Owners’ Management Companies Sustainable apartment living for Ireland

/ Prepared by Paul Mooney June 2019 / This research was carried out by Paul Mooney. Clúid Housing and the Housing Agency would like to thank Paul for his work in compiling this report.

Clúid Housing and the Housing Agency would like to thank all the individuals who took part in this research. The views expressed in this report are those of the author and do not necessarily represent those of Clúid Housing or the Housing Agency.

Published by: The Housing Agency and Clúid Housing Publication date: June 2019 ISBN: 978-1-903848-61-6

Report author and lead researcher Author’s thanks and acknowledgements Author and lead researcher, Paul Mooney, is a Chartered The author would like to thank the Research Steering Group: Surveyor with over 25 years of practice in residential Simon Brooke and Brian O’Gorman of Clúid Housing, and property management including management of MUDs Roslyn Molloy and David Silke of the Housing Agency. The and PRS. Working with industry stakeholders and author would also like to thank Greg Merrin who assisted Government, Paul was involved in the drafting of the Multi- with the research and interviews. Unit Developments Act 2011 and the Property Services (Regulation) Act 2011. Paul was appointed to the board of The author wishes to acknowledge and thank for their the Property Services Regulatory Authority on its creation assistance and participation the research interviewees. in April 2012, and was re-appointed for a second term in Participants were drawn from members of the Society of January 2017. Chartered Surveyors Ireland, officials from a number of Government departments, personnel from the Housing Paul is a past vice-chair of the Irish Property and Facility Agency and the Property Services Regulatory Authority, Management Association (now part of the Society of members of the Royal Institute of the Architects of Ireland, Chartered Surveyors Ireland), lectures in residential representatives of the legal profession, members of the property management for the Society of Chartered Apartment Owners’ Network, and others. Thanks are due Surveyors Ireland/Technical University Dublin, and is a to a number of other participants for their input; they have member of the Royal Institution of Chartered Surveyors, preferred to remain unnamed. and the Society of Chartered Surveyors Ireland. Paul has delivered a number of CPD lectures to industry, has contributed to The Irish Times Property Clinic column, and written articles for the Surveyors Journal. Contents Owners’ Management Companies / 01

Contents

Abbreviations and Glossary 02

Foreword 04

Preface 05

Executive Summary 06

1 / Context 11

2 / Research Aims and Methodologies 17

3 / Owners’ Management Companies in Ireland 23

4 / Literature Research – International Comparatives 39

5 / Research Findings 61

6 / Recommendations 75

7/ Conclusion 87

References 90

Appendices 93 02 / Owners’ Management Companies Abbreviations and Glossary

Abbreviations and Glossary

AHB Approved Housing Body Also called housing associations or voluntary housing associations, they are independent, not- for-profit organisations. They provide affordable rented housing for people who cannot afford to pay private sector rents or buy their own homes; or for particular groups, such as older people, or homeless people.

AON Apartment Owners’ Network A volunteer-led advocacy organisation representing the views of owners of homes in managed estates.

BIF Building Investment Fund Also known as a sinking fund. A financial reserve accumulated by an OMC for the purpose of meeting the costs of the refurbishment, improvement, or maintenance of a non-recurring nature of the common areas of a MUD.

BLCR Building Life Cycle Report A construction technical document that includes an assessment of the long-term running, maintenance, and replacement costs of the building fabric of the common areas of a MUD.

BTR Build To Rent Purpose-built residential rental accommodation and associated amenity space that is designed with the purpose of being used as long-term rental accommodation, and professionally owned and managed by an institutional landlord.

CRO Companies Registration Office The central repository of public statutory information on Irish companies and business names. Operates under the aegis of the Department of Business, Enterprise and Innovation.

DCC Dublin City Council The authority responsible for local government in the City of Dublin.

DHPLG Department of Housing, Planning and Local Government The Government department responsible for housing, planning and local government.

Management Agent A person or company engaged by an OMC to provide services in respect of the management of a MUD. Typically arranges the maintenance and service delivery on behalf of the OMC. An agent may be involved in the management of more than one estate, and work for a number of OMCs.

MUD Multi-Unit Development A development of not less than five residential units, made up of homes where amenities, facilities and services are shared. Abbreviations and Glossary Owners’ Management Companies / 03

MUD Act Multi-Unit Developments Act 2011 An Act of the Oireachtas enacted to amend the law relating to the ownership and management of the common areas of MUDs, and to facilitate the fair, efficient and effective management of bodies responsible for the management of common areas, and to provide for related matters.

OMC Owners’ Management Company A not-for-profit company established for the management of a MUD. It owns the common areas of the estate. It is collectively owned and controlled by all the owners of the properties within the estate. The directors are elected by the OMC members, and are typically unpaid volunteers.

PRS Private Rented Sector Property owned by a landlord and leased to a tenant. The landlord could be a natural person, a property company, or an institutional investor.

PSRA Property Services Regulatory Authority The State body that under the Property Services (Regulation) Act 2011 licenses and regulates property services providers, including management agents of MUDs.

RTB Residential Tenancies Board Operates Ireland’s National Tenancy Register and resolves disputes between landlords, tenants and third parties. Governed by residential tenancies legislation. 04 / Owners’ Management Companies Foreword

Foreword

This research was jointly commissioned by 85% increase in the number of apartments Clúid Housing and the Housing Agency and in Ireland between conducted by independent researchers. 2002 and 2016 Apartment living in Ireland has increased • To be the legal owner of the beneficial significantly in recent years across or reversionary interest of each unit. all housing tenures. Data shows that the number of apartments in Ireland Since the Multi-Unit Developments Act increased by 85% between 2002 and 2011 (MUD Act), all new developments 2016. There is no doubt that apartment must have an OMC in place before living and managed estates will be a any units are sold. In developments continuing feature of Irish housing in built before the commencement of the future. the MUD Act developers are legally obliged to establish an OMC. The MUD Multi-unit developments (MUDs) are Act provided a legal framework for the developments of several homes that operation of OMCs in managed estates. share certain facilities. These managed estates are often apartment buildings Considering the rapid growth in the or duplexes, but they can also be number of apartments, OMCs, and the townhouses or stand-alone houses that period of operation of the MUD Act, share common facilities. Clúid Housing and the Housing Agency commissioned this research to profile, These communities rely on robust examine and assess the performance of owners’ management companies OMCs, and to make recommendations (or OMCs for short) for them to be for any necessary changes that could successful and sustainable. OMCs are improve their operation. established for three main reasons: • To manage and maintain common David Silke areas in MUDs. Director of Research and Corporate • To be the legal owner of the common The Housing Agency areas on behalf of the owner of the units. Simon Brooke Head of Policy Clúid Housing Preface Owners’ Management Companies / 05

Preface

The pillar functions of Government are The MUD Act was the Health, Education and Housing. All others first piece of legislation work to provide the infrastructure, physical, introduced to facilitate the administrative, and financial, to ensure their fair, efficient and effective delivery. management of OMCs

Our world has evolved to recognise that In apartment developments or managed the good of society supersedes communities of high-density housing, individual needs and wants, and we we share services and buildings, and build our societies on this basis. Our manage them in the interests of all laws and services build on this premise occupiers, setting aside individual needs and our society evolves, and continues and requirements, much like to evolve, in the interests of us all government and local authorities do. recognising our changing needs. The MUD Act was the first piece of In the built environment this takes its legislation introduced to facilitate the effect on planning and building fair, efficient and effective management regulations and controls, to deliver of OMCs. While the introduction of urban environments in the common the MUD Act has been a success, there interest. We recognise that in an is now an opportunity to review its increasingly urbanised environment we effectiveness. We can draw from must deliver high-density housing and what more we have learned since its learn to live with each other in closer implementation, and how we may build proximity than we necessarily want to. on its success, further to enhance and This requires a new type of building protect our living environments for control and regulatory environment, apartment dwellers in Ireland. where we focus not on how or what to build, but on how we live and enjoy the buildings in the interests of all within the community.

/ We recognise that in an increasingly urbanised environment we must deliver high-density housing and learn to live with each other in closer proximity than we necessarily want to / 06 / Owners’ Management Companies Executive Summary

Executive Summary

This report was commissioned to review the effectiveness and performance of OMCs in Ireland in the context of our nation’s growing need for housing, and the constraints on land from a physical, infrastructural and societal perspective.

While it is clear that better land use eight-year period to 2008 (CSO 2018). and higher densities have been part The majority of these apartments were of planning and housing strategy for sold as individual homes to owner over 20 years, the focus has been and occupiers or small stakeholder investors, continues to be on the delivery of with other apartments delivered for OMCs have existed in housing, and not the sustainable living social housing as part of the Planning Ireland since the early experience thereafter. and Development Act 2000. 1970s OMCs have existed in Ireland since the The current wave of apartment early 1970’s when the first purpose- development is fuelled by Private built apartment schemes were sold as Rented Sector (PRS) or multi-family individual units. As detailed later, the developments, where apartments are evolution of apartment titles was left not available for individuals to purchase, to the private sector to resolve with but rather all the apartments are being different stakeholders – significantly offered for rent. This is a positive those involved in development – development for our society, where high dictating the format for the future quality and professionally run rental 123 tower cranes were management environment of shared accommodation is available to satisfy the counted in Dublin in ownership. After almost 40 years, the demands of our cities. March 2019 – the highest MUD Act was introduced to bring balance to the sector and seek to ensure While this new phenomenon does number since the 2008 that OMCs were empowered to manage provide for social rented apartments economic crisis their own living environments. under planning, it does not balance the tenure mix with owner-occupiers, or Since the economic crisis of 2008 offer an OMC environment for potential we have seen our built environment tenant purchase in the future. According boom yet again with The Irish Times to Hayden & Jordan (2018) sustainable reporting the highest number of tower mixed tenure developments “where 30% cranes in Dublin at 123 in March 2019 social rented, 20% affordable rented and (Comiskey 2019). 50% private housing provide for a better chance” of success. This suggests a There is a difference in this boom, the requirement for an OMC, to support the last fuelled an increase of 85% in the diverse ownerships and ensure equitable number of apartments in Dublin in an management. It could be argued that for

/ The current wave of apartment development is fuelled by Private Rented Sector (PRS) or multi-family developments, where apartments are not available for individuals to purchase, but rather all the apartments are being offered for rent / Executive Summary Owners’ Management Companies / 07

mixed tenure to work to its optimum, the / The most significant recommendation of this report economic investment of owner-occupiers is the establishment of a regulator for OMCs. While is a key factor to its success. this could be a standalone regulatory authority, it When researching the wider could also be amalgamated into a combined Housing environment of MUDs, housing, and & Property Regulator / apartments, it was clear that there was some disconnection between policy and consumer protection. Legislation introduced in the last 15 years, Obliging OMCs each year to return specifically in respect of private rented data, confirm compliance with fire dwellings, does not recognise the role regulations, and deliver details on of OMCs and has no jurisdiction over insurance, when combined with them. Similarly, the regulation and director training, will all improve the The empowerment of licencing of property service providers quality of estate management. The does not extend to OMCs. These empowerment of OMCs efficiently to OMCs efficiently to collect shortcomings lead to complainants collect service charge debt is key to service charge debt is key being passed from one State body the sustainable success of the sector, to the sustainable success to another. This position frustrates both because uncollected debt is currently the Residential Tenancies Board and the the biggest risk. It should be understood of the sector Property Services Regulatory Authority that functioning OMCs, displaying a in resolving disputes and complaints capacity to collect service charges from where OMCs may be at fault. Similarly, their members, will offer a new market the Office of the Director of Corporate for loan products. Enforcement is known to receive complaints in relation to matters The data collation recommended will properly within the remit of the also deliver benchmarking for service aforementioned State bodies. charges, and measure the importance of the sector to our economy, in particular The most significant recommendation as employers and consumers of of this report is the establishment of a indigenous services. regulator for OMCs. While this could be a standalone regulatory authority, Given the proportion of the population it could also be amalgamated into a that this sector touches, and the combined Housing & Property Regulator expected growth of the sector in that would see a wider authority over the coming 20 years, the investment tenancies, property service providers, required now to re-align the sector approved housing bodies, landlords, and prepare it for the next wave of developers and OMCs. Such an authority apartment dwellers and owners will would quickly develop necessary be a fraction of the cost of repairing knowledge and critical data for the it in the future. development and sustainability of housing for the future.

The recommendations in this report are wide-reaching and will require primary legislative changes to implement. The result of the implementation of the changes will be to deliver a benchmark for the management of MUDs and their regulation, for the protection and benefit of the communities living and owning property within them. 08 / Owners’ Management Companies Executive Summary

Recommendations The 14 recommendations from this research refer to:

1. Improving sinking funds provision and reporting

2. Fire safety reporting and certification

3. Establishment of Housing Regulatory Authority

4. Dispute resolution and Regulatory Authority Tribunal

5. Regulatory Authority Building Inspectors

6. OMC annual return filing

7. Lease covenant and House Rules enforcement Executive Summary Owners’ Management Companies / 09

8. OMC director mandatory training

9. Enhancing OMC communications with owners

10. Enabling OMC borrowing

11. Regulatory Authority and mixed use schemes

12. OMCs engaging licensed management agents

13. Enhanced insurance cover and reporting

14. Removal of OMC audit exemption, and financial reporting standardisation 10 / Owners’ Management Companies Context

20% of apartments across the country are owner occupied Context Owners’ Management Companies / 11

1 / Context 12 / Owners’ Management Companies Context

Context

This research project, which examines the performance of OMCs in apartment blocks in Ireland, was jointly commissioned by Clúid Housing and the Housing Agency.

