Commercial Landlord And Tenant Disputes-The Facts You Should Know

commercial landlord tenant disputes

Landlord and tenant disputes are on the rise for obvious reasons with the downturn in the economy and landlords being faced with the choice of trying to recover outstanding rent or additionally trying to recover their premises and get the tenant out.

Generally the failure to pay rent by the tenant will be a breach of a covenant of the lease leading to a right accruing to the landlord for a straightforward breach of contract and the normal remedies available to the landlord when this occurs.

The legal proceedings that a landlord will take will depend on the amount of rent owed-if it is less than €6,348.69  it will be by way of Civil Summons in the District Court; if it is between that figure and less than €38,092.14  it will be by Civil Bill in the Circuit Court. (Note that these jurisdictional amounts have changed; the District Court has a limit now of €15,000 and the Circuit Court up to €75,000).

Higher than that and you will find yourself the subject of High Court proceedings.

Recovery of Premises

Most commercial leases will have a covenant providing for the right to recover possession of the premises when there is a breach of a covenant of the lease.

Notice To Quit

If a lease has just expired, that is the time is up, the landlord needs to serve a Notice To Quit giving whatever period of notice is stipulated in the lease itself.

After the service of the Notice To Quit the landlord should mark any rent received as “mesne rates only” as not to do so could be seen as a waiving of the Notice by the landlord.

Forfeiture

Forfeiture procedure is appropriate where the landlord wants to get the tenant out before the term of the lease is up.

He will want to do so if the rent is overdue and not being paid and the landlord thinks that he is better off trying to let the premises to someone else.

To do this the landlord must be sure that the lease makes provision for forfeiture in the event of rent not being paid or whatever other breach of covenant the landlord is alleging.

Most leases will contain such a covenant; if yours does not it will provide for forfeiture for breach of a condition of the lease.

In order to use the forfeiture procedure the landlord must first, by law, give the tenant the opportunity to remedy whatever breach has occurred.

Firstly the landlord will need to serve a Notice of Forfeiture on the tenant which will set out the alleged breach and the time within which it must be put right or that the landlord will re-enter the premises.

This is called a Section 14 notice as the requirement arises from section 14 of the Conveyancing Act 1881.

If the remedy is not forthcoming and the breach is not sorted out then the landlord can re-enter the premises peaceably-it is important that to note that anything other than the minimum damage can lead to a criminal offence being caused by the landlord.

If resistance is offered by the tenant then it would be very difficult for a landlord to enter peaceably and should withdraw.

Ejectment Civil Bill on Title Based on Forfeiture

If the landlord cannot take the premises peaceably he will need to go the Court route and it is by way of Ejectment Civil Bill on Title based on forfeiture.

Be warned that this is a slow process and the Courts have traditionally given a fair degree of latitude to tenants giving them more time to put things right.

Tenant Relief

Conveyancing Act 1881, section 14(2), provides some relief for the tenant provided that the landlord has not re-entered and the tenant has put matters right by paying the rent or whatever breach is alleged.

The courts have traditionally been very fair with tenants in these matters and a tenant who has paid up, even late, will be in a strong position to get this statutory relief from the Court.

Ejectment Civil Bill for Overholding

This procedure is used after the service of a Notice To Quit or where the original lease has expired and the tenant remains in possession.

Commercial Landlord and Tenant Issues in Insolvency

Liquidation

In a liquidation situation, any rental arrears which arose prior to the liquidation will rank as unsecured claims and participate in any dividend on a pro rata basis with other unsecured creditors.

Rent arising where the liquidator occupies the premises to wind up the failed company is deemed to be an expense of the liquidation and will rank, along with the costs of the liquidation, above all creditor claims.

Receivership

Rent accrued prior to the appointment of the receiver will rank as an unsecured debt.

Rent due during the period of receivership, the receiver is obliged to pay the rent as a priority expense of the receivership.

Examinership

Theoretically, rent accrued during examinership should be paid to the landlord. However, proceedings cannot be taken against a company when it is in examinership so it would be very difficult to enforce the payment of rent.

Repudiation of leases during examinership

Section 20(1) of the Companies (Amendment) Act 1990 allows the repudiation of any contracts of a company in examinership.

This includes leases and a Court has jurisdiction to approve the repudiation of a lease of a company in examinership. This is a discretionary power which will be exercised in each case in the particular circumstances of the case.

Disclaiming a lease

Section 290 of the Companies Act 1963 allows a liquidator to apply to Court for an order for disclaimer of onerous property or contracts.

The liquidator has 12 months within which to disclaim a lease and it is a slow process. The landlord will be able to claim as an unsecured creditor for damages as a result of the disclaimer.

However, whether there is going to be a dividend available to unsecured creditors or not will depend on the circumstances of each case.

The Entitlement to a New Lease

The Landlord and Tenant Act 1980 which was amended byLandlord and Tenant Act 1994 provide statutory entitlements to tenants in a landlord/tenant relationship.

The reliefs apply where the property that is the subject of the agreement is a tenement which is a legal description but has been interpreted fairly generously. It includes buildings which are not permanent and can include sheds erected without planning permission.

To qualify for the statutory entitlements the main purpose/use must attach to the buildings. If there is land involved then the land must be subsidiary and ancillary to the main use of the buildings.

