The Home Office has increased their efforts to combat illegal working, conducting targeted raids on businesses across all industries. Between July and November 2024, 996 enforcement visits were conducted in London alone. From those visits, 770 arrests were made and 462 businesses received civil penalties of up to £60,000 per illegal worker.

With enforcement activity on the rise, businesses should take urgent action to review their processes and records to ensure that they don’t suffer disruptions or, worse, legal action when the Home Office compliance officers come a-knocking! Any business that employs staff can receive a visit from the Home Office. This is not reserved to businesses that sponsor workers or to businesses in specific sectors. ALL businesses should therefore take heed of this warning…

What steps should Employers take?

Employers need to be proactive here. We recommend they take the following steps:

• Right to Work Checks: Employers should ensure they follow the three-step process when completing Right to Work checks:

Step 1 – Obtain: You must see the worker’s original documents in person. What documents are acceptable will depend on whether the worker has a permanent or temporary right of residence in the UK.

Step 2 – Check: Conduct a check of the documents in the presence of the worker (either in person or virtually) and ensure all documents are genuine. Employers must reject documents where fraudulence is ‘reasonably apparent’.

Step 3 – Retain: Retain a clear copy of the document, noting the date of the check and who completed it.

• Maintain accurate and clear records: Having an accurate record of dates where checks were conducted and what evidence was provided is incredibly important, especially in situations where Home Office officials make unannounced compliance visits.

Being able to show clear records of all checks and evidence that you have followed the relevant guidance will prevent you from receiving civil penalties. Failing to do so or having gaps in your data will have the opposite effect and could result in severe consequences.

• Training: Training should be regularly provided to any individual who has significant involvement in the recruitment process. This should include ensuring employees familiarise themselves with what documents are acceptable as evidence of the right to work and how this differs depending on the worker’s permissions.
• Policies: Having clear accessible and up to date policies in place will equip staff in the event of an unannounced visit from the Home Office. Allowing them to effectively answer questions and work alongside Home Office officials to ensure visits runs smoothly.
• Encourage proactive communication: Employers should make all relevant individuals aware of their obligations to communicate any changes in their immigration status. As well as communicating when their permission expires and their plans to extend this prior to the expiry.
• Monitor Visa Sponsorship Obligations: If you are a licensed sponsor, you must ensure you regularly keep your Sponsor Management System (SMS) records up to date. Ensuring to report any changes, such as an employee changing roles, within the required timeframes.
• Conduct an audit: Don’t wait for the Home Office to review your documents, records, policies and procedures, conduct your own audit now:
  • Review the policies you have in place regarding recruitment, right to work checks, keeping personnel contact information up to date and managing staff that are subject to immigration control.
  • Check your training records. Are all the members of staff involved in the above suitably trained? Do they need refresher training?
  • Are your managers conducting right to work checks and visa update checks correctly? Conduct a dip sample to identify any vulnerabilities
  • Address any vulnerabilities in the above as a matter of urgency.

What are the risk for Employers?

Employers who fail to show compliance with Immigration laws face severe consequences, including:

• Financial penalties: Businesses can receive fines of up to £60,000 per illegal worker.
• Criminal sanctions: Knowingly employing an illegal migrant can be punishable by up to five years’ imprisonment and an unlimited fine.
• Sponsor Licence revocation: Failure to comply with Immigration laws can result in the Home Office revoking your sponsor licence or preventing you from gaining a sponsor licence in the future.
• Reputational harm: Information on which businesses have failed to comply with Immigration Law is publicly accessible and attracts significant media attention. This could result in your business’ reputation and relationship with others being severely damaged.

How can Michelmores help?

At Michelmores we specialise in helping businesses navigate the complexities of Immigration Law, safeguarding businesses and ensuring full compliance, including:

• Mock compliance visits: We can perform a mock compliance visit where we will review your current processes, identify any issues and work with you to provide solutions and minimise any risks.
• Advice on Penalty Notices: If your business does receive a penalty notice, we can assist you in demonstrating to the Home Office your compliance efforts to help reduce or remove the penalty notice.
• Ongoing training and support: As Immigration lawyers, we stay ahead of all the changes to Immigration laws, which means we are able to ensure your continued compliance. We can also provide you with tailored training sessions and draft up to date policies.

Many compliance visits are unannounced and being unprepared can cause your business significant issues. Do not wait for a penalty notice or a compliance visit to address any compliance issues, protect your business by having a clear plan in place.

Should you need any assistance in safeguarding your business or any questions concerning the contents of this article, please contact Lynsey Blyth.

Michelmores is pleased to have advised Cavanna Homes, the Westcountry’s leading independent housebuilder, on securing £30m of funding from Lloyds – an increase of 50% on the previous funding arrangement.

The deal marks a renewal of Cavanna Homes’ five-year revolving credit facility with Lloyds, which has been supporting the Torquay-based housebuilder with banking facilities since 2012. The new arrangement will provide Cavanna with the liquidity to keep the company safe and to support the firm’s future growth plans.

