Service Charge – what is included?

A case involving the owner of a flat, initially sued in the County Court for arrears of service charge, costs and interest, amounting to over £11,000 questioned whether legal fees were recoverable under the lease. The landlord asserted that recovery of the legal costs, amounting to approximately £4,600, was possible as the lease included the following wording: “all such surveyors, builders, architects, engineers, tradesmen, accountants or other professional persons as may be necessary or desirable for the proper maintenance safety and administration of the building”.

Although the Leasehold Valuations Tribunal found in favour of the landlord, the decision was over turned on appeal by the Upper Tribunal, finding that such wording did not include the recovery of legal costs. Therefore to ensure that legal fees are recoverable through the service charge, a lease should set out in clear and concise wording that fees paid to solicitors and barristers are recoverable expenses, “professional fees” is just not going to cut it!

Greening v Castelnau Mansions Limited (Decision Number: LRX 36 2010) http://www.landstribunal.gov.uk/Aspx/view.aspx?id=792

Simple steps that you can take to improve your Interal Debt Recovery

DELIVERY OF AN INVOICE;

Ensure that an invoice is delivered promptly and accurately and that the invoice states the customer’s full name. Make sure that you are able to clearly and correctly identify your client’s name and status – is your client a Limited Company? Partnership or Sole Trader? Include your customers full and correct name. Correct identification of your customer is imperative if you are to successfully decrease your average debtor days.

Include on the invoice your customer’s reference number so that your customer is able to easily identify the invoice.

Ensure that the invoice states clearly the payment terms and the date by which payment is to be made.

Ensure that a copy of the invoice is retained.

Ensure that the invoice goes directly to the person in the organisation who will be responsible for paying the bill. It is sensible to call and obtain this information from your customer, before sending the bill. This limits the risk of your invoice sitting on anothers desk for a few days or weeks, before finally making its way to the correct person.

Ensure that your invoice clearly shows the manner in which payment can be made. Ensure that you offer the opportunity to pay by credit card / debit card or BACs and identify how these methods can be utilised by your payee. Payment by these methods is often the quickest and easiest method for your payee – the easier it is for your payee to pay your invoice, the quicker you will get paid.

CREDIT CONTROL

Ensure that you have a proactive and efficient process for chasing unpaid debts, as soon as the payment term expires. The key here is to ensure that you receive reminders, through either your accounting package or outlook, as soon as an invoice becomes overdue. You can not chase your debts proactively if you do not know when an invoice has become overdue.

Where the chasing of invoices is being done internally, automation is ideal because it will limit internal resources whilst ensuring that debts are still being chased. Use standard precedent letters and diarise weekly chasers to be made both by letter and telephone.

To receive further fact sheets or for further information about our commercial debt recovery service, please contact Rita Wright of Breeze and Wyles Solicitors on 01992 558411 or rita.wright@breezeandwyles.co.uk.

Telephone calls are time consuming but often offer a higher rate of return. Make sure you stick to the timescales (If you tell a customer you want payment in 7 days and they don’t pay, chase again by letter or phone promptly on day 8).

Decide how many letters and telephone calls you will undertake during your internal credit control process and what the course of action will be should payment not be made. We would suggest that instruction to us to send a letter before action to your debtor, at a cost of £2.00 plus VAT, should be the automatic next step following exhaustion of your internal credit control function. Our instruction is quick and easy and instructing us promptly will ensure that ongoing pressure is applied to your debtor. This will increase the likelihood of recovery.

Make sure that staff with the appropriate skill set and personality are responsible for your credit control. There is little point having someone who is overtly shy and embarrassed, in charge of asking a customer for a commitment to pay by a certain date.

Make sure that your credit controller is efficient and proactive and keeps records of each call made. When a debtor says that they will make payment, make sure that your credit controller asks them to commit to a date by which payment will be made. If your customer defaults, ensure that the customer is called again and ask for a revised payment date. If the customer defaults again, it is highly likely that further action is going to be required. Continued failure to meet agreed payment proposals may be a sign that your debtor is experiencing financial difficulty.

