Ever seen a significant increase in your service charge due to “major works” and have no idea what happened? The Section 20 consultation likely explains this to you —and often does not, at least not in a way that makes sense.
We’ll explain the purpose of a Section 20 consultation and what the different stages are meant to accomplish.
Purpose of the Section 20 Consultation
To a certain extent, the Section 20 of the Landlord and Tenant Act of 1985 was implemented to protect leaseholders from receiving unexpected large bills for major works. The consultation is mandatory when the costs of works, or what will become a qualifying long-term agreement, will bring the contributions of leaseholders beyond a certain threshold.
Stage 1: Notice of Intention
This is what leaseholders should receive first from the landlord/in managing agents. It is a written notice that informs the leaseholders that works are being proposed and that provides a rough idea of what the works entail and of the purpose of the works. It is not a proposed work order, and is not a decision. It is the opportunity for leaseholders to express an observation and/or make a suggestion for a contractor. Most people tend to overlook this step. However, it is the most opportune and easiest step to influence the process before any work has been costed.
Stage two: The Quotes
At least two estimates must be provided for comment. One must usually be from a leaseholder-nominated contractor if one was put forward in Stage One. This is when the most friction occurs. Leaseholders think that their consultation means that they choose the contractor. This is not entirely correct. Rather, the contractor(s) nominated by the leaseholders will be considered and a response provided. However, the choice is ultimately made by the Freeholder or the Managing Agent.
Stage three: The Outcome Notice
Once a contractor is chosen, a notice is published which explains the decision and provides the reason(s) for not choosing the lowest estimate if applicable. This is the stage that is most commonly skipped or completed in a rush. This is also the stage that is most frequently challenged by leaseholders.
Where it Actually Goes Wrong
This is almost never due to the paperwork. Most managing agents know how to complete the consultation correctly. This is due to the timing. Stage one is rushed because a contractor is already chosen. Stage three is completed after the contractor has commenced the work. Treating the observations provided by leaseholders as a formality. All of these can be challenged at a tribunal, and a successful challenge can limit what is recovered to £250 per leaseholder regardless of the actual cost incurred.
What this means if you’re managing a block
Section 20, when done properly, should not get in the way of you undertaking works — it is mainly a question of timing and communication. The works that end up in dispute are the works that were undertaken because one party felt the consultation was taking too long, not the works that were done in bad faith.
If you are facing a major works decision and you are not sure the consultation is at the right pace, it is better to have someone check the consultation before the notice is given rather than after, because once a stage is gone, it will be way too late to fix.