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3. BACKGROUND

3.1 INTRODUCTION TO THE PROCEDURES
The law requires that leaseholders paying variable service charges must be consulted before a landlord carries out qualifying works or enters into a long-term agreement for the provision of services.
Detailed regulations have been produced under section 20 of the Landlord and Tenant Act 1985 (as amended by S151 of the Commonhold and Leasehold Reform Act 2002) which set out the precise procedures landlords must follow; these are the Service Charges (Consultation Requirements) (England) Regulations 2003 (‘the Regulations’).
Similar regulations have been enacted in Wales.
The Regulations separate the consultation procedures into four schedules, each covering different contracts. This booklet explains only schedules 1, 3 and 4 (part 2).
As set out above it does not explain the schedules relevant to councils and other social housing landlords.
The format of the notices required by the Regulations has not been prescribed in legislation, but suggested examples of what these may look like are contained in the Appendices to this booklet.

The requirements in the Regulations are defined under three headings:

Qualifying works
Qualifying long-term agreements
Qualifying works under long-term agreements

3.2 QUALIFYING WORKS

These are ‘works on a building or any other premises’ – that is, works of repair, maintenance or improvement. T
he inclusion of improvement in the definition of qualifying works does NOT allow a landlord to recover costs for improvements unless a liability for costs of improvements is included in the lease.
When calculating the estimated cost, VAT on works must be included.
Landlords must consult if these works will cost over £250 for any one contributing leaseholder. Thus, in a property with unequal service charge contributions, the landlord must consult all leaseholders if any one of them would have to pay more than £250.
If consultation is not undertaken, the landlord may not be able to recover costs over £250 per leaseholder.
A case in the High Court in 2012 (Phillips and others v Francis) cast doubt on whether there is a cost threshold below which landlords do not need to consult on qualifying works.
However, in October 2014 the Court of Appeal overturned this decision, so reinstating the “sets approach” ie section 20 consultation should be applied to individual sets of qualifying works without reference to time periods or service charge years.
The Court of Appeal also gave guidance on what factors are to be taken into consideration in identifying a single set of qualifying works.
This is a question of fact and degree and all relevant circumstances should be taken into account. The list is not exhaustive but relevant factors are likely to include:

Where the items of work are to be carried out;

Whether they are the subject of the same contract;

Whether they are to be done at more or less the same time or at different times;

Whether the items of work are different in character from, or have no connection with, each other

Whether all the works are the subject of one contract and;

The way in which works are planned and the lessor’s reasons for the way they are implemented are also of relevance.

3.3. QUALIFYING LONG-TERM AGREEMENTS

A qualifying long-term agreement is an agreement entered into by the landlord with a wholly independent organisation or contractor for a period of more than 12 months. (Agreements before 31st October 2003 are exempt.) The deciding factor is the minimum length of the commitment. In other words, it is an agreement for a term which must exceed 12 months.
Landlords must consult where the amount payable by any one contributing leaseholder under the agreement in any accounting period exceeds £100. Thus, in a property with unequal service charges, the landlord must consult all leaseholders if any one of them would have to pay more than £100 in any one year.
The figure is to be calculated on the basis of the leaseholder’s total contribution resulting from the agreement, including VAT.
If consultation is not undertaken, the landlord may not be able to recover more than £100 per leaseholder in any accounting period towards the costs under the agreement. Examples of potentially qualifying long-term agreements include:
agreements affecting the building generally (e.g. lifts, entry-phone systems, waste management or maintenance contracts);
cleaning and gardening;
insurance;
utilities; and
management agency agreements.
Some of these services may only have one realistically possible supplier.
Nonetheless, consultation must be carried out, unless dispensation from compliance has been granted by the Tribunal. Contracts that are not qualifying long-term agreements include:

contracts of employment;
an agreement between a holding company and its subsidiary, or between subsidiaries of the same holding company (the definitions following those in the Companies Act 2006);
an agreement for less than five years which was entered into at a point when there were no leaseholders or leaseholders at the property (for example on a new development);
an agreement for more than twelve months which was entered into before 31 October 2003.

