I live in a housing estate. There are no apartment blocks or commercial units, just houses. The “common areas” consist of landscaped grounds. For the first two years the maintenance budget was grossly overestimated and there was a surplus. According to our lease and the Multi-Unit Development Act, they are supposed to credit on account, annually, the members against the following year’s service charge. This they are refusing to do. I engaged a solicitor, at my own expense, to send them a letter, but they are still refusing to credit the members on account. They say they are not legally obliged to refund it. What can I do? There is no one to complain to. The cost of going to court is prohibitive.
The apportionment method used is based on a two-, three- or four-bedroom house. But as the houses have no impact on the cost of maintaining the common areas, I think this method is unfair and it should be equal payment for everyone. They say that all our deeds would have to be changed to reflect this and it would be too costly. Is this the case?
An owners’ management company, or OMC, has obligations that require funding, and such funding only comes from the service charges payable by the owners. The funding of the management company is not something that is ever “given back” and nor should it be, as there is good reason why an OMC should be properly funded.
A surplus of funds from an overestimated budget is a good thing for a management company. It is normal practice that these funds remain in the company bank account. This is what is provided for in the Multi-Unit Development Act from section 18(13) to section 18(6). It states that a management company must ensure that at the end of the financial year any money that is not spent during the year must remain in the management company’s bank account. It is, in essence, the level of the bank balance that will determine the amount of a service charge required to be collected from owners in the following year.
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The issue here is the interpretation of the Act. The Act does not set out to provide refunds for owners but rather seeks to ensure that the OMC is funded and that the funds remain in the OMC. The relevant subsections are as follows:
Section 18(14)(b): “To the extent that any part of the service charge levied is not required for the year concerned any excess shall be taken account of in setting the service charge for the following year.”
Section 18(16): “[...] any excess may, notwithstanding subsection (14), be applied on expenditure which may be incurred by the sinking fund established pursuant to section 19.”
In this case, it is possible that the clause contained in the lease agreement is a version of what is contained in section 18 of the Act, and it would be highly unusual for a lease agreement to state that refunds should be given to owners from service charges paid.
I note there are seven references to “they” and “them” in this query. I think this demonstrates a misunderstanding of the role of the OMC. An OMC operates upon the principle of collective responsibility. The directors of the OMC are volunteers who act out of a sense of civic duty and give of their time freely to represent all the members of the management company in the running of the OMC. It is important for owners to become involved and engaged in their OMC and to understand that everyone is in it together with the same aims and goals, primarily to protect the value of the investment, which is their property. In this regard, there is no “they” or “them” because everyone is in it for the same reasons and everyone has the same rights.
While the directors of the OMC are appointed by the members to manage the business of the company, they must fulfil their legal obligations and their fiduciary duties to the company also. This will involve ensuring that the company is properly funded and not at risk of insolvency. Providing refunds of service charge payments runs a high risk of insolvency in a company where the only income is from service charges.
The role of director in an OMC is an onerous task because it is a voluntary role and all owners have a responsibility to understand how their OMC operates, to get involved and to share the burden. If owners have a fuller appreciation of how the OMC operates, it will have the effect of reducing conflicts and the need for individual owners to engage the services of expensive solicitors for such conflicts.
The fairness of the apportionment of service charges is a matter of opinion. Those creating the lease agreement will have deemed the apportionment to be fair as well as those members in the OMC who have applied the terms of the lease to the billing of the service charges. It is true that all of the leases would have to be changed to amend the apportionment clause in the lease and this would be costly.
Aisling Keenan, property managing agent and consultant, is an associate member of the Society of Chartered Surveyors Ireland
