Category: Business and Company Law

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Business and Company Law Property Law Start Your Own Business

Agreement for Lease Versus the Lease Itself-What’s the Difference or Purpose?

Are you considering taking a commercial lease and you are being asked to sign an “agreement for lease” first?

Wondering what’s the difference? Or what is the significance, if any? Let’s take a look.

Lease

A lease sets out the terms and conditions under which a lessee will occupy a premises on an exclusive basis. The lease will contain the term, the rent, and other terms by which the lessee will enjoy possession of the premises.

Agreement for lease

An agreement for lease on the other hand is a binding contract to grant a lease in the future.

Sometimes an agreement will only bind one of the parties-for example the lessee may have an option to renew a lease at the expiry of the existing term.

The big difference between an agreement for a lease and the lease is the tenant will have entered into possession and occupation if it is a lease he has executed.

Why enter into an agreement for a lease?

There is a number of reasons, the most common of which is the property cannot be handed over to the lessee yet. This may be where a property is being constructed or it may be where the property is currently occupied by an existing tenant.

Or it may be where significant refurbishment or remedial work, or a costly fitout needs to be carried out on the property before the lessee will enter into occupation. If you were the landlord, you would want some comfort that the money you will spend will not be wasted by your proposed tenant changing his mind.

The agreement for lease is a binding contract, so the change of mind problem should not arise.

An agreement for a lease might also arise where all the terms and conditions of the lease have not yet been agreed or where the proposed lessor has not yet acquired title to the property.

All these circumstances require an agreement for lease as it is not yet possible to grant a lease and hand over vacant possession to the lessee.

Where the reason for an agreement for a lease is where major refurbishment of an existing property is required, or where a building must be constructed, important factors to consider include:

  • Fitout works and defect rectification periods
  • When practical completion will occur
  • What are the handover provisions
  • What warranties will be given
  • Is security required-for example a bond or bank guarantee

You will note, therefore, that an agreement for a lease is similar to a new build of a residential house contract, save for the agreement for lease is between a landlord and tenant.

The terms negotiated and agreed upon in the agreement for a lease should make provision for the completion of the works in a timely and satisfactory manner. If this does not occur there should be compensation to the proposed lessee.

An architect or engineer should also be engaged to check that the proposed work is satisfactory and complies with planning permission and any applicable building or statutory regulations.

Practical completion

When practical completion is arrived at the building should be ready to occupy.

At this point the date of the lease should be agreed, the bank guarantee (if agreed) should be provided by the lessee, any period during which rectifications should be carried out should be used to ensure rectifications are carried out, even though some minor works may still be outstanding.

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Business and Company Law Property Law

Landlords to Be Held Liable for Rates of Tenants?

Landlords and lenders were at risk of being held liable for outstanding rates of tenants pursuant to the Local Government Rates and Other Matters Act 2019.

Section 13 of the act provides:

Payment of rates on sale of relevant property

13. (1) The owner of a relevant property who proposes to sell the property shall, before the completion of the sale, pay to the local authority concerned any rates imposed under this Act and accrued interest which is due and payable in respect of that property.

(2) The local authority concerned shall provide a person referred to in subsection (1) or a person acting on behalf of the person in connection with a sale of a relevant property with—

(a) confirmation of any unpaid rates imposed under this Act and accrued interest at the date of the sale of a relevant property, or

(b) confirmation that there are no outstanding amounts payable,

as the case may be, in such form and manner as may be prescribed.

(3) In this section—

“sale” includes, in relation to a relevant property, the transfer of the property by its owner or any trustee or personal representative of the owner to another person—

(a) in consequence of—

(i) the exercise of a power under any enactment to compulsorily acquire land, or

(ii) the giving of notice of intention to exercise such power,

or

(b) for no consideration or consideration which is significantly less than the market value of the property at the time of its transfer.

It is likely that this provision also obliges a receiver or mortgagee in possession to pay the outstanding rates on or before a sale.

Section 14 of the act provides that interest can be charged on unpaid rates:

Unpaid rates to be a charge on relevant property

14. (1) Any rates levied by a rating authority in respect of a relevant property payable under this Act and any interest referred to in section 12 which is due and unpaid by the owner of the relevant property shall be and remain a charge on the relevant property to which it relates.

(2) Notwithstanding section 36 of the Statute of Limitations 1957, the charge referred to in subsection (1) shall continue to apply without a time limit until such time as it is paid in full.

(3) This section does not affect—

(a) the liability of any previous occupier for outstanding rates in respect of which he or she is primarily liable, or

(b) the functions of the rating authority concerned under any other enactment to collect any outstanding rates from the occupier or occupiers primarily liable.

Section 7 of the Local Government Rates and other Matters Act 2019 provides for set off of rates against any money owing by the local authority against any money due to the local authority.

Discharge of rates by set-off

7. Where a sum is due to any person by a local authority and, at the same time, a sum is due to such local authority by such person in respect of rates the former sum may be set off against the latter either, as may be appropriate, in whole or in part.

Section 12 provides for interest to be charged on overdue rates.

