The legislation is very clear when dealing with Section 20, which should therefore make it very easy to notice if or if not the correct process is being followed.
Qualifying Long Term Agreements
When a landlord or RMC wish to place an agreement which will last for more than one year and will cost more than £100 to any one leaseholder, the contract qualifies for the section 20 process.
It is important to note that the contract length includes any termination period. Therefore if a contract has a minimum term of 1 year less one day (which is common) but has a termination period of 1 month, then you actually have a contract with a minimum period of 1 year & 1 month less one day. Therefore, the contract qualifies for Section 20.
It is also important to apply the lease proportions to the contract price not an equal split. For instance if there were 10 flats in a block and the contract price was £980, the equal split would be £98, less than the threshold for Section 20. But, the lease may specify different proportions from an equal split. In this instance if the lease prescribes that any one leasehold has to pay more than 10.3% then Section 20 will be necessary.
Another place where landlords and RMC’s often make mistakes is that they forget to apply VAT to their costs. VAT should be included in the contract price when ascertaining if Section 20 will be necessary.
You may often also find that some landlords or agents believe that certain contracts are exempt from Section 20. They often claim Managing Agents contracts or door entry system rental agreements (and more) to be expemt, this is not the case. The only contracts exempt from Section 20 and those for which the landlord or RMC have obtained dispensation for from the LVT.
If a contract does qualify for consultation under Section 20 then the Landlord or RMC must serve a notice of intent on every leaseholder (not just the one(s) which broke the section 20 threshold) for which the contract applies. The notice must;
· Describe the proposed agreement. What type of work, frequency etc. At the very least they must make the actual agreement available for viewing and state the place and time where it will be available.
· Set out the reasons for why the contract is necessary.
· Invite observations (in writing) from the leaseholders
· Invite the leaseholders to nominate an alternative person, from who the Landlord of RMC will contact for a quote.
The period in which leaseholders have the chance to return observations and nominate contractors lasts for 30 days. The Landlord must answer all observations and obtain a quote from at least one nomination before the next stage can begin.
Upon receipt of the leaseholder estimate a notice of estimates must be served on all leaseholders. The notice should also include a statement which;
· Identifies the proposed contractor
· Identifies any connection between the contractor and the landlord
· If possible show the contributions required towards the contract from each leaseholder.
· If the agreement is for a managing agent it musts state if they belong to any professional bodies such as ARMA.
· Show the intended duration of the agreement
· Summarise the observations made by leaseholders and the responses to them.
This notice again gives leaseholders another 30 days to make observations. Following this the landlord has 21 days to write to each leaseholder advising that that the contract has been entered into. This is called the notice of reason.
The notice of reason does not have to be sent if the contract was the lowest priced or from a leaseholder nomination.
If any of the above is not followed then the landlord of RMC will only be able to recover a maximum for £100 per leaseholder. For instance if a contract is worth £2,000 and there is 10 properties the leaseholders would only legally have to pay £100 each (£1,000).
Major Works
Where the landlord or RMC proposes to carry out repairs, improvements or maintenance to the block which will cost more than £250 to any one leaseholder. Then consultation must be made.
Consultation is made in exactly the same way as with the long term agreements and the same guidance applies regarding VAT and dispensation from the LVT. Even if the works are urgent dispensation must be obtained from the LVT, even if this is retrospective.
For instance if a roof urgently needs maintenance that will qualify for Section 20, the landlord or RMC may choose to carry out the works and then retrospectively apply to the LVT not to have to go through Section 20. They do run the risk of losing out by doing this however if the works truly were urgent then the LVT should agree. It is impossible to retrospectively carry out the Section 20 process as Leaseholders do not have the chance to nominate.
The landlord or RMC must still offer the option for nominations and send the same notices as the long term agreements.
In this case if the correct procedure isn’t followed then leaseholders only legally have to pay £250 each towards the works.
Other things to consider
Landlords and RMC’s may not look at the lease before they propose agreements or major works. If they are proposing an agreement that the lease does not cover or proposing major works for improvements (which not all leases allow) then raise this as an observation. Regardless of whether Section 20 is followed correctly, if the lease doesn’t allow something to be charged, then it can’t be charged.
All major works and agreements have to be necessary and reasonable. If you consider that the works specified on the Section 20 nouce are not reasonable then state this in your observations. All service charges, including works qualifying for Section 20, must be reasonable, if the proposed works are not reasonable then they should not go ahead.
If you believe that either the Section 20 process was not followed correctly, the lease doesn’t allow the proposed works or the proposed works or agreements are not reasonable. Then contact your Landlord or RMC; hopefully they will agree with your observations and act accordingly. If they do not and they still try to charge you, then we would advise you contact the LVT and file a claim.
This guidance was written after picking up a problem on a blog from Twitter. The blog highlighted problems that leaseholders face when landlords carry out the section 20 process. I suggest you give it a read by clicking here. Many thanks to What Sam Saw Today for the blog post and making us finally get roung to putting up some section 20 guidance!
I hope you find this information helpful. If you have further queries then please do not hesitate to get in touch.
