Author Archives: Edward Bostock

About Edward Bostock

Edward emigrated from the UK in January 2012 with his wife, Sarah, who was raised in Hawke’s Bay. Edward obtained a Bachelor of Laws from the University of Sheffield in the UK and before moving to New Zealand worked in the Courts in London, primarily at the Central Criminal Court (the Old Bailey). Edward works in the following areas: Property Rural Company and commercial Employment Immigration Trusts, estate and succession planning Wills & power of attorneys Estates

Small Trade Contracts: What you need to know moving forward

Posted on by
Reply

The Fair Trading Amendment Act 2021 comes into force in August 2022 and this will place new obligations on businesses while providing new protections for consumers and small businesses.

The key change is that “standard form small trade contracts” will now be subject to the unfair contract principle.

To understand the significance of this change we first need to identify what constitutes a “small trade contract”? A small trade contract will need to be:

■ Between two parties engaged in trade;

■ Not a consumer contract; and

■ Not part of a trading relationship with an initial annual value exceeding $250,000.00 including GST.

Examples of a small trade contract will include terms of trade presented to a customer with little time for the terms to be reviewed or negotiated.

Prohibition of “unfair contract terms” A term will be considered “unfair” where:

■ It creates a significant imbalance of rights and obligations between the contracting parties;

■ the imbalance is not required to protect a party’s interests; and

■ if used, the term could disadvantage the other party. A provision giving only one party the ability to take certain actions (for example, varying the terms or terminating the contract) is likely to be considered “unfair”. Other terms that may be considered unfair include automatic rollover and renewal clauses, early termination charges and some forms of indemnity terms.

It is really important to remember that the Fair Trading Act is not designed to – and won’t – disadvantage a business that has a legitimate business interest and a term is required to protect this interest.

Unconscionable conduct

Unlike “unfairness”, the principle of “unconscionable conduct” is more nuanced, and less defined. Unconscionability will be considered on a case-by-case basis.

Factors that can be considered include:

■ Relative bargaining power of the parties;

■ Extent to which the parties acted in good faith;

■ Whether there was any undue influence;

■ If the affected party was able to understand the documents;

■ Commerce Commission.

The Commerce Commission has authority to commence proceedings against a business, if it believes that the terms of a contract are unfair, even if they are not party to the agreement or contract. As a result, it is important for a business to understand its obligations and to ensure that its standard form contracts will comply with the Fair Trading Act.

Existing Contracts

These changes will not apply to any contracts entered into before 16 August 2022.

However, take care when making any changes to existing contracts as the provisions will apply to contracts amended or varied after 16 August 2022 irrespective of when the contract was first entered into.

 

More compliance for Trusts

Posted on by
Reply

In my last article, I summarised some of the key changes to Trust Law arising from the Trusts Act 2019, which comes into force on 30 January 2021. One of the key changes.

The Act aims to make trusts more accessible and to strengthen the ability of beneficiaries to hold trustees to account. In doing this, the Act increases compliance requirements for trustees, which will likely increase the costs to operate and maintain a trust, and increases risks associated with being a trustee of a trust.

Requirement to keep core trust documents

As mentioned in my previous article, Trustees are required to keep core trust documents necessary for the administration of the trust.

Keeping the core trust documents together is clearly prudent and sensible, however at present the documents may not all be held together (e.g. some with trustees and some with advisers, lawyers and accountants). It is permissible for one trustee to hold most of the documents but each trustee must hold the trust deed and any variation of those terms. Where one trustee is to hold most of the documents, they will need to be held in a manner to allow the other trustees to access them easily.

Disclosure of information to beneficiaries

The Act creates a presumption that a trustee must make ‘basic trust information’ available to every beneficiary and ‘trust information’ available to beneficiaries who request it.

Before any information is provided the trustees must consider a range of factors and may choose to withhold the information if the trustees “reasonably consider” that the information should not be disclosed.

In either scenario (disclosure of information or non- disclosure) there will be ongoing requirements to update information previously provided and to review a decision to withhold disclosure of the information.

Review of Trustee decisions

A beneficiary will be able to apply to the court to review “the act, omission or decision” of a trustee “on the ground that the act, omission, or decision was not or is not reasonably open to the trustee in the circumstances.”

