Residential

Developers who own most units in our apartment scheme are ignoring our issues. What can we do?

Property Clinic: They have treated their fellow owners’ management company members as an inconvenience

'Most pressingly, management agents come and go, with few seeming to have an incentive to work with a development of this size.' Photograph: iStock

Finbar McDonnel
Wed Jun 21 2023 - 06:00

I purchased an apartment in a relatively small development in Dublin several years ago. The developers retained a majority number of units in the scheme, which they rent to tenants. However, from day one they have acted as if the development remains their own and have treated their fellow owners’ management company (OMC) members as little more than an inconvenience.

Surveyor reports to address issues affecting other units than their own are ignored, annual accounts are signed off without circulating to fellow directors, agms are a mess (if they attend), management fees are paid sporadically through the year, and a sinking fund has failed to materialise due to unforeseen expenditure through the year. Most pressingly, management agents come and go, with few seeming to have an incentive to work with a development of this size and all the baggage it brings.

Looking ahead, with requests for egms and mediation ignored, one of our last avenues is Circuit Court action. This is naturally intimidating for some independent owners on the basis there is little media coverage or reports of similar cases, and the idea of being out of pocket due to solicitor and barrister fees in this economic climate – without any guarantees of changes to the status quo – feels too uncertain for us to align as a collective. But we remain connected and deeply concerned for the long-term health of our homes and investments. What are our options, and how do you think we can ultimately resolve this unhappy mess?

Your query raises several different issues.

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In relation to the OMC being majority-controlled by the developer, there is nothing illegal in a developer continuing to own a majority of the units, and this was not uncommon after the economic crash. Developers would have begun selling apartments pre-crash but were left holding units they couldn’t sell and ended up renting those out. In some cases, these were later sold but, in others, developers have ended up as, to some extent, “accidental” landlords.

However, it is not permitted that majority control of an OMC translates into favouring some apartments over others or that all board members and property owners are not treated the same. At an OMC board level, directors have a fiduciary duty to act in the best interests of the OMC as a whole. Also, it is illegal for a majority shareholder to abuse their position. There is a general principle of law that the members of a company are required to vote generally in the best interests of the company and may not exercise their powers in a way as to oppress other members of the company.

Finbar McDonnell

Linked to the above, you say the annual accounts are signed off without all directors being shown them. This is a breach of company law and suggests (at a minimum) poor governance processes at board level. One possible action that the directors not being shown the accounts could do would be to discuss this directly with the auditors and ask them to ensure that the accounts are circulated to all directors at the same time.

A further worrying aspect of your situation is the fact that your development has not established a sinking fund. Under the 2011 Multi-units Developments (MUD) Act, all OMCs should agree a sinking fund contribution each year at a general meeting of members, and the money collected in this regard must be kept in a dedicated account. One big learning for OMCs in the past 15-20 years has been the crucial importance of building a good sinking fund. As sure as night follows day, this fund will be required to replace lifts, roofs, gates, carpets and so on. If such a fund is not established and properly built up, then the fear is that large levies are on the way for yourself and the other property owners. While the situation you mention of exceptional expenditure can arise in a given year, if it happens regularly, then by definition it is not exceptional and should be budgeted for under a “contingencies” budget line. Establishing and building a sinking fund should be a priority for your OMC in the coming years.

You note the challenge of ensuring continuity with regard to managing agents. This is a genuine problem now for many OMCs, especially smaller ones such as your own. With more apartment developments each year in Ireland, there is a need for a big increase in the number of licensed agents. However, the numbers entering the profession are low and, increasingly, the capacity is not there to properly manage multi-unit developments. Also, as existing blocks get older, their management is becoming more demanding and requiring more time from the existing licensed agents. All of this in turn places yet more onus on the directors and members to be proactive and, if they either cannot or will not do that, then the OMC will be poorly managed and this will store up additional problems.

You could then try (perhaps helped by a solicitor) to ensure existing laws and rules are properly followed. A second step may be to see if your group can get greater representation on the OMC board

You ask about options, but without more details, it is hard to give precise advice. A first step may be for concerned owners to form a coherent group. You are entitled to a list of members of the company from the company secretary, which could assist in this regard. You could then try (perhaps helped by a solicitor) to ensure existing laws and rules are properly followed. A second step may be to see if your group can get greater representation on the OMC board, via election of directors at the next agm. If you wish to move sooner than that, if you have 10 per cent of the members behind you, then you may be able to requisition an egm. A third option might be to talk to the Office of the Director for Corporate Enforcement to see if they can assist as regards the proper implementation of company law and good governance.

The above are methods to try to persuade the former developer/majority owner to sit down with the other owners and treat them professionally. This would seem to an independent observer to be in the interests of all parties. However, as you note, you also have the option of taking the developer to court to try to force them to behave differently. You note a number of genuine downsides to this. That said, it sounds like you have solid arguments so it may be worth seeking advice from a legal practitioner on the merits of your case so that you can decide whether to proceed down this route.

You note the dearth of coverage of legal cases involving OMCs (as such cases take place in the Circuit Court). This is a real issue, and there have been calls for an organisation (such as the Housing Agency) to play a greater role here as regards liaising with OMCs and building a database of the outcomes of such cases, which could be of real benefit to OMCs around the country. The current programme for government commits to a review of the operation of the MUD Act, and the establishment of such a central repository of legal cases could be a potential outcome of any such review.

Finbar McDonnell is a chartered property manager and a member of the Society of Chartered Surveyors Ireland

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