Cavanna Homes is currently building new homes at sites across the South West with three developments in Exeter – Equinox II, Equinox III and Cavanna @ Elm Park. Properties are also available at Oak Mount, Hemyock, Market Place, Holsworthy and Bellevue, Bude. New developments are coming soon to North Devon, Dorchester and Bridgwater.

The Michelmores team advising on the deal was led by Partner Karen Williams, alongside Solicitor Charlie Parker, both from the Firm’s well-renowned Banking, Restructuring & Insolvency team.

Karen comments:

“It’s been a pleasure to work with Cavanna Homes on this milestone funding package which paves the way for Cavanna’s commitment to delivering much-needed new homes to the South West of England while keeping sustainability of its business operations at its core. Our experience enabled us to secure a successful outcome for Cavanna within the required timescale and we wish them all the best in their expansive and exciting journey.”

Michelmores’ Banking & Finance team’s strengths lie in understanding our clients’ greater commercial objectives and supporting them to achieve their goals, while keeping them ahead of the fast-moving regulatory landscape. Read more on our website.

Michelmores is pleased to have advised Wilder Sensing, a developer of software for biodiversity monitoring using audio and Artificial Intelligence (AI), on securing a £300,000 equity investment from the South West Investment Fund, via appointed Fund Manager The FSE Group. This is the latest of several businesses that Michelmores has advised in respect of an investment received from the South West Investment Fund, with it proving to be a vital source of funding for some of the region’s most exciting scale-ups.

This forms part of a £700,000 investment round that also includes Oxford Innovation Finance and Cambridge Angels. The new funding will enable Wilder Sensing to create new jobs, increasing its capacity to deliver cutting-edge solutions in biodiversity data collection and analysis.

Wilder Sensing’s platform has already attracted a range of customers, including Somerset Wildlife Trust, ecological consultancies and a variety of farming businesses who are committed to improving biodiversity on their farms, as well as a project for BBC’s Springwatch.

Geoff Carss, chief executive and co-founder of Wilder Sensing, said:

“The biodiversity collapse is one of the top global risks identified by the World Economic Forum, with over half of the world’s GDP relying on nature. Our technology addresses the urgent need for accurate, scalable, and unbiased biodiversity monitoring around the world. This investment will enable us to enhance our platform and expand our reach, helping industries and government bodies make informed decisions backed by solid data.”

The Michelmores team advising on the deal was Partner Harry Trick and Senior Associate Adam Marques-Quint, both from the Firm’s Corporate team.

Adam comments:

“We are delighted to have worked with Wilder Sensing on securing this milestone funding, helping to further the firm’s AI technology and address the urgent need for biodiversity monitoring around the world. Wilder Sensing’s environmental aims are very much in line with Michelmores’ own and we are glad that we could assist them on this journey to preserving our planet’s finite resources.”

Michelmores’ Responsible Business commitment centres on the overall impact that we have on our people, the environment, and our communities and is a core part of our strategy and how we work. Our award-winning Corporate team advises clients across the UK and beyond on capital markets, mergers and acquisitions, management buyouts, impact investing, energy projects, microfinance initiatives and more. Read more on our website.

This article first appeared in British Dairying.

In the Autumn Budget, the Government announced that it is going to reform Agricultural Property Relief (APR) and Business Property Relief (BPR) from 6 April 2026. These are critical tax reliefs for farming businesses and estates and the impact of these changes should not be underestimated.

Inheritance Tax (IHT)

On a lifetime transfer or on death, or on transfers out of trust, IHT is charged. The lifetime rate is 20% (unless the transfer is potentially exempt, for example, a gift to an individual) and the death rate is 40%. Both rates are subject to the available nil-rate band and various reliefs, notably APR and BPR.

In respect of transfers of agricultural property, where it was used for the purposes of agriculture and held for the required period it benefitted from 100% relief. If it was subject to a pre-1995 Agricultural Holdings Act tenancy the rate was reduced to 50%. In respect of transfers of business property, where it had been owned for two years it would also qualify for 100% relief. A reduced rate of 50% was available for transfers of control holdings of quoted shares as well as assets used in – but not owned by – a trading business.

For rural businesses and landed estates, APR and BPR have always gone hand in hand. BPR has often been used to ‘top up’ APR to the extent that the value of property exceeded its agricultural value or in sheltering investment assets used in a composite business which is mainly trading.

What changes are proposed to BPR and APR?

