Real Estate Disputes
Litigation cost recovery
On Sunday 1 October 2023, the government introduced new rules aimed at reducing the amount of legal costs that can be recovered in certain court proceedings. They apply to proceedings valued between £10,001 and £100,000 issued on or after Sunday 1 October 2023.
The new rules will apply to most money claims, including commercial rent arrears and dilapidations. They shouldn’t be applied to non-money claims (such as injunctions) unless the court finds it would be in the ‘interests of justice’ to do so. There are also some blanket exceptions to specific claim types.
The main thrust of the new rules is that a successful party will only be able to recover a fixed amount of legal costs from their opponent. We expect that these fixed costs will reduce the amount of costs a successful party can recover in some, but not all, cases. The fixed costs are split into separate amounts for different stages of the proceedings.
As well as being allocated to either the Fast Track (for cases worth £10,001 to £25,000) or the new Intermediate Track (for cases worth £25,001 to £100,000), the court will also assign the case to a complexity band. The bands are designed to rank cases in terms of their complexity, and to assign higher fixed costs to the more complex cases.
2024 will see the first tranche of these new cases working their way through the court system. There are three key things to watch out for as they do so:
1.
Complexity bands: the higher the complexity band, the greater the fixed costs that can be recovered. However, the wording of the bands is unclear, and leaves considerable scope for argument between the parties as to which band is appropriate.
2.
Contractual costs: parties with a contractual right to costs (including many landlords and mortgage companies) are normally entitled to be paid most of their litigation costs, especially if they win. However, the new rules suggest that the new fixed costs regime may apply, even though the party has a contractual right to costs.
3.
Non-money claims: the ‘interests of justice’ test is not defined in the new rules, and the Government is leaving it up to the courts to decide how to interpret this. Previous Ministry of Justice guidance suggests that the court should only use its discretion in exceptional circumstances, to limit adverse costs or save the parties from ‘ruinous litigation’.
In each of the three points above, a wide discretion has been given to individual judges to interpret the new rules. It will take some time to see how the new rules are applied in practice. Hopefully the court will provide some guidance during 2024, to reduce uncertainty for litigants involved in these cases.
Building Safety Act
The Grenfell Tower disaster in 2017 paved the way for new building safety laws and better protection for leasehold owners in high-rise flats. The introduction of the Building Safety Act 2022 is intended to improve the design, construction, and management of higher-risk buildings.
Schedule 8 of the Act, which came into force on Saturday 1 April 2023, addresses how remediation costs are to be borne by some long leaseholders, and runs alongside the Building Safety (Leaseholder Protections) (England) Regulations 2022.
One of the main aims of the legislation is to enable long leaseholders, whose flats might be affected by these types of safety issues, to be able to sell their flats in the future. The new measures aim to remove responsibility from leaseholders for paying for historical safety defects on high-rise buildings. The owners of such buildings will not legally be allowed to charge ‘qualifying leaseholders’ for cladding to be removed or remediated. Leaseholders will also have protections from costs for other defects that are not related to cladding.
Designers and contractors, as defined in the Act, will be required to manage the safety of higher-risk buildings for which they are found responsible. Those who do not meet their obligations will face criminal charges. The Act is also clear on the need for freeholders to contribute to the costs of their own buildings.
The introduction of the Building Safety Act marks a new way of dealing with high-risk buildings. This trend will continue to develop over the next two years, so there is definitely more change to come.
Contacts
Danny Revitt
Partner, Real Estate +44 (0)770 352 5119
danny.revitt@irwinmitchell.com
Ben Gildea
Senior Associate, Real Estate +44 (0)787 201 4797
ben.gildea@irwinmitchell.com