Section 16 of Landlord and Tenant Act 1980 provides that a tenant will be entitled to a new tenancy at the expiry of his existing lease if he can prove one of the following equities

  • Business equity-if the tenant was in occupation for 5 years continuously and was using the premises/tenement for business purposes (this period used to be 3 years); temporary breaks can be disregarded by the courts. The five year period only applies to tenancies/leases which commence after 10 August 1994 and the tenant must occupy the tenement for the entire period
  • Long possession equity-this applies to both residential and business property and states that if the person was in occupation for 20 years then he/she was entitled to a new lease
  • Improvements equity-this also applies to both residential and commercial property and states that if the tenant would be entitled to compensation for improvements and they accounted for half or more than half of the letting value of the tenement when the notice of intention to claim statutory relief, then the tenant has an improvements equity

Terms of a new tenancy

These terms are to be agreed between landlord and tenant and failing that will be fixed by the court. If the tenant is entitled to a new lease based on business equity the new term shall be fixed at 20 years or such time as the tenant may nominate, provided it is over 5 years.

If the right to a new tenancy is based on long possession or improvements the term of the new tenancy will be 35 years or a lesser term that the tenant can nominate.

Rent

This will be fixed by the court at open market value if the landlord and tenant can not agree on a new rent.

Restrictions on a right to a new tenancy

Section 85 of the act prevented any provision contracting out of the Act.

However this was changed re the tenant of an office premises who could contract out of his right if he took independent legal advice and signed a renunciation under sect 4of his right and this had to be done before the commencement of the tenancy.

Other restrictions include the situation where the tenant is in breach of the lease in respect of payment of rent.

Furthermore where the landlord intends to pull the building down in order to redevelop the building/site then he can refuse to grant a new tenancy.

However if this occurs and the tenant would have been entitled to a new tenancy otherwise, then the tenant is entitled to disturbance compensation which is a right of both residential and commercial tenants.

How to claim a new tenancy

The forms required are set out in Landlord and Tenant Regulations, 1980. This notice must be served before the end of the tenancy or within 3 months of the end. (The courts have discretion to extend these time limits in limited circumstances)

Compensation for improvements

This is available to both residential and business premises. Where a tenant quits a tenement because of the termination of the tenancy he is entitled to be paid compensation for every improvement by him or any predecessors in title which adds to the letting value of the premises.

However he will not be entitled to compensation if he has surrendered the lease or the termination is for non-payment of rent.

Improvement notice

Where a tenant proposes to make improvements to the tenement he may serve an improvement notice on his landlord.

If the latter ignores it then the tenant can go ahead with the works and is entitled to compensation. However the landlord can then himself serve an improvement undertaking notice on the tenant and execute the works himself.

Or he can object to the improvement notice and the tenant can then withdraw his notice or apply to court which can allow the tenant to make the improvement or reject his claim based on the fact that he has not been in occupation for 5 years and is consequently not entitled to a new lease.

Any covenants in the lease which prohibit the selling of the building or the change of use of the building will be interpreted as only prohibiting this to occur without the landlord’s consent, and this consent must not be unreasonably withheld.

A similar interpretation will apply to any covenant in the lease prohibiting the making of improvements.

Update

The Civil Law Act 2008 has made some changes to Landlord and Tenant legislation. Previously only the occupier of an office lease could contract out of his right to a new lease as outlined above.

The Civil Law Act 2008 now allows any business user to renounce his right and furthermore allows him to renounce not just prior to the commencement of the lease but at any time. He must still receive independent legal advice.

Termination of Commercial Leases

The most common ways to terminate or end a lease are

1) Notice to quit

2) Forfeiture

Since the Residential Tenancies Act, 2004 lays down the procedure for the vast majority of residential tenancies Notice to Quit and Forfeiture now only apply to commercial tenancies.

You only use a Notice to Quit procedure where the tenant remains in possession after the expiry of the agreed term and continues to pay rent. This tenant is said to be overholding.

Where the landlord wishes to end the tenancy prior to the end of the agreed term, the appropriate procedure is Forfeiture.

Notice to Quit

Notice to quit is the most common procedure to recover the premises where the tenant is overholding.

Anybody who has received prior express authorisation may serve the notice to quit.

Where the landlord is not serving the notice to quit himself it is prudent to arrange prior written authority to be given to the server. This authority can not be given retrospectively.

There is no set form for the notice to quit but it must contain a clear and unambiguous intention to end the tenancy.

A description of the premises must be given and it must be addressed to ‘the tenant and all other persons in occupation’.

It need not be signed but it is prudent to do so.

Length of Notice

Firstly check the written agreement to see is there an agreed procedure. If not the statutory minimum is 4 weeks and the notice must end on a gale day (this is the point when one period ends and another begins).

The crucial question is how is the rent reserved in the lease (this is not the same as how is the rent paid).

A monthly tenancy requires one month’s notice expiring on a gale day.

A quarterly tenancy requires 3 months notice and this should expire on a gale day.

A tenancy from year to year requires 183 days notice expiring on the anniversary of the tenancy.

Personal service is best and in the case of a limited company on the registered office of the company.

Waiver of notice

You will be deemed to have waived the notice to quit if you

  • Serve another notice
  • Demand the rent
  • Accept the rent which falls due after the end of the notice period.

Landlords are advised therefore not to accept rent after the end of the notice to quit has expired.

Care should be taken to check the lease to see if any provision has been made for a specific method of terminating the tenancy.

Forfeiture

This is only appropriate where the term of the lease is still running. But a landlord has no right to terminate a lease prematurely unless the tenant has been in breach of one or more of it’s terms.

