When is an agreement for “more than twelve months”?

The need for careful drafting if landlords wish to sidestep the need to consult on long term agreements under s.20ZA of the Landlord and Tenant Act 1985

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Nicola Muir reports on the decision in Corvan (Properties) Ltd v Abdel-Mahmoud [2017] UKUT 0228 (LC) in which she represented the Respondent.

The Landlord and Tenant Act 1985, s. 20ZA, requires landlords to consult their leaseholders in relation to any contract they intend to enter into for a term of more than 12 months.  This sounds simple enough but when is an agreement for more than 12 months?  Is a rolling contract from month to month or year to year for more than 12 months? Is a contract which is initially for a year but can be terminated after a year for more than 12 months?

This was the question which faced the Upper Tribunal in Corvan (Properties) Ltd v Abdel-Mahmoud [2017] UKUT  0228 (LC).  The landlord had entered into a contract with its managing agents and the term was stated in Clause 5 of the agreement which provided:

“The contract period 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”

The landlord argued that the “term” of the agreement was expressly stated to be one year and that that term could be brought to an end on the last day of the year by giving three months’ notice during the year.   In the alternative, the landlord said, the agreement could be terminated by reasonable notice given during the initial year.

I argued on behalf of the tenant that this was not what the clause said.  The agreement was not a term of 12 months but rather was indefinite, although terminable on notice which could be served after a year.  No notice could be given during the initial 12 months as was clear from the fact that the provision for termination appeared in the clause after the word “thereafter”.  The earliest date on which the agreement could be terminated was, therefore, as the FTT had found, at the end of 15 months.

There have been two reported decisions dealing with what is and what is not a QLTA.  The first was the case of Paddington Walk Management Ltd v Peabody Trust [2011] L & TR 6 where the agreement was:

“for an initial period of one year from 1 June 2006 and will continue on a year-to-year basis with the right to termination by either party on giving three months’ notice at any time”

The meaning of the clause was not in dispute but the effect of section 20ZA was.  The landlord argued that, although the term might be allowed to continue for more than 12 months, the only certainty was that it could be terminated at the end of that period, so it could not be said to be for more than 12 months.  The Tenant said it was enough that the agreement was capable, according to its terms, of continuing for more than 12 months.  HHJ Marshall QC in the Central London County Court said that the deciding factor is the length of the commitment.  She agreed with the landlord and found that a contract initially for one year and thereafter on a year to year basis subject to a right to terminate on three months’ notice given at any time only entails a commitment for 12 months.

The problem arose again in the Upper Tribunal case of Poyders Court Ltd v GLS Property Management Ltd [2012] UKUT 339 (LC).  The agreement in this case was of indeterminate duration but either party could terminate it on three months’ written notice.  The Upper Tribunal found that there was a distinction to be made between the duration of an agreement and the opportunity to terminate it.  HHJ Gerald said that the Act was only concerned with duration and that as the agreement was of indefinite duration, it was for more than 12 months.

The Deputy President, Martin Rodger QC in Corvan found the reasoning in Poynders Court difficult to reconcile with the reasoning in the Paddington Walk case which had been cited in it.  However, the issue was not critical to the meaning of Clause 5 in the Corvan case.

The Deputy President said that he did not find the construction of Clause 5 easy but in the end concluded that the term was indeed for more than 12 months.  He said it was reasonably clear that the agreement was intended to continue until after the end of the initial year and that it “will continue thereafter”.  That continuation, for whatever further period, was not conditional on the absence of notice; it was a continuation “until terminated” not “unless terminated”.  Thus whether a notice may be given during the initial 12 months period, or only after it had expired, the notice may not bring the agreement to an end until a period of continuation after the end of the 12 months had first commenced.

Each agreement will, of course, be construed on its own wording but the case is illustrative of the care which must be taken in drafting, if a landlord is seeking to side step the consultation requirements.