Blogs by our partner, Michael Dewar, who specialises in commercial property law

Smile! We’re at the Scottish Dental Show in May. . .

The team at CCW Business Lawyers are eagerly preparing for the Scottish Dental Show at Braehead Arena in Glasgow on 13th and 14th of May.

As specialists in the legal support of dental practices across Scotland, we are looking forward to seeing our current clients and meeting new faces at our shiny new stand. We support our dentistry clients from our offices in Fife and Edinburgh and advise on everything from partnership planning including arrivals and departures to commercial property purchase, sale or lease negotiations, employment law, contractual agreements and incorporation or business exit.

Partner Michael Dewar, who specialises in dilapidations negotiations and has a track record of helping dental practices navigate unforeseen bills of up to £500,000, will be there in person. If you have any legal queries or issues, why not book a free initial consultation with Michael while you’re attending the show?

Just email Jennifer.wilson@ccwlegal.co.uk or call 0845 22 33 001 to book a time with Michael Dewar or one of our other Business Lawyers on either the 13th or 14th of May at the Scottish Dental Show.

Or feel free to just drop by for a chat. We’d love to meet you and tell you more about why we are Scotland’s favourite dental practice law firm.

Relocating a Medical Practice to a Health Centre – 3 points to consider

The BBC recently reported that NHS Lothian has announced that it has entered into contracts for construction of three new £27.6 million health centres in Edinburgh and West Lothian.  The centres will provide accommodation for GP practices alongside other health-related services, including podiatrists, therapists and dentists.

You can read the full story here http://www.bbc.co.uk/news/uk-scotland-edinburgh-east-fife-35961007 ]

Completing these contracts is a major achievement for the Scottish Government’s equivalent of Private Finance Initiative, the Scottish Futures Trust (SFT).   A number of these projects had been slow in fruition and there was real concern in the second half of last year that the SFT might breach European accounting rules, causing all of the SFT projects temporarily to be suspended.

The SFT does also give doctors a further method of securing new health centre accommodation and shows the variety of public funding routes available to general practitioners wanting to build, or see built, new surgery premises.  Not long ago the more common model of privately financed health centres was a standard 25 year commercial lease, typically financed by a specialist GP lender with rents reimbursed by the local health board.  Next, specialist health care developers became active, building health care centres directly and entering into leases with GPs.  Now most health boards favour larger multi-practice health centres buttressed by satellite or complimentary services.

Practices wishing to move to new surgeries at least now have some choice over how to finance new health centre premises.  The inevitable difficulty for GPs is, of course, persuading the health board to foot the bill for such premises (health boards will usually reimburse 100% rent to practices) and in minimising their liability for repairs and running costs of potentially expensive new premises.

How you contract for your space can become a minefield for doctors, dentists and medical practices as this is often a ‘once in a lifetime’ negotiation to tackle.

Here are my top tips to consider for any GP practice thinking of moving into a new health centre.  Take account of three points:

  1. Fact find the hidden costs – find out early on the likely running costs of the premises; as new health centres typically include large common areas, service charges and running costs can be significantly higher than for existing premises.
  1. Take stock of liabilities– work out the total exit costs from the practice’s existing premises – if, for example, the practice occupies leased premises, there may be significant repair costs at the end of the lease.
  1. Review the practice agreement – it is essential to review and, if required, update the practice’s partnership agreement before entering into any occupancy agreement.

As a commercial property specialist with a track record in successful contracting and negotiating for healthcare professionals I am happy to respond to queries from individuals and partnerships as well as the media on this topic. You can contact me directly on 0131 220 7605 or email me at michael.dewar@ccwlegal.co.uk. You can also learn more about our services for medical professionals here http://ccwlegal.co.uk/your-needs/medical-profession/

 

New Year Resolutions

The beginning of January is usually the time when people full of New Year optimism, resolve to make changes to their lives – for example, by stopping smoking, going to the gym or starting a diet.  Most people, though, are not particularly good at keeping to these promises. A major reason for this is that whilst we are good at identifying what we want to change in our lives, we are less good at focusing on how to achieve this.

