CONSULTATION PAPER
MULTI-UNIT DEVELOPMENTS
IRELAND
Law
Reform Commission
35-39
Shelbourne Road, Ballsbridge, Dublin 4
© Copyright
Law Reform Commission 2006
First Published December 2006
ISSN 1393 - 3140
LAW REFORM
COMMISSION
Background
The Law Reform Commission is
an independent statutory body whose main aim is to keep the law under review
and to make practical proposals for its reform. It was established on 20
October 1975, pursuant to section 3 of the Law Reform Commission Act 1975.
The Commission’s Second
Programme for Law Reform, prepared in consultation with the Attorney General,
was approved by the Government and copies were laid before both Houses of the
Oireachtas in December 2000. The Commission also works on matters which are
referred to it on occasion by the Attorney General under the terms of the Act.
To date the Commission has
published 82 Reports containing proposals for reform of the law; 11 Working
Papers; 41 Consultation Papers; a number of specialised Papers for limited
circulation; An Examination of the Law of Bail; and 27 Annual Reports in
accordance with section 6 of the 1975 Act. A full list of its publications is
contained on the Commission’s website at www.lawreform.ie
Membership
The Law Reform
Commission consists of a President, one full-time Commissioner and three
part-time Commissioners.
The Commissioners at present are:
President:
The Hon Mrs. Catherine McGuinness, former Judge of the
Supreme Court
Full-time Commissioner:
Patricia T. Rickard-Clarke, Solicitor
Part-time Commissioner:
Professor Finbarr McAuley
Part-time Commissioner:
Marian Shanley, Solicitor
Part-time Commissioner:
Donal O’Donnell, Senior Counsel
Secretary/Head of Administration: John
Quirke
Research Staff
Director of
Research:
Raymond
Byrne BCL, LLM, Barrister-at-Law
Legal Researchers:
John
P. Byrne BCL, LLM (NUI), Barrister-at-Law
Áine Clancy BCL, LLM (NUI)
Philip Flaherty BCL, LLM (NUI)
Caren Geoghegan BCL, LLM (Cantab), Barrister-at-Law
Cliona Kelly BCL
Joanne Lynch BCL, LLM (NUI)
Margaret Maguire LLB, LLM (NUI)
Jane Mulcahy BCL, LLM (NUI)
Tara Murphy BCL, LLM (Essex)
Richard McNamara BCL, LLM (NUI)
Catherine Ellen O’Keeffe LLB, LLM (NUI)
Charles O’Mahony BA, LLB, LLM (Lond), LLM (NUI)
David Prendergast LLB, Barrister-at-Law
Keith Spencer BCL, LLM (Dub), BCL (Oxon), Barrister-at-Law
Nicola White LLB, LLM (Dub), Attorney-at-Law (NY)
Administration Staff
Project Manager:
Pearse Rayel
Executive
Officer:
Denis McKenna
Legal Information Manager:
Conor
Kennedy BA, H Dip LIS
Cataloguer:
Eithne Boland BA (Hons), HDip Ed, HDip LIS
Information Technology
Officer:
Liam Dargan
Private Secretary
to the President
:
Debbie Murray
Clerical
Officer:
Ann Browne
Principal Legal Researchers on this Consultation
Paper
Professor JCW Wylie LLM (Harvard), LLD (Belfast), Professor of Law
at Cardiff University
Áine Clancy BCL,
LLM (NUI)
Other Legal Researchers involved with this
Consultation Paper
Trevor Redmond
LLB, MPhil, LLM (Cantab)
Mary Townsend BCL,
LLM (NUI)
Aoife McCarthy
BCL, LLM (NUI), Barrister-at-Law
Contact Details
Further information can be obtained from:
Secretary/Head
of Administration
Law Reform
Commission
35-39 Shelbourne
Road Ballsbridge Dublin 4
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T: |
+353 1 637 7600 |
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F: |
+353 1 637 7601 |
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E: |
info@lawreform.ie |
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W: |
www.lawreform.ie |
THE PROJECT
In its Second Programme 2000 – 2007, published in
December 2000, the Law Reform Commission included as an item for future
consideration the law relating to “condominiums”. The expression
“condominiums” is commonly used in certain parts of the world, particularly
North America, the Caribbean and Continental Europe, to describe multi-unit
buildings like blocks of flats or apartments. Such developments have long
been the subject of extensive statutory regulation in other jurisdictions, such
as the condominiums legislation in North America and Europe and the strata
titles legislation in Australia. The Commission drew further attention to
this subject in its Report on Land Law and Conveyancing Law: (7) Positive
Covenants over Freehold Land and Other Proposals (LRC 70 – 2003). It
was described there as a “very complex subject” which would be considered at a
later stage (paragraph 1.14). In September 2003, the Commission
established a Group to give preliminary views of the issues involved to the
Commission. It engaged the services of Professor JCW Wylie, who
has been involved in several of the Commission’s other projects, to lead the
Group. The other members of the Working Group were:-
The Hon Mrs Justice Catherine McGuinness, President of the
Law Reform Commission
Commissioner Patricia T Rickard-Clarke
Commissioner Marian Shanley
Nuala McLoughlin (succeeded by Sheila McMahon), Department
of the Environment, Heritage and Local Government
Sheena M Beale, Solicitor
Brian M Gallagher, Solicitor
Siobhan Kirwan, O’Dwyer Property Management Ltd
Rory O’Donnell, Solicitor
Jerry Sheehan, Solicitor
Patrick Sweetman, Solicitor
TABLE OF CONTENTS
Table of
Legislation
xi
Table of
Cases
xv
PART
A
5
CHAPTER 1 nature and structure of
multi-unit developments in ireland
D Problems
surrounding multi-unit developments
CHAPTER 2 Planning Authorities
A General
Policy for Multi-Unit Developments
B Taking in
Charge – Section 180
A Imposing
Statutory Obligations on Developers
C Taking in
Charge: Management Companies
CHAPTER 4 Management Companies
B Functions
of the Management Company
(1) Types of Management
Company
(2) Company Law Issues
Facing Management Companies
D Reform of
the Legal Structure of Management Companies
(1) Company Limited by
Shares (CLS)
(2) Designated Activity
Companies (DACs)
(7) Reports, Accounts and
Auditing
(10) Automatic Transfer of Shares / Membership
E Regulation
of Management Companies
(1) Allocation of
Shares/Membership
(2) Memorandums and
Articles of Association
C Regulation
of Managing Agents
CHAPTER 7 Regulation of multi-unit
developments
(1) Department of the
Environment, Heritage and Local Government
(3) Private Residential
Tenancies Board (PRTB)
(5) Companies Registration
Office
(6) Property Registration
Authority
(7) National Property
Services Regulatory Authority (NPSRA) 117
D Overview of
the Functions Proposed for the Regulatory Body
(3) Regulation -
Accountability of the Sector
PART
B
125
CHAPTER 8 Legal PROBLEMS ARISING WITH
MULTI-UNIT DEVELOPMENTS
CHAPTER 9 STATUTORY SCHEMES IN OTHER
JURISDICTIONS
(2) Condominium/Strata
Titles Schemes
CHAPTER 11 Rescue provisions for existing
developments
B Application
to Circuit Court
CHAPTER 12 Summary of Provisional
recommendations
APPENDIX Draft company law
review group paper on management companies
|
No. 3 of 1990 |
Irl |
|
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Commonhold and Leasehold Reform Act 2002 |
c 15 |
Eng |
|
Companies (Amendment) Act 1982 |
No. 10 of 1982 |
Irl |
|
Companies (Amendment) Act 1983 |
No. 13 of 1983 |
Irl |
|
Companies (Amendment) Act 1986 |
No. 25 of 1986 |
Irl |
|
Companies (Amendment)(No. 2) Act 1999 |
No. 30 of 1999 |
Irl |
|
Companies Act 1963 |
No. 33 of 1963 |
Irl |
|
Companies Act 1990 |
No. 33 of 1990 |
IRL |
|
Company Law Enforcement Act 2001 |
No. 28 of 2001 |
Irl |
|
Condominiums Act 1981 |
Act 23 of 1981 |
Trin & Tob |
|
Condominiums Act 1998 |
SO 1998, c. 19 |
Can |
|
Conveyancing (Strata Titles) Act 1961 |
NSW |
Aus |
|
Environmental Protection Agency Act 1992 |
No. 7 of 1992 |
Irl |
|
Finance Act 1988 |
No. 12 of 1988 |
Irl |
|
Finance Act 1992 |
No. 9 of 1992 |
Irl |
|
Finance Act 1999 |
No.2 of 1999 |
Irl |
|
Finance Act 2004 |
No. 13 of 1994 |
Irl |
|
Fire Services Act 1981 |
No. 30 of 1981 |
Irl |
|
Housing (Miscellaneous Provisions) Act 1992 |
No. 18 of 1992 |
Irl |
|
Housing Act 1966 |
No. 21 of 1966 |
Irl |
|
Landlord and Tenant (Ground Rents) Act 1978 |
No. 7 of 1978 |
Irl |
|
Landlord and Tenant (Ground Rents)(No.2) Act 1978 |
No. 16 of 1978 |
Irl |
|
Planning and Development Act 2000 |
No. 30 of 2000 |
Irl |
|
Registration of Deeds and Title Act 2006 |
No. 12 of 2006 |
Irl |
|
Residential Tenancies (Amendment) Bill 2006 |
No. 15 of 2006 |
Irl |
|
Residential Tenancies Act 2004 |
No. 27 of 2004 |
Irl |
|
Roads Act 1993 |
No. 14 of 1993 |
Irl |
|
Sectional Titles Act 1971 |
No. 66 of 1971 |
SA |
|
Sectional Titles Act 1986 |
No. 95 of 1986 |
SA |
|
State Property Act 1954 |
No. 25 of 1954 |
Irl |
|
Strata Property Act 1998 |
SBC 1998, Chap 43 |
Can |
|
Strata Schemes (Freehold Development) Act 1973 |
No. 68 of 1973 |
Aus |
|
Strata Schemes Management Act 1996 |
No. 138 of 1996 |
Aus |
|
Tenements (Scotland) Act 2004 |
2004 asp 11 |
Scot |
|
Title Conditions (Scotland) Act 2003 |
2003 asp. 9 |
Scot |
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Uniform Common Interest Ownership Act 1982 |
|
USA |
|
Uniform Common Interest Ownership Act 1994 |
|
USA |
|
Uniform Condominium Act 1980 |
|
USA |
|
Unit Titles Act |
No. 17 of 1972 |
NZ |
TABLE OF CASES
|
(1858) EI BI & EI 622 |
Eng |
|
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Humphries v. Brogden |
(1850) 12 QB 729 |
Eng |
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In re Application by the Director of Consumer Affairs |
High Court, 5 December 2001 |
Ireland |
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Metropolitan Properties Ltd v. O'Brien |
[1995] IR 467 |
Irl |
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Reilly v. Booth |
(1890) 44 ChD 12 |
Eng |
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Shirley v. O'Gorman & Co. Ltd |
High Court, 31 January 2006 |
Irl |
1.
This Consultation Paper has been prepared under the Commission’s Second
Programme of Law Reform 2000-2007.[1]
One of the most striking features of the property sector in Ireland in recent
years is the huge rise in the number of residential multi-unit developments.
These include blocks of flats or apartments, and mixtures of townhouses and
apartments. Many multi-unit developments involve single use, whether
residential or commercial, but others involve mixed use where, for example,
office or other commercial units are situated on the ground floor of the
development. Of the 80,000 housing units completed in 2005, over 18,000 (22.4%)
were apartment complexes, with more than 9,500 in the Dublin area alone. It has
recently been estimated that about 500,000 people (more than 10% of the total
population) live in multi-unit developments in Ireland. This necessarily involves
reviewing the law which until now was developed largely without consideration
for the distinct company, property, planning and consumer issues which face
multi-unit developments.
2.
Apartment living on this large scale is, therefore, a recent phenomenon
and it is not, perhaps, surprising that the relevant law is surrounded with
some uncertainty. This is why the Commission included this area in its Second
Programme of Law Reform 2000-2007. In preparing this Consultation Paper,
the Commission was conscious that it must address a wide range of connected
areas of law. These include: national regulatory issues (including planning
matters and the appropriate regulatory structure for those involved in
multi-unit developments), the legal structures associated with multi-unit
developments (in particular the role of management companies), consumer
protection issues (including the protection of consumers at purchase and
protecting their long-term investment in an apartment complex) and general land
ownership and conveyancing issues.
3.
The Commission’s study of these issues has led it to consider a wide
range of related issues. The Commission is also conscious that many of
these issues involve policy matters that come within the province of the
government and other State agencies. Equally, a number of reform proposals
currently under active consideration, such as the proposed National Property
Services Regulatory Authority (NPRSA) must be taken into consideration. At the
level of the developer and the purchaser, there has been considerable public
debate on the role of management companies, and the Commission makes a number
of recommendations in this area. It is not for the Commission to make
recommendations directly on such matters, but, in view of their clear impact on
multi-unit developments and connection with problems which the Commission’s
study has identified; this Paper will draw attention to them and, as
appropriate, will make suggestions as to how they might be resolved.
4.
This Paper makes provisional recommendations on a broad range of issues
which the Commission believes impact directly on multi-unit developments.
Amongst other subjects, the status in company law of management companies, the
introduction of further guidance and protection for consumers and the potential
regulation of the sector are all analysed and provisional conclusions are
reached. The object of the Paper is also to further the debate surrounding
multi-unit developments and in this context, the Commission has at this stage
made no provisional recommendations but rather welcomes submissions on some of
the issues addressed.
5.
The Commission has also borne in mind the wider context, in particular
other projects which it is currently undertaking. One is the Joint
Project with the Department of Justice, Equality and Law Reform on reform and
modernisation of land law and conveyancing law.[2] This has culminated in the Land and
Conveyancing Law Reform Bill 2006[3]
which is currently before the Oireachtas. That Project was part of a
larger reform programme the ultimate aim of which is the introduction of a
simple, paperless eConveyancing system.[4]
Another project is the reform of landlord and tenant law.[5] The discussion in this Paper of the land
law implications for multi-unit developments further adds to this body of work.
6.
Based on all of this, the Commission has produced this Consultation
Paper, which aims to provide a comprehensive review of the legal issues
concerning multi-unit developments and to suggest reform to counter problems
evident in the current system.
The Paper is divided into two
sections, the first of which focuses on matters concerning the need for
regulation and consequent proposals for reform in the sector. The second part
discusses the land law implications of multi-unit developments.
7.
Chapter 1 outlines the background to this Paper’s discussion of the
issues surrounding multi-unit developments and briefly explains the relevance
of the various groups involved in them to this Paper.
Part A
8.
Chapters 2 and 3 consider the role of developers and planning
authorities respectively, in the proper functioning of the law surrounding
multi-unit developments. It makes consequent proposals for reform with regard
to these groups.
9.
Chapter 4 focuses on company law as it applies to residential property
management companies and proposes reforms designed to meet the unique features
of such companies.
10.
Chapter 5 discusses the distinction between managing agents and
management companies. It outlines difficulties arising in the use of managing
agents and suggests ways in which abuses through the use of managing agents can
be avoided.
11.
Chapter 6 deals with the consumer protection matters that are central to
the controversy surrounding multi-unit developments. In particular, it looks at
regulation of the calculation of service charges and sinking funds, dispute
resolution for consumers and measures necessary to counter the current
understanding deficit.
12.
Chapter 7 identifies the reasons why the Commission believes the
introduction of a regulator for the residential multi-unit development sector
is necessary. It discusses potential regulators and also outlines the general
purposes and functions of any proposed Regulatory Body.
Part B
13.
Chapter 8 comprises a discussion some of the land law issues involved
with ownership of units, focussing on conveyancing and administrative problems.
14.
Chapters 9 looks at statutory schemes used in other jurisdictions.
Chapter 10 examines the contemporary Irish context. In particular, it addresses
the significance of the fact that ownership interests in apartment units in
Ireland tend to be sold as leasehold estates.
15.
Finally, Chapter 11 concerns rescue provisions for existing
developments.
16.
The Commission usually publishes in two stages: first, a Consultation
Paper and then a Report. This Consultation Paper is intended to form the basis
for discussion and accordingly the recommendations, conclusions and suggestions
contained herein are provisional. The Commission will make its final
recommendations on this topic following further consideration of the issues and
consultation. Submissions on the provisional recommendations included and all
issues in this paper are welcome. In order that the Commission’s Report may be
made available as soon as possible, those who wish to make their submissions
are requested to do so in writing or by e-mail to the Commission by 30 April
2007. In light of the significant public interest on issues surrounding
multi-unit developments, the Commission will also be hosting a Conference as
part of the consultation process for this Paper. This will take place on the
25 January 2007.[6]
Part A
1.01
In this chapter, the Commission presents an overview of the operation of
multi-unit developments in Ireland and outlines the context in which such
developments will be examined. In Part B, it outlines the size and importance
of the sector and identifies the main groups concerned in the functioning of
these developments. Part C examines the element of interdependence necessary
for the proper functioning of multi-unit developments and discusses the issues
that arise as a result. The main problems facing multi-unit developments are
reviewed in Part D. Finally, Part E summarises the latest developments which
have had an impact on the multi-unit development debate.
1.02
One of the most prominent features of land ownership in recent decades has
been the creation of “multi-unit” constructions, such as blocks of flats or
apartments[7]
and office and other commercial[8]
multi-unit buildings. Such developments often comprise one building, but
they may involve more than one building.[9]
Often they will be confined to one type of use, such as residential or
commercial, but it is becoming common to have a mixture of uses in the
multi-unit building. A typical example would be a block of apartments
with a row of shops and other commercial units at ground level.
1.03
In the context of residential accommodation,
the typical multi-unit development is a multi-storey building comprising self-contained
apartments or flats. It is not uncommon, as has just been mentioned, for
the building to contain also, usually at ground level, a row of commercial
units, such as a newsagents or convenience store and other shops, bank branch
and facility like a dry-cleaning outlet or launderette. Larger
developments may contain several such multi-storey buildings on the same site
and even some purely commercial multi-storey buildings, such as a hotel or
office block. They may also contain single-storey buildings, such as
houses or interlinked town houses. All such developments share the
high-degree of interdependence. Such interdependence may exist also in
other, more traditional developments, such as the typical housing estate
comprising detached or semi-detached houses or estate comprising holiday
cottages. Such developments do often involve an element of sharing
facilities or services, such as roads, footpaths, pipes and other means of
providing services, parking facilities, play areas and other open spaces.
However, the degree of interdependence is much less than that which exists in
multi-storey buildings and the need for management of the development is less
acute. It is not surprising, therefore, that the problems which may arise
are less serious. That does not mean that those problems should be
ignored and they are addressed where appropriate, at different points in the
Paper.
1.04
An indication of the impact on the supply of housing in the State of
apartment developments can be obtained from statistics collected by the
Department of the Environment, Heritage and Local Government since 1992. Table
1 below illustrates that, since 1992, apartment completions (over 145,000)
have comprised some 20% of the total housing completions, with clear
indications that this percentage is increasing. Table 2 below
illustrates that this trend is even more pronounced in Dublin.
Here apartment completions (over 69,000) since 1992 have averaged some 40% of
total housing completions and again there are indications that this is
increasing towards 45% and over.
Table 1
National
Completions
|
Year |
Apartment completions |
Apartment completions as a % of total completions |
Total completions |
|
1992 |
3,741 |
16.7% |
22,464 |
|
1993 |
3,961 |
18.5% |
21,391 |
|
1994 |
5,112 |
19% |
26,863 |
|
1995 |
6,009 |
19.7% |
30,575 |
|
1996 |
6,670 |
19.8% |
33,725 |
|
1997 |
7,302 |
18.8% |
38,842 |
|
1998 |
9,137 |
21.6% |
42,349 |
|
1999 |
9,196 |
19.8% |
46,512 |
|
2000 |
8,886 |
17.8% |
49,812 |
|
2001 |
10,626 |
20.2% |
52,602 |
|
2002 |
11,638 |
20.2% |
57,695 |
|
2003 |
14,839 |
21.6% |
68,819 |
|
2004 |
16,106 |
21% |
76,954 |
|
2005 |
18,035 |
22.4% |
80,557 |
|
2006 Q1-3 |
14,200 |
21.5% |
66,170 |
|
|
Total: 145,458 |
|
|
Table 2
Dublin
Completions[10]
|
Year |
Apartment completions |
Apartment completions as a % of total completions |
Total completions |
|
1992 |
1,748 |
25.5% |
6,865 |
|
1993 |
2,342 |
33.2% |
7,063 |
|
1994 |
2,580 |
32.7% |
7,891 |
|
1995 |
3,347 |
37.9% |
8,823 |
|
1996 |
3,581 |
37.9% |
9,446 |
|
1997 |
3,087 |
33.1% |
9,325 |
|
1998 |
3,610 |
40.3% |
8,957 |
|
1999 |
4,156 |
41.4% |
10,035 |
|
2000 |
3,737 |
39.7% |
9,405 |
|
2001 |
5,189 |
54% |
9,605 |
|
2002 |
5,540 |
43.9% |
12,623 |
|
2003 |
6,266 |
43.5% |
14,394 |
|
2004 |
6,995 |
42% |
16,810 |
|
2005 |
9,542 |
53% |
18,019 |
|
2006 Q1-3 |
8,236 |
57.36% |
14,357 |
|
|
Total: 69,956 |
|
|
1.05
In the context of residential property,
although such developments are a comparatively new phenomenon,[11] they now make up a substantial
proportion of new buildings for residential purposes. No doubt this
“newness” is a source of many of the difficulties outlined below. Purely
commercial multi-unit developments, like the traditional office block, have
existed for a much longer period and do not appear to give rise to issues,
notwithstanding that they share basic features that are inherent in such
developments.[12]
Nor do the problems arise in the more recent kinds of purely commercial
developments, such as shopping centres and industrial estates. No doubt
this is due in large part to the fact that business organisations have become
used to the nature and structure of such developments, which tend to follow the
practice in other jurisdictions. The process of understanding in the
commercial world has also been assisted by the influx in recent decades of
commercial investors and business organisations already very familiar with
operating out of multi-unit buildings. For this reason the discussion
below, and, indeed, the rest of this Consultation Paper, concentrates on
multi-unit developments comprising in whole or in part residential
accommodation.
1.06
In order to understand the source of the various problems, it is
important to identify the key elements and players in multi-unit developments,
concentrating on those comprising residential accommodation.
1.07
A “unit” in a multi-unit development is the
individual apartment, flat, duplex unit or other self-contained accommodation,
which, together with other such units, makes up the entire development.
As mentioned earlier, increasingly developments will comprise a mixture of
units, so that, although a particular development may comprise mostly
residential units, some commercial ones may be present. Although each
unit may be described as “self-contained” in the sense that it will be designed
to provide within it all the accommodation and facilities needed for day-to-day
living, its being part of a multi-unit development, such as a multi-storey
building, means that its owner has to share many things with other unit
owners. This is the element of interdependence discussed later.[13]
1.08
As regards the unit owner, it must be pointed out that he or she has two
ownership interests. One is the leasehold interest in the unit which has
been purchased and the other is the interest in the property vested in the
management company which the unit owner has as a member of the company.[14]
The usual provision made is that membership of the management company is tied
to ownership of the unit, so that it passes automatically when that ownership
changes hands.[15]
Apart from having an interest in the assets of the management company as a
member, membership also confers the right to participate in the company’s
operation, including voting rights at meetings.
1.09
This is a fundamental element which
distinguishes most multi-unit developments from other developments. As observed earlier, residence in a
multi-unit development necessarily involves a high degree of interdependence.
As a result, unit-owners will normally be obliged to pay into a fund which is
used to provide for the maintenance of the common areas in a development.[16]
1.10
Unit owners also contribute to sinking funds which are kept by property
management companies to pay for capital expenses and larger, longer-term
structural repairs.[17]
1.11
Planning authorities are responsible for processing planning
applications and granting planning permission. They are also responsible for
‘taking-in-charge’ major infrastructural services for developments when they
are completed. It is this process which has generated the most controversy for
planning authorities in their dealings with multi-unit developments.[18]
1.12
The developers, usually a company, own the site upon which the
development is to be built and acquire the appropriate planning permission for
the development in question. They then oversee the construction and sale of the
units in the development and sometimes incorporate the management company and
retain some control in it until all of the units are sold and the development
is completed.[19]
1.13
Most substantial residential multi-unit developments provide for the
establishment of a management company on completion of the development, if not
earlier. Each management company’s membership comprises the unit owners of a particular
multi-unit development. The key functions of the management company are to own
the freehold reversion on individual units and manage the common parts and
internal and external structures of the building.[20]
1.14
It is common for a developer, especially in a larger development, to
employ[21] at an early stage a firm of “managing agents” or “service
providers” to carry out various administrative tasks and, generally, to oversee
completion of the development and to plan its subsequent operation. Such
firms may also be employed subsequent to completion of the development by the
management company or others with responsibility for managing the development.[22]
It is important to emphasise that such managing agents or service providers are
simply agents of the developer, management company or other person or body with
responsibility for carrying out administrative tasks. As such their role
should not be confused with that of the body appointing them and which retains
the legal responsibility for the due execution of the tasks in question.
In particular, such managing agents should not be confused with a management
company which usually has a substantial “ownership” interest in the development
and major legal responsibilities which reflect that interest. The recommendations
in the Report of the Auctioneering/Estate Agency Review Group for
licensing and regulation of property management agencies relate to managing
agents and not to management companies which may employ them.[23]
1.15
It is important to stress that the outline of the nature and structure
of residential developments given above will not apply in all cases. In
particular the scheme of management companies and managing agents may not be
appropriate for a small development comprising only a few units. Such
complexities may be even less suitable where, for example, a large house has
been converted into two or three self-contained flats. Such multi-occupied
buildings nevertheless involve the element of “interdependence” which is the
fundamental feature of all multi-unit developments. They necessarily give
rise to the same problems deriving from sharing parts of the building and the
facilities and services associated with them. There will still be a need
for “management” to some degree. The maintenance and upkeep of shared
areas like the entrance, hall, stairs, landings, footpaths and gardens has to
be catered for. Provision has to be made for repair and insurance of the
roof and other external parts of the building.
1.16
Where the flats or other units in such a small development are let on
short leases such matters will usually remain the responsibility of the
landlord. In such cases the landlord retains an active interest in the
building and usually will retain ownership of the “common areas”. The
responsibilities as between the landlord and tenants of units will be dealt
with in the usual way by the terms of the leases of the flats.
1.17
Where, however, the flats or other units in a small development or
conversion of a building are “sold”, whether for a freehold interest or by way
of long lease, some other provision has to be made. The most suitable
method of achieving this is to use some form of co-ownership agreement entered
into by the various flat owners. This subject is taken up later.[24]
1.18
The common element of multi-unit developments is the degree of
“interdependence” they necessarily involve. This has a number of
aspects. One is the purely physical one, which derives from the fact that
the owners or occupiers[25] share the same building. Each
“unit”, whether apartment, office or shop, is part of a larger building and
depends on the other parts for support and shelter. It will also depend
on pipes, wires, cables and other “conduits” running through the building to
supply various facilities, such as electricity, gas and water, and services,
such as drainage and sewerage. In order to make full use and enjoyment of
a unit, the owner or occupier will need various rights over what are usually
referred to as “common areas”, such as entrance halls, stairs, lifts, corridors
and other passageways within the building.[26] It is also common for unit owners to
enjoy, in common with other unit owners, use of facilities like car parks and
gardens. Such rights are usually accompanied by obligations, such as the
obligation to contribute to the cost of repair and maintenance of common
areas. The result is that “interdependence” also involves an important
“legal” dimension. In order to be fully effective a multi-unit development
will require the creation of a wide range of mutual rights and obligations as
between the different unit owners.
1.19
Such complexities give rise to another dimension which arises from the
element of interdependence. This is the need for day-to-day management of
the multi-unit development. How this is achieved can vary
considerably. An important aspect of this is meeting management expenses,
such as the costs of maintenance and repairs and insurance. This is usually
achieved by requiring unit owners to pay annual “service charges”.[27]
Apart from such regular expenses, another important consideration is meeting
the cost of substantial capital expenditure which will arise from time to
time. It is inevitable that parts of a building will wear out, cease to
function or otherwise fail to achieve their purpose,[28] so that the issue of replacement
arises. The need to build up a fund to meet such capital expenditure,
sometimes referred to as a “sinking” or “reserve” fund, or otherwise make
provision for such expenditure is of vital importance to the unit owners.[29] The management of the development
and the associated costs can be a source of considerable dispute both amongst
the unit owners themselves and within the management company. That body
is usually a management company established initially by the developer and
controlled by it while the development is being built. The first
purchasers of units become members and on completion of the development all the
unit owners comprise the membership of the company and control should pass to
them. In practice the day-to-day management tasks are often delegated to
management agents or service providers initially appointed by the developer or
the management company controlled by it.
1.20
It is important to emphasise that although the complexities arising from
the element of interdependence are probably at their most acute in a single
block of flats or offices or of mixed-use units, they can arise in other
developments which may involve a degree of interdependence. In recent
times considerable variations in developments have occurred, such as those
involving interlinked “townhouses”, or a combination of blocks of flats and
townhouses or of retail, leisure and residential units on the same site.[30]
1.21
It is this high degree of interdependence which distinguishes ownership
of a unit in a multi-unit development from ownership of a detached or
semi-detached house in the more traditional form of housing estate. The
latter may involve some degree of “common” or “shared” ownership, such as that
concerning car parks, gardens and other open or landscaped areas, but, apart
from such limited sharing, each house owner usually enjoys a high degree of
independence. This is reflected in the fact that each individual owner
takes responsibility for maintenance, repair and insurance of his or her own
property. Except for the comparatively rare “private” or “gated” estate,[31]
most services and facilities relating to roads, footpaths, lighting, drainage
and sewerage will have been taken-in-charge by the local authority.[32] There is, therefore, usually no
question of the owner of a house on such an estate being subject to service
charges.
1.22
The huge surge in the amount of multi-unit developments and management
companies in the past ten years coupled with the interdependent nature of
ownership of multi-unit developments account in part for the recent swell of
controversy around these developments.
1.23
As is discussed later,[33]
one of the major issues to arise in recent times is that purchasers of units in
multi-unit developments often do not appreciate the distinction between
ownership of a unit in such a development and ownership of a more traditional
housing unit. Furthermore, there is much confusion about the nature and purpose
of service charges and reserve or sinking funds and the extent to which the
local authority should be involved in such developments. As others have
pointed out, this “understanding deficit” is a matter which requires urgent
attention.[34]
As a result of this, it seems that more information and perhaps even regulation
should be introduced in order to ensure that consumers are fully aware of
matters concerning sinking funds, service charges, and the unit owner’s rights
and responsibilities in being a member of a management company.
1.24
Further to this understanding deficit, it is also rapidly becoming clear
that the lack of regulation that coincides with the massive growth in the
sector and the problems arising from it has become a major consumer and
property stakeholder issue. Given the lack of governing legislation or a
watchdog in this area, issues include the responsibilities of developers,
managing agents and local authorities. Facilitation of appropriate non-court
fora for dispute resolution within the sector is also an issue. There is
currently no organised national mouthpiece for members of management companies
when it comes to issues of policy on multi-unit developments. Similarly, there
is no state agency responsible for monitoring and supervision of management
companies and no body to approach for advice specific to the area. As a result,
it seems that regulation may be necessary. That leads to issues such as, if a
regulator of the sector is introduced, what exact functions will it have, and
what public body should take on the role?[35]
1.25
The company law surrounding management companies is also in a state of
flux. It will be observed later in this Paper that the company structure as it
stands seems to be more appropriate to ‘business’ organisations rather than
‘not-for-profit’ organisations such as management companies. Moreover, the law
does not take into account that management company boards tend to comprise
voluntary directors, many of whom have no experience in company operation.
Further difficulties arise from lack of certainty with regard to what exactly
the management company should have responsibility for and the rights and duties
of members.
1.26
More issues arise from a land law perspective. The complexity of these
developments in terms of ownership means that conveyancing is fraught with
potential problems. Furthermore, where it transpires that the documentation is
defective; remedying the problem will typically be far from easy. Furthermore,
land law generally as it has evolved in Ireland has ensured that the practice
is for purchasers to buy units as leaseholds with an interest in the freehold
reversion of the development.[36]
1.27
Having identified myriad problems in the sector, the Commission takes
the view that reform of the status quo is imperative, and discusses all of the
above issues in the course of the Consultation Paper. In considering these issues
the Commission has taken into account several other studies which have been
carried out recently and other developments with a bearing on the
subject.
1.28
The Report of the Auctioneering/Estate Agency Review Group[37]
contained a number of recommendations relating to property management,[38] regulation of property management agents[39] and of related matters such as service
charges and sinking funds.[40]
The Review Group’s recommendations were accepted by the Government, in
particular the setting up of a National Property Services Regulatory Authority
to implement them.[41]
An implementation Group has been established to oversee the practical
arrangements for the Authority’s establishment,[42] pending enactment of the necessary
legislation to govern its functions.
1.29
Three further reports contain material which relates to multi-unit
developments.[43]
The 2005 Report of the Housing Unit (now the Centre for Housing Research)
entitled Mixed-Tenure Housing Estates: Development, Design, Management and
Outcomes[44]
seeks to identify best practice in relation to mixed tenure estates, including
high-density ones like apartment complexes.[45] Dublin City Council’s Housing Department
recently commissioned a study[46]
with a view to devising a strategy concerning the role of the local authority
in private housing and mixed tenure multi-unit developments in general.
The resulting Report entitled Private and Mixed Tenure Multi Unit
Developments – Management and Role of Local Authority was submitted to the
Council’s Housing, Social and Community Strategic Policy Committee in May
2006. Although much of what is contained in these studies relates to
issues and policy matters which are clearly outside the scope of the
Commission’s work, they do highlight the particular complexities of multi-unit
developments and raise points which are also of concern to the
Commission.
1.30
A theme which is common to these studies, and, indeed, to the
Auctioneering/Estate Agency Review Group’s Report, is the problem which many
owners or occupiers of units in multi-unit developments seem to have in
understanding and coming to terms with all that is involved in living in such a
development. Much confusion and uncertainty seems to exist over the role
of management companies and managing agents (including the distinction between
them) and the payment of service charges. The difficulties are exasperated by
the fact that increasingly multi-unit developments contain a mixture of quite
different occupiers. These can range from owner occupiers to private
tenants of owner investors, tenants of housing associations and tenants of
local authorities (often under the social and affordable housing provisions of
the Planning and Development Act 2000[47]). These different categories may
have a distinct perspective in relation to matters like operation of a
management company and payment of service charges. This matter is
returned to later.[48]
1.31
The third recent study was the 2006 Report commissioned by the National
Consumer Agency entitled Management Fees and Service Charges levied on
Owners of Property in Multi-Unit Dwellings.[49] This also draws attention to the
“understanding deficit” and contains numerous recommendations relating to
management companies, management agents, service charges and sinking
funds. These have been taken into consideration by the Commission in
formulating its own recommendations.
1.32
The Commission has also noted developments on the political and
governmental front. Much controversy arose during 2005 concerning the
practice of some local authorities relating to planning conditions attached to
permissions for new private housing estates. In some cases it appeared
that developers were being required under such conditions to establish
management companies to take responsibility for maintenance of basic services
concerning water, lighting, sewage, footpaths and roads. The result was
that residents of such housing estates found themselves having to pay service
charges for services which traditionally would have been “taken in charge” by
the local authority on completion of the development.[50]
In
so far as this appeared to be a method of avoiding taking in charge, it seemed
to run counter to the policy of section 180 of the Planning and Development
Act 2000. This requires planning authorities, where developments have
been completed to their satisfaction, to take in charge new roads, open spaces,
car parks, sewers, water mains or drains, where requested by the developer or a
majority of the qualified electors who are owners or occupiers of houses or
other dwellings.[51]
The Department of the Environment, Heritage and Local Government has since
issued a circular[52]
to local authorities reminding them of their obligations under section 180 and
emphasising that the existence of a management company, such as is standard in
a multi-unit development like a block of flats or apartments, should not be
used as a ground for refusing to take in charge some of the basic
infrastructure of developments, such as roads and footpaths. This matter
is taken up later.[53]
1.33
The significant increase in the building of purpose-built high-rise
residential blocks of apartments led the then Minister for the Environment and
Local Government to publish definitive Planning Guidelines on Residential
Density in September 1999. These guidelines are intended to assist
planning authorities, An Bord Pleanála, developers and the general public by
providing guidance on the benefits of higher residential density in appropriate
locations and on the safeguards required in promoting greater residential
density generally. The Guidelines give effect to government policy of
encouraging more sustainable urban development through the avoidance of
excessive suburbanisation and the promotion of higher residential densities in
appropriate locations, especially in conjunction with improved public transport
systems. They set out in a detailed manner the locations appropriate for
higher residential densities, the range of densities appropriate to various
locations and the need to achieve a high quality of residential
environment. It is through the Development Plan and the exercise of their
development control functions that planning authorities can take effective
action to achieve higher levels of residential density. Planning
authorities have generally reviewed and/or varied their Development Plans to
give full effect to the recommendations and policies contained in the
Guidelines. The Guidelines are now construed as being Ministerial
Guidelines under section 28 of the Planning and Development Act 2000.
This means that planning authorities and An Bord Pleanála must have regard to
the provisions of the Guidelines when exercising their planning functions.
1.34
In April 2006 a private member’s Bill (the Residential Tenancies
(Amendment) Bill 2006) was introduced[54] in the Dáil. This was designed to
extend the remit of the Private Residential Tenancies Board (PTRB) established
under the Residential Tenancies Act 2004 to include regulation of
management companies, and managing agents employed by them, relating to
multi-unit developments. The Minister for the Environment, Heritage and
Local Government made it clear during the debate on the second stage[55] that, while the Government had much
sympathy for the objectives behind the Bill, it did not think that its specific
provisions were appropriate. In particular, the view of Government was
that the PTRB was not a suitable body to undertake the task sought to be
imposed on it. Attention was drawn to the study being undertaken by the
Commission and the Minister succeeded in persuading the Dáil to postpone
further debate on the Bill for a period of 9 months. The Commission has
paid particular attention to the various issues raised in the debate.
1.35
The Commission is concerned that the law has not kept pace with the
sudden ubiquity of residential multi-unit developments and that as a result,
there is scope for mismanagement and abuse. Given the discrete nature of Irish
land law;[56]
it seems that from a regulatory perspective, it may not be appropriate to
follow the schemes of other countries. Moreover, the legislative response to
this recent phenomenon in Irish property law seems at best piecemeal. As a
result, uncertainty and frustration with regard to the lack of sector-specific
regulation and legislation abound. All of this convinces the Commission that a
more proactive Government approach is imperative to counter the current
problems. Given the numbers of people dependant on multi-unit developments as a
source of housing in this country, the current situation requires a planned and
structured approach to the issues involved.
