Party Wall Security for Expenses
Party Wall Security for expenses, also known as security for costs or security for damages, is a protective measure embedded in party wall legislation to protect the adjoining owner’s financial interests in certain situations. In scenarios where the adjoining owner believes that the building owner’s proposed party wall works may cause damage to their property or incur significant expenses, they may request security in the form of a sum of money or a suitable guarantee before allowing the works to proceed.
Party Wall Act Section 12
The matter is dealt with in Section 12 of the Act which states that 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
Intent for Security for expenses
The intent behind this provision for party wall security for expenses is twofold: to ensure that the adjoining owner does not suffer undue financial hardship due to the works and to motivate the building owner to proceed with caution, taking necessary precautions to minimise potential damages. Practitioners should be aware that security is not considered appropriate against the ordinary possibility of damage or in respect of the payment of surveyors fees.
The underlying premise is that security for expenses could be appropriate where an adjoining owner may be exposed to having to pay for reconstruction or remedial work if the building owner were to commence and then leave the project unfinished. In such circumstances and where security has been paid, the adjoining owner can call on those moneys to cover any incurred costs.
Whether party wall security for expenses is appropriate will depend on a number of factors but for simplicity we will consider project related and Owner related issues.
Firstly with respect to the Owner. If the property is their main dwelling they are highly unlikely to leave the project in a condition where damage could be caused to their premises or the neighbours building. Not only will they have to face the neighbour each morning but they will likely cause more damage to their own property than the neighbours with unfinished works.
The situation is potentially very different for a development project that is owned by a shell company based in the Virgin islands. In such circumstances there is far greater risk of the project being stalled and simply left as well as the Owner being far more difficult to pursue. Such scenarios should be considered by the adjoining owner as to whether they wish to apply for security.
The second consideration for party wall security for expenses is the project specific one. Adjoining Owners should consider whether, if the works are started and not expeditiously completed, whether that would have an adverse effect on their building. For example if the neighbour commenced a rear extension set in from the boundary and it was left incomplete, it would not particularly affect the neighbours property and generally speaking security would not be considered appropriate.
At the other end of the scale, it is likely to be the case that if a party wall is to be demolished security may be very appropriate to cover the risk that the Building owner did not rebuild the wall.
If you have a question about security for expenses or the party wall act in general then please contact us for free, no obligation advice
Party Wall Security for expenses case study
One case where I did agree to party wall security of expenses was regarding the proposed redevelopment of a seafront home on the South Coast. In this case there was a walkway at first floor level to the Adjoining owner’s premises which was fixed to the side of the Building owner’s property. The Building owner wished to rebuild their side wall and accordingly the walkway needed to be temporarily removed and then reinstated following the reconstruction of the Building owner’s wall. I agreed to security of expenses on the basis that theoretically the walkway could be removed and not reinstated for example if the project went over budget and sufficient funds weren’t available to reinstate the Adjoining owners premises.
The need for security for expenses arises when the adjoining owner perceives the potential for significant damage or expenses resulting from the proposed party wall works. This perception may be based on a variety of factors, including the nature of the works, the proximity of the structures, the condition of the party wall, and any past experiences with the building owner or similar construction projects.
The appointed party wall surveyor(s) play a crucial role in evaluating the necessity for security. They assess the proposed works, consider the concerns of the adjoining owner, and determine if there is a valid reason for requesting security. This evaluation process ensures that security is not unreasonably sought and that the interests of both parties are balanced.
Beware of questionable motive!
There are some practitioners out there who encourage owners to submit a request for security of expenses solely to elevate their fee by including a charge for dealing with the request. If you are in doubt on an Adjoining Owners’ proposed costs, do not be afraid to ask for a detailed timesheet and properly critique the amount of time that they are claiming as well as their proposed hourly rate.
By way of a guide, I have dealt with security of expenses on around half a dozen matters out of the 1000+ that I have undertaken. That said it will rather depend on the type of work that you undertake and I would suggest that London surveyors dealing with basement excavations and the like would be far more used to receiving letters requesting security. Indeed one London Surveyor told me that they have security applications on around half of their workload.
The request for security of expenses, according to the Act, is to be made by the Adjoining Owner and prior to works commencing. Some Surveyors take the view that they can request security on behalf of their Appointing Owner. I am not convinced of this but certainly if you are considering making a request on behalf of an Adjoining owner, you should ensure that your appointment letter covers for such an eventuality.
It is also critical to remember that the involvement of the Surveyor should commence only in the event of a dispute. On the basis that the Adjoining owner requests security from the Building Owner and terms are agreed then there is nothing for the Surveyors to do.
Types of Security for Expenses:
The form of security for expenses can vary, depending on the jurisdiction and specific circumstances of the party wall matter. Some common forms of security include:
Cash Deposit: A cash deposit is a straightforward and common form of security. The building owner deposits an agreed-upon sum of money with an agreed-upon stakeholder, usually the surveyor(s) overseeing the party wall matter. This amount acts as a guarantee against potential damages or expenses incurred by the adjoining owner.
Bank Guarantee or Bond: In some cases, instead of a cash deposit, the building owner may opt for a bank guarantee or bond. This is a financial instrument issued by a bank or financial institution, promising to pay a specified amount to the adjoining owner if necessary.
Insurance Policy: A building owner may acquire an insurance policy that specifically covers any potential damages or expenses that may arise from the party wall works. This type of insurance provides an additional layer of protection for both parties.
