The rapidly evolving coronavirus outbreak is both a public health crisis and a disruption to businesses and our daily lives. Numerous companies are adopting new work models, favouring working from home and virtual contact with their clients, due to the recent outbreak of COVID-19. It is thought that this approach will become more common following Boris Johnson’s advice that work from home should be adopted where possible.

Schools in a number of countries, including France, Republic of Ireland, Italy and Iran have closed and many fear that it will not be long until a similar approach is adopted at schools throughout England. The government has yet to shut UK schools but many fear that it is inevitable.

Although children have not been placed in the vulnerable category by the NHS website, many will have social interactions with others who are vulnerable and pupils with special educational needs and disabilities will inevitably be affected. For instance, schools may be faced with the difficulty of not having enough staff available to teach, support and supervise children as more and more people are having to self-isolate. The government are faced with the task of balancing this risk with the disruption that school closures would cause with parents, including NHS staff, having to work from home to cater for their children’s’ needs.

Whilst open, schools should consider adopting a pragmatic approach such as:

• cancelling all school trips;
• encouraging social distancing for example by spacing out lunches to limit the number of children and staff eating at the same time;
•  sending anyone home who has a new continuous cough or a high temperature, and isolating any child being send home whilst waiting for their parents to collect them;  and
• ensuring that children and staff wash their hands more often and that school classroom surfaces and objects are regularly cleaned and disinfected. The most recent health information and advice given by the NHS can be found here.

Further guidance for education settings faced with COVID-19 can be found on the Department for Education website.

In a more general context, directors of companies in distress due to this pandemic need to be aware of their obligations. Douglas Hawthorn outlines the implications of disrupted trade for directors and steps that businesses can take to prepare for coronavirus disruption and Harriet Chopra discusses the different types of insurance cover that businesses may have protecting it from losses resulting from the outbreak.

Confronted with numerous “panic buyers” preparing for the worst, many superstores, such as Tesco have put new policies in place preventing customers, online and in store, from purchasing more than five of certain items such as antibacterial gels and wipes. Whereas panic buying may be a positive for certain retailers, it has had a significant impact on international supply chains and trade. In his recent article David Thompson discussed this impact giving an overview how businesses should be aware of force majeure clauses in their commercial contracts and the actions they should take in the current climate. Jonathan Kitchen discusses builds on this point and looks at how parties may bring a claim invoking a force majeure contractual clause to vary or terminate the contract where a party cannot perform their obligations due to coronavirus.

If you have any specific queries or concerns over how to respond to particular issues or would simply like to talk something through, please do get in touch with Hollie Suddards by email or by phone on 02076594631.

This article is for general information only and does not, and is not intended to, amount to legal advice and should not be relied upon as such. If you have any questions relating to your particular circumstances, you should seek independent legal advice.

The Landlord & Tenant Act 1954 (“1954 Act”) confers significant security of tenure and many telecommunication masts are let on leases governed by this Act. Section 24 of the 1954 Act allows the lease to continue in certain circumstances and a tenant to remain in occupation beyond the contractual expiry date, but it is possible for the parties to contract out of the security of tenure provisions.

The recent case of Cornerstone Telecommunications Infrastructure Ltd v Ashloch Ltd [2019] considers whether Code rights can be imposed in favour of an operator already occupying the site in this way and includes a helpful consideration of the way the Code and the 1954 Act interrelate.

Subsisting Agreement

The issue in this case was how a subsisting agreement, which was already in force when the Code commenced on 28th December 2017, should be treated, in view of the fact that it was governed by the 1954 Act and how the 1954 Act interacted with the Code.

Although the Code does not act retrospectively, transitional provisions mean that any “subsisting agreements” become Code agreements, subject to 2 material modifications, which make the Code more landowner-friendly.

The first change is that operators governed by a subsisting agreement cannot assign them as of right. Part 3 of the Code allows such an assignment, even if the terms of the lease prevent such action. That Code right is removed and operators are similarly prevented from exercising the Code rights of upgrading telecoms apparatus on the site or sharing it with other users.

The second alteration is that Part 5 (termination and modification of agreements) of the Code will not apply to a subsisting 1954 Act lease (whose primary purpose is to confer Code rights on an operator) which is not contracted out of the security of tenure provisions.

Arguments

This case concerned a rooftop site. The lessor argued that the operator could not use Part 4 of the Code, as it was already in occupation. It also said that, as the lease was continuing under section 24 any new rights must be sought by applying for a new tenancy in accordance with the 1954 Act.

The operator maintained that it could either seek a new lease using the 1954 Act procedure or that Part 4 of the Code (the procedure for obtaining a new agreement) could be used as an alternative to Part 5.

Decision

The operator’s primary argument was that Part 4 is not excluded from applying to a subsisting agreement. The Tribunal ruled that Part 4 is about imposing agreement on landowners and the transitional provisions state that subsisting agreements are equivalent to Code agreements already granted in accordance with Part 2. Therefore, Part 4 does not need to be excluded as it could never apply. Part 4 can only be used for the purpose of obtaining interim or temporary rights.

Although this point was taken as a preliminary issue, the finding that the 1954 Act procedure applies, meant that the County Court procedure applied and the Tribunal had no jurisdiction. This resulted in the whole case being struck out.

The Tribunal also confirmed that Part 5 could not be used by the operator to obtain a new lease and that a new tenancy must be applied for in accordance with the 1954 Act.

Implications

This case dealt with a 1954 Act lease which was not contracted out and which continued as a statutory periodic tenancy. There will be many agreements which are contracted out of the security of tenure provisions. Where the fixed terms of those leases expired before 28 December 2017, the actions of both parties will have to be carefully considered, so that the status of any new agreement can be determined. The terms of that agreement will dictate which route should be adopted when considering its renewal.

Applying the facts of the case, but assuming the fixed term expired after 28 December 2017, the operator would be able to use Part 5 of the Code to apply for a renewal tenancy.

Paragraph 20 notices

Paragraph 20 notices under Part 4 can only be used when operators are seeking new Code rights, which will, in most cases, be in connection with new sites. This procedure cannot be used where renewal of Code rights is sought – as with an operator on an existing site. This means that any existing paragraph 20 notices should be carefully reviewed, as they may well be invalid.

Renewal under the 1954 Act

Subsisting 1954 Act agreements, whose primary purpose is the granting of Code rights, must be renewed under the 1954 Act, where there is no contracting out of the associated security of tenure provisions. It is therefore important to establish whether this has been done.

