Managing Agents’ Agreements

Written by Jonathan Wragg on Tuesday, February 26, 2019

If a landlord wishes to recover expenditure exceeding certain thresholds from tenants as part of the service charge he or she will need to comply with various consultation requirements set out by law.

In the case of qualifying works the consultation requirements apply where the sum sought to be recovered exceeds £250.00. However, consultation requirements also apply where the landlord seeks to enter into certain agreements. This article relates to agreements between landlords and managing agents. These are frequently known as management agreements.

In legal terms1 an agreement is governed by the consultation requirements if it is a “qualifying long term agreement” (“QLTA”). A management agreement is likely to be a QLTA if:

• it exceeds 12 months; and
• the contribution of the tenants in any one year accounting period will exceed £100.00.

For those landlords preferring to avoid the consultation requirements the options are limited – especially where the costs sought to be recovered from each tenants exceed £100.00. Although some agreements fall outside the scope of the legislation (see Article 3 of the 2003 Regulations) most management agreements will not. Accordingly, most landlords and managing agents seeking to escape the requirements of the consultation provisions will need to ensure that the management agreement does not exceed 12 months.

In the recent Court of Appeal decision in Corvan (Properties) Limited the relevant clause relating to the duration of the contract was as follows:

“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”

Both the First Tier Tribunal (Property Chamber) and the Upper Tribunal determined that the management agreement exceeded 12 months and, accordingly, fell within the consultation requirements. The landlord appealed to the Court of Appeal. The Court of Appeal determined that because the clause in question said that the contract “will continue thereafter” it was, necessarily, for a term exceeding 12 months. As the landlord had not complied with the consultation requirements the landlord was only able to recover £100.00 from each tenant.

The lessons for landlords and managing agents seeking to avoid having to comply with the consultation requirements is to take care. Simply drafting a one year periodic contract may not be enough to ensure that the contract does not exceed 12 months. In order of preference (with the best option appearing first) parties should:

• ensure that the contract is for a period of less than 12 months (e.g. 51 weeks);
• ensure that the contract is for 12 months exactly (e.g. from 1st January to the 31st December);
• If a periodic (i.e. rolling) contract for one year is used ensure that it will on roll over if notice is not given ending the contract on the last day of the term (i.e. at least 1 month notice has to be given ending the contract on the 31st December);
• use a clause that has been held not to have given rise to a contract exceeding 12 months:

“For an initial term of one year from 1 June 2006 and will continue on a year-to-year basis with the right to termination by either party on giving three month’s written notice at any time.

Highgate Chambers Limited
October 2018

Nothing in this article is intended to give legal advice and should not be relied upon without consulting your own lawyer.