WELCOME REFORM OF MANAGEMENT COMPANIES


Many of us who own an apartment or house in a managed estate will be aware of the ongoing problems that can be experienced with Management Companies. The Multi- Unit Developments Act 2011 (“the Act”) which became operational on 1 April 2011, is an attempt to address some of these problems. It seeks to regulate Management Companies and the behaviour of developers and to establish a fair and effective management system for controlling the companies themselves and the manner in which they operate. The legislation itself is a very welcome development in a previously unregulated area and is an acknowledgement that Management Companies are, by their very nature, different from any other companies in existence and regulated by the Companies Acts 1963 – 2010.

The Act itself has varying provisions to deal with existing and future developments. The Act applies only to Management Companies that manage residential estates and the provisions do not extend to commercial developments.

Very often when buying or selling a property, the failure of the developer to transfer the common areas can be an issue. The Act provides that as regard existing estates, the common areas must be transferred by 1 October 2011. Unfortunately, there are no sanctions for failure to transfer common areas, however the fact that people can now, on foot of the Act, refer disputes to the Circuit Court will mean that residents themselves have much more leverage as against a developer who is refusing to co-operate.

The Act is most radical in terms of the effect it has on new developments. In the present economic climate, we may not see too many new apartment developments being constructed in the near future. However, the Act provides that a developer cannot sell a residential unit unless the Management Company has already been established, the common areas have been transferred, the Management Company is issued with a fire safety certificate for the development and that an agreement is signed between the developer and the management company setting out the manner in which the estate will be completed.

The Act also provides that in future developers cannot reserve loaded voting rights in favour of themselves so they effectively retain control of the Management Companies. The Act provides that each unit holder in new developments will have one vote of equal value in the Management Company and no other person is to have voting rights.

The Act, while it does not change voting rights for existing developments, states that where any person seeks to exercise a loaded voting right it must seek the permission of the Circuit Court before doing so to ensure that they are acting bona fides and not promoting self interest over the interests of the estate as a whole.

The Act states that all Management Companies must now establish a sinking fund which will cover refurbishment, improvement and maintenance of a non recurring nature. Each unit holder must contribute at least €200 per unit per year to this sinking fund unless it is already agreed by the members of the Management Company.

Going forward, directors will be limited to acting for a period of three years after which time the position must be rotated.

Of late, there have been problems where Management Companies have been struck off the Companies Registration Office Register for failure to file returns. In the ordinary course, where a company has been struck off for more than one year, the Registrar of Companies cannot restore the company to the register and a costly application must be made to the High Court to have the company restored. This has led to problems for people in the sale and ongoing management of their property. The Act provides that where an application is made to restore a management company to the register, the Registrar of Companies may restore the company for a period of six years from the date of strike off.

In general, the changes introduced by the Multi-Unit Developments Act, 2011 must be welcomed. Until now, the area has been notably unregulated and the developments introduced by the Act can only strengthen the position of property owners in the future.

For more information on this area please contact Rachel or any member of our Property and Private Client Team

Rachel Rodgers