This provides significant advantages to a landowner who is able to rely on the open market rent provisions of the 1954 Act, as compared to the “no network” assumptions, which have a marked downward effect on rent under the Code.

Terms of the new lease

Additional benefits are secured by landowners as paragraph 23 of the Code will also be excluded. This provides that a Code agreement must contain such terms as the Court thinks appropriate. In contrast, a 1954 Act agreement would, on renewal, either have its terms fixed by the agreement of the parties or paragraph 34 (12) of Part 5 of the Code. Paragraph 34 (12) states that the Tribunal must have regard to the existing terms of the tenancy when making the appropriate order.

However, it is not all good news for landowners.  When any new 1954 Act lease is close enough to its contractual termination date, the operator may give 6 months’ notice in accordance with paragraph 33 of the Code and seek renewal in accordance with Part 5. Operators are therefore likely to seek as short a term as possible on any statutory renewals, so they can fall back on the full panoply of Code rights as soon as possible. If the term cannot be agreed then it will be for the Court to decide.

Therefore, any advantages accruing to a landlord or head lessor by virtue of the 1954 Act procedure, may well be short lived.

What is the legal basis on which e-voting is permitted?

Glossary of Terms

Michelmores hosted the Impact Investing Lawyers Network breakfast on 13 February. Our excellent and inspiring panellists spoke passionately about The Chancery Lane Project, the unavoidable need for us to all be responsible for sustainability and the controversies around ‘impact washing’.

The session opened with Matthew Gingell (General Counsel at Oxygen House Group) who talked about the purpose of commercial solicitors and how impact investment lawyers should create their own impact. He went on to introduce the Chancery Lane Project an innovative and collaborative pro-bono project whose vision is a world where every contract and law helps provide solutions to the climate crisis. Using a hackathon model to devise, develop and draft practical solutions for businesses and communities to transition to net zero, the project aims to create new market norms for a greener world. We look forward to the publication of the Project’s Climate Contract Playbook and Green Book of Model Laws on 26 February 2020. Lawyers can get involved in the Project by signing up via the website.

Amanda Carpenter from the Legal Sustainability Alliance shared her insights on the climate challenges facing the world and how lawyers should be leading the charge in undertaking sustainable practices and encouraging the same in dealings with their clients. These are topical issues that can no longer be ignored and as Amanda noted, “Adolescent mental health is at an all-time record low… environmental changes have a part to play in this”. She also observed that if we carry on putting plastic in the oceans at the current rate “by 2050 there will be more plastic in the ocean than fish by weight”

In response to a query from the audience about the virtues of carbon offsetting, Amanda felt that much depended on the quality of the offsetting and highlighted that, critically, it could be used as a tool to enable businesses to simply carry on as they are rather than really tackling issues around whether their carbon footprint can be reduced.

For those who are unsure where to start (beyond reaching out the LSA), Amanda suggests that businesses carry out an assessment of their carbon footprint in the first instance to establish what can be worked on to improve it (noting that “you’d be surprised how many easy-wins can be identified straight away”).

Mollie Liesner (Impact Manager at AgDevCo) provided an insightful introduction to ‘impact washing’. Her experience with scaling and measuring impact painted a very informative picture with real-life examples of how impact washing can play out in businesses. Mollie highlighted that much of the challenge comes from the different approaches and the lack of standardisation in how impact is measured.

The panellists went on to talk about how several attempts are being made to create a form of impact measuring, but that the sector is still a far way off agreeing upon an approach.

Where there is a risk of ‘impact washing’, Mollie recommended looking behind the figures and understanding whether a fund has institutionalised the intention to create impact through its investments, actually measures the impact, and then uses that data to drive decision-making.

The audience were interested to know about the perceptions of impact investing in contrast to investing in non-impact focussed funds. Nirav Patel (Senior Associate in our Impact Investing Team) who was moderating the panel discussion talked about the findings of a study commissioned by Michelmores entitled Millennials, money & myths which found that 73% of affluent millennials feel a responsibility to use their money to have a positive impact on the world and that 30% of affluent Millennials will consider whether a venture has a positive social or environmental impact when investing money. However, Nirav highlighted that those positive views are not yet reflected in the investments that they are actually making, but that the expectation is that this will change in the coming years as impact investing and an understanding of how its returns compare to other more traditional investments become better known.

Nirav Patel said of the event, “This was a hugely informative and forward-looking session. It is clear that the challenges of climate protection and sustainability are top of the agenda for all businesses. It is incumbent on lawyers to help where we can in influencing climate and impact positive decision making in business. The reality is that we must lead by example and a lot of law firms will acknowledge that the time to start that transition is now”.

Although Academy Trusts are publicly funded organisations, they are still subject to almost the same tax requirements as any incorporated charity. With the current Government funding for schools operating in deficit, an increasingly more commercial strategy and innovation within Multi-Academy Trusts (“MATs“) is starting to flourish. Whilst these new opportunities create new revenue streams for schools, they also bring with them new risks and potential tax liabilities. It is for these reasons that the use of trading subsidiaries within MATs has increased in recent years and a new area of professional advice is being sought by our clients.

This note has been produced to provide a simple overview of what trading subsidiaries are and the reasons why MATs may want to establish them within their current corporate structures.

What is a trading subsidiary?

Academy Trusts can only carry out trading activity which furthers its charitable objects, or those activities with are ancillary to furthering those objects. For Trusts with DfE model Articles of Association, this means that they can only carry out trading which has an educational purpose, or which is incidental to an educational purpose. For example, Trusts can charge for music lessons, school trips, school meals or uniforms. This is known as ‘primary purpose trading’.

Where a Trust generates income from trading activities which are outside of ‘primary purpose trading’, then this income is potentially subject to corporation tax. In this instance, a Trust may choose to set up a company which will carry out these non-educational activities in order to protect its commercial interests and minimise any tax liability. This is particularly beneficial where the additional income exceeds £50,000.

Academy Trusts who are thinking about expanding their trading activities beyond primary purpose trading should undertake a review of their Articles and Funding Agreements in order to understand what trading is permitted and what restrictions apply.

Why might a MAT want to establish a trading subsidiary?

There are many reasons why a MAT may need to set up a trading subsidiary and we have outlined the key ones below:

• Additional Income Generation – Schools are constantly looking for ways to supplement government funding and, if operated well, a successful trading subsidiary is a good way of generating additional income for the benefit of the schools within a MAT.