3.4. QUALIFYING WORKS UNDER A LONG-TERM AGREEMENT

Where the long-term agreement includes provision for the carrying out of works to the property (for example, a schedule of rates agreement for general maintenance), and these works will result in a charge to any one leaseholder of more than £250, then a separate consultation must be carried out under the provisions of Schedule 3. The original consultation under Schedule 1 in respect of the agreement itself does not provide any exemption from consultation for the works.
This requirement for consultation for works equally applies in cases of long-term agreements entered into prior to 31st October 2003 where at the time no consultation on the agreement was required.

3.5. SOME GENERAL RULES ABOUT THE PROCEDURES

Who must be consulted?
Consultation notices must be sent both to individual leaseholders and to any RTA.
Nomination of contractors from Leaseholders and RTAs Landlords must invite leaseholders to nominate possible contractors in respect of consultations that are carried out under Schedule 1 and Schedule 4 (Part 2) of the Regulations.
The Act does not require that contractors nominated by leaseholders or RTAs should be wholly unconnected with the leaseholder or RTA concerned, or that the landlord must be made aware of any relationship that exists.
However, where such a relationship is or becomes known to the landlord, that may be a factor taken into account when determining which contractor to use.
Nominated Contractors
if a single nomination is made by an RTA (whether or not a nomination is also made by any leaseholder), the landlord must try to obtain an estimate from the nominated contractor;
if a single nomination is made by only one leaseholder (whether or not a nomination is also made by an RTA), the landlord must try to obtain an estimate from the nominated contractor;
if single nominations are made by more than one leaseholder (whether or not a nomination is made by an RTA), the landlord must try to obtain an estimate:
from the contractor who received the most nominations; or
if there is no such person but two (or more) receive the same number of nominations from one of those; or
if there are a number of nominations from more than one leaseholder, but no contractor has more than one nomination, from any nominated contractor;
if multiple nominations are made by one leaseholder and by an RTA, the landlord must try to obtain an estimate from at least one person nominated by the tenant and from at least one (different) person nominated by the RTA.
Nomination of contractors and acceptable criteria for their appointment
The Act does not lay down the terms within which the landlord approaches leaseholders’ nominees when seeking to obtain estimates for works or services.
Most landlords will require certain fundamental criteria from their contractors (for example, public liability insurance, valid tax exemption certificate, confirmation of VAT status, copies of health and safety policy and confirmation of company status).
Landlords will have to justify their selection procedures to the Tribunal, if challenged. If they fail to convince the Tribunal in a particular case – for example, if the Tribunal considers the selection criteria to be too restrictive or anti-competitive – there is a risk that the consultation procedure could be adjudicated as invalid.
It is suggested that landlords make their criteria part of their requests for tenders from nominated contractors, to make clear that meeting the criteria is a necessary condition of any contract which may be awarded. Alternatively, there may be some merit in including a brief statement on the selection criteria with the Notice of Intention to the leaseholders when inviting nominees; this can make clear to the tenants that any nominated contractor will need to satisfy the requirements in order to be seriously considered for the contract.
The widening of the ability to nominate contractors is intended to provide a greater openness and encourage competition in order to deliver what can be seen as fair and reasonable charges to the leaseholders. Therefore a degree of caution may be appropriate in the initial packaging of contracts, say for a number of estates, which might preclude nomination of smaller contractors.
How many notices must be served?
Landlords may have to serve consultation notices on leaseholders at the following three stages in the process of awarding a contract:
the pre-tender stage – notice of intention; and
the tender stage – notification of landlord’s proposals (estimates); and
in some cases, notice of reasons for awarding the contract.
Inspection of Documents
Where the landlord specifies the place and hours at which documents can be inspected the place and hours specified must be reasonable.
The documents must be made available for inspection free of charge at that place and during the hours specified.
Facilities for copying of the documents by leaseholders should be made available if possible. If copies cannot be taken at that time copies shall be provided on request and free of charge by the landlord.
While certain facilities must be provided free of charge, it may be the case that the costs of the administration and management incurred in providing these facilities can be recovered through the service charges.

