Section 20 Consultation Process in Property Management

The Section 20 consultation process is a critical part of property management, specifically concerning the management of residential leasehold properties. It is outlined under the Landlord and Tenant Act 1985 and is designed to ensure that leaseholders (tenants) are adequately informed and consulted before their landlord undertakes major works or enters into long-term agreements that will result in additional costs to the leaseholders.

What is Section 20?

Section 20 of the Landlord and Tenant Act 1985 requires landlords to consult with leaseholders when they intend to carry out major works or enter into long-term contracts that will cost any leaseholder more than a specific threshold. The purpose of this legislation is to provide leaseholders with an opportunity to be involved in decisions that will affect their finances and the management of their property.

When is Section 20 Consultation Required?

A Section 20 consultation is required in two main scenarios:

1. Major Works: When the landlord plans to undertake major works on the property that will cost any individual leaseholder more than £250. Major works can include significant repairs, maintenance, or improvements to the building or communal areas.

2. Qualifying Long-Term Agreements: When the landlord plans to enter into a long-term contract (a contract for a period of more than 12 months) for goods or services that will cost any individual leaseholder more than £100 per year. This can include contracts for maintenance services, insurance, or communal utilities.

Steps in the Section 20 Consultation Process

The consultation process involves several steps to ensure transparency and fairness:

1. Notice of Intention:

• The landlord must issue a Notice of Intention to all leaseholders, indicating their intention to carry out works or enter into a contract.

• This notice must describe the proposed works or services and provide reasons for them.

• Leaseholders are given 30 days to respond with written observations or to nominate a contractor of their choice for the proposed works or services.

2. Obtaining Estimates:

• After the Notice of Intention period ends, the landlord must obtain at least two estimates for the proposed works or services.

• At least one estimate should be from a contractor not directly associated with the landlord, providing an element of fairness and transparency in the selection process.

3. Notice of Estimates:

• The landlord must provide a Notice of Estimates to all leaseholders, including details of the estimates received and a summary of the consultation process so far.

• Leaseholders are given another 30 days to make written observations on the estimates.

4. Award of Contract and Notice of Reasons:

• After considering any observations from the leaseholders, the landlord can award the contract.

• If the landlord does not choose the lowest estimate or a contractor nominated by the leaseholders, they must provide a Notice of Reasons explaining their decision.

5. Right to Challenge:

• Leaseholders have the right to challenge the costs or the necessity of the works at the First-tier Tribunal (Property Chamber) if they believe the consultation process was not followed correctly or the costs are unreasonable.

Consequences of Non-Compliance

If a landlord fails to follow the Section 20 consultation process correctly, they may be unable to recover the full cost of the works or services from the leaseholders. In such cases, the landlord can typically only recover up to the statutory limits of £250 per leaseholder for major works and £100 per leaseholder per year for long-term agreements, regardless of the actual costs incurred.

The Section 20 consultation process is a crucial mechanism that balances the interests of landlords and leaseholders, ensuring that significant decisions about property management are made transparently and with proper input from those affected. Landlords must adhere to the detailed steps of this process to avoid financial losses and maintain good relationships with their leaseholders.

Leaseholders, on the other hand, should be aware of their rights under Section 20 and actively participate in consultations to ensure that their interests are protected and their voices are heard in property management decisions.