executor or Administrator, there are a number of duties that need to be complied with when dealing with an estate.
Common issues that arise during an estate administration
Executors or Administrators are not getting on and not agreeing on how best to administer the estate. We can assist with negotiating between parties and ensuring that Executors/Administrators are complying with their obligations and duties.
Beneficiaries can become frustrated with Executors, and they may not always be aware of what information they are entitled to or what action can be taken against Executors who are not complying with their duties.
The terms of the Will may not be clear, and the Executors / Administrators may need help with interpretation.
We have experience acting for both Executors and Beneficiaries.
Do contentious probate lawyers only advise on Estate disputes?
No, there are other disputes that contentious probate lawyers can advise on, including Trust disputes.
Trust Disputes
Trust disputes can be similar to Executor disputes. There may be:
Concerns that the Trustees are not acting properly or are not managing the Trust how they should.
Questions about the mental ability of the person who set up the Trust to give instructions (i.e., capacity issues similar to those mentioned above).
Concerns that the Trust does not actually reflect the wishes of the person who created it or
The Trust document in unclear.
We can act for either the Trustee or Beneficiary.
Disputes with attorneys appointed under a Lasting Power of Attorney (“LPA”).
LPA’s allow you to appoint someone to manage your finances and/ or to make health and welfare decisions when you are no longer able to do so. Commonly, people choose to appoint trusted family members, such as their children, as attorneys. There are a number of rules and obligations attorneys should follow which the Office of the Public Guardian (“OPG”) oversees.
Unfortunately, sometimes there are concerns about how the attorney is behaving i.e. there may be concerns about how an attorney of a property and finances LPA is dealing with the person’s finances. Commonly, attorneys wrongly use funds for their own benefit instead of for the benefit of the person who appointed them.
We can assist with advising on attorney on their duties or advise on reporting concerns to the OPG if necessary.
Acting for Deputies
A deputy can be appointed by the Court when an attorney is removed. If the attorney has been removed for misappropriating funds belonging to the person they were acting as attorney for, the Court may give the deputy permission to take civil action against the attorney to recover those funds.
Contentious probate lawyers advise on an array of disputes in complex legal areas. Dealing with probate and the Estate of a loved one can be a difficult time, particularly if there are concerns about a Will or disagreements about the Estate.
Contact us today
Reach out to our expert Contentious Probate solicitorsfor personalised guidance tailored to your situation. Let us support you during this difficult time.
If you would like advice on the matters discussed in this article, please contact the team on 0800 84 94 101
Nothing in this article should be taken as giving specific legal advice.
In my last blog I provided an overview on claims for negligence against professionals, I mentioned that time limits may mean that you should not delay. In this blog I provide more details.
If you are considering bringing a negligence claim against a professional (such as a solicitor, barrister, an accountant, surveyor, or architect), any claim must be made within a certain time frame. This is called the limitation period. If you make a claim outside this time frame, then your claim may be statute-barred, and you will not be able to make claim. Corresponding with the professional will not stop time limits and you must lodge a claim within a relevant court.
Key time limits to make your claim
There are, in general, two time limits on claims against professionals:
You usually have six years from the date of the breach of your contract by your professional within which to bring a claim or six years from actual damage (usually losses such as having an asset which is worth less than expected) and resulting from the negligent act by your professional. These periods are known as the ‘Primary Limitation’ period.
In some instances, it is not apparent that you have suffered financial loss at the hands of a negligent professional within the six-year period. If this is the case, then a ‘Secondary Limitation’ period will apply and, in this case, the relevant time limit period is three years from the date of knowledge of facts which might give rise to a claim. This period is known as the ‘Secondary Limitation’ period.
There is a long stop date of fifteen years within which claims must be brought.
To give an example about an actual case from our file:
Two parties bought a house in June 2004, and their relationship ended in 2019. There was a dispute between them about their respective share of the house. Their solicitors failed to advise them concerning their joint ownership and to draw up a formal document recording the share of the house they had verbally agreed in 2004. The primary limitation period for the claim by one of the parties, who had instructed us, expired in 2010.
However, our client did not know about the claim until just before we were instructed in March 2019. Our client could use the secondary limitation period as our client only became aware of his potential claim against his conveyancing solicitors in March 2019. The 15 year long stop period did not expire until June 2019 and we advised him to lodge a claim pending negotiations with his former conveyance solicitors. We successfully settled the claim as it was brought within the statutory time limit. If the claim had been issued post June 2019, our client would not have been able to bring a claim against his former conveyance solicitors.
