Yachtinglawyers.com details what we can do for you as a boat owner or potential boat owner.  We also advise brokers, charter companies and marinas.

This year Truelegal’s team of solicitors has been boosted by the arrival of yachting lawyer Hannah Cash.  Hannah has worked on yachting and boating legal issues in Gibraltar and in London.  Lucky us, she now  works for Truelegal both in the South West and in London.

While the underlying legal principles aren’t new there are some novel applications and twists which we have been able to put forward to add value to such projects.

If you are involved or interested in Solar PV in any way, please get in touch through our contact form and we would be pleased to swap notes.

The Code aims to promote fairness in commercial leases, and recognises a need to increase awareness of property issues, especially among small businesses, ensuring that occupiers of business premises have the information necessary to negotiate the best deal available to them.

The Code is voluntary so occupiers should be aware that not all Landlords will choose to offer Code-compliant leases. The Government, however, takes a keen interest in ensuring the property industry complies with this voluntary Code.

The Occupier Guide is not a substitute for professional advice and tenants are encouraged to seek professional advice as soon as possible.  Truelegal can advise you on its suitability and assist with its drafting.

The Code consists of three parts:

• 10 point requirements for landlords in order for their lease to be Code-compliant;
• a guide for occupiers, explaining terms and providing helpful tips; and
• a model Heads of Terms (which can be completed on line and downloaded).

Download the entire code (PDF 544Kb).

The Code for Leasing Business Premises is endorsed by:

Source: www.leasingbusinesspremises.co.uk

As a small to medium-sized enterprise, you may have viable business plans that need funding and for which a loan would be appropriate. However, you may be struggling to access the finance or working capital required because of the additional risks arising from the economic downturn. The newly announced Enterprise Finance Guarantee is intended to overcome this by providing lenders with a government guarantee, mitigating their risk exposure to just 25 per cent of the loan value. The Guarantee is part of the government’s Solutions for Business portfolio and is (supposedly*) available to businesses throughout the UK through approved lenders. *Supposedly, I say, because we have only just started to see evidence of it at the coal face with bank managers.

Participating lenders administer the eligibility criteria and make all commercial decisions regarding borrowing. The decision whether or not to use the Enterprise Finance Guarantee with any loan rests with the lender and follows their commercial assessment of the proposition. You can find out more about the Enterprise Finance Guarantee on the Department for Business Enterprise and Regulatory Reform (BERR) website.

The main features and criteria of the scheme are:

• a guarantee to the lender covering 75 per cent of the loan amount, for which the borrower pays a 2 per cent premium on the outstanding balance of the loan, payable to BERR (the first year premium will be 1.5 per cent)
• the ability to guarantee loans from £1,000 to £1 million and with terms of up to ten years
• availability to qualifying UK businesses with an annual turnover of up to £25 million
• availability to businesses in most sectors and for most business purposes, although there are some restrictions

The government has also introduced a package of support and further financial measures as part of its Solutions for Business portfolio. This has been designed to provide help for businesses through the economic downturn. You can find out more in a guide published by Business Link about the support offered by the government’s Real Help initiative.

Subjects covered in the Business Link guide are:

• Introduction
• Loans
• Where to look for a loan
• Obtaining a loan and offering security
• Overdrafts
• Loans from friends and family
• Providing a guarantee for your loan
• Enterprise Finance Guarantee
• Here’s how securing the right loan helped my business develop

1. Look out for opportunities to buy businesses in distress. These could be competitors, suppliers or businesses that add value to your existing client base.

2. If a deal comes your way, you will have to be very focused on making it work rather than completing a normal deal process with all the due diligence and legal processes.

3. Time will be of the essence. If you buy a company from administration, the information in sales particulars will not be guaranteed, so a physical inspection of the assets is recommended.

4. Obtain as much relevant information as possible by quizzing the administrator, before submitting your bid. It is important, if possible, to establish what issues affect the business, the quality of the stock, the extent of retentions of title and the status of any major contracts.

5. Ensure that appropriate releases are obtained from any existing funders who have debentures or legal charges. Check that the administrator has been properly appointed and has the authority to sell the assets.

