Real Estate Focus: October 2019

Introduction

In this edition we take a look at the status of email footers and solar panels; changes to off-payroll working rules; and retail CVAs.

Email footers: a risky business

In Neocleous v Rees [2019] EWHC 2462 (Ch) the court considered whether a name automatically generated at the foot of an email amounted to a signature, creating a binding property contract.

Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (s.2) provides that a contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document (or, where contracts are exchanged, in each) which must be signed by or on behalf of each party.

There has been considerable debate as to whether or not an electronic signature can be a “signature” for the purposes of s.2.

In this case, the claimant as prospective buyer (the Buyer) sought specific performance of an alleged contract to transfer a plot of land for £175,000. The alleged contract was contained in a string of emails between the solicitors of the Buyer and of the prospective seller (the Seller). The Seller’s solicitor had written: “Further to our telephone conversation I am pleased to confirm that terms of settlement between our respective clients have been reached on the following basis” followed by the terms agreed. The solicitor signed off with “many thanks” and an automatic footer with his name, occupation, role and contact details was generated. The Buyer’s solicitor responded: “Thank you for your email and I confirm my agreement with its contents”, again with an automatic footer added.

The Seller had given his solicitor authority to agree terms but subsequently argued that there was no contract as the signature requirement in s.2 had not been satisfied.

The court held that:

• The contract did not need to be physically signed with a “wet ink” signature. The guide as to whether or not there is a signature is whether the name was added “with authenticating intent”.
• The fact that the name had been added electronically as an automatic footer made no difference. The presence of the name indicated a clear intention to associate oneself with the email – to authenticate it or to sign it.

The automatically generated name was therefore a signature for s.2 purposes and there was a binding contract for the sale and purchase of the land.

Automatically generated email footers bearing the name and details of the sender are standard business practice. Now that the court has decided that a chain of emails with automatically generated footers is capable in principle of creating a binding contract relating to land, we need to be on our guard and consider taking precautionary measures - such as marking email correspondence “subject to contract”- in potentially risky situations.

Solar panels in the spotlight

The past few months have seen two significant decisions relating to solar panels.

One of the questions for the court in Borwick Development Solutions Ltd v Clear Water Fisheries Ltd [2019] EWHC 2272 (Ch) was whether, on a sale of land, solar panels installed by the seller passed automatically to a buyer.

The crux of the issue was whether solar panels were chattels – in which case they remained the property of the seller - or fixtures - in which case they had become part of the land and passed to the buyer. The court reiterated the long-standing position that there are two tests for establishing whether or not an item is a fixture:

• the method and degree of its annexation to land.
• the object and purpose of its annexation.

In this case, the solar panels were fixed to a metal framework, which in turn was screwed into a wooden platform set in the ground. The judge found that their real purpose was not for their use and enjoyment independently of the land, but for their use as an integral part of the land. As a result, the solar panels were held to be fixtures under both tests and passed automatically to the buyer of the land.

The second case, William Ellis McLennan v Medway Council and Ken Kennedy [2019] EWHC 1738 (Admin) concerned the interaction between domestic solar panels and the planning system.

The claimant challenged the grant of planning permission for an extension to a building on adjoining land, one of the grounds being that the development would adversely affect his ability to generate electricity from his solar panels.

The court held that interference with the amount of sunlight enjoyed by solar panels was capable of being a material planning consideration when deciding whether or not to grant planning permission for a proposed development. This was by reason of the part played by solar panels in addressing climate change concerns.

It would appear that this is the first time that these two issues have been considered by the court. Given the increasing prevalence of solar panels both in a residential and business context, they may well have a considerable impact in practice.

Changes to off-payroll working rules

Rules governing the taxation of individuals engaged through personal service companies (PSCs) will change with effect from April 2020. The reformed off-payroll rules, which have applied in the public sector since April 2017, will be extended to the private sector from April 6, 2020. This will affect clients of contractors providing services through PSCs.

The off-payroll working rules, known as IR35, are intended to ensure that individuals who personally provide their work to a client via a PSC or other intermediary pay broadly the same employment taxes as employees, if they would be considered an employee or office holder of the client save for the existence of the intermediary. The changes respond to government concerns that some contractors, who work like an employee but provide their services through their own companies, are avoiding tax and National Insurance contributions (NICs).

Currently, the PSC has responsibility for determining whether the contractor should be treated as an employee or not. Under the new regime, the client will be responsible for determining whether the IR35 rules apply. If the client fails to operate the new rules correctly, responsibility for employment taxes and NICs can also move to the client. Clients will have much more responsibility for gathering information and will also be responsible for determining status and passing a ‘status determination statement’ (SDS) to the worker.

What steps should clients be taking? It is important that clients who contract with suppliers begin taking steps to ensure that they will be in a position to comply with the new rules. These should include:

• identifying contractors supplying their labour through an intermediary.
• completing due diligence on the supply chain (including the financial liability of the entities in the chain).
• considering changes to any protocols for engaging future contractors.
• ensuring that there is a system in place to make the SDS and to document the determination.
• identifying any adjustments to working practices.
• ensuring there is a contract in place for working arrangements with each contractor and considering changes to any standard form consultancy arrangements.

Small companies will be relieved to know that the new rules do not apply to them.

For further information please contact Matthew Hodkin, Susanna Brain or Amanda Sanders.

“Evolving” retail CVAs

Company voluntary arrangements (CVAs) provide a contractual mechanism through which a company can restructure its debts and liabilities, allowing it to continue trading for the benefit of its creditors as a whole. If a CVA is proposed, it must be approved by at least 75 per cent of the company’s creditors. If approved, it is binding on all the creditors.

As headlines and the state of the high street attest, CVAs have become common in recent years as a way for retail companies to deal with burdensome leases. Apparently, there have been about 40 retail CVAs since April 2009.

Discovery (Northampton) Limited and others v Debenhams Retail Limited and others [2019] EWHC 2441 (Ch) is a high profile example. Debenhams’ directors proposed a CVA to address what they had identified as unsustainable property costs at certain stores. The CVA included:

• a reduction in the future rent payable under store leases for a concessionary period, in some cases of as much as 50 per cent.
• a block on landlords exercising any forfeiture rights triggered by the CVA.
• a release of the tenant from liability under dilapidations claims.

The CVA was approved by the requisite percentage of creditors but was not supported by the claimant landlords, who challenged it on several grounds.

The landlords failed in their arguments that future rent cannot, as a matter of jurisdiction, be included in a CVA, that the rent reductions were unfairly prejudicial and that they were treated less favourably than other unsecured creditors without any proper justification.

However the landlords succeeded in their argument that the right of forfeiture is a proprietary right that cannot be altered by a CVA. As a result the court declared the CVA to be valid but removed the forfeiture restraint provisions.

The decision in relation to forfeiture is arguably a hollow victory for many landlords, who may prefer a lower rent to empty premises in the current retail climate. As to the rent reductions, while they were not found to be unfairly prejudicial, it is notable that the evidence indicated that the stores were all over-rented, so that decision may swing the other way where that is not the case.