To illustrate the importance of making a record of a telephone call with a debtor, you can take the example where in a telephone call a debtor admits liability, or tries to agree a payment plan. A telephone note recording admission may well help to question the credibility of a debtor who subsequently tries to deny liability for the debt.

If you do agree an installment plan with a debtor, it is worth confirming the agreement in writing and making sure that when negotiating the agreement with the debtor, you reserve the right to claim the entirety of the invoice should the debtor default on the installment plan.

Act quickly and don’t delay. Delay will breed further delay by your debtor. If you threaten Court action or referral to a Solicitor, follow through with the threat. Otherwise, the debtor may not take you seriously and prioritise paying other creditors that are pushing for payment.

Categorise your debtors in to those who “Won’t pay” and those who “Can’t pay”. Where resources are limited, focus your internal resources on chasing those who “won’t pay”.

Divorce: Minimise the impact on your business.

Planning for a divorce whilst happily married may seem pointless - but ignoring the possibility of a breakup can wreak havoc on your business

Unpleasant and emotionally charged as it may be divorce planning should be an integral part of overall business and personal financial planning. It's not only the breakup of your own marriage you need to worry about. If the survival of your company is a priority, as it is for most business owners, you need to safeguard it against any number of divorces, including those of partners, investors and your adult children.
Following the landmark divorce case of White v White [2001] 1 A.C. 596 the overarching principle in divorce cases is: family’s assets should be shared on a basis which reflects the respective contributions of the parties. However, in assessing contributions the role of the ‘homemaker’ (typically the wife) will be seen by the Court as no less valuable than that of the ‘breadwinner’ (often, but not always, the husband).

Most owners of privately held companies would be hard pressed to come up with cash equal to a quarter or a half of their business's value without wreaking havoc on their company's operations. That's why having an agreement in place that will both be fair to your spouse, should your marriage break up, and ensure your company's survival is of paramount importance.
The more elaborate and detailed the agreement, the higher your solicitor’s fees but this is far more cost effective than dealing with matters at the time of the divorce. As your financial situation is likely to change as the years go by, you will need to include a requirement that you and your spouse renegotiate and update your agreement at specified intervals. The particular strategies you should think about implementing depend on your own special circumstances.

Unmarried: I'm the sole owner of my business and still unmarried, but I'm close to setting my wedding date. I've read that to protect my company I should have a prenuptial agreement. Frankly, that's the last thing I can imagine bringing up at this stage of our relationship.

Despite the fact that they are not yet enforceable in the UK jurisdiction, case law has suggested that Judges are attaching more weight to prenuptial agreements in circumstances where: there are no children, independent advice was sought by both parties prior to signing the agreement, there has been an exchange of financial disclosure and on the whole the agreement seems fair. Radmacher v Granatino, [2010] UKSC 42 ruled that prenuptial agreements can be a decisive factor in determining the financial division on divorce.

The Law Commission’s consultation in relation to Marital Property Agreements (pre-nuptial and post-nuptial agreements) closed in April 2011. The results of the consultation are due to be published in 2012 so watch this space!!
You don’t need to be Donald Trump in order for divorce planning to make sense. The key point is to include a plan in which the spouse who is not active in the business will receive a financial settlement rather than a share in the company in the event of a divorce. Whatever the size of your business, and whether or not you're profitable yet, it would be beneficial to have an agreement.

Even better would be an agreement that covers the other key elements that could be sticking points. It should include an agreed-upon method to determine your company's value in the event of a divorce. (To ensure getting unbiased results, some people specify that two or three independent appraisers be engaged, with the couple agreeing to rely on their average estimate). When companies are valuable--and it does make sense to assume yours will be someday--you should also be sure to include an extended payout, perhaps lasting as long as 5 or 10 years, in order to shelter cash flow from the shock of a one-shot divorce payment.

