Section 20 Notice
If major works needs to be carries out to your building, leaseholders must be consulted. This is known as Section 20 Consultation.
Section 20 of the Landlord and Tenant Act 1985 is designed to protect leaseholders from excessive costs and sets out detailed
What is Section 20 Consultation?
It is a consultation between landlord and tenant. The term ‘Landlord’ can be applied to any superior party in a residential lease in whom repairing, insuring and/or maintenance obligations have been placed; your ‘Landlord’ could be the Freeholder of your block, a Residents Management Company, or indeed a Head-Lessee.
Section 20 covers two important types of contract that a landlord may enter into with suppliers. The first is categorised as ‘Major Works’ and the second is ‘Qualifying Long-Term Agreements’
Major Works are physical works to a building, like external or internal decorations, improvements, carpet replacement, lift refurbishments/replacement, roof works, car park, resurfacing, health and safety improvements and other large projects that should be saved for over a period of time (if the lease for the development allows for a reserve fund) and are not classed as day to day.
Qualifying Long Term Agreements
Qualifying Long Term Agreements entered into for provision of services, for example a managing agent is a supplier of services and, if a Landlord intends to engage a managing agent for a period of longer than12 months, Section 20 applies.
Section 20 was originally designed to limit the service charge liability of tenants for major works, if appropriate consultation had not been carried out. Section 20 is an effective mechanism which allows tenants in leasehold property to have an input into how major projects, and the associated costs, are managed and implemented.
What are my rights as a leaseholder?
Your rights are that no works should proceed on your block, nor any long-term agreements for services should be entered into by your landlord, without the consultation taking place. If the consultation does not take place, the landlord can only recover costs equal to £250 per tenant for major works, and £100 per tenant for qualifying long-term agreements.
What are my responsibilities regarding Section 20 as a Director as a Director of an RMC or RTM?
Your responsibility is to ensure that Section 20 is observed, and the consultation requirements are met correctly. There is no statute of limitations with Section 20, so at any time I the future, a current or future tenant at a block can go the First Tier Tribunal in an effort to seek a determination that Section 20 was adhered to correctly and tenants have not been financially prejudiced.
A managing agent will usually execute the Section 20 consultation and deploy the major works to ensure that this is carried out swiftly and effectively.
How long will the consultation process take?
The consultation is split into three distinct stages, the first two with a statutory observation period of 30 days in between:
Stage 1 – The Notice of Intention to carry out works
This stage is designed to fully inform tenants of:
- The scope of works being carried out
- Why the Landlord considers the works necessary
- The rights of the tenant to make observations about this project (observations must be received within 30 days)
- The tenants’ rights to propose a contractor from whom to seek estimates for the works
Stage 2 – The Statement of Estimates
This stage is designed to keep tenants fully informed of progress and the likely costs of the works involved. It provides:
- A summary of the observations received from tenants to the Notice of Intention
- The list of all estimates obtained from the landlord and/or those nominated by tenants as part of the Notice of Intention
- A further 30-day period within which observations can be made about the estimates
The legislation dictates that the lowest estimate must be used for the works, which when you consider all estimates have been based on identical specifications, should be directly comparable.
Stage 3 – The Reason for Awarding the Contract
This stage is only used if the landlord decides not to go with the lowest estimate. It explains the Landlord’s decision to use a contractor who is not the cheapest; possible reasons could be:
- The contractor may not be able to honour the timescales for the works to be completed.
- A slightly more expensive contractor may offer a longer guarantee period.
- A contractor may have gone out of business
- A contractor may not be operating with the correct health and safety guidelines
A Section 20 consultation can be successfully executed in as little as 60 days if there are no legitimate objections lodged by tenants.
How does Section 20 apply when choosing a managing agent?
Section 20 will only apply to choosing a managing agent if the intention is to keep them in place for longer than 12 months, and their fee will cost any one leaseholder more than £100 in the first accounting period.
Under normal circumstances, managing agents work on 12-month management agreements, which can be renewed at the expiry of term. It is unusual for a managing agent to have an agreement that qualifies as Long-Term Agreement under Section 20.