Section 20 confusion?

I briefly in a previous post mentioned the confusion in the industry with regards to various regulations that apply to managing agents and the management companies they work for.

One of the most, in my opinion confusing ones would have to be Section 20 consultation which was brought about by the Landlord and Tenant Act 1985. To ensure residents receive value for money and have an input, landlords must follow a set procedure when any major works are required that cost more than £250 per leaseholder.

You can download ARMA’s guideline on Section 20 – HERE

The Section 20 procedure can take over 3 months and consists of:

Stage 1:

Advise residents/leaseholder what work is required and invite them to suggest contractors, a period of 30 days must be given for them to do this.

At this point you usually find every resident knows of a relative, friend or odd job man who would like to be considered.

Stage 2:

The managing agents will go through all suggestions ensuring they have public liability and are competent to carry out the work also complying with all relevant Health & Safety regulations at this point a lot of the residents suggestions fall by the wayside. The managing agent will also send out a specification of works to remaining contractors and will also include other contractors that are known to them.

Once estimates are received from contractors a summary of all estimates is sent out to all residents and provision must be given for residents to come and inspect the estimates if they so wish.

Stage 3:

If the cheapest estimate is not chosen then resident/leaseholders must be advised the reason why.

Now here is my argument:

Where a resident management company (RMC) or even a RTM company is charged with the running of their development surely Section 20 would not apply because the residents are the management company and the landlord/freeholder would have no involvement in the process?

It is usual practise for any large works even if they do not fall into the Section 20 regulation to go out to tender to three contractors anyway.

This theory however has not been proven either way and not many managing agents are overly concerned as they make a charge for the management of any Section 20 works.

So what would happen in the event that the RMC ignore their managing agent and do not follow the procedure?

IF successfully challenged with the LVT residents/leaseholders would only be responsible for paying £250 each and the remaining monies would have to be met by the RMC.

See the confusion the residents/leaseholders are all members of the RMC!