The Multi – Unit Development Act (the Act) was signed into law on the 24th January 2011 and came into operation on 1st April 2011. This long overdue piece of legislation addresses some of the issues that have historically been the source of much dispute between developers and home owners, such as transferring common areas, completion of developments, duties of management companies and service charges. The Act will apply, not only to new developments completed after the Act, but also to existing multi- unit developments.
A “multi- unit development” is defined in the Act as being a development which contains at least five residential units with shared amenities, facilities and services. Notwithstanding this definition, some of the Act’s provisions apply in respect of developments which comprise between two and five residential units. A multi unit development may also include a child care facility.
The Act provides a statutory framework for multi- unit developments. Many of the provisions are already in practice in a large amount of the developments throughout the country. However, the Act introduces new obligations on Developers in an attempt to address some of the abuses that have occurred in recent years. The Act will also assist where a homeowner is seeking to sell a property in a development where a management company is defunct.
The Principal features of the Act are as follows:-
It provides for the establishment of an owners’ management company which is to be set up at the expense of the developer.
The Developer must transfer the ownership of the common areas to the owners’ management company prior to the disposal of the first residential unit in the development (i.e. in a development where no residential unit had been sold by the 1st April 2011) and by the 30th September 2011 in the case of existing developments.
The Act differentiates between developments which are substantially completed and not substantially completed at the commencement of the Act. The Act describes a substantially completed development as one where the sales of not less than 80% of the units have not been closed by the 1st April 2011. In the case of developments that are not substantially completed, the Developer transfers the legal interest but reserves the beneficial interest to facilitate the completion of the development. In the case where the development is substantially completed (completed in accordance with the Act and contract), the developer cannot reserve the beneficial interest and he must swear a statutory declaration to the effect that the beneficial interest in the common areas and the reversion has merged with the legal interest , giving full title to the owners’ management company.
The Act contains provisions requiring a contract to be entered into between the Developer and owners’ management company outlining their respective obligations including statutory requirements, completion of common areas, retention monies and dispute resolution. The developer is required to indemnify the owners’ management company against any claims made in respect of any omissions or fault of the developer in the course of completing the development.
Service charges are placed on a statutory footing. The estimated service charge must be approved by the members at an annual general meeting. One highly significant provision is section 18(10) which places an obligation to pay all service charges levied, not only on the unit owners, but in the case of unsold units, on the Developer.
A sinking fund is required in all cases to be set up with a payment of €200 per annum or such other amount as may be agreed by the members;
Service Contracts are limited to 3 years;
The Act prohibits any exercise of preferential voting rights in the owners’ management company in existing residential developments, and provides that one vote shall attach to each residential unit, and no other person is to have voting rights. This is a welcome development as Developers will now be precluded from skewing voting rights in the management company in their favour.
A recurring problem for home owners is that the management company in existence may have been struck off as a result of the developer or their nominees failing to make annual returns. Under the normal circumstances, where a company has been struck off for more than one year, the Registrar of Companies cannot restore the company to the register unless an application is made to High Court (at considerable expense). The Act now provides an exception in the case of applications to restore management companies by the members and officers of these companies, by extending the period within which the Registrar may restore companies from one year to six years.
The Act gives the Circuit Court a wide jurisdiction to resolve disputes, and to intervene in the management of common areas and the structures in place to regulate the management and control thereof.
The Act is a welcome development for those buying and living in residential complexes as it imposes greater legal obligations on Developers and provides a framework for management schemes. However, it may be argued that the Act does not come far enough. The Act has inserted a tight time frame under which common areas in developments are to be transferred to management companies, but there is no sanctions on Developers (or in the case of insolvent Developers, Receivers or Liquidators) who fail to affect the transfers of the common areas within this time frame. Thus there is no immediate impetus for Developers to do so. It is open to home owners or members of management companies, however, to seek relief from the Circuit Court under the dispute resolution procedure set out in the Act.
We would be happy to discuss any of the above issues with you in more detail.