What are major works?
The term major works, or “qualifying works” which is the term used in the Act, means works (whether on a building or any other premises) the cost of which is recoverable from the leaseholder under the terms of the lease through the service charge.
If there is a “reserve fund” or “sinking fund” built up this can be used to pay some or all of the cost, depending on the terms of the lease, the cost of the work, and the amount built up.
The lease should state when the major works charge can be made, it may have to coincide with the annual service charge, or the lease may allow it to be charged on demand when necessary. Most modern leases allow for payment in advance.
What are the requirements to consult under section 20?
If the cost of major works will exceed the sum of £250 for any one leaseholder, then the landlord is required to consult with leaseholders under section 20.
The requirement may be for full consultation where the leaseholder will be able to make “observations” on the proposed works and also nominate a contractor for the landlord to obtain an estimate. Alternatively, it may be the abridged version of consultation where there is only one stage of consultation for observations to be made, but the leaseholder does not have the right to nominate a contractor.
The abridged version applies where the landlord has a “Qualifying Long Term Agreement” in place. This means a contract for services with a contractor of more than 12 months. There is a separate consultation requirement before the landlord enters into such a long term contract. Most Housing Associations or local authority landlords will have such an agreement in place.
The consultation process also involves the landlord describing the works, although a full specification does not have to be given. The landlord should also “have regard” to any observations made and reply as appropriate.
Dispensation from the need to consult
A landlord may apply to the First-tier Tribunal (Property Chamber) (FTT) for a dispensation from the need to consult. They may wish to do this if the work is urgent and it is not possible to wait the 2 months that consultation can take. They may also seek a dispensation if, for some reason, they have failed to consult fully under the Act.
An application can be made prior to the work being carried out, or even sometimes retrospectively. The most relevant recent case on an application for dispensation was Daejan V Benson in 2013 made in the Supreme Court. The Supreme Court gave some clear guidelines as to the matters that should be taken into account by a tribunal when deciding whether to grant a dispensation. See the article Daejan v Benson: S20 dispensation granted to freeholders, which provides more information on the effect of this decision.
Understandably, many leaseholders faced with a large major works charge will struggle to find the funds. Most social landlords will offer some form of payment plan, for example instalment payments over a number of years. They also have power to waive or reduce charges for major works under statutory regulation. Discretionary reduction of major works service charges for leaseholders of social landlords
An Upper Tribunal decision in 2011 determined that when considering the reasonableness of charges for major works, whether the landlord had considered the financial impact on leaseholders before commencing the works can be taken into account. An example would be, whether the work could be done in stages, to reduce the financial impact.