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Section 125B (Right to Buy: Estimates about Improvement Contributions)

Summary

1. This section prescribes further information which must be included in the Offer Notice which Landlords must send to applicants for the Right to Buy or Right to Acquire Schemes as part of the sales process.

2. An Offer Notice (or ‘Section 125 Notice’ as it is formally known) is sent out after a Landlord has agreed that a tenant is eligible for the Right to Buy to Right to Acquire. The Offer Notice will include the price for which the property is offered for sale, and the amount of discount which the tenant is eligible to receive.

3. Along with the price, the law says that applicants must also receive other information about the property. Section 125B says that information should be given about ‘Improvement’ works.

4. This estimate of Improvement costs will cover a period of 5 years (sometimes more) known as the Reference Period. See our article on Section 125C of the Housing Act 1985 for more information about the Reference Period.

What are Improvement Works?

1. There is no precise definition of ‘Improvement Works’ in the legislation.

2. It is best defined in relation to other types of work such as maintenance or repair.

3. Works are generally considered Improvement Works if their main purpose is to add something new rather than repair or maintain an existing part of a building or estate.

4. For instance, installing a door entry system in a block of flat where there was previously no door restricting entry to the stairwell of the building would be an improvement. In this situation there is nothing being repaired or maintained.

5. Some types of work, such as the replacement of single glazed windows with double glazed windows can be either repair works or Improvement Works depending on the reason why they were carried out. If double glazing is fitted because the existing single glazed windows are in too bad a condition to be repaired, then the work would generally be considered to be a repair. On the other hand. if single glazed windows are in a good condition and they are replaced with double glazed windows for reasons of greater sound or heat insulation, then this would generally be considered Improvement Work.

6. For more information about service charges for improvement works see the section of Case Law Library on Major Works to Roofs and Windows.

Estimated Amount of Improvement works

1. Section 125B states that a Landlord must estimate what Improvement Works will be carried out during the Reference Period.

2. The estimate must include:

i. A total estimated cost for aggregate value of the predicted Improvement Works (this means the costs of all Improvement Works added together).

ii. A breakdown of this total amount into individual items of Improvement Work.

iii. The estimates must include any management fees, surveyor’s costs, VAT or other costs which the Landlord intends to recharge to the Leaseholder.

iv. The amount payable by the individual Leaseholder and not simply the cost which is attributed to a building or estate as a whole.

What does this mean for Leaseholders?

1. This is important to Leaseholders who have purchased through the Right to Buy or Right to Acquire because the amount they can be charged for Improvement Works is restricted in relation the amounts quoted in the Estimates in the Offer Notice.

2. This restriction is limited to a specific period of time known as the ‘Initial Period’.

3. The initial period means the first five years after Lease was granted unless:

i. The lease specifies that service charges are payable in respect of a specific annual period. If so then the initial period ends 5 years from the start of the first service charge year commencing after the Lease is granted.

ii. The lease specifies that a Leaseholder will be liable for a period prior to the grant of the lease, in which case the 5 years commences from the start of that period.

How the restriction on charging works during the initial period

1. During the initial period landlords are not entitled to charge leaseholders for improvement works which are not listed in the estimate given under Section 125B.

2. Where costs in respect of improvement works are incurred during both the initial period, and those costs are identified in the section 125B estimate, the amount which can be charged is limited to the relevant amount stated in that estimate plus a small uplift to take account of price inflation. The formula for calculating the uplift is given the relevant regulations.

Leases and Improvement Works

1. Some Leases do not allow Landlords to charge for Improvement Works.

2. If the specific word ‘improvement’ is absent from the list of things in the Lease a Landlord can charge for, it is generally taken that the Lease does not allow a Landlord to charge the cost of Improvement Works through the Service Charge.

3. Even if the Cost of Improvement Works are listed in the Offer Notice, a Landlord still cannot charge for them if the Lease does not allow it.

Relevant Case Law

Hyams and Anderson v Wilfred East Housing Co-operative Ltd [2007] 3 EG 126

LB Southwark v Ms Bee A Smith [2012] UKUT 295 (LC)

Click on the link to read more about The Housing Act 1985