On 1 April 2013, significant changes to the rules governing civil litigation were introduced. These changes are known as the Jackson reforms and their purpose is to make the costs of civil litigation more proportionate to the issues in dispute. However, it is not the case that “one change fits all” and this is particularly the case for business lease renewals.
In many lease renewal cases where legal proceedings are issued, the proceedings are commenced by the tenant in order to protect its statutory right to a new lease. The right to a new lease is likely to be unopposed by the landlord, the defendant to the proceedings, but the parties disagree as to the terms of the new lease. Therefore, at this stage , there is not a dispute in a true sense, more a difference of views about the length of the lease term or the rent payable, for example. However, in most cases, the parties assume the case will settle before the matter goes to trial and this is a correct assumption, with a very high percentage of unopposed lease renewal proceedings settling before a final hearing. Prior to the reforms, it was often the case that both parties would take a relaxed approach to complying with Court orders and to progressing the matter, leaving the parties surveyors to negotiate the terms of the lease once the tenants position had been protected by the issue of proceedings. However, the old regime of court stays and extensions has been swept away by the new rules. The new rules require compliance and the avoidance of delay in the face of strict sanctions for a defaulting party.
What changes have the Jackson reforms introduced?
The new rules require both parties to prepare and file at court a costs budget in a specified format before the first case management hearing. The budgets should be agreed between the parties if possible. Amendments to the budget must be approved by the Court, otherwise extra costs which exceed the initial budget may not be recoverable. The costs budgets are detailed and should include all costs that may be incurred up to and including trial. The preparation of such budgets is time consuming and incurs fees for the parties. In lease renewal proceedings, it can be difficult to complete accurate costs budgets as in some cases, the parties may not yet know all of the issues in dispute and/or which issues are likely to be resolved before the matter reaches a final hearing. At this stage both parties are hopeful that the lease will be completed as quickly and cheaply as possible without the need for further court proceedings. Therefore, it is possible that the costs will be small because the matter will conclude by agreement or alternatively, one or more of the lease terms may become contentious, leading to substantial costs.
If the parties wish to avoid the need to complete the costs budget, the CPR provides that they can ask the court for permission before the deadline for filing the costs budget. However, the court is not obliged to give its permission and therefore, due to this uncertainly, parties are likely to be advised to prepare the budget in any event, even if the court ultimately dispenses with the requirement.
Complying with directions
Under the new rules, judges are taking a tougher line with parties who do not comply with directions. Non-compliance with a Court order is not tolerated, even if the parties agree to extent the timetable because they are negotiating the new lease and want to save costs. If the parties have not complied with directions, the judge will not automatically endorse a new timetable. In addition, the court will be more willing to impose sanctions on parties who fail comply, for example, by ordering that the party is barred from relying on evidence.
Postpone the trial date
Prior to April 2013, parties to lease renewal proceedings often agreed to postpone the trial date to allow further time for the new lease to be completed. However, this will no longer be accepted as standard practice, even if both parties apply by consent. This may leave the parties with the choice of going to trial or agreeing a short-term lease whilst continuing to negotiate the longer lease. However, this does have cost and tax implications. These will have to balanced against the costs of going to trial.
Before the first case management conference the parties now have to file a detailed report, describing what disclosable documents exist, where they are located and the anticipated costs of dealing with disclosure. The parties must also agree a disclosure order that is appropriate for the case. In unopposed lease renewal proceedings, it may be appropriate, given the issues in dispute, to dispense with disclosure altogether, but this is something which needs to be considered on a case by case basis.
There is no doubt that it will take time for the changes to take effect and it is hoped that they will lead to a more efficient and cost proportionate court system. However, this is likely to increase costs for landlords and tenants who use the court process for lease renewals.
PACT – a sensible alternative?
With that in mind, those having to resolve issues relating to a lease renewal may look for alternative dispute resolution options. One such option is PACT – Professional Arbitration on Court Terms.
The scheme provides the opportunity for landlords and tenants to have the terms and rent payable under their new lease decided by a surveyor or solicitor acting as either an arbitrator or independent expert. The professionals appointed are experienced specialists who have been specifically trained on commercial lease renewals under the PACT scheme. It is important to note that any decision made by either an arbitrator or independent expert is legally binding.
The stated advantages of PACT are that can be quick, efficient and more flexible than court proceedings and the parties can choose the individual who is to determine the dispute.