Tuesday 24th June 2008: The Law Reform Commission’s Report on Multi-Unit Developments will be launched by the Minister for the Environment, Heritage, and Local Government, John Gormley TD, at the Commission’s offices this evening.
Problems with multi-unit apartment developments
The Report comes against the background of considerable problems with how some apartment complexes are being managed. These include:
- a general and widespread lack of transparency (and an understanding deficit) about the appropriate roles of those involved in apartment developments, including developers, unit owners (as members of owners’ management companies) and property managing agents;
- developers sometimes holding on to effective control of apartment owners’ management companies even after virtually all apartments have been sold;
- property managing agents having too much administrative control over some owners’ management companies, causing confusion over their different functions;
- annual general meetings of owners’ management companies being organised at short notice and at inconvenient times and locations;
- increasing annual service charges not being properly explained and, therefore, not being paid by unit owners, leading to running-down of some apartment complexes;
- no long-term building investment fund (sometimes called a sinking fund) for some apartment complexes;
- some apartment developments not being taken in charge by local authorities;
- lack of clear arrangements for rescuing apartment complexes in trouble.
Against this background, the Commission’s Report contains 67 recommendations for reform and also includes a draft Multi-Unit Developments Bill.
Main recommendations for new multi-unit apartment developments
The Commission recommends that, for new apartment developments, legislation should be enacted with the following elements:
- a developer would have to incorporate an Owners’ Management Company (OMC, a specially-tailored company for apartment complexes) for apartment developments of 5 units or more (co-ownership would be possible for smaller developments);
- the developer would be required to transfer legal title of the development to the OMC and must register the title with the Land Registry/Property Registration Authority before any apartment sale is completed (the developer retains the commercially valuable beneficial title to the development);
- each apartment buyer would have one vote in the owners’ management company, and weighted voting would be prohibited;
- where the common areas (such as open spaces, lifts and internal stairs) have not been certified as completed under the Building Control Acts 1990 and 2007, the OMC would hold 5% of the purchase money for each apartment in trust for the developer until completion is certified (this is intended to accelerate completion);
- apartment owners would receive 21 days notice of an annual general meeting and it would have to be held reasonably near the development and at reasonable times;
- core covenants (mutual agreements) would have to be agreed between developers, unit owners and the owners’ management companies;
- property managing agents, who are shortly due to be licensed and regulated by the National Property Services Regulatory Authority (NPSRA), would be prohibited from having excessive administrative control over an OMC (such as being company secretary of the OMC);
- all developments would have to put in place schemes for annual service charges and building investments funds (sinking funds).
The Commission also recommends that the NPSRA and the National Consumer Agency (NCA) build on existing work being done by the NCA’s Consumers Forum on Apartment Complexes to develop guidelines or statutory codes of practice about the way that service charges and building investment funds are calculated and spent.
Main recommendations for existing multi-unit apartment developments
The Commission accepts that not all its recommendations can be applied retrospectively to existing developments. The Commission recommends that, for existing apartment developments, legislation should be enacted with the following elements:
- all apartment owners must receive 21 days notice of an annual general meeting and it must be held reasonably near the development and at reasonable times;
- all developments must have in place schemes for service charges;
- all developments must provide specified financial information to apartment owners, including how annual service charges will be spent in the next year;
- within 5 years of the legislation coming into force, all existing developments must have in place schemes for building investments funds (sinking funds);
- existing developments should, if they want to, be allowed to convert relatively easily to the new OMC system that applies to new developments;
- core covenants (mutual agreements) must be agreed between developers, unit owners and the owners’ management companies;
- the Smalls Claim Court could deal with non-payment of service charges or building investment funds up to €3,000 (this would also apply to new developments);
- the Circuit Court could make a “remedial order” to allow the rescue and rehabilitation of a multi-unit apartment development (for example, in a situation comparable to where a company goes into examinership) (this would also apply to new developments).
The Commission also recommends that the Department of the Environment’s recent series of planning guidelines (including guidelines on taking in charge of estates) should, where practicable, be converted into mandatory Ministerial directives under the Planning and Development Act 2000.