It can be difficult or complex in some cases to work out when the six year or three period starts running, and so if you think you have a claim against a professional, it is important to seek legal advice as quickly as possible, As an example, on the three year time limit, the court will work what knowledge you had about the issues in your claim and this may well be different from when you think you knew that you had a right to bring a claim.
It’s the most wonderful time of the year… unless you are a parent of a child where co-parenting proves difficult. Christmas can present all sorts of problems for parents who are unable to co-parent effectively. Christmas tends to be about spending time with close loved ones, friends and family and having to share the children during this time will inevitably mean spending less time with them and having to reach difficult compromises between each other.
What can you do to make the process of co-parenting at Christmas easier?
It often helps for separated parents to try and agree the arrangements for the Christmas period well in advance of the holidays. A common arrangement between separated families is for the children to spend Christmas Eve and some of Christmas Day with one parent, with the rest of Christmas Day and Boxing Day spent with the other. This can then alternate on a yearly basis. That arrangement will not work for everyone as it will largely be dependent on location and family traditions, but it is a starting point to build upon. If distance is an issue and it is not possible to share Christmas Eve, Christmas Day and Boxing Day between you, if you are the parent who is not spending Christmas itself with the children, maybe you could consider arranging a ‘fake Christmas’, where you get to do all the traditional festive things you would like to do with your family, just on a different day. Both parents can then enjoy the full festive experience and the children will get to celebrate twice.
How can you make it easier for your children at Christmas?
Conflict can also cause parents to try to outdo each other in terms of the experience itself and regarding buying presents. Although it can be tempting to spoil the children and show them that they can have a better time with you, this can sometimes lead to children feeling torn and may put them under additional stress if they feel they need to hide things from the other parent. The children’s wishes and feelings should be the primary focus when deciding how to manage the festive period and how it will be celebrated.
Whatever you decide, communication is key. If you are unable to have face to face discussions with the other parent, you could consider asking a family member or friend to facilitate discussions between you or you could attempt mediation as a form of alternative dispute resolution. There are also various online Apps you could use to try and figure out an agreement. Both parents will need to keep an open mind when discussing arrangements for the children and you should both be prepared to compromise to reach an agreement that is in the best interests of the children.
What can you do if you can’t reach an agreement?
Hopefully you are able to agree arrangements at Christmas by yourselves. However, for anyone who is not able to reach agreement or finds this year difficult to manage and wishes to ensure the same pattern is not repeated over years to come, one of our specialist family lawyers in our Family Team will be able to advise and assist you. We also have resolution accredited family lawyers in our team who can offer family mediation.
To find out more or to discuss your individual circumstances in more detail, contact us today on 0800 84 94 101 or email enquiries@mayowynnebaxter.co.uk.
Appointments are available in person at one of our offices, by telephone or via Zoom if preferred.
Income tax to date of death
Administering an estate of someone who has died has a number of different aspects to it that need to be dealt with by the executor or personal representative of the estate. One of these is reporting the death to HM Revenue and Customs and checking the income tax position of that person from 6 April to the date of death and, depending on circumstances a year or maybe more before death.
‘Tell Us Once’
A good place to begin is to use the ‘Tell Us Once’ service using the unique reference number that will be provided to you when you register the death. This is a service which means that you can notify a death to most government organisations in one telephone call or through the online system. You have 28 days from the date of registration of the death to complete this application. This system will notify HM Revenue and Customs who will then write to you as personal representative. If you don’t use the ‘Tell us Once’ service, you can contact the HM Revenue and Customs bereavement helpline by phone or write to them.
If the deceased completed Self-Assessment tax returns
If the person who had died was completing Self-Assessment tax returns, then HM Revenue and Customs will probably issue a tax return to be completed from 6 April to the date of death. If there are any outstanding tax returns from previous years, they will let you know that you need to complete these as well. If they were not completing tax returns HM Revenue and Customs will calculate any tax due to or from the estate for you. When you get these calculations, it is really important that you look at them carefully to check that all the income that you are expecting is on the calculation.
Many estates where tax has been deducted from pay or pensions under PAYE will be due an income tax repayment to date of death, which is a good incentive to check the tax position carefully.
