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Anne Wright discusses professional indemnity insurance, development finance and what to look for – and action

Posted on: February 2nd, 2023 by AlexT

Consultant Anne Wright offers some guidance to lenders on what to look out for in respect of professional indemnity insurance from their borrower’s professional and construction teams.

It will be of no surprise that since 2018 the insurance market has hardened across most lines, with increased premiums and market capacity dwindling.

The insurance market is cyclical, however, and additional economic factors have undoubtedly affected this, such as the vast number of claims following Grenfell in 2017 and high number of insolvencies during the pandemic. It is reported that the UK PII market has approximately halved, and some insurers have withdrawn from the market altogether.

Key risks are becoming increasingly difficult to place for everyone.

In the construction industry, it is now common to find that contractors and professional consultants do not hold (or are struggling to obtain) professional indemnity insurance (PII) at the level and on the terms that either were originally negotiated and agreed with their employers and employers’ funders, or are simply not now obtainable at the outset of a development financing.

Insurers are issuing PII policies that are subject to greater exclusions and/or sub-limits in relation to (in particular) combustibility cladding and fire-safety claims. The fact that PII coverage is being restricted at a time when contractors and professional consultants need it the most is concerning. In some cases, it may lead to insolvency, as fire and cladding claims are high value – combined with the fact that larger contractors in particular, are more likely to face more than one claim in respect of their projects at any given time.

Given the current economic constraints impacting the construction industry, even greater scrutiny is needed at the initial stage of a development financing by all lender professionals.

Notwithstanding the PII market and other economic factors facing the construction industry, there are some practical steps that can be considered by lenders and borrowers to better protect against these risks:

  • Consider instructing a greater in-depth enquiry into the financial standing of contractors and key designer professional team tenderers, prior to any offer or lending facility is awarded. In recent more economically stable years, the use of outside investigation agencies has been less frequent, but these agencies should perhaps be considered again and more widely, as a prerequisite to an offer of finance.
  • Monitoring Surveyors appointed by lenders should require evidence of PII levels and terms as soon as instructed and be asked to comment on whether the same are appropriate for the project as against what is available in the market – and from whom. Due diligence conducted either in house or by external lawyers should not only ensure that each project participant carries the correct level of PII by reference to broker’s letters or certificates, but also that the same are actually “on foot” and live, and that it has not either initially or over time been varied by endorsement and/or excluded risks.
  • Insurances underwritten outside the UK market are also being offered in the alternative by professional consultants and contractors. It will be necessary to verify therefore whether the same is acceptable as a matter of jurisdiction and whether it is possible to pursue a claim in the English courts.
  • It is crucial to make sure provision is made in the construction documentation for early notice of changes in coverage to be given by the project participants to the lender’s Monitoring Surveyor so that action can be taken to limit any potential risk gap as soon as it is made known either with the assistance of the employer borrower’s own insurers or by assistance being given as to what might alternatively be available in the market. Contractor and Professional Team Collateral Warranties in favour of the lender are now more important than ever and should be prepared and executed carefully by reference to a market standard principle agreement of which it is collateral.
  • The terms of both the principle agreements and collateral warranties should be considered in light of what might be requested for inclusion of a “net contribution” provision. In the event that the employer borrower has defects claim against an under-insured or non-insured contractor and/or professional consultant the employer – and necessarily the lender – may be able to spread its risk by joining those who may be responsible (consultants, subcontractors, design consultants) to the claim. Net contribution provisions limit this more general law of “contributory negligence” in such circumstances and should therefore be resisted.
  • Parent Company Guarantees with an appropriately long liability could potentially come to the rescue too – suggest that one is asked for if available. Performance Guarantees could also be considered, although they are of limited use as the UK market rarely provides guarantee cover on an on-demand basis leading to the employer/lender waiting a very long time to have its claim even considered.
  • Lastly, it may be worthwhile exploring whether “decennial” (ten-year latent defects) insurance can be taken out with an insurance broker. This needs to be thought about at the very outset, however, and is generally restricted to new developments or infrastructure projects.

It is important to remember that PII does not cover insolvency or poor workmanship and even if adequate PII is in place it will only covers a claim for negligent professional services provided to the employer. PII is not a solution for all things that may go wrong on a project therefore but increasingly lenders are requiring to place it increased reliance on this type of insurance.

Steven Bernstein discusses private ownership of businesses in Law360

Posted on: January 23rd, 2023 by Maverick Freedlander

Steven Bernstein, Senior Director in the Corporate and Commercial department and co-founder of Lawrence Stephens, argues that some companies fare best when owned privately, in Law360.

Steven’s comments were published in Law360, 20 January 2023.

Discussing Seraphine Group PLC’s £15.3M Takeover by Mayfair Equity Partners LLP, Steven commented: “From my perspective, it’s an interesting example that maybe not every business is well suited to be on the public market…

“And then there are some businesses that are just better owned privately, because there’s just a greater degree of flexibility, and you can make quicker decisions without the scrutiny that comes from being in a public space.”