We will have to wait to see how this will work in practice, however we may see beneficiaries challenging trustee decisions more frequently particularly in circumstances that could be considered “contentious”.

What I suspect may occur is that trustees will seek professional advice more frequently for decisions for which they would not have previously done so. By way of an example, a trustee may now seek advice from a financial adviser on how to invest funds from the sale of property rather than placing the funds with the trust’s bank as they have done previously – where a court is considering whether a trustee is liable for a breach of the duty “to invest prudently to the applicable standard” the court can consider if the “trust investments have been diversified, so far as is appropriate to the circumstances of the trust” and whether “the investment was made in accordance with any investment strategy”.

Exemption and Liability Clauses

Following on from the increased compliance, is the inability for a trust deed (both new and existing) under the new Act to limit a trustee’s liability for breach of trust arising from dishonesty, willful misconduct or gross negligence (rather than ‘ordinary’ negligence), and does not allow a trustee to be indemnified out of trust property for such breaches. This means that trustees can no longer rely on broad indemnity clauses that purport to protect them against gross negligence.

You may consider that this is fair and reasonable, however when determining if a trustee has been grossly negligent, the Courts will consider:

The circumstances, nature and seriousness of the breach;

The trustee’s knowledge and intention relating to the breach;

The trustee’s knowledge and skills and whether the trustee has been paid;

The purpose for which the trustee was appointed;

The type of trust, including the degree to which the trust is part of a commercial arrangement, the assets held by the trust, how the assets are used, and how the trust operates.

While the threshold for gross negligence has been set very high, these changes may result in a trustee’s exposure to liability increasing which some trustees may not wish to carry.

Where professional persons, such as lawyers and accountants, are still happy to act as trustees, we will expect that they will become more involved in the day-to-day affairs of the trust.

We hope that the above gives an idea of how working with trusts may change and importantly how it could mean that the increase in the time and cost of administering some trusts, will result in some trusts no longer being cost-effective.

New Trust Act – are you prepared?

Posted on by
Reply

On 30 July 2019, the Trust Act 2019 received Royal Assent signalling a modernisation of trust legislation that, given the number of trusts in New Zealand, we should all be aware of.

The new Act will replace the Trustee Act 1956 and its purpose is to make the law more accessible to both trustees and beneficiaries of trusts.

Significantly the new Act does not come into force until 30 January 2021 – given the extent of the changes, the new Act provides for an 18-month lead in. While this is a substantial period, time will pass quickly and the new Act will be in force before we know it.

The new Act will apply to existing and new trusts, and therefore we recommend that all existing trusts are reviewed in light of the changes and in some cases varied or wound up.

Some of the key changes being introduced by the new Act are:

Trustee Duties

The new Act identifies and defines mandatory and default duties of trustees.

The five mandatory duties that cannot be avoided or excluded in the trust deed are:

  • a duty to know the terms of the trust,
  • a duty to act in accordance with thoseterms,
  • a duty to act honestly and in good faith,
  • a duty to act for the benefit of beneficiaries, and
  • a duty to exercise the trustee’s powers for proper purposes.The ten default duties are not compulsory but will apply unless they are expressly excluded in the trust deed. The default duties are:
  • Exercise reasonable skill and care in administering the trust, having regard to any special knowledge or expertise that the trustee has, or to any special business or professional knowledge or expertise if the trustee is acting in the course of a business or profession;
  • Invest prudently, with the same regard to special knowledge or experience as above;

• Not exercise their power for their own benefit, whether directly or indirectly;

• Regularly and actively consider whether they should be exercising their powers;

• Not bind or commit trustees to the future exercise or non-exercise of their powers;

• Avoid conflicts of interest;

• Act impartially between beneficiaries;

• Not profit financially from being a trustee;

• Not take any reward for being a trustee; and

• Act unanimously with the other trustees. Trust Duration

The length of a Trust’s life has been extended from a maximum of 80 years to a maximum of 125 years.