Conclusion

Landlords and lenders would be held liable for rates of tenants if all of this act commenced without amendment. There was significant lobbying, however, with the result the the act will be amended before coming into effect. The Minister for Housing, Planning and Local Government has recognised that if it came into law without amendment there may well be significant unforeseen and unintended consequences.

The most likely change is to ensure that landlords and banks are not liable for outstanding rates of tenants, but this remains to be seen. Watch this space.

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Business and Company Law Property Law Start Your Own Business

Why Reviewing a Commercial Lease Alone is Of Limited Value

I am often asked by budding entrepreneurs to review the lease of a commercial premises which is part of a small business they are considering purchasing.

The entrepreneur, understandably, is trying to avoid as much avoidable expenditure as possible and wants the lease reviewed for a competitive fee.

I can do that, of course, without any difficulty but I have to explain that reviewing the lease alone is of extremely limited value.

Because most commercial leases emanate from a standard template or precedent lease which is widely used and accepted by solicitors in Ireland. Therefore any difficulties in the proposed acquisition of the business and taking on of the lease are unlikely to be contained within the terms, covenants, and conditions of the lease which are similar across commercial leases.

What are the dangers?

Potential problems are more likely to appear in relation to other issues outside the lease, issues like

  • Title-is there good legal title to the lease? Was the granting of the lease in the first instance in order?
  • Planning-are there any planning issues arising from the use of the premises? And any development carried out over the years, development that would have required planning permission?
  • Is the premises being used for a use permitted by the lease?
  • Rates/charges-are there any issues in respect of rates or other charges that may attach to the premises and is there any arrears for which the new occupant may become liable?
  • Is there a management company? Are there outstanding charges?
  • What condition is the premises in?
  • Are there any issues likely to arise from a fire safety perspective?
  • If the business is involved in food preparation and sales are the necessary plumbing, electrical, food preparation, refrigeration issues compliant with building regulations and any applicable food regulations?

If you are considering taking on a business in which there is a leased premises you are taking an avoidable, critical risk by not having all aspects of the lease assignment investigated.

This involves pre-lease enquiries about title, planning, rates, and so forth being properly investigated. None of these issues will be dealt with by a review of the lease alone.

Yes, it will cost you more money.

Yes, there may be no further issues.

But checking the lease on its own is of extremely limited value and if your finances cannot stretch to having the transaction carried out property, with the necessary checks and pre-lease enquiries carried out, you should seriously consider your investment.

Because you cannot afford it. You are too early and it is premature.

You might be as well going to a casino and putting all your money on red, or black.

Because the likelihood is that any problems that arise from your purchase of the business will not necessarily be contained in your lease, they will probably lie elsewhere, outside the 4 walls of the lease itself.

 

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Business and Company Law

Starting a Business in Ireland-Your Legal Obligations and 2 Tips

So, you are thinking of starting a business? And you don’t know what are your legal obligations?

Let’s take a look.

Firstly, consider the legal structure of your business. Will you be a sole trader, partnership, or limited company?

Regardless of which structure you adopt you will need to register with the Revenue Commissioners for taxation purposes. If you set up a limited company, you will be paying corporation tax on your profits; if you do not incorporate a company you will be accounting to the Revenue Commissioners on a self-assessment basis.

You may also need to register for VAT, depending on your business and its turnover, and as an employer.

If you are simply setting up an online business there is no additional regulatory steps you need to take; obviously, you will need a website but you do not need any legal permission or registration for this.

However, if you want to get an Country Code TLD (top level domain) name you will need to apply to IEDR.ie which is the Irish IE domain name registry. This body helps to protect your domain name and provides a process by which domain name disputes can be resolved.

You may also avail of the services provided by Local Enterprise Offices who provide assistance, support, training, and other resources to entrepreneurs and start-ups. The Local Enterprise Office website is worth checking out, too.

From a legal/regulatory perspective you will note that setting up a business is a straightforward task with a minimal number of bureaucratic hoops through which to jump.

The most critical factor in your success will be obtaining clients or customers and providing such a good service or product that your business will grow through a mixture of new client acquisition and repeat business from satisfied customers and good word of mouth.

Once you get a bit of momentum you can look at the most effective ways of promoting your business and acquiring new business. This will almost certainly involve some element of digital marketing, including social media marketing.

Beware of spoofers

You will also need to have an inquiring, learning mind to growing your business and learning from those who have gone before you and made mistakes and successes. You can learn a huge amount from books of successful entrepreneurs, for example. Most of these people made costly mistakes from which you can learn without the need to repeat the mistake.

The power of books in this regard is enormous and if you do not like reading or if you don’t have the attention span to apply your mind to a book for at least one hour per day you are selling yourself short.

But you also run the risk of being misled and misinformed by people who I describe as spoofers; what I am referring to is people who have more knowledge about business or marketing than you do but who could not be genuinely described as expert in the sphere.

There is a qualitative difference between real experience acquired from building businesses over many years and somebody who is now positioning themselves as experts in some sphere of activity when there is no real substance to their claimed expertise, save for them knowing a bit more than you at this stage of your business development.

Don’t fall for it.

