Last week Steve Quartermain issued his final letter as Chief Planner. It would usually have contained some reflections on his time in Central Government, but it was largely taken up with his thoughts on Coronavirus (COVID-19).

The letter was positive and informative, showing real concern to ensure that emergency changes to the planning system gain as wide an audience as possible. I will run through some of the changes and Steve Quartermain’s thoughts, in his own words – but first to quote directly from the final part of his letter:

“Planning is a wonderful profession and we have great people doing a great job. Be practical, be pragmatic and let’s plan for the recovery.”

Steve Quartermain, the nation’s senior planner, is clearly proud of the planning profession and his thoughts and comments make it clear that he considers that the planners will lead the recovery.

PLANNING UPDATE – 30 March 2020

Decision Making

Some councils are concerned about the implications of Coronavirus for their capacity to process planning applications within statutory timescales. It is important to prioritise decision making to ensure the planning system continues to function, especially where this will support the local economy.

Use all options to continue your service and explore every opportunity to use technology to ensure that discussions and consultations can go ahead.

Consider delegating committee decisions where appropriate. The Government has confirmed that it will introduce legislation to allow council committee meetings to be held virtually for a temporary period, which we expect will allow planning committees to continue.

Be pragmatic and continue, as much as possible, to work proactively with applicants and others, where necessary agreeing extended periods for making decisions.

There may be circumstances where a local planning authority is unable to consider a permitted development prior approval application within the deemed consent period. It remains important to prioritise these so that important economic activity can continue.

Enforcement

A Written Ministerial Statement was published on Friday 13 March which urges local planning authorities to apply pragmatism to the enforcement of restrictions on food and other essential deliveries at this time.

Local planning authorities should also use their discretion on the enforcement of other planning conditions which hinder the effective response to Coronavirus (COVID-19).

Planning Inspectorate guidance

The Planning Inspectorate (PINS) has published guidance on how it will continue to carry out its duties under the Town and Country Planning Act 1990, the Planning and Compulsory Purchase Act 2004 and the Planning Act 2008. While some site visits, hearings, inquiries and events will have to be cancelled or postponed, PINS is considering alternative arrangements where possible.

PINS will keep its guidance under review, which could change at short notice to reflect the Government’s wider advice. It is sensible to check the PINS website regularly for updates.

Ministry of Housing, Communities and Local Government Planning (MHCLG) casework

The Planning Casework Unit (PCU) at MHCLG will be continuing to deal with its regular range of cases. However, PCU will not be able to receive or process hard copy correspondence.

All correspondence for the PCU should be sent electronically to:

• PCC@communities.gov.uk for recovered appeals and applications which have been called in by the Secretary of State.
• PCU@communities.gov.uk for all other case types.

Local planning authorities should help to publicise this.

Permitted Development Rights

The Government has made clear that all pubs, restaurants and cafes should no longer be open for on-site consumption, but can remain open to provide a takeaway service for hot food – a permitted development right (PDR) which came into force at 10am on Tuesday 24 March for a 12-month period.

To support pubs and restaurants and ensure access to food during the emergency period, this new national PDR will enable pubs, restaurants and cafes to operate temporarily as hot food takeaways (A5 use class). To give greater flexibility, the PDR will also seek to cover cold and pre-prepared food for takeaway and delivery. The pub, restaurant or café will remain in its current use class during this period.

Conclusion

The letter goes on to add details for plan-making, neighbourhood planning referendums, neighbourhood planning, and new burdens funding. But the most useful revisions are, I hope you agree, set out above.

Steve Quartermain is firm in his belief in the planning system and those who work in it.  There is a renaissance coming once the Coronavirus dam breaks. The pent-up demand and desire will result in great design, statement buildings and targeted local delivery.

And it will be planners in the vanguard.

If you would like to discuss any of the issues raised in this article, or have other concerns about the impact of Coronavirus, please contact Mark Howard, Partner and Head of Michelmores’ Planning team.

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This article is for information purposes only and is not a substitute for legal advice and should not be relied upon as such. Please contact our specialist lawyers to discuss any issues you are facing.

BREAKING NEWS for employers 27 March 2020

On 26 March, the Government issued further details in respect of the Coronavirus Job Retention Scheme (‘the Scheme’). At the moment, we are waiting to see whether this guidance will be the only basis of HMRC’s implementation of the Scheme, or whether legislation will be enacted in addition to this.

When is the Scheme going to be operational?

The Government expects the Scheme to be up and running by the end of April.

What are the eligibility criteria for employers who wish to make a claim?

Any UK organisation with employees can apply, including:

• Businesses
• Charities
• Recruitment agencies (where agency workers are paid through PAYE)
• Public authorities.

To qualify, the organisation must have created and started a PAYE payroll scheme on or before 28 February 2020 and have a UK bank account.

Where a business is being taken under the management of an administrator, the administrator will be able to access the Scheme.

Which employees are eligible for the Scheme?

The rumours were true – although many lawyers and barristers found no evidence of the ’28 February 2020′ rule, and it was presumed to be ‘fake news’, the Government has confirmed that, in order to be eligible for furloughing, an employee must have been on an organisation’s PAYE payroll on 28 February 2020. Employees hired after 28 February 2020 cannot be furloughed in accordance with the Scheme.

The guidance confirms that furloughed employees can be subject to any type of contract, including:

• Full-time contract
• Part-time contract
• Agency contract
• Flexible / zero-hours contract.