• Key changes to BPR and APR were outlined for implementation in April 2026:
• 100% relief will be limited to the first £1million of the combined value of agricultural and business assets for every person or pre-existing trust. Any agricultural or business assets above that threshold will be subject to IHT but at a discounted 50% rate. In other words, a rate of 20% IHT on death (reduced from 40%), and a maximum rate of 3% IHT for ten yearly and exit charges from trusts (reduced from 6%).
• The £1 million cap will be divided proportionally between agricultural and business property if the combined value of qualifying property exceeds £1 million.
• Certain assets that currently receive 50% relief (e.g., shares in controlling listed companies) will not count toward the £1 million limit. Similarly, AIM-listed shares will be subject to 50% relief starting in 2026 (reduced from the current 100%).
• The £1 million allowance will not be transferable between spouses, so careful estate planning will be essential to avoid wasting any of the allowance.
• The government also introduced anti-forestalling measures whereby transfers made on or after 30 October 2024 where the transferor dies within seven years and after 6 April 2026 will be caught by the new regime.
• The full implications for trusts are still being clarified, but it is expected that each trust will receive its own £1 million relief allowance, provided the trust was established before 30 October 2024. Trusts created by the same settlor after this date will share the allowance. The government have confirmed that they will be consulting on how the new legislation will apply to trusts, with further detail expected in 2025.

We await the draft legislation which will confirm more precisely how these changes will work in practice.

Other Budget measures affecting employers and small businesses

National Minimum Wage and Living Wage

• The Budget introduced a 6.7% increase in the National Living Wage, raising it to £12.21 per hour for workers aged 21 and over, effective from April 2025. Workers aged 18-20 will see a 16.3% increase, bringing their hourly wage to £10. While these wage increases are beneficial for workers, they will also result in higher labour costs for employers, including those in the agricultural sector. Farms with hourly workers will need to plan for these increased payroll expenses.

National Insurance contributions

• From April 2025, employer National Insurance (NI) contributions will rise to 15%, with a reduced threshold of £5,000 per annum. In partial compensation, the government has raised the Employment Allowance from £5,000 to £10,500. While this is designed to help small businesses manage the higher costs, the changes will still represent a substantial increase in the cost of employing staff, which could affect staffing levels and payroll management, particularly in labour-intensive sectors like farming.

Capital Gains Tax (CGT)

• The Autumn Budget also increased rates of CGT, with the lower rate of CGT raised to 18% and the higher rate raised to 24% with immediate effect. The new rates are aligned with the residential property rates, which remain unchanged.
• Changes were also announced to Business Asset Disposal Relief (BADR) which reduces the rate of CGT on qualifying gains made on disposals of businesses, subject to satisfying various conditions. The CGT rate for BADR will increase from 10% to 14% for disposals made on or after 6 April 2025 and will increase to 18% for disposals made on or after 6 April 2026.
• These tax changes may require farmers with significant capital assets to reassess their tax strategies, particularly those considering the sale of assets.

Stamp Duty Land Tax (SDLT)

• The Autumn Budget also raised the SDLT surcharge on the purchase of additional residential properties (such as second homes or buy-to-let properties) from 3% to 5% starting 31 October 2024. Similarly, companies purchasing residential property over £500,000 will see the SDLT rate increase from 15% to 17%.

Conclusion

The proposed changes to APR and BPR are profound and will require a review of strategy for many farming and business owning families. These are undoubtedly worrying times for farmers and there is a strong feeling within the rural community that the tax changes simply do not reflect the reality of what is required to sustain a viable farming business.

Faced with impending change, advisers have been considering what comes next, and how to plan ahead.

There are options. Valuable estate planning tools remain – the ability to gift assets in the hope of surviving seven years, structuring assets efficiently to maximise reliefs, and life assurance, to name a few. Farming families are going to have to carefully consider how and when to pass assets to the next generation – not easy, and there is a difficult balance to be struck between tax efficiency and retaining sufficient control (to ensure business continuity) and comfort in retirement.

Succession is often a delicate subject for families generally – conversations are put in the “too difficult” pile – but the timing of robust business succession planning has never been more important. We are helping to guide families through their options for mitigating this new challenge, to help ensure that viable farming businesses can still be transferred efficiently in the right circumstances.

Should you wish to discuss any of the issues raised in this article, please contact Iwan Williams or Vivienne Williams.

The risk of sexual harassment of staff at work is an issue high on the agenda for many larger businesses, with well publicised action being taken by the likes of IKEA UK and McDonalds. But the risk of these issues arising in the context of smaller rural business may well be just as high. This is especially so where employees are working alone or with just one other employee or manager or where older workers may not be so familiar with modern expectations for behaviour.

On 26 October 2024, the Worker Protection (Amendment of Equality Act 2010) Act 2023 (the Act) will come into force. The Act will introduce a new positive legal obligation on employers to take reasonable steps to protect sexual harassment of their employees. This shifts the emphasis so that employers take a more proactive approach to identifying and addressing risks of sexual harassment.

If an employer breaches the duty, the EHRC will have the power to take enforcement action against the employer. Further, whilst the new duty does not create a standalone claim that employees can bring in employment tribunals, it gives employment tribunals the power to increase compensation for successful sexual harassment claims by up to 25%.

