What are Fixed Recoverable Costs?
The implementation of the fixed recoverable costs regime (“FRC”) overhauled the approach to recovery of legal costs a successful party can claim from the unsuccessful party in certain cases.
The FRC changes, implemented from 1 October 2023, extended FRC to many civil litigation claims with a value of up to £100,000. This has led many Landlords to reconsider bringing dilapidations claims, raising concerns about the commercial merits of cost recovery against the value of a claim.
What does this mean in dilapidations claims?
On the face of it, the implementation of the new fixed recoverable costs regime limits the Landlord’s recovery of legal costs in pursuing dilapidations claims under £100,000, and may make some think twice about initiating a claim.
However, consideration must be given to contractual obligations within the relevant leases. For example, the majority of commercial leases contain a clause allowing the Landlord to recover professional costs associated with preparing and issuing schedules of dilapidations from the Tenant. Often this is drafted widely and includes the ability to recover costs incurred to any breach of the lease, which will include repairing and yielding up obligations.
It follows that tenants will be contractually obliged to pay the landlord’s costs. A claim for dilapidations would include a claim for those contractual costs. The Civil Procedure Rules include a provision to award contractual costs instead of any fixed costs relevant to a claim.
CPR 44.5 states that “where the court assesses… costs which are payable by the paying party to the receiving party under the terms of a contract, the costs payable under those terms are, unless the contract expressly provides otherwise, to be presumed to be costs which… (a) have been reasonably incurred; and (b) are reasonable in amount…”
The issue of contracting out of the FRC is yet to be explored by the Courts. However, given the CPR has not changed, contractual liability for costs should prevail over the FRC. Courts have been historically reluctant to disapply a contractual liability for costs unless there was a specific reason for doing so, perhaps such as misconduct.
However, the Court has retained the discretion to decide what costs orders to make and there may be policy reasons for seeking to move towards the FRC.
Although this point has not reached a court for judgment yet, Landlords need to consider when assessing their recovery of costs concerning dilapidations, and evaluating whether there is a contractual obligation they can rely on to assist them.
How can Capital help?
Our property litigation team can assist with any dilapidations queries you have. Please get in touch with Clare Good or Aisling Beevers to find out more.