6. One of the riskiest areas is taking over the workforce. Analyse this properly so you can assess those risks. In certain circumstances, the liabilities attaching to the employees will be so substantial that they outweigh the commercial advantages of going ahead with the purchase. Beware “TUPE” – if you don’t know what it means ask Truelegal.

7. If the business wants or needs to carry on trading in the existing premises, you need to check the existing property arrangements. You may need to negotiate separately with a third party landlord to ensure continuity.

8. To buy a company out of administration, you have to act quickly and accept you will have to take a commercial view on some parts of the deal.

9. Don’t stand on ceremony with the legal contract. You have to remember that you are buying the business from the administrator – not the previous business owners. There are certain key things which your lawyer will need to check but the administrator will not be prepared to accept personal liability for anything and will not guarantee legal title to the assets. There will, therefore, be gaps in the contract.

10. You won’t have the opportunity to carry out full financial, commercial or legal due diligence. As time is so critical, you will need to take a view on many of these assets. The risks associated with this should be reflected in the price you offer. Don’t expect to be able to make any claims after the event. In a normal transaction, warranties and indemnities and completion accounts are used effectively
to adjust the price if there is a post-completion problem. This will not be available in any insolvent situation.

1. Period/term. Fixed, rolling with notice, or a combination. Are you happy if the other party puts in an option to extend for a further period without your say so? Or that they could terminate early?
2. A supplier should have a limitation of liability clause, to minimise the categories (e.g. loss of profits, loss of business, loss of goodwill) or amount (per incident, per year or in entirety).
3. Frequency and mechanism for price changes must be clearly set out. An agreement to decide on these later is unenforceable and the supplier could be stuck with the original prices for the whole duration of the contract.  For example, it is a good idea to include the right to discontinue certain goods/services if no review is agreed by a certain date.
4. Force majeure clause. Without this, a supplier is obligated to continue the supply despite difficulties outside of his/her control, whatever the cost.
5. Specify the levels of service to be supplied. A customer with audit rights over the supplier’s performance data is in a powerful position.
6. Review meetings. Insist on these and use them to record shortcomings and put these right. One day, as a customer, you may want to get out of the contract by relying on a long list of minor breaches, which together, add up to a material breach.
7. The customer should insist on an interest on late payment clause, providing for a reasonable rate of interest if it pays late (the supplier won’t necessarily demand the interest). Without it, the Late Payment of Commercial Debts Act entitles the supplier to 8% over base rate.
8. A change of control clause will give you the right to terminate the contract early if the other party gets taken over. Would you want to be locked into supplying/buying from a company now owned by your competitor or now a separate entity from its wealthy parent group?
9. It is sensible to limit the usual right for the other party to assign the contract to anyone it wants to.
10. Provide a dispute resolution procedure, particularly if you are sensitive to bad publicity. Insisting on negotiations through a mediation and/or an arbitration procedure will keep your dispute out of the public gaze.

Surrender, Assignment or Underlease

There are two ways to get out of a lease prematurely – termination (a “surrender”) or transfer (an “assignment”).   Your third option, although not a total escape - is sub-letting (an “underlease”). 

If you do nothing the landlord may force a “forfeiture” of the lease which is to be avoided

Reasons to end a lease early

• Your premises are now inappropriate. You have outgrown your premises, or need a different sort of premises. You have too much space. You wish to relocate your business.
• Your premises are now too expensive. This is a catch-22 situation, as it may cost you more to get out of the lease.
• Another business has offered to pay a higher rent for the premises. You may be able to terminate or assign your lease, or sub-let at a profit.
• You might want to improve the lease on your current premises. This may involve surrendering your current lease in exchange for a new lease on more favourable terms.  Discuss any proposals with a chartered surveyor or solicitor before considering any such agreement.

• Your ability to get out of a lease depends on the terms of your lease, the state of the property market at the time and other negotiating factors. 

