With the ever increasing variety of websites and apps, social media cannot be ignored. More and more children are using mobile phones and opening their own accounts, so parents and schools need to understand the risks and opportunities in this ever changing area.

From a legal perspective, the key is to have a policy that works, make sure everyone knows what the policy is, to follow the policy and to have an audit trail to demonstrate that it has been followed. The single most important factor to keep in mind with any policy is safeguarding. Keeping Children Safe in Education (KCSIE) expressly state that policies should include: ‘acceptable use of technologies, staff/pupil relationships and communications including the use of social media.’ Policies need to be both taught to and accessible to students, parents and teachers. Whilst it will be for individual schools to develop their own policies, the starting point has to be to make sure that it includes the key points contained in KCSIE.

KSCIE makes it clear that ‘Governing bodies and proprietors should ensure children are taught about safeguarding, including online, through teaching and learning opportunities, as part of providing a broad and balanced curriculum.’ The sad reality is that while social media provides many opportunities for instant communication and sharing ideas, it has also become a tool used by people seeking to groom children. This can include online gaming as well.

For Governing bodies and parents, keeping up to date with the latest app is very difficult, which is why regular training is important. In addition, policies should include what the expectations are around aspects such as use of mobile phones at school and set out potential disciplinary consequences in relation to cyber bullying.

While social media does carry risks, it is also an opportunity to provide a forum for the school community to come together to share good news, celebrate success and get information out to people quickly and easily. But, again, having a policy is key.

If you require any further information about the risks of social media in schools, please do not hesitate to contact our specialist Education Law team.

The lotting of a farm for sale can be a lucrative method of realising its value. However the recent case of Baker v Craggs [2016] EWHC 3250 (Ch) shows how careful all parties and their professional advisors must be to ensure that rights of way and other easements affecting the various lots are properly granted and reserved and any plans used are detailed and accurate. If mistakes do occur, the registration gap is always lurking to catch out the unwary.

The Case

On 17 January 2012, Mr and Mrs Charlton sold off part of their farm, comprising 18 acres of fields with barns and an adjacent yard to Mr Craggs. The transfer did not reserve any right of way over the yard in favour of the sellers.

Mr Craggs’ solicitor applied to H M Land Registry to register Mr Craggs as the new owner of the farm. Unfortunately, however, the plan attached to the transfer was missing various details so the Land Registry requested a replacement and gave a deadline by which it had to be returned. The new plan was not submitted by the deadline, so Mr Craggs’ application for registration was cancelled. His solicitors subsequently reapplied for registration and Mr Craggs was eventually registered as proprietor on 16 May 2012.

In the meantime, on 20 February 2012, Mr and Mrs Charlton sold off a barn on their farm to Mr and Mrs Baker (‘Bakers’), who were also granted a right of way over the yard, already sold to Mr Craggs. The transfer of the Bakers’ Barn was lodged with the Land Registry and the Bakers were entered on the register as its proprietors with effect from 14 March 2012. The registered title for the barn showed it had the benefit of the rights granted by the 20 February transfer of the Bakers’ Barn (including the right of way over the yard). When registering Mr Craggs as the proprietor of the Farm in May 2012, the Land Registry recorded his yard as being subject to the rights granted in the transfer of the Bakers’ Barn.

Proceedings were issued on 26 March 2015. They principally raised the question of whether the Bakers had the benefit of a right of way over the yard at the farm.

The registration gap

The period between completion of the transfer of a property and registration of the new owner as registered proprietor at H M Land Registry is known as the registration gap. During this period the buyer is the beneficial, but not the legal owner of the property. The seller retains the legal ownership as registered proprietor, until the register is updated. The buyer of property is usually protected during this period from being bound by interests created after the date of completion by a ‘priority period’ given by the Land Registry. As long as the application for registration of the purchase is submitted within the priority period the buyer is usually protected.

Mr Craggs faced two problems: first, the mistake on the transfer plan meant the Land Registry required a replacement plan; and secondly, the solicitors failed to provide the new plan before the extended deadline set by the Land Registry. The registry therefore cancelled the application altogether. When a second application was submitted, it was outside the priority period.

Agreed issues

Both parties to this dispute accepted the following:

• If Mr Craggs’ application for registration had not been cancelled, but registration had been completed within the priority period, the grant of the right of way over the yard to the Bakers would have been ineffective. Mr Craggs would not have been bound by the right of way
• At the point when the Bakers applied for registration of their barn, Mr Craggs only had an equitable interest in his property, because registration at the Land Registry had not been completed
• As a result of section 29 of the Land Registration Act 2002, Mr Craggs’ equitable interest could not prevail over the grant of a right of way over the yard, unless it was ‘protected’ when the Bakers’ barn was registered. On the facts, the equitable interest could only be protected if it fell within a paragraph of Schedule three to the Land Registration Act 2002
• Paragraph 2 of Schedule 3 to the Land Registration Act 2002 identifies one of the rights traditionally referred to as ‘overriding interests’. Paragraph two sets out exceptions as to when a person in actual occupation is deemed not to be in actual occupation. And none of the exceptions to paragraph two applied
• Mr Craggs must be bound by the right of way granted to the Bakers unless:
  • Mr Craggs was in ‘actual occupation’ of the yard; and
  • his interest was not overreached

Overreaching, under the Law of Property Act 1925 s.2, conventionally involved the transfer of an interest in property from the property itself to any money or asset acquired in exchange for the property. The key effect in this case would be to subordinate Mr Craggs’ interest.

Actual occupation

On the question of whether Mr Craggs was in ‘actual occupation’ of the yard, the Judge found that although Mr Craggs was not sleeping at the property (there was no residential accommodation), he carried out substantial works to a barn at the farm and visited the farm more or less daily. It was relevant that the barn was immediately adjacent to the yard and could only be reached through it. The judge found that he was therefore in ‘actual occupation’ of the yard on the date of the transfer of the Bakers’ barn.

