Posted on March 30 2021
Most people understand the concept of insuring a residential or commercial property – whether it’s for fire, damage by tenants or rental income protection. While insurance can help landlords limit their exposure against unforeseen costs, one of the most common events that can never be insured against are penalties levied against landlords for non-compliance with regulations or legislation. Landlords can also expose themselves to substantial, unexpected costs for modification works for which they are not typically liable should they fail to follow guidance and obligations as established in law.
Section 20 (S20) is a clause in the Landlord and Tenant Act 1985 that establishes the process for tenant consultation when carrying out work to buildings and grounds. It provides substantial coverage for leaseholders where the landlord has failed to follow the consultation process and limits the leaseholder’s liability for costs relative to such works – creating a considerable exposure for landlords who do not comply. Residents’ Management Companies (RMCs) and Right to Manage Companies (RTMs) are included under the definition of a landlord for the purposes of S20.
Where non-compliance arises, leaseholders are well protected by the provisions of S20. Their contribution to the cost of work will be capped at £250 per leaseholder and they have the ability to pursue claims for negligence, loss of income and general damages. Failure to follow the correct process can create a ballooning exposure for landlords.
The simple, three-stage consultation process is prescribed in government regulations, with a typical timeframe of 2 to 3 months to administer, ensure compliance and keep the landlord on the right side of Section 20.
S20 – Tenant consultation process for major works
Stage 1: Notice of Intention. A notice must be served on leaseholders setting out what works are proposed and why they need doing. It should invite comments and nominations of contractors from leaseholders.
Stage 2: Statement of Estimates. Once estimates for the works have been obtained, a notice must be served to all leaseholders detailing the costs, how to inspect or review them and inviting any comments.
Stage 3: Notice of Reasons. Once the contract is awarded, the landlord must send notice if they did not choose the cheapest estimate or a contractor nominated by the leaseholders. It must explain why they chose that particular option.
Operations Director Amy Ryan from Omnia Property Group has heard of more than one landlord or management company that has found themselves the wrong side of section 20 to their detriment. “Landlords have obligations in this space that aren’t onerous in their administration – however the industry is filled with horror stories of landlords who have found themselves exposed for considerable sums due to non-compliance,” said Amy. “Leaseholders can apply to the First Tier Property Tribunal for a determination on the pay ability of service charges once works are complete. If the Landlord has not followed the correct process, options to defend such claims, or any others for cost or damage, are incredibly difficult. Establishing a due diligence defence is simple and easy if the landlord can demonstrate that they have followed what is in reality a simple process.”
“Omnia can guide landlords through the Section 20 process to ensure works are procured and undertaken in a manner that is fully compliant while conducting it as quickly as is practicable. We are also well positioned to advise on the procedure in urgent cases, including claiming for dispensation post works,” she concluded.
If you are uncertain as to how to stay the right side of Section 20 or are seeking advice on your compliance obligations when undertaking major works, reach out to one of Omnia’s highly qualified property managers on 0114 2792840 or firstname.lastname@example.org for a confidential and no-obligation discussion.