Landlord and tenant – Service charges – Qualifying long term agreement – Appellant freeholder engaging managing agents for block of flats – First-tier Tribunal (FTT) disallowing part of management fees on grounds that management agreement was qualifying long term agreement – Upper Tribunal dismissing appeal on question whether agreement was qualifying long term agreement – Whether agreement for one year which “will continue thereafter until terminated by notice” being agreement for not more than 12 months – Appeal dismissed
The appellant owned the freehold interest in Clive Court, Maida Vale, London, W9, a substantial residential building comprising three interconnected blocks on eight floors containing 154 flats. The respondent occupied a flat under a long lease which included conventionally drafted service charge provisions requiring the respondent to contribute towards expenses incurred by the appellant in the provision of services including repair, maintenance and insurance of the building and other heads of specified expenditure.
A management agreement between the appellant and the managing agents provided by clause 5: “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”. Section 20ZA of the Landlord and Tenant Act 1985 provided that a qualifying long-term agreement was an agreement entered into, by or on behalf of, the landlord for a term of more than 12 months.
A dispute arose in respect of service charges claimed by the appellant which included a contribution towards the fees of managing agents, the cost of employing a team of porters and a charge for payroll preparation. The First-tier Tribunal (FTT) disallowed part of the fees of both managing agents on the grounds that the management agreement between the appellant and the managing agents was a qualifying long-term agreement to which the consultation requirements of section 20 of the 1985 Act applied and had not been observed. The Upper Tribunal dismissed the appellant’s appeal on the question of whether the agreement was a qualifying long-term agreement: [2017] UKUT 228 (LC); [2017] PLSCS 124.
The appellant contending that to insist, as the Upper Tribunal had done, that clause 5 resulted in the terms being a year plus one day, or a minimum of 15 months was to do violence to the terms of the agreement. Although the clause was a single unity, it had two distinct elements. The first concerned the length of the term, the second was about termination. The expression “contract period” could not be overlooked by placing excessive emphasis on the word “will”, which was not to be construed so as to mean “shall”. Furthermore, because the clause was clearly overly condensed drafting, it required the implication of the words “unless terminated” after “and” in order to give proper effect to the intention that the term be for 12 months and no longer.
Held: The appeal was dismissed.
(1) The use of the word ‘will’ in clause 5 of the management agreement introduced a mandatory requirement that the contract would continue beyond the initial twelve months, without specifying for precisely how long. Although the wording of the clause did not prevent the giving of notice of termination before the conclusion of the twelve months, any such notice would have no effect until after the twelve-month period had ended. To hold otherwise would do violence to the words “and will continue”. The fact that the appellant needed to imply the words “unless terminated” or to change “until” to “unless”, indicated that the natural meaning of the words without those changes did not support the appellant’s case. This might be a case where the likely intention of the landlord at the time the agreement was made would seem to differ from the effect of the actual words used in the relevant clause. Making the implied changes to the wording argued for by the appellant would involve taking into account subjective intention in the process of construction, which was not permitted. In addition, it was difficult to see what the commercial common sense would be for managing agents to have that alteration made. Correctly construed, as found by the tribunal, the term of the contract was for a period of one year plus an indefinite period which was subject to the three-month termination right. In that respect, because it mandated continuation beyond the first year, it was a qualifying long-term agreement. Arnold v Britton [2015] UKSC 36; [2015] EGLR 53 followed. Langton v Carleton (1873) LR 9 Ex 57 distinguished.
(2) The purpose of the statutory intervention in sections 18-20ZA of the 1985 Act was to ensure that tenants of flats were not required to pay for unnecessary services or services which were provided to a defective standard; or to pay more than they should for services which were necessary and were provided to an acceptable standard. The longer the term of any agreement entered into by the landlord, the more significant became the risk of a conflict with those two purposes. That was why consultation was required for all qualifying long term agreements and why the basic definition caught simply “any agreement”. For the purposes of assessing whether an agreement was for a term longer than a year, it was determinative that an agreement involved a commitment to twelve months or more. The deciding factor was the minimum length of the commitment: Paddington Basin Developments Ltd v West End Quarry Estate Management Ltd [2010] EWHC 833 (Ch) followed.
(3) The deciding factor was not the maximum length of the period. 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 Peabody Trust [2009] 2 EGLR 123 not followed.
Jonathan Seitler QC and James Sandham (instructed by Northover Ltd) appeared for the appellant; Philip Rainey QC and Nicola Muir (instructed by Direct Access) appeared for the respondent.
Eileen O’Grady, barrister
Click here to read a transcript of Corvan (Properties) Ltd v Abdel-Mahmoud
