Leaseholder Consultation in the Procurement Process

One of the key things to get right (and potentially most expensive to get wrong) in procuring maintenance and improvement programmes is leaseholder consultation. Andrew Millross and Jonathan Cox give tips for a successful consultation.

LEASEHOLDER CONSULTATION IN THE PROCUREMENT PROCESS

One of the key things to get right (and potentially most expensive to get wrong) in procuring maintenance and improvement programmes is leaseholder consultation.

Applicability

Where a landlord proposes to recover maintenance or improvement costs from leaseholders or assured tenants through service charges, the leaseholder consultation provisions in section 20 of the Landlord and Tenant Act 1985 should be followed. Fortunately for local authorities, the provisions do not apply to secure tenants. References to leaseholders in this article include assured tenants.

There are “de minimis” provisions for qualifying works (on a per flat/unit basis) where the service charges relating to the works are less than £250.  This figure drops to £100 where the works are done (and/or goods or services are supplied) under a “qualifying longer-term agreement” or “QLTA” (basically an agreement lasting for longer than 12 months).  If the service charges are less than the appropriate amount, leaseholder consultation is not required.

It is possible for a landlord to apply to the leasehold valuation tribunal (“LVT”) for dispensation from the consultation requirements or some of them. This is an increasingly common practice for some larger procurements, particularly when framework agreements are being used (see below for the reasons for this). However, dispensation cannot be used to obtain a carte blanche and can be overturned by the Lands Tribunal in certain circumstances, as has recently been demonstrated by a recent case appeal involving Camden.

Consultation regimes

The consultation provisions are now found in the Services Charges (Consultation Requirements) (England) Regulations 2003 (or in the equivalent Welsh regulations).

Previously a landlord used to have to obtain two estimates.  One of these had to be from a contractor not “connected with” the landlord.  There are now different consultation regimes, depending on the procurement route adopted.  Where a QLTA is used, the landlord has to consult on both setting up the QLTA and (if necessary) on carrying out works under it. 

There are also different procedures for consulting leaseholders depending on whether or not the procurement is subject to the EU procurement rules.

Consultation process

The consultation on setting up a QLTA begins by the landlord serving a “notice of intention” on the leaseholders.  Where the procurement does not have to be advertised in OJEU, this notice of intention invites nominations for the contractor from individual leaseholders or a leaseholders or tenants association. Where the procurement is advertised in OJEU, this notice has to be served before the OJEU notice is inserted. The rationale here is that a leaseholder can then encourage their favoured contractor to respond to the OJEU notice. 

Before signing the QLTA, there is a further consultation.  This involves the production and service of “landlord’s proposal(s)”. These set out details of

  • the proposed contractor(s) and any connection between the contractor(s) and the landlord.  For an OJEU procurement there is only one contractor and therefore only one proposal.  For a non-OJEU procurement there are two landlord’s proposals, one relating to a contractor put forward by the leaseholders;
  • the proposed duration of the QLTA;
  • a summary of consultation responses at the “notice of intention” stage and the landlord’s response to them; and
  • costs information (based on the best available anticipated information at that stage) including any provisions for costs variations.  If this costs information cannot be provided, the landlord must say when they expect to be able to provide it.

The landlord must also consult leaseholders when carrying out works under a QLTA.  This consultation is about the nature of the works proposed and the reasons for carrying them out.

There are similar regulations when the proposed agreement is not a QLTA and concerns qualifying works over £250 as above.

There are no prescribed forms for the consultation materials but LEASE, the leasehold advisory service has examples on its website which can be freely used.  These can be found at http://www.lease-advice.org/councils20frame.htm.

Landlords must make sure that they retain evidence of having considered any responses they receive.  As well as needing to demonstrate (if challenged) that the consultation has properly been carried out, the landlord generally needs to summarise the consultation responses in the next consultation stage and set out their response to them.

Problem areas

Although the Leaseholder Consultation Regulations were introduced to try to bring leaseholder consultation more into line with modern procurement options, there are still a number of difficulties with the Regulations and how they have been interpreted.

The body that covers leasehold disputes is the Leasehold Valuation Tribunal (‘LVT’).  It is important to note that the LVT is not a court of law, so any decision of one LVT does not mean that another LVT, hearing a similar dispute, has to follow the decision of the other LVT.  Because of this, when we refer to previous decisions of LVTs, it must be noted that other LVTs might come to a different view.

One case in the LVT has suggested that where a framework agreement is used, costs are not “incurred under” that framework agreement.  The reason for the LVT’s view is that, a framework agreement simply “sets out the terms and prices” for any work called off from the framework agreement but does not (by definition) commit either party to carrying out works.  It is under the underlying contract that those costs are “incurred”.  If this view is correct then this would make it very difficult in practice to use framework agreements.  Leaseholder consultation would have to take place on all of the individual underlying contracts under the framework agreement, since these agreements would need to be the QLTAs.  This consultation would have to take place before the framework agreement is signed, since that is at the point at which the basic terms of the underlying contracts are fixed.  However, if a landlord knows the programme well enough to consult on all the underlying contracts before signing the framework agreement, it does raise the question whether it is necessary to use a framework agreement.

There are also practical difficulties with using agreements set up by central purchasing bodies (buying clubs) for items procured through OJEU.  This arises because of the requirement to have consulted leaseholders before the OJEU notice is placed.  When using a buying club a landlord will rely on the OJEU notice placed by the buying club, usually well before the landlord decided to use them. 

Until these difficulties are resolved by further legislation, the only practical solution to them is either to keep costs below the £100 threshold, or to seek a dispensation from the consultation requirements from the LVT.

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