Married:

If the business is the source of your family’s income then everything must be done to keep it going successfully (or else the family’s financial position will suffer) A sensible and commercial view must be taken when valuing the business (with everything possible being done early on to obtain agreement between the two parties so costs don’t escalate needlessly).

These principles are important since the Courts increasingly look to achieve a ‘clean break’ settlement between the husband and wife, with payments for their children being provided for by way of child support. In most cases, the parties will want to have the business valued so that a “clean break” can be achieved by one party buying out the other. You must consider whether this is actually the best approach for you and your business.

Your business may be profitable and successful but, at the same time, not be worth the sort of sum, post costs and Capital Gains Tax (even at only 10 per cent) to enable the family’s lifestyle to continue at the pre-divorce level.
Further, even if a value can be agreed it may be impossible for the party purchasing to find the funds and perhaps most importantly, where both husband and wife are instrumental in the business, the continued involvement of both parties in their respective roles may be fundamental to its future success.

For these reasons there may be an argument for spousal maintenance until, in the fullness of time, the business can sold to a third party. Then the interests of both parties can be capitalised.

Married: I'm happily married and the owner of a thriving company. My spouse doesn't work in the business.

Do everything you can to segregate all company related assets (such as ownership) and liabilities (such as bank loans to support the company) in the name of the spouse who is actively involved in running the business. Ideally, the family's joint financial assets, such as the ownership of a home, a car, or any investments, will be separate from those relating in any way to the business.

The business undoubtedly constitutes the bulk of your family's assets. Speak with your accountant and solicitor (both personal and business) about how to best go about separating the assets.

Married: Both spouses involved in the business.

You should take the same precautions when your spouse is a business partner that you would with any other business partnership. Any agreement does need to cover some essential issues, e.g. both spouses should agree to several restrictions concerning the ownership of their company's shares, such as it must be held only by people who are actively involved in the business. If either spouse leaves the business, their shares must be sold back to the partner who remains active. Neither spouse can sell shares to anyone else without the other’s permission. And finally, in the event of a divorce, one spouse must leave the business and agree to sell his or her shares back to the active owner. To cover all eventualities you could include a clause should you and your spouse separate but do not actually divorce.

You also need to plan for an orderly and fair transfer of the company, should that become necessary. It is imperative therefore to set out how the company will be valued.

Is divorce planning really necessary?

If you can come up with the cash to handle paying off your spouse then maybe not!

If it seems absolutely impossible for you and your spouse to agree on how business and marital assets should be split, maybe it pays to leave that one issue up to the judge, should you ever end up in Court. But you can still help protect the long-term survival of your company if you can at least agree on such matters as how the business will be valued and how long the payout will be extended.

Matters to consider:

• Can the business continue with just one of you?

• If only one party is involved, can the other be sure that the business will be run in an open and honest manner?

• Can a “clean break” be funded either immediately or on a safe and secure deferred basis?

• How will the staff react to the divorce?

• Has an independent and commercially realistic view of how to resolve the business issues been obtained?

For further information please contact Brendan O’Brien (Director – Company and Commercial) brendan.obrien@breezeandwyles.co.uk or Olive McCarthy (Director – Matrimonial Department) olive.mccarthy@breezeandwyles.co.uk

The effective credit control tools!

Rachel Harper, a paralegal at Breeze & Wyles Solicitors LLP in the Debt Recovery Team talks about effective credit control to Brendan O'Brien Director and Head of Business Services .

It’s a familiar story, you have done the work, delivered the products/service but the invoice remains unpaid! Regrettably, it’s likely you will have at least one bad debt during the life of your business.

Cash flow is of major importance to everyone, including your debtor and therefore if they have even the smallest reason to delay or refuse payment they will do so.

When setting up your business credit control and invoicing terms are of paramount consideration – get this right and chasing outstanding payments is much more straightforward.

Know your customers - are they a sole trader, limited company, etc? Is the delivery address the same as their head office/accounts address? It is free to carry out a company’s search on the Companies House website – for a limited company this will reveal whether the debtor is still trading and provide details of their registered office.

