Consultation? It's all part of the service

From 31 October, all those responsible for leaseholder service charges will need to comply with a new set of consultation requirements – or risk not being able to collect the charges.

To find out exactly what needs to be done, read section 151 of the Commonhold and Leasehold Reform Act 2002, the Service Charges (Consultation Requirements) (England) Regulations 2003 and the even more excitingly titled Commonhold and Leasehold Reform Act 2002 (Commencement no 2 and Savings) (England) Order 2003. They are all on the Stationery Office website, www.hmso.gov.uk.

Landlords will know that, until now, if carrying out works that cost more than a given amount, leaseholders have to be sent a section 20 notice with two estimates.

There have been well publicised issues regarding compliance in long-term refurbishment contracts.

After 31 October, landlords will have to consult on some service contracts. Also, the definition of works that require consultation and the consultation process itself have changed.

On the positive side, it will be possible to consult once and once only on a long-term refurbishment contract, even if it lasts for 10 years or more. Once the consultation process is completed, even if the detail of the works and the identity of some of the leaseholders change (as is likely in long contracts), no further consultation will be needed unless there is a wish to change the contractor. This will make partnering contracts for refurbishment much less of a problem, not to mention PFI.

The new rules do not apply if:

• works began or the service contract was entered into before 31 October
  
• a section 20 notice was served before 31 October
  
• an agreement was entered into by the landlord before 31 October, with consequent works carried out before 31 December 2003.

Landlords will have to consult before works start if they require a contribution of more than £250 from each leaseholder – that's £250 altogether, not £250 a year. This figure is very different from the £50 per dwelling or £1000 (whichever is the greater) under the current rules.

Landlords will also have to consult on all "qualifying long-term agreements". These are contracts in excess of 12 months that will lead to a leaseholder paying more than £100 a year. Some service contracts could fall within this remit, as could some works contracts, particularly for long-term refurbishment.

There are specific and slightly different requirements for evaluating long-term agreements that include qualifying works, for ones that do not and, for the benefit of local authorities, works where EU procurement requirements apply.

Landlords will have to consult on some service contracts. Also, the definition of works that require consultation and the process itself have changed

There is no substitute for reading the detail. Particular points to note are:

• leaseholders get 30 days to comment on proposals
  
• notices have to state the landlord's reasons for considering it necessary to carry out the proposed works.

The notice must invite each leaseholder (and a recognised tenants' association if there is one) to propose within the time limit the name of a person from whom the landlord should try to obtain an estimate.

If a new contractor is proposed, the landlord must try to obtain an estimate from the nominated person. If more than one person is nominated, the landlord has to try to deal with the candidate who received the most votes.

If the leaseholders and the recognised tenants' association each nominate different people, the landlord has to strive to take an estimate from each, supplying a statement setting out the figures, to be made available for inspection.

Once the landlord has entered into a contract for carrying out the works, within 21 days he must write to all involved parties stating his reasons for awarding the contract or when they can be expected. The landlord does not have to send this additional written notice if he lets the contract to someone nominated by a leaseholder, the tenants' association or the person who submitted the lowest estimate.

Where works that would cost each leaseholder more than £250 are being carried out under a long-term agreement, the landlord has to consult the leaseholders again, but does not have to obtain new estimates. This consultation gives the leaseholders a chance to comment on the works and to offer their views on whether they are necessary.

Landlords who get some or all of this wrong can apply to the Leasehold Valuation Tribunal for an order to dispense with these requirements, but the tribunal is unlikely to be overly sympathetic to the likes of housing associations and local authorities with access to advice.

Housing associations need to take a good look at their service charges to tenants.