Ways out of a lease

1. You agree a termination of the lease, usually avoiding any ongoing liabilities to the landlord. 
2. You find a tenant to replace you, and assign the lease to this third party.This will probably leave you with some liabilities to the landlord.
3. An alternative is to sub-let the premises. You find a tenant to replace you, in order to generate your own rental income. All your liabilities to the landlord under the head-lease remain. The sub-tenant is liable to you under a separate sub-lease.

Ask Truelegal – or a chartered surveyor – to review your lease agreement and explain your options.

Break clauses and rights to assign or under-let

The existence of break clauses gives you the automatic right to terminate the lease at specified dates. For example, a five-year lease might have a break clause which allows the tenant to terminate the lease after three years.You still have a problem if you wish to get out of the lease before the specified date. 

The lease may give you the right to assign the lease or sub-let to another tenant, with or without various restrictions.  If you do not have these rights in the first place, you may be able to negotiate the rights at a later stage – at a price. Some leases are more flexible than others.  The shorter your lease, the easier it should be to get out of. It may be possible to negotiate a deal with the landlord by paying him some or all of the outstanding rent. 

Over the last ten years, leases have become shorter, more flexible, and generally far more favourable to tenants. An occupational lease (or standard or institutional lease) is difficult to get out of. The lease typically runs for 12 to 25 years and has strict legal restrictions – since it can be traded on the property market.

Take any opportunities that arise to improve the terms of your lease. For example, when your lease comes up for review, try to negotiate better terms in return for any increase in rent (see rent reviews and rating assessments).

Exercise a break clause in your lease contract, if there is one.  You usually have to notify the landlord in writing during a fixed notice period. Ensure you do not miss the deadline.  The landlord may be legally entitled to refuse to accept the break if you breach any of the terms of your lease, however minor. For example, if the rent is in arrears.  Check your lease for any penalties.

In the absence of a break clause, offer your landlord a deal based on the current market conditions to surrender your lease.  The landlord is under no obligation to agree to any proposal you make. If the landlord realises you are desperate to move, you may end up paying a premium to leave. If you are in financial difficulties, you may only be asked to pay a relatively small penalty payment.You will have to prove your position to the landlord. Be prepared to reveal financial information relating to your business. If nothing else, the landlord may agree to a lower rent if it is clear that your business will fail otherwise. A lower income is often better than a vacant property. Your negotiating position should be much stronger if you can find another business to take on the lease – especially if its financial standing is better than yours.

Assigning a lease

Assigning a lease (passing it on to another business) is a half-way step between terminating the lease and sub-letting. Short leases often prohibit assignment of the lease. It may also be prohibited in the last few years of a lease. Even if assignment is permitted, the lease will restrict who the new tenant can be. You are likely to need the landlord’s consent, but the landlord cannot unreasonably withhold consent.The key issue is whether the financial standing (covenant) of the new tenant is as good as yours. The landlord will usually want to check the prospective tenant’s accounts and references.  The permitted use of the premises may be restricted in a way that disqualifies the proposed new tenant.The landlord will want to know how the new tenant will use the premises, and to be told of any planned alterations. 

Although the new tenant (assignee) is liable to the landlord to fulfil the terms of the lease, you may be left with some liabilities. One way or another, you usually guarantee the new tenant’s payments.  It is usually the date of the lease that matters.  For leases beginning before 1 January 1996, you usually remain liable to the landlord for all payments owed by any subsequent tenants, throughout the full period of the lease. This is the infamous ‘Privity of Contract’ law.  If you obtain your premises by taking an assignment of a pre-1996 lease, you are bound under the pre-1996 law. For leases beginning after 1 January 1996, the landlord will usually be entitled to require you to guarantee payments by the next tenant (but not all subsequent tenants), failing which the landlord may be entitled to refuse to let you assign the lease.

Underlease

If you sub-let, you become the landlord of the incoming tenant. You remain liable to your landlord under the original lease (the head-lease).  You negotiate a new lease with the new tenant (the sub-lease).  Check the terms of the existing lease to establish what you can and cannot do. The terms of the sub-lease are usually similar to the terms of the head-lease, to cover all your liabilities.  You cannot give any rights to the new tenant which extend beyond your own rights as a tenant. For example, you cannot give a longer lease.  Even if you cannot cover your rent, sub-letting may at least cover other overheads such as rates and service charges.  You may be able to make a profit on the rent and other charges. To protect your reclaims of any VAT paid to the landlord you should carefully consider your own VAT arrangements.  Landlords usually want to approve the terms of a sub-lease before consenting. 