The Scheme also covers employees who were made redundant since 28 February 2020, if they are re-hired by their employer.

Is there a minimum period of time for which employees can be furloughed?

Yes. Employees must be furloughed for a minimum of three weeks.

Does the Scheme cover employees who have already been made redundant as a result of Coronavirus (COVID-19)?

Yes, it can. The Scheme covers employees who were made redundant since 28 February 2020, IF they are re-hired by their employer.

Do we have clarity on the application of the £2,500 monthly wages cap and the calculation of wage costs?

Employers will be able to claim for 80% of furloughed employees’ usual monthly wage costs, up to a cap of £2,500 a month, plus the associated Employer National Insurance contribution and minimum automatic enrolment employer pension contributions on that wage.

For full-time and part-time salaried employees, the employee’s actual salary before tax, as of 28 February 2020, should be used to calculate the 80%. The Government has stated that commission and bonuses should not be included, which is rather surprising, and further guidance on this would be useful.

For employees whose pay varies, the following applies:

• If an employee has been employed for a full 12 months prior to the claim, the employer can claim for the higher of either the same month’s earnings from the previous year, or the average monthly earnings from the 2019-20 tax year.
• If an employee has been employed for less than a year, you can claim for an average of their monthly earnings since they started work.
• If an employee only started work in February 2020, a pro-rated calculation of their earnings to date should be used.

The Government has indicated that it will issue more guidance on how employers should calculate their claims for Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions, before the Scheme becomes live.

Do the usual income tax and other deductions apply to the 80% wage?

Yes. Whilst on furlough, an employee’s wage will be subject to the usual income tax and other deductions.

Does the optional 20% ‘top-up’ from employers still apply?

Yes. Employers can choose to provide top-up salary in addition to the monies provided through the Scheme. However, it is important to note that Employer National Insurance Contributions and automatic enrolment contribution on any additional top-up salary will not be funded through this Scheme, neither will any voluntary automatic enrolment contributions above the minimum mandatory employer contribution of 3%.

Is the 80% rule subject to the National Living Wage / National Minimum Wage?

Individuals are only entitled to the National Living Wage / National Minimum Wage (NLW / NMW) for the hours they are working.

As a result, furloughed workers, who are not working, must be paid 80% of their salary, subject to the £2,500 cap, even if, based on their usual working hours, this would be below NLW / NMW.

Can an employee continue to work for the organisation whilst on furlough?

No. In order to be eligible for the Scheme, an employee cannot undertake work for or on behalf of the organisation. This includes providing services or generating revenue.

However, a furloughed employee can take part in volunteer work or training, as long as it does not provide services to or generate revenue for the employer.

If employees are required to e.g. complete online training courses whilst they are furloughed, then they must be paid at least the National Living Wage / National Minimum Wage for the time spent training, even if this is more than the 80% of their wage that will be subsidised.

Will the Scheme apply to those employees who have been put on reduced hours?

No. Employees on reduced hours / short-time working will not be eligible for the Scheme.

How do employers communicate a decision to furlough to their employees?

Employers should write to the relevant employees, confirming that they have been furloughed, and keep a record of this communication. When employers are making decisions in relation to the process, including deciding who to select for furlough, equality and discrimination laws will apply in the usual way.

We have had a number of enquiries regarding selection of employees for furloughing. Rather like redundancy selection, we would advise you to base it on objective criteria where possible. Otherwise, in a situation where an employee moves from furlough to redundancy, they might question their selection for furlough, which has, in turn, made them more vulnerable to redundancy. As always, we would advise that you are alive to risks in respect of those who have protected characteristics, such as disability, sex or age.

Can employees on unpaid leave be put on the Scheme?

Yes, as long as they were placed on unpaid leave after 28 February 2020.

Can employees on Statutory Sick Pay be furloughed?

Employees who are on sick leave, or self-isolating, should continue to be paid Statutory Sick Pay until they cease to do this, at which point they can be furloughed.

Importantly, employees who are shielding in line with public health guidance can be placed on furlough.

What if an employee has more than one job?

If an employee has more than one employer, then they can be furloughed for each job. The £2,500 cap applies to each employer individually.

What happens if an employee is on maternity leave?

The Statutory Maternity Pay provisions will continue to apply as normal.

However, the guidance has indicated that, if an employer offers enhanced, earnings related, contractual pay to women on maternity leave, this is included as a ‘wage cost’ which can be claimed through the Scheme. This guidance is rather unclear, as it suggests that women on maternity leave can be furloughed, but there is no express confirmation of this, or how the mechanics would work in practice.

Public sector organisations

It is expected that the Scheme will not be used by many public sector organisations, given that the majority of their employees will continue to provide essential public services during the Coronavirus outbreak.

Where organisations receive public funding for staff costs, and that funding is continuing through the crisis, the Government expects employers to use that money to continue to pay staff and not furlough them. Importantly, this also applies to non-public sector employers who receive public funding for staff.

Finally, organisations which are receiving public funding specifically to provide services in response to Coronavirus (COVID-19) are not expected to utilise the Scheme.

How can I claim under the Scheme?

To claim, employers will need:

• ePAYE reference number.
• The number of employees being furloughed.
• The claim period (start and end date).
• Amount claimed (per minimum length of 3 week furloughing).
• Bank account number and sort code.
• Contact name and phone number.

Employers will need to calculate the claimed amount themselves. HMRC is retaining the right to retrospectively audit submitted claims.

Employers will only be able to submit one claim every three weeks (in line with the minimum period of furlough leave). Claims can be backdated to 1 March 2020, if applicable.

