BAM is responsible for the repair and cyclical painting of the exteriors of our homes. Every year we do a number of blocks of flats so that we work our way round the Estate over a reasonable period of time. It is important that the external areas of our homes are well looked after, to maintain not only the structure but also the appearance and value.
In October each year the Buildings sub-committee confirms the blocks of flats which, by rotation, are due to be the subject of external redecoration in the following year, and a budget for the works is prepared. These proposals are then put to the full Board for approval, and the budget is published in November.
In the meantime BAM’s building surveyors, Fenton Associates, are instructed to prepare a detailed specification for the works and to find suitable contractors who would be interested in tendering for the contract to carry out the works.
First stage of Consultation with Leaseholders
The Commonhold and Leasehold Reform Act 2002 has introduced new requirements for this statutory consultation. Section 151 of the Act replaces the original provision, Section 20 of the Landlord and Tenant Act 1985, and introduces a new Section 20ZA, all with effect from 31st October 2003 (not Wales). The existing Sections 20A, 20B and 20C are not affected. The new provisions introduce different, more complicated procedures and extend the consultation requirements.
The law requires that the leaseholders must be consulted before the landlord carries out works above a certain value. In BAM’s case if the cost of any one contract for works would exceed £43,365, BAM must, by law, go out to consultation.
The calculation for the above figure is as follows. The law states that the threshold for consultation on works is reached if the service charge contribution for any one leaseholder towards those works would exceed £250. On the BAM Estate the proportion of individual contributions to service charge costs are the same proportion as the rateable value of the flat bears to the total rateable values of all the flats on the Estate and, as these differ between flats, we need to base our calculation on the highest rated flat. In BAM’s case the calculation to arrive at the minimum threshold total cost of any one contract for works where BAM must, by law, go out to consultation is calculated as follows: -
£250 (threshold contribution) X £91,933 = £43,365
£530 (highest rateable value) (total R.V. of all flats)
For more information on rateable values go to Service Charge Apportionment.
There are new requirements for the landlord to state why he considers the works to be necessary and for further statements setting out his response to observations received and his reasons for selection of the successful contractor. Consultation notices must be sent to individual leaseholders; the leaseholders have a right to nominate an alternative contractor and the landlord is bound to invite an estimate from such nominees.
The new procedures provide for two separate 30-day periods for leaseholders to make observations and it is prudent to allow a minimum of three to four months for the whole process.
While the principal purpose of the consultation process is to seek the leaseholders' views on the landlord's proposals, the effect of the provisions is to limit the landlord's ability to recover if he does not comply. If the landlord fails to carry out the full consultation procedures in the correct manner, he is not able to collect or recover service charges above the level of the statutory minimum amount of £250 per leaseholder for works to the building. The landlord would have to cover the loss himself; in the case of B.A.M. Estate Ltd, the consequences could be disastrous, potentially rendering the company insolvent and unable to continue to fulfill its obligations to leaseholders.
Notice of intention to carry out qualifying works is given to each leaseholder in December. The notice must describe in general terms the proposed works, or specify a place and hours where the description may be inspected.
BAM makes available a full copy of the specification and drawings in the Estate Office during normal office hours.
The notice must state the reasons for the works, and invite written observations, specifying where they should be sent, over what period (30 days from the notice), and the end date. Further, the notice must contain an invitation for nominations of persons from whom the landlord should obtain estimates. The landlord must have regard to written observations received during the consultation period.
It is BAM’s practice to include within the notice the names of the contractors it proposes inviting to tender.
In all cases, where the landlord is under a duty to provide facilities for inspection of documents, the place and hours for inspection must be reasonable, and facilities and copies must be available free of charge.
In any case where the landlord receives written observations during a consultation period, he has a duty to 'have regard' to them. There is no statutory definition of 'regard'; neither is there an immediate sanction for failure to have regard. However, the landlord is required on several occasions to state how he had regard to the observations received, and if he is unable to show that he has acted within the spirit of the Act from this point of view, it is possible that the LVT could determine that the consultation procedure has not been followed properly, and then disallow the recovery of the costs of the agreement over and above the relevant consultation threshold.
Our first consultation period ends in January, and only then can BAM go out to tender. The landlord must seek estimates from:
1. a single nominee of only one leaseholder
2. if single nominations are made by more than one leaseholder, the landlord must seek an estimate from the person with most nominations, or, if there is no clear leader but there are two or more who tie for first place, from one of those. If the result is not even that clear (for example, there could be five nominees with one vote each), an estimate must be obtained from one of them.
The Act does not lay down the terms within which the landlord approaches leaseholders' nominees when seeking to obtain estimates for works. Most will require certain fundamental criteria from their contractors (for example, public liability insurance, valid tax exemption certificate, confirmation of VAT status, copies of health and safety policy and confirmation of company status). Landlords are not prevented from applying their yardsticks as regards leaseholders' nominees, but they will have to justify their selection procedures to the LVT, if challenged. If they fail to convince the LVT in a particular case, there is a risk that the consultation procedure could be disallowed.
The Act does not require that persons nominated by leaseholders should be wholly unconnected with the leaseholder concerned, but the landlord will take such factors into account when formulating his proposals.
The categories to be considered as persons connected to the landlord are set out in paragraphs 2(1), 12(6), 19(3), 31(3) and 38(7) of the regulations.
It is to be assumed that there is a connection if any of the individuals concerned is a director, manager or partner in the business of the other contracting party, or is a close relative of such a person. A 'close relative' is a spouse or cohabitee, parent, parent-in-law, son or son-in-law, daughter or daughter-in-law, brother or brother-in-law, sister or sister-in-law, step-parent, step-son or step-daughter.
The Tender Process
When there are nominees from leaseholders, Fenton Associates will contact the nominee to ensure that they wish to tender for the works and to check that they are familiar with carrying out contracts of this size and type.
The surveyors then send out a tender package to all interested contractors which includes:
1. A Specification of Works
2. Plan and Elevation Drawings of the site
3. A blank form of tender
4. The Pre-Tender Health & Safety Plan
Each of the contractors, and their subcontractors, is given equal opportunities to inspect the site and raise questions.
The contractors will work out their pricing in accordance with their own methods, and subsequent examination of the detail of tenders can reveal substantial differences in some areas even though the final totals may be similar.
Estate Management (Hampstead) Ltd has bid competitively for the work for several years. It has the advantage of low overheads. It negotiates hourly rates for the supply of manpower from its preferred suppliers, and obtains competitive quotes for work being carried out by sub-contractors such as the supply and erection of access scaffold.
A time limit is given for tenders to be returned to Fenton Associates, which will be a time and date usually 3 weeks from the date the package is sent out. Tenders not so returned may be disqualified.
Tenders will specify the total price and the amount of VAT chargeable, together with the notice required from receipt of written instructions to commencement on site, the total contract period, and include a priced specification.
The surveyor will analyse the tenders and send his written report and recommendations to BAM, where it will be considered by a specially convened meeting of the Buildings sub-committee. The sub-committee will make a recommendation for the approval of the full Board.
Second Stage Consultation with Leaseholders.
The landlord must then issue a statement (free of charge) setting out the estimated cost from at least two of the estimates and a summary of the observations received and its responses to them. At least one of the estimates shown in the statement must be from a contractor wholly unconnected with the landlord. If any estimates were received from leaseholders' nominees, they must be included in the statement. There is no need to attach copies of estimates; instead the regulations state that all the estimates must be made available for inspection.
Notice is included detailing where and when all of the estimates may be inspected and inviting each leaseholder to make written observations on any of the estimates, specifying an address where they should be sent, the consultation period (30 days from the notice) and the end date. In addition, it is BAM’s practice to indicate which contractor they propose accepting.
BAM makes all the estimates available for inspection in the Estate Office during normal office hours.
The landlord must have regard to written observations received during this second 30-day consultation period.
Unless the chosen contractor is a leaseholder's nominee or submitted the lowest estimate, the landlord must give notice within 21 days of entering into the contract to each leaseholder, stating his reasons for the selection, or specifying a place and hours for inspection of such a statement.
The landlord must also summarise any observations made and his responses. There is no requirement for inspection of the summary and responses in this case.
The Commencement of the Works
Once the second consultation period is concluded the selected contractor can be given instructions to proceed. They will have specified in their tender the notice required from receipt of written instructions to commencement on site.
The residents and leaseholders of the flats involved will be sent a leaflet giving information on: -
• when the works are to start
• what work is included
• who will do the work
• who keeps an eye on progress
• how long it will take to complete the repairs and painting
• how much disturbance and interruption there will be
• about delays
• what they can do to help
• what happens when the work is finished
• what they can do if there is a problem
• who the points of contact are
As well as writing the specifications, Fenton Associates set the quality standards, specify variations, and generally monitor the progress and quality of the work of all contractors, and deal with snagging and completion. They also act as Planning Supervisor for the project, pursuant to the requirements of the CDM Regulations, and monitor compliance with all aspects of Health and Safety.
Three directors form the Major Works Oversight sub-committee, and their task is to continually monitor the progress of the works and review the costs. They meet formally every fortnight and report back at each Board meeting.