After years of saving, I’ve finally managed to put an offer on an apartment in Dublin and reach the sale-agreed stage. But just after that, I was told the apartment block needs repair, and the owners’ management company (OMC) does not have the money to fix it. Apparently, there are issues with residents not paying their service charges and it could end up with legal action against those owners.
I’m a bit disappointed and not sure what to do. Should I keep searching for a new apartment or do you think this situation is okay and the OMC will work it out? If I leave this apartment and look for another one, what should I look for in a management company?
It is important to fully investigate the status of the OMC of the block where you are purchasing your apartment. After the sale-agreed stage, your solicitor may obtain replies to the MUD Act inquiries. These inquiries are made on your behalf, and they examine the operational and financial status of the OMC. They will provide useful information such as the level of debt (outstanding service charges) in the company and the amount of annual service charge payable per unit, and details on big renewal and repair works that are required. The replies include a copy of the annual accounts and give details on the amount available in the sinking fund to carry out works.
You will automatically become a member of the OMC when you become the owner of the apartment and, in this regard, you will be bound by duties and obligations under company law, primarily to pay the annual service charges and contribute to the sinking fund. The OMC operates upon the principle of a collective responsibility arrangement whereby the actions or inaction of members has an effect on everyone involved. If there is not enough money in the company to carry out repairs, then it is the owners that have to change this situation. If you proceed to purchase this apartment, you will have the opportunity as an owner to change this situation.
The sinking fund, or building investment fund as it is sometimes known, is a fund that is established by the OMC in accordance with section 19 of the Multi-Unit Developments Act 2011. It is a separate account that is ring-fenced to provide for capital expenditure of a non-recurring nature. This savings fund is for long-term planned refurbishment projects such as installation and/or replacement of lifts, floor coverings, roof replacement, internal and external redecoration, and so on. The fund will also cover unplanned expenses that are not covered by insurance such as legal actions, roof repairs and so on. Prudent sinking fund provision by OMCs is essential to the long-term sustainability of the development.
The main cause of insufficient money in the sinking fund is poor management and poor governance by the OMC. If you buy this apartment, you will automatically become a member of the OMC and you may choose to become a director of the OMC. As an owner, you will have a vested interest in the operation of the OMC and as a director you will have the power to make changes and improvements in how the OMC is run. You will be able to examine the reasons as to why owners are slow or non-payers, and can implement company policies and procedures to address this. For example, a written company policy on the collection of service charges can be established. This will set out the terms for all owners to pay the service charges with time frames and deadlines of when service charge payments must be made, payment methods and procedures in place for noncompliance. Some OMCs may charge a levy or interest for late payment and where owners are not paying, their service charge debt may be passed to the company’s solicitors for collection.
A properly enforced company policy for the collection of service charges is very effective in ensuring the compliance of owners in making their payments. That said legal reform in this area that would make it less onerous and expensive for OMCs to recoup non-payment of service charges would be most welcome.
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But in general, OMCs work out these issues because they operate upon the principle of collective responsibility. If after studying the information your solicitor obtains via the MUD Act inquiries, and after reviewing the condition of the common areas and perhaps talking to other owners, you choose to go ahead and purchase this apartment, by playing an active role in the OMC, you can be part of the solution.
In many cases, owners can be reluctant to pay the annual service charges if they are unhappy with the operation of the OMC and compliance rates significantly improve when the OMC is working well. OMCs can vary greatly in how they are operated, and this is reflected in how well the building is maintained. Some are run better than others, but they all require the input of their members to be successful. These are things you need to look out for in OMCs if you choose to carry on your search.
Aisling Keenan is a property managing agent and consultant and an associate member of the Society of Chartered Surveyors Ireland
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