Consultations with leaseholders for major works
Procedures for consulting leaseholders about qualifying works and long-term agreements, effective enforcement by tenants' associations, and sanctions.
- Statutory consultation with leaseholders
- Statutory consultation procedures
- Consultation on qualifying long term agreements
- Consultation on qualifying works under a long-term agreement
- Consultation on qualifying works not under a long-term agreement
- Recognised tenant associations
- Sanctions for not following the statutory consultation process
- Dispensation from statutory consultation
Statutory consultation with leaseholders
A landlord must follow the statutory process for consulting leaseholders before entering into a qualifying long-term agreement or carrying out qualifying works.[1]
In a situation where there is a superior landlord, an intermediate landlord and individual leaseholders, the obligation to consult falls upon the landlord that is carrying out the qualifying works or entering into a qualifying long-term agreement.[2]
Qualifying long term agreements
A qualifying long-term agreement is one for the provision of works or services, which lasts for a period of more than 12 months, and costs each leaseholder over £100 per year.[3]
For example, it might provide for lift maintenance, cleaning services or gardening. Certain agreements are excluded, including contracts of employment.
An agreement between a freeholder and a property management company for 12 months which would continue until terminated by notice was held to be an agreement for a period of more than 12 months.[4]
Qualifying works
Qualifying works are proposed works of repair, maintenance or improvement that would cost any leaseholder more than £250.[5] These are sometimes referred to as major works.
The £250 trigger for the consultation requirement refers to the cost of individual or 'sets' of works and not to the aggregated costs of all works (however minor) carried out in a particular service charge year.[6]
Dispensation for emergency works
The Upper Tribunal has granted dispensation from consultation in a case where work needed to be carried out urgently.[7]
Statutory consultation procedures
The applicable consultation procedures is dependent upon what is proposed, namely:
entering into a qualifying long-term agreement
carrying out qualifying work under a qualifying long-term agreement
carrying out qualifying work that is not under a qualifying long-term agreement
Different procedures apply to qualifying works and long-term agreements carried out by public authorities within the scope of the Public Contracts Regulations 2006.[8]
Details are available from The Leasehold Advisory Service (LEASE).
Consultation on qualifying long term agreements
The landlord must serve on each leaseholder and any recognised tenants' association a notice that:[9]
describes the proposed agreement in general terms, or provides a place and times for inspection of the agreement
sets out the landlord's reasons for the agreement
if the agreement includes qualifying works, sets out the landlord's reasons for those works
invites written observations, stating where they should be sent and when by (a period of at least 30 days)
invites leaseholders and any recognised tenants' association to nominate an alternative contractor
The landlord must consider any observations received, and then proceed to obtain estimates from his contractor and any alternative contractor proposed by the leaseholder or tenants' association.
Following receipt of the estimates, the landlord must give further notice to leaseholders and tenants' association:
setting out the estimates
identifying the proposed contractor
identifying any connection between the landlord and the proposed contractor
if the proposed contractor is a managing agent, a statement as to its membership of a professional body or trade association
where reasonably practicable, including an estimate of the cost per leaseholder but if not then an estimate of expenditure pursuant to the agreement
a statement as to variations of the sums paid according to the proposed contract
a statement as to the expected duration of the agreement
a summary of leaseholders' observations and a statement of the landlord's response
inviting written observations, stating where they should be sent and when by (a period of at least 30 days)
If the landlord enters into the agreement, they must inform leaseholders and any recognised tenants' association within 21 days, giving reasons, or stating where and when such reasons may be inspected.
The landlord should also summarise any further observations received and respond to them. This last notice is unnecessary when the contractor was nominated by a leaseholder or association, or had submitted the lowest estimate.
Consultation on qualifying works under a long-term agreement
Where there is a qualifying agreement in place, and the landlord wants to carry out works of repair, maintenance or improvement that will cost more than £250 for any leaseholder under that agreement, there is a limited further requirement for consultation.
The landlord must give notice to leaseholders and any recognised tenants' association that:[10]
describes the proposed work in general terms, or provides a place and times for inspection of the description
sets out the landlord's reasons for the proposed works
states the estimated total expenditure on the proposed works
invites written observations, stating where they should be sent and when by (a period of at least 30 days)
There is no right to nominate an alternative contractor and, following receipt of observations, the landlord's requirement is to respond within 21 days to the maker of the observations.
Consultation on qualifying works not under a long-term agreement
For qualifying works that do not fall under long-term agreement, the landlord must serve on each leaseholder and any recognised tenants' association a notice that:[11]
describes the proposed work in general terms, or provides a place and times for inspection of the description
sets out the landlord's reasons for the proposed works
invites written observations, stating where they should be sent and when by (a period of at least 30 days)
invites leaseholders and any recognised tenants' association to nominate an alternative contractor
The landlord must consider any observations received, and then proceed to obtain at least two estimates for the proposed works, at least one of them from a contractor unconnected with the landlord, and one from any alternative contractor proposed by the leaseholder or association.
Following receipt of the estimates, the landlord must give further notice to leaseholders and any recognised tenants' association:
setting out the estimates
identifying the proposed contractor
identifying any connection between the landlord and the proposed contractor
a summary of leaseholders' observations and a statement of the landlord's response
invites written observations, stating where they should be sent and when by (a period of at least 30 days)
If the landlord accepts one of the estimates, they must inform leaseholders and any recognised tenants' association within 21 days, giving reasons, or stating where and when such reasons may be inspected. The landlord should also summarise any further observations received and respond to them.
This last notice is unnecessary when the contractor was nominated by a leaseholder or association, or had submitted the lowest estimate.
For qualifying works that fall under a qualifying long-term agreement the landlord must follow the process outlined for qualifying long-term agreements above.
Recognised tenant associations
A recognised tenants' association can achieve more effective enforcement of the rights of leaseholders and greater scrutiny of the management of a leasehold property. In particular, a recognised tenants' association has statutory rights to scrutinise service charges, long-term agreements and major works.
Where a landlord refuses to recognise a tenants' association, the leaseholders may apply to the First-tier Tribunal for a certificate of recognition.
With effect from 1 November 2018, regulations replace non-statutory guidance in respect of listing the factors that the First-tier Tribunal must take into account when deciding whether to issue a certificate. Factors include the constitution of the association and the association's rules regarding decision making.
The Tribunal may not recognise an association comprising less than 50 per cent of 'qualifying' leaseholders, ie those leaseholders who are required to contribute to the same service charge costs (prior to the 1 November 2018, non-statutory guidance set the figure at 60 per cent).[12]
Also with effect from 1 November 2018, where the secretary of a recognised tenants' association requests it (and the qualifying leaseholder consents), a landlord must provide details of qualifying leaseholders so that they can be asked if they want to join the association, The First-tier Tribunal will order a landlord to comply with such a request if the landlord has no reasonable excuse for failing to do so.[13]
Sanctions for not following the statutory consultation process
If the landlord fails to follow the consultation procedure, they can only recover up to £100 (qualifying long-term agreement) or £250 (qualifying work) per leaseholder for the works or services, unless the First-tier Tribunal (Property Chamber) decides that it is reasonable to dispense with the consultation requirements.[14]
The statutory limit to the amount recoverable only applies to claims where work has been carried out or the service has been provided. For service charges to be paid on account (where allowed for under the lease) the only limit to the amount recoverable is whether the sum is reasonable.
A failure to comply with the consultation procedure may be a relevant factor for a Tribunal in determining what is a reasonable amount.[15]
Dispensation from statutory consultation
The First-tier Tribunal (Property Chamber) may dispense with any or all of the consultation requirements if it is satisfied that it is reasonable to do so.[16]
The Supreme Court held that:[17]
The purpose of the consultation requirements is to ensure that leaseholders are protected from paying for inappropriate works, or paying more than would be appropriate. In considering landlords' dispensation requests, the Tribunal should focus on whether the leaseholders were prejudiced in either respect by the failure of the landlord to comply with the requirements – this is known as 'relevant prejudice'.
The Tribunal's power to grant dispensation is not 'all or nothing'. The Tribunal has power to grant dispensation on appropriate terms and can impose conditions on the grant of dispensation, including a condition that the landlord pays the leaseholders' reasonable costs incurred in connection with the dispensation application.
In a dispute as to whether the leaseholders would suffer relevant prejudice if an unconditional dispensation was granted, the main legal burden will be on the landlord, but the factual burden of identifying some relevant prejudice will be on the leaseholders. Once the leaseholders have shown a credible case for prejudice, the Tribunal should look to the landlord to rebut it.
The Tribunal should, in the absence of some good reason to the contrary, effectively require the landlord to reduce the amount of service charges claimed in order to compensate the leaseholders fully for the relevant prejudice they have suffered.
Last updated: 13 March 2021