2
2.01
The key role of planning authorities in multi-unit developments has
already been mentioned.[57]
That role, as prescribed by the Planning and Development Act 2000 and
related legislation and informed by guidelines issued by the Department of the
Environment, Heritage and Local Government, is not something upon which it
would be appropriate for the Commission to comment. However, in the
course of its study of multi-unit developments, issues have come to light to
which the Commission considers it ought to draw attention. Many of these
have also been identified by other recent studies.[58]
2.02
This chapter will examine three areas which the Commission believes
require assessment. First, the general planning policy adopted by planning
authorities will be reviewed. Secondly, the Commission looks at the
inadequacies inherent in the current operation of s.180 of the Planning and
Development Act 2000 and makes consequent proposals for reform. Finally,
the efficacy of the use of development bonds as a means of guaranteeing
satisfactory completion of developments is discussed.
2.03
It seems clear that planning authorities need to develop urgently a more
focussed and specific policy towards apartment complexes and similar multi-unit
developments. Recent studies[59]
have identified a wide range of issues which need addressing when planning
authorities are considering applications for planning permission for such
developments and, if minded to grant permission, what conditions should be
attached.
2.04
Some issues relate to the physical nature of such developments, such as
their size, configuration, facilities and location. In particular, there
is the view that far too many in the past have not been built to suit families
and lack the facilities families need. A broad current trend in apartment
building is to construct relatively small units with one or two bedrooms. As a
result of this, multi-unit development apartments are often an attractive
short-term option for young people without families who rent property before
upgrading to a more permanent home. In terms of sustainability of communities,
this is undesirable as it leads to an area becoming characterised by a highly
transient population. This makes it difficult to establish and develop a sense
of community leading in turn to social deprivation for some residents and
so-called ‘ghettoisation’ in an area over time.
2.05
Other issues relate to the ownership and occupation of units in such
developments. Increasingly, a mixture of occupiers will be found, ranging from
absentee owner/investors who have sublet to short-term tenants to long-term
owner-occupiers to tenants of local authorities occupying under the social and
affordable housing provisions of the Planning and Development Act 2000[60] and lower-income tenants of housing
associations. This multiplicity of occupiers of units gives rise to the
question as to who are the appropriate members of the management company in
these different contexts.[61]
2.06
The Commission takes the view that planning authorities in carrying out
their functions under the planning legislation in relation to multi-unit
developments need to develop policies which take into account more specifically
such issues. Given the increasing importance of such developments in delivering
the government housing strategy, there is clearly a role for further national
guidelines issued by the Department of the Environment, Heritage and Local
Government which focus directly on these issues, particularly where local authorities
have a direct ownership involvement.
2.07
The Commission further considers that given the quite piecemeal
development of the law surrounding what is still a relatively new but huge
sector, government reappraisal of all issues involved and consequent
implementation of new policy is necessary. To this end, the Commission
recommends that a detailed study should be commissioned with a view to
developing a clear and focussed strategy for the multi-unit development sector
as a whole, with the aim of informing government policy on the sector.
2.08
The Commission provisionally recommends a review by Planning
Authorities and the Department of the Environment, Heritage and Local
Government of planning and housing policy relating to multi-unit developments.
2.09
The Commission provisionally recommends that a detailed study should
be commissioned with a view to developing a clear and focused strategy for the
multi-unit development sector as a whole, with the aim of informing
government policy on the sector.
2.10
There has been much recent controversy concerning certain local
authorities’ policies on taking in charge of services, the operation of section
180 of the Planning and Development Act 2000, and requiring developers
to establish management companies to provide services which would otherwise be
taken in charge. Notwithstanding the prompt Departmental action to issue
new guidelines on the matter,[62] the Commission has concluded that
problems remain and further action may be appropriate.
2.11
The first essential is that the precise operation and scope of section
180 needs to be clarified and fully understood. The recent controversy
concerned its operation in relation to traditional housing estates, but the
Commission’s research suggests that there is even more uncertainty as to how
far it should operate in respect of apartment complexes and similar multi-unit
residential developments. As was pointed out earlier,[63] the wording of the section, when read
with the definition of “houses” in section 2(1) of the Act,[64] makes it clear that the section applies
equally to multi-unit structures like apartment blocks. It follows that
the obligations imposed by the section on planning authorities apply equally to
such structures.[65]
2.12
These obligations fall into two categories. Where a development is
completed to the satisfaction of the planning authority in accordance with the
permission granted and any conditions attached to it, the authority is obliged[66] to take in charge the new roads, open
spaces, car parks, sewers, water mains or drainage systems provided as part of
the development, where requested by either the developer or a majority of the
qualified electors[67]
who own the houses or apartments involved. Where a development is not so
completed and no enforcement action has been taken within seven years of
expiration of the permission authorising the development,[68] the obligation to take in charge arises
when again requested by a majority of the house or apartment owners.[69] Notwithstanding the apparent
clarity and wide scope of these provisions, the Commission accepts that there
must be some doubt about the appropriateness of their literal application to
multi-unit developments like apartment blocks where the intention is that they
will remain in private ownership.
2.13
The Commission entirely agrees with the position taken by the Department
of the Environment, Heritage and Local Government that developers and owners of
houses in traditional housing estates should not be excluded from the
long-established taking-in-charge system by planning conditions requiring the
putting in place of alternative private arrangements. On the other hand,
there is some merit in the view that public funding should not be applied to
service developments which are clearly private and to which no general public
access is available. This applies to so-called “gated” developments, to
which access is limited generally to owners within the development and to
others only if given the code or other security means of access. It has
been pointed out that such developments do cause problems, where, for example,
emergency services need immediate access or other public bodies need access to
carry out inspections or other statutory duties. The Commission
understands that for such reasons some local authorities have adopted the
policy of not granting permission in future for construction of ‘public’ gated
developments. Meanwhile the Commission acknowledges that there is force
in the argument that the taking-in-charge system should not apply to private
gated developments and that, notwithstanding its apparently wide scope, nor
should section 180 of the 2000 Act. The question remains as to where one
should draw the line.
2.14
Apartment complexes are the obvious illustration of how difficult it may
be to decide where to draw the line in this context. Arguably the
internal infrastructure of such buildings should be regarded as largely private
to the owners of the apartments and so should remain outside the scope of the
taking-in-charge system and section 180. They should remain the permanent
responsibility of the owners’ management company.
2.15
However, the same argument is not so convincing with regard to the
external infrastructure, such as the roads and footpaths leading to the
apartment building, to which the general public will actually have
access. The same applies to the lighting of these areas and the drains,
sewers and watermains serving the building. Gardens and other open spaces
are more problematic, particularly if the general public is clearly denied
access and such areas are solely for the enjoyment of private residents.
The Commission recognises that these are essentially policy matters to be
determined by others, but takes the view that urgent consideration needs to be
given to a number of issues.
2.16
First, the scope of section 180 needs to be reviewed. Its apparent full
application to apartment and other multi-unit residential developments may not
be appropriate, as outlined above. It must be borne in mind that a
consequence of section 180 being invoked is that the planning authority may
find itself required to expend very substantial public funds. There must
be a concern about the future, potential liabilities of planning authorities if
section 180, as it currently stands, is applied literally, i.e. applied to
every new development, gated or otherwise, which complies satisfactorily with
the planning permission and any attached conditions. The reference in the
section to applying security provided by the developer as a condition of
getting planning permission[70]
may prove to be of little comfort. Even if a development bond or other
security was provided, in the case of uncompleted developments, by the time
section 180 can be invoked, the bond or other security is likely to have
lapsed, become unenforceable by expiry of time or even been released.[71] At the very least arguably section
180 should not apply in its totality to either purely private gated developments
or to multi-unit developments where it is appropriate that the permanent
responsibility for gardens, outdoor lighting etc for open spaces within these
developments should remain in the ownership of an owners’ management company,
funded by the owners’ service charges and contributions to a reserve or sinking
fund.
2.17
Secondly, the recent controversy which led the Department of the
Environment, Heritage and Local Government to issue its Circular on developers
of housing estates being required to establish management companies[72]
highlights the need for more specific guidelines. The Commission has
concluded that the issue of when it is appropriate to require a management
company to be established, with a view to relieving local authorities of their
need to take charge various services and to exclude any obligation under
section 180 of the 2000 Act, needs a thorough review. This should be
carried out by the Department of the Environment, Heritage and Local Government
and involve interested bodies such as the Construction Industry Federation, the
Irish Home Builders Association, the National Property Services Regulatory
Authority and other bodies representing the architectural, surveying and legal
professions.
2.18
The Commission’s proposed new Regulatory
Body for multi-unit developments could play a central role.[73]
This should lead to the issuing of more precise and specific guidelines and
standards to be applied by developers and planning authorities. The Commission
further recommends that following a thorough review of section 180, guidelines
should also be issued explicitly enumerating the circumstances where local
authorities should take in charge and of what exactly they are expected to take
in charge.
2.19
Thirdly, planning authorities should keep the implications of section
180 of the 2000 Act in mind when considering the initial application for
planning permission for any development potentially coming within its
scope. Since that section may result in the authority being obliged at a
much later stage to take the development in charge and to complete any works
necessary to facilitate this, the authority should anticipate this possibility.
Two important points arise. One is that a failure from the outset to
require the developer to carry out works to the standard necessary to enable
the authority to take services in charge, is likely to prove very costly if the
authority has to carry them out later when costs will have increased
substantially. The other is that careful consideration should be given to
what development bond or other security to cover completion works should be
required of developers.[74]
2.20
The Commission recommends that these issues should also be reviewed
urgently and new specific guidelines issued to planning authorities. The
Commission of course acknowledges that for some developments, the developers
and/or purchasers of units may opt against having the development’s
infrastructural requirements taken in charge by local authorities. In such
circumstances, the Commission believes that it is imperative from the outset
that potential buyers of units are made fully aware of the intention of the
developers or of the majority of prospective owners that the development will
not come under s.180 and will remain perpetually in private ownership.
2.21
Fourthly, the Commission is aware that the Irish Home Builders
Association has drafted recently a Policy for the Taking in Charge of Housing
Developments designed to promote the “efficient and timely” taking in charge of
housing developments, including under section 180 of the 2000 Act. It
sets out conditions to be met, a timeframe and makes provision for dispute
resolution or arbitration of disputes between developers and local authorities.
2.22
The Commission has also noted that the Construction Industry Federation
has been agreeing Taking in Charge Protocols with some local authorities,[75] setting out the application procedures
for developers, documentation to accompany applications, various certificates
to be supplied and other requirements. The Commission takes the view that
these are welcome developments, but considers that such initiatives should be
reviewed with the objective to developing a national scheme while taking into
account local circumstances. That review may conclude that they should be
given statutory force, by being incorporated in regulations made by statutory
instrument, or, if that is not appropriate, by being promoted nationally by
guidelines issued under section 28 of the Planning and Development Act 2000.[76]
2.23
The Commission provisionally recommends that the scope of section 180
of the Planning and Development Act 2000 be clarified, and that guidelines
should be issued based on that clarification. It further recommends that
planning authorities should closely consider the implications of s.180 when
processing planning applications and that a national policy should be produced
on local authorities taking multi-unit developments in charge.
2.24
As already observed, one of the key areas of controversy surrounding
multi-unit developments is the failure of developers to properly complete
developments leading to a subsequent delay in local authorities taking in
charge the maintenance of the public infrastructure in and around the
development. A further problem is the delay in some local authorities taking in
charge the development upon completion of the development. Either scenario is
highly unsatisfactory for the residents of multi-unit developments. Local
authorities use the mechanism of bonds to ensure that developers complete
developments satisfactorily and within a reasonable timeframe.
2.25
Section 180 of the Planning and Development Act 2000 provides
that once a housing estate is completed to a satisfactory standard, the local
authority is obliged to take in charge the public services where requested to
do so by a majority of residents or by the developer.
2.26
In respect of developments that have not been completed satisfactorily,
where 7 years have elapsed since the planning permission expired and where it
is requested by the majority of residents, the local authority shall take in
the estate in charge.[77]
2.27
A bond will indemnify the planning authority up to a specified amount if
the developer fails to fulfil his obligations under a planning
permission. If a developer fails to fulfil his legal obligation under the
terms of the permission, the local authority can take him to court and, if
necessary, the developer will forfeit the bond. Thus the bond provides
security to the planning authority to ensure proper completion of watermains,
sewers, roadways, public lighting and open spaces etc.
2.28
The Departmental Circular PD1/06[78] drew planning authorities’ attention to
the need to insist on developers providing an acceptable level of security to
cover completion of developments. The provision of such security may be
made a condition of the grant of planning permission.[79] Traditionally such security has been
provided by way of a development bond, but other forms of security may be
provided, including cash deposits. The Circular also emphasised to planning
authorities the need for vigorous and promptly pursued enforcement action in
cases where developers failed to complete satisfactorily a development on time
and under the terms of the planning permission.
2.29
The experience of local authorities as to the efficacy of the
development bond system appears to be mixed. As local authorities expand in
size and efficiency, administration of bonds is becoming easier. Some local
authorities say that they maintain strict control of the bonds by carrying out
regular monitoring of works and regular inspections of sites, and thus rarely
need to pursue enforcement action. In any case, some local authorities believe
that the mere threat of a claim on a bond is a sufficient deterrent to builders
reneging on their responsibilities to complete a development properly. However,
the Commission’s study suggests that, while the development bond system
generally works reasonably well when put in place by local authorities, a
number of problems exist. Amongst these are:
i)
bonds sought from developer being pitched at such at level that
their value is not really a threat to the developer and/or lower than what
would be required to complete the development;
ii)
bond amounts diminishing in value over time and being inadequate to
cover the cost of works when they are being carried out;
iii)
some developers relying on insurance bonds which may only have a premium
of €6,000 or €7,000 and which may not provide the same level of deterrence as
cash;
iv)
some local authorities being reluctant to impose bonds high enough to
cover potential problems as they feel it may discourage developers from
building in parts of the region covered by the local authority where
development is most needed;
v)
local authorities struggling with the administration of bonds, resulting
in claims not being made on time and bonds being allowed to lapse;
vi)
local authorities failing to carry out sufficiently rigorous follow-up
inspections of completion works and so missing opportunities to call in the
bond;
vii)
local authorities delaying release of bonds after developers have
completed works;
viii)
local authorities refusing to release bonds until the taking-in-charge
process is complete.
2.30
Some local authorities feel that bonds are not the most effective way of
ensuring satisfactory completion at all and that negotiation is often the
solution.
2.31
Notwithstanding all of these problems, however, it is important to
emphasise that in relation to bonds, the situation has gone from a situation of
absolutely no compliance to gradual enforcement; local authorities have become
more active and started issuing commencement notices leading to wider
implementation of the use of bonds. Thus, on the whole, bonds have actually
improved the accountability of developers but local authorities could still be
more rigorous in enforcement. The bonds are still not very well geared but are
infinitely better than they were. However, there are still some leading Irish
developments that are not in compliance with their permissions by not having a
bond or a cash security in place.
2.32
Again the Commission takes the view that the various problems in this
area be thoroughly reviewed, with the objective of issuing new national
guidelines[80]
designed to ensure that bonds or other security are obtained and released when
appropriate and that, as a consequence, developments are completed and taken in
charge, as appropriate, in a timely fashion. On a regional level, it appears
that protocols have already been developed by some local authorities in
conjunction with the construction industry in approaching the problem of
unfinished housing schemes, and the Commission welcomes this progress.[81] On a national level, the new guidelines
should set out a clear procedure and time frame for completion of works,
release of the bond or other security and taking in charge. They should
cover matters such as the following:
i)
completion of developments according to specified standards, which
ensure compliance with the planning permission and the requirements for taking
in charge;
ii)
practical guidance on gearing of bonds to such a level that is
reasonably likely to act as a deterrent to the developer against failure to
complete and reasonably likely to cover the cost of unfinished works in the
event of this happening;
iii)
procedure and requirements for applications to take in charge, including
documentation to be submitted and professional certification;
iv)
a clear time frame for dealing with such applications, including local
authority inspections and notification to developers of completion works;
v)
a time frame for carrying out such works and notification of completion,
with appropriate professional certification;
vi)
a time frame for local authority checking of such completion and release
of the bond or other security;
vii)
a time frame for completion of the taking in charge process;
viii)
a dispute resolution or arbitration mechanism.
2.33
The suggested review should include an examination of local authority
administrative procedures and resources for dealing with development bonds and
other security, building control and inspection and the taking-in-charge
process. It would appear that some local authorities are struggling with these
matters and that there is a considerable backlog in taking developments in
charge. Improvement is also needed in matters such as the timely release of
bonds by local authorities and their monitoring of the progress of developments
and the provision of services to residents there before they are taken in
charge. The Commission would reiterate that any delay in taking in charge
is bound to have a harmful impact on the owners of apartments and other units
in the developments.
2.34
The Commission provisionally recommends that the bonds system should
be reviewed and that national guidelines should be produced to facilitate
efficient and efficacious use of bonds for both local authorities and
developers. Such guidelines should be periodically reviewed to ensure that the
deterrent effect remains persuasive to developers and to meet new challenges
faced by developers and local authorities over time.
3.01
Having proposed recommendations for the regulation of planning
authorities, the Commission now turns to developers. First, this chapter sets
out the responsibilities of developers and suggests reform of the law to
enforce proper completion of developments. Secondly it outlines the duties of
developers in relation to the establishment, control and operation of
management companies.
3.02
The developer is required under planning law to
carry out the development in accordance with the permission granted. This
includes compliance with any conditions attached to the permission. In
order to maximise revenue it is common practice for developers to sell “off
plan”, ie, before any building has taken place, by entering into a
contract for sale and building agreement for a particular unit with individual
purchasers.[82] A deposit will be paid by
each purchaser at this stage, but it is not uncommon for prospective purchasers
to pay a preliminary “booking deposit” on a particular unit before any contract
is entered into. The Auctioneering/Estate Agency Review Group recommended
that some regulation of sales off plan should be introduced,[83] including a requirement that all
client monies such as deposits should be held in separate client accounts.[84] Again, for revenue purposes, the
developer will usually wish to complete the sale of units as quickly as
possible, so that it is common for some purchasers to move into their units
while others are still being built or other parts of the development are being
completed.
3.03
During the period
between the start of the building of the development and its final completion,
the developer usually remains in control and has legal responsibility for the
entire development. It is usually contemplated that in due course a management
company, whose members will comprise the various unit owners, will assume
responsibility, especially when the development is fully completed.
However, it is common for such a company to be established at an earlier stage,
especially once the point of completing the sale of individual units is
reached. In such cases, the developer will usually be the controlling
member of that company and will remain so until the sale of the majority of
units is completed and each purchaser becomes a member. Even where a management
company is established earlier, it may not be in a position to assume any major
responsibility because no interest in the development[85] is vested in it – this will not be done
by the developer until after completion of the development. Whether or
not a management company is established prior to completion of the development,
it is common, especially in larger developments, for the developer (or the
management company at the developer’s direction) to employ a specialist firm of
managing agents to organise and supervise many of the administrative tasks
connected with completion of the development and its subsequent day-to-day
management.[86]
3.04
Regardless of how the
developer organises such administrative matters during the interim period
between commencement and completion of the development, nothing should disguise
its legal responsibilities under planning law and the contractual arrangements
made with the individual first purchasers of units in the development.
3.05
Various concerns have been raised about the practices which have evolved
due to the lack of any regulation in relation to the developers’ role in
multi-unit developments. Some of these involve a failure to comply
strictly with legal responsibilities and others involve practices which give
rise to various problems. Much reference has already been made, for
example, to the taking in charge problems arising with local authorities resulting
from developers’ failure to complete developments properly or punctually, and
from some developers’ reluctance to cede control of management companies to
apartment owners.
3.06
The Commission believes that the most appropriate means of avoiding
these and other problems in the future is to make legislative provision for the
regulation of certain aspects of the development of multi-unit developments and
to make developers accountable to the proposed Regulatory Body.
3.07
What the Commission has in mind in this context is statutory provisions
which lay down certain obligations which developers would have to meet in
future. These would be designed essentially to prevent many of the
administrative problems outlined in a later chapter from arising in the first
place.[87]
To some extent these statutory obligations would supplement the control
exercised over developments by planning authorities under the Planning and
Development Act 2000, in accordance with Ministerial guidelines and
directives issued under Part IV of that Act.[88] They would also supplement the
general regulations and supervision of multi-unit developments which the
Commission proposes should come within the remit of the proposed Regulatory
Body.
3.08
It is envisaged that the statutory obligations would relate primarily to
ensuring that developers do not engage in unfair, obstructive or restrictive
practices in relation to multi-unit developments. These provisions would
be aimed particularly at problems concerning the role of developers in the
period between commencement and completion of the building as a multi-unit
development. In seeking to address such problems, the provisions would
provide a clear framework in which developers must operate in the context of
multi-unit developments.
3.09
The Commission’s preliminary view is that these problems should be dealt
with in a variety of ways, as set out below.
3.10
The developer clearly has a legal responsibility under planning law to
complete the development in accordance with the planning permission granted by
the planning authority, including any conditions attached to the
permission. A failure by the developer to complete the building and
finishing work will cause much inconvenience to occupiers of a multi-unit
structure in particular. The same applies to any undue delay in dealing
with “snag” problems. Further problems arise where completion of such
work is a pre-condition to the local authority taking in charge elements of the
development.[89]
3.11
Extensive powers for enforcement of compliance with planning matters are
contained in the Planning and Development Act 2000.[90] What concerns the Commission is
that, notwithstanding their apparent extensiveness, these powers do not always
prove to be an effective way of ensuring compliance by developers. One
reason is that it would appear that some local authorities are reluctant to
invoke their powers speedily, so that the developer is left free to delay or
procrastinate. When eventually the enforcement powers are invoked, it has
been suggested sometimes the courts tend to give developers more time for
compliance. Meanwhile, the occupiers of the development are left in a most
unsatisfactory state of “limbo”. Another reason perhaps is that the sanctions for
non-compliance are not strong enough to have a deterrence effect. An
alternative albeit extreme sanction could be that failure to complete a
development would constitute a breach of planning permission.
3.12
The Commission takes the view that the proposed Regulatory Body should
monitor the use by planning authorities of their enforcement powers in relation
to multi-unit developments and advise the Department of Environment, Heritage
and Local Government as to what action might be appropriate.
3.13
The Commission provisionally recommends that the proposed Regulatory
Body should monitor the use by planning authorities of their enforcement powers
in relation to multi-unit developments and advise the Department of
Environment, Heritage and Local Government as to what action might be
appropriate.
3.14
As mentioned above, often an important aspect of “completion” of the
development is ensuring that all work is done to the required standard to
enable the local authority to take in charge elements such as roads, footpaths,
lighting, water services, drainage and sewerage systems and open spaces.
As is discussed elsewhere,[91] the extent to which the taking-in-charge
system should apply may vary from development to development. Also
discussed is the operation of section 180 of the Planning and Development
Act 2000. Various recommendations are made in respect of both these
matters.[92]
The point the Commission wishes to reiterate in this context is that it is
essential that there is no undue delay in the operation of the taking-in-charge
system. The enforcement powers under the 2000 Act are not an effective
method of achieving this and that is why the Commission recommends rigorous use
of development bonds or other security provided by developers.[93]
3.15
Where the multi-unit development envisages the establishment of a
management company to own the “common areas” of the development and the
reversionary interests in unit owners’ leases, and generally to manage the
development throughout its existence, provision for its establishment and
operation is usually made in the legal documentation prepared by the
developer’s solicitor. Several concerns arise.
3.16
One is that the legal documentation may be defective in the provision it
makes for establishment and operation of the management company. The Commission
reiterates the recommendations it makes elsewhere for statutory requirements as
to the nature and structure of such companies in relation to residential
developments.[94]
It also makes recommendations to facilitate modifications to the legal
documentation where it is defective or has failed to meet statutory
requirements.[95]
3.17
Another worrying trend which the Commission has been made aware of is
developers, while still in control of the management company before completion
of the development, asking unit owners to pay service charges for coming
multiple years in advance. Developers do this as a way of raising a large lump
sum of cash immediately. The developer is then, in effect, a debtor to the
management company for the next few years. The money is used for the
developer’s immediate expenses or development costs. From a consumer
perspective, this practice is unsatisfactory and clearly should not be allowed.
It places a demand for a sum of money on unit owners for services which have
not been yet contracted for. Furthermore, it is undesirable from the management
company’s point of view for the developer, who should cede any interest in the
management company as early as possible once the development is completed, to
have control over what is effectively the management company’s money over a
long term period.
3.18
Based on this, the Commission recommends that there should be a
statutory prohibition on developers seeking payment of more than a year’s
advance on service charges. This should be subject to review on a case-by-case
basis by the Regulator where the developer claims that he or she has a
legitimate purpose for demanding such advance payments.
3.19
The Commission provisionally recommends that demand by a developer of
more than a year’s advance on service charges should be strictly prohibited by
legislation. This should be subject to review on a case-by-case
basis by the Regulator where the developer claims that he or she has a
legitimate purpose for demanding such advance payment.
3.20
Another concern is that there are reports that some developers may delay
in establishing the management company, misuse it while it is under the
developer’s control, fail to ensure that it meets legal obligations or delay in
transferring assets to it when the development is essentially complete.
Each of these concerns is considered below. To some extent they would be
dealt with by recommendations made elsewhere but some specific recommendations
are also made below.
3.21
As regards a delay in establishing the management company, in view of
the lack of awareness of their legal rights of many occupiers of multi-unit
developments[96]
and likely reluctance of them to incur the expense of going to court to enforce
contractual provisions,[97]
the Commission has reached the preliminary conclusion that this is an area
where statutory provision is needed. There should be a statutory
obligation put on developers to set up the management company by a specified
date. The Commission takes the view that the latest date should be
completion of the sale of the first unit, because, as is discussed elsewhere,
the purchaser should become a member of the company automatically on that date. [98]
3.22
As regards misuse of the management company, several concerns have been
expressed to the Commission. One is that for much of the company’s early
operation, i.e., while the building of the multi-unit development is taking
place, it is under the control of the developer. This is because, while
most of the units remain unsold, the developer will hold the majority shares or
membership rights allocated to units. The Commission is not convinced
that this is necessarily improper. If, as the Commission recommends
elsewhere,[99] the most appropriate allocation of
shares or membership voting rights in the management company is one share or
vote per unit, the developer will necessarily hold the majority so long as the
majority of units remain unsold. What should not happen is that the
developer disregards the one share or vote per unit rule and fixes the
allocation so that the developer retains majority control after the majority of
units have been sold. The Commission recommends that the developer should not
be permitted to have weighted votes and that a fundamental principle one vote
per unit should apply.[100]
A further source of the problem of developers retaining control of the company
is their failure to reduce the number of directors nominated by developers as
the units are sold off. The Commission has concluded that membership,
directorship and voting rights of members should be the subject of statutory
regulation, with which developers would be obliged to comply.[101]
3.23
Even where the developer properly holds the majority interest in the
management company, as in the early stages of the development before the
majority of units are sold, it is important that its interest is not used
improperly. In particular it is essential that the role of the developer
and that of the management company do not become confused. It is the
developer’s responsibility to complete the development in accordance with the
planning permission, to ensure that works to the required standard are done to
facilitate the taking in charge of any services by the local authority and to
attend to any snagging problems. The management company should not be
involved in such matters and, in particular, any service charges levied on
owners of units already sold off should not be expended on these matters.
3.24
This is a fundamental point which the Commission has
concluded should be enshrined in legislation. Developers should be under
a statutory obligation not only to establish the management company in due
time, but also to ensure that its operation is strictly confined to its
prescribed remit. This should be limited to “management” of a completed
development and not extend to works needed to complete the development. Where a
development is not completed, it should be emphasised that the management
company must only hold responsibility for the operational day-to-day issues
normally invested in such companies, for example: cleaning, lift and garden
maintenance etc, and longer term operational issues normally funded by the
reserve/sinking fund; and have absolutely no involvement with ongoing
construction works or development works for which the developer is being
compensated by way of the capital purchase monies for each unit.
3.25
The Commission firmly believes that developers should be subject to
heavy sanction where any of the abuses outlined in relation to management
companies are evident. Under company law, there is a long-established principle
that the director must act in the best interests of the company.[102]
The developer or the developer’s agent, where acting as a director of the
company, are under a fiduciary obligation to act in the best interests of the
company and its members. The abuses outlined above suggest that the developers
in such instances may very well be in breach of their duties as directors.
3.26
The Commission provisionally recommends that it should be further
provided that service charges should never be used to pay for ‘snagging
problems’ or any other expenses incurred by the developer in completing the
development.
3.27
The Commission provisionally recommends that developers should be
under a statutory obligation to establish the management company in due time..
3.28
The Commission also recommends that developers should be prohibited by
statute from using their control of the management company in the early stages
of the development to commit it to long-term contracts with managing
agents. In particular, the decision whether to employ such agents, and
which agents once the development is complete, should be that of the management
company and the owners of the units who by then comprise the membership.[103]
For the same reason, it should also be prescribed by statutory regulations
relating to the constitution of management companies that any directors
appointed by the developer must resign when the development is complete and the
management company assumes full responsibility for the development.[104]
3.29
The Commission provisionally recommends that developers should be
statutorily prohibited, while in control of the management company, to commit
the company to long-term contracts with managing agents.
3.30
The Commission provisionally recommends that statutory regulations
relating to the constitution of management companies should prescribe
that any directors appointed by the developer must resign on completion of the
development.
3.31
The Commission is especially concerned about reports of developers
unduly delaying the transfer of assets to the management company, i.e., the
vesting in it of ownership of the common areas and the reversionary interests
of the unit owners’ leases.[105]
Such delay can cause many problems. The most serious one is that the
management company cannot carry out its intended management functions until
this transfer takes place.
3.32
The Commission recommends that this practice should be prohibited.
The developer should be under a clear statutory obligation to transfer the
relevant interests to the management company as soon as the sale of the last
unit intended to be sold is completed. If, as is common, the developer
wishes to retain one or more units for their own purposes, this should not be
allowed to delay the transfer. That transfer should still take place.
Moreover, in such a case, the developer, like all unit owners, is entitled to
membership of the management company, but strictly only in the capacity of unit
owner once the freehold interest has been vested in the management company. The
Commission notes that the Law Society’s Conveyancing Committee has recently
promoted a scheme which facilitates such a transfer which has Revenue
Commissioners’ approval from the stamp duty point of view.[106] In order that the statutory
obligation to transfer it is not evaded, the legislation should require
developers to specify in the planning application whether such retention is
proposed, and its extent. Any change in the proposed retention should
need the approval of the planning authority and the statutory obligation should
apply accordingly.
3.33
Moreover, in the case where a development comprises a number of separate
apartment blocks, the Commission believes that on completion of each individual
block, the freehold of that part of the development should be immediately
vested in the management company.
3.34
The Commission provisionally recommends that developers should be
under a statutory obligation to transfer all relevant interests to the
management company as soon as the sale of the last unit intended to be sold is
completed, and that they should be required to specify from the outset whether
they intend on retaining units for themselves.
3.35
To counter any potential ambiguity in this area, the Commission
recommends a statutory definition of ‘completion’ of a multi-unit development.
Completion should be held to mean the point at which all units are sold off.
Should the developer want to keep some of the units, this must be detailed in
the planning application. If more units are wanted, the developer must reapply
to the planning authority. In either case, the transfer of assets to the
management company must still take place.
3.36
The Commission provisionally recommends that developers must specify
in the planning permission where they intend on keeping a unit or units.
3.37
The Commission provisionally recommends that there be a statutory
definition of the term ‘completion’ of a development.
3.38
The Commission further recommends that every development should be
registered with the Regulatory Body. Details of units to be kept over by the
developer must be included in registration. Where the developer keeps
units over, the Regulator must also be notified of this. The Commission
recommends that this should also be provided for in any regulatory legislation.
3.39
The Commission provisionally recommends that every development should
be registered with the proposed Regulatory Body, and further
provisionally recommends that developers must inform the
Regulatory Body where they intend to retain units in the development.
3.40
As regards enforcement of such statutory obligations,
the Commission has concluded that a breach should constitute a criminal
offence.[107] Consideration
was given to imposing other types of sanction, such as rendering sales of units
void where a developer breached obligations. No doubt in one sense such a
sanction would severely penalise developers, and, therefore, appear to be very
effective, but the trouble is that it would also penalise equally severely
innocent parties, in particular purchasers of units. For this reason,
such a sanction is not recommended. It is considered appropriate that
proceedings in relation to such offences should be brought and prosecuted by
the Regulatory Body,
given the extended remit in respect of multi-unit development which the Commission
is recommending. This would supplement the power of planning authorities
to take enforcement action in respect of breaches of planning law under Part
VIII of the Planning and Development Act 2004. In addition it
should be open to any unit owner, or other person or body interested in a
development (such as a management company or mortgagee of a unit), to seek an
order for enforcement of a developer’s statutory duties from the Circuit Court
and an award of damages to cover any loss suffered as a consequence of a breach
of the statutory obligations.
3.41
The Commission reiterates its view that the statutory obligations
relating to developers should be confined to multi-unit developments which
comprise at least some residential units. Different considerations apply
to purely commercial developments, like office blocks, shopping centres and
industrial estates. The lessees of such developments are much better
equipped to deal with issues concerning completion of the building and other aspects
of the development. Frequently they will undertake themselves to carry
out substantial “fit-out” and other works. Furthermore, the leases of
units are usually for much shorter terms (35 years used to be the norm, but
shorter leases are common nowadays) and the landlord retains an active interest
in the building throughout the term. The rent is usually a substantial
“rack” rent, protected against inflation by rent review provisions. The
landlord retains substantial repairing and other obligations, the cost of which
is met through the service charges. There may be a management company,
but usually under the control of the landlord rather than the tenants.
For these reasons the sort of problems which arise in respect of management
companies in residential developments rarely occur and, where any problems do
arise, commercial tenants are usually well-equipped to deal with them.
Nevertheless, the issue of extension of the new statutory regulations to purely
commercial developments should be kept under review and the enabling
legislation should provide for such future extension.
3.42
The Commission provisionally recommends that breach of
the statutory regulations should be a criminal offence prosecuted by the
Regulatory Body.
4
4.01
The Commission’s study of multi-unit developments has identified that
there are two primary areas of difficulty with the law as it relates to management
companies.[108]
The first area is the role and legal status of management companies in company
law. The second area is the administration and regulation of such companies.
This chapter will deal with both areas.
4.02
A management company is
a company the membership of which comprises the unit owners in the development.
The function of the management company is to “‘manage’ all of the common
parts and services within a complex, not belonging to or the responsibility of
a single person.”[109] In effect,
the management company, a collective of the unit owners, owns the common areas
of the development.
4.03
Most residential multi-unit developments already have an established
management company by the time the units are completed. It is usually the
developer who incorporates the management company in anticipation of selling
the units in the property. Each new unit owner in the development then becomes
a member of the management company. Theoretically at least, when the
development is completed and the last unit is sold, the developer cedes all
control in the company to the purchasers of the units.
4.04
There are four key features of such a
management company. One is that it is usual to vest in it a substantial
“ownership” interest. That interest comprises two elements. One is
ownership (usually the freehold[110]) of the “common areas” or “common
parts” of the development. In essence, these comprise all the parts of
the development which are not included in the individual units (such as
apartments) “bought”[111] by the
initial purchasers. They include such areas as entrance halls, lifts,
corridors, underground car parks in buildings and external communal areas like
gardens, leisure open spaces, pathways and open air car parks. Since it
is usual to confine a unit to its interior space stretching to the decorative
finish level only of ceilings, floors and walls, the management company will
also own the exterior of the building and its interior structural parts.
In addition the management company also has vested in it the (again usually
freehold) reversionary interest in the lease acquired by each unit owner of an
individual unit.
4.05
Secondly, the management company’s membership
ultimately comprises all the owners for the time being of the units in the
development. This means that unit owners have two ownership interests-
each owns the lease of his or her apartment or other unit plus, as a member of
the management company which owns the freehold of the common areas and the
freehold reversion on each unit, a share in those freehold interests
commensurate with his or her membership rights.[112] As is pointed out later, this is a particularly significant
feature of Irish developments which avoids some of the problems which have been
a particular concern in other jurisdictions.[113]
4.06
The third key feature of the management company
is the fact that it is a corporate body and, therefore, subject to company
law. How that law applies depends upon the type of company structure
used, but whatever the structure, there are problems exacerbated by the nature
of the legislation relating to companies. Existing company legislation is
primarily directed towards profit-making trading companies rather than a
non-profit-making body, with strictly limited functions, which is the nature of
a management company. This matter is discussed further later.[114]
4.07
Lastly, the primary function of the management
company is the management of the development on a permanent basis. As
owner of the common parts it will usually have extensive responsibilities for
their maintenance and repair and the provision of a variety of other services,
such as employment of a caretaker, concierge or janitor for the building and
other persons, like cleaners, decorators and gardeners. As mentioned
earlier, the management company may discharge some of its responsibilities by
employing a firm of managing agents to see to their day-to-day execution and
generally to provide expert advice. A number of reasons contribute to this
including the size of development, the voluntary nature of directorship in a
management company, and the fact that, often, the unit owners who are the
members of the management company from whom any directors or other executive
officers will be drawn may have little or no experience of operating a company
or carrying out the sort of administrative tasks which are its primary
function.
4.08
Furthermore, as owner
of the reversionary interest on each unit, the management company will have the
landlord’s responsibility to enforce various covenants which may have been
entered into by each unit owner, such as to comply with various “house rules”
as to use of the unit. In order to meet the expense of carrying out its
functions the management company, as part of its responsibility to manage the
multi-unit development is empowered to levy an annual service charge on each
unit owner.[115]
This, in real terms means that the unit owners, as ‘co-owners’[116]
are contributing to a fund that will cover the expenses of the common areas and
services. This charge is payable in addition to mortgage repayments to be made
in respect of any loan taken out by the unit owner to pay for the unit when it
was first purchased.
4.09
As it stands,
administration and management of multi-unit developments take two major forms.
For smaller developments, the precise division of responsibility between
the unit owners for things like insurance, maintenance and repairs will usually
be the subject of extensive provisions in the co-ownership agreements
accompanying the purchase of the units.[117]
For larger developments, it is impracticable to include all of the features
which come under common ownership within an agreement; particularly since in
larger developments, conditions of such agreements would be more likely to
change over time, and as there are more unit owners, it is also likely that
there is more diversity of opinion. As a result, larger developments do not
have co-ownership agreements and instead use management companies as a means of
managing the development.
