A management agreement was a ‘qualifying long-term agreement’ because it was for a period of more than 12 months

The Landlord and Tenant Act 1985 lays down rules that apply to residential service charges. It seeks to protect tenants against paying more than is reasonable for services and requires landlords to consult with them before carrying out certain types of work or before entering into “qualifying long-term agreements” (ie agreements for terms of more than twelve months). If the landlord fails to consult, and is not given a dispensation by the tribunal, it will be unable to recover more than the statutory limit – which, in the case of qualifying long-term agreements, is in the sum of £100 per leaseholder in any twelve month period. In Corvan (Properties) Ltd v Abdel-Mahmoud [2018] EWCA Civ 1102, the Court of Appeal had to decide whether a management agreement was a qualifying long-term agreement for the purposes of the legislation. It 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”. The case turned on whether the initial fixed term period was capable of being terminated by a notice bringing the contract to an end when the initial twelve month period expired. Or would the contract have to subsist for a period of at least 12 months and a day before the landlord could serve a notice terminating the management agreement? If so, the management agreement would constitute a qualifying long-term agreement because the initial fixed term was for a period of longer than 12 months. The landlord tried to persuade the court that the word “will” was not to be construed as meaning “shall”. The management agreement should be interpreted to mean that the contract period would be “for a period of one year from the date of signature hereof and unless terminated will continue thereafter until terminated upon three months’ notice by either party”. Alternatively, the phrase “until terminated upon three months’ notice” should be read as meaning “unless terminated upon three months’ notice”. The Court of Appeal explained that the longer the term of any agreement entered into by the landlord, the more significant the risk that tenants might be required to pay more than they should for services, or that they might have to pay for services that were unnecessary, or below standard. Hence the need for consultation before a landlord can enter into a qualifying long-term agreement. And, although it was not strictly necessary to decide the point, in the court’s view, the deciding factor, when determining whether a contract is for a term of more than twelve months, should be the minimum – and not the maximum – length of the commitment. Applying the principles laid down in Arnold v Britton [2015] UKSC 36, the wording of the agreement was quite clear. The use of the words “will continue” introduced a mandatory requirement that the contract would continue beyond the initial twelve months – or, to put it another way, the contract period could not be shorter than a year and a day. Consequently, the management agreement was a qualifying long-term agreement about which the landlord should have consulted first. And, because the consultation requirements had not been met in this case, the statutory cap on recovery applied.  Allyson Colby is a property law consultant