The research is very timely for a number or granted to a unit owner for of reasons. Firstly, the Government their exclusive use. has identified the need for apartment building as key to the delivery of The freehold of the apartments and 7.3% of the Irish housing strategy in the context of the common areas is owned by Project Ireland 2040 and the National an OMC, which is established for population live in Planning Framework. Secondly, the this purpose and is unique to that apartments compared MUD Act, which amongst other development. Each apartment is then to the EU average of things regulates OMCs, has now been owned on a leasehold title. This involves 41.8%, or the UK at 14.3% on the statute book for eight years purchasing a fixed term lease (which and there has not, to date, been any is commonly 999 years), at the end of comprehensive assessment of its which the apartment reverts to the effectiveness published. Thirdly, there freeholder (the OMC). has been a growing number of reports of OMCs failing in several key areas The OMC is typically a Company (Gleeson 2018). Limited by Guarantee, and the members of the company who collectively own it comprise all the apartment leaseholders. MUDs and OMCs Members pay an annual fee called 4,619 apartments were a service charge, which enables the granted planning MUDs are developments where there OMC to fund the management and permission under are at least five residential units and maintenance of the common areas. the units share facilities, amenities and The common areas and the freehold of the Strategic Housing services. In many cases, MUDs are the apartments are collectively owned Developments process apartment blocks. An apartment block by the apartment leaseholders. This (Jan 2018-Mar 2019) comprises the apartments in which arrangement, or variations on it, is residents live, and the parts of the block common across the world. that are shared by everyone, which are known as common areas. These areas include some structural elements such Apartments in Ireland as external walls and roofs; the entrance halls; lifts; access roads; landscaped Apartment living is a relatively new areas; and all drains, wires, ducts, etc., phenomenon in Ireland, and Ireland that serve more than one apartment. still has proportionately fewer Essentially, the common areas are those apartment-dwellers than any other parts of a MUD that have not been sold EU country, at 7.3% of the population, compared to the EU average of 41.8%, or the UK at 14.3% (Eurostat 2018; / Apartments are primarily an urban phenomenon, Figure 1). There has, however, been a as illustrated in Dublin where, in 2016, the number recent upsurge in apartment building; the number of apartments in Ireland of apartments overtook the number of houses for increased by 85% between 2002 and the first time (CSO 2017) / 2016 (CSO 2018). Context Owners’ Management Companies / 13

Apartments are primarily an urban site in the context of a municipality. phenomenon, as illustrated in Dublin Dublin City’s Development Plan 2011 to where, in 2016, the number of 2017 aspired to densities of 135 units apartments overtook the number of per hectare (DCC 2010). To put this houses for the first time (CSO 2017). in context, the density in Stoneybatter Dublin City’s Development There has been a substantial increase is 40 units per hectare compared in planning permissions for apartments to Ranelagh’s 30 and Clontarf’s 10 Plan 2011-2017 aspired in recent years (Housing Agency 2017), (Kearns & Ruimy 2010). With 7 out of to densities of 135 units and this is expected to continue for the 10 households in the State consisting per hectare foreseeable future. Between January of three people or less, and expected 2018 and March 2019 permission for to decline to two and a half people by 4,619 apartments was granted under 2040 (Government of Ireland 2018), the the Strategic Housing Developments housing stock requires an immediate process (An Bord Pleanála 2019). and significant shift to smaller unit sizes Apartment living will become an ever and better land use, like our European more important element of the Irish neighbours, as detailed above. housing system. According to Ronan Lyons of Trinity It is both inevitable and necessary that College, Dublin, the country will need this growth in apartment living should almost two million apartments over the continue. This is primarily because coming half-century to accommodate population increases and movements changing demographics and increasing dictate that housing be provided in urbanisation (Lyons 2018). This equates a far higher density than traditionally to approximately 200 units per week delivered in Ireland. For example, a in Dublin for the next 3,000 weeks. As one-hectare site could support perhaps demand for land becomes greater, this 50 houses with gardens but could will assume increasing importance. In contain 250 apartments. Kearns & addition to providing a better use of Ruimy (2010) suggest that it is unfair land, higher density housing delivers to compare density policy for a small greater population nodes in smaller

Figure 1: Distribution of population by dwelling type 2016 (Eurostat 2018)

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

1

Italy Spain Latvia Malta EU 28 Greece Austria Poland France Cyprus Ireland Serbia Estonia SlovakiaBulgariaSweden Finland BelgiumCroatia IcelandNorway LithuaniaGermany Portugal Romania DenmarkHungary Slovenia Luxembourg Netherlands Switzerland Czech Republic United Kingdom Euro area (EA 19)

Flat Semi-detached house Detached house Other

1 Provisional Former Yugoslav Republic of Macedonia 14 / Owners’ Management Companies Context

areas, making public transport, schools, common parts of the apartment block health care, policing and other facilities will be well-maintained, meaning that more accessible and more efficient for residents will be safe, the asset value of local authorities and central government the property protected, common areas Nearly 80% of apartments to provide. will be clean and attractive, the lifts will across the country are work, and the common outside areas It is important to note that apartment will be well-looked-after. If, however, rented; approximately living in Ireland is dominated by tenants. the OMC is not functioning well, 20% are social rented and Nearly 80% of apartments across the maintenance may be sub-standard. If nearly 60% are rented country are rented; approximately 20% inadequate provision has been made privately are social rented (Approved Housing Body for anticipated future works, apartment (AHB) or local authority) and nearly 60% leaseholders may be required to are rented privately. The remaining 20% make additional payments to cover are owner-occupied (CSO 2017). The unexpected expenditure. Furthermore, predominance of tenants impacts on if there are significant arrears in service OMCs, since it is the landlord, rather charges this may contribute to serious than the tenant, who is the member of financial problems for the OMC. the OMC. As the landlord does not normally live in the apartment block, in The MUD Act made significant progress many instances most of the OMC in facilitating the fair, efficient and members will not be owner-occupiers. effective management of bodies responsible for the common areas of Much of the focus in relation to apartments. However, it is clear that this apartments in the context of the current represents only the first steps, and if housing crisis is on the delivery of OMCs are to function effectively, many new homes, with little or no focus on other issues need to be addressed. the societal impact, management and maintenance costs associated with Finally, it is important to remember apartment buildings, and the nature that the challenges presented by the of co-operative living. complexities of apartment living are not new.

OMCs “Residential condominiums probably will never fully replace traditional single- If apartments are to play a positive role family homes. However, they have become in the Irish housing system, they need important alternatives to home ownership to be configured in such a way as to in many parts of the country. Condominium provide long-term sustainable housing ownership involves a person’s exclusively for residents, whether they are tenants owning an individual dwelling unit and or owner-occupiers. sharing ownership of areas used commonly by all residents such as hallways, swimming OMCs have a crucial role to play in pools, and parking lots. Unfortunately, this this. If an OMC is functioning well, the new and complex form of real-property ownership is not fully understood by people who buy condominium homes or by those / The MUD Act made significant progress in facilitating who become involved in the governance of their condominium community” (Institute the fair, efficient and effective management of bodies of Real Estate Management 1978) responsible for the common areas of apartments. However, it is clear that this represents only the first This commentary was published by the Institute of Real Estate Management steps, and if OMCs are to function effectively, many over 40 years ago in Illinois, Michigan, other issues need to be addressed / and remains relevant in Ireland today. Context Owners’ Management Companies / 15

Other jurisdictions / In Section 3 of this report practices in four jurisdictions are reviewed: Finland which offers a different Ireland is not the only country to face these challenges; the complexities that approach; the UK which struggles with its legacy of are integral features of apartment living land ownership and perpetual ground rights; and are experienced across the world as Australia and Canada, both of which addressed this cities develop and tenures change. For example, they are evolving in former matter in a robust and forward thinking manner / communist states, where it is acknowledged that “some degree of co-operation and collective action is required of the EU28, Ireland has the lowest that entails complicated arrangements …using proportion of its population living in dual systems of ownership where private apartments. It is essential that the issues ownership is fused with common property around MUDs be tackled robustly as ownership” (Hrast & Mandic 2018). the sector enters the next phase of expansion. In Section 3 of this report practices in four jurisdictions are reviewed: Finland Reviewing the regulatory environment which offers a different approach; the for developers and OMCs in other UK which struggles with its legacy of countries, and the level of recognition land ownership and perpetual ground the sector has attracted in the interest rights; and Australia and Canada, both of consumer protection, it is clear that of which addressed this matter in a Ireland is behind the game; not only robust and forward thinking manner in its protection of apartment owners several years ago, with Australia’s (New and occupiers, but in its approach to South Wales) model copied in Dubai and a coherent policy for housing, to its Singapore. As may be seen in Figure 1, delivery, and to the end users. 16 / Owners’ Management Companies Research Aims and Methodologies

OMC directors, elected from the body of members and home owners, are volunteers Research Aims and Methodologies Owners’ Management Companies / 17

2 / Research Aims and Methodologies 18 / Owners’ Management Companies Research Aims and Methodologies

Research Aims and Methodologies

Research aim encouraged apartment living, there has been little focus on the enjoyment and The primary research objective is as success of apartments after they are follows: in light of the rapid growth in occupied and sold. There are 200,000 the number of OMCs and the operation of the MUD Act, to examine and assess apartments in Ireland the performance of OMCs, and to make Methodology according to the 2016 recommendations. Census The methodology employed was It is important to note that there are agreed with the Research Steering significant difficulties associated with Group consisting of the lead researcher some data collection. For example, it Paul Mooney, Simon Brooke (Head is not known exactly how many OMCs of Policy, Clúid Housing), Roslyn there are in the State. Data on other Molloy (Researcher, Housing Agency), related issues from different sources David Silke (Director of Research and appear to be contradictory, (2016 Corporate, Housing Agency), and Brian Census puts the number of apartments O’Gorman (CEO, Clúid Housing). in Ireland at 200,000, with GeoDirectory indicating that there are 180,741 in It was agreed from the outset that the total by Q2 2018, suggesting a 10% data obtained would be qualitative- decrease between 2016 and 2018). based rather than widespread Taking the rise in the PRS, and the quantitative research. The agreed increased amount of development by methodology was as follows; AHBs, it is also difficult to determine 1. To identify and interview relevant how many apartments built since the stakeholders in the OMC sector, financial crisis are in MUDs, be that in including representatives of fractional ownership requiring an OMC, Government (local authorities, policy rather than a multi-family investment, or makers and civil servants), Industry in social housing developments, where (architects, planners, developers, the entire building is in single ownership solicitors, etc.) and Users (directors, and an OMC is not required. members and residents of OMCs, management agents, AHBs, etc.). It was clear from the outset that there is 2. To prepare broad interview a severe lack of data gathered in respect questionnaires for use in interviews of OMCs and their function. There are so as to allow the interviewees’ conflicting statistics on the size of the opinions to develop. sector, in both number of units and size 3. To ensure that the interviews would of population living in MUDs. This could not be onerously structured to allow reflect that, while for many reasons discussion and elaboration successive Governments have on relevant themes. 4. To encourage discussion, debate and deliberation in focus group environments with stakeholders. / It is important to note that there are significant 5. To develop more structured difficulties associated with some data collection. For questionnaires for use in case example, it is not known exactly how many OMCs studies, to enable analysis. 6. To research examples of how there are in the State. Data on other related issues the sector performs in other from different sources appear to be contradictory / jurisdictions. Research Aims and Methodologies Owners’ Management Companies / 19

7. To carry out a stakeholder seminar / Three OMCs volunteered to participate in door-to- following the draft of the original door interviews conducted by the research team. recommendations. 8. To deliver the final report and Questionnaires were developed to measure the recommendations. happiness of residents with their living environment and to interrogate their knowledge of the OMC Data gathering and review structure /

International documentation review were developed to measure the The lead researcher identified four happiness of residents with their living countries to research, for various environment and to interrogate their reasons, from proximity and similarity knowledge of the OMC structure. to the culture and legal system of Ireland, to best practice examples. Stakeholders’ seminar Legislation, tenure systems and Following the qualitative and literary housing cultures were examined in research, the research group convened each of the chosen jurisdictions, with a stakeholders’ seminar to present many recommendations coming from the draft recommendations of the examples of action by governments research. A number of stakeholders overseas. were invited from Government, Industry and User categories, and the draft Semi-structured interviews recommendations were presented with stakeholders and discussed. A semi-structured interview template was developed for each category of Structure of the report stakeholder, designed by the lead Based on the data collected and researcher and approved by the reviewed, and drawing on the lead Research Steering Group. This allowed researcher’s own experience in exploration of some of the key areas in the OMC sector, this report has more detail, depending on the particular been prepared for publication and viewpoint and role of the stakeholder presentation to Government. The interviewed. Interviews were carried out objective is the implementation of over a number of months and were not the recommendations by way of restricted in time. primary legislation.