4.10
Also, in smaller developments, unit owners tend to own the freehold of
their individual units[118] whereas in
larger developments, unit owners tend only to purchase a leasehold estate on
their units and the freehold reversion is vested in association of all of the
unit owners, with responsibility for common areas and the building structure as
a whole. For convenience, this group is normally registered as a company (i.e.
it is incorporated).
4.11
There are many advantages to incorporating all of the unit owners as a
management company. First, a company can be incorporated with limited liability
which means that should the company accrue high debts, liability of the unit
owners will be limited.[119] Secondly,
a company and its members, in law are separate personalities. In the case of management
companies, this enables the corporate entity, but no natural individual to hold
ownership of the freehold reversion of the company. Thirdly, companies’ members
can be organised into shareholders, and this enables clarity and democracy of
ownership of the common and structural areas of a development in the case of
management companies. Fourthly, because of the way companies are governed, i.e.
major decisions can be taken by resolutions at EGMs, members are presented with
a full set of accounts and reports every year at the AGM; the company provides
a useful model to facilitate the management of multi-unit developments.[120]
4.12
Under the existing law, there are three models of limited company under
which management companies have been incorporated. The public company
limited by guarantee is the type of company which management companies
generally incorporate as is explained below. The private company limited
by shares is a company where the liability of the shareholders is limited to
the amount unpaid in shares owned in the company. As the law currently stands,
the maximum membership of a private company is 50 people,[121] which in
practical terms means that it is unsuitable as a legal structure for large
management companies. The public company limited by shares (PLC) is a company
with the same type of limited liability for its members but can have an
unlimited membership.
4.13
There are currently an estimated 4,600 property management companies in
the Republic of Ireland.[122]
The current practice is typically for a management company to be set up as a
public company limited by guarantee. A private company so limited is
usually not suitable because, as the law stands, it must have a share capital
and be limited to 50 members.[123] Many multi-unit developments will
comprise more than 50 apartments or other units, all the owners of which should
become members of the management company.[124] On the other hand, a public
limited company by guarantee can no longer have a share capital[125]
and has no limit on the number of members, although there is a minimum
requirement of seven.[126]
The Commission is aware, however, that a number of management companies are
incorporated as private companies.
4.14
A company limited by guarantee is a
company where each member’s potential
liability is limited to the amount of their guarantee to contribute to the
company’s assets when the time comes for winding up of the company. Members are
not required to provide money to the company during its formation or lifetime.
Keane points out “it is accordingly a suitable vehicle for associations which
wish to secure the benefits of a separate legal personality and of limited
liability but do not wish to raise funds from its members”.[127] Furthermore, in recognising that this
type of company is normally limited to organisations which are not trading for
profit, he states:
“The management of such companies is normally entrusted by
the articles of association to a council or a committee elected by the members
rather than a board of directors.”[128]
4.15
Management companies play a crucial role in most residential multi-unit
developments, but it is clear from the Commission’s study, and other studies,[129]
that several issues concerning their legal structure and operation require
examination.
4.16
It has been observed that legal entities under company law as they
currently exist are unsuitable for meeting the needs of not for profit organisations
such as management companies.[130] Problems arising from company law
manifest themselves for management companies in a number of ways:
· Companies
limited by guarantee (the most common vehicle for management companies) where
there is no separation of powers are unwieldy for people who hold the dual role
of company directors and members as they make some decisions in one capacity
and other decisions in the other capacity.
· Should
any proposed new Regulatory Body require management companies to register with
it and file annual reports, companies may face a burden of dual registration
and reporting to both the Companies Registration Office (CRO) and the
Regulatory Body.
· The
company corporate governance regime is not tailored to fit the management
company (not for profit) structure.[131]
· From
a legal and administrative viewpoint, private companies hold many advantages
over public companies. Advantages include the fact that a private company does
not need to obtain a trading certificate before commencing business and that
small and medium sized companies are not required to file full accounts with
the Company Registrar’s Office (CRO).[132] Accordingly, larger management
companies are not able to benefit from the concessions to the private company
because with a membership exceeding fifty people, they are obliged to
incorporate as a public company.
· Despite
the fact that management companies have limited purposes which fall short of
those of a trading company, the law as it currently stands does not generally
recognise this distinction.
· Courtney
notes that “it can not be overstated that under the law as it stands careful
attention must be given to the maintenance of proper books of account, to the
correct preparation and circulation of annual accounts and to the diligent
filing of proper annual returns.”[133] In the case of directorship of
management companies, the work done is commonly undertaken on a voluntary
part-time basis by people who have little or no experience or expertise in
company law. It is questionable thus whether it is appropriate for management companies
to use traditional forms of companies with the commensurate directorial
responsibilities as a legal vehicle.
· The
officers of a management company hold an onerous responsibility to comply with
company law regulations. For example, failure of a company to make an annual
return to the Registrar of Companies can lead to a company being struck off the
register of companies,[134]
and the officers and the company may face legal proceedings.[135] Once a company has been struck off it
has no legal existence and its property (with the exception with property held
on trust for another) becomes the property of the Minister for Finance on
behalf of the State.[136]
These types of sanctions may not be suitable for management companies.[137]
4.17
In 2002, the Commission set out a number of proposals following
identification of issues arising for management companies in the context of
company law. On foot of the resulting submission to the Company Law review
group, more recent oral submissions from the Commission, and the raising of the
issue by the Minister for the Environment, Heritage and Local Government, the
CLRG has formulated recommendations which are intended to be included in the
General Scheme for the New Companies Bill.
4.18
The CLRG has kindly allowed the Commission to reproduce these
recommendations.[138]
4.19
Developments in other sectors have provided some food for thought. The
Commission suggested in a recent report the introduction of a new form of legal
vehicle specifically for charities.[139] That report provisionally recommended
the creation of a new company model called the Charitable Incorporated
Organisation (CIO), which was designed to cater for the specific incorporation
needs of charities. The CIO as proposed in the Commission’s report is a
radically different legal entity compared to a typical company. Features
include the option to operate under a single tier and to use a model
constitution designed in consultation with the charity sector. Such a corporate
model, which in the context of other jurisdictions has been well received,[140]
is interesting when consideration is applied to the arguable incompatibility of
the management company with company law in its current form. One of the main
distinctions however in relation to Charitable Organisations as incorporated as
companies is that such companies are established for public benefit and not for
the benefit of individual members or shareholders. Accordingly, the Commission
does not consider that CIO-type structure would be suitable for the
incorporation of residential management companies.
4.20
Also thought provoking is the fact that in a recent report, Dublin City
Council questioned whether it was necessary at all to incorporate multi-unit
development organisations and argued that the cost and work involved running an
organisation as a corporate body outweighs its usefulness as a device for
management.[141]
That report ultimately acknowledged that these problems could potentially be
avoided with the introduction of a more appropriate legal and operational
framework for management companies.[142]
4.21
The new Companies Bill outlines a new companies regime, and heads for a
new classification of companies have been published.[143] With regard to management companies it
is stated that “the CLRG is making provision to permit a management company to
be formed as either: (1) a private company limited by shares, with the same
capacity and powers of a natural person (a “CLS”); (2) a “DAC” (designated
activity company), which would be a private company limited by shares or by
guarantee with an objects clause; (3) a “guarantee company”, which would be a
public company without a share capital (a “CLG”).”[144] In its original submission to the CLRG,[145]
the Commission proposed that the management company should be a private company
limited by guarantee without a share capital. However, the Commission believes
the changes to company law and range of company types proposed by the CLRG go
some way towards responding to submissions made; especially with the inclusion
of the provision which removes the maximum number of shareholders a private
company can have for management companies.[146]
4.22
The Commission welcomes these proposed changes to company law and
believes that such changes will facilitate management companies; particularly
given the proposed degree of choice between company structures.
4.23
Furthermore, the CLRG has made its position clear on the extent to which
company law should impact on the activities of companies-
“It is important in the first instance to define what company
law does and distinguish this from the regulation of activities engaged in by
companies. Company law provides structures for forms of incorporation. It is
inappropriate that company law should seek to regulate the activities companies
engage in. The Minister for Enterprise, Trade and Employment does not have
competence in law for the regulation of property transactions, just as he does
not have competence for the regulation of charities, banks, etc. Using these
latter two regulatory activities as an example, a clear model emerges. If a
company wishes to have charitable status from the Revenue Commissioners, then
it must comply with their requirements in forming the company and include
appropriate provisions in its memorandum and articles of association. Similarly
for a company that wishes to be a bank, it must comply with the obligations
imposed by the Financial Regulator. There are other examples, too. The role of
company law vis à vis companies operating as management companies is to
facilitate their operation as companies. Accordingly, CLRG envisages that an
appropriate regulatory body be charged with regulating management companies and
setting out requirements, the compliance with which can be facilitated in
company law.”[147]
4.24
The Commission would like to emphasise that it is not suggesting that
company law have a function in the actual regulation of the activities of
companies. It does, however, wish to make the point that company law has a role
in ensuring that the rules relating to the conduct of companies are suitable to
the form of activity that the company is engaged in. It follows that company
law needs to act dynamically in response to development and evolution in law
and society. Indeed, company law itself recognises and has developed different
schemes to take account of the different needs of companies and their members,
e.g. the creation of the public limited company, companies limited by shares,
companies limited by guarantee, and the proposed new designated activity
company. It could be argued that these are simply different types of
incorporation but their development arose out of the need to reflect the
different type of activities that companies engage in. There will be a further
recognition in the implementation of the proposal to provide a statutory
definition within the Companies Acts of a ‘management company.’[148]
4.25
A company limited by shares is a form of private company whereby
potential liability of the members is limited to the amount which they have
agreed to pay for the shares that they own in the company. As already observed,
there are many legal and administrative advantages to incorporating as a
private rather than public company.[149] A private company by definition is a
company which has a share capital and which has satisfied the provisions of s.
33(1) of the Companies Act 1963.[150] A primary reason currently for
management companies not being incorporated as CLS is that the membership of
these companies is limited to fifty people.[151] However, the CLRG has proposed that the
law should be changed to remove this limitation on membership where the members
are all members of a management company.[152] This proposal, if implemented, will
widen the incorporation options open to management companies and enable them to
avail of the advantages of forming a private company.[153] The Commission welcomes this proposal
as an option for incorporation of management companies.
4.26
The concept of a “designated activity company” originally came from the
recognition that there would be a need to provide for a type of company similar
to the private company limited by shares i.e. a private company with an objects
clause.[154]
They can be limited by shares or by guarantee. Thus, they are a suitable legal
vehicle for companies who wish to maintain clearly identified objects e.g.
management companies.
4.27
As in the case of the CLS, the CLRG has recommended that although there
would normally be a limitation on the membership of a DAC, the law should be
changed to allow unlimited membership in the case of a management company
“where those persons are the owners of a freehold or leasehold estate or
interest in the land that is managed by that company.”[155]
4.28
Public guarantee companies without a share capital have been examined
above and represent the most common incorporation model used for management
companies.[156]
4.29
While the current limit of 50 members for a private company would be
increased to 99, it is proposed that there would be no limit for private
management companies comprising members owning units in a multi-unit
development.[157]
4.30
The Commission welcomes these recommendations and endorses the choice
and flexibility which they would introduce. However, the Commission is
firmly of the view that there is a need to consider which of the forms proposed
is most suitable for different types of developments. This is a matter which
the Commission considers should be reviewed by any proposed new Regulatory
Body,[158]
with a view to recommending the issue of guidelines. It should not be
assumed that a particular form is necessarily suitable for every type of
development.[159]
Subject to such guidelines, there should be a choice as to the form most
suitable for each particular development.
4.31
The Commission is also concerned about the unwillingness of developers
in some management companies failing to cede membership of the companies after
completion of the development. This is an undesirable practice because it means
that individuals with no remaining ownership interest in the development
continue to impact on how the company is run. The Commission recommends
elsewhere in this Paper that membership should be confined to one vote per
unit.[160]
This provision should operate to ensure that the developer will not have voting
rights once the purchase of all units has been finalised. The Commission
believes that a requirement for developers and/or any agents placed by
developers in the management company to resign their membership of the company
on completion of the development should be placed on a statutory footing.[161]
4.32
The CLRG proposes a new definition of a management company as follows:
‘ “management company” means a company that is wholly and
exclusively formed and operated to own and/or manage the common areas of a
property development and whose members are the owners of a freehold or
leasehold estate or interest in land being a part of such development.’[162]
4.33
The Commission notes this as a working definition. At this stage
it would simply draw attention to one point which should be considered.
Usually a management company does not just own the common areas; it also owns
the reversionary interests of the leases held by unit owners.[163] The result is that its
“management” function does not relate just to the common areas, but also
involves enforcement of obligations entered into by each unit owner under the
terms of their leases. In this respect it is performing a “landlord”
function as part of its overall management role. Perhaps this should be
reflected in the definition; as it underlines the fact that the company is a
separate legal entity from the unit owners. However, arguably, making this an
explicit part of the definition may prove pointless because as the membership
of the management company comprises the unit owners, the unit owners, where
working as a majority and exercising their voting rights in the company are
effectively their own landlords. This issue becomes complicated though, in the
case where a majority of company members seek to compel an unwilling minority
member to fulfil his or her obligations as a ‘tenant.’ This may be a persuasive
reason to explicitly include the landlord function as part of the definition.
4.34
The Commission provisionally takes the view, however, that the
definition as proposed by the CLRG is satisfactory; as it is a clear and
accurate summation of the concept of a management company, but the Commission
invites submissions on the point.
4.35
The CLRG has taken the view that any company incorporated under the new
proposed company law scheme should be required to adhere to the appropriate
designated ending according to its type – “limited” (a private company limited
by shares with the contractual capacity of a natural person), “clg” (a public
company limited by guarantee, without a share capital) or “dac” (a private
company limited by shares or by guarantee which has an objects clause
indicating its designated activity). It is not, in its view, appropriate
for company law to require certain companies to have specified activities in
its name, but the CLRG accepts that an appropriate government department with
responsibility for activities engaged in by certain companies could make
regulations requiring use of particular titles.
4.36
The Commission has concluded that there is, indeed, a need for such
specific provision. For example, a major problem which has emerged is
that many owners of apartments and other residential units in multi-unit
developments are confused about the role of such companies. In
particular, part of the “understanding deficit”[164]
is that they fail to appreciate that it is “their” company, that they comprise
its membership and own it. They are, therefore, in a position to control
its operation and should do so in their own interests. One way of
correcting the understanding deficit would be to insist that all such
management companies refer to this “ownership” aspect in their titles, e.g.,
the “X Owners’ Management Company” clg/limited/dac. The CLRG have stated in
response to a submission from the Commission that it
“does not believe it appropriate that the Companies Acts
should legislate to require certain companies to have specific activities
mentioned in their names.... If there is a public policy end [to having
management companies identified as such in their names]... the Department of
the Environment, Heritage and Local Government may wish to consider making regulations...”[165]
4.37
However, given the fact the Companies Acts already prescribe company
endings, albeit in a broader context, the Commission believes that in consumer
interest, this should be taken a step further for management companies. This is
especially the case since the CLRG have already acknowledged that there is need
for a statutory definition of management companies. In any event, this is very
much a public policy issue and the Commission feels that this is another area
where bodies with various regulatory responsibilities for management companies
such as the Department of Environment, Heritage and Local Government, the
proposed Regulatory Body and the CRO should act in consultation to determine this
issue. This again highlights the necessity for cooperation and working
co-operative governance in the public sector with regard to management
companies.
4.38
The Commission also believes that there is scope for such regulations to
cover other matters, such as specifying a standard set of objects within the
Memorandum of Association, confined to non-profit-making activities, to which
all such companies would be required to adhere. The Commission is undecided, however,
as to whether or not it should be mandatory to subscribe to such standard
objects or whether composition of the objects clause should be open to the
discretion of the membership of the management company. The Commission invites
submissions on this matter.[166]
4.39
The Commission provisionally recommends that the Companies Acts be
amended allowing for specific provision requiring a company’s name to adhere to
the appropriate ending according to its type and with the management company’s
specific activity in its name.
4.40
The Commission recognises the importance of the annual return and the
documents annexed to the return as an essential means of enforcing transparency
and accountability in the running of a company. Notwithstanding this, the
Commission believes that for management companies, some changes are needed to
the statutory requirements for the annual return.
4.41
As indicated earlier,[167]
the Commission is concerned that the level of expertise required for management
company directors in compiling complex annual financial reports is
inappropriate given the onerous responsibility to comply with accounting best
practise and also given the fact that management companies do not trade for
profit. Based on these concerns, the Commission, in a submission to the CLRG in
2002 recommended that management companies should be exempt from the
requirement to prepare annual audited accounts for submission to the members
and the Registrar of Companies. The Commission further submitted that
management companies should be exempt from the requirement to make an annual
return to the Registrar of Companies but believed that they should be required
to submit an income and expenditure account, balance sheet and directors’
report to the Registrar of Companies.
4.42
The CLRG has made it clear that, while it is not appropriate to exempt
any of the new forms of company from the requirement to make annual reports to
the Registrar of Companies, some, such as private companies and DACs, will be
able to avail of an exemption from having to prepare annual audited accounts
for submission and inclusion in annual reports.
4.43
The CLRG has expressed doubts as to whether it would be appropriate to
exempt management companies from preparing annual accounts fully audited by an
independent accountant. The Commission agrees with the CLRG insofar as it
believes that management companies should make an annual financial report to
the CRO.[168]
To grant a full exemption would run counter to the overriding need for owners
of apartments and other units in multi-unit developments to understand fully
the operation of the management company and to understand that it is their
company, which is supposed to be acting entirely in their interests. It
would also militate against the need for transparency about what the company
does, including the fixing of annual service charges and contributions to a
reserve or sinking fund. Notwithstanding this, however, the Commission suggests
that rather than requiring a traditional ‘Profit and Loss’ type annual statement
to be presented to the members and the CRO, a less complex, more comprehensible
Income and Expenditure account should be prepared.
4.44
This will tackle a number of existing problems. Management company
reports using the Profit and Loss system will sometimes show a surplus of
income over expenditure as an accrual or a future expense leading members to
believe that the company has finished the year at a loss. This does not reflect
the reality that the surplus may be used, in fact, to reduce next year’s
service charge or may be used to contribute to the sinking fund. The reason
directors do this is because they believe an end of year ‘profit’ in the form
of an income surplus will be subject to tax. Profit and Loss accounts may also
be misleading to members in other ways. Their balance sheets are often
modelled on those of going concerns and thus include details such as the
deprecation of capital expenditure and breakdowns of the worth of the company’s
capital assets, the result of which is that the final balance is distorted and
thus, the financial state of the company is grossly misrepresented.
4.45
This, coupled with the complexity of language often used in such
reports, contributes to the aforementioned consumer understanding deficit.
Moreover, the Commission observes that company law already makes allowances for
some types of company structure in their obligations to file a complete annual
return. Small companies, for example, are exempt from the requirement to annex a
copy of the profit and loss account and the directors’ report to the return.[169]
4.46
Based on all of this, the Commission reiterates the CLRG’s view that
management companies should not be exempt from submitting an annual return,
particularly in view of the administrative burden such companies have to deal
with.[170]
The Commission believes that it may be more appropriate for such companies to
do this in the form of an Income and Expenditure balance sheet. The Commission
invites further submissions on this matter. The Commission recommends that any
annual accounts should also be readily available to future purchasers of
apartments or other units or their professional advisers.
4.47
The Commission further believes that there is scope for the development
of an annual return more relevant to the interests of management company
members. Accordingly, it could be argued that details such as, for example, a
formal list of the assets owned by the company, a statement confirming whether
the development is fully compliant with fire and safety regulations; the
development’s insurance details, etc, should be included in the directors’
reports. Rules laying down such provisions could either be laid down by
regulation, or by standardised provisions in the Articles of Association of
every company, developed in conjunction with the proposed Regulatory Body.[171]
The Commission invites submissions on this matter.
4.48
Finally, the Commission is concerned at the practice of many accountants
formatting the accounts of management companies as prescribed by the Companies
(Amendment) Act 1986. This is in spite of s. 2 (1) (a) of the Act which
clearly states that the Act does not apply to not-for-profit companies. This
trend is suggests that even accountants experience the much-cited
‘understanding deficit’ as it relates to multi-unit developments, as management
companies are non-trading companies.
4.49
The Commission provisionally recommends that directors’ reports
should include a list of the management company’s assets, its insurance
details, and whether the development is fully compliant with fire and safety regulations.
4.50
The Commission provisionally recommends that any annual accounts
should be readily available to potential unit owners or their professional
advisors.
4.51
In order to maintain the integrity of and compliance with company law in
Ireland, there are statutory provisions in place designed to deter
companies from abusing or failing to fulfil their corporate obligations. For a
company, the most serious sanction arising from non-compliance is being ‘struck
off’ the Companies Register. Under s.125 of the Companies Act 1963,[172]
all companies are required to file an annual return, and failure of a company
to file this can result in the company being struck off. This means that the
organisation then loses its status as a corporate body, and all of its assets
are vested in the State and held by the Minister for Finance.[173]
This fate befalls thousands of companies annually; in 2004,[174] 1,401 companies and in 2005, 9,514
companies were struck off for failure to file annual returns to the CRO.[175] This suggests that the Companies Registration Office is now
rigorously enforcing the rules on failure to file annual returns. Courtney
describes the purpose and nature of the annual return as follows:
“The purpose of the annual return is to provide information
in relation to the affairs of the company which may be of relevance to the
public, such as the address of the registered office, the location of the
register of members, the total indebtedness of the company, etc. Certain other
documents are required to be filed along with the annual return, notably,
specified particulars of the annual accounts and reports annexed hereto.”[176]
4.52
Thus, there are two main elements in the returns, the particulars of the
current directors of the company and details about its location, indebtedness
etc, and the audited accounts of the company.[177] The accounts to be filed with the
return are copies of the profit and loss account and balance sheet,[178]
and a comprehensive summary of the status of all shares issued. The returns
must also include the directors’ names, addresses and personal details
including date of birth, nationality, business occupation etc.[179]
A list of members and their addresses must also be included.[180]
4.53
Interestingly, however, there is no requirement for a company to
state the type of activity in which the company is engaged in the annual
return. This lack of collation of knowledge on company activity works in part
to explain the lack of definitive statistical information on management
companies in Ireland which, in turn, has arguably contributed in part to the
understanding deficit.[181]
Notwithstanding this, it is clear that a considerable amount of work is often
necessary to file returns which are fully compliant with the Companies Acts.[182]
4.54
Companies are required to complete the annual return within 60 days
after the company’s AGM and then forward it to the Companies Registration
Office without delay complete with the signatures of the company secretary and
a director. Failure to comply with this results in the imposition of a fine.[183]
Far more serious than this, however, is the fact that where the annual return
has not been filed for a year or more, the Registrar of Companies can write to
the company advising it that the company has one month to deliver all
outstanding returns to the CRO; otherwise, that company’s name will be
published in the Iris Oifigiúil with a notice stating that it will be struck of
the Companies Register.[184]
Where the company fails to deliver the requested returns within one month, the
Registrar may publish a notice in the Iris Oifigiúil giving the company a
further one month’s notice to deliver returns to the Companies Registration
Office. Where a month has elapsed, the Registrar will then have power to strike
the company’s name off the register.
4.55
As already observed, the effects of strike off on a corporate body are
extremely serious. The company no longer has any legal existence. Its assets
become subject to s.28 of the State Property Act 1954 which provides that
where a company is dissolved, its real and personal property becomes vested in
the State and is held on the State’s behalf by the Minister for Finance.[185]
Courtney notes the serious practical problems that may arise when company is
struck off, particularly in the context of sale of property.[186] It is often not until a company’s
solicitor attempts to dispose of property on its behalf that it is discovered
that the property is not, in fact, any longer the property of the company as
the company has been struck off the register. In such circumstances, the only
way for the company to retrieve ownership of its property is to get itself
restored to the register.
4.56
The effect of restoration to the register is to re-vest the property
back in the company. However, where for some reason the company is not yet
restored and the issue of ownership becomes urgent, a waiver of the right of
the State to the property may be sought from the Minister for Finance.[187]
4.57
Where a company has been struck off the Companies Register as a result
of failure to file annual returns,[188] the restoration process is relatively
simple provided that the application for restoration is made within 12 months
of being struck off. In such a circumstance, a representative of the company
may apply to the Registrar of Companies to have the company restored to the
register.[189]
Application for restoration proves relatively expensive as there is a €300 fee
involved and the company will also have to pay the maximum fine of €1,200 for
each year of late returns. This restoration via administrative action will
prove effective provided all outstanding returns are provided to the Registrar.
4.58
From company members’ perspective, the issue of restoration of the
company’s name to the register becomes thornier, however, where more than one
year has elapsed since the company was struck off. In those circumstances, the
company must apply under s.12B (3) of the Companies (Amendment) Act 1982
for a High Court order for reinstatement to the register. The conditions that
the company must meet are numerous and are likely to be highly time-consuming
and inconvenient. Meeting the conditions may very well also prove expensive;
the CRO recommends that legal advice be obtained in relation to any proposed
application to court for restoration.[190] The use of the mechanism of restoration
via a court order is widespread: over 200 companies petitioned the High Court
in 2004 while 182 companies petitioned in 2005.[191]
4.59
In order to restore the company’s name to the register, the solicitor,
member or director acting on behalf of the company must firstly submit a letter
to the Enforcement Section of the CRO requesting confirmation that the
Registrar has no objection to the restoration of the company. The Registrar
will provide this confirmation on condition that all outstanding returns
including accounts are submitted to the CRO. Alternatively, where the company
provides all outstanding returns and accounts in draft format coupled with an
undertaking to provide the completed versions within three months of issue of
the court order, the Registrar will also provide a letter of no objection. The
company’s representatives must also obtain letters of no objection to the
company being restored from the Chief State Solicitor’s Office on behalf of the
Minister for Finance, and from the Revenue Commissioners. They must then
petition the High Court for a restoration order. Following this, the company’s
representatives must deliver an attested copy of the order together with the
filing fee within three months of the date of the pronouncement of the order.
The company will also have to pay all outstanding fines on the late returns.
Hence, it is highly unadvisable to get struck off the Companies Register and to
allow more than 12 months pass. Moreover, given the State’s time and resources
used up in hearing hundreds of petitions in the courts and processing
thousands of strike-offs annually, failure of companies to file annual
returns on time also proves expensive for the taxpayer.
|
Year |
2004 |
2005 |
|
Companies struck off* |
6,595 |
13,624** |
|
Struck off for failing to file returns |
1,401 |
9,514 |
|
Restored |
729 |
673 |
|
Via administrative action |
528 |
491 |
|
Via court order |
201 |
182 |
*This includes voluntary strike-offs. ‘Companies’ in this
context includes all companies, not management companies only.
**The numbers of companies struck off in 2005 is
extraordinarily high due to the introduction of the ‘Integrated Enforcement
Environment’ system in late 2004.
4.60
As observed earlier, management companies are almost unique in company
law insofar as its directors often run the company on a purely voluntary,
non-professional basis.[192] It is common for management company
directors to have no experience in company law requirements. Property
management companies are thus, effectively merely an incorporated version of
residents associations within a multi-unit development. On this basis, the
appropriateness of the use of strike-off, the complexity of the company law
used to govern management companies and the high administrative burden on
company directors necessarily involved in complying with company law are all
issues which must be addressed. The arguably unnecessarily detailed nature of
the annual return required from management companies has been already
discussed.[193]
4.61
The Commission accepts the concept of the onus of directors as
fiduciaries to take their role in the management company very seriously.[194]
Accordingly, it is proper to expect at least, a basic level of skill and care
from a director of a management company. However, the Commission is of the view
that the standard of expertise currently required from what are mainly
voluntary and often inexperienced directors of management companies is currently unrealistic. In the case of management
companies still under the control of the developer, notice will be served on
the developer or its agent. The individual unit owners may not be aware of this
pending strike-off which has grave consequences. The Commission also referred
earlier to the high fees to which the management company is subject for filing
late returns.[195] These charges
are visited on the unit owners and not on the developer who may have been
solely responsible for allowing this serious situation to arise.
4.62
While recognising the importance of deterrence for failure to file
returns, the Commission believes that the current system of striking off is
mutually disadvantageous for the Government and management company members, and
perhaps even facilitates bad practice. In some cases, it is also true to state
that the strike-off provisions facilitate some developers who wish to renege on
their responsibility to complete the development. If the company is no longer
in existence, then there is no entity to which ownership of the common areas
can be transferred. In this way, the strike-off provision can be used to reward
bad practice. Another situation where the propriety of the provision must be
questioned is where company members, for whatever reason, become unhappy with
the management company as it exists and decide to allow the company to be struck
off, which results in serious implications for the ownership of the
development. Under the Companies Acts, being struck off for failure to file
returns, as stated earlier, may result in a company’s assets being vested in
the State and held by the Minister for Finance.[196] In practical terms, it is impracticable
and unrealistic to expect the Department of Finance to dispose of the communal
areas and interior and exterior structures or the freehold reversion of an
apartment development. Moreover, given the number of management companies being
struck off,[197]
the processing of such companies is proving to be draining on resources, yet
seems inadequate as a deterrence measure. From the management company member’s
perspective, being restored to the register often involves legal action and is
expensive and time consuming.[198]
4.63
As an aside to this issue, it is worth noting that the Commission was
unable to obtain any exact figures for the number of management companies
struck off the companies register. The primary reason for this is that the
coded classification system used by the CRO as it stands does not take into
account the idea of a company with residential property management as its
primary purpose.[199]
The Commission suggests that implementation of simple steps like including more
specific codes would work to counter the understanding deficit from which the
sector as a whole suffers; quantifying the exact size of the sector would place
various public bodies in a better position to determine policy applying to
management companies.[200]
Indeed, on a broader level, one of the key points of the functions undertaken
by public regulatory and supervisory bodies and government departments is to
facilitate good governance of various sectors which impact on the public at
large. The Commission acknowledges the importance of filing an annual return as
a means of monitoring the smooth running of, and lending transparency and
accountability to companies in Ireland. A second important function of the
return is the information it provides to the Oireachtas which can then tailor
company law and policy to the contemporary needs of the corporate community.
Based on this, the Commission believes that the annual return filed in the
Companies Registration Office should include information on the type of
activity in which the company is engaged.
4.64
Returning to the issue of sanctions for non-compliance; the CLRG has
accepted that there may be a case for a “less onerous” striking-off provision
for management companies and the Department of Enterprise, Trade and Employment
has undertaken to discuss the feasibility of this with the Registrar of
Companies.[201] The Commission welcomes this and
recommends that consideration be given to excluding management companies from
the effects striking-off provision, at least as an initial sanction. The
Commission’s view is that a major purpose of the law should be the protection
of all stakeholders involved in the management company whenever signs of
financial mismanagement appear. The Commission also believes that any
enforcement/regulatory body, be it the CRO or the proposed Regulatory Body,
should be wary about enforcing statutory obligations before reviewing the
usefulness of the legislation in terms of successful regulation and good corporate
governance. In the case of the current strike-off provisions, the Companies
Act 1963 was framed primarily to deal with ‘business-based’ companies and
did not really take not-for-profit companies and their particular objectives
into consideration. It seems that for such companies, the manner in which the
strike-off provision is currently used is quite inappropriate and ineffective
the purpose of achieving good governance for management companies.[202]
Given the lack of regulatory process specific to the management company sector,
the problem was not highlighted earlier. As a result, there is currently no
mechanism to collect information on the area enabling the Government to monitor
trends.
4.65
In terms of sanctions, the Commission suggests that what should be put
in place is an investigative system which triggers a warning system at the
first sign of such mismanagement. Such signs could range from a failure
to submit audited accounts to members or annual returns to the Registrar of
Companies to complaints by members about service charges, sinking fund
contributions or other alleged irregularities. The Commission believes that
rather than imposing the sanction of striking off on management companies who
fail to file returns, a less draconian solution could potentially be for the
CRO to inform the proposed Regulatory Body of failure to comply with
company law. The Regulatory Body would then be in a position to advise and
assist the management company in complying with the Companies Acts. If,
following this advice, and a reasonable timeframe to allow for compliance, the
management company still fails in complying with company law, it could then be
reasonable for the CRO to consider striking off. Also pertinent to this is the
role of the CRO and other public bodies dealing with the sector in their
collection of information for mutual cooperation and data exchange to further
enable good governance. In relation to multi-unit developments, the key
purposes in having management companies file annual returns is the protection
of members from financial mismanagement and to promote good governance of
companies. For management companies, good governance is especially important as
protection of the value of the development depends on it. Clearly, by
potentially vesting ownership of the common and structural parts of their
development in the State, the striking-off provision does not achieve a
desirable result either way for the unit owner.
4.66
As an interim measure, while structuring and procedure within the
proposed Regulatory Body is being resolved, the Commission considers that a
moratorium should be placed on the striking-off of residential management
companies. This move would operate to protect management companies from such an
unsuitable sanction. Notwithstanding this, the Commission believes if such a
measure were introduced, the company would still be liable for the usual fees
incurred in the event of late submission of the annual return, until the
Regulatory Body, in consultation with the Companies Registration Office,
concludes on the best course of action to take in these situations.
4.67
Mismanagement could also be detected by
any proposed Regulatory Body[203] which would have a supervisory function
over management companies. The first step should be for the Registrar,
complaining member, or supervisory department of the Regulatory Body to refer
the matter to the Body and for it to investigate the matter. That Body
would have powers, then, to decide the most appropriate next steps if the
complaints are substantiated. These might range from requiring
reorganisation of the existing management company’s operation (e.g., replacing
the existing directors or managing agents) to replacing the company with a new
company structure. The CLRG’s new company regime makes provision for
conversion of an existing company to any other type of company. As a last
resort the Regulatory Body might support interested parties in an application
to the court under the Commission’s proposed “rescue” provisions.[204]
4.68
The Commission is, however, of the view that the proposed Regulatory
Body should have a role in assisting management companies in complying with the
provisions of the Companies Acts and should have a supervisory function with
regard to such companies. This would necessarily involve the Regulatory Body
playing a part where a management company defaults in complying with statutory
requirements. Based on this, strong cooperation, wide channels of information
and a good system of joined up government between the CRO and the proposed
Regulator will play a large role in the future of management companies and
company law compliance.
4.69
The Commission considered making a provisional recommendation to the
effect that striking off should, for management companies, be deferred until
specified action was taken by the Regulator. Notwithstanding this, in
formulating an ultimate recommendation, the Commission is keen to retain an
annual reporting system for the corporate governance reasons mentioned above.
As a result, it is still imperative that there is a sanction for non-compliance;
albeit perhaps not as serious as the striking off sanction. The Commission
therefore suggests that this could be a policy decision to be determined by the
CRO in consultation with the proposed Regulator. Given the consultative
nature of this paper, the Commission puts forward the possibilities discussed
above and invites submissions on the issue.
4.70
The Commission provisionally recommends that the sanction of striking
off should be reviewed in the case of management companies.
4.71
The Commission provisionally recommends that a moratorium against
striking off should be introduced as an interim measure until a more
appropriate sanction is decided upon for management companies who fail to file
returns.
4.72
The Commission provisionally recommends that the annual return should
include information on the type of activity in which the company
is engaging.
4.73
The Commission provisionally recommends that the proposed Regulatory
Body should play a role in assisting management companies to comply with the
provisions of the Companies Acts.
4.74
One aspect of the regulation of management companies which the
Commission wishes to emphasise is the importance of cross reporting and
co-operation amongst the various state agencies involved. Ownership of
multi-unit developments involve a number of different legal areas e.g. consumer
law, property law, company law and contract law. Different state bodies deal
with different elements of the law relating to management companies. Multi-unit
developments aside, given the growing trend of vesting regulation of various
sectors in a growing number of state agencies, it seems that now is the ideal
time for the Government actively to promote a strong policy of co-ordination
and so-called cross-cutting between public agencies.[205]
4.75
In the context of companies, however, it is particularly important given
the opportunities for corporate mismanagement and the ensuing difficulties
caused for the public and for the company members. A good example of
legislation providing for cross-cutting is s.12A of the Companies
(Amendment) Act 1982.[206] This section enables the Revenue
Commissioners, where a company has defaulted on any returns or statements, to
give a notice to the registrar of companies empowering the CRO to strike the
company off in the event of non-compliance. This provision was introduced as a
mechanism to combat fraud and corporate mismanagement by non-resident Irish
companies.[207]
4.76
Another good example of the necessity of joined-up government arose from
the increasing prevalence of “Phoenix Syndrome.” This occurred where certain
companies were being wound up at the CRO, which was unaware that these
companies were leaving behind large unpaid revenue debts. These companies would
then continue unscathed and incorporate under a different company name. This
resulted in massive tax losses to the State. The issue has since been tackled
with the enactment of the Company Law Enforcement Act 2001. However, it
is clear that if there were wider channels of information flowing between the
two state agencies involved in that case, the situation may not have arisen in
the first place.
4.77
The policy of cross-cutting is being employed in recent legislation; for
example, s.10 of the Registration of Deeds and Title Act 2006 which provides that
one of the functions of the new Property Registration Authority is to:
“undertake or commission, or collaborate or assist in,
research projects and activities relating to the registration and ownership of
land, including the compilation of statistical date, needed for the proper
planning, development and provision of services related to such registration”
4.78
Under the existing law, unit owners are obliged to register the transfer
of property with the Property Registration Authority, register and file returns
with the Companies Registration Office, and the Commission is proposing further
reporting requirements with a further regulator. The Commission is keen to
avoid the problem of administrative burden for the directors of management
companies. As a result, the Commission envisages a very active role for
joined-up government for state agencies involved in management companies. How
exactly the minimising of administrative burden is to be achieved, the Commission
believes is an issue for the bodies concerned to establish in consultation with
each other.
4.79
One means by which the Commission proposes to cut down on administrative
burden would be to introduce a requirement for unit purchasers, when
registering under the PRA (either with the Land Registry or with the Registry
of Deeds), to include the name of the management company they will be
automatically be joining. The PRA can then send this information
(electronically, to minimise effort) to the Regulatory Body’s database and to
the management company. In this way, the Regulatory Body can keep track of
changes in membership in management companies without requiring individual
notification to the management company. This will also ensure that the register
of members for the company is up to date and there will be no individual
obligations for filing or notification, which in default could lead problems
not only for the individual members but for the company itself.
4.80
The CLRG states that it perceives that one of the problems currently
facing management companies under existing company law provisions is the fact
that membership in such companies is held independent to the ownership of land.
In practice, this is not a major problem as solicitors ensure that transfer of
the property is not taken without a simultaneous transfer of shares or
membership. Nevertheless, the Commission fully endorses the CLRG’s proposed new
regime which will include statutory provision for the automatic transfer of
shares in or membership of a management company whenever ownership of the
apartment or other unit to which the share or membership relates is
transferred. There will be no need to execute any transfer of shares or
to make an application for membership, but the company will have to be notified
of the change of ownership of the apartment or other unit for the automatic
transfer to be effective.
