A few years ago, I purchased a town house in a small infill development of just four houses. The developer left an owners’ management company (OMC) in place to manage the common area, which consists of a tarmacadamed drive giving access to the houses, a turnaround space and three parking spaces, as well as boundary fencing and a small amount of shrubbery. This common area is owned by the OMC.
After the sale of the houses, the four owners became directors of the OMC, which is a company limited by guarantee (CLG). One of the owners had been taking care of the documentation and Companies Registration Office (CRO) filings associated with the CLG, but they are now no longer in a position to continue. They are also of the view that there is far too much work involved in maintaining a CLG when our needs are so minimal; we only need public liability insurance for our common area.
Is there any other kind of structure that might accommodate our needs without the requirement to make annual returns to the CRO? If there isn’t, is there a template for a CLG that could be adopted to assist in making the annual returns to the CRO?
Alternatively, might it be possible for each householder to include the common area for public liability in their individual house insurance policy?
What’s the best structure to manage the common area of our small development?
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The query you raise is a very interesting one. The suitability of a CLG to manage the affairs of a multi-unit development that comprises a small number of units sharing a common area such as yours, was first considered by the Law Reform Commission in a consultation paper in 2006.
This consultation paper was the prelude to the enactment of the Multi-Unit Developments Act 2011. The commission identified that the concept of limited liability was of clear advantage to OMC members. The main benefits for owners that flow from an OMC being established under the companies acts are that each owner has an input into how their property is taken care of in decision-making and in controlling the costs of common services. This input is exercised by the power of the members to elect their fellow members on to the board of directors, which has ultimate decision-making powers in the company.
In assessing the need for the existence of the OMC, it concluded that the alternative – where the common areas would be co-owned by all the owners in their personal capacities – would be impractical.
For example, consider the arrangements which would need to be put in place for the provision of common services via the hiring of contractors and the signing of contracts to carry out works. In that scenario, each of the owners would be jointly and severally liable in their personal capacities for all areas, including contract law and health-and-safety law.
That said, OMCs are not a requirement of company law and there exists other arrangements and structures for the purposes of discharging similar functions to that of an OMC, such as housing co-operative societies and co-ownership agreements. In some developments co-ownership agreements,similar to residents’ associations, exist and form the basis for the ownership of common areas and the organisation of shared services.
Co-ownership agreements are rooted in the laws of contract and private property rather than in any particular act or acts of the Oireachtas and unlike the OMC and housing co-operatives, they do not involve an incorporated structure.
Housing co-operative societies have their origins in the local self-help movement which dates back to the 1950s in Ireland. The objective of this movement was to provide affordable homes for their members. The Law Reform Commission concluded that this informal type of arrangement was not a suitable structure for the long-term security of property rights for owners.
In your situation, I believe there are probably good and valid reasons why the OMC that was set up to run your small MUD was established as a CLG. While, as stated above, it may be possible to consider other structures, I believe in your situation it would only serve to weaken the property rights of each of the four owners.
An owner may take the view that there is far too much work involved in maintaining the management company, but owners should consider such a position in the context of the value of the property and how negatively this can be affected when the management company fails. In addition to this, the cost of rectifying a failed company can be prohibitively expensive and so it could be more costly to not have the right structure in place.
The day-to-day management for small OMCs will work well where one or more of the owners take on the work themselves. However, when there is no one to do this, it is problematic as the cost of employing a managing agent could be prohibitive. Then there is the question of finding an agent who would be willing to take on a small OMC, as many agents will only work with larger OMCs.
There is no one template for running an OMC that fits all, but an OMC may create their own template and set out the tasks with dates, deadlines, reminders and obligations. The creation of a simple system will be the key to the solution here.
There are numerous resources available for owners to assist with this. The Housing Agency is a Government body and has a dedicated MUD section which has an abundance of information and resources available to assist owners with this. Their website contains links to publications, answers to frequently asked questions, training webinars and lots of other information.
The Apartment Owners’ Network is a voluntary body that advocates on behalf of owners in multi-unit developments and OMCs around the country. Their website includes a knowledge library with a vast amount of information.
Including the common areas on the insurance policies for the four houses does not address the problem in this case because the ownership and property rights for each owner involve so much more than just insurance.
The owner who has been managing the affairs of the CLG will have an intimate knowledge of what is involved in running the affairs of the company and so getting detailed handover notes and availing of that experience will be key for the future. Rather than changing the structure from a CLG, perhaps the way forward is to view the handover as an opportunity to do things differently and to share the work on an equitable basis.
For example, each of the other three owners might agree to take on the administration of the CLG for a year in turn or to divide up the work so that each takes on responsibility for certain tasks each year. In a collective responsibility arrangement such as an OMC, many hands make light work.
Aisling Keenan is a property managing agent, consultant and an associate member of the Society of Chartered Surveyors Ireland
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