Corvan (Properties) Ltd v Abdel-Mahmoud [2018] EWCA Civ 1102

Clive Court in London’s Maida Vale is the setting against which the action plays out.

Corvan Properties Ltd was the freeholder; Ms Abdel-Mahmoud was the long leasehold owner of flat 500.

There were two managing agents: from 17 December 2008, True Associates Ltd, and later, Moreland Estate Management Limited. Both were retained under an agreement with the same controversial wording.

There was nothing untoward about the service charge provisions in the lease. It was towards the agreement appointing the managing agent that the Court of Appeal directed its energies.

The clause that gave rise to the dispute read as follows:

“The contract period will be for a period of one year from the date of signature hereof and will continue thereafter until terminated upon three months’ notice by either party”.

The Court of Appeal’s task was to decide whether that clause caused the management agreement to be a QLTA, aka “an agreement entered into, by or on behalf of the landlord or a superior landlord, for a term of more than twelve months”.

The case started in the FTT. In dispute were £24,420.83 of service charges, accrued between 2010 and 2014, and including managing agents’ fees.

It was common ground that the landlord had not consulted any of the 154 lessees before entering into the management agreement(s).

The FTT agreed with Ms Abdel-Mahmoud that the management agreement was a QLTA.

Such is the combined effect of section 20 of the 1985 Act and regulation 4(1) of the Service Charges (Consultation Requirements) (England) Regulations 2003 (SI 2003/ 1987) that a failure to consult before entering into a QLTA limits a landlord to recovering £100 per lessee per year towards fees incurred under that agreement.

Where a landlord fails to consult, its only route to clemency – and full payment – is by way of dispensation from the requirement to consult. An application for dispensation is made under section 20ZA(1) of the 1985 Act.

Here Corvan made no such application. Instead, it appealed to the Upper Tribunal.

Martin Rodger QC upheld the FTT’s decision.

McFarlane LJ cited the key paragraphs of the Deputy President’s decision:

“24. Although… the contract period is expressly stated to be for a period of one year, clause 5 does not stop there, but goes on to provide that the same contract period is “to continue thereafter”. The period of 12 months therefore represents only the start of the contract period. The critical question is whether the contract period can be brought to an end on the expiry of that initial period of 12 months or whether it must be allowed to continue for some further period, even if only for a single day…

26. [T]he agreement is intended to continue until after the end of the initial period of one year: it “will continue thereafter.” That continuation, for whatever further period, is not conditional upon the absence of notice: it is a continuation “until terminated” not “unless terminated”. … [T]he notice may not bring the agreement to an end until a period of continuation after the end of the 12 months has first commenced. On that construction the agreement was for a period of at least a year and a day, and was therefore for a term of more than 12 months…

28. Nor is there any room for implying a term that the agreement may be terminated at the end of the initial 12 months by notice of reasonable duration. … That would be inconsistent with the intention that the agreement was to continue after that date, and in any event would be a surprising term for the parties to have left unexpressed in a clause dealing explicitly with duration and termination by notice.”

The next stop for the landlord was the Court of Appeal.

Interpretation of contracts

Mcfarlane LJ reminded himself of paragraph 15 of Lord Neuberger’s judgment in Arnold v Britton [2015] UKSC 36:

“When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to “what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean”, to quote Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd[2009] UKHL 38, [2009] 1 AC 1101, para 14. And it does so by focussing on the meaning of the relevant words, in this case clause 3(2) of each of the 25 leases, in their documentary, factual and commercial context. That meaning has to be assessed in the light of:

“(i) the natural and ordinary meaning of the clause,

“(ii) any other relevant provisions of the lease,

“(iii) the overall purpose of the clause and the lease,

“(iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and

“(v) commercial common sense, but

“(vi) disregarding subjective evidence of any party’s intentions.”

The interpretation of the clause

Applying that guidance, McFarlane LJ held that:

• The word ‘will’ in the disputed clause was “strong/directive” and did “indeed introduce a mandatory requirement that the contract will continue beyond the initial twelve months, without specifying for precisely how long”;
• The agreement could not be terminated before the end of twelve months. To decide otherwise would be to do violence to the words “and will continue”;
• The clause did not suffer from “over-condensed drafting” that required expansion. The need to imply extra words or to read certain words as bearing a meaning different to their natural meaning did not support the landlord’s position;
• What the landlord intended the clause to mean was evidence of its subjective intention and therefore inadmissible, given Lord Neuberger’s guidance in Arnold v Britton;
• It was “difficult to see what the commercial common sense would be for managing agents to have that alteration made”.

