APARTMENT OWNERS TAKE NOTE

The Muti-Unit Developments Act, 2011 was signed into law on the 24th of January 2011 and has altered significantly how Management Companies run and operates blocks of Apartments, Housing Estates and also Commercial Developments where there is a residential aspect. It came into effect on the 1st of April.

The Act now provides that an Apartment cannot be sold unless a Management Company has been put in place and the common areas transferred to the Management Company. Prior to this the common areas were not transferred until the last Unit was sold. This will prevent the reoccurrence of the serious problems that have arisen where Development Companies have been struck off the Companies Register or gone into receivership/liquidation/examinership.

Further, if you are the owner of an existing Apartment the common areas have to be transferred to the Management Company within six months of the commencement date.

Many of the changes that have been put in place were in many instances already provided for in most developments. The import of the Act is that it is now statutorily mandated that certain structures are provided for and protections put in place e.g. the establishment of a sinking fund which covers costs which may arise in the future relating to the structure of the apartment block or the common areas.

A significant development is that the Management Company now must be separately legally represented. In the past the Management Company was normally represented by the Developers Solicitors and in effect the relationship was covered on an in-house basis by the Solicitors. This can no longer be the case. The nature of the relationship between the developer and the Management Company must now be properly set out with the rights and obligations of the parties clearly set out and importantly the date for the completion of the development provided for. The Developer has to discharge the legal costs of the Management Company’s Solicitors. If the Developer goes into liquidation/receivership or examination then the relevant liquidator/receiver or examiner assumes the responsibilities of the company. This aspect of the Act can not be retrospective.

Various other changes have now been put into statutory form e.g. on vote per apartment owner with equal weighting and no other person can have voting rights. Further, the Directors are regulated now regarding the holding of the Annual General Meeting and the furnishing of the accounts to each member. What the annual report of the Company must contain is also statutorily dictated. Further, the amount of the service charge has to be considered at the Annual General Meeting and the nature of the expenditures have to be broken down. Importantly if the proposed service charge is not approved by 75% of the members present when voting then it can not take effect and the previous year’s charge continues to apply.

In respect of the sinking fund a minimum of €200 must now be provided for by each member/owner of a Apartment.

If there are disputes between owners of the apartments then the act provides that application can be made to the Circuit Court for whatever order is deemed necessary to protect the apartment owner statutory rights. The Circuit Court has power to direct that it be resolved by a Mediator.

There is no doubt but that the costs associated with having an apartment will be increased as a result of the Act. There are significant improvements introduced by it particularly regarding the hand over of the common areas to the Management Company and the obligation of the Management Company to be separately legally represented so as to protect the interest of the purchasers of the apartments within the development. Furthermore, the extension of the period of time allowed to apply to have a Company restored from one year to six is also a significant improvement and minimises potential cost that can be incurred by apartment owners indirectly through increased service charges payable to the Management Company. Directors also can only serve for 3 years and existing Management Company Directors have to resign as Directors within 3 years of the commencement date.

Not only will there be increased costs associated with owning an apartment but also there will now be greater responsibly put on the owners of apartments to take responsibly for the Management Company. In many instances Apartments are owned by investors and the investors are very disinclined to get involved in the overall management of the Development. Once the tenant is paying the Investor rent the Investor tends to have no interest in the day to day management of the complex, the responsibly for which rests with the Directors of the Management Company. The consequence of this is that the only people who are likely to become Directors of Management Companies are those owners who also live in the development. A statutory limit to their Directorship make cause problems where there are only a limited number of owner occupiers in the Development and also will result in a disproportionate amount of the work resting on the shoulders of the owner occupiers as they will be the only ones in reality who are likely to take on the responsibly of being a Director of the Management Company.