Question 1

Section 20: Issues with External Wall System

Accepted Answer

Q: A section 20 letter was received on 6^th October 2020, relating to ongoing issues with the External Wall System. Although a response was sent detailing questions, no answers or further correspondence was received. Then on 23^rd December 2021, leaseholders received a letter explaining that £307,649 has been spent on various items, for which leaseholders are liable. We do not yet know the breakdown of costs to individual apartments, but it is likely to exceed £250 per leaseholder. (This demand appears to cover the whole development of 7 blocks). The managing agent claims this is simply a procedure that must be followed as part of the application to the government Building Safety Fund. However, we would like to formally record our objection that no consultation happened place prior to the expenditure taking place. (We also worry that not responding could be seen as acceptance). Some leaseholders are wondering if the notice is even legal: According to the ground rent demand, our landlord is ABC GP Limited & ABC Holdco Limited. The December 2021 letter only refers to ABC GP Limited.

No S20ZA order was obtained prior to the incurrence of the costs to permit the landlord to dispense with the consultation requirements.
XYZ are the freeholder to the land. ABC GP Limited & ABC Holdco Limited acquired a Headlease over the land. Should it not be XYZ who are contacting us?
WXY was the informal name for the development during construction. Our individual leases refers to premises known as Block X, Example Address. Can one letter be addressed to all leaseholders at the development, or should the address, referred to in the notice, match what is on the lease?