The judge explained his reasoning as follows:

“Where, say, someone buys and moves into a house with a drive, he can plainly be in ‘actual occupation’ of the drive as well as the house even though he does not spend much time on the drive itself or keep possessions on it.  Mere use of an access may not amount to occupation, but, where the person using a drive owns it and the house it serves, it may be proper to consider him to be occupying both house and drive as an owner-occupier. Similarly, it seems to me that Mr Craggs will have come to be in ‘actual occupation’ of the yard as well as the Craggs Barn.”

The fact that Mr Craggs was held to be in ‘actual occupation’ meant that he would not be bound by the right of way granted to the Bakers unless his interest was overreached.

Overreaching

The Judge found that the Bakers had paid the purchase price for their barn to two trustees and this meant under the Law of Property Act 1925 that any interest of Mr Craggs arising from his occupation was automatically transferred from the land to the purchase money paid to the Sellers. As a result Mr Craggs’ yard was bound by the right of way granted to the Bakers.

Conclusion

As highlighted in our article in the Autumn edition of Agricultural Lore (click here to download), the registration gap can cause a number of difficulties. In addition to a number of legal issues, there are several practical lessons from this case; first, great care must be taken when dividing a farm into several lots for sale. Plans showing the extent of each lot and the location of any rights of way or other easements must be detailed and accurate; secondly, where rights are proposed to be granted to one lot over another, the description of the burdened property should include full details of the rights to be created; rights and corresponding reservations should be included in the transfers of the affected properties; and finally it goes without saying that priority period deadlines must also be met if buyers are to be protected from being bound by unexpected interests created after completion of their purchase.

The European Commission has proposed a new Privacy and Electronic Communications (e-Privacy) Regulation (the draft e-Privacy Regulation) which would replace the current e-Privacy Directive (2002/58/EC). This is part of the EU’s Digital Single Market Strategy to increase trust in and the security of digital services. The draft e-Privacy Regulation would update current privacy laws in line with technological developments and extend its scope to all electronic communications providers. The draft e-Privacy Regulation would also align the e-privacy rules with the EU’s General Data Protection Regulation (GDPR) (as discussed in a previous article).

Currently, online privacy across the EU is covered by the e-Privacy Directive (2002/58/EC) which was implemented into our national law by the Privacy and Electronic Communications Regulations 2003. If implemented, the draft e-Privacy Regulation would be directly applicable in all Member States, ensuring that individuals and businesses in the EU would benefit from a single set of rules rather than relying on national legislation implementing the Directive.

What changes would the draft e-Privacy Regulation bring?

Extended scope

The draft e-Privacy Regulation seeks to extend the scope of protection to all electronic communications service providers, which would include WhatsApp, Facebook Messenger, Skype, Gmail, iMessage and Viber. It would also extend to interpersonal communications services that are ancillary to another service, for example a gaming app that allows users to talk to each other.

Increasing protected content

The draft e-Privacy Regulation not only extends who the rules apply to, but also what is protected. Whilst the e-Privacy Directive protected the concept of traffic data, the protected content would extend to the metadata derived from electronic communications, such as the location or time of a call. This metadata must be anonymised or deleted unless users consent otherwise or the data is required for specific purposes such as billing.

Cookies

The draft e-Privacy Regulation aims to reduce the amount of consent requests that internet users experience when visiting different websites and generally provide an easier way for users to accept or refuse the tracking of cookies.

It provides that non-privacy intrusive cookies that either (i) improve internet experience (such as saving the contents of a shopping cart) or (ii) measure the number of visitors to a website will no longer require consent from the user. This will replace the current approach which only allows “strictly necessary” cookies to be placed without user consent.

Direct Marketing

The European Commission also aims to protect users further from unsolicited electronic communication by any means.

Under the draft e-Privacy Regulation, in addition to current consent rules for unsolicited marketing, marketing callers would now also be required to display their phone number or use a pre-fix which would indicate a marketing call.

Enforcement

As with the GDPR, enforcement of the draft e-Privacy Regulation would be the responsibility of national data protection authorities. Fines for breaches of the draft e-Privacy Regulation would be significantly higher than current thresholds and would be in line with those under the GDPR as follows:

• Up to the higher of €10 million or 2% of worldwide turnover for breaches in relation to notice and consent, unsolicited communications and default privacy settings.
• Up to the higher of €20 million or 4% of worldwide turnover for breaches of confidentiality of communications, processing of electronic communications data and limits on time periods for data erasure.

What now?

The current aim is for the draft e-Privacy Regulation to enter into force on the same date as the GDPR on 25 May 2018.  One can see the benefit of aligning the two related Regulations.  This is, however, a very aggressive timescale for Euorpean legislation and there is a possibility that it will not be achieved.

What action should businesses take?

A review of marketing practices in light of the proposed changes is essential. Businesses should look out for any updated guidance from the Information Commissioner’s Office and also generally have this draft e-Privacy Regulation on their radar when reviewing their plan for complying with the GDPR. If businesses are unsure or have any particular concerns, they should seek further legal advice.

For more information please contact Tom Torkar on tom.torkar@michelmores.com or +44 (0)1392 687626

A recent judgment handed down by the Upper Tribunal has provided guidance in relation to the legal status of short-term lets out of leasehold property through Airbnb.

Although the precedent will not apply universally to all tenancies, the clause in question is a relatively common user covenant in long leases such as those commonly taken on by investors who sub-let their interest to management companies which, in turn, sub-underlet to residential tenants.

In Nemcova v Fairfield Rents, it was agreed in the lease that the property was only to be used as a ‘private residence’. The Upper Tribunal held that this covenant was breached by using the property for short-term lets that were advertised as an alternative to hotel accommodation on the internet.

Although Airnbnb refers to its arrangements as ‘home-sharing’, it is difficult to see how this sort of arrangement could overcome a lease term which prohibits use other than as a private residence. The Upper Tribunal gave guidance that a ‘degree of permanence’ is required in order to establish use as a private residence which is not met by short-term, Airbnb style lets.