Marketing your leased property

Unless you already know of a suitable tenant who would like to take your premises, you will need to employ a firm of chartered surveyors.  Ask for proposals from three firms and pick the one you have most confidence in.  The proposal should outline plans for marketing the premises, including views on what the rent should be and how long the whole process will take.  Check the terms of engagement. These give details of the commission payable and the proposed expenditure on marketing.  Which marketing costs will you have to pay, and at what stage?   What might any extras on the bill be?  Will the surveyors bring in other agents (at no cost to you) if they have difficulties finding a tenant to take your lease?  Provide the surveyors with full information on the premises.  This should include floor plans and details of the lease, the fixtures and fittings, and any costs such as service charges. 

Negotiating tactics

Market conditions will determine how easy your negotiations with the landlord are, particularly if you are negotiating to terminate the lease early.  If the property market is strong (and rents and occupancy rates are high), your landlord is more likely to agree a deal.  In these conditions, the landlord can expect to find a new tenant soon and perhaps to increase the rent.  You may even be able to negotiate a cash premium for leaving the premises.  If the property market is weak (and rents and occupancy rates are low), your landlord may be extremely reluctant to agree a deal.  You may have to pay a financial penalty to get out of the lease.

Take steps to strengthen your negotiating position by assessing the situation from a number of different angles.  What is your landlord’s position?  The premises may be difficult to re-let, because of location, layout or condition.   The landlord may have other problems.   If your premises are in a multi-let building, find out if the landlord plans future redevelopment for the whole building. If this is so, it will be easier to negotiate a termination. It should also be cheaper, as you can avoid any dilapidation charges. Has the landlord broken any terms of the lease?  For example, if the landlord fails to maintain the premises, you may have the right to terminate the lease (once notice periods and legal procedures have been complied with).   What concessions are you willing to make?  If you provide any guarantees – try to limit the amount and duration. It is often worth paying more cash today to avoid potentially large future liabilities.

Disputes

It is not always possible to avoid disputes, but you can take steps to minimise the risks.  Ensure you understand and agree with all the clauses in the lease before signing it.  Use a professional adviser to explain all the terms and obligations.  Ensure you do not breach any of the terms in the lease and follow the correct procedures when exercising your rights.  Agree a procedure for resolving disputes and get it included in the lease before you sign.  You can agree how formal the procedures should be and who should act as the arbitrator or mediator.  It can be cheaper, quicker and more flexible to resolve disputes this way.   

Costs

The costs incurred in getting out of your lease may make your annual rent look cheap by comparison.  Be realistic about the price you will have to pay.  Do not ignore the cost of the professional advisers involved, on both sides.  Note that the bills for your landlord’s advisers will usually be paid by you.  The cost of finding a new tenant may be hard to estimate in advance.  What is the extent of your liability under the lease for dilapidation charges?   How much is finding new premises and relocating going to cost you?

All forms of leasing are basically rental agreements giving you (the lessee) the right to use an asset owned by the lessor (finance company) for a specific period of time in return for regular payments (rental payments).

You can lease almost anything, from equipment valued at a few thousand pounds to assets worth millions. Leasing contracts are flexible and can be tailored to your needs.

Types of Financial Lease

• Direct Lease : You identify the asset (and negotiate the price) and arrange for the leasing company to buy it from the manufacturer (if new) or the previous owner (if used) to rent it to you.
• Sale-and-leaseback (also called purchase leaseback) :You sell an asset you already own to the leasing company for fair market value or book written down value (whichever is less) and then lease it back.

In both cases, the lessor owns the asset , not you, and rents it to you. As with any other rental agreement, you return the asset at the end of the lease to the lessor.  Some leases grant you an end-of-lease option to renew the lease at a minimal cost (secondary period) or to sell the asset to a third party as agent of the lessor.