Duty to hold documents

The new Act requires trustees to retain core documents, so far as it is reasonable. Where there is more than one trustee, each trustee must hold:

The trust deed and any other document that contains terms of the trust;

Any variations made to the trust terms;

And they must be satisfied that at least 1 of the trustees holds the other required documents and that they will be made available to the other trustees on request. The other core documents are:

• Records of trust property identifying the assets, liabilities, income and expenses of the trust;

• Records of trustee decisions made during the trustee’s trusteeship;

• Written contracts entered into during that trustee’s trusteeship;

• Accounting records and financial statements prepared during that trustee’s trusteeship;

• Documents of appointment, removal, and discharge of trustees;

• Any letter or memorandum of wishes from the settlor;

• Any other documents necessary for the administration of the trust;

• Any of the above documents that were kept by a former trustee and passed on to the current trustee.

Disclosure Obligations

The new Act favours keeping beneficiaries informed and clearly outlines the basic trust information that is to be provided to every beneficiary, namely:

• that they are a beneficiary;
• the name and contact details of the

trustees;

• changes to the trustees as they occur; and

• the right of the beneficiary to request a copy of the terms of the trust or trust information.

Trustees may only refuse to provide information to beneficiaries after considering both their general obligation to provide information and a series of factors as to the nature of the information and the practicalities of restricting that information.

The implications of this are clear, particularly in circumstances where it has always been considered appropriate for a person’s interest in a trust not to be disclosed to them.

These are only some of the changes however in general terms, the new Act, increases the rights and protections for beneficiaries while also imposing more responsibility and prescriptive requirements on the trustees. The changes are likely to make trusts more transparent for beneficiaries but also more intensive to administer for trustees and could lead to changes both to trust documentation and administration.

If you are a trustee of a trust, then we recommend that you speak to the trust’s lawyer in the coming months to consider the changes as they relate to the trust in question.

Expanding your business? Proceed carefully …

Posted on by
Reply

It’s great to see Hawke’s Bay’s economy steaming ahead and to notice lots of positive signs that our business environment is thriving.As your business improves and demand increases you may be thinking about expanding by hiring new staff.

Before you start making offers however there have been a number of changes to employment law recently that you need to be aware of.

Change to 90 day trial period

The most important change if you’re thinking of new hires is to the 90 day trial period. From 6 May 2019 businesses that have 20 or more employees are no longer able to include a 90 day trial period in their employment agreements.

This means that if you are a larger business and employ 20 or more employees then you will no longer have a “get out of jail free card” for dismissing new employees that aren’t working out. You will need to revisit your employment agreements to remove trial period provisions. I recommend that you include comprehensive probationary period provisions instead – these would still allow you to dismiss an employee at the end of a probationary period provided that you follow a fair process and have a fair reason for dismissal. Unlike the 90 day trial period provisions however your employee will be entitled to bring a personal grievance if you haven’t followed due process.

If your number of employees fluctuates around the 20 mark then you will need to ensure that you are aware of exactly how many employees you have as at the date an employment contract including trial provisions is signed. If the business employs 20 or more employees at that date then you will not be able to utilise the trial period provisions if you later decide it is necessary to dismiss your new employee.

Smaller business can still use trial periods
Smaller businesses with less than 20 employees can continue to use trial periods, but you should be aware that any flaw in either the wording of the provision or in the way the contract was signed will mean that you can’t rely on the trial period when dismissing an employee. For a trial provision to be valid the employee must have had a chance to review and seek advice regarding their employment agreement before signing it, and the agreement must be signed prior to the first day of employment.

Be careful if you’re considering dismissal of an employee
I recommend that any employer considering terminating a worker’s employment using a 90 day trial provision, or in fact dismissing an employee for any reason, seek legal advice before doing so, as you may not be entitled to do so if you have not followed the right process, no matter how obvious it might seem to you that a dismissal is justified. Mistakes in process can be costly, so it is better to make sure you get it right.

Other changes to employment law

Along with the changes to the trial period there have also been a raft of other changes introduced, some of which took effect from December 2018, and the rest of which will be effective from 6 May 2019. These include changes to union access and collective bargaining processes and a greater emphasis on reinstatement if employees have been unfairly dismissed. The protections around restructuring for vulnerable workers have been expanded so that employers with less than 20 employees are no longer exempt.

Rest and meal breaks

Another change is to employees’ rights to set rest and meal breaks. Currently employees are simply entitled to ‘reasonable breaks’ and there are no specific rules for when or how long such breaks should be. The new law sets out the number and duration of breaks which employees are entitled to in relation to how many hours they have worked. This is actually a roll back to the pre-2015 position so many employers and employees won’t notice a significant difference if they hadn’t made any changes to breaks since then. I recommend that employment agreements include specific rest and meal break times that suit your business, as if this isn’t agreed then the default timing for breaks will apply.

