Do RTM and share-of-freehold companies still have to follow the Section 20 process?
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Yes. Being run by the leaseholders doesn’t exempt the company. If any one leaseholder’s share of a set of works would be more than £250, the company has to follow the Section 20 consultation process first. If it doesn’t, and the tribunal doesn’t excuse it, each leaseholder can only be made to pay £250 towards the works.
Why resident-run companies are covered
Section 20 of the Landlord and Tenant Act 1985 applies to the landlord. A company that owns the freehold is the landlord, so a share-of-freehold company is covered. A Right to Manage company is treated as the landlord for these rules too (Commonhold and Leasehold Reform Act 2002, Schedule 7), and so is anyone with a right to enforce payment of a service charge. The leaseholders being the members, directors and the people who will pay makes no difference.
For an RTM company, check whether the freeholder pays a share of the costs. If it does, it may also need to be consulted as a tenant under the Schedule 7 rules.
When consultation is needed
For works, the limit is set so that a leaseholder’s contribution is capped at £250 unless you’ve consulted. So you must consult once any one leaseholder’s share of the works would come to more than £250.
Who you must consult
Every leaseholder who will pay towards the works, and any recognised tenants’ association. An association is recognised if the landlord has recognised it in writing or the First-tier Tribunal has certified it.
The usual process, step by step
This is for works that aren’t under a long-term agreement and don’t need a public procurement notice, which covers the typical resident-run building.
- Notice of intention. Send each leaseholder a notice describing the works (or saying where to read a description), explaining why they’re needed, inviting written comments, giving an address and the date the comment period ends, and inviting nominations of contractors.
- Wait for comments. The period is 30 days starting with the date on the notice, so it ends 29 days after that date. You must take comments into account.
- Get estimates. Try to get an estimate from any contractor nominated, and get at least one from someone with no connection to the landlord.
- Send a second notice with a statement of costs from at least two estimates, a summary of the comments with your response, and where and when all the estimates can be inspected. Invite comments for another 30 days.
- Take those comments into account, then choose a contractor.
- Within 21 days of signing the contract, write to leaseholders giving your reasons and responding to comments, unless you chose a contractor a leaseholder nominated or the one with the lowest estimate.
How to serve the notices
The law says “notice in writing” but not how to send it. The Law of Property Act 1925 allows leaving it at the person’s last known address or sending it by registered or recorded delivery post. Email isn’t mentioned, and practitioner commentary advises it is only safe if the lease allows it or the leaseholder has asked for it in writing. Check your leases and use paper if in doubt, and keep a record of who got what and when.
What getting it wrong costs
The contractor’s contract is with the company, so the company has to pay the bill whatever happens with the leaseholders. Take a roof costing £12,000 in a building of six equal flats. Each leaseholder’s share is £2,000, well over £250, so consultation was required. If it wasn’t done and the tribunal doesn’t excuse it, the company can recover £250 from each of the six: £1,500 in all. The other £10,500 stays with the company, which has no right to collect it from the leaseholders. That is the cost of a missed letter, not of bad work.
If you didn’t consult, or got it wrong
You can apply to the First-tier Tribunal for dispensation, which it can grant if it is reasonable to do so. Without that, leaseholders can only be charged £250 each, and the company carries the rest. Consulting is far cheaper than relying on dispensation.
What this answer doesn’t cover
- Agreements lasting more than 12 months (qualifying long-term agreements), which have their own £100 limit.
- Works where a public procurement notice is required, which applies to public bodies rather than resident-run companies.
- Works to remediate building safety defects, which have special rules.
This is general information, not legal advice. Take advice for anything out of the ordinary.
How Tiny Freeholder helps
Tiny Freeholder runs the consultation for you: it sets up the notices in the company’s name, dates them from the day they will be delivered so you can see how many days leaseholders get, records how and when each person was given their copy, and tracks the estimates, comments and the final reasons letter. It serves on paper, not email, for the reasons above. For the cases it doesn’t cover, it stops and tells you to take advice.