As a landlord of a residential freehold, there is a good possibility that you will be required to organise major works. Major works are usually necessary to maintain a building’s structure, appearance and value together with upholding strict safety standards for the residents and visitors while ensuring compliance with Landlord and Tenant Law.
If you haven’t yet had the pleasure of seeing a major works project through to completion or do not have any in the pipeline, you could soon be preparing to do so. If you fail to adequately prepare, you as the freeholder and all the leaseholders in the building could find yourselves in a lot of trouble.
How do you prepare for major works?
Being prepared for major works is one of the most important things that you can do as a freeholder. This is for several significant reasons:
- It can help to prevent unexpected repair and maintenance work from arising
- It can help to prevent leaseholders from receiving astronomical bills for works
- It can ensure that repair works run smoothly, to timescales and budgets
- It should enable you to build a reserve fund to cover the cost for major works
- It can ensure that the building remains in a good state of repair year-round
Planning for major works is therefore essential to protect yourself, the leaseholders and the building. So, the sooner you start, the better off you’ll be. In order to prepare for major works, you will first need to carry out a survey of the building to assess its condition. Of course, to do this you will need to employ a qualified surveyor who is highly experienced in assessing and planning for major works.
The surveyor will inspect the entire structure of the building including the roof, windows, doors and masonry. He will then determine a time scale and associated costs for the works to be completed, prioritising any works that are urgent. Having this detailed plan available will enable you to devise a schedule of works, set realistic budgets and financially prepare for the major works to take place.
Leaseholders are responsible for paying for major works to their building, and the costs for such should be apportioned to them according to what is stated in their leases. Ideally, you will want to spread the costs evenly over a set time period in advance of the works to prevent leaseholders from facing large bills.
These payments are usually collected as part of the service charge and paid into a Sinking Fund to accumulate. However, if there is not a provision for this in the lease, leaseholders will need to be consulted about the way in which the money is collected and how much they will pay in advance.
In instances where there has been a lack of investment and maintenance to date, leaseholders may have to make larger initial financial contributions to cover the cost of urgent works. Significantly though, if leaseholders have not been consulted about the works using the Section 20 procedure, they will only have to pay £250 each towards the entire cost of the works.
The Section 20 Consultation process
The Section 20 Consultation process for major works forms part of the Landlord and Tenant Act 1985. It was put in place to protect leaseholders from paying for inappropriate works or paying more than would be appropriate. As such, it provides them with an opportunity to be involved in the process and have a say on who carries out the works and therefore how their service charge money is spent. It also offers reassurance to freeholders that they will be able to recover the costs for major works.
Unfortunately, following the Section 20 Consultation process is complex, time-consuming and increasingly subject to disputes and litigation. It can also take several months to complete or even up to a year for larger projects. This time scale must, therefore, be taken into consideration when preparing for major works, particularly if they are urgent, otherwise, you could experience considerable delays.
The Section 20 Consultation process consists of three stages:
Stage 1 – Notice of intention to carry out works
Details of the works are to be provided together with an explanation of why they need to take place. Leaseholders will be invited to comment on the proposed works and nominate a contractor to provide a quote. They will have 30-days in which to respond.
Stage 2 – Statement of estimates
Leaseholders are to be provided with a summary of comments received from stage one. A summary of two estimates for each item of work will also need to be included together with details of where they may be inspected or obtained. Any connection between a contractor and the landlord should be noted when listing the contractor’s details. Leaseholders have 30-days in which to respond with their comments.
Stage 3 – Notice of reasons
If the selected contractor is not a nominee provided by the leaseholders or is not the lowest estimate you must serve a notice of reasons. This must state your reasons for awarding the contractor or specifying where and when the statement can be inspected. If you received observations on the estimates, you must also summarise these and provide your response to them, demonstrating that you have ‘had regard’ to what the leaseholders have said. This statement must be served within 21 days of entering into the contract with the contractor.
Finally, you can advise that you will write further to confirm which contractor has been appointed and the date(s) that they will carry out the works, together with confirmation of the cost of the works and the contribution required from each leaseholder. We recommend that you provide this information to leaseholders even when you’re not required to serve the last Section 20 Notice.
Each stage of the consultation process requires a Section 20 Notice to be sent to leaseholders, as prescribed by the Landlord and Tenant Act 1985. You can obtain each of the three Section 20 Notice templates for free here.
However, this process will only need to be followed when major works qualify.
Although there is a mandatory time-frame of 30-days for responding to the first two notices in the consultation, it is good practice to allow 35-days to allow for postage delays.
What are qualifying works?
Qualifying works are any works of repair or maintenance where the total cost of the works exceeds £250 for any one contributing leaseholder. Therefore, if service charge contributions are uneven between leaseholders, the freeholder must consult all leaseholders if any of them would have to pay more than £250 for the works.
A large part of the consultation process involves obtaining estimates and selecting contractors to complete the works. As a freeholder, you will want to ensure that contractors meet certain fundamental criteria such as having suitable public liability insurance and health and safety policies. It’s also advisable to select contractors that are accredited by industry bodies such as CHAS or are members of professional associations such as Construction Line.
You may also like to require a guarantee or warranty for the completed work. It’s good practice to make leaseholders aware of these requirements when issuing the Notice of Intention in the first stage of the consultation procedure. This can make it clear that nominated contractors must meet the specific criteria in order to be considered for the works. The freeholder will have to justify their selection procedures to the First-Tier Tribunal, should they be challenged by leaseholders.
While thoroughly preparing for major works can help to avoid most major pitfalls, if you do not have the time, knowledge or skills to be able to do this effectively, it’s likely that costly mistakes will be made. Therefore, you must dedicate yourself to your role as freeholder and implement an adequate maintenance plan and budget and oversee the works to ensure that they are completed to a high standard. It’s also important to remember that building work can be very complex and dangerous, so, it is imperative that you adhere to strict health and safety regulations.
It’s also important to remember that whilst the freeholder must consult with the leaseholders, ultimately, it is the freeholder’s decision as to which works are undertaken and which contractor is selected. However, this must be justified and reasonable and must have taken due consideration of the observations from the leaseholder. i.e. the leaseholders get to contribute to the process but are not involved in the final decision.