Airbnb, a company that uses an online platform for users to provide travel accommodation, has established itself as one of the biggest companies in the world in recent years and has been a figurehead in the rise of the ‘Sharing Economy’.

However, public opinion on the benefits of the company has been divided. Some champion the organisation for its use of technology to cater to modern consumer demands and others deride it, both for contributing to upward pressure on house prices and for attracting loud, disreputable guests to the detriment of helpless neighbours and landlords.

The recent case has potentially given the former an opportunity to address the situation as it provides authority that Airbnb style letting will be a breach of a user covenant of this kind. Landlords now have a clear argument to prevent such use or, alternatively, have strong bargaining power to secure a premium for amending the lease.

Despite the Upper Tribunal’s emphasis that this decision was based mainly on the facts at hand, the application of this case could well be widespread. Thousands of tenants who use sites such as Airbnb to advertise their properties as holiday accommodation are undoubtedly at risk of having their leases forfeited for breach of covenant.

In light of the news, landlords and tenants alike would be well advised to check their leases for this sort of restriction and seek professional advice if clarification is needed.

This article was first published on Lexis®PSL Commercial on 5 January 2017. Click for a free trial of Lexis®PSL.

Commercial analysis: Our panel of experts considers what lies ahead for commercial lawyers in 2017.

The experts

David Thompson (DT), partner at Michelmores

Freya Lemon (FL), associate at Michelmores

Bruce Potter (BP), chairman at Blake Morgan

John Davidson-Kelly (JDK), partner at Osborne Clarke

Joanne Frears (JF), partner at Blandy & Blandy

Legal developments and practical impact

What are likely going to be the most important cases in 2017 and why?

DT & FL: Arguably the most talked-about case at present, and one that will potentially have far-reaching consequences for the field of commercial law, will be the government’s appeal to the Supreme Court in the ‘Brexit’ case, R(Miller) v The Secretary of State for Exiting the European Union). The Supreme Court has been asked to give a ruling on the following question—does the government have power to trigger Article 50, to withdraw the UK from the EU, without an Act of Parliament providing prior authorisation to do so?

In November, the High Court ruled that no such power exists ([2016] EWHC 2768 (Admin), [2016] All ER (D) 19 (Nov)). While the appeal has been heard in December 2016, judgment is unlikely to be delivered until early 2017.

The significance of this case is reflected, not least, by the record 11-strong panel of Supreme Court judges (the largest to hear a single Supreme Court appeal) drafted to hear the appeal. The outcome will influence how, when and, indeed, if Article 50 can be triggered by Theresa May’s administration. [For more information, see News Analysis: Article 50 litigation—examining the government’s appeal.]

In another landmark case, MasterCard is facing a multi-billion pound claim in the Competition Appeal Tribunal (Walter Hugh Merricks CBE v MasterCard Incorporated and Others) for damages arising on the back of a decision by the European Commission in 2007. MasterCard was held to have infringed EU law by imposing unfairly high multilateral interchange fees on cross-border MasterCard transactions.

This claim will be one of the first class-actions brought under the Consumer Rights Act 2015 (CRA 2015), which introduced a new ‘opt-out’ mechanism for claims (similar to the US model). This model allows any person (within the defined class of those who may have suffered a loss) to be automatically included in an action, unless they specifically opt-out.

The proposed class in this case is around 46 million UK consumers, meaning MasterCard is at risk of having to pay out an estimated £14bn in damages (if the claim is successful). [For more information, see News LNB News 24/11/2016 81: Specialist tribunal to hear £14bn MasterCard case in January 2017.]

2017 is also likely to see a number of other CRA 2015-based ‘test’ cases, with a number of consumer groups (including transport and passenger groups) preparing to hold businesses to account for consumer rights breaches.

JDK: The following are key:

Digital Single Market

The EU’s Digital Single Market initiative is going to have an effect on certain existing contractual agreements. For example, the proposed Cross-Border Portability Regulation would make unenforceable any contractual provisions between content owners and service providers that prevent portability.

Equally, the Commission’s Pay TV investigation may deem anti-competitive any agreements which require territorial exclusivity to be observed via implementing technical measures.

The draft Geoblocking Regulation [see LNB News 28/11/2016 96] proposes that companies cannot have different terms and conditions for consumers in different Member States for electronically provided services (such as cloud storage agreements), delivery of physical goods and services provided in the Member State of the trader (such as hotels and car hire). In addition, certain proposals require companies to enter into agreements with one another, for example the copyright proposals require information society services to enter into agreements with rightsholders. [For more information on the proposals, see News Analysis: New geo-blocking regulation on its way.]

Consumer contracts

We also expect the current trend of enforcement to continue across Europe, which has recently seen companies such as Virgin Media Ireland fined up to €225,000 for breaches of consumer law.

JF: The below cases will prove important:

• new cases around the sharing economy are likely to feature large in 2017—on the back of the Uber decision and the government’s review of working practices in the new sharing economy (due in Q1 of 2017) there will inevitably be changes to the law which will impact on businesses and commercial legal practice. [For more information, see News Analysis: Driving forward workers’ rights—Uber drivers prevail in holiday pay ruling.]
• the ICO might seem to be having a hard time keeping up with the plethora of cyber-breaches lately—it is likely that in 2017 big questions will be asked about contractual obligations imposed on companies to keep information secure and what level of privacy expectations data subjects are entitled to.

What are likely to be the most significant legislative and regulatory developments and why?

DT & FL: Significant developments include:

Brexit

In October 2016, Theresa May announced plans for a ‘Great Repeal Bill’. This is intended to repeal the European Communities Act 1972 and incorporate EU law into UK domestic law. The Bill is due to be introduced in May 2017 and will need to be ready to take effect from the day the UK formally leaves the EU. [For more information, see News Analysis: The Great Repeal Bill—a copy and paste approach to Brexit?.]

