Section 20 Consultation: what does it mean for landlords and agents?

Rachel Garton,  5th January, 2017

Property Litigation Partner, Rachel Garton, takes a look at the Section 20 consultation process and what steps are required by landlords and agents when proposing major works or changes to long-term agreements. She also reviews some recent Upper Tribunal cases to demonstrate the potential pitfalls.

What is a Section 20 Consultation?

Nowadays, tenants are pretty clued up when it comes to their rights and will often scrutinise their landlord’s every decision.

So any unwary landlord needs to recognise the importance of the section 20 consultation process, and the timescales of the appropriate notices.

A landlord proposing any ‘qualifying works’ or major works that will cost more than £250 per individual tenant, or £100 or more for entering into a ‘qualifying long-term agreement’ such as a new maintenance contract, must first carry out a statutory S20 consultation with all the building’s tenants and leaseholders.

Fail to do so, and they won’t be able to recover any costs over the £250 or £100 limit per flat.

What notices should I serve?

The consultation procedure in Section 20 of the Landlord and Tenant Act 1985 is a time-consuming administrative task.

There are a number of different stages and time periods involved, which are all subject to detailed and varied requirements.

The landlord should serve these three notices to each of their leaseholders or any recognised tenants’ association:

  1. Notice of Intention. This is where the landlord describes the works they would like to carry out and the reasons why it’s necessary. The landlord should invite remarks/observations and any recommendations for contractors from the leaseholders within 30 days.

  2. Notice about Estimates. The landlord provides the leaseholders with details of at least two estimates for the proposed works within 21 days of receiving them. One estimate needs to be independent of the landlord or managing agent. The landlord must provide details to the leaseholders where they can review the estimates, include any comments from the first notice of intent and invite further remarks from the leaseholders within 30 days

  3. Notice of Reasons (for awarding the contract). Not always required if the landlord chooses the cheapest estimate. If, however, the landlord decides that the lowest quotation will not be the one to carry out the works, then the landlord must explain their reasons and summarise the leaseholders’ remarks and observations (in response to the previous two notices) within 21 days.

For long-term agreements the procedure is basically the same, but the Notice of Estimates is referred to as a Notice of Proposals.

For example, it would include details for the proposed agreement affecting the building generally. E.g. lifts, phone-entry systems, waste management or maintenance contracts; cleaning and gardening; insurance; utilities or management agency agreements.

The main point is to be prepared because this consultation process will usually take many months.

Landlords should also allow for more time to resolve any issues or observations which may crop up during consultation.

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Related case studies:

Ashleigh Court Right to Manage Company v. De-Nuccio [2015] UKUT 0258 (LC)

Many landlords can get confused about how to deal with their day-to-day repair and maintenance programme in terms of consultation.

In this case, the RTM company acting as landlord had served both the Notice of Intention and Notice about Estimates to the leaseholders.

However, the notice stated that inspection was only allowed by giving 48 hours prior notice to the RTM company’s managing agents, and could only take place on weekdays between 9am and 12 noon.

The notice also failed to include contact details for the RTM company’s managing agents and, although referred to, didn’t give out details of the registered address of the RTM company.

The Upper Tribunal (Lands Chamber) upheld the decision of the First Tier Tribunal that the Section 20 Consultation was defective.

This was because the Notice about Estimates didn’t give the leaseholders a reasonable location or a reasonable timeframe for the estimates to be inspected.

Meaning the RTM company was only entitled to recover £250 per leaseholder regardless of the final bill.

Francis & Others v Phillips & Others [2014]

Before this case, it was common for landlords to consider whether the relevant works consisted of one or more ‘sets’ of works, and to apply the £250 limit to each.

If the cost of one ‘set’ of works required a contribution of more than £250 per tenant, the consultation procedure would be triggered. If not, there would not need to consult.

The site in question consisted of 150 holiday chalets in Cornwall let on long leases.

Various works were required to be carried out to bring the site into repair, and the landlord issued demands for increased service charges. Each of the tenants were charged £3,117.47 in relation to the works.

The landlord proposed different works to be carried out throughout the year, so no Section 20 Consultation was carried out.

Lower Court decision

The Lower Court held the items of service charge didn’t constitute a single set of qualifying works for the purpose of the statutory threshold.

The tenants appealed arguing the accumulated works did constitute a single set of qualifying work, and that the charges to them were in excess of the £250 limit set out in the regulations.

High Court Decision

The High Court ruled Section 20 should be applied to all ‘qualifying works’ in a specific accounting period.

If the total cost of the ‘qualifying works’ carried out in one year exceeds the threshold of £250 per tenant, then Section 20 must be complied with in relation to all the ‘qualifying works’ carried out in that year, no matter how small the cost.

Unsurprisingly, the landlord appealed this decision

Court of Appeal Decision

There was some comfort to landlords in October 2014 as the Court of Appeal overturned the decision reinstating the ‘sets’ approach. I.e that the s20 Consultation should be applied to individual sets of ‘qualifying works’ without reference to time periods of service charge years.

The Court of Appeal also gave guidance on what factors are to be taken into account when considering a single set of ‘qualifying works’.

Some of the relevant factors they may consider are:

  • Where items of work are to be carried out?
  • Whether the works are subject to the same contract?
  • Whether the works are to be done more or less at the same time or different times?
  • Whether items of work are different in character form, or have no connection with each other
  • Whether all works are the subject of one contract
  • How works are planned and the landlord’s reasons for the way they’re implemented

Christopher Moran Holdings Ltd v Carrara-Cagni [2016]

In this case, Christopher Moran Holdings Ltd (CMHL) are the long leasehold owners of a block of flats that consisted of seven floors of residential units above two floors of commercial properties.

Next to the penthouse flat were two more conservatories that formed part of the living and sleeping areas for that tenant.

The 25 under leases were granted to tenants over a term of 25 years. One of which included was to Ms Carrara-Cagni who lived in the penthouse flat.

The under lease for the penthouse required Ms Carrara-Cagni to pay double the amount of service charge of the other tenants.

The under lease also contained covenants that the tenant couldn’t erect any new or additional buildings to the premises.

CMHL carried out major repair works replacing all the windows and patio doors for all of the flats, valued at £1.3 million. The penthouse conservatories were also demolished and rebuilt.

There was some confusion as to whether the conservatories were constructed in breach of covenant. However, they were an integral part to the flat and were in need of repair.

Wishing to recover its costs, CMHL recharged the tenants including Ms Carrara-Cagni. She objected to the costs of the demolition and the rebuilding of the conservatories.

First Tier Tribunal agreed and held that the cost of replacement of the conservatories was not one which could be recharged to other tenants. So CMHL was only entitled to £31,000 replacement costs of original doors and windows.

CMHL appealed to the Upper Tribunal who allowed the appeal and focused on the interpretation of the leases, referring to the case of Arnold v Britton.

This case states the Court or Tribunal can’t rewrite the clear and practical language of leases in particular, which the FTT had interpreted incorrectly.

It held that CMHL had covenanted under the terms of its own lease to keep the conservatories in repair, irrespective of when the conservatories were constructed.

So the tenants can be held liable to contribute through service charges towards a repair of an item or building added to a building in breach of covenant.

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