Structured focus groups Chapter 2: Introduces OMCs in Ireland, Focus groups were established with the their evolution, the size of the sector, assistance of the Apartment Owners’ the key stakeholders, structure and Network and Clúid Housing. Structured shortcomings. It offers some background questionnaires were developed, and all to the introduction of the MUD Act and participants answered confidentially. its purpose. It details some of the topical Following the completion of the issues around OMCs, such as sinking questionnaire, the relevant topics funds, funding service charges, and the were elaborated on by the researcher legacy of self-certification and building to examine and challenge the opinions defects. of the participants. Chapter 3: Introduces international Case studies comparisons of multi-owned housing in Three OMCs volunteered to participate the UK, Finland, Australia and Canada, in door-to-door interviews conducted illustrating the size of the sector in these by the research team. Questionnaires countries. It documents the manner in 20 / Owners’ Management Companies Research Aims and Methodologies

which issues similar to those in Ireland Chapter 5: Sets out the were tackled through early government recommendations in summary and intervention and legislation. detail, together with the objective of each recommendation. Chapter 4: Sets out the research findings based on in-depth interviews, focus Chapter 6: Concludes the report. groups and surveys of three apartment developments. Interviews were conducted with key stakeholders from policy and law makers (Government and State bodies), designers and providers (industry stakeholders) and civil society (apartment dwellers and owners, property managers and advisors). Interviews sought to identify the attitudes towards the sector and identify shortcomings and potential solutions. Research Aims and Methodologies Owners’ Management Companies / 21

Interviews sought to identify the attitudes towards the sector and identify shortcomings and potential solutions 22 / Owners’ Management Companies Owners’ Management Companies in Ireland

21.4% of Dublin’s residential stock is apartments (74,327 in the last Census) Owners’ Management Companies in Ireland Owners’ Management Companies / 23

3 / Owners’ Management Companies in Ireland 24 / Owners’ Management Companies Owners’ Management Companies in Ireland

Owners’ Management Companies in Ireland

Addressing a well-attended public seminar on OMCs, organised by the Law Society, in Blackhall Place during the property boom of the mid 2000s, a prominent law professor proclaimed that whoever came up with the concept of an OMC and long leasehold titles to create equitable title for apartment ownership was a genius.

In 25 years of practice, this author is The introduction of tax incentives for inclined to agree that the concept, private rental sector properties led to intention and structure is equitable, large-scale apartment development. This fair and democratic; it fails only when was followed by the urban regeneration 7.3% of our population abused, misunderstood or ignored. incentives of the 1990s, including Temple Bar, the IFSC, Smithfield, and live in apartments, other central locations, where tax relief 52.4% in semi-detached The Evolution of OMCs was offered to landlords investing in houses, and 40.1% in property. Addressing suggestions that The OMC structure has been in place first-time buyers and potential owner- detached houses since the early 1970s, when long occupiers were being priced out of leasehold apartments were first sold the market by landlords, restrictions and operated with success. In most were introduced limiting the number circumstances, the demographic of of tax relief properties and investor ownership was split between mature purchasers. This introduced a new residents trading down, individual generation of owner-occupiers owner-occupiers, and small holding exposed to the OMC structure. landlords. In their early days, apartments were not a “foot on the property ladder” It was clear from the early 1980s that product for young couples or families, development of apartment buildings and they were certainly not promoted was not simply a more profitable use for long-term family living. Playgrounds of land but also something that central were not provided, and “no ball games” government and municipal councils signs were the norm in landscaped promoted for sustainable growth of our areas. There were higher levels of cities, to avoid urban sprawl. It was a owner-occupancy, and standards were tool for urban regeneration and re- service-driven rather than cost-driven. invigoration of our city centres, making them more vibrant, cosmopolitan and By the 1980s, new generations of safer. It also relieved local authorities owners started buying apartments. of considerable responsibility for providing services to housing estates and areas to be taken in charge, with / It was clear from the early 1980s that development of the creation of private common areas apartment buildings was not simply a more profitable under the ownership of OMCs now becoming a private matter. Given our use of land but also something that central government local authorities’ experiences in the and municipal councils promoted for sustainable growth / management of common areas of public Owners’ Management Companies in Ireland Owners’ Management Companies / 25

multi-storey apartments, it is difficult on the open market similar to other to understand how the private sector property models. was not only allowed to evolve with its own structure of ownership but that it took so long for Government to address The size of the OMC sector It is difficult to such an important issue. Guidelines for determine the size of Planning Authorities, published in 1999, It is difficult to determine the size of the suggested that “an increasing number of OMC sector in Ireland. As suggested the OMC sector residential schemes have been privatised earlier, data can be contradictory, and and are maintained on a permanent basis there do not appear to have been by management companies” and that these attempts in the past to collate such data. “will not be restricted to inner suburban/ city centre locations” (Department The definition of an apartment is a of Environment, Heritage and Local dwelling which exists in a building Government 1999). This indicates that of five or more dwellings. The 2016 the evolution of high-density housing Census confirmed that there were has been part of our Government housing approximately 200,000 occupied strategy for 20 years, and that there apartments in Ireland (CSO 2018). was never an appetite to put a robust Eurostat figures referring to 2016 structure for its operation in place. suggest that just 7.3% of our population live in apartments – compared to semi- OMCs began to come to the attention detached houses (52.4%), and detached of local authorities in the mid-2000s, as houses (40.1%) – the lowest percentage their ownership in OMCs increased (due of apartment dwelling in Europe to Part V acquisitions), and more and (Eurostat 2018). more owners approached their councils to complain of issues within their own According to GeoDirectory (2018), 9.1% OMC. Much of this was focused on new of residential stock is apartments, with developments, where control had not 180,741 apartments in total. In Dublin, passed to the unit owners, where there 21.4% of residential stock is apartments were building defects, and where many first-time owners of apartments were realising the costs and prohibitions associated with apartment ownership. This coincided with the economic crash, which put many of the same OMCs under financial hardship as service charges became even more difficult to collect.

The ownership structure in MUDs is complex and does not have any simplistic solutions, and this is evidenced by experiences overseas. The Irish system of fractional ownership, or co-ownership, was created by private sector developers and their legal advisors, using their own initiative. It established a beneficial ownership and tenure structure that would deliver value to the unit owner and provide security for mortgages, thereby creating a product that could be sold at a profit 26 / Owners’ Management Companies Owners’ Management Companies in Ireland

/ In simple terms, the OMC is the glue that binds charge for an apartment, nationwide, together the separate interests held by owners of €1,500 per annum is suggested. On this basis, the view could be taken that of property, where there are shared structures or cumulative OMC turnover is in excess services that cannot be provided individually or of €270m. Almost all of this income separated from each other / is re-invested in electricity charges, insurance, management fees, gardening, cleaning, waste management services, (74,327 in the last Census), representing building contractors and other trades. a significant share of the national OMC trade is an important factor to apartment stock. many small companies and professional service providers in the country. 90,000 extra apartments The number of apartments has will be needed in Dublin increased by 85% since 2002. to meet population growth The National Planning Framework OMC structures in the next 20 years anticipates an increase in population of 25% by 2040 (Government of Ireland An OMC is “the owner of the common 2018). 50% of new housing is to be areas of a multi-unit development”, where provided within the existing footprint of a MUD is “land on which there stands our cities, to accommodate an increase erected a building comprising a unit or in population of 20%. It follows that we units…. that amenities, facilities and services will need to provide accommodation are to be shared” where there is not less for 145,000 people within the existing than five residential units (Section 1, footprint of Dublin City, which will MUD Act). either require more efficient land use 74% of Europe’s or the development of existing open In simple terms, the OMC is the glue population is urban spaces. More efficient land use is that binds together the separate interests (UN DESA 2018) achieved through high-density housing, held by owners of property, where which will mean a significant increase there are shared structures or services in apartment buildings and managed that cannot be provided individually environments, or around 90,000 extra or separated from each other. In an apartments within the next 20 years apartment block the concept is easily – more than doubling Dublin’s current illustrated, as apartments on the apartment stock. second floor cannot exist without the structural support of those beneath, The world is becoming more urbanised and those beneath are not watertight and the rate of migration to urban without those above providing their areas is increasing. In 2007 the United roofs. This is over-simplified, but other Nations Population Fund confirmed interrelationships follow; be they the that, for the first time, global urban shared structure, hallways, lifts, roofs, population exceeded rural (UNPF 2007). foundations and other building fabric It was anticipated then that by 2030 common areas, or the shared facilities 80% of Europe’s population would or services associated with the building live in urban areas (Dupuis 2010). On and its occupation. 16 May 2018, the United Nations Department of Economic and Social The Law Reform Commission report on Affairs confirmed that Europe had MUDs published in 2008, noted that reached an urban population of 74% difficulties arose from “a combination of (UN DESA 2018). two factors; poor governance arrangements, in which some developers retained The sector may also be viewed from an inappropriate control over MUDs and an economic generation perspective. In the understanding deficit among apartment most simplistic terms, an average service purchasers who seemed to be unaware of Owners’ Management Companies in Ireland Owners’ Management Companies / 27

the consequences of buying an apartment in membership, unlike a shareholding a development by contrast to buying a single in private limited company, is easily house” (Law Reform Commission 2008). transferred with the ownership of the property, without the need for transfer The legal framework for this is complex, documents. The owners’ register is Estimated cumulative as is the equitable recovery of the also the OMC members’ register for costs associated with management, Company Law purposes. OMC turnover is in maintenance, administration and other excess of €270m relevant costs. Until the recent Companies Act 2014, CLGs could not avail of audit exemption. In Ireland, the structure that evolved An audit exemption may deliver a cost was the use of a company to hold the saving to an OMC, however it could be reversionary or freehold of the land and argued that the audit offered comfort building, with unit owners becoming to the members, in that their auditor members and collectively the owners had certified the accounts. This is an of the company. Following the transfer appropriate approach for not-for-profit of the freehold to the company by the companies where the directorships are developer, the company becomes the voluntary. OMC boards should also be lessor to each of the leases granted to aware of specific requirements under the unit owners, typically under 999- their own leases and constitution year leases. regarding the certification of annual accounts. The legal framework sought to create a structure where the owners are collectively empowered to operate the Figure 2: The circular structure of the OMC common parts, and determine services concurrently with their individual interest in the unit. In its correct use, it Owners' is transparent, inclusive, democratic and Management Company equitable. Issues escalated in the mid- is the owner of the freehold of 2000s when apartment development the development and grants a accounted for approximately 25% of long lease to the unit owner. housing output and developers were The OMC is responsible for slow to deliver control and pass legal the delivery of services (Lessor title to OMCs. This undermined the Covenants), enforcement of House Rules (Lessee Covenants) and the ability of owners to have control over operation of the Sinking their MUD through their OMC. It Fund Scheme. left the delivery of services, service charge level determination, and overall management strategies to developer- appointed management agents, or the The unit owner is The unit owner is a granted a long lease and has developer themselves. member of the OMC and, as beneficial ownership of the such, has a share in the freehold apartment subject to the covenants The significant majority of OMCs avail interest of the development and contained in the Lease title. The of the “limited by guarantee” type its reversion. The unit owner is unit owner is entitled to occupy entitled to rights, as a member of of limited liability company, i.e. the or have the benefit of rent from the OMC, to attend meetings, Company Limited by Guarantee (CLG). the unit. The unit owner is obliged vote at meetings, become This entity is typically used for “not-for- to pay service charges to a director, etc. profit” companies, which OMCs are. the Lessor. Unlike companies limited by shares, CLGs allow for unlimited membership, without attracting additional company reporting responsibilities. CLG Source: Paul Mooney 28 / Owners’ Management Companies Owners’ Management Companies in Ireland

