Catherine Murphy (Kildare North, Independent)
Link to this: Individually | In context

I welcome the opportunity to air this issue which, if not addressed, will become a nightmare for many new home owners. Until recently, if a developer was constructing a housing estate, the developer held the responsibility of keeping that estate properly maintained until the local authority took it into charge. With the advent of apartment building, local authorities began to insert a clause in the planning permission insisting that purchasers sign up as members of management companies. The clause has now been extended by many local authorities to house-only developments or mixed developments of apartments and houses. Instead of the developer carrying the cost of the maintenance, the home owners must now take responsibility for the maintenance of sewers, water mains, paths, roads, open spaces, public lighting and even having to pay the ESB for the public lights within the estate. The fees for home owners generally range between €300 to €1,200 but can rise higher.

As the clause is inserted in the planning permission, it appears in the contract of sale, so if one does not pay the fee, one cannot close the sale. I will quote a typical example of the clause in a planning permission, this one relating to a house-only development:

A management company shall be set up in order to manage the communal activities of the development. Prior to the commencement of the development, details of the management company shall be submitted to the planning authority for approval, and with particular emphasis on the provision of sanitary services. Each individual property owner shall be party to the management company agreement and this agreement shall be registered as a burden on the individual property folios in the Land Registry upon the sale of each unit.

Accordingly, the management company becomes a lien on the property so that the property cannot be sold until the fee is fully paid. The management company is initially set up by the developer. I have come across one case, which I believe is the norm, where the developer who set up a property company registered it to the development office and had directors related to the developer.

When the last house is constructed, the developer engages a management agency and the home owners become the management company. The developer says goodbye and the home owners then assume responsibility for just about every aspect of the management of their estate. Instead of organising Christmas parties for their kids or cutting grass and so on, they are ensuring that the sewers are working, that the bulbs are replaced in the street lighting, and they are considering which neighbours to take to court for not having paid their fees. This is not the way to build social capital. Subject to the estate being in a satisfactory condition after a number of years, in reasonably good condition, the council will take the estate in charge. It will not take it in charge if there are problems.

Unfortunately, over the years, I as a councillor have witnessed short cuts being taken by unscrupulous developers. That can seriously increase the length of time before a council will take an estate into charge, if it does so at all. I am aware of some estates which are 30 years old and still not under council charge.

Most new home owners to whom I have spoken found out about the management company obligation on the day they were closing their sales. Many told me that their solicitors had brushed the clause aside as though it were standard. Failure to pay the fee would result in the purchase falling through and the loss of a non-refundable deposit. In some cases that can run to thousands of euro.

The cheques, which in some instances are made out directly to the builder, go directly to the management company set up by the builder. Is is only some months or years later, when the residents ask what they are paying for, that they discover a difficulty. They are starting to put pressure on the management company to finish the estate and discover they may as well put pressure on the builders because they are the same people involved.

I can understand the need for a management company in the case of apartment blocks with shared areas of responsibility. However, the lack of legislation has left many buyers open to additional financial exposure. An article written by Susan Mitchell was published in The Sunday Business Post on 26 June last. She quoted Michael Noonan, who had established the Institute of Residential Management Companies. He told her of a development where the insurance company took the view that the development was being mismanaged. The management company had no sinking fund or money in its account to meet any liability that could arise. It owed the ESB €45,000 and the ESB came out to cut off the power supply.

That is one example of what can happen. The Northside People newspaper reported on thousands of homes in Tyrrelstown, near Blanchardstown, which were affected by a biological contamination of their water supply. Residents who contacted Fingal County Council were referred to a management company. In the end, the council had to bail out the people, but it was a private management company which had the responsibility for the upkeep of those people's water system.

What should be done? I contacted several local authorities to find out how this situation has arisen. I also contacted the Department of the Environment, Heritage and Local Government. No one seems to be able to point me towards a guideline, clause or a section in legislation which triggered off this change in practice. The Department of the Environment, Heritage and Local Government must immediately consult the local authorities to end the practice of insisting on this clause in house-only or mixed developments on the housing component, and must regulate for the apartment aspect. The Law Society also needs to insist that solicitors properly appraise their clients to ensure clients do not leave themselves open to substantial risk.

Noel Ahern (Dublin North West, Fianna Fail)
Link to this: Individually | In context

I thank the Deputy for raising this matter. A new provision was included in the Planning and Development Act 2000 — section 34(4) — enabling local authorities to add a condition to a planning permission relating to maintenance or management of a proposed development, including the appointment of a person or body to carry implement it. The primary objective of this measure was to give a legal certainty to the existing practice of planning authorities requiring the establishment of management companies. This helps to ensure good and prudent management of estates following their completion.

It must be emphasised that the provisions in question do not detract from the primary responsibility of developers to finish developments. Planning authorities have extensive powers under the 2000 Act to make developers finish estates in a satisfactory manner in accordance with the planning permission. In addition, local authorities can now be required to take in charge the public services for residential development when requested to do so. It is important to note, however, that taking in charge relates to the public infrastructure like roads, sewers and so on. Management companies have a very different remit. They deal with the on-going maintenance and management of the private elements of housing developments, such as looking after the green areas, landscaping and maintaining community amenities and so on. This is ultimately the responsibility of the property owners, just as any house owner has to take responsibility for maintenance of his or her house. The general issues that management companies must administer on an on-going basis would never have been the responsibility of the local authority. The existence of a management company, controlled by the home owners, is critically important in the case of apartments, which need arrangements to deal with common facilities or structures. I note the Deputy agrees with this point.

In Ireland, the shared legal responsibility is provided for at present through a requirement, when apartments are sold, that the owners become members of a management company for the complex. Other conditions are also put on the sale of properties, for example, the payment of charges to cover ongoing maintenance of the communal parts of the building and a sinking fund to cover future costs. Apartment complex management companies are generally constituted as companies under the Companies Acts. The members are the owners of the apartments. The operation of these companies, their memorandum and articles of association, the employment of any property manager or management entity, then becomes a matter for the apartment owners. Recent problems have arisen in regard to the management of apartment complexes, such as the adequacy of maintenance and cost of service charges. In many cases, these relate to managing agents contracted by the management company.

A Law Reform Commission working group is currently drafting a report on the law in regard to management of apartment complexes and other multi-unit developments. I understand it has already suggested certain changes in the application of company law to management companies for multi-unit developments to the Company Law Review Group which operates under the aegis of the Department of Enterprise, Trade and Employment. Where the Law Reform Commission report identifies any change in the legislative framework to enable management arrangements to operate more effectively, these will be considered by the Government.

I accept there is much concern about management companies. I hope the Law Reform Commission comes up with answers in its report. I will discuss with the Deputy the points raised by her in regard to house-only estates. However, it was always the case that the footpaths or roads in some private estates were not up to standard despite the estates being deemed to have a management company. I do not know whether this is still the case but I accept that many people are walking into similar situations with their eyes closed.

In many cases, residents do not exercise their rights. When an estate is finished the residents are the management company. However, while they could remain in full control of many aspects of maintaining the property and are entitled to set standards at an annual general meeting, they often hand over responsibility to a management agent. I will check some of the points made by the Deputy with regard to house-only estates if she will provide me with the names of the estates. It may be that the services were not up to standard.

I accept this is an issue of major concern. We eagerly await the report of the Law Reform Commission.