The Landlord and Tenant Act 1985 lays down rules that apply to residential service charges. It seeks to protect tenants so that they do not have to pay more than is reasonable for services – and requires landlords to consult with them before entering into agreements for terms of more than 12 months, which are described by the legislation as “qualifying long-term agreements”.
If the landlord fails to consult, and is not given a dispensation by the tribunal, it will be unable to recover more than the statutory limit, which is in the sum of £100 per leaseholder in any 12-month period: see regulation 4(1) of the Service Charges (Consultation Requirements) (England) Regulations 2003.
In Bracken Hill Court at Ackworth Management Co Ltd v Dobson [2018] UKUT 333 (LC); [2018] PLSCS 175 the Upper Tribunal was asked to decide whether a management agreement was a qualifying long term agreement for the purposes of the legislation.
The agreement in question had been renewed annually on 30 October in every year since the original instruction was given. The renewals had been agreed on the telephone and, during the conversations, both parties had agreed that the new contract would last no longer than 364 days. But no tender process was ever undertaken, and the managing agent had never been given any reason to expect that the contract would be terminated.
The First-tier Tribunal took the view that the management agreement was a qualifying long term agreement in respect of which no consultation had taken place, and that the liability of the tenant to contribute to this item of the service charge was limited to £100 per year. But the Upper Tribunal has overturned the decision, citing Corvan (Properties) Ltd v Abdel-Mahmoud [2018] EWCA Civ 1102.
In Corvan, the Court of Appeal ruled that the deciding factor, when determining whether a contract is for a term of more than 12 months, is the minimum, not the maximum, length of the commitment. Consequently, the question was: was the minimum possible term under the management agreement greater than a year?
The managing agent might well have had an expectation that, in all likelihood, the contract would be renewed for the next year. But either party to the management agreement would have been entitled to decline to renew the contract when it ended – and, in those circumstances, the management agreement would have ended on the termination of the relevant contractual period.
The fact that the parties had renewed the contract annually did not alter the fact that, on the proper construction of the parties’ agreement, the contract would not last for longer than a year – unless it was renewed. Therefore, the management agreement was not a qualifying long term agreement for the purposes of the legislation.
Allyson Colby, property law consultant