• Filling Gaps in Services – There may be services which the local community is in dire need of but is not currently being met by the local authority or other organisations; this is likely to have a longer term impact on schools. For example, the MAT may open local children’s centres or provide educational training to parents.

• To Fulfil Contractual Obligations – The MAT or individual schools within the MAT may have contractual obligations to provide, for example, leisure facilities outside of schools hours for the benefit of the local community. Whereas some Trusts have recreational and leisure charitable objects within their Articles, the DfE is increasingly reluctant to permit new Trusts to be incorporated with these objects.

Further to the above, in some instances it has been observed that the DfE has required a MAT to set up a trading subsidiary as a condition of an academy conversion.

We think it would be helpful to provide some common examples of trading subsidiaries that MATs are already operating:

• Outsourcing MAT services – Human Resources, finance and accounting, cleaning, security and grounds maintenance services are increasingly outsourced amongst local MATs of varying size/resource availability

• Site Management and Leasing – A trading subsidiary enables MATs to lease out facilities to other schools, local community groups and general public. For example, some schools may have conferencing facilities, leisure centres and specialist playing sports halls/ pitches.

• Catering Services – Sometimes these are outsourced to other local schools, but a trading subsidiary also permits a MAT to trade with the general public. This could be combined with facilities being hired out (as above)

What benefits does a trading subsidiary provide to a MAT?

• Diversifying Income Streams – As is common wealth management practice, the more income streams an organisation has then the more financial resilience; compared to the vulnerability that overreliance on one income stream provides. Further, a trading subsidiary which is operated correctly offers an easy way to generate income from existing assets and resources which are currently underutilised.

• Ring-fencing Commercial Risks – The MAT can minimise the risk exposure, which is particularly important where there is significant financial or reputational risks from the trading activities. For example, the trading subsidiary may facilitate private events (such as weddings) or become subject to litigation (such as breach of contract claims).

• Reduced Tax Liability – Any profits which are chargeable to tax can be transferred to the MAT as a donation under the ‘Gift Aid’ scheme. This reduces the overall corporation tax liability.

• VAT Registration – Where a MAT already operates over the VAT threshold and sets up a trading subsidiary, then the MAT can benefit from joint registration. This offers an administrative advantage in that only one annual tax return needs to be submitted and, more importantly, it provides an ability to disregard intra-group supplies between the trading subsidiary and the MAT i.e. making these VAT free recharges.

What areas of risk are there for MATs?

In order to be successful, the MAT will need robust and appropriate mechanisms to ensure that the trading subsidiary has sufficient working capital.

In addition, Directors will need to have sufficient control over the company and this is likely to be best secured through adopting a Service Agreement which sets out the terms of the provision of services between the MAT and its trading subsidiary.

Lastly, it is important to highlight that a trading subsidiary is not always the best option for a MAT and it is very much dependent whether the MAT has the resources available. This means generally in effectively governing the company, but also requires an assessment of whether the MAT has appropriate leases and management charges (depending on the proposed trading activities).

In any event, before deciding to incorporate a trading subsidiary a MAT should carefully consider whether all of the income generated could be charitable.

Vast change to residential tenancies looks imminent, irrespective of which party wins the forthcoming General Election. As we await the likely abolition of Assured Shorthold Tenancies (ASTs), it is easy to forget the numerous rules of the AST regime, the breach of which often disqualifies the landlord from serving a no fault section 21 notice to quit. As an aide memoire, we have prepared a summary of the current rules in England and highlight the key practice points for landlords and agents to note.

1. Using no fault section 21 notices to terminate ASTs:

Since 1 October 2018, landlords of all ASTs (new and existing) must comply with the following requirements in order to serve a valid section 21 notice to quit:

2. Gas Safety Certificates:

• Landlords must ensure that gas safety checks are conducted every 12 months on all gas appliances and flues by a registered Gas Safety Engineer.
• A copy of the resulting certificate must be given to all tenants before they occupy the premises, or for existing tenants, within 28 days of the date of the gas safety check.
• The cost of the checks must be borne by the landlord.

Two cases

Following the widely publicised (but unreported) County Court cases of Caridon Property Ltd v Monty Shooltz (Feb 2018) and Trecarrel House Ltd v Rouncefield (Feb 2019) landlords should ensure that tenants are provided with a copy of the Gas Safety Certificate before the start of their tenancy, in order to avoid the risk that a later section 21 notice is invalidated. Applying Caridon and Trecarrel, it is not possible to remedy a breach of this requirement by providing a copy of the certificate at a later date. Although neither case is binding, they will be persuasive to other judges and the Government has confirmed that it does not intend to legislate to reverse the effect of the decisions.

The landlord in Trecarrel has been granted permission to appeal to the Court of Appeal. The appeal has not yet been heard, but a Court of Appeal judgement will be binding and will provide definitive guidance for landlords and tenants alike. In the meantime, prudent landlords should serve a copy of the certificate before the start of all ASTs.

Finally, as explained in Hannah Drew’s recent article posted in Agricultural Lore December 2019 edition, unless the tenancy agreement specifically states that documents may be served on the tenant via email, then for certainty, the gas safety certificate should always be provided to the tenants in hard copy, and an acknowledgement of receipt should be obtained.

3. Tenant Fees Act 2019:

The Tenant Fees Act 2019 (“TFA”) has been applicable to all new AST’s since 1 June 2019 and will apply to existing AST’s from 1 June 2020.

It has banned most letting fees, caps tenancy deposits and restricts the ability of landlords or agents to require any payments from tenants apart from certain “permitted payments”, set out in schedule 1 to the TFA.

Restrictions include a deposit cap (5 weeks rent); a ban on renewal fees and administration fees (e.g. referencing, property viewing, inventory checks, pet fees, right to rent checks) and a requirement to return any excess deposit held in breach of the TFA if the AST is renewed.

Financial and criminal sanctions are imposed for non-compliance, and landlords are restricted from using the s21 eviction procedure if prohibited payments were taken and have not been returned.  For further details see the Government website.

4. Homes (Fitness for Human Habitation) Act 2018

The Homes (Fitness for Human Habitation) Act 2018 introduced a new implied covenant that the let residential dwelling is fit for human habitation throughout the tenancy.

Currently, it automatically applies to all new residential tenancies (of less than 7 years) granted after 20 March 2019 and will apply to existing tenancies after 20 March 2020.

