Multi-Unit Developments Bill 2009 - Speech by Mr Dermot Ahern, T.D.

I am very pleased to introduce the Multi-Unit Developments Bill 2009 today and I look forward to hearing your contributions. The Bill received broad support from all sides on its way through the Seanad and I look forward to a continuation of that broad support here in this House.

The long title of the Bill captures precisely the Government’s objective in bringing forward this legislation. It is described as “An Act to amend the law relating to the ownership and management of the common areas of multi-unit developments and to facilitate the fair, efficient and effective management of bodies responsible for the management of such common areas, and to provide for related matters”.

This Bill forms the centrepiece of the Government’s strategy to deal with the interlinked issues of completion of the common areas of multi-unit developments and the smooth and efficient operation of owners' management companies. I should point out that the Property Services (Regulation) Bill 2009, which has also completed its passage through the Seanad, makes detailed provision for a licensing system for property management agents, i.e. those who carry out various management functions for owners management companies - and it will, therefore, complement the provisions of this Bill.

This is a short but complex Bill which establishes a new statutory framework for multi-unit developments and owners' management companies.

While the provisions have been designed to apply to future developments, the majority of the Bill's provisions will also apply to existing developments. They include the new transparency standards in relation to service charges and sinking fund contributions; the holding of proper annual meetings to manage the affairs of the company; the adoption of house rules to improve the quality of life for residents; and new mechanisms for the resolution of disputes between parties.

Section 1 is a standard provision which contains essential definitions and I want to mention a number of them specifically. “Multi-unit development” means a building or buildings comprising residential units where it is intended that such units will share amenities, facilities and services.

A "mixed use multi-unit development" means a multi-unit development of which a commercial unit forms part. This definition is necessary to ensure that residential units which are contained in mixed use developments are included within the scope of the Bill. One important exception is made: if the development comprises residential units and a childcare facility, then it will be treated as a multi-unit development rather than as a mixed use multi-unit development.

“Common areas” are defined as all parts of a multi-unit development which are, or are intended to be, designated as common areas and include external walls, foundations, roofs, landings, lifts, staircases, access roads, footpaths, cisterns tans, drains, pipes etc.

An “owners’ management company” means a company established for the purposes of becoming the owner of the common areas of a multi-unit development and responsible for the management, maintenance and repair of such areas. I am aware that some existing management bodies are not companies registered under the Companies Acts and I am providing therefore in section 1(3) that a reference to an owners’ management company shall be construed as including bodies such as industrial and provident societies, partnerships, and unincorporated bodies.

Section 2 defines the scope of the Bill. It provides that its provisions will apply to:

• multi-unit developments containing only residential units provided there are at least 5 such units;

• mixed use multi-unit developments containing residential units;

• small developments comprising 2, 3 or 4 residential units; the provisions applicable to these developments are specified in Schedule 1;

• "traditional" housing developments which have an owners' management company; the provisions applicable to these developments are specified in Schedule 2.

Subsections (3) and (4) apply to 'mixed use' developments. Subsection (4) provides that in such a development, the annual service charges and sinking fund contributions must be apportioned in a fair and equitable manner between different classes of unit (e.g. between residential and commercial units). It also provides that the voting rights of members in such developments should be apportioned in a manner which is fair and equitable.

I want to emphasise that, subject to limited exceptions, the provisions of the Bill will apply to all existing multi-unit developments and not just those built following commencement of this legislation. Subsection (5) makes this clear.

Section 3 is a key provision and it deals specifically with future developments. It will ensure that the ownership of the common areas of a new multi-unit development is transferred to the owners’ management company before any apartments are sold. It provides that an apartment in a new multi-unit development cannot be sold unless:

• an owners’ management company has been established by the developer;

• ownership of relevant parts of the common areas have been transferred to it; and

• a contract has been concluded between the developer and the owners' management company setting out the rights and obligations of both parties. I envisage that this contract will contain the developer's commitments to completing the common areas of the development.

Transfer of the legal ownership of common areas will be subject to retention of the beneficial interest by the developer. This is intended to ensure that the developer completes the development in accordance with the permission obtained from the relevant planning authority under the Planning and Development Acts as well as the requirements of the Building Control Acts. The transfer of the retained beneficial interest to the owners management company upon completion of the development, and its merging with the legal interest which was transferred before sale of the first unit, is provided for in section 11.

