Do I need to do a Section 20 to change managing agents?

Under the Commonhold and Leasehold Reform Act 2002, a Section 20 Consultation is required for ‘qualifying long term agreements’. This means Leaseholders must be consulted before contracts over 12 months are entered into, or if any one Leaseholder would have to contribute £100 or more in the 12 months.

If you are intending to enter into contract with the managing agent for longer than 1 year, then you would have to go through the process of a Section 20 Consultation. If the contract is 1 year or less, a Section 20 Consultation is not necessary regardless of the cost of their fees.

How it all works

Typically, managing agents will have contracts lasting for a maximum of 12 months, to be renewed annually with another fixed term contract. This avoids the need for a Section 20 Consultation, as the contract does not meet the requirements of a ‘qualifying long-term agreement’. Other agents may have an initial 1 year fixed term contract, which then automatically runs into a rolling contract.

Here is where it gets technical. If a contract is initially for a fixed period of 12 months and termination is only possible after the 12 months by giving a period of notice, then this contract could be classified as a long term contract. If however, the managing agent’s contract requires 3 months’ notice, and the initial fixed term period is 9 months, then the agreement would have an initial term of 1 year.

Clients may wish to enter into longer term management contracts where the overall scheme is complex. For example, developer will often sign up a managing agent for long term contract when they are developing a large scheme of multiple phases. The long-term contract may be beneficial to ensure continuality of service. In these instances developers do not have to carry out a Section 20 because there are no flats sold.

So the question, do I need to do a Section 20 Consultation to change managing agents?

Not normally, but check with your agent as to whether their contract is drafted such that a Section 20 Consultation is or is not required. Make sure you check the contract terms, particularly the period of the contract and the termination clause in addition to the costs and services.

Top tips for new managing agents’ contracts:

• Ensure the contract is for a period which the board are happy with. For a standard development a 12 month contract is the norm.
• Query contracts where the termination notice period is more than 3 months. The industry standard is for a 3 month notice period.
• Beware of contracts where the termination notice has to be given on a specific date, failing which the contract rolls on for another year for example.
• Ensure there is a termination clause and, if the termination clause is not easy to understand, then ask the agent to explain and rewrite it.
• Contracts should be written in plain English. It should be written so that in a single reading, the parties can read, understand and act upon it. The terms should be presented clearly and accurately.