Legal News | 10.07.19

Commercial Quarterly Update July 2019

The End of Section 21?

A recent Government announcement suggests that section 21 notices, otherwise known as “no fault” evictions, may be coming to an end.

A statement by the Communities Secretary James Brokenshire explains that the objective behind the policy change will be to give tenants greater “security and stability” who will no longer need to “fear being evicted at a moments’ notice”.

What are section 21 notices?

Currently landlords can serve a section 21 notice on their tenant to bring an end to the assured shorthold tenancy.

This is the much preferred method of choice for landlords, who do not need to prove any of the grounds for possession which are required under the section 8 regime, which include a list of reasons for eviction such as rent arrears or the landlord requiring the property back to live in.

Proving these grounds can often be a difficult and a long-winded process to go through, which suggests that removing the section 21 option will prove to be a major headache for landlords for wanting to regain possession of their property. Some critics have argued that the change will effectively render fixed term tenancies obsolete.

What next for landlords?

In future, it is likely that landlords will have to rely on serving section 8 notices under the Housing Act 1988 in order to obtain vacant possession of their properties. The terms of future leases may have to be re-examined and re-drafted in some cases to ensure that they do not hinder any eviction process should the need arise. Ironically this could prove to have a negative impact on tenants as landlords are likely to need to take further measures to enable evictions where faults of the tenants are only minor.

However, it is also likely that the current section 8 requirements will be amended alongside any scrapping of section 21.

Whether or not these amendments will come into force remains to be seen but landlords and tenants alike are encouraged to keep an eye on any further announcements by the Government.

“Caveat Emptor” Buyer Beware and Legal Due Diligence

Under English law the principle of “Caveat Emptor” or buyer beware applies to the acquisition of a business. It is therefore essential that a buyer carries out their own investigations (due diligence) during negotiations when acquiring a business.

What are the objectives of due diligence?

Due diligence is an information gathering exercise for the buyer. It acts as an audit of the target business and its affairs. The due diligence process should help to build a complete picture of the business and establish any issues with the acquisition.

It is important to focus on the key assets of the acquisition early in the due diligence process to ensure that title (ownership) can be passed from the seller to the buyer. Some of the key assets to consider are:

1. property;
2. employees;
3. intellectual property;
4. customer contracts;
5. supplier contracts; and
6.  licence(s) for the business to operate.

Why should you carry out due diligence?

Building a complete picture of the business allows the buyer to make an informed assessment of the potential risks and benefits of the proposed purchase. Any acquisition is a business investment and it is important to ensure that it makes commercial sense. Once the information has been received and reviewed the buyer can decide:

1. whether to proceed with the transaction;
2. whether to seek to renegotiate the terms of the transaction reflecting any liabilities or issues which arose as part of the due diligence process; or
3. whether to withdraw from the transaction.

Who assists with the due diligence exercise?

It is essential to have the right people carrying out this exercise. The team carrying out due diligence will usually involve the buyer’s personnel as well as legal and financial advisers and accountants.

A legal due diligence questionnaire, the legal due diligence report and the negotiation of the acquisition agreement is usually carried out by legal advisers.

Settlement Agreements

A settlement agreement (formerly known as a compromise agreement) is a legally binding agreement used at the end of an employment relationship to set out terms agreed between the parties, and more importantly will prevent the employee bringing a claim in relation to their employment.

A settlement agreement can include:

1. a financial payment;
2. an agreed form of reference;
3. confidentiality clauses; and
4. post-employment restrictions.

In order for a settlement agreement to be legally valid, it must:

1. be in writing;
2. relate to a particular complaint or proceeding;
3. the employee must receive independent advice on the terms of the proposed agreement;
4. the independent advisor must have a current contract of insurance or professional indemnity insurance covering a claim by the employee in respect of loss arising from the advice;
5. the agreement must identify the adviser; and
6. the agreement must state the applicable statutory conditions regulating the settlement have been satisfied.

Settlement Agreements are voluntary and can be proposed by either the Employer or the Employee. The terms are often negotiated.

What are some of the advantages of using a settlement agreement?

• Can provide the employee with compensation;
• Can provide an effective mutual end to an employment relationship which isn’t working;
• provides certainty, and prevents a claim by the employee;
• avoids bad publicity for both the employee and the employer;
• confidentiality can be re-enforced by the agreement;
• the employee usually receives a payment towards the reasonable legal costs associated with seeking independent legal advice; and
• both parties avoid the stress, cost and time involved in a tribunal claim.

For assistance with any of these articles please contact a member of the Commercial team on 01380 733300 or email Commercial@wansbroughs.com.