Qualifying long term agreements
Whether an agreement for 12 months was a ‘qualifying long term agreement’
In Corvan (Properties) Ltd v Abdel-Mahmoud , the appellant freeholder of a large building entered into an agreement with managing agents which stated that the agreement term ‘will’ be for a period of one year and continued thereafter until it was terminated on three months’ notice by either party.
When deciding proceedings relating to unpaid service charge, the First-tier Tribunal refused recovery of some charges on the grounds that the agreement was a qualifying long term agreement for the purposes of the Landlord and Tenant Act 1985 and that the freeholder was therefore in breach of its statutory consultation obligations. These costs were therefore capped at £100 per annum.
The freeholder appealed, and the Upper Tribunal dismissed its appeal. The freeholder appealed further.
The Court of Appeal dismissed the freeholder’s appeal. In particular, the Court needed to consider whether the agreement was for a term longer than 12 months. The use of the word ‘will’ created the possibility that the agreement could continue beyond 12 months, without giving an indication as to how long it could continue for.
The Court then considered whether the agreement committed the parties to a term of 12 months or longer as argued by the freeholder, or whether the minimum possible term was more than 12 months as argued by the occupier. It found that, with a minimum commitment of over 12 months, the agreement was a qualifying long term agreement for the purposes of the Act.
Advice and action for landlords
This case is a useful reminder for landlords. In particular, landlords must observe their consultation obligations under the Landlord and Tenant Act 1985 where any agreement with a term of over 12 months is proposed. Where a term may be ambiguous, as in this case, it is recommended that landlords ensure clarity in drafting and obtain legal advice in good time should consultation be required.
Referencing Arnold v Britton, the Court here paid regard to the strict interpretation of the agreement’s written terms and applied the landmark case’s principles that, regardless of commercial effect, terms of the document’s drafting prevail.
The use of the word ‘will’ created the possibility that the agreement could continue beyond 12 months, and the Court of Appeal therefore dismissed the freeholder’s appeal.