Section 20 Thresholds Explained

The £250 threshold — qualifying works

Section 20 is triggered for qualifying works when the total contribution to those works recoverable through the service charge from any one contributing leaseholder exceeds £250. The threshold is per leaseholder, not per project, and it is calculated on the amount recoverable through the service charge — not the total cost of the works.

Qualifying works themselves are broadly defined: works to a building or other premises that the landlord is obliged to carry out under the lease or by law. Redecoration, roofing, lift replacement, structural repairs, communal window replacement — all commonly qualifying. Routine day-to-day maintenance carried out under an existing contract is a different question and is often better analysed under the QLTA regime.

Worked example

A block has 20 flats, all contributing equally under the lease. External redecoration is quoted at £45,000. The contribution per flat is £45,000 ÷ 20 = £2,250. £2,250 is greater than £250, so Section 20 applies and the full consultation procedure must be followed before the works are carried out. If contributions were unequal — say a ground floor commercial unit paying 15% and the flats sharing the rest — the test still applies to the highest-contributing leaseholder.

The £100/year threshold — QLTAs

A qualifying long-term agreement is an agreement entered into by the landlord with a wholly independent organisation or contractor for a term of more than 12 months. Consultation is required where the amount payable by any one contributing leaseholder under the agreement exceeds £100 in any accounting period. Consultation must happen before the landlord enters into the agreement, not after.

Common QLTAs include lift maintenance contracts, cleaning contracts, gardening contracts, dry riser servicing, entryphone maintenance and any other planned service delivered under a multi-year agreement. Note the "any accounting period" wording — you cannot escape the threshold by averaging the annual cost over the life of the contract if the cost in any single year exceeds £100 per leaseholder.

Worked example

A 30-flat block signs a 3-year lift maintenance contract at £4,500 per year. The contribution per flat is £4,500 ÷ 30 = £150 per year. £150 is greater than £100, so the agreement is a QLTA requiring Section 20 consultation before it is entered into. If the same block signed a 12-month contract that was renewed at the end of each year, the analysis is different — see below.

What is not a QLTA — the exemptions

Not every long-running contract triggers Section 20. Three important categories of agreement are exempt from the QLTA definition, meaning no consultation is required no matter what they cost:

• Contracts of 12 months or less. An agreement for a term of 12 months or less is not a QLTA. Crucially, this includes contracts that are formally renewed at the end of each year — the classic examples are managing agent agreements and buildings insurance policies, both typically written as one-year contracts renewed annually. Each renewal is a new 12-month contract, not the continuation of a long-term one. (Section 20 for the underlying works or services still applies where thresholds are hit — this exemption is about the agreement itself.)
• Employment contracts. A contract of employment — for example employing a caretaker, porter or resident manager directly — is not a QLTA. It is a contract of employment, not a contract for services.
• Intra-group agreements. An agreement between a holding company and one of its subsidiaries, or between two subsidiaries of the same holding company, is not a QLTA. This exemption keeps corporate restructurings and in-house service arrangements outside the consultation regime.

Two practical points. First, calling a contract a "12-month rolling agreement" does not make it exempt if the substance is a multi-year commitment — the tribunal looks at the terms, not the label. Second, an exempt agreement can still contain works that trigger the £250 works threshold. The exemption is about consulting on the agreement, not about consulting on qualifying works delivered under it.

What if the threshold is crossed by inflation, or by a variation?

If a contract sits under the threshold when entered into and later rises above it — either because the cost rises or because the number of contributing leaseholders falls — you do not need to unwind the contract. You do need to think carefully before extending it or agreeing a material variation, because a variation that materially alters the agreement can require fresh consultation. When in doubt, treat any extension beyond the original term as a new agreement and apply the QLTA test to it.

The two questions to ask before every project

Before you serve a notice or sign a contract, work through two questions in order:

• Is this qualifying works? If yes, calculate the contribution per contributing leaseholder. If any one leaseholder's contribution exceeds £250, Section 20 applies.
• Is this a long-term agreement of more than 12 months, and is it not within one of the exemptions? If yes, calculate the annual contribution per contributing leaseholder. If any one leaseholder's contribution exceeds £100 in any accounting period, Section 20 applies.

SECTION20 runs both tests as the first step of every consultation and shows the arithmetic on screen, along with the exemption checks. That way the answer to "should we be consulting?" is a calculation, not a guess.