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Welcome to Fortune Law's Briefing Update
Greetings! 
Welcome to our briefing update for May 2010.
This month we focus on the issues faced by hoteliers in the exciting and challenging hospitality sector. Fortune Law provides hotel owners and managers with "a one stop shop" advice in respect of a variety of legal issues. On an acquisition, like for example, we advise on the whole process starting with drafting preliminary agreements such as confidentiality/exclusivity agreements and memorandums of understanding. We then follow up with a due diligence process where we investigate relevant key assets, such as the hotel property, its licences, employees, customers and intellectual property. This information-gathering process aims to provide comfort to the client on what it is they are purchasing. Where matters are not quite as expected, this may impact on the negotiation process and, in particular, on the price the buyer is prepared to pay and the protection the buyer will seek from the seller in the form of warranties and indemnities. Post acquisition, we continue to provide day to day legal support on various issues like employment, terms of business, suppliers' contracts and brand protection.
Our client of the month is 51 Kensington Court, an 11 serviced apartment block offering high quality accommodation in an elegant Victorian townhouse in the heart of Kensington. The hotel theme follows on from last month's hospitality update on restaurants and bars. In line with the chosen topic of the month, one of our legal updates features a controversial decision in a recent case, which allowed an extremely late rent review under the terms of a commercial lease.
Our second legal update draws your attention to the ways a company can sign a legal document (that is neither a contract nor a deed) which has to be signed by the company itself, rather than on behalf of the company.
We conclude this update by examining the significance of force majeure clauses in light of the recent chaos in the travel and hospitality industries caused by the volcanic ash drifting into the airspace of the UK and Europe.
If you have any questions in relation to any of the matters set out in this briefing update or wish to speak to us in respect of any other legal issues do call or email us on 0207 440 2540 or skassam@fortunelaw.com. We are always happy to help. |
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Featured Client
Aqib Fayyaz and Aida Khan
Background Brief
An individual overseas investor had just succeeded, after a tense sealed bid process, in purchasing an 11 serviced apartment block in Kensington for £5 million, to convert into a hotel. He needed help with all aspects of the deal and ongoing legal requirements.
Our Solution
Thanks to our expertise in this area, we were able to provide a "one stop shop" solution and advised the client on all aspects of the acquisition and ongoing needs including:
· the purchase of the property;
· the business set up;
· transfer of employees;
· assignment of contracts and leases.
In addition, there were various tax issues at stake where we arranged for specific tax advice and Counsel's opinion. The seller's consent and assistance was required for the use of a tax scheme which was unfortunately not forthcoming. In its absence however we were able to negotiate a significant reduction in the purchase price.
We introduced the client to a number of our business contacts in the areas of personal finance, insurance, accountancy and book keeping. We also acted on the bank financing element dealing with the facility agreements and guarantees and exchanged just in time on Christmas Eve!
We continue to advise our client on various commercial matters including:
· redrafting their booking terms and conditions;
· amending the employment contracts for their staff to bring them all up to date including a staff handbook;
· assisting with business immigration issues;
· dealing with guest relations; and
· contracts with suppliers.
"As a first time commercial investor in the UK market I was understandably very cautious at the onset of this deal. However once I had Shainul and her team on board, I was able to leave all legal matters to them with complete confidence. Despite the pressure of pre-Christmas time, I never once felt rushed. Fortune Law has consistently stepped up whenever I needed their help and no task has ever been too much trouble or not worth their time. To place complete trust in your advisors is not an easy task, yet when you partner with an extraordinary team such as the one at Fortune Law, you cannot imagine working any other way."
- Aqib Fayyaz
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Rent Review: Extreme Delay
In Idealview Ltd v Bello [2009] EWHC 2808 (QB) (Flaux J) the High Court has held that a delay of 13 years did not prevent a landlord from triggering a rent review.
Facts. A lease was due for a rent review in March 1994. If the new rent was not agreed by December 1993, then the issue could be referred to arbitration.
No review had been triggered when the new Tenant ("T") took an assignment of the lease in October 2005. The Landlord ("L) bought the reversion in March 2006 and started the rent review process. The matter was referred to arbitration, and in August 2007 L obtained an award. T did not appear at the arbitration to raise any arguments that the rent review had been exercised too late, or that the landlord was prevented from a late review.
L claimed unpaid basic rent from the date it had acquired the reversion, the full top up payment (that is, the difference between basic rent and new rent)for the period March 1994 to date, and forfeiture for rent arrears.
T then argued that:
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Section 19 of the Limitation Act 1980 applied, and L was too late to claim the top up rent. Section 19 states that a landlord cannot bring an action, or distrain, for rent arrears if more than six years has passed since the date the arrears became due.
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L was too late to trigger the rent review clause in 2006 because time was impliedly of the essence of the rent review clause; or the landlord's delay was sufficiently gross and unconscionable and signalled abandonment by the landlord of its rent review right.
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T lost in the County Court on all these points, and appealed.
Decision. The court held that T was bound by the arbitration award:
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There was no time-bar under section 19. The top up amount did not become due until September 2007 (after L obtained the arbitration award) and the landlord had only sued for unpaid basic rent from March 2006.
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The language of the rent review clause did not make time of the essence.
