Q&A - Section 20 and leaseholders

QUESTION

I have learnt that not sending a section twenty notice to leaseholders is a criminal offence.  I have read local authorities can prosecute but it’s only a fine.

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Who does the criminal prosecution? How can we enforce the use of the section twenty information about the works be given to leaseholders.  Is it the government ombudsman who can force them to disclose the information and our ability to put forward our contractors.

ANSWER

The question refers to Section 20 and leaseholders. Therefore, it is assumed that the section 20 that is referred relates to the Landlord and Tenant Act 1985 (the “ACT”) and the question is in respect of the consultation process in respect of service charges charged to leaseholders.

Where a landlord is intending to carry out works and the cost of those works will subsequently be recovered through the service charges, then the landlord must go through the s.20 consultation process or be capped at recovering £250.00 per leaseholder irrespective of the actual costs of the works. Similarly, where a landlord intends to enter into a contract with a service provider for over 12 months  then the landlord must go through the section 20 process or be capped at recovering £100 per leaseholder irrespective of the actual costs incurred.

Therefore, if the landlord wants to make full recovery of costs incurred in providing services via the service charge provision of their lease(s) they must comply with the section 20 consultation process. Failure to do so can have very significant financial implication for the landlord if they are unable to make full recovery of the costs incurred and are capped at the £250 (for works)  or £100 (for agreements). For example if works would result in the leaseholder being subject to service charges of £10,000 as a result of the costs of those works but the landlord failed to comply with the section 20 process then the landlord would only be entitled to recover £250 and suffer a shortfall of £9750. However, there is no criminal offence related to this process.

The section 20 process is designed to provide transparency and to allow the leaseholders input into who will carry out works or perform a service and the costs associated with that and, in some cases, allowing leaseholders to propose their own contractors. The process requires Notices to be served on the leaseholders providing them with details of the proposed works or agreements. Breaches of the section process typically involve landlord failing to serve the relevant notices or serving defective notices.

Challenges are brought by the leaseholders. For example, where a landlord is seeking service charges in excess of the capped amounts but failed to comply with the section 20 process then it is for the leaseholder(s) being asked to pay the service charge who are entitled to bring the challenge. The challenge would be on the basis that process has not been complied with and the sums being demanded/charged are excessive and exceed the cap imposed by the Act. A challenge can be brought in the Civil Court (typically the County Court) or the First Tier Tribunal (FTT). Most cases will find their way to the FTT as courts are reluctant to deal with these cases and can refer them to the FTT. The procure for dealing with challenges in the FTT and civil court provide for the parties to disclose documents. There are also provisions in the Act which allow leaseholders to request information from the landlord. It is worth noting that there are circumstances in which a landlord can seek dispensation from the FTT from complying with the section 20 process. An example of where dispensation may be given is where emergency works need to be carried out and there was not enough time to comply with the section process.

Therefore, if landlord’s want to make sure they are in position to make full recovery via service charges they must make sure they have complied with the section 20 consultation process when necessary. Failure to do so can give rise to challenges from leaseholders and can have significant financial consequences for the landlord if the amounts they can received via the service charge is capped.

 

Neil Lawlor, Partner at Devonshires

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