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Section 20 Series (Part 1) - Major Works

17th June 2022

This Legal Update is Part One of several parts to be provided over the next few weeks providing a summary of the statutory consultation requirements in relation to Major Works. It is concerned with landlords, RMCs and RTM companies in the private sector, and does not cover the public procurement rules which apply to public bodies.

Major Works - When must you consult?

The consultation requirements prescribed by Section 20 of the Landlord and Tenant Act 1985 (“the Act”) and the Service Charges (Consultation Requirements) (England) Regulations 2003 (“the Regulations”) apply where any “qualifying works” are to be carried out which require any one leaseholder in the block or development to pay a variable service charge over £250 in any accounting period.

Qualifying works” are defined as “works on a building or other premises”. A ‘set of works’ approach is to be taken, looking at the cost of the individual project or contract (e.g. the consultation requirements are only triggered if the amount for any one leaseholder in respect of that set of works  exceeds £250) - Phillips -v- Francis [2014] EWCA Civ 1395.

A failure to consult means that the landlord, RMC or RTM company is limited to recovering £250 per leaseholder in respect of those qualifying works, unless dispensation from the consultation requirements is obtained from the FTT.

Major Works - The consultation process

For qualifying works, the process is set out in Schedule 4, Part 2 Consultation Regulations. This involves a series of notices to be served on all residential leaseholders who would be required to pay over £250 in any accounting period for the qualifying works. The notices should also be swerved upon any Recognised Tenants’ Association (“RTA”).

Stage 1 - Pre-tender stage

The first notice is a “Notice of Intention”, which must :

  •  Include a general description of the works (or specify place and hours where that description can be inspected);

  • Set out the reasons for considering works necessary;

  • Specify the consultation end date;

  • Invite observations in writing within consultation period and specify the address where they should be sent; and

  • Invite leaseholders and RTA to nominate contractors within consultation period from who estimates might be obtained.

It is important to stress that the consultation end date is at least 30 days from service of the notice consultation period. Any shorter period will invalidate the consultation and require dispensation. Do remember to allow for time for service of the notice (especially if sending by post). It is always better to err on the side of caution and provide a period of more than 30 days.

Stage 2 - tender stage

The landlord, RMC or RTM company is then to :

  1. Have regard (and, preferably, respond) to any observations received during the consultation period; and

  2. Seek estimates from its own contractors and try to obtain estimates from any nominated contractors, as follows :

  • At least one to be from contractor wholly unconnected to the landlord

  • Where single nomination has been received from leaseholder(s)/RTA, from that contractor

  • Where there have been nominations for multiple contractor(s) then from those contractors with highest number of nominations

Where nominations for contractors are received, the landlord, RMC or RTM company can consider applying reasonable selection criteria for eligibility for the contract (e.g. minimum insurance requirements), to maintain standards.

Once estimates are obtained, a second notice called a “Statement of Estimates” is to be served, which must :

  • For at least two of the estimates, specify total amount of estimated expenditure (setting out separately VAT and professional fees). Any estimates obtained from any nominated contractors are to be included;

  • Summarise any observations received during the consultation period and the responses to them;

  • Specify place and time where the estimates are available for inspection;

  • Invite observations in writing within consultation period and specify the address where they should be sent; and

  • Specify consultation end date - again, at least 30 days from service of the notice

Stage 3 : Award of contract

Again, the landlord, RMC or RTM company is to have regard (and respond) to any observations received during the consultation period.

Where the contract is awarded to the contractor who provided the lowest tender or to a nominated contractor, there is nothing further required.   

In any other circumstances, a third and final notice called a “Notice of Reasons” is required to be served, within 21 days of entering into the contract, which must :

  • Specify the reasons for awarding the contract (or times and place where reasons can be inspected); and

  • Summarise the observations received during the consultation period and the responses to them (or times and place where responses can be inspected).

Major Works - other considerations

  1. See our Legal Update here for guidance on service of notices, including Section 20 Notices;

  2. See our Legal Update here for guidance on when dispensation is available;

  3. See our Legal Update here for the Court’s approach when the specification changes, and whether that triggers a requirement to re-consult;

  4. See our Legal Update here for advice on when you can demand the cost for major works. It is important to stress that the timing for demanding the cost for major works is not related to the Section 20 process (where you are collecting service charges in advance), as Section 20 does not apply to on account demands (23 Dollis Avenue (1998) Limited -v- Vejdani [2016] UKUT 0365 (LC)). It is the lease that will dictate how and when you can collect the costs for service charges (including major works costs), as set out in our previous Legal Update. The relevance of timing when it comes to Section 20 consultation is the date the contract is awarded - the landlord, RMC or RTM company must ensure that the consultation process has been followed before awarding the contract (or obtain dispensation).

The Section 20 consultation procedure, whilst cumbersome, should in most cases be relatively straight forward. However, given the prescriptive nature of the procedure, it is rife for problems and disputes. Given the very serious consequences for a failure to consult or any defects invaliding the consultation carried out, it is always best to seek legal advice if you have any doubts as to the action you are taking.

For more information, please feel free to contact a member of the team on 01435 897297 or info@kdllaw.com.

Disclaimer

This legal update is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of KDL Law or by KDL Law as a whole.

If you have received this update in error or wish to unsubscribe from future updates then please email us at info@kdllaw.com.



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