Home Section 12: Security for Expenses

Section 12: Security for Expenses

S 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 a dispute determined in accordance with section 10.”

• the judgement in Kaye –v- Lawrence considered “exercise of the rights conferred by this Act”.  The case confirmed that section 12(1) is not limited to section 2 rights and applies to all works in pursuance of the Act – ie section 1, section 2 and section 6.

• In paragraph 63 of the Judgment, the Judge said:

“….the carrying out of works within three or six metres of the boundary would be as likely to cause loss or damage so as to justify security as would works carried out under section 6(3) or other provisions of the 1996 Act.  Further, in cases where work is being carried out under a number of sections of the Act, it does not make sense to grant security for some works but not other works when ……. liability for loss and damage under section 7(2) would apply to all works.”

• The word “expenses” is not used in section 12(1); the term used is simply “security”.¹

• Contrast sections 12(1) and 12(2).  In 12(1) security may be requested where the Building Owner “begins any work in exercise of the rights conferred by this Act…”.  In contrast s 12(2) :  Where “….an adjoining owner requires the Building Owner to carry out any work the expenses of which are to be defrayed…….by the adjoining owner, ..”

Section 12 (1) could have limited the Building Owner’s obligation to occasions where the Building Owner is exercising rights where the Building Owner has an ancillary obligation to make good damage and to pay expenses to the Adjoining Owner in lieu if requested.  It doesn’t, which suggests that the intended scope of 12(1) is wide.
• See also Bickford-Smith paragraph 12.2:

“The right to claim security is not expressly limited in any way.  It is considered that it extends not only to the works which will be carried out, but to any claim to which their execution may give rise under the Act (including compensation under section 7(2) and an allowance for disturbance under section 11(6) or otherwise.”

AND
• Andrew Smith, Child and Child – Compensation Disturbance Inconvenience – paper given to Thames Valley P & T 26 September 2007.  

“The surveyors’ power to give security is expressed in terms wide enough to include security for any compensation which they predict may be payable under the Act…….” - .

Matters to be considered

Bickford-Smith subdivides this into two parts:

Part 1 – related to work:

• Costs that may fall on the Adjoining Owner if the Building Owner having commenced awarded work is unable to complete it

• Amounts the Adjoining Owner may become entitled to by reason of works carried out – eg compensation under section 7 (see also A Smith’s views in above paper that the scope of compensation to be awarded is very wide, including potential loss of trade, loss of view etc.)

• Amounts due to the Adjoining Owner under section 1(7)

• Disturbance allowance under section 11(6) Note.  Bickford-Smith considers it to be appropriate for security to be awarded for anticipated damage either by way of section 11(8) or section 7(2).

Part 2 – relating to the Building Owner:

• Financial standing

• Geographical location • Quality of documentation • Standing of professional team and contractor

Calculation of amount

(Sum of potential liabilities relating to work) x (risk factor %) x (Building Owner factors %)

Conclusions in relation to security by the Building Owner for the Adjoining Owner

1. Works under sections 1 and 6 of the Act are works “in exercise of rights under the Act” – see Kaye v Lawrence.

2. The notion that Kaye –v- Lawrence did not consider the argument as to whether security can be awarded for compensation is wrong;  the issue was considered as paragraph 63 of the judgement makes clear.  

3. It may not be appropriate to award security for anticipated damage arising from works unless damage to the Adjoining Owner’s building is certain and/or the standing of the Building Owner is such that it is likely that any financial claim would not be honoured.

4. It is appropriate to award security for compensation due to Adjoining Owner under section 7(2) – because of item 1 above but also because section 7 (2) compensation applies to “any works executed in pursuance of the Act”.  This includes section 2(2) rights/works.

5. Debate about security has so far been limited to consideration of security against expenses of making good damage.  This is too narrow.  The Adjoining Owner’s rights for non damage-related compensation² must also be considered as must the Building Owner factors.³

6. Following notice by the Adjoining Owner to the Building Owner, the extent of security to be awarded should be calculated by reference to the formula above. These conclusions depart from established P & T opinion that security should only be awarded for fair allowance (s 11(6)), but does this matter?It must be remembered that although the Adjoining Owner may request security there is no automatic obligation for the Building Owner to pay it if he considers the sum wrong.  It is for the surveyors to award compensation and to do so after applying the factors set out above.  In most cases, therefore, security will be £nil or a very small sum because:

• Work is unlikely to cause damage;
• The Building Owner is of good standing and has competent contractor and professional team; • Most works do not give rise to immediate compensation under section 7(2)

AND

If the Adjoining Owner disagrees with the Award it can be appealed.
 

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