Once HMRC has received the claim, and confirmed eligibility for the grant, it will pay the monies via BACS payment into a UK bank account.

OTHER UPDATES

Coronavirus Act receives Royal Assent

On 25 March 2020, the Coronavirus Act 2020 received Royal Assent.

In essence, it consolidates many of the measures which have already been announced by the Government in response to the virus but, until this point, were not strictly law.

The Act includes the following provisions:

• Modification of the Statutory Sick Pay (‘SSP’) regime, so that SSP is payable from the first day of sickness or self-isolation, and can be funded by HMRC; and
• Creation of ’emergency volunteering leave’, which will enable individuals to take time off work to volunteer in health or social care, and receive compensation for loss of earnings (more about this, below).

The majority of the Act is now in force, but the SSP rule changes and the emergency volunteering leave provisions both require secondary legislation. In essence, the Coronavirus Act gives Ministers the power to make appropriate regulations. As a result, although the above provisions are technically in force, nothing will change until the secondary legislation is made.

The Act provides that ‘temporary’ provisions, such as those relating to SSP and the right to emergency volunteering leave, will automatically expire after two years. Important to note, however, is that the protection from detriment and dismissal for having taken emergency volunteering leave, as well as the protection of employees’ terms and conditions of employment, will not automatically expire.

Emergency Volunteering Leave

This has been introduced to allow workers to temporary leave their normal job and volunteer for the NHS or social care sector. The scheme has had an unprecedented response, with over 400,000 individuals signing up in the first 24 hours since the announcement.

An ‘appropriate authority’; for example, a local authority, an NHS Commissioning Board or the Secretary of State for Health and Social Care, can certify an individual to act as an emergency volunteer. Subsequent to this, the individual will be able to take the leave if they provide their employer with three working days’ notice, and the certificate.

Individuals can take one period of leave during the ‘volunteering period’, which is one 16 week period beginning on the day that the relevant provisions in the Act are brought into force. The period of the individual’s leave must be either two, three or four weeks’ long. There is no provision for employers to refuse leave.

There is no obligation, during such a period of volunteering leave, for you as an employer to pay wages. However, an employee on emergency volunteering leave will be entitled to the following:

• The benefit of all the terms and conditions of employment (except remuneration) which would have applied had the employee not been absent.
• A right to return from leave to the job in which he or she was employed before the absence, on no less favourable terms and conditions.
• Protection from detriment / dismissal, in that it will be unlawful to subject an individual to a detriment for having taken (or sought to take) emergency volunteering leave, and it will be automatically unfair to dismiss an employee for the same reason.

The Act requires the Secretary of State to establish arrangements for paying compensation to volunteers in respect of loss of earnings, as well as travel and subsistence expenses. Whether this will be subject to a cap is not currently clear.

Employees will not be able to apply for the scheme where they are:

• Employed by a business which has fewer than 10 members of staff
• A civil servant
• Working in legislature or
• A police officer

Updated Instructions on Business Closures

The Government has updated its instructions regarding business closures. As a result, we have amended our guidance, which was initially issued on 24 March 2020. The updated version can be found on our website by clicking here.

Changes include confirmation that planning regulations now allow restaurants, cafes and pubs to offer hot food takeaway, and there is further helpful guidance on the treatment of tradespeople who carry out work in people’s homes.

New Government Package for Self-Employed Individuals

The Chancellor has announced headline details of a new rescue package for the self-employed, as follows:

• An income support scheme will pay self-employed individuals a taxable grant worth 80% of average monthly income, capped at £2500 per month.
• This will be calculated by taking the average of income over the last three years.
• Self-employed individuals claim the grant whilst continuing to do business (the opposite of furlough leave).
• The scheme is open to anyone with trading profits of up to £50,000. This covers 95% of self-employed individuals.
• To qualify, self-employment must be an individual’s ‘main job’, in that they must make most of their income from it.
• Individuals must have submitted a tax return for 2019, or do so within four weeks from 26 March 2020.

The scheme will be open for at least 3 months, but is unlikely to be operational before the end of June. Therefore, unfortunately, it will not provide immediate help to those self-employed individuals who are struggling with cash flow.

Acas publishes new guidance on working from home

In response to the large shift in the number of employees working from home, in order to limit the spread of Coronavirus, Acas (Advisory, Conciliation and Arbitration Service) has published new guidance for employers. It covers issues such as health and safety, mental and physical health, equipment and technology and childcare issues.

The guidance can be found by clicking here.

Suspension of Gender Pay Gap reporting

In the light of the recent crisis, the Government Equalities Office and the Equality and Human Rights Commission have suspended the reporting deadlines for the 2019-20 reporting year.

Prior to this announcement, Gender Pay Gap reports would otherwise have been due from public sector bodies by 30 March, and from large private sector employers by 4 April 2020.

The Government announcement can be found by clicking here.

[Content correct as at 27 March 2020]

If you would like to discuss any of the issues raised in this article, or have other concerns about the impact of Coronavirus, please contact Rachael Lloyd, James Baker or Andrew Tobey in Michelmores’ Employment team.

CORONAVIRUS STOP PRESS – Click here to keep up-to-date with all of our latest articles.

This article is for information purposes only and is not a substitute for legal advice and should not be relied upon as such. Please contact our specialist lawyers to discuss any issues you are facing.

