“We have a major works project coming up and need to issue consultation notices and demands for contributions. If we send these documents to leaseholders who are in breach of their lease, will we prejudice any existing legal action?”
This question (and others very similar to it) is one we are frequently asked at Bradys. In this recent blog (29 January 2021), service charge solicitor Emma Voce offers her advice and guidance to RMCs, freeholders and their managing agents.
If you are managing a larger development and are about to begin a section 20 major works consultation, then the chances are you will have one or two leaseholders that are in breach of their lease, often through unpaid service charges. As the managing agent however, you need to be able to progress the major works consultation on behalf of your RMC or freeholder client and ensure that the consultation notices are issued in accordance with lease law.
By way of a quick reminder, a section 20 consultation must be carried out for any expenditure item that will cost a leaseholder more than £250. It’s a limit that’s quickly reached and it’s important to follow the consultation procedures to ensure that leaseholders are obliged to pay their individual contributions.
Should you still send these consultation notices to leaseholders where you have commenced legal proceedings for a breach of lease?
In a word: yes.
There has been a case in recent years that has proved to be a helpful guide to keeping going the management of major works whilst legal action is undertaken to recover outstanding arrears.
In the case of Stemp v Ladbroke Gardens it was held that the issuing of a ‘statutory notice’ – such as those in a section 20 consultation process – would not prejudice breach of lease proceedings against a leaseholder.
Statutory notices apply to all leaseholders regardless of what it says in their individual lease.
Because the section 20 notices are statutory, rather than a requirement of the lease, the Stemp case means that RMCs and their managing agents can issue the notices to all leaseholders, without worrying how it will affect any ongoing legal proceedings. This allows managing agents to better manage major works where there are various pre-existing breaches and arrears, where previously this point had often caused difficulties.
So yes, you can – and should – ensure that all leaseholders are included within the section 20 major works consultation process – even where you are undertaking legal action for a breach of lease.
However, on the flip-side, the demand for payment of the contribution to the major works project will be an obligation relating to the lease.
As such, where there is pre-existing litigation, caution should be exercised, and advice sought before issuing the demand for payment to a leaseholder.
As with all things service charge related, our expert team at Brady Solicitors will be happy to help you understand your options, including helping you to ‘clear the decks’ and recover any outstanding arrears, so you can ensure the block is well managed and major works projects can proceed without concern.