Some preliminary definitions

Trust:              a means of defining the ownership of property. Types of property that can be made the subject of a trust include money, shares, real estate (e.g. a 3 bedroom townhouse) and objects (e.g. an antique guitar)

Trust deed:    a document setting out the terms of a trust

Trustee:          a person who has a legal interest in trust property but not necessarily a beneficial interest, the legal interest allows them to run and manage the trust and distribute trust property

Beneficiary:   a person for whose benefit the trust property is held, their entitlement to the trust property is defined in the trust deed

Settlor:            a person who sets up a trust, they put trust property in and define what should be done with it in the trust deed, in some cases they add further property at a later stage

Why create a trust?

There are many circumstances where trust is a useful device for dealing with property. These include:

• When someone is not able to look after their finances, either through age or incapacity;

• To arrange for various people to be looked after without the settlor having to turn his mind to it;

• To define ownership in property; and

• To arrange for the distribution of assets after the settlor’s death (a will).

The main types of trust

Bare trust

This is the most basic of trusts. The trustee holds property on trust for the beneficiary. The beneficiary has a right to any income that the trust property generates and also to the trust property itself at any time. This trust is suitable for making a transfer to a family member who is entirely capable of looking after his or her own finances.

Interest in possession trust

This is where the beneficiary has a right to the income generated by the trust property but is not entitled to the property itself. For example if the trustee holds a 3-bedroom townhouse on trust, the beneficiary is entitled to the monthly rent generated after reasonable expenses have been deducted by the trustee. In some trusts of this nature the beneficiary is entitled to the enjoyment of the trust property, for example they are entitled to live in the 3-bedroom townhouse but could not sell it, as they don’t own it. The house itself may later pass to another beneficiary nominated by the settlor in the trust deed.

Discretionary Trust

The discretion belongs to the trustees. Hence, they do not own the trust property but have complete control over what to do with the trust property. They may give all or part of the trust property to whoever they wish. This is a useful device where there are lots of young children in a family and a trustee can be nominated to look after a pot of money and distribute it as and when the needs of the children develop.

Accumulation and maintenance trust

This begins life as a discretionary trust, leaving the trustees in charge of how and if to allocate trust property. It subsequently turns into an interest in possession trust, where the beneficiaries are entitled to the income generated by trust property. The beneficiaries in such a trust are often very young children whose needs can be catered for throughout childhood and upon them becoming adults they can benefit from the income produced by the trust property.

Revocable or irrevocable?

The settlor will have to decide whether to make:

• A revocable trust – where the trust deed may be amended at a later stage and trust property removed or replaced; or

• An irrevocable trust – whereby nothing can be done until the conditions set out in the trust deed are fulfilled.

Setting up a trust

There are various legal procedures, which must be followed for a trust to be held as valid. It is worth seeking legal advice if you want to set one up. A solicitor will advise you on the best type of trust to suit your needs and then assist in ensuring that the effect of the trust is as desired. There are also tax consequences of setting up a trust and a solicitor can advise as to the implications of setting up a particular trust. If you are approached in relation to becoming a trustee then it is best to seek advice from an accountant or tax adviser before accepting.

Some preliminary definitions

Trust:  a means of defining the ownership of property

Trust deed:  a document setting out the terms of a trust

Trustee: a person who has a legal interest in trust property but not necessarily a beneficial interest, the legal interest allows them to run and manage the trust and distribute trust property

Beneficiary: a person for whose benefit the trust property is held, their entitlement to the trust property is defined in the trust deed

What is an ‘interest in possession’ trust?

An interest in possession trust is a type of trust whereby the beneficiary is entitled to the income generated by the trust property for a certain length of time specified in the trust deed. The beneficiary is said to have an immediate and automatic right to that income.

The types of trust property most appropriate for this type of trust include shares in a company, land or buildings. Often the beneficiaries to this type of trust are not entitled to the trust property itself, which may pass to someone else in the future. For example the beneficiary may be entitled to the rent generated by a building every month, after the trustees’ reasonable expenses have been deducted, but the building itself will never belong to them. Another example would be where the beneficiary is entitled to occupy the building but again without it actually belonging to them.

Tax implications

Income Tax

As what a beneficiary receives from an interest in possession trust is effectively an income, income tax is payable on it. It is the duty of the trustee rather than the beneficiary to declare and pay tax on the income generated by the trust. The trustee must complete an annual ‘Trust and Estate Tax Return’.

The rate of tax payable is dependent on the type of income generated by the trust. For the 2011-2012 tax year:

• If the trust generates rent trading or savings then 20% tax is payable;

• If the trust generates income from stocks and shares (dividends) then 10% tax is payable.

Sometimes the trust property itself can be treated as income and in these circumstances it can be taxed at either the trust rate of 50% or the dividend trust rate of 42.5%.

The rules regarding taxation in this area are complicated and there are special exemptions and rules that can often apply, such as for the disabled or children who have lost a parent. It is important to seek appropriate advice as to how much tax needs to be paid in specific circumstances.

Capital Gains Tax

Where trust property such as shares, land or buildings gain value and are then subsequently sold, given away or exchanged then Capital Gains Tax may become payable. There is an allowance, called the ‘annual exempt amount’, within which the trust property can gain in value without becoming liable to pay Capital Gains Tax.  The responsibility for paying Capital Gains Tax again falls to the trustees rather than the beneficiaries. The beneficiaries hence do not receive any credit for the tax paid.

Inheritance Tax

As stated above sometimes the benefit enjoyed by a beneficiary is not financial, such as rent, and instead gives them a right, such as the right to live in a property. In certain circumstances Inheritance Tax may be due and an assessment is often carried out. These are when:

• Trust property has been put in an interest in possession trust;
• An interest in possession trust becomes ten years old;
• Trust property is taken out of an interest in possession trust; or
• An interest in possession trust ceases.

When most people think of property law they immediately think of buying or selling property, also known as conveyancing, but in fact property law is very wide and covers:

• Freehold Property
• Leasehold Property
• Landlord and Tenant Law
• Licenses
• Equity Release
• Mortgages
• Remortgages
• Planning
• Environment
• Building Regulations
• Neighbour Disputes
• Boundary Disputes
• Restrictive Covenants and Easements
• First Registrations
• Adverse Possession

The list above is not exhaustive and many of the above topics overlap. Property law is very complex and can be stressful because usually there are huge sums of money and many parties involved from buyers, sellers, landlords, tenants, mortgage companies, councils, surveyors, developers, architects etc. As everyone is likely to encounter some form of property law in their life it is vital to know some basics and where you can find the right information.

To start with, it is important to know the difference between a freehold and a leasehold property. When you own or purchase freehold property you own the entire piece of land and the property built on it. You pay a sum of money at the outset and you have the right to make changes to the property (provided it is permitted by planning laws, legislation and the title deeds) and are responsible for all costs and repairs.

When you have a leasehold interest in a property you exclusively own it either for a fixed period of time or periodically in exchange for rent. The key to leasehold property is “exclusivity”. If you are not in exclusive possession then it cannot be a leasehold title and is more likely to be a licence. With leasehold property, the property itself is actually owned by another party, the “landlord”, whilst you are the “tenant”. The agreement between the landlord and the tenant is known as the “lease” and this document will determine what you are able to do with the property, including whether you are entitled to assign your lease to another party. There are continuous costs involved with leasehold premises such as ground rent, service charges and management fees. Residential leases are usually for a period of over 75 years, although they can be shorter. Commercial leases are usually much shorter. Different rules apply when it comes to residential leasehold and commercial leasehold and you should consult a conveyancer or solicitor for further information.

In addition to the above there are two types of conveyancing systems: unregistered land and registered land. Unregistered land is the old system of conveyancing. If a piece of land or property is unregistered then it means there is no record of it at the land registry. Accordingly, in a conveyancing transaction owners / seller have to prove they own the property by producing old conveyances and various other documents, known as the “title deeds”, for at least the last 15 years.

Registered land is land that has been registered by the Government at the Land Registry. It was introduced to speed up and simplify the conveyancing process whilst preventing forgery. The land registry records all dealings with the land and where possible has an electronic copy of the old title deeds. The Land Registry also has a plan of all registered land so that the extent of the boundaries of all property can be approximately noted. The “register” will also set out the benefits (such as rights of way) and burdens (such as mortgages) of the land in the same way that the title deeds do with unregistered land.

These are of course just the basics of property law. The origins of property law go back hundreds of years and even experienced property lawyers sometimes face new and unusual challenges. Depending on the type of transaction involved it is recommended that you use an experienced property lawyer and not necessarily the cheapest, particularly when you take into account factors such as the time it takes to complete a transaction and the repercussions if it is not done properly.

Indemnity is often confused with guarantee. In fact if you provide an indemnity , this is in fact a potentially more onerous obligation than giving  guarantee since with an indemnity, you will be liable even if the person or organisation you indemnify is not pursued for his, her or it’s obligation, whereas with a guarantee this is not the case. So, an indemnity is a primary not secondary commitment.

An indemnity is commonly used as protection from lawsuits for compensation or damages filed by other parties, such as an employee subject to a restrictive employment covenant might be indemnified by the new employer against a claim for breach.

Sometimes, indemnity is incorrectly used interchangeably with compensation and reparation. Although, all three terms create obligations to act on an injured party’s behalf given the occurrence of a contractually defined event, indemnity has a much broader legal scope and its main purpose is to bring a party to the financial state that he or she was in before the contractually defined event occurred (i.e. accident). This is sometimes referred to as making a party ‘whole’ again.

Car Insurance

A good example of indemnity would be a car insurance policy. Here, if the policyholder is involved in an accident due to his or her own fault, the insurer has an obligation to indemnify the policyholder in a contractually defined way to make them ‘whole’ again.  The way in which the insurer can make them ‘whole’ is either through compensation, reparations or damages. This could include payment in lieu of lost earnings, medical or legal bills or simply costs of car recovery. Therefore, as such indemnity has much broader meaning than compensation and reparation and covers them both to certain extent.

Professional Indemnity Insurance

Professional indemnity insurance provides protection against liability for any financial consequences of professional negligence. Typically, indemnity is provided in respect of legal and consequential costs and expenses incurred in the defence of any claim. The insurance will have a specific limit on the amount that the insurance provider will pay in the event of a claim. It will also be subject to policy terms and valid only for certain period of time (usually one year). Importantly, professional indemnity insurance does not reduce your potential liability to a client. It merely provides protection up to a certain level. Therefore, it is vital that you negotiate with your client levels of professional liability in your letter of appointment.

Companies

It is not uncommon for directors to be indemnified by their companies against any claims. This reduces their personal risk and offers protection for personal assets. There are many breaches for which directors could be found personally liable for damages, this includes negligence, wrongful trading or in some cases breaches of health and safety. Before offering indemnity to directors, company’s members must ensure that articles of association authorise indemnity arrangements. All directors should disclose their indemnity arrangements in annual reports. The company itself should consider third-party indemnity cover, to ensure that any potential lawsuit does not affect its liquidity.

If you feel you are receiving bad advice from your solicitor, you may be considering looking for another solicitor. It is important to realise that a reputable law firm/solicitor will not want to keep a client who no longer trusts their judgement. The decision to change solicitors should not be made on a whim, and should be based on a rational and logical thought process. It should not be based on the fact that your current solicitor is not giving you information you want to hear.

What Are Valid Grounds for me To Change Solicitor?

Valid reasons for wanting to change solicitor can include poor service (this could include not explaining what they are going to do about your issue), poor advice, misrepresenting their success rate, not collecting a full history of information relevant to your case, not appearing in court, failing to adhere to form/court deadlines or charging exorbitant fees for work which they have not completed properly.

What is the Difference Between Using a Case Handling Executive or a Solicitor?

If you want to pursue a claim for a particular injury, and have been advised by one of the claim organisations, you will find that most of the time they will give your case to a ‘case handling executive’. In essence, these people are unqualified clerks. They may have a certain degree of supervision from a qualified supervisor – although this is not a given. If you are unhappy about this, especially if you feel your claim needs to be handled by a more qualified specialist, it is worth considering changing to a solicitor.

Steps to Take when Changing Solicitors

If you have decided you want a new solicitor, the first step in changing solicitors is to find a solicitor who you want to work with and entrust with your personal information and issues. The earlier you change solicitors during the process of a case the better, so it is important to make sure you have all the facts and information you need to make this change. Please note that if you are receiving legal aid you need to possess a valid reason for wanting to change your solicitor.

Once you have found a solicitor you want to change to, it is important to check that they are willing to take your case. Some solicitors will not take cases that have already been handled by other solicitors. If you are benefiting from legal aid, a solicitor who is not in your local area may question taking on your case when there are other, closer solicitors who could handle your case. It may be possible to receive help with transport costs if you are using legal aid.

Many law firms will offer free advice on whether they will accept your case from another solicitor, and often will not charge you a fee for accepting your case. Be aware of the fact that the solicitor you are changing from may charge a fee for no longer taking the case.

If you are beginning a case with an insurance company, some will insist that you use an appointed panel solicitor. If you are not comfortable with this, it is worth knowing that you do not have to use the solicitor they appoint for you, no matter how insistent they are. You are free to select a solicitor of your choosing.

The procedure to change solicitors is relatively similar across the industry. You would ask the solicitor you have found whether they will take on your case. If they agree, you should sign a release form. Once this has been done either your original solicitor or your new solicitor will send this form to your current solicitor, along with a promise to look after your file. Within a few weeks your new solicitor should receive your case file and documentation.