4.81
The Commission is concerned however about the usefulness of one aspect
of the Company Law Review Group’s proposal on transfer of shares in a
management company. Where a share/membership of the company is automatically
transferred to a new unit owner the CLRG believes that the new member should:
“within 21 days notify the company in writing of this fact
and until such time as the transferee notifies the company, no right or
interest of any kind whatsoever in respect of his membership shall be
enforceable by him, whether directly or indirectly, by action or legal
proceeding.”[208]
4.82
While good governance requires that the company must be notified where
there is a transfer of shares or new membership, this particular provision adds
even greater weight to the administrative burden carried by management company
members.[209] Moreover, inserting such a provision as
a statutory obligation may result, in case of default, on the unit owner being
debarred from holding an interest in the company and the company could then in
turn find it difficult to enforce company membership obligations such as
payment of service charges or contributions to the reserve fund. The Commission
suggests that there may be constitutional implications in debarring the
individual’s right to legal redress in this way; particularly given the
property ownership issues involved. The Commission believes that the state
agencies and authorities who may play a cross-cutting role in reducing the
administrative burden for the individual should work in consultation with each
other to resolve this problem.[210]
4.83
The Commission provisionally recommends the CLRG’s proposal that
membership of a management company and ownership of an apartment should be
statutorily bound together.
4.84
The following section deals with a number of areas within management
companies for which the Commission believes there should be specific
regulation.
4.85
The Commission strongly believes that developers should be prohibited by
regulating legislation from fixing or loading the share or membership
allocation with a view to retaining control of the management company.
Arguably the best system would be the simple one share/member per apartment or
other unit, with voting rights at meetings accordingly.[211]
4.86
There are, however, other matters which require consideration. One is
the question of who should be entitled to exercise the voting rights in cases
where the owner of the apartment or other unit does not occupy it.
Different categories of other occupiers may exist, even in the same multi-unit
complex. For example, there may be owner-occupiers, tenants of
owner-investors, tenants of the local authority occupying under the social and
affordable housing provisions of the Planning and Development Act 2000[212] and
tenants of housing associations. One view is that voting rights should remain
exercisable by the person or body which owns the long-term interest in the
apartment or the unit, at least in respect of any matter which could have a
substantial impact on the value of the unit or have a long-term effect.
On that basis, it is arguable that if an owner has defaulted on a charge over a
unit and the mortgagee has invoked its security, by, e.g., taking possession of
the unit,[213] it should
be entitled to exercise the voting rights.[214]
Whether short-term tenants or other occupiers should have voting rights in
respect of matters which do not involve long-term consequences or have little
or no impact on the value of apartments or other units is arguably less
clear. For example, it could be argued that such occupiers should have a
say in the appointment of the directors or other officers of the management
company serving for a short period of office and in relation to day-to-day
matters which impact directly on such occupiers, e.g., lift maintenance,
security measures, etc. However, given that short-term tenants are not required
to pay service charges, and given the fact that decisions on these day-to-day
matters may have long-term effect on the value of the development as a whole;
their right to control over such matters and voting rights is open to question,
despite their status as residents of multi-unit developments under the control
of a management company.
4.87
Furthermore, there are further distinctions to be made between
categories of tenant. For example, should the short-term tenant of a private
investor have different voting rights to long-term tenants where the local
authority owns the unit? In that case, the long-term interests of the tenants
are at stake and it is unlikely that the local authority will necessarily avail
of its management company vote in such a circumstance. The Commission believes
that the proposed Regulatory Body will have to consider many different
permutations in relation to these complexities before reaching its conclusions.
4.88
The Commission’s preliminary view is that it is not appropriate that
voting rights should apply to any categories other than unit owners and has
concluded that the above matters need further consideration and that the
proposed new Regulatory Body should review them in consultation with interested
parties, particularly local authorities, who have a role in social and
affordable housing. Following that, regulations should again be issued
specifying the appropriate allocation of voting rights attached to shares or
membership of management companies.
4.89
Where voting rights, and other rights relating to membership of the
management company and participation in its activities, remain vested in owners
not in occupation of units, there is a danger that the company may not function
as well as it should because those owners, not living in the development, take
no interest in it. The Commission has concluded that this problem could be
addressed in a number of ways.
4.90
One would be for guidelines or information[215]
to be issued which advises such owners of the need to remain consistently
interested in the management company and to exercise their membership rights in
their own long-term interests. It should be emphasised that the value of
units and of the development as a whole depends to a major extent on the
efficient and proper functioning of the management company. Local authorities
and housing associations have a duty to ensure that good estate management is
maintained for their tenants and so also have a major interest in seeing that
the management company is working properly. This, in turn has an effect on
preserving the value of an important asset for such groups. Local authorities,
in particular, should be aware that if things go badly wrong they may find
themselves faced with demands to participate in a rescue scheme. The
risks of a section 180 application, which were discussed earlier,[216] should also be borne in mind.
4.91
It may be that some obligations in these matters should be included in
primary or subsidiary legislation for management companies. For example,
it is essential that “absentee” owners are kept fully informed of the operation
of the management company. They should be required to register an address
with the company to which all documentation issued to members can be sent and
to notify the company of any changes in this. The Commission acknowledges that
in the case of properly administrated management companies, this practice
represents the status quo.
4.92
It should also be borne in mind that many multi-unit developments
contain a commercial element.[217]
Where the commercial units are confined to a separate building on the
development there may be fewer problems. In such cases it is usual to
have separate management companies, one to manage the commercial building and
another to manage the residential building. This will facilitate having
different structures and arrangements governing matters like services charges
for the different buildings. The different buildings may, of course, share
common areas or services, such as the paths, roads and drainage, lighting and
sewerage systems. This may be dealt with by having a separate management
company to deal with these such as a holding or overarching one of which the
buildings companies are subsidiaries.[218]
4.93
Where there are commercial units within a primarily residential
building,[219] the
position is more complicated. It will rarely be appropriate to have separate
management companies owning and responsible for managing different parts of the
same building. It will usually make much more sense to have the one
company owning and responsible for the entire building. That however
gives rise to the complication that the perspective of the different categories
of unit owners on such matters as service charges and reserve or sinking fund
contributions may be quite different. For example, commercial unit owners
confined to the ground floor[220] may object
to paying service charges relating to items of no concern to them, such as
maintenance and repair of lifts and stairs. If, as is often the case,
commercial units are held on relatively short-term leases, their tenants may
baulk at having to contribute to a reserve or sinking fund designed to cover
long-term capital expenditure. On the other hand, residential unit owners
may object to having to contribute to the more expensive insurance cover which
is likely to be required in respect of the commercial operations in the ground
floor units.
4.94
Again the Commission has concluded that these are matters which need
further consideration by the proposed new Regulatory Body and, in the light of
this, it may be appropriate to issue appropriate guidelines or regulations to
deal with the disparate interests of the different owners in such mixed
multi-unit developments.
4.95
The Commission provisionally recommends that the proposed Regulatory
Body should place under review and set regulations for the voting rights and
powers of both apartment owners and short-term tenants in management companies.
4.96
The memorandum of association and articles of association are two
documents that every organisation must have if they want to incorporate as a
company. The memorandum of association sets out amongst other things the name
and objects (the business purposes of the company and the “parameters of
permitted corporate activity”[221]) of the company while the articles of
association set out the rules of the company. In the context of management
companies, a couple of issues arise in relation to memorandums and articles of
association. First, the business purposes of residential management companies
are uniform in nature. However, there is no standard memorandum of association
which companies can adopt. For legal practitioners and other stakeholders in
multi-unit developments, this means that each company’s memorandum and articles
of association must be examined closely before engaging in legal dealings with
the management company. Seeking to generate greater consistency would lead to
less confusion towards how management companies are run.
4.97
Secondly, the Commission’s research suggests that the problem of the
current ‘understanding deficit’ may be exacerbated by the fact that members of
many companies may not be aware of the rights, responsibilities and running of
the management company until the annual report at the Annual General Meeting,
if at all. This is often contributed to by the fact that for many members,
access to the business and legal documents of the company is limited or non-existent.
4.98
The Commission has concluded that there is a need to prescribe a
standard set of provisions which should be included in all management
companies’ constitutions. Precisely what these provisions should be is a matter
for further consideration in which the proposed new Regulatory Body and other
interested parties, such as planning authorities, relevant government
departments and professional bodies, should be involved. In due course
regulations should be issued dealing with the appropriate matters that might be
included in a standard statutory form of Memorandum and Articles of Association
for management companies to be provided, which would apply unless modified in a
particular case to the extent permitted by the regulations.
4.99
Apart from the usual provisions relating to the appointment of directors
and other officers, the holding and conduct of meetings, passing of
resolutions, voting and financial accounting, the Commission envisages that
such regulations would require all management companies’ constitutions to have
provisions which would also require them to deal with a number of other
important matters. One is the keeping and making available to appropriate
parties of information and documentation relating to operation of the company
and management of the building. This would include information and
documentation relating to insurance, service and other contracts entered into,
fire and safety certificates and files, service charge payments and the reserve
or sinking fund. Such information and documentation should be readily
available not only to members but also to prospective purchasers and their
mortgagees.[222]
If, as is sometimes the case, such information and documentation is kept by
managing agents, part of their duties should be to ensure that the management
company’s obligations to make it available or open to inspection are complied
with.
4.100
In proscribing a standard set of provisions, these should be confined to
ensure that the company complies with its legal obligations and is clear in the
manner in which members engage in the company. It is not to suggest that
individual developments might not require other contractual arrangements
between members given the particular circumstances of the development.
4.101
The Commission provisionally recommends that the proposed Regulatory
Body should, in consultation with other stakeholders, prescribe a standard set
of provisions to be included in all management companies’ constitutions.
4.102
Service charges are an essential feature of multi-unit developments
since they provide the funding for the management of the common areas and
structures.[223]
In essence they are annual charges levied on the owners of units (the company’s
members) to meet the various expenses incurred by the company in carrying out
its various functions. These range from the cost of insurance and
maintenance and repair of the building to the expense of employing managing
agents, caretakers, janitors, gardeners and professional advisers.
Notwithstanding their vital function, they remain one of the most controversial
aspects of multi-unit developments.[224]
4.103
The source of much of the controversy is again the “understanding
deficit” which seems to affect many owners of units in residential multi-unit
developments. Having in effect “bought” their units, they find it difficult to
comprehend why they should be paying additional annual charges, when owners of
houses on conventional residential estates do not do so. Sometimes, this
attitude is caught up with the taking in charge issue, because the impression
is formed that the unit owners are paying for services which the local
authority provides at public expense to residents of housing estates.
4.104
As this Paper recommends,[225]
this understanding deficit must be addressed as a matter of urgency.
Purchasers of apartments and other residential units in multi-unit developments
must be educated as to the precise function of service charges. This is
obviously linked to understanding the nature and function of the shared
ownership. The Commission would reiterate its later recommendations
relating to provision of information to prospective purchasers of units and
subsequent owners and tenants at different stages in the life of a development.[226] The Commission welcomes recent work
done thus far in this area by the National Consumer Agency and the Office of
the Director of Corporate Enforcement.[227]
4.105
Apart from the provision of information, there are other
important aspects of service charges which need addressing. One is that
there is currently no regulation of the fixing of such charges and often a
total lack of transparency.[228]
There are constant reports of developers fixing levels of charges which are
inappropriate. Frequently the charges in the first year or initial years
are set at a deliberately low level which bears little relation to the actual
costs and expenses being incurred by the management company. This may be
often done as an inducement to prospective purchasers, to encourage a speedy
sale of units in the early stages of the development. However, it can also be
argued that new developments require lower service charges because maintenance
costs in initial years are minimal as there has been little
wear-and-tear. Also, in the case of uncompleted developments, the service
charges may be low because the full array of services may not yet be in place.[229]
4.106
The consequence of higher service charges after the first few
years is that these purchasers may be lulled into a false sense of security
which is, then, shattered by the shock of substantially increased charges
levied in later years. The giving of inadequate or inappropriate
information on service charges should be prohibited by legislation.
Where, due to lack of completed services in the initial stages of the
management company, the service charges are low, developers should be obliged
to explain explicitly the reason for this to unit buyers and offer a realistic
projection of what the service charges are likely to be on completion of the
development. In this, developers should be obliged to estimate an appropriate
service charge from the outset, which bears a close relation to realistic
anticipated[230] costs and
expenses likely to be incurred by the management company.[231]
4.107
In addition there should be total transparency as to how the charges are
calculated and what the anticipated costs and expenses are which they are
intended to cover. The Commission recommended earlier that developers
should be prohibited from fixing or loading shareholdings or membership rights
in the management company[232]
and this should extend to the method of calculating service charges. The
Commission is inclined to the view that again some statutory regulation may be
appropriate as has been introduced in other jurisdictions.[233]
Arguably there should be a statutory obligation on developers, while they
retain a controlling interest in the management company,[234] and later on the company itself to set
charges which are “reasonable” or “appropriate” in the light of the anticipated
costs and expenses specified. In order that unit owners can, then, judge
their reasonableness or appropriateness for themselves, if necessary after
seeking expert advice, management companies should be obliged to furnish a
detailed breakdown of the calculations, duly certified independently and
specifying how the individual charge for a particular owner has been arrived
at. Alternatively, the proposed Regulatory Body could randomly audit management
company service charges and their calculation. This monitoring mechanism would
act as deterrence against setting unreasonable or inappropriate service
charges.
4.108
Apart from that, the Commission sees it as one of the important roles of
the proposed new Regulatory Body to keep the whole system of service charges
under review. It should gather information for comparative
purposes and make this readily available to intended parties, such as unit
owners in a particular development who are convinced that their charges are
excessive. Again, owners in such circumstances could lodge a complaint
for investigation by the Regulatory Body. However, this should not be an issue
where unit owners are taking responsibility for the proper management of their
own development.
4.109
While the provision of information about service charges and the
need for transparency and reasonableness is of direct concern to existing
owners of units, it must also be recognised that it is also important
information for subsequent prospective purchasers of units. Management
companies should be obliged to furnish information to such persons about
existing charges and to indicate on a realistic basis anticipated future
charges for the next, say, 3 or 5 years.[235]
A standard form for doing so might be prescribed by statutory instrument,
following advice from the new Regulatory Body.
4.110
Finally, the Commission is aware of the major problems caused for a
development when unit owners fail to pay their service charges. Whether
this is due to a failure to understand the nature and purpose of the charges or
frustration arising from what is perceived as a failure by the board of the
management company or its managing agents to carry out their duties, unit
owners must be made to understand the seriousness of such action. The
fundamental point is that if the charges are not paid, the management will not
be able to carry out essential tasks, such as insuring the building and
attending to its maintenance and repair, and essential services cannot be
undertaken. That can only harm the unit owners themselves and if, as may
happen, the situation spirals out of control, the effect on the value of the
development as a whole and of individual units in the long term will be disastrous.
In very serious cases it could lead to a situation where units in a development
become difficult or impossible to sell.
4.111
Many of the recommendations made by the Commission would bear on this
problem and should reduce considerably its future occurrence. In
particular, the recommendations to deal with the “understanding deficit”
experienced by unit owners[236]
and to ensure that developers management companies and managing agents perform
their tasks efficiently[237]
should help to stop the problem arising. As regards existing developments
where the problem may already have arisen, the new Regulation Body may be able
to intervene and help sort out a solution.[238] As the last resort, the proposed
“rescue” provisions may be invoked.[239]
4.112
As regards the sanction for non-payment of such charges, the management
company, as owner of the reversionary interest of the unit, can invoke a
landlord’s remedies for breach of covenant by a tenant.[240] However, in practice, these are
not very effective in the case of residential units. Although technically
the right to forfeit the lease is fully available in such cases,[241]
it is highly unlikely that a court will give effect to such forfeiture in
respect of a property “owned” by the lessee. Suing to recover the charges
is likely to prove time-consuming, but a management company may eventually be
forced to do so. Imposition of a high interest charge for overdue
payments may have some deterrent effect, but only if the unit owner understands
that this will increase the debt and that it will be pursued effectively.
4.113
If, in the light of experience of implementation of the various other
recommendations made by the Commission in this Paper there continues to be a
problem concerning unpaid service charges, the Regulatory Body should consider
whether other sanctions should be introduced. In some other jurisdictions
such unpaid charges automatically become by statute a charge on the unit which
would have to be discharged on any sale of the unit. In practice, this is the case in this jurisdiction, as a
solicitor, when acting for the purchaser will ensure that all previous charges
on the unit have been discharged.
4.114
The Commission provisionally recommends the creation of statutory
regulations for the regulation of service charges in consultation with any
Regulatory Body and believes that the system of service charges should be kept
under review including the types of charges that should be included in the service
charge and information that should be provided about the service
charge.
4.115
The importance of the management company building up a reserve fund, or
“sinking fund”, to meet future major capital expenditure has already been
referred to.[242]
Every multi-unit development must face the inevitability that parts of
buildings have a natural life and will inevitably wear out or cease to
function. The unit owners must anticipate having to replace part of the
external fabric, like the roof and windows, and internal systems, like the
lifts, central heating and air conditioning systems and the mechanisms
operating them. There is really no choice in this matter and the company
and the unit owners must face up to it from the outset. As all unit
owners effectively co-own the common areas and the building structure, they
will all be obliged to contribute to capital expenses incurred. They must also
recognise that the costs will be very substantial if no provision has been made
to contribute to the fund since the management company was created.
4.116
If no reserve fund has been built up to meet these costs, they
will have to be loaded onto the annual service charges. That will
increase those to a prohibitive level for many owners.[243]
Borrowing the capital is unlikely to be a satisfactory alternative because the
debt will have to be serviced out of the annual service charges. Nor, of
course, is postponing the capital works because such postponement is likely to
result in ever greater costs when the work is eventually done, with the
attendant inconvenience and likely consequential damage to other parts of the building
in the meantime. Failing to carry them out ever will, of course,
have even more disastrous consequences for all concerned, and could ultimately
lead to the development falling into such disrepair that owners may find it
difficult to sell on their units.
4.117
All of this convinces the Commission that there should be a clear
statutory obligation on management companies to establish a reserve or sinking
fund. The annual service charges should contain an element comprising a
contribution to this fund. The company may consider obtaining expert
advice on the necessary contribution each year, taking into account anticipated
future capital expenditure. This would necessarily involve an expert
assessment of the life of parts of the building likely to give rise to such
expenditure and, of course, of the likely costs of replacement or other works
at the anticipated time of carrying them out.
4.118
The importance of the fund is such that there should be a further
obligation to hold it in a special protected account separate from the
management company’s day-to-day working account or accounts. This should
be an appropriate interest-bearing account, but regulations could provide for
other suitable forms of investment. Such interest or other returns on the
investment should accumulate to the benefit of the fund.
4.119
The existence of such a reserve fund is important from other points of
view. Not only existing unit owners but any prospective purchasers of
units have an obvious interest. Thus the obligations to provide information
about service charges referred to later[244]
should extend, as appropriate, to the reserve fund.[245]
Unit owners, in particular, must be made to understand that the value of their
units, as well as that of the development as a whole, will be substantially
affected by the existence and value of the fund. This applies whether
such owners are long-term or short-term owners. For this reason, annual
contributions are never refundable when unit owners sell their units. The sale
price will reflect the value of the fund at the time of sale and its impact on
the value of the development.
4.120
The Commission is concerned that there are several existing multi-unit
developments where either no provision or inadequate provision has been made
for a reserve or sinking fund. This is a matter which should be addressed
urgently. The Commission recommends that the new Regulatory Body should
carry out an investigation of the current situation as one of its first
tasks. Following that investigation, it should recommend appropriate
remedial action according to the position of particular developments.
This could range from advising management companies to establish a fund or
augment an existing one to supporting an application under the “rescue”
provisions proposed later.[246]
4.121
The Commission provisionally recommends that there should be a clear
statutory obligation on management companies to establish reserve or sinking
funds.
4.122
The Commission provisionally recommends that reserve or sinking funds
should be held in a special protected account separate from the companies’
working accounts. The Commission further provisionally recommends that any new
Regulatory Body should investigate the current situation of reserve funds as a
matter of priority.
5
5.01
While the previous chapter focused on management companies, this chapter
looks at the altogether different role of managing agents. It will first
explain the functions of a managing agent, then outline the problems arising
through the use of managing agents and finally propose reform of the law
surrounding managing agents in the multi-unit development sector.
5.02
As outlined earlier, consumers within the multi-unit development sector
are experiencing an ‘understanding deficit’. Nowhere is this more evident than
in the confusion between the responsibilities of managing agents and management
companies. Management companies are incorporated organisations of the unit
owners in multi-unit developments. Such companies manage and own the freehold
of the common areas and structure of the development and the reversions of the
unit leases. Managing agents, on the other hand, have no ownership interest in
the development. Firms of managing agents are engaged by management companies
to oversee the day-to-day running and maintenance of the multi-unit
development. They may also be employed by developers to oversee
completion of the development.
5.03
The scope of the management undertaken by managing agents differs from
arrangement to arrangement. Experienced developers tend to
employ at a very early stage, and certainly before any unit in the new
development is sold to a purchaser,[247] professional management agents to
advise them on the management of the development. Such agents will often
attend to initial administrative matters and they will usually act as agents
for the management company (which usually takes over from the developer) for
the first few years of the development. It must be pointed out, however, that
where a managing agent is engaged to deal with the administrative work of the
management company; it does not relieve any directors of the management company
of their duty to fulfil their legal obligations as fiduciaries to the company.[248]
Thus, it could be said that where managing agents’ responsibilities are to
include the ‘running’ of the company, they should be obliged to fulfil
facilitative and operational duties; not to make decisions competence for which
would normally be vested in the board of directors. In other words, managing
agents should ensure that they do not inadvertently become shadow directors of
management companies.[249]
5.04
A typical list of the
services which a good firm of management agents would provide initially to the
developer and subsequently to the management company is as follows:-
·
Preparation of service
charge and sinking fund budgets
·
Apportionment and
collection of service charges
·
Checking, approval and
payment of creditors’ invoices
·
Arranging the services
and payment of employees (eg the janitor or caretaker) and dealing with
PAYE, PRSI etc
·
Dealing with the
Revenue Commissioners on matters relating to employees
·
Advising on insurance
matters and handling claims
·
Bookkeeping,
accounting, maintaining bank accounts and reconciling statements
·
Preparation of
financial reports for management meetings
·
Liaising with auditors
and issue of Auditor’s Report and Financial Statements
·
Issuing information and
advice to prospective purchasers of units
·
Carrying out routine
site inspections
·
Arranging routine
common area repairs and maintenance
·
Dealing with telephone
enquiries and correspondence from unit owners
·
Attending management
company meetings
·
Advising the management
company’s board of directors generally.[250]
5.05
It is important to
emphasise that this list is by no means exhaustive and the more experienced
management agents will often provide a wide range of other services, such as
dealing with breaches by unit owners of ‘house’ or car park regulations,
compliance with health and safety requirements, management of new works or
major refurbishment and provision of full secretarial and emergency services.
5.06
Where such agents are
employed and operate to an appropriate standard, few, if any, serious
administrative problems arise. This is particularly the case for managing
agents who have received specific terms of reference from the management
companies or developers who employ them. Notwithstanding this, however, there
are a number of instances where the use of managing agents enables developers
or management companies to shirk their respective legal responsibilities.
5.07
It is perfectly proper, and, indeed, in most cases highly desirable,
that developers should employ experienced managing agents in the early stages
of the development, to oversee its completion and to organise operation of the
management company.[251] The danger is that the role of the
company and the agents can become confused, particularly from the unit owners’
perspective.
5.08
The Commission is concerned, for example, with
the tendency of some management companies vesting such control in managing
agents that the agents become a shadow board of directors.[252] In such circumstances, the management
company board of directors will leave basic operational responsibilities, such
as informing members of the dates of company meetings and helping to compile
for the CRO, with the managing agents. The Commission is aware of
circumstances, however, where the line between the management company and the
managing agent running a development has become blurred to the extent that the
accounts of the two groups mingle; or where the managing agents set the date
for the management company’s AGM. The Commission accepts that managing agents
may have a role in facilitating such tasks. For example, management companies
sometimes use the address of the agent’s office as the company’s registered
address and store files such as accounts and the Memorandum and Articles of Association
there. However, this ought not to confuse the company members to the extent
that it detracts from the principle that directors owe a basic level of skill,
care and diligence to the company.[253]
5.09
The Commission finds
the practice of directors effectively allowing managing agents to run their
company particularly regrettable as it believes it is desirable that unit
owners should take a more proactive approach in controlling how their management
company is run. The relatively hands-off approach taken by some company
directors here is in stark contrast to the activities of Residents’
Associations in other jurisdictions. It is often the case overseas that unit
owners in such associations become actively involved in the running of the
development in order to ensure that the value of the development is maintained
or increased as much as possible.
5.10
Another problem arises where the developer,
while still in control of the management company, engages managing agents for a
long-term contract in a deal which will suit the developer’s own needs. In
other words, the developer commits the management company to a long term
arrangement before unit owners are able to have any say in the matter. The
danger of such long-term contracts being entered into by the developer is that
once the developer has ceded control of the management company to the owners,
the company will then be precluded from being able to decide which managing
agent to employ, or if it even wants a managing agent to run the development,
for a number of years.
5.11
A further problem stems
from a failure by the developer to carry out its responsibilities in the period
between commencement and completion of the development. The primary
responsibilities are
i)
to complete the development in accordance with the planning permission
granted and any conditions attached to that permission
ii)
to ensure that those parts of the development which are intended to be
taken in charge by the local authority (roads, footpaths, sewers and the like)
are made ready in a timely fashion to ensure a smooth transfer of
responsibility
iii)
to ensure that a management company is established and ready to take
over responsibility for management of the rest of the development as soon as it
is complete
iv)
to ensure that any “snag” list of problems with the building is dealt
with before it becomes the responsibility of the management company and,
therefore, the subject of service charges levied on unit owners.
5.12
It is clear that much
confusion exists over these matters which tends to be exacerbated in some cases
when these are put in the hands of managing agents or service providers.
In that situation such agents or providers will be acting for the developer,
either directly or through a management company which the developer still
controls. This should not be allowed to disguise the fact that the
developer should retain legal responsibility for those matters.
5.13
Nevertheless, because managing agents are
funded by the management company service charge, where developers vest
responsibility for completion of the development in the agents, the service
charge is wrongly used to pay for the completion. The Commission has elsewhere
in the Paper recommends that this practice should be strictly prohibited.[254]
5.14
A final problem is the
trend of smaller developments finding it difficult to engage managing agents.
The experienced firms of agents based in Dublin have confirmed that they do not
consider it commercially viable becoming involved in “smaller” developments, ie,
those with less than 30 units (and some would put the minimum threshold higher
than that figure). This is particularly problematic in the initial stages
as developers of smaller developments tend to have less experience in
incorporating and running management companies. However, where such a company
runs into problems, whether company law issues or more general completion or
taking-in-charge troubles, they are unable to refer to managing agents who have
experience in the area for advice or help. These situations again underline the
lack of availability of a regulatory or advisory body overseeing the sector
when such problems arise, and the necessity of establishing such an body with
an educative role.
5.15
The Auctioneering/Estate Agency Review Group
pointed out in its July 2005 Report that managing agencies are currently
unregulated and so there is no guarantee that a particular firm will deliver an
appropriate standard of service. The Commission is encouraged to see that the
Government has accepted the need to impose regulation and bring such agencies
within the purview of the proposed new National Property Services Regulatory
Authority. The Group’s case for management companies coming under the
ambit of the NPRSA is compelling:
“...property management frequently involves large sums of
clients’ money. The Group believes, therefore, that it is appropriate and
proper to require persons to operate as property management agents to
demonstrate that they have the necessary financial safeguards in place to
protect their clients. Thus the Group recommends that property management
agents be required to hold a licence under the Regulatory Authority... Property
management agencies will thereby be made subject to oversight by the Regulatory
Authority and to its vetting and complaints procedures.”[255]
5.16
The Commission echoes this recommendation, but goes further. A key
source of the problems arising with managing agents is the uncertainty arising
within management companies about what the exact duties of the managing agent
are expected to be. This is because very often, there is no formalised
arrangement made between the two groups with regard to exactly what
responsibility and for which tasks the managing agent is engaged. As a result,
the Commission believes that it is imperative that the National Property
Services Regulatory Authority constructs some kind of normative list of obligations
for management agencies. This would take the form of a standard form contract
which all managing agents would be required to sign on engagement by the
management company.
5.17
There is successful
precedent for the use of standard form contracts in the regulation of other
sectors. Notably, a standard Building Agreement was negotiated by
representatives of the Law Society of Ireland and the Construction Industry
Federation (CIF), which both bodies recommended to their respective members as
the basis for individual contracts between builders and purchasers. When both
bodies became aware in the late 1990s that a number of building agreements were
departing from the standard Building Agreement – to the disadvantage of
purchasers – they approached the Director of Consumer Affairs with a view to
initiating declaratory proceedings seeking to have a sample of 15 specific
examples of these departures declared in breach of the 1995 Regulations. In In
re Application by the Director of Consumer Affairs,[256] Kearns J in the High Court declared
the 15 samples in breach of the 1995 Regulations.[257]
5.18
This example provides a good illustration of the powers that the
proposed Regulatory Authority will have in respect to standard form contracts
for management companies. The Commission has already taken the view elsewhere
in this Paper that any practice constituting the potential abuse of the
consumer rights of unit owners should be monitored by a proposed Regulatory
Body. Moreover, apart from the Body’s powers to take direct action against
licensed persons or bodies,[258]
it should be given power to direct a complaint to the Director of Consumer
Affairs for action under the European Communities (Unfair Terms in Consumer
Contracts) Regulations 1995.[259]
5.19
The Commission provisionally recommends that the National Property
Services Regulatory Authority should develop a standard form contract for use
by management companies in engagement of managing agents.
5.20
The Commission also recommends that developers should be prohibited by
statute from using their control of the management company in the early stages
of the development to commit it to long-term contracts with managing
agents. In particular, the decision whether to employ managing agents,
and if so, which agents, once the development is complete, should be that of
the management company and the owners of the units who by then comprise the
membership. For the same reason, it should also be prescribed by
statutory regulations relating to the constitution of management companies that
any directors appointed by the developer must resign when the development is
complete and the management company assumes full responsibility for the
development.[260]
5.21
The Commission provisionally recommends that developers should be
statutorily prohibited from committing management companies to long-term
contracts with managing agents.
5.22
In examining the problems arising for multi-unit developments generally,
it is increasingly obvious that many of the issues experienced in the sector
stem from the under-informed status of unit owners. This is especially clear in
the context of managing agents. Unfortunately, the result of such lack of
knowledge is that the consumer rights of unit owners can be easily taken
advantage of by various groups.
5.23
For management companies dealing with managing agents, the
Commission believes that the best way to counter such abuse is to inject
clarification into the system for unit owners. Through the use of licensing and
regulation of managing agents, standard form contracts, and mechanisms for
investigation and dispute resolution, the Commission is convinced that
consumers will be in a better position to assert their rights against such
abuse in the future.
6.01
In some respects
multi-unit developments are the subject of considerable consumer
protection. In particular, they are subject to extensive
regulation imposed by planning legislation[261] and related legislation, such as that
concerning building control[262]
and fire and safety.[263]
Housing authorities have extensive powers[264] to institute enforcement action where
private dwellings, including apartments, are unfit for human habitation or
overcrowded.[265]
Furthermore, consumers involved in multi-unit developments already have
recourse to the law for a number of problems they may have. For example, the
Office of the Director of Consumer Affairs is currently in charge of
enforcement and compliance with a wide range of consumer law.[266]
Notwithstanding such provision however, this Paper has exposed a series of
problems faced by unit owners chiefly emanating from lack of supervision and
regulation of the sector, and from lack of understanding of the proper
functions of various stakeholders involved in multi-unit developments.
6.02
Throughout this
Paper, the reform of the law which the Commission has recommended has
necessarily involved a consumer protection element. Accordingly, this chapter
aims to identify the key problems arising for consumers in the areas discussed
earlier, and outlines the significance of the Commission’s recommendations from
a consumer perspective.
6.03
A primary area of
concern for the Commission is the lack of knowledge on the part of many unit
owners or potential unit owners as to what precisely is involved in living in a
multi-unit development. The phenomenon is repeatedly referred to in this Paper
as an ‘understanding deficit’. This deficit is largely derived from the fact
that there is often a lack of appreciation on the part of the unit buyer of the
degree of interdependence involved in such developments.[267] There is a corresponding lack of
understanding as to the extent to which the activity of an individual unit
owner or failure to abide by obligations will impinge upon other units and
their owners. This understanding deficit can be attributed, at least in
part, to the relative ‘newness’ of residential multi-unit developments in
housing in Ireland.[268]
Most unit owners will be more familiar with ‘traditional’ housing, that is,
housing without the ‘common interest’ element necessary in residential
multi-unit developments.
6.04
Another reason why this
lack of understanding is so widespread is the lack of standardisation in the
operation of multi-unit developments. For example, there is presently no
standard form contract for the engagement of managing agents, no standardised
constitution for management companies, and no well-established protocol for
taking-in-charge. The variety of mechanisms used in the day-to-day running of
multi-unit developments results in further confusion across the sector as a
whole.
6.05
The National Consumer
Agency (NCA) commissioned a report which was published earlier this year.[269]
This report provides valuable insight into the problems faced by consumers.
What is remarkable about the report’s findings is the wide scope of the
understanding deficit experienced by unit owners.[270] Primary areas of confusion and consumer
dissatisfaction include the:
· purpose
of service charges and sinking funds
· function
and operation of management companies
· function
of managing agents
· provision
of information for unit owners.
6.06
Based on these findings, the Report makes a number of recommendations.
These include the recommendation that the NCA should undertake two major
surveys; a representative survey to ascertain consumer views on a range of
issues affecting multi-unit developments, and a national survey of service
charges and management fees.[271]
The Commission welcomes these recommendations and believes that the information
yielded from these surveys will prove very important when any proposed
Regulatory Body considers policy relating to regulation of such
developments.
6.07
While most are familiar
with the concept of paying rent under a lease, many find it difficult to grasp
the concept of paying a service charge. Many unit owners, once they have
‘bought’ their unit, believe that they will not have any further contributions
to make to the ownership of their property. The service charge, as explained
earlier,[272]
is a charge that unit owners pay periodically to fund the maintenance of the
common areas of the development. These service charges levied on owners are a
serious potential source of dispute.
6.08
The legal documentation in most developments tends to give landlords or
the management company a very wide discretion in fixing service charges.
In the case of residential developments, many unit owners may have little or no
idea as to how these charges are worked out and how they are apportioned as
between the different unit owners. Once again, this can be attributed to the
‘understanding deficit’. Unfortunately, this understanding deficit is sometimes
taken advantage of, enabling developers, while still in control of the
management companies, to compel unit owners to use the service charges as a
means of paying for ‘snagging’ problems before completion of the development.
6.09
Furthermore, there is the danger that the system may be
manipulated unfairly. For example, initially the charges may be set at a
low level by developers while still in control of the management companies so
as to attract purchasers, who then find that the charges subsequently rise
substantially and unexpectedly to a more realistic level, so as to meet the
true management costs incurred and services provided.
6.10
Major problems also arise where unit owners default on service charge
payments. This often happens because unit owners are frustrated with the level
of service they receive in return for the amount they contribute. This results
in a cycle whereby the management company is then unable to properly maintain
the development, thus harming the value of the property.
6.11
The Commission has made a number of recommendations in this Paper which
have a bearing on the service charge problems faced by unit owners.[273]
First, regulation of calculation of service charges is recommended.[274]
In order to ensure greater transparency, management companies or developers
should be obliged to provide a break-down of the calculation of service charges
and provide a forecast of service charges for coming years.[275] The Commission has also recommended
that the proposed Regulatory Body should keep the issue of service charges
under review. All of these measures will go towards alleviating the
understanding deficit, and will work to counter the frustration felt by many
unit owners. It will also effectively prevent the misrepresentation of the
calculation of the service charges that owners should expect to pay in coming
years.
6.12
The NCA Report also makes some suggestions with regard to the
calculation of service charges. It provides a list of what services should be
included in the calculation of a service charge,[276] and a consumer checklist to be used
upon receipt of the bill for the service charge.[277] Another of its recommendations has
already been implemented: the publication of a guide for unit owners of multi-unit
developments.[278]
The Commission welcomes these developments.
6.13
The notion of becoming
a member of a management company is alien to many unit owners, and the idea of
actually becoming involved in running such a company even more so. Many
people do not realise that purchase of a unit in a multi-unit developments
means automatic membership in a management company. The Commission identified
earlier some of the problems arising between unit owners and their management
companies.[279]
In terms of directorship, the current company law scheme means that voluntary
and often inexperienced members of management companies face onerous
responsibilities as directors.[280] This in turn leads to apathy towards
taking an active role in the company. As a result, management companies
commonly have a high turnover of directors frustrated with what is often in
reality a thankless job. Moreover, the understanding deficit surrounding the
exact rights and obligations of a management company adds to the difficulty in
acting as a director. The problem is further exacerbated by the fact that there
is currently no body responsible for training directors of management companies
how to fulfil their duties properly. The trend also detracts from unit owners
positively engaging in the improvement and upkeep of their development.
6.14
In some cases, the
management company is used as a mechanism for keeping control of the common
areas of the development out of the hands of the unit owners. This Paper has
already discussed developers loading the allocation of shares in management
companies in order to retain control.[281] Also of concern to the Commission is
the apparent tendency of developers to delay for as long as possible in
completing the development and vesting the freehold interest in the management
company.[282]
This creates serious problems for unit owners as such a delay can prevent
taking in charge from happening for a considerable amount of time.
6.15
A range of measures have been proposed to
counter the problems arising with management companies. In the context of
directorship, the Commission has forwarded recommendations aimed at lightening
the administrative burden faced by directors.[283] The NCA Report suggests the idea of
training for officers of management companies.[284] Moreover, the Office of the Director of
Corporate Enforcement has recently published a Draft Guidance for the
members of residential management companies.[285] Ultimately, the Commission
believes that a highly effective way of countering the apathy and confusion
surrounding company directorship is for a Regulatory Body to produce a full
scheme of directors’ rights and obligations as a guide for management company
members. This should work to demystify the role of the company director and
further standardise the operation of management companies generally.
6.16
The Commission provisionally recommends that a
guide for management company directors including a full scheme of their rights
and responsibilities should be compiled.
6.17
Earlier in this Paper,
the Commission also provisionally recommends that developers should be obliged
to cede any control in the management company on completion of the development.[286]
The Commission also recommends that developers should be obliged to establish a
management company within a reasonable timeframe and that it should only operate
within its prescribed remit.[287]
The Commission further suggests that votes should be distributed to management
company members in a one vote per unit allocation.[288] The Commission believes that these
recommendations will prevent the abuse by developers of consumers through the
use of management companies.