One way to help improve the chances of achieve their aims is to make use of so-called “nudge” techniques to create incentives, as the following table shows.

 

resolution nudge
Erecting signs saying ‘no littering’ and warning of fines. Improving the availability and visibility of litter bins.
Joining a gym. Using the stairs.
Counting calories. Smaller plate.
Weekly food shop budgeting. Use a basket instead of a trolley.

Nudge techniques can be used in many different ways, some quite novel.  For example, it has been suggested that a person wanting to give up smoking should open a bank account. For six months she deposits the amount of money she would otherwise spend on cigarettes into the account. After six months she takes a test that determines whether she has been smoking. If she hasn’t, she gets to keep the money in the account; if she has, the account is closed and the money is donated to charity. There is evidence that participating in this bank program increases the chance of quitting smoking by over 50% over many other cessation efforts.

Why, you might think, is CCW explaining all of this? Well, in our experience, many business managers are only too human and, likewise, fail to live up to their resolutions.  It is often only after businesses have experienced a serious legal problem that they realise they could have, without too much effort, done something to avoid the problem in the first place – e.g. by having a robust set of business terms and conditions or by having in place a proper lease with their landlords or a shareholder agreement with other company members. Sadly, despite promises to perform such tasks, many will remain undone.

We would like to help our clients help to resolve long-running but neglected issues.  Below, for each of our major client service areas, we have listed ways in which we think we can help incentivise you into fixing any such issues.

From all at CCW we wish you a very happy and prosperous New Year.

resolution nudge
We need to make the time to speak to our solicitor about legal matters that concern us. We aim to make ourselves accessible to speak to. You can contact us not just by e-mail or phone but also by text messages or by video-call (e.g. Skype or FaceTime).

 

We are used to meeting or speaking to clients outside normal business hours.

We need to put in place proper terms and conditions for business for orders. CCW is experienced in dealing with a wide variety of commercial agreements. If you can give us a good outline of what you want, we can often produce good first drafts of documents. You can then check these at your leisure.
We now have more shareholders in our company and need to have more categories of rights We can tailor your shareholder requirements by drafting a shareholders’ agreement or amending your company’s articles of association
We need to bring our company books up to date. Our Company Secretarial services provided by CCW cost £170+VAT per year and give the peace of mind of knowing that all of those things and more are dealt with.
The title deeds to our properties are in a complete mess and need sorting Often we can obtain copies of any missing title deeds ourselves, so long as we have either a plan and/or property address.

 

It is now possible to simplify older title deeds by registering a new title in the Land Register

We must renew our lease If you give us a copy of your lease, we can advise you of the end date of the lease. If you wish, we can speak direct to your landlords or their agents to negotiate a lease extension.
As landlords we need to replace word-of-mouth leases with written leases. We can draft leases for you. It is realistic to expect to have written leases in place within twelve months from the date when you instruct us.

 

Tenant break options in commercial leases within Scotland

Tenant break options are common in commercial leases, allowing tenants to end a lease early, subject to the tenant giving notice to the landlord.  These options have long been a feature of commercial leases but recently a practical issue concerning payment of rent is now the subject of an appeal to the UK’s highest court, the Supreme Court.

The practical problem is this: if a tenant break option is to take effect on, say, 1 September but the tenant is required under the lease to pay rent for the period 28 August to 27 November, is the tenant allowed to pay only 5 days’ rent to 1 September rather than the 91 days’ rent to 27 November?  The answer may seem obvious – that, because the tenant would only receive the benefit of 5 days’ occupation, the tenant should only pay 5 days’ rent for the period to 1 September.  Many landlords and tenants (at least in our experience) follow this practice.

In the 2014 English Court of Appeal decision of Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd, (and one very likely to be followed in Scottish law), it was decided that a tenant attempting to exercise a break option should have paid rent through to the end of the rent payment period – i.e. to use our example, through to 27 November.  Because, however, the tenant had apportioned rent as at the date of exercise of the break notice, the tenant had not complied with the terms of the lease.  Worse, because the lease said that the tenant could exercise the break only if the tenant had fully complied with the lease, the Court of Appeal held that the tenant break notice was ineffective.  The consequence was that the lease would run for the full period of the lease.

