Security for expenses part 2 – Forms of security

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In my last post I looked at a possible limit on the ability for the adjoining owner to request security for expenses under section 12 of the Party Wall etc. Act 1996 (“the 1996 Act”).

Turning now to the form of security, this is not prescribed. The Oxford English Dictionary defines “Security” in this context as:-

“A thing deposited or pledged as a guarantee of the fulfilment of an undertaking or the repayment of a loan, to be forfeited in case of default.”

In most cases this may be money deposited in a solicitor’s client account against an undertaking in favour of the adjoining owner. However, this may present liquidity issues for the building owner.

Depending on the circumstances, other forms of security offered by a building owner might be appropriate. These may include:-

  • A Bank Bond – Basically an IOU from a bank on which an adjoining owner may call for payment. Bonds of this type are typically secured on other assets belonging to the building owner.
  •  An Insurance Policy – Although unusual, some underwriters may be prepared to issue an insurance policy similar to JCT 21.2.1 non-negligent collapse insurance i.e. a not-faulty policy. Ideally the policy would be written in the joint names of the building owner and the adjoining owner.
  •  A Charge Over Property – It is possible that a charge over the building owner’s property may be used as security, as it would allow the adjoining owner to enforce any debt owed with an application for an order for sale of the building owner’s land.

Ultimately, both the amount of the security and the form it should take are within the discretion of the surveyors.

Surveyors should bear in mind that they ought not to impose a requirement for security that would be too onerous on the Building Owner. For example, if £50,000 of security is required, but the building owner does not have it in ready cash, the surveyors ought to seriously consider one of the above alternatives.