6.18
The distinction between
a management company and a firm of managing agents employed by the developer or
by the management company is not well understood. It would appear that all too
often not enough is done by developers and their agents to fully explain to
prospective purchasers of units in such developments exactly what is involved.
The understanding deficit aspect of this is covered later.[289]
6.19
There are a number of
other issues involving managing agents about which the Commission is concerned.
First, there is the problem of management companies relying on managing agents
effectively to act as a shadow board of directors.[290] Secondly, the Commission is aware of
developers, while still in control of the management company committing the
company into long-term contracts with firms of managing agents. Thirdly,
managing agents are sometimes engaged by the developer to take over completion
of snagging problems within the development with the result that unit owners’
service charge contributions are sometimes wrongly used to fund the completion.[291]
6.20
The Commission is
confident that the regulation of managing agents recommended in Chapter 5[292]
will operate to prevent their misuse in the future. For example, the Commission
endorses the recommendation of the Auctioneering/Estate Agency Review Group[293]
that managing agents should be subject to licensing by the NPRSA and should be
obliged to sign standard form contracts.[294] Such contracts would operate to clarify
to managing agents, developers and management companies the parameters of what
should be expected of managing agents. The Commission also recommends
prohibiting developers from signing long term contracts with managing agents on
behalf of management companies.[295] Central to the proper use of managing
agents however, is a fully-informed consumer base which realises the proper
functions of each stakeholder in the multi-unit development sector.
6.21
As observed, all those who have studied the subject of residential
multi-unit developments[296] have concluded that there is a major
“understanding deficit” which must be addressed urgently. There is far
too much confusion over what is involved in owning and living in or renting an
apartment or other unit in such a development. This lack of understanding
relates to a wide range of matters, such as:
i)
the nature, purpose and operation of the management company;[297]
ii)
the distinction between the management company and managing agents;[298]
iii)
the role and rights of unit owners as members of the management company;[299]
iv)
the extent to which local authorities are likely to take in charge the
infrastructure of the development;[300]
v)
the nature and purpose of service charges and how they are calculated;[301]
vi)
the nature and purpose of a reserve or sinking fund and the need for
one.[302]
6.22
The Commission is firmly of the view that developers or any other
professionals (eg estate agents, auctioneers, solicitors, etc) involved
in the sale of a unit ought to be required to furnish all prospective owners of
apartments or other units in such developments with information
clarifying such matters before a binding contract to purchase is entered into.[303]
That information ought to be reinforced once the purchase is completed and
similar information should be provided to the new purchasers when an apartment
or other unit is sold on. Information should also be supplied to others
who may live in or occupy such units, such as tenants of the owner.
Working out precisely what information should be provided at different stages
and to different persons, what form and content it should have and who should
provide it are matters which the Commission recommends should be investigated
by the proposed new Regulatory Body. Appropriate consultation should take
place with bodies like the National Consumer Agency,[304] planning authorities, interested
government departments, representatives of the housing and building industry
and professional bodies.
6.23
The Commission further recommends that primary legislation should
specify the obligations to provide such information on developers and other
persons and bodies (for example, auctioneers, estate agents, management
companies, managing agents and solicitors), as appropriate. The nature
and content of the information should be prescribed by statutory instrument.
6.24
The Commission provisionally recommends that primary legislation
should be enacted specifying the obligations of various groups in the
multi-unit development industry in the provision of information
to tenants, owners and potential owners.
6.25
The Commission has
reached the preliminary conclusion that additional protection measures should
be introduced for owners of units in residential multi-unit developments.
As explained earlier, a number of matters would be covered[305] One would be a statutory
requirement to provide prospective purchasers of units with clear information
as to what is involved in owning a unit in a multi-let development and to
ensure that the initial scheme for service charge payments set up by the
developer is appropriate to the development in question.[306] Initial purchasers of units
should be assured that service charge payments are not only fair and
reasonable, but also adequate for the purpose of meeting both annual
expenditure and also capital costs which may have to be met from time to
time. There would be a requirement to explain such charges in a totally
transparent way and also to explain how major future capital expenditure will
be met.[307]
The Commission takes the view that these matters are so fundamental and
important that they should be given statutory force, at least by regulation, if
not by primary legislation. The new Regulatory Body would have the role
of monitoring and enforcing such provisions.
6.26
Once the management
company has been established and is fully functioning, the unit owners, as its
members, should be in a position to control its operation, including the fixing
of service charges. As members of the company they are responsible to
ensure the company is run efficiently and are also entitled to demand
information and explanations as to what the company is doing and how it is
doing it. For this reason the Commission takes the view that there is no
need to impose further statutory obligations relating to operation of
management companies once they are fully operational, ie, after the
developer has ceased to play a role and has vested the common areas and other
property in the company. However, the Commission takes the view that the
Regulatory Body should have as part of its remit the monitoring and supervision
of the operation of management companies.[308]
6.27
In view of the fact
that many unit owners are unfamiliar with the operation of such companies, and
even less inclined to become involved in their activities, the Commission also
takes the view that part of the Regulatory Body’s remit should be to
investigate complaints about the operation of management companies, and the
activities of other persons or bodies involved, such as managing agents.
It is not envisaged that the Body should engage in dispute resolution or
arbitration. This is the reason why the Commission does not see the need
to introduce special statutory provisions for dispute resolution, such as exist
in other jurisdictions.[309]
Disputes should be resolved through the company structure, as between the
company and its members. In extreme cases where the company structure
does not work in this regard, and investigation of a complaint by the
Regulatory Body and further action it takes in the light of this does not
produce a satisfactory solution, there would be the fall back provision under
the “rescue” provisions discussed later.[310]
6.28
The Commission also
reiterates its recommendations with regard to placing an onus on groups
involved in the sale of a unit to provide all relevant information concerning
the unit, the development, the management company and the managing agents and
recommends that this should be enshrined in legislation.
6.29
There is also an onus
on individual unit owners to take responsibility for the active management of
the management company of which they are members.
7.01
This chapter aims to identify the problems surrounding multi-unit
developments and outlines the necessity for regulation of the sector. It goes
on to discuss potential regulators and sets out the role and functions of any
new Regulatory Body established to facilitate the control of residential multi-unit
developments.
7.02
With apartment completions comprising over 50% of total completions in
Dublin and over 20% nationally last year,[311] it is clear that multi-unit
developments now play an important role for housing in Ireland. However, it is
also clear that the lack of regulation that coincides with the massive growth
in the sector and the issues arising from it has become a major consumer and
property stakeholder issue. Given the lack of governing legislation or a
watchdog in this specific area, issues including the running of management
companies, the responsibilities of developers, managing agents and local
authorities, and the facilitation of appropriate non-court fora for dispute
resolution within the sector are open to question. The absence of a
standardised procedure for calculating service charges and sinking fund charges
and legislative clarity on issues including, inter alia, who should have voting
rights within management companies[312] should be addressed as a matter of
urgency.
7.03
Currently, management company shareholders are experiencing what this
Paper refers to as an understanding deficit. They are unsure about many
fundamental issues including which organisation is responsible for taking in
charge of basic infrastructural responsibilities, how long developers are
entitled to retain controlling interests in the management company after sale
of all the units in the development, and myriad other questions. Lack of
consumer knowledge invariably leads to abuse of the consumer on occasion. The
Commission welcomes the publication by the National Consumer Agency of the
information leaflet Property Management Companies and You,[313]
and believes that further measures such as consumer-orientated regulation in
the sector is imperative.
7.04
Further to this, for some players in multi-unit developments, there are
no groups established to act a national representative body. In the case of
groups potentially open to abuse such as management companies, there is
currently no body which plays an educative and advisory role in the context of
multi-unit developments.
7.05
As discussed in the first chapter, four major reports have recently been
published on this matter by stakeholders in the area of multi-unit
developments.[314] The Report of the
Auctioneering/Estate Agency Review Group[315] acknowledged the numerous problems in
the sector and recommended the establishment of a National Property Services
Regulatory Authority (NPRSA) to deal with the issues encountered by the
property industry in Ireland. The 2005 Report of the Housing Unit (now the
Centre for Housing Research) entitled Mixed-Tenure Housing Estates:
Development, Design, Management and Outcomes[316] underlined the confusion many
multi-unit development residents felt about the functions and regulation of
their management companies. Dublin City Council’s Housing Department recently
commissioned a study[317]
with a view to devising a strategy concerning the role of the local authority
in private housing and mixed tenure multi-unit developments in general.
This study lead to the production of a guide titled Successful Apartment
Living,[318]
which strongly advocated -
“new legal and operational framework
for management companies in apartment developments to increase the
sustainability and chances of success of the apartment development sector.”[319]
7.06
Lastly, the National Consumer Agency commissioned a report[320]
which identified the need for a regulator of multi-unit developments,
particularly management companies and the position of such companies in law as
among the most important issues within the sector.[321] It also recommended that the National
Property Services Regulatory Authority (NPRSA) should be given competence for
regulation of the sector and that the Government should treat the establishment
of the Authority as a matter of priority.
7.07
The aforementioned papers held the consensus that proper organisation of
the multi-unit development industry is necessary to protect consumer members of
the public by advising all of the various stakeholders of their rights and
obligations. It is also clear that this method of communal living has become a
feature of Irish society. The proper planning and appropriate structural
framework for multi-unit developments is therefore important for the good
governance and order of society.
7.08
It is also worth noting that the Office of the Director of Corporate
Enforcement has recently published a Draft ODCE Guidance: The Governance of
Apartment Owners’ Management Companies.[322] This guidance adds to the body of
literature discussing the issue of management companies in recent years and
provides a useful guide to members of such companies.[323]
7.09
One of the striking features of the development in particular of
multi-unit developments in Ireland is the extent to which they have flourished
without much regulatory intervention. This has lead to confusion and concern
with regard to the legal rights, duties and responsibilities of management
companies. Moreover, as observed in Chapter 4, the membership of such
organisations commonly comprises people completely inexperienced in the
directorship of corporate bodies. Ultimately, at present, no party or body
seems to be responsible for looking at the functioning of such developments as
a whole and so, many of the issues are not being addressed in any effective way
or even not addressed at all. Most fundamentally, there is no body currently
responsible for laying down best practice guidelines for the sector in this
jurisdiction.
7.10
Given all of these problems, the Commission believes that regulation in
the multi-unit development sector is long overdue. In view of the numerous
difficulties relating to residential multi-unit developments which have been
identified in this Paper, and other Reports,[324] the Commission has also concluded that
there is a need for some sort of Regulatory Body to oversee the operation of
such developments. As the Paper indicates, there is a huge range of
parties interested in such developments: government departments, local
authorities, developers, management companies, managing agents, unit owners and
various professional bodies advising or representing such parties.
7.11
The Commission provisionally recommends the establishment of a
Regulatory Body to oversee regulation of the multi-unit development sector in Ireland.
7.12
The Commission has reached the preliminary
conclusion that a Regulatory Body of some kind should be given responsibility
for the regulation of multi-unit developments. Given the importance of
such developments for the expansion of housing in Ireland and the number of people
whose homes are contained in them, there is a strong case for including
developers who build and sell such properties within the sort of new licensing
scheme proposed for auctioneers, estate agents and managing agents. If formal
licensing is not thought appropriate, the Commission certainly agrees with the
Auctioneering/Estate Agency Review Group that builders and developers engaging
in sales on their own behalf should be required to provide a similar level of
consumer protection as that required of auctioneers in the Group’s Report.[325]
At the very least the Commission is of the firm view that developers and
builders of multi-unit developments involving residential units should be
subject to similar monitoring and supervision as is proposed for managing
agents.[326]
This would include compliance with the statutory obligations specified earlier
and enforcement of those obligations.[327]
7.13
The Commission provisionally recommends that
the proposed Regulatory Body’s remit should include a general monitoring and
supervision responsibility for management companies involved in residential
multi-unit developments. This should apply to such companies both during the
interim period between commencement of building and completion of the
development, and the company coming within the entire control of the members,
and the subsequent operation of the company. It would not be appropriate
for the Regulatory Body to become involved in matters which, under company law,
come within the jurisdiction of the registrar of companies or the courts, but
it could have an important role to play in alerting the registrar or other
appropriate body to irregularities. Nor would it be appropriate to dictate the
type of contractual arrangements between unit owners; but it could provide
advice as to the appropriate corporate structure for the development in
question and to members who wish to change the structure or make other
modifications. Through its role of issuing Codes of Ethics and Practice[328] the Regulator could provide much
useful advice to unit owners about the operation of a management company.
7.14
The Commission provisionally recommends that
the Regulatory Body’s remit should cover management companies.
7.15
An important part of the proposed Regulator’s
supervisory role would be the investigation of complaints made by any person
interested in a residential multi-unit development. Such persons would
include developers, managing agents, management companies, unit owners and
other stakeholders. It is not envisaged that the Regulatory Body would
have a direct role in dispute resolution,[329] but it would be in a position to
take appropriate action in the light of its investigation which could produce a
resolution. Such action would range from imposing sanctions,[330]
instituting prosecution for breach of statutory obligations,[331] or assisting in a court application for
modifications under proposed “rescue” provisions[332] to giving advice to the complainant as
to how to seek a solution.[333]
7.16
The Commission is aware that a perceived conflict of interest may arise
where the same Regulatory Body operates in both licensing and investigation and
enforcement capacities. It could be argued that the Regulator could be
prejudiced against allowing future licensing applications where, for example, a
managing agent has come under suspicion in the past, or where the Regulatory
Body has pursued legal proceedings against it. Furthermore, should a Regulatory
Body hold responsibility for both managing agents and management companies,
more potential conflict arises where the interests of one of the groups may run
contrary to the interests of the other. The question then arises as to which
side the Regulatory Body should favour at the risk of disillusioning the other
group with regard to the impartiality of the Body.
7.17
The Commission believes however that, in reality, these fears are
largely unfounded. First, the Regulatory Body will not in itself be responsible
for dispute resolution between the groups. As stated earlier, it will merely
facilitate resolution through referral to arbitration or mediation services.
Secondly, while a perception of conflict of interest is understandable with
regard to licensing, it is within the regulator’s own interest to maintain its
integrity as a Regulatory Body by conducting all internal monitoring and investigation
in an objective and professional manner. Given the fact that it is envisaged
that any proposed Regulatory Body will cater to a wide range of stakeholders,
its efficacy as a public body would be undermined and public confidence in its
professionalism would be compromised if it engaged in bias for one group over
another.
7.18
Thirdly, there is already precedent in this jurisdiction for licensing
and regulation being overseen by a single body. The Commission for
Communications Regulation (ComReg), for example, has both areas within its
remit. The Broadcasting Commission of Ireland and the Commission for Energy
Regulation are two other bodies which similarly are in charge of both areas
within their respective sectors. Finally, vesting responsibility for both
regulation and licensing within the one Regulatory Body means that as a public
service, it is streamlined, and maximises expertise within the one
organisation.
7.19
Notwithstanding the above arguments, however, it must be noted that
there is still a possibility that a conflict of interest would arise in such a
situation. This is especially the case in the context of a regulator for the
multi-unit development sector. Given the variety of stakeholders, there would invariably
be a number of competing interests at work where a regulator tries to formulate
policy and establish best practice principles within the sector.
7.20
The Commission
provisionally recommends that the Regulatory Body should have a wide remit to
investigate complaints made by any body or person interested in a residential
multi-unit development and to take appropriate action to assist in remedying
the complaint.
7.21
As part of its role in
producing Codes of Practice, the Regulator should play a central role in
ensuring that appropriate information and other appropriate consumer advice is
given to purchasers of units in multi-unit developments.[334] It is envisaged that provision
for such matters will be made by statutory regulation under enabling
legislation[335]
and the Regulatory Body would be expected to contribute expert advice on the
initial drafting and content of the regulations and subsequently to monitor
their operation. It would also be expected to suggest appropriate
amendments in light of that monitoring experience.
7.22
The Commission provisionally recommends that
the Regulatory Body should advise on the drafting and content of statutory
regulations designed to provide purchasers of units in multi-unit developments
with consumer advice and other protection and to monitor the operation of such
regulations.
7.23
As indicated earlier,[336]
the recommendations in this Consultation Paper are directed primarily at
multi-unit developments involving residential units and particularly at those
which involve a high degree of interdependence, such as multi-storey apartment
complexes. Most of the questions which the Paper discusses do not arise
in relation to purely commercial developments, such as office blocks, shopping
centres and industrial estates. For this reason the Commission makes no
recommendation for application of its proposals to such developments, but
invites submissions on the matter. As regards other residential
developments, such as a typical housing estate or estate of holiday cottages,
the Commission’s view is that the proposed responsibilities of the Regulatory
Body and recommended legislation should apply to the extent which is
appropriate. Thus, some of the proposed statutory obligations for
developers of multi-unit developments could apply equally to developers of
housing estates.[337]
In so far as any such development involves employment of management agents or
establishment of a management company, again the proposals relating to these
could apply to developments similar to multi-unit developments. This is a
matter which should be considered carefully in drafting the legislation
governing the Regulatory Body and other legislation proposed later in this
Paper.
7.24
The Commission provisionally recommends that
legislation should be introduced to regulate multi-unit developments and this
legislation should apply primarily to multi-unit developments involving
residential units and a high degree of interdependence. Application to other
residential developments involving a lesser degree of interdependence or
features such as employment of managing agents or establishment of a managing
company should be provided for where appropriate.
7.25
This Consultation Paper contains numerous recommendations as to the role
of the proposed Regulatory Body. Amongst the more important functions
which the Commission envisages it should have are the following:
(i) general
oversight of residential multi-unit developments, including their functioning
and that of key players like developers, management companies and managing
agents;
(ii) issuing
advice to such players and, as appropriate, making recommendations to the
appropriate government department as to the issue of guidelines and statutory
regulations;
(iii) investigation of
ways to address the “understanding deficit” which purchasers of units in
multi-unit developments suffer from;
(iv) advising on
guidelines or regulations concerning the constitution of management companies,
including membership and voting rights;
(v) investigation
of signs of mismanagement, financial or otherwise, by management companies; and
advising companies about what course of action to take as a result;[338]
(vi) monitoring service
charge regimes and reserve or sinking fund provisions and initiating
appropriate action to remedy problems concerning such matters;[339]
(vii) an urgent investigation
of the provision in existing residential developments of reserve funds or other
provisions to meet long-term capital expenditure and again initiation of action
to remedy problems coming to light.
7.26
It would be essential for the Body to have wide investigative powers,
including the power to inspect documentation and records of parties like
developers and management companies. As regards initiating action or
solutions to problems, it should be obliged to report findings to other bodies
with powers to take action, such as planning authorities, the Financial
Regulator, the Office of the Director of Corporate Enforcement and government
departments. In so far as the primary legislation imposes statutory
obligations on parties such as developers, with a criminal sanction, the
Regulatory Body should have the power of prosecution.[340]
The Commission believes that this position is justified given the potential for
far-reaching abuse by the various stakeholders and the hugely adverse effects
of such abuse suffered, particularly by ‘smaller’ stakeholders such as
individual unit owners. Furthermore, the Commission points to other sectors
where such measures have operated successfully to bring about a deterrent
effect against non-compliance. For example, s.11 of the Environmental
Protection Agency Act 1992 allows for prosecution by the EPA for flouting
of environmental law, while the Company Law Enforcement Act 2001,
s.12 grants powers to the Director of Corporate Enforcement to similarly
prosecute for non-compliance with company law. The Commission also recently
recommended conferring similar powers on a proposed Charities Regulator to deal
with mismanagement and/or misconduct in the administration of charities.[341]
The Regulatory Body should also have power to advise on, support and be heard
in applications under the “rescue” provisions.[342]
7.27
The decision as to what form the Regulatory Body should take is
obviously a matter for government. The wide remit recommended by the
Commission, and the co-ordinating role that any such body must necessarily
involve itself with, suggests that it is probable that it is outside the remit
of existing regulatory bodies. On the other hand, existing bodies may be more
qualified than anyone in terms of expertise and experience in dealing with the
area and the question is raised as to whether their existing remit should be
widened. It is necessary to briefly useful the advantages and disadvantages of
vesting regulation of multi-unit developments in specified organisations.
7.28
The Department of the Environment, Heritage and Local Government is the
government department responsible for, amongst other areas, planning and
development, and housing. Thus, as a state department, it has responsibility
for many of the policies and issues surrounding multi-unit developments.
It has a role in directing planning authorities to collect information about
enforcement, planning issues for multi-unit developments, and to inform the
Minister so that policy can be formulated. Thus, in some respects, it already
plays an important role within the sector; it is partly responsible for general
planning policy for multi-unit developments and also deals in more specific
policy such as that relating to the taking-in-charge of services. The Department
also has a Minister of State with particular responsibility for housing and
urban renewal.[343]
7.29
The current practice in Ireland is to assign such regulatory, executive
or advisory roles to independent special purpose organisations. Furthermore,
the Department does not have any current experience or involvement in relation
to operational matters involved in property management. While it has primary
competence in the State for setting policy on matters of housing, practical
implementation of this is typically delegated to local authorities. As a result
of this, and, given the Department’s overall role in formulating policy, the
Commission does not believe that the Department to be the Regulatory Body in
respect of multi-unit developments.
7.30
Nevertheless, the Commission believes that the Department will continue
to play an important role in the sector. As discussed earlier, it is envisaged
that any proposed Regulatory Body will work closely in consultation with the
Department in dealing with policy and strategy issues and will also be a
central source of information for the Body which will enable it to operate.
7.31
Local authorities are responsible for the governance of housing,
planning and development on a regional basis, and have a very direct
decision-making role in relation to these issues. As a result of this, they are
well placed to have a unique insight into the issues and opinions on the ground
in the property sector. Notwithstanding this, however, there are a number of
issues which render local authorities inappropriate bodies to deal with the
regulatory side of multi-unit developments. First, if regulation of the sector
is assigned to the various local authorities around the country, it will negate
the potential for standardisation of regulation. Secondly, should the proposed
Regulatory Body have facilitation of dispute resolution within the area in its
remit, a local authority could have a potential conflict of interest, as it may
be a party to a given dispute. This point is particularly pertinent given the
recent controversy surrounding local authorities’ responsibilities for
taking-in-charge. The sector needs an independent and objective regulator.
Thirdly, practicably, many local government councils probably do not have the
resources, the manpower or the expertise to facilitate a dedicated team dealing
with multi-unit developments in every local authority in the country. Hence,
the Commission believes that it is altogether more sensible to confer the
substantial responsibility for regulation of multi-unit developments on a more
independent, specialised organisation.
7.32
The recommendations of the Commission on the Private Rented Residential
Sector published in July 2000 led to the establishment of the Private
Residential Tenancies Board.[344]
The PRTB has thus developed some experience in dealing with problems arising in
the context of private residency. Moreover, it is arguably more desirable to
keep all regulation of residential property within one organisation.
7.33
However, on appraisal of the Explanatory Memorandum accompanying the Residential
Tenancies Act 2004, it appears that the PRTB’s ambit extends only as far as
the ‘mainstream’ private rented sector and it is not within the spirit or
intendment of the Act that it be applicable to shareholders in multi-unit
developments. The Government has already rejected the proposal in the Private
Members’ Residential Tenancies (Amendment) Bill 2006 to extend the remit of the
Private Residential Tenancies Board to cover many of the matters relating to
multi-unit developments about which the Commission is concerned.[345]
That Board is concerned primarily with landlord and tenant issues and, in so
far as its present remit extends to multi-unit developments, it is confined to
the interests of tenants of the owners of the units. It is not concerned
with owner-occupiers of the units or owner-investors who have sub-let on
short-term leases.
7.34
In any event, it can be argued that engaging the PRTB as the management
company sector regulator could foreseeably dilute the Board’s efficacy in
catering for the needs of ‘traditional’ tenants as membership of management
companies often comprises landlords. Thus, the PRTB could find its usefulness
compromised in cases of where it would be necessary to represent and advise
both tenants and shareholder landlords.
7.35
As already observed, multi-unit developments currently constitute a
major consumer issue. The National Consumer Agency (NCA) recently commissioned
and published an extremely comprehensive report on the sector[346] and recommended the establishment of a Regulatory Body to
oversee regulation of multi-unit developments. It is clear that as a group,
they have a clear understanding of the difficulties facing stakeholders within
the area; particularly in relation to problems surrounding management
companies.[347]
7.36
Moreover, the NCA are especially vocal about the need to counter the
‘understanding deficit’ which is currently evident in the area; an issue about
which the Commission are equally concerned. As a body, they also have
experience of enforcement of issues concerning consumer affairs and carry out a
supervisory/watchdog role for consumers. It is envisaged the proposed
Regulatory Body will provide a similar service for stakeholders of multi-unit
developments.
7.37
Despite this, the Commission is not convinced that the National Consumer
Agency would be the most appropriate body to regulate multi-unit developments.
The NCA’s mandate is chiefly to provide a voice for consumers in Ireland. This
means that it would potentially be in a conflicted position if it were called
on to advise, represent or regulate any other stakeholder group. In any case,
such activity would fall clearly outside the Agency’s remit.
7.38
The Companies Registration Office (CRO) is familiar with regulation and
enforcement of compliance with the law as it relates to private and public
companies. Given the central role played by management companies in the
multi-unit development sector, the CRO is worth considering as a potential
regulator by the sector as a whole, particularly as other main players such as
managing agents and developers are also often incorporated bodies.
7.39
Notwithstanding this, however, it is clear that the CRO’s remit is
limited only to implementation and enforcement of the Companies Acts. Thus, it
would not be an appropriate body to manage regulation of the sector on a more
general level, and would not be in a position, for example, to monitor service
charge regimes or to facilitate dispute resolution between stakeholders. For
the same reasons, any such regulatory role suggested for the Office of Director
of Corporate Enforcement would be outside its statutory remit.
7.40
However, the Commission envisages that the CRO will play a key role in
regulation in so far as it will have to work closely with any proposed
Regulator in the collection and distribution of information on management
companies, particularly in light of the issues raised in this Paper.
7.41
The Property Registration Authority, as the body now responsible for
recording transactions in relation to property in Ireland, will in the future
play an important role in the multi-unit development business. However, as with
the PRTB and the CRO, it has a closely defined remit; in this case the control
and management of the Land Registry and the Registry of Deeds in this
jurisdiction. Again, thus, the diversity of functions envisaged for the
proposed Regulatory Body would probably prove inappropriate given the closely
defined duties of the PRA.
7.42
The concept of a national regulator for all property trading entities
and property management services was mooted by the Report of the
Auctioneering/Estate Agency Review Group[348] and was enthusiastically accepted by
the Government in October 2005. Since then, an implementation group has been
established to oversee the practical arrangements for the National Property
Services Regulatory Authority’s establishment,[349] pending enactment of the necessary
legislation to govern its functions.
7.43
Although the proposed new National Property Services Regulatory
Authority[350] is expected to have a remit which will
have a bearing on multi-unit developments, in that it will be responsible for
the regulation of property managing agents and promotion of consumer awareness,[351]
its primary role is the regulation of auctioneers, estate agents and letting
agents. The National Property Services Regulatory Authority apparently
will have within its proposed remit or be responsible for enforcing[352]
a number of matters which bear directly on regulation of multi-unit
developments. These include –
· Licensing
and regulation (such as setting standards for qualification, monitoring
performance, investigation and inspection of records) not only of auctioneers
and estate agents, but also of builders and developers engaging in direct
property sales and property management agents;[353]
· Ensuring
that all client monies, including service charges and sinking funds, are held
by licensed agents in client accounts;[354]
· Requiring
all licence holders to contribute to a Fidelity Fund out of which clients can
be compensated for losses caused by licence holders’ actions;[355]
· Promotion,
with the auctioneering and other professions, of consumer awareness of the
process involved in property transactions and the nature and levels of service
provided by auctioneers and other professional persons;[356]
· Sanctioning[357]
licence holders who exhibit a pattern of providing inaccurate information;[358]
· Giving
accurate information where properties are sold “off plan” and justifiable
estimates of service charges;[359]
· Promotion
of the operation of Codes of Ethics and Practice to be adopted by all licence
holders.
7.44
The Commission welcomes these proposals and takes the view that their
implementation will help to solve some of the problems, particularly those to
do with administration and consumer awareness, which it has identified in
relation to multi-unit developments. It is clear that the Review Group
also identified some of the problems, but it was to some extent constrained by
its terms of reference.[360]
7.45
The NPRSA is arguably preferable to other bodies as a regulatory
authority in many respects. First, it is completely independent from all other
stakeholders in the multi-unit development industry. This factor is
particularly pertinent given its proposed advisory, investigatory and watchdog
functions. Secondly, its sole purpose is to oversee the property sector which
means that it will hold a high degree of specialisation within the area. A
corollary advantage to this is that it would be in an excellent position to
work in consultation with the Department of Environment, Heritage and Local
Government on matters of general multi-unit development policy. Thirdly the
wide remit of the NPSRA if adopted as an overall multi-unit development sector
regulator would enable it to achieve uniformity of standard and transparency in
licensing, regulation and information provision across the whole sector.
7.46
There are quite a few compelling reasons, however, why regulation of
multi-unit developments should not be vested in the control of the proposed
National Property Services Regulatory Authority. First, to add all the matters
which the Commission is recommending would involve a very substantial extension
of the proposed remit of the Authority, in both qualitative and quantitative
terms. The Commission has considerable doubts as to whether such an
extension would be appropriate for a body which has yet to come into existence
and find its feet. This is particularly the case given the current breadth of the
remit proposed for the new National Property Services Regulatory Authority,[361]
which includes regulation of builders, developers and managing agents. Based on
this, the Commission questions whether the Authority should be given an
additional remit to deal with various aspects of multi-unit developments.
7.47
Secondly, the Commission earlier expressed doubts as to the
appropriateness of single body undertaking the dual role of licensing and
imposing sanctions within a sector.[362] While it is clear that such a system
has worked successfully in other sectors, the Commission believes that the
multi-unit development sector may constitute a special case given the
multiplicity of stakeholders involved.[363]
7.48
Thirdly, it is clear that any body conferred with responsibility for
regulating the multi-unit developments sector will have an onerous task in
co-ordinating the regulation already carried out in distinct parts of the
sector and interaction with the various bodies involved in this regulation, for
example, the CRO, the Dept of the Environment, Heritage and Local Government,
the NCA and the NPRSA in relation to auctioneers, estate agents and property
service agents. Such a task necessarily would involve huge reliance on
coordination of activities between the relevant public bodies and government
departments.[364]
The Commission considers that such a task may necessarily require an existing
body more internally adept at utilising such policies over a period of time,
rather than a new body.
7.49
The Commission acknowledges that many of the advantages inherent in
opting for any of the above organisations could be distilled into an entirely
new Regulatory Body. The idea of having a single specialised regulator for the
sector is particularly compelling. Notwithstanding this however, the Commission
questions the wisdom of having yet another body with some kind of regulatory
function in the multi-unit development sector. In the interests of better
governance, it may be better to confer responsibility for regulation on an
existing body. The Commission invites submissions as to whether the
Regulatory Body should be a specialised regulator for multi-unit developments
only.
7.50
The Commission outlined earlier the functions it expects any regulator
of multi-unit developments to perform.[365] The Commission firmly believes that the
sector needs to be regulated. To this end, the Commission recommends that power
to perform the functions envisaged by the Commission[366] must be vested in an organisation which
will act as a Regulatory Body. The Commission does not propose at this stage to
make any recommendation as to which of the above bodies should regulate
multi-unit developments, but invites submissions on the most suitable
Regulatory Body to fulfil the proposed functions. For the sake of convenience,
the resulting regulator, whichever that may be, will be referred to in this
paper as the Regulatory Body.
7.51
The Commission invites submissions on the most suitable Regulatory
Body to regulate multi-unit developments.
7.52
Given that the recommendations with regard to the function of the
proposed Regulatory Body are dispersed throughout this Paper, the Commission
considers that it is appropriate to summarise these recommendations, which it
now does. The functions outlined in this Paper for the proposed Regulatory Body
as provisionally recommended by the Commission broadly fall into two main
categories; policy and regulation for the multi unit development sector.
7.53
The Commission’s proposals with regard to vesting of responsibility for
regulation of the sector in a Regulatory Body envisage that the Body will be at
least partially responsible for the development and implementation of policy in
for multi-unit developments. Here is a summary of the Body’s proposed ‘policy’
function:
· the
Regulatory Body will have input into creation of guidelines for developers
outlining the suitable time to establish a management company for a development
and the duties to be fulfilled by a developer while in control of such a
company;[367]
· the
Body will be involved in developing protocols to be followed by both planning
authorities and developers during the taking-in-charge process;[368]
· the
Regulatory Body will have to undertake an urgent study into the status of
sinking/reserve funds in the sector at the moment and address the issues
arising where developments have not yet established such funds;[369]
· it
will have responsibility for setting standards for the ‘reasonable’ and
‘appropriate’ calculation of service charges,[370] and will also have to keep under review
the sanctions to be imposed on those who fail to pay their service charges;[371]
· with
regard to management companies, the Body will play a major role in deciding the
proper name to be used by management companies,[372] determining who should be given voting
rights,[373]
development of an alternative sanction to the strike-off provision,[374]
and development of standard provisions for management companies’ memorandums
and articles of association.[375]
Such issues arising in relation to the development of policy which has an
impact on company law for management companies will be considered in
conjunction with the Companies Registration Office.
· the
Regulatory Body will review, in consultation with other state agencies, a full
scheme of management company directors’ rights and obligations;[376]
· the
Regulatory Body will advise on and monitor the drafting and
implementation of all regulations introduced to regulate the multi-unit
development sector.[377]
7.54
Once a number of these policy functions are initially achieved, the
regulatory role will then be simply to act in a monitoring capacity to ensure
that policies do not become outdated, and to review and strategically reform
the applicable regulations should this occur.
7.55
The proposals of the Commission with regard to regulation of multi-unit
developments can be summarised as follows:
7.56
In so far as possible, the Commission believes that any proposals for
regulation should not inadvertently lead to some groups of stakeholders being
unnecessarily subject to regulation from a number of different state bodies.
Furthermore, in some instances, the role of the proposed Body will be confined
to simply ensuring that the role of an existing regulator within a given part
of the sector (for example, local authorities) is consistent with the wider
demands that are required in the sector as a whole.
7.57
The Commission emphasises that these recommendations are provisional and
it suggests a very wide remit for the proposed Regulatory Body. However, all
the areas identified do require some form of oversight and the Commission very
much welcomes debate and submissions on these important issues.
Part B
8
8.01
|
|
The Commission’s study of multi-unit
developments has revealed that there are various legal problems, or potential
problems, which can arise. The source of these problems also varies and
so does their seriousness, depending upon the nature of the development.
What the Commission has in mind in referring to “legal” problems are problems
which relate to the technical side of multi-unit developments[393]
such as the conveyancing documentation which is drawn up. The
complexities of such developments, which were mentioned earlier,[394]
require that great care is taken in drawing up the legal documentation relating
to the particular development. Other problems stem from difficulties in
the current state of the law. Such problems are to be distinguished from the
administrative or regulatory problems discussed in Part A of this Consultation
Paper.
8.02
This chapter highlights legal problems facing multi-unit developments;
first underlining the complexity of the legal documentation involved in
conveyancing; then discussing how land law, as it has evolved, is unsuitable
for dealing with multi-unit developments and finally examining the unique
position of small developments in the sector.
8.03
An examination of the precedents contained in Division C[395]
which was recently added to Laffoy’s Irish Conveyancing Precedents reveals just
how complex the legal documentation relating to multi-unit developments tends
to be. If those who acquire a unit in such a development are going to
enjoy the full benefits of ownership, the documentation must, at the very
minimum, deal clearly and effectively with the following matters: -
i)
Identification of the different parts of the development, in particular
individual units and other parts such as common areas;
ii)
Creation of a wide-ranging scheme of mutual rights and obligations as between
the units owners themselves and as between unit owners and any body responsible
for management of the development (in particular the common areas);
iii)
Establishment of a scheme for day-to-day management, to cover provision
of vital services and facilities, repairs and maintenance of common areas and
insurance;
iv)
Definition of the relationship between individual unit owners and any
body responsible for management;
v)
Provision for meeting the costs and expenses of management, including
regular annual charges and occasional capital expenditure.
8.04
This is the barest outline of the main requirements for effective legal
documentation. It is sufficient to make the point that if the legal
documentation is defective on any of the above matters the likelihood is that
those involved in the multi-unit development are going to face considerable
difficulties.
8.05
One major difficulty may be that if the documentation is defective, it
may not be easy for unit owners and the body responsible for management[396]
to remedy the problem. In that event the only solution may be recourse to
lengthy and costly litigation, but even that may not provide an effective
resolution of the difficulties. If the source of the problem is defective
legal documentation there may be little or nothing which the courts can do – in
such circumstances the courts have no general jurisdiction to amend legal
documentation which the parties have created nor to create rights or
obligations which they have failed to create.[397] Such amendment or variation of
the legal documentation could, of course, be agreed by all the parties
concerned, but the inevitable danger with large multi-unit developments is that
some of the parties may not be prepared to join with the others in such an
agreement. It only takes a minority of one to thwart the wishes of the
vast majority.
8.06
Another important consideration is that it may be important to draw a
distinction between different types of multi-unit development. The
outline of main requirements given above may be particularly relevant to the
typical, large-scale, modern block of apartments or office block. It may
not be so relevant to small developments, whether new buildings or, as commonly
occurs, a conversion of an older house into a small number of flats or
apartments. The imposition of the paraphernalia of a management company
may be inappropriate for such a development, and some other, simpler, way of
managing the necessary sharing of parts of the building and its services and
facilities should be considered, such as co-ownership by the unit owners.
8.07
Whatever care is taken in drafting the legal documentation relating to a
particular multi-unit development, there are some problems which cannot be
overcome easily because of the current state of the law. The classic
illustration of this, which is most commonly cited in the context of multi-unit
developments, is the law relating to freehold covenants. In essence, as
the law currently stands, in general[398] any positive obligation created by such
a covenant will not bind successors in title. This has major implications
for multi-unit developments, which invariably involve numerous positive
obligations relating to payment of service charges and covering repairs,
maintenance and insurance. It has long been recognised that this is a
major flaw in the development of our land law and conveyancing system.
The Commission has recently recommended that the law should be changed
radically, so that freehold covenants should become as fully enforceable by and
against successors in title as leasehold covenants have been for centuries.[399]
8.08
This defect in the law relating to
freehold covenants has had the consequence that lawyers dealing with the legal
aspects of multi-unit developments in Ireland have long taken the view that the
difficulties in creating freehold ownership of individual units in multi-storey
buildings in particular are insurmountable.[400] This is notwithstanding the fact
that it is well recognised by the common law that it is possible to divide up
freehold ownership of horizontal layers of the airspace above the land, so as
to create separate ownership of so-called “flying freeholds”.[401]
Instead, the standard practice adopted up to now has been to confine ownership
of a unit in such multi-unit developments to a leasehold interest, with the
freehold of the entire building (including both units and common areas) being
vested in a landlord.[402]
This achieves the security of full enforceability of all obligations by and
against successors in title in accordance with leasehold law.