Review your employment agreements
The changes I’ve mentioned are not an exhaustive list of the amendments to the Employment Relations Act. This article is only intended to give a general overview and alert you to the fact there have been changes. I recommend that all employers regularly review their employment agreements and better yet that you seek legal advice to make sure that your agreements are fit for purpose and fully comply with current legislation.

 

Business Ownership — preparing your exit strategy

Posted on by
Reply

It is common that an aspect of a business owner’s retirement plan is to sell the business and to use the proceeds to fund their retirement. It is important that thought and planning be given to the “exit strategy” so that when it comes time to sell the business, it is in the best shape.

This is particularly important in instances where “you” are the business and there is a question as to whether the business can continue without you and therefore what value there is in the business if you are not involved.

Business owners are often unaware of the time that it can take to prepare a business for sale. The process is often complex and will require assistance from specialists. For example, the way that you have operated the accounts of the business may well have be set up to suit your personal circumstances, but does it show an accurate picture of the performance of the business and if not, what can be done to ensure that a prospective purchaser can see the true value in the business.

Considerations

Depending on the nature of the transaction – sale to a third party or a transfer to a family member, there may be different considerations. Some matters you should consider in all transactions are:

  • How to maximise value;
  • Reliance on a customer;
  • Managing customer expectations;
  • Availability of premises;
  • Maintaining support of employees; • Taxation.In a family context, there will be other considerations:
  • management succession – is the younger generation ready to take over and do they have the skills and commitment to run the business;
  • estate planning;
  • maintaining family unity.

Maximising value

Clearly it is vital to be able to maximise the value of your business so that you can achieve the best possible price. This brings in various elements as a business’s value can be dependent on several factors.

Of primary importance, is understanding what your business is potentially worth. Most business owners will not know what their business is worth or how they can improve this.

If “you” are the business, then special consideration will need to be given as to the business’s worth (both with and without you) and how to maintain its value despite your exit from the business. For example, you may need to bring in a “successor” to work with you first before handing over the reins.

Reliance on a customer and managing customer expectations
If most of your income comes from one customer (or a small number) then it goes without saying that maintaining these customer relationships is crucial to the ongoing success of the business.

How you deal with your customers will inevitably depend on the nature of your business, however when considering your “exit strategy” you will need to consider the contractual arrangements you have in place and if the sale of the business provides them with an opportunity to terminate the contract.

I also note that, for small businesses, there may not be a contract at all. While this may currently work, you will need to consider this from the perspective of a buyer as the ability for a main customer to simply walk away may impact on what they believe that the business is worth.

It will also be important to consider how much you wish to be involved – a new purchaser may want you to be involved for a period to ensure the effective transfer of control and to help maintain customer relationships. You will need to consider this from your personal perspective as well as from the new owners (is there value in you staying involved) and from the customers.

Premises and employees

Both of these are likely to be crucial to the ongoing success of the business and if you lease your business premises then it will be important to ensure that it is available to a new owner for a reasonable amount of time as, again, the value they may attach to the

business may reduce if there is a risk that they will need to find new premises not long after purchase.

Key employees will need to be considered early in the process and possibly be included in the discussions with the prospective purchaser.

Communication

Communication is key throughout this process – deciding who to work with on your exit strategy and choosing when and how to discuss with your employees and customers. Poor communication could result in customers and/or employees leaving the business, which may in turn impact on its value.

Be prepared to adapt

The hardest part will be creating a plan. The challenge is to ensure that the plan remains effective and does not become outdated – you need to be prepared to adapt your plans.

An outdated and ineffective plan may cause as many difficulties as no plan at all.

Seek Advice Early

It is hoped that the above has provoked thought and will encourage action, however I want to highlight the importance of seeking advice from your professional advisors early in the process. The key is careful, well informed consideration of all the issues, and effective and early communication with your professional advisers will help achieve this.

Franchising – what’s in the fine print?

Posted on by
Reply

Despite being prevalent throughout New Zealand, there is no legislation that governs or regulates franchises, with the result that there is no requirement for the terms of a franchise to be fair and reasonable.

