An Introduction to Security for Expenses

Security for expenses in Party Wall matters is a way to protect both the person doing the building work and their neighbour by setting funds aside in a secure account.‍

Overview of the Party Wall Act and Security for Expenses‍

The Party Wall etc. Act 1996 (‘Party Wall Act’) exists to protect building owners when a neighbour carries out work on or near a shared wall or boundary. Section 12 of this Act allows either the building owner or the adjoining owner to request a sum of money—known as ‘Security for Expenses’—to be put aside in case damage is caused, or if the works remain unfinished.

If you plan to carry out building works, your neighbour may require you to deposit these funds. Equally, if your neighbour insists you do additional work that you must partly finance, you can request they provide security too. This money is usually held in a separate, ring-fenced bank account until the surveyors on both sides confirm the work is complete and meets the necessary standards.

Who Holds Security?‍

The Act does not specify who should hold the funds or how. It simply says you and your neighbour must agree on acceptable arrangements for security. Many opt to use an escrow service like this Scheme. Solicitors sometimes hold these funds, but professional rules mean they can only do so in certain circumstances. Companies authorised by the Financial Conduct Authority (‘FCA’) can hold escrow funds specifically for this purpose.

How Security for Expenses Escrow Works

1. Surveyors agree the sum: Each owner appoints a surveyor, who then work out how much should be deposited and where.
2. Escrow vs. Non-Negligence Insurance: A typical home insurance policy usually covers negligent damage, but some harm can occur without negligence. Non-negligence insurance covers this, but it may have limitations. Security for Expenses provides extra protection beyond or instead of insurance.
3. Set up the account: After straightforward compliance checks, the escrow provider creates an account. The parties sign an Escrow Agreement (often in a standard form) to lay out the terms.
4. Deposit the funds: When work is about to start, the agreed amount is placed in the escrow account. Everyone, including surveyors, can track these funds.
5. Release on completion: When the surveyors confirm the work is complete and satisfactory, the funds go back to the person who deposited them.

Next Steps‍

You can open a free Security for Expenses account using this Scheme.  Visit our Security for Expenses Portal to get started.