Apartment Owners Rights
Owning an Apartment is very different from owning a house. It is not just about size- it relates to the fact that a lot of the building structure and services have to be shared between many users.
The legal rights of all those users are set out in the Title to the Apartment – usually in the Lease. The legal device most used is to have a Management Company “ in the middle” as it were. Owners are billed a Service Charge by the Management Company, ( assuming that the Development has been transferred to the Company) which it uses to pay for the common services , like building insurance, lighting in corridors, in car parks , refuse collection , security and so on.
Apartment owners left powerless
In practice, the ability of a developer to design the management structure to suit its interests, rather than those of unit owners, led to developers retaining significant control over developments (including the common elements) long after completion of the development. This was achieved by having the voting rights in the management company weighed in favour of the original subscribers of the management company (ie the developer’s nominees) to the detriment of the unit owner members until the transfer of the common areas and reversion takes place. In many cases, unit owners were left powerless to get the Common Areas transferred to the Management Company or have completion of the development itself. In extreme cases, certain developers structured their developments so that existing unit owners were obliged to pay service charges for unsold units or to include costs within the service charge attributable to the original construction costs.
I am sure that many Apartment owners have experienced a sense of not knowing what is going on in their developments , or worse , utter frustration that the Builder/ Developer has not put a Management Company in place. That becomes a bigger issue if that Builder has gone into liquidation or simply disappeared.
Some of the problems are :
- A lack of understanding of the different roles and responsibilities of Owners, Tenants, Builders, Managing agents and Management Companies
- Builders holding on to effective control of the Management Company , even after most of the Units have been sold
- Managing Agents having too much administrative control of the Management Company
- The AGM of the Management Company not being held , or if held , organised at short noticve and at an awkward time or place
- Increases in Service Charges not being explained or discussed
- Failure by Owners to pay Service Charges
- Lack of clear arrangements for those Developments already in trouble
In recognition of these problems, the Multi-Unit Development Act 2011 was enacted. I’ll call it “the MUD Act”.
Management Companies and the MUD Act 2011
This Act seeks to tackle the issues mentioned above and more. It provides a Statutory framework to regulate the operation of Management Companies and seeks to provide redress where difficulties arise.
A point to note is that the developer retains certain flexibility regarding what it decides to include in or exclude from the common areas. This flexibility is subject to other provisions in the Act which restrict the omission of parts of the development reasonably necessary for the use and enjoyment by the residential unit owners of the development.
The focus of the Act is on residential rather than commercial units, however, where the development is a mix of both uses the Act still applies but certain flexibility is given allowing commercial units to be treated differently to residential units.
Common Areas must be transferred
The Act provides that only those common areas either exclusive to the residential units or common to both the residential and commercial units must be transferred to the management company. Common areas exclusive to the commercial units are not obliged to be transferred to the management company, but nothing in the Act prohibits their transfer. In most cases, however, save where there are stand alone commercial units with separate common areas it is likely that the common areas and reversion in the commercial unit cannot be practically separate and so will by default transfer to the management company. The Act also allows for more than one management company to be incorporated to deal with separate parts of a MUD.
SECTION 3.1 of the Act says that the Developer cannot transfer his interest in a residential unit in a MUD unless:-
- an Owner’s Management Company (OMC) has been established at the expense of the developer.
- ownership of the relevant parts of the common areas and of any reversion in the residential unit has been transferred to the OMC.
- a certificate from a suitably qualified person ( my note -Engineer, Architect) that the relevant parts of the MUD have been constructed in compliance with the fire safety certificate issued under the Building Control Acts 1990 and 2007 concerned has been furnished to the OMC.
- a written contract has been entered into between the OMC and the developer setting out their respective rights and obligations and including in particular:-
- confirmation of compliance with all relevant statutory requirements
- completion of the work on the common areas concerned.
- the release to the developer of any monies held by the OMC where the contract provides for monies to be so held by the OMC pending completion of the common areas concerned. [this is unusual as monies are not normally held by an OMC for a developer]
- the process for resolving disputes between the parties to the contract as respect the completion of the development.
Section 3.3 requires the Developer to transfer to the OMC all rights needed to allow the Common Areas actually work – so , rights of way for use of roads, drains, conduits, pipes etc ; rights for all Owners necessary to allow them peaceable enjoyment of their residential Unit and all necessary amenities intended to be available for use by Owners.
Section 6 says that the OMC must have it’s own legal advice , paid for by the Developer – thus avoiding the conflicts that might previously have arisen where the Developers Solicitor acted for both.
There are provisions that compel a Builder to complete the Development; to insure against any associated building work risk; to hand over specified documents etc.
The Act also provides methods by which all the rights conferred can be enforced in the event of default. It allows the restoration of a Management Company to the Companies Register , if it has been struck off. That might have happened if it failed to file Returns.
Section 17 imposes rules about AGM’s and the information that must be given to Owners.
Section 18 sets out Rules about the Service Charge – what can be included ; how it’s calculated; how it’s allocated and so on .
Section 19 imposes obligations on the OMC to set up a Sinking Fund.
The Act sets out methods for dispute Resolution, in an effort to reduce the involvement of the Courts.
While not perfect , this Act gives some chance to many frustrated Unit Owners to have their Scheme improved, thereby protecting their investment in an Apartment.
It requires a clear and experienced legal eye , to be used properly.
I have been working with Builders and Owners for 20 years in these Schemes. Let me help you.
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By Neil Butler