09 May 19 by Ian Davidson



Section 20 of the Landlord & Tenant Act 1985 (as amended by the Commonhold & Leasehold Reform Act 2002) sets out the three-stage consultation procedure with which to follow when carrying out qualifying works to your building where the contribution from any one lessee exceeds £250, or a qualifying long-term agreement where the contribution from any one lessee exceeds £100 in one financial year. If your Residents’ Management Company (RMC) is looking to carry out works, or enter into a long-term agreement of this nature, then consultation must take place with all lessees. If there is a Recognised Tenants’ (or Residents’) Association (RTA), then you must include them within your consultation.

Stage One

For qualifying works, under Section 20 you would be required to serve a “Notice of Intention to Carry Out Works” upon all lessees. The Notice must generally describe the proposed works, state the reasons for considering the proposed works, and invite leaseholders to make written observations within 30 days. The correspondence address for observations should be stated within the Notice as well. The importance of the Notice of Intention is that it offers lessees with the opportunity to provide the name of a contractor from whom the Landlord/RMC should try to obtain an estimate for the proposed works.

Stage Two

At the expiration of the 30-day consultation period, at least two estimates should be obtained: one of these estimates must be from a person completely independent of the Landlord/RMC. If nominations were made within the consultation period, then estimates should have been obtained from at least one of these nominations. The Landlord/RMC must then provide a “Statement of Estimates” which sets out the details of estimates that have been obtained and a summary of observations received within the consultation period. Any estimates that have been obtained must be available for inspection by the lessees, including estimates obtained from nominated contractors. A “Notice to Accompany the Statement of Estimates” must also be served in conjunction with the Statement of Estimates, which sets out the hours and place where details of the estimates may be inspected, inviting lessees to make written observations on the estimates within 30 days, specifying the address to which those observations should be sent.

Stage Three

If, at the expiration of the consultation period, the chosen contractor did not provide the lowest estimate, then a “Notice of Reasons” must be served upon all lessees. This essentially states the Landlord’s/RMC’s reasons for awarding the contract. It is worth noting that if a nominee is chosen to carry out the works, and they didn’t provide the lowest estimate, then although the requirements of Section 20 have been fulfilled, it would be prudent to serve a Notice of Reasons because that estimate could be tested for reasonableness by the Leasehold Valuation Tribunal (LVT) under Section 19 of the 1985 Landlord & Tenant Act.

For long-term agreements, the procedure is essentially the same, however Stage 2 is referred to as a Notice of Proposals. For instance, an agreement such as an intercom maintenance contract isn’t just about the cost of the maintenance, but the number of visits per year, frequency of visits, number of staff per visit, inclusions/exclusions of service etc.

If the consultation procedure is not followed correctly, and the Landlord/RMC is successfully challenged at the LVT, then the maximum amount recoverable from lessees under the service charge is £250 for major works and £100 for long-term agreements.

Glossary

of Commercial Property Terms

Alienation – Normally refers to the transfer of a leasehold interest in property to another party – e.g. the grant or assignment of a lease, or the granting of an underlease (or sublease). Most leases will require the Landlord’s consent to such a transfer and their costs in considering the terms of the assignment or underletting to be covered by the Tenant.

Arbitration – A method of settling disputes by reference to an independent and impartial third party, usually an arbitrator is appointed by the RICS. Arbitration is essentially an adjudication of the arguments of the parties, and as such differs from Independent Expert Determination.

Assignee – A party to whom a lease has been assigned or transferred by the existing Tenant (the assignor).

Assignment – Transfer of a lease from one party to another. Once a lease has been assigned, the assignee becomes responsible to the Landlord for paying the rent and fulfilling the other obligations of the lease.

Assignor – The existing Tenant who is transferring their lease to another party (the assignee).

Assured Shorthold Tenancy (AST) – An AST is the usual form of residential letting if: you are a private Tenant with a private Landlord, the tenancy began on or after 15 January 1989 or the house or flat is let as separate accommodation and is your main home.       A tenancy will not be an AST if: the tenancy began before 15 January 1989, it is a business or holiday let, no rent or a very high rent is charged or if the landlord is a ‘resident landlord’ (e.g. they let out a room within their home).

Authorised Guarantee Agreement (AGA) – Often put in place when a Tenant assigns their lease, this requires the Assignor to sign an agreement meaning if the Assignee fails to meet their obligations under the lease (including payment of rent) then the Landlord will be able to pursue the Assignor.

Break Clause – A clause in the lease giving either or both the Landlord and Tenant the right to terminate the lease in specified circumstances, normally at a given date within the lease, such as the third anniversary of the start of the lease. It is important to diarise the dates for the break clause as notice will have to be given to the other party stating that they wish to operate the break at the correct time. Most break clauses are time sensitive in that if the date is missed, the right to exercise the break will be lost. Break clauses are often also subject to certain conditions such as all payments being up to date and the Tenant providing vacant possession.

Consumer Price Index (RPI) – Rent reviews within leases can be linked to CPI which is a measurement of consumer inflation produced by the UK’s Office for National Statistics having regard to the price level of a basket of household goods and services.

Contracting Out – An agreement between the Landlord and Tenant that the Tenant will have no right to renew the lease at the end of the contractual term and will not have any right to compensation for the same purpose. This might also be referred to as ‘outside the act’. Both parties agree that the security of tenure provisions of Part II of the Landlord and Tenant Act 1954 shall not apply.

Covenant – The word generally has two meanings: First, in the strict legal sense it refers to a clause within the lease requiring the Tenant (or Landlord) to do something or to refrain from doing something (see Restrictive Covenant). Second, it is used to denote the worth of a Tenant and hence the risk of default, which will have a bearing on the value of the lease.

Dilapidations – In simple terms they represent the exit costs for the Tenant at the end of the lease term. The cost of putting the property back into its original pre-let condition.

Energy Performance Certificate (EPC) – a commercial EPC provides an energy rating for the building which is based on the potential energy comsumption. Services such as lighting, heating and insulation are taken into account. The EPC is accompanied by a secondary Recommendation Report that provides recommendations on how the energy performance of the building could be improved.

Forfeiture – Forfeiture of a lease occurs when the Landlord exercises their right to regain possession of a property where there is a breach in a condition of the lease, or a breach of covenant.

Gross Development Value (GDV) – The estimated value that a new development or property would sell for on the open market.

Gross Yield – A measure of the return on an investment before the deduction of costs associated with the property purchase.

Heads of Terms (HOTs) – A document usually prepared by the Agent setting out the rental or sale agreement between the parties. The HOTs are sent to the solicitors to prepare the lease or sales contract.

House in Multiple Occupation (HMO) – A property where at least 3 tenants live with shared toilet, bathroom or kitchen facilities.

Independent Expert Determination – A process in which a neutral, independent third-party acts as an expert to provide a confidential and binding determination of a dispute. Different to Arbitration as the Independent Expert is not confined to the evidence presented by the parties.

International Property Measurement Standards (IPMS) – International standards providing buildings of different use classes to be measured on a like for like basis around the world.

ITZA‘In Terms of Zone A’ a method of measuring and valuing shops of different sizes and layouts based on the amount of window frontage.

Market Rent – The estimated amount for which a property should let for on the date of valuation, between a willing lessor and a willing lessee on appropriate lease terms in an arm’s length transaction after proper marketing, wherein the parties had each acted knowledgeably, prudently and without compulsion.

Market Value – The estimated amount for which an asset should sell for on the date of valuation, between a willing buyer and a willing seller, in an arm’s length transaction after proper marketing, wherein the parties had each acted knowledgeably, prudently and without compulsion.

Minimum Energy Efficiency Standards (MEES) – New legislation from 1st April 2018 meaning that all properties with EPCs rated ‘F’ or ‘G’ need to be brought up to an ‘E’ rating or above before they are able to be let.

MRICS – A Member of the Royal Institution of Chartered Surveyors otherwise known as a Chartered Surveyor.

Net Internal Area (NIA) – The usable area within a building measured to the face of the internal finish of party walls and taking each floor into account. Excluding toilets, lift rooms, stair wells, entrance halls and corridors.

Net Initial Yield (NIY) – A measure of the return on an investment, the net yield takes the actual costs associated with purchasing the property into account.

Option to Purchase – An agreement made between a landlord and tenant that gives the tenant the opportunity to purchase the property. The purchase price can either be agreed in the lease or determined by a valuation or valuations at the time of purchase.

Party Wall – A shared property boundary. It can form part of a building or a garden wall. You must advise your neighbour if you want to build on or at the boundary, if you want to work on the existing party wall or structure or if you want to dig below and near to the foundation level of their property. A party wall surveyor is appointed to work on a party wall and acts independently on behalf of the wall.

Per Square Foot (PSF) – Often a rental rate or price will be applied per sq ft (or per sq metre) of space. A method used for valuing properties.

Rent Passing – The current rent that is being paid.

Retail Price Index (RPI) – Rent reviews within leases can be linked to RPI which is a measurement of consumer inflation produced by the UK’s Office for National Statistics.

Royal Institution of Chartered Surveyors (RICS) – The world’s leading professional body for qualifications and standards in land, property, infrastructure and construction.

Security of Tenure – The statutory right of a tenant to renew the lease at the end of the term. Part II of the Landlord and Tenant Act 1954 gives business tenants security of tenure. However, this can be opted out of, see ‘Contracting Out’.

Service Charge – The costs incurred by the Landlord for upkeep and maintenance to shared parts of the building or estate, which can be charged back to Tenants.

Stamp Duty Land Tax (SDLT) – A tax that is paid when purchasing property or land over a certain price in England and Northern Ireland. The current threshold for SDLT is £150,000 for non-residential land and properties. A tax is also paid when leasing a property for 7 or more years.

Subletting – Where the Tenant lets part or all of the premises to a Sub-Tenant, as permitted by the terms of the lease. It differs from assignment in that the head lessee remains responsible to the Landlord for the payment of rent and fulfilment of other obligations.

Vacant Possession (VP) – In terms of a break clause or the end of a lease, Vacant Possession requires the Tenant to ensure the property is empty on the day of completion or the break date.

Valuation Office Agency (VOA) – Business premises are assessed by the VOA for non-domestic rating purposes and each property is given a Rateable Value. Your local council uses the Rateable Value to calculate how much is paid in business rates, called the Rates Payable.