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What is Section 20?
Section 20 of the Landlord and Tenant Act 1985 is a cornerstone of property management legislation in the United Kingdom. It establishes critical procedures for landlords and freeholders of leasehold properties, focusing on maintenance and repairs of communal areas and structures. This law ensures fair and transparent handling of significant property expenses. It mandates that landlords consult leaseholders on major works exceeding £250 per individual or long-term contracts where annual costs surpass £100 per leaseholder. Section 20 is integral in safeguarding leaseholders from unforeseen and excessive charges.
Key Stakeholders Affected by Section 20
- Landlords and Freeholders
These are the property owners responsible for upkeep. Section 20 requires consultation with leaseholders before initiating major works or entering long-term maintenance contracts.
- Right-to-Manage (RTM) Companies
Formed by leaseholders, these companies assume specific management roles from landlords. They must adhere to Section 20 regulations for significant works or contracts.
- Resident's Management Companies (RMCs)
Like RTM companies, RMCs play a vital role in property management and must comply with Section 20 obligations as landlords do.
- Leaseholders
They are directly impacted by Section 20, gaining control and transparency in managing communal spaces and related expenses.
Understanding Service Charges and Ground Rent
- Service Charges
These are payments by leaseholders for the upkeep and repair of the building and associated services. Under Section 20, leaseholders are consulted if the total cost of any work surpasses a specific limit, offering them an opportunity to review and comment on the proposed works and their costs.
- Ground Rent
Leaseholders pay this fee to the freeholder as part of their lease conditions. It’s typically fixed, but recent legal reforms aim to reduce this burden. New leases often feature a ‘peppercorn’ rent, effectively zero.
The Section 20 Procedure
Step 1: Notice of Intention to Carry Out Works
First, landlords must issue a Notice of Intention detailing the proposed works and inviting leaseholders to submit their observations and nominate contractors within 30 days.
Step 2: Seeking Estimates
Landlords then need to obtain various estimates for the works. These should include nominations from leaseholders and the Recognised Tenants’ Association (RTA), ensuring a diverse range of options.
Step 3: Statement of Estimates and Paragraph B Statement
After gathering estimates, landlords issue a Statement of Estimates to leaseholders. This document summarises the costs and responds to their observations, including at least one estimate from a contractor unconnected to the landlord.
Step 4: Consultation Process
Leaseholders get another 30 days to review the estimates and provide further feedback. This stage is essential for ensuring transparency and fairness in the selection process.
Step 5: Choosing a Contractor and Notifying Reasons
Upon considering leaseholder feedback, the landlord selects a contractor. Suppose the chosen contractor isn’t the least expensive or a leaseholder nominee. In that case, the landlord must issue a Notice of Reasons explaining the selection within 21 days.
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