Coronavirus has recently been declared as a pandemic by the World Health Organisation (WHO). The status acknowledges the widespread prevalence and impact of coronavirus across the globe. Furthermore, the government has announced that up to a fifth of the UK workforce could be off sick at its peak. Therefore, it is vital that you take steps to reduce the risk and impact on your organisation.

Job Retention Scheme

On 20 March 2020, the government announced the implementation of the Coronavirus Job Retention Scheme (‘the Scheme’), to try and help businesses and employees alike through these unprecedented times. The aim of the Scheme is to protect jobs and try to avoid redundancies.

For further detail on the Job Retention Scheme please click here.

Obligations on employers

It is important that you take a robust approach, in order to:

• protect employees and customers or clients as much as possible, by preventing the spread of infection, particularly to vulnerable people; and
• allow your business to continue to function, support your clients or customers, and minimise disruption.

In determining a response to the coronavirus, it is important that you have regard to your various duties, including the duty to take reasonable care of the health and safety of your workers, and other responsibilities under legislation such as the Equality Act 2010.

Business continuity and ‘flattening the curve’: practical steps

Practically, there are number of sensible strategies you should consider adopting, as follows:

• keeping up to date on government guidance and communicating this to employees;
• ensuring emergency contact details of employees are up to date;
• reminding employees to notify HR if they have been to a Category 1 or Category 2 area (as defined by Public Health England), have been in contact with a person who has been to a high risk area or has symptoms of coronavirus, and self-isolate according to government guidelines in force at the time;
• reinforcing government advice regarding self-isolation when displaying symptoms consistent with coronavirus;
• updating policies and procedures in relation to flexible working, homeworking and sickness absence;
• ensuring employees can work effectively from home (where possible);
• carrying out risk assessments (e.g of events or the workplace); and
• displaying signs encouraging preventative measures (e.g. hand washing).

Employee absence and application of Statutory Sick Pay (SSP)

In the light of the coronavirus pandemic, there have been changes to the sick pay provisions, as follows:

• emergency legislation will be fast-tracked, making SSP payable from the first day of sickness absence (rather than the fourth, as would be usual);
• small employers (with fewer than 250 employees) will be reimbursed for any SSP paid to employees in respect of the first 14 days of sickness which is related to COVID-19;
• a temporary alternative to the ‘fit note’ will be introduced in the coming weeks which can be used for the duration of the COVID-19 outbreak. This will enable those who are advised to self-isolate to obtain a notification via NHS 111 which they can use as evidence for absence from work.

SSP is currently £94.25 per week and will apply as follows:

Business sustainability: alternatives to business closure

Can you require some / all of your employees to take annual leave?

Under the Working Time Directive, employers have a right to require employees to take holiday on specified dates. However, the legislation prescribes that the notice an employer must give in respect of this is at least twice the length of the period of leave that the employee is being ordered to take. For example, if you require an employee to take two weeks’ annual leave, you must give them at least four weeks’ notice. Notwithstanding this, we consider that, particularly in the current circumstances, it would be open to you to try and agree specific annual leave with employees without providing the requisite notice.

The Working Time Directive does not require you to take the needs of employees into consideration when requiring holiday to be taken at specific times. However, you should be mindful that an employer which exercises its discretion unfairly, may give rise to potential claims from employees for breach of the implied contractual duty of trust and confidence. The employee could also resign in response to your actions, and claim unfair constructive dismissal. Therefore, we would encourage open and collaborative conversations with your employees about this issue, to facilitate staff engagement and limit the risks of any claims.

Can you enforce ‘short-time working’ / reduction in hours?

In some industries, it is common for contracts of employment to include a provision entitling employers to put employees on short-time working. Essentially, this means providing employees with less work (and less pay) for a period. Unlike redundancy, it is a temporary solution to the problem of a reduction in work.

If you have contractual provisions in your employment contracts which allow for short-time working, then these will be useful to exercise in the event that you either experience a downturn in business due to the economic impact of the virus, or wish to take steps to limit the spread between employees and customers/clients.

If you seek to enforce such provisions for which you do not have a contractual right, then you do risk claims for breach of contract, unlawful deduction of wages or constructive dismissal. The best approach in this situation is to try and agree any temporary change / reduction in hours with your employees and, wherever possible, keep a written record of their agreement or, at the very least, a note of a telephone conversation in which they verbally consented. Employees may well appreciate this measure as a delaying mechanism for potential redundancies further down the line.

Business closure

If a customer / employee has confirmed or suspected Coronavirus, do you have to close?

According to current government guidance (although this is subject to change), even if a member of the public or an employee with confirmed coronavirus has recently visited your premises, closure of the workplace is not automatically necessary. In this scenario, a Local Health Protection Team from Public Health England will contact your management team to undertake a risk assessment and provide advice on any actions or precautions which need to be taken.

If your business is closed for a period, what is the position regarding the payment of employees?

In circumstances where there is a closure of your business due to COVID-19 (whether by choice or further to direction from Public Health England), this will not normally affect your obligation to pay your employees full pay (assuming they are ready and willing to work and not, for example, sick and receiving company / statutory sick pay). However, it is clear that, if a business is forced to close down and revenue is cut off, but it is still required to continue paying employees, this could cause significant economic hardship and could even lead to permanent closures and redundancies in the long-term.

As with short-time working, some industries routinely include contractual provisions entitling employers to ‘lay off’ employees. Laying off employees means that the employer provides employees with no work (and no pay) for a period. In much the same way as short-time working, this is a temporary solution to the problem of a reduction / cessation in work.