Although this might seem highly unfair to a tenant, there is logic to the Court’s decision.  Often – but not always – a tenant may be required to make a payment to the landlord in exchange for being allowed to exercise a tenant break clause.  Where the lease is silent – as in the case in question – it is not clear whether the landlord was or was not expected to receive a payment in the form of rent for the full rent payment period (i.e. for the 91 days rather than the 5 days used in our example).

The lesson here is that a tenant must check very carefully the terms of the lease and, if necessary, pay the full rent due for the rent period, even if this means that the tenant ends up paying irrecoverable rent beyond the date when the break takes effect.

The Supreme Court is expected later this year or early next to reach a decision on this issue – and its ruling is likely to be applicable to leases in both England and Scotland.

However, there remain other cases where courts have decided that a tenant was not entitled to break a lease, even though the notice itself was validly  given to the landlord.  In the case of Avocet Industrial Estates LLP v Merol Limited (2012) the tenant tried to exercise a break option.  The break option was, however, conditional on the tenant making payment of all monies due under the lease.  In this case, the tenant had a history of late payment of rent and the lease required the tenant to pay interest on late payment.  Even though the landlord had never asked for payment of interest, because the tenant had not paid interest, the Court decided that there were outstanding payments due under the lease and the tenant’s break option was held not to be valid.  In another case, Canonical UK Ltd v TST Milbank LLC (2012) the tenant had taken care to pay rent for the full rent payment period but inadvertently overlooked another clause in the lease and its attempt to break the lease was held to be ineffective.

The lessons from the above are clear:

  • when first entering into lease, your solicitor should pay close attention to the wording of the tenant break option – is it conditional or not on payments or compliance with other clauses in the lease?
  • if the break clause is conditional, the tenant needs to take the greatest care to comply fully with the break option conditions or the break option will not be valid
  • as a related point, where the tenant wants the landlord to treat a rent deposit as the equivalent to payment of the last instalment of rent, the tenant must get the landlord’s express written consent in advance for this

There are other considerations when drafting or exercising tenant break options.  If you need assistance with these points, please contact us and we will be happy to help.

Michael Dewar, Commercial Property Partner

Five things every business should know about solar energy

The amount of electricity produced from solar panels is on the rise. On a sunny day in 2020 it has been estimated that up to 40% of the UK’s electricity demand will be met by solar panels and that one third of all UK homes will have solar panels on their roofs.

  1. Solar panels can generate substantial profits – particularly for commercial premises with unused space either on a roof or within ground space. Even if businesses have previously looked at the viability of installing solar panels, they should look again – the costs of panel installation are falling with growing economies of scale and technical improvements in the efficiency of panels.
  2. Whilst income to owners from feed in tariffs available for solar panels has come down from when they were first introduced in April 2010, the potential income remains considerable – the government feed-in tariff offers an index linked 8-13% return on investment over 20 years whilst the panels themselves should last for about 50 years. If you don’t want to finance the installation costs up front, it is relatively straightforward to find an intermediary company willing to subsidise installation costs in exchange for a share of the feed-in-tariffs for electricity being generated.
  3. Every commercial building sold or leased since 2009 has required an energy performance certificate (an ‘EPC’). There has been a tendency for businesses to regard EPCs as a paper cost and of marginal relevance – but this view is likely to change over the next year.  The Scottish Government is about to publish proposals to force owners to carry out energy efficiency improvements on energy inefficient buildings if and when owners sell or lease.  Details are expected within the next few months of exactly how this should work.  Solar panels are relevant to EPCs in two ways.  First, a solar panel system counts towards your EPC rating – often enough to take you into the next band up. Second, in order to install a solar panel system (with a few exceptions), your property must have at least a level D Energy Performance Rating (which the Government thinks is achievable for the majority of commercial buildings).
  4. Before installing a solar panel or signing up to any agreement with a supplier, you do need to do your legal homework. If you have a security over your building, the chances are that you will need your lender’s consent.  You need to make sure that solar panels are installed on land you own – empty land neighbouring a building could be disputed or common ground.  You should consider the impact of a solar panel installation when you sell or rent out a property – in the case of a lease, who gets to keep the income from the panels and how do solar panels impact on repair and maintenance liabilities?