A landlord also loses the right to forfeiture if he does not follow certain statutory procedures which give the tenant a reasonable opportunity to remedy any breach.

It is extremely difficult in practice to forfeit a lease, especially if the parties are in court for the first time.

Grounds for forfeiture

The 3 main grounds for forfeiture are

1) Disclaimer by the tenant of the landlord’s title

2) Re-entry of ejectment where there has been a breach of a condition in the lease

3) Re-entry of ejectment where there has been a breach of a covenant which provides for re-entry for that breach.

Breach of condition of lease

Breach of a condition of a lease gives the landlord an inherent right to re-enter.

But the landlord must be careful to distinguish between a condition and a covenant.

Breach of covenant in a lease

A breach of covenant in a lease will only give rise to a right to re-enter if the covenant broken has a proviso for re-entry.

Before forfeiture can take place a ‘section 14’ notice must be served unless forfeiture is occurring for non payment of rent. In this case there is no need for a ‘section 14’ notice.

This notice calls upon the tenant to remedy the breach within a reasonable time.

If the notice is served and the time specified in the notice has elapsed without the remedy of the breach, a demand is again made for possession and the landlord may re-enter if it can be done without the use of force. There is a statutory prohibition on the use of force.

Ejectment civil bill on title

If the landlord can not re-enter peaceably the landlord’s remedy is to issue an ejectment civil bill and seek an order for possession in court.

Relief against forfeiture

There are 2 reliefs for the tenant to prevent forfeiture of the lease-statutory and equitable.

Statutory

Section 14(2) Conveyancing Act 1881 allows the tenant to apply to court for relief-it is then at the discretion of the court and there are no fixed rules for the court in exercising its discretion.

A sub-lessee will get statutory relief and his sub-lease will continue as if the superior landlord was the immediate lessor.

The Landlord and Tenant(Ground Rents) Act 1978 provides that forfeiture can not occur by reason of failure to pay ground rent in the case of a house where the tenant is entitled to buy out the freehold.

In general there is no statutory relief where the landlord forfeits the lease for non-payment of rent.

Equitable

Courts may use its equitable discretion to grant relief to the tenant, even for non-payment of rent, if it would appear to be just to do so.

Courts lean against forfeiture for non payment of rent and tend to give tenant’s plenty of opportunity to pay up. But it will look at the conduct of the parties prior to going to court.

Effluxion of time

Where the term of a lease is up there is no need to serve a notice. A letter prior prior to the end of term pointing up the end of the term and demanding possession will suffice.

Court Order

The court has jurisdiction under certain legislation to terminate a tenancy.

Exercise of an option (break clauses) in a lease

Commercial leases often have break clauses entitling either party to terminate prematurely.

Legal proceedings

It may still prove necessary to go to court, even after ending the lease by one of the methods outlined above.

Ejectment Civil Bill on Title Based on Forfeiture

The landlord’s claim is based on the fact that the tenancy has ended by forfeiture and the tenant has no right to retain possession. This is a very common procedure, especially where non-payment of rent has occurred.

The landlord may need to go to court a number of times to establish a poor track record of the tenant as the court is very reluctant to grant possession first time for non payment of rent.

Ejectment for non payment of rent

This is based on Deasy’s Act,1860. The huge disadvantage is that the landlord must wait until one years rent is due-not very popular method for this reason.

Ejectment Civil Bill for overholding

This is used following service of a notice to quit or where the original lease has ended and the tenant remains in possession.

From the tenant’s perspective under the Landlord and Tenant Act 1980 he must now serve notice to seek relief, that is to seek a renewal of the lease) within a certain period following service of the notice to quit.
By Terry Gorry
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Leasing a Commercial Premises? 10 Key Questions and 4 Vital Tasks for Your Solicitor

leasing-commercial-premises
Leasing commercial premises requires caution

Thinking about leasing a shop unit?

Coffee shop?

Office?

Other commercial premises?

If you are thinking about leasing a commercial shop unit in Ireland there are a number of key areas you need to consider before going ahead.

Set out below is a non-exhaustive list of issues that you will need to be satisfied about before investing your cash in a full repairing and insuring lease (FRI lease).

At the end of the piece I also deal with some common questions I am regularly asked by people looking to start or grow their business by taking on a commercial unit.

But before we look at the important questions there are 4 vital things to be taken care of-the conveyancing aspects of the lease. I have encountered a frightening number of tenants who entered into a lease for a commercial premises without using a solicitor.

A host of problems can then arise in relation to rent reviews, sub-letting, assigning the lease to someone else, etc. which the tenant may not have received any professional advice about when taking on the lease.

Don’t make this mistake. And here are some other issues your solicitor will need to take care of:

Conveyancing Considerations

a) Has the landlord title to grant the lease? Your solicitor should insist on seeing prima facie evidence, for example a copy of the deed to the landlord.

b) Is there planning permission?  Your solicitor needs to see proof that there is planning permission for the proposed use of the premises. He/she should also carry out a planning search.

c) Is the premises mortgaged? Your solicitor will need to check whether there is a mortgage on the premises. If there is the mortgagee may need to join in the lease as a party or give written consent to the granting of the lease.

d) Law Society standard pre-lease enquiries? Your solicitor will need to raise the standard pre-lease enquiries and requisitions with the landlord’s solicitor. These are standard queries-a check list essentially-which should be raised.