What is a Franchise?

Every franchise should be a replica of the Franchisor’s business, therefore giving customers of the franchise a consistent experience.

The Franchisee gains the benefit of the franchise’s reputation, goodwill and intellectual property instead of having to develop this from scratch.  A franchise business will often cost more to purchase than an equivalent independent business – the theory is that a Franchisee pays a higher up-front fee and pays on-going costs, in exchange for lower economic risk.

In general, a franchise involves:

  • A Franchisor
    • granting a Franchisee the rights to use its intellectual property and systems;
    • providing training, know-how, ongoing marketing, business or technical assistance.
  • A Franchisee
    • establishing and operating a business selling the Franchisor’s products or services;
    • being required to follow the Franchisor’s systems, procedures and instructions;
    • paying fees (royalties) to the Franchisor;

Franchise Agreement

The Franchise Agreement regulates the business operation and the franchise relationship.  The relationship is contractual and encompasses multiple areas of law such as taxation and intellectual property.

Franchise Agreements are invariably long and complex documents that favour the Franchisor and, to protect the integrity of the franchise, Franchisees will not be able to negotiate changes to it.   Some say that all Franchise Agreements are unfair, unreasonable and one-sided when considering the balance of rights and obligations – an easily missed word or clause can have a significant ongoing impact through the term of the franchise.

It therefore follows that extra care and attention must be given prior to entering into a franchise.

It is important to separate out the “sales pitch” from the nitty gritty of the Franchise Agreement.  The “sales pitch” will focus on the benefits etc. however the benefits are only one aspect of the arrangement – what is most important is understanding what it really means to be part of the franchise which can only be uncovered by considering the Franchise Agreement in detail.

During due diligence a prospective Franchisee should obtain focussed advice on the terms and implications of the Franchise Agreement.  If you are not fully informed as to the details or you do not appreciate the significance of a provision then you may be disappointed, disheartened and ultimately suffer losses as a consequence.

Fees, Levies or Royalty Payments

As part of the franchise arrangement, the Franchisee would typically be required to pay a number of fees:

  • An initial (lump sum) franchise fee to compensate the Franchisor for development costs and as a licence fee;
  • On-going service or royalty payments for the on-going:
    • use of the system and trade name;
    • support and assistance of the Franchisor.
  • An advertising or marketing levy (an advantage of the system is that a Franchisee obtains the benefit of the franchise’s advertising albeit that the Franchisor chooses how to advertise or market the franchise).

Other terms to consider

  1. The length of the initial term;
  2. If and how the franchise can be renewed and the fees associated with a renewal;
  3. The territory in which the franchise will operate and any rights to exclusivity in that territory;
  4. How the franchise can be terminated and obligations on termination; and
  5. Restraint of trade.

Franchise Association of New Zealand

While there is no government regulatory body for franchises, the Franchise Association of New Zealand (FANZ) is involved throughout the country and sets standards for best practice among its members.

Franchisors that are members of FANZ are required to follow its Code of Practice, which should reassure potential Franchisees that the Franchisor is serious and has undertaken to practise in a fair and reasonable manner.

By way of an example, FANZ requires its members to:

  • publish a disclosure document to maximise the information available to prospective Franchisees, so that they can make a sound business decision whether or not to proceed
  • insist that each Franchisee has independent legal and accounting advice
  • use agreements that contain a minimum of a 7-day cooling off period.

 

Co-ownership agreements

Posted on by
Reply

You should always protect your investments as best you can and your entry into a new business venture is no different.

Any new business always starts with good intentions and hope for a positive outcome. However, no matter how strong the bond between you and your business partner(s), every relationship goes through its ups and downs and you should try to agree on the fundamentals of your current and ongoing business relationship, in case the relationship breaks down.

Types of Agreement

These can come in any number of forms such as a Shareholders’ Agreement (for limited liability companies), a Partnership Agreement or a Joint Venture Agreement.

Given that most businesses operate as limited liability companies, Shareholders’ Agreements are most commonly seen. We will therefore, for ease, focus on these – albeit that the matters that can or should be covered in a Shareholders’ Agreement are relevant to other forms of Co-Ownership Agreements.

What is a Shareholders’ Agreement?