Some people have an innate level of cunning or street smarts or lack of naiveté; some people are inclined to naiveté and can be easily parted from their money with a bit of smooth-talking patter. Beware of this problem and if you are inclined to the second category take your time and do plenty of research first before acquiring the services of any supposed expert.

Work that matters

Do work that matters.

There is a qualitative difference between doing the work that matters, doing great work, acquiring clients, growing your business and things that don’t really matter but are inclined to stroke your ego-for example, shallow stuff like mentions, fans, likes, awards that may not amount to a hill of beans.

Don’t fall for this either.

Good luck!



Categories
Business and Company Law Debt Problems | Bankruptcy

The Quinn Children Consent to Judgments Totaling €440 Million

There was a large group of photographers outside the entrance to the Four Courts a few weeks ago as I walked out to the WRC in Ballsbridge for an employment hearing. As I walked past the building entrance the targets of their interest strolled down the street to enter the Round Hall and I guessed, correctly, who they were: “the Quinn children”.

When I say “the Quinn Children” I refer to the adult children of Ireland’s once wealthiest man, Seán Quinn.

Even if I never met them that morning on the quays by sheer coincidence I would have had an interest in their case.

Because their case was one in which they, the Plaintiffs in the action, were suing IBRC, formerly known as Anglo Irish Bank. Their claim was that €415 million guarantees they provided for loans to the Quinn Group in 2007 and 2008 were invalid and, therefore, unenforceable.

When I read that this was the basis of their claim-their cause of action-I was interested to see how they were going to win that argument. For it is an argument that has been made, for the last 10 years or so, by many small business owners, wives and girlfriends of small company directors, who argued that they could not be held to the guarantee they signed.

For all sorts of reasons-for example, signing a document in the kitchen of their home for their spouse who was a small business owner and discovering years later that this document was, in fact, a guarantee and the lender now wanted to be paid.

So, I kept an eye on the case as it was reported in the papers and on TV/radio.

It appeared to be the case that the Quinn children were claiming that they were put under undue influence by their father, Seán Quinn, into signing the guarantees. And what’s more, they claimed they were naïve, inexperienced, and unsophisticated and didn’t understand what they were doing or the significance of the papers they were signing.

This line of argument was, as you would expect, rejected by the bank’s lawyers who pointed out that these ‘children’ were experienced, well educated, professional adults and the notion that they did not understand what they were signing or what it meant was fanciful nonsense.

Significant ruling by Judge-game changer?

But the case took an unexpected turn last week leading to settlement talks which are ongoing. These talks commenced after the Judge, Justice Simons, made a significant ruling in the case.

This ruling hinged on the fact that the Quinn children sued the bank, IBRC, on the basis that the bank had unduly influenced them; but when it came to running the case and giving evidence the case put forward appeared to be that it was Sean Quinn who was the culprit in point of undue influence and overbearing their minds, not IBRC, the defendant.

And last week the children applied to Court to change their statements of claim to reflect this and wished to file supplementary written statements.

Justice Simons, however, refused to grant orders along these lines. He also stated that the argument that their pleadings in the case that Sean Quinn had unduly influenced them were “untenable”. He also said that they

“were unequivocal in stating that the entity against whom the allegation of undue influence was being made was Anglo…Not only is no claim of undue influence made against Sean Quinn Snr in the pleadings, the making of any such claim would, in any event, be entirely inconsistent with the manner in which the litigation has been conducted to date.”

Justice Simons also stated that if Sean Quinn was the ‘guilty’ party in respect of undue influence he should have been named as a defendant. When he asked counsel for the Quinn children why statements along their present course of argument were not included in their original witness statements counsel for the Quinn children admitted there was ‘’no good reason’’.

Significantly Justice Simons decided that if he allowed this change in approach by the Quinn children it would cause prejudice to the defendant, IBRC, as it would not now know what case it was expected to meet.

Moreover, IBRC had a counterclaim against the Quinn children and was entitled to bring that case along without further delays, especially having regard for the fact that this case commenced in 2011.

This ruling, I suspect, was a game changer and prompted the settlement talks.

What I find fascinating about this case, however, is why the claims of undue influence alleged against Sean Quinn were not included in the original statement of claim of the Quinn children.

If you never knew anything about the law, or how legal proceedings are conducted generally, you would probably be raising your eyebrows at a claim of wrongdoing against one party for 8 years and then, when the case is being heard and evidence is being adduced, somebody else is being fingered as the culprit.

You might also raise your eyebrows a little further, I believe, if you knew that all parties in the case had legal professionals who were at the top of their profession and as good as ready money could instruct.

As an outsider looking in I find it fascinating that the case took the turn it has taken as I was looking forward to seeing the final judgment in a high stakes, high profile case. If settlement talks are successful we will never know, although I had my own strongly held opinion which shall remain unventilated.

UPDATE 3rd April, 2019

I held off publishing this post for a couple of days as settlement negotiations were ongoing between the parties. The outcome of those talks were that the Quinn children consented to judgments totaling €440 million being entered against them. This is €88,157,351 against each of them.

They also accepted that IBRC (formerly Anglo Irish Bank) had valid and enforceable claims on the Quinn assets which were the subject of the securities.