/ The MUD Act requires The power of OMCs is designed to lie Shortcomings of the OMC structure OMCs to produce annual with the membership. The membership, The democratic and equitable legal in turn, empowers elected directors structure of OMCs; empowering the reports and present service (usually from their membership) to home owners and their directors, is also charge budgets to their oversee and manage the company in the one of its significant flaws. Directors, members for approval. interests of all members. The directors elected from the body of members and The Act empowers OMC often delegate a number of important unit owners, are volunteers. They often tasks to a management agent, with have little experience of the complex members to influence the the delegated authority varying from nature of management companies and service charge levels, the company to company. MUDs. The board of directors, with no type of services provided training, becomes responsible for the The documents that deliver specific management of complicated multi-million and to understand the detail on the obligations of the OMC euro properties, involving many technical relationship between and its members are the company and expensive facilities. Boards of the two / constitution (memorandum and OMCs often become over-dependent on articles of association), and the title management agents or a small number of the property, which evidences the of directors for guidance and influence in tie between property ownership and decision-making. membership of the OMC. This usually takes the form of a long leasehold, Being a director of an OMC is often a however in housing estates title may thankless and time-consuming task that, be in the form of a lease of easements, at best, is taken up by civic-minded unit or through reciprocity of covenants on owners and, at worst, by individuals freehold title (Section 48, Land and pursuing personal agendas. Conveyancing Law Reform Act 2009). Often, focus is placed on saving money The empowerment of the members and micro-managing parochial issues. This is manifested in the annual general can be at the expense of good corporate meeting, which under company law governance, sustainable financial models (Section 175, Companies Act 2014) and for service charges, and planned the MUD Act (Section 17) must be held maintenance of the building’s fabric and each year. There are strict AGM agenda facilities. A board can risk failing to items detailed in statute, and further invest in specialist advice to inform it of requirements are implied in the MUD strategic management moving forward Act. Precedent company constitutions and the establishment of a sinking fund. for MUDs that reflect the requirements All of this is in the context of keeping of the MUD Act are in common use. the unit owners and members informed These constitutions include many and happy within their built environment. standard requirements, such as the rotation of directors, and that they should resign and seek re-election MUD Act (if desired and eligible), rather than remaining on the board in perpetuity The enactment of the MUD Act without challenge. was a result of focus on the sector, first addressed by Evelyn Hanlon of The MUD Act requires OMCs to Dublin City Council in the publication produce annual reports and present of “Successful Apartment Living” service charge budgets to their members (Hanlon 2006 and 2007). This was for approval. The Act empowers OMC quickly followed by reports issued by members to influence the service charge the National Consumer Agency and levels, the type of services provided the Law Reform Commission, and the and, importantly, to understand the establishment of the Apartment Owners’ relationship between the two. Network. Owners’ Management Companies in Ireland Owners’ Management Companies / 29

It was clear that the growth of apartment Law Reform Commission as the ownership and the changing demographic “understanding deficit”. of OMC members were creating problems in the management of MUDs. Issues The overarching pieces of legislation ranged from abuse by developers retaining that OMCs must comply with are the control of OMCs, to underfunding of Companies Act and the MUD Act. It is service charges, building defects, from both Acts that directors may take oppressive directors, and ineffective guidance and instruction regarding their agents. Ultimately, much of this was duties, and that members may understand captured in what was referred to by the the extent and nature of their rights.

Table 1: Summary of Multi-Unit Developments Act 2011

Issue Section Summary

Application of Act 2 Details the intention of the Act to include mixed-use developments and the relevant sections for them

Conveyance of common areas 3, 4 & 5 Requires developers to convey reversionary interest on all developments completed or in construction and future developments

Transitionary/development 6, 7, 9, 10, Obliges the OMC to join in additional purchases and the developer to period 11, 12 & complete the development and other issues around the phased completion 13 of a development

Automatic transfer of 8 Confirms the connection between membership/shareholding of OMC membership and unit ownership

Voting rights and OMC 14 & 15 Confirms voting rights at one vote per unit and the inclusion of words structure “Owners’ Management Company” in the registered name of all new OMCs

Directors 16 Confirms requirement for retirement and re-election of directors every three years

Annual meetings and reports 17 Details requirements for AGMs and the production of an Annual Report in addition to Financial Statements

Annual service charges 18 Requires the OMC to approve service charge budgets at a general meeting prior to issuing any demands

Sinking fund 19 Obliges the OMC to create a sinking fund and detail how it should be agreed at a general meeting each year

House rules 23 Empowers the OMC to create legally binding house rules at a general meeting of owners

Dispute resolution and 24, 25, 26, Encourages disputes in OMCs to be referred to mediation, and empowers rehabilitation of OMCs 27 & 28 the courts to alter OMCs for specific purposes

Restoration of OMC to 30 Enables an OMC to be restored to the company register on certain company register conditions

Transfer of guarantees 31 Obligation on developer to transfer guarantees and warranties, together and documents with all relevant building and management company documentation

Restriction on contracts 32 Restricts the OMC from entering into prohibitive contracts 30 / Owners’ Management Companies Owners’ Management Companies in Ireland

/ The board of directors, with no training, becomes funds. As a piece of civil legislation, responsible for the management of complicated multi- it does not impose fines or penalties for breaches, or introduce any form of million euro properties, involving many technical and regulation. This was not unintentional expensive facilities / and follows the democratic ideology of OMCs, in that the Act empowers unit owners to call their own OMC to task The MUD Act dealt with a number of over breaches. The Act enables owners important issues, including the transfer to take action for damages against the of power to the unit owners through OMC in the event that they are at a the requirement to convey the freehold personal loss. or reversionary interest of the long leaseholds to the OMC. The Act put A shortcoming of the legislation was in place a framework for the transfer that it did not sufficiently empower of key documents, warranties and the OMC in its relationship with the guarantees, together with certificates unit owners. OMCs continue to rely of compliance. It did fall short on on the covenants and obligations in building control issues, such as requiring lease documentation for enforcement developers to complete developments against unit owners in relation to service to a particular standard, and to provide charge recovery, enforcement of house comprehensive latent defect insurance. rules, alterations to the property, and This occurred simply because it was the behaviour interfering with co-owners’ then Department of Justice, Equality quiet enjoyment. The only recourse on and Law Reform, and not the then these matters is through the courts, and Department of Environment and Local this is costly and time consuming. It could Government, that was legislating. be argued that the requirement in the Act (Section 24) for mediation reduces the power of the OMC and encourages MUD Act – commentary compromise. This favours the individual unit owner in breach over the collective The Act was written in the context unit owners seeking to enforce. Breaches of empowerment of OMCs and of lease covenants are often black and their members; the unit owners. The white and, while there may be some obligation to convey the reversionary mitigating circumstances, these should interest, and other requirements not dilute the power of the OMC. regarding membership and directorships, meant that the abuse of the system by The Department of Justice Equality and some developers could be overcome. It Law Reform, again, showed their support was unfortunate that the legislation was and understanding of the sector by introduced during the economic crisis making service charge debt capable of when development companies were being excluded from personal insolvency failing on a regular basis. The choice left arrangements at the discretion of the with OMCs was simply to accept title as OMC (Personal Insolvency Act 2012). it was delivered, rather than being able This approach recognises that service to rely on legislation for anything more charge defaults ultimately increase the robust by way of handover. costs for compliant, paying unit-owners, and interfere with their enjoyment of the The sections of the Act dealing with the full suite of services to their homes. operation of the OMC offer guidance on the company structure, requirements It is not clear why the MUD Act was regarding meetings, service charge the responsibility of the Department budgets, annual reports, house rules, of Justice, Equality and Law Reform, and a requirement to introduce sinking as it would have been better suited Owners’ Management Companies in Ireland Owners’ Management Companies / 31

to a Government department with Figure 3: Society of Chartered Surveyors Ireland 2018 responsibility for housing. First published as a Bill in May 2009, it was enacted in Percentage of agents – Reporting Age of MUDs surveyed January 2011, immediately prior to the inadequacy of sinking funds collapse of the Cowen Government. 5%

Thanks to the open-mindedness of 11% Seamus Carroll, assisted by Michael 17% 20% Holohan of the Department of Justice, Equality and Law Reform, a forum was 11% established including the Apartment 19% Owners’ Network, Irish Property and Facility Managers’ Association (now incorporated into the Society of Chartered Surveyors Ireland), 39% Construction Industry Federation, Law 78% Society, Royal Institute of the Architects of Ireland, and Engineers Ireland. This forum contributed to the legislation over <25% 25%-50% 0-5 years 6-10 years 11-15 years a period of just under two years. 51%-75% 16-20 years 21 years plus

Topical issues they are for the decoration of common / The purpose of The sinking fund time bomb areas and lift replacement; few people sinking funds is often The MUD Act requires each OMC to think of the fabric of the building, and create a sinking fund within three years all renewable/perishable parts during misunderstood. Many of the development being completed, its predictable lifetime. Without being believe that they are for or within 18 months of the date of exhaustive, this includes mechanical the decoration of common commencement of the relevant section and electrical plant and equipment (Section 19) of the Act, i.e. by October (lifts, main electrical panels, life safety areas and lift replacement; 2012. systems, lighting, water pumps, etc.), few people think of the roofs, fall arrest systems, external fabric of the building, and The Act detailed that the fund is to cladding and facades, common area all renewable/perishable be created to discharge expenditure glazing, ironwork and metalwork, tiles, reasonably incurred on refurbishment, floor coverings, roads, landscaping, parts during its predictable improvement, maintenance of a non- water features, ventilation systems, lifetime / recurring nature, or advice relating to water tanks, together with internal such expenditure. It also required the and external decoration. sinking fund contribution to be approved at a general meeting of owners, Sinking fund levels should be otherwise the amount levied shall determined by ascertaining the useful default to €200 per unit (Section 19(5)). life of each of the perishable/renewable facilities enjoyed by a MUD, and The phraseology used in Section 19(5) estimating the cost of replacement at has led to considerable confusion as the year of replacement. The costs of to how sinking fund contributions each element should be combined and are levied, as the section suggested equalised as much as possible over an an equal rate per unit, instead of agreed period – usually between 20 and acknowledging obligations based on 50 years – with an annual amount to be lease covenants. set aside calculated. This annual amount is then levied in accordance with title The purpose of sinking funds is often provisions following its approval at a misunderstood. Many believe that general meeting of owners. 32 / Owners’ Management Companies Owners’ Management Companies in Ireland

In a recent SCSI publication 86% of the outset as the building is used by MUDs surveyed had not prepared a its owners. This means that the user or Building Investment Fund report, with owner contributes towards the wear 78% reporting that sinking fund levels and tear of the common areas and 78% of agents surveyed were inadequate (Society of Chartered building fabric as they use it, rather than Surveyors Ireland 2018). leaving future owners to pay for past said less than 25% of users’ enjoyment. Consider buying a MUDs have adequate The repercussions of inadequate property requiring refurbishment; the sinking funds sinking funds are two-fold. In the first price is discounted based on the level instance, failure to plan is realised when of investment required to bring it to a a part of the building fails and requires desired standard. Similarly, in a mature immediate replacement, and funds are and discerning market one would not available. This requires immediate expect that property values in a MUD action, with the OMC convening a with a poorly funded OMC would be general meeting to agree a levy to discounted by the level of perceived fund the replacement. Prudence would levies required to bolster the OMC suggest that the OMC should not sinking fund levels. pursue or order the replacement works until such time as funds are available, in The elephant in the room with sinking which case there may be considerable funds is not their inadequacy or the disruption. expected draws on funds due to those items allowed for in the MUD Act, but Taking the circumstances of a lift rather the draws on owners’ funds replacement as an example, a planned to fund the remediation of building lift replacement will typically require a defects. The legacy of self-certification payment of 30% on order, with an order and poor building practices up until period of eight weeks. Installation of the 2014, but substantially until 2008, lift will take a further six weeks. Convening is a cost that no owner would have the general meeting and collecting at expected to have to fund. These are least 30% of the cost will take not less not items of depreciation or wear and than three weeks. This would result in a tear, but are costs incurred due to minimum down-time for the lift of 17 the failure of others to deliver to the weeks, as opposed to six weeks when standard to which they were obliged planned and properly funded. Realistically, and contracted. Many of these failings the unplanned lift replacement with no are discovered too late, and are not funds available will take approximately covered under any structural six months from breakdown to a new lift guarantee or warranty. being installed. As most Irish apartment buildings are serviced by a single lift, this Funding Owners’ Management could leave those that need it the most Companies – service charges in severe difficulty. OMCs are entirely reliant on funding from their members via an obligation in Alternatively, an OMC, realising that it their title documents to pay a “service does not have an adequate sinking fund, charge” in order to fund the financial can start collecting funds at a faster commitments of the OMC. This requires rate, to make up for previous years of OMCs always to be in funds, and for lower or non-contribution. each member to trust the OMC to provide services by paying in advance It should be noted that there is an of the delivery of service. equity in sustaining an even sinking fund contribution in the context of the OMCs should not contract for the transfer and sale of apartments. The delivery of services if they are not sinking fund should be built up from confident that they will be in a position Owners’ Management Companies in Ireland Owners’ Management Companies / 33

to pay. To do so could be considered Significant time is taken by agents reckless trading by the directors, and and OMCs to keep proper books of could create a situation where the account, manage cash flow and keep directors become personally liable for service providers paid and willing to the OMC debt. work. Collection of service charges is very often overlooked as being one of The service charge scheme was greatly the most important functions of the improved by the MUD Act. Annual OMC, and it is frequently regarded service charge budgets must now as the least enjoyable and the most be approved at a general meeting of difficult function. As somebody involved owners. This has enhanced transparency in teaching property management, the and service charge collections. author does not teach debt collection, but does spend significant time on debt The service charge scheme collection in his work. Without funds, A significant feature, and a repeatedly OMCs fail. While the MUD Act did refer contentious issue with unit owners, to collection of service charges and is the payment and fixing of service obliged unit owners to pay, did it go far charges. Service charges are the fees enough? Could it have gone further? levied on each unit owner in order to The categorisation of service charge fund the provision of services to the debt as excludable under Personal MUD. Service charges are payable in Insolvency legislation was a material advance, usually annually, following the approval of a budget at a general meeting of owners. / A significant feature, and a repeatedly contentious issue with unit owners, is the payment and fixing of Service charge collection, remains service charges. Service charges are the fees levied a significant task for any OMC and property management agent. As each on each unit owner in order to fund the provision of OMC is an individual legal entity, it services to the MUD / must manage its own financial records, no matter how large or small it is. This means that each OMC must operate Figure 4: The service charge scheme its own bank account for lodgement of service charges and payment of Services required accounts. It must maintain individual • Lessor’s obligations accounting records for the company • Statutory obligations and each of its members. It must raise • Physical requirements charges in accordance with the MUD • External and other factors Act, and maintain records in accordance with its obligations under both lease title and the Companies Act. Service charge budget • Estimate of expenses for coming year for services Convenient and robust methods of cash identified collection, such as direct debit and laser/ • Apportionment fo service charges to determine credit card, are not available to most contribution from each owner OMCs. This is because banking systems are not designed for small entities; banks require large turnovers before Approval of service charge scheme agreeing such collection methods. As • Preparation of budget a consequence, OMCs are required to • Approval of board of directors of OMC trust their funds to management agents, • Convening of general meeting to approve budget who carry out collection functions on • Demands are issued their behalf. 34 / Owners’ Management Companies Owners’ Management Companies in Ireland