8.09
The Oireachtas has also had to recognise the difficulties created by
this defect in the law relating to
freehold covenants. Thus the prohibition on the creation of leases of
dwellings imposed by the Landlord and Tenant (Ground Rents) Act 1978[403] does not apply where the dwelling is a
“separate and self-contained flat in premises divided into two or more such
flats.”[404]
This ensured that the practice
of creating leasehold flat or apartment developments could continue.
Furthermore, the right of lessees to purchase the fee simple originally
conferred by the Landlord and Tenant (Ground Rent) Act 1967, and
extended by the Landlord and Tenant (Ground Rents)(No.2) Act 1978, does not apply where the lease “includes a building
divided into not less than
four separate and self-contained flats”.[405] Thus the lessee of such a flat or
apartment has no right to purchase the freehold, unlike the lessee of a single
house.
8.10
The matters referred to in the previous paragraphs have also created
considerable uncertainty amongst practitioners. Notwithstanding the
common law’s apparent willingness to recognise in theory the horizontal
division of airspace above ground level, doubts persist amongst some as to the
legal practicalities of this process. In particular, it has been queried
whether a freehold or, indeed, a leasehold interest can be created in what is
at the time in question a block of airspace not filled in by a part of a
building or some other structure ultimately attached to the ground. This
may be of particular significance where a multi-unit building is badly damaged
or virtually destroyed by some catastrophic event. It would be desirable
if it were made clear what the rights of the owners of the destroyed units were
in such a situation.
8.11
It also has to be said that practitioners have had considerable
difficulties in interpreting the provisions of the ground rents legislation.
Much doubt exists as to what constitutes a “flat”; for example, does it include
a “duplex” unit spread over two floors of a building? Such doubts should
be considered in any review of the ground rents legislation.
8.12
In passing it may be noted that it was to get round the practical
conveyancing difficulties of creating freehold units in multi-unit developments
that many other jurisdictions enacted special legislation. A long
standing example is the strata titles legislation enacted in Australia,[406]
and a more recent one is the commonhold legislation enacted for England and
Wales.[407]
An important issue which is considered later is whether a similar step should
be taken in this jurisdiction.[408]
8.13
Other difficulties which stem from the current state of the law relate
to company law. As explained in Part A of this Consultation Paper, it is
now fairly standard practice to have the management of a multi-unit development
put in the hands of a company of which the individual unit owners automatically
become members. Such a company has limited purposes which fall far short
of those of a trading company. However, the law as it currently stands does
not generally recognise this distinction in terms of statutory requirements,
such as those relating to filing annual returns and auditing of annual accounts
and the penalties which may be imposed for failure to comply.[409]
Furthermore, practical difficulties may arise in connection with the type of
company which is created for such management purposes. This issue
was dealt with in Chapter 4.
8.14
It is important to stress that the nature and structure of multi-unit
developments which was the subject-matter of much of the discussion in Part A
of this Consultation Paper will not apply in all cases. In particular,
the scheme of management companies and managing agents may not be appropriate
for a small development comprising only a few units.[410]
Such complexities may be even less suitable where, for example, a large house
has been converted into two or three self-contained flats. Such
multi-occupied buildings nevertheless involve the element of “interdependence”
which is the fundamental feature of all multi-unit developments. They
necessarily give rise to the same problems deriving from sharing parts of the
building and the facilities and services associated with them. There will
still be a need for “management” to some degree. The maintenance and
upkeep of shared areas like the entrance, hall, stairs, landings, footpaths and
gardens has to be catered for. Provision has to be made for repair and
insurance of the roof and other external parts of the building.
8.15
Where the flats or other units in such a small development are let on
short leases such matters will usually remain the responsibility of the
landlord. In such cases the landlord retains an active interest in the
building and usually will retain ownership of the “common areas”. The
responsibilities as between the landlord and tenants of units will be dealt
with in the usual way by the terms of the leases of the flats or other units.
8.16
Where, however, the flats or other units in a small development or
conversion of a building are “sold”, whether for a freehold interest or by way
of long lease, some other provision has to be made. The most suitable
method of achieving this is to use some form of co-ownership agreement entered
into by the various flat owners. This subject is taken up later.[411]
9
9.01
As part of its study of the operation of multi-unit developments in
Ireland, the Commission has examined the position in other jurisdictions. This
chapter considers the position in other common law jurisdictions with regard to
how the various statutory schemes operate, regulation of such schemes, and how such “common interest” structures are managed. The
chapter then goes on to briefly examine consumer protection, dispute resolution
and
registration of title in other countries.
9.02
Statutory schemes to govern multi-unit developments have been a feature
of the law of most other common law jurisdictions and indeed, of civil law
jurisdictions, such as those on continental Europe.[412] An early, and influential, example of
this was the “strata title” legislation enacted in Australia.[413]
Many of the
features of this have been adopted in other parts of the common law world.[414]
In the United States of America similar legislation relating
to what are called “condominiums”[415]
has been enacted. There many states adopted the Uniform Condominium
Act 1980[416] drafted by the National Conference of
Commissioners on Uniform State Laws and approved by the American Bar
Association. That Act was replaced by the Uniform Common Interest
Ownership Acts 1982 [417] and 1994.[418]
9.03
The need for statutory regulation of multi-unit developments was
recognised on Continental Europe much earlier. Indeed, some provisions
were contained in early codes.[419] Later “condominiums” legislation
of varying kinds has been enacted in many European countries.[420]
On the other hand, until comparatively recently the United Kingdom and this
State have failed to follow this strong trend.
9.04
In England and Wales the need for such legislation was flagged as long
ago as 1965 by the Committee on Positive Covenants Affecting Land.[421]
It drew particular attention to the Australian strata titles legislation.[422]
Then in 1984 the Law Commission issued a report proposing legislation to recast
the law relating to “land obligations”[423] which provoked the response from many
that the 1965 Report should be reconsidered. This prompted the Lord
Chancellor in 1986 to request the Law Commission to set up a Working Group to
examine the legislation of other jurisdictions and to “put forward a scheme to
regulate relations between the owners of separate properties which lie in close
proximity to each other and are interdependent.” This Group[424]
issued a report in 1987[425]
in which it was recommended that a new land ownership scheme, which it called
“commonhold”, should be established by legislation. Commonhold was
described as “a new form for a system of land ownership where the emphasis is
on cooperation between owners living within a defined area.”[426] In essence it was designed to
facilitate freehold ownership of flats and units in other types of multi-unit
developments, including non-residential ones. Otherwise it reflected
closely the schemes already in existence elsewhere in the world and was, in due
course, adopted by the British Government.[427] The scheme was enacted in Part 1
of the Commonhold and Leasehold Reform Act 2002 and came into force on 27 September 2004.[428]
It has not been greeted with universal enthusiasm.[429]
9.05
At the time the English Law Commission’s Working Group was deliberating
on the subject the Land Law Working Group[430] established by the British Government
in 1980 to review the general land law of Northern Ireland was still engaged in
its exercise. That Group decided to adopt the English proposals and the
recommendations were set out in its Final Report published in 1990.[431]
The main difference between those recommendations and the scheme set out in the
English Commonhold and Leasehold Reform Act 2002 is that the former
recommended an element of compulsory use of a Commonhold scheme. In
essence, in accordance with proposals to restrict the granting of long leases of residential property, it was
recommended by the NI Working Group that any multi-unit development involving
residential property should be required to adopt the statutory scheme for
Commonhold (ie freehold ownership of individual flats or other units).
This aspect of the Final Report has yet to be acted upon.[432]
9.06
In Scotland the conveyancing difficulties experienced in most common law
jurisdictions in devising schemes for freehold ownership of units in multi-unit
developments[433] did not arise. Under the law of “the
tenement” as it developed in Scotland there is no difficulty in positive
obligations (“real burdens”) being made to bind successors in title.[434]
When the subject was reviewed by the Scottish Law Commission in the late 1980s
it concluded that there was no need for a Commonhold scheme such as had been
proposed for England and Wales.[435] Instead the Commission ultimately
recommended legislation to clarify the existing law of the tenement and to
operate as a “default” scheme, ie to regulate multi-unit developments where the
legal documentation fails to do so.[436] This was implemented to a large
extent with enactment by the Scottish Parliament of the Tenements (Scotland)
Act 2004.[437]
9.07
In view of the existence of such a wide range of statutory schemes
operating in different parts of the world, it may be useful to summarise their
essential features. Although there is considerable commonality in many of these
features, there are also many variations in approach, as has already been
indicated. It is also instructive to consider what appear to have been
the motivating factors behind enactment of the legislation, for this usually
has determined the form it has taken. The next chapter will give the
Irish perspective.
9.08
A recent study[438] of multi-unit developments in common law jurisdictions like
the United States of America and Australia revealed that a number of different
structures had been developed to deal with “common interest” communities.
Most legislation in other jurisdictions adopts one of the structures or an
amalgam of some of their features.
9.09
This structure, which has been used in parts of the United States and
Australia, usually involves a corporate body owning the entire building and
unit owners holding a lease of their units only, plus a shareholding interest
in the corporate body. However, the structure is rarely used nowadays and
has largely been replaced by condominium/strata titles schemes.
9.10
Under this sort of structure the unit owner usually owns the freehold of
the unit, plus a co-owned interest in the common areas of the building, ie,
the unit owners are tenants in common of the common areas. Sometimes a
unit owner may own individually a “limited” common area, eg¸ a balcony,
patio or parking space, or share it with some, but not all, of the other unit
owners.
9.11
This structure is similar to a condominium/strata title structure, in
that the unit owner again owns the freehold of the unit, but is unlike such
structures because the common areas are not co-owned by the unit owners
(unless, perhaps, limited common areas). Rather the common areas are
owned by a community association, which is usually a corporate body. Each
unit owner has, however, a shareholder interest in this body.
9.12
This structure usually exists where two or more buildings are part of
the same scheme or a single building involves a combination of uses, eg,
residential and commercial. The structure otherwise follows structure
(3), but with modifications to reflect the complexity of the scheme. Thus
it is usually provided that residential unit owners cannot vote on matters
relating to commercial units.
9.13
It is clear that a major factor behind the statutory schemes introduced
in the common law world, such as the strata titles and condominiums legislation
mentioned earlier,[439]
was the desire to facilitate freehold ownership of individual units in
multi-unit developments. To some extent this may have been due to doubts
as to whether such ownership could exist, although as also indicated earlier,
such doubts were probably groundless.[440] Rather more serious were the
difficulties in carrying out the necessary conveyancing, especially in view of
the defects in the common law relating to enforcement of freehold positive
covenants against successors in title.[441] The resolution of such
conveyancing difficulties was also a major consideration in enactment of the
Commonhold legislation in England and Wales.[442]
9.14
A common feature of the legislation in most parts of the world is the
imposition of a high degree of statutory regulation. A primary object of the
legislation is to ensure that individual unit owners have all the rights
necessary for reasonable enjoyment. Thus most legislative models incorporate a
scheme of mutual rights and obligations designed to regulate the relationship
of the unit owners as between themselves.
9.15
What tends to vary from jurisdiction to jurisdiction is the extent to
which adoption of the statutory “model” is required. Many of the
legislative schemes are aimed primarily at residential multi-unit developments,
but many are also equally applicable to commercial developments. However,
where they are so applicable, it would appear that the take up in the
commercial field has not been as great, where, as is usually the case, there is
a choice in the matter. It is, however, important to avoid confusion in
this context over the element of “compulsion”.
9.16
Very few jurisdictions have gone as far as was proposed in Northern
Ireland, which was that residential multi-unit developments could be created
only by adopting the statutory (Commonhold) model.[443]
Often the statutory model is designed simply to facilitate conveyancing and
there is only an element of “compulsion” in a very limited sense. This is
that if it is desired to obtain the benefits of the statutory model, then it
must be “adopted” in whatever manner is prescribed. Otherwise developers
are free to create developments of any other kind which may not enjoy the
benefits of the statutory model. This is the approach adopted in the
Commonhold scheme for England and Wales,[444] where developers remain free to create
leasehold multi-unit developments outside the Commonhold scheme. A
similar position exists in many of the jurisdictions which have enacted strata
titles and condominiums legislation.
9.17
An alternative approach to “compulsion” is that adopted in Scotland.[445]
In one sense there is no compulsion at all because for the most part developers
there remain free, subject to the general law,[446] to create tenements as they
choose. An element of compulsion exists only in the sense that if they do
not make provision for various matters which are deemed by the legislature to
be important, then the statutory “default” or “fall back” provisions will come
into play.[447]
9.18
A major objective of most statutory schemes is to ensure that multi-unit
developments are properly managed. The complexity of such developments,
in particular the degree of interdependence they necessarily involve,[448]
makes this an essential requirement. Most statutory schemes envisage the
establishment of a management company of which all the unit owners are members,
although in continental Europe the alternative approach is often adopted of
having the common parts co-owned by the unit owners and regulation through
residents’ associations. This direct participation in management of their
own property is a potential source of both strengths and weaknesses. Its
strengths lie in giving the unit owners a say in their own destiny, an
opportunity to have the operation run to their satisfaction. If it works
well it can help to engender a spirit of mutual co-operation and respect which is
important when large numbers of owners have to share a building and management
of a complex property. Unless professional expertise is obtained, and
this will involve a cost which the unit owners will ultimately have to bear,[449]
there is a danger that the whole operation will run off the rails. This
leads to another, related objective of most statutory schemes.
9.19
Much of the legislation enacted in other jurisdictions has a “consumer
protection” aspect. In many jurisdictions the “educative” function of
this regulation is furthered by the fact that the statutory scheme imposes a
strong element of “standardisation” in the legal structure of multi-unit developments.
The result is that over time unit owners and their professional advisers know
exactly what to expect.
9.20
By their very nature multi-unit developments are a fertile breeding
ground for disputes. The high degree of interdependence and sharing which
they involve makes this inevitable. So too does the need for management
and the tensions which are likely to arise not only as between the unit owners
themselves, but also as between the unit owners and the management
company. Effective enforcement of obligations, such as observance of
restrictions on user and payment of service charges,[450]
is crucial in the interests of unit owners as a whole. Many of the statutory
schemes in other jurisdictions make provision for arbitration, mediation,
alternative dispute resolution and even reference to an ombudsman.[451]
9.21
It is a common feature of many schemes that creation of a multi-unit
development is linked to the particular jurisdiction’s registration of title
system. This was a particular feature of the strata title schemes
originally developed in Australia and adopted in various other common law
jurisdictions.[452] In essence the creation of a
strata title involves initial registration of the scheme and subsequent
dealings by unit owners only through the registry system.[453] This has not been a requirement in
jurisdictions where a registration of title system is not prevalent. The
obvious example of this is the United States of America. However, the Uniform
Common Interest Ownership Act 1994,
which is now recommended for condominium-type statutory schemes,[454]
provides that a “common interest community” can be created “only by recording a
declaration executed in the same manner as a deed” and indexed accordingly.[455]
The American recording system is very similar to the Irish registration of
deeds system.[456]
10
10.01
The problems arising in multi-unit developments outlined in this Paper
have convinced the Commission that there is an urgent need for some form of
legislation. What form that legislation should take is discussed in this
chapter, which sets out the objectives to be achieved and outlines the
recommended means of achieving them. Several of these objectives relate to
regulatory issues which are discussed in Part A of this Consultation Paper. The
Commission recommends a two-pronged approach. One is introduction of
legislation to apply to future developments.[457] The other is introduction of a
statutory mechanism for dealing with problems which have arisen, or may arise,
in respect of existing developments.[458]
10.02
In formulating its recommendations for legislation the Commission has
been mindful of the problems outlined throughout the Paper. It has also
taken into account the existence of legislation in other parts of the world, as
outlined in Chapter 9. This, however, has caused the Commission to give
some thought to the implications of these issues for the current position in
the State. The conclusion which the Commission has reached, particularly
as regards future multi-unit developments, is that it is not appropriate to
impose the sort of extensive statutory scheme which has been introduced in
other jurisdictions. Nor does the Commission consider that some scheme is
necessary in order to facilitate such developments. These conclusions are best
explained by reference to the Irish context.
10.03
It may be useful to begin this discussion of the Irish context by
considering some of the motivating factors and objectives behind the specific
legislation in other jurisdictions.[459] Because of the way the law has
developed, or not developed in some respects, in Ireland the relevance of some
of these may not be as great. The fact that developers and their
professional advisers have had to operate in Ireland without statutory
regulation for many years has created a particular context.[460]
10.04
As explained in an earlier chapter,[461] the perceived theoretical difficulties
and practical conveyancing problems in creating freehold ownership of parts of
buildings above ground level has led to the practice in Ireland of confining
multi-unit developments to leasehold ownership. What the purchaser of a
unit, be it an apartment or office or retail unit, acquires is a leasehold
interest, usually for a very substantial term. The freehold of each unit and
of the other (common) parts of the building, remains vested in a landlord,
often a management company to which the freehold is transferred.[462]
10.05
The leasehold system has become an established one in recent decades to
which developers, consumers and professional advisers have become
accustomed. In the context of commercial multi-unit developments, like
office blocks and large retail outlets like shopping centres, there has been no
apparent demand for freehold ownership. Indeed, quite the reverse is the
case, because such property developments are seen mostly as an important type
of investment. A key element in this is the income-stream derived from
the leasehold rents. Over the past few decades the legal and other
professions concerned with property development and investment have spent much
time and effort tailoring the structure and content of commercial leases to the
object of maximising this investment aspect.[463] In recent times, not only financial
institutions but also Irish private individual investors have invested
substantial sums in multi-unit leasehold developments in Ireland, elsewhere in
Europe and other parts of the world.[464] No doubt this has been partly a
response to the erratic performance of stock markets throughout the world of
late, but investment in property was popular even when returns on other forms
of investment were much higher.
10.06
The position with respect to residential multi-unit developments, like
blocks of apartments, is somewhat different. It is true that in the past
couple of decades, a substantial proportion of purchasers of such units,
especially in the new developments built in Dublin and other major urban areas
in the past couple of decades,
have been investors.[465]
This was largely stimulated by the tax relief provided for investors who
purchased new apartments or houses of a specified size and standard and then
rented them out for at least 10 years.[466] Apart from the desire to take
advantage of such tax relief, the other major objective of such investors has
been to obtain the substantial capital gain resulting from the substantial rise
in property values in Ireland in recent times, rather that the rental income. From the long-term
investment point of view, it might be argued that this would be even more attractive if the
freehold could be acquired rather a leasehold interest, which may appear to be
a “wasting” asset.[467]
However, this argument does not have much force in Ireland because the practice
has been adopted in respect of residential developments of granting the unit
purchaser a very long lease. Leases for a term of 500 years or 999 years
with a nominal rent are common. Such a long leasehold term is likely to
have a value equivalent to the freehold’s value.
10.07
Of course many purchasers of residential units are not investors but
rather are acquiring them as their homes. The huge rise in the value of
residential properties experienced in Ireland in recent times has put the
traditional detached or semi-detached house, with garden, beyond the reach of
many. This is true even of relatively modest terraced houses. Many,
particularly younger professional people, have been attracted by the modern,
well-equipped, conveniently located apartments built in prime inner city
areas. Since most of these developments will have been created in the
past couple of decades the leasehold terms will still have a long period to run
and so most lessees are unlikely to have in contemplation what will happen when
the lease runs out. Many will regard their apartment as a relatively
temporary home, to be changed when something better can be afforded or
circumstances, such as a change in family size, necessitate a move to larger
accommodation.[468]
10.08
Even those who regard occupation of an apartment as a long-term venture
are unlikely in the foreseeable future to concern themselves with the issue of
what happens when the lease expires, given the usual length of the lease.
Arguably it should never be a concern because, as has already been mentioned,
Irish conveyancers have managed to adapt the leasehold system to achieve a
situation for residential unit owners which comes very close to having the
freehold. The point here is that in most modern multi-unit developments
the freehold reversion on the unit owners’ leases is vested in the management
company, in addition to the freehold of the common parts. Since the unit
owners are the members of this company they are in a position to control what
happens to the freehold, including when the leasehold term expires. As
members of the company owning the freehold of the entire development they could
vote to sell the entire property for redevelopment or to have new leases
granted in respect of their units.
10.09
This position of Irish owners of residential apartments is in marked
contrast to that in many other jurisdictions. In some countries, the
lease of each unit is often for a relatively short term; and the freehold
reversions on the leases remain vested in the developer as landlord and
disposable to successor landlords who maintain an active interest in the
potential future redevelopment of the property. They may also retain
ownership of the common areas and management responsibilities which are
discharged with varying degrees of competence. It is not surprising,
therefore, that in other jurisdictions[469] there has been a demand for freehold
ownership by tenants wishing to acquire control over the building they
occupy. Irish tenants already have that control because of the way
residential multi-unit developments are structured from the legal point of
view. Each owns directly a very long lease of the apartment and, as
members of the management company in which the freehold reversions on the
apartment leases and the freehold of the common parts are vested, “own”
indirectly or at least, are in a position to control that freehold. The
Commission has detected no demand for direct ownership of the freehold of
apartments and has concluded that the need for legislation relates to other
concerns referred to later in this chapter.
10.10
The Commission has concluded that there is no need in Ireland at this
stage for a statutory scheme to facilitate freehold ownership of apartments and
other units in multi-unit developments and makes no recommendation in respect
of a statutory scheme.
10.11
In coming to this conclusion the Commission is mindful of the fact that
one of the major reasons why Irish lawyers have confined multi-unit
developments to leasehold units are conveyancing difficulties, particularly
those relating to enforceability of freehold positive covenants.[470]
The Commission has addressed this problem in previous reports and provisions to
deal with it are contained in the
Land and Conveyancing Law Reform Bill introduced to the Seanad by the
Government on 9 June 2006.[471]
If those provisions are enacted, it may be that lawyers will explore the
possibility of creating direct ownership of the freehold of apartments and
other units in multi-unit developments. Some demand for this may arise in
mixed developments where other residential units, such as townhouses, have to
be freehold because of the statutory prohibition on leases of dwellings
contained in the Landlord and Tenant (Ground Rents) Act 1978.[472]
The Commission is also mindful of the scheme being developed by local
authorities to enable tenants of local authority flats to “purchase” their
flats. It may be that, in due course, a demand will arise for such a
purchase to include the freehold interest. This is, however, for the
future and concerns primarily the practice of conveyancers and the wishes of
their clients. The Commission sees no need for additional legislation at
this stage.
10.12
The enactment of legislation to facilitate enforcement of freehold
covenants, and other provisions in the 2006 Bill designed to simplify
conveyancing, may call into question the continuance of the restriction, now in
the Landlord and Tenant (Ground Rents)(No. 2) Act 1978,[473]
on the right of a lessee of a separate and self-contained flat, in a building
divided into not less than 4 such flats, to acquire the freehold. However,
again the Commission takes the view that this is for the future. One of
the issues which will be part of any reconsideration of landlord and tenant issues
will be the question as to the constitutionality of certain aspects of the
ground rents legislation.[474]
10.14
In view of the various problems relating to multi-unit developments
outlined earlier,[475] the Commission has concluded that there
is a clear need for legislation of some form in Ireland. It reiterates,
however, that it is not convinced that this should take the form of a statutory
model along the lines of the condominium and strata title schemes introduced in
other parts of the world.
10.15
As explained earlier,[476]
Irish conveyancers have managed to facilitate creation of multi-unit
developments by using the well-established leasehold system. There
appears to be no particular demand for a freehold system, particularly one
which developers would in the future be compelled to use. There is also
the danger that a compulsory statutory model will impose an undesirable
rigidity. The Commission takes the view that developers and their
professional advisers should retain a large element of flexibility in the sort
of schemes which they devise to meet changes in market demand.
10.16
It is clear, on the other hand, that something must be done to deal with
the various problems outlined earlier.[477] The Commission is convinced that
since many of the problems seem to stem from the activities of key players in
multi-unit developments, such as developers, management agents and management
companies, and their interaction as between themselves and with their
“consumers”, primarily the owners of units in the development, there is a need
for some form of statutory regulation. Apart from the remit of any
proposed Regulatory Body as recommended in Chapter 7, the Commission takes the
view that there is a need for some legislation which would seek to achieve a
number of objectives. In some respects these objectives would accord with
some of the objectives pursued in the statutory schemes of other
jurisdictions. The objectives for the legislation proposed by the
Commission are
i)
Changes to the law necessary to facilitate multi-unit developments;
ii)
Imposition of certain statutory obligations on developers;
iii)
Introduction of some further consumer protection measures.
Each of these objectives has been explained in Part A of this
Consultation Paper.
10.17
What was recommended in Part A was directed at the future, but, as
indicated earlier,[478] many problems already exist with
respect to existing multi-unit developments. There is a real fear amongst
lawyers and other professions which deal with such developments that more and
more of these problems are likely to emerge in future years. This is
particularly so with respect to the older developments which were created
before developers and their advisors had much experience of such
developments. It is also likely with respect to smaller developments
which will often have been created in this way without the benefit of a full
range of professional advice. The Commission has concluded that the
legislation being recommended must adopt a “two-pronged” approach and also must
contain provisions designed, so far as is practicable, to solve problems which
arise with respect to existing developments. What the Commission has in
mind is explained further in Chapter 11.
10.18
The Commission provisionally recommends that the legislation should
contain provisions designed, so far as is practicable, to solve problems which
arise with respect to existing multi-unit developments
10.19
What the Commission has in mind in this context is changes to the law
which would remove difficulties presently encountered by developers and their
advisors in relation to multi-unit developments. Two obvious ones have
already been mentioned.
10.20
One change related to the defect in the law which prevents freehold
covenants being fully enforceable against successors in title.[479]
As explained earlier in this chapter, this change would be convenient in this
context, not so much because the expectation would be that freehold multi-unit
developments would suddenly become the norm, but rather because it would
introduce further flexibility for developers and their professional advisors.
Freehold developments may come into consideration in certain situations, such
as where a development is a small one not justifying establishment of a
management company (eg conversion of a freehold house into flats) or a
mixture of apartments and freehold townhouses. This change will be
implemented as part of the general reform and modernisation of land law and
conveyancing law which was the subject of a joint project between the
Commission and the Department of Justice, Equality and Law Reform.[480]
That general reform will also have other impacts on multi-unit developments,
such as the law of easements, like rights of way or of support.[481]
10.21
The general reforms contemplated by the joint project are to some extent
designed to prepare the way for introduction of an eConveyancing system for
land transfers. Such a system is likely to be linked closely to the
registration of title system which the Land Registry has been computerising
increasingly in recent years.[482] This will raise the issue of
extension of compulsory registration of title to major urban areas where it has
still to make a substantial impact. Since most multi-unit developments
take place in such areas, they have hitherto largely involved unregistered
land. A developer will usually only engage in voluntary registration
where this is considered necessary in order to clarify the title to the site
for the development. In view of the policy discussions currently taking
place with respect to the future strategy of the Land Registry, and the
decisions which are likely to have to be made about future extensions of
compulsory registration, it is not appropriate at this stage for the Commission
to express a view on whether future multi-unit developments should become
subject to compulsory registration, as is the case in many other jurisdictions.[483]
10.22
The other change in the law which should be considered related to
company law as it applies to management companies in multi-unit developments.
This subject was discussed in an earlier chapter.[484]
10.23
This chapter now turns to address a couple of other issues. In terms of
imposing statutory obligations on developers, the Commission’s thoughts were
explained in earlier chapters.[485] Similarly, consumer protection was already
addressed.[486]
The Commission now examines the question of rescue provisions.
10.24
As indicated earlier,[487] the Commission is concerned about the
number of problems which have emerged with respect to existing
developments. Whether these arise from defective conveyancing or various
administrative faults or mismanagement, it is imperative that unit owners
should have available to them a mechanism for solving the problems so far as is
practicable. The expectation is that some of the problems may be resolved
by intervention by the Regulatory Body, if it is given a sufficiently wide
remit, but there is a fear that some of the problems will prove to be so
serious that their resolution, if one is possible, will be beyond the scope of
the Body’s powers. Examples would be where it comes to light that the
legal documentation is defective and needs substantial amendment to enable the
development to function properly or that no provision was made for a sinking
fund and major capital expenditure is needed on a multi-storey building.
As is explained in the next chapter, it is doubtful for a variety of reasons
whether in respect of such matters there is any alternative to obtaining a
court order.[488]
What will be important is to ensure that the jurisdiction conferred on the
courts gives the widest discretionary powers to tailor the most appropriate solution
to the circumstances of the particular case.
10.25
The Commission envisages that this “rescue” jurisdiction will be used
primarily to solve problems arising from multi-unit developments which already
exist. However, it considers that the jurisdiction need not be so
confined. Notwithstanding the legislative provisions which the Commission
is recommending for future developments and the suggested role of the proposed
Regulatory Body, it will remain possible that problems will still arise which
cannot otherwise be resolved. For example, they may be the result of
developers ignoring the new statutory obligations, with the result that,
notwithstanding sanctions which a developer may incur,[489]
unit owners will still find themselves in trouble. Mistakes may still
occur in the legal documentation relating to developments, which again cause
problems for the unit owners or the management company.[490] The rescue provisions should
apply to these cases as well.
10.26
It was mentioned earlier[491] that there are situations where it is
not appropriate to establish a management company, with all that this entails.[492]
Where the number of units is relatively small, say less than 10, some other way
of dealing with the problems of “interdependence” may be more appropriate.
Those problems, which derive largely from the sharing of parts of the building
and its facilities and services,[493] will still exist whether the “small”
development comprises a purpose-built block of apartments or other units or a
large house or other building which has been converted into self-contained
apartments, flats or other units.
10.27
What the Commission is concerned with in this context is a development
which involves the “sale” of such units,[494] with the expectation that the ownership
and management of the building will be the responsibility of the purchasers
rather than the developer/vendor. It is not concerned with the situation where
the units are let on short-term leases and the landlord retains the freehold or
leasehold reversionary interest. In that situation the landlord has a
continuing ownership interest and, as landlord will have responsibility for
various management matters. The precise division of responsibility between the
landlord and the tenants for things like insurance, maintenance and repairs
will usually be the subject of extensive provisions in the leases of the units.[495]
10.28
A satisfactory scheme for sale of apartments of other units in small
developments, without a management company, requires considerable drafting
skills on the part of the solicitor drawing up the scheme. The structure is
likely to take a form along the following lines:
i)
Each unit owner will be granted a long lease of the unit. The “unit”
will usually be described in terms which confine it to the interior airspace,
to the decorative level of walls and ceilings. Excluded will be all structural
and exterior parts, and, or course, shared areas (such as entrances,
hall, stairs, passageways, roof and gardens) and facilities not confined to
particular units (such as a water tank in the roof space or hot water or
central heating boiler serving the entire building). In this respect the leases
will be similar to leases of units in large developments involving a management
company.[496]
ii)
The developer/vendor will transfer its interest in the entire building,
the freehold or a superior leasehold interest comprising both the ownership of
the parts of the building excluded from units and the reversionary interests of
the units’ leases,[497]
to the unit owners collectively. This creates a form of co-ownership of those
interests, which in this instance will take the form of a tenancy in common.[498]
The unit owners will, therefore, own together, in addition to the leases of
their individual units, the freehold or superior leasehold interest in the rest
of the building and its surrounding property.[499]
iii)
As co-owners if the rest of the building and its shared facilities and
services, the unit owners will enter into a co-ownership agreement setting out
their various rights and responsibilities. This would cover a wide range of
matters, including mutual enjoyment and use of the shared areas and shared
responsibility for insurance, maintenance and repairs.
10.29
At this stage the Commission is not convinced of the need to provide,
still less to prescribe the use of, statutory legal documentation for such
cases. It recommends that this matter should be considered urgently by the Law
Society’s Conveyancing Committee with a view of issuing recommended precedents
for use by solicitors in such cases. Alternatively, legal publishers could
include such precedents, drafted by conveyancing experts, in a suitable
publication.
10.30
The Commission provisionally recommends that the Law Society’s
Conveyancing Committee should consider urgently the issue of precedents for the
legal documentation suitable for small multi-unit developments or arrangements
for publication of such precedents by legal publishers.
10.31
The Commission does recommend, however, that “small” developments
without a management company should come within the jurisdiction of the
proposed new Regulatory Body. This will enable that Body to keep their
operation under review and owners of units in such developments to seek advice
and guidance. In due course, in the light of experience, it may recommend some
statutory provisions to deal with problems which come to light. The Commission
also recommends that such developments should come within the proposed “rescue”
provisions.[500]
10.32
The Commission provisionally recommends that small multi-unit
developments should come within (a) the jurisdiction of the proposed new
Regulatory Body and (b) the proposed “rescue” provisions for existing
developments.
11.01
This chapter reviews the mechanisms available for solving problems which
arise in the context of existing multi-unit developments and recommends reforms
to facilitate pursuit of a remedy where such problems exist.
11.02
It is clear from the evidence which the Commission has received that
many of the problems referred to earlier[501] are now coming to light in relation to
existing multi-unit developments. The view has also been put that more
are likely to come to light in the near future. The result is that the
Commission has concluded that a two-pronged approach is necessary. [502]
It is to be hoped that as developers and their advisers become more experienced
in dealing with the legal structure of multi-unit developments, especially
those involving residential units, and operating the proposed new statutory
regulations many of the problems will not arise in the future. However,
no doubt some problems will arise in respect of future developments and so
provision should be made to deal with these as well as those arising or likely
to arise in respect of existing developments.
11.03
Most of the problems identified seem to arise in respect of residential
developments, so that the rescue provisions are needed mostly for these.
However, the Commission takes the view that there is reason not to make them
available for all types of development.
11.04
The Commission recommends that the proposed legislation should contain
“rescue” provisions to enable problems arising in respect of existing or future
developments, of whatever kind and whenever created, to be resolved.
11.05
The Commission provisionally recommends that the proposed legislation
should contain “rescue” provisions to enable problems arising in respect of
existing or future developments, of whatever kind and whenever created, to be
resolved.
11.06
It is clear from earlier discussion[503] that the problems which are arising,
and may arise in the future, with respect to, in particular, multi-unit
developments which already exist are likely to be many and various. It is
also clear that they derive from several sources, including defects in legal
documentation and faults or breakdowns in administration. The Commission
is convinced that an attempt to give a list of the problems would be fruitless
and that any rescue provisions must be sufficiently broad and flexible to cover
any eventuality.
11.07
It is clear that many of these problems will be the source of
substantial disputes amongst those involved in the developments, including
developers, unit owners, management companies and other interested parties like
mortgagees and creditors. Often there will be competing interests at play
which are difficult to reconcile. It is to be hoped that intervention by the
new Regulatory Body will in many, if not most, cases result in a solution being
arrived at which every party involved can accept. However, it must be
recognised that on occasion this may not occur. A particular problem which can
arise is that, while a majority of those interested is committed to a
particular solution, a minority, often very small, refuses to co-operate, even
though overall, there is real harm to the interests everyone. The
Commission has concluded that the only way out of this dilemma is to give the
Court[504]
jurisdiction to deal with such matters.
11.08
The jurisdiction being proposed here would supplement the provisions in
existing legislation which may be availed of by apartment owners. For
example, section 180 of the Planning and Development Act 2000 entitles a
majority of residents[505]
in an apartment block, or block of flats,[506] to request the planning authority take
in charge open spaces, car parks, sewers, water mains or drains within the
attendant grounds of the development.[507] This applies not only where the
development has been completed to the satisfaction of the planning authority in
accordance with the planning permission and any conditions attached to that
permission.[508]
Where a development has not been so completed, such a request can be made after
expiration of the period during which enforcement action could be taken by the
planning authority.[509]
This subject was discussed in an earlier chapter.[510]
11.09
It would also supplement the jurisdiction of the Registrar of Companies,[511]
or the Court,[512]
to restore to the Register a management company which has been struck off, for,
eg failing to file returns. An application for this can be made by any
member of the company (such as an apartment owner) or creditor within 20 years
of the date of dissolution of the company. However, the Commission reiterates
its view expressed earlier that the striking-off sanctions should be reviewed
by the relevant authorities.[513]
11.10
The Commission takes the view that it should be open to any person or
body interested in a multi-unit development to apply to the Court for an
appropriate “remedial” order designed to rectify any problem which cannot
otherwise be rectified. By “cannot otherwise be rectified” the example
can be given of a situation where, by reason of defective legal documentation
or a change of circumstances outside the control of those interested in the
development, particularly the management company and the unit owners, the
development is facing a potentially disastrous situation. It may be that
the only solution involves a complete restructuring of the development from the
legal (eg, revision of unit owners’ rights and obligations) or administrative
(eg, changing the management structure) point of view. An applicant for a
remedial order could include the developer (if it still retains an interest in
the development[514]), the management company, any unit
owner or person deriving an interest from a unit owner, such a lessee or
sublessee or mortgagee, and the proposed new Regulatory Body. The
Commission is not convinced, however, that it should include unsecured
creditors, who should be left to their ordinary remedies under the general law.
11.11
The basis upon which such an application should be made under the
legislation governing remedial orders, in effect the definition of the problems
to which a solution is being sought, should be couched in very wide terms for
the reason given earlier.[515]
Clearly reference may be made to the sort of legal and administrative problems
discussed earlier,[516]
but the statutory provisions should include a form of words designed to catch
any other, unspecified problem which results in the development not functioning
effectively or denying those interested in it legitimate expectations, eg,
in relation to how the development would function.
11.12
In view of the proposal that any interested person or body should be
able to make an application, it should be a requirement before the application
is heard that notice of the application is given to other interested
parties. Such parties should have the right to make representations at
the hearing of the application.
11.13
Although, as is discussed below,[517] the Circuit Court should be given a
wide jurisdiction in terms of the remedial orders which it can make, it is
envisaged that applicants would be required, by appropriate rules of court, to
furnish the Court with a proposed solution. For example, if the problem
derived from a defect in the legal documentation relating to the particular
development, the expectation would be that amended documentation would be
tendered for approval by the Court. If a restructuring of the management
is being proposed, a new management structure should be tendered.
11.14
The Commission recommends that –
i)
an application to the Circuit Court for a “remedial” order should be
capable of being made by any person or body interested in a multi-unit
development, including the Regulatory Body, but not unsecured creditors;
ii)
the basis of such an application should be to solve a problem which
prevents the development from functioning effectively or denies to those
interested legitimate expectations and which cannot be solved otherwise;
iii)
notice of the application should be served on any other interested
person or body;
iv)
such other person or body should have the right to make representations
at the hearing of the application;
v)
rules of court should require, as appropriate, applicants to furnish the
Court with a proposed solution for approval.
