Major works consultation under Section 20 of the Landlord and Tenant Act 1985
The Leasehold Knowledge Partnership is contacted multiple times every week about Section 20 major works issues.
These calls come from some of the fanciest apartment blocks in London, from retirement sites and from local authority leaseholders. Often out of the blue, the landlord has decided to begin major works at the block and suddenly a leaseholder is looking at a bill of £5,000, £10,000, £20,000 or £30,000. It is not rare for the figure to be higher than this.
Indeed, today (August 2019) we are trying to help some Southwark leaseholders facing Section 20 demands of £146,000 for a site that the council has decided needs drastic repairs or demolition.
Many of the worst case Section 20s concern private leasehold properties in local authority blocks, where the council is the landlord. These blocks do not have reserve funds, and councils’ primary responsibility is to house the unhoused: the council tenants. Not those who have exercised right to buy, and still less investors who may have bought these properties off the original Right To Buy owners.
Many calls come from young professionals in London who have bought flats in council blocks because they are affordable. The upside of such a purchase is that the flat was cheaper than a private one; the downside is that a council in the landlord and they have an abysmal reputation for controlling costs. An additional issue is that councils are suspected by some leaseholders to consider the private leaseholders as a cash cow, who can help subsidise the council’s housing stock. The evidence of this pretty dubious, although Section 20s from local councils have been successfully challenged.
The amounts of money involved can be devastating: Oxford City Council wanted to charge 50 leaseholders £50,000 each when it refurbished some tower blocks. It lost the subsequent court battle. Southwark has issued a recent demand for £146,000 off leaseholders at a block in south London. These sums will obviously wipe the leaseholders out.
Indeed, Southwark has one office in its housing department that deals with Right-to-Buy and another to buy back the properties once the leaseholder is hit by a Section 20 and cannot afford to pay it.
Leaseholders contest Section 20s by challenging the process – it must be carried out correctly – and / or by challenging the quantum of costs for the works. Both are likely to require solicitors and / or a surveyor. So the first step for leaseholders, whether council or private, is to mobilise and unite.
No court is going to pay attention to a lay person’s opinion on the costs of building works, but they will pay attention to a surveyor employed via the leaseholders’ solicitor.
All leaseholders facing a Section 20, after having formed a group, should contact the Leasehold Knowledge Partnership and we will put you in touch with professionals with a track record of successfully fighting these costs.
Are Section 20s abused? Certainly. Oxford City Council was trying to subsidise the refurbishment of its housing stock by dumping the bills on its leaseholders.
With private landlords, too, there is plenty of gamesmanship over Section 20s. One way you can monetise a site where you own the freehold is to carrying out repeated works, handing the contract to a related company or chum, taking a cut, charging a management fee to supervise these works and getting the leaseholders to pay up. Obviously, the bigger the bills the more remunerative this process can be.
Sometimes a Section 20 is the last chance rip-off of a game-playing landlord. We are aware of landlords who repeatedly issue Section 20s when a site is about to go right to manage. It is their last chance to squeeze out some more cash.
Apart from employing professionals to challenge the Section 20 process and the quantum of costs, another point to consider is that if you have recently purchased the property then the immense of major works should have been questioned by your solicitor or declared. If your solicitor failed to make inquiries then a professional negligence action against his insurers might be possible, and if it was not declared there is a possibility that the bill does not have to be paid. We are aware of a young couple in Southwark who escaped a £23,000 bill precisely on these grounds.
As ever, the absolutely disastrous course of action by leaseholders facing a Section 20 bill is to get emotional and decline to pay it. There are still an alarming number of leaseholders who stage this sort of car crash in the courts: they lose the case and have to pay legal costs that may dwarf the Section 20 bill.
Fighting Section 20s is almost always beyond the ability of lay applicants to attempt, and it is best left to professionals – ideally paid for by a group of affected leaseholders.
As ever, the hard and fast rule of LKP applies, unless you are legally represented by professionals who know what they are doing, laymen fighting this should PAY FIRST, FIGHT SECOND. That means you are not wrongly withholding service charges if you are unsuccessful in the tribunal.