If you have contractual provisions in your employment contracts which allow for lay-offs, then these may be useful to exercise in the event that you have to close your business for a temporary period.

If you do not have such contractual provisions and seek to enforce lay-offs in any event, there is a risk of claims for breach of contract, unlawful deduction of wages or constructive dismissal. As with short-time working, the best approach in this situation is to try and agree any temporary lay-off with your employees and, wherever possible, keep a written record of their agreement or, at the very least, a note of a telephone conversation in which they verbally consented.

HR issues: common questions

What if an employee refuses to follow hygiene rules?

In these circumstances, you are likely to be entitled to take disciplinary action. Disciplinary action could be taken on the basis that the employee has failed to follow a reasonable instruction by management.

What if an employee does not want to attend work?

If an employee refuses to attend work due to concerns of contracting the coronavirus, they are not legally entitled to SSP (see above).

If there are particular genuine health and safety concerns, you should try to resolve these and, if possible, offer alternatives such as remote / flexible working. If an employee still refuses to work, you may wish to consider permitting unpaid leave or holiday.

Notwithstanding the above, you should be mindful of those employees in ‘high risk’ categories (such as those over 70, or with underlying health conditions) and their possible concerns about attending work in the light of this. There is potential that, if you reduce / withhold pay as a result of their decision not to attend work on account of their risk status, then you may open yourself to potential discrimination claims.

How should you deal with cancelled annual leave?

It is important that you consider forward planning in terms of annual leave. In the short to medium term, a number of employees are likely to cancel annual leave requests (as a result of cancellation of flights and the closure of destinations). In the long term, once travel restrictions are lifted, you are likely to receive an influx of annual leave requests for the remainder of the holiday year.  You should ensure that your holiday policy is applied in a transparent, fair and consistent manner to avoid potential employee dis-engagement.

Is there anything else you need to consider as a result of employees working from home?

Even if employees are working from home, you are still responsible for their welfare, health and safety, “so far as is reasonably practicable”.  As a result, you should consider carrying out risk assessments of homeworkers to identify hazards and the degree of risk.  This is particularly important in relation to those employees with disabilities, who may require reasonable adjustments to be made.

This advice is accurate as at 17 March 2020.

For more information, please speak Rachael Lloyd or James Baker in the Employment team.

The legal profession has not been left untouched by Coronavirus and the ramifications of social distancing policies has led to various questions being raised with governing bodies, guidance being updated and best practice policies clarified.

Our team is busy updating clients in these challenging and uncertain times. We list below a number of points that might be useful.

UK Residence

A crucial question from some clients who may now be required to stay in the UK for longer than planned is whether and how this will affect their UK residence status for tax purposes. Helpfully, HMRC have updated the guidance on the Statutory Residence Test (SRT) which has extended the ‘exceptional circumstances’ to cover Coronavirus (COVID-19). The guidance states:

“Where an individual is unable to leave the UK as a result of being quarantined, self-isolated in the UK, being asked by the employer to return to the UK temporarily, being advised not to travel from the UK as a result of the virus or due to closure of international borders, such circumstances can be considered as exceptional, and any days spent in the UK can be disregarded for SRT purposes.”

This will provide some comfort for those individuals who do not wish to become UK tax resident, yet are currently unable to return to their country of residence.

The Foreign and Commonwealth Office advised against non-essential foreign travel on 17 March, and so our assumption is that individuals in the UK on that date, who then could not travel to a home jurisdiction as a result of that advice, would benefit from the exceptional circumstances exemption now included in the guidance.

Wills

Our team has seen an increased demand for wills. The signing of a will by the testator, and the witnessing of it by two independent witnesses, is an issue given the updated guidance which does not allow gatherings of more than two people (the signing of a will requires three people as a minimum). We have not yet introduced electronic wills in the UK, as the US have done. The Law Commission ran a consultation on the reformation of the law governing wills, which closed in November 2017, and has said that it would like to pave the way for electronic wills, however, this project is currently on hold and there is no indication as to when it may be re-visited.

The Solicitor’s Regulation Authority has had to answer various, urgent questions on this point, such as “what should I do if I cannot witness a will in the client’s presence?”  The given answer to that included determining whether the client has neighbours who could witness the signing at a distance or whether the attestation clause could be amended to cater for current circumstances.

As a practical response to this issue, we have helped clients execute documents by the testator signing in a car or by a house window, with witnesses standing two metres away outside, but with clear visibility of the testator signing his name. We are finding creative ways to work with the current rules to help clients, and it may be that these types of measures will need to be taken more regularly for the time being. The necessity of such steps having to be taken will add weight to the argument that the law surrounding wills and how they are executed ought to now be revised and brought into line with modern practice. Please do let us know if you have any questions.

Charities

The Charity Commission has released COVID-19 guidance for the charity sector . This will be added to over time and after relevant consultations. Included in the guidance is confirmation that charity trustees can hold virtual meetings, but they should check if there is provision to do so in the governing document. Where there is no such provision, the decision to hold a virtual meeting should be documented. It should also be determined if amendments could be made to the governing document to allow the use of telephone facilities or virtual meetings going forward.

If you would like to discuss any of the issues raised in this article, or have other concerns about the impact of Coronavirus, please contact Jennifer Ridgway, Partner and Head of Michelmores’ Tax, Trusts & Succession team.

CORONAVIRUS STOP PRESS – Click here to keep up-to-date with all of our latest articles.

