On expiry of a commercial lease, a well-pitched Part 36 offer made at an early stage will give the tenant substantial costs protection against the landlord's dilapidations claim.
In almost all dilapidations claims, the tenant is going to have to pay something to the landlord and so the landlord will 'win' a damages claim. Bearing in mind the usual rule in litigation in England and Wales that the loser pays the winning party's costs as well as his own, therefore, the making of tactical settlement offers is an essential part of effective claim management.
As Oscar Wilde might have put it, had he been a property litigator, when thinking about making such offers we must remember the importance of being early.
Here's a recent example.
We recently obtained judgment from the Court of Appeal in a dilapidations claim concerning an office building, where we acted for the outgoing tenant of the building.
The claim began life in 2011, with the landlord looking for damages of around £500k based on works the landlord said it was going to undertake before re-letting. High Court proceedings for damages of just over £375k were issued against our client in 2013 after the surveyors had failed to reach agreement.
Shortly after the lease ended and a long time before those proceedings were issued, we made a Part 36 offer of £100,000 which the landlord chose not to accept.
Fast forward to April 2016 - and a 4-day trial, an appeal and all the attendant litigation fees later - the Court of Appeal has decided that the level of damages that the landlord is entitled to is a little over £50k. Just over half what we offered at the beginning, and around 13% of the amount the landlord claimed in the court action.
Technically speaking, of course, the landlord "won" his claim by obtaining an award of damages - albeit a modest one - against the outgoing tenant. However, there's a but in this case. And, as is the trend these days in US celebrity circles, it's a very big but.
As the landlord failed to beat our £100k Part 36 offer, it is the landlord that has to foot the bill for both parties' costs of both the original litigation and the appeal to the Court of Appeal. That's two lots of solicitors' fees, barristers' fees, court fees, building surveyors' fees, s18 valuers' fees...etc., etc. (you get the drift).
Suddenly, that damages award of just over £50k pales into insignificance and the landlord's damages award will be dwarfed by the overall costs bill. And why? All because of that single sheet of A4 headed "Part 36 Offer", and an effective legal strategy developed and employed by the client, us and the building surveyors from day one.