What is Security for Expenses Under Section 12(1) of the Party Wall Act 1996?

The Party Wall etc. Act 1996 provides a framework for preventing and resolving disputes between building owners and adjoining owners when construction works affect shared or neighbouring structures. One of the most significant — and sometimes overlooked — protections available to adjoining owners is the right to request “Security for Expenses” under Section 12(1) of the Act.

This mechanism ensures that an adjoining owner is not left financially exposed if the building owner commences works but fails to complete them or leaves damage unrepaired. While often regarded as a technical provision, Security for Expenses can have major implications for project financing, programming, and neighbourly relations.

In this article, we explain in detail what Security for Expenses is, how it operates under the Party Wall Act, and why both building owners and adjoining owners need to understand its potential impact.

Understanding Section 12(1) of the Party Wall Act

Section 12(1) states:

“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.”

In simple terms, this means:

Adjoining owners have the statutory right to demand financial protection before works begin.

Building owners must comply, either by agreement or through determination by appointed party wall surveyors.

The amount and form of security are not fixed in the Act, but are to be negotiated or awarded.

This provision balances the risk: while building owners gain statutory rights to enter neighbouring land or cut into party structures, adjoining owners gain reassurance that they will not be left out of pocket should the project stall or cause damage.

Why Security for Expenses Exists

The rationale for Security for Expenses lies in risk management. Consider these scenarios:

A basement excavation is started but abandoned halfway due to insolvency.

A building owner begins a loft conversion, but structural works leave the party wall unstable before the contractor disappears.

A developer commences piling close to a neighbour’s foundations but fails to complete protective works.

In each case, the adjoining owner could face significant costs — either to stabilise the property, to repair damage, or to complete works left in an unsafe condition. Section 12(1) provides a financial safeguard, ensuring funds are available to cover such liabilities.

Who Can Request Security for Expenses?

Only an adjoining owner may request Security for Expenses. This includes:

Freeholders of the neighbouring property;

Leaseholders with interests exceeding one year;

Certain occupiers in limited circumstances.

Importantly, it is not automatic. The adjoining owner must formally request security, usually through their appointed party wall surveyor. If no request is made, the building owner is under no obligation to provide it.

When Can Security for Expenses Be Requested?

The right arises before the building owner begins work. Timing is crucial:

If the request is made early, surveyors have time to assess and determine the appropriate security.

If the request is made late, after works have commenced, it may be more difficult to enforce, though case law has confirmed that adjoining owners are not barred from requesting security once works are underway.

For practical purposes, adjoining owners are advised to raise the issue as soon as possible in the party wall process.

How is the Amount of Security Determined?

The Act does not prescribe a fixed formula. Instead, Section 12(1) directs that the amount is to be agreed between the parties or, failing agreement, determined by the surveyors under Section 10.

Factors considered include:

The nature and scale of the works (e.g. basement excavation carries higher risk than internal alterations).

The potential cost of reinstatement or protection works if the building owner defaults.

The duration of the project and financial stability of the building owner.

The worst-case liability faced by the adjoining owner.

Surveyors typically require the building owner to provide evidence of costs, contractor estimates, or method statements to inform their assessment.

Form of Security

Security is usually provided in one of two ways:

Escrow / Retention of Funds — The building owner lodges money in a stakeholder account (held by the surveyors’ firm or a solicitor).

Bond / Guarantee — A bank guarantee, insurance bond, or performance bond is arranged.

The form must be practical, secure, and accessible in the event of default. Simply offering an undertaking or relying on personal assurances is rarely acceptable.

Release of Security

Security is not held indefinitely. Once the works are complete and any making good or compensation issues are resolved, the surveyors will authorise the release of funds or discharge of the bond.

This ensures that the building owner does not suffer unnecessary financial constraint once risks to the adjoining owner have passed.

Security for Expenses vs Compensation

It is important to distinguish between:

Security for Expenses — upfront protection against incomplete or defective works.

Compensation — payable for actual damage caused during the works.

An adjoining owner may benefit from both. Security ensures that funds are available to deal with risks before they materialise, while compensation addresses losses after they occur.

Practical Considerations for Building Owners

For building owners, a request for Security for Expenses can present challenges:

Cash Flow Impact — large sums may need to be set aside, potentially delaying works.

Financing Issues — lenders and funders may need to be involved to provide bonds or guarantees.

Programming Delays — works cannot lawfully commence until security is provided and agreed.

Developers should therefore anticipate the possibility of such requests and budget accordingly, especially for high-risk projects such as deep excavations.

Practical Considerations for Adjoining Owners

For adjoining owners, requesting security is a powerful tool but should be used proportionately:

Excessive demands may be challenged and reduced by surveyors.

Costs of determination will generally fall as part of the party wall procedure.

Early engagement with surveyors helps ensure realistic assessments.

In practice, adjoining owners often request security where they perceive financial or construction risks to be high, such as basements or projects by inexperienced developers.

Case Examples and Surveyor Practice

While not governed by strict statutory formulae, surveyors commonly see security requests in the range of £10,000 to £250,000+, depending on project scale.

Examples include:

Residential basements in London — security often required to cover underpinning and temporary works.

Commercial redevelopments — larger sums reflecting the scale of excavation and structural alterations.

Small domestic works — rarely require security, unless particular risk is evident.

FAQs on Security for Expenses

What is Security for Expenses?

Security for Expenses is a financial safeguard under Section 12(1) of the Party Wall etc. Act 1996 that allows adjoining owners to require building owners to set aside money or provide a bond before starting works, ensuring funds are available to cover unfinished works or damage.

Who can request Security for Expenses?

Only adjoining owners, such as neighbouring freeholders or long leaseholders, can request Security for Expenses. Building owners cannot initiate it themselves.

When should Security for Expenses be requested?

It should be requested before works begin. However, surveyors may still consider late requests if risks remain.

How much Security for Expenses is usually required?

There is no fixed amount. Surveyors assess the likely cost of making the works safe or reinstating damage, often ranging from tens of thousands to hundreds of thousands of pounds in major projects.

Does Security for Expenses replace compensation?

No. Security is preventative, while compensation addresses actual losses after they occur. An adjoining owner may be entitled to both.

How is Security for Expenses released?

Once works are complete and any damage resolved, surveyors authorise the return of funds or discharge of guarantees.

Conclusion

So, what is Security for Expenses? It is a statutory safeguard under Section 12(1) of the Party Wall etc. Act 1996, empowering adjoining owners to demand financial protection before works begin. For adjoining owners, it reduces risk of exposure to unfinished or unsafe works. For building owners, it introduces potential cost and cash flow implications that must be factored into project planning.

Handled correctly by experienced party wall surveyors, Security for Expenses provides a fair balance of risk and reassurance.

If you are planning works under the Party Wall Act, or you are an adjoining owner concerned about potential risks, our specialist Party Wall Surveyors can advise on whether Security for Expenses is appropriate and how it should be implemented.

Get in Touch

If you are planning works covered by the Party Wall Act, early professional advice can save time, cost, and disputes. At Anstey Horne, our RICS-qualified Party Wall Surveyors act for building owners, adjoining owners, architects, and legal teams across England and Wales.

For advice direct from one of our Surveyors, please call our Enquiry line on 020 4534 3135.

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