Section 20 consultation in relation to qualifying works to a building

What is section 20 consultation?

A landlord must consult with all tenants where a tenant is liable to pay a variable service charge under a lease and a landlord is intending on either:

(a) Undertaking qualifying works and a tenant will be requested to contribute more than £250 (including VAT) towards the qualifying works in any accounting period;
(b) entering into a qualifying long-term agreement where a tenant will be requested to contribute more than £100 (including VAT) in any 12-month accounting period towards that long term agreement.

The obligation to consult all tenants applies where any one tenant would have to pay these amounts.

This requirement arises from sections 20 to 20ZA of the Landlord and Tenant Act 1985 ("the1985 Act”) and the Service Charges (Consultation Requirements) (Wales) Regulations 2004 ("the 2004 Regulations”).

The section 20 consultation process varies depending on whether the landlord is a private landlord or a social landlord. Where the landlord is a private landlord, Schedules 1, 3 and Part 2 of Schedule 4 of the 1985 Act or the 2004 Regulation apply. Where the landlord is a social landlord or Council, Schedule 2 and Part 1 of Schedule 4 applies. 

More information is also available in two “Good Practice Guides” produced by LEASE, tenants, independent advisors and housing professionals.

What are 'qualifying works'?

Section 20ZA(2) of the LTA 1985 defines “qualifying works” as "works on a building or any other premises". 

Therefore, this can cover anything from maintenance and repairs to improvements. 

Qualifying long-term agreements

Section 20ZA of the 1985 Act defines a “qualifying long-term agreement” as “an agreement entered into, by or on behalf of the landlord or a superior landlord, for a term of more than twelve months”. 

Regulation 3 of the 2004 Regulations provides a list of examples where agreements will not be considered as qualifying long-term agreements, including:

• An employment contract
• Where a management agreement is made by a local housing authority and a tenant management organisation
• Where parties are a holding company and a subsidiary company

Qualifying works under a long-term agreement

If a qualifying long-term agreement includes provision for carrying out work, and these works will result in a charge to any one tenant of more than £250 (including VAT), then a separate consultation must be carried out. 

What happens if a landlord does not follow the section 20 consultation process?

If a landlord does not follow the consultation process correctly, including following the notices provisions set out in the lease, the landlord may be unable to recover any costs in excess of £250 in relation to major works and/or £100 in relation to a qualifying long-term agreement.

What are the consultation requirements in respect of 'qualifying works'?

The consultation requirements in respect of “qualifying works” will vary depending on whether public notice is necessary or not, the date of the contract for the “qualified works” and whether the works are part of a “qualified long-term agreement”.

In absence of the above applying, the consultation requirements are set out in Part 2 of Schedule 4 of the 2004 Regulations. A summary of the initial steps in Part 2 of Schedule 4 are as follows:

Step 1 – the pre-tender stage – notice of intention 

The landlord shall provide each tenant and any represented recognised tenants’ association (“RTA”) with written notice of its intention to carry out the “qualifying works”.

There is no prescribed form of notice, but the notice should:

• describe the intended works or provide details of where and when the description can be inspected (such details of inspection must be reasonable and available to inspect at no cost. If resources to make copies are not available at the times specified, the landlord is required to provide a copy to the tenant, if requested, at no cost. Although, such charges may be recoverable through the service charge if specified in the lease.)
• provide reasons as to why it thinks it is necessary to undertake the intended works
• invite written observations of the intended works 
• state the address where observations can be sent and that the observations must be delivered within 30 days beginning with the date of the notice of intention (the “Relevant Period”) once deemed served. It must also include the date in which the Relevant Period ends 
• invite them to suggest, within the Relevant Period, the name of a person who the landlord should try and obtain an estimate from for undertaking the intended works (a “Nominated Person”)

Where observations are made within the Relevant Period, the landlord shall have regard to these.

Step 2

Where a Nominated Person has been suggested within the Relevant Period, the landlord is required to obtain an estimate from them and anyone else the landlord decides. Where there is more than one Nominated Person, paragraph 4 of Part 2 of Schedule 4 of the 2004 Regulations sets out the process. 

The landlord must also make sure that it obtains at least one estimate from someone wholly unconnected with the landlord.

The landlord must provide each tenant and any RTA with a statement known as a “paragraph (b) statement” that contains at least two of the estimates, the sum stated in the estimate as the estimated expenses of the intended works and a summary of any observations received in relation to the landlord’s initial notice of intention to undertake the “qualified works” together with its responses to these observations. All the estimates must be available for inspection.

Where the landlord has acquired an estimate from a Nominated Person, the estimate must be one of those included in the paragraph (b) statement.

The landlord shall also provide written notice to each tenant and any RTA which:

• provides details of where and when the estimates can be inspected (such details of inspection must be reasonable and available to inspect at no cost. If resources to make copies are not available at the times specified, the landlord shall provide a copy to the tenant, if requested, at no cost. Although, such charges may be recoverable through the service charge if specified in the lease.).
• invites written observations in respect of the estimates
• states the address where the observations can be sent and that the observations have to be delivered within 30 days beginning with the date of the notice of estimates. It must also include the date this period ends.