McFarlane LJ was also unpersuaded by the landlord’s invitation to determine the appeal consistently with two nineteenth century cases.

Langton v Carleton (1873) L.R. 9 Ex. 57

Here the agreement was:

“for twelve months certain, after which time either party should be at liberty to terminate the agreement by giving to the other a three months’ notice in writing of his desire so to do; and that if the plaintiff and Burrows should desire to terminate the agreement without notice, after twelve months and before any notice should have expired, they might do so upon paying the defendant 50l.”

The court may have refused to emasculate the words “twelve months certain” by finding that the term of the agreement was in fact for more than twelve months, but the wording of the agreement was “significantly different” from Corvan’s management agreement.

Brown v Symons (1860) 8 C.B.(N.S.) 208

Under the agreement in this case, an old one about a master and his apprentice, the contract was to be binding “for twelve months certain” and “continue from time to time until three months’ notice in writing be given by either party to determine the same”.

The court held that the contract could be determined at the expiration of the first year by giving three months’ previous notice.

McFarlane LJ accepted that there appeared to be some merit to the landlord’s reliance on thiscase. He noted however that it did not bind the Court of Appeal, because it had been determined by the predecessor to the High Court, the Court of Common Pleas.

Further, in Re Searle [1912] 1 Ch. 610, the High Court itself had declined to apply it to a landlord and tenant dispute.

So, actually, no merit.

Conclusion: the meaning of the clause

The management agreement was for a term “of one year plus an indefinite period which is subject to the three-month termination right”.

At its shortest, it was for a term of one year and a day.

As an agreement for a term of more than twelve months, it was therefore a QLTA. 

Given that the contract was for a term of more than twelve months, and the fact that Rafferty LJ and Lindblom LJ agreed with him on that first issue, it was technically unnecessary for McFarlane LJ to decide this second issue – but he did.

It came down to a battle between minimum and maximum: when deciding whether an agreement is for “more than twelve months”, should the court/tribunal look at the parties’ minimum commitment, or the maximum possible length of the term?

McFarlane LJ was with the landlord:

“The deciding factor is the minimum length of the commitment. Indeed, this is what Lewison J. (as he then was) assumed in Paddington Basin Developments Ltd v West End Quarry Estate Management Ltd [2010] EWHC 833 (Ch) (although the point was uncontroversial), where he noted:

“30. Although the estate management deed has no fixed term, it is incapable of determinationby West End Quay Estate Management Ltd until the expiry of twenty-five years. Accordingly it is an agreement for more than twelve months.” (emphasis added)

Lewison J was not however the only judge to have considered the issue:

• In Paddington Walk Management Ltd v Peabody Trust [2010] L & TR 6, HHJ Hazel Marshall QC decided that an agreement was not a QLTA, and
• In Poynders Court v GLS Property Management Ltd [2012] UKUT 339 (LC), HHJ Gerald decided that an agreement was a QLTA.

McFarlane LJ applied himself to deciding whether either/both had been correctly decided.

Paddington Walk Management Ltd v Peabody Trust [2010] L & TR 6

HHJ Marshall QC decided that an agreement was not a QLTA that was:

‘for an initial term of one year from 1 June 2006 and will continue on a year-to-year basis with the right to termination by either party on giving three month’s written notice at any time’.

She said:

“48. In my judgment an agreement for a year certain and then from year-to-year to continue subject to not being terminated is not “an agreement for a term of more than 12 months” (her emphasis) within the meaning of this part of the statute. I reach this conclusion with a little hesitation … In other words, the structure of the Act is that the definition of qualifying long term agreement is to apply to a contract in which the tenants would definitely have to contribute in respect of a period of more than 12 months.

“49. …the whole flavour of the provisions extending to these agreements is “long term”. I cannot see how a periodic contract for, for example, a month and thereafter from month-to-month, could be regarded as long term as a matter of impression… A line has to be drawn somewhere, and it has been drawn at a commitment which exceeds 12 months. A commitment of 12 months only is on the non-qualifying side of the “long term” line.

