When buying an apartment, a purchaser should consider the proper functioning of the owner’s management company (OMC). In accordance with the Multi-unit Developments Act, 2011 (MUDs Act) all multi-unit developments must have an OMC which is primarily tasked with maintaining the common areas of the development.
It is the responsibility of the purchaser’s solicitor to review all of the documentation relevant to the OMC and advise the purchaser accordingly. The following are some of the more common matters to consider.
Transfer of the Common Areas
The developer possesses the freehold title to the land upon which the development is constructed. In accordance with section 5 of the MUDs Act, for any new development, once 80% of the units of the development have been sold, the developer is obligated to transfer ownership of the common areas to the OMC under the MUDs Act. The common areas comprise areas such as paths, green spaces, parking spots and the hallways of the buildings themselves. It is important to verify that the transfer of the common areas to the OMC has been completed and, if not, for the OMC to advise on a timeline for completion of the transfer.
Service Charge
In accordance with Section 18 of the MUDs Act, each unit owner is obligated to pay an annual service charge to the OMC which allows the OMC to carry out its duties and covers its day to day expenses It is important to check whether the vendor has paid the service charge up to date and, if not, the purchaser’s solicitor should insist that this is paid up to date in advance of the completion of the sale. The purchaser’s solicitor should also request, as part of their closing requirements, an up-to-date service charge statement to ensure there is no amount owing to the OMC. The OMC will regard the new owner liable for any outstanding service charge even where such arrears pre date the new owners purchase of the property.
The service charge is apportioned between the parties based on the closing date of the sale. If, for example, the service charge period runs from 1 January to 31 December each year and the sale completes on 1 July, the purchaser must pay to the vendor the amount of the service charge for 1 July to 31 December. In essence, the purchasers is providing a reimbursement to the vendor who will have paid the full service charge for the current period in advance of closing.
It is also important to check whether a levy has been placed on the service charge to cover the cost of, for example, fire safety works or roof repairs. This is more likely where there are not sufficient funds in the sinking fund to cover such works. Such a levy would need to be voted for at a general meeting of the members and copies of minutes of recent meetings should be requested and reviewed.
Sinking Fund
Section 19 of The MUDs Act creates an obligation on OMCs to set up a sinking fund. This fund is to cover the cost of refurbishments and remediation works i.e. expenditure of a non-recurring nature. A low sinking fund can cause concern and requires explanation from the OMC. In a particular it should be queried why the sinking fund is low. Specifically, it should be clarified what the funds were used for and whether further works are required. The OMC should also advise on when it expects the sinking fund to be replenished.
If you have any queries in relation to any of the matters raised in the above article or any property matter generally, do not hesitate to contact Adam Rockett, Pauline Horkan or Sally-Ann McCoy on 01 296 0666
