A frequent question raised by leaseholders, directors and residents’ management companies is why managing agents’ contracts can no longer provide for a fee increase in line with either inflation or the retail prices index.

This position is not industry custom but is grounded in statute and confirmed by tribunal and appellate authority.

The key reason lies in the service charge protections contained in section 20 of the Landlord and Tenant Act 1985 and the interpretation of ‘qualifying long-term agreements’ by the courts, most notably in Corvan (Properties) Limited v Maha Ahmed Abdel-Mahmoud.

Section 20 and Qualifying Long-Term Agreements

Section 20 of the Landlord and Tenant Act 1985 limits the amount leaseholders can be required to pay for services where those services are provided under a qualifying long-term agreement, and the statutory consultation requirements have not been complied with. A qualifying long-term agreement is defined as one entered into for a term of more than 12 months.

Where a qualifying long-term agreement exists without consultation, leaseholders’ liability is capped at £100 per year per leaseholder, regardless of the actual cost incurred. This protection applies automatically and overrides the service charge provisions of the lease.

The Corvan Case

In 2017, the First-tier Tribunal considered the case of Corvan (Properties) Limited v Maha Ahmed Abdel-Mahmoud. The dispute concerned the recoverability of managing agent fees under a management agreement that stated the contract would run for one year and continue thereafter until terminated on notice.

The landlord argued that this was a one-year agreement. The leaseholder argued that the agreement was for more than 12 months because it could not end at the 12-month point without a further period of continuation. The Tribunal agreed with the leaseholder.

Tribunal and Court Findings

The First-tier Tribunal held that the agreement was a qualifying long-term agreement because it necessarily continued beyond the initial 12-month period. Because the landlord had not carried out section 20 consultation, recovery of management fees was limited to £100 per leaseholder per year.

This decision was upheld by the Upper Tribunal and later confirmed by the Court of Appeal. The courts made clear that the relevant question is whether the agreement involves a commitment that must continue beyond 12 months, even if only briefly.

Wording such as ‘will continue’ after the first year is sufficient to create a qualifying long-term agreement.

Built-In Fee Increases

Many management agreements contain automatic annual fee increases, commonly linked to inflation. In a rolling or multi-year contract, this fixes future financial commitments beyond 12 months. As Corvan demonstrates, this significantly increases the risk that management fees become irrecoverable if section 20 consultation has not taken place.

Why 12-Month Fixed-Term Contracts Are Used

To avoid the risks highlighted by Corvan, managing agents are commonly appointed on fixed 12-month terms with no automatic continuation. Renewal requires an active decision to reappoint the agent or at least no wording that implies and automatic renewal or continuation.

This approach protects leaseholders from being locked into multi-year cost commitments without consultation and protects landlords, RMCs and RTM companies from service charge challenges and financial exposure.
Summary

Managing agent contracts are limited to 12 months not for convenience, but to comply with statutory service charge protections. The Corvan case confirms that rolling or continuing management contracts are likely to constitute qualifying long-term agreements. Where consultation is not carried out, recovery of management fees is strictly limited. Twelve-month fixed-term contracts therefore represent the safest and most compliant approach for all parties.