What are Section 20 leasehold Major Works?

10/11/2017
The definition of Section 20 leasehold major works, often just called major works or sometimes 'qualifying works', is major works of maintenance, repair or improvement to a building that a freeholder is responsible for and towards which the relevant leaseholder/s is/are required to contribute under the terms of the lease. Think of works like lift repairs or fitting a new roof.

The Section 20 part refers to the requirement, under Section 20 of the Landlord & Tenant Act 1985, for freeholders to consult with leaseholders if works are set to cost any one leaseholder more than £250


The Section 20 clause is intended to protect you as a leaseholder from having to pay unnecessarily large sums for work carried out to your building: if you're not consulted in the prescribed manner, works costs can be capped at £250 per leaseholder, regardless of the cost to the freeholder.

You should consult your lease to find out which repairs, maintenance and improvements are defined as falling under the freeholder's responsibility and which fall entirely under yours. It also sets out yours and freeholder's rights.

If you don't have a copy of your lease, you can get one from your mortgage lender or from your freeholder (there may be a charge) or by applying to the Land Registry (click on link - charge is £7)

Major works charges form a part of leasehold service charges but are usual paid for by leaseholders having to make an additional payment on top of the annual service charge.

Reserve/'Sinking' Funds
Most often, to budget for major works, to prevent sudden demands for huge sums of cash from leaseholders and to spread the costs of major works such that they're not just paid for by those resident at the time they are carried out, your freeholder will have set up a reserve or 'sinking' fund, which you and other leaseholders must pay into annually.

Examples of things which constitute major works include repairing, replacing or decorating the following:

  • Lift/s
  • Roof
  • Window frames
  • Exterior brickwork
  • Communal areas
  • External guttering
  • Pathways

It can be seen that these sorts of works generally involve more expense but need to be carried out less regularly. Some may be peculiar to your particular lease - if your property has exclusive use of an unadopted/private road for example, you and any other leaseholder/s may well be expected to pay for its upkeep and its maintenance is likely to be classed as major works.

They do not include maintenance and repair of any leaseholder's 'demised premise', i.e. the interior parts of their flats.

This article examines major works and considers:

  • Do you have to pay for major works?
  • How much can you be charged for major works?
  • How do you pay for major works (reserve/'sinking' funds etc.)
  • How does the Section 20 leasehold major works process work?
  • What rights do you and other leaseholders have regarding major works?
  • How do you appeal or act against excessive major works charges?

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    1
    Do you have to pay for Major Works?

Yes, as a leaseholder, and you can find the details of what you have to pay for, how you must pay and when you have to pay in your lease, which you signed before you took up ownership of your leasehold property.

If you're buying under the Right To Buy (RTB) or Right To Acquire (RTA) schemes, your landlord must provide an estimate of any service charges for major works and cyclical works you will have to pay during the first five years of your lease.

If the lease says you must pay some of the costs of improvement, the estimate must cover these too.

Once an estimate has been given, the landlord is not allowed to charge you more than that figure during the first five years of your lease, except to take account of inflation.

As with service charges, charges must be reasonable or you can contest them ultimately in the Leasehold Valuation Tribunal.


    2
    How much can you be charged for Major Works?

You have to pay for major works, similar to having to pay for service charges, according to:

  • the total cost of the works planned or carried out (generally cheaper if part of a larger contract rather than a one-off job)
  • the size of your block - depending on the cost of works, the smaller the numbers in a block, the higher your contribution will be
  • the size of your home - the larger your flat, the more you will have to pay.

There is no upper limit to how much you can be expected to pay, but your responsibility has to be set out in your lease and your freeholder has to have correctly carried out the full Section 20 leasehold major works consultative process.


    3
    How do you pay for major works (reserve/'sinking' funds etc.)?

The lease sets out how your freeholder expects you to pay for major works, but most often they will have set up a reserve or 'sinking' fund. It operates similar to your service charge account but is purely devoted to major works. Building up funds can mean that leaseholders can effectively pay in advance for major works over a period of time.

If leaseholders cannot pay fully for the major works, freeholders often offer other strategies such as offering extended payment terms, placing a registered charge against the property in lieu of charging, offering shared ownership terms (so taking an ownership share of your property and charging you rent on it) and even buying back a property.



