Reader’s E-mail:
Our management agent contract states 364 initial period and then after that three months notice. The question is does this equate to a long term agreement ? If so section 20 process must be applied
Reply from Service Charge Dispute Guide
1. The statutory definition of a qualifying long term agreement is given in section 20ZA of the Landlord and Tenant Act 1985:
“qualifying long term agreement” means (subject to subsection (3)) an agreement entered into, by or on behalf of the landlord or a superior landlord, for a term of more than twelve months.
2. The issue with which we must deal in response to your enquiry is whether a contract which can continue beyond a 12 month period, if not terminated, is a qualifying long term agreement even though the initial term was set for a period of less than 12 months?
3. This question is not explicitly answered by the statutory definition given in section 20ZA of the Landlord and Tenant Act 1985 and it has been left up to the courts and tribunals to provide an answer.
4. The near exact same question as the one you have raised with us was the subject of the very well known County Court case of Paddington Walk Management Ltd v The Governors of the Peabody Trust [2010] L&TR 6. In this case the Court decided that a contract “for an initial period of one year from 1 June and will continue on a year-to-year basis with the right to termination by either party on giving three months’ written notice at any time” was not a qualifying long term agreement for purposes of section 20.
5. As you may be aware, decisions of the County Court do not set a binding legal precedent for other courts or tribunals to follow. They can, however, set what lawyers call a ‘persuasive precedent’ which influences subsequent decision making by counts and tribunals and the Paddington Walk Management case is a good example of a County Court decision setting a persuasive precedent.
6. The decision in the Paddington Walk Management case was considered by the Upper Tribunal of the Lands Chamber in the case of Poynders Court Limited v GLS Property Management Ltd [2012] UKUT 339 (LC). In contrast to decisions by the County Court, those of the Upper Tribunal set a binding legal precedent to be followed by the County Court and First Tier Tribunal.
7. In the Poynders Court case, at paragraph 12 of the decision, the Upper Tribunal provides very clear guidance on the approach which should be adopted in understanding the meaning of the statutory definition of of what constitutes a qualifying long term agreement:
The section 20ZA definition is directed at the question of whether an agreement has been entered into for a term or duration of more than 12 months.
8. On this basis a contract would need to be set for a term of 366 days or more from the outset in order to be classified as a qualifying long term agreement, thereby triggering the requirement to consult, even though in reality if the contract is not terminated by either party at the end of the term it might last for much longer.
9. By way of contrast, in the Poynders Court case and the High Court case of Paddington Basin Developments Ltd and others v West End Quay Estate Management Ltd [2010] EWHC 833 (Ch), it was been decided that a contract with no fixed duration but which actually ends up continuing beyond 12 months is in fact a qualifying long term agreement. We mention this to emphasise point that the key legal consideration is the duration for which the initial term is set. If that term is set for 12 months or less then it is not a qualifying long term agreement.
10. Therefore, in effect entering into a contract with a duration of 364 days, and a 3 month notice period thereafter, is a perfectly legal way to get around the statutory requirement to consult under section 20 of the Landlord and Tenant Act 1985 in the appointment of a managing agent. This practice is widespread throughout the leasehold management industry in England and Wales and you would not be alone in feeling dissatisfied that it is permitted by the law.
Click on the link to read more Reader’s Questions and Answers on Consultation (Section 20)