April 2009: Business tenants - know your rights

Father-of-three Nigel, aged 55, began his career in the North West, training in Liverpool and qualifying in 1978 before taking a position in Chichester. He went on to work at partner level in Bournemouth before moving to a firm in Swindon in 1990. He has worked for clients along the M4 corridor ever since.

“I have always been in litigation and my licensing career started by chance in 1978, and this has always been my specialist area,” said Nigel, who is the author of a plain English guide to licensing and has lectured widely on the subject.

Nigel has acted for PLCs, SMEs, partnerships and individuals over a wide range of issues, including general contract disputes, sale of goods, misrepresentation, partnership issues, professional negligence and insolvency.

Gary Cousins who founded Cousins Business Law in April 2008 commented, “We have a very definite plan for the expansion of the firm and Nigel joining us is a key part of that. It expands our capacity with another partner-level lawyer with a specialism in licensing, and extends our reach further south in the region.”

As with many area of the law, licensing activity is often explained in legal jargon. Nigel has published a glossary of key licensing terms on the Cousins Business Law website. If you need specific advice contact licensing solicitor Nigel Musgrove on 01285 847 001.

Business tenants surprisingly often enjoy more security than residential tenants. To take advantage however you must make yourself aware of your rights, particularly if you are in the last year of your lease.

The main protection enjoyed by business tenants is the so-called ‘security of tenure’ protection granted by the Landlord & Tenant Act 1954. This protection gives business tenants the right to take a new lease of their premises once the existing one comes to an end.

The first thing every business tenant needs to establish, however, is whether these rights have been excluded. The Landlord & Tenant Act allows a landlord (with the tenant’s consent) to agree to waive its rights if a particular procedure is followed. A quick check using Cousins Business Law’s free Business Lease Review service will establish whether or not these rights have been excluded.

If your rights have not been excluded, then it is vital that you do not give them up by failing to act if you are served with a notice by your landlord.

Under the Act, a landlord can bring a business lease to an end by serving notice on the tenant. The notice has to state whether the landlord is prepared to grant a new lease to the tenant and the terms it proposes to offer. The starting point here is that the tenant is entitled to a new lease on the same terms as the existing one (although the rent under the new lease will be the open market rent at the date of renewal).

There are specific circumstances where the landlord is entitled to oppose the grant of a new lease which a commercial property solicitor can advice on.

Even if the landlord attempts to oppose the grant of a new lease, certain tests have to be satisfied to enable it to prevent the tenant taking a new lease and the tenant may also be entitled to compensation (equal to once or twice the rateable value of the premises, depending on how long the tenant as occupied the premises).

If the landlord serves a notice and the tenant wants to preserve its right to a new lease, then it must act, and act quickly. The tenant needs to make a Court application requesting a new lease before the landlord’s notice expires (whether the landlord is opposing the grant of a new lease or not).

If no Court application is made before the notice expires, then the tenant’s rights are lost (if the landlord opposed the grant of the new lease that gives rise to compensation, the right to compensation is not lost, however).

It is possible to extend the time for making a Court application by agreement but it is essential that this agreement is properly documented, ideally by correspondence between lawyers.

If you are served with a notice by your landlord bringing your lease to an end, then it is vital you take immediate legal advice.

Cousins Business Law can give some initial advice courtesy of the Business Lease Review Service. For further details, contact Steve Petty on 01926 629 005.

Perhaps the most damaging type of dispute that can hit a company is one between its directors or shareholders, and these can be particularly damaging in SMEs and family-owned businesses. Often these companies are formed without a shareholders’ agreement in place stating what should happen if the owners cannot agree a course of action.

The riskiest set-up is when there is no one in overall control. Perhaps there are two shareholder-directors, each with 50% of the shares. Such a set-up means that the owners will be in deadlock if there is a dispute with no one in a controlling position or any mechanism to sort out the problems.

However, there are still things that can be done. First, consider whether you are arguing over a particular matter or whether things have got so bad that you can no longer work with each other.

If it’s just one matter you can’t agree on, consider taking external advice - from a lawyer, accountant or other business advisor, depending on the nature of the disagreement.

If you can no longer work with each other, then usually the solution is for one party to buy the other out.

The first step is take legal advice on the dispute and what can be done. If you do nothing, or simply step back from the business, this might actually put you in breach of your own duties as a director!

Your lawyer will consider the overall situation with you. Can it be sorted out quickly or will one of you need to buy the other out? What is the business worth – a forensic accountant might need to be called in to help value it?

Your lawyer will then see whether you can agree with your opponent how to sort things out. Maybe you could agree to go to mediation.

If not, the courts can help in the following circumstances:

1. If one of the directors has been breaching any of their directors’ duties, the company can take legal action against them in order for them to pay back to the company any loss it has suffered. If no one director/shareholder is in control, you might need the court’s permission to start what are known as ‘derivative proceedings’.
2. If you are being unfairly prejudiced as a minority shareholder by the way the other director or directors are running the company, you might be able to take what are known as ‘unfair prejudice’ proceedings.
3. If it is simply a case that there is deadlock and you cannot work together or agree how to resolve the issues between you, then you might be able to start what are known as ‘just and equitable’ winding-up proceedings. These might force the issue of one party having to buy the other out.

The legal situation is complicated and, whenever there is a dispute between directors/shareholders, obtaining legal advice should be the very first thing you do.

For advice on any director or shareholder dispute, why not take advantage of Cousins Business Law’s half hour case assessment. Let us have the details of your case and we will provide an initial view of the strength of your case and the options open to you. Contact Cousins Business Law by email here.

Subscription

Cousins Business Law Update is published monthly.  An archive of back issues is held on our website – here.

If you no longer wish to receive Business Law Update you can unsubscribe here.

©2008 Cousins Business Law. All Rights Reserved. No unauthorised copying, extraction or other use is allowed except with our prior written permission.