/ When service charges recognition of the injury that non- to pursue service charge debt, and are not paid by one payment of service charges causes. This the difficulty in persuading courts to treatment acknowledged the collective penalise defaulters, by allowing costs member of the OMC, it is nature of service charge and sinking and interest charges, almost rewards the other members who fund schemes. debtors for non-payment. Property title, fund the default. When in the form of leases, for units in OMCs service charge debts are OMCs differ from most trading usually includes provision for penalty companies. Commercial companies interest on debts. This is to encourage written off, it is other operate in an environment of risk – unit owners to borrow from a bank at a members who pay for the entrepreneurs creating start-ups lower interest rate in order to pay their that write off / take risks for reward, and those risks service charge. It is a deliberate penalty include the risk of non-payment. Risk designed for equity purposes, and yet is is something that is factored into each often dismissed by the courts as being commercial entity, and reward or profit punitive. is often correlated with the level of risk. This is where OMCs are different. An As part of a recent study on behalf of OMC has a fixed customer base – its the Housing Agency, some 50 OMCs membership or unit owners. It must were analysed as part of a financial present a budget for expenditure to its review. They were split into three customer base for approval each year. It categories; small being less than 30 will also show the proposed contribution units, medium being between 30 and payable by each of its members. There 200 units and large being over 200 is no room for reward or profit; there is, units. The review used the most recent however, room for default and the risk accounts lodged with the Companies of insolvency. Registration Office, analysing the balance sheet to measure sinking When service charges are not paid funds, equity and solvency. by one member of the OMC, it is the other members who fund the A sample of 50 OMCs was taken and default. When service charge debts further analysis carried out to determine are written off, it is other members the level of debt and, in particular, debt in who pay for that write off. Essential the context of income. Data was available services are funded by those unit for 33 of the companies. See Table 2 for owners who pay promptly and in full. breakdown. The cumbersome legal process taken

Table 2. Analysis of debtors to income in OMCs

Owners’ Management Companies Average Income Debtors as a Cash as a per OMC percentage of percentage of Income income

Small (less than 30 units) €23,012 36.36% 46.86%

Medium (between 30 and 200 units) €81,654 44.32% 115.09%

Large (over 200 units) €514,230 66.99% 65.44%

Overall average €238,953 52.04% 82.13%

Source: Paul Mooney analysis of CRO returns of 33 OMCs Owners’ Management Companies in Ireland Owners’ Management Companies / 35

As service charges are payable annually (BCAR), only 4,114 apartments have in advance, and the figures in Table 2 been developed in Ireland (CSO 2018). are taken from year-end accounts, it This leaves over 170,000 apartments is surprising to see that the average developed under either the previous debt at year-end runs at 52.04% of regulations introduced in 1992, or the 6,603 apartments were income, rising to almost 67% for larger bye-law system pre-dating the 1992 developments. The reality is that in the regulations. built out of the total 33 developments surveyed, the rate of housing production of debt as a percentage of income ranges The Building Control Act 1990 led 53,578 homes (2011-2017); from 0.51% (small OMC) to 298.55% to the introduction of “Opinions on approximately 12% of new (large OMC). Four OMCs had over one Compliance”, often mistakenly described year’s service charge income in debtors. as “Certificates of Compliance”, but housing stock (CSO 2018) falling well short of certification As suggested earlier, OMCs approve standard. Opinions on Compliance budgets based on expected expenditure. were not developed by government or The above table demonstrates that local authorities but were a mechanism there is a significant debtor issue with developed to enable banks to satisfy OMCs, but that they remain solvent themselves that buildings being sold and largely able to meet their liabilities. provided good security. One would have It follows that, either, sinking funds are thought that the certification of a new not held in cash form but are tied up in construction by an architect, engineer There is a significant debtors and works are being postponed or surveyor would have delivered some debtor issue with OMCs as part of prudent cash flow planning, comfort to the property purchaser or else budgets have been inflated to that the property was completed – the rate of debt as a allow for defaulting owners and delays in accordance with planning and percentage of income in collecting service charges. building regulations. However, all that ranges from 0.51% (small certification did was provide enough OMC) to 298% (large OMC) It is clear from the above that there is comfort to the lending institution that a culture in Ireland of non-payment of the title was good, and security was service charges. This not only impacts adequate. This comfort was bolstered on each OMC’s ability to fund its by the introduction of various structural operations and sinking funds, but has a guarantee schemes. The wording of follow-on effect in that the OMCs are Opinions on Compliance was agreed by not in a position to procure loans from stakeholder organisations (except any lending institutions. It could be expected representing those who intended to that, in an environment where service live in the buildings) to ensure that debt charges were paid promptly and in full, could be raised in order to allow the banks and lending institutions would property to be sold. look more favourably on providing loans to OMCs. As noted, the majority of apartment developments were built in the era The legacy of self certification between the Building Control Act 1990 In 2008, apartment development and BCAR 2014. As such, they fall into a accounted for 25% of new homes, category of building that was reliant on or 12,811 units (Department of application for a fire safety certificate Environment, Heritage and Local prior to construction, approval by the Government 2008). From 2011 to local authority without inspection of the 2017, a total of 6,603 apartments were building, and without a requirement for built out of the total housing production certification at the end of construction. of 53,578 homes; approximately 12% Where compliance reports were of new housing stock (CSO 2018). completed, many were reliant on Since the introduction of the Building supporting documentation from Control (Amendment) Regulations 2014 contractors. While fire safety certificate 36 / Owners’ Management Companies Owners’ Management Companies in Ireland

applications detailed the fire-stopping main structure and common areas. In and early detection requirements for 20 years of property management, the a building in accordance with Building author has seen two “wrap-up” Opinions Regulations, there appears to have on Compliance for apartment buildings been a significant shortfall in skills, purporting to certify the entire building; understanding, and supervision when it one of these was for Longboat Quay, came to construction, and fire-stopping where significant remedial works were in particular. required to address fire-stopping, less than 10 years from completion. It is also significant that Opinions on Compliance for apartments were Defects in Irish apartment buildings issued in respect of each individual are not restricted to fire-stopping, but apartment rather than the building. This extend to roofs, windows, facades, and led to a focus on surveys of individual mechanical and electrical installations. apartments, to the exclusion of the Methods of construction are not scrutinised by planners or local authorities for longevity, resulting in poor standards / Defects in Irish apartment buildings are not of construction and ill-chosen materials. restricted to fire-stopping, but extend to roofs, Currently, much of the focus on windows, facades, and mechanical and electrical building defects, and in particular, fire installations / safety defects, has been on “Celtic Owners’ Management Companies in Ireland Owners’ Management Companies / 37

Tiger” properties completed at the Assessment of Multi-Unit peak of the property boom, where Developments Act 2011 the developer did not complete and hand over the property in a structured The MUD Act was enacted during the manner. It has been left to the OMC worst property recession experienced The MUD Act was the and receivers appointed over assets of by the Irish nation. The legislation was bankrupt developers to identify and not intended for recessionary times but first step taken by Ireland correct the defects. As insurers and as a roadmap for future development, in its understanding of conveyancers eventually become more and to correct the errors of the past in fractional ownership diligent and concerned, they ask more so far as possible. Though the timing of questions. Surveyors completing pre- the legislation was imperfect, there are purchase surveys expand their brief to a number of positives to take from it. include inspections of common areas The obligation to convey the common in apartment buildings (although too areas to the OMC has regularised often assessments are not sufficiently the control and ownership of a large rigorous). This is leading to the discovery number of OMCs, and corrected their of more and more defects in older precarious legal entitlements to enforce buildings. lease provisions. With the introduction of the obligation on OMCs to produce Much of our older stock of apartment annual reports, the requirement for buildings does not comply with modern owners to approve service charge building regulation or best practice, and and sinking fund schemes, and legally on cursory inspection will not satisfy the binding house rules, the “understanding most basic minimum standards. deficit” referred to in the Law Reform Commission report has significantly The “Safe as Houses?” report of reduced. the Oireachtas Joint Committee on Housing, Planning & Local Government The MUD Act was the first step taken proposed recommendations to make by Ireland in its understanding and the environment around apartment acceptance of fractional ownership, and development more assured and in establishing the rights of collective robust for consumers. In addition, it ownership ahead of individual property recommended a redress scheme for rights. There has been little activity to owners of homes with latent defects, determine the MUD Act’s effectiveness with a mission statement – “Ordinary for new builds. However, there is owners who purchased in good faith should sufficient argument from the impact on not be liable for the costs of remediation existing OMCs and apartment stock to caused by the incompetence, negligence suggest that more robust legislation is or deliberate non-compliance of others” necessary. This is in order to force the (Joint Oireachtas Committee on Housing cultural attitude change required to Planning & Local Government 2017). make apartment living and ownership sustainable and enjoyable for all. 38 / Owners’ Management Companies Literature Research – International Comparatives

7.3% of the Irish population lives in apartments, the lowest proportion in the EU Literature Research – International Comparatives Owners’ Management Companies / 39

4 / Literature Research – International Comparatives 40 / Owners’ Management Companies Literature Research – International Comparatives

Literature Research – International Comparatives

As outlined earlier, of the EU28, Ireland has the lowest number of apartment dwellers as a proportion of the population; the UK has the third smallest proportion. Ireland’s position may not be a coincidence, and may be a legacy of British rule, and historical issues over land ownership.

As stated earlier in this report, fractional Looking overseas for best practice in ownership and difficulties experienced this area of housing, it is important in Ireland in MUDs are not new. In that we understand that Ireland cannot former Soviet countries, the entire simply introduce widespread property, housing system has been reformed over land and tenure law reform. We have recent decades. Following the collapse current processes and precedents that of socialist regimes, formerly state- work and, as suggested previously, an owned housing in multi-unit buildings apartment tenure system that works has been converted to fractional when not abused, misunderstood or ownership. In those countries it has ignored. been recognised that “ownership of a single family house differs considerably Comparative case studies were chosen from other forms of homeownership in for a number of reasons; cultural which individual and common elements similarities, geographical proximity, need to be distinguished and ownership also utopic ideologies and, ultimately, involves responsibility for common areas recent robust reforms that were retro- and facilities, to manage these common fitted into an existing property law elements, some degree of co-operation and environment. collective action is required that entails complicated arrangements” (Hrast & Mandic 2018). Literature Research – International Comparatives Owners’ Management Companies / 41

Table 3. Summary of Comparative Countries

Finland United Kingdom Australia Canada (New South Wales) (Ontario)

Reason for Finland is regarded as Our closest neighbour, Cultural similarities. Cultural similarities. choosing having a well-rounded with our property Early identification of Recent robust reform housing model where tenure system deriving potential issues with to deal with increasing social, owner occupied, from theirs. Multi Owned Housing development. and private rental and early government Introduction of robust properties are well intervention to shape legal structures balanced. It has the the evolution of and regulator to lowest rate of severe fractional ownership. condominium housing deprivation associations. in the EU (Housing Europe).

Size of apartment 34.2% of population 14.3% of population 9% of population live 13.3% of population sector live in flats/apartments. live in flats/apartments. in apartments. live in apartments.

Tenure Ownership is through Leasehold interest for Leasehold or freehold Freehold or leasehold company shares specific period. Various depending on type of strata title, with an correlated to apartment freehold ownership Strata Scheme. Strata owners corporation size. models. Older units Scheme with a body similar to an OMC. have shorter leases corporate is similar to with reversionary OMC structure. interest vested in ground landlord. Ground landlord retains significant rights.

