Public Procurement of Housing Works and Services – Leaseholder Consultation

We are often asked to advise public housing bodies on the procurement of works and services for the repair and maintenance of their housing stock and, in particular, on the interplay between the procurement rules set out in the Public Contracts Regulations 2015 (“PCR”)[1] and the obligation to consult leaseholders[2] on the resultant service charges that the public sector landlord will normally be allowed to levy under the terms of the relevant lease.  These consultation requirements are set out in sections 20 and 20ZA of the Landlord and Tenant Act 1985 (“LTA”) and the Service Charges (Consultation Requirements) (England) Regulations 2003 (“the Consultation Regulations”).

Broadly, landlords must consult with affected leaseholders before doing either of the following:

  • carrying out individual works above a certain value – i.e. those which would result in the contribution of any leaseholder being more than £250;
  • entering into any qualifying long term agreement (“QLTA”) – i.e. one that lasts more than 12 months – for the provision of services under which the contribution of any leaseholder will be more than £100 in any 12 month accounting period.

Additional consultation requirements apply where the QLTA is itself intended for the regular commissioning of individual works exceeding the £250 contribution limit during its term.

If the landlord fails to comply with the consultation requirements it risks the amounts it can recover from individual leaseholders by way of service charges being restricted to the £250 or £100 limits referred to above.

Particular rules apply to the consultation that must be undertaken by a public housing authority where a contract notice is required to be published under the PCR in respect of a proposed QLTA for housing works and/or services.  Broadly speaking, there are two stages to the consultation. Firstly the landlord should consult on its intention to enter into a QLTA (the “Notice of Intention” stage). It is then necessary for the landlord later to consult on more detailed proposals (the “Notice of Proposals” stage). Public sector landlords are often working under tight procurement timescales and a variety of issues can arise as to the timing of the above two consultation stages within the context of the procurement timetable as a whole.

For example, in relation to the Notice of Intention stage the question is sometimes asked whether the authority must wait until the period for observations on the Notice has expired, and only then place the contract notice. The answer to this is that there is nothing in the Consultation Regulations which requires the authority to wait until then so long as the contract notice is placed after the notice of intention is given to leaseholders.  Following the reasoning in LB Newham v Hannan [2011] UKUT 406 (LC), so long as a leaseholder recipient has the opportunity of reading the contract notice if they wish and then alerting a contractor to its existence (unlikely though those both might be), there is compliance.

Another question that arises is whether the authority can carry out the second “Notice of Proposals” stage of its leaseholder consultation before making its award decision under reg 86 of the PCR and entering into the standstill period under reg 87.  Often the procurement timescales are tight and it would help the authority to be able to issue its second stage notice of proposal at the very least in the run up to the formal award decision and for the consultation process to run concurrently with the procurement approvals/award process if not beforehand.

Paragraph 4 of Schedule 2 to the Consultation Regulations indicates that the authority must have made some form of a decision (and more than just a recommendation) at the time it commences the Notice of Proposals stage even if it is only a provisional one.  Paragraph 4(1) requires the landlord to prepare “a proposal in respect of the proposed agreement”. This proposal must either then be sent to each leaseholder or they must be informed of a place where they can view it. Paragraph 4 continues:

“(2)  The proposal shall contain a statement–

(a)  of the name and address of every party to the proposed agreement (other than the landlord); and

(b)  of any connection (apart from the proposed agreement) between the landlord and any other party.”

So there is an obligation to state the name of every party to the proposed agreement. This includes, inevitably, the proposed contractor(s). So the authority is bound, explicitly, to name the proposed contractor(s) at this stage. This is necessary, not least because of the obligation then to state whether there is any “connection” between the landlord and the proposed contractor and to provide information about the costs that leaseholders are likely to be liable for (in accordance with paragraphs 4(4)-(6) of Schedule 2). The very fact that there is an obligation to name the contractor, which name would be confidential (along with the relevant costs information) until the contract award/standstill letters are issued, is consistent with the second stage consultation taking place after the issue of the contract award notice.

It is less clear whether the consultation could commence directly after that decision, or would have to await the expiry of the period for any internal call-in.  Although there is no direct authority on the point, it would probably be prudent to allow for the expiry of any internal call-in period before launching the second stage consultation but it is not in the writer’s view necessary to wait for the standstill period under reg 87 PCR to expire before doing so, the two can run concurrently.

There is no reason why the authority may not reach a decision which is not only conditional on the results of the leaseholder consultation, but also conditional on some other specified matters; this is implicit from the term “proposed agreement”, without specifying what those other conditions may be.

We have extensive experience of advising on housing procurements and would be happy to advise further on how to you can safely navigate the somewhat awkward relationship between these two statutory regimes.

[1] Still applicable after Brexit subject to certain amendments as  set out in the PublicProcurement (amendment)(EU Exit) Regulations 2020 (SI 2020 No. 1319)

[2] Usually, this means those with a tenancy granted for a term certain of more than 21 years.

This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published. If you would like further advice and assistance in relation to any of the issues raised in this article, please contact us today by telephone or email enquiries@sharpepritchard.co.uk.

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