If a dwelling is not up to the appropriate standard a tenant will be able to take court action for breach of covenant. Further details are available on the Government website.

5. MEES (Minimum Energy Efficiency Standards):

In 2015, the government passed the Energy Efficiency (Private Rented Sector) (England and Wales) Regulations which have been implemented in stages:

• Since 1 April 2018, it has been unlawful to let a residential property with an EPC rating of less than E. This stage only affected grants of new tenancies or any renewals.
• From 1 April 2020 the MEES will apply retrospectively, across the board, to all new and existing residential tenancies. Landlords will not be able to continue to let a residential property after 1 April 2020 unless the property has an EPC with a minimum energy efficiency rating of E or above (or specific exemptions apply).
• The MEES Regulations apply to all residential tenancies. They are therefore relevant to AST’s, assured tenancies and assured agricultural occupancies under the Housing Act 1988 and Rent (Agriculture) Act 1976 occupancies as well.
• There are financial penalties for non-compliance and landlords are restricted from using the s21 eviction procedure if the tenant has not been provided with a copy of the EPC.

It is worth noting the next deadline on the horizon, which will require all non-domestic private rented properties to have an EPC rating of E or above from 1 April 2023.

6. Consultation on Deposit Reform

On 5 September 2019, a Government Consultation closed regarding potential reforms to the deposit system applicable in the private rented sector.

There is concern that when tenants move between private rental properties, the overlap between the return of the previous deposit and the deadline for paying a deposit on their new tenancy is adversely affecting tenant mobility, and has serious impacts on the most vulnerable tenants. The Consultation aimed to determine the extent of the problem and obtain views on possible solutions (e.g. imposing a deadline on landlord’s for returning deposits or a system of “passporting” deposits directly between tenancies). Although in its early stages, this Consultation is very much in line with current Government policy in the sector.

Farm work notoriously involves long hours of hard work, especially at harvest and other peak times of the year. The recent case of Pazur v Lexington Catering Service Ltd [2019] will therefore be of particular interest to farm businesses owners and managers. This case concerned a breach of the statutory entitlement to rest breaks, afforded by the Working Time Regulations 1998 (“WTR”) and serves as a useful reminder of the risk of legal proceedings if an employer even proposes to refuse to comply with the WTR.

The case

Mr Pazur was asked to work an eight hour shift at a site, but was not allowed to take a rest break. He complained to his manager. When he was asked to work another shift at the same site, he refused to go because of what had happened previously. This led to his employer threatening him with dismissal and subsequently dismissing him.

Mr Pazur claimed that being threatened with dismissal was an unlawful detriment and was in contravention of the WTR (which states that employees are entitled to a 20 minute rest break for every 6 hours worked).

The case made its way to the Employment Appeal Tribunal, which concluded that Mr Pazur had explicitly refused to return to work for the client, due to his concerns that he would not be able to take a rest break. This refusal had materially influenced the employer’s threat of dismissal and therefore Mr Pazur’s unlawful detriment claim succeeded.

This case highlights the need for employers to remain cautious when dismissing or taking any action against employees for issues relating to working time. It is important to note that a dismissal of an employee will be automatically unfair if the reason for dismissal is because the employee refused (or even proposed to refuse) to comply with a requirement, which their employer imposed (or proposed to impose) in contravention of the WTR.

How to attract employees to the business

In any competitive industry, it can be difficult to attract the best people. This is particularly the case for start-ups and new businesses without an established reputation in their respective marketplace. Understandably, employees feel nervous about the potential risks and uncertainties that working with such businesses might bring. Often, the bigger, safer option prevails. To coin a well-known (if a little outdated!) phrase from the trading floor…”no-one gets fired for buying IBM”. Sometimes, playing it safe is more appealing than walking the path less-trodden.

With this in mind, how can start-ups and entrepreneurs buck the trend and attract the best candidates? With Millennial and Gen Z employees now placing greater emphasis on culture, sustainability and non-financial benefits, there is an obvious opportunity for any new business to establish and promote these values in an effort to appeal to those people looking for ‘something more’.

How should your start-up look to put these values into practice? With regards to sustainability, think about how this can be ingrained into the business culture and working practices. For example, does the business offer a cycle to work scheme; do you only use recycled paper; is the office canteen plastic free? Intelligent Hand Dryers has taken it one step further by announcing plans to discipline staff who bring single use plastic to work. This might feel like a step too far for some people, but it will undoubtedly speak to some potential candidates. Think about what your business could be doing to stand out from the crowd.

Consider other non-financial benefits, which are becoming increasingly important for employees when deciding where they choose to work. These can be relatively inexpensive for the business (and, in some circumstances, can actually result in significant cost savings). For example, does the business offer agile working; are all employees encouraged and supported to work flexibly? Is it possible to offer an extra day’s holiday for birthdays? Timpson offer their employees the use of a limousine, an extra £100 and a week off work when they get married. This is just one of many reasons why they are viewed by so many of their staff as an inspiring employer. What can your organisation offer to demonstrate the value that you place in your employees?

In terms of career development, which might seem limited in a small organisation, can you provide additional training or leverage your professional contacts to provide an external mentor programme for employees? Could you make a contribution to training costs to help them acquire and develop new skills (including a contractual repayment clause where appropriate)?

There may be innovative ways in which you could train your employees. For example, Walmart use Virtual Reality technology to train staff on how to spot hazardous situations during Black Friday sales. While VR is expensive, and is perhaps out of reach for most start-ups, it is a good example of how training does not have to take the usual form of courses and classes.

Mental health and wellbeing is a hot topic at present. If your business is seen to promote this in the workforce, it will inevitably help you entice the best people. Employees really value an employer who authentically encourages and supports a positive work/life balance.  Where employees can demonstrate that they can be relied upon to do the job, allowing them the flexibility to undertake work in a way that better fits their lives can help ensure that you obtain the best from, and have a happy, and loyal workforce. It doesn’t cost you anything to build a culture of trust and transparency at work and smaller, more nimble, businesses can potentially steal a march on their larger, more traditional competitors in this regard.

If your start-up cannot afford to support and offer increased maternity, paternity or shared parental leave benefits, there are less expensive alternatives which can be offered, all of which still show your employees that you recognise their family commitments. One such example might be to host a Christmas or Summer party for your employees’ children and families. CA Technologies provide on-site day-care for employees; another way of offering employees the help they need. Holiday Extras hire out a cinema each year to offer a free film showing to all employees and their families.

