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What is a Section 20 Notice and is it reasonable to pay this amount of service charge?

Posted on 17th September 2018

If you own a leasehold flat you will usually have to pay service charges (sometimes known as maintenance charges) to a separate company who maintains the communal parts of the building in which your flat is situated.

Communal parts of a building can include items such as the roof or structural parts of the building, and maintaining such aspects of a building can be expensive. The legislation recognises this and requires leaseholders to receive notices informing them when the company who maintains their communal parts is about to incur a sum greater than £250.00.

What exactly is the Section 20 procedure?

A Section 20 Notice is part of a three-stage consultation procedure with leaseholders informing them that they are due to pay a sum greater than £250.00 (“the Major Works”) for maintaining the building in which their flat is situated.

Stage One- Notice of Intention

The first notice sent to the leaseholders contains a general description of the Major Works to be undertaken and invites the leaseholders to make observations about the Major Works.

Stage Two- Summary of Estimates
The second notice sent to the leaseholders provides details of the quotes obtained from contractors to carry out the Major Works.

Stage Three- Notice of Reasons
If the cheapest quote is not selected by the company who collects the service charges, then they should send a notice to the leaseholders detailing the reasons why another quote is preferred.

Leaseholder participation in the procedure

If a leaseholder engages in the procedure and provides observations, nominations of contractors and/or alternative quotes, then consideration should be given to the leaseholders’ suggestions.

The following should be considered throughout the three stages:

  • Do the lease terms allow for these works to be done?
  • Is there a need for these works to be done?
  • Has a “reasonable” quote been provided?
  • Has sufficient time been given between each of the notices?
  • Can the supporting documents be inspected?
  • Do the lease terms allow for these works to be done?

It goes without saying that the initial stance when considering Major Works, is whether the lease terms require the leaseholders to pay for a service charge item in respect of the Major Works being proposed. There are few exceptions to this rule, and it is always important to scrutinise the entire lease, to see who is actually responsible for payment of the Major Works. It is not always easy to determine, as some leases may have been inadequately drafted making it hard to determine who is responsible for maintaining parts of the building.

Is there a need for these works to be done?

If the condition of the building renders that the works do not need to be done, then it may be an unreasonable way to spend leaseholders’ service charge monies. Again, it will be critical to analyse the lease terms to decide the scope of how the building should be repaired. Is it a case that the building should be repaired and maintained only? Does the lease provide a discretion to improve the building? All these will be relevant questions to consider.

Has a reasonable quote been provided?

Regardless of actually complying with the procedure, the quote selected still has to be reasonable. Reasonableness does not necessarily mean the cheapest quote. It could be that the cheapest quote would not meet the quality level of a more expensive quote. In such an instance, the Major Works done by the cheapest quote may mean that further Major Works would be needed within 5 years, whereas a more expensive quote may mean that the Major Works are not needed for another 15 years. Such an example demonstrates how a more expensive quote could be more reasonable than a cheaper quote.

Has sufficient time been given between each of the notices?

Each notice has to give a specified time before the next notice is served. It is important to consider matters such as postage and how long the notices take to get to the leaseholders, in order to calculate the relevant dates.

Can the supporting documents be inspected?

The leaseholders can make requests for supporting quotes and descriptions of the works, which should be made readily available for inspection.

What are the consequences of not following the procedure?

The Tribunal does have the power to state that a company must limit an individual leaseholder’s contribution to £250.00 if the section 20 procedure is not followed and dispensation to depart from the procedure is not awarded.

A dispensation is where a Tribunal makes a decision that a leaseholder has suffered no loss or there is an urgent reason for not complying with a full section 20 procedure.

The section 20 procedure requires prescribed notices to be sent, as well as a requirement to carefully consider the terms of the lease, in order to advise properly on this process. A specialist property dispute solicitor could help you with this.

If the section 20 procedure is not followed and the dispensation is not awarded by the Tribunal, it can result in a substantial bill for Major Works being reduced significantly.

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