Major Works At Leasehold Properties
Service charges and repair works are often a bone of contention at residential leasehold properties. The bigger and more unexpected the bills, the louder and more protracted the arguments tend to be.
To reduce the propensity for arguments, the law states that freeholders must give their leaseholders sufficient notice before carrying out major works, or entering into long-term service contracts, where the freeholder expects to recover the costs of the same from the leaseholders through their service charge.
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Section 20 - Notice Of Major Works or Long Term Contracts
The law governing major works is Section 20 of the Landlord and Tenant Act 1985 (as amended by S151 of the Commonhold and Leasehold Reform Act 2002).
Section 20 stipulates that freeholders (landlords) must give leaseholders (tenants) formal notice of any major works to their building or premises which are likely to cost any one leaseholder more than £250. These major works are called ‘Qualifying Works’ under the legislation and could include works such as roof repairs, electrical rewiring, or extensive maintenance or refurbishment.
Section 151 of the Commonhold and Leasehold Reform Act 2002 expanded this requirement and stipulates that freeholders must also give leaseholders notice of any service contract with an independent contractor which will last for more than 12 months and is likely to cost any one leaseholder more than £100. A service contract of this type is called a ‘Qualifying Long Term Agreement’ under the legislation and could include contracts for gardeners, cleaners, waste management companies, or management agencies.
The legislation does not just apply to freeholders, and it may be that a Residents Management Company, RTM Company, or managing agent are the party which must provide leaseholders with formal notice of major works or long term contracts. It’s important to understand your obligations.
The formal notice which the leaseholders are entitled to receive is often termed the ‘Section 20 consultation procedure’ – let’s take a look at the requirements…
The Section 20 Consultation Procedure
The Section 20 consultation procedure involves the issue of three notices at three key stages, which are set out below:
- Notice of Intention: The first notice must provide a clear description of the proposed works, set out the reasons for the works, and invite observations from the leaseholders. They must be given at least 30 days to make observations or to nominate contractors to carry out the works.
- Notice of Estimates: The second notice must provide details of at least two estimates for the works, which must have been obtained from different contractors, along with a summary of, and the freeholder’s responses to, any observations received. If any of the leaseholders have nominated a contractor then the freeholder should obtain an estimate from that contractor and include it within the notice. The notice must invite leaseholders to provide their observations on the estimates and, again, the leaseholders have a minimum of 30 days to provide these.
- Notice of Award of Contract: If the freeholder does not choose the lowest estimate or a contractor nominated by the leaseholders, then the freeholder must provide the third and final notice within 21 days of entering into a contract for the works. The freeholder must provide their reasons for awarding the contract and summary of any observations received on the estimates and responses to them.
There are slightly different requirements for the notices depending on whether the consultation procedure is being followed before carrying out major Qualifying Works, entering into a Qualifying Long Term Agreement, or carrying out Qualifying Works under a Qualifying Long Term Agreement.
The Section 20 consultation procedure is strict and requires compliance with the additional prescriptive requirements of The Service Charges (Consultation Requirements) (England) Regulations 2003.
It can be a complex and confusing process but it’s important to make sure the Section 20 consultation procedure is followed fully and correctly - otherwise the consequences can be disastrous.
What Does This Mean If I’m A Freeholder?
Upon completion of the Section 20 consultation procedure you will be able to issue service charge demands to the leaseholders in accordance with the terms of their lease to recover the costs of the major works.
But if you fail to carry out the Section 20 consultation procedure, or carry it out incorrectly, the law can limit your recovery of costs to just £250 per leaseholder in respect of major works, or £100 per leaseholder per year in respect of a long-term service contract.
The shortfall will be left for you to cover, unless you are able to obtain special dispensation from the First-Tier Tribunal (Property Chamber).
To avoid this, it is advisable to seek expert legal advice to ensure compliance with the Section 20 procedure and the requirements for the notices. You must maintain clear and transparent communications with your leaseholders throughout the process. That means providing detailed and understandable descriptions of the proposed works, and you must be open to suggestions and nominations of contractors from the leaseholders.
You should also ensure all correspondence, notices and documentation relating to the consultation procedure are maintained meticulously. This can be crucial in case where the leaseholders challenge the validity of the procedure, especially if the matter goes to Tribunal.
What If I’m A Leaseholder?
This rigorous consultation process encourages greater engagement and participation from leaseholders. This means that you are entitled not only to be consulted, but to give your thoughts and opinions on the major works or long-term contracts being carried out where you live. The Section 20 procedure and the Consultation Requirements work to protect you from paying for inappropriate or unnecessary works and from paying too much towards these.
It’s important to seek legal advice early if you believe the charges are unjustified – or if the freeholder hasn’t followed the consultation process correctly.
Leaseholders have the right to challenge the reasonableness of the costs through the Tribunal. If the Tribunal agrees that the freeholder has not followed the process correctly or that the costs are disproportionate, and that you have been prejudiced as a result, you may not have to pay the costs that the freeholder is asking for.
What If I’m A Leaseholder Who Has Bought The Freehold?
If you’ve bought the freehold (or a share of a company that owns the freehold) then you are both a freeholder and a leaseholder.
And you still have to serve notice – even if it means that you’re serving notice on yourself!
Operating as both freeholder and leaseholder can be complex, especially in self-managed blocks. You must follow the same statutory procedures in your capacity as a freeholder, while retaining your rights and responsibilities as a leaseholder.
So be cautious of potential conflicts of interest. Ensure decisions regarding contractors, cost assessments and works are made impartially and in the interest of all parties – not just your individual interests.
It’s vital to keep the lines of communication open. As a leaseholder, you might see things differently than as a freeholder. Balance these perspectives to ensure fair and reasonable decision-making to avoid any potential disputes between the parties.
Get Expert Legal Advice On Leasehold Matters
Are you a freeholder or managing agent faced with having to issue a Section 20 notice? Want to be sure you’re complying with the Section 20 consultation procedure?
Or - are you a leaseholder that has received a Section 20 notice? Worried about the cost of impending major works? Concerned that your freeholder hasn’t followed the Section 20 consultation procedure correctly?
Get expert legal advice from Coles Miller’s experienced residential leasehold solicitors.
They can also help with buying the freehold, lease extensions, service charges, restrictive covenants, varying a lease, right of first refusal and right to manage. The team is based at our Bournemouth office.