Ultimately it is a private agreement between the shareholders as to how they will run the company although it is a very flexible document and can be used to cover any matters that the shareholders wish.

Without a Shareholders’ Agreement, the shareholders might not have a say over company matters if the directors (and company itself) are complying with the Companies Act and the Company’s Constitution (if it has one).

As mentioned above a key aspect of a Shareholders’ Agreement is that it is a private document, between the Shareholders and the Company, and not available to be viewed by others, unlike the Company’s Constitution, which is a public document and registered on the Companies Office website.

While it is preferable for a Shareholders’ Agreement to be signed on or before the incorporation of a company it can be entered into at any time.

Why should you have a Shareholders’ Agreement

Some benefits of having a Shareholder’s Agreement include:

• dealing with matters decided prior to incorporation unlike the constitution, which will only take effect from date of incorporation;

• removing misconceptions as to the scope and purpose of the business;

• detailing provisions which require unanimity to be altered – a constitution can be changed by 75% of the shareholders and therefore could be changed without the agreement of a minority shareholder.

What should be included in the Shareholders’ Agreement?

A Shareholders’ Agreement is flexible and can include anything that the Shareholders consider relevant. There are common topics, which we would recommend are considered for inclusion, as follows:

1. The purpose of the business and how it will be run by the shareholders;

2. The number of directors and who has the right to appoint or remove them;

3. The roles and responsibilities of the shareholders;

4. What decisions require shareholder approval (and the level of said approval e.g. unanimous);

5. How funding will be arranged and secured (including shareholder loans);

6. How shares can be transferred or sold – e.g. pre-emptive rights;

7. How shares are to be valued and if the valuation alters depending on the circumstances;

8. How and under what circumstances can a shareholder or director be removed;

9. Restraint of trade and non-competition provisions

10. Dividend policy;

11. Dispute Resolution and Deadlock provisions – i.e. what happens when shareholders cannot agree or a dispute cannot be resolved.

Areas of common contention relate to how a shareholder can exit the company and resolving disputes.

Exit Strategy

We would recommend that focus be given to this issue as it is important for a shareholder to understand (prior to entering the company) when and how they may be able to exit the company and on what terms.

By way of an example an agreement can outline a minimum amount of time that a shareholder must remain part of the company and the exit process itself (e.g. notice requirements and share valuations).

Disputes and deadlocks

While shareholders might hope to always be able to reach an agreement with each other, disputes are common. If there is no Shareholders’ Agreement the process of resolving such disputes can be messy, expensive and extremely disruptive to the day-to-day operation of the company.

Deadlocks occur when shareholders holding equal voting rights are unable to agree. In such circumstances it is important to set out how such a deadlock will be resolved to ensure that the company can quickly move forward.

Negotiation of agreement

The act of negotiating a Shareholders’ Agreement (or other form of co-ownership agreement) is an important and useful process to undertake with your prospective shareholders/business partners as you will need to discuss and try to agree on what will happen if a certain event arises.

This will assist in the process of getting to know each other and ultimately will help establish that you can actually work together.

Have You Got the Right Lease?

Posted on by
Reply

It is probably fair to say that most small businesses do not own their own premises and, in such situations, it is necessary to “lease” premises.

An Agreement to Lease (ATL) is usually the preliminary document, prepared by a commercial real estate agent, that contains the basic information agreed on by the Landlord and Tenant.

The formal Deed of Lease replaces the ATL and is usually prepared in accordance with the terms and conditions contained in the ATL.

Agreement to Lease

As mentioned above, this is the precursor to the Deed of Lease and generally only contains the basic information. However, it is important to ensure that the Agreement covers the following elements:

  • A clearly defined description of the premises;
  • The term of the Lease;
  • The dates of the Lease or how they will be calculated:
    • Commencement date;
    • Any renewal dates;
    • Rent review dates; and
    • Final expiry date.

• What rights of renewal the Tenant has;

• How rent will be reviewed (e.g. market rent review or CPI rent review);

  • Annual rent;
  • Details of the outgoings:
    • What outgoings are charged;
    • Estimated cost; and
    • Whether cost included or in addition to the rental.
  • The agreed business use;
  • Type of insurance for the building held by the Landlord;
  • All Landlords fixtures, fittings, and chattels.

