By Keith Armstrong, Managing Director and Company Secretary, Procurement For All
This is one of those questions I get asked a lot. Not just from our members, but also perspective members, when they are sourcing a procurement route to suit their needs.
Lets start with what it is. Section 20 of the Landlord and Tenant Act 1985 (or more commonly known as Section 20, or S20 consultation) is a process that applies to landlords where work or services that are recharged to leaseholders requires consultation prior to commencement. Landlords can recharge any works or services up to a value of £250 (including VAT) without consultation. Above £250, and Section 20 consultation must be carried out. This is particularly important if a landlord wishes to recharge high value works to leaseholders. Failure to consult could result in the recharge being capped at £250 and leaseholders can claim for negligence (although rare).
Section 20 consultation must be carried out where the landlord intends on entering into a Qualifying Long Term Agreement (QLTA) for works or services that are usually communal or affect the external envelope of a communal block of properties. This includes services supplied to leaseholders, such as electricity supply to communal external lighting, or a communal gas heating system.
It is worth remembering that the legislation is in place to protect leaseholders from paying unnecessarily high sums of money without being made aware of it upfront. The legislation is not in place to protect the landlord.
Section 20 is a process that takes a set period of time, and is carried out at certain points of the procurement process. They are typically split into 3 stages:
Stage 1 - notice of intention. This is usually carried out before any works commence.
Stage 2 - statement of estimates. This is when potential costs are determined.
Stage 3 - notice of reasons. Stage 3 is only usually carried out if a landlord did not secure services or works with the cheapest contractor, outlining the reasons why.
This process has been brought under recent scrutiny. Frameworks have always been deemed an area that Section 20 cannot be applied, other people have been unsure and its been a bit of a woolly area. But it can. And it should. In the case of "The Royal Borough of Kensington vs Lessees" in 2015, a tribunal found in favour of the lessees. This is because the work being delivered via the framework in question could be linked back to the works - the framework specification included the actual works. This case law has raised uncertainty around Section 20 consultation and framework agreements - the very reason why I am writing this blog.
This is an unusual way to procure a framework. Frameworks are usually procured using a set model for bidders to price against, rather than actual works. The set model includes a fictitious scenario and schedules of rates, or price per property models. Because of this, usually actual works cannot be identified at the framework level, rendering a Section 20 process unnecessary at this stage.
In the case of Procurement For All, all our frameworks are procured on a scenario basis, and specifications are devised for the purposes of the framework and the corresponding evaluation.
There are four schedules under the legislation that determine what type of consultation is required:
1 This is required when entering into a QLTA with a wholly independent organisation for a period of more than 12 months where no public notice is required.
In the case of accessing a Procurement For All framework, Schedule 3 should apply - notifying leaseholders of your intention to access a previously established LTQA. Carrying out Section 20 consultation before carrying out a mini competition should ensure the correct consultation has been undertaken at the first stage. This can be done at any point during the life of the framework - not just before the framework is procured. The second stage of the consultation will be to inform leaseholders of the estimated costs. This will be carried out after the mini competition has concluded.
This applies whether you are a member of the consortium at the time the framework was procured, or not. It makes no difference. So if you are not a consortium member, and you want to become a consortium member and access a consortium framework, but fear it will 'fall foul' of the Section 20 requirements, then fear not. It wont!
Please note: This article is intended for information only and not should be interpreted as legal advice and should not be relied upon. Any landlord intending to enter into an agreement via a framework, or indeed any other means, must satisfy themselves of the correct process (at the time).