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When is a management agreement ‘for a term of more than twelve months’?

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22nd May 2018

If a landlord of residential premises wishes to recover the costs of employing a managing agent through the service charge, he must ensure that he complies with the requirements of the Landlord and Tenant Act 1985. Under that Act only £100 will be recoverable from each tenant unless the tenants are consulted beforehand on any “qualifying long term agreement” which the landlord proposes to enter into. The question of how long is long enough to qualify arose in the recent Court of Appeal case of Corvan (Properties) Ltd v Abdel-Mahmoud and managing agents have been eagerly awaiting the outcome. I represented the tenant in that case with Philip Rainey QC.

What is a Qualifying Long Term Agreement?

A “qualifying long term agreement” is defined by s. 20ZA of the 1985 Act as “an agreement entered into, by or on behalf of a landlord or a superior landlord, for a term of more than twelve months.” Corvan (Properties) Ltd was the landlord of a block in Maida Vale and employed managing agents without consulting its tenants, who included Ms Abdel-Mahmoud. Clause 5 of the management agreement provided that:

“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.”

Can this agreement be brought to an end by the end of the year? If so does the fact that it is expected to continue for longer than a year mean that it is for a term of “more than twelve months” or is it enough that the agreement could be terminated at the end of the first year?

The Issues in Corvan

The Court of Appeal was faced with two questions:

1. what was the proper construction of the management agreement; and
2. What is the correct interpretation of the s. 20ZA – does “term” refer to a minimum term or a certain fixed maximum term?

The first question is, of course, specific to this agreement although there are many like it. The second is of more general concern.

Construction

On the construction question, McFarlane LJ considered that the word “will” in Clause 5 introduced a mandatory requirement that the contract will continue beyond the initial twelve months, without specifying for how long. He said:

“Although the wording of the clause does not prevent the giving of notice of termination before the conclusion of the twelve months, any such notice would have no effect until after the twelve month period has ended. To hold otherwise would be to do violence to the words “and will continue”.

The meaning of s. 20ZA

The agreement was therefore for a term of more than 12 months and the tenant was home and dry. There was strictly no need to consider the correct statutory interpretation of s. 20ZA but the Court of Appeal agreed with HHJ Marshall QC in Paddington Walk Management Ltd v Peabody Trust [2010] L & TR 6 that the deciding factor is the length of the commitment – that is the minimum commitment. The fact that the agreement can be allowed to roll on with not make it a QLTA if the agreement’s minimum term is less than 12 months. McFarlane LJ said that it necessarily followed that HHJ Gerald had been wrong in Poynders Court v GLS Property Management Ltd [20112] UKUT 339 (LC) when he found that an indefinite term which could be terminated on 3 months’ notice was a QLTA. HHJ Gerald had found that the issue was one of duration not termination. The Court of Appeal disagreed and said that whilst in Poynders Court the managing agent may have been intended to provide services for a period of more than 12 months, the agreement did not secure that they were under contract to do so for more than 12 months.

Conclusion

The landlord need only consult its tenants before entering into an agreement which is for a minimum term of more than twelve months. It does not, therefore, matter if the term could last longer provided it can be brought to an end before the expiry of a year. However, when using rolling contracts careful consideration must be given to the wording. It is all too easy to create a term which in reality cannot be terminated at the end of a year through drafting which has not been properly thought through.

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