Once your solicitor has carried out these vital checks you, as proposed tenant, need to consider the following questions:

1) The term

How long will your lease be? Will you have statutory rights under the Landlord and Tenant (Amendment) Act, 1980? Will you have a break clause? Is Vat payable?

2) Repairs

Who is responsible for repairs? If it is a lease in excess of 5 years it is likely that the tenant will be responsible.

If it is a lease of less than 5 years you may only be responsible for internal repairs.

The question of whether it is a new building or an older building will also be significant and other issues to be addressed would include latent and inherent defects in the building, what is considered fair wear and tear and what risks are covered by insurance.

3) Insurance

If it is a full FRI lease then you as tenant will almost certainly have to pay the insurance premium held in your landlord’s name.
This will vary depending on whether you are the sole occupier of the building or if it is multi tenanted in which case you will be obliged to pay a proportion of the landlord’s premium.

You will therefore be concerned about the risks that the landlord is insuring against and whether the building is insured for reinstatement value or cost.

As tenant you will also want to insure against public liability, employers liability, plate glass and contents but this will depend very much on the nature of your business.

4) Alterations

You may need to make alterations when you take on the property to ensure that it is right for the purpose intended.
This will generally require the landlord’s consent which cannot be unreasonable withheld or delayed.

5) Alienation of the premises

Alienation is the legal term for your assignment of the lease to a third party; you will need the landlord’s consent to this but the landlord cannot unreasonably withhold or delay his consent.

However the question of reasonableness is one which might be disputed and the landlord may argue that his refusal is in the interests of “good estate management” and is therefore reasonable.

6) Service charges

Service charges may or may not arise in your particular circumstance. If there are service charges in respect of common areas you will need to ascertain exactly what is included and how much your service charges will be.

7) Rent reviews

How the rent will be reviewed will be of critical importance to you; generally rent reviews will take place at 5 yearly intervals and is an area that may require arbitration or some agreement as to how any disputes will be resolved.

8) Guarantee

Will you be obliged to provide a guarantee for rent, rates and other outgoings?

9) Break clause

Is there a break clause in the lease?

10) Stamp duty and VAT

You will be liable for the stamp duty on the lease but landlords also have an option to charge VAT or not. This is another area that you will want to check before investing as it can have a significant impact on your cash flow.

These are just some of the many factors you need to consider and be clear on before leasing a commercial premises.

Here are some questions that crop up repeatedly. If you have any questions simply send them in to me with the contact form below and I will answer them.

Stamp duty on commercial leases

If there is a premium payable stamp duty is payable on the premium at the normal non-residential stamp duty rate on a conveyance/transfer, that is, 2%.

Stamp duty is also payable on the rent as follows:

  • Lease not exceeding a term of 35 years: 1% of the average annual rent
  • Lease with a term between 35 and 100 years: 6% of the average annual rent
  • Lease with a term in excess of 100 years: 12% of the annual average rent

A rent review will also mean a fixed charge of €12.50, and each counterpart of an original lease attracts a fixed charge of €12.50

Commercial Premises F.A.Q.

‘How long should I sign a lease for?’

This very much depends on

  1. What you want and need
  2. What the landlord wants, needs, and is prepared to give you.

So, it depends on good, old-fashioned negotiation between you and the landlord, or his agent.

You need to consider your future needs and potential expansion/growth; however, you must also consider your business failing. It’s not a pleasant thought but you need to consider it. At least one break clause can give you a way out of the lease, and it could be exercised due to the growth and new needs of your business, or the failure of the business.

‘What documentation will I need?’

When you go to take a look at the premises to speak to the landlord and/or auctioneer, you don’t need any. Later on if you are going ahead, your solicitor will require some identification and anti money laundering papers, but initially when negotiating you don’t need anything.

‘What are my legal responsibilities (and the landlord’s)?’

Your main responsibilities will be to pay the rent, insurance, and any service charge. However, the location of your unit-for example in a shopping centre or multi unit development-may place some extra responsibilities on you. These will all be contained in your lease in the form of covenants and conditions; your landlord’s entitlements and obligations will also be found in the lease, and for this reason you need to negotiate a good one at the outset.

‘As the property is not finished it still needs toilets, railings walls plastered, staircases and a number of other unfinished works.  I am unsure as to what I should be asking them to finish as I don’t know what it is they will expect me to finish.’

This too is a matter for negotiation and agreement, and you want to be sure to avoid having to carry out a huge amount of renovations/refurbishments which may only benefit the landlord in the long run.

If there is work to be done, and the landlord undertakes to carry it out, get a surveyor or architect to check the work before signing a lease.

Your solicitor will also be looking for certificates of compliance with planning permission and building regulations from the landlord’s solicitor, but you need to be sure that the work is carried out to a satisfactory standard for your needs.
By Terry Gorry
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Why Some Partnerships End in Tears-What You Need to Know About Partnership Agreements

business-partnership

If you are thinking about going into business in a partnership, or perhaps you are already in a partnership, this piece will almost certainly be of interest to you.

Because partnerships can be difficult and quite often end in tears.

Written Partnership Agreement

The need for a written partnership agreement in any partnership is crucial. Because if you do not have one, then the Partnership act 1890 will govern your relations with your partner.