This article is for information purposes only and is not a substitute for legal advice and should not be relied upon as such. Please contact our specialist lawyers to discuss any issues you are facing.

Will Coronavirus delay my conveyancing transaction?

In line with Government guidance we are continuing to operate on a remote working model which has been tested for the past three weeks. Michelmores’ Conveyancing team are working from home and we do not anticipate that this will impact adversely upon your transaction.

We continue to be available via email, telephone and the usual postal system.

We are noticing some slightly increased turnaround times where documents are required to be posted but, as far as possible, we will try to deal with matters via email.

What will happen now that the UK has been put into ‘lockdown’ and I cannot move?

Under the current lockdown provisions it is likely moving into your new property will not be considered ‘essential movement’.

Under the terms of the Law Society’s Standard Form of Residential Conveyancing Contract a Seller is required to give vacant possession upon completion and therefore the Seller would effectively be in breach of Contract.

However, the Heads of Conveyancing in the local area have agreed to adopt a reasonableness approach in these unusual circumstances in order to achieve the best possible outcome for all parties.

The Law Society’s Conveyancing Protocol requires that all Solicitors:

• Act with courtesy and co-operate with third parties and;
• Maintain high standards of courtesy and deal with others in a fair and honest manner.

The legal position is that if completion does not take place when contracts have been exchanged due to the effects of Coronavirus, then the parties who were unable to complete would be in default, however, whilst the contract provisions would still apply, it is possible for the non-defaulting party (most likely to be the buyer) to take a ‘good faith view’.

It will be at the discretion of the non-defaulting party as to whether they decide to enforce the terms of the Contract and serve a notice to complete. Whilst in the local area we are adopting a reasonable ‘good faith’ approach in light of the unprecedented times, we also deal with solicitors from further afield with whom the same approach has not necessarily been agreed.

The Law Society recommends that we do not make any substantial amendments to their Standard Form of Contract and therefore, in such uncertain circumstances, we do not propose drafting a Contract clause which would capture every situation. The Law Society has commented that:

“We do not consider that bespoke clauses are necessary or desirable as standard […] we do not think that we can assess the position sufficiently to attempt to provide any suitable clauses for such a wide range of potential situations.”

What aspects of my conveyancing transaction might be delayed as a result of Coronavirus?

• Searches: It is possible that your search results may be delayed. It has been reported that various Local Authority offices have been required to transfer to remote working, which we are expecting to create some delays.
• Disruption to banking systems: Exchange and completion both require the transfer of funds, and there may be some disruption to the banking system. At present, we have not experienced any difficulties.
• Requests for properties to be deep-cleaned/decontaminated could cause delays to exchange of contracts, as such services will not be considered to be essential travel under lockdown.
• Obtaining a witness to documents: A signed Contract will be required on exchange of contracts and, with your express, written authority, this can be signed on your behalf. However, we will require the signed Transfer and Mortgage Deed (if applicable) on completion. Both of these require a witness to your signature who has to be independent to you and not related by blood or marriage. We send documents to you as early as possible in the transaction and, in many cases, these will have already been returned. Please advise us immediately if you do not anticipate being able to return duly signed and witnessed documents before completion.
• Delays with the issuing of Mortgage Offers: A valuation of the property will need to be carried out before an Offer is issued. This requires a third party to enter the property you are purchasing, which may not be permitted by the Seller. Please liaise directly with the Estate Agent/Seller in this regard to establish the position before allowing a valuation to be scheduled. Some lenders are able to carry out a desktop valuation, which may mean they do not need to attend the property. You should discuss this option with your broker or lender.Due to the announcement about ‘Mortgage Holidays’ Mortgage Lenders are experiencing a high volume of calls and enquiries at present. This may delay the administrative aspects of issuing your Mortgage Offer.
• Removal Companies: It is likely removal companies will stop taking new instructions. Before exchange of contracts takes place ensure you have secured a removal company on a provisional basis to be confirmed once contracts have been exchanged, subject to the lockdown conditions in force. The British Association of Removers has instructed all members ‘only to complete any moves that are underway’ and ‘immediately cancel or postpone any move that has not yet started’. It is unlikely general house removal services will be deemed essential.
• The Seller being unable to move out of the property: Either due to self-isolation or lockdown the Seller may not be able to provide vacant possession of the property on completion. The Seller would effectively be in default as per the comments above and the Buyer would be able to claim for any loss incurred as a result of the Seller’s breach.
• ‘Signing off’ of New Build Properties: It is likely that the construction of new build properties will be disrupted due to tradesmen and building inspectors being unable to access the property and the potential closure of site offices.

What are the potential solutions?

• Simultaneous Exchange and Completion: This does not offer a great deal of certainty as there are no guarantees completion will take place on a set day until exchange has taken place. However, arranging for exchange and completion to take place simultaneously would ensure that you are not tied into a legally binding contract to complete until we can be certain there are not restrictions on your ability to move house.
• Leaving as little time as possible between Exchange and Completion: If exchange has not yet taken place it would be our advice not to exchange until the situation is more certain. If you still want to proceed with exchange and complete then we would suggest as little time as possible between exchange and completion, so that when you enter into a binding contract you can be reasonably certain of the situation at completion.
• Exchanging with a Completion Date later in the year or earlier by arrangement: There are no guarantees as to when the Coronavirus-related disruption will be resolved or when restrictions will be lifted. However, you could exchange contracts with a completion date in the more distant future or ‘earlier by mutual arrangement’ so this date could be brought forward if the circumstances allow. Please note: this would be subject to the expiry of your mortgage offer (if applicable).
• Putting Exchange on hold: As above, we are continuing to operate a remote working model and can progress your transaction over the coming weeks to the point of exchange and then agree an exchange of contracts and fix a completion date when the relaxing of the current lockdown has been confirmed.
• Exchanging to allow Legal Completion to take place: You could allow exchange of contracts and legal completion to take place at present. We are not noticing any difficulties with the banking system (but the situation is, of course, changing every day). We may be able to help you to agree a form of Licence to Occupy between buyer and seller to allow the seller to remain in occupation of the property after legal completion until the practical steps of moving out can be arranged. This may bring some welcome flexibility in these challenging times.

