When is a management agreement a qualifying long term agreement

The Court of Appeal has upheld the decision of the Upper Tribunal in Corvan (Properties) Limited v Maha Ahmed Abdel-Mahmoud [2017] UKUT 228 (LC). It found that a management agreement appointing an agent for twelve months which “will continue” on a yearly basis until either party terminated on notice, was an agreement for a term of more than twelve months. Therefore it was a qualifying long term agreement (QLTA) within the meaning of s20ZA of the Landlord and Tenant Act 1985. The Landlord’s failure to consult with the tenants before entering into the management agreement meant that the tenants’ contributions towards the managing agent’s fees were subject to the statutory cap of £100 per year.

The Landlord, Corvan (Properties) Limited, was the freehold owner of Clive Court in Maida Vale and had entered into a management agreement with its appointed managing agents. The Landlord initiated proceedings in the First Tier Property Tribunal (FTT) against Ms Abdel-Mahmoud, the Tenant, for unpaid service charges which included a contribution towards the managing agent’s fees.

The FTT disallowed part of the charges on the grounds that the management agreement was a QLTA to which the consultation requirements set out in s20 of the Landlord and Tenant Act 1985 applied. The Upper Tribunal upheld the decision of the FTT and the Landlord obtained permission to appeal to the Court of Appeal. The matters to be determined by the Court were:

1. Construction of the contractual term in the management agreement and whether this resulted in a term exceeding twelve months, to which the statutory consultation requirements applied; and
2. Interpretation of the statutory provision relating to QLTA’s and whether this was concerned with a minimum or fixed maximum term.

The Court of Appeal determined that the term of the management agreement was for a period of one year plus an indefinite period which was subject to a three month termination right. The Court considered that reference to “will continue” in the management agreement mandated continuation of the term of the agreement beyond the first twelve months and therefore that the agreement was a QLTA to which the statutory consultation requirements applied.

The Court of Appeal agreed that the deciding factor when considering whether an agreement was a QLTA was the minimum length of the commitment. In this case, the management agreement involved a commitment for a term of twelve months or more.

This decision is a reminder to all landlords who own residential or mixed use developments that the statutory consultation requirements must be correctly followed. Notwithstanding a landlord’s entitlement to recover costs under a lease, if the statutory consultation requirements are not correctly followed, whether these relate to QLTAs or qualifying works (where the statutory cap is £250), there is a risk that the landlord will not be able to recover all of its costs of repairing, maintaining and managing a building from its tenants.