Apart from future developments, the Bill deals with developments which are already partially completed, i.e. some units have been sold, as well as those which have been substantially completed but the common areas have not, for whatever reason, been transferred to the owners' management company.

Section 4 provides that in those cases where some apartments have already been sold prior to the coming into operation of this legislation, the developer must transfer ownership of the relevant parts of the common areas to the owners’ management company within 6 months. Here also, the transfer is subject to the retention by the developer of the beneficial interest pending completion of the development. In section 5, I have provided that in the case of completed developments the developer must transfer ownership of the common areas to the relevant owners’ management company within 6 months of the coming into operation of the legislation.

Section 6 places an obligation on the owners' management company to join in any transfers or conveyances of units and to take any other reasonable steps to enable a purchaser to obtain a good marketable title to the property. This provision will help to ensure that intending purchasers of apartments do not become caught up in any disagreement or dispute between a developer and an owners' management company. For example, an owners' management company might decide to bring pressure to bear on a developer by refusing to join in a transfer due to an ongoing dispute over common areas. In such cases, the people who would suffer most would be the intending purchasers and this provision is intended to prevent such situations from arising.

In framing the Bill, I was determined to ensure that the transfer of the common areas did not absolve a developer from obligations to complete a development. Section 7 makes it clear therefore that transfer of ownership of common areas does not relieve a developer of his or her responsibility for completing the development in accordance with the Planning and Development Acts and the Building Control Acts.

In section 8, I have provided that on the sale or assignment of an apartment, the vendor’s membership of the owners’ management company will transfer automatically to the purchaser. The company will be obliged to give the purchaser the share or membership certificate as soon as practicable following notification of the change of ownership. The company must also ensure that the register of members is updated and comply with other relevant requirements under the Companies Acts. I am also providing in subsection (3) that unit owners must provide contact details to the owners' management company.

Following transfer of the common areas prior to sale of the first unit, section 9 provides that the developer retains rights to pass and re-pass over these areas in order to complete the development. However, a developer must indemnify the owners’ management company against any claims made in respect of acts or omissions by the developer in the course of completion works.

More generally, there will be an obligation on a developer to minimise inconvenience to residents, and to ensure that access is available to them at all reasonable times, and a reciprocal obligation on the owners’ management company not to obstruct the developer in exercising any rights in relation to the development or adjoining land.

It appears that in certain multi-unit developments, especially early developments, the ownership of certain parts of the common areas may have been allocated to individual unit owners. For example, owners of apartments on the top floor may also own the roof and be responsible for any repairs that might prove necessary. Section 10 provides that in such cases, the unit owners concerned and the company may agree to transfer the ownership of that interest, and responsibilty for it, to the company. Where either party considers that consent to the transfer is being unreasonably withheld, they may make an application to the court under the dispute resolution mechanism in section 21.

As I mentioned earlier, the transfer of ownership of the common areas to the owners’ management company is subject to retention of the beneficial interest in the property by the developer. Section 11 provides the mechanism through which the beneficial ownership of the common areas is merged with legal title in the owners’ management company. When a development has been completed, the owner of the beneficial interest in the common areas must, as soon as practicable, make a declaration that such interest stands transferred to the owners’ management company. The effect of the declaration will be that the beneficial interest and the legal interest are merged. The declaration must be made with the consent of any mortgagee or owner of a charge on the property but that the consent may not be unreasonably withheld.

Section 12 makes provision for early transfer of the beneficial interest where a development has not been completed. It provides that where 60% of the unit owners request it, the beneficial owner must make the required declaration transferring the beneficial interest to the owners management company unless good and sufficient cause is shown. In the event of a disagreement, an application to court under section 21 may be made.

Section 13 makes it clear that an owners’ management company shall have a right to carry out repairs or maintenance on a part of a multi-unit development which is not within its control where the repairs are reasonably necessary to ensure the safe and effective occupation or the peaceful enjoyment of occupation of any apartment. Subsection (2) provides, however, that the management company shall not undertake any such repairs or maintenance unless the person responsible for the maintenance has been afforded the opportunity to undertake the repairs. The section also provides that the company may recover the costs of carrying out such repairs or maintenance from any person (including the developer) who had resposibility for doing so.

