In this month’s edition:

1. The contract clause that cost a developer more than £3.5m
2. More Companies Act measures come into effect
3. New regulations could spark increase in sexual harassment claims
4. EPCs extend to business properties above 10,000sq metres
5. Consultation regulations extended to more firms

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The contract clause that cost a developer more than £3.5m
 

The need to make sure that contracts are completely watertight has been illustrated in a recent case where a dispute over the meaning of a single clause cost a property developer more than £3.5m.

The case involved Chartbrook Ltd and Persimmon Homes. The two companies agreed that Persimmon should build a mixed residential and commercial development on land owned by Chartbrook. Under their agreement, the amount paid by Persimmon for the land would include an additional residential payment which was defined as “23.4% of the price achieved for each residential unit in excess of the minimum guaranteed residential unit value less the costs and incentives.”

The problem then arose as to what that phrase actually meant. Chartbrook interpreted it as meaning it was entitled to share in the net proceeds for each unit above the minimum guaranteed amount. Persimmon saw it differently and believed that Chartbrook should receive either 23.4% of the net sales revenue or the minimum guaranteed amount, whichever was the greater.

The stakes were enormous because the difference in cash terms between the two interpretations was more than £3.5m. The High Court ruled in Chartbrook’s favour and that ruling has now been upheld by the Court of Appeal.

Persimmon submitted that evidence from the pre-contract negotiations between the two companies supported its definition of the phrase. However, both the High Court and Court of Appeal ruled this to be inadmissible and said that pre-contract negotiations should not be used to define terms in a contract.

Lord Justice Rimer said: “I would reject any suggestion that this is a case in which it is legitimate, as part of the construction exercise, to have recourse to the pre-contract negotiations. The basic rule is that they are out of bounds.”

The courts ruled that the final wording of the contract was what really mattered and the final phrase contained in the contract clearly supported Chartbrook’s interpretation. “There is nothing unclear, uncertain or ambiguous about that. It is clear, certain and unambiguous and its arithmetic is straightforward.”

It is clear from this case that companies should ensure the wording in a contract correctly reflects the true nature of the agreement. If there is any dispute then it is unlikely, as in this case, that the courts will allow evidence from pre-contractual negotiations to be used. Please contact our commercial expert Peter Sutherland regarding commercial contracts.

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More Companies Act measures come into effect

More provisions of the Companies Act 2006 which are designed to reduce the administrative burden on private companies have now come into effect.

Two of the most significant changes mean that firms no longer have to appoint a company secretary unless they want to and they no longer have to have the signature of two directors to execute deeds. The signature of one director will be enough provided that it is witnessed.

Further measures now in force redefine small, medium and large companies by new turnover and balance sheet thresholds. There will need to be some changes to accounting and auditing practices, particularly when listing directors’ pay.

Several more Companies Act provisions will come into effect on 1st October this year. These include changes relating to trading disclosures, corporate directors and under-age directors, general duties of directors in respect of conflicts of interest, declarations by a director of an interest in an existing transaction or arrangement, and new procedures for private companies to make capital reductions supported by a solvency statement instead of by a court order.

Please contact Peter Sutherland if you would like more information about any aspect of the Companies Act 2006.

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New regulations could spark increase in sexual harassment claims
 

New measures introduced by amendments to the Sex Discrimination Act 1975 to bring it into line with the European Equal Treatment Directive could see an increase in harassment claims.

The amendments increase the employer’s liability for harassment by third parties.

The definition of harassment has been widened so that someone who feels offended by bad behaviour which causes a degrading environment could bring a claim even though they are not the direct target of that offensive behaviour. They could claim against the employer as well as the person making the remarks.

In the past, the harassment had to be motivated by the sex of the victim. It meant a male manager who made a sexist remark to a woman might avoid liability for harassment if he could demonstrate that he was offensive to men in similar ways.

The new regulations, which came into force on 6th April, have put a stop to this kind of defence because they extend the definition of harassment to include behaviour relating to the victim’s sex rather than just motivated by it.

It means that workplace banter could lead to an increase in harassment cases. Employers may need to update their policies to prevent behaviour that could lead to costly claims being made. To update your policies and procedures or for any employment advice please contact Sally Laughton.

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EPCs extend to business properties above 10,000sq metres

Energy Performance Certificates are now required for the construction, sale or rent of commercial properties with a floor area of more than 10,000sq metres.

The changes, effective from 6th April, place new responsibilities on anyone constructing a new building or selling or renting out an existing property.

When a new building is completed, the person responsible for the construction will need to obtain a certificate and provide it to the owner. This is obligatory under Building Regulations. The same thing applies if a building is converted into more or fewer units and there are changes to the heating and hot water provision or to the air conditioning system.

When selling an existing building, the owner will have to provide a certificate for all prospective buyers. Landlords will have to do the same for prospective tenants of commercial properties.

However, there is no need to provide a certificate for an existing tenancy; only for a new one. Commercial property certificates are valid for 10 years and if they are still in date when a tenancy changes there is no need to obtain a new one.

The certificates have to be provided by energy assessors who are accredited and registered with a government approved scheme. For more information on EPCs or for any queries regarding commercial property please contact Peter Sutherland.

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Consultation regulations extended to more firms

Firms employing 50 or more people must now comply with the Information and Consultation of Employees Regulations 2004.

The regulations are intended to encourage employers to consult with employees and their representatives. Employees are entitled to be informed about such matters as the company’s financial position and changes which would have a substantial impact on work arrangements or contractual terms.

There is no specific requirement to negotiate an Information and Consultation (I&C) agreement unless at least 10% of employees – subject to a minimum of 15 employees - formally request you to do so. However, many firms may wish to do so in the interests of good staff relations.

The agreement must set out the circumstances in which you will inform and consult your employees and it must include all staff.

When the regulations were first introduced they only affected companies employing more than 150 people. Now, since 6th April this year, they affect firms with 50 or more staff. For more information on this or any questions relating to your business please contact Sally Laughton.

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