Dermot Ahern (Louth, Fianna Fail)

I am pleased to take this opportunity to introduce the Multi-Unit Developments Bill 2009 in this House and I look forward to the discussion of its provisions.

I thank the Law Reform Commission for its work in this area and, in particular, for its report and reform recommendations. The National Consumer Agency has taken a keen interest in this area and has engaged with many of the relevant bodies with a view to improving consumer protection in advance of this legislation. The Office of the Director of Corporate Enforcement has also been active and has produced an excellent publication entitled "Company Law Handbook for Owners Management Companies".

The Long Title of the Bill captures precisely the Government's objective in bringing forward the draft legislation. It is described as "an Act to amend the law relating to the ownership and management of the common areas of multi-unit developments and to facilitate the fair, efficient and effective management of bodies responsible for the management of such common areas, and to provide for related matters".

The Bill forms the centrepiece of the Government's strategy to deal with multi-unit developments and management companies. Senators will no doubt recall that I introduced the Property Services (Regulation) Bill in this House last month to put the Property Services Regulatory Authority on a statutory footing and to introduce a comprehensive licensing system for property services providers, including property management agents. That Bill's provisions dealing with management agents will therefore complement the provisions of this Bill which deals with the owners' management companies for whom they provide property services.

In its report on multi-unit developments, the Law Reform Commission identified key issues to be addressed in new legislation. These include: when exactly the property management company is to be established, and by whom; the timing of the transfer of ownership of common areas from the developer to the company; the mechanics of taking control of the company by the company members, that is, the apartment owners; internal governance arrangements for owners' management companies; the basis on which the annual service charge should be calculated and apportioned among members; the issue of whether — and if so, when — to establish a sinking fund; the problems arising when property management companies are struck off the companies register because of non-compliance with company law provisions; and the lack of a mechanism for the resolution of disputes in the multi-unit development sector.

These issues, now addressed in the Bill, are very complex. In the preparation of the Bill it was necessary to engage in intensive discussions with several Departments, the Office of the Attorney General and relevant interests to ensure that all issues of concern in this area were being met.

The Bill creates a completely new framework for multi-unit developments. As far as possible, its provisions have been designed to apply both to new and existing multi-unit developments. Rather than entering into the detail of the Bill's provisions, I propose to give an overview of how the proposed new arrangements are intended to operate in practice.

Section 1 is a standard provision which contains essential definitions and I will mention a number of them specifically. A "multi-unit development" is defined as land on which there stands erected a building which, or a part of which, is divided into units of which not less than five are designed and intended for residential use. I am aware that there are multi-unit developments with fewer than five units and that provision must also be made for them. For that reason, section 1(3) provides that particular sections which are specified in the Schedule to the Bill will apply to developments with two, three or four apartments.

The "common areas" of a development are defined as areas such as access and side roads, architectural features, circulation areas, footpaths, internal common stairways, open spaces, parking areas, utility rooms and that portion of the roof or exterior of any building not intended to form or not forming part of an individual apartment. An "owners' management company" means a company established for the purposes of becoming the owner of the common areas of a multi-unit development and responsible for the management, maintenance and repair of such areas. Some existing management bodies are not companies under the Companies Acts, so I am providing in section 1(4) that a reference to an owners' management company shall be construed as including other bodies such as industrial and provident societies, partnerships, unincorporated bodies and so on.

Section 2 is a key provision. The intention is to ensure that the ownership of the common areas of a development are transferred to the owners' management company before any apartments are sold. This will prevent situations arising where a developer retains control of the common areas long after they should have been transferred to the control of the apartment owners. The section provides that a unit in a new multi-unit development cannot be sold unless an owners' management company has been established by the developer and ownership of relevant parts of the common areas have been transferred to it. Transfer of the common areas is subject to retention of the beneficial interest by the developer. The extinguishment of the retained beneficial interest upon completion of the development is provided for in section 9.

The Bill also deals with situations where some units in a development have been sold prior to enactment of the Bill but the development has not yet been completed, and also where a development has been completed but transfer of the common areas has not yet taken place.

Section 3 provides that in cases where some units in a development have already been sold prior to the coming into operation of this section, the developer must transfer ownership of the relevant parts of the common areas to the owners' management company within six months. The transfer here is also subject to the retention by the developer of the beneficial interest, pending completion of the relevant common areas. In section 4, I have provided that in the case of completed developments the developer must transfer ownership of the common areas to the relevant owners' management company within six months of the coming into operation of the legislation.

In framing the Bill, I was determined to ensure that the transfer of the common areas did not absolve a developer from obligations to complete a development. Therefore, section 5 makes it clear that the transfer of ownership of common areas does not relieve a developer of his or her responsibility for completing the development in compliance with the Planning and Development Acts and the Building Control Acts.