11.15
The Commission provisionally recommends that-
i)
an application to the Circuit Court for a “remedial” order should be
capable of being made by any person or body interested in a multi-unit
development, including the Regulatory Body, but not unsecured creditors;
ii)
the basis of such an application should be to solve a problem which
prevents the development from functioning effectively or denies to those
interested legitimate expectations and which cannot be solved otherwise;
iii)
notice of the application should be served on any other interested
person or body;
iv)
such other person or body should have the right to make representations
at the hearing of the application;
v)
rules of court should require, as appropriate, applicants to furnish the
Court with a proposed solution for approval.
11.16
The Commission is convinced that the rescue provisions will only be
effective if the Court is given a very wide discretion as to the orders it can
make. However, there should be some guidelines relating to this.
11.17
One is that the Court should be required, in exercising its discretion,
to take account not only of the various representations made, but also the
interests of all concerned as a whole. This is an important point as
often the need to apply to the Court will arise because, eg, a minority of unit
owners is opposing the solution. Even if that minority is motivated by
malice or other negative factors, such as stubbornness or disinterest, it may
not be guilty of any breach of obligation and, to an extent, is entitled to
stand on strict legal rights. If the only solution is to amend those rights
in some way, constitutional requirements dictate two things. The first is
that the solution would have to be based on the interests of all those
involved, taken as a whole. The other is that, to the extent that the
vested rights of any person are affected adversely without consent, appropriate
compensation would have to be made. The legislation should, therefore,
make the provision of such compensation a requirement to cover, eg, cases where
a remedial order results in a loss of value to a unit or reduction in its
enjoyment by a unit owner.
11.18
Although it would be important to use wording which made it clear that
the Court had an unfettered discretion to order whatever is required to make
the particular development work effectively or to ensure that the legitimate
expectations of the unit owners as a whole are met, it would be appropriate to
specify in the legislation examples of remedial orders which might be
made. The Commission envisages that these would include –
i)
requiring the legal documentation relating to the scheme to be amended
so as to confer rights or to impose obligations which are necessary to make it
work effectively or as intended;
ii)
establishment of a management system or modification of the existing
one, including replacement of the existing management company or one that has
ceased to function and cannot be restored;
iii)
appointment of a professional administrator to take over management
pending establishment of a new system;
iv)
amendment of the constitution of the management company, including its
powers and duties;
v)
ordering a minority of unit owners to co-operate in such matters,
subject to provision of compensation, where appropriate.
11.19
In view of the complexities of multi-unit developments it is important
that the Court is not left in a vacuum in considering how to exercise its
discretion. This is why the Commission takes the view that the
legislation should require the applicant for a remedial order to put forward a
draft order or scheme of the approval of the Court, by way of analogy with the
cy-près jurisdiction relating to charities.[518] The Commission
recommends that –
i)
the Court should have very wide discretion as to the remedial orders it
can make;
ii)
the applicant for a remedial order should be required to put forward in
the application a draft order or scheme for the approval of the Court;
iii)
in exercising its discretion the Court should be required to take into
account –
·
representations made to it by any interested person or body;
·
the
interests of all interested persons or bodies, taken as a whole;
·
the
need to compensate any person who establishes that a vested interest will be
adversely affected by the
order.
11.20
The Commission provisionally recommends that –
i)
the Court should have very wide discretion as to the remedial orders it
can make;
ii)
the applicant for a remedial order should be required to put forward in
the application a draft order or scheme for the approval of the Court;
iii)
in exercising its discretion the Court should be required to take into
account –
·
representations made to it by any interested person or body;
·
the
interests of all interested persons or bodies, taken as a whole;
·
the
need to compensate any person who establishes that a vested interest will be
adversely affected by the order.
12
12.01
The provisional recommendations of this Consultation Paper may be
summarised as follows:
12.02
The Commission recommends a review by Planning Authorities and the
Department of the Environment, Heritage and Local Government of planning and
housing policy relating to multi-unit developments. [Paragraph 2.08]
12.03
The Commission provisionally recommends that a detailed study should be
commissioned with a view to developing a clear and focused strategy for the
multi-unit development sector as a whole, with the aim of informing government
policy on the sector. [Paragraph 2.09]
12.04
The Commission provisionally recommends that the scope of section 180 of
the Planning and Development Act 2000 be clarified, and that guidelines
should be issued based on that clarification. It further recommends that
planning authorities should closely consider the implications of s.180 when
processing planning applications and that a national policy should be produced
on local authorities taking multi-unit developments in charge. [2.23]
12.05
The Commission provisionally recommends that the bonds system should be
reassessed and that national guidelines should be produced to facilitate
efficient and efficacious use of bonds for both local authorities and
developers. Such guidelines should be periodically reviewed by the relevant
authorities to ensure that the deterrent effect remains persuasive to
developers and to meet new challenges faced by developers and local authorities
over time. [Paragraph 2.34]
12.06
The Commission provisionally recommends that the proposed Regulatory
Body should monitor the use by planning authorities of their enforcement powers
in relation to multi-unit developments and advise the Department of Environment
and Local Government as to what action might be appropriate. [Paragraph 3.13]
12.07
The Commission provisionally recommends that demand by a developer of
more than a year’s advance on service charges should be strictly prohibited by legislation.
This should be subject to review on a case-by-case basis by the Regulator where
the developer claims that he or she has a legitimate purpose for demanding such
advance payments. [Paragraph 3.19]
12.08
The Commission provisionally recommends that it should be legislated for
that service charges should never be used to pay for ‘snagging problems’ or any
other expenses incurred by the developer in completing the development.
[Paragraph 3.26]
12.09
The Commission provisionally recommends that developers should be under
a statutory obligation not only to establish the management company in due
time. [Paragraph 3.27]
12.10
The Commission provisionally recommends that developers should be
statutorily prohibited, while in control of the management company, to commit
the company to long-term contracts with managing agents. [Paragraph 3.29]
12.11
The Commission provisionally recommends that statutory regulations
relating to the constitutions of management companies should prescribe that any
directors appointed by the developer must resign on completion of the
development. [Paragraph 3.30]
12.12
The Commission provisionally recommends that developers should be under
a statutory obligation to transfer all relevant interests to the management
company as soon as the sale of the last unit intended to be sold is completed.
[Paragraph 3.34]
12.13
The Commission provisionally recommends that there be a statutory
definition of the term ‘completion’ of a development. [Paragraph 3.37]
12.14
The Commission provisionally recommends that developers must specify in
the planning permission where they intend on keeping a unit or units.
[Paragraph 3.36]
12.15
The Commission provisionally recommends that every development should be
registered with the proposed Regulatory Body. [Paragraph 3.39]
12.16
The Commission recommends that breach of the statutory regulations
should be a criminal offence prosecuted by the Regulatory Body. [Paragraph
3.42]
12.17
The Commission provisionally recommends that the Companies Acts be
amended allowing for specific provision requiring a company’s name to adhere to
the appropriate ending according to its type and with the management company’s
specific activity in its name. [Paragraph 4.39]
12.18
The Commission provisionally recommends that directors’ reports should
include a list of the management company’s assets, its insurance details, and
whether the development is fully compliant with fire and safety regulations.
[Paragraph 4.49]
12.19
The Commission provisionally recommends that any annual accounts should
be readily available to potential unit owners or their professional advisors.
[Paragraph 4.50]
12.20
The Commission provisionally recommends that the sanction of striking
off should be reviewed in the case of management companies who fail to file
returns. [Paragraph 4.70]
12.21
The Commission provisionally recommends that a moratorium against
striking off should be introduced as an interim measure until a more
appropriate sanction is decided upon for management companies who fail to file
returns. [Paragraph 4.71]
12.22
The Commission provisionally recommends that the annual return should
include information on the type of activity in which the company is engaging.
[Paragraph 4.72]
12.23
The Commission provisionally recommends that the proposed Regulatory
Body should play a role in assisting management companies to comply with the
provisions of the Companies Acts. [Paragraph 4.73]
12.24
The Commission provisionally recommends the Company Law Review Group’s
proposal that membership of a management company and ownership of an apartment
should be statutorily bound together. [Paragraph 4.83]
12.25
The Commission provisionally recommends that the proposed Regulatory
Body should place under review and set regulations for the voting rights and
powers of both apartment owners and short-term tenants in management companies.
[Paragraph 4.95]
12.26
The Commission provisionally recommends that the proposed Regulatory
Body should, in consultation with other stakeholders, prescribe a standard set
of provisions to be included in all management companies’ constitutions.
[Paragraph 4.101]
12.27
The Commission provisionally recommends the creation of statutory
regulations for the regulation of service charges in consultation with any
Regulatory Body and believes that the system of service charges should be kept
under review including issues such as the types of charges that should be
included in the service charge and information that should be provided about
service charges. [Paragraph 4.114]
12.28
The Commission provisionally recommends that there should be a clear
statutory obligation on management companies to establish reserve or sinking
funds. [Paragraph 4.121]
12.29
The Commission provisionally recommends that reserve/sinking funds
should be held in a special protected account separate from the companies’
working accounts. The Commission further provisionally recommends that any new
Regulatory Body should investigate the current situation of reserve funds as a
matter of priority. [Paragraph 4.122]
12.30
The Commission provisionally recommends that the National Property
Services Regulatory Authority should develop a standard form contract for use
by management companies in the engagement of managing agents. [Paragraph 5.19]
12.31
The Commission provisionally recommends that developers should be
statutorily prohibited from committing management companies to long-term
contracts with managing agents. [Paragraph 5.21]
12.32
The Commission
provisionally recommends that a guide for management company directors
including a full scheme of their rights and responsibilities should be
compiled. [Paragraph 6.16]
12.33
The Commission provisionally recommends that primary legislation should
be enacted specifying the obligations of various groups in the multi-unit
development industry in the provision of information to tenants, owners and
potential owners. [Paragraph 6.24]
12.34
The Commission provisionally recommends the establishment of a Regulatory
Body to oversee regulation of the multi-unit development sector in
Ireland.[Paragraph 7.11]
12.35
The Commission
provisionally recommends that the proposed Regulatory Body’s remit should cover
management companies. [Paragraph 7.14]
12.36
The Commission
provisionally recommends that the Regulatory Body should advise on the drafting
and content of statutory regulations designed to provide purchasers of units in
multi-unit developments with consumer advice and other protection and also
designed to monitor the operation of such regulations. [Paragraph 7.22]
12.37
The Commission
provisionally recommends that legislation should be introduced to regulate
multi-unit developments and this legislation should apply primarily to
multi-unit developments involving residential units and a high degree of
interdependence. Application to other residential developments involving a
lesser degree of interdependence or features such as employment of managing
agents or establishment of a managing company should be provided for where
appropriate. [Paragraph 7.24]
12.38
The Commission invites submissions on the most suitable Regulatory Body
to regulate multi-unit developments. [Paragraph 7.51]
12.39
The Commission has concluded that there is no need in Ireland at this
stage for a statutory scheme to facilitate freehold ownership of apartments and
other units in multi-unit developments and makes no recommendation in respect
of a statutory scheme. [Paragraph 10.10]
12.40
The Commission recommends that, if legislation on enforceability of
freehold covenants is enacted, the restriction on lessees of flats to acquire
the freehold should be reviewed. [Paragraph 10.13]
12.41
The Commission provisionally recommends that the proposed legislation
should contain provisions designed, so far as is practicable, to solve problems
which arise with respect to existing multi-unit developments [Paragraph 10.18]
12.42
The Commission provisionally recommends that the Law Society’s
Conveyancing Committee should consider urgently the issue of precedents for the
legal documentation suitable for small multi-unit developments or arrangements
for publication of such precedents by legal publishers. [Paragraph 10.30]
12.43
The Commission recommends that small multi-unit developments should come
within (a) the jurisdiction of the proposed new Regulatory Body and (b) the
proposed “rescue” provisions for existing developments. [Paragraph 10.32]
12.44
The Commission provisionally recommends that the proposed legislation
should contain “rescue” provisions to enable problems arising in respect of
existing or future developments, of whatever kind and whenever created, to be
resolved. [Paragraph 11.05]
12.45
The Commission provisionally recommends that-
i)
an application to the Circuit Court for a “remedial” order should be
capable of being made by any person or body interested in a multi-unit
development, including the proposed Regulatory Body, but not unsecured creditors;
ii)
the basis of such an application should be to solve a problem which
prevents the development from functioning effectively or denies to those
interested legitimate expectations and which cannot be solved otherwise;
iii)
notice of the application should be served on any other interested
person or body;
iv)
such other person or body should have the right to make representations
at the hearing of the application;
v)
rules of court should require, as appropriate, applicants to furnish the
Court with a proposed solution for approval. [Paragraph 11.15]
12.46
The Commission provisionally recommends that –
i)
the Court should have very wide discretion as to the remedial orders it
can make;
ii)
the applicant for a remedial order should be required to put forward in
the application a draft order or scheme for the approval of the Court;
iii)
in exercising its discretion the Court should be required to take into
account –
o
representations made to it by any interested person or body;
o
the interests of all interested persons or bodies, taken as a whole;
o the need to
compensate any person who establishes that a vested interest will be adversely
affected by the order. [Paragraph 11.20]
|
|
APPENDIX
Draft company law review group paper on management companies
Proposed position
paper/recommendation to Minister for Enterprise, Trade and Employment setting
out views on issues affecting property management companies insofar as they
relate to company law
This paper addresses issues
related to the company law aspects of property management companies. It
sets out how and to what extent it is proposed to address issues affecting
management companies in the Company Law Reform and Consolidation Bill.
Specifically, it deals with the position of management companies in law
and the rights of unit-owner company-members.
The paper sets out how the
changes proposed for company law will be facilitative as regards management
companies. Notably, in the new company law regime, there will be a degree
of choice for persons incorporating as property management companies as to the
company type which best suits their individual circumstances. No
recommendation is put forward as to which company type is most suitable for the
activity of acting as a management company, although a PLC is clearly an
unsuitable vehicle. Accordingly, CLRG is making provision to permit a
management company be formed as either:
- a private company limited
by shares, with the same capacity and powers as a natural person;
- a "DAC" i.e. a
designated activity company, being a private company limited by shares or by
guarantee that has an objects clause; or
- a "Guarantee
Company" i.e. a (public) guarantee company without a share capital.
The response also clarifies
those issues which are germane to company law and hence within the policy
responsibility of the Minister for Enterprise, Trade and Employment as opposed
to policy issues appropriate to other Ministers and their Departments.
The paper also takes account of an informative exchange of views with the Law
Reform Commission. Points (a) - (h) below were raised in an LRC
submission to the CLRG of 16 December 2001. The two additional points at
the end of this note were raised at a meeting of CLRG secretariat and the LRC
on 17 May 2006. While that discussion with the LRC focused on the CLG
(the company limited by guarantee) as the vehicle of incorporation of choice,
the CLRG response as set out in this paper takes account, broadly speaking, of
the views of the LRC.
It is important in the first
instance to define what company law does and to distinguish this from the
regulation of activities engaged in by companies. Company law provides
structures for forms of incorporation. It is inappropriate that company
law should seek to regulate the activities companies engage in. The
Minister for Enterprise, Trade and Employment does not have competence in law
for the regulation of property transactions, just as he does not have
competence for the regulation of charities, banks, etc. Using these
latter two regulatory activities as an example, a clear model emerges. If
a company wishes to have charitable status from the Revenue Commissioners, then
it must comply with their requirements in forming the company and including
appropriate provisions in its memorandum and articles of association.
Similarly for a company that wishes to be a bank – it must comply with the
obligations imposed by the Financial Regulator. There are other examples,
too. The role of company law vis a vis companies operating as management
companies is to facilitate their operation as companies. Accordingly,
CLRG envisages that an appropriate Department of State or regulatory body be
charged with regulating management companies and setting out requirements, the
compliance with which will not be prevented by company law.
With regard to issues
affecting management companies which arise from land, contract, local
government or environmental law, etc it is a matter for the competence of the
relevant Minister/Department (or competent authority, where powers have been
devolved to such) to provide for the conditions to be applied to such
companies.
The CLRG believes that it
can recommend changes to company law that will further facilitate the good
governance and ownership of management companies and their members,
particularly in the area of numbers of members and transfer of
membership/shares. To that end, the CLRG is proposing that the following
specific changes should be made to company law.
1.
To Allow "Management Companies" form as Private Companies Limited by
Shares
It is proposed to provide a
statutory definition within the Companies Acts of a "management
company". The purpose of providing such a definition is to permit a
management company form as the new model company, the private company limited
by shares. One of the most common reasons for forming management
companies as public guarantee companies is because of the limitation on the
number of members that a private company may have (currently 50). Whilst
this will be increased generally to 99 for private companies, it is proposed
that there would be no limitation where the members are all members of a
management company.
Subject to the views of the
LRC, the proposed definition of management company is as follows:
"management company" means a company that is
wholly and exclusively formed and operated to own and or to manage the common
areas of a property development and whose members are the owners of a freehold
or leasehold estate or interest in land being a part of such development".
2.
To link the ownership of shares/membership of management companies to ownership
of the property and provide for automatic transfer of shares/membership upon
transfer of the property.
CLRG perceives that one of
the problems currently facing management companies which is a result of
existing company law provisions is that membership of or shares in management
companies are held independent to the ownership of land. In the case of a
"management company" as defined, CLRG proposes three specific changes
to companies legislation, for each of the identified three types of
company: The CLRG feels that these two Heads will be of significant
practical benefit in clarifying the entitlement to transfer membership.
Private Company Limited
by Shares and Designated Activity Company
Head X Transfer of shares
in a Management company
(1)
This Head applies to a company that is a management company as defined in [Part
A1, Head 1]
(2)
The shares in the company follow the estate or interest in the property,
automatically, without the need to execute a transfer or have it approved by
the directors (transfer occurs upon acquisition of property)
(3)
Where pursuant to subsection (2), shares are automatically transferred,
the transferee of those shares must, within 21 days, notify the company in
writing of this fact and until such time as the transferee notifies the company
no right or interest of any kind whatsoever in respect of the shares concerned
shall be enforceable by him, whether directly or indirectly, by action or legal
proceeding.
(4)
This Head overrides any provision to the contrary [in Part A4].
Guarantee Companies
(Public Companies without Share Capital)
Head Y Transfer of
membership of a guarantee company that is a management company
(1)
This Head applies to a guarantee company that is a management company as
defined in [Part A1, Head 1]
(2)
A member of a guarantee company that is a management company shall cease to be
a member upon disposal of his/her estate or interest in property and the person
who acquires the property automatically becomes a member of the CLG (cessation
and acquisition of membership happens upon acquisition or disposal of property)
(3)
Where pursuant to subsection (2), membership in a management company is
or are automatically transferred, the new member must, within 21 days, notify
the company in writing of this fact and until such time as the transferee
notifies the company no right or interest of any kind whatsoever in respect of
his membership shall be enforceable by him, whether directly or indirectly, by
action or legal proceeding
(4)
This Head overrides any provision to the contrary [in Part A4]
(5)
Head X shall not apply to a guarantee company
The question of there being
any transfer of interests from the developer to the persons who own units is a
matter for regulation by the appropriate Regulatory body.
Anything else which may be
considered appropriate for a Management Company can be catered for in its
Constitution (or memorandum and articles of association) if a regulator or
competent authority considers such appropriate.
Points (a) to (h) below
are those points raised in the LRC submission to the CLRG, December 2002.
(a)
That a management company should be a private company limited by guarantee
without a share capital;
The CLRG feels that the
choice of company type appropriate to a management company is not something
upon which it should opine. CLRG is proposing changes that will
facilitate the incorporation of a management company as either of the three
types set out at the start of this paper. A management company will be able,
therefore, to incorporate as a private company limited by shares in which case
it will not have objects but may have supplementary regulations. If an
incorporating property management company wishes to have objects it has the
choice of incorporating as a company limited by guarantee (clg) or a designated
activity company (dac).
(b)
That a management company be required to
include in its name the phrase 'management company'
The consistent policy
throughout the Bill is to provide for designated endings according to the
company type, for example "limited" (i.e. a private company limited
by shares with the contractual capacity of a natural person), "clg"
(i.e. a public company limited by guarantee, without a share capital), "dac"
(i.e. a private company limited by shares or by guarantee which has an objects
clause, viz., a designated activity), etc. The CLRG does not believe it
appropriate that the Companies Acts should legislate to require certain
companies to have specific activities mentioned in their names and so under
company law a property management company will therefore be required only to
adhere to the generic requirements of its chosen company type in this
regard. If there is a public policy end to having management companies
identified as such in their names then the Department of the Environment,
Heritage and Local Government may wish to consider making regulations to
require management companies to state that fact in their title along with their
designated ending, along the lines of "XXXX Company (Property Management
Company) c1g/limited/dac etc."
(c)
That the minimum number of shareholders be
two, with no maximum number of shareholders;
Under the proposed Heads of
Bill, all company types will be permitted to have only one member. The
maximum number of members depends on company type:
A private company is limited
to a maximum of 99 members;
A DAC is limited to a
maximum of 99 members;
A CLG has no maximum number
of members
However, as noted above,
under the proposed Heads a private company or a DAC which is also a management
company, will be allowed to have more than 99 members, where those persons are
the owners of a freehold or leasehold estate or interest in the land that is
managed by that company.
In the event, any of the
options above will ameliorate the current complications applying to membership
of a residential property company.
(d)
That a management company be restricted to trading 'not for profit';
It is inappropriate that
company law would restrict the activities for which a particular company can be
used. This is not to say that management companies could not be so
restricted. However, it is a matter for the Department which regulates
the activities of such companies to impose any such restrictions ancillary
to whatever conditions it wishes to apply to the activities of such
companies. Any such restrictions deemed to be appropriate can be
contained in the companies' constitutions or memoranda or articles of
association. Just as the Revenue Commissioners require charitable
companies to restrict their trading to 'not for profit' it is the function of
the authority who will regulate the activities of management companies
to impose restrictions on those activities. In the absence of such
obligations an individual property management company will be free to adopt as
one of its supplementary regulations or objects a requirement that the company
does not trade for profit, according to the wishes of the members. It is
not immediately apparent why a property management company would wish to trade
for a profit, and even if it chose to do so, it would seem that any such
profits would fall for distribution among the members in any event.
(e)
That stated objects of a management company be owning, managing and maintaining
the common areas of the multi-unit development (and other ancillary
activities);
A property management
company will, under the Bill, be able to adopt supplementary regulations (in
the case of a private company) or an objects clause (in the case of a CLG or a
DAC) containing these objects. The doctrine of ultra vires,
however, will have no application to a private company.
(f)
That as a result of these stated objects a management company only be required
to prepare an income and expenditure account, a balance sheet and a directors'
report for presentation to the members at the annual general meeting (should
one be held).
Under the Bill, a property
management company will follow the requirements for its chosen company type in
relation to the preparation of accounts. The requirements applicable to
the several company types available should be considered by any new management
company regulator in formulating its requirements for such companies.
(g)
That a management company be exempt from the requirement to make an annual
return to the Registrar of Companies, but that it be required to submit the
above mentioned income and expenditure account, balance sheet and directors'
report to the Registrar of Companies; and
The CLRG is of the view that
it is not appropriate to exempt any company type from the basic
requirement of having to make a return to the CRO. In any event, it
appears that the documents listed in the LRC recommendation as an alternative
to the annual return are in substance very similar to the components of the
annual return, apart from the auditors' report, which itself will be determined
by whether the company falls above or below the audit exemption threshold.
(h)
That a management company be exempt from the requirement to prepare annual
audited accounts for submission to the members and the Registrar of Companies.
The CLRG is not aware of a
compelling argument as to why a property management company should be subject
to less onerous requirements than any other company in relation to the
preparation of annual audited accounts. Indeed, there is an argument that
members of the company, who by definition are owners of property in the
development concerned, have a very strong interest in seeing the company's accounts
audited so they can be satisfied of the probity of the conduct of the company's
affairs during the year. As a general principle whether or not the audit
exemption applies will be determined by the company type, i.e.
- a private company can
avail of the audit exemption;
- a DAC can avail of the
audit exemption; and
- a CLG cannot avail of an
audit exemption.
If there is a public policy
desire not to allow management companies to avail of audit exemption this is a
matter best addressed by Department of the Environment, Heritage and Local
Government regulations, for instance by requiring a management company to
include a prohibition in its Articles of Association from availing of the audit
exemption that would otherwise be available to that company type.
Other matters (as raised
in discussion with LRC)
· A
somewhat 'less onerous' strike-off provision should apply to management
companies.
The Department of
Enterprise, Trade and Employment will discuss the feasibility of addressing this
issue with the Registrar of Companies.
· There
should be a provision for conversion of an existing company which would fit the
proposed definition of management company to convert to the latter.
Part B6 of the proposed General Scheme provides a mechanism
for the conversion of an existing company to any other type of company.
This provision allows an existing public guarantee company to re-register
as a private company.
[1]
Second Programme for
the Examination of Certain Branches of the Law with a View to their Reform
2000-2007
[2]
See Consultation
Paper on Reform and Modernisation of Land Law and Conveyancing Law (LRC
CP34 – 2004) and Report on Reform and Modernisation of Land Law and
Conveyancing Law (LRC 74 – 2005).
[3] No 31
of 2006.
[4]
This was the subject of
a Joint Conference held by the Commission and Department on 25 November 2004 at
UCD. See also the Commission’s Report eConveyancing: Modelling of the
Irish Conveyancing System (LRC 79 – 2006) launched by the Taoiseach on 5
April 2006.
[5]
See Consultation
Paper on Business Tenancies (LRC CP21 – 2003); Consultation Paper on
General Law of Landlord and Tenant (LRC CP28 – 2003).
[6]
Organised in conjunction
with the Department of Justice, Equality and Law Reform, this Conference will
take place at the Law Society of Ireland, Blackhall Place, Dublin 7. To book a
place, please contact registration@lawreform.ie . Please note that places are
limited and advance booking is essential.
[7]
The Oireachtas used the
expression “flat” for example, in the rent restriction legislation and
ground rents legislation (see paragraphs 8.10 and 8.11 below), but in the Planning
and Development Act 2000 referred to both a “flat” and an “apartment” in
the definition of “house” (section 2(1)). Such residential units are
usually called “apartments” in North America and the expression “apartment” has
become increasingly used in Ireland: See Laffoy’s Irish Conveyancing
Precedents (Tolley Publishing) Division C. Flats or apartments
usually comprise a suite of rooms on one floor of a multi-storey building, but
sometimes they may spread over two floors, so as to form a “duplex”.
[8]
For example, a shopping
centre.
[9]
For example, a mixture of
townhouses and a block of apartments.
[10]
Dublin figures are
calculated by totalling apartment completions for each of the four local
authorities in the Dublin area, namely Dublin City Council, Fingal County
Council, Dun Laoghaire-Rathdown County Council and South Dublin County Council.
[11]
Apartment complexes have
only become common in the past decade.
[12]
Such as the degree of
“interdependence”; see paragraph 1.18 below.
[13]
See paragraphs 1.18-1.21
below.
[14]
See further paragraph
4.05 below.
[15]
Problems may arise where
the unit owner is different from the actual occupier of the unit, for example,
where the unit has been acquired by an investor who lets it to a sub-tenant or
by a housing association for occupation by a homeless person or by a housing
authority to provide social or affordable housing. See paragraphs
4.86-4.95 below.
[16]
For a discussion on service
charges, see paragraphs 4.102-4.113 below.
[17]
For a discussion on
reserve/sinking funds, see paragraphs 4.115-4.119 below.
[18]
See Chapter 2.
[19]
See Chapter 3.
[20]
See Chapter 4.
[21]
Or to direct a management
company already established by the developer to do so.
[22] For
example, in the case of a small development it may not be appropriate to have
management company. Nevertheless, the unit owners, who share common parts
of the building or other parts of the development and common facilities, may
prefer to delegate day-to-day management tasks to a specialist firm.
[23]
See Chapter 5.
[24]
See paragraphs 10.26-10.32 below.
[25]
It is important to appreciate
that different interests may be held in a particular unit, ranging from a
freehold or leasehold estate to some minor right to use or occupy it, such as a
licence to occupy.
[26]
Usually the “common areas”
also comprise other parts of the building, such as its exterior and structure, ie
in effect all parts not included within individual units. This has
considerable importance for the purposes of maintenance, repair, insurance and
service charges.
[27]
See paragraphs 4.102-4.113
below.
[28]
For example, parts of
the fabric, such as the roof, drainpipes or external cladding, and internal
facilities, such as the lift, central heating or air conditioning systems.
[29]
See paragraphs 4.115-4.120
below.
[30]
Note the precedents in
Division C of Laffoy’s Irish Conveyancing Precedents (Tolley
Publishing). See paragraph 8.03 below.
[31]
As to these, see paragraph
2.13 below.
[32]
This has, however, recently become
a somewhat controversial issue: see paragraph 3.14 below.
[33]
Chapter 5 below.
[34]
See, for example; Management
Fees and Service Charges levied on owners of Property in Multi-Unit Dwellings, Final
Report for the National Consumer Agency by DKM Economic Consultants Ltd in
association with Kevin O’Higgins Solicitors, October 2006.
[35]
See paragraphs 7.12-7.49 below.
[36]
See paragraph 10.08 below.
[37]
July 2005 (Department of
Justice, Equality and Law Reform).
[38]
See Report of the
Auctioneering/Estate Agency Review Group, Chapter 13.
[39]
Including their licensing by a
new Regulatory Authority: See Recommendation Nos 2, 10D and 42.
[40]
See Recommendation Nos 7 and
26.
[41]
Announcement by Minister for
Justice, Equality and Law Reform 18 October 2005.
[42]
Based in Navan, Co Meath, as part
of the Government’s decentralisation programme.
[43]
See further, paragraph 7.05
below. Also, note the recent publication by the Office of the Director of
Corporate Enforcement of their Draft ODCE Guidance: The Governance of
Apartment Owners’ Management Companies, December 2006.
[44]
Written by the then Director
of the Unit, Dr Michelle Norris.
[45]
See especially section 4.5.
[46]
Carried out by Evelyn Hanlon,
chairperson of Ballymun Community Law Centre and previously Finance Director of
Ballymun Regeneration Ltd.
[47]
Part V.
[48]
See paragraphs 4.86-4.95
below.
[49]
Carried out by DKM Economic Consultants Ltd, in
association with Kevin O’Higgins, Solicitors (referred to as the “NCA Report”
below).
[50]
Under section 11 of the Roads
Act 1993.
[51]
The section refers to
developments including construction of “2 or more houses”, but the definition
of “house” in section 2(1) makes it clear that it applies also to blocks of
flats and apartments.
[52]
PD 1/06.
[53]
See paragraphs 3.14-3.39
below.
[54]
Sponsored by Fine Gael Deputy
Fergus O’Dowd.
[55]
4 April 2006.
[56]
See Chapters 8 and 10.
[57]
Paragraph 1.11 above.
[58]
Such as the Norris,
Hanlon and NCA Reports: see paragraphs 1.28-1.31 above.
[59]
In particular the Norris
and Hanlon Reports.
[60]
Part V.
[61]
See further, paragraphs
4.85-4.95 below.
[62]
Circular PD 1/06.
[63]
Paragraph 1.32 above.
[64]
Which provides that
“house” means a building “or part of a building” occupied as or provided for
use as a dwelling and includes “a building which was designed for use as 2 or
more dwellings or a flat, an apartment or other dwelling within such building”.
[65]
See Gore-Grimes Key
Issues in Planning and Environmental Law (Butterworths 2002) page 471.
[66]
Subsection (1) uses the
imperative “shall” without qualification.
[67]
Subsection (3) makes provision
for the planning authority holding a plebiscite to ascertain the electors’
wishes.
[68]
Since planning permission
usually lasts 5 years (see sections 40 – 42 of the 2000 Act), this means that
the obligation to take in charge under this provision will operate only after
12 years from the grant of permission for the development.
[69]
Subsection (2)(a). Subsection
2(b) authorises the planning authority to apply a development bond or other
security required as a condition of the planning permission under section 34
(4)(g) of the Act in carrying out completion of the development, see paragraph
2.28 below.
[70]
Section 180 (2) (b)
[71]
See further paragraphs
2.24-2.34 below.
[72]
PD 1/06: see paragraph 1.32
above.
[73]
See Chapter 7 below.
[74]
See further paragraphs
2.24-2.34 below.
[75]
For example, the Protocol
agreed with Kilkenny County Council dated 8 June 2005.
[76]
Planning authorities are
required to have regard to such guidelines in the performance of their
functions: see section 28 (1).
[77]
Planning and Development
Act 2000, section 180 (2)(b).
[78]
See paragraphs 1.32 and 2.17
above.
[79]
Planning and Development
Act 2000, section 34 (4)(g).
[80]
These can build on recent
initiatives such as the IHBA one mentioned earlier: paragraph 2.21 above.
[81]
Eg. the Protocol agreed with
Kilkenny County Council dated 8 June 2005
[82]
The developer may not
carry out the building itself, but may engage another company to do it, in
which case the purchasers will enter into building agreements with that
company.
[83]
July 2005 Report,
Recommendation No. 26.
[84]
Op cit,
Recommendation No. 7.
[85]
Such as ownership of the
common parts. See paragraph 4.04 below.
[86]
See Chapter 5 below.
[87]
See Chapter 6 below.
[88]
Such as the 1999 Guidelines
for Planning Authorities on Residential Density, which are construed as being
made under section 28 (3) of the 2000 Act: see paragraph 1.33 above.
[89]
See further paragraph
3.14 below.
[90]
Part VIII.
[91]
Paragraphs 2.10-2.23 above.
[92]
Paragraphs 2.10-2.23 above.
[93] See
paragraphs 2.24-2.34 above.
[94]
Paragraph 4.98 below.
[95]
Paragraphs 10.24-10.25 and
11.01-11.09 below.
[96] See Chapter
6 below.
[97]
See ODCE Draft Guidance
at paragraph 6.15.
[98]
Paragraphs 4.80-4.83 below.
[99]
Paragraphs 4.85-4.95 below.
[100]
Ibid, and paragraph
4.31 below.
[101]
Paragraph 4.98 below
[102]
See Keane, paragraphs
27.77-27.120.
[103]
See paragraph 5.10 below.
[104]
See further on this, paragraph 4.98.
[105]
See the Commission’s
recommendations on this matter at paragraphs 4.80-4.83.
[106]
See “Retention of Units in Apartment
Development by Developer: Stamp Duty Treatment and Precedent Documentation”
Law Society Gazette June 2006 page 48.
[107]
There is a precedent for use
of criminal sanctions in this area, eg, it is an offence for a landlord
to breach the standards for rented houses laid down by regulations made under
the Housing (Miscellaneous Provisions) Act 1992: see section 34 of that
Act. Note also section 126 of the Residential Tenancies Act 2004
(offence to fail to comply with determination order made under that Act); and
see sections 143 and 144 (4) of the 2004 Act (offences relating to registration
of tenancies).
[108]
For a discussion on the
source of these difficulties, see Office of the Director of Corporate
Enforcement, Draft ODCE Guidance: The Governance of Apartment Owners’
Management Companies, December 2006, paragraph 2.1.
[109]
Management Fees and
Service Charges levied on owners of Property in Multi-Unit Dwellings, Final
Report for the National Consumer Agency by DKM Economic Consultants Ltd in
association with Kevin O’Higgins Solicitors, October 2006, p.ii.
[110]
See further paragraph
8.08 below.
[111]
What is bought is
invariably a long lease of the unit in question. See again paragraph
8.08.
[112]
See paragraph 10.04
below.
[113]
See paragraph 10.09
below.
[114]
See paragraphs 4.14-4.16
and paragraph 4.48 below.
[115]
See further paragraphs
4.102 -5.104 below.
[116]
That is; as shareholders
in the management company.
[117]
See paragraph 10.28 below.
[118]
Although it is not uncommon
for smaller developments to follow a large development model, allowing the unit
owner only to purchase a long-term leasehold estate.
[119]
The amount to which it is
limited is determined by the type of limited liability company established.
This is explained later in the chapter.
[120]
See further, Office of the
Director of Corporate Enforcement, Draft ODCE Guidance: The Governance of
Apartment Owners’ Management Companies, December 2006, paragraphs 2(3)k -
2(3)m.
[121]
Companies Act 1963,
s.33(2)
[122]
NCA Report, p.ii.
[123]
Companies Act 1963 section 33. See Courtney The Law of Private
Companies (2nd ed Lexis Nexis Butterworths 2002) paragraphs
2.000 – 2.018.
[124]
See paragraphs 4.29-4.31 below.
[125]
Companies (Amendment) Act 1983 section 7. See Courtney op cit
paragraph 28.005 – 28.009.
[126]
Companies Act 1963 section 36. See
Courtney op cit paragraphs 5.075 – 5.077.
[127]
Keane Company
Law (3rd ed Butterworths 2002) paragraph 4.32
[128]
Ibid.
[129]
E.g. the Hanlon and NCA Reports: paragraphs 1.28-1.31 above.
[130]
For further discussion of this
see: Dublin City Council Guide to Successful Apartment Living, June 2006; see
especially Chapter 2: Management of Apartment Developments pp. 14-21.
[131]
Dublin City Council Guide to
Successful Apartment Living, June 2006; see especially Chapter 2: Management of
Apartment Developments.
[132]
For a more extensive list of
advantages, see Courtney at paragraph 1.113. It would probably not be difficult
for the vast majority of management companies to qualify as medium companies if
they weren’t public companies. The quantification of a ‘medium’ company is in
fact quite large. Companies with balance sheet totals for the previous year not
exceeding €7,618,438 and turnovers for the previous year not exceeding
€15,236,857 with less than 251 employees are medium-sized companies- Companies
(Amendment) Act 1986, s. 8.
[133]
Op cit, paragraph
13.002.
[134]
Companies (Amendment) Act
1982, s. 12(1).
[135]
Companies Act 1963 s.
127 as amended s.15 of the Companies (Amendment) Act 1982.
[136]
State Property Act 1954,
s.28.
[137]
See paragraphs 4.51-4.69
below.
[138]
Appendix A.
[139]
Charitable Incorporated
Organisations known as CIOs. See Law Reform Commission Report on Charitable
Trusts and Legal Structures for Charities (LRC 80-2006).
[140]
Law Reform Commission Report
on Charitable Trusts and Legal Structures for Charities (LRC 80-2006),
Chapter 2.
[141]
Dublin City Council Guide
to Successful Apartment Living, June 2006; see especially Chapter 2:
Management of Apartment Developments.
[142]
Ibid, Recommendation 5.1.
[143] See
www.clrg.org
[144]
From a paper entitled “CLRG’s
Views on Issues Affecting Property Management Companies insofar as they Relate
to Company Law”, p. 1.
