When is a 12 month agreement, not a 12 month agreement?
7th June 2018
7th June 2018
The long awaited appeal of the Upper Tribunal’s decision in Corvan (Properties) Ltd v Abdel-Mahmoud has very recently been published.
In Corvan, the Court of Appeal considered whether the Upper Tribunal had been correct to find that a management agreement was a Qualifying Long Term Agreement (“QLTA”) within the meaning of Section 20ZA of the Landlord and Tenant Act 1985 (“the Act”).
What is a QLTA?
Under Section 20ZA, a QLTA is defined as an agreement entered into, by or on behalf of the landlord or a superior landlord, for a term of more than 12 months. Where any one leaseholder will be required to pay in excess of £100.00 in any financial period in respect of such an agreement, consultation is required under Section 20 of the Act. Failure to consult results in a cap on the contribution that can be recovered in relation to that agreement at £100.00 per leaseholder, in any one financial period.
The issue in Corvan
Corvan was the landlord of a block in Madia Vale and appointed managing agents under the terms of a management agreement which provided, at clause 5, the following :-
“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.”
One leaseholder, Ms Abdel-Mahmoud, argued that the agreement was for a term of more than 12 months and therefore amount to a QLTA.
Conversely, Corvan argued that the agreement could be terminated within the 12 month period. In other words, although the term could be allowed to run for more than 12 months, the reality 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 Court of Appeal had to decide :
What was the proper construction of the wording of clause 5 of the agreement; and
The scope of Section 20ZA, namely whether the “term” refers to a minimum term; or a certain, fixed, maximum term.
The Court of Appeal’s decision
The Court of Appeal upheld the decision of the Upper Tribunal, that the agreement was a QLTA.
The Court held that the word “will” in clause 5 introduced a mandatory requirement that the contract will continue beyond the initial 12 months, without specifying for how long. Although the wording of the clause would not prevent notice being given to end the agreement before conclusion of the 12 months, the Court held that any such notice would have no effect until after the 12 month period of the agreement had ended. The continuation of the term was not conditional on the absence of notice; it was a continuation “until terminated” not “unless terminated”.
To hold otherwise, the Court said, would be to do “violence” to the words “and will continue”.
The Court agreed with the Tribunal that the term of the contract was a period of 12 months plus an indefinite period which was subject to a 3 month termination right.
As the Court found that the term of the contract was for more than 12 months and therefore a QLTA, on which Corvan ought to have consulted under Section 20, the Court did not need to making a finding on the second issue above. However the Court did say, were it necessary for it to do so, the deciding factor when considering whether an agreement is a QLTA under Section 20ZA is the minimum length of the commitment under the contract.
The decision in Corvan is very much specific to the wording in that particular agreement. However, it is clear that care will need to be taken when landlords and agents are drafting management and other agreements, to avoid them being found to be QLTAs and consultation is required.
Counsel for the leaseholder in the Court of Appeal takes the view that landlords will only need to consult when entering into an agreement which is for a minimum term of more than 12 months. They say it does not matter if the term could last longer, provided it can be brought to an end before the expiry of 12 months. However, when using rolling contracts, careful consideration needs to be given to the wording to ensure that in reality the term created is not one which cannot be terminated at the end of 12 months.
By contrast, ARMA take a more cautious approach and appear to advocate new contracts being entered into every 12 months, and say that any language that suggests either automatic continuance or an ongoing commitment should be avoided.
If in doubt, we are more than happy to discuss with you further.
For more information, please contact Kevin Lever at Kevin.Lever@kdllaw.com or on 01435 897297.
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