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I can’t get back retention monies left with the buyer’s solicitor because my former Landlord is delaying issuing a finalised Major Works bill. What are my options?

Reader’s E-mail: 

In 2001 I purchased a leasehold property. The freeholder was a London council with an ALMO managing the lease.

A Section 20 for major works was issued in July 2009, with the contract start date of 29/11/2010. I received the Notice of Intention in July 2009.

In February 2010 I then received the Notice of Estimated Costs. My estimated share of costs (two leaseholders in the property, with myself liable at 75%) was approx. £25k. This was a major project across multiple properties/estates.

Work was completed on my property, and scaffolding taken down in December 2012 and I attended a residents’ surgery around quality of work. As part of this I asked around procedure, and when I would see a final bill.

I was told that it was “unlikely that this would be available for a few months”.

I was however able to be sent a copy of the full contractor’s estimate and paperwork, dated 12/09/2012.

This included the rubric: “This contract has been billed on estimate and will include provision for costs that may be incurred during the term of the contract. Please note you will receive an adjustment to this bill when the final account is settled.”

Meanwhile, in June 2012 I received separate notification of qualifying works under Section 20 for two contracts, respectively to demolish and rebuild a wall which had not been included in the cyclical Major Works.

These came to approximately another £10k and were then carried out over 2012 by the Lessor’s preferred contractor (separate to the Major Works contractor).

In March 2013 I sold the property.

As part of this both the ALMO and the purchaser were keen to have funds set aside in escrow to guarantee that I would be responsible for final costs. This was done, including a 10% contingency – making an amount of £40k.

In March this year (2014) I wrote to the freeholder asking when I would see final bills, and whether the defects inspection one year after completion had been carried out.

The response I received stated the following:
– There were a ‘number of disputes’ between the ALMO and the contractor (relating to the first and larger of my estimated bills).
These were ‘only resolved relatively recently’.
– The final account had been agreed with the contractor and the scheme audited.
– They were waiting for the ‘policy team to make a decision on anumber of re-charging issues’ after which bills would be prepared and issued
– They were hoping ‘the actual bills’ would be issued by end of April (but could not guarantee this).
– That if I wanted to, I could pay the estimated bill amounts as full and final settlement.

Despite my urgent need for the £4k contingency that this would release to me, I did not take up the suggestion of final settlement based on estimated accounts.

This response did not seem to separately recognise the second smaller Section 20 works conducted by the ALMO’s default contractor.

Two weeks ago I wrote back chasing the end of April deadline. I have heard nothing.

So I’m writing to you.

I don’t know how normal this kind of situation is, (e.g. how many years I may have money doing nothing for me in an escrow account), and obviously my hope is that for one or both of the contracts the 18 month rule might end up being relevant.

Would I be correct to think that my only option here is to wait for an indefinite period of time, or could you recommend another course of action?

Reply from Service Charge Dispute Guide

1. It may be that you need to wait for your former landlord to issue the finalised bill. Indeed, on the basis of what you say that the ALMO has said to you, it may be that simply waiting will give you the best outcome. Our reason for saying this is because the ALMO has already admitted there are problems with the contract and they may decide to make a reduction to amount which is to be charged. If you settle on the Estimated amount you would of course lose the benefit of any reductions.

2. This said, there are likely to be a number of grounds upon which the leaseholder who receives the finalised Major Works bill might challenge the amount charged. The problem for you, as you are doubt aware, is that you it would be difficult for you to challenge the bill because you are no longer the leaseholder. The finalised major works bill will be issued in the name of the person who purchased it, and as such in the ‘eyes of the law’ it won’t be your bill to challenge. Your purchaser will have no incentive to challenge the bill because you have already left money to pay it with (I presume) your solicitor, and they would gain nothing from getting into an argument with their landlord.

3. In this type of situation, frank and open discussions need to take place between current and former leaseholders. If when the final bill comes you are not satisfied with the amount being charged, you would need to make sure: A. that the money is not simply paid without knowledge and B. that the new leaseholder would pursue your concerns with the ALMO. You may need to agree to indemnify the current leaseholder against any costs in challenging the bill, and indeed you may need to offer some kind of financial incentive in the event that a reduction in the liability was secured. There are risks in such an approach and you would want to be confident that you had very good grounds to challenge the bill. A sensible course of action would be to discuss this with the solicitor who did the conveyancing for you. They would be best placed for having discussions with the current leaseholder and their conveyancing solicitor.

4. From your description of the situation, there appears to be a strong possibility that the ALMO has already fallen foul of the 18 month rule in section 20B of the Landlord and Tenant Act 1985 in relation the 2012 works.

5. Section 20B is very specific in what a landlord is required to do within the 18 months. Either:

i. Issue a “demand for payment” [see section 20B (1) LTA 1985]

Or

ii. Issue a notice setting out a finalised costs and informing the leaseholder that they will be required to pay the costs at a later date [ see section 20B (2) LTA 1985]. This notice is commonly known as a section 20B notice.

6. As local authorities such as the London Boroughs of Islington and Brent (amongst others) have discovered in legal cases on this issue, an Estimated Invoice does not satisfy the requirements of section 20B unless it states a payment deadline. If payment of an invoice is entirely optional it is, so the argument goes, not a “demand for payment” and therefore does not satisfy section 20B (1). There are numerous legal cases where this point is discussed. Two which may be particularly helpful to refer to are:

LB Islington v Abdel-Malek [LRX/90/2006]
LB Brent v Shulem B Association [2011] EWHC 1663 (Ch)

7. In the absence of a demand for payment, the ALMO needs to have issued a section 20B notice. If they haven’t then there is strong possibility that they cannot recharge leaseholders for any costs which have been invoiced to them by the contractor more than 18 months ago. It would therefore be very helpful for you to know whether the current leaseholder has received such a notice, or indeed whether one had been issued to you before you sold.

8. Furthermore, given that the ALMO has stated that there has been some kind of dispute with the contractor, there may be other things relating to the cost and quality of the work which may give a leaseholder grounds to challenge the invoice. The description in your e-mail suggests that a second contractor was called in to remedy and/or complete what the first contractor did not. In such a situation there is danger that the costs of the work are greater than they needed to be, and we suspect that this danger is causing something of a conundrum for the ALMO, hence the delay in the issuing of the finalised bill.

Click on the link to read more Reader’s Questions and Answers on Purchasing a Leasehold Property