There are a number of other ‘Brexit’-based Bills in the pipeline (with numerous more to follow, no doubt). For example, the Withdrawal from the EU (Article 50) Bill in its present form will require Her Majesty’s government to notify the European Council by 31 March 2017 of the UK’s intention to withdraw from the EU. [For more information, see Practice Notes: Brexit timeline and Brexit—exiting the EU under Article 50.]

Brexit-based legislation will, inevitably, be influenced by the outcome of the Supreme Court appeal (see above) and also heavily dictated by wider political agendas. These legislative and regulatory changes will shape commercial considerations throughout and beyond 2017 —not least due to the extent to which EU and domestic trade and business laws intertwine. Many UK laws and regulations, including those relating to international movement of goods and workers, product labelling and packaging, workplace health and safety and competition restrictions, are closely linked to EU law and regulation.

GDPR

Departing from Brexit, 2016 marked one of the largest movements in data protection regulation, with the introduction of the EU General Data Protection Regulation (EU) 2016/679 (GDPR). As of 25 May 2018, the obligations set out in GDPR will be directly applicable to all EU Member States, including the UK. GDPR is more stringent that the UK’s current data protection laws (namely, the Data Protection Act 1998) and is far-reaching. Therefore, throughout 2017, anyone offering goods or services, or monitoring behaviour on anyone in the EU, will need to be aware of the changes and take steps to ensure compliance in readiness for the ‘go-live’ date in 2018. [For more information, see Practice Note:The General Data Protection Regulation.]

Modern slavery

The Modern Slavery Act 2015 (MSA 2015) is a relatively recent piece of UK legislation designed to tackle slavery, exploitation and human trafficking. It mandates for larger companies (over £36m annual worldwide turnover) to increase supply chain transparency and due diligence. In 2017, the Modern Slavery (Transparency in Supply Chains) Bill will be considered in the House of Commons—if enacted, this legislation is set to extend the MSA 2015 principles to public procurement by requiring contracting authorities to exclude economic operators who have not complied with their MSA 2015 obligations from public contract tenders. Companies who bid for public contracts will, therefore, have even more reason to adhere to the MSA 2015 requirements, or risk missing out on contract bidding opportunities.

BP: The Digital Economy Bill will be looking to increase access to fast digital services alongside enhanced protection for consumers from direct marketing, including possible personal liability for directors of nuisance calling companies. Taken together, that promises increased corporate responsibility, support for digital infrastructure and better consumer protection, all important, post Brexit, themes.

Also if you look at support for SMEs through the Small Business, Enterprise and Employment Act 2015 (SBEEA 2015) and the Enterprise Act 2016 (EA 2016)—key provisions of SBEEA 2015 became stalled after the general election, but regulations about payment practices and policies, including publication of payment performance in business to business contracts have been rescheduled for early 2017. Further regulations under SBEEA 2015, to nullify arcane bans on invoice assignment, to support funding of small businesses, also stalled after the election, but are expected to come through in late 2016/17. EA 2016 also looks to support small businesses and again has a heavy focus on redress to small businesses following late payment by big businesses, in the shape of a, still to be finalised, small business commissioner. These are measures which will encourage growth in key SME business sectors, a crucial part of a world trading post Brexit UK economy.

Where that continuity gets harder to see is in areas like trade secrets where the EU Trade Secrets Directive 2016/943/EU was adopted in June 2016, to be introduced to domestic law by June 2018. It is designed to harmonise the protection of trade secrets across the EU. At one level it is exactly the kind of legislation that businesses in or trading with the EU would want. However in a post 2019 world does the government turn its back on an imposed EU solution and say we will take our chances in every jurisdiction we want to trade in? [See, News Analysis: Shining a light on the Trade Secrets Directive.] For commercial lawyers perhaps the biggest and most obvious area where the ‘in or out’ dilemma, and the sheer confusion of agendas in 2017 will be demonstrated is the mighty GDPR. This is due to come into force in May, 2018, so 2017 will be a key year for planning and changing all the structures of data protection and the contracts that underpin them, including critically enforceable information security measures even with data processors, the mandatory reporting of data breaches to DP authorities and data subjects. The government has recognised it will have to ensure the UK meets the overarching requirements of GDPR for adequate personal data protection—it really has no choice.

The Insolvency Rules are due to be revised from April 2017 and will be a massive change to what has been a settled process for almost 30 years. While rules will be simplified, it will be an area to watch carefully. [See News Analysis: New Insolvency Rules laid before Parliament.]

Elsewhere, the details of the apprenticeship levy are due to be finalised in 2017 and the controversial Investigatory Powers Bill is expected to come into force in 2017.

JDK: The Digital Single Market proposals will constitute the most significant reforms.

JF: If anything, in the short-term, we are likely to see more regulation around doing business with Europe, and not less, as the UK is forced to jump through some extra hoops to do business in the EEA.

How is Brexit likely to affect these predictions?

DT & FL: Brexit is already playing a pivotal role in case law and in legislative and regulatory developments heading into 2017. The numbers of legislative and regulatory changes, in particular, appear only set to increase on the back of the UK’s decision to leave the EU.

The extent to which Brexit will affect GDPR and data protection regulation in the UK will depend to a certain extent on the nature of the UK’s relationship with the EU after the split. However, it is highly likely that, even if the GDPR does not directly apply post-Brexit (and the UK does not bilaterally adopt its terms) UK businesses will, to a large extent, need to continue to conform to its principles if they wish to process data relating to any person within the EU. We have previously considered the impact of Brexit on data protection in the UK.

With regard to other key developments such as those relating to consumer rights and modern slavery, Brexit should have less impact. Both CRA 2015 and MSA 2015 are UK Acts and, as it stands, will continue apply to businesses trading in the UK, notwithstanding Brexit.

