Unchained harmony

Ever since the 1998 publication of Sir John Egan's Rethinking Construction report, public sector landlords have been stuck in a traffic jam. They've been waiting for the government to change the lights to enable them to partner with their consultants and contractors: and now, at last, the government has acknowledged that the requirements of section 20 of the Landlord and Tenant Act 1985 as it stands cannot be reconciled with landlords entering into such partnerships, despite the benefits that these arrangements could bring to tenants – something of an obstacle to successful partnering.

The 1985 act applies to all landlords undertaking works in long leaseholders' properties that wish to recover the cost of those works from their tenants. Section 20 says that landlords must consult fully with their tenants and prove to them that the costs of the contractors undertaking those works are competitive. This includes submitting to each tenant at least two estimates of the costs of those works, one from a party wholly unconnected with the landlord. This procedure is difficult to reconcile with procuring works or services under a partnering relationship.

Failure to comply with the 1985 act carries the penalty of limiting the amount that a landlord can recover from tenants. The risk of non-recovery for landlords has led to many public sector landlords deciding to put a brake on their partnered programmes until section 20 is revised.

Landlords will get the go-ahead that they have been waiting for when the draft Service Charges (Consultation Requirements) (England) Regulations 2003 come into force, probably by the end of November.

The draft rules
The draft consultation requirements will apply to landlords entering into a qualifying long-term agreement and undertaking qualifying works under that agreement and to landlords undertaking one-off qualifying works.

A qualifying long-term agreement is an agreement entered into by or on behalf of a landlord or a superior landlord for a term of more than 12 months where the contribution of any one tenant will exceed £100. Qualifying works are works, including improvements, on a building or premises where the contribution of any one tenant will exceed £250.

Landlords must therefore consult on the agreement and their choice of partner before entering into a partnering arrangement.

Landlords must serve at least two notices on each tenant; this must include a description of the partnering agreement

Landlords must serve at least two notices on each tenant and any recognised tenants' associations. The first notice must include a description of the partnering agreement and reasons for carrying out the works or services and must invite proposals from tenants of any party from whom the landlord should attempt to obtain an estimate.

The second notice must include at least two proposals for the works or services to be provided and one of these proposals must be from a party wholly unconnected with the landlord. The proposals will include an estimate of the contribution to be made by each tenant. Landlords unable to estimate this contribution can indicate the total amount of expenditure under the agreement or provide a statement of the current unit cost or the hourly or daily rate applicable to the agreement. Landlords must also try to ensure that if a nomination is made by a tenant or a tenants' association then a proposal is procured from that nominee.

Thirty days after the second notice, landlords are free to enter into an agreement with their selected partners provided that reasons are given for the choice of partner if a nomination has been made.

Once a landlord has complied with these requirements, the consultation for individual works or services is less onerous. A notice must be given to each tenant specifying the works to be carried out, the reasons for the works and a statement of the total expenditure estimated by the landlord.

All the notices issued under the consultation requirements must invite observations and landlords must pay due regard to observations received within 30 days of the issue of a notice.

Provided that landlords considering entering into a partnering arrangement consult on the agreement and involve the tenants, they will be released from the requirement to provide independent estimates of the costs of those works or services undertaken during the partnering arrangement. However, landlords will always be obliged to consult their tenants before carrying out qualifying works, whether or not such works are the subject of a qualifying long-term agreement.