I have provided in section 6 that on the sale or assignment of an apartment, the vendor's membership of the owners' management company will transfer automatically to the purchaser. The company will be obliged to give the purchaser the share or membership certificate as soon as practicable following notification of the change of ownership. The company must also ensure that the register of members is updated and complies with other relevant requirements under the Companies Acts.

Following early transfer of the common areas, section 7 provides that the developer retains rights to pass and re-pass over these areas to complete the development. However, a developer must indemnify the owners' management company against any claims made in respect of acts or omissions by the developer in the course of completion works. More generally, there will be an obligation on a developer to minimise inconvenience to residents, and to ensure that access is available to them at all reasonable times, and a reciprocal obligation on the owners' management company not to obstruct the developer in exercising any rights to the development or to adjoining land.

It appears that in certain multi-unit developments, especially early developments, the ownership of certain parts of the common areas may have been allocated to individual unit owners. For example, owners of apartments on the top floor may also own the roof and be responsible for any repairs that might prove necessary. Section 8 provides that in such cases, the unit owners concerned and the company may agree to transfer the ownership of that interest, and responsibility for it, to the company. Where either party considers that consent to the transfer is being unreasonably withheld, they may make an application to the court under the dispute resolution mechanism in section 18.

The transfer of ownership of the common areas to the owners' management company is subject to retention of the beneficial interest in the property by the developer. Section 9 provides the mechanism by means of which the beneficial ownership of the common areas is reunited with legal title in the owners' management company. When a development has been completed, the owner of the beneficial interest in the common areas must, as soon as is practicable, make a declaration that such interest stands extinguished for the benefit of the owners' management company. The declaration must be made with the consent of any mortgagee or owner of a charge on the property, but that the consent may not be unreasonably withheld.

Section 10 provides for the extinguishment of beneficial interests where a development has not been completed. It provides that where 60% of the unit owners request the beneficial owner to make a statement that the beneficial interest stands extinguished, the owner must make that declaration unless "good and sufficient cause" is shown. For example, a good and sufficient cause might be that granting the request would interfere in some way with completion of the entire development. In the event of a dispute, an application to court under section 18 may be made.

Section 11 makes it clear that an owners' management company shall have a right to carry out repairs or maintenance on a part of a multi-unit development which is not within its control where the repairs are reasonably necessary to ensure the safe and effective occupation or the peaceful enjoyment of occupation of any apartment. It also provides that the company may recover the costs of carrying out such repairs or maintenance from any person, including the developer, who had responsibility for doing so.

Section 12 applies to new multi-unit developments commenced after the coming into operation of the Act. It provides that one vote shall attach to each unit in a development, and that each vote shall be of equal value. To ease identification of such companies, the words "owners' management company" — which may be abbreviated to "OMC" — must be included in the name of any such owners' management company.

Arrangements for the governance of owners' management companies constitute an important part of this Bill and they are set out in sections 13 to 17. In framing these provisions, I have been determined to ensure openness, transparency and accountability.

Section 13 deals with the holding of annual meetings and the content of annual reports of owners' management companies. The annual reports of the company must include details of income and expenditure, and assets and liabilities; the annual service charges and sinking fund account; planned expenditure on maintenance and repair; insurance cover and contracts entered into by the company. Advance notice of the annual general meeting must be given to each member 21 days before the meeting and a copy of the annual report must be provided at least ten days beforehand. The annual general meeting must take place within reasonable proximity to the multi-unit development unless otherwise agreed by 75% of the members of the company. These specific obligations are in addition to any other obligation or duty on the company under any Act, statutory instrument or rule of law.

One of the major difficulties faced by apartment owners is the lack of transparency surrounding the annual service charge. In many cases, owners are unsure what services are provided for the payment or are dissatisfied with the service provided. To address this issue, section 14 specifies that the owners' management company must establish a scheme for annual service charges to fund expenditure on the maintenance, insurance and repair of common areas within its control and for the provision of common services, such as security, legal, accounting and so on. The annual charge must be approved by a general meeting of the members of the company. In any case in which more than 75% of the members do not approve the proposed charge, the existing charge shall remain in place until the adoption of a new charge. Where no service charge applies, the directors of the company may determine a scheme to operate for a period of four months. This section also places an obligation on apartment owners to pay the annual service charge. The annual service charge must be calculated and apportioned on a transparent and fair basis. Moreover, proper records of expenditure must be retained by the owners' management company.

Payment for "snagging" of the common areas has arisen as a problem for many developments. Section 14 provides that the service charge must not be used to cover costs which are the responsibility of a developer or builder, unless more than 90% of the members vote in favour of such use. In such cases, the owners' management company may recover the cost from any person, including the developer.