If you need any advice, please call us on 0800 84 94 101
The topic of Leasehold Reform has been hot in the press and media for quite some time now, whether it is to do with extortionate doubling ground rents, developer’s charging large sums of money for the owners of leasehold houses to buy their freehold, or cladding that does not meet fire safety regulations, for the last two years we seem to have been gaining some momentum with regard to potential reforms; has the Government finally listened?
Leasehold Reform 2020
In 2020 the Law Commission published three final reports on Leasehold Reform. The reports addressed buying your freehold or extending your lease, including the options to reduce the price payable and exercising the right to manage. The Law Commission was also tasked with considering how to reinvigorate commonhold tenure, which was introduced by the Commonhold and Leasehold Reform Act 2002.
In January of this year, the Government announced that legislation would be introduced, in this parliamentary session, tackling some of the areas in which reform has been recommended.
Will the Leasehold Reform help me?
One of the most common questions now posed to the Enfranchisement Team here at Mayo Wynne Baxter is ‘will the reforms help me, and, if so, how?’.
The proposed reforms can be summarised as follows:
A right to a new 990-year lease for owners of flats or houses
The reduction of the ground rent to nil
The removal of marriage value from the amount payable to the freeholder
The creation of a simple Government backed lease extension price calculator
Changes to Ground rents
The Government has only, so far, tackled one of the above four items: ground rents.
Unfortunately, high/onerous/doubling ground rents are causing a number of issues in the leasehold market. We are faced with mortgage lenders that refuse to lend on leasehold properties where the ground rent doubles every 5, 10 or 15 years throughout the term of a Lease. It is the stance of mortgage lenders that seems to be driving the response from buyers, and in the market in general. A buyer will not take the risk of purchasing a property that they cannot get a mortgage for, either now, or at a later date. In addition, even if the ground rent in a Lease doubles less frequently; say every 20, 25 or 33 years, buyers are still reluctant to proceed AND sellers are then faced with the prospect of spending, in some instances, large sums of money to remove the doubling ground rent. High yearly ground rents also pose an additional risk; that is if the ground rent goes over £250 per year (£1000 a year in London), then the Lease is classed as an Assured Shorthold Tenancy and the Landlord has a mandatory ground for possession if you are in arrears.
The ‘ground rent crisis’ has to be tackled, and the Government has attempted to do so; draft legislation has been published and is currently being considered.
Where do these changes apply?
The draft Leasehold Reform (Ground Rent) Bill that has been produced will apply to new long leasehold residential properties. It will not apply to current Leases, or retrospectively. Long leasehold means a Lease of 21 years or more. The only ground rent that a freeholder (Landlord) can charge in a long Lease cannot be for more than one peppercorn per year. The draft Bill also bans freeholders from charging administration fees for collecting a peppercorn rent. Freeholders that charge more than a peppercorn also face being fined up to £5000. The draft Bill will apply in England and Wales.
When are changes coming?
The draft Bill is currently on its 1st reading with the House of Commons, having completed five stages with the House of Lords (1st reading, 2nd reading, committee stage, report stage and 3rd reading). There are also five stages to go through the House of Commons before amendments are considered and made (if agreed) and the Bill receives Royal Assent.
An amendment has been requested to the draft Bill, aiming to ensure that the Government does introduce further legislation, at a later date, which removes ground rent for all leaseholders. It is too soon to know if this amendment will be accepted.
Who will these changes help?
In short, if you already have a high yearly or doubling ground rent, the draft Bill will not help you. In addition, if you are looking to purchase a new leasehold property, high or doubling ground rents can be imposed if and until the draft Bill receives Royal Assent. The draft Bill in its current format could also be amended. We will have to wait a few more months before we know what the final Bill will look like.
We also still have a long way to go before Leasehold Reform has a meaningful impact on existing leaseholders.
Charlotte Clarke, Associate Solicitor
Predatory marriage refers to the targeting of a vulnerable adult with the intention of marrying them for financial gain. The most common example is when elderly people living with dementia are targeted by, usually younger, partners who convince them to marry in secret.
This is an issue when considering inheritance because when someone gets married, any Will they made previously is automatically revoked. This means that the person’s new spouse will inherit once their partner passes away, potentially leaving other family members with nothing.
