The need for reform
This legislation is really welcome, and although the initial Bill was limited, the active participation of so many parties has resulted in extensive amendments to accommodate more solutions, and the final product is more comprehensive. It fills in part a massive void in consumer protection.
Fundamental defects in the regulatory and supervisory environment, including planning control and the legal system, have resulted in a range of problems for multi-unit developments.
Multi-unit developments are unique and require special consumer protections in that they involve purchasers contracting and paying over 100% of the purchase price, although their apartments may be situated within only partially completed developments.
The absence of any performance bond or retention sum, or requirement or process for the completion of the multi-unit development and transfer of the common areas in compliance with planning conditions and the statutory building code, as certified, have been the core problems behind a significant number of issues.
Another issue is that the management company is often inaccessible to and generally devoid of any satisfactory legal rights for the owners collectively.
Other issues are poor governance of and reporting by the management company, including underestimated service charge and inadequate sinking funds, compounded by the absence of regulation or licensing of management agents.
Not all of these issues are addressed in the Multi-Unit Development Act, but it is still a great step forward. It has now been signed into law and came into effect on April 1, 2011.
Transfer of ownership of common areas
Perhaps the most positive feature of the Act is the requirement in section 3 that the common areas of all future multi-unit developments must be transferred to the owners’ management company (OMC) before any sales occur, and that under sections 4 and 5 the common areas of all existing partially sold and substantially sold multi-unit developments must be transferred by September 30, 2011.
Future multi-unit development
Section 3 provides that a unit may not be sold unless an OMC has been established to which the common areas have been transferred, and Section 7 provides that the transfer does not relieve the developer of his obligations to complete the development.
A separate form of contract (to be prescribed) must be entered into by the developer with the OMC outlining their respective responsibilities, including completion of the common areas and dispute resolution.
The OMC must have separate legal representation from the outset (paid for by the developer) and it must have all the necessary powers and rights. In effect, the contract should ground any dispute ‘in contract’ so that any issue arising may be resolved, if not by agreement, then by the court.
The developer must provide a certificate from a suitably qualified person (as prescribed) confirming that the relevant parts of the common areas as built comply with the fire safety certificate. This new form of certificate is welcome and ought to ensure that the development complies with the fire safety requirements before any purchaser takes up occupation.
When the development stage (as defined in the Act) ends, the developer must, in effect, transfer to the OMC all his remaining interest in the development and hand over a prescribed and comprehensive set of documents and records including as built drawings, technical specifications, services test records and title deeds. This step requires the consent (which may not be unreasonably withheld) of any mortgagee and unit owners.
Prior to the Act there were no such obligations on the part of the developer and the OMC invariably lacked a written contract, and had no right to compel the transfer or enforce any conditions in terms of standards and completion, or to take legal action prior to the transfer of the common areas as long as they remained in the developer’s control.
Existing partially sold multi-unit developments
A partially sold multi-unit development means an existing development where fewer than 80% of the units have been sold. Section 4 of the Act requires that the common areas be transferred by September 30, 2011. The transfer is subject to the reservation to the developer of a beneficial interest; for example the developer’s right to alter the common areas.
Of course the OMC would be entitled to receive all the same suite of documentation as for future multi-unit developments unless, under section 31, “the development stage” has not ended, which is defined as completion of “all construction works and ancillary works (including works on the common areas)”.
Existing substantially soldmulti-unit developments
A substantially sold multi-unit development means an existing development where 80% or more of the units are sold. Section 5 requires that the common areas be transferred by September 30, 2011. However, no beneficial interest is reserved to the developer. Consequently the developer may not alter the common areas, for example.
Furthermore the OMC would only receive the prescribed form of contract or the suite of documentation applicable to future multi-unit developments if the development stage has ended.
It appears, therefore, that future new developments will enjoy a more effective environment; however, existing developments not fully completed must rely simply on existing general statutory rights to ensure completion. This will disappoint many.
