What does the Party Wall etc. Act 1996 say?
“An adjoining owner may serve a notice requiring the building owner before he begins any work in the exercise of the rights conferred by this Act to give such security as may be agreed between the owners or in the event of dispute determined in accordance with section 10.”
But what does this mean?
Here are some key points to note:
• The adjoining owner must make their request for security in writing by serving a notice to the building owner.
• If notice is served, the building owner carrying out the construction works may be required to make a deposit to cover foreseeable expenses that may arise from the notifiable works.
• The adjoining owner and building owner can agree the type and amount of security themselves without the need of party wall surveyors. If a dispute does arise however, the appointed surveyors will agree the security on the owners’ behalf.
• The security can only be in relation to notifiable works and not any other issues that arise from the remainder of the project.
What is security for expenses?
Security for expenses is a mechanism which protects adjoining owners from foreseeable damage. This could be damage from the building owner failing to complete a construction project or to cover the cost of completing repairs caused by their notifiable works.
Previously, security in the form of money may have been held in a solicitor’s account with an undertaking that the money would only be released on instruction from the appointed surveyors.
However, in 2014 the Solicitors Regulation Authority advised that solicitors should not be providing these banking services unless there is a true connection between the parties and the legal services being provided by the solicitor. It is rare for a solicitor to be involved with a party wall matter, unless something has gone particularly wrong!
As a result, money is more commonly held in an escrow account. Some RICS Regulated firms can also hold funds in a client account. When held by an RICS Regulated Firm, the money will be protected under the RICS Client Money Protection Scheme. Alternatively, security can be made through bonds or insurance, although the use of insurance can be controversial. This is because it can potentially undermine the surveyors’ statutory authority to deal with disputes that arise as a loss adjuster would be appointed to investigate claims of damage. This could also delay the course of repairs which can be frustrating and leave the adjoining owner vulnerable to further damage.
Additionally, security for expenses is beneficial for protecting parties in the event of insolvency of the contractor or party carrying out the works during the project.
What can security for expenses cover?
The Party Wall Act is not specific on what security for expenses can cover, however it is largely agreed that security for expenses can cover:
• Repairs to an adjoining owner’s property when damage is caused by the building owner’s notifiable works.
• Expenses for making the adjoining owner’s property safe and secure should the building owner abandon the project.
• Temporary accommodation if necessary and any associated costs or fees.
• Professional fees in relation to resolving the dispute.
• Alterations or reinstatement of the works undertaken by the building owner, particularly in the event of the building owner failing to complete their works leaving the adjoining owner’s property vulnerable to damage.
What should I do if my request for security for expenses is refused?
When a building owner refuses a request for security, a dispute will arise under the Party Wall etc. Act 1996. Party wall surveyors will be appointed, whowill then determine whether security for expenses is reasonable for the situation.
The surveyors will consider whether security is required, how much security is reasonable, how the security will be held and the control mechanisms and timelines for using the security or releasing the funds back to the building owner. The surveyors’ role is to calculate foreseeable damage and they may obtain cost estimates from contractors or other professionals to assist in their determination. Once these have been considered, the surveyors will document this in a party wall award.
When will the security for expenses be deposited?
Before any notifiable works proceed, the party giving security for expenses, usually the building owner carrying out the works, will deposit the agreed sum into the agreed account.
When will a Building Owner get their money back?
Security is often released in stages as the notifiable works are complete and the two surveyors are happy that the works have been completed to a satisfactory standard. However, every situation is different, and advice should be sought from a party wall surveyor as to the release mechanism. This will also be documented in the party wall award. It is important to remember that the funds will only be released when agreed by both surveyors.
Next Steps
This article only answers some of the questions we receive at Harrison Clarke. If you are a building owner or adjoining owner and have more questions about security for expenses, please do not hesitate to contact our team of experienced Party Wall surveyors on 023 8155 0051. We look forward to working with you.
We also have a range of videos talking through various aspects of the Party Wall process. You can access them via our website or our YouTube channel.
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