Partnerships are an important part of business life in Ireland for a number of reasons including taxation, accounting, and disclosure advantages over limited companies. There are other reasons too:

  1. any time 2 or more people come together to carry on business and do not form a company the law assumes they are in partnership. They are then subject to partnership law which dates back to the Partnership Act of 1890.
  2.  Professionals such as doctors, lawyers, dentists, vets, accountants are not allowed to form companies.
  3. There are advantages over forming a company from the point of view of tax, accounting and disclosure requirements.

Partnership Does Not Have a Separate Legal Identity

Unlike a company a partnership is not a separate legal identity. This means that partners have unlimited liability, unlike directors or shareholders in companies.

And partnerships do not have to go through any registration process to be formed.

The downside is that each partner is liable for the losses of his co-partner in carrying on the partnership business, even where the other partner has defrauded clients of the business.

Definition of Partnership

Partnership Act 1890 defines a partnership and states that where 2 or more people carry on business with a common view of profit, then a partnership exists.

A written partnership agreement is not necessary (but is strongly advised).

And where 2 or more companies come together to carry on business to make a profit then unless they have set up a special purpose joint venture company a partnership will be deemed to exist.

Co-Ownership of Property

Co-ownership of property alone does not mean that a partnership exists; there must be a sharing of any profits between partners.

Generally the maximum number of partners allowed is 20; however there are exceptions made for solicitors and accountants.

Types of Partnership

There are 2 types of partnership:

  1. an informal partnership (partnership at will) and
  2. formal partnership (fixed term partnership).

Written Partnership Agreement

If there is not a written partnership agreement you are leaving yourself wide open to difficulties.

Because if there is not either an implied or express agreement the partnership will be considered in the eyes of the law a partnership at will and will be governed by an act from 1890. In most cases this is wholly inappropriate for modern business.

For example without a written partnership agreement the 1890 Partnership Act will mean that:

1)  there is no right to expel a partner

2)  any partner may dissolve the partnership

3)  if a partner dies, the firm will automatically dissolve

4 ) there is no power to retire under the Partnership Act, 1890.

Business Name of Partnership

If the partnership is carried on under a name which does not consist of the surnames of the partners, then the partnership must register a business name and publish the names of the partners on the firm’s stationery.

In the event of a dispute, this may be very important as it may indicate when somebody became or ceased to be a partner.

Partners Rights under Partnership Act, 1890

  • every partner may take part in the management of the business so if this in not desired then a written agreement should reflect the wishes of the partners.
  • a simple majority of partners is all that is required to make a decision. Again if this is not desired then a written agreement is a must.

However this is tempered by the requirements that

a) all the partners must exercise their powers for the benefit of the partnership as a whole

b) there must be unanimity to change the partnership business

c) no partner may be introduced without the consent of all the partners

d) a partner may not be expelled by a majority.

Majority Rule in a Partnership

There are 2 restrictions on the capacity of partners to bind the whole partnership by a majority vote:

  1. partners have a fiduciary duty to each other and must exercise their rights for the benefit of the partnership as a whole
  2. sections 24 and 25 of the Partnership Act, 1890 limit the powers of partners to use majority rule.

Section 24 (8) requires unanimity for a change in the partnership business;

section 24 (7) provides that no partner may be introduced without the consent of all the partners

section 25 prohibits the expulsion of a partner by a majority of the partners unless all partners have expressly agree to such a power being conferred. However there is no right to expel under the default agreement situation.

Fiduciary Duty of Partners

A partner has a fiduciary duty to co-partners under common law.

However, the Partnership Act, 1890 also provides as follows:

section 28 provides that partners are bound to render through accounts and full information of all things affecting the partnership.

section 29 provides that a partner must account to the partnership for any profits made from partnership property.

section 30 provides that “If a partner, without the consent of the other partners, carries on any business of the same nature as, and competing with that of the firm, he must account for and pay over to the firm all profits made by him in that business.”

However this does not prevent a former partner from competing with the former partnership.

Considerations for a Written Partnership Agreement

It is pretty clear that having a written partnership agreement is crucial to the smooth running of the partnership and to ensure that the wishes of the partners at the outset are carried out.

The Partnership act 1890 does not prevent a former partner from competing with the firm after he leaves. For this reason it is common for modern partnership agreements to have a non compete agreement, generally for a maximum of 2 years.

Financial rights of partners

The default position from the 1890 act is that all partners are entitled to share equally in the profits and capital of the partnership and must contribute equally to the losses.

This means that even if a partner does not contribute capital in the same proportions as the other partners he is still entitled to share in the profits equally.

The 1890 Act also deals with interest on capital, interest on loans, remuneration of partners, and drawings.

Remuneration of Partners

The Partnership act 1890 states that no partner is entitled to remuneration for acting in the partnership business.For this reason a written agreement is advisable and should also set out the provisions for the drawings of partners.

Partnership Property

It is very important to decide at the outset which is partnership property and which belongs to individual partners.

It is important to note that the 1890 act presumes that property used in the partnership is partnership property and that property bought with partnership funds is partnership property.

So it should be clarified from the start who owns what; and what is partnership property and what is not.

Liability of partners to third parties

Partners are liable for the debts and obligations of the partnership without limitation.

And where a creditor cannot get money due to him from the partnership he is entitled to get his money from the partners personally.

Generally a partner acting within the scope of his authority binds the whole partnership legally. However he must act as a partner and it must be within the ordinary course of business of the partnership.

If a partner can wiggle his way out of binding his firm to an outsider then he himself will be made personally liable.

