What are Leasehold Section 20 Major Works?
Major works, or 'qualifying works', are 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. This article focuses on how the process works if you already own the lease. If you are buying a flat with a section 20 notice in place, read this guide.
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.
Section 20 major works are maintenance, repairs or improvements, which the leaseholders must contribute more than £250 towards per leasehold title and must therefore be consulted on. In the act, it states:
"(2) In this section “relevant contribution”, in relation to a tenant and any works or agreement, is the amount which he may be required under the terms of his lease to contribute (by the payment of service charges) to relevant costs incurred on carrying out the works or under the agreement."
The Section 20 clause is intended to protect you as a leaseholder from having to pay unnecessarily large leasehold major works payments for repairs and maintenance 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.
Leasehold major works payments are part of your service charges. Still, they are usually paid for by leaseholders having to make an additional payment on top of the annual service charge.
What are major works under section 20?
The liabilities the leaseholder is responsible for will be stated within your lease. and may include:
- Roof and guttering
- Lift
- Decoation to the outside and inside
- Windows
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.
What are the 3 stages of section 20?
The section 20 process involves 3 stages:
- 1
Notice of intention
The freeholder serves this notice to the leaseholders, explaining why and what works are meant to be carried out, as well as giving a list of approved contractors.
2Estimation of costs
A list of quotes, with details of the two cheapest;
3Award of contract
Only written if the chosen contractor is not the lowest quote; this is written by the freeholder, and it explains the reason why the contract was awarded.
Section 20 Notice of Intention Template
It is common for leaseholders to pay into a sinking fund as part of their regular service charge payments. This is a "rainy day" fund for the freeholder to use to pay for major works; or at least to reduce the cost. You can find out how much is in the sinking fund for all the leaseholders in your quarterly/annual reports from your freeholder.
- 1
Do I 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 Section 20 works cost?
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
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.
Suppose leaseholders cannot pay fully for the major works. In that case, 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
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
Can I object to a section 20 notice?
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 an 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.
Caragh is an excellent writer and copy editor of books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey, property law and mortgage-related articles.