Legislation First legislation Common law evolution. First legislation in New The Condominium introduced in 1926; A number of Acts to South Wales in 1961, Act was passed most recent reform bring some leaseholder with most recent being in 1998, with a was Limited Liability rights while preserving the Strata Schemes review commenced Housing Companies the long-term value for Management Act 2015. in 2012 resulting Act 2009. ground landlords. in the Protecting Condominium Owners Act 2015.

Features Prescriptive legislation No uniformity to the Very prescriptive and Condominium regarding the operation sector as ground robust legislation Authority of Ontario of the corporation and landlords’ perpetual designed to protect has been created to the obligations of unit interests are protected. all “lot owners” support condominium owners. Empowered Leasehold reform and empower the communities. Provides owners’ corporation remains a topical issue owners corporation variety of services when enforcing against in the UK. Management in enforcement and to include dispute members. companies/landlords developer defects. resolution, director can avail of First-Tier training and public Civil and Administrative All building defects are Tribunal Chamber for information. Tribunal has jurisdiction to be repaired free of dispute resolution, over owners and charge. which is effective and owners corporation. cheap.

Source: Paul Mooney 42 / Owners’ Management Companies Literature Research – International Comparatives

Finland

Finland 4.4 million population

“Happiest” country in the world

1926 saw the first legislation on multi-unit housing passed

64% 19% 13%

64% of housing is 19% live in private 13% live in owner-occupied rented accommodation social housing (Ireland: 67.6%) (Ireland: 20.6%) (Ireland: 8.7%)

Introduction population and housing profile not dissimilar to Ireland’s. Of its population Finland, according to the recent UN of 4.4 million, 64% of housing is owner- World Happiness Report, is actually occupied (Ireland is 67.6%). 19% of the "happiest" country in the world, the population lives in private rented assessed by reference to wealth, healthy accommodation (Ireland is 20.6%), and life expectancy, political freedom, 13% lives in social housing (compared generosity, dystopia, and an absence with Ireland’s 8.7%) (Housing Europe of corruption (Helliwell et al. 2018). 2017). It also scored highest as happiest country for “foreign born” residents. Finland passed its first legislation tackling multi-unit housing in 1926, and apartments or flats represent almost Size of sector 34.2% of housing stock, compared to Ireland’s 7.3% (Eurostat 2018). Finland is considered one of Europe’s housing success stories but has a Literature Research – International Comparatives Owners’ Management Companies / 43

Tenure to elect and authorise a supervising board, and to mandate that board to The ownership of MUDs is held make decisions on shareholders’ behalf. by a housing company, with each Shareholders use voting rights to decide shareholder holding shares that are on matters of importance, including specific to an apartment or unit. These the approval of the annual budget and shares entitle the shareholder to occupy setting of a management charge. The or rent a specific unit within the housing charge is typically relative to the floor company property. The number of area of each unit, but may be charged shares held in the housing company equally if expenditure is deemed of corresponds to the floor area of the equal worth to each unit. unit, which will correspond to voting rights and, typically, the contribution to Housing companies engage auditors service costs. Ownership of the building to work on behalf of shareholders. The and facilities remains with the company. auditors oversee the board of directors, and any agents engaged by the board. The articles of association of the housing company govern the building, Where a shareholder does not pay the company’s obligations, and the their management charge, the housing rights and obligations of the unit owner/shareholder. The obligation to pay towards the operating costs of / Finland passed its first legislation tackling multi-unit the company is detailed in the articles of association. The shares in the housing in 1926, and apartments or flats represent company are considered the personal almost 34.2% of housing stock, compared to Ireland’s property or asset of the shareholder, 7.3% (Eurostat 2016) / and may be sold freely or used as collateral for a personal loan. Individual shareholders are not personally liable for the company’s obligations. Housing Figure 5: Housing Fund of Finland (2005) companies may borrow against their real property to finance modernisations or Administrative structure of a housing company renovations to the buildings.

The Limited Liability Housing Companies Shareholders’ meeting Act 2009 requires shareholders to discharge all liabilities of the company through management charges calculated Nominates in accordance with the articles of association (Ministry of Justice, Finland 2012) . This provides what is, in essence, a shareholders’ guarantee. Supervising Board The legislation is detailed, and marries company law with the structures around (Board of Directors) individual and collective ownership. Nominates & oversees Oversee Auditors Rights and obligations of unit owners/shareholders

The structure of housing companies is Superintendent similar to many company structures; the shareholders’ meetings are used 44 / Owners’ Management Companies Literature Research – International Comparatives

/ There are clear company has the power to evict the While the tenure system is quite shareholder. This allows the company different to Ireland’s, there are clear protections and supports to lease the dwelling, and collect protections and supports for property for property purchasers. unpaid management charges by way purchasers. These include a duty to These include a duty of rent. Similarly, if the behaviour of disclose on owners selling property, and the shareholder constitutes a serious a robust defects liability process for the to disclose on owners disturbance to neighbours, or breaches sale of new apartments, including a one- selling property, and a its shareholders’ agreement, the year defects inspection. robust defects liability company may use its powers to evict the shareholder and remedy such A duty of disclosure on the part of process for the sale of new breaches. owners when selling a second-hand apartments, including apartment may result in the vendor a one-year defects The shareholder is responsible for being pursued for costs following the the upkeep of the dwelling, with the sale of their unit. inspection / housing company taking responsibility for common parts, structure, common services and other common repairs. Summary

Defects in apartments Finland is a progressive society and has enjoyed two decades of property price increases, but Finland has wide-ranging consumer more recently has encountered protection in relation to defects in both supply shortages in housing and new and used apartments when offered a lack of affordable housing. for sale, and its system is far removed Finland has been applauded for from Ireland’s “caveat emptor”, or “buyer its Housing First model of tackling beware” culture. homelessness. In contrast to European trends, Finland has managed to reduce homelessness.

As a model for Irish MUDs and OMCs, the only take from Finland is that it has a model that works. Compliance and satisfaction with MUDs are high, however they have had their system in place for nearly 100 years. Literature Research – International Comparatives Owners’ Management Companies / 45

In contrast to European trends, Finland has managed to reduce homelessness 46 / Owners’ Management Companies Literature Research – International Comparatives

United Kingdom United Kingdom Our closest neighbour

Yearly growth in population of 500,000 people

14.3%

14.3% of the Third lowest rate of Housing delivery is half population lives apartment living in the yearly population in apartments Europe growth

Introduction rate in Europe (Eurostat 2018). The UK population is growing by approximately The United Kingdom is our closest 500,000 persons per annum, with neighbour, and the country from which housing delivery at about half of that our tenure system is derived. The figure (Tziamalis 2018). system of leasehold/freehold is one that we inherited from our time as a British colony, and the countries’ tenure Tenure systems remained largely aligned until Irish independence. The British tenure system delivers power to ground and freehold Over the years, we have introduced landowners that is absolute. Its system legislation to move away from the British means that large landowners may perpetual valuations of freehold and enforce covenants over property reversionary interests, opting for a system of which they have little immediate where beneficial owners are entitled to beneficial ownership by way of capital perpetual and unencumbered ownership. value or rental income. This position would be difficult for Irish people to understand, as it is almost 40 years Size of sector since Ireland prohibited the creation of ground rents. However, in the UK, 14.3% of the population of the UK ground rents and long leaseholds still lives in apartments; the third lowest exist for new houses as a means of Literature Research – International Comparatives Owners’ Management Companies / 47

long-term investment and It could be argued that an interested / One advantage of the management control. freeholder, controlling the service developer retaining a charge and maintenance regime of In the cases of new apartment a multi-occupied building, is not a beneficial interest in developments or management negative arrangement. The freeholder an apartment building environments in the UK, there appears can exercise its rights in a more robust to be no requirement for management manner as a lessor, as opposed to as an is that there is greater to be controlled by the unit owners. OMC. The freeholder still retains the interest in its long-term Where control is to fall to unit owners, right of forfeiture, which encourages value and maintenance, the UK uses similar methods to Ireland, leaseholders to comply with the terms with “company law and contract law used of their lease. which should mean a in addition to property law to achieve the greater focus on initial best solution” (Dupuis 2010). quality of construction Rights and obligations of unit In Ireland, we have an absolute right for owners/shareholders and design / the reversionary interest in the lease for each unit to be held by the OMC which, The Commonhold and Leasehold is in turn, owned by the unit owners; Reform Act 2002 provides a right for this does not exist in the UK. In the leaseholders to force the transfer of UK, leaseholds are shorter. LEASE; the the landlord’s management functions Leasehold Advisory Service set up by to a special company set up by the the Ministry of Housing, Communities leaseholders (HMSO 2002). The right and Local Government, “provides free was introduced, not just as a means of initial advice to members of the public on wresting control from bad landlords, residential long leasehold…. with a lease but also to empower leaseholders, longer than 21 years” (LEASE 2013). The who generally hold the majority of areas of leasehold, reversion and rights the value in the property, to take to renew are complex, and while they responsibility for the management of have a strong influence on multi-owned their block (LEASE 2002). The process housing in the UK, they are not an issue involves the leaseholders forming for analysis in this paper.

One advantage of the developer retaining a beneficial interest in an apartment building is that there is greater interest in its long-term value and maintenance, which should mean a greater focus on initial quality of construction and design. The case for a change to freehold ownership, i.e. to an OMC, would mean that the developer would soon be out of the picture, suggesting a risk for the new freehold owners.

Because of the legal framework, there are many hybrids in the UK. Ultimately, because the ownership of the freehold or reversionary interest is not tied to the unit owners and a management company that they control, it is possible for the freehold interest to be sold to other parties who can decide on the management of the MUD. 48 / Owners’ Management Companies Literature Research – International Comparatives

a Right to Manage company (RTM RTM companies, it remains that in “any company) and serving a formal notice multi-owned residential development run on the landlord. It is important to note by leaseholders, there is potential for a clash that the RTM company must comply between individual and collective interests, with any government-approved code because once the residents’ management of management practice. The RTM company has acquired the freehold, the company must also manage the building covenants must be enforced by with the landlord’s rights in mind, and neighbouring owners” (Dupuis 2010). the landlord becomes a member of the RTM company. It is clear that similar circumstances arise in the UK as in Ireland, i.e. in While it appears that more developers relation to control of management of apartments are providing title on companies, and abuse by developers the basis of OMC-owned freehold, and and ground landlords. However, it with the ability of leaseholders to create remains that, where control is passed to the unit owners, there is no solution to the abuse of power by members, / The UK has a complex tenure system. It continues or the dereliction of duties by the controlling board. to protect the rights of long-term reversionary landlords, and their right to receive ground rents. In the author’s discussion with a property This influences the multi-owned housing sector management software provider in both UK and Ireland and a former property or long leaseholder sector / management agent in Ireland, it was Literature Research – International Comparatives Owners’ Management Companies / 49

suggested that there were many things landlords, OMCs, and leaseholders. / All new homes in the in the UK that were a mess; typically The Tribunal reports are clear and UK must comply with around the ownership of the freehold comprehensive in their determinations. and control of the management Applications to the Tribunal are by Building Regulations. structure, but that certain things were way of written forms, of which there Building control positive. When the software provider is a wide range available, with related had first entered the UK market, his guidance. A fee of GBP£200 is payable inspectors are employed sales pitches focussed on the user- on processing the application; the fee by local authorities to friendly manner in which the software appears reasonable and affordable. ensure that technical could issue demands, reminders, charge interest, and provide other tools for the standards are met, convenient collection of service charges. Defects in apartments however inspectors His focus quickly changed, because he do not monitor build realised that most leaseholders and unit Following the tragedy in Grenfell, owners in the UK paid their service there has been an increasing focus quality / charges quickly with no fuss, and were on defects in multi-unit buildings; a generally compliant in all lease obligations. House of Commons Briefing Paper was He attributed this compliance to a issued in late 2018. All new homes number of reasons, including a cultural in the UK must comply with Building tendency to pay bills, but also the large Regulations. Building control inspectors stick that landlords in the UK traditionally are employed by local authorities to hold, i.e. their right to forfeit (which, ensure that technical standards are met, while draconian, is still a recognised however inspectors do not monitor right), as well as the confidence that the build quality (House of Commons courts will provide support. Library 2018).