Another option may be to introduce an employee share scheme or a profit sharing scheme. If employees share in the success of the business, this could be an incentive for them to give their best.  Having ‘skin in the game’ helps people to feel personally invested in the organisation.

Protecting your business

Attracting the right people is extremely important to every business, and the importance of establishing a positive and engaging culture should not be underestimated.

However, there are other considerations in play. As an employer, you will need to ensure that your business is adequately protected when employing or engaging staff, and getting your house in order at the outset is far easier than addressing this issue further down the line.

Having adequate and properly drafted employment contracts, staff handbooks and policies is the best way to protect your business. We would always recommend that these are prepared specifically for your organisation – ‘off the shelf’ versions may not contain all of the protections you need, may not be suitable for your business, and may not embody your culture.

The employment contracts are particularly important. The risk to start-ups of a key employee leaving and damaging the business are significant, but these can be addressed in the contract. It is prudent to include bespoke provisions to protect your business’s intellectual property rights and confidential information, particularly if you are operating in a niche or growth sector.

You may also feel it appropriate to restrict the competitive activities of former employees, perhaps in respect of their dealings with your confidential client base. These ‘covenants’ are often difficult to enforce, however, and should therefore be bespoke and appropriate to your business and to the role of the particular employee.

It is important to note that there is not a ‘one size fits all’ for employment contracts, and we would advise that you obtain specialist employment advice in order to protect your business.

Please do not hesitate to contact James Baker in our Employment Team for further advice and assistance.

What is mobile money?

For over a decade, mobile money has enhanced financial inclusion by allowing anyone with a mobile phone to securely save, spend and transfer money, including the unbanked. In the frontier markets, services typically operate via a network of agents (such as small shops and kiosks) that take in cash deposits and give out cash withdrawals, as requested via a customer’s mobile wallet account. As smartphones have replaced basic phones, functions have expanded to not only allow payment of salaries, electricity, rent and other invoices but also for companies to offer small loans and other financial services.

Mobile money’s biggest impact is in developing countries where there is a high rate of mobile phone ownership but lack of access to formal banking services. A recent World Bank report commented that “mobile phones and the availability of new digital technologies are at the forefront of this change, helping to draw more and more people into the formal economy, potentially mitigating gender and income inequality and stimulating development in areas ranging from farming to education”.

Key trends

At the end of 2018, the GSM Association’s State of the Industry Report on Mobile Money estimated there to be approximately 866 million registered mobile money customers in the world, representing a 20% increase from the end of 2017.

Following a decade of remarkable growth, the GSMA noted four key trends in the current market:

The African technology revolution

World Bank highlights Sub-Saharan Africa as a “trailblazer in the use of mobile money to conduct digital transactions”. The region now has more mobile money accounts than anywhere else in the world with about 396 million registered users at the end of 2018, a 14% increase from 2017.

Michelmores has been involved in the dramatic rise of African mobile money from its early days. In 2008, we advised Manocap, managers of the Sierra Investment Fund (a private equity fund whose backers include CDC, the British Government’s development finance institution) on one of the first African mobile money investments, Splash Mobile Money, Sierra Leone’s first mobile payment system.

Meanwhile, at a similar period in time on the eastern side of the continent, one of the biggest success stories, M-Pesa, was conceived in Kenya and “revolutionized the way Kenyans manage money” according to The World Bank. Now, 96% of households outside the Kenyan capital, Nairobi, have at least one M-Pesa account. This has had a number of positive social impacts, including helping empower women financially, boosting start-ups and encouraging personal savings.

M-Pesa has since been launched in six other African markets, including Tanzania, Egypt and Ghana but as the Financial Times remarked last month, “it has not all been plain sailing. Launches in countries including India, Afghanistan, Romania, Albania and South Africa failed to work and the service was closed down.”

In South Africa, MTN is now planning to relaunch its mobile money service early this year (which it had decommissioned in 2016). The service, called MoMo, aims to improve financial inclusion in a country where about 11 million South Africans remain unbanked and 50% of the adult population remains thinly served, according to Felix Kamenga, Chief Officer of Mobile Financial Services at MTN South Africa.

To this extent, MTN’s experience in Zambia has been inspiring. Komba Malukutila, Chief FinTech Officer of MTN Zambia, commented to us:

“MTN partnered with the Zambian Government in the fight for financial inclusion for all and we have seen that it is indeed a catalyst for economic growth in the country. Mobile money continues to be a key driver lifting the country out of poverty and drawing over 2 million Zambians into mainstream economic activity, harnessing their contributions to society. We can now offer affordable, instant, and reliable transactions, savings, loans, and even insurance opportunities in rural villages and urban neighbourhoods where no traditional banking services exist.”

Unlocking future growth

Whilst there is a steady uptake in mobile money adoption in many African countries, such as Kenya and Zambia, the GSMA highlights the significant opportunity to unlock growth and increase financial inclusion in the continent’s mobile money sleeping giants: Nigeria, Ethiopia and Egypt. In these countries, restrictive regulatory frameworks historically meant few providers were able to offer mobile money services. In 2018, however, reforms were introduced in Nigeria and Egypt, whilst Ethiopia has begun to pursue an ambitious financial inclusion strategy of its own.

Nigeria

In Nigeria, the country’s central bank recently brought in new rules that The Economist noted will allow telecoms firms, supermarkets, courier companies and others to become “payment-service banks”, with a licence to take deposits, make payments and issue debit cards. As 60% of the population do not currently have bank accounts, there is clear potential for widespread adoption of mobile money in the near future.

Service providers such as Nigeria’s market leader, Paga, are well-placed to benefit from these reforms, with increasing support from impact investors who are seeking to promote financial inclusion in these markets. Indeed, Michelmores recently assisted the Global Innovation Fund with its $5m equity investment in Paga intended to drive usage of a mobile wallet and other digital financial services for their customers.

Tayo Oviosu, Founder and CEO of Paga commented to us:

“We believe that there is a major challenge in payments facing emerging markets beyond Nigeria. Our mission at Paga is to make it simple for one billion people to access and use money, and in achieving this, we are poised for global expansion by extending our operations to countries such as Ethiopia and Mexico. In the next few years, our focus will be on digitizing payments by building an ecosystem that enables simple financial services for everyone.”

