Overriding
Interest
The Bribery Act
Introduction
Highlighting developments and
issues in the real estate industry
The Bribery Act 2010 (“Bribery Act”) is expected to come into force in April 2011. It
will introduce new criminal offences which can be committed by both organisations and
individuals. The Government has emphasised that companies should be ready to comply
with the Bribery Act as soon as it comes into force and should not rely on there being any
Winter 2010/2011
In this issue:
transitional or implementation period. As part of the process of getting ready for the Act,
companies are expected to familiarise themselves with the new legislation and how it will
impact their business; assess the bribery risks in their businesses; if necessary, carry out due
The Bribery Act............................... 1
diligence and/or assessments of existing business relationships (using external resources if
K&L Gates International
proportionate to the risks involved); establish and implement internal anti-bribery policies
Real Estate Practice......................... 3
(e.g., dealing with political and charitable donations/giving and receiving of corporate
Deals............................................. 4
Events............................................ 5
Cases............................................ 6
hospitality and gifts). Companies should review existing policies against the Bribery Act.
This applies in particular to businesses with a United States connection that may have
well established anti-bribery policies in the context of the US Foreign Corrupt Practices Act
(“FCPA”). The Bribery Act is wider than the FCPA in several respects and a policy tailored to
the FCPA may not suffice for Bribery Act purposes.
Impact on the Real Estate Industry
The Act is not limited solely to the UK and the offences of giving and receiving bribes and
bribing foreign public officials will apply to UK companies, UK partnerships, UK citizens
and individuals ordinarily resident in the UK, regardless of where the relevant act occurs.
The offences will also apply to non-UK nationals, companies and partnerships if an act or
omission forming part of the offence takes place within the UK.
Further the Bribery Act will introduce a new corporate offence of “failure to prevent bribery”
that will apply to any company or partnership, wherever established, that carries on any
part of a business in the UK. This means that all companies and partnerships that carry on
any part of their real estate business in the UK will be subject to this new offence, regardless
of where they are incorporated or formed and regardless of where the alleged bribe takes
place. That is a significant increase in exposure to possible criminal liability in the UK for any
non-UK company that carries on business here.
K&L Gates LLP
110 Cannon Street
London EC4N 6AR
www.klgates.com
T: +44 (0)20 7648 9000
F: +44 (0)20 7648 9001
Continued...
The Bribery Act (Continued)
Real estate development both in the UK
The Offences
foreign companies carrying on business
and overseas can sometimes give rise to
situations where improper payments or
inducements are suggested to facilitate the
process. In some locations and countries
this, in the past at least, has become part
The existing offences against bribery and
in the UK which fail to prevent bribery
corruption will be abolished and replaced
outside the UK. Non-compliance could
with four new offences:
result in criminal conviction, confiscation of
• an offence of bribing (offering,
of the culture of business dealings and is
promising or giving a financial or
almost regarded as acceptable. One aim
other advantage);
of the legislation is to prevent UK-based
operators from becoming part of such a
culture. The impact it has on investment
and development abroad is particularly
notable. The real estate industry works by
relying on local agents with local contacts,
and the success of an overseas real estate
venture may often depend on such persons.
Organisations will need to look carefully
at the due diligence they carry out on
intends to exercise his new powers to target
• an offence of being bribed (requesting,
the proceeds of crime and unlimited fines,
and for individuals, imprisonment for 10
years. There are also issues of debarment
from public contracts in EU Member States
if a company or a director is convicted of
agreeing to receive or accepting
a corruption offence. Non-compliance by
a financial or other advantage in
a director could also result in breach of his
connection with a person’s improper
general duties under the Companies Act
performance of his or her duties
2006, potentially leading to civil liability on
or obligations);
the part of the director.
• a separate offence of bribery of a
foreign public official; and
• the new offence by a corporate
Conclusion
The Government’s objective in passing
this Act is to ensure that companies and
consultants/other third parties who act on
of failing to prevent bribery by an
their behalf. The risk will be likely to be the
associated person - that is anyone
practices and procedures under threat of
greatest where the exposure is more difficult
performing services on the
prosecution so as to contribute to the UK’s
to monitor, such as joint ventures overseas.
company’s behalf.
international commitments to take steps
Any dealings with foreign public officials
require particular care and organisations
Penalties For Non-Compliance
individuals reassess their current business
to prevent corrupt behaviour and enforce
against offenders. Although the Bribery Act
would be well advised to include
The Serious Fraud Office (“SFO”) and the
is not due to come into force until
procedures under which no entertainment
Crown Prosecution Service (“CPS”) will have
April 2011, companies should use this
or hospitality is provided to a foreign public
prosecutorial discretion in the enforcement
interim period to ensure they are well
of the new offences. The new corporate
prepared for implementation. For those
offence of failing to prevent bribery is of
that require any further information on this
particular note, as it will make it easier
Act or require advice on any existing or
for the SFO to prosecute companies. The
new procedures which should be
Director of the SFO has stated that he
implemented, please do contact Robert
official without prior approval by a legal or
compliance officer or a person familiar with
bribery risks.