Michael is an experienced and talented solicitor who specialises in commercial property transactions and property dispute resolution.

Land and Buildings Transaction Tax: the Sting is in the Tail

Most people know that the 1st of April is April Fools’ Day. But how many people south of the border know that the 2nd of April is Tailie Day in Scotland, a day when traditionally as a prank, paper tails were attached to the backs of unsuspecting people? Perhaps in our modern electronic age, there is less paper about, as the day seems to have largely died out.

The Scottish Parliament seems keen though, to revive the tradition. Yesterday saw the introduction of a new land transaction tax, Land and Buildings Transaction Tax (LBTT) which replaces Stamp Duty Land Tax (SDLT). As we have reported elsewhere, there are some welcome features of the new tax, including a closer connection between property value and the amount of tax paid.  Purchasers of commercial properties will pay less tax under LBTT than under SDLT on purchases up to £1.95 million.

All this is good – but there is a sting in the tail affecting tenants of leases of commercial properties after 1 April. Under its predecessor tax, SDLT, only one tax return needed to be filed to the tax authority at the start of the lease. LBTT works differently – a 10 year lease, for example, would require the tenant to submit not one, not two, not three, not four… but an extraordinary five tax returns to Revenue Scotland.  You might think this is an elaborate joke but you’re one day too late for that.  Here’s how LBTT returns work:

  • On the start date of the lease the tenant must file the first tax return – and do so within 30 days of the start date of the lease
  • at the end of year 3 of the lease, another return must be submitted – even if there is no additional tax due
  • more returns must be filed at the end of years 6 and 9 – again, even if no extra tax is due
  • for good measure, a further tax return must be submitted at the end date of the lease
  • lastly, if you think five returns are not enough, should the lease continue beyond 10 years, more tax returns will be needed

You might think the Scottish Government is playing a prank by pinning paper tails on unsuspecting tenants. But there is very much a sting to the tail, for anyone who fails to submit a tax return within 30 days will face an automatic £100 penalty, rising to as £1,000 plus 10% of the LBTT due on each return not made within 12 months of the due date. Furthermore, Revenue Scotland, it seems, has no plans to send out advance reminders to tenants.

The big point here is that tenants of commercial premises will need to be very organised to avoid paying these penalties.  At CCW we think we can help by giving our clients details of when exactly the returns are due and we can, if requested, help them file these to Revenue Scotland.  And if, indeed, there is sufficient demand from tenant clients, we will look at setting up a web service to send out advance automatic reminders to clients of when each return is due and prepare the relevant return.  If you think such a service would be useful, please do drop me an email.

Michael Dewar is an expert Commercial Property Lawyer assisting landlords, tenants, business owners and developers in Fife, Edinburgh and across Scotland.

Don’t get caught out by Energy Performance!

Are you a commercial landlord or do you own commercial property? Do you know if all of your properties comply with the Energy Performance regulations?

Energy Performance Certificates (“EPCs”) were introduced in 2009 and have continued to be a source of confusion. Understanding the EPC regime was further complicated by the recent introduction of additional regulations, which came into force on 1 October 2012 and 9 January 2013.

Many properties fall foul of the regulations and the requirement to obtain or display an EPC is often overlooked; but with the penalty for non-compliance being a fine of £1,000 for each breach, can you afford to ignore it?

Most commercial properties in Scotland over 500 square metres require to have an EPC when sold, let, constructed, or advertised for sale or rent. In certain circumstances, an EPC is also required when a property is modified or renovated.

Some properties are required to have an EPC on display in a prominent position at all times, depending upon the identity of the tenant or occupier and the frequency by which the building is open to the public.

The changes introduced by the 2012 Regulations also mean that energy performance ratings must now be included in all property advertising particulars. The production of an EPC after the transaction has taken place or once a buyer or tenant has been found is no longer sufficient.

For more information on how to comply with the Energy Performance of Buildings regulations or the changes brought in by the recent legislation, click here to read our expanded summary.

If you would like further information or advice, please contact Michael Dewar or Lynn Simpson