On 1st October 2023 changes to rules on costs came into force that extend the application of fixed recoverable costs into civil litigation. These changes will not affect all areas of civil litigation practice- this article focuses on the effect of the changes to costs in property litigation cases.
What are fixed recoverable costs?
The Fixed recoverable costs ("FRC") regime sets the amount of legal costs that a winning party can claim back from the losing party. There are already FRC in place in specific types of low value claims and FRC will be extended, subject to certain exceptions, to all claims issued on or after 1st October 2023.
The extent to which FRC will affect claims depends on the value of the claim, that governs which track a claim will be processed to trial through the courts.
- FRC will be extended to all civil cases in the Fast Track (i.e. those valued between £10,000 and £25,000 where a trial will last no longer than a day),
- FRC will also extend to a new Intermediate Track which will apply to claims valued between £25,000 and £100,000, where there are no more than three parties and where the trial is estimated to last no longer than three days and where the parties will be limited to adducing oral evidence of no more than 2 experts each.
- The Fast and Intermediate Tracks will apply to both monetary relief claims, non-monetary relief claims and mixed claims (comprising both monetary and non-monetary relief claims). However, non-monetary relief claims shall not be allocated to the intermediate track unless the court also considers it to be in the interests of justice to do so.
Once a claim has been allocated to either the Fast or Intermediate Track, the court will assign the claim a complexity band. There are 4 complexity bands, within which the quantum of fixed costs to be applied increased commensurate to the complexity of the case. FRC introduces a grid of fixed costs that the winning party will recover, depending on the stage at which the litigation reached before being concluded, and the complexity of the claim.
This grid matrix alone determines the amount of costs the winner will recover- there is no assessment of the actual costs incurred by the winner, and therefore the parties will know with some certainty what the actual costs are that they may recover, or conversely, have to pay on settlement.
Will FRC apply to all claims?
FRC does not apply to all cases. The position remains that under the Small Claims track, those of a value of up to £10,000, a winner will recover only very basic costs and expenses. FRC has not been extended to Multi Track cases, those claims for which the small claims track or the fast track or the intermediate track is not the normal track.
Another important exception to FRC is certain claims relating to residential property. Housing claims are, for the moment, specifically excluded from FRC. This will be reviewed after 2 years in 2025. Housing claims are defined as including any claim or counterclaim which relates in whole or in part to a residential property or dwelling and which, in respect of that property, includes a claim or counterclaim for
- possession,
- disrepair or
- unlawful eviction
save where that claim, or counterclaim arises from a boundary dispute.
The introduction of the Intermediate Track will cause some property disputes to now fall outside of the Multi Track and be caught by the FRC. The type of property claims which are likely to be eligible for FRC are those which are:
- claims for possession of commercial premises for rent arrears of a value of less than £100,000
- terminal dilapidations claims of a value of less than £100,000
- trespass claims
- boundary disputes.
Non-monetary relief claims shall not be allocated to the Intermediate Track (and so remain in the Multi Track) unless the court also considers it to be in the interests of justice to do so. This will be the default position for a large number of property claims.
Court Proceedings under Landlord & Tenant Act 1954
For lease renewal proceedings that are not opposed (an application for a new lease that is not opposed by the landlord) these are claims fall under Part 8 of the Civil Procedure Rules and therefore fall outside of the FRC. In any event, in unopposed lease renewals the common understanding is that on settlement each party bears its own costs (especially at an early stage of litigation).
Opposed lease renewals (i.e. those where the landlord opposes the grant of a new lease to a tenant under grounds laid out in s.30 of the Landlord & Tenant Act 1954) will fall within Part 7 and therefore potentially within the FRC and whether the case will fall under the FRC will depend entirely on allocation where the appropriate track ought to place the case. However, the nature of the claim, for non-monetary relief-would suggest that the Multi Track would be the most appropriate allocation for opposed lease renewals and therefore will fall outside of the FRC.
Avoiding application of the FRC- Indemnity Costs
Where a contract, lease or mortgage makes provision for a contractual right to recover costs in the event of breach (for example on breach of covenant under leases) the FRC will not interfere with the contractual right to costs - therefore indemnity costs are recoverable if properly incorporated into the contract, lease or mortgage.
For property claims arising out of breaches of contract, lease or mortgage therefore, the limitations on recoverability for Claimants under FRC may well be avoided.
If you have any questions regarding Fixed Recoverable Costs, our team are happy to help!