Qualifying long term agreements: It is the minimum term that matters

It is the minimum term that matters

Qualifying long term agreements: It is the minimum term that matters

The background

In Bracken Hill Court at Ackworth Management Company Ltd v Dobson & others [2018], a managing agent for a block of flats was appointed by the appellant management company under an oral agreement. The arrangement was renewed annually via a telephone call, during which both parties agreed that the contract would last no longer than 364 days.

The respondent leaseholders challenged the service charges payable by them. If a qualifying long term agreement is in place, each leaseholder’s contribution is limited to a maximum of £100 per annum unless consultation requirements under the 1985 Act have been complied with, or have otherwise been dispensed with. The leaseholders in this case, who had not been consulted with, argued that the agreement was a QLTA, and that therefore their contributions should be capped. 

The First-tier Tribunal found that the agreement was a QLTA, with an expectation that the agreement would be renewed each year and therefore capping leaseholders’ contributions at £100 each per year. The appellant appealed.

 

The decision

The Upper Tribunal held that the agreement was not a QLTA, and upheld the appeal. The Court referenced Paddington Basin Developments Ltd v West End Quay Estate Management Ltd [2010] which held that the minimum term of the agreement should be considered when assessing the length of the contract.

In this case, the contract could have been terminated on the 364th day by either party, and it therefore carried a minimum term of less than 12 months. The agreement could not be considered a QLTA. 

 

Advice and action for landlords

The key learning point from this case is to consider the minimum term of an agreement when assessing whether it is a qualifying long term agreement for the purposes of the 1985 Act. The term must be for less than 12 months, and it must not be expected that the agreement will be renewed beyond that period.

Where they wish to dispense with the consultation requirements, landlords should take care to ensure that agreements are drafted to allow for a term of less than 12 months. Where a rolling contract is to be entered into, termination provisions should be carefully drafted to allow for the contract to be terminated within the 12-month period.

 

The Upper Tribunal held that the agreement was not a QLTA, finding that the minimum term of the agreement should be considered when assessing the length of the contract.

 

Author

Richard Owen
Richard Owen
Associate

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