The directors of the Management Company must comply with the resolutions passed by shareholders at the October 2019 General Meeting. The directors must consult with owners in respect to works at the Estate. The directors of the Company must comply with their legal obligations.
A key expense in 2020 has been the replacement to the water tanks (however the scope of work is not just to replace the tanks but to install a complete water storage and ring main system), which has been reported to amount to £1.1 million; therefore the average cost per flat is £1,788. A big question that has been asked...was this work really necessary to this level and at this colossal cost? We further understand that additional works to the pipework have been undertaken so this figure maybe significantly higher.
Before proceeding with any major works the Section 20 procedures must be strictly followed:
THE LAW - requires certain steps to be complied with and, in particular, 3 notices to be provided to owners:
Notice of intention to carry out works - 30 days window with owners right to respond
Notice of estimates - 30 days’ notice with the estimates provided
Notice of award of contract - sent to owners 21 days following the contract commencement.
Section 20 consultation procedure If any major works (otherwise known as ‘qualifying works’) are required for a block of flats, the cost will normally be recoverable from the tenants. Under the terms of their lease, this cost will normally be added on top of their annual service charge payment – it may also be fully or partly covered by a reserve or ‘sinking’ fund, dependent on the price of the works and the amount available in the fund.
However, under Section 20 of the Landlord and Tenant Act 1985, if this charge exceeds £250 per tenant the landlord must follow a consultation procedure. This is referred to as a Section 20 consultation and normally takes place in the form of three notices. The purpose of the S20 consultation process is to be certain that no leaseholder is prejudiced by the process.
Notice of Intention to Carry Out Works This notice is the first part of the three-stage consultation procedure to which landlords must comply. This notice must describe what works are going to take place, as well as explaining why they are necessary. Landlords must also give tenants a 30-day window of opportunity to respond to the notice and, if they choose to do so, nominate a contractor for the building works.
Notice of Estimates The second notification that must be sent is the Notice of Estimates – this entails another 30-day notice to be sent to the tenants detailing the estimates that the landlord has obtained. It is important to note that at least one of these estimates must be from a contractor who is entirely independent of the landlord. Also, at least one of these estimates must be obtained from nominations made by the tenants in the previous notice (if any). Tenants can use this second 30-day notice to send any observations, in writing, to the landlord. The landlord should also provide a reasonable time and place in which the tenants can inspect the estimates obtained.
Notice of Award of Contract The final stage of the Section 20 consultation procedure is the Notice of Award of Contract. This should be sent to the tenants within 21 days of entering into a contract, and must summarise the tenants’ previous observations in regard to the Notice of Estimates. However, this notice does not need to be sent if either:
The contract has been undertaken by a nominated contractor; or,
The contract has been undertaken by the contractor with the cheapest estimate.
THESE REQUIREMENTS HAVE NOT BEEN COMPLIED WITH
What happens when this procedure isn’t followed? Due time and consultation must be allowed for owners to ask questions and be fully engaged in the process. Failure to meet the requirements of the Section 20 consultation procedure will often result in a legal dispute.
In summary, we can assume that this huge sum of money has been taken from what was a very healthy sinking fund, which had been planned and agreed for many other projects, such as the leisure centre, porters lodge, etc., and we as shareholders will be expected to provide the replacement funds.
Questions should be asked and I urge you along with the many owners to state your concern.