It is not entirely clear what might constitute ‘reasonable steps’, though once the EHRC’s technical guidance on the new preventative duty is updated, this should provide some helpful direction. Nonetheless, employers would be well-advised to consider the following:

Anti-harassment policy

Introduce (or, if one is already in place, update) an effective antiharassment policy. The EHRC’s current guidance contains helpful detail on what such a policy should cover. It is essential that any policy sets out a clear reporting procedure for any instances of sexual harassment. Policies should be regularly reviewed and updated, and employees should be familiar with the policy (see training).

Training

Run mandatory tailored training sessions so staff are familiar with your anti-harassment policy. Sessions should also explore what amounts to sexual harassment, the behaviour expected in the workplace, and how to make a complaint. Consider running additional training for senior employees who will be in charge of investigating and managing complaints under the policy. Refresher training should be provided.

Risk assessments

Conduct risk assessments to identify risks and introduce preventative measures. Conducting staff surveys and reviewing records of complaints and their progress can help identify risks. On this point, monitoring the progress of sexual harassment complaints helps ensure allegations are properly investigated and dealt with, and that any patterns of behaviour are identified. The types of risks will differ depending on the industry, but, for example, roles which are public-facing or involve lone working could result in increased risk. Once risks have been identified, specific measures should be introduced to mitigate those risks.

Reporting

Encourage the reporting of sexual harassment by providing different channels of reporting via different people or methods. Ensure the process is not unnecessarily restrictive (i.e. by requiring specific forms to be completed or deadlines to be adhered to). Ensure that allegations are investigated properly and take action where wrongdoing is identified.

It is easy for small rural businesses with few employees to consider themselves immune from this type of problem, but without taking the steps suggested above businesses may leave themselves open to the risk of enforcement action by the EHRC and more costly claims by employees.

Should you wish to discuss any of the issues raised in this article, please contact Kate Gardner.

A recent South Oxfordshire District Council appeal (ref: APP/Q3115/W/23/3317169) has provided useful detail of what is required for a development to fall within Class Q – conversion of agricultural buildings to residential.

Background – Permitted Development Rights

Permitted development rights (“PDRs) make it lawful to build certain buildings, modify buildings in certain ways and materially change from approved uses of land and buildings, all without the need to obtain planning permission. As such they offer flexibility in a planning system that commentors regularly describe as being broken.

One particular PDR has received a lot of attention and commentary because it offers the ability to create new homes in rural areas that would be refused were a planning application required. These are known as Class Q PDRs. For land in England, the Class Q PDRs are set out in detail in the General Permitted Development Order 2015. They allow agricultural buildings to be converted to residential buildings and (subject to certain constraints) they permit the attendant building operations necessary to make the barn a home.

Recent changes to Class Q

Back in May this year, we commented on recent changes to Class Q PDRs making them that much more applicable and flexible. Our article describes how Class Q extensions are no longer limited to the three-dimensional space of the original barn and that ‘protrusions’ of up to 0.2m are permitted to accommodate building operations, so downpipes and flues can now be lawfully installed.

However, those seeking to rely on Class Q rights must still approach the building works with caution and pay careful attention to the rules.

Conversion v rebuilding 

We have previously commented on the case of Hibbitt and Another v Secretary of State for Communities and Local Government [2016] EWHC 2853 (Admin) (“Hibbitt”). Hibbitt clarified the distinction between converting an existing barn to a house and rebuilding a house on the site of a demolished barn. Class Q is all about the former. If the works amount to a rebuild then the conversion is not permitted by Class Q. The distinction is a matter of planning judgment, but much depends on the facts of each case.

The South Oxfordshire case

This distinction was again confirmed in a recent planning appeal decision concerning a corrugated iron walled, cement roofed 3-bay barn conversion (described as being in poor condition) in South Oxfordshire.

The appeal was required because the local planning authority (LPA) had approved the ‘prior approval’ step for a barn conversion and that approval was subsequently quashed by the courts. In the agreed consent order to quash the original approval, the court ‘encouraged’ the decision maker to look critically at whether the proposal was truly a conversion, or whether it was a re-build.

The applicant sought to keep concrete supports on their pad foundations. The compacted base within the building would be retained but this would be beneath a new concrete slab. Only the skeletal steel frame of the original barn would be retained in the proposals. The existing barn sides and roof were to be demolished. Applying his planning judgment, the Inspector held that where so little of the existing barn would remain it would be ‘in all practical terms, starting afresh with only a modest amount of help from the original building’. Consequently, the Inspector concluded the proposal did not fall within Class Q.

Open countryside question

In addition to the proposal falling foul of the conversion or rebuild question for Class Q, the Inspector was asked to consider the proposal as an application for planning permission. The open countryside location meant the proposal was unable to meet the local plan’s policies on sustainability and permission should be refused. This exemplifies why the Class Q PDRs are such a helpful tool in the first place as the proposals benefiting from Class Q would be unlikely to succeed if exposed to the tests normally applied to planning applications.

Had the original barn been more capable of supporting the proposed design in the manner of a conversion, or had the design been modified to make that so, then the outcome would likely have been different.

