Section 20 (S20) is a clause in the Landlord and Tenant Act 1985 intended to protect leaseholders from paying unnecessarily large sums for work carried out to their building.
In summary it says that a leaseholder’s contribution to the cost of work will be capped if the landlord or their agent fails to follow set consultation procedures first.
Residents’ Management Companies (RMCs) and Right to Manage Companies (RTMs) are included under the definition of a landlord for the purposes of S20.
S20 procedures apply to work carried out by RMCs, RTMs or other landlords/ freeholders.
The procedure is prescribed in detailed regulations issued by the Government. Failure to follow the procedure can result in penalties.
The penalty for a landlord, RMC or RTM failing to consult properly before commencing work is that they will only be able to recover £250 per leaseholder — regardless of the final bill. This does not mean that every leaseholder can be billed £250 for works without consultation. Leaseholders can only be billed according to the proportions set out in their leases.
RMCs and other landlords who fail to consult lay themselves open to loss of income and claims for negligence.
Consultation is required with leaseholders and any Recognised Tenants Association (RTA). (NOTE: where we refer to “leaseholder” it also means any RTA).
What’s the procedure?
A S20 consultation must be carried out if any one leaseholder’s contribution to the work is estimated to, or does, exceed £250. When calculating the estimated cost, VAT and any consultants’ fees must be included.
Here’s what’s involved:
Stage 1: The Notice of Intention. A notice must be served setting out what works are proposed and why they need doing. It should invite comments and nominations of contractors from leaseholders
Stage 2: The Statement of Estimates. Once estimates for the works have been obtained, a notice must be served to all leaseholders detailing the costs, how to inspect them and inviting any comments.
Stage 3: The Notice of Reasons. Once the contract is awarded, the landlord must send notice if they did not choose the cheapest estimate or a contractor nominated by the leaseholders. It must explain why they chose that particular option.
How long does S20 take?
For stages one and two, leaseholders must be given at least 30 days to reply with any comments. So even estimates can be obtained quickly, it will take at least two to three months as a minimum. Indeed, agents are advised to allow slightly more than 30 days for comments in case of postal delays.
What happens if we don’t consult?
If you don’t consult properly, you will be subject to a penalty: the maximum costs leaseholders can be made to pay for the work will be limited to £250. This is regardless of the final bill.
So, let’s say an RMC of a block of eight flats spent £5,000 on work to their building but did not consult properly. If the other leaseholders found out and objected, the maximum they could be made to pay by law would be 8 × £250 each. That’s £2,000 assuming each leaseholder pays the same proportion of service charges.
Where would the rest come from? Well, very possibly, the RMC directors would be liable because they were negligent in not following S20 procedures.
You may argue that in your block, everyone knows each other and there won’t be any arguments. But what happens if a flat is sold whilst the work is being carried out and a new leaseholder moves in? Or if the contractor fails to do a good job? Arguments may crop up then, and leaseholders may well refuse to pay.
Section 20 consultation procedures may seem onerous and time consuming. But the legislation is there to protect leaseholders from paying unnecessarily high sums.
If you’re an RMC/RTM director you still need to follow the rules, even if everyone in your block agrees to the work.
If you’re not, it’s still wise to brush up on the procedures so you know your rights when your landlord proposes major work to your block.
Neil Newstead, FARLA MNAEA
CEO – Oakfield Estate Agents