The Government first announced plans for a shared ownership right to buy in October 2019. At the time the sector raised concerns about the impact the plans would have on housing associations ability to borrow. An election and a pandemic later the Government announced, during the CIH Housing Festival last week, the return of the right to shared ownership as part of its Affordable Homes Programme (AHP).
Inflated damages in tyres case
In the 1915 landmark case of Dunlop Pneumatic Tyre Company, the House of Lords said that it was legitimate for a contract to specify (“liquidate”) the amount of damages payable following a breach of contract, as long as the amount specified to be payable was not a penalty. In order to be valid, the amount had to be a “genuine pre-estimate” of the maximum possible financial loss of the “innocent” party.
Recent court decisions have been moving away from concept of a “genuine pre-estimate of loss”, as being the test for the validity of liquidated damages clauses, towards a concept of “commercial reasonableness”.
In ParkingEye, 100 years after Dunlop, the Supreme Court (the successor to the House of Lords) has finally shown the red card to the “genuine pre-estimate” test. In that case the court said that the test is now whether the amount specified as being payable following a breach, "is out of all proportion to the innocent party's legitimate interest in the performance of the contract".
The court therefore upheld a charge of £85 for staying 53 minutes after the 2 hours permitted on the basis that “ParkingEye had a legitimate interest in charging overstaying motorists which extended beyond the recovery of any financial loss”.
Payment forfeit for competing
ParkingEye was heard at the same time as another case on penalties, Cavendish Square v Makdessi. This concerned the enforceability of a clause forfeiting certain payments for the sale of an advertising business if the seller competed with the business they had just sold. Although the seller forfeited millions of pounds, the court upheld the clause. The court said that there is a strong presumption that sophisticated commercial parties, with similar bargaining power and the ability to take legal advice, should be able to agree an appropriate remedy for a breach of contract without the court overturning this.
Implications for payment mechanisms
Recent good practice has involved drafting performance incentives in contracts so as to give the contractor additional payments for meeting specific performance targets. Quite often the amount to be used to pay these incentives was first “top slice” deducted from the total amount payable to the contractor.
These were drafted as “incentives”, rather than performance deductions, so as not to fall foul of the law against penalties. In most cases the employer would not suffer any financial loss from the contractor’s failure to meet those performance targets, so the amounts deducted could not properly be regarded as “genuine pre-estimates of loss.”
ParkingEye now enables employers to draft these as deductions for not achieving specified performance targets. Reasonable deductions are likely to be upheld on the basis that they are proportionate to the employer’s legitimate interest in the performance targets being achieved. This is preferable to having to deduct money from the payments to the contractor that is “handed back” as “incentives” for meeting the performance targets. This could lead to a much simpler way of drafting the performance incentive/performance deduction provisions in maintenance, construction and ICT contracts and any other contracts where poor performance is to be penalised financially.
For More Information
If you would like advice on drafting payment mechanisms, performance incentive/deduction provisions or any aspects of the ParkingEye decision, please contact Andrew Millross .
Two final pieces of the possession jigsaw have been published on 15 September 2020. Mr Justice Knowles’ working group on possession proceedings has issued its guidance on the “overall arrangements” for possession proceedings.
One change proposed by the Building Safety Bill is the introduction of a duty holder regime, which will see statutory responsibility for the safety of higher risk buildings placed on key individuals
Throughout this pandemic, the Competition and Markets Authority (CMA) has been publishing various “Statements on Coronavirus” (Statements) which provide guidance on consumer rights during this time.
A recent increase in COVID-19 cases in the UK means new measures are being put in place in an effort to reduce the risk of a second wave. Whilst the impact of COVID-19 continues to be felt, it is important to remain focused on the sector’s road to recovery.
Sometimes half an hour at a conference gives you the reality that has been staring you in the face all along. That was my experience watching “Change is on the Horizon”
Following our recent e-briefing on Possession Notices, Helen Tucker and Emilie Pownall from our housing litigation team discuss the impact of the changes on social landlords.
Not only has the possession stay been extended until 20 September, the notice periods to be given to tenants has been extended in certain circumstances with some important exceptions.
The Court has confirmed that a party cannot withhold its consent in order to re-write the original bargain.
Following the Grenfell Tower tragedy, building safety continues to be a key concern for social housing providers and their residents.
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