Under section 24, a unit owner in a partially sold development or the OMC is empowered to apply for a court order directing the developer to complete the development, including the common areas, and this measure may provide some solution, but in practice this will be a costly approach without any certainty.
The OMC and directors’ responsibilities
Remedial devices and dispute resolution mechanism
Section 24 nonetheless is a positive feature of the Act and provides a new framework for dealing with disputes, which will of course continue to occur, and which designates the Circuit Court as having exclusive jurisdiction. The Court may direct the parties to engage in mediation. This remedy is welcome, particularly mediation in terms of time and legal costs.
Equal voting rights
Upon purchase, the unit owner automatically becomes a member of the OMC and under Section 14 equal voting rights (one vote of equal value to each unit) only will be permitted. In an existing development where the voting rights are otherwise, any developer wishing to exercise additional voting rights must now seek approval from the court to do so. This should prevent inappropriate use of weighted subscriber votes and is welcomed.
Under Section 16, directors cannot be appointed for life or for a term greater than three years. Where current directors are appointed for life, they must retire by March 31, 2014.
Obligations and reporting
Section 17 provides that the OMC must prepare for the AGM, in addition to current statutory requirements, detailed financial statements covering a range of specific topics such as service charges, sinking fund forecasts, insurance, fire safety and so forth.
Sections 18 and 19 distinguish between the annual operating service charges and the annual contribution to a building investment fund (sinking fund), which will now require two budgets to be presented to members at the general meeting.
Section 18 statutorily entitles the OMC to set the initial service charge, which must be calculated on a transparent basis and equitably apportioned. Thereafter, the annual operating budget and service charge cannot be levied until it has been approved at a general meeting and it may be amended if over 75% of the members agree. If not approved, the existing service charge (previous year) remains in place.
Although clarified now as a simple contract, the Act provides no new measures for the recovery of service charges debts from non-paying members who are largely investors. Debtors, particularly those living outside the jurisdiction, are a significant and growing issue for the directors of all OMCs.
The developer’s legal requirement to pay service charges
Section 18 deems the developer to be an owner of a unit until sold following the first sale of a unit. Thus the developer is responsible for service charges due on unsold units. This is welcome and creates a statutory basis for such liability, where previously the liability was less than clear. This ought to end the unsatisfactory situation of unit owners subsidising the service charge on developers’ units.
Section 19 requires the OMC to establish a sinking fund for the refurbishment, improvement or maintenance of non-recurring expenditure. Each unit owner, including a developer, is obliged to pay a minimum of €200 per unit per annum or other amount agreed by 75% of the members at a general meeting. The fund must be established not at the outset but within three years of the first sale or, if the development is already in existence, by September 30, 2012.
Under Section 23 the OMC may make house rules, subject to approval at general meeting, to augment those contained in the relevant leases. Recovery of reasonable costs to remedy a material breach is possible and the rules have statutory recognition. However, what consumers wanted and expected are effective immediate sanctions for the OMC or its agent to resolve breaches. That is the real issue.
CRO–OMC strike off
By virtue of Section 30, where an OMC is struck off the Company Register for failing to file annual returns, it is now afforded an extended period of six years (previously one year) during which it may be restored to the Register.
The OMC’s new reporting obligations will help to address standards and consumer awareness issues, but together with existing obligations under the Companies Acts 1963-2009, it may be difficult to find volunteers to become directors.
The Multi-Unit Development Act is a reforming piece of legislation and now provides improved protection and dispute resolution for future apartment purchasers and some but limited remedial measures for existing apartment owners. It is very important and welcome legislation and to operate as intended it must have a custodian body that will ensure the mandatory requirements are policed and enforced.
I believe that the Property Services Regulatory Authority should be designated as the custodian body and granted its legislative authority as soon as possible, which would in tandem ensure the regulation, licensing and mandatory education of the managing agent sector, another essential step for the development of professional standards to serve the multi-unit development sector.