What To Do if Your Current Solicitor Refuses to Hand Over Your Case File

If your current solicitor refuses to allow the change, it is possible to apply to the High Court. A High Court summons will normally encourage your current solicitor to release the files without any problems.

Exclusion clauses are used in both consumer and commercial contracts in order to protect a party from incurring liability if a certain event arises. This is slightly different from a limitation clause, which only seeks to limit liability rather than exclude it altogether.

It is important to note, however, that the mere existence of an exclusion clause in your contract does not automatically mean the other party has excluded their liability. When considering an exclusion clause, if it is ambiguous, the court will tend to find against the party attempting to use the clause.

Statutory regulation of exclusion clauses can be found in the Unfair Contract Terms Act 1977. There are also provisions for the regulation of exclusion clauses in the Unfair Terms in Consumer Contracts Regulations 1999 (for consumer contracts).

Creating a Valid Exclusion Clause

In order for an exclusion clause to be enforceable, it first needs to be properly incorporated into the contract. There are three methods of achieving this: incorporation by signature, by notice or by previous and consistent course of dealings.

Incorporation by Signature

An exclusion clause can be validly incorporated if the document has been signed by the party not relying on the clause. Additionally, the document must be contractual in nature. The clause must be legible, but can still be in small print. In summary, as long as the clause is a legible, genuine representation, a signature will incorporate it in a contractual document. Do note that even if you have not read the contract and the clause properly, but have still signed the document, the exclusion clause can be held valid.

Incorporation by Notice

Another way to incorporate an exclusion clause is by notice. In order for this to be done successfully the innocent party must know about the clause, and reasonable steps must have been taken by the party relying on the clause to bring it to the other’s attention. This must have occurred before the contract was agreed upon. Factors used in determining whether reasonable steps have been take include the position of the clause, the prominence of the clause and whether it is particular unusual. If the clause is particularly unusual/onerous, the party relying on it must have taken greater steps to bring it to the other party’s attention, in order for it to be validly incorporated. An example of an exclusion clause by notice is the clauses you can sometimes find on the signs at the entrances of car parks as you drive in. These often state “we do not accept liability for damage to owner’s property left in car park”.

By Previous and Consistent Course of Dealings

Exclusion clauses can be incorporated where there has been a consistent course of previous dealings between the parties of the contract. Whether this has happened is usually a question of degree in the circumstances.

The second step in creating a valid exclusion clause is ensuring that the clause covers the type of loss potentially suffered (without being excessively broad or ambiguous). It is important to carefully consider what types of loss could arise from the performance of a specific contract, and then construct a clause which specifically covers these situations, rather than adopting one that states “we exclude liability for any loss or damage howsoever caused”.

The Unfair Contract Terms Act 1977

This Act applies where at least one party is acting in the course of a business. It has the effect of either rendering a clause effective, ineffective, or subject to a reasonable test (which it outlines in Section 11 and Schedule 2 of the Act).

It is important to recognise that if loss has occurred due to negligence, it is not possible to exclude liability for death or personal injury, despite what the exclusion clause in your contract states. Additionally, when dealing with a consumer, a seller cannot exclude liability for section 13 and 14 of the Sale of Goods Act 1979, or section 3 and 4 of the Supply of Goods and Services Act 1982. These state that goods must correspond with their description, goods must be of a satisfactory quality and be fit for purpose. This applies where the seller is acting in the course of a business.

Distance selling refers to products or services that are sold and therefore purchased over the telephone, by fax, from catalogues, from television and now more commonly through the Internet by means of a website or emails. To protect the consumers on these purchases, the Distant Selling Regulations (legally known as Consumer Protection (Distance Selling) Regulations 2000) apply. The reason behind this protection is that in distant selling, the consumer does not meet the seller in person or have the opportunity to inspect the goods prior to purchasing. The Regulations do not apply to business-to-business deals.

Distance Selling Regulations Requirements

In essence, the Distant Selling Regulations require the seller to comply with all the following:

• Provide information relating to the buyer and the goods being bought;
• Confirm the order in writing;
• Deliver the purchase within 30 days as well as a give a cancellation period also known as a cooling off period should the goods be unsatisfactory (usually begins the day the goods are received);
• Finally the consumer should be protected against payment card fraud or goods received without a request or them (unsolicited goods).

Information

Prior to purchase, the consumer is entitled to have information which will allow them to identify the buyer and his or her location; a description of the goods they intend to buy including price; methods, time and costs of delivery; methods of payment; be informed of their right to cancellation; and any other relevant information such as methods of exchange or refund. Usually these form the terms of the purchase and should be provided to the consumer in writing or in another appropriate form.

