The Guide to Issuing a Section 20 Notice (plus free template and process)
When landlords or freehold owners want to carry out qualifying works to their freehold property, a piece of legislation must be issued that ensures the work is carried out lawfully and with leaseholder permission.
The piece of legislation is known as a Section 20 notice, but for those who have not come across issuing legislation, and collecting financial contributions from leaseholders before, it can be difficult to know where to start.
Thankfully we’ve broken it down into a quick and easy guide to issuing a section 20 notice, and included a free section 20 notice template for easy download and use.
What is a Section 20 Notice?
When carrying out qualifying works to a residential freehold property, a Section 20 Notice is a document that must be served to all leaseholders within the building. Works may include things like maintenance to the structure of the block, or the repairs of guttering or roofing.
However, in order for Section 20 Notices to be served to a leaseholder, they must make a financial contribution that exceeds £250. As a result, this kind of maintenance or repair work becomes classified as “major works” and therefore needs to go through the Section 20 Consultation procedure.
The Landlord and Tenant Act 1985 (as amended by the Commonhold and Leasehold Reform Act 2002) firmly stipulates that a formal Section 20 Consultation be followed. The process consists of three phases, and each has its own distinct form of Section 20 Notice to be served to leaseholders:
- The Pre-tender stage: where contractors are invited to tender for the work (i.e to give an estimated cost)
- The Tender stage: where the landlord, RTM (Right to Manage) group or Freehold Company will have received the tenders (or estimates).
- Award of contract stage: where the contract for the works is awarded to the successful tender.
The objective of the Section 20 Consultation procedure is to give leaseholders the choice to decide how their funds are spent. And to an extent, it does so – if the landlord wants to choose a quote that is not the cheapest, they have to justify why. However, the process can be skewed to a landlord’s favour for gain.
What should a Section 20 Notice contain?
A Section 20 notice must be sent to each leaseholder and the RTA (Registered Tenants Association), if there is one present at the freehold building. As there are three separate stages, Section 20 notices will need to differ to reflect the evolution of the process in each stage.
At the pre-tender stage, the Section 20 Notice should contain:
- A description, in general terms, of the proposed works to be carried out, or alternatively specify a reasonable time and place that the works may be inspected
- Valid reasons why the works are necessary to be carried out
- A statement that highlights the total amount of estimated expenditure likely to be incurred by the works
- An invitation for leaseholder observations to be submitted in writing on either the proposed works or the estimated expenditure
- Information that describes where written leaseholder observations can be sent and at which date they should be submitted by
- Provide a clear date on which the consultation period for the proposed works ends (this should be around 30 days of issuing the Notice)
- Copies of documents referred to in the notice
Whilst in the tender stage, the Section 20 notice must contain all of the above, as well as:
- The name and address of the chosen contractor
- An explanation (if relevant) of the connection between the contractor and the council
- Where possible, a final estimated cost as well as any other relevant cost information
- Details of any arrangements (if applicable) for making changes to the agreement terms
- An explanation of the period of time in which the agreement will last
- A summarisation of any observations received about the initial notice of intent, and the response to those observations
In the final stage, a notice of proposal is sent and this must contain:
- Copies of at least two proposals, or a time and place to view the proposals
- Invitations to make written comments regarding the proposals
- A supplied address in which to send written comments to
- A fixed date when the consultation period ends and clarification that comments must be received before this 30-day date
Does Section 20 apply to share of freehold owners?
Section 20 does not differentiate between landlords, freeholders, Right to Manage Companies, Resident’s Management Companies, or any other management company that has responsibility for the freehold. All of the above are referred to as “landlords” in accordance with the legislation.
If you own the freehold of a property and want to do any work on, maintain, or improve a property then you must abide by Section 20 legislation. This means, if you ask for more than £250 in funding for the works from any of your leaseholders, or works may cost more than £100 per year, you must also adhere to strict Section 20 rules.
If you do not follow Section 20 procedure in its entirety, including its timetable, you will be limited to a total of £250 for one-time projects or £100 per year for long-term maintenance. This is true even if the works were requested by leaseholders.
However, a good managing agent will be able to manage a Section 20 process for you.
What is the Section 20 procedure for landlords?
- Issue a Notice of Intention to Carry Out Works
When beginning Section 20 procedures, the first thing you must do is submit a Notice of Intention to Carry Out Works, which states your planned works or maintenance contracts and why they are required. This notice must be submitted whether the work is being proposed by the leaseholders or not.
After receiving the Notice of Intention to Carry Out Works, leaseholders have 30 days to offer comments or ideas. Leaseholders may also suggest contractors for the job; all of these must be considered during the tender process.
You can only refuse to consider a leaseholder’s suggestion for a contractor if the contractor in question is not qualified or suitable to do the work, for example if they don’t have liability insurance.
- Provide a Statement of Estimates
If a contract has been reached for the work, you must provide leaseholders with a Statement of Estimates, which is an estimate of the money and duration of the planned works.
Estimates are collected through a tender process which contains at least two contractors: one nominated by you (the landlord) and another nominated by one or more of the leaseholders.
After the tendering process, your leaseholders have a period of 30 days to respond to the estimates and a legal right to see any proposals submitted by chosen contractors that you did not include in your Statement of Estimates.
- Start the work by issuing a Notice of Reasons
Depending on which contractor you choose to do the work, step three can end two ways. If you pick a contractor who offered the cheapest bid or one suggested by your leaseholders, you may accept and go ahead with the project. The Section 20 procedure will be completed at this point, allowing you to collect the money from your leaseholders.
However, if you didn’t pick the contractor with the cheapest estimate, or one selected by the lessees, you must give leaseholders a Notice of Reasons explaining your decision within 21 days after entering into the contract.
If the leaseholders do not protest your reasons, the Section 20 procedure will come to a close. If the leaseholders do object, they can file an objection with the First-tier Tribunal where they can argue liability for paying and reasonableness of service charges.