Hadley - robert.hadley@klgates.com
2
Overriding Interest
Global legal counsel in 36 cities on three continents.
United States
Europe
Anchorage, Austin, Boston, Charlotte, Chicago, Dallas,
Berlin, Frankfurt, London, Moscow, Paris, Warsaw
Fort Worth, Harrisburg, Los Angeles, Miami, Newark,
New York, Orange County, Palo Alto, Pittsburgh, Portland,
Raleigh, Research Triangle Park, San Diego, San Francisco,
Middle East
Dubai
Seattle, Spokane/Coeur d’Alene, Washington, D.C.
Asia
Beijing, Hong Kong, Shanghai, Singapore, Taipei, Tokyo
K&L Gates International Real Estate Practice
K&L Gates has one of the largest, most
tax, litigation, bankruptcy, and finance to
The Office—now 35 lawyers—has been
diversified real estate practices of any global
provide a full range of services to our real
serving the Polish business community since
law firm. With more than 360 lawyers
estate clients on local, regional, national,
1991. With substantial experience both
dedicated to real estate, K&L Gates has
and international transactions and projects.
advising on some of the country’s largest
deep and broad experience in all areas of
We have 36 offices in key markets in the
foreign investments and working with and on
real estate law and transactions. We advise
United States, Europe, Asia and the
behalf of the Polish government, our lawyers
clients with regard to the entire spectrum
Middle East.
provide Polish and international clients with
of their real estate-related legal needs,
including land use, planning and zoning,
K&L Gates in Warsaw
development and construction, acquisitions,
A nation focused on growth and prosperity,
dispositions, financing and leasing, tax
Poland is among the top 20 global
advice and joint venture structuring, and real
economies. K&L Gates entered this important
estate-related litigation. We work closely
market in 2010, with the opening of its
with our colleagues throughout K&L Gates on
Warsaw office.
a broad range of transactional, advisory,
and dispute resolution services.
For more information on K&L Gates in
Warsaw, visit www.klgates.com or contact
Maciej Jamka, +48.22.653.4204,
maciej.jamka@klgates.com.
matters involving construction, environmental,
Winter 2010/2011
3
Deals
Henderson Global Investors
The real estate team comprised Richard
Retirement Villages Limited
Smith, Eleanor Smith, and Rajeev Joshi.
A cross-disciplinary team of lawyers in
the London office has advised Henderson
Global Investors in a deal involving
reviving the famous Smithfield Meat
Market, in Farringdon, City of London.
The strategic purchase by Henderson, for
clients Alberta Investment Management
Corporation, could eventually lead to a
redevelopment of the site.
Henderson bought the distressed special-
planning advice. The corporate team was
led by Stuart Borrie, assisted by Liz Winder.
Kevin Greene headed the construction team,
assisted by Daniel Lopez, and Richard
Hardwick advised on banking, assisted by
Claudia Harrison.
Henderson - Central London
Office Fund (CLOF II)
purpose companies that own the most
Lawyers in the London office have acted
westerly block of the historic Smithfield Meat
on the first acquisition for CLOF II of a fully
Market, the annex block and the nearby
let office investment in Kings Cross, London
Caxton House from Deloittes, who were
for £25m. The team included Chris Major,
appointed as Administrator. The City of
Sebastian Charles, Fez Abbas, Paul Alger,
London Corporation continues to own the
and Laura Ludlow.
freehold of these properties.
Smithfield Market is a significant, large,
strategic development and it will ultimately
form a key part of a major cross-London
transport route, involving the planned eastwest Crossrail routes.
4
Partner Sebastian Charles provided
Overriding Interest
A cross-disciplinary team in London have
completed an acquisition of a retirement
village of about 90 units and related
business. Piers Coleman and Eleanor Smith
led on the property aspects, with Sebastian
Charles dealing with planning. Howard
Kleiman led on the corporate side, assisted
by Mollie Stoker and Frania Cooper. Input
was also given by Edward Smith regarding
the insolvency aspects, James Spencer
regarding banking, and Neil McKnight and
Peter Davies regarding tax.
Events
K&L Gates has recently hosted two real
servicers, and other industry players were
structures. The session which was entitled “Its
estate finance events in London. The
able to exchange ideas and knowledge.
