Major Works Leaseholders Rights – The Landlord And Tenant Act 1985
One of the most common causes of landlord and tenant disputes between leaseholders and freeholders stems from the undertaking of major works and the serving of section 20 notices under the Landlord and Tenant Act (LTA) 1985. The process involved in both serving and objecting to a section 20 notice is complex. And unfortunately, the procedure can take many months to complete.
So if you’re horrified by the proposed charges and are thinking of objecting to a section 20 notice, you’re going to need expert legal advice at the outset. And rest assured – our specialist property dispute team have the experience you need.
Want to Object to a Section 20 Notice? Unsure of your legal position? Call our Property Dispute team on FREEPHONE 0800 1404544 for FREE initial phone advice – no strings attached.
Section 20 of the Landlord And Tenant Act 1985 – What does it actually say?
The LTA 1985, section 20 provides that unless a freeholder or their managing agent follows a strict consultation procedure before qualifying (or major) works are undertaken, the amount that freeholder can recover from the leaseholder for the work done will be capped. Currently, the caps are £100 per leaseholder per year in respect of a long-term contract, or £250 per leaseholder for works to the building – any some of that amount or higher is considered “major works”
What are Section 20 qualifying or major works?
“Qualifying works” refer to repair, maintenance, or improvement works to the building that, under the terms of the lease, are recoverable from the leaseholders. The freeholder cannot argue that improvements are qualifying works unless it states in the lease that this kind of building or maintenance work is recoverable.
So, for example, if there is no provision for improvements in the lease agreement and the freeholder decides to improve the roof of the building by adding extra insulation, the cost of the work is not recoverable from the leaseholders. However, contrast, if the roof is damaged and needs repairing and those kind of repairs are listed as recoverable under the lease, then fixing the roof falls under the umbrella of ‘qualifying works’.
One-off major maintenance projects our technically also a service charge, but with usually a much larger cost and subject to a much tighter consultation process.
Click here to read more about service charge disputes
Who can undertake qualifying works?
Major works will be undertaken by the freeholder or the management company they engage to take care of the building. Residents’ Management Companies and Right to Manage Companies can also organise major works. For the purposes of the city, this page refers to freeholders when discussing the entity organising and/or undertaking the qualifying works.
Click here to read more about RTM and the right to manage company
Section 20 notice – when is a freeholder required to consult leaseholders?
If the cost of major works exceeds £250 for any one leaseholder, the freeholder must consult all the leaseholders before starting work.
It is important to note that the consultation process is lengthy and time-consuming, therefore, freeholders must ensure they allow enough time to conduct the process correctly.
What is the Section 20 notice consultation process for major works?
The s20 consultation process consists of three parts:
· Notice of intention to do the works – freeholders must provide details of the works to be carried out and explain why they are necessary. Leaseholders will have 30 days to respond to the notice. This can involve commenting or objecting to the proposed works and selecting a contractor to provide a quote.
· Notification of estimates – along with a summary of the comments from stage one, leaseholders must be given estimates for each item of work and the contact details of the business supplying those estimates. Freeholders must also declare any conflicts of interest concerning the contractors providing the estimates. Again, leaseholders have 30 days in which to respond – and that includes any objection they have to the proposed quote.
· Notification of award of contract – within 21 days of selecting a contractor, the freeholder must provide notice to the leaseholders stating why that particular contractor was chosen or provide an opportunity for the leaseholders to inspect their observations regarding the estimates. This is not, however, required if the freeholder selected the contractor with the lowest tender or the contractor nominated by the leaseholders.
What is a qualifying long-term agreement?
Freeholders must also consult tenants before they enter any long-term agreements with regard to building maintenance. A qualifying long-term agreement is a contract the freeholder enters into with an independent organisation or contractor for a period of more than 12 months after 31 October 2003.
If leaseholders in a particular building pay different amounts towards the service charge, consultation must take place if any one leaseholder is obliged to contribute more than £100 per year.
Qualifying agreements can include:
· Building service-related contracts such as waste management or servicing the building’s lift.
· Insurance.
· Cleaning common areas and taking care of the garden.
· Security or concierge services.
· Utilities.
· Management agency agreements.
Even if there is only one possible supplier for a particular service, a freeholder must consult or apply to the Tribunal for a dispensation.
The following are not qualifying services:
· Employment contracts.
· Management agreements made by a local housing authority and a tenant management organisation (TMO), or an organisation established under section 2 of the Local Government Act 2000 (or section 1 of the Localism Act 2011, which came into force in 2012). An example is an arm’s length management organisation (ALMO).
