Landlord and tenant – Service charges – Qualifying long term agreement – Respondents holding long leases of flats – Appellant management company entering into informal agreement regarding service charges – Agreement being renewed annually – Whether agreement constituting qualifying long-term agreement within sections 20 and 20ZA of the Landlord and Tenant Act 1985 as amended – Whether service charges payable by respondents being limited to £100 per year – Appeal allowed
The appellant was the management company for the lessor in relation to flats at Keswick View, Ackworth, Pontefract. Each of the respondents held a flat on a long lease at a low rent from the lessor. The leases required the provision of various services by the appellant and required the payment of service charges by the respondents. The appellant appointed BPML as its managing agent. An issue arose as to the amount properly recoverable in respect of the management fees payable to BPML.
The appellant appealed against a decision of the First-tier Tribunal (FTT) whereby the FTT decided certain matters regarding the service charges to be paid by the respondents. The question for the FTT was whether the management services being provided by BPML to the appellant were being provided under a qualifying long term agreement (QLTA) between the appellant and BPML for a term of more than twelve months. The FTT concluded that the agreement between the respondent and BPML was a QLTA in respect of which no consultation had taken place, and that the liability of each applicant to contribute to that item of the service charges was limited by the Service Charges (Consultation Requirements) (England) Regulations 2003 to £100 per year under section 20 of the Landlord and Tenant Act 1985.
The appellant appealed. The appeal proceeded by way of review upon the written representation procedure.
Held: The appeal was allowed.
(1) The correct approach in a case such as this was to consider the proper construction of the contract between the landlord and the provider of the management services and to decide whether the agreement was for a term exceeding 12 months. That involved considering whether the term must exceed 12 months, rather than analysing the substance of the management agreement and its various obligations and considering whether there could be detected an intention or expectation that the services might be provided for a period extending beyond 12 months. The deciding factor was the minimum length of the commitment. The deciding factor was the length of the commitment. That had to be read as the “minimum commitment”. The issue was the duration of the “term” the parties had “entered into” in the “agreement”. Whether the agreement was for a term exceeding 12 months was not about the substance of the management agreement and its various obligations. Rather, it was about whether it was an agreement for a term which had to exceed 12 months. The requirement that the contract be for a term of more than twelve months could not be satisfied simply by the contract being indeterminate in length but terminable within the first year: Paddington Walk Management Ltd v The Governors of the Peabody Trust [2009] 2 EGLR 123, Poynders Court Ltd v GLS Property Management Ltd [2012] UKUT 339 (LC) and Corvan (Properties) Ltd v Abdel-Mahmoud [2018] EWCA Civ 1102; [2018] PLSCS 88 considered.
(2) In the present case, the FTT accepted as a matter of fact that the instructions to BPML had been renewed annually during a telephone conversation. The FTT also accepted the evidence that it was agreed between both parties that the contract should last no longer than 364 days. It might well be that both the appellant and BPML had an expectation that in all likelihood the contract would be renewed for the next year. However, an expectation to that effect was not the same thing as the existence of a contract between the appellant and BPML which was for a term exceeding 12 months, i.e. a contract under which the minimum commitment which each party took to the other was more than 12 months. From the FTT’s acceptance of the evidence, the court concluded that either party would have been entitled to decline to renew the contract such that it would have ended on the termination of the relevant 364 day (or perhaps one year) period. It followed that the FTT was wrong in its findings. Even if the conversation created a “continuous contract lasting 365 days” that would still not be a contract “for a term of more than twelve months” and would therefore not be a QLTA within section 20ZA of the 1985 Act. The fact that as a matter of history the parties had renewed the contract each year did not alter the fact that, upon the proper construction of the contract between them, the contract was only for 364 days (or for one year) and would not last longer than that unless it was renewed. Therefore, the FTT was wrong in concluding that the provisions of section 20 and section 20ZA of the 1985 Act required the amount of the management fee to be paid by each of the lessees to be limited to £100 per annum.
(3) The FTT did not go on to consider what would have been a reasonable management fee supposing that the amount was not limited to £100 per annum. However, the amount properly recoverable through the service charge provisions from the respondents in respect of management fees for the relevant years was £1,500 per annum in the light of two earlier FTT decisions in respect of the same building, which the respondents had submitted in support of their case, where the FTT had decided that a management fee in that amount was reasonable.
Eileen O’Grady, barrister