Often equipment manufacturers themselves act as lessors or have an affiliated leasing company. This allows them to more easily help their customers finance transactions. The other two groups of lessors are banks and independent leasing companies.

Types of Asset Finance

There are three major types of leasing: finance leasing, operating leasing and contract hire.  Although strictly speaking not a type of leasing, there is also hire purchase:

• Finance Leasing (Full Payout Lease) : You effectively acquire all financial benefits and risks without actually acquiring legal title. The leasing rate is computed to collect the full value of the asset (plus finance charges) during the contract period. At the end of the lease, the asset is sold to a third party and you can receive a share of the sale proceeds (if the lease is not being extended). Generally, you will not be able to become the owner of the asset at any time – unless a private arrangement is made with the third party. However, you usually have the option to extend your lease and as you will have paid for almost the full value during your initial lease period, the rental payments for subsequent periods will be minimal (sometimes referred to as “peppercorn rent”).
• Operating Lease : Often with a shorter time frame than financial leasing (always significantly shorter than the working life of the asset), operating leasing is more like a regular rental. The lessor expects to be able to either sell the asset in the second-hand market or to lease it again and will therefore not need to recover the total asset value through lease payments. There may be an option to extend the leasing period at the end (this negotiation can only take place at the end of the initial rental period). As with finance leases, you will not be able to become owner of the asset at any time but, contrary to financial leases, you will not share in the sale proceeds.
• Contract Hire : A form of operating lease (often used with cars and other vehicles) that includes a number of additional services such as maintenance, management or replacement if asset is in repair.
• Hire Purchase : This is an agreement for the hiring of an asset with an option to purchase. The legal title will pass to you when all payments have been made. The term of a hire purchase must be significantly shorter than the working life of the asset. You are able to claim capital allowances as if you had purchased the asset outright, gaining immediate use of it. Hire Purchase agreements are typically written for domestic users, not so much for business users.

End of Lease Options
At the end of the lease term, you have various options . Lease contracts can stipulate that you:

• return the asset
• have the right to act as an agent to sell the asset to an independent third party; and/or

• can renew the contract or enter into secondary periods.

Choosing the Right Type of Finance

All types of financing offer different advantages and it is important that you assess your circumstances and needs before committing to a specific finance contract.

1. Do you want to own the asset straight away? An outright purchase (cash or loan/overdraft) might be appropriate.
2. Do you want to own the asset at some point in time and want to take advantage of instalment payments? Hire purchase might be the best option.
3. If you do not want to own the asset at all but require it for most of its useful life, then consider a financial lease.
4. If you require the asset for a period of time significantly shorter than the useful life of it, consider an operating lease.
5. Advantages
   Better Cash Flow : Leasing gives you access to the asset with minimal up-front payments and spreads the cost over time. You to pay for the asset with the income it generates while minimising the drain on your working capital.
6. No debt : An operating lease preserves your credit options and does not influence your credit limit as it is generally not classified as debt but as expense (note that this advantage does not apply to finance leases).
7. Maximise Financial Leverage : Your lease can often finance everything related to the purchase and installation of the asset and may free up cash flow to pay for items such as training.
8. Simplified cash flow management : Lease payments are usually flat, making cash management more predictable and easier than with a variable rate loan. The fixed interest rate of a lease also helps if interest rates rise.
9. Tax advantage : Operating lease payments are generally tax deductible just like depreciation charges but are made with pre-tax money. Cash purchases, in contrast, are made with after-tax money. Hire purchase agreements allow the lessee to claim capital allowances.
10. Flexible time frames : Leasing contracts can be structured to fit your requirements. Use an asset as long as you need it without owning it forever.
11. Hedge against obsolescence : Depending on your end-of-lease option, just return the asset to the lessor. You will not have the hassle of selling the used asset or run the risks related to residual value and (technical) obsolescence.
12. Additional advantages :Some leases offer additional advantages such as cancellation options or asset maintenance.
    

