A way out of management company chaos has been outlined, says Edel Morgan
The launch of a new apartment or housing development is usually all about shiny happy people, glossy brochures and beaming estate agents. So why bring the mood down by telling people exactly what they're taking on when they buy into an apartment block or a housing estate?
All apartment blocks and many new housing estates are run by management companies. The trouble is, by not explaining this, developers and agents have prepared the ground for strife and resentment when purchasers finally realise what they've got themselves into. For those buying into second-hand developments, by not knowing the financial health of the management company before buying, they can walk unwittingly into a minefield.
A report on management companies by the National Consumer Agency emphasises the importance of arming people from the outset with information on the responsibilities of being a member of a management company, so they're not reeling in shock after the fact. It has also published a booklet for consumers called Property Management Companies and You which spells out in layman's terms how a management company works, how to troubleshoot certain situations and the warning signs that all is not well in a second-hand development.
The danger for developers and agents, of course, is that if people know the unpalatable truth, they will run a mile. I found out there was a management company looking after the estate where I bought my first house when I was sitting in the solicitor's office ready to sign the contract. The choice was either agree to pay two years service charge up front or not buy the house. Four years on and the estate is in chaos with the management company - which has two directors from Fingal County Council - telling people they must meet their legal obligation as members of the management company and pay their service charge.
Some of the residents, however, say they signed up as members under duress and can't see why the council won't take the housing estate fully in charge. The council has since agreed to look after some large green areas in the estate but refuses to maintain the smaller ones or disband the management company.
There are an estimated 4,600 management companies in this country and DKM consultants and Kevin O'Higgins solicitors, which compiled the report for the National Consumer Agency, estimate that some 500,000 people are now living in multi-unit developments.
The report makes recommendations on how to regulate the current situation which, if accepted, will probably take up to two years to become law.
Among the recommendations is that the purchaser's solicitor should ensure their client understands the agency's consumer booklet and that the solicitor for the developer or management company should provide "a plain English summary" of the lease and its terms.
The current lack of regulation means there's no way of enforcing the completion of an estate by the developer within a reasonable period and the report suggests a time-frame should be included in the conditions of planning permission.
It also says the handover of the estate to residents should happen within three months of completion - important given that some developments still haven't been transferred after a decade or more. If a developer has a bad track record for completing on time or handing over control, they should be refused planning permission for future developments or phases, says the report. One crucial recommendation is that training should be provided for lay people who volunteer to become directors of a development's management company by professional bodies, like the IPAV, IAVI and IPMFA.
One that may be harder to enforce suggests that service charges should be set for a five-year period. While in theory it's a good idea - and will put a stop to the current practice of setting a service charge low initially to sell units then landing people with a much higher charge in subsequent years - the reality is that unexpected costs can arise which may not be covered by even the most generous sinking fund.
The report suggests that investors shouldn't have much of a say in the way a block is run. For example, where a block is 40 per cent investor-owned, the tenants should be the ones to participate in the day-to-day running of the block to give them a sense of belonging to the community.
All very well meaning, but the reality is that many young tenants would rather pull out their toe nails than hang out with the resident's association and I've seen cases where investors are far more interested in the intricacies of running a development than time-poor residents.
The only real disappointment of the report, which overall succeeds in what it sets out to do, is the lack of real life case studies. After all, the best way to guide consumers out of the morass of management company fall-out is to expose them to other people's experiences.