The duty to have regard


In any case where a landlord receives written observations during the consultation process they have a duty to have regard to them. There is no statutory definition of ‘have regard to’, although in some instances the landlord must provide a response to the observations within a period of 21 days.
Where the landlord places a contract with a contractor that neither submitted the lowest estimate nor was nominated by a leaseholder or RTA then he is under a duty to state in writing the reasons for awarding the contract or specify the place and hours where the reasons may be inspected.
Failure to follow the correct procedures may be a consideration of a Tribunal in any application before it in connection with the consultation procedures.
Connections between landlords and contractors
Schedule 1 and part 2 of Schedule 4 of the Regulations require that at least one of the estimates provided must be from a contractor ‘wholly unconnected’ with the landlord.

The ‘connection’ for these purposes is as follows:
where the landlord is a company, if the person/party is, or is to be, a director or manager of the company or is a close relative of any such director or manager;
where the landlord is a company, and the person/party is a partner in a partnership, if any partner in that partnership is, or is to be, a director or manager of the company or is a close relative of any such director or manager;
where both the landlord and the person/party are companies, if any director or manager of one company is, or is to be, a director or manager of the other company;
where the person/party is a company, if the landlord is a director or manager of the company or is a close relative of any such director or manager; or
where the person/party is a company and the landlord is a partner in a partnership, if any partner in that partnership is a director or manager of the company or is a close relative of any such director or manager
A ‘close relative’ for this purpose means a spouse or cohabitee, a parent, parent-in-law, son, son-in-law, daughter, daughter-in-law, brother, brother-in-law, sister, sister-in-law, step-parent, step-son or step-daughter of that person.

The Timing of Notices
It is important that leaseholders are given a clear period of time to respond to notices.
So if notices require 30 days within which a leaseholder can comment it is recommended that the notice gives 30 days but add on an extra 2-3 days to allow for the time taken in posting notices.

How long will the consultation take?
The whole process may take a number of months for the following reasons:
leaseholders have 30 days to respond to a notice of intention served at the pre-tender stage;
if a contractor is nominated by a leaseholder(s) or RTA, the contractor may need to be invited to tender;
if contractors nominated by leaseholders or an RTA submit a tender, landlords will need to check whether the contractor meets the necessary criteria;
time spent having regard to observations from leaseholders;
landlords must make a summary of the observations and responses to the notice of intention (first notice), which must be sent to leaseholders with the notice of landlord’s proposals or statement of estimates (second notice) ;
leaseholders have a further 30 days to respond to the notice of landlord’s proposals served at the tender stage.

3.6 THE ROLE OF THE TRIBUNAL AND DISPENSATION

The Tribunal has powers to determine Section 20 matters. This includes the power under S20ZA (I) to dispense with the consultation requirements in a particular case ‘if satisfied that it is reasonable to dispense with the requirements’.
The Supreme Court in a case in 2013 set out its views on how Tribunals should deal with applications for dispensation from landlords (Daejan v Benson). The purpose of the Regulations is to ensure that lessees are protected from (a) paying for inappropriate works, or (b) paying more than would be appropriate.
In considering dispensation requests, the Tribunal should focus on whether the lessees were prejudiced in either respect by the failure of the landlord to comply with the Regulations (relevant prejudice).
Where a landlord has failed to comply with the Regulations, there may often be a dispute as to whether the lessees would suffer relevant prejudice if an unconditional dispensation was granted.
While the legal burden is on the landlord throughout, the factual burden of identifying some relevant prejudice is on the lessees. They have an obligation to identify what they would have said, given that their complaint is that they have been deprived of the opportunity to say it.
Once the lessees have shown a credible case for prejudice, the Tribunal should look to the landlord to rebut it and should be sympathetic to the lessees’ case.
Insofar as the lessees will suffer relevant prejudice, the Tribunal should, in the absence of some good reason to the contrary, effectively require the landlord to reduce the amount claimed to compensate the lessees fully for that prejudice.
The power to grant dispensation is not ‘all or nothing’. The Tribunal has power to grant dispensation on appropriate terms and can impose conditions on the grant of dispensation including a condition as to costs that the landlord pays the lessees’ reasonable costs incurred in connection with the dispensation application.
Application Form – Application for the Dispensation of All or Any of the Consultation Requirements Provided for by Section 20 of the Landlord and Tenant Act 1985

