Why Security for Expenses Matters: Protecting Adjoining Owners from Insolvency and Delayed Works

This article explores why security for expenses matters, the case law shaping its interpretation, and how solicitors and surveyors can protect adjoining owners from insolvency risks and prolonged disruption.

When building works are proposed under the Party Wall etc. Act 1996 (“the Act”), the balance of risk between the building owner and the adjoining owner often becomes the key concern. While the Act provides adjoining owners with rights of notice, surveyor appointments, and award procedures, one provision in particular stands out as a crucial safeguard: security for expenses under Section 12(1).

This mechanism allows an adjoining owner to demand financial protection before works commence, ensuring that if the building owner cannot complete the project — due to insolvency, cashflow problems, or abandonment — there are funds available to cover necessary protective or remedial works.

The Statutory Basis for Security for Expenses

Section 12(1) of the Act provides:

“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.”

The language is deliberately broad. It empowers adjoining owners to request security before works start. If no agreement is reached, appointed surveyors (or the third surveyor) determine the appropriate form and quantum of security.

In practice, this usually takes the form of a bond, escrow account, or bank guarantee — mechanisms that ringfence funds for the adjoining owner’s protection.

Why Security for Expenses Matters

1. Protecting Against Insolvency

Insolvency of building owners is not rare, particularly in residential developments or smaller commercial schemes where financing may be fragile. If a contractor walks off site, or if the building owner collapses financially, adjoining owners could be left with exposed excavations, partially demolished structures, or significant damage to their property.

Security for expenses ensures that funds are pre-set aside to carry out emergency works, underpinning, or protective measures, without leaving the adjoining owner in financial limbo.

2. Avoiding Delays and Abandoned Works

Even solvent building owners sometimes suspend works due to planning challenges, funding gaps, or disputes with contractors. Such interruptions can leave adjoining owners exposed to prolonged disruption.

Requiring security creates a financial discipline on the building owner: unless they can demonstrate financial capacity upfront, works should not commence.

3. Providing Leverage in Disputes

From a practical perspective, adjoining owners who demand security gain a significant degree of control in negotiations. If surveyors determine that security is justified, the building owner cannot simply press on with works. This levels the playing field and discourages speculative or underfunded projects.

Case Law on Security for Expenses

Kaye v Lawrence (2010)

This case is the leading authority. The adjoining owner sought security before deep basement excavation works. The building owner argued security was unnecessary, suggesting the Act did not intend it for such circumstances.

The court disagreed. Mr Justice Ramsey held that security is not confined to cases where the adjoining owner has to carry out works themselves. Instead, the provision should be read broadly: if works present a risk of being left incomplete or causing damage, adjoining owners are entitled to seek security.

Importantly, the court confirmed that:

Security is a preventative measure — not merely reactive.

Adjoining owners do not need to prove insolvency, only demonstrate a real risk of non-completion.

The amount of security should be proportionate, reflecting likely remedial or protective works.

This case has been cited repeatedly as authority for a wide, protective reading of Section 12(1).

Practical Considerations for Solicitors and Surveyors

When Should Security Be Requested?

Security is most relevant where works involve:

Deep excavations or basement works adjacent to foundations.

Demolition or structural alterations that risk destabilising neighbouring property.

Projects where the building owner is a special purpose vehicle (SPV) with limited assets.

High-value residential schemes where funding is uncertain.

Solicitors advising adjoining owners should assess the financial robustness of the building owner and the risk profile of the works before advising whether to press for security.

How Much Security Is Appropriate?

Surveyors must assess:

The cost of temporary works to make the site safe if the project stalls.

Potential remedial works to adjoining property.

A contingency element for unforeseen risks.

This often requires input from cost consultants or engineers to produce a reliable estimate.

Mechanisms for Security

Common methods include:

Escrow accounts — ringfenced funds held in a surveyors or solicitors client account.

Bank guarantees or bonds — enforceable instruments triggered by default.

Insurance policies — less common but sometimes used as collateral.

Each method has different enforcement challenges, and surveyors must ensure terms are clear, practical, and enforceable.

Why Security for Expenses Matters to the Market

For solicitors and surveyors, security for expenses is not simply a procedural point — it is a strategic safeguard that protects clients and shapes negotiations. Its importance has grown with:

The rise of basement excavations in urban centres.

Fluctuating construction financing in the post-pandemic economy.

Increasing use of SPVs and developer insolvencies.

In this context, adjoining owners rely heavily on their professional advisors to ensure they are not left exposed.

FAQs

What is security for expenses under the Party Wall Act?
It is financial security that an adjoining owner can require from the building owner before works commence, to cover the cost of making the site safe or carrying out remedial works if the building owner defaults.

Do adjoining owners need to prove the building owner is insolvent?
No. Case law confirms it is enough to show a real risk of non-completion or exposure to costs.

Who decides the amount of security?
If parties cannot agree, the appointed surveyors (or the third surveyor) determine the sum under Section 10 of the Act.

Can security be revisited during the works?
Yes. Surveyors may require top-up security if risks change, or release funds if the risk diminishes.

Is security always granted if requested?
No. Requests must be reasonable and proportionate, based on the nature of the works and the building owner’s financial position.

Key Takeaways - Why Security for Expenses Matters

Security for expenses is a vital protection for adjoining owners.

The courts interpret Section 12(1) broadly, making it a powerful tool.

Professionals should consider security in all high-risk or high-value projects.

Reasonableness and proportionality are essential in both requesting and awarding security.

Conclusion - Why Security for Expenses Matters

Security for expenses matters because it protects adjoining owners from the very real risks of insolvency and delayed works. As Kaye v Lawrence confirms, it is not a mere procedural formality but a substantive right that can prevent financial and structural exposure.

For solicitors and surveyors, advising on and securing appropriate protection is a core professional responsibility under the Act. By ensuring robust security mechanisms are in place, adjoining owners can approach party wall matters with greater confidence, knowing that their position is safeguarded.

Need advice on security for expenses or party wall matters?
Our experienced surveyors advise solicitors and property professionals across England & Wales. Contact us to discuss how we can protect your client’s position.

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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.

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