We would be grateful for any advice on how to respond. Legal Adviser to FPRA, Nick Roberts, responded in January 2022: A: Your email of 9 January has been forwarded to me as Legal Adviser to FPRA Ltd. You may recall that I advised you previously in my letter of 23 September 2021. I think it is important that you understand that the letter of 23 December 2021 is not really part of the consultation purpose at all. It has been served on you for an entirely different reason. The notice has been served on you because of Section 20B of the Landlord and Tenant Act 1985 (legislation.gov.uk), which imposes a time limit on ‘how far back’ a landlord can go when making demands for service charges. Broadly speaking, this means that a landlord cannot demand services charges in respect of items of expenditure which were incurred more than 18 months before the relevant service charge was made. This provision was enacted to ensure that leaseholders are not taken by surprise by the landlord ‘dredging up’ expenditure which has been incurred in previous financial years, and just got overlooked when a previous year’s service charge accounts were drawn up. The provision is in fact more difficult to apply in practice than might appear at first sight, and there is some case law on it, but I do not think there is any need for me to go into that now. For present purposes it will suffice to note the existence of sub-section 20B(2) (see above), which offers a landlord an opportunity to serve a notice on leaseholders warning them that expenditure has been incurred, which will or may have to appear in a future service charge account, but which for good reason cannot be included for the time being. There has been some case law to the effect that a notice under the sub-section cannot be served, if for example, it is simply the case that the landlord or its managing agents have been too busy to finalise the accounts. But the scenario here seems to fall squarely within the sort of circumstances that the sub-section was intended to cover: the landlord has incurred expenditure, but it is not convenient or appropriate to charge for the investigatory and preparatory work that has been done, because it may be possible for all of it, or most of it, to be covered by the Building Safety Fund. I think if you wished to comment on how the works were to be carried out, or who should be engaged to do them, then the Section 20 Notice of 6 October 2020 was your principal opportunity to do so. As is stated in that Notice (a) there are in fact a limited number of contractors who would be able to carry out the works, and (b) there may have to be a further Section 20 Consultation Notice if the works required turn out to be different from those included in the Notice. It seems to me that it may well be necessary for your Landlord to apply for an element of dispensation from the strict requirements of Section 20 of the Landlord and Tenant Act 1985 (legislation.gov.uk). You do not say (and the Section 20 Notice does not say) precisely how many units are covered by the Notice. But you say that there are 91 units in your block, and seven blocks, so presumably there may be as many as 700 units in the whole estate? Taking that as a ‘ball park’ figure, the amount expended so far and covered in the Section 20B notice would come to around £440 per unit. However, this assumes that this is all to be treated as part of one ‘major works’ project: it is possible that, e.g., the charges for legal services should be treated as separate service items. There has been little guidance from the Courts on how far ‘major works’ should be treated as a single project, or may be subdivided into smaller projects, which may not then trigger the consultation requirements. All that has really been said is that a common sense approach should be adopted, and projects should not be artificially divided. So all the works, and the legal advice associated with them, should probably be treated as a whole. There is still a fair amount of confusion over the operation of the section 20 consultation requirements. Prior to an important decision of the Supreme Court in 2013 it was generally assumed that the section 20 limit of £250 per unit for ‘major works’ operated as, in effect, an automatic cap, and that expenditure over that amount was automatically irrecoverable unless a landlord could persuade the First-tier Tribunal (F-tT) that a ‘dispensation’ was appropriate, which was likely to be granted only in exceptional circumstances. I still see on line ‘guidance’ on Section 20 which seems to imply that that is still the case. But what the Supreme Court decided in 2013 was that, if the consultation procedure was not properly followed, what was recoverable should be reduced only by the amount that the leaseholders would have been likely to have saved if the consultation procedure had been followed in full. Even in more straightforward cases this is quite a difficult test for a leaseholder to satisfy. It would obviously be even more difficult a test to satisfy in a complicated case such as one involving compliance with fire safety requirements and the removal of any cladding. I also think that the reality of the situation is that, if landlords and their agents seem to be doing their best to implement fire safety improvements, it is very unlikely that any F-tT is going to make life difficult for them by finding that they have not complied with section 20 consultation requirements. I say this particularly when it self-evident that those requirements were never drafted in the expectation that they would have to address the highly complicated situation over fire safety which has arisen in recent years: the implementation of works may have to extend over a number of years, and considerable expenditure may be required even to cover the first stage of “scoping” the problem. That said, I can see no harm in responding that you acknowledge receipt of the Notice under section 20B(2) dated 23 December 2021, but that you wish to make it clear that you expect your landlord to continue to comply with the consultation requirements of section 20 of the Landlord and Tenant Act 1985, so far as they may be applicable. (I ought perhaps to point out that it is purely a coincidence, due to the way that sections are numbered when Acts of Parliament are amended, that we are dealing here with Notices under both Section 20 LTA 1985, and Section 20B LTA 1985). In answer to your specific points of detail: (1) The test which is usually applied by the courts, if a technical error is made when some official notice is served, is whether a tenant or leaseholder would be likely to misunderstand the notice in a way which would prejudice their legal position. I cannot see that any leaseholder could satisfy that test here. (2) I think the landlord would argue here that the Notice dated 6 October 2020 is the relevant section 20 Notice here; that the expenditure mentioned in the Section 20B Notice falls within its scope; and that (as I explained on the first page, above), the Section 20B Notice serves an entirely different function in law. It should also be noted that it is possible to apply for dispensation retrospectively, including if the works required turn out to be different from those proposed in the original section 20 Notice. A tribunal is likely to look with sympathy on a retrospective application if it would not be practicable to put urgent works on hold pending a new consultation. (3) The freeholder is XYZ; your landlords are ABC GP Limited & ABC Holdco Limited. It is your immediate landlords who should serve all notices on you. (For simplicity the Government when discussing cladding and fire safety issues tends to assume that landlords are always freeholders, and refers to ‘freeholders’ when they really mean ‘landlords’). The Headlease from XYZ Limited to Example Name Ltd and Example Name Developments Ltd was granted on 11 June 2014; the latter two companies then on 19 June 2014 granted an underlease (or sublease) of Block X, Example Address, which is the specimen lease provided to me. (I am assuming that ‘the latter two companies’ subsequently assigned their Headlease to ABC GP Limited & ABC Holdco Limited). (4) Nothing, I think, would turn on this point, for the reasons stated at (1), above. I appreciate that on most points I have suggested that you do not have grounds to challenge, and this may not be the advice that you would wish to receive. I must, however, advise you on the law as I see it, and it does no service to you to suggest that you have grounds for challenge which would not, I think, be upheld. Finally, I should add that FPRA only advises member associations - we cannot and do not act for them. Opinions and statements offered orally and in writing are given free of charge and in good faith and as such are offered without legal responsibility on the part either of the maker or of FPRA Ltd. Names in this question and answer have been changed January 2022

