The Security for Expenses provision in the Party Wall Act provides a useful mechanism to proactively resolve potential disputes due to planned construction work.
In this guide we look at what Security for Expenses means and how it can best be utilised to avoid costly delays and disputes.
The Party Wall etc. Act 1996 was introduced in the United Kingdom to provide a legal framework for resolving property disputes related to construction, allowing works to progress whilst maintaining harmonious relationships between neighbouring property owners.
The Security for Expenses provision at Section 12(1) of the Act specifically deals with establishing a level of protection for Adjoining Owners relating to foreseeable expenses that can arise due to their neighbours works under the Act.
A request for Security for Expenses typically arises in more substantial projects such as construction of a basement but there is nothing stopping an Adjoining Owner making such a request on any scheme if reasonable to do so.
Understanding Security for Expenses under the Party Wall Act
Section 12(1) of the Party Wall etc. Act 1996 reads as follows:
‘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 in practice?
In essence, it means that if an Adjoining Owner serves such a notice, the party carrying out the work may be required to make a deposit to cover foreseeable expenses that may arise to the Adjoining Owner.
This is particularly pertinent in the event of insolvency of the party undertaking the works or the contractors involved with the scheme mid-way through works being undertaken. The security deposit can cover any of (but not limited to) the following:
a.) Necessary alterations or reinstatements of the works undertaken
b.) Repairs required to an Adjoining Owners property
c.) Temporary accommodations required and;
d.) Potential fees arising from such a situation.
It is essential to ensure that the security is properly managed and secured to avoid potential conflicts of interest and legal disputes arising.
The first step in establishing security is the service of a notice by the Adjoining Owner which establishes a clear request for security with a view to reaching an agreement with the Building Owner.
What happens if a request for Security for Expenses is refused?
If the Building Owner does not agree to the request for security, a dispute arises under the Act and the appointed party wall surveyors step in to make a determination.
In doing so the surveyors must consider:
i.) If security is required for the scheme;
ii.) How much security is reasonable for that scheme and;
iii.) The mechanism/timelines for both calling upon (using) or releasing the security deposit.
Obtaining accurate cost estimates from reliable contractors or other professionals may be required to establish a reasonable amount to be held as security. A detailed breakdown of expenses considered in the calculation of the security will help resolve the matter more quickly. Professional party wall surveyors can assess the work required and provide a comprehensive estimate for this purpose.
Once an agreement has been reached by the appointed surveyors the Security for Expenses provision will be documented within a well-drafted Party Wall Award. The Award should clearly set out the determination of the surveyors relating to the security. This should include the agreed value of security to be held. It should also set out how the security it is to be called upon (if necessary) and the mechanisms and procedures required for the security to be released back to the Building Owner and in what timeframes.
It should be noted that technically security can be held in any form, be this in gold, antiquities or insurance, although using insurance for Security can be controversial. This is of course uncommon and the traditional approach to holding security is by depositing funds in a client account specifically established for this purpose.
How can Security for Expenses funds be protected?
An RICS Regulated firm can establish a client account to hold funds deposited as security of expenses. The RICS provide a system of inspection and regulation of client funds held on deposit. Funds held by an RICS Regulated firm are given further protection under the RICS Client Money Protection Scheme.
The RICS CMP Scheme provides £10.3m of insurance cover for general client money held by regulated firms. As an RICS Regulated firm Anstey Horne are able to offer a Security for Expenses facility within our client account, covered by the RICS CMP Scheme. We can provide a Security for Expenses facility even on projects where we are not appointed as a the party wall surveyor.
Conclusion : Security for Expenses
Establishing Security for Expenses is becoming more and more common on construction projects across the UK. Appointing a properly regulated RICS chartered party wall surveyor to assist you in dealing with Security for Expenses is vital in protecting the interests of all parties.
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The Party Wall process starts with serving notice, which we cover in greater detail here.
For more information on Security for Expenses please call our surveyors direct on 020 4534 3135.
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If you are planning work that is covered by the Act, or if you have received notice of work from a neighbour and want advice on how best to protect your property please contact:
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