Should you wish to discuss any of the issues raised in this article, please contact Fergus Charlton and Grace Bravery.

In good news for landowners and landlords, a key recent decision of the Upper Tribunal has increased the rent that telecoms operators will have to pay for the siting of masts on “unexceptional rural sites”. The case also provides useful guidance on the rights of landlords/landowners who require a redevelopment break right to be included in new leases.

Background

The decision was published on 29 July 2024 and relates to a renewal lease of a greenfield telecommunications site at Vache Farm near Chalfont St Giles in Buckinghamshire (Site).

The equipment on the Site consisted of a 20m high steel mast which was in a fenced 16m x 6m enclosure in a field. There were also several cabins housing telecoms apparatus. The parties to the lease were EE as tenant, and APW (also a telecoms company) as landlord. After the contractual term of the original 15-year lease expired in May 2020, the lease continued under the provisions of the Telecommunications Code (Code).

Code Reminder: a lease that is subject to Code rights (generally most telecoms leases) will continue even after the contractual term ends, unless a prescribed procedure to terminate is followed.

The parties could not agree on the renewal terms for the rent or the redevelopment break right and so the matter was referred to the Tribunal.

Rent for Unexceptional Rural Sites

The tenant, EE’s position was that the annual rent should be based on the figure of £750 per annum. This was taken from several 2022 cases which set £750 as the precedent rent figure for unexceptional rural sites[1]. EE’s surveyor conceded that the £750 should be increased to allow for inflation, taking it to £977, which they rounded to £1,000.

APW’s case was that the rent should be £2,850 per annum, and they submitted detailed valuation evidence that the rent of £750 was too low based on market comparables, and the good access and size of the Site.

The Tribunal took the opportunity to revisit the appropriate rent for rural mast sites, which had not been considered since the 2022 cases[2]. The Tribunal set out the previous thinking on unexceptional rural site valuation and considered whether the guideline figures needed to be reviewed.

It was the first time that the Tribunal had carefully reviewed transactions in relation to setting a value for small rural sites in non-telecommunications use, which can then be used to get the no-network assumption value.

In summary, the Tribunal found that the previous case law determining a rural mast site rent at £750 was much too low. The found that inflation was particularly relevant to valuation and took into account the evidence on comparables for non-telecoms use sites. They concluded that the appropriate rent for this type of site is £1,750.

Redevelopment Break Right

The parties agreed on the principle that APW should have a right to terminate the lease on 18 months’ notice, but they disagreed on how the re-development right should be worded.

APW wanted quite a widely drafted break right to be available to them whenever:

“(a) the Landlord desires to redevelop all or part of the Communications Site or any neighbouring land or any land under the ownership or control of the Superior Landlord (the site owner); or

(b) the test under paragraph 21 of the Code for the imposition of the agreement on the Landlord is no longer met.” Effectively, this was a right to terminate the lease whenever they want to redevelop the Site, or neighbouring land, for any purpose and at any time.”

Code Reminder:

Paragraph 21 contains a 2-part test which sets out that for a Court to impose Code Rights. The Court must be satisfied that:

1. Any prejudice caused to the landlord/landowner by imposition of the code agreement can be adequately compensated by money.
2. The public benefit outweighs the prejudice caused to the landlord/landowner. If a Court is not satisfied that the test is met, then they do not need to grant Code Rights to the operator.

EE wanted a more limited break right requiring APW to show:

1. a “settled intention” to develop the land; and
2. that the land could not reasonably be developed without obtaining possession of the Site.

EE expressly excluded “providing or operating an electronic communications network, or electronic communications services, or the provision of an infrastructure system” from the definition of “development”, as they did not want APW to try and take the benefit of the Site for their own purposes.

The Tribunal decided it was not the Code’s intention to stand in the way of the genuine redevelopment of land, regardless of whether that was for telecommunications purposes or not – and regardless of whether the operator enjoyed more favourable terms than before the lease renewal. The Tribunal refused to impose restrictions on the meaning of the word “development”.

The Tribunal’s imposed break clause wording was a compromise between the two positions:

“The break clause will therefore provide that the Landlord may terminate the new lease on giving 18 months’ notice expiring on the fifth or any subsequent anniversary of the term commencement date if it intends to redevelop all or part of the Site and could not reasonably do so while the new lease continues.”

Comment

This case provides helpful valuation guidance for unexceptional rural sites on which a vast majority of telecoms apparatus is situated and serves to increase the previous “base” rent of £750 to £1,750.

It also clarifies the position with regards re-development for landlords/landowners, which is that the presence of telecoms apparatus should not prevent development on land, even where that could lead to less favourable lease terms for the operator.

Should you wish to discuss any of the issues raised in this article, please contact Charlotte Curtis.

[1] EE Ltd and Hutchinson 3G UK Ltd v Stephenson and another [2022] UKUT 180 (LC)

[2] where they did so in the following two cases: EE Ltd and Hutchison 3G UK Ltd v. Affinity Water Ltd [2022] UKUT 8 (LC)) and EE Ltd and Hutchison 3G UK Ltd v. Stephenson and another [2022] UKUT 180 (LC)).