Question 2

Section 20: Issues with External Wall System

Accepted Answer

Q: A section 20 letter was received on 6^th October 2020, relating to ongoing issues with the External Wall System. Although a response was sent detailing questions, no answers or further correspondence was received. Then on 23^rd December 2021, leaseholders received a letter explaining that £307,649 has been spent on various items, for which leaseholders are liable. We do not yet know the breakdown of costs to individual apartments, but it is likely to exceed £250 per leaseholder. (This demand appears to cover the whole development of 7 blocks). The managing agent claims this is simply a procedure that must be followed as part of the application to the government Building Safety Fund. However, we would like to formally record our objection that no consultation happened place prior to the expenditure taking place. (We also worry that not responding could be seen as acceptance). Some leaseholders are wondering if the notice is even legal: According to the ground rent demand, our landlord is ABC GP Limited & ABC Holdco Limited. The December 2021 letter only refers to ABC GP Limited.

No S20ZA order was obtained prior to the incurrence of the costs to permit the landlord to dispense with the consultation requirements.
XYZ are the freeholder to the land. ABC GP Limited & ABC Holdco Limited acquired a Headlease over the land. Should it not be XYZ who are contacting us?
WXY was the informal name for the development during construction. Our individual leases refers to premises known as Block X, Example Address. Can one letter be addressed to all leaseholders at the development, or should the address, referred to in the notice, match what is on the lease?