Lawrence Stephens completes sale of Agility Risk and Compliance

Posted on: January 20th, 2023 by Natasha Cox

Lawrence Stephens’ Corporate team acted for The Agility Group in connection with the sale of Agility Risk and Compliance Limited to Opus Safety Limited, in a deal which was completed on the 17 January 2023.

Agility Risk and Compliance Limited, subsidiary of The Agility Group, provide tailored solutions to mitigate risk and improve compliance in Health and Safety, HR, Training and Occupational Health. Opus Safety Limited will expand its capabilities via the acquisition. Meanwhile, The Agility Group will concentrate on scaling up its core business in vehicle funding and fleet management solutions.

The deal was led by Senior Director, Jeff Rubenstein with assistance from Associate, Aashay Knights and Solicitor, Isobel Moran. The team worked collaboratively with the management team at The Agility Group in the sale of its non-core business, to allow them to focus on developing and expanding its main business, Agility Fleet.

Jeff Rubenstein, Senior Director, Corporate and Commercial comments on the completion: “It has been an absolute pleasure to act for The Agility Group on the sale of this non-core business. Keith Townsend and his team’s willingness and responsiveness made it possible for our team to act swiftly and complete the sale without delay. We’re delighted to see The Agility Group streamline resources and focus on the continued growth of its core business, and we look forward to working with them again”.

Keith Townsend, Chairman and CEO of Agility Group comments on the deal: “Having met Jeff on a number of occasions, I didn’t hesitate when he came recommended to act on this deal. The Lawrence Stephens team were always on call and any concerns were put to bed by Jeff who demonstrated a great deal of commerciality as he put my mind at rest on a number of occasions. Jeff and his team, including Aash and Izzy ensured a fair and balanced deal was struck, and I couldn’t have asked for more.

With the sale out of the way, the team at Agility Group are keen to re-focus our efforts on Agility Fleet, to maintain our position in the market as one of  the leading independent providers of vehicle funding and fleet management solutions in the UK”.

Lawrence Stephens completes significant acquisition for HFMC Wealth

Posted on: January 17th, 2023 by Natasha Cox

Lawrence Stephens’ Corporate and Commercial, and Banking teams acted on behalf of HFMC Wealth on the acquisition of R&S Associates Financial Planning Ltd in a deal which completed on 16th January 2023.

The deal was led by Senior Director, Jeff Rubenstein with Corporate and Commercial support from Solicitor, Isobel Moran who assisted on the acquisition, Associate, Aashay Knights who assisted on the acquisition and banking, Solicitor, Lucy Cadley who assisted on the banking and Head of Banking, Ajoy Bose-Mallick.

The Lawrence Stephens teams worked cohesively and efficiently to get the significant transaction across the line in order for HFMC Wealth to continue its strategic growth plans in 2023.

R&S Associates Financial Planning Ltd advises over 100 families over multiple generations, and the acquisition will see all client-facing staff retained and supercharge HFMC Wealth’s London office.

Jeff Rubenstein, Senior Director, Corporate and Commercial, comments on the deal: “We are delighted to have completed yet another significant acquisition for HFMC Wealth, in a deal which will see our client and friends accelerate an ambitious growth strategy to better service their clients. We understand that the team at HFMC are working hard to identify quality firms, and we look forward to working with them on their carefully selected acquisitions”.

Phil Patient, Partner and Group COO at HFMC Wealth comments on the deal: “We are thrilled that we have such a great team joining us from R&S. Of course, this wouldn’t have been possible without the help of Jeff Rubenstein, Isobel Moran, Aashay Knights, Ajoy Bose-Mallick And Lucy Cadley at Lawrence Stephens”.

As usual, their guidance was clear and invaluable to us and they understood what we were looking to achieve whilst being proactive and fair throughout for all parties.

On this deal in particular they displayed patience, creativity, tenacity and resilience to get the deal done,  despite the barriers put in front of them at times. We were very pleased the Lawrence Stephens team were representing us.”

Lawrence Stephens completes sizable transaction for Tri Capital Properties

Posted on: January 6th, 2023 by Natasha Cox

Late December 2022, Lawrence Stephens’ Commercial Real Estate team acted on behalf of Tri Capital Properties on the purchase of a mixed-use office investment for commercial and residential tenants.

The team was led by Director, Craig Mullen with assistance from Senior Director, Stephen Messias, Senior Associate, Angela McCarthy, Associate, Ana Aller and Trainee Isabella Tamlyn. The deal was exchanged at 11.30 pm on 21st December 2022 with completion taking place moments later, just before the midnight deadline.

The property boasts great views over Regents Canal, split into 4 separate buildings, comprising circa 30,000sqft of office, retail and residential use classes, and commanded huge demand. With multiple prospective buyers, it was crucial for the Lawrence Stephens team to act swiftly on behalf of Tri Capital Properties to maintain their position in the UK property arena.

Craig Mullen, Director in the Commercial Real Estate team comments: “It was a pleasure acting on behalf of the ambitious team at Tri Capital Properties. We’re thrilled they’ve been able to snap up this exciting asset management opportunity and we look forward to working with them on many more transactions”.