So you are going through your daily post and find an envelope from your managing agent. You open it up to find something called a Section 20 notice of intent telling you that your Landlord (Freeholder) plans on doing some pretty major works to the building.
The problem is that not many people know about the Section 20 consultation process, nor do they know what their rights are and how the whole process can impact them.
Let’s break it all down then and let you know what it is, what it all means for you and how it can be beneficial to you and the rest of your neighbours.
What is the ‘Section 20’ law?
When you hear your managing agent mentioning ‘Section 20’ they are referring to Section 20 of the Landlord and Tenant Act 1985 as amended by the Commonhold and Leasehold Reform Act (CLRA) 2002, excuse the mouthful there.
The intent behind the law was to give some protection to residential leaseholders so they may be duly consulted on any works that would eventually cost them more than £250.
(Section 20 law covers two parts, one for any major works that cost over £250 per leaseholder and then one part for long term contracts which we will cover in another article)
The law also enables a cap on the amount any leaseholder will pay if the Landlord does not carry out the required consultation.
To put clearly, if your Landlord does not carry out the consultation process as the law requires, you will only have to pay £250 towards the works, whatever they may be.
So what does your Landlord have to do?
What is the consultation process?
Your Landlord is required to carry out consultation with you which is broken down into (typically) three stages:
Stage 1 – Section 20 Notice of Intent
This is the more than likely the notice you have just received which has led you to this article. The Notice of Intent must include the following three pieces of information:
- Describe generally the works that will be undertaken
- The reasons why the works are required
- An invitation for any comments or observations on the above information
To be clear, when we say comments or observations, this means you can make suggestions on any additional works you think needs attention, any companies you think the managing agent should ask for a quotation and so on.
You will be given 30 days from the date of the notice to provide any comments or suggestions so you do need to act quickly as soon as you receive this notice.
Stage 2 – Notice of Estimates (also known as the Section 20 or Paragraph b notice)
After the Notice of Intent’s 30 days are up, your managing agent will then send you a Notice of Estimates. This notice will also contain a breakdown of any comments or suggestions they received from the first 30 days’ consultation so you all can see what is being said.
The Notice of Estimates needs to include the following:
- At least 2 quotes for the work (and only 1 estimate needs to be independent of the Landlord or Managing Agent)
- Any comments / observations from the first notice of intent
- Details of where the specification and quotations can be reviewed (office address, hours of opening etc)
As with the Notice of Intent, you have 30 days from the date of the notice to provide any comments or suggestions on the quotes you have been provided.
Stage 3 – Notice of Reasons
Now this notice is not always required however if the Landlord / Agent decides that the lowest quotation received will not be the one chosen to carry out the works, then this notice must be sent to explain the reasoning behind the decision.
Why am I getting a Section 20 notice?
As mentioned above, the Section 20 consultation process is only valid when there are works to be completed when your total contribution is over £250 (including VAT). This means that if there are 60 flats in your building and there are works that will cost £15,000 + VAT in total, your Landlord will have to complete the consultation or run the risk that you will only be liable to pay a maximum of £250 towards the project.
At times this consultation can be a nuisance, for example, imagine being in a building of 4 flats. For any work that is £1,000 + VAT in total, the landlord will have to complete a minimum 60 days’ consultation. Realistically, £1,000 + VAT is not a huge amount when it comes to repairs and therefore it can become a drain on efficiency.
How long does a Section 20 Notice last?
Whilst there is no specific law that states how long a notice lasts, there is precedent to state that a delay in the progression of the consultation process may allow changes in the ‘general situation’ of the building which could lead to problems in recovering the contributions from each leaseholder.
For example, if a project is delayed by two years, flats may have been sold in that time, it may cost more for certain aspects of the project, the building condition may have worsened in the time it’s been delayed.
These would all be possible reasons for a Landlord to re-commence the consultation process in order to avoid problems further down the line.
This case shows the decision from the Upper Tribunal that there is no formal time limit to a Section 20 notice, in this case, with a 2-year gap between the notice and the commencement of the works.
Is there any way around the Section 20 process?
With anything in life, problems do happen. It’s no different with this consultation process.
The law does allow for, in certain circumstances, the consultation process be dispensed with under Section 20ZA of the act. This states that the First Tier Tribunal can decide if it is reasonable to dispense with the consultation process, typically due to emergency works being required.
We have used this dispensation route in the past, we had a building in Paddington under management and after high winds a piece of stucco fell off the front of the roof. With no time to waste, we sent out the notice of intent along with a cover notice stating that we were going to dispense with the consultation process. We had contractors on site immediately to erect scaffolding and make the issue safe.
Whilst the contractors were doing their part, we sought permission to dispense with the consultation process which was given shortly after.
Our best advice is if you are going to dispense with the consultation process, simply communicate every step you take, this will not only keep the leaseholders in the best position but also show the tribunal that you have done everything in your power.
What is typical to pay in terms of managing agent/contract administrator fees?
Now this will vary depending on the type of agent you have and what in house services they are able to offer but if we take the example of a Managing Agent being separate to the surveyor then there will be two separate charges, typically.
Whilst there is no specific case law to state what the fees should be, the First Tier Tribunal is allowed to make a judgement on whether the fees are ‘reasonable’ for the work carried out.
From our experience, we have seen the following breakdown for major works:
Managing Agent Fee: 2% – 5% of the contract cost
Surveyors Fee: 8% – 15% of the contract cost
This is a guideline from our experience of working within London however and should not be used as a ruler to compare with your current project. All costs should be reasonable for the amount of work that is required. A breakdown of the full administration costs will be stated on your section 20 notice to provide you with an indication of just how much you are paying to your managing agent / surveyor.
Where can I get more information on this Section 20 notice?
There is a plethora of information out there available from formal guides to the Section 20 notices and consultation process to blogs covering the most recent case laws.
Below we have compiled a few links that you may find useful to read through:
- The wording of the Landlord and Tenant Act itself can be viewed here.
- Association of Residential Managing Agents guide to the section 20 process is here.
- Barrister, Amanda Gourlay’s blog that covers Section 20 process cases.
If you need any further information or maybe you have questions regarding your current project or the section 20 notice you have received, simply give us a call and we can either help you or connect you with an appropriate person.