If you would like to discuss any of the issues raised in this article, or have other concerns about the impact of Coronavirus, please contact Louise Peters, Partner or Ellie Wonnacott, Solicitor in Michelmores’ Residential Conveyancing team.

CORONAVIRUS STOP PRESS – Click here to keep up-to-date with all of our latest articles.

This article is for information purposes only and is not a substitute for legal advice and should not be relied upon as such. Please contact our specialist lawyers to discuss any issues you are facing.

The Coronavirus is putting business tenants under intolerable financial pressure and some are finding themselves suddenly without any sales or income at all. Many business tenants told their landlords that they would not be paying their quarterly rent on 25 March; others have reached agreement to pay monthly, and still others have demanded greater concessions. But how should rural landlords react to this and how strong or weak a position are they in?

Lease forfeiture moratorium

Following the Prime Minister’s order for a lockdown, the gov.uk website says this about business leases –

Commercial tenants who cannot pay their rent because of Coronavirus will be protected from eviction, the Government has announced.

Many landlords and tenants are already having conversations and reaching voluntary arrangements about rental payments due shortly but the Government recognises businesses struggling with their cashflow due to Coronavirus remain worried about eviction.

These measures, included in the emergency Coronavirus Bill currently going through Parliament, will mean no business will be forced out of their premises if they miss a payment in the next three months …

As commercial tenants will still be liable for the rent after this period, the Government is also actively monitoring the impact on commercial landlords’ cashflow and continues to be in dialogue with them …

The amendment to the Coronavirus Bill on commercial leases will apply to England, Wales and Northern Ireland [and] to all commercial tenants …

The change will come into force when the Coronavirus Bill receives Royal Assent. It will last until 30 June, with an option for the Government to extend if needed.

The announcement was implemented by section 82 of the Coronavirus Act 2020 on 25 March.

Whilst it is clear that there is now a statutory restriction on landlords forfeiting business leases if rent is not paid, it is important to note that:

• the measure will be time-limited, even if it continues beyond June
• the liability to pay suspended or deferred rent is not eliminated – it will remain as a debt owed by a tenant to a landlord

Why is this important?

Many landlords will have no desire or intention to forfeit a lease. However, the availability of the remedy is a weapon in a landlord’s armoury, when it comes to bargaining power and the terms on which any rent concessions are negotiated.

Forfeiture is only one of the measures to which a landlord could resort, if a tenant does not pay rent; a range of other bargaining levers are still available. Even if there is further Government intervention and they are also suspended, all these remedies should become available again, when the moratorium is over.

A tenant’s opening proposal is unlikely to be its only proposal

A landlord is rarely a tenant’s only creditor. How can a landlord get to the front of the payment queue?  Often the creditor who exerts the greatest pressure is the one who gets paid first.

A tenant who says he is never going to pay the rent due from the forfeiture moratorium period may think again if he is faced with the prospect of Commercial Rent Arrears Recovery (CRAR), or any guarantee or rent deposit being called upon, or court, or insolvency action. As matters stand, none of those remedies have been suspended at the time of writing.

But what if the tenant can’t pay, or would actually rather give up the premises?  A landlord will need to make a careful assessment of the situation: Is it better to have a tenant with at least a liability to pay rent, or would it be better to get the premises back?

Record any concessions in writing

In the present circumstances, many landlords have concluded that it would not be in their own interests to take action against tenants, which might increase the chance of them not getting paid at all.

If an agreement is reached about a rent concession, it is essential to record it in writing. Indeed, many tenancy agreements will require variations to be in writing. A deed of variation is unlikely to be necessary, but many leases will require any form of divergence from existing terms to be agreed in writing and, ideally, in a single letter or other document signed by both parties, or by an exchange of communications confirming the terms.

Impose a time limit

It is recommended that any agreed concession is strictly time-limited, regardless of the Government moratorium. For example, an agreement to pay on a monthly, rather than quarterly basis, should only be agreed until the end of the moratorium period. Make sure that is documented too. No landlord will want, what it believed to be a temporary concession, being alleged by the tenant to be a permanent concession.

Don’t accept return of the keys

It is possible that as the Coronavirus crisis continues, many tenants will give up and attempt to walk away from premises. Keys are frequently handed back in the mistaken belief by tenants that they can unilaterally terminate their obligations by doing so.

Unless a landlord is sure that he wants the premises back, it should be made clear to any tenant behaving in this way that keys will be held for safe-keeping purposes only, and that the lease has not been surrendered.

Check your insurance cover

Please refer to our article: Coronavirus update – insurance implications of unoccupied premises for more information.

If in doubt about anything, take advice

If you would like to discuss any of the issues raised in this article, or have other concerns about the impact of Coronavirus, please contact Andrew Baines, Partner and Head of Michelmores’ Property Litigation team.