And in 2019, other Nigerian providers – including Interswitch, OPay and PalmPay – raised almost $400m from venture capital investors with a view to expanding across Sub-Saharan Africa.

Ethiopia

Ethiopia continues to offer significant potential for growth; only one in five people has a bank account, but half of all adults own a mobile phone. Mobile money platforms such as M-BIRR (who were advised by Michelmores in 2018 on an equity capital investment by DEG, the German Government’s development finance institution, and the European Investment Bank) will be increasingly attractive to investors in the coming years looking to facilitate financial inclusion across the country.

The European Investment Bank cites one example:

“The opportunity to receive social security payments by phone is making a huge difference. M-Birr clients speak of how they had to walk for hours and endure long queues to get these payments, without any guarantee that the money would be there in the end. [Now,] to withdraw cash, beneficiaries just have to go to a local agent.”

Strategic partnerships and regional interoperability

The IFC states in its Report on Digital Access: The Future of Financial Inclusion in Africa (May 2018) that “key to digital financial services [“DFS”] evolution is partnership. Interoperability is a precursor to most sophisticated services, and this is becoming increasingly common in all markets. It underpins the development of digital payments across value chains, and enables salaries and social payments to be paid digitally to recipients using a range of DFS.”

In Kenya, Safaricom and PayPal announced a partnership in April 2018 to allow M-Pesa users to make mobile money transfers between PayPal and M-Pesa accounts. The new service allows M-Pesa’s users to transact online with PayPal, highlighting the wide ranging utility of mobile money services.

In other developments, in November 2018, Orange and MTN launched a joint venture, Mowali, to enable customers to send money across networks in 22 Sub-Saharan markets.

Meanwhile, the Financial Times reports that Visa is working with MFS Africa, a pan-African mobile money hub, to enable people with mobile wallets in Africa to pay for international online services. Dare Okoudjou, founder and chief executive of MFS Africa, said the partnership would enable users to extend their transactions outside Africa: “Now you can receive money from the US and make a payment in France… Any kid with a mobile wallet in Kigali should now have enough to deal with the rest of the world”.

Potential challenges

Taxation

Despite the industry’s rapid growth, concerns have intensified regarding the introduction of taxes on mobile money transactions throughout Sub-Saharan Africa and beyond. For example, the GSMA report notes that the introduction of a 1% tax on mobile money deposits, withdrawals, transfers and payments by the Ugandan government in July 2018 made mobile money transactions more expensive for a significant number of users: “The new tax had an almost immediate negative effect: the value of peer-to-peer transactions declined by 50 per cent within two months of implementation while the value of all transactions dropped by around 25 per cent. Around 100,000 agents saw their earnings decline by 35 to 40 per cent, and around 30,000 agents went out of business completely.”  Consequently, some customers have reverted to using cash or agency banking whilst others are transferring smaller amounts via mobile money.

Therefore, whilst governments across Africa are attempting to collect more tax revenue, new transactional taxes risk stalling progress on digitization and financial inclusion.

Regulatory

With innovation comes the challenge of ensuring appropriate and balanced regulation. Governments are grappling with the desire to encourage investment in new technology whilst ensuring adequate and proportionate regulation and consumer protection in areas such as cyber-security, anti-money laundering and countering the financing of terrorism. Further, if regional interoperability is to work, how can regulations be harmonised across a continent with diverse regimes?

For this reason, many jurisdictions are adopting ‘regulatory sandboxes’ (testing grounds for new fintech business models that are not protected by current regulation) to help them develop appropriate regulations for emerging mobile money businesses, allowing regulators to identify risks and provide supervision for a temporary period, without stifling innovation.

What is next for mobile money in Africa?

In its Report on Digital Access, the IFC notes that “the launch phase of this new industry can be considered complete with hundreds of established services, many of which are profitable. We are now moving into a new phase of development, with emerging technologies and widescale integration between digital financial services and other financial services providing a wealth of new opportunities”.

Whilst challenges remain, mobile money is likely to continue to be a key vehicle of structural change in Africa and other frontier markets, helping to create jobs and alleviate poverty by providing affordable and accessible financial services to all.

In June 2019, HMRC released guidance clarifying which aspects of a property might qualify as “non-residential” in relation to the application of the “mixed use” rate for stamp duty land tax (SDLT).

SDLT is calculated according to the amount paid for a property. Wholly residential transactions are liable for a maximum SDLT rate of 15% on the “top slice” of the property’s value (including an additional 3% second home surcharge). This is in contrast to “mixed use” transactions (transactions that include non-residential aspects) where the purchaser could expect to pay a maximum rate of 5%.

For many agricultural properties, the distinction between “residential” and “mixed use” can be ambiguous.

Residential property is defined in Section 116(1) Finance Act 2003 as being:

1. A building that is used or suitable for use as a dwelling, or is in the process of being constructed or adapted for such use, and
2. Land that is or forms part of the garden or grounds of a building within paragraph (a) (including any building or structure on such land), or
3. An interest in or right over land that subsists for the benefit of a building within paragraph (a) or of land within paragraph (b);
   and ‘non-residential property’ means any property that is not ‘residential property’.

According to this definition, where a residential property includes a “non-residential” element, the property is no longer wholly residential and so the entire purchase can be assessed at the lower “mixed use” SDLT rates.

The potential of reduced tax liability is encouraging purchasers to include an additional “non-residential” element within their house purchase. The Telegraph (Article published on 22 September 2017) optimistically suggested that bundling “a small plot of Nottinghamshire woodland” with one’s “Mayfair townhouse” could in theory create the “mixed use” tax-savings parcel, although this is likely to be viewed with suspicion by HMRC.

However, this principle could have sensible application for purchasers of country estates and agricultural properties, which may include a plethora of elements with a traditional “non-residential” use.

What land would not constitute “grounds or garden”?

Recent discussion, as summarised in Adam Corbin’s article “Stamp Duty Land Tax and mixed use premises: “grounds with house for sale?”” has focused around what type of land falls outside the scope of “garden or grounds” and would therefore be classed as “non-residential property”.

Muddying the waters of the debate was the existence of guidance released by HMRC in 1995 in relation to Capital Gains Tax (CGT). This guidance limited “grounds” to being “enclosed land surrounding or attached to a dwelling house or other building serving chiefly for ornament or recreation” [note RI 119]. This narrow interpretation aided HMRC in obtaining CGT, but has had the opposite effect in relation to SDLT, as it indicates that land which could be described as grounds (and thus “residential” under the S.116 Finance Act definition) must be “surrounding or attached” to a house, or be used for “ornamental or recreational” purposes. Perhaps in an effort to reduce confusion, HMRC has now withdrawn this particular guidance.