The recent case of Ward v Secretary of State for Housing, Communities and Local Government [2024] has highlighted that only lawful developments will be exempt from the requirement to demonstrate water neutrality.

The case

The case began with a planning application submitted in 2018 for a dwelling and stable block on agricultural land in Horsham.

The application was refused in 2019 on the grounds that the proposed development was unsustainable. The refusal was appealed to the Planning Inspectorate, however, due to delays caused by the pandemic, the appeal decision was severely delayed, with the appeal not being heard until 2022.

Two things happened during the extended delay. In December 2020 the landowner had moved onto the land and was living in a caravan. Then in September 2021 Natural England issued water neutrality guidance for the catchment in which the land was located for conservation reasons.

That guidance advised that new developments would need to demonstrate water neutrality. Water neutrality is achieved where the use of water in the supply zone before the development is equal to or less than after the development.

The Applicants submitted a Water Neutrality Statement stating that their occupation of the site prior to the publication of the Natural England guidance removed the need for an appropriate assessment because the development would simply maintain the status quo with regards to water consumption.

Appeal to inspector

At the appeal hearing in 2022 the Natural England guidance was a material consideration to be considered by the Inspector. Due to the relative timing of the Appellant moving on to the site and the issue of the Natural England guidance, the Appellant argued that the guidance did not apply to their appeal.

In contrast, Natural England argued that unless the Appellant could demonstrate that their occupancy of the land was either (1) lawful because it had the benefit of a planning permission or (2) their water consumption was otherwise accounted for, the development described in the appeal must achieve water neutrality.

The Inspector followed the Natural England guidance and concluded that the Appellant’s occupation of the land was unlawful, so their water consumption was not otherwise accounted for. The Appeal was refused on, among other things, water neutrality grounds. Appeal to the High Court.

The Inspector’s decision was challenged in the High Court. The court upheld the decision of the Inspector’s decision, concluding the Inspector had dealt correctly with the arguments on water neutrality.

What this case means

The Ward case confirms that when a water neutrality mitigation strategy is being proposed, only the consumption from existing lawful developments can be taken into account.

For proposed developments on land in catchments where Natural England has issued water neutrality guidance, an applicant needs an effective water neutrality mitigation strategy, and a water neutrality mitigation strategy will not be effective if it relies on a reduction of water consumption arising from an unlawful development located elsewhere in the catchment.

Should you wish to discuss any of the issues raised in this article, please contact Fergus Charlton.

In this episode, Ross Jarvis is joined by Julie Sharpe, a Partner in our Strategic Land Team, and Connie O’Donnell, an Associate in our Residential Development Team. Ross, Julie, and Connie discuss what is meant by ‘managed areas’ and examine the considerations developers should take into account when establishing them. They also discuss whether managed areas could play a role in delivering biodiversity net gain (BNG) and achieving nutrient neutrality ‘on-site’. Finally, they explore some of the more topical and practical issues affecting managed areas and their potential impact on the overall customer experience.

Earlier in 2024 Biodiversity Net Gain (BNG) requirements for planning permission were implemented under Schedule 7a of the Town and Country Planning Act 1989 – from 12 February 2024 for major sites, and from 2 April 2024 for small sites. Despite this progress, however, there remains a large gap regarding the implementation of BNG as a requirement for Nationally Significant Infrastructure Projects (NSIPs) under Development Consent Orders (DCOs).

Schedule 15 of the Environment Act 2021 sets out the prospective BNG provisions which will apply to DCOs once they are implemented. The key points to note are:

• The Secretary of State must make a BNG statement containing a BNG objective, which will apply to all DCOs during a specified period
• The statement must require a BNG value increase of at least 10%, mirroring the required gain for planning permission, though the Secretary of State has the power to make a BNG statement requiring additional BNG
• The statement must make provision that if a DCO includes land already registered on the BNG register, the value of predevelopment habitat for the purposes of the DCO includes the value of the existing habitat enhancement
• The statement must set out whether and how the BNG objective applies to irreplaceable onsite habitat
• The statement must set out what evidence is required from any DCO applicants to demonstrate how the BNG objective is met.

There are subsequent provisions which set out procedure, if any developments are, or are not, covered by an existing national policy statement at the time at which Schedule 15 is implemented.

Acquisition of land for BNG purposes

In a decision letter dated 12 September 2024, a DCO was granted to National Grid for the upgrading of infrastructure running from Suffolk to Essex, known as the Bramford to Twinstead Reinforcement and associated development. Interestingly, this DCO dealt with BNG considerations for the NSIP, ahead of the requirements becoming mandatory.

National Grid argued that whilst BNG was not mandatory for NSIPs, within their 2021-2026 Environmental Action Plan, they had committed to delivering at least 10% or greater value on BNG in that period, and as such, it formed part of their application for the DCO.