Factors that determine a Predatory Marriage
Capacity.
Because the threshold for capacity to consent to marriage is lower than the threshold for capacity to give instructions for a Will, someone living with an impairment such as dementia could be deemed to have capacity to marry even if they do not have the capacity to give instructions for a new Will.
In a 2017 case the Court said that to have the capacity to marry someone would need to “be able to understand, retain, use and weigh information as to the reasonably foreseeable financial consequences of a marriage, including that the marriage would automatically revoke [their] will.”
Despite this judicial ruling, marriage registrars have no legal training in assessing capacity.
Forced marriage rules.
There are rules in England and Wales relating to forced marriage which has been illegal since 2014.
The Anti-social Behaviour, Crime and Policing Act 2014 attempts to protect those that have been coerced into marriage including protecting those who cannot consent due to learning disabilities. The Act allows the Court to stop marriages if they are satisfied that consent has not or cannot be given.
Case law: a prime example from this year.
This year a Court have banned a man from marrying his female partner who is living with dementia.
The woman has a £1 million Estate and the woman’s daughter was concerned that her mother’s partner only wanted to marry her mother for financial gain. The daughter had called the police after discovering that her mother’s partner had a history of conning vulnerable women. Her daughter brought action through the Courts and was granted a forced marriage protection order.
The forced marriage order has been granted for 12 months in which the man is not permitted to see his partner, marry her, or enter a civil partnership with her.
The law was used effectively in this instance but difficulties arise when someone is convinced to marry in secret shortly before their death such as in the situation below.
Is reform on the horizon?
A campaign has been started by Daphne Franks to change the marriage laws to protect vulnerable adults. Her mother, Joan Bass, was 91 and was living with severe dementia and terminal cancer when she passed away in March 2016. The family then discovered that 5 months prior to her death she had secretly married a man aged 68.
The marriage revoked the Will Joan had made in 2004 which left her Estate to her children meaning the intestacy rules applied so her new husband was set to inherit her estate. No one in the family knew about the marriage and her family believe that Joan did not remember that she was married or that she had capacity to consent to the marriage. Joan’s family lost their inheritance and their right to arrange their mother’s funeral.
Her children have started a campaign with the aim of (amongst other things):
Changing the law so that marriage does not revoke a Will;
Creating an offence of predatory marriage;
Training registrars to look for signs of insufficient mental capacity; and
Check that anybody named on a Power of Attorney is aware of the marriage before it takes effect.
Labour MP Fabian Hamilton has proposed new legislation to tighten the law but it remains to be seen whether this will be adopted but in the meantime if you have any concerns on the matters discussed in this article please contact Elyse Palmer of Mayo Wynne Baxter on 0800 84 94 101
When do you create a Memorandum of Understanding?
It is a common occurrence: you’ve had exploratory discussions with a potential supplier/investor etc., leading to an understanding of core issues that justifies starting serious negotiations. You don’t want the understanding fixed in stone just in case you need to renegotiate, or the negotiations go nowhere.
Meanwhile, the supplier wants to rely on that understanding – either because there is no point in further negotiating without it or because it needs to spend money on the next stage and is only willing to do that if the understanding can be relied upon.
So, despite having diametrically opposed motives, you both sign a memorandum of understanding (also known as a ‘heads of terms’, and sometimes as a ‘term sheet’). It is written loosely to accommodate the contradictory motives.
Key benefits
Typically, memorandums (or memoranda) focus on headline topics: who, what, where, when and how much? Stage two of negotiations cover the 1,001 points of detail that are essential for a contract to actually function as intended (e.g., quality standards, ordering/delivery process, invoicing, problem resolution, etc.)
Drawbacks
Problems arise when stage two never happens or goes nowhere, but one of the parties has begun to take (expensive) steps in expectation of a contract. Their fall-back position is to claim the memorandum was a binding interim agreement, not a non-binding record of negotiations. Where such cases end up in court, the judge will go back to the very basics of contract formation.
The starting point is that a contract is automatically formed when two parties who are (i) able to form a contract (e.g., not 5-year-olds) want to (ii) do something legal, with (iii) the intention of forming a legal relationship to do it (negotiating an imaginary deal doesn’t count) and (iv) have agreed on enough core terms to allow the contract to actually be carried out and (v) one of them has made an offer to deal which the other has accepted and (vi) some form of benefit has been exchanged or promised between them (otherwise one is simply making a gift to the other).