A key consideration is the quantum of the security. My view is that it should cover any necessary safeguarding which may be required in the event that the works are left incomplete. As an example if the works relate to underpinning and a basement construction the sum held should likely reflect the cost of backfilling the excavation
Other security for expenses options
There is another circumstance which is featured in section 12(2). In this instance where the Adjoining Owner requires the Building owner to undertake certain works, the Building owner can request security from the Adjoining owner. I have always thought that this seems fair to ensure that the Building Owner’s contractors will get paid when they have likely not had the opportunity to undertake any due diligence on their new customer.
In such cases, if the Adjoining Owner fails to provide appropriate security then the Building Owner will be under no obligation to undertake the works requested by the Adjoining Owner. Similarly this feels to be the correct position to avoid contractors not being paid and to avoid any delay to the main project.
Security for Expenses Case law
The issue of security of expenses was explored in the notable case of Kaye v Lawrence 2010. The Building Owner Mr Lawrence served notice regarding his proposed works and stated that there were no proposals to underpin or otherwise safeguard the neighbours property. Mr Kaye, the Adjoining owner requested security under Section 12(1) believing that a bond or project specific insurance would be appropriate. This request was referred to the Third Surveyor who determined that security could only be agreed if there were party structure works proposed. Mr ye was unhappy with that and he appealed the matter to Court. It was determined that there is no distinction between works on the building owners land or the adjoining owners land for the purposes of section 12. Accordingly Mr Kaye was entitled to request security.
In a further case, heard at the Central London County Court the 2018 matter of Chliaifechtein v Wainbridge Estates Belgravia Ltd was determined. In this case an agreement was reached for a security sum of £2m. The works were undertaken and upon their completion £1.9m was released. This Award was appealed with the applicant of the belief that a higher sum should have been retained. The claim was successful with the Judge awarding a higher sum from the security figure than the Surveyors had awarded.
Balancing Interests:
The concept of security for expenses seeks to strike a balance between the interests of the building owner, who wishes to carry out necessary works, and the adjoining owner, who seeks to protect their property from potential harm or financial burden. It is essential to recognise that this provision is not intended to discourage building owners from pursuing necessary works but rather to ensure that they proceed with diligence and consideration for their neighbours.
Building owners, while initially apprehensive about providing security, often come to appreciate the reassurance it provides to the adjoining owner and the surveyor’s impartiality. This measure encourages a cooperative and transparent approach to party wall matters, promoting dialogue and compromise between both parties.
The Role of Party Wall Surveyors:
Party wall surveyors, as neutral and independent professionals, play a central role in facilitating the implementation of security for expenses. Their expertise in party wall matters allows them to assess the proposed works, determine the necessity for security, and set appropriate conditions for the provision of security.
Their involvement ensures that the process is fair and unbiased, preventing any undue demands for security while also safeguarding the adjoining owner’s interests. They act as mediators, guiding both parties through the complexities of party wall matters and fostering effective communication to resolve potential disputes amicably.
Conclusion:
Security for expenses stands as a testament to the Party Wall Act’s commitment to fairness and protection in the realm of urban development. By addressing the financial concerns of adjoining owners and motivating building owners to proceed with caution, this provision fosters an environment of cooperation and understanding.
Find out about Graham Kinnear Property Consultant – specialist party wall surveyors
Party Wall Surveyors are regularly engaged where work is to be carried out to a wall shared with another owner. Also where excavation is due to take place within 3 or sometimes six metres of a neighbouring building.
Demystify Party Wall Surveyors
To try and demystify the works of party wall surveyors we have decided to provide a mini series of informative blogs. This is the first one and we hope you are suitably interested to read the next one!
By way of an introduction, Graham Kinnear Property Consultant provide a party wall service to both domestic and commercial property throughout England and Wales. (It should be noted that the Act does not apply in Scotland). Headquartered in Kent we also have offices in London, Hertfordshire, Bedfordshire, Buckinghamshire, Oxfordshire, Staffordshire and Cambridgeshire.
Qualified Party Wall Surveyors
All of our surveyors are qualified in this field either via the Royal Institution of Chartered Surveyors or via the Faculty of Party Wall Surveyors, with some of us holding qualifications with both organisations. Some of our team are also qualified with the Chartered Association of Building Engineers and the Chartered Institute of Building.
So to start our party wall journey let us first consider the works which may invoke the Party Wall Etc Act 1996.
Works covered by Party Wall Surveyors
Party Wall Surveyors should be engaged if you are proposing to build a new wall on or astride what we surveyors term the line of junction but what you will probably call the boundary line. In such circumstances you are obliged to serve the neighbour with what is called a Line of Junction Notice or a Section 1 Notice. This is often the case if you are proposing to construct a rear extension to your premises and wish to maximize the space available.
Party Wall Surveyors should also be involved if you are planning to undertake work to a wall which is shared by your neighbour. This could include raising the wall up, removing a chimney breast from the shared wall, inserting beams into the wall (for example to support the floor for a loft conversion) or to remove something which is overhanging the wall which impedes your building plans. In these circumstances you would be obliged to serve your neighbour with what is called either a Section 3 Notice or a Party Structure Notice.
The final circumstance where Party Wall Surveyors may be required is if you propose to excavate ground within 3 metres of your neighbours building and that those excavations are likely to be lower than the depth of their foundations. In such circumstances a Section 6 notice, which is also known as a 3 metre notice would be required. The excavations could relate to the placing of foundations or drainage or indeed the creation of a basement level. The notice is required in respect of the excavation, rather than the works which require the excavation.
It may be the case that you are proposing a rear extension on the boundary line, the removal of a chimney breast and the conversion of your loft space. This being the case you would have to serve all of the above noted notices upon your neighbour.
Still need help?
If you are unsure whether the Party Wall Etc Act applies to your proposed works then please email us or contact us on 01843 583000 and one of our surveyors will assist you with an initial review of your proposals, free of charge and without obligation. Alternatively click here for further information.