Where observations are made within this period, the landlord shall have regard to these. There is no statutory definition of “have regard to”.  

The landlord shall within 21 days of entering into a contract to undertake the “qualifying works”, provide written notice to the tenants and any RTA providing reasons for the contract being awarded (or provide details of where and when a statement of these reasons can be inspected) and summarise any observations made relating to the estimates and its responses to them. However, this is not required where the contract has been awarded by the landlord to a Nominated Person or a person with the lowest estimate submitted. Landlords will need to justify their selection procedures if challenged at the Leasehold Valuation Tribunal (“LVT”). If they fail to satisfy the Tribunal there is a risk that the consultation period could be ruled invalid.

What are the consultation requirements in respect of “qualifying long-term agreements”?

The consultation requirements in respect of “qualifying long-term agreements” will vary depending on whether public notice is necessary or not.

In the absence of public notice being required, the consultation requirements are set out in Schedule 1 of the 2004 Regulations. A summary of the initial steps in Schedule 1 are as follows:

Step 1

There is no prescribed form of notice, but the landlord shall provide each tenant and any represented RTA with written notice of its intention to enter into a “qualifying long-term agreement”.

The notice will need to:

• give a general description of the matters covered by the proposed agreement or provide details of where and when the description can be inspected (such details of inspection must be reasonable and available to inspect at no cost. If resources to make copies aren’t available at the times specified, the landlord shall provide a copy to the tenant, if requested, at no cost. Although, such charges may be recoverable through the service charge if specified in the lease.)).
• provide reasons as to why it thinks it is necessary to enter into the agreement
• if the relevant matters involve “qualifying works”, include its reasons as to why it thinks it’s necessary to undertake those works 
• invite written observations in respect of the agreement 
• state the address where observations can be sent and that the observations have to be delivered within 30 days beginning with the date of the notice of intention (the “Relevant Period”) once deemed served. It must also include the date in which the Relevant Period ends.
• invite them to suggest, within the Relevant Period, the name of a person who the landlord should try and obtain an estimate from in relation to the relevant matters (a “Nominated Person”)

Where observations are made within the Relevant Period, the landlord shall have regard to these. 

Step 2

Where a Nominated Person has been suggested by any tenant or RTA within the Relevant Period, the landlord is required to obtain an estimate from them and anyone else the landlord decides. Where there is more than one Nominated Person, paragraph 4 of Schedule 1 sets out the process. 

The landlord shall then put together at least two proposals in relation to the relevant matters based on the estimates provided. The landlord must also make sure that it obtains at least one proposal from someone wholly unconnected with the landlord.

Where the landlord has received an estimate from a Nominated Person, it must put together a proposal based on that estimate.

The landlord must provide each tenant and any RTA with written notice of at least two alternative proposals. The notice must include:

• a copy of the proposals or details of where and when the proposals can be inspected (such details of inspection must be reasonable and available to inspect at no cost. If resources to make copies are not available at the times specified, the landlord is required to provide a copy to the tenant, if requested, at no cost).
• invite written observations in respect of the proposals
• state the address where the observations can be sent and that the observations must be delivered within 30 days beginning with the date of the notice of proposals to make observations on the proposals. It must also include the date in which this period ends.

Where observations are made within this period, the landlord shall have regard to these.

The landlord shall within 21 days of entering into the “qualified long-term agreement”, provide written notice to the tenants and any RTA that provides reasons for entering into the agreement (or provide details of where and when a statement of these reasons can be inspected) and summarise any observations made relating to the estimates and its responses to them. If reasonably practicable, the notice should provide an estimate of how much each tenant will have to contribute under each proposal. If that is not possible, it should indicate the total expenditure for the building to which the agreement relates. If neither is possible, the notice should set out the unit cost or daily or hourly rate. However, this is not required where the agreement entered into is with a Nominated Person or a person with the lowest estimate submitted.

What about the other consultation processes?

In instances where public notice is required, there are different procedures to be followed. These can be found in:

• Schedule 2 of the 2004 Regulations where public notice is required where the landlord intends to enter into a “qualified long term agreement”
• Part 1 of Schedule 4 of the 2004 Regulations where public notice is required where the landlord intends to undertake “qualifying works”

Schedule 3 of the 2004 Regulations sets out the consultation requirements for qualifying works under qualifying long-term agreements and agreements to which regulation 7(3) apply.

What is dispensation?

A landlord can apply to the Leasehold Valuation Tribunal to dispense from the consultation requirements. The Tribunal can determine this if it is satisfied that it is ‘reasonable’ to dispense with the requirements (see section 20ZA of the LTA 1985). If determined, a landlord does not need to comply with the consultation requirements.