How Security for Expenses is Determined | Party Wall etc. Act 1996 Guide

Introduction

When carrying out building works near a shared boundary or party wall, property owners in England and Wales must comply with the Party Wall etc. Act 1996. One important protection available to neighbours (adjoining owners) is the right to request security for expenses – a financial safeguard against potential damage or unfinished work.

This guide explains how security for expenses is determined, provides real-world examples of amounts requested, refers to key legal cases, and offers practical advice for both building owners and adjoining owners.

Legal Basis for Security for Expenses

The right to request security for expenses is set out in Section 12 of the Party Wall etc. Act 1996.

An adjoining owner may, before works start, serve a notice requiring the building owner to provide security "in respect of any expenses which may be occasioned to him by reason of the work." If the parties cannot agree on the amount, appointed party wall surveyors decide as part of their award.

The Court of Appeal in Kaye v Lawrence [2010] clarified that security can be required even if the work is only on the building owner's land, so long as it presents a risk of causing loss or damage to the adjoining property. This expanded the scope for adjoining owners to protect themselves.

Surveyors therefore have a wide discretion to determine whether security is appropriate, and how much is reasonable.

When and Why Security for Expenses is Requested

Security is most commonly requested when the planned works pose a significant risk to the adjoining owner's property, particularly where:

• There is substantial excavation, such as for basements.
• Party walls are being cut into, demolished or rebuilt.
• There is a risk of unfinished works if the building owner experiences financial difficulty.
• The building owner is an unknown developer or a shell company with no track record.

Security ensures that, should something go wrong (e.g., structural damage, incomplete reinstatement), funds are already set aside to put things right.

Factors Considered in Determining the Security Amount

Surveyors will assess several key factors when setting the level of security:

1. Nature, Scale and Complexity of the Works

• Deep excavations and structural alterations are riskier than simple cosmetic works.
• Basement projects or underpinning works tend to attract higher security sums.

2. Proximity and Condition of Adjoining Properties

• If the adjoining structure is close and/or old or fragile, a greater sum may be justified.
• Modern, robust structures may require less security.

3. Risk of Incomplete Works or Developer Insolvency

• If the building owner has a history of abandoning projects or is financially insecure, higher security may be needed.

4. Cost of Making Good Damage

• Surveyors estimate the likely worst-case cost of repairs, including structural works, finishing, redecoration, and external repairs.

5. Professional Fees and Temporary Accommodation

• Security can cover engineers' fees, surveyor fees, and even the cost of alternative accommodation if the adjoining property becomes temporarily uninhabitable.

Surveyors must balance protecting the adjoining owner with not imposing an unreasonable financial burden on the building owner.

Real-World Examples of Security for Expenses Figures

Actual figures from awards and practice include:

• Loft Conversion, Kent: £1,000 security for expenses (minor structural alterations).
• Basement Excavation, Belgravia: £35,000 security (deep excavation under Victorian terrace).
• Basement Excavation, Hampstead: £50,000 security (complex underpinning near multiple properties).
• Basement Excavation, Holland Park: £870,000 security across five adjoining owners (high-value homes and extensive risk).
• Chliaifechtein v Wainbridge Estates [2018]:
  • £2 million security initially agreed for major redevelopment works in Belgravia.
  • A further dispute arose regarding release and retention of a part of the security, highlighting the serious sums involved in high-value projects.

These examples demonstrate the wide range in security amounts — from modest sums for small projects, to multi-million pound securities for complex developments.

How Surveyors Decide on Security Amounts

If the parties cannot agree, the appointed party wall surveyors determine the security under the dispute resolution mechanism in Section 10 of the Act.

Surveyors must act impartially, considering:

• The type of works.
• The reasonable foreseeability of risks.
• The potential cost of reinstating any damage.
• The financial risk to the adjoining owner.

Surveyors typically rely on engineering reports, method statements, and cost estimates to guide their decision. They must also ensure that the amount is proportionate to the risk and not excessive.

If surveyors disagree, a Third Surveyor can be called upon to make the final decision.

Holding and Releasing Security

Once security is determined:

• It is usually paid into a stakeholder account, held by one of the surveyors or solicitors.
• It remains untouched unless triggered by:
  • Building owner failure (e.g., incomplete works).
  • Proven damage requiring remedial action.

Upon satisfactory completion of the works and any "making good" period, the security is returned to the building owner.

In Chliaifechtein v Wainbridge Estates, the Court of Appeal confirmed that adjoining owners could seek to withhold part of the security if genuine concerns about damage or incomplete works remained even after practical completion.

Practical Tips for Building Owners and Adjoining Owners

For Building Owners:

• Budget for possible security if undertaking substantial works.
• Provide full project details early to adjoining owners to reduce concerns.
• Offer insurance evidence to help lower or eliminate security requests.
• Negotiate the amount reasonably if security is requested.

For Adjoining Owners:

• Request security early, before works start.
• Be reasonable and proportionate in the amount you request.
• Provide evidence (e.g., cost estimates) to support your request.
• Work with your surveyor to ensure the award clearly sets out how and when the security can be used.

Worked Example: Setting a Security Amount

Scenario:
A building owner plans a basement excavation under a Victorian terraced house in London.
The work involves underpinning shared party walls.

Key Risks:

• Potential undermining of adjoining foundations.
• Water ingress.
• Collapse risk if works are abandoned halfway.

Estimated Costs:

• Structural repairs (worst-case): £45,000.
• Internal redecoration: £8,000.
• Temporary accommodation (if needed): £5,000.
• Professional fees: £7,000.

Total Exposure: Approximately £65,000.

Security Set:
Surveyors might therefore determine a security for expenses of £65,000 to cover these risks, possibly rounding slightly higher for contingencies (e.g., £70,000).

This sum would be held until works are completed and all defects made good.
If the works proceed safely and no damage occurs, the full £70,000 would be returned to the building owner.

Conclusion

Security for expenses under the Party Wall etc. Act 1996 is a critical protection for adjoining owners and a necessary consideration for building owners planning significant works.

Properly determined, security:

• Gives adjoining owners peace of mind.
• Encourages responsible project planning.
• Protects both sides from unnecessary disputes.

Surveyors play a vital role in ensuring that the amount is fair, evidence-based, and proportionate to the true risks.
Understanding the typical considerations and figures involved helps all parties approach security requests constructively, maintaining good relations between neighbours even during major works.