Getting stuck with previous apartment owner’s management fees

My daughter and husband have stretched themselves to the absolute limit to purchase a flat in south Dublin. The management company has now sent them a request for payment of the outstanding amount owed on the service charge.

The financial year starts on December 1st, they purchased the flat in May. Shouldn’t the previous owners be responsible up to the time of purchase?

Mr M.H.

The experience of your daughter and her partner in stretching themselves to the limit is more or less the experience of first-time buyers down the ages. It’s a fair while ago now but I still have vivid memories of the worry that an unexpected bill might land on the doorstep in the early years of our mortgage.

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That’s precisely why people put so much work into the affordability side of things before putting down an offer on a home. And the lender clearly will also have done their assessment of the abilities of your daughter and her husband to pay on the agreed loan terms.

The last thing you want are unexpected surprises.

To be fair, management fees will have been something that the couple factored into their numbers. Every apartment block has an owner’s management company. Essentially they are responsible for managing and maintaining the common areas of the block and also, as we have seen in recent times, addressing issues such as structural faults etc. And each homeowner in the block is a member of the company managing their block, with a single vote at annual meetings.

If you are buying an apartment, one of the routine checklist items will be to ensure that such a company is in place and get a copy of its recent annual reports to understand any issues that might be ongoing or scheduled for work. This is because the owners will be the people footing the bill for any such work.

Management companies fund themselves in two ways. First, there are routine annual management fees that are levied on all owners in a block. Then there is a sinking fund to manage one-off costs.

When you buy an apartment, you also sign a contract that includes a legal obligation to pay fees levied by the management company. The Competition and Consumer Protection Commission points to Section 18 of the Multi-Unit Development Act 2011, which is the legislation that put in place the current regulation of management companies.

It says: “An owner’s management company shall, as soon as practicable, establish and maintain a scheme in respect of annual service charges from which the owners’ management company may discharge ongoing expenditure reasonably incurred on the insurance, maintenance (including cleaning and waste management services) and repair of the common areas of the multi-unit development concerned and on the provision of common or shared services to the owners and occupiers of the units in the development.”

The fee covers services including insurance, general maintenance, repairs, waste management, cleaning, gardening and landscaping, concierge and security services, legal services and accounts preparation.

Service charges are agreed at the management company’s annual meeting, where all company members (apartment owners) have a vote. You need 75 per cent of the votes to agree a change to the management fee. If the vote does not reach that threshold, the fees continue at the level that applied the previous year.

The obligation on apartment owners to pay the annual management fee comes in subsection 10 of section 18 which says: “The owner of each unit in a multi-unit development (including a person who is the developer or building contractor of the development) shall be under an obligation to pay all service charges levied under this section.”

Section 19 of the Act covers the separate financing of a sinking fund which is responsible for non-routine items of refurbishment, block improvement and non-recurring maintenance that has been approved by the members.

The legislation sets down a default charge of €200 per unit per year but, in reality, the sums can be far larger than this, which is why any purchaser will want to understand the finances of the management company before committing to purchase an apartment in a block.

So what happens if, having done all that, you buy the apartment and start settling in only to be presented with a bill for past management fees?

The first thing is to check the rules of the company to find out when fees fall due. Common sense says your daughter and her husband should not be expected to pay management fees for a period when they didn’t own the property. You mention that the fees year in this development runs from December 1st so it would be surprising if payment fell due after they took over in May but they would need to check the company constitution to be certain.

It would also be surprising if fees were outstanding for two reasons. First, it would not be unusual for the rules of a management company to allow it to block the transfer of the apartment to new owners if there was a debt outstanding.

More importantly, from the perspective of your daughter and her husband, the solicitor managing the purchase on their behalf would have been expected to have sought assurance that there were no debts outstanding as part of the conveyancing process. If there is something outstanding, the solicitor should have caught it.

And if the solicitor cleared the deal without checking or without ensuring any debt had been cleared, I would expect the law firm to pick up that tab.

Your daughter and her husband might also contact the Apartment Owners’ Network, a group that represents individual apartment owners as well as management companies. They might be able to provide additional advice.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to dominic.coyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice