row of shops in cardiff


Legal advice - the difference between
surviving and thriving

Posted: 20 September 2023

The current risk landscape

The challenging economic climate continues to impact companies across many sectors, and senior leaders are feeling the pressure. This can be seen in the issues affecting high street retailers, with the recent Wilko collapse leading to the likely loss of 12,000+ jobs.1 In construction, fears over reinforced autoclaved aerated concrete (RAAC) dominate headlines, while hospitality is also experiencing a severe fall in demand because of the cost-of-living crisis and higher interest rates.

It's not surprising that insolvencies are rising. In July, England and Wales saw the highest quarterly number of insolvencies since early 2009.2 Difficulties repaying pandemic loans, along with other soaring expenses made these figures inevitable. Even the property market, which has appeared invincible for so many years, is now troubled, with house prices falling 4.6% in the year to August.3

Typically, an economic downturn brings a rise in litigation, with companies more likely to be affected by late payments, employment disputes and suppliers unable to meet their obligations. There can also be a rise in crime,4 this is already being seen in retail, with more shoplifting and fraud. However, the difficulties caused by the current backlog in courts5 means having access to specialist legal advice at an early stage, which is offered by many legal expenses insurance policies, allows business leaders to know the correct procedures to follow, whether litigation should be pursued, or if other routes could be taken.

James Barclay, head of sales and distribution confirms this:

“When there’s a recession, we tend to see more litigation. Whether we enter or avoid one is a moot point as economists have differing views. 6 But, continued high energy prices, mixed with shortages of supplies and labour, mean it’s extremely hard out there. Some firms report problems stemming from Brexit, either workforce shortages or issues with their exports. The invasion of Ukraine continues to prove hugely damaging overall, hiking energy costs. We’re not alone in the UK being impacted, but there are certainly many challenges being experienced here.”

We’re also feeling the aftermath of the pandemic. A vast shift in how businesses operated, the introduction of lockdowns, as well as the furlough schemes resulted, in some cases, with litigation being put on hold.7 But, with so many firms feeling the strain, it’s likely that the litigation floodgates will now open.

In this article we address how these pressures are affecting property owners, the construction industry, and employers in general, along with the benefits of seeking legal advice to avoid costly litigation.

The changing legal landscape for property owners

The legal landscape for the construction sector

The legal ramifications for employers

Property is facing an onslaught of problems, which can be seen in both the commercial and residential sectors. These are resulting in more lawsuits connected to contract challenges, deals falling through and matters such as tenant disputes and evictions.8

Empty high street shops9 are a common sight across the UK, with rising levels of crime. Prestige office blocks no longer hold the same cachet of years gone by, with companies allowing more remote and hybrid working,10 which again affects local businesses such as shops, cafes and restaurants.

This is a time of flux. Although there’s some pushback against hybrid working,11 companies are realising it often leads to greater staff loyalty.12 Consequently, there’s more consolidation and a move towards shared workspaces.13 Landlords are having to deal with more defaults and requests to suit flexible requirements.14

row of shops in cardiff

There can be issues around rent levels, and if there should be a change of use from commercial to residential, for example, including student accommodation and hotels.15 But this is far from risk free, and against the backdrop of an economic slump, it’s clear that commercial property owners have some difficult choices ahead.

Residential landlords have their own challenges. Economic problems mean tenants will struggle more to pay rent. Fewer students may choose university and instead choose an apprenticeship closer to home.16 There are also concerns about the upcoming Renters (Reform) Bill and whether this will result in a less favourable environment for landlords.17

The new law is aimed at raising standards in the private rented sector and should bring benefits, meaning better properties and greater security for tenants. It’ll introduce a ‘Decent Homes Standard’ and, ends Section 21 ‘no fault’ evictions. There’s also plans for a new property ombudsman, and to introduce longer notice periods for rent reviews.18

It should provide more power for tenants and allow them to challenge poor practices.19 However, it must be remembered that landlords don’t always have it easy, there are plenty of occasions where rogue tenants can take many months to evict and who also cause costly damage.

The law will still allow evictions, but under Section 8, will take longer.20 The changes, which also include rolling tenancy agreements requiring two months’ notice and limiting rent increases to once a year, will take some time to bed in. There’s also no doubt that many property owners will be seeking guidance on the Renters (Reform) Bill and how it affects them.

Charlene Kerpner, senior legal advisor at Allianz says:

Some landlords will be concerned, and it’s been reported, that more are selling up, 21 which isn’t good news for tenants. This is more likely to be the case with smaller landlords, while larger property companies, should find it easier to stay in the sector for the long-term. There remains a severe housing shortage 22 so there’s plenty of demand, but the need for careful management is more important than ever. With a new regime, landlords need access to sound advice.”

Even if a landlord has a large property portfolio, there can be no room for complacency as criminality remains a problem. In July 2023, it was reported that more than 1,000 cannabis farms had been raided by the police across the UK.23

The illegal cultivation of cannabis can occur in privately rented properties, that look quite innocuous on the outside and be in built-up areas.24 James Barclay says “There’s a perception that this occurs in remote rural areas or in industrial buildings, but this isn’t the case. Landlords need to be aware of the problem or they could face prosecution, jail or having the property seized if tenants are found to be running a cannabis farm.”

He adds that one of the best mitigation strategies is to ensure that there’s rigorous referencing. “Too often, a tenant may appear legitimate, but they have provided false information relating to their employment and previous accommodation. Bank account details should also be verified. There needs to be proper validation and landlords should ensure there’s regular checks made internally and externally, at least every six months and these should be recorded.”