The decision letter confirmed that whilst the government intends to commence mandatory BNG for NSIPs from November 2025, it supported National Grid’s decision to commit to BNG on a voluntary basis ahead of the mandatory requirement being introduced.

Further, the Secretary of State used their discretionary power to grant compulsory purchase powers under a DCO pursuant to s122 of the Planning Act 2008, to give National Grid the power to acquire compulsorily, land it needed for its BNG requirements, in the event that voluntary agreements, with those whose interests it needed to acquire, could not be reached.

What this means for Landowners & Tenants

The implications of this decision are quite stark in respect of compulsory purchase; landowners will now need to concern themselves with developments, not only where their land may be required for the direct development of an NSIP, but also where their land is not directly required, but rather has simply been identified as suitable BNG land to support the NSIP.

Should you wish to discuss any of the issues raised in this article, please contact Adrian Bennett.

Introduction

Agreements that infringe the Chapter I prohibition of the Competition Act 1998 are void and unenforceable and can lead to fines of up to 10% of total group turnover.

The Competition Appeal Tribunal (“CAT”) is rarely required to opine on vertical agreements, particularly, those that do not involve retail price maintenance. However, in a recent case, Up & Running v Deckers, involving the supply of HOKA branded running shoes, the CAT has provided a detailed analysis of its approach to analysing the potential anti-competitiveness of selective distribution systems.

The case highlights the substantial competition law risks in seeking to operate selective distribution systems without clear, objectively justifiable, qualitative criteria. As a result of the findings in the case, Deckers is now facing a substantial claim for damages.

Pros and cons of selective distribution from a competition law perspective

Selective distribution systems restrict the number of authorised distributors and the possibilities of resale and thus reduce competition at the distribution level.

In a selective distribution system, distributors must meet certain qualitative and/or quantitative criteria to be supplied. Qualitative criteria require distributors to be able to provide particular levels of service. Quantitative criteria simply limit the number of distributors. Quantitative restrictions can also be imposed indirectly, for example, by requiring minimum levels of purchasing.

The competition risk is that these systems potentially reduce competition in the distribution of products and services. That is, they reduce ‘intra-brand’ competition between retailers.

In particular, selective distribution forecloses different types of distributors who do not meet the specified qualitative or quantitative criteria. In theory, this potentially facilitates collusion between distributors due to the requirement of similarity and hence likely business models and costs, and if there are quantitative limits as well, this will limit the number of distributors further facilitating collusion.

However, at the same time, selective distribution can increase competition between brands, ‘inter-brand’ competition – improving competition in relation to factors other than price (as opposed to the guarantee of a high profit margin for distributors).  For example, by ensuring a higher quality of service by distributors to offset any reduction in price competition.

Competition law assessment

Relevant Competition law background points

Before getting to the detail of the assessment of selective distribution, there are a couple of basic competition law points that are important to establish.

First, in competition law matters, the term ‘agreement’ is interpreted broadly and includes not just written contracts but also any meeting of minds that it is possible to infer from the behaviour of the parties and, importantly for selective distribution type cases, includes the tacit acceptance of terms by a distributor.

Second, there is a distinction in competition law between agreements which have the ‘object’ of restricting competition and those which may have the ‘effect’ of restricting competition. Where agreements contain ‘object’ restrictions of competition, the anti-competitive effects can be assumed. There is no need for detailed economic analysis of the actual effects. However, where agreements do not clearly have the ‘object’ of restricting competition, it is necessary to conduct a detailed economic analysis of their effects and this is a much more onerous exercise (for regulators and private actions).

Agreements that do not raise competition law issues

There is a substantial body of EU caselaw specifically concerning selective distribution systems and competition law.  While there remain gaps, this has broadly established a methodology for conducting competition law assessments of selective distribution systems. Selective distribution systems that comply with what are known as the ‘Metro‘ criteria, are considered not to raise competition law issues at all. the Metro criteria are that:

• The nature of the products necessitates a selective distribution system (e.g. ‘luxury’ goods, examples being perfume and high quality/high technology products)
• Distributors must be chosen on objective qualitative criteria
• The criteria are laid down uniformly for all potential resellers and not applied in a discriminatory fashion
• The criteria must not go beyond what is necessary

Where Metro criteria are not met, this does not necessarily mean there’s a restriction by ‘object’, it is still necessary to consider the question. However, it is difficult to envisage many practical circumstances where this will not be the case. In particular, the absence of a clear framework (transparent, objective, precise, non-discriminatory and proportionate) for the proper exercise of discretion by the distributor will point to an ‘object’ restriction of competition.

Agreements that raise issues but may be exempt

Agreements that do restrict competition (even by ‘object’) can benefit from ‘exemption’ from the competition law prohibitions. Agreements may be ‘exempt’ because they fall within the Vertical Agreements Block Exemption Order (VABEO) or because they qualify for ‘individual exemption’. In both cases, the thinking is essentially that on balance the positive benefits outweigh the detriment to competition.