We would be grateful for any advice on how to respond. Legal Adviser to FPRA, Nick Roberts, responded in January 2022: A: Your email of 9 January has been forwarded to me as Legal Adviser to FPRA Ltd. You may recall that I advised you previously in my letter of 23 September 2021. I think it is important that you understand that the letter of 23 December 2021 is not really part of the consultation purpose at all. It has been served on you for an entirely different reason. The notice has been served on you because of Section 20B of the Landlord and Tenant Act 1985 (legislation.gov.uk), which imposes a time limit on ‘how far back’ a landlord can go when making demands for service charges. Broadly speaking, this means that a landlord cannot demand services charges in respect of items of expenditure which were incurred more than 18 months before the relevant service charge was made. This provision was enacted to ensure that leaseholders are not taken by surprise by the landlord ‘dredging up’ expenditure which has been incurred in previous financial years, and just got overlooked when a previous year’s service charge accounts were drawn up. The provision is in fact more difficult to apply in practice than might appear at first sight, and there is some case law on it, but I do not think there is any need for me to go into that now. For present purposes it will suffice to note the existence of sub-section 20B(2) (see above), which offers a landlord an opportunity to serve a notice on leaseholders warning them that expenditure has been incurred, which will or may have to appear in a future service charge account, but which for good reason cannot be included for the time being. There has been some case law to the effect that a notice under the sub-section cannot be served, if for example, it is simply the case that the landlord or its managing agents have been too busy to finalise the accounts. But the scenario here seems to fall squarely within the sort of circumstances that the sub-section was intended to cover: the landlord has incurred expenditure, but it is not convenient or appropriate to charge for the investigatory and preparatory work that has been done, because it may be possible for all of it, or most of it, to be covered by the Building Safety Fund. I think if you wished to comment on how the works were to be carried out, or who should be engaged to do them, then the Section 20 Notice of 6 October 2020 was your principal opportunity to do so. As is stated in that Notice (a) there are in fact a limited number of contractors who would be able to carry out the works, and (b) there may have to be a further Section 20 Consultation Notice if the works required turn out to be different from those included in the Notice. It seems to me that it may well be necessary for your Landlord to apply for an element of dispensation from the strict requirements of Section 20 of the Landlord and Tenant Act 1985 (legislation.gov.uk). You do not say (and the Section 20 Notice does not say) precisely how many units are covered by the Notice. But you say that there are 91 units in your block, and seven blocks, so presumably there may be as many as 700 units in the whole estate? Taking that as a ‘ball park’ figure, the amount expended so far and covered in the Section 20B notice would come to around £440 per unit. However, this assumes that this is all to be treated as part of one ‘major works’ project: it is possible that, e.g., the charges for legal services should be treated as separate service items. There has been little guidance from the Courts on how far ‘major works’ should be treated as a single project, or may be subdivided into smaller projects, which may not then trigger the consultation requirements. All that has really been said is that a common sense approach should be adopted, and projects should not be artificially divided. So all the works, and the legal advice associated with them, should probably be treated as a whole. There is still a fair amount of confusion over the operation of the section 20 consultation requirements. Prior to an important decision of the Supreme Court in 2013 it was generally assumed that the section 20 limit of £250 per unit for ‘major works’ operated as, in effect, an automatic cap, and that expenditure over that amount was automatically irrecoverable unless a landlord could persuade the First-tier Tribunal (F-tT) that a ‘dispensation’ was appropriate, which was likely to be granted only in exceptional circumstances. I still see on line ‘guidance’ on Section 20 which seems to imply that that is still the case. But what the Supreme Court decided in 2013 was that, if the consultation procedure was not properly followed, what was recoverable should be reduced only by the amount that the leaseholders would have been likely to have saved if the consultation procedure had been followed in full. Even in more straightforward cases this is quite a difficult test for a leaseholder to satisfy. It would obviously be even more difficult a test to satisfy in a complicated case such as one involving compliance with fire safety requirements and the removal of any cladding. I also think that the reality of the situation is that, if landlords and their agents seem to be doing their best to implement fire safety improvements, it is very unlikely that any F-tT is going to make life difficult for them by finding that they have not complied with section 20 consultation requirements. I say this particularly when it self-evident that those requirements were never drafted in the expectation that they would have to address the highly complicated situation over fire safety which has arisen in recent years: the implementation of works may have to extend over a number of years, and considerable expenditure may be required even to cover the first stage of “scoping” the problem. That said, I can see no harm in responding that you acknowledge receipt of the Notice under section 20B(2) dated 23 December 2021, but that you wish to make it clear that you expect your landlord to continue to comply with the consultation requirements of section 20 of the Landlord and Tenant Act 1985, so far as they may be applicable. (I ought perhaps to point out that it is purely a coincidence, due to the way that sections are numbered when Acts of Parliament are amended, that we are dealing here with Notices under both Section 20 LTA 1985, and Section 20B LTA 1985). In answer to your specific points of detail: (1) The test which is usually applied by the courts, if a technical error is made when some official notice is served, is whether a tenant or leaseholder would be likely to misunderstand the notice in a way which would prejudice their legal position. I cannot see that any leaseholder could satisfy that test here. (2) I think the landlord would argue here that the Notice dated 6 October 2020 is the relevant section 20 Notice here; that the expenditure mentioned in the Section 20B Notice falls within its scope; and that (as I explained on the first page, above), the Section 20B Notice serves an entirely different function in law. It should also be noted that it is possible to apply for dispensation retrospectively, including if the works required turn out to be different from those proposed in the original section 20 Notice. A tribunal is likely to look with sympathy on a retrospective application if it would not be practicable to put urgent works on hold pending a new consultation. (3) The freeholder is XYZ; your landlords are ABC GP Limited & ABC Holdco Limited. It is your immediate landlords who should serve all notices on you. (For simplicity the Government when discussing cladding and fire safety issues tends to assume that landlords are always freeholders, and refers to ‘freeholders’ when they really mean ‘landlords’). The Headlease from XYZ Limited to Example Name Ltd and Example Name Developments Ltd was granted on 11 June 2014; the latter two companies then on 19 June 2014 granted an underlease (or sublease) of Block X, Example Address, which is the specimen lease provided to me. (I am assuming that ‘the latter two companies’ subsequently assigned their Headlease to ABC GP Limited & ABC Holdco Limited). (4) Nothing, I think, would turn on this point, for the reasons stated at (1), above. I appreciate that on most points I have suggested that you do not have grounds to challenge, and this may not be the advice that you would wish to receive. I must, however, advise you on the law as I see it, and it does no service to you to suggest that you have grounds for challenge which would not, I think, be upheld. Finally, I should add that FPRA only advises member associations - we cannot and do not act for them. Opinions and statements offered orally and in writing are given free of charge and in good faith and as such are offered without legal responsibility on the part either of the maker or of FPRA Ltd. Names in this question and answer have been changed January 2022

Section 20: Issues with External Wall System

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