Common mistakes with Memorandums of Understanding
The mistake businesses make is to assume that merely by entitling a document a memorandum, they automatically sidestep the above contract formation test. That is incorrect. If the above requirements are met, then a contract is formed – which could be very bad news for one of the parties – if only because not all the important terms would have been covered in the memorandum.
Are Memorandums of Understanding legally binding?
The cases that come before the court are invariably those where one party says the memorandum is legally binding, but the other disagrees. In such cases the court has basically applied the old abductive (no pun intended) test: if it looks like a duck, walks like a duck and quacks like a duck then it probably is a duck. This means that the more the memorandum looks like a contract, the more likely it is that the court will agree with the party claiming that it is a binding contract.
To avoid this, make sure that your memoranda are not written as if they were contracts: consider not signing them; try not to use wording like ‘the parties have agreed…’ or ‘the parties shall…’. Make sure that the memorandum is headed ‘subject to contract’ and is liberally sprinkled with reminders that it is not intended to be legally binding. Of course, if you want the option to be able to claim that the memorandum is binding, then write it as if it were a contract.
If you would like further advice or information our specialist Commercial Team would be pleased to hear from you and can be contacted on 0800 84 94 101 or email enquires@mayowynnebaxer.co.uk.
The recent spate of headline grabbing articles would have us all believe that if a commercial tenant is in arrears of rent there is nothing you can do until 22 March 2022.
This is wrong.
So, let’s look behind the headlines and figure out what steps you can take. There are a number of solutions if your aim is limited to recovery of rent arrears. If your aim is to obtain possession, I shall also set out a strategy which may be available to you which does not fall foul of the current restrictions.
Solutions to commercial rent arrears
If you have a Rent Deposit, you can draw down on that deposit. You do not need permission from the tenant but there is likely to be a procedure to follow set out in your Rent Deposit Deed.
Consider if there is a third party on the hook. Is there a former guarantor or a former tenant who has assigned the lease but remains liable? On this point, act quickly. If you want to pursue a former tenant or former guarantor you must serve a section 17 Notice under The Landlord and Tenant (Covenants) Act 1995. However, any arrears that are older than 6 months cannot be pursued by way of a section 17 Notice although you can serve successive Notices to overcome this.
You can issue court proceedings and obtain a judgement for the arrears. Whilst there remain restrictions on the recovery of a Judgment debt, the tenant may not want a judgment against it which may subsequently affect its ability to obtain credit thus encouraging the tenant to prioritise the rent to you.
As at the date of writing, where the arrears exceed an amount equivalent to 554 days’ rent you can use Commercial Rent Arrears Recovery (CRAR). CRAR is a method of enforcement whereby the landlord recovers arrears from tenants by seizing and selling their assets without going to court. Advance warning must be given and it is best left to the experts. There are many bailiffs out there willing to help and advise if CRAR can be used.
Another enforcement method still open to landlords is to serve a Statutory Demand requiring payment within 21 days failing which you may be able to take steps to make them bankrupt or to up the wind the company. Given the present restrictions in place on the right to present debt-related winding-up petitions where a company cannot pay their rent because of the impact of Covid19, this is not likely to be a very favourable option.
Finally, and this is perhaps the most costs effective option, if you have a tenant who is genuinely in trouble in consequence of the restrictions on its ability to trade arising from the various lockdowns, but otherwise you think has a viable business, talk. Talk and try to agree a payment plan. Currently, you cannot evict the tenant based on arrears of rent due to Covid19 so trying to agree something is better than nothing.
An alternative strategy if your aim is to obtain possession.
Current legislation prohibits the landlord from forfeiting a lease because of unpaid rent (and there is a wide definition of rent under the legislation so for ‘rent’ read ‘any money due under the lease’). However, where you have a tenant who has difficulty meeting their financial obligations under the lease there is reasonable possibility that they are also failing to meet their repairing or decorating obligations.
If you think your tenant falls into this category, check your lease. If you have a right to enter to inspect the condition, then do so. If the property is in disrepair, you can serve the requisite Notice Before Forfeiture (section 146 Notice under The Landlord and Tenant Act 1925) giving the tenant a reasonable period to do the repairs required under the lease.