CORONAVIRUS STOP PRESS – Click here to keep up-to-date with all of our latest articles.

This article is for information purposes only and is not a substitute for legal advice and should not be relied upon as such. Please contact our specialist lawyers to discuss any issues you are facing.

Lease forfeiture moratorium 

Many business tenants decided not to pay their quarterly rent on 25 March; others have reached agreement to pay monthly, and still others have demanded greater concessions. Following the Prime Minister’s order for a lockdown on 23 March, the gov.uk website said this about business leases:

Commercial tenants who cannot pay their rent because of Coronavirus will be protected from eviction, the Government has announced.

Many landlords and tenants are already having conversations and reaching voluntary arrangements about rental payments due shortly, but the Government recognises businesses struggling with their cashflow due to Coronavirus remain worried about eviction.

These measures, included in the emergency Coronavirus Bill currently going through Parliament, will mean no business will be forced out of their premises if they miss a payment in the next three months …

As commercial tenants will still be liable for the rent after this period, the Government is also actively monitoring the impact on commercial landlords’ cashflow and continues to be in dialogue with them …

The amendment to the Coronavirus Bill on commercial leases will apply to England, Wales and Northern Ireland [and] to all commercial tenants …

The change will come into force when the Coronavirus Bill receives Royal Assent. It will last until 30 June, with an option for the Government to extend if needed.

The announcement was implemented by section 82 of the Coronavirus Act 2020 on 25 March.

Whilst it is clear that there is now a statutory restriction on landlords forfeiting business leases if rent is not paid, it is important to note that:

• the measure will be time-limited, even if it continues beyond June
• the liability to pay suspended or deferred rent is not to be eliminated – it will remain as a debt owed by a tenant to a landlord

How is this going to be dealt with in practice?  Forfeiture is only one of the measures to which a landlord can resort if its tenant does not pay rent.

What are the landlord’s other options if the rent is not paid?

Unfortunately, there may be landlords who are unwilling to co-operate, or to share the pain.  So far, no restriction has been announced about the following landlord remedies.

CRAR, court action and insolvency

Tenants with stock or equipment on the premises may need to watch out if a landlord threatens “Commercial Rent Arrears Recovery” (CRAR). This has to be carried out by an authorised enforcement officer (previously known as a bailiff), but it requires a pre-action notice to be sent to the tenant. A tenant will therefore have some warning that CRAR is in prospect and may be able to do something about it.

Unfortunately, there are bound to be some landlords who are so un-co-operative that they sue for the rent in order to get a court judgment, and others who may simply invoke insolvency procedures, such as winding up. However, it is often possible to stay ahead of those threats through dialogue and by making reasonable proposals.

Guarantors and rent deposits

The previous tenant, or a parent company, or the tenant’s directors or proprietors may have guaranteed the performance of the tenant’s obligations under the lease, including the payment of rent. So many guarantors may find that they are pursued for the full amount of the rent if the tenant cannot pay an instalment, or only pays part of it.

A rent deposit may have been paid, and if the landlord draws on it, the tenant may be required to top it up. If the tenant does not do that, it may give rise to a debt claim and a court judgment against the tenant, which the landlord may seek to enforce, and which would damage the tenant’s credit rating.

The debt won’t go away

Even if all the landlord remedies are suspended, they will become available again once the moratorium is over. And even if a lease has come to an end in the meantime, it will only mean that forfeiture and CRAR cannot be exercised. So tenants will need to plan what to do about deferred rent.

Talk to your landlord

Legal trouble commonly springs from tenants not telling their landlords what they are proposing to do. Therefore, any tenant wanting to defer or restructure rent payments is strongly advised to discuss the proposal with their landlord.

Walking away is rarely the answer

Tenants should not think that handing the keys back to the landlord and walking away will be an end to the matter. Unless a proper surrender of the lease is agreed, either in writing or by operation of law, a tenant (and any guarantor) will remain liable, even if a tenant thinks it has given the premises back

More drastic measures

If there really is no alternative, it is possible that Administration or a Company Voluntary Arrangement (CVA) may be the only alternative. Both procedures are part of the ‘rescue culture’ which has arisen in recent years to keep businesses going, rather than to liquidate them and kill them off.

Administration has the effect of imposing a moratorium on creditors’ actions, but if premises are being used for the business, it does not prevent the landlord from claiming on-going rent as a debt in the Administration. However, the process may create a situation in which the business can be resurrected, with a lesser burden of debt.

If there are sufficient creditors who would support a re-structuring of debts, it is possible that a CVA may be the answer. CVAs have become particularly common amongst larger retailers (Debenhams, Carpetright, and others). They work if supplier-creditors are able to out-vote landlords. Thus it has become common for CVAs to propose that all supplier-creditors are paid in full, whilst landlords are required to take a rent reduction.

See our article about managing Coronavirus disruption.

Record any agreement in writing

Whatever a tenant agrees with the landlord, it should be documented; this avoids argument later. Many leases and other contractual documents contain provisions which prevent variations (including concessions) unless they are agreed in writing.

Finally:  Speak to us

If you would like to discuss any of the issues raised in this article, or have other concerns about the impact of Coronavirus, please contact Andrew Baines, Partner and Head of Michelmores’ Property Litigation team.

CORONAVIRUS STOP PRESS – Click here to keep up-to-date with all of our latest articles.

This article is for information purposes only and is not a substitute for legal advice and should not be relied upon as such. Please contact our specialist lawyers to discuss any issues you are facing.

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.