A partner can bind the partnership arising from his authority which may be

  • express authority
  • implied authority
  • ostensible authority.

However, the act must be done by a partner as partner of the partnership within the ordinary course of business of the partnership. If a partner was acting outside the partnership in a different capacity, she would not bind the firm.

Actions Between Partners

Rows and disputes between partners are, unfortunately, quite common.

Any litigation between partners will be strongly influenced by 2 factors:

  1. courts are reluctant to allow partners to sue other partners on foot of a single partnership obligation. Instead they tend to prefer that all partnership obligations be determined as part of a general settlement of accounts on the dissolution of the partnership;
  2. courts are reluctant to compel an unwilling partner to be a partner of another. Accordingly the specific performance of partnerships is only granted reluctantly and seldom.

Dissolution of Partnership

Dissolution of a partnership can occur by
1)  automatically eg on the death or bankruptcy of a partner

2 ) by notice (section 26 or 32 (c)  ie any partner can just dissolve the partnership by giving notice in the absence of any express or implied contrary agreement. The notice will take effect from the date set out in the notice, but this date cannot be before the date of receipt of the notice.

Once the partnership is dissolved, any partner can demand the sale of partnership assets in order to discharge the liabilities of the firm.

3)  illegality-partnerships formed to carry out an illegal activity or an activity contrary to public policy are automatically dissolved

4) by expiration-either at the end of the partnership term or on the completion of a specific undertaking for which the partnership was formed

5) dissolution by the court-section 35 provides statutory grounds for dissolution by a court including where

  • a partner is of unsound mind
  • a partner becomes permanently incapable of performing his part of the partnership contract
  • a partner’s behaviour is prejudicially affecting the partnership business
  • a partner is in breach of the partnership agreement
  • where the partnership can only be carried on at a loss
  • where it is just and equitable to dissolve the partnership.

Dissolution of Partnership by Court as a Remedy in a Dispute

The court can dissolve a partnership under section 35 of the Partnership Act, 1890 where it decides that

a)  a partner has carried on in a way that is damaging to the business

b)  where a partner commits a breach of the agreement consistently

c) whenever the court decides that is just and reasonable to dissolve it.

Courts can also appoint a receiver/manager to preserve partnership assets where it decides it is appropriate to do so.

Types of Partnership Dissolution

There are two types of dissolution of partnership:

  1. A general dissolution and
  2. A technical dissolution.

General Dissolution of Partnership

This occurs where the partnership is ended and the business is wound up and the partnership assets are sold. Section 39 of the Partnership Act, 1890 allows a partner to force the general dissolution of the firm.

Technical Dissolution of Partnership

A technical dissolution will occur where there is a change in partners, either by a partner leaving or a new partner joining the firm. The death or bankruptcy of a partner will also lead to a technical dissolution.

It will become a general dissolution if the remaining partners decide to sell the assets of the partnership and wind up the business.

No right to expel a partner

Under the Partnership act 1890 there is no right to expel a partner, no matter how negligent or unprofessional he is. This is another important reason to have a written partnership agreement drawn up.

Consequences of dissolution of Partnership

Where a firm goes into general dissolution the assets of the partnership will be sold to pay the debts of the partnership.

It is important to be aware that if there is insufficient funds to pay creditors then in the absence of an agreement to the contrary each partner will have to contribute equally to those losses; regardless of the contributions of capital by each partner at the outset.

In order for a partner to protect himself after dissolution he must give notice to all existing customers to avoid any liability after the dissolution.

It is vital that a former partner notifies customers of the partnership that he is no longer a partner or he could be held liable under the Partnership act 1890 for any obligations incurred by the partnership after his departure.

Any partnership agreement must provide for the share of the departing partner to be purchased by the continuing partners and must provide for what will occur on the death of a partner.

(NOTE: there are 2 other types of partnership recognised by Irish law which have not been considered here-a limited partnership and the investment limited partnership.)

You should consult a solicitor or other suitably qualified professional to have your partnership agreement drafted and which will provide for all of the issues outlined above.

You may also be interested in the problem with partnerships.
By Terry Gorry
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Passing Off, Counterfeit Goods and Confidential Information-The Essentials

passing off counterfeit goods

“Passing off” is a common law tort. (A tort is a civil wrong which can be remedied in the Courts).

It generally involves the making of a misrepresentation and there are 5 characteristics of “passing off”.

1.       A misrepresentation

2.      Made by a trader in the course of trade

3.      To prospective customers

4.      Which is calculated to injure the business or goodwill of another trader

5.      And which causes actual damage to a business or goodwill of the trader.

1.       Misrepresentation

There must be a false representation by the defendant so that an association with the plaintiff is made in the minds of the public.

2.      Made by a trader in the course of trade

The misrepresentation must be made in the course of trade.
What is considered to be a trader as far as the law of passing off is concerned is very wide-it has been held to include the BBC for example.
Anyone who makes an income from the provision of goods/services is a trader.

3.      To Prospective customers

For passing off to occur, the misrepresentation must be made to prospective customers; the courts have held that they will decide whether the general public is likely to be deceived.

4.      Business/Goodwill

It has been accepted that goodwill can be created in different ways and is not confined to simply trading within a jurisdiction.

5.      Damage

The plaintiff must prove that the action of the defendant has or is likely to cause damage to the plaintiff in order to prove passing off.

Passing off is closely connected with counterfeit goods.

