Dealing with the unexpected

Check the lease. Eg, if the lease says the service charge is to be demanded in arrears and is only payable once the works have been completed, you need to be absolutely clear as to who is responsible for the major works and how they will be funded.

A common misunderstanding about s.20 consultation. There is a perception among property managers that the s.20 consultation process allows you to issue a demand to the leaseholder in advance of carrying out the works.

This perception may not be entirely true; you can only raise a demand in advance of the works IF the lease allows for it.

Your lease, however, may have a clause that allows you to make a one-off demand for unplanned works, meaning all may not be lost.

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Reserve funds

Leases often contain a provision for a reserve fund; however the property manager may not have implemented it.

I recommend implementing the reserve fund at the earliest opportunity, which may often be the next budget year.

Good practice would be to write to all leaseholders in advance of the demand being raised to advise why you are doing this, how it will benefit them, and, if possible, quoting the clause in the lease. This should reduce questions from leaseholders when they receive their increased demand.

The reserve fund demand must be reasonable as leaseholders have the right to challenge reserve funds in the same way as they do their service charge.

Without the relevant clauses in the lease, property managers may not be able to make a demand in advance of works starting – even if they have been through the s.20 consultation process.

So what can you do if your lease doesn’t have a reserve fund?

The first step is to apply to the First-tier Tribunal to vary the lease. The FTT generally welcomes such applications, viewing reserve funds as prudent management.

In the meantime, if major works projects are due in the next financial year, then the demands need to be in line with the service charge clause in the lease and following the s.20 procedures.

Consider a rolling schedule of works

It is good practice to establish a rolling five to 10 year schedule of works. This is a very useful approach to take once your lease does contain provision for a reserve fund, as it allows you to make accurate major works demands.

Clearly there will be the odd unplanned project or repair to tackle, but some forward-thinking will help all parties to plan future expenditure.