Confirmation

Orders made should be confirmed in writing along with any further information the consumer may require or is entitled to be in receipt of. The confirmation should provide further information on the cancellation period such as details of the process; responsibility of goods during refund and exchange; details of the complaint procedure and conditions of cancelling.

Cancellation Period

The consumer has the right cancel their purchase during any time during the cancellation period provided notification has been given. The duration of the cancellation period should be provided by the seller and this usually lasts approximately 30 days. Whilst in possession of the goods the buyer is responsible for them up and until the seller receives them in the case of exchange or refund. Monies paid if a refund is requested should be duly returned. There are exemptions to this rule and the same is specified in detail in the Regulations.

Protection From Payment Card Fraud and Unsolicited Goods

The consumer is entitled to have all monies returned for purchases made either dishonestly or fraudulently. The money is usually returned by the card issuer in such circumstances. Sometimes a seller may send goods to a recipient expecting them to accept these goods and later demand payment when it has not been agreed. Such unsolicited goods can be used by the recipient or they may wish to dispose of the goods. The recipient has no obligation to pay for them and may treat them as an unconditional gift.

Summary

The Distant Selling Regulations were designed to protect the consumer for purchases made where they are unable to see and examine the goods they are buying or the seller in person. These regulations are often overlooked or unknown to buyers or sellers. For buyers, the rules are a useful protection but part of the problem with buying online is that you may well be dealing with a website which is not registered or hosted in England & Wales and therefore legal jurisdiction can be a difficulty. For sellers, if you want have a thriving online business, particularly in retail, you should take steps to comply with the regulations. Your online success can be easily damaged by disgruntled customers who may post negative comments about you and your service and your trustworthiness online. With the internet, such bad publicity can spread quickly so it always makes sense to be seen to take your legal obligation seriously.

An employer’s legal requirements will be outlined firstly in the Employment Contract with the employee, and secondly via a number of implied terms which are placed on the relationship by statute and case law.

The employer’s obligations need to be clearly understood to avoid any future issues and/or claims which may arise and result in a great deal of time and expense.

Legal implied terms

This is not a comprehensive list but will cover some of the most relevant terms which clarify employers’ legal obligations,

• Working hours/rest breaks

The Working Time Regulations 1998 will set out the amount of hours that a worker should work and rest breaks they are entitled to;

• Duty of Fidelity: It is implied that an employee will serve his employer with good faith. This continues throughout the contract of employment.
• Duty of confidentiality;
• Duty not to compete;
• Duty not to disrupt the employer’s business;
• Duty not solicit the employer’s customers;
• A duty to misuse the employer’s property.

These duties are relevant to all employees. As well as this a number of obligations will be set out in the employment contract. This will usually specify details in relation to holiday pay, sickness absence, equality policies, disciplinary policies and notice periods to name but a few.

In addition to this it is common for employers to have staff handbooks which will set out further details for company policies such as disciplinary, grievance, equality, bullying/harassment, confidentiality and data protection.

As well as this, an employer will have a legal duty to do the following:

• Provide work to the employee. This is distinguishable from a self-employed contract whereby a contractor will not have an obligation to undertake work and the company will not have an obligation to provide the work.
• Duty to pay wages: if an employee has performed the work in accordance with the terms then he has a right to be paid. It does not extend to situations whereby the employee refuses to work. There are also very strict guidelines in relation to any reduction in wages and/or commissions/bonus payments.
• An employer will have to give reasonable notice to the employee this will be set out by statute if it is not stated in the employment contract.

Health and Safety

The employer has an obligation to provide the employee with a safe working environment. It is standard practice for employers to implement health and safety manuals. The obligation of the employer stretches as far as obliging them to take reasonable steps to provide a safe work place, it is not a strict liability and an employee will also have to take some responsibility for their actions.

References

The employer must be very careful when providing references in relation to former employees. If they provide references that seem to be misleading or derogatory, there is a potential for a claim against them.

There is an overriding duty of mutual trust and the confidence between both parties. If either side are seen to have acted unreasonably and caused a breakdown in trust and confidence then this gives the potential to be a repudiatory breach allowing the contract to be terminated either by the employer for gross misconduct or by the employee for constructive dismissal.

These relate to just some of the employer’s legal obligations and advice should be sought if a company is any doubt as to what they are obliged to do in relation to their workers. Employment law is increasingly changing and it is important that employers are up to date on the current legislation.

This article courtesy of Ben Jones, head of employment law at Darlingtons, solicitors in London. Please contact Darlingtons for all your employment law requirements, whether as employer or employee.