The UK has a complex tenure Like Ireland, the UK’s building defects system. It continues to protect the warranties are associated with the rights of long-term reversionary procurement of home loans. The landlords, and their right to receive National House Building Council ground rents. This influences the Buildmark, Premier Guarantee, and multi-owned housing sector or long Local Authority Building Control leaseholder sector. However, despite Warranty schemes operate within the the traditional legal position, the UK Consumer Code for Home Builders, Government has provided legislation which provides a structural warranty for to assist in the creation of LEASE; the 10 years, and a two-year fixtures and Leasehold Advisory Service, and the fittings warranty (Consumer Code for facility for disputes to be adjudicated Home Builders Limited 2010). by the First-Tier Tribunal Property Chamber (Residential Property). The Tribunal has jurisdiction over service charges, administration charges and Summary other matters relating to leasehold management. It may hear cases over The UK market is made up of a mixture of tenures, with varying degrees of breaches of lease, Right to Manage, ownership and equity for long leaseholders. The continued creation of ground service charges, and other matters rents, and the exercising of rights by ground landlords and freeholders continue of leasehold management. Many of to be debated. Many new apartment developments have adopted the OMC the cases may be submitted by way of model, but it is not a requirement under law. written evidence. Legislation has been introduced to deliver some protection to apartment From a cursory review of published owners or long leaseholders, and to ensure some transparency in service Tribunal cases, the matters adjudicated charges. upon relate to disputes between 50 / Owners’ Management Companies Literature Research – International Comparatives

Australia, New South Wales

Australia 23.7 million population

316,227 strata schemes

The “Better Cities Program”, was introduced in the 1990s

9% 26% 78.9%

9% (2.2m) of the 26% of apartment 78.9% of private dwellings population lives residents are owner in the City of Sydney are in apartments occupiers multi-storey apartments

Introduction associate it with strong community and social networks, and others who are Australia has a history of providing healthy more concerned with ownership and residential environments associated with quality of housing (Dupuis 2010). home ownership, with an emphasis on open space and the “garden” city. Low- The “Better Cities Program”, introduced density development underpinned by an in the 1990s, encouraged more just and abundance of land, high incomes, and economically efficient cities. This policy, state provision of transport and other combined with economic growth and infrastructure became associated with migration pressures, has led cities to social progress (Dupuis 2010). Moving turn to higher density housing. away from low-density sprawl sparked the debate between urban and suburban living and residential satisfaction. Size of sector

Residential satisfaction is characterised Over the past 25 years, the number by two opposing positions; those who of occupied apartments in Australia Literature Research – International Comparatives Owners’ Management Companies / 51

has increased by 78% to over 1.2m dwellings (Australian Bureau of Statistics 2016). Australia published its first Australian National Strata Data in 2018. While, as expected, the Australian apartment sector is much larger than that of Ireland when measured by population size and building numbers, it is quite similar to Ireland by reference to relative proportions. Of the 23.7m Australian residents, some 2.2m (or 9%) live in apartments, and 26% of these occupants are owner-occupiers. There are over 2.5m apartments across 316,227 strata schemes.

A strata scheme is owned by an owners corporation, which is the equivalent of an OMC. The combined property value is some $995bn for insurance purposes, and over 9,000 people are employed full-time, with over $5bn spent on call-out jobs in 2017. Of the 107,680 private dwellings in the City of Sydney, 78.9% are multi-storey apartments (City of Sydney 2017).

area of concern in relation to residential / Strata title in Australia Rights and obligations of unit satisfaction in Multi-Owned Developments evolved from the post- owners/shareholders relates to the residents’ sense of control over the management of their dwellings, Second World War Strata title in Australia evolved from the legislation is prescriptive and very detailed” development of flats post-Second World War development of (Dupuis 2010). The body of legislation, flats in response to housing shortages. developed over a period of 50 years, in response to housing Company and leasehold titles or has resulted in a highly directed legal shortages / tenancy, were common methods used and regulatory environment. This regime to divide ownership. In order to create deals with everything from definitions of individual beneficial ownership of units what each unit owns and does not own, within a larger building or environment to fire safety inspections. It addresses where services or land were shared, the the development of sinking funds and Conveyancing (Strata Titles) Act was their adequacy, tenant representation passed in New South Wales in 1961. on boards (including limitations), and the This legislation has been followed by a collection of service charge levies. series of further acts across Australia and New South Wales, with the most The prescriptive nature of the legislation recent being the Strata Schemes removes ambiguity and discretion from Management Act 2015. the strata company. The absence in Ireland of equivalent prescription in the Australian legislation reflects the context of MUDs opens the Irish sector importance of control and regulation in to the application and interpretation of a fractional ownership and co-operative wider precedents set in landlord and living environment. “Recognising tenant common law. These precedents Baldassare’s view that the principal are not necessarily suitable to MUDs. 52 / Owners’ Management Companies Literature Research – International Comparatives

schemes, this report focuses on its processes and structures.

Australian law provides for a process of penalties for breaches specified in legislation. Legislation will specify a Maximum Penalty detailed as penalty units, which, under the Crimes Act 1914, attract a monetary value, currently AUS$210 per unit (about €130 at the time of writing). Penalties are subject to indexation from 1 July 2020. For example, the failure of the developer to produce documents and records can result in an AUS$21,000 penalty; there is a maximum penalty of 100 units.

Penalties for breaches of provisions of / Australia and its territories have acknowledged the the Strata Schemes Management Act need for robust legislation and consumer protection 2015 apply to many of the stakeholders, including the owners corporation, in this important and growing housing sector. There management agent, owners, tenants is government acknowledgement of the abuses in the and developers. sector over the years. This recognition has led to a In addition to legislation, there are continuous review and improvement of legislation / a number of other state bodies that can assist with owners corporations, agents and residents. The New South Wales Civil and Administrative Tribunal Considerable investment has been (NCAT) will issue orders under the Strata made in well-thought-out legislation and Schemes Management Act 2015, and guidance that educates and regulates NSW Fair Trading will assist and advise strata companies, their agents, and on applications to the NCAT. NSW Fair building managers. The legislation also Trading has produced a full suite of provides structure to the transition factsheets for strata schemes, dealing between developer and strata company, with matters including building bonds, and obliges the strata committee to meetings, levies and capital works, explore the possibility of building parking, mediation, renovations. defects during a bond or guarantee period. The legislation also restricts the Australia and its territories have strata company from certain decisions acknowledged the need for robust during the “initial period”; the period legislation and consumer protection where the “original owner” or developer in this important and growing is still selling units. housing sector. There is government acknowledgement of the abuses in the The legislation recognises the sector over the years. This recognition differences between smaller and has led to a continuous review and larger schemes, and places greater improvement of legislation, to empower responsibility on schemes that have owners corporations, and to protect the over 100 units. collective ownership in strata schemes.

As New South Wales was the first Owners corporations are empowered state to introduce legislation for strata to pursue building defects, implement Literature Research – International Comparatives Owners’ Management Companies / 53

house rules, and avail of a tribunal on site and is contractually liable. Access process that is cheaper and less onerous to the NCAT makes the process far than the courts system. This system is more procedural and less expensive than in place without prejudicing unit pursuing matters through the courts. owners’ rights. This regime does not mean that The prescriptive nature of Australian Australia is without problems in the legislation enables the imposition sector; it simply means that the country of fines by owners corporations for recognises the issues as they arise. It breaches of legislation, and places in seeks corrections in a robust legislative statute many obligations of owners to environment, offering protection to the protect the enjoyment of property by all. owners corporation and its committee.

Defects in apartments Summary The introduction of a developer’s bond and an independent building inspection The acknowledgement and understanding of the sector by government, the regime places an obligation on the prescriptive nature of legislation, and access to a tribunal all assist in the owners corporation to seek out defects management of owners corporations, the collective rights of owners, and in the building. The owners corporation the performance of management agents. In the author’s opinion, this has is obliged to take action while the bond is also encouraged banks and boutique lenders to lend to owners corporations, in place, and while the developer remains providing finance for building works when the owners corporation has not built up an adequate sinking fund.

The ability to borrow is recognised in legislation. Loans are not secured against property and there are no guarantees from owners. Loans are a liability of the owners corporation and repayments must be incorporated into the annual maintenance levy. 54 / Owners’ Management Companies Literature Research – International Comparatives

Table 4: Summary of sections to Strata Schemes Management Act 2015

Strata Schemes Management Act 2015 – New South Wales – summary of sections

Part Provision

Part 1 States the objectives of the Act as providing for the: • management of strata schemes • resolution fo disputes arising from strata schemes

Part 2 Management of strata schemes: Capturing the constitution of the owners corporation, its functions, the initial period, first AGM and terminations

Part 3 Strata committee of owners corporation: The election, functions and authority of the committee

Part 4 Management agents and building managers: Appointment of agents, transfer and delegation of functions and their accountability

Part 5 Financial management: Detailing the need for administrative and capital works funds, contributions by owners, statements, records and general financial functions

Part 6 Property management: Duties of the owners corporation to maintain and repair, works by owners, powers of entry into owners’ lots, orders on alterations and safety

Part 7 By-laws for strata schemes: Rules to bind owners and each tenant and occupier, dealing with levels of occupancy, restrictions on certain rules and the procedure to change rules and their enforcement – including fines and reference to Tribunal

Part 8 Obligations of owners, occupiers and others in relation to lots: Obligations regarding alterations, nuisance, agents, animals, etc.

Part 9 Insurance obligations: Obligation to insure the scheme against certain risks, insurance claims and other items

Part 10 Records and information: Prescription of records to be kept, who can inspect

Part 11 Building defects: Details of obligations of developer, building inspectors and reporting (Division 1 and 2) requirements

Part 11 Building bonds: Requirements of developer to submit a bond of 2% of contract price for building (Division 3) work, stating when its payable, released and the authority of Tribunal

Part 12 Disputes and tribunal powers: Details regarding mediation and Tribunal processes and orders

Part 13 Offences and enforcement: Investigations by Secretary and issue of penalty notices

Part 14 Miscellaneous: Functions of Secretary, delegation, service of documents and other items

Source: Paul Mooney Literature Research – International Comparatives Owners’ Management Companies / 55

In addition to legislation, there are a number of other state bodies that can assist with owners corporations, agents and residents 56 / Owners’ Management Companies Literature Research – International Comparatives

Canada, Ontario

1.9 million Canada people live in condominiums

700,000 condominium units in Ontario

1998 saw the introduction of the Condominium Act

34.3% of residential 13.3% of properties constructed households live 13.3% 34.3% from 2001 to 2011 in condominiums were condominiums

Size of sector to an OMC) holds the ownership of the common parts. When a condominium Over 1.9m Canadians (or 13.3% of is purchased the buyer takes ownership households) live in condominiums of the unit, together with an interest in (or “condos”). Between 2001 and the common parts. The interest in the 2011, 34.3% of residential properties common parts may not be separated constructed were condominiums from the unit ownership. (Statistics Canada 2018). In December 2015, Ontario had approximately The Condominium Act was passed 700,000 condominium units, being in 1998 and, following a review managed by 10,000 condo corporations commenced in 2012, was amended by or management companies, and housing the Protecting Condominium Owners 1.3m people. Act 2015. This new legislation followed a consultation process over a period of 18 months, which gave rise to 200 Rights and obligations of unit recommendations. owners/shareholders The review of the Act by Canada’s In general terms, the tenure nature Public Policy Forum also resulted in of condominiums in Canada and government taking a collaborative Ontario is similar to that in Ireland; a approach to policy making. Condo condominium corporation (equivalent legislation “…not only raises many complex Literature Research – International Comparatives Owners’ Management Companies / 57

regulatory issues but, as self-governing through the Condominium communities, condos also raise important Authority Tribunal (CAT) questions around governance and community building” (Public Policy The CAO charges each condo Forum 2013). corporation a fee of CAN$1 (about €0.66 at the time of writing) per unit The review group focused on five areas: per annum, and legislation allowed for • Consumer Protection this charge to be incorporated into the • Financial Management annual assessment fee. • Dispute Resolution • Governance • Condominium Management The Condominium Authority Tribunal Common themes that arose during the review process were: The CAT is Canada’s first fully online • Education tribunal, and the entire dispute • Information resolution process is managed online. • Condo board transparency and accountability Tribunal fees vary from the involvement • The power imbalance between of the Tribunal but are CAN$25 for boards and owners a Guided Negotiation Fee which is • The role of condo bye-laws Stage 1 of any dispute, CAN$50 for • Engagement an Assisted Resolution phase, which is Stage 2, and CAN$125 for a formal The commonality of the findings of the adjudication process with a binding review group in Ontario, from literature reviews based on other jurisdictions and from the qualitative research, indicates / The commonality of the findings of the review group that Ireland is not experiencing anything that other countries and apartment in Ontario, from literature reviews based on other owners have not encountered. jurisdictions and from the qualitative research, indicates that Ireland is not experiencing anything that other The key recommendations of the review group focused on the countries and apartment owners have not encountered / establishment of a “Condo Office” which became the Condominium Authority of Ontario (CAO). The CAO was established to improve condominium living by providing services and resources for owners, residents and directors, including: • In formation to help owners and residents understand their rights and responsibilities • Manda tory training for condo directors • Resour ces to help condo owners and residents resolve common issues • A publicly available, searchable, online registration of all condominium operations in Ontario as required by regulation • An online dispute resolution service 58 / Owners’ Management Companies Literature Research – International Comparatives

