April 2010 - What's in store for SMEs?

As election fever sweeps the country, we have taken a look at the manifestos of the three major parties to see what they promise to do for small and medium businesses.

Our view is that real steps need to be taken to support SMEs through the recession and recovery process, and that means taking measures to help SMEs get the finance they need at a reasonable price, reduce regulation and red tape, and reform the tax system. Big businesses certainly seem to be siding with the Conservatives, as you might expect, but who do you think is most likely to deliver for SMEs? 
 

Labour

• Increasing investment through a UK Finance for Growth Scheme. This will focus on SMEs who need to borrow between £2 million and £10 million or are in the high tech industries.
• Setting lending targets for the banks in which the state has an interest.
• Increasing capital allowances to encourage investment.
• Continuing with the Time to Pay Scheme for tax and National Insurance.
• Allowing small businesses to opt for a 1-year holiday on business rates.
• Increasing Entrepreneurs Relief to a lifetime limit of £2 million.
• Creating a Small Business Credit Adjudicator to ensure SMEs are not turned down unfairly when applying for bank finance.
• Simplifying regulation and avoiding unnecessary red tape.

Conservatives

• For the 1st 2 years of a conservative government, removing employers’ National Insurance for a business’s first 10 employees for its first year.
• Making small business rates relief automatic.
• Putting 25% of State research and procurement contracts out to SMEs.
• Creating a Work for Yourself program to give unemployed people access to business mentors and substantial loans to start new businesses.
• Reducing marginal tax rates for those returning to work.
• Reducing red tape by introducing a “one in one out” policy whereby, if a department introduces new regulation, it must abolish at least as much existing regulation.
• Creating more diverse sources of affordable credit through a National Loan Guarantee Scheme.
• Improving Research & Development Tax Credits to focus on high tech companies, small businesses and start-ups.

Liberal Democrats

• Insisting that taxpayers’ representatives sit on the boards of banks to increase bank lending to viable businesses on fair terms.
• Supporting Local Enterprise Funds to encourage a source of finance at a local level.
• Reducing red tape by introducing a “one in one out” policy and sunset clauses (whereby regulations only last for a certain amount of time unless actively renewed). 
• Reforming business rates so they will be based on site values rather than rental values.
• Making Small Business Rates Relief automatic.
• Creating an Enterprise Fund to offer training, mentoring, and small grants and loans to help creative businesses get off the ground.

Of course, the most important thing that SMEs need is a real and sustained improvement in the economy and it’s difficult to judge which party will best lay the foundations for this. Only time will tell.

To add your views on this topic add comments to our blog here.

Building work or the change of use of a property frequently requires planning permission to be obtained prior to commencement of the works or change of use.

If planning consent is not obtained, the work or new use is unlawful and the local planning authority can require any buildings built without planning permission to be demolished or the new use to be discontinued.

The local planning authority must take enforcement action within a certain time however (unless the works affect a listed building). If it fails to do so, the unlawful building work can remain in place and any new use can continue.

The time limit is either four years or ten years depending on the change of use or the sort of building work undertaken. After this time it is possible to apply for a certificate of lawfulness which retrospectively makes the work or change of use lawful.

This rule has led to individuals going to extraordinary lengths to conceal building works undertaken without planning consent in the hope that the local planning authority won’t become aware of the work until the relevant time limit has passed. Two recent cases have highlighted what a high risk strategy this is.

In the first case, an applicant for planning permission was granted permission for the erection of a hay barn. Instead, he built a house. The applicant and his wife moved into the property on 9th August 2002. On 15th August 2006, he applied for a certificate of lawfulness of existing use. The process was described by the Court of Appeal as “deliberate deceit”. The building had been given the external appearance of a barn, but had been fitted out internally as a dwelling. However, the Court of Appeal unanimously held that the local authority had lost its ability to enforce a breach of planning control.

In the second case, deliberate deception of the planning authority failed. Mr Fidler built a house without planning permission, but concealed the construction process by erecting a surrounding screen of straw bales. According to the evidence, Fidler constructed his house to a stage of substantial completion by June 2002. He then left the house hidden by the straw bales and tarpaulin sheets until July 2006, by when the four year enforcement period had expired. However, the court held that the screen of straw bales, and its removal, was to be considered as an integral part of the construction of the building, and hence part of the totality of “building operations” for the purposes of the four-year time limit on enforcement action. What that meant was that the four year enforcement period did not start to run until the straw bales were removed in July 2006. An enforcement notice served in February 2007 was therefore valid and Mr Fidler was ordered to demolish his house.

