Rollover management agreements – consultation required

May 2018

By Nicholas Kissen, Senior Adviser LEASE

Under the law, before a landlord enters into any agreement:

1. For a period greater than 12 months for works and/or services; and
2. Under that agreement, costs incurred in respect of any accounting period (usually one year) would result in an individual residential leaseholder’s contributing more than £100 to those costs (essentially service charges)

then the landlord must consult formally with the leaseholders.

Agreements, as above, are known under the law as “Qualifying long term agreements” (“QLTA”). Often QLTAs are for the provision of services, for example the management of a building, the costs of which may ultimately be recovered through service charges.

In the absence of proper consultation on the proposed QLTA, where required, the amount recoverable from leaseholders will be limited to £100 per leaseholder per year.

On 15th May 2018 the Court of Appeal in the case of Corvan (Properties) Limited v Abdel-Mahmoud decided that an agreement for one year which will “continue thereafter until terminated by notice” was one for more than twelve months and therefore a QLTA.

The facts

Clive Court (“CC”) comprises three interconnected blocks of flats located in Maida Vale, London W9 and containing 154 flats. The freeholder is Corvan. The leaseholder owned a flat whose lease included conventional service charge provisions whereby she pays towards expenses run up by Corvan in managing the building, which in this case was undertaken on its behalf by managing agents.

CC was formerly managed on behalf of the freeholder by True Associates Limited under an agreement dated 17th December 2008. Later on, management responsibility was assumed by Moreland Estate Property Management, on the same terms.

The two managing agents had been appointed by Corvan under a management agreement which provided at Clause 5 that:

“The contract will be for a period of one year from the date of signature hereof and will continue thereafter until terminated upon three months’ notice by either party.”

Proceedings for recovery of service charges were issued in the county court and transferred to the First-tier Tribunal (Property Chamber)(“The F-t T”). The service charges included a contribution towards the fees of the two firms of managing agents.

At issue was whether the term under the agreement was for over twelve months as argued by the leaseholder. It was agreed by the parties that the consultation requirements under the law (i.e. the Landlord and Tenant Act 1985) had not been followed.

What happened before it reached the Court of Appeal?

1. The F-t T decided that as the agreement could not be ended before the end of 15 months it was, therefore, a QLTA. The F-t T stressed the words “and will continue thereafter” in Clause 5 which defined the term of the agreement were significant.

   Corvan appealed against this decision to the Upper Tribunal (Lands Chamber).

2. The Upper Tribunal dismissed Corvan’s appeal and agreed with the F-t T that the term was for more than twelve months.

   “What is reasonably clear, to my mind, is that the agreement is intended to continue until after the end of the initial period of one year: it ‘will continue thereafter.’ That continuation, for whatever further period, is not conditional on the absence of notice: it is a continuation ‘until terminated ‘not ‘unless terminated’. Thus whether a notice may be given during the initial 12 months period, or only after it has expired, the notice may not bring the agreement to an end until a period of continuation after the end of the 12 months has first commenced. On that construction the agreement was for a period of at least a year and a day, and was therefore for a term of more than 12 months.”

   Corvan appealed this decision to the Court of Appeal.

The Court of Appeal judgment

Corvan’s appeal was dismissed and the decision of the Upper Tribunal upheld. The court also considered the correct approach to the meaning of “for a term of more than twelve months” in the definition of a QLTA.

“the deciding factor is the length of the commitment. That must be read as the “minimum commitment”. Adopting the language of clause 5 itself, the issue is the duration of the “term” the parties have “entered into” in the “agreement”…Whether the agreement is for a term exceeding 12 months is not about the substance of the management agreement and its various obligations. Rather, it is about whether it is an agreement for a term which must exceed 12 months.”

Implications for leaseholders

1. Each case turns on its own facts. However…
2. It is common to have managing agents in charge of running a building with their fees recoverable through the service charges. Consider whether the terms of the agency, or any other agreement, is for more than twelve months. In the event that any one leaseholder will be required to pay more than £100 as regards the costs arising for that agreement, then it is a QLTA.
3. If there is a recognised tenants’ association for a building it can ask to be consulted about the appointment or reappointment of a managing agent by virtue of Section 30B of the 1985 Act.

Further Information

• Advice Guide: Section 20 Consultation for Private Landlords, Resident Management Companies and their Agents
• Podcast: Section 20
• Free webinar recording: Section 20 consultation