Unless 3 x the deposit is more than the small claims limit the Part 36 offer is a bluff

Unless 3 x the deposit is more than the small claims limit the Part 36 offer is a bluff

10:28 AM, 5th October 2021, About 2 years ago 8

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Landlords who fail to protect tenancy deposits and to serve Prescribed Information Forms correctly may be liable for a penalty. The minimum that can be ordered for each breach is one times the amount of the deposit and the maximum is three times. It is a harsh penalty if the only “offence” is to be a few days’ late in lodging the deposit or for a sufficient number of directors failing to sign the PIF, but it is the law.

Landlords who have slipped up may be on the receiving end of a claim from a lawyer or one drafted by a tenants’ advisory organisation seeking the maximum penalty of three times the deposit. Even if a tenant has left, apparently on good terms, and the deposit has been repaid in full, the landlord may receive such a letter.

It has come to my attention that some claimants’ solicitors also claim their costs and send what purports to be a “Part 36 offer” giving the landlord 21 days to accept.

For those not familiar with litigation, a “Part 36 offer” is a tactic to put pressure on the other party to settle. Suppose the claim is for three times the deposit. The solicitors may offer to settle at say one and a half times the amount of the deposit. By accepting a claimant’s Part 36 offer, a defendant would also have to pay the claimant’s solicitors’ costs up to that stage. They might ask for a suitably modest amount. After all, the lawyers have only had to take instructions and fire off a standardised letter. They will probably warn the landlord that the costs will be considerably higher if he does not settle and they take the case to trial.

The risk for a defendant in rejecting a Part 36 offer is that he is penalised if he does not beat it at court. In my example, if the court awarded 1½ times the deposit or more the landlord would have failed to beat the Part 36 offer. He would then be liable for:

(a)   the claimant’s costs on what is called the “standard basis” up to the expiry of the time for acceptance of the offer;

(b)   interest at 10% pa above bank base rate on the damages awarded;

(c)   the claimant’s costs on an indemnity basis (higher than the standard basis) from the date the offer expired; and

(d)   his own lawyer’s costs.

So our hapless landlord may consider he has a choice between (a) paying 1½ times the deposit plus modest costs or (b) risking going to court and possibly paying three times the deposit and substantially higher costs as well as having to pay his own lawyers.

In many, if not most, cases three times the deposit will be less than £10,000. This figure is currently the limit for small claims in England and Wales (it is £5000 in Scotland and £3000 in Northern Ireland). If my example case went to court it would be allocated to the small claims track. In such cases the tenant would almost certainly not recover his solicitors’ costs. It is only where the loser has behaved very unreasonably that the court will award more than limited fixed costs in a small claim.

Here is what landlords need to be on guard against. The law says that a Part 36 offer cannot be made in respect of a small claim. A purported Part 36 offer in such circumstances is a legal nullity.

There is a technical argument about whether a claim is a small claim before it is allocated to the small claims track. However, if the case proceeds it will be a small claim. In my opinion solicitors are taking unfair advantage by writing to landlords claiming costs and threatening them with increased costs if they do not settle. They know that at the end of the day the court will not award costs.

The moral of the story for landlords is that unless three times the deposit is more than the small claims limit in your jurisdiction, the Part 36 offer is a bluff. You will not have to pay the tenant’s solicitors’ costs if you lose.

I do not know how widespread this practice is and would be interested to hear from other landlords if they have received Part 36 offers in connection with a claim for breaching the deposit rules. Please don’t mention names of firms on the forum. If you or someone you know have been caught out and received what purported to be a Part 36 offer but you now realise wasn’t, please contact me at ian.narbeth@dmhstallard.com.

If there is enough interest it may be worth investigating if landlords who have been scammed can recoup costs that would never have been awarded by the court. At the very least it would be good to put a stop to this slippery tactic.

Ian Narbeth | Consultant Solicitor | DMH Stallard LLP

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Prakash Tanna

11:07 AM, 5th October 2021, About 2 years ago

Does anybody have a copy of the template letter or Part 36 offer letter that goes out? Would be interested to see how it is worded. Thank you

Reluctant Landlord

12:19 PM, 5th October 2021, About 2 years ago

WOW. A worrying situation should you get such a letter but a brilliant piece Ian of what it means and what to watch out for. Thanks !