If you are determined to deliberately deceive the local planning authority it is therefore possible to do so and stay within the law, but it is clear that the Court will do all it can to prevent such a deception succeeding.

If you require further advice on the issues raised in this article then contact Steven Petty.

The Carbon Reduction Commitment (CRC), which came into force on 1st April 2010, is a compulsory carbon dioxide emissions trading scheme where large organisations are required to buy allowances based on how much CO2 they expect to emit from their buildings during the year. The Carbon Reduction Commitment will inevitably have a knock-on effect to small and medium sized businesses, many of which will be tenants in buildings where the scheme applies.

As is the case with any commercial lease, the landlord will be looking to recoup from the tenants all costs associated with managing the building. The fundamental question is should tenants be required in their lease to contribute a proportion of the Carbon Reduction Commitment scheme costs that the landlord has to pay out? Logically the answer will almost certainly be yes but how this is calculated fairly is difficult and still being decided. For example you could have the situation where tenant A occupies twice as much space as tenant B but is much more efficient so uses less energy. Presumably tenant A should contribute a smaller proportion than tenant B, but if the calculation is based on floor area alone then they would actually be paying more.

The second major point to consider is that any landlord affected by the scheme will now have a major incentive to make improvements to their building in order to increase its energy efficiency and reduce the net amount paid in Carbon Reduction Commitment allowances each year. Will landlords look to recover these costs through the service charge provisions in the lease or put the onus on tenants in the future to make these changes?

It should be noted that the first year of the scheme is for reporting purposes only and so participants will not begin to buy allowances until April 2011. However the next few months will be key in determining how far the Carbon Reduction Commitment scheme will increase costs for SME tenants and whether it hastens the move towards “green leases”.

For more information on how the Carbon Reduction Commitment works contact Paul Harrison 01604 456 591 or email Paul here.

The costs of the Icelandic volcano which bought UK airports to a standstill in April 2010 are still being counted. Not only were travellers affected but also all businesses engaged in importing and exporting goods by air. Ryanair tried and failed to renege on their contractual duties by claiming they would only refund the amount paid for a ticket instead of covering the costs for accommodation incurred by their stranded passengers.

So what is the legal position when it becomes difficult or impossible to perform a contract?

Although the usual rule in commercial contracts is that they must be performed, if something unforeseen has happened since the contract was agreed, then in certain circumstances (called “frustrating events” by the courts), businesses are free not to continue with the contract.

As can be expected, only certain events are legally classed as frustrating ones:

• When it’s impossible to perform the contract – e.g. a person vital to the contract has died or has been rendered incapable of performing the contract.
  
  
• Destruction of the subject matter – e.g. if you have agreed to sell your vintage Bentley and it is destroyed by fire. 
  
  
• Frustration of purpose – e.g. in 2008 the Royal International Air Tattoo was cancelled due to unforeseen and unprecedented weather conditions. Thousands had booked accommodation to attend the event. As many hoteliers knew that the sole purpose of the booking was associated with the event, then deposits had to be refunded.
  
  
• Government Intervention – e.g. where Parliament brings in new laws which make a contract illegal or affect its performance.

If performing a contract becomes much more difficult or expensive than you expected, then this will not be enough to let the parties off the hook. Nor will unusual or unforeseen acts of nature.

Force Majeure

It is good practice for businesses to specify as a contractual term what events will frustrate a contract and exactly what the consequences will be. The courts will follow terms specifically written into a contract.

These terms are known as ‘Force Majeure’ clauses. They allow the parties to back out of a contract in circumstances such as ‘Acts of God’, war, riot, labour disputes, failure of communications, and failure of vital utility services. ‘Acts of God’ are extraordinary physical circumstances, such as the eruption of the Icelandic volcano, which could not have been foreseen and could not have been guarded against.

Cousins Business Law advice

• If you can’t perform a contract, take advice as soon as possible on whether you can get out of it. A good business dispute management lawyer should be able to advise you on tactics you can use to get out of a contract with the minimum cost possible to your business.
  
  
• When drafting contracts, take advice on whether you should have a Force Majeure clause in it.
  
  
• Check your insurance cover for risks you deem unacceptable. Many insurance policies exclude liability for losses caused by Acts of God, war, riot, and labour disputes.

Contact Cousins Business Law for advice on your contracts, call 0845 003 5639.

Talking to ezine readers in recent weeks we’ve been told you’d find it useful to have a few more details about the areas of your business we might be able to help in. All Cousins Business Law solicitors specialise in working with SMEs. Each of our lawyers has a particular area of legal expertise but also has experience in providing advice to particular business sectors or in particular circumstances. The details below should help but feel free to give any of us a call to discuss your business advice needs.

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