Hyman v HMRC case

The withdrawal of the 1995 guidance did not prevent Mr and Mrs Hyman from applying this definition of “grounds” earlier this year in Hyman v HMRC (2019). Mr and Mrs Hyman argued that there were three “non-residential” elements to their property, including a derelict barn, meadow and public bridleway, and therefore this should qualify their whole property for a reduced “mixed use” tax rate. This classification would amount to a saving of £34,950.00 when compared to the wholly residential rate.

The Hymans argued that the physical separation (by distance and hedges) of the barn, meadow and bridleway evidenced that they were independent of the dwelling’s “gardens and grounds”. Further, the derelict condition of the barn, and public nature of the bridleway and meadow meant that neither could they be used for “private, ornamental or recreational” purposes and so would not fall within section 161(1)(b). Additionally, Mr Hyman contended that the barn was classified by planners as being “non-residential” due to the absence of a planning permission enabling its conversion to a dwelling.

However, the First-tier Tax Tribunal interpreted “grounds” widely and translated its meaning as being “land attached to or surrounding a house” which is “available to the owners to use as they wish”, irrespective of whether the land was actively used by the owners. The Tribunal dismissed the notion that “grounds” must be for ornamental or recreational purposes, and stated that it was possible for other people to have rights over the land without making it “any less the grounds of that person’s residence”.

New HMRC guidance

In anticipation of a raft of cases along the same lines as Hyman v HMRC and building on their success in that claim, HMRC released detailed guidance in June this year clarifying what constitutes “non-residential” land.

The guidance states that the use of the land in question will often be determinative of its status, as “non-residential” land will usually be land used for commercial purposes. Historical use may be taken into account, but any future or planned use of the land will not be relevant. To allay agricultural fears, the guidance does clarify that a field left fallow will not become “grounds or garden” when not being actively farmed.

The guidance lists other factors that will be taken into account, such as the layout of the land and outbuildings and the geographical distance between the land and the dwelling. However, it is emphasised that any hindrances on the land (rights of ways, access for statutory undertakers) will not prevent the land being “grounds”.

Finally, HMRC has clarified that “it does not follow that any land beyond the CGT ‘permitted area’ is not the ‘garden or grounds’” for SDLT purposes.

Hydraulic fracturing or ‘fracking’, as it is more colloquially known, has long been heralded as a potential, yet divisive, solution to UK energy security. With the Government’s cuts to clean energy subsidies having an injurious effect on the renewable energy sector, the direction now seems to be shifting towards generation of electricity from the UK’s natural gas resources. In this overview, we examine the extensive regulatory framework governing fracking in the UK and its impact on landowners.

Introduction

On 6 April 2016, Section 50 of the Infrastructure Act 2015 came into force. It introduced amendments to the Petroleum Act 1998 concerning when and how the Secretary of State (the ‘Secretary’) can issue a ‘well consent’ and a ‘hydraulic fracturing consent’ to facilitate the exploration and subsequent production of shale gas from fracking. In short, a well consent concerns the proposed location of the fracking operations. A hydraulic fracturing consent relates to the actual fracking operation itself, including drilling and is the final check before an operator can implement its planning permission. These consents are subject to substantial regulation and are only two of the numerous consents required for a fracking operation to actually get off the ground or, more accurately, under it.

It should be noted that prior to satisfying conditions in relation to these consents, a Petroleum Exploration and Development Licence, the landowner’s consent and planning permission are needed for the drilling of wells for both exploration and production purposes, as well as the development of a fracking site. Planning permission will only be granted with the most rigorous of conditions attached. Further, the Environment Agency ensures that any shale gas operations are conducted in a way that protects people and the environment.

Many of the concerns relating to fracking have their provenance in contentions that fracking carries serious risk to people’s health, seismicity, purity of local water supplies and to the local environment, as well as potentially adversely impacting the right of landowners and causing an inadvertent industrialisation of the countryside. Of course, these concerns are only amplified by the media attention that surrounds fracking and the strong views on both sides of the energy debate.

It should also be noted that in April 2016, the Onshore Hydraulic Fracturing (Protected Areas) Regulations 2016 came into force as well. These regulations ensure that fracking only takes place below a certain depth in specified groundwater areas, National Parks, Areas of Outstanding Natural Beauty and World Heritage Sites.

Which areas are likely to be affected by fracking?

Productive shale in the UK is specific to various regions. In South East England the primary area of productive shale is situated in the Weald Basin. In Northern England, the area known as Bowland Basin is thought to contain the largest shale gas reserves. The British Geological Survey have estimated that the total volume of gas in the Bowland Basin shale is some 1300 trillion cubic feet. The Midland Valley in Scotland is also considered to be rich in shale gas reserves.

From a policy perspective, as it stands, England is the only member of the UK to open its doors to fracking. Currently, Wales, Scotland and Northern Ireland have implemented moratoriums or imposed far more stringent conditions, which limit an operator’s practical ability to commence fracking.

How does fracking impact on a landowner’s rights?

Announcing the Government’s consultation proposals concerning fracking in 2014, the then Energy Minister, Michael Fallon, said: “Britain needs more home-grown energy”. He added: “These proposals allow shale and geothermal development while offering a fair deal for communities in return for underground access at depths so deep they will have no negative impact on landowners.”

Access

The horizontal nature of shale gas exploration means that whilst the vertical well-head may be in one location, the actual fracturing of the shale rock may occur some distance from that location. Inevitably, this leads to the pipelines passing through land owned by others, albeit often at a depth of a few kilometres beneath the surface.

The general rule at common law, with regards to land ownership, is that the person who owns the surface of a piece of land also owns the strata that exists beneath the surface. This is unless the rights have been sold separately from the land. However, by virtue of the Petroleum Act 1998, petroleum rights, including deposits of natural gas belong to the Crown. Operators are required to obtain a licence from the Government to search for and produce oil and gas. This is in contrast to the US, where landowners own sub-surface mineral rights. Operators in the US are required to gain permission from the landowner to conduct fracking operations under their land. However, the rapid spread of fracking in the US would suggest that landowner opposition to fracking operations has been minimal.