If the work undertaken is going to amount to a substantial sum, consider carrying out a credit check. Once the credit check is carried out you can make an informed decision on setting a credit limit. DO NOT let credit limits be exceeded.

Obtain a deposit where practical to do so. Be mindful of any special materials required to complete the tasks in hand and obtain payment for “extras” up front.

Ensure that you have signed terms and conditions – amongst other details to consider, give thought to the following: when and where will you send your invoice? What are the payment terms? What happens if the type of product/service to be provided needs alterations? What are your interest rates for late payment?

Issue invoices periodically, waiting until the job has been finished can be detrimental to your cash flow, as each step is finalised invoice for the work undertaken to date.

Would you allow 70 day payment terms? If you are not utilising an efficient credit control system this may be exactly what happens! If you wait until the end of the month to carry out your accounts consider the following:

• Invoice sent to debtor in October
• Invoice received by debtor in November
• Invoice authorised for payment in next cheque run (at end of month)
• Payment sent to you at the beginning of December

Perhaps this may seem somewhat extreme but if you are not chasing payment your debtor will see this as payment on time!!

Do not give the debtor an excuse to question the figures - ensure that the invoice is correct as errors will only delay payment further. If you are required to reissue the invoice it is likely the debtor will restart the clock on the payment time. Payment terms should be clearly displayed on each invoice. Make sure the payment terms are clear and precise – if payment terms state “30 days” – 30 days from when? Is this 30 days from delivery, 30 days from date of invoice? 30 days from the end of the month in which the invoice is received?

Once the payment is due but not received make a gentle reminder – a telephone call reminding them of the “oversight” can work wonders. Keep a note of any and all contact in relation to chasing the invoice. If the invoice remains outstanding chase via letter setting out how overdue the payment is and when you expect them to return payment. Do not make idle threats – if threaten further action, such as adding interest or issuing proceedings, be prepared to follow it through.

Incentive for early payment – a blessing or a curse? Ensure that any early payment incentive will be enough to cover your costs and that you achieve your goal – to speed up payment. Most debtors will take advantage of a discount for early payment but what happens if they make late payment but at the reduced rate? Do you really want to spend more of your time and money chasing the difference between the reduced rate and the total invoice? Your terms of business need to be crystal clear on early payment discounts and their expiry.

Proof of delivery – where practicable obtain a signature stating that the goods were received in their entirety and in good condition. This will assist in relation to any future claims the debtor may try to bring, such as part of the order was broken or missing.

Retention of title - "all goods remain the property of (name of your business) until payment in full is received" - use of such a clause in your terms and conditions means that you retain ownership of the product until full payment is received, i.e. not only can you sue for the money owed but where practicable you can take back the goods delivered to your customer. You may also be able to claim the costs you have incurred in removing the goods from your customer!! It is also sensible to have the same wording on your invoices – this acts as a gentle reminder that the debtor does not own the goods as yet and will not do so until they settle the invoice.

Beat Stamp Duty Land Tax rise in March 2012

Potential first time buyers are warned to note that there purchase of residential property in England and Wales may attract Stamp Duty if they complete after 25 March 2012. The Stamp Duty relief for first time buyers will come to and end on this date.

From this date the situation will change as set out in the Table below

Fig. 1

Purchase price % Stamp Duty then % Stamp Duty now
Up to £125,000 0 0
Over £125,000 to £250,000 1% 0
Over £250,000 to £500,000 3% 3%
Over £500,000 to £1 million 4% 4%
Over £1 million 5% 5%

If you are considering buying a property in the coming months and you fit the following criteria

Until 25 March 2012 first time buyers of residential property can apply for SDLT relief (as set out in Fig. 1 above) if all of the following apply:

•the effective date is on or after 25 March 2010 and before 25 March 2012

•the consideration given is £250,000 or less

•the buyer intends to live in the property and it will be their only or main home

•they have not previously owned property or land either in the UK or anywhere else in the world - including property bought with anyone else

then contact us on adrian.toulson@breezeandwyles.co.uk or 01279 715333