Security of expenses-how does an adjoining owner protect themselves.

On the clear and natural reading of section 12 (1), Parliament not only recognised the possibility that damage caused by building owner’s works, but that the damage may not be rectified or suitable compensation paid. Therefore, Parliament introduced section 12 (1) so the adjoining owner’s property was protected.

Section 12 (1) is on the natural reading clear, free of ambiguity, and provides broad scope for the surveyors when called upon (where owners can’t agree the security) to determine the level of security.

s.12 (1)

12(1)   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.

Why? For example, what would happen if the building owner went into liquidation, after causing damage. It is not an uncommon event and I am certain that this is going to become more prevalent as we come out of (indeed if we ever do) the coding pandemic. https://www.telegraph.co.uk/global-health/science-and-disease/coronavirus-news-covid-uk-cases-local-lockdown-test-trace/

We are 23 years into the Act. It remains frustrating and disappointing that surveyors who hold themselves to be experts and indeed command substantial fees for interpreting and applying the Act are still confused about the correct interpretation of section 12 (1).

Why is there confusion? Well certainly those professional bodies such as the Royal Institution of Chartered Surveyors (for example) www.rics.org are not helping by giving misconceived advice to their members.

Indeed, RICS  have now released their seventh edition guidance notes, https://www.rics.org/globalassets/rics-website/media/upholding-professional-standards/sector-standards/building-surveying/party-wall-legislation-and-procedure-rics.pdf

One would have hoped that RICS might have formed a comprehensive understanding of the Act and how it should be interpreted and applied by the release of their second or third edition, they have had seven attempts and are still confused!

RICS at section 8.8 ‘security for expenses’ of their seventh edition guidance notes quite astonishingly advises their members: -

“The surveyor is not statutorily obliged to advise the appointing owner on security of expenses issues, unless there is a dispute in respect of requested security.”

This is non-sensical, why?

If the adjoining owners are not aware of their rights under section 12 (1) to request the security of expenses they will not be able to request such and are left exposed and vulnerable.

RICS place their members in a precarious position, if a RICS member does not advise the adjoining owner of their rights to request security of expenses, and the building owner defaults on their statutory obligations to compensate for damage caused, then the RICS member could be liable to a claim for negligence. Indeed, I have acted for a building's insurance provider in a matter where the adjoining owner had to make a claim on his building's insurance policy because of damage caused by the building owners' notifiable works and the building owner going into liquidation.

The building owners were a developer (in reality someone who had some land and was chancing their arm by developing it) once they realised that they had caused this damage they put company (“A”) into liquidation, but before doing so, sold the development site to company (“B”) owned by the same directors as company A. All perfectly legal and above board, except the adjoining owner’s damages of ￡70,000 ish were not recoverable from company B, because they had no liability.

The buildings insurer sought my advice on

(i)           Whether they had a liability, and

(ii)          Whether they had any right of recovery from third party.

On full consideration of the documents, I formed the opinion that it was clear that the agreed surveyor (an RICS member) had not executed his statutory duties to the standards of the reasonably ordinarily competent surveyor, in that he did not advise the adjoining owner of his rights to request security of expenses.

My recommendations were to pursue a claim for negligence against the agreed surveyor (a quite prominent and vocal party wall surveyor). The agreed surveyor notified his professional indemnity insurers (“PI”). After the initial denials, rejections of liability, the PI insurer settled. The settlement was made on the basis of “no admission of liability” and sealed for confidentiality purposes. The agreed surveyor thought he had got away with it, believe me, he hadn’t, because it wasn’t until his PI policy was due for renewal that he realised just how difficult and perilous position he was in. He now had a claim for negligence against him, and I received an irate call from the surveyor some months later when his PI insurer increased premiums by 30%, and he was unable to get offers of alternative cover because he had to disclose a negligence claim and no other insurer provide cover. He blamed me for this when in fact, it was his own negligence.

Therefore, the PI provider will over the course of years (and indeed this was some eight/nine or so years ago) recover what they paid out and more.

So the moral of the story to all party wall surveyors (not just RICS) who are www.cbuilde.com www.riba.com www.ciob.org to be careful about what you do and do not do, you can be held liable!

There are a number of practising party wall surveyors who have written (just like myself) blogs and below are two examples of how (in my opinion) surveyors are wrongly interpreting and applying section 12 (1) security of expenses.

For example, Mr. Bradley McKenzie wrights: -

https://www.blsurveyors.com/security-for-expenses-whats-it-all-about/

“Security for Expenses isn’t applicable to all types of Party Wall jobs and is generally reserved to those jobs that carry significant structural risk.”

For example, Richard at party wall expert wrights: -

https://www.partywall.expert/party-wall-blog/security-for-expenses/

“If significant works are being proposed, such as a basement construction, it seems logical that an adjoining owner should not have to take the risk that the building owner may or may not have funds to cover the adjoining owner's potential losses. This is more pertinent where the building owner is a limited company with unknown, little or no assets or an offshore company.”

In my opinion, logic dictates that no adjoining owner would want to take any risk of being exposed to damage or financial loss irrespective of the extent/degree of works being undertaken by the neighbouring owner. Parliament clearly believes they are not required to take the risk. Why should they?

Both of these gentlemen and some of the information contained within their blogs (opinions) is in my opinion misconceived and simply wrong. Clearly, on the natural reading and understanding of section 12 (1) (see above), there is no such limitation/restriction imposed under the Act. If an owner wishes to exercise their statutory right to request the security of expenses in relation to notifiable works for which the Act applies they are fully entitled to do so for any notifiable activity.

 Why? Because any activity can cause damage.

It is a matter for the surveyors to determine a reasonable sum, which could be a few hundred pounds or it could be many thousands of pounds. That is where a pragmatic, knowledgeable, and experienced party wall surveyor earns his money for their respective appointing owner. By ensuring that neither suffers punitive consequences arising out of the security which on satisfactory completion of the work will be released to the building owner.

RICS conceived advice continues advising: -

“The financial circumstances of the building owner may be relevant.”

This is again simply non-sensical, no such requirement is stated within the Act, moreover, the building owner when undertaking building works must by definition have some money.  How they can pay for the works? It is regrettable and perhaps often frustrating that an adjoining owner makes a request for the security of expenses, If the surveyors award the amount of security based on a ‘tale of poverty’ from the building owner and a claim arises which cannot be settled, the surveyors should not be surprised to find themselves at the end of a negligence claim.

Indeed, a few years ago my neighbor exercised their right to security of expenses. I agreed an amount with him and that was the end of the matter. It did not require surveyors adopting confrontational, misconceived, and aggressive positions (point scoring) ultimately at the cost of the owners.  I had anticipated the request because I was aware of section 12 (1). It did not come as a shock and I dealt with it. But if I had engaged an RICS member and he had not told me about section 12 (1) I would have been mightily upset and taking legal advice.

Common sense should prevail, the Act is written to encourage common sense, it doesn’t require solicitors and barristers, and indeed some judges (who don’t understand the act and get it wrong) to get involved. It requires pragmatic sensible professional party wall surveyors.