Is S.20 consultation achieving best value for leaseholders?

Statutory consultation must be seen as a good thing and S.20 has undoubtedly changed the way that landlords behave - but when the cure becomes more painful than the illness then it is worth having another look at the reasoning behind it. I believe that S.20 is restricting the opportunity for lessees to benefit from the best value available, particularly for utilities, maintenance and engineering contracts.

In the 1970s and '80s a number of landlords used the lack of consultation procedures to give associated building companies extensive and high cost major works projects across long neglected Victorian and Edwardian estates. The quality of the work was often questionable, the value was hard to justify and the contracts were often awarded, without consultation, to associated companies. Since this was before the days of LVTs and S.20, leaseholders were often powerless to resist.

The 1985 Act and the amendments in 1987 sought to shift the balance of power between landlords and leaseholders. It is easy now to forget the changes that these Acts achieved if you were not involved in property management at the time. It was a quantum shift in behaviours that was required to meet the standards laid down in these Acts. (I recall negotiating  an increase in management fees for a block in Battersea in 1987 to £220 per unit specifically to take account of the increased management requirements. Interestingly I doubt this fee has risen much, if at all, since - such is the competitive nature of the industry now.)

I am looking therefore, specifically at the unintended consequences of S.20 legislation which was initially introduced in the landlord and Tenant Act 1985, as amended 1987 and fully revised in the Commonhold and Leasehold reform Act 2002.

Looking at the most obvious problems first:

1. £250 per head for consultation is not much if you are a very small block. You will have to consult on all moderate to major items. Most agents charge for formal consultation adding to management costs which might already be disproportionate for small blocks. 
2. If just one flat in your block exceeds this contribution you must consult - for example if you have a large penthouse (say 3000 sq ft) and the service charge is divided on a floor area basis then you are likely to do proportionatley more consultations. 
3. You must consult on long term contracts in excess of £100 per unit (see number 2 above - still applies). This means there will be no snapping up of a 3 year contract for fuel at a beneficial rate. These deals are usually only available for 24 hours. S.20 has all but stifled this long term value and needs to be rethought.
4. Managing agents are rarely contracted for more than a year because there would have to be full consultation otherwise. This means that best value is not necessarily being achieved - given the risk that you will loose the contract after one year how can you genuinely offer best value? Most agents would be lucky to break even in year one. Longer term contracts offer security to both parties and better value. Contracts still have normal termination rights in the event of a proven breach.
5. You cannot avoid S.20 - even if all lessees agree to circumvent it. The LVT does not take kindly to S.20 avoidance and will always support fully any future claim that consultation was not undertaken correctly. 
6. Residents' Management Companies are not excluded either - even though in the event that they fail to consult and are unable to recover the full sum it is a moot point - in theory only their members can pay the difference anyway.
7. It takes too long. 3 months is the general minimum.
8. It can only be avoided in an emergency (by dispensation under S.20za) and even then you are at the mercy of the LVT if they decide that your interpretation of urgent or an unintended minor breach of the rules is different from theirs. See the Daejan Investments v Benson decision for the full details.
9. That leaves Landlords with a difficult choice in really urgent situations. To get dispensation in advance of undertaking the work which can take 3 to 4 weeks or to gamble that it will be given retrospectively. 

Given all this I have set out below my thoughts on how to improve and modernise consultation. I do not have all the answers and would welcome your thoughts but here goes:

1. Firstly the qualifying sums need to be raised - they have only been changed once since 1985. I would propose £500 and £250 (for long term qualifying agreements) respectively. This would still give a reasonable level of protection whilst reducing the annually increasing administration of notices - most agents, if not all, charge for serving the notices.
2. Allow procurement of long term agreements where these are demonstrably good value. As long as the value can be evidenced thereafter, procurement should be free to take advantage of market opportunities, this is of particular importance to Local Authorities and agents with real buying power. Consultation can be by initial letter describing what the client is endeavouring to achieve with detail being added after.
3. Allow RMCs to opt out of consultation in the event that they have full support of their members. It is, their members who would pay any penalty arising from a breach anyway. This might be achieved by, say, a simple 'cover all' consultation periodically.
4. Dispensation should be given automatically and immediately if it can be demonstrated that any lessee will be disadvantaged were it not. For example if anyone was to be without heating or hot water or suffer a leak or threat to their safety or security.
5. 30 days is more than a sufficient time to consult. 21 days would reduce the timescales and benefit everyone. Technology has significantly speeded up communications since the 1980s.
6. The consultation limits should be divided equally across all units to avoid the issues set out in part 2 of the problems above, a long shot I know.

Consultation is an important tenet of residential block management and has changed the way that landlords and managers behave. But through time it has become less valuable as a tool in its current form and now hinders best value for leaseholders, increases costs and diverts management time. Inflation and improved communication channels mean that in it is no longer fit for purpose and should be carefully reviewed. We live in hope...