Understanding Section 20 of the Landlord and Tenant Act 1985

A guide about Section ’20s

What do you need to know about section 20 of the Landlord and Tenant Act (1985)?

When major works on a building are carried out and the cost per leaseholder exceeds £ 250 the leaseholder has certain rights which have to be followed in order for the cost to be claimable from the leaseholder. The basic purpose of issuing a section 20 is to put in place a consultation process with which to notify the leaseholders about the major work costs. 

A Section 20 aims to keep the tenants or the leaseholders well informed of any modification, renovation or repairs being done to their properties along with the consideration of their consent. A three-stage consultation procedure has been set according to the section 20 regulation, which must be followed by the RMC, property management company or RTM if they want to carry out qualifying works to the apartment/building where the contribution (payment to service charges) from any one of the leaseholders goes beyond £ 250 or is exceeding £ 100 in a financial year if they go according to their qualifying long term agreement. Consultation with all of the leaseholders is required if the residential management company (RMC) plans to carry out qualifying works or plans to enter into a long-term agreement, they must also include any Recognised Tenants Association (RTA) if applicable.

A Service Charge Accountant, Service Charge Accounting firm or a Service Charge specialist should be used on all major work projects to help you prepare a detailed CAPEX, help with a feasibility report and correctly record the transactions in the service charge accounts.

What are the three stages of the consultation procedure?

The consultation procedure can be divided into three stages

1. Sending ‘Notice of Intention to Carry Out Works’
2. Provision of ‘Statement of Estimates’
3. Choosing the estimate

1. Sending ‘Notice of Intention to Carry Out Works’

According to section 20, ‘Notice of Intention to Carry out Works’ will be sent to all of the leaseholders. The notice must state and elaborate on the work proposed, the reasons behind the work you are proposing and must include an invitation to the leaseholders to record written observations within a period of 30 days. The notice should mention the correspondence address for observations as well.

Leaseholders are provided with an opportunity to provide the name of the desired contractor with whom the RMC can contact and acquire an estimate for the proposed works.

2. Provision of ‘Statement of Estimates

Two estimates should be acquired with one of these estimates given by a person that is completely independent of the residential management company (RMC) or the landlord, after the expiration of the consultation period of 30 days.

However, at least one estimate should be acquired from the nominations, only if the nominations were made during the period of consultation

The residential management company (RMC) or the landlord must list down all the details, related to the estimates that have been acquired along with the summary of observations obtained within the period of consultation, in the ‘Statement of Estimates’ and must ensure its provision. All the estimates along with the estimates provided by the nominated contractor must be available for the leaseholders so that they can investigate if they want to.

Ensure that a ‘Notice to Accompany the Statement of Estimates’ is also sent along with the ‘Statement of Estimates. ‘Notice to Accompany the statement of Estimates includes the details of time and location where the details may be investigated, an invitation to the leaseholders to record written observations made on estimates within a period of 30 days, and the address to which the recorded observations should be sent.

It is advisable to hire a competent service charge accountant to help you through the process.

3. Choosing the estimate:

A ‘Notice of Reasons’ is to be delivered to all the leaseholders if the chosen contractor through this process fails to provide the lowest possible estimate within the period of consultation. ‘Notice of reasons’ lists down the reasons which are given by the residential management company (RMC) or the landlord for choosing the contractor.

Though the requirements of section 20 have been met, it is wise to issue a ‘Notice of Reason’ so that the estimate’s reasonableness could be tested according to the Section 19 of the Landlord & Tenant act by the First-tier Tribunal (FTT)

• How to Appeal to the Tax First-Tier Tribunal?

The consultation procedure is similar for long term agreements except for stage 2 in which ‘Notice of proposals’ is served.

A maximum amount of £ 250 for qualifying works and £ 100 for long-term agreements can be recovered from the leaseholders, only if the consultation procedure has not been pursued properly and the residential management company has been challenged at the First-tier Tribunal (FTT).

Clear House Accountants are specialist Service Charge Accountants in London, we work with a large number of RMC’s, RTM’s, Property Management Companies and Landlords, helping them prepare accurate service charge accounts and certify these when required. Speak to us for more information.