Consultation's what you need

Many registered social landlords think of homes occupied by shared-ownership leaseholders or leaseholders who have exercised the right to buy as tangential to their main business.

Many separate management on the basis of tenure. However, for those that apply a variable service charge to their "rented" stock, the issue of service charges crosses that divide.

The 2002 Commonhold & Leasehold Reform Act amends the law on service charge account management. Landlords will still be dealing with sections 18-30 of the 1985 Landlord & Tenant Act, but the 2002 act alters what those sections say.

First, it widens the application of the requirement to consult. Before the new legislation, these provisions were restricted to service charges in recovery of the cost of services, repairs, maintenance or insurance. That definition is now amended to include the costs of improvement – a distinction that has previously been hotly litigated.

Second, the concept of long-term arrangements has now been specifically provided for, allowing RSLs to enter into an arrangement on the basis of a schedule of rates, which precludes the need to tender on each occasion.

Subject to the exemptions specified in the CLRA, a long-term agreement is an undertaking to carry out works for which the tenant is to pay. It is entered into by or on behalf of the landlord and lasts for more than a year.

The rest of the amendments to the law on service charges go directly to the form of consultation required. The statutory process is now split into two parts and the duty is to consult all tenants as well as any recognised tenants' association.

The first stage of the consultation will seem least familiar, as it relates specifically to the works as opposed to their cost. The notice the landlord has to serve at this stage must give details of the work to be done as well as stating the reason it is considered necessary. Comments should be invited and the notice must specify the timescale for comments and the date when that period expires.

There must also be an invitation to nominate someone from whom an estimate should be requested. The detail of the work can be dealt with by a schedule of works that may already have been prepared; it may be made available elsewhere, provided the notice indicates where and when that can be reviewed and photocopying facilities are provided.

Getting the right estimates
Once the comments period has expired, the landlord must seek an estimate from any person nominated. It may, of course, already have obtained estimates from other contractors but if not, at least two should be obtained at this time, including any nominated contractor and one independent from the landlord.

If the landlord awards a deal to a contractor who has given a pricier quote, it has to explain its reasons

The landlord must at this point also consider any observations made in the first stage.

The second stage of the consultation relates to the cost of the works. The landlord is required to supply a statement setting out the costs indicated by at least two estimates, including one from any contractor nominated by the tenants and one from the independent contractor.

The statement must state where all of the estimates obtained may be inspected in full. Again, photocopying facilities need to be provided.

The statement must also set out the observations received and the landlord's response to those. The issue of the statement again triggers a further 30-day period within which comments may be made. As before, this right must be notified and the timescale stipulated in the statement.

If, following the consultation period, the landlord decides to award the contract to the lowest estimate, there are no further statutory requirements.

If, however, the award is to go to any other tenant or contractor, the landlord must give notice of its reasons for doing so. It must also give a notice of the observations received and the landlord's response, over 21 days from the date of entering into the contract.

The same process applies where a landlord is going to enter into a long-term agreement. This includes the right of the tenants and/or tenants' association to nominate a contractor.

At the second stage, the landlord must put forward at least two proposals for long-term agreements. And in a similar way, these must include one that isn't connected to the landlord or any nominated contractor; and the proposal that's put together by a new contractor must be presented to tenants and leaseholders. If the proposal relates to the appointment of a management agent, professional qualifications will need to be detailed.