It is important to note that the ATL is a binding contract between the Landlord and a prospective Tenant and while it is only intended to be a temporary document until a full “Deed of Lease” is executed, the ATL will provide that the parties will be bound by the provisions of the Deed of Lease as if it had been signed.

Considering this, it is very important that a Tenant not only be aware of and be advised on the terms of the ATL but also the Deed of Lease prior to signing the ATL. For example, the Landlord may require (where a company is to be the tenant) for individuals to be personal guarantors of the Lease. It is essential that the parties to the Lease, including the proposed personal guarantors, are aware of the implications of the guarantee and how, as an example, it is treated on assignment of the Lease by the Tenant.

Deed of Lease

This replaces the ATL and is prepared based on the information contained in the ATL.

What is contained in the Deed of Lease will vary, however it should contain all the main details set out in the ATL (such as listed above), and you would also expect the Deed of Lease to include details of:

  • Responsibility for legal costs in relation to the Lease and future documents required;
  • Tenant’s obligations as to maintenance and care of premises;
  • Landlord’s responsibility for maintenance;
  • Signage – does the Landlord need to consent to Tenant’s signage?
  • Reinstatement of premises on termination of Lease;
  • Assignment of the Lease;
  • Damage or destruction of premises;
  • Premise condition report.

Can you rely on an Agreement to Lease alone?
While it is not uncommon for a tenancy to commence prior to the Deed of Lease being executed, we would advise that it be signed prior to the Tenant taking possession of the premises.

Given that the ATL binds the parties to the terms of the Deed of Lease, it is workable for the tenancy to be bound by the ATL however there are circumstances where the Deed of Lease will be required, such as:

  • Finance arrangements – whether you are a Landlord or a Tenant, your bank may require a copy of the Deed of Lease prior to agreeing to advance funds;
  • To confirm dates –where an ATL contained provisions as to how dates will be calculated, the Deed of Lease will record the confirmed dates;
  • Sale of premises– if the Landlord wishes to sell the premises, the Deed of Lease will be required.
  • Assignment of Lease – if the Tenant wishes to assign the Lease then again, the Deed of Lease will be required.

Expect the best, plan for the worst and prepare to be surprised

Posted on by
Reply

It is important for every business to have formal Terms of Trade. When comparing large businesses to small, it’s fair to say the larger the business the more likely it will have written Terms of Trade.

While there may be some who have operated for a substantial amount of time without written Terms of Trade and have never had cause to require them, every business should “expect the best, plan for the worst and prepare to be surprised.”

Terms of Trade should set out the conditions and agreements that the business and the customer have made at the commencement of a transaction including the obligations of the business and the customer (if any). This benefits both the business and the customer – the customer enters the relationship with realistic expectations and the business has defined the standards it intends to meet.

Benefits

Well drafted Terms of Trade should assist a business in resolving issues with a customer. For example, the terms can help a business to collect debts, should the need arise, and should also specify:

  • How the price will be determined (if a quote is not given);
  • When and how payment is to be made;
  • Consequence of non-payment, such as penalty interest on unpaid amounts and the ability for the business to recover its costs in collecting the debt from the customer.By recording these matters at the outset, the customer cannot refute them or argue that they do not apply, or they did not agree to them.Tailor-madeWhile it’s possible to download a template form of Terms of Trade, it is advisable for each business to tailor their Terms of Trade to their specific circumstances and requirements.For example, the question of liability should be included in Terms of Trade and “one size” may not fit all. The question of liability will first be dependent on whether it is a “business to business” or a “business to consumer” sale.

Business to Business

The Consumer Guarantees Act 1993 (CGA) will not apply and it is therefore important to specify the businesses potential liability and the extent that liability is to be excluded. For example, a business may wish to exclude liability for losses suffered by a customer that could not be reasonably foreseen. A business may also wish to limit its liability to a specified dollar amount or to exclude liability completely.

Business to Consumer

The CGA will apply where a business (acting in trade) supplies goods or services to a consumer. Where the CGA applies various warranties will automatically be implied into the contract between the business and the customer. Importantly a business cannot contract out of the CGA when dealing with a consumer.