3.7 WHAT IS THE PENALTY FOR NON-COMPLIANCE?

While the principal purpose of the consultation process is to seek the leaseholders’ views on the landlord’s proposals, the effect of the provisions is to limit the landlord’s ability to recover if he does not comply.
If the landlord fails to carry out the full consultation procedures in the correct manner, he may not be able to collect or recover service charges above the level of the statutory minimum amounts – £100 per leaseholder per year in respect of a long-term contract, or £250 per leaseholder for works to the building. The landlord will have to cover the loss himself; in the case of an RMC or RTM company, the consequences could be disastrous, potentially rendering the company insolvent and unable to continue to fulfil its obligations to leaseholders.


3.8 SCHEDULE 1 TO THE REGULATIONS CONSULTATION FOR QUALIFYING LONG-TERM AGREEMENTS

If landlords do not comply with these procedures, each leaseholder’s contribution towards the cost of the goods or service supplied or works carried out under the contract may be limited to £100 a year. Leaseholders and RTA (if there is one) must be consulted about the choice of contractor.
There are three stages of consultation:
Pre-tender stageNotice of intention (Section 20 notice Appendix. 1)
– 30-day consultation period.This notice must be sent to each leaseholder that will be asked to contribute towards the costs through their service charges, and the RTA if there is one.This notice must:
describe in general terms the works or services to be provided, or specify a reasonable place and hours at which a description can be inspected free of charge;
state the landlord’s reasons for considering such an agreement to be necessary;
if the contract includes qualifying works, state the landlord’s reasons for considering it necessary to carry out those works;
inform each leaseholder and the RTA that they have 30 days from the date of the notice in which to make written observations, specifying where they should be sent, and by what date;
inform leaseholders that they have the right to nominate a contractor that they feel should be invited to tender for the work and that they have 30 days in which to make their nomination.
If facilities to provide copies of the description of the contract are not made available at the times at which the description may be inspected, then copies must be provided free to any tenant on request.

Duty to have regard to observations
The landlord must have regard to any observations made.

Estimates
The landlord will then seek estimates from its chosen contractors but must also ‘try to obtain’ estimates from contractors nominated by leaseholders and/or an RTA.
Criteria on which contractors nominated by tenant and/or a RTA should be invited to tender are set out in the previous section relating to Nomination of Contractors from leaseholders and RTAs.

Tender stage – Preparation of landlord’s proposals

the landlord shall prepare at least two proposals (estimates) as to the services, goods, works etc;

at least one of the proposals must be from a contractor wholly unconnected with the landlord;

furthermore, if nominations are received, the proposals must also include:

an estimate from a contractor nominated by a leaseholder (if obtained);

an estimate from a contractor nominated by a RTA (if obtained).

Notification of landlord’s proposals (Section 20 notice Appendix 2)

– 30-day consultation period.

The landlord must give notice of the proposals to each leaseholder and to the RTA (if there is one).
Each proposal must contain:
a statement of the relevant matters;
a statement of name and address of each party to the proposed agreement apart from the landlord;
any connection (apart from the proposed agreement) between the party and the landlord;
the leaseholder’s estimated contribution where reasonably practicable;
otherwise the cost for the building or the premises where reasonably practicable;
otherwise the current unit cost, hourly or daily rate, where reasonably practicable.
where the landlord’s proposal is to appoint an agent to be responsible for the management of the property, each proposal must contain a statement indicating:
whether the proposed agent is or is not a member of a professional body or trade association and, if so, which one; and
whether the proposed agent does or does not subscribe to any code of practice or voluntary accreditation scheme relevant to the functions of managing agents.
the provisions for the variation of any amount under the proposed agreement;
the intended duration of the agreement;
a summary of any observations received by the due date and the landlord’s response to those observations.
The notice must include a copy of each proposal or specify a reasonable place and hours where they can be inspected.
If facilities to provide copies of the proposals are not made available at the times at which the proposals may be inspected, then copies must be provided free to any leaseholder on request.
The notice must:
invite the making in writing of observations on the proposals;
specify the address to which the observations must be sent;
state when the 30-day period for consultation ends;
inform that all observations must be received by that date.
The Schedule provides no obligation to make all of the estimates received available for inspection, only those relating to the proposals made to the leaseholders. However it would be good practice to make all estimates available for inspection if they were not one of the proposals put to lessees.