In the 2010 Supreme Court case of Star Energy Basin Ltd v Bocardo [2010] UKSC 35, it was held that an operator of a fracking project would be committing trespass unless he had received permission from the landowner to drill underneath their land. Bocardo’s claim for damages arose from the fact that Star Energy had, without Bocardo’s knowledge or consent, drilled a well from their own land through Bocardo’s land to access an oil deposit under Bocardo’s estate in Surrey. Despite the fact that the event giving rise to a claim of damages was trespass, the measure of damages was not decided within the common law of trespass. It was the view of the Supreme Court that compensation in such circumstances should only be nominal. The damages awarded were only £1,000 due to the trespass having no tangible effect on the landowner’s enjoyment of the land, as it had occurred two or three kilometres beneath the surface. The damages centered around what the Court assessed as proper compensation to be paid by Star Energy, to secure its right to install deviated wells and pipelines under Bocardo’s land, the only real hurdle to which was securing the necessary licence to search, bore for and extract petroleum.

Accordingly, prior to the enactment of the Infrastructure Act 2015, the law required a fracking operator to acquire the landowner’s permission to drill under their land and was required to compensate the landowner accordingly. This mirrored the position in the US. If the operator was refused such permission by the landowner, the operator had to apply to gain rights pursuant to the Mines (Working Facilities and Support) Act 1966. If an application was necessary under the 1966 Act, the operator would have to show that they had been unable to obtain the rights by negotiation, because the landowners had unreasonably refused to grant them, or there was a practical reason why they could not secure them, such as being unable to identify the individuals concerned. Their claim would be assessed by the High Court, who would also determine the amount of compensation payable.

Section 43 of the Infrastructure Act 2015 provides that there is now a right to drill for oil or gas at a depth of at least 300m below the surface. This effectively removes the need to gain consent from the landowner to access land at a depth below 300 metres. The requirement to acquire the consent of the landowner to access land at the surface and down to a depth of 300 metres remains and the landowner would require due compensation.

For a landowner, the issue of access must be duly considered where the requisite consents and licences have been granted to a fracking operator. If necessary these should be separately negotiated. This will include such factors as the nature, extent and duration of that access, as well a payment in respect of that access being granted.

Payment

Sections 45 to 47 of the Infrastructure Act 2015 gives the Secretary wide ranging powers to make regulations which require fracking operators to make payments and provide notices to landowners and “to other persons for the benefit of areas in which relevant land is situated”, where fracking operations are to take place. As it stands there is no automatic right to compensation for an individual landowner. Voluntary notice and payment schemes already exist, but Sections 45 and 46 provide another means of setting up such schemes, if the existing voluntary schemes prove insufficient.

The initial indications were that communities affected by fracking operations would receive a payment from the operator in return for access. This position has changed since the Prime Minister announced the creation of the Shale Wealth Fund. This is a fund designed to share the proceeds of the fracking revenues with community trusts, local authorities and directly with residents of areas affected by fracking operations.

It also been announced by Jim Ratcliffe, the Chairman of INEOS, that the chemical multinational at the forefront of the UK fracking drive will give 6% of its Shale gas revenues to homeowners, landowners & communities affected by the fracking operations of INEOS, including 4% to landowners directly above the wells. Jim Ratcliffe stated: “This is a game changer for Britain’s Shale gas industry. Giving 6% of revenues to those living above Britain’s shale gas developments means the rewards will be fairly shared”.

These factors combined are designed to ensure the economic benefits from fracking operations are shared with those that are directly affected and that landowners are justly compensated for fracking operations that may adversely affect their enjoyment of their land. This is particularly valuable to landowners where no agreement has been reached with the operator for the payment of compensation, as under the statutory route, only nominal compensation might be available to landowners.

Conclusion

In contrast to the rapid growth of fracking in the US, the stringent regulation in the UK is likely to produce a more measured progression. The regulatory framework is likely to ensure that landowners are kept suitably informed and are fairly compensated when necessary. It is also likely, given the current controversy surrounding fracking, that operators will be quick to ensure that suitable agreements regarding access and compensation are reached with landowners.

Landowners should not be put into a position where they could be held liable for any potential environmental issues derived from fracking operations on their land. The nascent status of fracking in the UK and the contrasting information currently available in the public domain mean that it remains to be seen whether the environmental concerns prove accurate. However, such concerns will no doubt be addressed throughout the course of the planning and permitting process and via a continuing dialogue with landowners and local communities affected by fracking operations.

Given the UK’s current over-reliance on gas imports and the Government’s extant disposition towards renewable energy, it is likely that fracking operations in the UK will grow. Consequently, the balancing act between the UK’s need to produce cost effective energy, the rights of landowners and public opinion will become increasingly visible. The inevitable impact on the UK’s renewable energy sector and the UK’s climate change commitments will also garner considerable scrutiny.

For more information please contact Ben Sharples on ben.sharples@michelmores.com or 0117 906 9303

With National Pro Bono Week starting on the 5th November, I thought it timely to share my experiences working as a trainee for this worthwhile pursuit. The numbers of pro bono hours undertaken by city firms has been dropping year on year, but it is encouraging to see that Michelmores retains a strong commitment to pro bono work. With Legal Aid cuts being announced all the time, the need to provide a pro bono service is certainly topical.

So, one Thursday morning I was sat at my desk getting on with some work, when I noticed David Howe, our head of property, standing next to me, asking the loaded question: ‘have you got any plans for tonight?’. What we were going to do, he explained, was to go on a site visit. The property team are involved in providing pro bono advice to a community association in a small village. We were to meet some of the committee this evening, and to look at the property they had recently acquired. David explained that some works needed to take place which would need to be carefully examined as, after the visit, I would be drafting an appropriate Deed of Mutual Easement for the parties involved. He handed me the file to read and asked me to meet him at 5pm.

We drove down to the village together and met some of the members of the association, who were extremely nice, and didn’t seem to mind the tag-along trainee! It was a really good feeling to be spending an evening with such lovely people who were all working together to pursue a benevolent cause. Not only that, but I was able to watch one of the most respected lawyers in the property world relate to clients and answer difficult legal advice. It also punctuated the importance of site visits; it really is worthwhile to look at a property physically rather than just looking at the boundaries ‘edged red’ on a title plan.

I have been given more work to do on this matter and am excited to see it progress. The National Pro Bono Week is held to celebrate the involvement of solicitors who give up some of their time to provide their services for free for the sake of the public good, and I am very proud to be involved in this with Michelmores.