This Legal Update is the second in our Section 20 series, providing a summary of the statutory consultation requirements in relation to Qualifying Long Term Agreements. It is concerned with landlords, RMCs and RTM companies in the private sector, and does not cover the public procurement rules which apply to public bodies.

 QLTAs - When must you consult?

The consultation requirements prescribed by Section 20 of the Landlord and Tenant Act 1985 (“the Act”) and the Service Charges (Consultation Requirements) (England) Regulations 2003 (“the Regulations”) apply in respect of any “qualifying long term agreement” (“QLTA”) which requires any one leaseholder in the block or development to pay a variable service charge over £100 in any accounting period.

A QLTA is defined as “an agreement entered into, by or on behalf of the landlord or a superior landlord, for a term of more than 12 months”. Examples include cleaning, gardening, maintenance, management and utilities  contracts.

Certain contracts are excluded and will not amount to a QLTA, which include :

•  Contracts of employment

• Agreement between holding company and its subsidiary, or between subsidiaries of the same holding company

• Agreement for less than 5 years, entered into at a point where there were no leaseholders

• Agreement for more than 12 months that was entered into before 31 October 2003

In Corvan (Properties) Ltd v Abdel-Mahmoud [2018] EWCA Civ 1102, the Court of Appeal held a contract that was for a term of “one year from the date of signature hereof and will continue thereafter until terminated upon three months’ notice by either party” was in fact a contract for a minimum of 15 months as it introduced a mandatory requirement for the contract to continue beyond the initial one year term (plus three months’ notice). As such, the management agreement in question was held to be a QLTA that required consultation with leaseholders.

A failure to consult means that the landlord, RMC or RTM company is limited to recovering £100 per leaseholder per year in respect of that QLTA, unless dispensation from the consultation requirements is obtained from the FTT.

QLTAs - The consultation process

For QLTAs, the process is set out in Schedule 1, Part 2 Consultation Regulations. This involves a series of notices to be served on all residential leaseholders who would be required to pay over £100 in any accounting period for the QLTA. The notices should also be served upon any Recognised Tenants’ Association (“RTA”).

Stage 1 - Pre-tender stage

The first notice is a “Notice of Intention”, which must :

•  Include a general description of the goods, works or services to be provided (or specify place and hours where a description can be inspected);

• Set out the reasons for considering the QLTA necessary;

• Specify the consultation end date;

• Invite observations in writing within consultation period and specify the address where they should be sent; and

• Invite leaseholders and RTA to nominate contractors within consultation period from who estimates might be obtained.

It is important to stress that the consultation end date is at least 30 days from service of the notice consultation period. Any shorter period will invalidate the consultation and require dispensation. Do remember to allow for time for service of the notice (especially if sending by post). It is always better to err on the side of caution and provide a period of more than 30 days.

Stage 2 - tender stage

The landlord, RMC or RTM company is then to :

1.  Have regard (and, preferably, respond) to any observations received during the consultation period; and

2. Seek estimates from its own contractors and try to obtain estimates from any nominated contractors, as follows :

• At least one to be from contractor wholly unconnected to the landlord

• Where single nomination has been received from leaseholder(s)/RTA, from that contractor

• Where there have been nominations for multiple contractor(s) then from those contractors with highest number of nominations

Where nominations for contractors are received, the landlord, RMC or RTM company can consider applying reasonable selection criteria for eligibility for the contract (e.g. minimum insurance requirements), to maintain standards.

Once estimates are obtained, a second notice called a “Notice of Proposals” is to be served, which must :

• Give notice of at least two of the “proposals”* for the goods, works or services (send copies or specify times and hours where proposals can be inspected). One to be from a contractor wholly unconnected with the landlord and one from any nominated contractor (if estimate obtained);

• Summarise any observations received during the consultation period and the responses to them;

• Specify place and time where the estimates are available for inspection;

• Invite observations in writing within consultation period and specify the address where they should be sent; and

• Specify consultation end date - again, at least 30 days from service of the notice

* The  “proposals” must include :

• 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 and the intended duration of the agreement.

Stage 3 : Award of contract

Again, the landlord, RMC or RTM company is to have regard (and respond) to any observations received during the consultation period.

Where the contract is awarded to the contractor who provided the lowest tender or to a nominated contractor, there is nothing further required.   

In any other circumstances, a third and final notice called a “Notice of Reasons” is required to be served, within 21 days of entering into the contract, which must :

•  Specify the reasons for awarding the contract (or times and place where reasons can be inspected); and

• Summarise the observations received during the consultation period and the responses to them (or times and place where responses can be inspected).

QLTA - other considerations

1. See our Legal Update here for guidance on service of notices, including Section 20 Notices;

2. See our Legal Update here for guidance on when dispensation is available;

3. See our Legal Update here for the Upper Tribunal’s decision that a QLTA could take effect as soon as the services were provided (irrespective of whether the agreement was signed or dated), even if the first payment under the contract took place at some later date.

The Section 20 consultation procedure, whilst cumbersome, should in most cases be relatively straight forward. However, given the prescriptive nature of the procedure, it is rife for problems and disputes. Given the very serious consequences for a failure to consult or any defects invaliding the consultation carried out, it is always best to seek legal advice if you have any doubts as to the action you are taking.

For more information, please feel free to contact a member of the team on 01435 897297 or info@kdllaw.com.

Disclaimer

This legal update is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of KDL Law or by KDL Law as a whole.

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