Broadly speaking, the VABEO can cover selective distribution systems (irrespective of the nature of the product and the nature of the selection criteria) provided the market shares of the parties are below 30% on their respective markets and they do not contain ‘hardcore’ restrictions of competition. ‘Hardcore’ restrictions include those relating to onward sale pricing and selling other than to end users.

Where the VABEO does not apply, individual exemption is theoretically possible. However, it is likely to be difficult to establish that the benefits outweigh the detriments where there are high market shares, hardcore restrictions or the relevant market contains a number of selective distribution networks and there is a cumulative anti-competitive effect as a result.

Internet sales

A contentious area can be restrictions on online sales.

In a UK case involving Ping golf clubs, Ping had tried to prevent resellers from selling online as it argued that its golf clubs required personalised fitting in store. The CMA, CAT and Court of Appeal, however, were all of the view that such a restriction went beyond what was reasonable in the circumstances.

On the other hand, in an EU case involving perfumes, Coty successfully argued that it should be allowed to prevent resellers from selling its perfumes through online marketplaces as these did not fit the luxury image of its products.

The dividing lines between these approaches are not entirely clear.

Up & Running v Deckers

The facts were that Up & Running operated bricks and mortar stores and an associated online sales platform. Deckers supplies HOKA running shoes in the UK. Up & Running sought to start selling residual/out of season HOKA products through a new discount online sales platform (runningshoes.co.uk). Deckers required that a retailer had specific permission to make online sales, that the website had an identical or similar name to associated bricks and mortar stores or that Deckers was notified if the retailer wished to sell HOKA products from a website with a different name and that Deckers approved the contents of the website.

Deckers refused permission, ostensibly because there was no clear ‘signposting’ from the running.co.uk website back to Up & Running. In the CAT, Deckers sought to justify this restriction, but Up & Running proceeded to sell HOKA products through the running.co.uk website. Deckers served notice on Up & Running, terminating its supply agreement.

The CAT found that Deckers operated a multi-channel selective distribution system.  This included a ‘Main Retail Channel’, which included Up & Running was categorised and a ‘Clearance Channel’ involving other retailers such as Sport Pursuit.

The CAT also found that: “There was no further guidance given and no criteria formulated, let alone published, to indicate the basis on which Deckers would give approval for any website with a different name from any bricks and mortar operation. These provisions were therefore in the nature of conferring a very wide discretion upon Deckers to make decisions permitting or not permitting such an activity, without any accountability for the reasons for those decisions.”

The CAT’s conclusion, based on these facts, was that the: “general purpose of the contractual provision is to promote the selective distribution model envisaged by Deckers by preventing the emergence of competing business models or channels for distribution. The discretion and vague wording enabled Deckers to pursue two discernible sub-purposes…:

• To restrict entry into the Clearance Channel, being the additional channel for the online clearance of residual stock, so that Deckers is largely able to determine when and what volumes are sold through this channel
• To prevent retailers in Deckers’s selective distribution system who sell HOKA product in the Main Retail Channel from accessing the Clearance Channel, so that discounting of residual stock is inhibited by only taking place within, and subject to the commercial and practical constraints of, the Main Retail Channel.”

The CAT found that despite the market shares of Up & Running and Deckers being below the 30% thresholds in the VABEO, it did not apply because the refusal to approve the runningshoes.co.uk website because of the likely discounting of HOKA products amounted to the ‘hardcore’ restrictions of:

• the restriction of active or passive sales to end users; and
• a restriction on the buyer’s ability to set prices.

The CAT concluded with the following description of the facts that had given rise to the competition law issues in the case: “The selective distribution system implemented by Deckers was incomplete and flawed in its design and operation. The criteria for admission into the system were not properly recorded or kept in writing. Those criteria were, moreover, applied inconsistently on a piecemeal basis at best and in a discretionary, if not arbitrary, manner at worst. It is also striking to see the virtual absence of anything resembling a framework for treatment of separate channels.”

Conclusion

Selective distribution systems can be viewed as pro-competitive or as falling within the VABEO in many circumstances. However, where the qualitative criteria are not clearly specified and/or they clearly operate to restrict price competition or provide wide discretion to distributors to limit the channels through which retailers can sell, there are likely to be significant competition law risks arising.

Distributors operating selective distribution systems should therefore be careful to ensure that these systems are clearly specified, on the basis of objective qualitative criteria as far as possible. While there can be discretion for distributors in how they specify relevant criteria and thus define their selective distribution systems, the systems cannot be designed to allow continuing wide discretion (subject to a system redesign).

Failing to set up a clear selective distribution system could lead to agreements being void and unenforceable, fines of up to 10% of group turnover and private actions for damages.

If you have queries about any of the issues raised in this article, please contact Noel Beale or your usual Michelmores contact for further information. We have extensive experience in helping clients mitigate the potential competition law risks in these types of scenarios and ensuring that our clients have effective and robust distribution systems that optimise their commercial positions.