The form asking for dispensation from Section 20 costs:
1/ What are major works?
The term major works, or “qualifying works” which is the term used in the Act, means works (whether on a building or any other premises) the cost of which is recoverable from the tenant under the terms of the lease through the service charge.
The cost will not be paid from the annual service charge, but is normally an additional charge on top of this. If there is a “reserve fund” or “sinking fund” built up this can be used to pay some or all of the cost, depending on the cost of the work and the amount built up.
The lease should state when the major works charge can be made, it may have to coincide with the annual service charge, or the lease may allow it to be charged on demand when necessary. Most modern leases allow for payment in advance.
The major works will usually be the responsibility of the landlord, but it could also be the Right to Manage Company, or Residents Management Company, if one of these is in place.
2/ What are the requirements to consult under Section 20?
If the cost of major works will exceed the sum of £250 for any one leaseholder, then the landlord is required to consult with tenants under section 20.
The requirement may be for full consultation where the tenant will be able to make “observations” on the proposed works and also nominate a contractor for the landlord to obtain an estimate. Alternatively, it may be the abridged version of consultation where there is only one stage of consultation for observations to be made, but the tenant does not have the right to nominate a contractor.
The abridged version applies where the landlord has a “Qualifying Long Term Agreement” in place. This means a contract for services with a contractor of more than 12 months. There is a separate consultation requirement before the landlord enters into such a long term contract. Most housing associations or local authority landlords will have such an agreement in place.
The consultation process also involves the landlord describing the works, although a full specification does not have to be given. The landlord should also “have regard” to any observations made and reply as appropriate.
Please see the advice guide on Section 20 consultation for further details
3/ Dispensation from the need to consult
A landlord may apply to the First-tier Tribunal (Property Chamber) (FTT) for a dispensation from the need to consult. They may wish to do this if the work is urgent and it is not possible to wait the 2 months that consultation can take. They may also seek a dispensation if, for some reason, they have failed to consult fully under the Act.
An application can be made prior to the work being carried out, or even sometimes retrospectively. The most relevant recent case on an application for dispensation was Daejan V Benson in 2013 made in the Supreme Court. The Supreme Court gave some clear guidelines as to the matters that should be taken into account by a tribunal when deciding whether to grant a dispensation.
This article is another legal analysis of Daejan v Benson: S20 dispensation granted to freeholders, which provides more information on the effect of this decision.
Many leaseholders faced with a large major works bill will struggle to find the funds. Most social landlords will offer some form of payment plan, for example instalment payments over a number of years (not more than two, in the experience of LKP). They also have power to waive or reduce charges for major works under statutory regulation. Discretionary reduction of major works service charges for leaseholders of social landlords
An Upper Tribunal decision in 2011 determined that when considering the reasonableness of charges for major works, whether the landlord had considered the financial impact on tenants before commencing the works can be taken into account. An example would be, whether the work could be done in stages, to reduce the financial impact.
LKP is unaware of any amelioration of Section 20 major works bills as a result of this.
Section 20 is a lethal weapon in the hands of a monetising landlord, and a blunderbuss in the hands of local authorities, who have a well deserved appalling reputation in cost control.
5/ Fighting back
A landlord’s power to levy a service charge and a leaseholder’s obligation to pay it are governed by the provisions of the lease. The lease is a contract and so there is no obligation to pay anything other than what is provided for in the lease.
Both landlords and leaseholders have the right to ask a First-tier Tribunal (Property Chamber) whether a charge, or a proposed charge, is reasonably incurred.
When Grenfell cladding was found on private blocks of flats, landlords rushed off to the tribunal to ensure that leaseholders rather than themselves paid to remove it (and pay for the fire marshals).
An application may be made to the Tribunal whether or not the charge has already been paid. It can be in respect of costs already incurred for works, services or other charges, or in respect of an estimate or budget.
The Tribunal may also determine:
- whether the service charge is payable under the lease;
- by whom and to whom it is payable;
- the date on which it may be payable; and
- the manner of payment (for example, if it may be paid by direct debit or standing order).
If you are fighting a Section 20, you are going to need a strategy to fight it and professional help.