Counterfeit goods

A trade mark owner can register his trade mark with the Revenue Commissioners and customs officials can destroy goods, which have been abandoned without or before determining whether an intellectual property right has been infringed.

Each consignment of goods from outside the EU will be inspected to see whether the goods are genuine. If they are found to be counterfeit, the customs authorities will destroy the consignment.

Infringement

Exceptions

A trade mark is not infringed by the use of a person of his own name or address, provided it is done honestly.

A trade mark will not be infringed by its use on goods which have been put on the market in the EU by the owner of the trade mark or with his consent. This is known as Exhaustion of Rights of a registered trade mark and stems from EU law.

Remedies

Courts have the power to grant an injunction and/or the destruction of goods and damages.

The District court has the power to request the Garda Siochana to seize goods and ultimately to have them destroyed once satisfied that an infringement has taken place.

Domain Names

A domain name will not necessarily become a trade mark and it is advisable for the owner of a domain name to also register it as a trade mark.

Confidential Information

Information such as knowhow, secret formulae, processes, customer lists are clearly of huge importance to businesses.

The protection of this information can be best protected by a confidentiality agreement with an employee from an employer’s perspective. This can be more effective than registering patents as this involves putting information into the public domain.

Once it is established that an obligation of confidentiality then the person to whom it is given has the duty to act in good faith and only use the information for the purpose for which it was intended.

Generally the law imposes a duty of confidentiality in 2 situations:

  1. The protection of trade secrets/confidential information in non-employment cases
  2. The protection of trade secrets in the course of employment

Once a contract of employment has ended and the employee has left his position he is still under a duty of confidentiality.

It has traditionally been held that in an employment situation there will be 3 types of information:

  1. Public information-not protected;
  2. Skill and experience which is not protected although it could be the subject of a restriction of trade clause in the employment;
  3. Trade secrets-protected and can only be used for the benefit of that employer.

Remedies

Breach of confidential information will lead to an injunction or damages or an account of profits or all 3.
By Terry Gorry
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Trade Marks in Ireland and Community Trade Marks (CTM)-The Facts You Should Know

trademarks ireland

Do you have a valuable trade mark? Is someone infringing your trade mark?

Are you thinking about registering a community trade mark (CTM)?

This  article will look at trade marks, community trade marks (CTM), the benefits of trade mark registration, how to register a trade mark, registered and unregistered trade marks, and more.

First: what is a trade mark?

A trade mark is the means by which a business identifies its goods or services and distinguishes them from the goods and services supplied by other businesses.

The registration of a trade mark is an important task for any small business owner.

The Trade Marks Act, 1996 defines a trade mark as

“any sign capable of being represented graphically which is capable of distinguishing the goods or services of one undertaking from those of other undertakings”.

6.—(1) In this Act a “trade mark” means any sign capable of being represented graphically which is capable of distinguishing goods or services of one undertaking from those of other undertakings.

(2) Without prejudice to subsection (1), a trade mark may, in particular, consist of words (including personal names), designs, letters, numerals or the shape of goods or of their packaging.

(3) References in this Act to a trade mark include, unless the context otherwise requires, references to a collective mark within the meaning of section 54 or a certification mark within the meaning of section 55 .

A trade mark may consist of words, (including personal names), designs, logos, letters, numerals or the shape of goods or of their packaging, or of other signs or indications that are capable of distinguishing the goods or services of one undertaking from those of others.

Trade Mark Registration

Not all trade marks are capable of registration.

Registration will be refused for a trade mark which:

  • is not capable of being represented graphically or not capable of distinguishing good or services of one business from those of other businesses,
  • does not have any distinctive character,
  • consists exclusively of signs or indications that designate essential characteristics of goods or services (e.g. their quality, intended purpose, geographical origin etc.),
  • consists exclusively of signs or indications which are customary in the language in the trade,
  • consists exclusively of the shape, arising from the goods themselves, or which is necessary to obtain a technical result, or gives substantial value to the goods,
  • is contrary to public policy or principles of morality,
  • is likely to deceive the public, e.g. as to the nature, quality, or geographical origin of the goods or services,
  • is applied for in bad faith,
  • is identical with or similar to a trade mark that is already on the Register in respect of identical or similar goods.

Trade mark registration creates an official record of your rights as owner of a particular trade mark and makes it easier to prevent others from using it.

Trade mark registration grants a statutory right, subject to certain conditions, to prevent others from using the trade mark without the registered proprietor’s permission – i.e. to prevent infringement.

Trade mark registration confers an exclusive right to authorise others by means of licensing to use the trade mark for the goods and /or services for which the trade mark is registered.

You should consider registering your trade mark if it is important to you that your customers are able to identify your products and services from those of your competition.

Unauthorised use of a trade mark means the rightful owner may lose business and goodwill.

Although trade mark registration is not obligatory, registration makes it easier to prevent others from benefiting from the reputation established by the use of a trade mark by allowing the proprietor of the registered trade mark to take infringement proceedings before the court.

The fraudulent application or use of a trade mark in relation to goods without the authorisation of the proprietor and/or the possession of goods or material bearing a mark identical to or nearly resembling a registered trade mark, may in certain circumstances, be a criminal offence, and criminal proceedings may be initiated under the Trade Marks Act, 1996.

Unregistered Trade Marks

If you use a particular brand for some period of time then you may have an unregistered trade mark. If someone infringes your brand or trade mark you will still have legal recourse to protect your trade mark.

