The term ‘Section 20 Notice’ is in reference to Section 20 of the Landlord & Tenant Act 1985 (as amended by the Commonhold & Leasehold Reform Act 2002).
It sets out a three-stage consultation procedure with which to follow when carrying out qualifying works to a building or development where the contribution from any one lessee exceeds £250, or a qualifying long-term agreement where the contribution from any one lessee exceeds £100 in one financial year. If the Freeholder or Residents’ Management Company (or anyone working on their behalf) is looking to carry out works, or enter into a long-term agreement of this nature, then consultation must take place with all lessees. If there is a Recognised Tenants’, or Residents’, Association, then they must be included in the consultation. For the purposes of this article, we will refer to the issuer of the Section 20 Notice as the Freeholder.
In an emergency situation the Freeholder may consult with Leaseholders in a quicker or more limited way and seek dispensation from a Tribunal to allow the works to proceed quickly.
The consultation does not seek the Leaseholder’s approval for any works or services. The primary purpose is to give Leaseholders the opportunity to make observations on the Freeholder’s proposals and to give Leaseholders an opportunity to propose a contractor from whom the Freeholder may seek an estimate.
Section 20 consultation is most commonly required when the Freeholder has identified a need for major works to the building or equipment and wishes to recover the costs through service charges.
Major works are carried out for various reasons. Whether they are of a cosmetic nature such as modernisation, refurbishment or expansion, for general upkeep, or for regulatory requirements, the main purpose is to ensure that a development is inhabitable for the residents and a place where they feel safe and are proud to call home.
The ideal way to manage a development is to keep up to date with, and stay on top of, any maintenance when required. When a building is neglected, this can not only diminish the value of a property itself but can also cause disruption to residents and generate substantial costs when unplanned major works thus have to be carried out.
According to the government, major works generally fall under one of three categories:
Exterior decorations:
This includes the repair or replacement of joinery repairs, replacing stone sills, painting external woodwork, and metalwork etc.
Major repairs:
These are described as large “one-off” repairs/replacements of roofs, lifts, doors, windows, heating systems, gutters, bin areas or estate roads etc.
Improvement work:
These are works which build an amenity which was not there before, such as a children’s play area or new concierge system.
The facilitation of any major works is the responsibility of the Freeholder. However, if they want to recover these costs back from the Leaseholders, the Freeholder is required to notify the Leaseholders through the Section 20 consultation process.
The funds needed to cover major works are usually recoverable from the Leaseholders. Although major works are considered an allowable part of a service charge expense, their overall cost will usually be an additional payment on top of the standard service charge Leaseholders must pay annually. This will likely be an unwelcome expense, however, there is often no alternative when the property needs urgent or unforeseen work.
Leaseholders may already have funds held in a sinking or reserve fund. This is a sum of money put together by each Leaseholder and may be used to contribute towards the cost of the works.
The Section 20 consultation process usually has three stages:
Stage 1 – Section 20 Notice of Intent
Firstly, a ‘Notice of Intention’ is issued. This document should provide;
This notice gives Leaseholders the opportunity to put forward names of contractors from whom the Freeholder should try to obtain an estimate for the proposed works. Other observations may relate to the need, the extent or the timing of the proposed works, or any suggestions of additional works that they think may be required.
If Leaseholders do not make any observations, they may have difficulty if they later want to argue that the works were not necessary or were not necessary to the degree undertaken.
If Leaseholders have any comments or observations on the proposed works, they must send them in writing to the person named within the notice, within a 30 day period.
Stage 2 – Notice of Estimates (also known as the Section 20 Paragraph b notice)
After the Notice of Intent’s 30 days are up, Leaseholders will then be sent a Notice of Estimates. This Notice needs to include the following:
– One of these estimate needs to be completely independent of the Freeholder
– If nominations were put forward within the consultation period estimates should have been obtained from at least one of these nominations
A “Notice to Accompany the Statement of Estimates” must also be served in conjunction with the Statement of Estimates, which sets out the hours and place where details of the estimates may be inspected, inviting lessees to make written observations on the estimates within 30 days, specifying the address to which those observations should be sent.
As with the Notice of Intent, Leaseholders have 30 days from the date of the notice to provide any comments or suggestions on the quotes they have been provided.
Stage 3 – Notice of Reasons
This Notice is not always required however if the Freeholder decides that the lowest quotation received will not be the one chosen to carry out the works, then this Notice is sent to explain the reasoning behind the decision.
The Freeholder does not need to send a Notice of Reasons if the chosen contractor submitted the lowest estimate or was proposed by a Leaseholder in the first consultation stage.
It is worth noting that if a Leaseholder’s nominated contractor is chosen to carry out the works, and they didn’t provide the lowest estimate, then although the requirements of Section 20 have been fulfilled, it would be prudent to serve a Notice of Reasons because that estimate could be tested for reasonableness by the First-tier Tribunal (FTT) under Section 19 of the 1985 Landlord & Tenant Act.
Leaseholders should receive this Notice within 21 days of the contract being placed. It does not provide any further opportunity for observations because the contract has already been placed. Its purpose is to advise Leaseholders why the successful contractor was chosen.
A “qualifying long term agreement” (“QLTA”) is an agreement for works or services, for a period of more than a year, where the cost to any one leaseholder is likely to exceed £100 in any one year.
Freeholders sometimes enter into qualifying long term agreements with contractors to undertake physical works over a number of years, such as a 5 year agreement with a roofing contractor to undertake any roofing works that become necessary, or a lift maintenance contractor where repair works are often unknown.
For long-term agreements, the procedure is essentially the same as above, however Stage 2 is referred to as a Notice of Proposals.
Whilst there is no specific law that states how long a notice lasts, there is precedent to state that a delay in the progression of the consultation process may allow changes in the ‘general situation’ of the building which could lead to problems in recovering the contributions from each Leaseholder.
In the event that the consultation procedure is not followed correctly and the Freeholder is successfully challenged at the FTT, then the maximum amount recoverable from lessees under the service charge is £250 for major works and £100 for long-term agreements.
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