Checks should also be made that tenants aren’t sub-letting.25 This can be more challenging for the large landlord, but the problem is reportedly increasing because of the rising cost of living. It’s relatively easy to list a spare room, and a tenant may not gain permission from the landlord. This practice is likely to invalidate the landlord’s insurance and it might also result in a property being run as a house in multiple occupation (HMO), which must be licenced. This in turn could result in the landlord being prosecuted for health and safety breaches and being fined.

Those running construction firms will be keenly aware of bumps in the road, and are well used to dealing with legal disputes that are often highly technical. Disagreements over contracts, problems with sub-contractors, delays emanating from supply chain issues or other reasons, design errors and health and safety failings are just some examples.

Interest rate rises have hit the construction sector hard, with PwC predicting it will contract by some 8% this year, which is largely attributed to the slowdown in house building.26

There are also growing numbers of insolvencies, 4,280 firms went under in the 12 months to June - this is 16.5% more than the same period last year according to the Insolvency Service.27 Construction employers are also likely to be experiencing difficulties with their workforces, it has long been reported that shortages of workers are one of the biggest problems.28 Talks of strikes continue in the engineering construction sector, while more skilled workers are moving abroad to countries such as Saudi Arabia and Australia.29

These factors often lead to a less safe working environment and more likelihood of construction firms being sued. Recent figures from the HSE show construction continues to have the highest number of fatalities, most often caused by falls from height.30

Steve Rowley, distribution manager at Allianz said “Construction is a cyclical and higher risk sector that experiences boom periods - such as from the HS2 project - to significant downturns. Insurance has an important role to play as an enabler and there will always be many claims because of the exposures. Intervention at an early stage if there’s a contract dispute can help these companies manage the numerous risks they face.”

Recent years have seen important progress to improve building safety, including in the programme to remove dangerous cladding in the wake of the 2017 Grenfell Tower tragedy.

Regulations for high-risk buildings now mean that those over 18 metres in height or with at least seven floors need to be registered by this October. Although there are some exceptions, including hotels, hospitals and military barracks.31

Failing to register a building that’s inhabited will be a criminal offence. This, along with the new fire safety guidance which also comes into force in October32 will boost accountability, ensure records are kept up to date and allow residents to know more about standards within their buildings. This is alongside making it easier to take enforcement action.

houses construction site

It’s good news that better controls should reduce risk, but there are a number of new requirements and construction firms, and property owners must make sure they’re up to speed,” says Rowley.

If progress is occurring in some areas, there’s always more to be done, and a case in point is RAAC. Although school closures are dominating the headlines, the potentially dangerous material has also been used in other buildings. To date, there has been no survey of social housing, although it’s understood not to be in widespread use.33

James Barclay says: “The situation regarding the material is still unfolding, but there will be construction firms and property owners who’ll urgently want to know what their responsibilities are. There’s a lot of work to be done in terms of the wider implications and the liabilities.”

The mid-corporate sector is exceptionally varied, but one factor they all have in common is being employers. The economy means some firms are putting a hold on their expansion plans or even planning redundancies,34 something that must be carefully handled with expert guidance.

Environmental, social and governance (ESG) issues are increasingly on the agenda and Barclay says many companies are already embedding this into their business.35

Environmental risks can be around managing responsibilities regarding climate change and sustainability as well as reducing the likelihood of any polluting activities. Social risks tend to focus on issues such as diversity and inclusion, managing data privacy and ensuring the workplace is well run with good community relations. Governance relates to a company’s policies and the integrity of these, its approach to transparency and avoiding all forms of corruption meeting its tax obligations.

Companies want to understand where their risks lie, and we’re expecting to see more litigation in this area. But it can improve business practices, and has an impact on tendering, and customers’ buying decisions.”

Hybrid and remote working has already been highlighted. However, there can be risks with compliance and problems with monitoring and health and safety.36 Setting up clear policies and seeking advice early should be a priority. Employers are also likely to need guidance on so-called ‘family friendly’ rights and a private members’ bill is currently passing through parliament that should provide clarity on the ability to request a more predictable working pattern.37

Kerpner comments, “It can be harder for larger firms to manage hybrid structures and they need to ensure they provide consistency, rather than an ad-hoc approach. Home-working can benefit productivity, but there can be downsides. They should also be clear on what devices home-based workers are using, and take data protection seriously. Cyber is a fast-growing area within insurance for good reason.”

Meanwhile, research from IBM Security recently showed that data breaches cost UK businesses an average of £3.4 million.38

The UK currently has relatively low levels of unemployment, which can allow more employees who’re dissatisfied with their job to switch to another employer. But, where there are more serious issues, they may seek to act via an employment tribunal. Delays in the system are bad news both for the employee and the employer, which is why companies may be looking to agree more settlement agreements in future.39 These legally binding contracts can be used to resolve matters without the need to go to court.

Another issue for employers is immigration compliance, workforce shortages may prompt employers to look at bringing in staff from overseas, but it’s essential to ensure these employees have the legal right and correct documentation. If not, the company can face substantial fines, which have been increased recently.40

modern block of flats

Meanwhile, looking at the wider picture, the current trading environment is exceptionally tough. A slight fall in inflation may be signalling possible recovery, even if we’re yet to see confidence return. Notably, the British Chambers of Commerce marginally upgraded its 2023 GDP forecast to 0.4%, although it still sees weak activity throughout 2024 and 2025, a slight glimmer of hope.41

Even so, the mid-corporate sector looks likely to have some difficult waters to navigate for many months to come and insurance protection in all its forms makes more sense than ever. In terms of legal threats, these can affect businesses in myriad ways and are both growing and can develop quickly. Therefore, now more than ever, businesses should seek comprehensive support to deal with the unexpected through the reassurance of legal expenses and ready access to expert counsel.





5. Courts backlog England and Wales 2023 | Statista