Notwithstanding that the CGA may apply a business may still want to limit its liability for example for “indirect” or “unforeseen losses”. However, if a business does this it must then be determined whether the Terms of Trade are considered a “standard form consumer contract” and whether any of the terms are “unfair contract terms”.

Acceptance of Terms

It is important to be able to evidence that a customer accepted the Terms of Trade. A business may have well drafted Terms of Trade that provide them with all the protections required however this will be of no use if it is unable to show that the customer had agreed to the terms.

For example, a business that prints its terms on the back of an invoice may have difficulty proving that the customer accepted them. The obvious issue here is that a customer may claim that the first time they saw the terms was on receipt of the invoice, after the transaction had essentially been completed and may argue therefore that they never accepted the terms.

Where a business provides quotes, good practice would be to specify that accepting the quote constitutes acceptance of the businesses Terms of Trade, which should be provided with the quote.

The obvious way to evidence acceptance of the Terms of Trade would be to have the customer physically sign those terms prior to commencing work. It is accepted however that this may not always be appropriate however emailed confirmation from the customer accepting the Terms of Trade would also suffice.

Where there’s a will, there’s a way

Posted on by
Reply

On death a person’s assets form their “estate” which is subject to the wishes or intentions of the deceased’s Will or if they do not have a Will by the “rules on intestacy.”

While many would acknowledge that they should have an up-to-date Will, it is surprising how many people do not have a current Will or one at all.

Regularly reviewing your Will is as important as initially making one to ensure that your Will reflects your current circumstances and any changes in your life such as the death of a close family member, the creation of a trust or establishment or entry into your own business.

Some matters to consider when creating or reviewing a Will are:

1. Identity of your Executors and Trustees. Who would you like to administer your estate or are those currently selected still appropriate?

2. Funeral directions. Do you wish to make such directions or change any existing directions?

3. Changes in your personal circumstances. Unless your Will was made in contemplation of marriage then any Will you have will be automatically revoked when you marry.

You also need to consider your Will if your relationship ends. If you separate with the intention of ending the marriage, provisions in your Will relating to your spouse will remain valid until the marriage is legally dissolved (that is, you are divorced), only then the gifts are null and void.

4. Changes in assets and liabilities. For example, if you have acquired a new asset, such as a business, then you may wish to give the business (or the shares) to a specific person. If you don’t make a specific direction then (if you have a Will) it will simply form part of your estate and go to the beneficiaries.

5. Changes to your family. If you have had children then you may wish to appoint a testamentary guardian.

6. Death of a family member or beneficiary. For obvious reasons this may necessitate a change to your Will.

7. Setting up a family trust. If you have or have set up a family trust you will need to ensure that your Will reflects this and (if appropriate) refers to it.

8. Gifts to charities or organisations. You may wish to leave money to a favourite charity or organisation.

9. Specific gifts. If you want to leave an important item such as jewellery or a family heirloom to a particular person then this should be specified in your Will.

If you die “intestate”, i.e. without a Will, then your estate is subject to the “rules on intestacy” which prescribes to whom, and in what proportions, your estate will be distributed, which may not reflect your wishes.

To help illustrate the point, let’s consider an example:

John and Jane are married, with a son and two daughters. John and Jane have a jointly owned home and a joint bank account. John also has his own construction company. John’s son, James, operates the business with him and it is John’s wish for James to take over the business from him when he retires.

John dies unexpectedly and he does not have a Will.

The home and bank account will pass to Jane by survivorship, however the business will fall into John’s estate and be governed by the “rules on intestacy”.

The business is valued at $515,000.00.

Jane will receive all of John’s personal possessions (basically everything other than land, buildings and money) and shares valued to $275,000.00, which is made up of:

• The legally prescribed set amount of $155,000.00; and

• A 1/3 of the balance of the estate of $120,000.00.

James and his two sisters will each receive shares valued to $80,000.00 (being the other two thirds of the balance of the estate).

This does not reflect John’s wish to pass the business to James and in addition leaves control of the business to Jane (53.39%) while James (and his two sisters) would only have 15.53% each. Significantly James would only be a minority shareholder and would not be able to prevent the business being sold by his mother and sisters.

Finally, another advantage to having a Will is that it usually costs more and takes longer to administer an intestate person’s estate.

If you do not have a Will or have not reviewed your Will for several years then I advise that you discuss this with your lawyer sooner rather than later.