Brady Solicitors take a practical look at a recent case where a freeholder’s lack of consultation was challenged by the leaseholders, on the basis that the contract was not a ‘true 12 months’ and therefore should have been through consultation.
12 months is 12 months – right? It’s a fairly easy period to measure.
Wrong. Or at least that was outcome of the Corvan case, where the Property Tribunal was asked to assess the duration of a contract that the freeholder had entered into with a managing agent, without consulting the leaseholders.
Firstly, a reminder about the consultation requirements
If a freeholder enters into any contract or agreement relating to service charge matters for a period of “more than 12 months”, they must consult with the leaseholders. The only exception to this consultation requirement is if the cost per leaseholder is less than £100.
This type of contract is known as a QLTA – a Qualifying Long Term Agreement.
A QLTA is regularly used to contract with service providers such as managing agents, gardeners, cleaners and so forth. Failure to consult before putting in place a QLTA can result in only being able to recover £100 per leaseholder.
Whilst it can be beneficial for the development to have in place a longer term contract – potential supplier discounts, stability of supply and so forth – freeholders often opt to keep contract periods to 12 months or less to avoid the consultation process.
All sounds pretty straightforward? Well yes, until you start factoring in notice periods and termination clauses. And this was the point raised by the leaseholders challenging the contract in the Corvan case.
What did the contract say about the period of the agreement?
The contract between the freeholder and the managing agent stated that the contract “will be for a period of one year from the date of signature.. and will continue thereafter until terminated upon three months’ notice by either party”.
The freeholder argued that the agreement was clearly for one year and could be ended on the last day, by giving three months’ notice.
The leaseholders argued that the earliest date the contact could come to an end would be 15 months after signature – if notice was given on the last day of the contract.
The FTT agreed with the leaseholders’ interpretation, prompting the freeholder to bring an appeal to the Upper Tribunal.
The UT upheld the decision from the FTT and concluded that the term was for more than 12 months.
The clause in the contract clearly took some interpreting but the UT concluded that whilst the contract period was ‘”expressly stated to be for a period of one year” the clause goes on to state that the same contract period is “to continue thereafter”.
The earliest date that notice could be given was the day following the 12 month period – thus tipping the contract into QLTA territory.
The upshot being that the freeholder should have consulted with the leaseholders.
The case has been passed back to the FTT to be concluded but the freeholder is likely to be limited to recovering just £100 per leaseholder towards the managing agent costs.
Expert advice on contracts and consultations
Failure to properly consult can have expensive consequences for the freeholder (and the block management funds). Expert advice on contracts for property management services can help you to understand whether consultation is required.
Brady Solicitors can review or help draft your contracts to ensure that they have a clear and unambiguous time period. Our property management experts can also assist with the consultation process or help with securing dispensation from consultation.
For the view from the Barrister acting for the leaseholders, please click here to go to Tanfield Chambers website http://www.tanfieldchambers.co.uk/resources/articles/when-is-an-agreement-for-more-than-twelve-months
SECTION 20 AND MAJOR WORKS CONSULTATION ADVICE
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