However this will involve commencing legal proceedings under the common law heading of “passing off” and the onus of proof will be upon you to establish proof of your ownership of the unregistered trade mark.

This can be costly and time consuming and you will not enjoy the protection of registration and the remedies provided by the Trade Marks Act, 1996.

Benefits of Trade Mark Registration

The principal benefits of trade mark registration are

  • Without registration you can only rely on a legal action for “passing off” to protect your rights
  • Registration will help protect your business identity and goodwill
  • It is proof of your ownership of the intellectual property rights of the trade mark
  • Protection against other businesses whose products/services are defective who trade in the industry
  • Protection against others using similar trade marks.

Types of Trade Mark

Ordinary or standard trade mark

The majority of all trade marks fall into this category.

They consist of words, slogans, logos, etc. whose purpose is to distinguish the goods and services of their proprietors from those of other undertakings.

Collective mark

A Collective trade Mark is a mark that distinguishes the goods or services of the members of an association from those of others.

Certification mark

A Certification trade Mark is a mark that “certifies” goods or services as being of a certain standard or possessing certain qualities or other characteristics.

A certification mark can only be registered in the name of the proprietors if they themselves do not produce or provide the goods or services to which the mark is applied.

Series of trade marks

A series of trade marks is a number of marks, which resemble each other in their important features and differ only in respect of non-distinctive elements that do not substantially affect their identity.

Three-dimensional mark

A three-dimensional trade mark is a trade mark that consists of the shape of a product or its packaging.

Application for a Trade Mark

Any person or company etc who uses or proposes to use a trade Mark can apply to register that trade mark.

An application may be made either before the trade mark is put in use or afterwards. Generally speaking an application should be made to register a trade mark as soon as possible to ensure priority over anyone else who applies to register the same or similar mark.

To apply, complete the application form 1 on Patents Office website. The fee for filing an application may be paid at this time or within one month of that date.

An applicant may pursue his or her application personally or choose to employ the services of a registered Trade Mark Agent. If an application meets the criteria for registration, it is registered with effect from the date of application.

The Application Process

When an application (which contains the minimum information required) is received, a filing date and application number is assigned and a filing receipt is issued.

The Minimum requirements for a filing date are –

  • A request to register the Mark (completion of the prescribed application form meets this requirement),
  • The name and address of the person requesting the registration,
  • A representation of the trade mark,
  • A statement or list of the goods and/or services for which registration of the trade mark is sought.

The application is then examined as to its registrability.

The examination process includes a search of relevant databases to ascertain whether the trade mark or a similar mark has previously been registered. If this is found to be the case, then the Office may refuse to register the trade mark.

The examination also addresses other obstacles to trade mark registration such as, for example, whether the mark is simply a laudatory statement of a product’s quality (e.g. “Best Quality”) or a sign that has become generic within a particular field of commercial activity. These are among a number of grounds on which an application for registration may be refused.

If it is proposed to refuse registration in a given case, the Applicant will be informed of the reasons why and will be afforded an opportunity to make arguments in support of the application.

Before any decision to refuse becomes final, the Applicant will have a right to attend an oral hearing before a senior official of the Patents Office.

If the application is accepted for registration, details of the mark will be published in the Official Journal. Within 3 months of the advertisement of a trade mark, any person who objects to its registration may send a notice of opposition to the Office accompanied by the prescribed fee and the Office will copy this to the Applicant. Each side (the Applicant and the Opponent) is then given an opportunity to file evidence in support of its case and the question of whether the mark should be registered is ultimately decided by a senior official of the Office.

How Long Does a Trade Mark Last?

A trade mark registration can last indefinitely provided the registration is renewed.

Registration is initially for a period of ten years (from the date of filing of the application) and it can subsequently be renewed every ten years on payment of the renewal fee.

Community Trade Mark (CTM)

A CTM (Community Trade Mark) is effective across all 27 states of the European Union.

However as it has unitary effect, that is recognised in all 27 states, if your trade mark registration application fails in one state then your application for a CTM will fail.

Benefit of a Community Trade Mark

The big benefit of the community trade mark procedure is that it allows

  • A single application for all 27 EU states and any new members
  • A single administrative centre
  • One language to be dealt with
  • Very cost effective compared to registering a national trade mark in a number of countries.

Should your application for a CTM fail you do have the option of applying to register in individual states but clearly this will require lawyers or agents in many different countries and other costs such as translation of documents, many administrative centres and files to deal with.

Maintaining your CTM

In order to maintain your community trade mark you will have to use it in at least one member state within 5 years of registration but using it in only one member state will allow you to maintain your CTM across the European community.

Enforcing your CTM

To enforce your CTM there are essentially two avenues open to you-

  1. Issue proceedings at the Community trade mark courts
  2. File requests with EU customs offices to retain allegedly counterfeit goods under their control.

The whole system of CTM (community trade marks) is administered by the OHIM (Office for Harmonisation in the Internal Market) in Alicante, Spain.

Priority of an earlier national trade mark

If you are the owner of a national trade mark for the CTM application that you now wish to make then you can claim the priority of that previous mark in your CTM application which safeguards your previous trade mark rights even if you choose not to renew the national mark.

CTM application fees

The application fee for a CTM is €900 if you do it online and €1,050 for a paper based application and this includes 3 classifications or classes of goods/services. Each extra classification costs €150.

Keep in mind that you will also have additional professional fees for a solicitor/lawyer/trade mark agent.
By Terry Gorry
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