Section 14 applies to new multi-unit developments commenced after the coming into operation of the legislation. It provides one vote shall attach to each unit in a development, and that each vote shall be of equal value. To ease identification, the words “owners’ management company” – which may be abbreviated to “OMC” – must be included in the name of any owners’ management company. As I mentioned earlier, the general rule regarding one vote per unit cannot apply in mixed use developments. Section 2(4) of the Bill provides that voting rights in such developments must be apportioned in a fair and equitable manner.

Arrangements for the governance of owners’ management companies constitute an important part of this Bill and they are set out in sections 15 to 20. In framing these provisions, I have been determined to promote openness, transparency and accountability.

Section 15 deals with the holding of annual meetings and the content of annual reports of owners’ management companies. The annual reports must include details of income and expediture, as well as assets and liabilities; the annual service charges and sinking fund account; planned expenditure on maintenance and repair; insurance cover and contracts entered into by the company.

Notice of the forthcoming annual general meeting must be given to each member 21 days before the meeting and a copy of the annual report must be provided at least 10 days beforehand. The annual general meeting must take place within reasonable proximity to the multi-unit development unless otherwise agreed by 75% of the members of the company. These specific obligations are in addition to any other obligation or duty on the company under any Act, statutory instrument or rule of law.

One of the major difficulties faced by apartment owners is the lack of transparency surrounding the annual service charge. In many cases, owners are unsure what services are covered by the charge or are dissatisfied with the service provided.

In order to address this issue, Section 16 specifies that the owners’ management company must establish a scheme for annual service charges to fund expenditure on the maintenance, insurance and repair of common areas within its control and for the provision of common services (security, legal, accounting etc.). The annual charge must be approved by a general meeting of the members of the company. In any case in which over 75% of the members do not approve the proposed charge, the existing charge shall remain in place until the adoption of a new charge. Where no service charge already applies, the directors of the company may determine a scheme to operate for a period of 4 months. This section also places an obligation on apartment owners to pay the annual service charge.

The annual service charge must be calculated and apportioned on a transparent and fair basis. Moreover, proper records of expenditure must be retained by the owners’ management company. I should add that I will be tabling an amendment to this section at Committee Stage to deal with the setting of initial service charges for a multi-unit developments. In most cases, it will be necessary for an intial service charge to be set by the owners' management company prior to a meeting of the owners. The amendment will provide for this while protecting the general right of the owners to agree to the charge.

Payment for ‘snagging’ of the common areas has arisen as a problem for many developments. Section 16 provides that the service charge must not be used to cover costs which are the responsibility of a developer or builder unless over 90% of the members vote in favour of such use. In such cases, the owners’ management company may recover the cost from the developer.

A further issue of widespread concern at present is whether or not to establish a sinking fund. It appears that many developments do not have a sinking fund or, if it exists, it may not be adequate to meet the costs of any major repairs or renovations. This can become a very serious problem if a lift has to be replaced or the roof has to be repaired.

Section 17 provides that an owners’ management company must establish a sinking fund to cover spending on refurbishment, improvement or maintenance of a non-recurring nature of the multi-unit development. Unit owners will be obliged to make contributions to it. A minimum contribution of €200 per unit per annum is specified in subsection (5) but another amount may be agreed by the members themselves.

A sinking fund must be established within 3 years of the first transfer of ownership of an apartment in the development or, in the case of existing developments which do not have such a fund, within 18 months of commencement of section 17. Contributions to the sinking fund must be held in a separate identified account. Any disputes in relation to the fund may be the subject of an application to court under the dispute resolution mechanism in section 21.

Section 18 provides that the owners’ management company may issue a combined request for payment of the service charge and the sinking fund contribution. Such a request must outline the basis for the calculation of each charge. In cases of arrears, section 19 provides that they may be recovered as a simple contract debt in a court of competent jurisdiction, i.e. normally the District Court.

With a view to enhancing the quiet and peaceable occupation of units within multi-unit developments, section 20 permits an owners’ management company to make and amend House Rules. Such Rules must be consistent with the covenants contained in title deeds and must be agreed at a meeting of members of the company. Where an apartment is let, it shall be a term of the letting that it is subject to the observance of the Rules by the tenants. The Rules may make provision for the recovery by the owners’ management company from any person of the reasonable cost of remedying a breach of the rules.

