When landlords or freehold owners desire to carry out qualifying works on their freehold property, legislation must be adhered to ensure that the work is done legally and with the proper notification to the leaseholders.
The piece of legislation is known as a Section 20 notice, but it might be difficult to know where to begin for individuals who have never issued legislation or collected financial payments from leaseholders before.
For further questions related to Lease extensions and property, contact one of our experienced chartered surveyors at Leasehold Valuations.
What is a Section 20 Notice?
A Section 20 Notice is a document that must be issued to all leaseholders within a building when qualifying works are performed on a residential freehold property. Works may involve things like block structure maintenance or other major works, such as roofing repairs.
However, for Section 20 Notices to be served on a leaseholder, they must contribute more than £250. As a result, this type of maintenance or repair work is designated as “major works” and must follow the Section 20 Consultation procedure.
The Landlord and Tenant Act of 1985 (as amended by the Commonhold and Leasehold Reform Act of 2002) requires a formal Section 20 Consultation. The procedure is divided into three stages, each with its own unique Section 20 Notice to leaseholders:
- The pre-tender stage is where contractors are invited to bid on the project (i.e to give an estimated cost)
- The Tender stage is when the landlord, RTM (Right to Manage) group, or Freehold Company receives the tenders (or estimates).
- The contract for the works is awarded to the successful tenderer at the award of contract stage.
The Section 20 Consultation procedure’s goal is to provide leaseholders the ability to choose how their funds are used. To some extent, it does – if the landlord chooses a quote that is not the cheapest, they must justify their decision. However, for financial advantage, the procedure might be biased in favour of the landlord.
What should a Section 20 Notice contain?
A Section 20 notice must be served on each leaseholder as well as the RTA (Registered Tenants Association) if one exists at the freehold building. Because there are three distinct stages, Section 20 notices must alter to reflect the evolution of the procedure at each level.
The Section 20 Notice should include the following information during the pre-tender stage:
- A general description of the intended works to be performed or identify an acceptable time and location where the works can be examined.
- Justifications for why the work must be completed
- A statement that emphasizes the overall amount of expected expenditure that the works are likely to entail.
- A request for leaseholders to submit written comments on either the proposed works or the estimated expenditure.
- Information describing where written leaseholder observations can be sent and when they must be filed.
- Give a specific date when the consultation period for the proposed works will expire (this should be around 30 days after issuing the Notice)
- Copies of the papers mentioned in the notice
During the tender stage, the Section 20 notice must include all of the foregoing, as well as the following:
- The chosen contractor’s name and address
- An explanation (if applicable) of the contractor’s relationship with the freeholder
- A final anticipated cost, as well as any other relevant cost information, should be included if possible.
- Details of any mechanisms (if any) for changing the terms of the agreement
- An explanation of how long the agreement will last. A summary of any comments received about the initial notice of intent and the response to those comments
In the final stage, a proposal notice is sent, which must include:
- Copies of at least two proposals, or a time and location where the proposals can be viewed
- Invitations to submit written opinions on the proposals
- A provided address to which written comments should be sent
- A definite date for the end of the consultation session, as well as a reminder that responses must be received before this 30-day deadline.
Does Section 20 apply to shares of freehold owners?
Section 20 makes no distinction between landlords, freeholders, Right to Manage Companies, Resident’s Management Companies, or any other management firm with freehold duty. According to the law, all of the aforementioned are referred to as “landlords.”
If you own the freehold of a property and wish to work on, maintain, or improve it, you must follow Section 20 legislation. This implies that if you request more than £250 in funding for the works from any of your leaseholders, or if the works are expected to cost more than £100 per year, you must also follow strict Section 20 requirements.
You will be limited to a total of £250 for one-time projects or £100 per year for long-term maintenance if you do not follow Section 20 procedure in its entirety, including its time frame. This is true even if the leaseholders requested the work.
A professional managing agent will be able to manage a Section 20 process for you.
What is the Section 20 procedure for landlords?
1. Issue a Notice of Intention to Carry Out Works – The first step in starting Section 20 proceedings is to submit a Notice of Intention to Carry Out Works, which details your proposed works or maintenance contracts and why they are required. Whether or not the leaseholders propose the work, this notice must be provided.
Leaseholders have 30 days after receiving the Notice of Intention to Carry Out Works to provide comments or recommendations. Leaseholders may also nominate contractors for the job, which must all be taken into account throughout the tender process.
You can only decline to consider a leaseholder's choice for a contractor if the contractor is unqualified or unsuitable for the job, such as if they lack liability insurance.
2. Provide a Statement of Estimates – If a contract for the work has been agreed upon, you must present leaseholders with a Statement of Estimates, which is an estimate of the cost and duration of the planned works.
Estimates are gathered through a tender process that includes at least two contractors: one chosen by you (the landlord) and another chosen by one or more leaseholders.
Your leaseholders have 30 days after the tendering process to respond to the estimates and a legal right to see any bids offered by preferred contractors that you did not include in your Statement of Estimates.
3. Start the work by issuing a Notice of Reasons – Step three can go one of two ways, depending on who you choose to complete the work. You may accept and proceed with the project if you choose the contractor who submitted the lowest quote or one recommended by your leaseholders. At this time, the Section 20 procedure will be finished, allowing you to receive the money from your leaseholders.
However, if you did not choose the contractor with the lowest bid or one chosen by the lessees, you must provide leaseholders with a Notice of Reasons explaining your choice within 21 days of signing the contract.
If the leaseholders do not object to your reasoning, the Section 20 procedure will be completed. If the leaseholders object, they can submit an objection with the First-tier Tribunal, where they can dispute their duty for payment as well as the reasonableness of the service costs.
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