Complicated! Negotiating Multiple Tranches
first event was a Distressed Real Estate
Roundtable, involving a discussion among
key industry players regarding recent market
developments and deal flow. A high profile
panel provided an insightful discussion
among key industry experts focused on the
economic and real estate investment outlook
and the implications for deal flow. With
ever-changing market dynamics, this was a
unique forum which provided European and
U.S. perspectives where investors, lenders,
For the second event we hosted a breakfast
seminar for the members of the Commercial
Real Estate Finance Council. Despite the
challenges caused by snowfall in London,
of Debt”, covered complex capital structures
and equity holder and creditor holdouts and
examined what may be expected for CRE in
the next five years.
eighty market participants took part in a
If anyone would like a copy of the slides, or
session moderated by K&L Gates Partner
further information on either of these events
Andrew Petersen, who led a diverse panel
please get in touch with Andrew Petersen,
of three investors, a servicer, and an
andrew.petersen@klgates.com.
advisor who expressed their views on and
experiences with complicated CRE capital
Thursday 3rd February - Launch of New “Sustainability Index”
We are pleased to announce that
the K&L Gates/IPF sponsored “UK
Sustainability Property Index”,
produced by the Investment Property
Databank (IPD), will be formally
launched on Thursday 3rd February at
the Gibson Hall, London. The launch
of the index, known as the ISPI, will
form part of the IPD annual briefing,
which features their latest UK results,
as well an economic review and
panel discussion on the outlook for UK
Property. The IPD event commences at
8.30am with registration and breakfast
and finishes around 10.45am This
event will be chaired by Ian Womack
of Aviva. There will be a simultaneous
event held at the Merchant’s Hall
in Edinburgh.
Christina Cudworth (Global head of
sustainability at the IPD), whom some
of you may have met at our K&L Gates
September breakfast seminars, will be on
the launch panel, together with lawyers
from K&L Gates, who are supporting this
new Index.
Christina has commented that: “IPD owes
a huge debt of gratitude to the sponsorship
and support of IPF and K&L Gates in
helping to make this consultative index a
reality. Understanding and measuring the
relationship between sustainability and
investment performance is a critical priority
for the property industry. As occupiers
increasingly factor sustainability metrics
into their decision making, a clearer
performance division between more
and less sustainable properties will
undoubtedly emerge. ISPI will capture that
performance differential as practices in this
area mature.”
a unique product, and we are delighted
to be aligned with the IPF and the IPD
in supporting ISPI. As an international
law firm, with a worldwide sustainability
practice, ISPI is a perfect fit for us,
especially given the interest and support
afforded to this product by some of our
core real estate fund clients.”
If anyone would like further information
about the Sustainability Index, or further
information about the IPD Event on the
3rd February, please contact Steven
Cox/Bonny Hedderly at K&L Gates, or
Ian Cullen/Christina Cudworth at the
IPD. Otherwise we will be pleased to
see you on the 3rd February and will
welcome any questions/comments you
may wish to raise at the launch or over
breakfast beforehand.
Wayne Smith, Head of Real Estate in the
London Office of K&L Gates, said: “ISPI is
Winter 2010/2011
5
Cases
Development Agreements
Tenants’ Deposits
Sale Contract
A landowner and developer entered into
The Court considered two cases in which
A buyer failed to complete the purchase of a
a development agreement under which
there were failures of compliance with the
property on the agreed completion date and
the developer was to receive certain profit
“initial requirements” in respect of residential
the seller then served a Notice to Complete
payments after two years from completion of
tenancy deposits set out in section 213
pursuant to the Standard Conditions of Sale.
the development. A dispute arose about the
of the Housing Act 2004. Under that
However, the date stated in the Notice
payments and there then followed a letter
section, a landlord who receives a tenant’s
was four days earlier than required by the
from the developer and an exchange of
deposit should take steps to protect the
Standard Conditions. Two days after the
emails that contained various proposals to
deposit through the use of an authorised
date stated in the Notice (but two days
resolve the dispute. A further dispute arose
scheme and should also give prescribed
earlier than permitted by the Conditions), the
as to the effect of the letter and emails. The
information to the tenant. Both steps should
seller sent notice to the buyer purporting to
developer said that its letter contained an
be taken within 14 days of receipt of the
rescind the contract. The buyer contended
offer, that the email from the landowner
deposit. In the event of the landlord failing
that the rescission notice represented a
contained a counter-offer, and that it had
to comply with those requirements, the Court
repudiatory breach of contract. The Court
accepted that counter-offer in its response
is required to impose a sanction on the
held that there was no repudiatory breach.
email to which the landowner was bound.
landlord of three times the deposit amount.
