Section 20 Consultation and Major Works
20th Jan 2021
‘Major works’ and the cost associated with them can be daunting for leaseholders, so it helps to know the process involved, the responsibilities of the freeholder, and what options are available to you. ‘Major works’ are one-off repairs, maintenance or improvements to your building, communal areas or estate i.e. roof renewal or resurfacing a car park. If a ‘reserve fund’ is available, then this may cover some or all of the ‘major works’ required.
Section 20 (S20) is a clause in the Landlord and Tenant Act 1985 intended to protect leaseholders from paying unnecessarily large sums for work carried out to their building. In summary it says that a leaseholder’s contribution to the cost of work will be capped if the landlord or their agent fails to follow set consultation procedures first. Residents’ Management Companies (RMCs) and Right to Manage Companies (RTMs) are included under the definition of a landlord for the purposes of S20.
S20 procedures apply to work carried out by RMCs, RTMs or other landlords/freeholders. The procedure is prescribed in detailed regulations issued by the Government. Failure to follow the procedure can result in penalties. The penalty for a landlord, RMC or RTM failing to consult properly before commencing work is that they will only be able to recover £250 per leaseholder — regardless of the final bill. This does not mean that every leaseholder can be billed £250 for works without consultation. Leaseholders can only be billed according to the proportions set out in their leases. RMCs and other landlords who fail to consult lay themselves open to loss of income and claims for negligence.
What’s the procedure?
A S20 consultation must be carried out if any one leaseholder’s contribution to the work is estimated to, or does, exceed £250. When calculating the estimated cost, VAT and any consultants’ fees must be included.
Here’s what’s involved:
• Stage 1: the Notice of Intention. A notice must be served setting out what works are proposed and why they need doing. It should invite comments and nominations of contractors from leaseholders. Leaseholders will be given 30 days to make observations and nominate any contractors.
•Stage 2: the Statement of Estimates. Once estimates for the works have been obtained, a notice must be served to all leaseholders detailing the costs, how to inspect them and inviting any comments. Leaseholders will be given a further 30 days to comment.
• Stage 3: the Notice of Reasons. Once the contract is awarded, the landlord must send notice if they did not choose the cheapest estimate or a contractor nominated by the leaseholders. It must explain why they chose that particular option. This notice is given within 21 days of entering the contract, explaining the choice of the chosen contractor and a summary of the leaseholders observations regarding the estimates.
Payment for Major Works
The charges incurred as a result of ‘major works’ form part of leasehold service charges, but are usually paid for via additional payments. Due to the financial impact that ‘major works’ charges can cause, freeholders have the option to set up reserve/’sinking’ funds that leaseholders pay into annually to help prevent sudden demands for hug sums of money. Freeholders should also give as much notice as possible of proposed work, however, they legally cannot recover service charge costs incurred more than 18 months before they formally ask you to pay for them. The timing of invoices related to ‘major works’ can be payable in advance or arrears depending on the lease terms, although the actual costs will normally not be known until the work is complete. Payment options will vary depending on your personal circumstances.