When it comes to managing residential blocks and estates, transparency and legal compliance are essential. One of the most significant legal obligations for landlords and managing agents is the Section 20 consultation process, a requirement under the Landlord and Tenant Act 1985 (as amended by the Commonhold and Leasehold Reform Act 2002).
This process ensures leaseholders are informed and consulted before being charged for certain major works or long-term service contracts. If not followed correctly, the landlord may be unable to recover the full cost from leaseholders – no matter how necessary the work.
In this article, we’ll break down:
- Why Section 20 exists
- The three stages of the process
- Contractor nominations and vetting requirements
- What information leaseholders should receive
- Leaseholder rights during consultation
- How funds are collected (including reserve funds)
Why Section 20 Exists
Section 20 is there to protect leaseholders from unexpected or excessive service charge demands by ensuring:
- They are informed in advance of major works or long-term contracts.
- They have an opportunity to comment or nominate contractors.
- Costs are transparent and subject to scrutiny.
The legal trigger points are:
- Qualifying works: Any works costing more than £250 per leaseholder.
- Qualifying long-term agreements (QLTAs): Any service contract over 12 months costing more than £100 per leaseholder, per year.
Failure to follow the process can cap the recoverable amount from leaseholders at these thresholds, even if the actual cost is far higher.
The Three Stages of Section 20:
Stage 1 – Notice of Intention
The process starts with a formal Notice of Intention served on all leaseholders (and any recognised tenants’ association). This must:
- Describe the proposed works or services in general terms.
- Explain why they are necessary.
- Invite leaseholders to make written observations within at least 30 days.
- Allow leaseholders to nominate contractors (more on this below).
At this stage, no specific contractor or cost is confirmed – this is about early engagement and input.
Contractor Nominations and Vetting
Leaseholders can nominate contractors for consideration, but there are important rules. Even if a contractor is nominated, the managing agent must ensure they meet strict vetting requirements before being invited to tender.
This includes:
- Correct insurances: Public liability, employer’s liability, and any specialist cover required for the work.
- RAMS (Risk Assessment and Method Statement): This is a legal safety requirement outlining how the contractor will carry out the work safely and manage risks. A RAMS document details potential hazards, who may be affected, and what control measures will be in place.
- Proven experience and references: Ensuring the contractor has successfully completed similar works to the required standard.
If a nominated contractor fails to meet these standards, they cannot be appointed. This protects both the building and the leaseholders from legal, financial, or safety risks.
Stage 2 – Statement of Estimates
Once tenders are obtained (including those from eligible nominated contractors), the landlord issues a Statement of Estimates. This notice must:
- Include at least two estimates.
- Show a summary of leaseholder nominations and the chosen tender process.
- Invite further written observations (at least 30 days to respond).
- State where and when estimates can be inspected.
This stage ensures transparency – leaseholders can see cost comparisons and understand how decisions are being made.
Stage 3 – Notice of Reasons
Stage 3 only applies if the chosen contractor is not the cheapest tender or was not nominated by leaseholders. In that case, the landlord must serve a Notice of Reasons within 21 days of awarding the contract, explaining:
- Why that contractor was chosen.
- Why the lowest tender (if applicable) was not accepted.
Why is Stage 3 Important?
It provides an accountability mechanism, ensuring landlords cannot bypass leaseholder input without justification. This stage is sometimes missed by inexperienced managing agents, but failure to serve it properly risks the recoverability of costs.
Leaseholder Rights During the Process
Throughout the consultation, leaseholders have:
- The right to be consulted before works or contracts begin.
- The right to inspect tender documents and estimates.
- The right to make observations that the landlord must consider.
- The right to nominate contractors (subject to vetting).
- The right to challenge costs at the First-tier Tribunal if they believe charges are unreasonable.
Collection of Funds and Reserve Funds
Section 20 itself is about consultation, not payment, but it is closely linked to service charge demands.
In practice:
- For major works, funds are often collected in advance through a service charge demand issued after the Section 20 process is completed and the contract is awarded.
- If the lease allows, managing agents may also collect via a reserve fund (also known as a sinking fund).
What is a Reserve Fund?
A reserve fund is a savings pot built up over time from contributions in each service charge period. It’s designed to spread the cost of major works so leaseholders aren’t hit with large, unexpected bills. For example, regular contributions might fund roof repairs, external redecoration, or lift replacement years in advance.
This approach is fairer, more predictable, and reduces the financial shock of sudden large demands, aligning with our Integrity and Information values.
How Our Core Values Shape the Section 20 Process
At Levels Property Management, we approach Section 20 with our three guiding principles:
- Integrity: We follow the letter of the law and go beyond compliance, ensuring costs are fair, contractors are vetted properly, and leaseholders are never surprised by hidden charges.
- Information: Every step of the process is communicated clearly, both through formal notices and via our 24/7 customer portal, where leaseholders can track updates in real time.
- Innovation: We use industry-leading technology to streamline the process, from digital tender management to online document access, making Section 20 consultations more transparent and efficient than ever before.
Final Thoughts
The Section 20 process is a legal safeguard, but it’s also an opportunity to build trust and deliver value. When handled with professionalism and transparency, it reassures leaseholders that their money is being managed wisely, works are necessary and competitively priced, and their voices are heard.
Handled poorly, it can lead to disputes, delays, and capped recoverable costs. That’s why our approach is always legally correct, proactive in communication, and designed to protect the long-term interests of both the building and its residents.