JDK: Brexit could have a significant impact on the Digital Single Market proposals but how exactly they will be impacted will ultimately depend on the ‘flavour’ of Brexit. Some of the initiatives will be implemented into UK law before the UK leaves the EU so there may be little or no change to those, but there will be a question of whether the remaining 27 Member States will give reciprocity. In an extreme example, the UK could implement the Geoblocking Regulation such that UK companies are not permitted to geoblock websites from the 27 Member States, but they are permitted to geoblock UK websites.

JF: EU law has a pervasive effect on all business we do in the UK but our legal principles of forming contracts and fitness of goods and services provided under them predate the EEA. If British businesses want to continue to trade with Europe, they will have to continue to abide by its rules—which the remaining EU Member States have made abundantly clear. This should not be problematic for UK businesses, but the reality of having to continue to comply with EU regulations will be galling for those who voted to leave the EU.

Clients and business developments

How do you think the practice of commercial law is going to develop in 2017?

DT & FL: The following are important points:

International trade deals

Trade deals are likely to remain at the forefront of commercial discussions and developments in 2017. The Comprehensive Economic and Trade Agreement (CETA) was adopted by the European Council on 30 October 2016. Although not yet applied, CETA is intended to offer EU businesses more and better trade opportunities in Canada—including by removing custom duties, enhancing intellectual property rights and enforcement of those rights and ending restrictions on public contract access.

While the UK government is restricted from negotiating alternative trade agreements with other countries until it has withdrawn formally from the EU, UK businesses will be watching with interest to see if and how CETA benefits will be afforded to UK businesses post-Brexit.

The Transatlantic Trade and Investment Partnership (TTIP) is the trade deal currently being negotiated between the EU and the US. TTIP is, again, intended to promote international trade by reducing tariffs and regulatory barriers between the two trade-zones. However, many commentators predict that, following the UK’s Brexit vote and Donald Trump’s election in the US, TTIP may become grounded. Trump has been notoriously vocal in his objection to international trade deals that risk diluting the strength of American businesses.

It is important to note that, despite some trade uncertainty resulting from the UK’s impending EU departure, the UK in its own right remains a member of the World Trade Organisation (WTO), which facilitates a global multilateral trade agreement between its member countries (currently totalling 164 globally).

Business contracts

In 2017, as Brexit draws ever closer, it will become increasingly important for all businesses to consider the potential impact of the UK’s withdrawal from the EU in their contracts and wider business arrangements.

A significant volume of contracts being entered into over the next year are likely to be intended to run beyond the UK’s ‘exit’ date (the current date looks to be around March 2019). As such, businesses (particularly those trading internationally) should be reviewing their contract arrangements—to ensure potential changes resulting from Brexit are facilitated. while most core contractual principles, where contracts are subject to English law, will not be affected, elements such as termination triggers, pricing, shipping and duties and jurisdiction for bringing claims and enforcing judgments should be reviewed.

[For further guidance, see Practice Note: Brexit—the implications for contract risk management.]

GDPR

As considered above, commercial focus in 2017 will also be on GDPR, and ensuring that businesses are ready for

Starter Homes

The government has announced that construction of the first wave of Starter Homes will begin this year in 30 local authority areas, which were selected based on their potential to deliver new homes in line with the government’s objectives.

These areas will receive support from the £1.2bn Starter Homes Land Fund which was established in April 2016 to help with the remediation of brownfield sites in preparation for development. The government has stated that construction on the first sites will begin in the latter part of 2017 with new homes expected to reach the market by 2018.

Starter Homes will be available to first-time buyers between the ages of 23 and 40 with a minimum of 20% deducted from the market price. Under the scheme, house prices will be capped at £250,000 outside of London and £450,000 in the capital and purchasers will not be able resell or rent the property at open market value for five years following the initial sale.

For developers, the benefits of the Scheme include the opportunity to build on cheaper brownfield land, and exception from section 106 agreements and Community Infrastructure Levy charges so that the discount in price is made possible.

Garden Settlements

The second announcement unveiled the locations of 17 sites for new garden villages and towns. Together with the seven garden towns already announced, this has the potential to deliver 200,000 new homes.

There will be 14 new garden villages, each designed to deliver between 1,500 and 10,000 homes, which will have access to a £6m fund over the next two financial years intended to support the construction projects. Additionally, £1.4m of funding has been ring-fenced to assist the delivery of the 3 new garden towns.

The government expects more than 25,000 housing starts in garden villages and towns by 2020. Furthermore, the garden projects will have access to the £2.3bn Housing Infrastructure Fund announced by Philip Hammond in his Autumn Statement last year.

Reality check

Although this government has committed to providing 200,000 new homes by 2020, there are still serious doubts on whether this goal is achievable, given the significant acceleration in the rate of house building required.

These announcements represent a step in the right direction. However, with the government’s Housing White Paper due to be published this month, at this stage we can only hope that more comprehensive and particular details of the initiatives to bolster the housing supply are disclosed sooner rather than later.

Click here to view more information on Starter Home Local Authority Partnerships

Click here to view more information on the Garden Village Locations

Early last year, we featured an article discussing the use of end-to-end encryption, highlighting that there is a general trend in the market towards messaging services adopting this technology. This is partly in response to concerns many of us have about who can access our data. A year later, many mobile app developers (particularly those developing messaging services) are creating apps which proudly proclaim they “protect your privacy”, often by using “industry leading security measures”.

WhatsApp is one of the many messaging services using end-to-end encryption (the basic concepts of which are explained in this article). WhatsApp received a great deal of praise for using this technology, as it was seen as a step in the right direction towards respecting and enhancing its users’ privacy.

Everything is not as it seems

On 13 January 2017, the Guardian revealed that WhatsApp’s encryption technology has a back door (here). This back door enables the encryption keys used by WhatsApp (the vital pieces of digital information which enable your encrypted messages to be decrypted) to be re-generated. This ultimately means that entire conversations can be forwarded on, and viewed by WhatsApp (or a government agency). To be clear, the concern is not that a government agency can now intercept all of your WhatsApp messages, but that such an agency might put pressure on WhatsApp to use this vulnerability to hand them over (as was the case with the recent Apple/FBI iPhone hacking issue).

WhatsApp is also reported as having known about the encryption vulnerability since April 2016, but WhatsApp still states on its website that:

“… your messages are secured with a lock, only the recipient and you have the special key needed to unlock and read them”.

In my view, that this statement remains on WhatsApp’s website despite the encryption vulnerability creates a misleading impression of security.

Current communication trends

At a conference recently, WhatsApp set out its plans to formally offer a commercial messaging service. The messaging App has also “flourished” in international diplomacy situations (see here), with British government officials reported to be using WhatsApp in preference to the government’s own encryption services to communicate. WhatsApp’s messaging service was also used in the recent landmark deal made in Rwanda under which countries including the US, Japan, China and India agreed to phase out the use of HFCs (a key contributor to global warming).

Whilst many people might respond to this news with a short and to the point: “I don’t have anything to hide; I’m not that bothered“, WhatsApp’s increasing use in commerce and governmental negotiations means the messaging data passing through WhatsApp’s service is increasingly commercially sensitive and highly valuable. As the WhatsApp encryption vulnerability as well as the sensitive nature of the data passing through the messaging service is public knowledge, perhaps we will begin to see a migration away from WhatsApp towards messaging services which don’t suffer from the same vulnerability. This seems particularly likely given that current details point to the underlying encryption technology being secure, with the problem lying in WhatsApp’s implementation of that technology.

The recent case of Hibbitt v Secretary of State for Communities and Local Government (1) Rushcliffe Borough Council (2) [2016] provides some much needed guidance from the High Court on the interpretation of the Class Q permitted development rules, with judicial consideration of the meaning of ‘conversion’.

This case concerned an appeal from the decision of a Planning Inspector who confirmed the decision of the Local Planning Authority (LPA) refusing prior approval to the proposed development.

The appeal involved a basic, open sided, steel framed cattle building measuring 30m x 8m.

Class Q permitted development allows a change of use from agricultural to residential and the associated operations reasonably necessary to convert an agricultural building to a residential one. Class Q only permits the installation or replacement of windows, doors, roofs or exterior walls or connection of relevant services to the extent reasonably necessary to allow the building to function as a dwelling.
National planning policy guidance also has to be taken into account.  There are two relevant points to extract from the guidance. First, Class Q assumes the building is capable of functioning as a dwelling.

In addition, construction of new structural elements is not intended, so the building must have the structural integrity to cope with the works needed to provide for residential use. Guidance cannot bind the court, but it can be taken into account.

The inspector’s decision

The Inspector started with the premise that development rights described in Part Q relate to conversion of a building.  As such, the building must first be capable of functioning as a dwelling.  The Inspector was satisfied with the applicant’s proposal to use structural infill panels to construct walls and a ceiling within the existing frame of the building.  Further, she said that she had no reason to dispute the applicant’s claim that the frame and foundations of the building were structurally sound enough to enable the dwelling to be constructed using the existing frame.

However, the Inspector refused the appeal as the building would not be capable of functioning as a dwelling without the construction of all four exterior walls which goes well beyond what could reasonably be described as conversion.  Notwithstanding the reuse of six steel uprights as the main structural elements of the building and the retention of the roof, the works described would be so extensive as to comprise rebuilding.  The Inspector therefore concluded that the works necessary to create a dwelling from the structure on the site would not fall within the scope of that permitted under Part Q and accordingly would not be permitted development.

The appellant appealed to the High Court.

High Court decision

The Claimants argued:

• there is no need to define ‘conversion’ and the process of turning an agricultural building into a house is, by definition, a conversion;
• the existing building is structurally sound so this is not a rebuild by definition; and
• the administration of permitted development rights requires certainty which would not be achieved if an assessment of what constitutes conversion and rebuilding had to be considered in each case.

The court rejected these arguments and confirmed the decision of the Inspector for the following reasons:

• The concept of conversion is set out in the overarching provisions of Class Q itself and not in Class Q1 which sets out what is not permitted
• Conversion is a different concept to a rebuild, with the latter not being solely restricted to work carried out on a bare site. The test is one of substance as to whether the works reasonably go beyond conversion
• There is no need to define rebuild and conversion within the legislation because it is being applied by an expert audience, who know what these concepts mean and how to apply them in a planning context
• Permitted development must be construed narrowly as it is not intended to be a shortcut for complex cases.  This is a fast track system for genuine conversion of agricultural buildings and if extensive rebuilding is required, then that is a case for full planning permission and not permitted development rights.  An appropriate balance must be struck between the full planning regime and the fast track of permitted development;
• Part Q does not allow for the construction of new structural elements and that again shows a distinction between rebuild and conversion;
• Having an agricultural building as a starting point does not automatically make it a conversion and not a rebuild.  The conversion of a skeletal agricultural building into a dwelling house might involve a great deal of work, which is more akin to a rebuild than a conversion.
• A building might require extensive works to convert it into a dwelling house, but that does not necessarily disqualify it as a rebuild.  The extent of the works would clearly be relevant, but it is not going to be conclusive.

The Inspector was not challenged on her factual finding that the work constituted a rebuild and not a conversion.  This was an appeal on a point of law and it seems to be accepted that the distinction between a rebuild and a conversion is a legitimate planning judgment that is to be made in each case.

Summary

This decision seems to imply that skeletal and minimalist agricultural buildings are going to struggle to get through under Class Q permitted development rights and may require a full planning application.

Anecdotal evidence would suggest varying approaches from different LPA’s across the country. This indicates a lack of consistency in dealing
with such applications. Clearly some success has been achieved in terms of the conversion of very functional agricultural buildings, as opposed to the more traditional stone or brick buildings.  LPA’s may now rely on this High Court decision to apply policy in a much more consistent and rigorous manner.

