18 January 2010 by Simon O’Neill
The Multi-Unit Developments Bill 2009 was published some time ago by the Minister for Justice, Equality and Law Reform. The Bill seeks to reform the way Apartment Management Companies operate and provides for the determination of disputes which may arise between owners, management companies and developers, matters arising on the transfer of common areas, provisions concerning the holding of annual general meetings, service charges and various related matters.
Reform and regulation of this sector has been long awaited, but how will it function and what benefits and implications will it have for owners, directors of management companies, developers and managing agents?
Application of the Bill:
The proposed legislation in the main applies to Multi-Unit Developments (MUD). A MUD is land on which there is a building which is divided into units of not less than 5 which are “designed and intended for residential use”. “Designed and intended for residential use” means that it has self contained facilities, i.e. bathroom and cooking facilities for the exclusive use of the occupants.
There is provision for limited application of various provisions of the Bill to developments comprising 2-5 Units, these relate to AGM’s/annual reports, service charges, sinking funds, house rules, dispute provisions and Circuit Court/mediation provisions.
The Bill therefore will apply in the main to apartment developments and unfortunately not to housing developments where the management company structure had become common in recent years. This gap is being examined by the Department of Justice arising from the publication of the Bill and submissions received by it.
Common Areas?
The Bill provides that before a developer transfers a unit in a MUD, it must establish at its own expense a management company and before the sale of any unit, transfer the ownership of the common areas (including any rights of way or other necessary rights) to that management company.
The Bill provides that the developer shall retain the beneficial interest in the common areas and the attaching liabilities such as completion of the common areas and compliance with Planning and Building Regulation matters. This liability is only extinguished once the common areas are completed.
The Bill provides that in the case of existing MUD’s (both completed and ongoing developments) where the common areas have not been transferred the developer must comply with the obligation to transfer within 6 months of the commencement of the legislation.
Notwithstanding the transfer of the common areas, developers will retain a right of way over the common areas to enable them to complete the development.
The statutory obligation to transfer the common areas together with a right to apply to court where this is not complied with, will be of great assistance to owners of units in MUD’s, particularly in respect of completed developments. In some cases, common areas have not been transferred to management companies many years after completion. The measure will also end the practice whereby developers were able to postpone transferring the common areas until after the last unit was sold. This was a particularly unfair arrangement if developer’s retained/held back a unit because in doing so the Memorandum & Articles of Association of the management company frequently gave them a voting majority in meetings of the management company, i.e. control of setting budgets/service charges/choosing contractors to provide management services etc.
Termination of Developers Beneficial Interest:
The Bill provides that a developer of a MUD shall as soon as practicable (with the consent of any lending institution) declare in writing that it’s beneficial interest in common areas has extinguished.
There is a further provision whereby a developer can be compelled to extinguish its beneficial interest where 60% of the unit owners request it to make the necessary declaration. A developer may only refuse where good and sufficient cause is shown.
This provision would be very useful for owners/management companies where issues arise concerning the developers use of the common areas for example as building access for further developments phases where access could be obtained by different means. By extinguishing the beneficial interest the owners would be able to prevent unnecessary use/interference by a developer.
Voting Rights:
The Bill provides that voting rights shall be structured such that each unit owners shall have one vote of equal value. This provision only applies to MUD’s where development work commenced after the enactment of the Bill by the Oireachtas, i.e. new developments.
This would cause difficulties in respect of multi-user developments where typically in the past commercial lessees were granted a larger percentage of votes in recognition of the larger proportion of service charge paid and larger size of their units. This issue is being examined by the Department of Justice arising from publication of the Bill and submissions received by it.
Service Charges:
The Bill provides that each owner of a unit in a MUD is obliged to pay service charge. This is stated to include an owner of a unit who is a developer. The service charge budget must be approved by at least 75% of the people attending and entitled to vote at the meeting called for that purpose.
A minimum amount of €200 per annum must be paid by way of a contribution to a sinking fund for non recurring items of expenditure. This measure is to encourage a prudent approach to management but will increase service charges.
The statutory obligation on a developer to pay service charge in respect of units owned by it will be of relief to the owners of MUD units (and concern to developers). It has been known for developers to avoid paying service charge by not selling all of the units and delaying the transfer of the common areas. This will not now be possible and may impose very significant burdens on developers where large numbers of units remain unsold in a development. The obligation will also be very relevant to owners of new part sold developments where they may be facing service shortfalls due to insufficient service charge contributions from owners.
Dispute Resolution:
Application may be made to the Circuit or High Court by a management company, a member of a management company or a developer to enforce rights or obligations arising from the Bill. Court proceedings may be stayed to facilitate mediation if the Court considers this would be beneficial.
Easy access to viable and effective dispute resolution procedures is essential to ensure that the remedies and rights created by the Bill when passed are upheld. Whilst Court proceedings can be costly and a deterrent to many smaller management companies or individual members, the facility of mediation offers a potential saver as regards costs and time, and may offer a speedy and effective remedy.
Conclusion:
Given the current state of the property market, the remedies and structures will offer some hope to purchasers in new developments who may be worried about legal issues facing them in half sold developments, such as funding the services required to be provided under their lease agreements and completing the transfer of common areas together with basic requirements in terms of the conduct of their management companies.
Overall, the publishing of the Bill is to be welcomed and we await its progress through the Oireachtas, hopefully in the short term. Of particular interest will be the proposals in relation to address housing estates and mixed use developments in the next stage of the Bill.
Further Information:
Please contact: Simon O'Neill - soneill@mckr.ie - Tel: +353 1 670 2990