“50. A contract initially for one year and thereafter on a year-to-year basis subject to a right to terminate on three months’ notice is terminable at the end of the initial period or any subsequent year on three months’ notice, and does not entail a commitment for more than 12 months. There is thus no such commitment in this case and I conclude that the … contract is not a qualifying long term agreement.”

Holding that the length of the commitment that HHJ Marshall QC referred to in paragraph 49 should be read as the ‘minimum commitment’, McFarlane LJ placed this case firmly on the side of the angels.

Poynders Court Ltd v GLS Property Management Ltd [2012] UKUT 339 (LC)

Here the parties had left blank some sections of the agreement, which was:

• Silent as to the duration of the term;
• Indefinite, albeit terminable on three months’ written notice, and
• Clear from its substance that the managing agent was intended to provide the services for a period extending beyond 12 months.

HHJ Gerald focused on the substance of the agreement. He found that services were intended to be provided for more than 12 months because they related to preparation and collection of an annual service charge and further services:

“for an annual fee which is fixed for two years, whereafter it will be reviewed annually with no provision for apportionment on early termination”.

He concluded that question of whether an agreement had been entered into for a term or duration of more than 12 months:

“… is not answered by saying it can be terminated on three months’ notice; it is not an agreement to provide the services for three months, but an agreement to provide them forever, or indefinitely, unless and until terminated by three months’ notice”.

McFarlane LJ was unimpressed. The case was incorrectly decided:

“Whether the agreement is for a term exceeding 12 months is not about the substance of the management agreement … Rather, it is about whether it is an agreement for a term which must exceed 12 months… whilst the managing agent may have been “intended” to provide the services for a period extending beyond 12 months, the relevant clause as to the term of engagement did not secure that they were under contract to do so for the period of more than twelve months. The requirement that the contract be for a term of more than twelve months cannot be satisfied simply by the contract being indeterminate in length but terminable within the first year”.

The appeal was dismissed.

The termination distinction

At first glance, it is not entirely clear in this case why Corvan’s agreement was held to be a QLTA, but the Paddington Walk agreement was not.

It seems to me that on their wording, the key difference between the two is that even though both agreements provided that the agreement was for an initial twelve month term “and will continue” after the initial period, it was open to the landlord in the Paddington Walk case to serve notice to terminate the agreement “at any time”. That option was not available to Corvan.

I reviewed Poynders Court when it was first handed down. It was one of my shorter posts. I did not agree with HHJ Gerald then, but for different reasons to those given by McFarlane LJ here. It was an unfortunate case where the landlord and managing agent had, it appeared, overlooked the need to provide for the specifics of the management agreement.

Consultation and QLTAs

It is more commonly the practice, in order to avoid the obligation to consult, for landlords to enter into management agreements that are expressed to be limited to twelve months, but also worded in such a way that it is clear that the intention is that they not actually be so limited.

The result is convoluted phrasing that has the potential to sow confusion when all that is desired by landlord, managing agent and lessees is good, long-term, reliable property management.

Is consultation really the route to achieving that goal? It seems to me that it has become a rather cumbersome and costly exercise, the purpose of which is not altogether clear.

Anecdotally, the majority of lessees do not respond to consultation. We all receive so much gumpf in our inboxes and through our letter boxes that, perhaps unsurprisingly, there is generally little to no engagement with the stage one notice of intention.

In any event, the consultation regulations only require that the “relevant matters” be described in general terms in that notice.

“Relevant matters” are defined in regulation 2 of the Service Charges (Consultation Requirements) (England) Regulations 2003 as “the goods or services to be provided or the works to be carried out”. It is hardly a definition that enables lessees to make meaningful nominations for contractors who might be able to provide the services or carry out the works.

Again anecdotally, it would seem that there is generally engagement when a large amount of money is demanded.

The problem is that by then it is normally too late to engage. Those rather anodyne notices about the landlord’s intention to carry out works/enter into a QLTA, the inspection of estimates and the making of observations are simply not provocative/interesting/clear enough to bring about the level of engagement that a big bill does. That is, it seems to me, to everyone’s disadvantage.

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