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Managing Agents’ agreements and s.20 consultation

Under Section 20 ZA(2) of the Landlord & Tenant Act 1985 and The Service Charges (Consultation Requirements) (England) Regulations 2003 landlords must consult leaseholders before entering into contracts for more than 12 months under which relevant costs incurred in respect of any accounting period (in principle one year) exceed an amount which results in the relevant contribution of any tenant being more than £100 in respect of that period.

Examples of qualifying long-term agreements (QLTAs) can include managing agents’ agreements.

While the principal purpose of the consultation process is to seek the leaseholders’ views on the landlord’s proposals, the effect of the provisions is to limit the landlord’s ability to recover if he does not comply. If the landlord fails to carry out the full consultation procedures in the correct manner, he is not able to collect or recover service charges above the level of the statutory minimum amounts – £100 per leaseholder per year in respect of a long-term contract.

A recent case has addressed the issue of when a management agreement will satisfy the requirements for a qualifying long term agreement. In Corvan (Properties) Ltd v Maha Ahmed Abdel-Mahmoud [2017] UKUT 228(LC) the dispute concerned the interpretation of the length of term of a management agreement and whether this was a long term qualifying agreement.

The appellant was the freehold owner of a residential building, containing 154 flats. The respondent was the leaseholder of one of the flats, which was held on a long lease. The lease contained standard service charge provisions, requiring the leaseholder to contribute towards expenses incurred by the freeholder in providing services including repair and maintenance, together with other heads of expenditure. The building was managed by a set of managing agents.

The initial dispute arose in respect of service charges totalling £24,420.83, claimed by the freeholder. This included sums in respect of a contribution towards the fees of two firms of managing agents, the current one having taken over from a previous firm.

The First-tier tribunal (Property Chamber) (FTT) disallowed part of the fees of both sets of managing agents on the grounds that the agreement between the freeholder and the first set of agents (and which also governed the services of the second set of agents) was a long term qualifying agreement and the consultation requirements had not been complied with.

It was common ground between the parties that the consultation requirements had not been complied with. In the management agreement made between the freeholder and the first set of managing agents, the ‘Term’ was defined as being: ‘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 FTT placed particular importance on the words ‘and will continue thereafter’, which it considered meant that the agreement could not be terminated before 15 months. On appeal, the Upper Tribunal found that the agreement was intended to continue until after the end of the initial period of one year. The continuation was not conditional on the absence of a notice, but was a continuation ‘until terminated’. As the agreement was for a term of more than twelve months, it was therefore a qualifying long term agreement and the fees remained disallowed.

Each case depends on its facts but the case provides a useful summary of some of the previous decisions regarding the interpretation of length of term. It also serves as a reminder of the need for clear drafting, to ensure that the length of term of an agreement accurately reflects the parties’ intentions. It has become increasingly common for managing agents to enter into management agreements for no more than 12 months, typically with an annual renewal. Such contracts; for no more than 12 months, renewed annually are clearly not qualifying long term agreements and avoid the consultation requirements.

If you need any assistance with Regulations or S.20 Consultation, contact a member of our team on 0333 0 300 200 or email info@slcsolicitors.com with your query.

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