Settling unopposed lease renewals: tricks and traps


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For further information please contact:
Alison Mould, Partner, Fladgate LLP (amould@fladgate.com)
Jonathan Hibberts, Partner, Fladgate LLP (jhibberts@fladgate.com)


 

  • Calderbank offers give more flexibility than Part 36 offers which may be useful in an unopposed lease renewal context, particularly where the parties have referred any outstanding issues to PACT.
  • Parties to unopposed lease renewal proceedings who wish to make offers to settle need to be aware that separate settlement offers may need to be made where there is more than one offer in dispute, to try and build in costs protection.
  • Where the remaining issue is rent, a party who makes an offer needs to consider whether rental valuations are likely to change between the time of making the offer and the valuation date and adjust any offer (or perhaps make a further offer closer to the valuation date) in order to build in maximum costs protection.

What is a Calderbank offer?

A Calderbank offer is an offer to settle proceedings and, like offers to settle under Part 36 of the Civil Procedure Rules, it has a dual purpose:

  • setting the proceedings; and
  • building in costs protection in the event the offer is not accepted and there is a court or arbitral hearing.

In order for a Calderbank offer to fulfil these criteria it must be contained in a letter or other document marked “without prejudice save as to costs”. The offer should be made on a without prejudice basis because this means the court will not see it before or during a trial. However, it must also include the words “save as to costs” or words to this effect. In one case the court held that it was unable to consider the contents of certain correspondence relating to settlement because that correspondence had been marked “without prejudice” only.

Although there are no automatic costs consequences of a Calderbank offer (unlike with a Part 36 offer) the usual rule is that a court will consider whether the offeree achieved more by rejecting the offer. If the offeree did not achieve more by rejecting the offer, it will generally be ordered to pay the offeror’s costs.

Calderbank or Part 36?

The advantage of a Calderbank offer is that it gives more flexibility than the Part 36 system. So, Calderbank offers can be used in the following scenarios (where Part 36 is not suitable/applicable):

  • if the offeror wants to make a costs inclusive offer – an offer which seeks to depart from the costs consequences set out in Part 36 will not be a genuine Part 36 offer;
  • where an offeror is offering to pay damages by way of an instalment plan or needs longer than 14 days to pay (under Part 36 an offeror has 14 days to pay if its offer is accepted);
  • where an offeror wants to limit the period in which the offeree has to accept the offer (Part 36 offers remain open unless formally withdrawn); and
  • in arbitrations.

Settling unopposed 1954 Act claims

The use of Part 36 and Calderbank offers in claims under the Landlord and Tenant Act 1954 can be complicated by the fact that the parties are often arguing about more than one issue and it is not always clear who the “winner” is in every situation. For example, if a landlord is seeking a ten year term at a rent of £50,000 per annum and the tenant is seeking a five year term at a rent of £35,000 per annum and a court orders a lease with a five year term at a rent of £50,000 per annum, then there is no clear victor. It may be that in some circumstances it might be appropriate to make separate offers where there is more than one issue in dispute, relating to the relevant part of the claim only.

In addition, PACT (Professional Arbitration of Court Terms) is often used in lease renewals. This is a RICS scheme which enables the parties to a lease renewal to refer certain issues to a third party who will act as either an arbitrator or an expert. If parties want to make a settlement offer within the PACT process it will need to be a Calderbank offer as Part 36 offers can only be made where there are court proceedings.

Settling rent claims

As with offers to settle, PACT works best where the parties have narrowed the issues in dispute. PACT often works best where all the terms of the lease have been agreed other than the rent payable.

However, even in a scenario where the parties are just in dispute about the rent payable under the new lease, settlement offers are not always straightforward. This was demonstrated in a recent case which involved an appeal of an arbitrator’s cost award, following a PACT arbitration.

The arbitrator awarded a rent under the new lease of £69,000. Eight months previously, the tenant had made a Calderbank offer of £68,000. The arbitrator made an award that each party should bear its own costs and share those of the arbitrator. The tenant appealed, arguing that the offer of £68,000 should be contrasted with the market rent at the time the offer was made.

The court dismissed the appeal and held that the offer should be viewed as an offer for a rent as at the valuation date (i.e. the date of the arbitrator’s award). This is because, under the 1954 Act, where a court has to set a rent it does so by reference to a valuation date which is when the new lease begins (three months and three weeks after the trial, but in practice the date of the trial).

This inevitably puts an offeree in a very difficult position when trying to pitch an offer because, depending on the stage of the proceedings, it might not be clear when the valuation date is going to be. An offeree can either try to pitch the offer at the right level, taking into account the direction of the market, or make more than one offer as the valuation date approaches.

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