Disadvantages

1. More expensive : A finance lease is usually more expensive than an outright cash purchase as the payments include finance charges. However, leasing may cost less than other forms of financing. Also consider the tax advantages when making this calculation.
2. Additional Guarantees : Depending on the credit rating of your company, the lessor might require additional guarantees. These may be provided by you, your partners or your bank and could affect your personal credit rating or your standing with your bank.
3. Fixed Term : It may be impossible, or at least costly, to terminate a leasing contract early.
4. Fixed Interest Rates : Interest rates are usually fixed throughout the lease which may prove a disadvantage in times of falling interest rates.

Things to Watch out for

1. Return of Asset Conditions : If you choose to return the asset at the end of your lease, the condition in which and the place where it must be returned are important aspects to consider carefully.
2. Notice Period : If your lease includes the option to renew take note of any time periods in which to give notice in case you do not want to renew the contract. Some leasing companies will automatically renew the contract if you fail to give notice.
3. Purchase Rights : If negotiating the right to purchase the asset at the end of your lease, a predetermined fixed price offers more value as the ‘fair market value’, which theoretically is always available to you.
4. Maintenance Responsibility : Clarify which service and maintenance programs are included in the lease. If you are responsible for service and maintenance, make sure you do not have to provide an unreasonably high degree of it.

Glossary

Direct lease : you identify the asset (and negotiate the price) and arrange for the leasing company to buy it from the manufacturer (if new) or the previous owner (if used) to rent it to you. (see also sale-and-leaseback)

Economic life (useful life) : the period of time during which an asset has economic value and is usable.

Fair Market Value : price at which an asset is sold and bought in the open market.

Lease : a lease is a contract in which the lessor purchases the asset selected by you and conveys the use of an asset to you for a specific period of time at a predetermined rate.

Lease Rate : the periodic rental payment to the lessor for the use of the asset. The lease rate is primarily determined by the total cost of the asset, the duration of the lease and the interest rate level.

Lessee : the lessee is the user of the asset being leased, i.e. you.

Lessor : the lessor is the party who has legal or tax title to the equipment, grants the lessee the right to use the equipment for the lease term, and is entitled to the rentals, i.e. the leasing company.

Master lease : a contractual arrangement which allows you to lease other assets under the same basic terms and conditions without negotiating a new contract.

Purchase option : a provision by which you have the right to purchase the asset at the end of the lease term, either at a predetermined amount or its fair market value.

Residual value : the resale value of the asset at the end of the lease.

Sale-and-leaseback (also called purchase leaseback): you sell an asset you already own to the leasing company for fair market value or book written down value (whichever is less) and then lease it back (see also direct lease).

Here are a few things to watch for – really not rocket science but you’d be surprised…

1. Read the Entire Document before Signing :  After signing the document, it is assumed that you have read, understood, and agreed  to all of the terms.  If the other party states that a portion or paragraph of the  contract does not apply to you, delete or cross out that section.  You and the other party should initial next to the correction.
2. Ask Questions : If you are unsure about ANYTHING in the contract, or do not fully understand the document, ask the other party about these areas.  Or STOP and take legal advice.
3. “Standard Terms ” : Beware when the other party simply  indicates that this is simply a “standard document” and you should not worry about  reading it.  Be aware that few legal documents are “standard.”  Contract terms vary and it is a good  idea to have someone else read through the document.
4. Take Time to Consider the Full Agreement : Do not be pressured into signing an agreement before you are ready.  Allow yourself to  take time to consider your options, priorities, or the contract itself if you need it.   Take your decision to sign seriously, as you will be making a large  commitment and investment.  Your signature indicates your immediate  commitment to the terms of the contract.  Take time to make an educated decision.

Truelegal has a great client base of enthusiastic entrepreneurs, individuals ready and willing to react to the market place.  Part of that strategic adaptation may involve structural changes to the business, or a decision to buy a distressed competitor.

With our commercial background we have managed to assist many business owners recently to mskr not just their own business more robust, but to msximise the many opportunities out there for those willing to step up.

If you need a business solicitor able to meet the current challenges please contact us for a no obligation meeting – at a location to suit you. We believe we can make the business case that we can add value to your business rather than being a legal fee-drain on your bottom line.