A further issue of widespread concern at the moment is whether to establish a sinking fund. It appears that many developments have not established such a fund, or if established, it may not be adequate to meet the costs of any major repairs or renovations. This can become a very serious problem if, for example, the lift has to be replaced or the roof has to be repaired. Section 15 deals with this issue by providing that an owners' management company must establish a sinking fund for spending on refurbishment, improvement or maintenance of a non-recurring nature of the multi-unit development. Unit owners will be obliged to make contributions to it which will be calculated on the same basis as the annual service charge. All multi-unit developments should have some form of sinking fund and that is why I have provided that a minimum sinking fund contribution of €200 per unit per year will apply to all developments. A higher contribution may be set where members of the company agree.

The sinking fund must be established within three years of the transfer of ownership of a unit in the development or, in cases where a development is already in existence when this section comes into operation, within 18 months of that date. Contributions to the sinking fund must be held in a separate identified account. Any disputes about the sinking fund may be the subject of an application to court under the dispute resolution mechanism in section 18. Section 16 provides that the owners' management company may issue an aggregate request for payment under sections 14 and 15. Such a request must outline the basis for the calculation of each charge.

With a view to enhancing the quiet and peaceable occupation of units within multi-unit developments, section 17 permits owners of the management company to make house rules. Such rules must be consistent with the covenants contained in title deeds and must be agreed at a meeting of members of the company. Where an apartment is let, it shall be a term of the letting that it is subject to the observance of the rules by the tenants. The rules may provide for the recovery by the owners' management company from any person of the reasonable cost of remedying a breach of the rules.

Another problem to be addressed is the lack of an appropriate dispute resolution mechanism through which aggrieved unit owners may seek redress when disputes arise. Section 18 establishes a new court jurisdiction for the resolution of disputes in multi-unit developments where attempts at mediation have failed. An application shall state the circumstance giving rise to it and details of the order or orders requested. It must also state whether attempts at mediation have been made.

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

Any person referred to in section 19 may apply to the court for an order to enforce any rights conferred or obligation imposed under the Act. Section 20 provides that the Circuit Court, concurrently with the High Court, will have jurisdiction to hear and determine an application under section 18.

Mediation should be used wherever possible to resolve disputes and that is why I have included sections 21 and 22 in the Bill. Section 21 provides that at the request of any party to an application under section 18, the court may, at any stage during the course of the proceedings, direct all parties concerned in the application to meet in a mediation conference. It further provides that where a mediation conference is directed by the court, all parties must comply with the direction. Other relevant provisions in the section relate to issues such as the time and place for the holding of a mediation conference, the appointment of a chair, confidentiality and the costs of the conference. Section 22 provides that the chairperson of a mediation conference must submit a report to the court on the outcome of the conference. A copy of the report must also be given to the parties to the application. Where the court is satisfied a party to the application did not comply with a direction to engage in the mediation process, it may make an order as to costs.

Section 23 is a saver provision which provides that nothing in the Act shall derogate from any power vested in any person or court, by statute or otherwise, and the powers conferred in the Act shall be in addition to and not in substitution for any such powers.

Another problem that has arisen with multi-unit developments has been the striking off of owners' management companies from the Companies Registration Office. This can have very serious consequences for apartment owners in the development. It means, for example, that an owner wishing to sell his or her apartment cannot do so until the company is restored to the register. At present, when a company is struck off, there is a one-year period during which the company can apply to the Companies Registration Office for restoration to the register. After one year, the company must apply to the courts for restoration. This is costly and cumbersome. Section 24 addresses this problem by extending to six years the period within which an owners' management company may be restored to the register without recourse to the courts.

Section 25 provides that the benefit of any guarantees or warranties relating to any materials used in the construction, repair or improvement of a multi-unit development shall stand transferred to the owners' management company on the transfer of the land. Section 26 places restrictions on owners' management companies entering into long-term contracts with providers of goods and services, for example, insurance contracts or broadband services. Such companies will not be permitted to enter into contracts for a period in excess of three years. In addition, any contract entered into by the company cannot include a clause imposing a penalty on the company if the contract is terminated after a three-year period.

Section 27 provides that the regulation-making powers conferred on the Minister for Justice, Equality and Law Reform in sections 14, 15 and 17 shall be exercised in consultation with the Minister for Enterprise, Trade and Employment and the Minister for the Environment, Heritage and Local Government. The Schedule to the Bill specifies provisions which apply to multi-unit developments comprising more than two units but fewer than five units. The relevant sections are sections 13, 14, 15, 17, 18, 19, 20, 21 and 22.

The provisions set out in this Bill will, when enacted, provide much improved consumer protection for the owners of apartments in multi-unit developments and will serve to assure the public that high standards will be applied and maintained in the sector. I commend the Bill to the House.