· An agreement between a holding company and its subsidiary, or between subsidiaries of the same holding company (as defined in the Companies Act 2006).
· A contract entered into before any tenants resided in the property and expired in five years or less.
· A contract entered into before 31 October 2003.
Does section 20 apply to commercial property?
No, the Landlord and Tenant Act 1985 applies to residential leaseholds and tenancies only.
Do I need a solicitor to issue a Section 20 Notice?
In theory no, but in practice any sensible freeholder is well advised to instruct a solicitor. This area of landlord and tenant law is fraught with disputes and has become increasingly litigious.
What’s more, for complex projects, the section 20 notice process can take up to a year and if not carried out correctly in the first instance, even longer. Therefore, a freeholder must collaborate with an experienced property solicitor who will ensure each and every stage of the procedure is compliant with the LTA 1985 and that the leaseholders are also fulfilling their statutory obligations.
What is the procedure for objecting to a section 20 notice?
Section 20 notices can be challenged in the First-tier Tribunal (Property Chamber) and leaseholders can request the Tribunal to decide whether or not the costs of major works have been reasonably incurred.
An application to the Tribunal can be made even if the bill has already been paid. Estimates and budgets can also be challenged.
The Tribunal can also decide on matters concerning:
- Whether the lease provides for payment of the service charge.
- Who must pay the charge and the payment date?
- How the charge is to be paid (for example, by direct debit or quarterly amounts)?
- If you are thinking of objecting to a section 20 notice it is highly advisable to instruct an experienced landlord and tenant solicitor to advise you.
What happens if the work is urgent – is a section 20 notice always necessary?
The only way to avoid having to serve a section 20 notice is to apply to the Tribunal for permission to do so. If the Tribunal determines that exempting the consultation process is reasonable under the circumstances, it may grant a dispensation.
What does the Tribunal consider when asked to dispense with a section 20 notice?
In 2013, the Supreme Court handed down the judgment in Daejan Investments Limited v Benson and others. The court stressed that the section 20 consultation process must be undertaken in the context of what the LTA 1985 set out to achieve rather than as an end to itself.
The aims of the LTA 1985 are to protect leaseholders from:
· Paying for unnecessary or inadequate work, and
· Paying too much for necessary and quality work.
It was held that the test to be applied by the Tribunal when considering a dispensation application was “Would the flat owners suffer any relevant prejudice, and if so, what relevant prejudice, as a result of the freeholder’s failure to comply with the requirements?”
The burden is on the leaseholders to establish prejudice and for the freeholder to rebut it. The Tribunal’s job is to recreate what would have happened if the consultation had taken place and when imposing any conditions on the dispensation, a “sympathetic” approach should be taken towards the leaseholders.
Can a section 20 notice expire?
Technically no, however, it is prudent to undertake work as quickly as possible after the consultation process has been completed. This will minimise the risk of a change in circumstances, for example, the contractor’s quotes increasing, which may lead to a dispute.
Objecting to a section 20 notice – how are disputes resolved?
In most cases, section 20 disputes are resolved through negotiation and alternative dispute resolution methods such as mediation. Going to the First-tier Property Tribunal can be time-consuming, slow and expensive, not to mention extremely stressful. Therefore, an experienced property law solicitor will do their best to resolve the matter through negotiation or mediation well before it escalates to the point litigation proves inevitable.
What are the consequences of failing to serve a section 20 notice?
For freeholders, not serving a section 20 notice can result in catastrophic financial consequences, namely that you will only be permitted to recover a maximum of £250 from each leaseholder after the works have been completed. This is the case whether the cost of the works amounted to £3,000 or £3 million.
Can a freeholder or management agency apply to vary the terms of the lease?
It is important to remember that just because a freeholder or management company has gone through the section 20 consultation process, a demand for payment in advance of major works can only be issued if the lease allows for it. If the lease does not provide adequately for the payment of major works, a freeholder can apply to the Tribunal to vary the terms of the lease to make provisions for a reserve fund to be established.
It is best practice to have a reserve fund in place and have communicated to tenants a five to ten-year programme of works well in advance. A property sinking fund to pay for major capital expenditure is also well worth establishing.
Click here to read more about leasehold property sinking funds
Interested in learning more?
Freehold purchase – click here to read more about how you can join together with other leaseholders to buy the freehold of your block and be responsible for your own building management in to is known as lease enfranchisement
Court-appointed property manager – as an alternative to exercising your right to manage, you could make court application for a court-appointed property manager. The big difference with RTM is that with a court-appointed property manager you don’t need the support of any other leaseholder, but you do need to prove some level of failing on the behalf of the freeholder or management company in managing the block
