What is section 20 of the Landlord and Tenant Act 1985
Section 20 of the Landlord and Tenant Act 1985 acts as a safeguard for leaseholders. It prescribes a consultation process that landlords must observe before they enter into certain long term agreements. It doesn't matter whether you have a new lease that mentions nothing about this law or an old lease that states other rules apply, the law applies to all leasehold properties.
Under this section, if a landlord wishes to enter into an agreement for services that last more than 12 months and will cost any one leaseholder more than £100 in any 12 months, they must consult the leaseholders.
This consultation must follow a specific process which, if not adhered to, may limit the amount a landlord can recover.
If a leaseholder believes their landlord has failed to comply with these consultation requirements, they can apply to the county court or upper tribunal for a determination. This can potentially provide relief in the form of limiting the leaseholder’s service charge contribution to the statutory minimum of £100.
What is a qualifying long term agreement?
A qualifying long term agreement, or QLTA, is a term you might encounter when dealing with rollover management agreements for leasehold properties.
In essence, a QLTA is a contract entered into by the landlord, with a duration of more than 12 months. One of the parties to an agreement is usually the managing agent, hired by the landlord to manage the property.
It's not uncommon for a QLTA to include provisions like the maintenance, repair, or improvement of the property, the provision of services, the employment of caretakers, security, or other staff, and the purchase of goods, materials, or equipment. From a tenant's perspective, the costs of these services are typically collected via the service charge.
For an agreement to be considered a QLTA, it must satisfy the following conditions. It must be intended to last for a period exceeding 12 months from the date of the agreement's signature. Notably, a management agreement that runs indefinitely, until terminated by giving three months notice, also falls within the definition of a QLTA.
Bear in mind, it's not solely the length of the contract that makes an agreement a QLTA. It also matters whether the service charge contribution of any one leaseholder exceeds £100 per year. If so, it's a QLTA and the landlord must consult with the tenants before entering into or varying such an agreement, as per Section 20 of the Landlord and Tenant Act 1985.
While it may be tempting to tackle a lack of consultation claim solo, you may find value in seeking the support of a professional. Whether it’s a solicitor or an experienced leasehold property manager, they can help manage the complexities of leasehold property laws, potentially saving you both time and money in the long run.
Corvan (Properties) Limited v Abdel-Mahmoud [2018] EWCA Civ 1102
The Corvan (Properties) Limited v Abdel-Mahmoud [2018] EWCA Civ 1102, a groundbreaking case concerning qualifying long term agreements, provides insightful legal precedent for leaseholders grappling with excessive service charge demands. As the landlord wishes to recoup costs, a deep understanding of this case can empower leaseholders to question charges included under estate management expenses.
What happened in the case? What was the claim?
In Corvan (Properties) Limited v Abdel-Mahmoud, the case revolved around an alleged breach of a management agreement. The landlords, Corvan (Properties) Limited, engaged managing agents to oversee the leasehold properties. An issue arose when one leaseholder disputed the charges incurred from the management agreement, arguing it was a QLTA and thus required consultation as per Section 20 of the Landlord and Tenant Act 1985.
Under the agreement, the managing agents could roll over the management of properties for successive 12 months periods. It's worth noting that, without three months notice given by either party before the last day of the current contract, the agreement would be automatically extended on the same terms. The leaseholder contended that the ongoing nature of the agreement, with the possibility of rolling over for several years, made it a qualifying long term agreement. Hence, the landlord's failure to adhere to consultation requirements prior to the agreement resulted in an unfair service charge.
What did the Court of Appeal decide?
In a pivotal decision, the Court of Appeal ruled in favour of the leaseholder. The court recognised the recurring management agreement as a QLTA, and therefore, the landlord was obligated to complete consultation procedures with the tenants before finalising the agreement.
The court held that the rolling nature of the management agreement extended its duration beyond 12 months. The automatic rollover provision meant the agreement could last for an indeterminable period, potentially lasting years without the tenants' explicit consent. As a result, the landlord could not demand service charges exceeding a capped limit as it was a breach of the statutory consultation process.
The Corvan case demonstrates the importance of landlords' obligations in respect to service charges and long term agreements. As a leaseholder, it's crucial to understand your rights, especially if you are considering disputing a service charge. This case sets a precedent that could influence future agreements involving managing agents, and their implications on service charges. For detailed advice tailored to your situation, it may be beneficial to engage a legal professional who specialises in leasehold property law to ensure your rights and interests are protected.