Duty to have regard to observations

The landlord must have regard to any observations made by the due date.

Award of contract Notification of the award of contract (Section 20 notice Appendix 3)

– 21-day response period Within 21 days of entering into the agreement the landlord must send a notice to each leaseholder and the RTA which:
states the reasons for awarding the contract, or giving the place and hours where those reasons may be inspected; and
gives a summary of the observations received on the proposals and respond to them or specify a place and hours at which that summary and response may be inspected.
If facilities to provide copies of the statement, observations and landlord’s response to the observations are not made available at the times at which they may be inspected, then copies must be provided free to any leaseholder on request. This notice is not required where the contract has been awarded to:

a nominated contractor; or
the lowest tender.


3.9 In order to reflect its primary focus and aid transparency the name is Consult Estate United.


4. MISSION

4.1 To support, through development, the Members ambitions to create a better future for everyone by providing affordable and private advice for all; workers and others; requiring housing in the Borough whilst providing an income stream back to the Council that can be re-invested in other services for residents.

4.2 It is in the interests of tenants and landlords to ensure that properties are provided within a safe, secure, and pleasant environment.
It is therefore important to understand your rights and obligations in relation to estate management and those of the landlord.
Estate management includes matters such as cleaning and repairs of communal areas, boundary issues, grounds maintenance, parking, and the general use of communal areas. If you have concerns about any element of estate management:
Consult your tenancy agreement or lease to find out who is responsible for the issue.
There may be some matters which you and/or other residents are responsible for dealing with.
Your landlord’s website or tenant/leaseholder handbook may also provide information about who should deal with the issue. If it is the landlord’s responsibility, contact the landlord’s customer service line to report the issue.
Keep a note of any conversations you have or copies of any letters or emails with your landlord, including the name of the person you spoke or wrote to, and any agreed actions.
Consult your tenancy agreement or lease, any residents’ handbook and the landlord’s website, to see if the landlord has provided set timescales within which it aims to respond to your report.
Allow your landlord the specified amount of time to attend to the issue.
Your landlord might also publish policies and procedures setting out how it manages estate issues, which would normally be available on its website.
If you do not hear from your landlord, or the issue has not been resolved within the specified time frame, contact your landlord again (preferably in writing) to explain that the issue is still outstanding.
You should keep a record of any communication, written or on the phone, that you have with your landlord.
If this does not resolve the issue, you may wish to make a formal complaint to your landlord about the issue.
You should also familiarise yourself with your own obligations under your tenancy agreement or lease, to ensure that your actions do not have an adverse effect on your neighbours or the surrounding environment.
For example, there may be specific provisions about how to dispose of your rubbish, or where you are allowed to park.


5. OBJECTIVES AND TARGETS

5.1 The objectives of Consult Estate United are:

 To provide good quality and affordable service and advice and rented housing throughout the Borough for rental purposes for the use of all workers and others requiring housing.


6. COMPANY STRUCTURE AND GOVERNANCE ARRANGEMENTS

6.1 The non-Executive Directors of The Property Company (Consult Estate United) are as follows:
 R. Broughton –Strategic Director of Corporate and Community Services.
 R. Rochester – Head of Finance.
 M. Judkins– Director of Regeneration, Development and Property. With an employed Chief Executive (CEO)(Ms Michno).

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