The seller had always been ready able and
The Court held, however, that the email
In each of the cases, the landlord had failed
willing to complete but had made a genuine
from the landowner was not a counter-offer
to comply with its obligations within the 14
mistake in the Notice to Complete which
but an unequivocal acceptance of the offer
day timescale but had complied prior to the
it would have readily conceded had the
contained in the developer’s letter. The task
matter reaching Court. However, the tenant
matter been brought to its attention.
for the Court, therefore, was to construe the
still sought the imposition of the sanction. By
terms of the letter.
a majority, the Court held that it was open
Comment: The recent landmark House of
Lords decision in Chartbrook - v - Persimmon
Homes (2009) was considered.
Crest Nicholson (Londinium) - v - Akaria
Investments, CA
to landlords to comply with the requirements
late and that, if Court proceedings were
brought after compliance, any claim would
be dismissed.
the circumstances objectively, the contract
breaker had clearly shown an intention to
abandon and altogether refuse to perform
the contract.
Eminence Property Developments - v -
divided, and the dissenting judge held that
Heaney, CA
time limit was missed even if there was
subsequent compliance.
Tiensia - v - Vision Enterprises, CA
Overriding Interest
was stated as being whether, looking at all
Comment: The Court of Appeal was
sanctions could be imposed if the 14-day
6
Comment: The test for repudiatory conduct
Cases
Professional Negligence
Misrepresentation
A valuer was instructed to value a flat
Parties to a property sale entered into a
that was to be a buy-to-let property. The
contract that contained special conditions
valuer advised that the property was
which stated, amongst other things,
Morgan - v - Pooley, QBD
worth £350,000 and had a rental value
that the seller’s replies in the property
of £2,000 per calendar month. In fact,
information form were given to the best of
User Covenants
the property was only worth £300,000
their knowledge but that they had made
and had a rental value of no more than
no further enquiries into such matters,
£1,100 per calendar month. The buyer
and that the buyer acknowledged that
agreed a headline figure of £350,000 for
they did not rely upon any pre-contract
the property but, after inducements, in fact
representations made by the seller except
only paid £300,000. However, he was
those made in writing by the seller’s
only able to achieve a rent of £1,050 per
solicitors. In the property information form
month for it and eventually sold the property
the seller had stated that they had not
three and a half years later for £270,000.
received any notices which affected the
The buyer claimed damages from the
property or the neighbouring property in
valuer for negligence. The Court awarded
any way. It subsequently came to light that
no damages in respect of overstatement
the neighbour had applied for planning
of capital value as the buyer had paid the
permission that would affect the value of the
correct price despite the over-valuation.
property. The buyer claimed that the seller
Also, it said that nothing was payable for
was aware of the planning application,
the fall in value of the property over time.
had misrepresented the position in replies
However, the Court did allow recovery in
to enquiries and did not escape liability
respect of the overstatement of expected
through the special conditions. The Court
rental income for which damages of
found that, as a matter of fact, the seller
£72,000 were awarded.
had not known of the planning application
Comment: There is likely to be substantial
rise in disputes such as these reaching the
Courts over the next few years due to the fall
in the property market.
Scullion - v - Bank of Scotland (t/a
Colleys), ChD
so there was no misrepresentation. It said
representation that the seller held
reasonable grounds for responding in the
way that they had.
A landlord granted a lease of a petrol
station, car showroom, and service garage
in which the tenant covenanted “not to
use” the property “for the parking of motor
vehicles for sale on any forecourts.” The
tenant granted a sublease of the car
showroom and service garage, and the
subtenant began parking cars for sale
around the perimeter of the property. The
landlord brought proceedings against the
tenant on the basis that the subtenant’s
activities were a breach of the lease. The
Court said that there was a distinction
between a covenant in the active voice—
“not to use”—and one expressed in the
passive voice—“shall not be used.” The
covenant in the lease was said to be in
the active voice and the tenant had only
covenanted on behalf of itself, not anyone
else. The tenant was not liable for the
parking activities of the subtenant.
that, in any event, the special conditions
Comment: Use of the familiar alternative
did have effect and that the clauses also
formulation “not to use nor permit others to
satisfied the test of reasonableness under the
use” might have seen the landlord succeed
Misrepresentation Act 1967.
in this case.
Comment: It was said that the special
Roadside Group - v - Zara
conditions displaced any implied
Commercial, ChD
Winter 2010/2011
7
For further information contact:
Steven Cox steven.cox@klgates.com Milton McIntosh milton.mcintosh@klgates.com T: +44 (0)20 7360 8259
Bonny Hedderly bonny.hedderly@klgates.com T: +44 (0)20 7360 8192
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