Q&A - Consulting Flat Owners re works

1. The work to be carried out is governed by the lease such as a repairing lease (e.g. external repainting of the flat complex every five years, as is the case with our company), or

2. The cost of the work carried out is paid for from the management company's reserves which have been built up over time and there is no implication for the service charge paid by the flat owners.

ANSWER

In neither of the two circumstances outlined below would a management company be exempt from the requirement to consult.

Where Section 20 applies to any qualifying works or qualifying long term agreement, the relevant contributions of tenants are limited to the prescribed amount (£250 per flat, in the case of any set of qualifying works), unless (a) the consultation requirements have been complied with or (b) the First-tier Tribunal (Property Chamber) has granted dispensation from the consultation requirements.

By Section 20(3) of the Landlord & Tenant Act 1985, Section 20 applies to qualifying works “if relevant costs incurred on carrying out the works exceed an appropriate amount”. “Relevant costs” are “the costs or estimated costs incurred or to be incurred by or on behalf of the landlord, or a superior landlord, in connection with the matters for which the service charge is payable” (s.18(2), LTA 1985), while the “appropriate amount” is “an amount which results in the relevant contribution of any tenant being more than £250” (Para.6, Service Charges (Consultation Requirements) (England) Regulations 2003). “Relevant contributions”, in turn, means “the amount which [the tenant] may be required under the terms of his lease to contribute (by the payment of service charges) to relevant costs incurred on carrying out the works or under the agreement” (s.20(2), LTA 1985).

Applying that to the two scenarios:

(1)    There is no special exemption for a lease which requires the landlord or management company to repair or redecorate periodically. If a cost is incurred by a management company in decorating the block, and the expenditure recovered as a service charge, it will be necessary to consult if the cost of those works exceed £250 per flat.

(2)    By contributing towards the reserve fund, it is true to say that the leaseholders in the building do, in fact, contribute towards the relevant costs incurred in carrying out the qualifying works (albeit that a leaseholder who has only just purchased their flat may not have contributed as much). It is also true, regardless, that they “may be required ... to contribute” towards those costs, since they each leaseholder is contractually liable, under the terms of his lease, for his proportion of those costs (it is for the management company to determine whether or not the cost is borne by the reserve fund). Moreover, Parliament could not have intended for there to be such a straight forward way of avoiding the consultation requirements. The cost of the works could be substantial, and equally significant to the leaseholders in the block, regardless of the source of funding.

Roger Hardwick, Head of Residential Leasehold - Enfranchisement, Brethertons