    4
    How does the Section 20 leasehold Major Works process work?

Before the freeholder carries out any works they have to serve you with three documents:

1 Notice of Intention

The Notice of Intention sets out the following:

  • What work the freeholder intends to carry out
  • Why the freeholder needs to carry out this work
  • A list of approved contractors which the freeholder is going to tender the work to

NB You can write down any suggestions or questions about the proposed works on the comments form included with the notice, and - most importantlycan use it to nominate a contractor that you would like to be included in the tendering process.

2 Notice of Proposal

Once the freeholder has examined your feedback, usually within 30 days, they tender the works. They send you a Notice of Proposal which lists the tenders they received as well as details of the two lowest tenders.

It also lists the details of the works included in the tender price and the details of what your estimated charge will be. This is referred to as the ‘form of tender’. If the freeholder chooses the lowest tender, they take up the contract immediately but if they don't, they have to write to you explaining why they didn't within 21 days.

Once the contractors are on the site you can normally expect to receive an invoice within 12 weeks. Your lease states the methods you can use to pay. Once the contractors have completed the work, freeholder calculates the actual cost of the works and issues you with an actual invoice - similar to how the service charge works.

NB If the freeholder carries out the major works under a Qualifying Long Term Agreement (QLTA), they only have to serve you with a Notice of Intention: they don't send you a Notice of Proposal.

A Qualifying Long Term Agreement (QLTA) is an agreement between a freeholder and a contractor to provide goods and services which runs more than 12 months and which results in leaseholders incurring an individual charge of at least £100 per year

With a QLTA, the contractor involved is contracted to provide a particular type of works at a pre-agreed price for the length of the contract, which might be, for example, for fitting a door entry system over a period of 3 years. The idea of a QLTA is ostensibly to guarantee work and to save on costs.

Freeholders have to consult with you about setting up a QLTA in a similar way to the above, starting with a Notice of Intention

In effect, with a QLTA already in place, you can't submit alternative contractors for consideration by the freeholder to carry out the major works in question.


    5
    What rights do you and other leaseholders have regarding major works?

As stated previously, you have the right to be consulted by your freeholder about major works according to Section 20 of the Landlord & Tenant Act 1985 and the key stages the freeholder must satisfy are in section 4 above.

There are many guides available online, for example from various local authorities, which detail best practice by a freeholder wishing to consult about and charge for major works. The key issue, however, is that these guides set out best practice only.

A scrupulous freeholder will properly consult with all their leaseholders well in advance about proposed major works and make the consultation genuinely 2-way, acting on suggestions and reasonable concerns from leaseholders, particularly regarding costs.

They should then carefully manage projects having clearly publicised how and when projects are to be paid for. This should put them in good stead in the long run.

The reality is that the law, once again, only states that freeholders' proposals for major works should be reasonable and the actual method of being reasonable isn't defined further.


    5
    How do you appeal or act against excessive major works charges?

You and other leaseholders should always attempt to negotiate with your freeholder directly before bringing in any external agent and your freeholder may have set up a internal dispute resolution service for this purpose.

Failing that, you have various external options:

  • Early Neutral Evaluation (ENE) - both you and your freeholder appoint an independent person to provide a non-binding opinion on the case.
  • Mediation - both you and your freeholder agree to appoint a mediator to try to find a solution.
  • Arbitration - both you and your freeholder agree to be bound by the decision of a mutually-agreed arbitrator (normally a lawyer).
  • County Court - this is normally a last resort stemming from a leaseholder refusing to pay or engage in another form of dispute resolution.
  • Leasehold Valuation Tribunal (LVT) - the Tribunal makes a decision about the major works in terms of reasonableness, quality of work or level of charging involved.
  • Form your own management company to run your property/block under Right to Manage legislation - this is particularly a route to choose if you feel that the current management of your block is poor and/or overly expensive. The upside is you remove the incumbent company and run matters between yourselves as leaseholders. The downside is that you are effectively going into business as a company with all its attendant responsibilities and work involved.
NB For further information about this topic please click on Section 20 advice (Lease-Advice.org).

This site/organisation offers comprehensive information and gives you sample templates for every stage of the process.


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