For more information please contact Ben Sharples, Partner in the Agriculture team on ben.sharples@michelmores.com or 0117 906 9303.

Earlier this month, the High Court held that the St Ives Neighbourhood Plan which requires all new open market properties to be sold as ‘primary residences’ is lawful.

The ruling dismissed a local developer’s argument that the Plan is incompatible with article eight of the European Convention on Human Rights (right to private life) and contrary to the requirements of European Union law to consider reasonable alternatives to the Plan’s policies.

Under the Localism Act of 2011, if a referendum called in relation to a neighbourhood plan receives more than 50% of voters’ support, the policies will carry real legal weight and the local planning authority must bring them into force.

Previously, more than 80% of local residents who participated in a referendum voted in favour of the Neighbourhood Plan with many of the voters citing second home ownership as the key contributing factor to soaring house prices in St Ives. These fears are not without merit as recent statistics produced by the town council indicate that at least 25% of private dwellings in the area are classed as second homes.

Whilst the judgment will be popular amongst residents, there are concerns that the prices of existing housing stock could be pushed up as a result of the restrictions only applying to new build homes. In addition, some developers have expressed concerns that the rules could make development prospects less attractive, which could also lead to upward pressure on house prices.

The ruling will without doubt increase the likelihood that other neighbourhood plans such as the Roseland Plan and The Lyn Plan that have advocated similar policies will become law. Similar restrictions will be able to be put in place by local councils if it can be shown that the high proportion of second homes in their district is having a negative impact on the sustainability of the towns and villages in their local neighbourhood.

It will be interesting to see how the implementation of such neighbourhood policies abides with the salient government ambition to build 200,000 homes per year up to 2020, with yet another constraint on developers in the provision of houses in accordance with free market demand.

For more information please contact Lucy Smallwood, Partner and Head of the Residential Development team on lucy.smallwood@michelmores.com.

Michelmores LLP which has offices in Bristol, Exeter and London has reported a fifth consecutive year of growth as revenue nears £33m.

In the Firm’s audited results for 2015/16, it posted a nine percent rise in revenue in its last financial year, from £30.0m to £32.9m. Net profits have increased by six percent from £5.7m to £6.3m.

The Firm’s international work accounts for 10-15 percent of total revenue.

In May 2016, Michelmores’ London office relocated from Chancery Lane to larger premises at 6 New Street Square to accommodate its growing London team which has grown by 54 percent since May 2014. The move has provided a superior working environment to enable the Firm to continue to expand its presence in London.

The Firm’s Bristol office based at Broad Quay, has also seen strong growth.

Key deals for Michelmores’ Business Group included the sale of Aero Stanrew to TT Electronics as well as the Magic Seaweed sale to SurfStitch.

Recent real estate deals include the sale of New Scotland Yard to The Abu Dhabi Financial Group for £370m and acting on the site set-up and residential development at the former Television Centre at White City.

Meanwhile, the Firm’s Private Wealth team acts for a growing number of individuals, landed estates and families in business in the UK and other jurisdictions.

Eight lawyers were made up to Partner in May 2016, bringing the Firm’s partnership to 69. The total number of staff across Michelmores’ three offices is now 462.

Michelmores’ Managing Partner Malcolm Dickinson said:

“It has been another strong year for Michelmores, and whilst we continue to increase our client base in the South West, we are delighted to see the strong growth of our London and Bristol offices. This sees us competing with many of London’s top firms in terms of expertise and quality of work, which is a key part of our growth strategy.”

Essar Oilfield Services Limited v Norscot Rig Management Pvt Limited (2016)

In a decision that may come as a surprise to many, the High Court has upheld an arbitrator’s decision to allow recovery of a third party funder’s success fee from the unsuccessful party.

The claimant in the arbitration, Norscot Rig Management Pvt Limited (‘Norscot’), had been awarded more than $12m in damages by the arbitrator, Sir Phillip Otton, who also ordered the defendant, Essar Oilfield Services Limited (‘Essar’), to pay Norscot’s costs on an indemnity basis.

Norscot’s costs included a sum of £1.94m, payable by the claimant to its funder, amounting to 300% of the funder’s finance of £647,000. The terms of the funding provided for Norscot to pay either 300% of the funding advanced or 35% of the amount received, whichever was greater.

Recovery of costs under the Arbitration Act 1999

Essar challenged Sir Otton’s decision under s68(2)(b) of  the Arbitration Act 1996 (‘1996 Act’) on the basis that the arbitrator had exceeded his power giving rise to a ‘serious irregularity’. However, according to s59(1)(c) of the 1996 Act, the costs of the arbitration include ‘legal or other costs of the parties’. Under s63(3) of the 1996 Act, the tribunal has discretion to determine the recoverable costs of the arbitration on such basis as it sees fit.

High Court decision

In the High Court, Judge Waksman QC held that the reference to ‘legal and other costs’ in s59(1)(c) was sufficiently wide to permit recovery of the third party funder’s success fee. Accordingly, Sir Otton was entitled to use his discretion to determine that the costs of litigation funding were recoverable from the defendant in this case.

Potential impact of decision

Third party funding has become increasingly popular in recent years with creative solutions facilitating access to funding. In the post-Jackson era, parties in court proceedings have accepted funding in the knowledge that any success fee is not recoverable from opponents; it must instead be paid out of damages received.

The judgment in Essar v Norscot may lead to more parties seeking arbitration clauses in their agreements. Additionally, it could cause other parties, who are most likely to be on the receiving end of a contractual claim, to steer away from arbitration for fear of a substantial costs award.

Funders who offer After the Event (‘ATE’) insurance are likely to view this development as a double-edged sword, as success fee recovery is likely to leave ATE insurers paying this as part of an adverse costs award, unless expressly carved out. This will undoubtedly have an impact on the costs of ATE insurance premiums in arbitration.

