Legislation targeting slavery and human trafficking can have a major impact on the property industry if landlords and tenants aren’t vigilant. Simon Williams outlines exactly what they need to know
The Modern Slavery Act 2015 (“the Act”) has been in force for just over a year and aims to combat slavery and human trafficking. All businesses trading in the UK with a turnover of more than £36m are now required to publish an annual anti-modern slavery statement (“AMS statement”) disclosing the steps they have taken to ensure that slavery, forced labour and human trafficking are not taking place in their business or their supply chains. This includes acts that would not constitute an offence in the country where they are carried out, but would constitute an offence in the UK.
To date, compliance with the Act within the property industry has been focused primarily on construction contracts and procurement as these are seen as being the areas most at risk from the practice of modern slavery. As a result, it is now relatively commonplace for construction contacts to include express provision for the contracting parties to comply with the employer’s modern slavery policy and procedures. However, with many of the large retail players now publishing their AMS statements, we are beginning to see increased interest in compliance and how compliance may be relevant to the landlord and tenant relationship.
Issues for tenants
Tenants with a turnover sufficient to require the publication of an AMS statement will need to take into account all services provided throughout their supply chain when preparing one. This will include the services provided by a landlord.
It may be prudent to include specific enquiries of the landlord at the pre-contract stage regarding the construction contract for the let premises (in the case of a new development) and any ongoing contracts for the supply of services to the let premises and any common parts, such as cleaning, security and maintenance.
Tenants may also want to ensure that the lease to be entered into includes a landlord’s covenant requiring their landlord to provide such information on request as is sufficient for the tenant to comply with its reporting obligations under the Act.
Tenants of existing leases will have the same reporting obligations but will need to rely on the information that the landlord is prepared to provide – or has already disclosed – as part of its own compliance with the Act where appropriate.
Issues for landlords
Landlords with a turnover sufficient to require an AMS statement must also ensure that they take into account all services provided throughout their supply chain. It is unlikely that the tenant will be providing any services to the landlord, and the tenant will therefore be unlikely to form part of the landlord’s supply chain.
There is still, however, a potential reputational risk for a landlord when entering into a new lease, particularly when contracting with, for example, a retail tenant selling food, garments or other items sourced or manufactured overseas. A tenant that falls short of its own obligations under the Act – by failing to publish an AMS statement, or by publishing an AMS statement that highlights areas of potential concern – may be subject to scrutiny by its customers, pressure groups, trade organisations and the media. This could affect a landlord directly – for example, if rent payable is linked to turnover – but could also have an impact indirectly if a landlord’s reputation is tainted by association as a result of reputational damage suffered by its tenant.
Landlords entering into a new lease can take steps to minimise the reputational risk by checking a potential tenant’s compliance with the Act before entering into a lease. This is relatively straightforward if the tenant’s turnover is over the £36m threshold as the tenant’s AMS statement should be freely available on the tenant company’s website. The landlord can review the AMS statement and choose whether or not to enter into the lease. In all other cases, specific enquiries may need to be made.
The ongoing reputational risk once a lease has been granted can be controlled, to some degree, by reliance on the standard tenant’s covenant in the lease to comply with all statutes during the lease term. If a greater degree of control is desired, perhaps due to a particular sensitivity as to the nature of the tenant’s business, a tenant’s covenant to comply with the landlord’s modern slavery policy (and to procure compliance by all those in its supply chain) may be required.
The position following assignment of a lease is not so straightforward. If, as is common, a tenant’s lease is freely assignable, or may be assigned with the landlord’s consent (not to be unreasonably withheld) it is by no means certain that the courts would agree that it is “reasonable” for a landlord to object to an assignment on grounds that the proposed assignee is in breach of the Act, whether by failure to publish an AMS statement or some other breach. A landlord may include an express restriction on assignment unless specific criteria can be satisfied by the assignee, but this could have adverse consequences on rent review. An alternative would be to include a landlord’s pre-emption right that could be exercised should the landlord be concerned as to the reputation of the proposed assignee, although this might not be commercially acceptable to the landlord at that time.
This is a relatively new area of concern for both landlords and tenants and it remains to be seen how much information the respective parties to the lease will be prepared to provide and how much control on assignment may be relinquished. Any express clauses will need to be balanced with the requirement to ensure that, so far as is possible, the lease terms remain attractive to both parties, and, in the case of the landlord, do not have an adverse impact on any rent review.
THE ANTI-MODERN SLAVERY STATEMENT: WHAT IS REQUIRED
The anti-modern slavery statement should identify the steps taken during the financial year to ensure that slavery and human trafficking is not taking place within the organisation or its supply chain, – or, alternatively, confirm that no such steps have been taken. While a “no steps” statement will satisfy the requirements of the Act, such a statement may lead to reputational risk and it is therefore unlikely that this will prove a popular option.
The AMS statement should be written in simple language and should be published prominently on the organisation’s website.
While there is no prescribed form of AMS statement, the Act sets out a non-exhaustive list of the information that may be included in the AMS statement, including:
- Information relating to the organisation’s structure, business and supply chains
- Details of the organisation’s policies and due diligence process in relation to slavery and human trafficking in its business and supply chains
- Identification of areas (if any) within the organisation’s business and supply chains where there is a risk of slavery or human trafficking taking place and the steps taken to assess and manage any such risk
- Details of the effectiveness of the organisation in ensuring that slavery and human trafficking is not taking place in its supply chain
- Confirmation of the relevant training available for staff within the organisation.
The statement should be published “as soon as reasonably practicable” after the end of the company’s financial year and must be approved by the company board of directors, LLP members or partners (as appropriate). While it is possible that the failure to publish an AMS statement within the requisite timescale could lead to civil proceedings against an organisation, it is clearly envisaged that consumer and stakeholder pressure will be sufficient to encourage compliance.
Simon Williams is a partner in the property team at law firm Boodle Hatfield