If your Notice is valid and the tenant fails to do the repairs within the timescale then you can forfeit the lease and, in most cases, you may be able to do that by peaceable re-entry rather than having to obtain a court order. There are a few pitfalls to be aware of if you adopt this method so take advice and get your ducks in order. This procedure could well save you thousands if you are confident that you can relet your property to someone who can pay their rent.
If you need help with any of the above issues, then get in touch.
We are here to help – 0800 84 94 101
How to get out of a Commercial Lease early?
For many Tenants there may come a time when they need to consider how they can get out of their existing Commercial Lease. There could be any number of reasons why this might be necessary including expansion, financial hardship, relocation or a breakdown in Landlord/ Tenant relations. Whatever your reason for wanting to end your Lease, it is the Lease itself which will determine the options available to you.
The most common ways to bring a Commercial Lease to an end can be put into two categories as follows:
Termination – a clean break
Break Clauses
You may have been alert to the possibility of a change in circumstances when you first agreed the terms of your Lease and (sensibly) negotiated a Break Clause. A Break Clause will allow you to terminate the Lease on a fixed date (or sometimes on a rolling basis) upon serving a certain amount of notice on your Landlord (commonly 3-6 months).
When exercising a break, it is important to strictly adhere to the terms and conditions of your break clause as otherwise your Landlord may refuse your right to break. Common conditions include that all rent and other sums due under the Lease have been paid up to date, that you have complied with your repairing obligations and that you hand the property back to the Landlord free from your occupation and any subsisting tenancies.
It is prudent to make sure you have complied with any terms and conditions attached to your break option and to ensure that you serve your break notice in good time (which should include a few days for service of the notice). You should always check the notice provisions in your Lease to check that the Break Notice is served properly.
2. Negotiate a surrender with your landlord
If your Lease does not include a Break Clause or you have missed your opportunity to break your Lease (i.e., your break date has passed) you may consider approaching your Landlord to agree a surrender.
This option also gives you a clean break as all of your liabilities will come to an end (provided you negotiate a proper Deed of Surrender for which it is advisable to instruct a solicitor) upon completion of the Surrender of the Lease.
It is important to note that very rarely (unless your Lease contains a separate termination clause – which is unusual) will you have a right to insist that your Landlord agree to a Surrender. You will therefore need the agreement of your Landlord to Surrender the Lease and your Landlord may want you to pay a premium in return for their agreement to end the Lease.
Replacement – ongoing liability
3. Assignment i.e., transferring your Lease to a third party
If you are unable to obtain a clean break or you believe there is some value in your Lease which you want to capitalise on, you may consider transferring the Lease to a third party.
The majority of Commercial Leases will permit assignments but will often only permit the same with the consent of the Landlord which usually cannot be unreasonably withheld or delayed.
There will likely be a number of conditions attached to the Landlord granting consent to an assignment and the most common condition is that the outgoing Tenant provides an ‘Authorised Guarantee Agreement’ (an ‘AGA’) which ensures that whilst the Lease is transferred to a third party the outgoing tenant will remain ‘on the hook’ should the incoming tenant fail to comply with the tenant covenants in the Lease during the term.
You do therefore need to be aware that you could be called upon during the remainder of the term to comply with the tenant covenants and in some circumstances take a new Lease for the remainder of the term or pay a lump sum (often equivalent to six months rent) to the Landlord.
If you are considering an assignment, it is therefore very important that you properly investigate the proposed assignee by checking their financial position as the assignee will only be as good as the security, they are able to provide.
4. Underletting
An alternative to an assignment is to underlet the property i.e., to grant a Lease (known as an ‘Underlease’) out of your Lease.
If permitted by your Lease this will often require you to obtain Landlord consent before underletting the property and again your Landlord’s consent will often not be able to be unreasonably withheld or delayed provided you comply with certain conditions. The conditions attached to an underletting are often not dissimilar to that of an assignment.
It is important to note with an underletting that your Lease remains in place, and you are therefore still liable to your Landlord for the tenant covenants in your Lease. By granting an Underlease you are allowing another party to occupy the property in return for paying the rent and complying with your obligations on your behalf, but you remain liable to the Landlord
Summary
If you are considering your options in relation to ending your Commercial Lease you should ask a solicitor to review your Lease and confirm the options available to you.
Mayo Wynne Baxter have a team of Commercial Property specialists who would be happy to help.