With funding costs now recoverable in arbitrations, parties and their legal representatives will have to take extra care to ensure that the agreement reached with funders is reasonable, as it will no doubt be subject to scrutiny by the other side and the arbitrator. It is inevitable in the light of the judgment that more parties will seek to recover their funding costs from the other side in arbitrations.

Finally, it is important to note that this was a case in which the defendant was ordered by the arbitrator to pay costs on the indemnity basis.

The arbitrator was critical of the defendant’s conduct and determined that Essar had intentionally orchestrated a situation in which Norscot was prevented from using its own resources to fund the arbitration. A different arbitrator in a different case could exercise his discretion in another way.

View full transcript of the court’s judgment

This article was published in CITY AM on 9 November 2016

With rising house prices and tighter commercial lending criteria it can be increasingly difficult for young people to buy a first property and get on to the housing ladder. Often the Bank of Mum and Dad will be called upon.

Parents who want to help their children are often uncertain about the best way to provide the funds, the tax consequences and the legal position of boyfriends, girlfriends, sons-in-law and daughters-in-law. For example, many parents are concerned about what would happen to the funds if their children were to divorce, or if the funds are used unwisely.

An outright gift of cash for a deposit is straightforward and relatively tax efficient. So long as the person making the gift survives seven years, the gift will be outside of their estate for Inheritance Tax (IHT) purposes on death. IHT is otherwise charged at 40% on the value of the estate above £325,000. However, an outright gift provides no means to protect this family money on divorce or bankruptcy.

An alternative approach would be for the parents to buy a property for a child to occupy. This arrangement provides asset protection but is not tax efficient. When the property is sold (assuming it has gone up in value) the gain will be subject to Capital Gains Tax (CGT) as for tax purposes it is treated as a second property. For the same reason from 1 April 2016 the higher Stamp Duty Land Tax (SDLT) rate (3% above the standard rate) applies to purchases of second properties.

For IHT purposes there is no gift so the value of the property at the time will remain within the parents’ estates for IHT purposes. If the parent dies and the value of the estate is above the IHT threshold, there will be more IHT to pay. Additionally, where there is insufficient liquid cash in the estate to pay the IHT due, the personal representatives who administer the estate might have to consider selling or mortgaging the property to raise the funds to pay that IHT.

A middle ground between these two possibilities would be for parents to lend the funds, ideally securing the money against the property by placing a charge on the Land Registry title in the same way that a commercial lender would. Usually, a family loan will be interest free.  This approach offers asset protection and tax efficiency for CGT and SDLT but not for IHT as the value of the loan will remain in the parents’ estates.

An approach which can combine the best of both worlds – the asset protection of a loan with the tax efficiency of a gift – is for the parents to gift cash to a trust. The trustees can then lend the money to the children. A gift to trust can be more tax efficient than an outright gift as not only will the funds not form part of the parents’ estates after seven years, but they will also not form part of the child’s estate.

We recently acted for a couple whose daughter was looking to buy a property with her boyfriend.  Both were in their early 20s and they had saved a small deposit between them. However, they were struggling to find a mortgage large enough to purchase a property of the size they wanted.

The daughter’s parents were happy to provide £250,000 towards the purchase but were conscious that this was a significant amount of money and that their daughter’s relationship with her boyfriend was still at a relatively early stage. They were also open to ways to reduce the size of their combined estate from IHT.

Rather than gift the funds to their daughter outright or lend the funds to her directly, the parents gave the cash to a lifetime trust of which the parents were the trustees. From there, the funds were lent to the daughter interest free to allow her to buy the property of her choice with her boyfriend.  The trustees took a second charge over the property to secure the loan.

The gift to trust was made by the mother in this case as the mother was statistically more likely to survive seven years.  So long as she does indeed survive seven years from the date of the gift, the funds will not form part of the parents’ combined estates for IHT, nor the daughter’s. This could save up to £100,000 of IHT. The trust can exist for up to 125 years and so the funds can potentially be used for future generations of the family as well without being subject to IHT. Trusts of this nature are subject to IHT charges every ten years but so long as the value of the loan is less than the IHT Nil Rate Band threshold at the time, there will be no IHT to pay.

The trust structure is also tax efficient for buying and selling the property.  As the house was purchased in the names of the daughter and her boyfriend, the higher rate of SDLT for second properties did not apply.

If the daughter and her boyfriend wish to move in the future, the sale will be free of CGT in the normal way for a principal private residence. The funds will be repaid to the trust and the charge removed at that point. If the parents (in their capacity as trustees) agree, the funds can be lent again on agreed terms to help fund the purchase of a replacement property.

Crucially, the strategy was discussed at a meeting with the parents, daughter and boyfriend at an early stage so that all could agree on what was proposed. The daughter and boyfriend were encouraged to draw up a Declaration of Trust between them to set out their beneficial ownership of the equity.  The daughter’s share of equity was larger to reflect the loan made to her from trust. The Declaration of Trust also set out how the property would be divided were the relationship to end, including provision for each party to have the option to buy out the equitable share of the other.

Regardless of how the funds are provided, where the property is to be co-owned by a partner or spouse it is important to put in a place a Declaration of Trust to ensure the division of the equity of the property, including any provision from parents, is clearly documented at the start.  Similarly, if a child purchases a property in their sole name but occupies with a partner or spouse, a formal waiver of any rights created by virtue of their occupation may be appropriate. In every case it is best to consider the rights of all involved as early as possible to avoid acrimony in future.

The Private Wealth team dealt with advising the family. The boyfriend was included at family meetings but encouraged to take independent legal advice on his position. Once the strategy was agreed, the Residential Conveyancing team dealt with the purchase of the property on behalf of the daughter and her boyfriend.

The terms of the Declaration of Trust can be reviewed in the fullness of time as circumstances change. If the relationship continues and, for instance, the couple were to marry we would suggest that they also consider drawing up a pre-nuptial agreement with the assistance of the Family Team.

For more information please contact Edward Porter, Associate in our Tax, Trusts and Succession team on edward.porter@michelmores.com or +44 (0)117 906 9312