Again, I intend to bring an amendment to this section at Committee Stage to allow the owners' management company to make initial House Rules prior to a meeting of the unit owners on the matter.

Another problem to be addressed is the lack of an appropriate dispute resolution mechanism through which aggrieved unit owners may seek redress when disputes arise. Section 21 establishes a new court jurisdiction for the resolution of disputes in multi-unit developments where attempts at mediation have failed. An application shall state the circumstance giving rise to it must also state whether attempts at mediation have been made.

On the hearing of the application, if it is satisfied that a right has been infringed or an obligation has not been discharged, the court may make such order or orders as it deems appropriate. Such orders may relate to the legal documentation concerning the development; transfer of control issues; issues regarding sinking funds and completion of the developments. In making an order, the court must be satisfied that all parties likely to be affected by the making of an order have received sufficient notice of the application. The court is also given the power to make such ancillary orders as it considers necessary to give effect to any order or orders made by it under the section.

Any person referred to in section 22 may apply to the court for an order to enforce any rights conferred or obligation imposed under the Act. Section 23 provides that the Circuit Court will have jurisdiction to hear and determine an application under section 21.

Mediation offers an alternative to potentially lengthy, and costly, legal proceedings and I believe that it should be used wherever possible to resolve disputes. For that reason, I have included sections 24 and 25 in this Bill.

Section 24 provides that at the request of any party to an application under section 21, the court may, at any stage during the course of the proceedings, direct all parties concerned in the application to meet in a mediation conference. It further provides that where a mediation conference is directed by the court, all parties must comply with the direction. Other relevant provisions in the section relate to issues such as the time and place for the holding of a mediation conference, the appointment of a chair of the mediation conference, confidentiality and the costs of the conference.

Section 25 provides that the chairperson of a mediation conference must submit a report to the court on the outcome of the conference. A copy of the report must also be given to the parties to the application. Where the court is satisfied that a party to the application did not comply with a direction to engage in the mediation process, it may make an order as to costs.

Section 26 is a saver provision which provides that nothing in the Act shall derogate from any power vested in any person or court, by statute or otherwise and the powers conferred in the Act shall be in addition to and not in substitution for any such powers.

Another problem that has arisen in relation to multi-unit developments has been the striking off of owners’ management companies from the Companies Register. This can have very serious consequences. It can mean, for example, that an owner wishing to sell his or her apartment cannot do so until the company is restored to the register.

At present, when a company is struck off, there is a one-year period during which the company can apply to the Companies Registration Office for restoration to the register. After one year, the company must apply to the courts to be restored to it. This is costly and cumbersome. Section 27 addresses this problem by extending to 6 years the period within which an owners’ management company may be restored to the register without recourse to the courts.

Section 28 provides that the benefit of any guarantees or warranties relating to any materials used in the construction, repair or improvement of a multi-unit development shall stand transferred to the owners’ management company on the transfer of the land. In addition, subsection (2) provides that on the transfer of the beneficial interest in the common areas, the developer must provide the documentation set out in Schedule 3 to the owners management company.

Section 29 places restrictions on owners’ management companies entering into long term contracts with providers of goods and services, e.g. insurance contracts or broadband services. Such companies will not be permitted to enter into contracts for a period in excess of 3 years. In addition, any contract entered into by the company cannot include a clause imposing a penalty on the company if the contract is terminated after a 3-year period.

Section 30 provides that the regulation-making powers conferred on the Minister for Justice, Equality and Law Reform in sections 16, 17 and 20 shall be exercised in consultation with the Minister for Enterprise, Trade and Employment and the Minister for the Environment, Heritage and Local Government.

As I mentioned earlier, Schedule 1 specifies provisions of the Bill which apply to multi-unit developments comprising more than 2 units but less than 5 units. Schedule 2 specifies those provisions which will apply to "traditional" housing developments with a management company. Schedule 3 lists the documentation which must be passed by the developer to the owners' management company on the transfer of common areas. It is quite a comprehensive list involving issues such as drawings, manuals, counterpart leases, financial accounts etc.

Conclusion

I am confident that the provisions set out in this Bill will, when enacted, provide much improved consumer protection for the owners of apartments in multi-unit developments and will serve to reassure the public that high standards will be applied and maintained in this growing segment of the housing market. I commend the Bill to the House.