Section 20 Consultation – What happens if the specification changes?

August 2018

By Evelyne Oshian and Naana Nkansa-Dwamena – Legal Advisers at LEASE

Are you a leaseholder who has been consulted about major works, worked your way through the hefty process to then find that the initial proposals have changed? Until the Court of Appeal case of Reedbase v Fattal [2018] EWCA 840 (Reedbase) what happens in this situation was unclear.

What is section 20 consultation?

Residential landlords are required to undertake a two stages consultation with their leaseholders.

Stage One: notice of intention must be given to the leaseholders and any other recognised tenant’s association (RTA). The law requires the notice to:

1. Describe the proposed works to be carried out;
2. Set out the reason why the landlord believes that the works are necessary; and
3. Invite the leaseholders to make observations on the proposed works.

It is important to note that the landlord must have regard to any observations that are made by the leaseholders and/or the RTA.

Stage Two: a notice of estimate, also known as a ‘paragraph (b) statement’ is provided by the landlord to the leaseholders and/or the RTA. Once again, the law states what must be included in the notice.

There is a potential third stage, but it only applies where the contractor chosen is not a nominated contractor or the cheapest, but none of this was relevant in this case. 

Background Facts

The leaseholders in this case owned two penthouses on top of a block of apartments in London NW1. Around the apartments were terraces with mature trees and shrubs watered by an irrigation system. Underneath the asphalt terrace was a roof needing repair. This would involve removing tiles from the terrace placed on top of the roof by the leaseholders.The management company, responsible for undertaking the roof works, was aware that it would need to come to an agreement with the leaseholders about removing the tiles. Some of the tiles were in poor condition, but to repair the roof effectively it was proposed to replace them all.

After sending out the specification for the works, the management company discovered that the steps envisioned would invalidate the guarantee offered by the contractor. In any case the leaseholders wanted a more expensive tile than was proposed. The financial difference was approximately £30,000 on works worth over £300,000.

The costs of the works were added to the service charge, with the penthouse leaseholders’ share being 10%. However, they objected to the service charges for the following reasons-

1. In not replacing like with like there had been a breach of the covenant to ‘make good’ damage to the existing tiles caused by the roof repairs;
2. The contractors had moved their plants to do the works and switched off the irrigation system, causing the plants to die;
3. The ‘pedestal system’ that resulted from the works created additional maintenance; and
4. There had been a breach of the section 20 consultation procedure (What is the section 20 consultation process for major works?) by not repeating the second stage of the consultation requirements when there was a change in the proposals relating to the tiles.

What happened in the County Court?

The County Court ruled that full information was provided to the leaseholders at both stages saying:

“…adequate notice and information was given to the Defendants throughout of all relevant changes made to the building works and that the works were carried out to a reasonable standard.”

The leaseholders appealed to the Court of Appeal on the basis that the second stage should be repeated and a re-tendering take place to reflect the variation concerning the tiles.

What Did The Court Of Appeal Decide?

The Court of Appeal dismissed the leaseholders appeal because:

1. The absence of any explicit guidance by statute, the question was “whether in all the circumstances the leaseholders have been given sufficient information by the first set of estimates”. Those estimates did not include the extra cost of the leaseholders’ preferred tiles or the pedestal system for fixing them. However, the Court of Appeal said that one factor was not in their view, a material change in the information provided.The Court of Appeal also decided it was necessary to consider whether, taking account of the position of the other leaseholders who did not object to the changes, whether the protection given to the leaseholders by the consultation process was likely to be materially assisted by obtaining the fresh estimates. They concluded that the answer to this question is no for these reasons:
   1. 1. The leaseholders knew of the change in the works and approved them without contending at that point in time that there should be a fresh tender; and this was not a case where the landlord was proposing a fundamentally different set of works to those originally presented to the leaseholders.
      2. The change in cost was relatively small in proportion to the full cost of the works, considering that the only benefit was to satisfy the leaseholders and yet is being borne by the service charge.
      3. It was unrealistic to think that the contractors who had estimated for the original works, but not obtained the contract, would be likely to tender for the small part of fixing the tiles. There was no evidence that there would have been any cost saving.
      4. Any re-tendering would have caused delay, possibly prejudicing the other leaseholders.
      5. The leaseholders of the penthouse continued to have protection of section 19 of the LTA 1985 against the inclusion of unreasonable costs in the service charge.
2. The Court of Appeal held that there was no obligation for the landlord to restore the tiles to exactly what was there before.

Whilst what work is reasonably required of the landlord will depend on the facts of each particular case, the obligation to ‘make good’ did not impose an absolute standard. Instead it is an obligation on the landlord to restore the property to its pre-existing condition so far as possible. The condition of the flat before the work takes place should be considered, but the tiles could not be expected to have been placed directly onto the sealed roof or to replace the tiles in their pre-existing damaged condition.

Furthermore the additional maintenance obligations would be unreasonable; and the leaseholders could not imply an agreement for the plants to be watered by the contractors who were off site for several months. It must have been obvious that they were not watering the plants, so the loss was not, therefore, caused by the works but by the leaseholders’ failure to water the plants themselves.

Further information

• Section 20 Consultation for Private Landlords, Resident Management Companies and their Agents
• Section 20 Consultation for Council and other public sector landlords
• Podcast with Colin Cohen, senior partner of Colin Cohen Property Management