Section 20s: what you should know about them
Buying a flat is a decision that is not taken light-heartedly and can bind people for many years in most cases. It also represents a huge financial cost and, often, leaseholders are not aware of the attached expenditure and what are their rights and duties when it comes to major works.
This article will look at Section 20s and what they represent to a leaseholder since they were introduced by the Landlord and Tenant Act 1985.
What is a Section 20?
A Section 20 under the Landlord & Tenant Act 1985 is a consultation process that applies if a landlord wants to carry out major works or enter long term contracts funded by the service charge.
A Section 20 consultation is triggered whenever any one leaseholder is due to contribute more than £250 (VAT included) for works or £100 (VAT included) towards long term contracts. Qualifying works include repairs, maintenance and improvements to the building and estate while examples of long-term contracts include cleaning, grounds maintenance and surveying.
There are two or three key stages the freeholder must satisfy which will be stated below. The detailed procedures can be found in the regulations, Service Charges (Consultation Requirements) (England) Regulations 2003 (‘the Regulations’).
What are the three stages of a Section 20?
The Section 20 consultation process is a legal requirement for landlords. Here are the key points of the process:
1. Notice of intention: The landlord issues a notice of intention to the leaseholders where the specs of the planned works are stated and invites the leaseholders to appoint contractors/companies they might want to include in the consultation. There is a deadline of 30 days to submit the nominations, and the landlord must have regard to any observations received by the due date.
2. Statement of estimates: The landlord collects quotes from nominated contractors and others and sends the costs to all leaseholders for their perusal. The statement must allow for leaseholders to inspect the quotations. Where the landlord specifies the place and hours at which documents can be inspected the place and hours specified must be reasonable. The documents must be made available for inspection free of charge at that place and during the hours specified and copies may be provided. Leaseholders can communicate their choice within 30 days of the date of the notice and, again, the landlord must have regard to any observations received by the due date.
3. Notice of reasons: The final stage where the landlord provides reasons to award the contract and which must be sent within 21 days. This notice is not required where the contract has been awarded to a nominated contractor or the lowest tender.
What happens if the leaseholders are not consulted?
If the landlord does not follow the regulations, they are limited to how much they can charge leaseholders for the works or service. Currently, the limits are £250 per item of repair work and £100 for services that are provided under a long-term agreement.
Should the funds not be recoverable, the landlord will have to cover the loss himself. In the case of an RMC or RTM company the consequences could be disastrous, potentially rendering the company insolvent and unable to continue to fulfil its obligations to leaseholders.
In certain circumstances, the landlord can apply to the First-Tier Tribunal (FTT) for ‘dispensation’. If the FTT awards dispensation, then the landlord will not need to follow the rules fully. However, they would still have to satisfy the FTT that they had taken all reasonable steps to make leaseholders aware of their plans or that the situation was an emergency. An example of an emergency might be repairing a lift in a tower block.
If you still have doubts and require more information, please contact our Property Managers. They will be happy to discuss your situation with you.