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Delay on its own cannot disentitle a landlord from implementing a rent review. The court was bound by the County Court's finding of fact that there was insufficient evidence to support a defence of estoppel [need to explain this to lay person] or waiver.
Comment. Landlords will be reassured that, if they overlook a rent review, triggering it late will not generally mean that they lose the right to an increase. If the tenant wants to bring the rent review issue to a head, then the tenant should serve a notice on the landlord making time of the essence and requiring it to conduct the rent review within a reasonable time.
An assignee of a lease should always ask for evidence of the outcome of rent reviews that should have been completed before the date of the assignment. Where a review is outstanding, the contract should contain provisions for the assignor to contribute to the top up payment when the rent review is eventually agreed. The assignor should also be involved in the rent review process, or have the right to agree the amount, before it is finally settled, so that the bill it faces is not unnecessarily inflated. |
How does a company sign a legal document that isn't a contract or a deed?
How does a company sign a legal document (that is neither a contract nor a deed) that has to be signed by the company itself, rather than on behalf of the company?
The obvious difficulty is that although a company has a distinct legal personality, it cannot physically put pen to paper to sign a document. In Hilmi Associates Limited v 20 Pembridge Villas Freehold Limited [2010], the Court of Appeal considered how a corporate body could itself sign a document that was neither a contract nor a deed.
In Hilmi, the company was one of a group of tenants that had served a notice to acquire the freehold of the property. Notices of this type must be signed by the tenant, not on behalf of the tenant. The notice had been signed by one of the directors of the company. However, the Court of Appeal held that this was not sufficient: the notice should have been signed by the company either:
- Affixing its common seal; or
- Using the signatures of two directors or a director and company secretary.
The notice in Hilmi was served in June 2007, before the provisions of the Companies Act 2006 on execution of documents came into force. The Companies Act 2006 now sets out three ways in which a company can itself sign a document:
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By affixing its common seal (Section 44(1)(a)). The company is free to determine by its articles of association what additional formalities (such as attestation) are required for use of the seal.
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By a director and secretary of the company or two directors each signing the document on behalf of the company and the document being expressed (in whatever form of words) to be executed by the company (section 44(2)(a)).
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By the document being signed on behalf of the company by a director of the company in the presence of a witness who attests the signature and the document being expressed (in whatever form of words) to be executed by the company (section 44(2)(b)).
Which documents does this affect?
The Law of Property Act 1925 requires a declaration of trust in relation to land to be in writing "signed by some person who is able to declare such trust or by his will". In practice, if a company is to declare a trust of land, it would be likely to do so by executing a deed, so the problem of signature by the company would not arise. So, in the majority of cases, signature of a document on behalf of the company will be sufficient. However, it is important to be aware of the relevant legislation to ensure that signature by the company itself is not required. |
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 Ash is Back!
You cannot have failed to miss the issues raised by the Icelandic ash cloud that has been looming over the UK and Europe for the past couple of weeks and resulted in the cancellation on hundreds of flights resulting in a loss of £2billion. It has caused airspace closures in the UK and Europe again last week and the difficulties in operating commercial aviation are likely to be felt for many months to come.
Many of the major airlines have been negatively affected by the airport closures and flight cancellations resulting from the volcanic ash. Consequences of the chaos created by the volcano eruption in Iceland have been felt by thousands of business people and holidaymakers who have been unable to reach their destinations.Some businesses have been affected by the inability for freight to get in and out of the country.
Many terms and conditions of business have a so-called 'Force Majeure' clause which are largely ignored possibly because they feature towards the end of the contract by which time individuals are seeing double and have lost the will to live! 'Force majeure' is not a bizarre Latin phrase used by lawyers, it is actually French and is often translated into 'Act of God'. So what does this little clause do? It acts rather like the 'get out of jail free' card in Monopoly and relieves a party to a contract from its obligations when certain events beyond its control happen, for example, natural disasters or the outbreak of hostilities. It is usual for parties to provide in a contract that such events will not make the defaulting party liable if they prevent it from performing its obligations. The concept is derived from civil law and is not fully recognised under common law, therefore it should always be fully defined ( a specific clause in a contract is therefore required to deal with this).
Airlines are most likely to have force majeure clauses in their terms and conditions with customers/passengers which would protect them if there was to be a natural disaster. The same applies to hotels, which may have provisions in place to protect both customers and the hotel in the event of the unforeseen circumstances. In other words, the hotel may possibly wave the 'force majeure' clause at the customers and heave a big sigh of relief for not having to compensate them for cancellation caused by the ash. Alternatively, the hotels might have to refund the cancellations if the volcanic ash is not covered by the force majeure clause of their terms of business and look to their insurers for recovery of losses if possible.
It will be interesting to see if there will be a spate of claims for breach of contract and whether businesses have that all important little clause to protect themselves - you might want to check your small print too.
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| Employment Contracts Offer
This month our special package offer is one that fits within our overall hospitality theme in terms of our employment law expertise. We will draft an employment contract for a junior employee with a letter of advice for £350 plus VAT and disbursements if you contact us before June 30th 2010.
Please contact us for further information. Offer ends June 30th 2010.
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Please note that information contained in this briefing update does not constitute legal advice. All statements of law are applicable to the laws of England and Wales only. Copyright Fortune Law 2010. All rights reserved. |
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