Landlord Solicitor @ RSPLegal

14:34 PM, 5th October 2021, About 2 years ago

However these claims if issued are usually allocated to the multi track and are costs bearing as the Tenant's solicitors will argue that as deposit claim is a landlord and tenant matter, it must be brought as a part 8 claim pursuant to CPR (56PD para 2.1) and as such:
a. It is treated as being allocated to the multi-track (CPR 8.9 (c)) and part 26 (allocation based on value) does not apply;

So unfortunately the costs risk remain real and prompt legal advice should be sought.

Chris @ Possession Friend

22:45 PM, 5th October 2021, About 2 years ago

We have been successful against solicitors warning - claim / offer letters.
On occasions, they have dropped the matter completely. In other instances, our offer with the reasoned justification has been accepted.

Jim Simpson

13:01 PM, 6th October 2021, About 2 years ago

Reply to the comment left by Landlord Solicitor at 05/10/2021 - 14:34
Whilst CPR 8.9(c) states that they are treated as allocated to the Multi Track, that does not mean that they are automatically allocated to the MT and in my experience, most are allocated to the Small Claims Track. Nevertheless, awareness is the key

Ian Narbeth

13:57 PM, 6th October 2021, About 2 years ago

Reply to the comment left by Landlord Solicitor at 05/10/2021 - 14:34Thank you for your comment. I do not agree. The court will allocate to small claims track or multi track depending on a number of factors - rule 26.8 https://www.justice.gov.uk/courts/procedure-rules/civil/rules/part26#26.8
Where the facts are not complex - indeed in my example the landlord is not in a position to dispute that he is in breach - the small claims track is appropriate.
Rule 27.1 (2) https://www.justice.gov.uk/courts/procedure-rules/civil/rules/part27#27.1 says:
"(Rule 26.6 provides for the scope of the small claims track. A claim for a remedy for harassment or unlawful eviction relating, in either case, to residential premises shall not be allocated to the small claims track whatever the financial value of the claim. Otherwise, the small claims track will be the normal track for –
any claim which has a financial value of not more than £10,000 subject to the special provisions about claims for personal injuries and housing disrepair claims; (emphasis mine)
any claim for personal injuries which has a financial value of not more than £10,000 where the claim for damages for personal injuries is not more than £1,000; and
any claim which includes a claim by a tenant of residential premises against his landlord for repairs or other work to the premises where the estimated cost of the repairs or other work is not more than £1,000 and the financial value of any other claim for damages is not more than £1,000)"
So the fact that it is a landlord and tenant matter does not mean it must be or indeed is likely to be allocated to multi-track.

Landlord Solicitor @ RSPLegal

14:33 PM, 6th October 2021, About 2 years ago

The point is the claim must and will as a matter of practice, be brought under Part 8 as required by CPR PD 56.2 and not Part 7.

2.1 Subject to paragraph 2.1A, the claimant in a landlord and tenant claim must use the Part 8 procedure as modified by Part 56 and this practice direction.

As a result the claim will automatically be considered as allocated to the multitrack pursuant to CPR 8.9C;

8.9 Where the Part 8 procedure is followed –
(c) the claim shall be treated as allocated to the multi-track and therefore Part 26 does not apply.

Part 26 which sets out the normal allocation principles and factors you have referred to i.e. value etc. do not apply to Part 8 claims by virtue of CPR 8.9c above.

Accordingly the claim will on the face of it be cost bearing regardless of value and the opportunity to reallocate the claim may not come up at all. You would be left having to argue at the end of a case that a claim that concluded whilst allocated to the multi-track should not be cost bearing.

If the court can be persuaded to conduct an allocation hearing and reallocate then the points you raise as to value and complexity would be relevant but there is additional cost and risk seeking reallocation within proceedings.

I would therefore treat Part 36 offers with caution and not forget that the landlord can equally make cost bearing Part 36 offers to put the tenant at risk of proceeding once a reasonable offer has been made.

If you have any judgments or experiences to the contrary to share I would welcome them rsp@mp-law.co.uk

K Anon

22:57 PM, 6th October 2021, About 2 years ago

Our tenant (a 'desperate' single mum who said she needed a break) took us to court, a benefits / DSS tenant so deeper pockets/legal representation then we could ever match.
She got awarded 1.5x (£1500) deposit for a deposit she didn't even pay, it was council rent deposit scheme which we had all sorts of problems trying to lodge. Our legal costs defending this claim £3.5k, her no win no fee solicitor costs £8.5k. Beware of the traps, if you can settle early you should.

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