Retention clause for section 20 major works invoices (leasehold)

kersal_massive

I'm buying a leasehold flat in England. The landlord provided the management information which contained details of Section 20 major works carried out in 2017 and 2019 which have still not been invoiced.

The seller and I have agreed that the seller's solicitor will hold a retention to pay for these works and we have agreed on the amount and the duration of the retention.

However the seller's solicitor won't agree on the specific terms of the contract rider for the retention, so I wanted to ask what does this clause look like? Just wondering if service charge / major works retention clauses tended to be quite standard, or if it's normal to have lots of back and forth to make sure the terms are all agreeable to us.

In particular the seller's solicitor wants to include a line saying that the invoice needs to be "rendered pursuant to the requirements of Section 20b" - but I do not want to have to prove this before getting them to pay. I'm worried that if the invoice comes within the retention period, the solicitors will weasel their way out of paying it and I'll have to pay! They can of course challenge whether it complies with S20b, but it has to be afterwards, and they should do it, not us.

(I am aware of Section 20b but I don't think I can rely on it)

I think the seller and I have mostly agreed on what she should cover, and she hasn't been difficult or anything, it's her solicitor who we've had a very negative experience with and don't have much trust in.

TripleH

Is there a schedule for these works outlining the costs

Who is the management company, I can't see companies would delay invoicing for so long or payment unless there was a good reason.

What is your solicitors's view on this?

tacpot12

Section 20b is about the timescale that the landlord has to provide you with a demand for payment. Binding you to the requirements of Section 20b would make it necessary for you to provide a demand for payment within 18 months of the costs being incurred. Give that you might receive your notification only after 18 months yourself, you  might only have one day (or no days) to pass on a demand to the vendor, so on the face of it your reservation is reasonable. 

However, the vendor already knows that these costs have been incurred, because their landlord has already told them that theyhave been incurred - the landlord will have told them this in order to comply with section 20b sub-section (2).

I think that binding you to comply with section 20b is pointless as the vendor has agreed they will pay these costs whatever they are (which they would have had to do if the  landlorrd had got their act together). I think it should be acceptable for you to agree a replacement clause for Section 20b that requires you to pass on a demand for payment with 3 months. I would be pushing for a corresponding clause that the vendor pays within 1 month as they will have been saving this money based on the estimate of the costs that the landlord gave them, so they should have the money sat there waiting for your demand.

REF: Landlord and Tenant Act 1985 (legislation.gov.uk)

Your vendor is the only one who can tell their solicitor that they don't want to include a pointless clause in the contract. 

kersal_massive

TripleH said:

Is there a schedule for these works outlining the costs

Who is the management company, I can't see companies would delay invoicing for so long or payment unless there was a good reason.

What is your solicitors's view on this?

There is an estimate in the Notice of Intention. The landlord and management is a London Borough, but this flat is a conversion in a terrace.

tacpot12 said:

Section 20b is about the timescale that the landlord has to provide you with a demand for payment. Binding you to the requirements of Section 20b would make it necessary for you to provide a demand for payment within 18 months of the costs being incurred. Give that you might receive your notification only after 18 months yourself, you  might only have one day (or no days) to pass on a demand to the vendor, so on the face of it your reservation is reasonable. 

However, the vendor already knows that these costs have been incurred, because their landlord has already told them that theyhave been incurred - the landlord will have told them this in order to comply with section 20b sub-section (2).

I think that binding you to comply with section 20b is pointless as the vendor has agreed they will pay these costs whatever they are (which they would have had to do if the  landlorrd had got their act together). I think it should be acceptable for you to agree a replacement clause for Section 20b that requires you to pass on a demand for payment with 3 months. I would be pushing for a corresponding clause that the vendor pays within 1 month as they will have been saving this money based on the estimate of the costs that the landlord gave them, so they should have the money sat there waiting for your demand.

REF: Landlord and Tenant Act 1985 (legislation.gov.uk)

Your vendor is the only one who can tell their solicitor that they don't want to include a pointless clause in the contract. 

Thanks this is really helpful - seems like so much extra work dealing with these issues for leasehold properties! The vendor's solicitors really are difficult 

As it happens we didn't get anywhere this morning with the vendor's solicitor so the estate agents have helped us reach an agreement to reduce the purchase price instead (more risky for my cashflow but I'll accept this)

eddddy

kersal_massive said:

In particular the seller's solicitor wants to include a line saying that the invoice needs to be "rendered pursuant to the requirements of Section 20b" - but I do not want to have to prove this before getting them to pay. 

Just to be clear - I assume this means the landlord/freeholder's invoice must be rendered pursuant to the requirements of Section 20b (i.e. within 18 months, etc).

It doesn't mean that you have to notify the buyer within 18 months.


TBH, I think the buyer's solicitor is being reasonable. Without that clause, this could happen:

• The landlord/freeholder issues an invoice after 20 months
• You use the retention money to pay the invoice (without acknowledging to the landlord/freeholder that it's payable)
• You go to tribunal to challenge the invoice (under s20b) because the invoice arrived after 18 months, and you get the money refunded

So the seller has paid, but you get the refund.



But it sounds like you've reached another solution anyway!

kersal_massive

eddddy said:

kersal_massive said:

In particular the seller's solicitor wants to include a line saying that the invoice needs to be "rendered pursuant to the requirements of Section 20b" - but I do not want to have to prove this before getting them to pay. 

Just to be clear - I assume this means the landlord/freeholder's invoice must be rendered pursuant to the requirements of Section 20b (i.e. within 18 months, etc).

It doesn't mean that you have to notify the buyer within 18 months.


TBH, I think the buyer's solicitor is being reasonable. Without that clause, this could happen:

• The landlord/freeholder issues an invoice after 20 months
• You use the retention money to pay the invoice (without acknowledging to the landlord/freeholder that it's payable)
• You go to tribunal to challenge the invoice (under s20b) because the invoice arrived after 18 months, and you get the money refunded

So the seller has paid, but you get the refund.



But it sounds like you've reached another solution anyway!

You mean vendor's solicitor, right?

It's already been 18 months since the works were completed but the vendor hasn't tried to ask the landlord whether there have been any Section 20B (2) notices and also hasn't applied to the tribunal.

I did figure that a clause like that would have been required and my solicitor drafted a new contract rider which would allow them to add the "pursuant to the requirements of S 20B" clause, I was just wondering if this is common because everywhere I've seen people talk about service charge retentions it sounds like quite a standard thing.

eddddy

kersal_massive said:

You mean vendor's solicitor, right?

It's already been 18 months since the works were completed but the vendor hasn't tried to ask the landlord whether there have been any Section 20B (2) notices and also hasn't applied to the tribunal.

I did figure that a clause like that would have been required and my solicitor drafted a new contract rider which would allow them to add the "pursuant to the requirements of S 20B" clause, I was just wondering if this is common because everywhere I've seen people talk about service charge retentions it sounds like quite a standard thing.

Yep - I meant the vendor's solicitor.

If it's already over 18 months, that's even more reason for the vendor's solicitor to have that clause in the contract.

You don't apply to a tribunal to challenge a service charge bill you haven't received. You wait for the bill to arrive, and if you think it's wrong (e.g. because of the 18 months rule), you challenge it. 


And if the vendor said to the landlord "Have you made an error by failing to give written notice with 18 months, which means you can't collect the service charge"

• I don't think the landlord would say "Yes - I've made a terrible error, so I'm not going to bill you for the work I've already paid for. I'll just bear the loss."

• I think it's far more likely that the landlord would say "No - I haven't made an error, and you must pay me." (even if the landlord realises they have made an error and the bill can be challenged.)

I guess that clause isn't usually in retention clauses, because it's very unusual to have a service charge which is over 18 months late.