[145]
Law Reform Commission, Management
Entities for Multi-Unit Developments, 16 December 2002, (Submission to the
CLRG) see:
http://www.clrg.org/submissions/submissions.asp?CID=28
[146]
See paragraph 4.29 below.
[147]
CLRG’s Views on Issues
Affecting Property Management Companies insofar as they Relate to Company Law, Company
Law Review Group, June 2006, p.1.
[148]
Paragraph 4.32 below.
[149]
See paragraph 4.16 above.
[150]
i.e. is a company
which, “by its articles—
( a
) restricts the right to transfer its shares, and
( b
) limits the number of its members to fifty, not including persons who are in
the employment of the company and persons who, having been formerly in the
employment of the company, were, while in that employment, and have continued
after the determination of that employment to be, members of the company, and
( c ) prohibits any invitation to the public to subscribe for any shares or
debentures of the company.”
[151]
Companies Act 1963, s.
33(1).
[152]
CLRG’s Views on Issues
affecting Property Management Companies insofar as they Relate to Company Law,
Company Law Review Group, June 2006, at p. 2
[153]
See paragraph 4.16 above.
[154]
An objects clause is a clause
in a company’s Memorandum of Association setting out what business actions the
company intends on undertaking.
[155]
CLRG’s Views on Issues
Affecting Property Management Companies Insofar as They Relate to Company Law,
Company Law Review Group, June 2006, at p. 4: see Appendix A.
[156]
See paragraph 4.12 above
[157]
CLRG’s Views on Issues Affecting Property
Management Companies Insofar as They Relate to Company Law, Company Law
Review Group, June 2006, at p. 4: see Appendix A
[158]
See Chapter 6.
[159]
Paragraph 1.02 above.
[160]
See paragraphs 3.22 above and
4.85-4.95 below.
[161]
See paragraph 3.34 above.
[162]
Op cit, p.2.
[163]
Paragraph 10.27 above.
[164]
Chapter 6 below.
[165]
CLRG’s Views on Issues
Affecting Property Management Companies Insofar as They Relate to Company Law,
Company Law Review Group, June 2006, at p. 4: see Appendix A.
[166]
See further: paragraphs
4.98-4.101 below.
[167]
Paragraphs 4.07 and 4.16 above.
[168] For further
discussion of this see ODCE’s Draft Guidance at paragraph 11.2.
[169]
Companies Act 1986, s10
(1).
[170]
See paragraphs 4.78-4.82
below.
[171]
See paragraphs 4.98-4.101
below.
[172]
As amended by Company Law
Enforcement Act 2001, s.59.
[173]
State Property Act 1954,
s.28.
[174]
Department of Enterprise,
Trade and Employment, Companies Report 2004, p. 11.
[175]
Department of Enterprise,
Trade and Employment, Companies Report 2005, p. 25.
[176]
T.B. Courtney, The Law of
Private Companies (2nd ed LexisNexis Butterworths 2002), para
13.154. See also, Keane, Chapter 29; and the ODCE’s Draft Guidance, Chapter
15.
[177]
See paragraphs 4.40-4.48
above.
[178]
Companies (Amendment) Act
1986, s.7.
[179] The
required details are set out in full in the Companies Act 1963,
s.195(4).
[180]
Companies Act 1963,
Fifth Schedule.
[181]
This will be considered further
in Chapter 6.
[182]
Returns may be rejected for
filing under the Companies Act 1990, ss. 248 and 249 where the CRO
believes that the returns do not take the required form under those sections.
[183]
Companies Act 1963, s.
127 as amended by the Companies (Amendment) Act 1982, s.12.
[184]
Section 12 of the Companies
(Amendment) Act 1982 as replaced by the Companies (Amendment)(No. 2) Act
1999 s.46.
[185]
State Property Act 1954,
s. 28(2).
[186]
Op cit at
paragraph 12.147.
[187]
State Property Act 1954,
s. 31.
[188]
Pursuant to Companies
(Amendment) Act 1982, s.12(3).
[189]
Section 311A of the Companies
Act 1963, as amended by s.246 of the Companies Act 1990.
[190]
See CRO Restoration of a
Company to the Register, Information Leaflet No.11/ Oct 2005, p.4
[191]
Courts Service Annual
Report 2005, p.99
[192]
See paragraphs 4.07 and 4.16
above.
[193]
See paragraphs 4.40-4.48
above.
[194]
See paragraphs 3.25 above and
5.03 below
[195]
See paragraph 4.57 above.
[196]
State Property Act 1954,
s.28
[197]
An RTE Prime Time report Buyer
Beware on 11 Dec 2006 stated that 75 management companies on that date were
‘currently on the strike-off list.’
[198]
See paragraphs 4.57-4.59
above.
[199]
This classification system is
known as the NACE classification. It is used to define companies according to
their chief classification system. See further, Management Fees and Service
Charges levied on owners of Property in Multi-Unit Dwellings, Final Report
for the National Consumer Agency by DKM Economic Consultants Ltd in association
with Kevin O’Higgins Solicitors, October 2006, paragraph 2.4 .
[200]
In fact, this policy would be
also welcome in other sectors. The Commission encountered similar difficulties
in obtaining statistical information on companies engaging in charitable
activities when authoring its Report on Charitable Trusts and Legal
Structures for Charities (LRC 80-2006).
[201]
CLRG’s Views on Issues
Affecting Property Management Companies insofar as they Relate to Company Law, Company
Law Review Group, June 2006, p.6
[202]
See paragraph 4.60 above.
[203]
See Chapter 7.
[204]
Paragraphs 11.06-11.09 below.
[205] See for
example the approach taken in the United Kingdom: Wiring it up: Whitehall’s
Management of Cross-cutting Policies and Services, Cabinet Office, January
2000.
[206]
As inserted by s.46 of the Companies
Act (No. 2), 1999.
[207]
See Courtney, paragraph 2.035.
[208]
CLRG paper, p.3
[209]
See paragraphs 4.78 and 4.57 above.
[210]
See paragraph 4.78 above.
[211]
See paragraphs 3.22 and 4.31 above.
[212]
Part V.
[213]
Exercise of a mortgagee’s security rights would become subject to new
provisions in Part 9 of the Land and Conveyancing Law Reform Bill 2006
currently before the Oireachtas.
[214]
Under Part 9 of the 2006 Bill a mortgagee will no longer be
the “owner” (as a result of a conveyance or assignment of the mortgagee’s
interest) of an apartment or other unit which is unregistered land but will
hold a charge only on it. This has long been the position with respect to
mortgages of registered land.
[215]
See further, Chapter 6.
[216]
Paragraphs 2.10-2.23 above.
[217]
Paragraph 1.03 above.
[218]
See the precedents in Division C of Laffoy’s Irish Conveyancing Precedents
(Tottel Publishing).
[219]
The converse situation is, of course, possible, such as “penthouse” residential
suites on the top of commercial buildings, but the management structure in such
cases is more likely to be driven by a commercial arrangement. In such
cases the management function is likely to be vested in the landlord or a
management company owned or controlled by the landlord or investors.
[220]
As in the common example of a row of shops and other commercial units on the
ground floor below several upper floors of apartments.
[221]
Courtney The Law of Private Companies (2nd ed Lexis Nexis
Butterworths 2002) paragraph 3.012.
[222]
The NCA Report contains a “consumer
check list” of matters which should be checked by prospective purchasers: see
section 5 and Appendix 3.
[223]
This also includes all conduits to services, all interior and exterior
structures of the building and all interior and exterior common areas as well
as services provided on a communal basis. See further, paragraph 1.18.
[224]
Some of the controversy is highlighted in the recent Hanlon and NCA Reports:
paragraph 1.28 above.
[225]
Chapter 6 below.
[226]
Paragraphs 6.21-6.24 below.
[227]
The NCA published an information leaflet for owners and prospective purchasers
of multi-unit development apartments titled Property Management Companies
and You in October 2006. The Office of the Director of Corporate
Enforcement has recently published a Draft ODCE Guidance: The Governance of
Apartment Owners’ Management Companies which provides a useful guide to the
members of management companies.
[228]
Similar conclusions are to be found in other studies, such as the Hanlon and
NCA Reports.
[229]
For example, the grass may not have
grown or gardens may not be planted yet so grass-cutting and gardening costs
are still non-existent.
[230]
Apart from the first year, charges are usually levied on the basis of what is
calculated to be the likely costs and expenses in the coming year, together
with an adjustment to cover any balance or deficit accruing on the previous
year’s actual, as opposed to its original anticipated, expenditure. Most
years’ charges will involve some such balancing element relating to the
previous year’s charges.
[231]
Note also the Commission’s earlier recommendation that the charges must be
restricted to such matters and should not include any element relating to the
developer’s costs of completing the development: paragraph 3.26 above.
[232]
Paragraphs 4.85-4.95 above.
[233]
Paragraphs 9.14-9.17 below.
[234]
ie, before the development is
completed and the last unit has not been sold. Note however, in some cases, the
developer has nothing to do with the management company at any stage as the
company is established after completion and sale of all of the units in the
development.
[235]
Note the similar recommendations in the NCA Report.
[236]
Chapter 6.
[237]
Paragraphs 7.12 and 7.25.
[238]
Paragraph 7.15.
[239]
Paragraphs 11.06-11.09.
[240]
See Wylie Irish Landlord and Tenant Law (2nd ed Butterworths
1998).
[241]
The unenforceability of re-entry and exclusion of an action of ejectment for
non-payment of rent by section 27 of the Landlord and Tenant (Ground Rents)
Act 1967 applies only to tenants of dwelling house entitled to acquire the
fee simple under the ground rents legislation. Flats in multi-unit
developments are generally excluded from this entitlement: paragraph 8.09
below.
[242]
Paragraph 1.10 above.
[243]
Even more so for low income social and affordable owners or tenants.
[244]
Paragraphs 6.21- 6.24 below.
[245]
Note the recommendations in the NCA Report on this subject.
[246]
Paragraphs 11.06-11.09 below.
[247]
As explained earlier
this invariably means the granting of a leasehold interest only: see paragraph
1.08 above.
[248]
See Courtney The Law
of Private Companies (2nd ed LexisNexis Butterworths 2002)
paragraph 10.005.
[249]
See paragraph 5.08
below.
[250]
See further, Auctioneering/Estate
Agency Review Group Report, July 2005, Chapter 13.
[251]
See paragraph 1.14
above.
[252]
In the case of a
strike-off the official directors of the company face the possibility of
becoming restricted under the Companies Acts, which would prevent them from
ever acting as a director again.
[253]
See Keane Company Law
(3rd ed Butterworths 2002), paragraphs 27.77-27.120.
[254]
See paragraph 3.26
above.
[255]
Report of the
Auctioneering/Estate Agency Review Group, July 2005, paragraph 13.1.
[256]
High Court, 5 December 2001.
[257]
See Dorgan “Safe as Houses?”
(2002) Law Society Gazette of Ireland January 2002, 12. The details of
the case are also available on the website of the Director of Consumer Affairs,
www.odca.ie
[258]
See paragraph 7.15 above.
[259]
See Chapter 6.
[260]
See further on this, paragraphs 4.80-4.83
above.
[261]
In particular the Planning
and Development Act 2000.
[262]
Building Control Act
1990.
[263]
Fire Services Act
1981.
[264]
Under the Housing Act
1966.
[265]
It should be noted that
the Residential Tenancies Act 2004 is not intended to apply generally to
“owner occupied” apartments, though there are a few special provisions relating
to management of apartment complexes which apply to “tenants” (in effect,
subtenants of the owner-lessees) of apartments: see sections 187 (forwarding
complaints to management
company) and 188 (information about service charges).
[266]
This function will soon
be fulfilled by the National Consumer Agency.
[267]
See paragraphs 1.18-1.21
above.
[268]
See paragraph 1.05
above.
[269]
Management Fees and
Service Charges levied on owners of Property in Multi-Unit Dwellings, Final
Report for the National Consumer Agency by DKM Economic Consultants Ltd in
association with Kevin O’Higgins Solicitors, July 2006.
[270]
Ibid, Section 5.
[271]
Management Fees and Service
Charges levied on owners of Property in Multi-Unit Dwellings, Final Report
for the National Consumer Agency by DKM Economic Consultants Ltd in association
with Kevin O’Higgins Solicitors, July 2006.
[272]
See paragraph 1.09 above.
[273]
See paragraphs 4.103-4.113
above.
[274]
See paragraph 4.105 above.
[275]
See paragraph 4.109.
[276]
NCA Report, Appendix 1.
[277]
NCA Report, section 5.10.3.
[278]
National Consumer Agency Property
Management Companies and You, October 2006.
[279]
See Chapter 4 above.
[280]
See paragraphs 4.16 and 4.60
above.
[281]
See paragraph 4.85 above.
[282]
See paragraph 3.20 above.
[283]
See for example, paragraphs
4.50 and 4.62-4.69 above.
[284]
Op cit, Recommendation
16.
[285] Office of
the Director of Corporate Enforcement, Draft ODCE Guidance: The Governance
of Apartment Owners’ Management Companies, December 2006.
[286]
See paragraph 3.17 above.
[287]
See paragraph 3.27 above.
[288]
See paragraph 3.22 above.
[289]
See paragraph 6.22 below.
[290]
See paragraph 5.08 above.
[291]
See paragraph 5.13 above.
[292]
See paragraphs 5.15-5.21
above.
[293]
Auctioneering/Estate Agency
Review Group’s July 2005 Report, Recommendation No. 10.
[294]
See paragraph 5.19 above.
[295]
See paragraph 5.21 above.
[296]
See the Hanlon and NCA
Reports: paragraph 1.28 above.
[297]
See paragraphs 4.04-4.07
above.
[298]
See paragraphs 1.13-1.14
above.
[299]
See paragraphs 1.07-1.08.
[300]
Paragraph 1.11 above.
[301]
Paragraph 1.09 above.
[302]
Paragraph 1.10 above.
[303]
Where units are being
purchased through estate agents, the estate agents should be similarly obliged
to furnish all prospective purchasers with such information.
[304]
Note the similar
recommendations in its recently published report: Management Fees and
Service Charges levied on owners of Property in Multi-Unit Dwellings, Final
Report for the National Consumer Agency by DKM Economic Consultants Ltd in
association with Kevin O’Higgins Solicitors, October 2006, p.i.
[305]
Note should also be taken of
the power of the Director of Consumer Affairs to seek an order of the High
Court prohibiting unfair terms under regulation 8 (1) of the European
Communities (Unfair Terms in Consumer Contracts) Regulations 1995.
This power was invoked recently in respect of various terms in building
agreements which the Law Society regarded as onerous: see Re An Application
Pursuant to Regulation 8 (1) of the European Communities (Unfair Terms in
Consumer Contracts) Regulations 1995, High Court, 5 December 2001.
See Dorgan “Safe as Houses” Law Society Gazette, Jan/Feb 2002, p12; Igoe
“Unfair conditions: has the penny dropped yet?” Law Society Gazette,
December 2002, p 6.
[306]
See paragraphs 6.21-6.24
above.
[307] See
paragraph 4.107 above.
[308]
See paragraph 7.13 below.
[309]
See paragraph 9.20 below.
[310]
See paragraphs 10.24-10.25 and
Chapter 11 below.
[311]
See paragraph 1.04
above.
[312]
See Chapter 4.
[313]
National Consumer Agency, October 2006.
[314]
See also paragraphs
1.28-1.31 above.
[315]
July 2005 (Department of
Justice, Equality and Law Reform).
[316]
Written by the then
Director of the Unit, Dr Michelle Norris.
[317]
Carried out by Evelyn
Hanlon, chairperson of Ballymun Community Law Centre and previously Finance
Director of Ballymun Regeneration Ltd.
[318]
Dublin City Council,
June 2006.
[319]
Ibid,
recommendation 5.1.
[320]
Management Fees
and Service Charges levied on owners of Property in Multi-Unit Dwellings, Final Report for the National Consumer Agency by DKM
Economic Consultants Ltd in association with Kevin O’Higgins Solicitors, July
2006.
[321]
Management Fees and Service
Charges levied on owners of Property in Multi-Unit Dwellings, Final Report
for the National Consumer Agency by DKM Economic Consultants Ltd in association
with Kevin O’Higgins Solicitors, July 2006, Executive Summary.
[322]
December 2006.
[323]
This Guidance is the subject of a consultation
exercise which will remain open until 30 March 2007.
[324]
Especially the Hanlon and NCA
Reports: paragraph 1.28-1.31 above.
[325]
Auctioneering/Estate Agency
Review Group’s July 2005 Report, Recommendation No 9.
[326]
Ibid, Recommendation
No. 2. See Chapter 6 above.
[327]
See Chapter 3.
[328]
See paragraph 7.43 below.
[329]
See paragraph 7.17 below.
[330]
Such as revoking a managing
agent’s licence in cooperation with the NPSRA.
[331]
See, for example, paragraph
4.64.
[332]
See Chapter 11.
[333]
For example, advising an
aggrieved unit owner how to use his or her rights as a member of the management
company.
[334]
See further: Chapter 6 above.
[335]
The appropriate legislation
could be that being prepared for the new National Property Services Regulatory
Authority.
[336]
See paragraph 1.03 above.
[337]
For example, in relation to
completion and ensuring timely taking in charge by the local authority; see
paragraph 3.14 above.
[338]
Paragraph 4.64 above.
[339]
Paragraphs 4.102-4.122.
[340]
See paragraph 3.40 above.
[341]
Law Reform Commission Report
on Charitable Trusts and Legal Structures for Charities (LRC 20-2006),
Chapter 1.
[342]
See recommendations at
paragraph 11.14 below.
[343]
This is currently Noel Ahern
T.D.
[344]
Report of the Commission on
the Private Rented Residential Sector, 27 July 2000.
[345]
See paragraph 1.34 above.
[346]
Management Fees and Service Charges levied on owners of Property in
Multi-Unit Dwellings, Final Report
for the National Consumer Agency by DKM Economic Consultants Ltd in association
with Kevin O’Higgins Solicitors, October 2006.
[347]
In October 2006 for example,
they released a consumer advice leaflet entitled Management Companies and
You.
[348]
July 2005 (Department of
Justice, Equality and Law Reform), Recommendation No. 2.
[349]
Based in Navan, Co Meath, as
part of the Government’s decentralisation programme.
[350]
Paragraph 1.28 above.
[351]
Recommendation Nos 2, 10, 19
and 40 in the Report of the Auctioneering/Estate Agency Review Group
(July 2005 and statement of Minister for Justice, Equality and Law Reform
accepting the Report on behalf of the Government made on 18 October 2005.
[352]
Recommendation Nos 2, 10, 19
and 40 in the Report of the Auctioneering/Estate Agency Review Group
(July 2005) and statement of Minister for Justice, Equality and Law Reform
accepting the Report on behalf of the Government made on 18 October 2005.
[353]
Report Recommendation Nos. 2,
10 and 42. See also Chapters 4 (pages 21-22) and 13 of the Report.
[354]
Recommendation No 7.
This requirement would be enshrined in the new legislation.
[355]
Recommendation Nos 6 and
16. The Fund will be operated by or with the approval of the Regulatory
Authority: see Report pages 20-21.
[356]
Recommendation Nos 19 and 40.
[357]
Such as withdrawal of the
licence to practice.
[358]
Recommendation No 25.
[359]
Recommendation No 26.
[360]
See Chapter 13, Report of
the Auctioneering/Estate Agency Review Group.
[361]
See paragraph 1.28 above.
[362]
See paragraphs 7.15-7.19
above.
[363]
See paragraph 7.19 above.
[364]
See paragraphs 4.74-4.79
above.
[365]
See paragraphs 4.74-4.79
above.
[366]
See paragraphs 7.12-7.26
above.
[367]
See paragraph 3.06 above.
[368]
See paragraph 2.18 above.
[369]
See paragraph 4.122 above.
[370]
See paragraph 4.107 above.
[371]
See paragraph 4.108 above.
[372]
See paragraph 4.37 above.
[373]
See paragraph 4.87 above.
[374]
See paragraph 4.66 above.
[375]
See paragraph 4.98 above.
[376]
See paragraph 4.87 above.
[377] See
paragraph 7.22 above.
[378]
See paragraph 3.38 above.
[379]
See paragraph 7.13 above.
[380]
See paragraph 4.16 above.
[381]
See paragraph 4.79 above.
[382]
See paragraph 7.13 above.
[383]
See paragraph 4.65 above.
[384]
See paragraph 4.68 above.
[385]
See paragraph 10.31 below.
[386]
See paragraph 3.12 above.
[387]
See paragraph 3.06 above.
[388]
See paragraph 4.108 above.
[389]
See paragraph 4.107 above.
[390]
See paragraph 4.67 above.
[391]
See paragraph 7.15 above.
[392]
See paragraph 11.10 below.
[393]
Some of these problems
were adverted to during argument before the Supreme Court in Metropolitan
Properties Ltd v. O'Brien [1995] IR 467 at 481-482. See also Wylie Irish
Conveyancing Law (3rd ed Tottel Publishing 2005) paragraphs
19.11-19.22; Laffoy’s Irish Conveyancing Precedents (Tolley Publishing)
pages C3-C6.
[394]
See paragraphs 1.18-1.20
above.
[395]
Headed “Building
Schemes”.
[396]
Assuming this has been
created or, if it was established, is still functioning. As was explained
earlier, this may not be the case: see paragraphs 4.51-4.69 above.
[397]
See further paragraphs
11.07 and 11.10 below.
[398]
The various suggested
mechanisms for getting round this problem suffer themselves from drawbacks: See
Lyall Land Law in Ireland (2nd ed Roundhall Sweet &
Maxwell 2000) Chapter 21; Wylie Irish Land Law (3rd ed
Butterworths 1997) Chapter 19.
[399]
See Report on Land
Law and Conveyancing Law: (7) Positive Covenants over Freehold Land and Other Proposals
(LRC 70-2003) Chapter 1; Consultation Paper on Reform and Modernisation
of Land Law and Conveyancing Law (LRC CP34-2004) paragraphs
7.29-7.32. This matter was covered by provisions in the draft Land and
Conveyancing Bill 2005 in Appendix B to the Report on Modernisation
of Land Law and Conveyancing Law (LRC 74-2005). They are now to be
found in Part 7, Chapter 4 of the Land and Conveyancing Law Reform Bill 2006
introduced by the Government to the Séanad on 9 June 2006.
[400]
This point was made
before the Supreme Court in Metropolitan Properties Ltd v O’Brien [1995]
IR 467 of 481-482.
[401]
See Humphries v.
Brogden (1850) 12 QB 729 at 747 and 755-757 (per Lord Campbell CJ); Bonomi
v. Backhouse (1858) EI BI & EI 622 at 645-655 (per Willes J); Reilly
v. Booth (1890) 44 ChD 12 at 23 (per Cotton LJ) and 26-27 (per
Lopes LJ). See also Gray “Property in Thin Air” (1991) CLJ 252. Note also
the wide definition of “land” in section 3 of the Land and Conveyancing Law
Reform Bill 2006.
[402]
Originally usually the
developer, but subsequently often transferred to a management body: see Chapter
5 above and paragraphs 10.08 and 10.09 below.
[403]
Section 2, Landlord and
Tenant (Ground Rents) Act 1978.
[404]
See definition of “dwelling”
in section 1 of the 1978 Act.
[405]
See section 16 (2)(a) of the
1978 (No. 2) Act. Somewhat oddly this restriction applies only where the
lease of the flat contains a rent review provision, which is common in a lease
of business premises and much less common in leases of residential
property. See Wylie Irish Landlord and Tenant Law (2nd
ed Butterworths 1998) Chapter11.
[406]
And adopted in may other parts
of the common law world: see eg the British Columbia Strata Property
Act 1998 [SBC 1998] Chapter 43. See also the Final Report of
the National Competition Policy Review of the NSW Strata Schemes Management
Act 1996 (Department of Fair Trading 2001) and the Discussion Document Review
of the Unit Titles Act 1972 (NZ Department of Building and Housing,
November 2004).
[407]
See the Commonhold and
Leasehold Reform Act 2002, Part 1 of which deals with commonhold and came
into force on 27 September 2004.
[408]
See paragraph 10.14 below.
[409]
See generally Courtney The
Law of Private Companies (2nd ed LexisNexis Butterworths 2002);
Keane Company Law (4th ed Tolley Publishing 2006).
[410]
See paragraphs 1.15-1.17
above.
[411]
See paragraph 10.28 below.
[412]
For interesting
comparative studies see van der Merwe “Apartment Ownership”, Volume VI, Chapter
5 of Drobnig and Zweiger (eds) International Encyclopaedia of Comparative
Law (Mohr 1994); Hurndall (ed) Property in Europe: Law and Practice (Butterworths
1998), passim; Robertson and Rosenberry Home Ownership with
Responsibility: Practical Governance Remedies for Britain’s Flat Owners
(Joseph Rowntree Foundation 2001); van der Merwe and Smith “Commonhold
Development Rights – A Comparative Assessment” [2005] 69 Conv 59.
[413]
Initially the NSW Conveyancing
(Strata Titles Act) 1961Conveyancing (Strata Titles) Act 1961 [later
renamed the Strata Schemes (Freehold Development) Act 1973] and Strata
Schemes Management Act 1996. See the Final Report of the
National Competition Policy Review of the 1996 Act (Department of Fair Trading
2001). See also Bugden and Allen New South Wales Strata and Community
Titles Law (CCH Australia Ltd 1999).
[414]
But not always using the
expression strata titles: eg New Zealand (Unit Titles Act: See
Hinde McMorland & Sim Land Law in New Zealand (Butterworths 1997)
Chapter 2); Singapore (Land Titles (Strata) Acts 1967 and 1976); South
Africa (Sectional Titles Act 1971 and Sectional Titles Act 1986);
Canada (eg the British Columbia Strata Property Act [SBC 1998]
Chapter 43) and Ontario Condominiums Act 1998 [SO 1998].
[415]
This concept has also
been adopted in, eg, the Caribbean: see the Trinidad and Tobago Condominiums
Act 1981; Wylie The Land Laws of Trinidad and Tobago (Government of
Trinidad and Tobago 1986) Chapter 8.
[416]
Or a version of
this: see eg the Florida Condominiums Act Chapter 718
(1999).
[417]
The 1982 Act combined in
a single comprehensive law prior uniform laws in the area, ie the Uniform
Condominium Act 1980, the Uniform Planned Community Act 1980 and the
Model Real Estate Cooperative Act 1981.
[418]
The 1994 Act was
approved and recommended for enactment in all States at the National
Commissioners’ Annual Conference held in Chicago in July-August 1994 and was
approved by the American Bar Association in February 1995.
[419]
For example, the French
Code Civil 1804 Article 664.
[420] For
example, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy,
Luxembourg, The Netherlands, Norway, Portugal, Spain, Sweden and
Switzerland. See generally Hurndall op cit fn 1.
[421] Usually
known as the “Wilberforce” Committee (after the law lord who chaired it) : see
its Report (Cmnd 2719).
[422]
For example, the NSW Conveyancing
(Strata Titles) Act 1961.
[423]
Transfer of Land – the Law
of Positive and Restrictive Covenants (Law Com No 127).
[424]
Chaired by one of the then Law
Commissioners, Mr Trevor Aldridge.
[425]
Commonhold: Freehold Flats
and Freehold Ownership of Other Interdependent Buildings (Cm 179).
[426]
Commonhold: Freehold Flats
and freehold ownership of other interdependent buildings (Cm 179),
paragraph 1.10.
[427]
See the Lord Chancellor’s
Department’s publications Commonhold: A Consultation Paper (CM 1345
1990); Commonhold and Leasehold reform (CM 4843 2000).
[428]
Commonhold and Leasehold
Reform Act 2002 (Commencement No.4) Order 2004 (SI/1832). See
also Commonhold Regulations 2004 (SI/1829) and the Commonhold (Land
Registration) Rules 2004 (SI/1830). For comprehensive treatment of
the subject see Clarke Commonhold: Law, Practice and Precedents (Jordans
2002).
[429]
See Clarke “The Enactment of
Commonhold – Problems, Principles and Perspectives” [2002] Conv 349; Driscoll
“Ownership Will Never be the Same Again” [2004] 39 EG 124; Fetherstonhaugh
“Slow on the Uptake” [2005] 35 EG 104; Frost “Commonhold – not so much flawed,
but different” (2004) NLJ 330; Jack “Commonhold: the fatal flaw” (2003) NLJ
1907; PHK “Commonhold – can’t sing can’t play the mouth organ but nevertheless
a star?” [2002] Conv 206; Larcombe “Commonhold – a quiet revolution?” (2006)
NLJ 226; Roberts “Two cheers for Commonhold?” (2002) NLJ 338 and “Commonhold: A
New Property Term – But No Property in a Term!” [2002] Conv 341; Smith “The
Purity of Commonholds” [2004] Conv 194; van der Merwe and Smith “Commonhold
Development Rights – A Comparative Assessment” [2005] 69 Conv 53; Wong “
Potential Pitfalls in the Commonhold Community Statement and the Corporate
Mechanisms of the Commonhold Association” [2006] 70 Conv 4. For an Irish
perspective see Woods “Commonhold: An Option for Ireland?” (2003) Ir Jur (NS)
284.
[430]
Led by Professor JCW Wylie.
[431]
HMSO (Belfast) Volume 1 Part
3. Note the draft Commonhold Order set out in Volume 3 of the
Report.
[432]
It is understood that the NI
Advisory Committee on Law Reform is currently reviewing the matter.
[433]
See paragraph 8.08 above and
10.11above.
[434]
See Gordon Scottish Land
Law (Green 1989) chapter 15; Halliday Conveyancing Law and Practice in
Scotland (Green 1986) Vol II paragraphs 18.20 – 18.22; Reid The Law of
Property in Scotland (Butterworths 1996) paragraphs 227 – 251.
[435]
See Discussion Paper No. 91 Law
of the Tenement (December 1990).
[436]
Report on the Law of the
Tenement (Scot Law Com No. 162 1998).
[437]
See also the Title
Conditions (Scotland) Act 2003. And see Lovell “Building Changes”
[2003] 42 EG 118.
[438]
Robertson and Rosenberry Home
ownership with responsibility; practical governance remedies for Britain’s
flatowners (Joseph Rowntree Foundation 2001).
[439]
Paragraph 9.01 above.
[440]
Paragraph 8.08 above.
[441]
See paragraph 8.07 above.
[442]
See paragraph 9.04 above.
[443]
See paragraph 9.05 above.
[444]
See paragraph 9.04 above.
[445]
See paragraph 9.06 above
[446]
Including legislation amending
and clarifying it, like the Titles Conditions (Scotland) Act 2003.
[447]
Tenements (Scotland) Act
2004.
[448]
See paragraph 1.18 above.
[449]
Including legislation amending
and clarifying it, like the Titles Conditions (Scotland) Act 2003.
[450]
See paragraphs 4.102-4.114
above.
[451]
See section 42 of the English Commonhold
and Leasehold Reform Act 2002 (an “approved Ombudsman Scheme”).
[452]
See paragraph 9.01 above.
[453]
This is also a feature of the
English Commonhold scheme: see Commonhold and Leasehold Reform Act 2002,
sections 2-10 and Commonhold (Land Registration) Rules 2004 (SI/1830).
[454]
See paragraph 9.01 above.
[455]
Section 2-101.
[456] See also
the Commission’s recommendation for multi-unit developments to be registered
with the Regulatory Body in addition to the requirement to register the
transfer of the ‘property’ interest from one unit owner to the next.
[457]
Precisely what
developments would come within the scheme is discussed later: see paragraphs
11.03 below.
[458]
It is envisaged that
this mechanism will also be available to deal with problems which may arise in
respect of future developments, despite the new legislation. Hopefully
these will be a rare occurrence. See paragraph 11.01 below.
[459]
See Chapter 9 above.
[460]
In this respect the
position is similar, but only in some respects, to that in the United Kingdom
before recent legislation was enacted there: see paragraphs 9.04-9.06 above.
[461]
Paragraphs 8.07-8.12
above.
[462]
See paragraphs 1.13 and
4.04 above.
[463]
See generally Wylie Irish
Landlord and Tenant Law (2nd ed Butterworths 1998) Chapters
5-20. See also the Commission’s Consultation Paper on Business
Tenancies (LRC CP21-2003).
[464]
It was reported in the
18 December 2004 issue of the Estates Gazette (page 13) that Irish
investors were the biggest group investing in London’s West End district in
2004 – some 1.2 million sterling. The 9 April 2005 issue (page 43)
reported that Irish investors invested some €3.9 billion in European commercial
property in 2004, making them the third largest group of cross-border
investors. The Irish Times Commercial Property issue of 29 November 2006
reported that Irish investors had invested over €8 billion in property markets
overseas in 2006.
[465]
Report of the
Commission on the Private Rented Residential Sector (Department of the
Environment and Local Government, July 2000) paragraph 1.5.4 and Chapters 6 and
7.
[466]
Originally under section 23 of
the Finance Act 1981 and subsequently under sections 27-29 of the Finance
Act 1988. Section 50 of the Finance Act 1999 extended such tax
relief to purchase of accommodation for letting to students. Under the Finance
Act 1992 section 23-27 type relief was restricted to rental property in
designated renewal areas. Under the Finance Act 2004 most such
relief expired on 31 July 2006.
[467]
It is bound to determine at
the end of the term granted in the lease. This is, of course, subject to
statutory rights of renewal which may be available: See Wylie op cit Chapters
29-31.
[468]
See paragraph 2.04 above.
[469]
England and Wales: see
paragraph 9.04 above.
[470]
See paragraph 8.07 above.
[471]
See Report on Land Law and
Conveyancing Law: (7) Positive Covenants over Freehold Land and Other Proposals
(LRC 70-2003) Chapter 1; Consultation Paper on Reform and Modernisation
of Land Law and Conveyancing Law (LRC CP34-2004) paragraphs
7.29-7.32. .
[472]
See paragraph 8.09 above.
[473]
Section 16 (2) (a) of the 1978
(No.2) Act.
[474]
A challenge to certain aspects
failed in the recent High Court case Shirley v. O'Gorman & Co. Ltd, 31
January 2006.
[475]
Chapters 1 and 8 above.
[476]
Paragraph 10.04 above.
[477]
Chapters 2 and 3 above.
[478]
Chapter 1 above.
[479]
See paragraphs 8.14 above.
[480]
See Part 7, Chapter 4 of the
Land and Conveyancing Law Reform Bill introduced by the Government to the
Séanad on 9 June 2006.
[481]
Land and Conveyancing Law
Reform Bill Part 7, Chapter 1. Note also that the definition of “land” in
section 3 of the Bill includes: “(d) buildings or structures of any kind
on the land and any part of them, whether the division is made horizontally,
vertically or in any other way; (e)the airspace above the surface of
land or above any building or structure on land which is capable of being or
was previously occupied by a building or structure and any part of such
airspace, whether the division is made horizontally, vertically or in any other
way.”
[482]
Note the provisions designed
to facilitate this further contained in the Registration of Deeds and Title
Act 2006. See also the Commission’s Report eConveyancing:
Modelling of the Irish Conveyancing System (LRC 79-2006).
[483]
See paragraph 9.21 above.
[484]
Chapter 4 above.
[485]
See especially Chapters 2, 3
and 6 above.
[486]
Chapter 6 above.
[487]
Paragraphs 10.01 and 10.17
above.
[488]
See paragraph 11.10 below.
[489]
See paragraphs 3.02-3.09
above.
[490]
See paragraphs 1.15-1.17 and
8.05 above.
[491]
Paragraphs 8.13-8.15 above.
[492]
Paragraph 1.15 above.
[493]
Chapter 1 above.
[494]
Often the interest acquired by
the purchasers will be a long lease of their units, rather than the freehold,
as is the practice with large developments: see paragraph 10.04 above. It
remains to be seen whether the changes in the law contained in the Land and
Conveyancing Law Reform Bill 2006, such as those relating to freehold covenants
in Part 7, will encourage the development of unit owners owning the freehold of
their units: see paragraph 10.11 above.
[495]
See Wylie Irish Landlord
and Tenant Law (2nd ed Butterworths 1998)
[496]
In effect the excluded parts
will be the “common areas” usually excluded in such leases: see paragraph 1.19
above.
[497]
This is the “dual” interest
transferred to the management company in larger developments: see paragraph
10.09 above.
[498]
The other main form of
co-ownership recognised by our land law system, a joint tenancy, is not
suitable for what is essentially a commercial arrangement. This is because of
the “right of survivorship” which attaches to a joint tenancy. Under this the
interest of a deceased joint tenant passes automatically to the surviving joint
tenants. Under a tenancy in common, each owner is regarded as having a distinct
share in the property which can be disposed of by a deceased owner’s will or
succeeded to by the owner’s intestate successors if no valid will has been
made.
[499]
As regards the reversionary
interest of each unit’s lease, this will merge in each lease since, unlike in
the case where there is a management company which is a separate legal entity,
the two interests (the reversion and the lease) will vest in the same person.
Even if there is an express declaration of non-merger, it is questionable
whether covenants in the lease of any unit would be enforceable because of the
fundamental rule that one cannot enforce a contract against oneself.
[500]
Chapter 11 below.
[501]
See especially Chapters 1 and 8 above.
[502]
See paragraph 10.01
above.
[503]
See again Chapters 1 and
8 above.
[504]
The Circuit Court,
which, it may be noted, has jurisdiction under the Residential Tenancies Act
2004 to enforce determination orders made by the Private Residential
Tenancies Board: see section 122.
[505]
The planning authority
may hold a plebiscite to ascertain the wishes of the “qualified electors”:
section 180 (3) (a).
[506]
See the definition of
“house” in section 2 (1).
[507]
Using the procedure laid
down in section 11 of the Roads Act 1993.
[508]
Section 180 (1).
[509]
Planning and
Development Act 2000, Section 180 (2) (a). Since permission has a
life of 5 years, and enforcement action can be taken within 7 years, this could
amount to a period of 12 years: see Gore-Grimes Key Issues in Planning and
Environmental Law (Butterworths 2002) page 470.
[510]
See Chapter 2 above.
[511]
Companies Act 1963,
section 311A (inserted by section 246 of the Companies Act 1990); Companies
(Amendment) Act 1982 sections 12A and 12C.
[512]
Companies Act 1963,
section 311; Companies (Amendment) Act 1982, sections 12B. See
Courtney The Law of Private Companies (2nd ed LexisNexis
Butterworths 2002) paragraphs 12.152-12.174.
[513]
Paragraph 4.69 above.
[514]
For example, where the development is not yet
complete.
[515]
Paragraph 11.06 above.
[516]
Chapter 8 above.
[517]
Paragraph 11.16 below.
[518]
See Charities Act 1961
section 47; Re Royal Kilmainham Hospital [1966] IR 451; Re Worth
Library [1995] 2 IR 301. Delany Equity and the Law of Trusts in
Ireland (3rd ed Thomson Round Hall 2003) pages 355-370.