/ The review group order issued. Adjudicators, where • Requisitioned meetings recognised that necessary, are charged at a rate of • Best practice for conducting CAN$200. Fees are payable by the owners meetings directors play a complainant and are not refundable, but • Obligations regarding corporate critical role in the the CAT may award costs and order a records penalty payment. • Financial fundamentals success of condo • Reserv e funds and reserve corporations. This led CAT decisions are available online. fund studies to the introduction of Since the system’s inception in 2018, • Auditors and annual statements there have been 20 decisions, or • Collections and liens mandatory training approximately two per month, most of • Insurance for directors / which relate to disputes over availability • Modifica tions to the common of records for members of the elements condominium community. • Repair and maintenance • Procurement processes and On review of the cases, the tribunal best practices appears to operate efficiently and in a • Information certificates transparent manner, which is likely to • Status certificates assist in future cases taken by owners • The Condominium Authority and condo corporations. of Ontario • The Condo Authority Tribunal • Under standing condominium Director training management

The review group recognised that Once a director has completed training, directors play a critical role in the they do not have to re-take the training success of condo corporations. This for seven years. After completion led to the introduction of mandatory directors are awarded a certificate training for directors. From 1 November evidencing the training; this is available 2017, all directors elected or re-elected to download or online. are required to complete a training programme within six months. If a director misses their deadline for training, i.e. six months from election, they The CAO provides training free of immediately and automatically cease to charge to all directors, and it is open to be a director and no longer count as a all members of the condo community quorum of the board, may not vote at the and the public. Training is delivered board, and may not be indemnified against online and the modules are 10-20 liability and costs as detailed in law. minutes long. The entire training course takes between three and six hours to complete, depending on whether Information directors listen to or read the transcript. Modules cover: The CAO offers a large amount of • The fundamentals of condominium information online for condo buyers, corporations owners, residents and directors. • The legal framework governing It details the main attributes of condominiums condominium living, ownership and • The role of directors and their responsibilities, together with a large responsibilities suite of “How-to” guides, draft letters, • Effective leadership: creating strong and general guidance. condominium communities • Board meetings and owners Each condo corporation is also meetings required to issue Periodic Information Literature Research – International Comparatives Owners’ Management Companies / 59

Certificates twice per fiscal year to all The condo corporation must also owners, within 60 days of the end of produce a Status Certificate which the first quarter, and 60 days of the contains important information about end of the third quarter. This includes the corporation and any specific unit. key information about the corporation’s board, finances, insurance, reserve fund, The CAO offers guidance to purchasers legal proceedings, and other matters. of condominiums and encourages An example of a Periodic Information transparency in the purchase process. Certificate is in Appendix I.

In addition, any key changes should be Public database distributed by way of an Information Certificate Update (ICU) within 30 days The returns made to the CAO provide of the change. information on the condo corporation, including the condo details, directors’ New Owner Information Certificates details, insurance details, financial are issued to new owners within 30 days information, legal actions, outstanding of the new owner providing written judgements, and compliance with the notice that they have purchased. The Condominium Act. certificate contains the most recent Periodic Information Certificate and subsequent ICUs. Summary

The legislative environment for condominium communities in Ontario is onerous and robust; the functions of the CAO are clearly to benefit the unit owners in the effective operation of condo corporations. 60 / Owners’ Management Companies Research Findings

30% of attendees at the AON focus group would not become a director of an OMC Research Findings Owners’ Management Companies / 61

5 / Research Findings 62 / Owners’ Management Companies Research Findings

Research Findings

At the outset of this project it was decided that the research would take a significantly qualitative approach and that the research findings would be based on interaction with specific stakeholders. Research was undertaken by way of interview with specific stakeholder categories. Interviews were carried out with the use of a questionnaire but were not constrained by the specific questions.

stakeholder Three broad stakeholder categories attended, and many of the draft 3 categories identified were identified; Policy and Law Makers recommendations were well received. (Government), Designers and Providers (Industry), and Users, Managers and Advisors (Civil Society). These Interviews with stakeholders Policy & three categories capture each of the Law Makers stakeholders at their position in the The research questionnaires contained life cycle of MUDs. broad topics within the OMC sector, and these are reported under the Policy and Law Makers include the following headings: Government and local authority offices Designers responsible for detailing policy that results Should we be building more & Providers in the development of high-density apartments? housing through national framework There was unanimous consensus plans, development plans, design that Ireland needs to develop more guidance and planning regulations. apartments for its cities because Designers and Providers take the apartments are considered a better use Users, Managers framework set out by policymakers, of land, more sustainable, and more & Advisors and deliver housing schemes. Users, suitable to our changing demographic. Managers and Advisors are those who “With our household sizes changing, our are left with the final development to expectations or attitudes towards housing live in, maintain, repair and fund. should change with it, Ireland has not consciously or subconsciously adjusted to In addition to the in-depth interviews that change” (Government Interviewee). there was a focus group with the Apartment Owners’ Network (AON), “Over 60% of dwellings in Dublin are houses and door to door surveys of three but only 33% of households are families, apartment developments in Dublin. there is considerable underutilisation of our On completion of the draft report, housing stock…design is very important, a stakeholders’ seminar was held to getting the right atmosphere into the present the draft recommendations place, getting more of the right examples to delegates. The seminar was well and getting them built…” (Industry Interviewee).

/ On completion of the draft report, a stakeholders’ Interviewees across the categories seminar was held to present the draft recommendations were supportive of the development to delegates. The seminar was well attended, and many of apartments, however there was concern expressed regarding the of the draft recommendations were well received / attitude towards apartments as a Research Findings Owners’ Management Companies / 63

housing type. The view was taken that property and behave in an acceptable it is “imperative that more apartments are manner; in OMC environments there is built to curb urban sprawl and maximise the a mechanism to complain and enforce in use of facilities and amenities….the psyche a more robust manner. of the Irish is contrary to apartment living…” (User Interviewee). Over 30% of attendees at the AON Over 30% of attendees at focus group did not believe that the AON focus group did The benefits of apartment living for apartment living/ownership is a good not believe that apartment some owners, revolved around quality housing model. Looking at modern of life aspects, where “delivering out density levels for new housing estates, living/ownership is a good apartments more than an hour’s commute there is a move away from large housing model from the city centre” (User Interviewee) is gardens and driveways, for multiple not the ideal. In addition, the perception cars, to “modern dense housing schemes, that apartment living and developments where we are stacked as dominos, with have their own suite of problems is all houses looking onto each other, where perhaps overstated: “you feel like parking good apartment design can co-ordinate is a friction point, in a traditional housing aspects better to avoid overlooking” (User estate there is friction over parking so it’s Interviewee). the same issues” (User Interviewee). This view can be carried through to It is also clear that the consensus view of a number of issues, ranging from all interviewees referred to good design anti-social behaviour, to the external and quality construction.“Building defects upkeep of a property. In traditional is a huge issue” (Industry Interviewee) for housing estates, residents rely on the OMCs and apartment owners, with little common decency and community recourse to developers, builders and spirit of neighbours to maintain their professional design teams. 64 / Owners’ Management Companies Research Findings

Many of the interviews with the The overriding consensus from those Government category focused on interviewed was that new apartments delivery of new homes in the context must deliver from a quality-of-life of the current housing crisis, and the perspective; they need to be designed objective of the National Planning well, reduce commuting times, improve Framework of increasing density in our community facilities, and embrace cities. These interviews acknowledged communal living. There is an opportunity that this would involve the successful now to learn from the past and get this development of high-density housing, critical component of our national housing typically associated with shared services strategy right: “any problems that are systemic and areas, and the use of an OMC in that area, we should iron out as part of structure. the process of moving more people into apartments, focus more on the lived experience, shared areas, community focused….the first basic question is what is the national rational policy around the management of these estates, which parts are devolved to local authorities and what is the guidance around it” (Government Interviewee).

The perception that apartments are not for family living remains, but it is difficult to ascertain whether this is a cultural hurdle and perception, or a reality. The offering must be improved; not only in the design of individual apartments but of common parts, outdoor spaces, and in the surrounding civic spaces. Focus needs to be on delivering an urban offering that is attractive to all in our evolving society.

“The need for storage and back garden moves people towards houses when they start having children, but this is something that could be overcome by pocket parks for young children, green spaces…moving to a house from a well-designed second floor apartment with great sky component, we miss it, neighbours are more proximate now in a new housing estate” (Industry and Researcher viewpoint User Interviewee).

It is clear that Ireland needs to embrace apartment living in order to In London, densities have been removed provide sustainable accommodation for its increasingly urban and growing from planning and focus is purely on population. The perception of apartment living is poor because it is not viewed good design and its context. Perhaps as an enviable living experience, there are fears of not being in control of costs, we should focus more on design in our and there are questions over construction quality. To bring about this cultural built environment, considering the lived shift, we need to explore how to improve the living experience. This may be experience and looking to embrace achieved through better design, increasing confidence in apartment living/ an urban, collective and inclusive ownership, and provision of a transparent and industry-wide way to assure environment, instead of seeing it as purchasers over construction defects. personal property for personal exclusive enjoyment. Research Findings Owners’ Management Companies / 65

Apartment design and construction / There is a sense that apartment owners have been There is a sense that apartment owners burnt, and apartment ownership has a bad reputation. have been burnt, and apartment ownership has a bad reputation. Regulations need to be strengthened and supports are Regulations need to be strengthened required for OMCs / and supports are required for OMCs.

“Building defects is a huge issue…. creating financial problems for OMCs” (Industry strengthening our building control and Interviewee) and inflicting significant practices, but there is a question as to reputational damage on apartments whether it is enough: “Is BCAR enough, as a housing solution. The failings of some inspectorate is probably required….” self-certification in Ireland’s longest (Government Interviewee). period of apartment construction have Over €140m has already resulted in a large number of apartment When we examine the frequency been spent on remedial buildings and owners having to fund of building control and latent defect works across apartment defects, “living with leaks, damp, structural issues in apartment developments, as buildings and estates and fire safety defects without any means compared to commercial developments, of remedying problems” according to Orla there is one significant difference in controlled by NAMA Hegarty (Horgan Jones 2019). The cost how the buildings are delivered to, of remedial works across apartment and accepted by the end users. buildings and estates controlled by NAMA alone has already exceeded In a large commercial development €140m, and will continue to grow until of offices, the builder will work with a all defects are identified and remedied developer and, usually, a funder to a (NAMA 2018). specification agreed. Both developer and funder may put in place a system of The question arising, of whether new supervision that will be tied to a robust building regulation reforms introduced building contract that is transferable, in 2014 are enough to deliver confidence and warrants both the developer and to purchasers of apartments and funder. When the building is delivered, eliminate building defects from our it will likely be handed to a tenant to new developments, remains. fit out. The tenant will then introduce their own professional team to design As detailed previously, of all EU and supervise the fit-out and, as part countries Ireland has the smallest of this, will identify any issues with proportion of population living in the building fabric and construction. apartments. It follows that there are Should the developer sell the building successful design examples overseas. as an investment, prior to purchase the prospective purchaser will carry out a “We need to build more apartments, the rigorous examination of the structure, new standards for apartment design are warranties and certification. good enough”. One Industry Interviewee echoes many industry commentators All stakeholders in this process are when suggesting that we need more aware of the arduous inspections, and one and two-bedroom units and fewer understand that failure in any section larger apartments, but that apartment will have serious cost repercussions. buildings should be better built, and Post-completion, should construction higher-rise apartments are appropriate issues arise, there are commercial for specific locations. decisions made regarding their remedy. The relevant stakeholders It is clear that the introduction of agree a process of remedy, or seek BCAR is considered a positive move in recourse through a dispute resolution 66 / Owners’ Management Companies Research Findings

mechanism, or through the courts. The development can restrict recourse process is simplified by the existence of under contract. a single owner and a funder who have both invested heavily in the transaction “A small team inspecting buildings from and can make commercial decisions. local authorities as they are being built At every point, the building contractor would make a huge difference” (Government and professional team are aware of Interviewee) and would provide some the requirements placed on them and comfort to purchasers of apartments perform appropriately in the majority that standards are being met. At the of cases. stakeholders’ seminar, the point was made that there is “no enforcement of In apartment buildings, where units building regulation in Ireland, the private are disposed of individually, the process sector has a key role but it cannot be left is fragmented. Each purchaser has a alone and one cannot underestimate the survey carried out (or not); the surveyor shift that is needed in our construction focusses on snags within the apartment, industry and building regulatory rather than conducting an overall environment” (User Interviewee). survey of the building. There remains no requirement for an OMC to survey As detailed by one Government an entire building post-completion. Interviewee: “there are three things that There is no regulation of developers an inspection does, firstly it creates an or requirement for collateral warranties expectation of an inspection and oversight for any specified period. The financial on the builder/developer which correlates to robustness of development companies a cost if anything is required to be re-done, is rarely raised as an issue for secondly the inspection offers comfort that purchasers, and the use of special someone has turned up and looked around purpose vehicles of limited liability and highlighted issues for addressing, thirdly companies for each specific it provides for some degree of enforcement – if the first and second work, the third becomes less frequent”. / Policymakers’ focus on apartment design, and construction appears to be concerned with the planning Policymakers’ focus on apartment design, and construction appears to be process, rather than the lived experience and costs concerned with the planning process, associated with maintenance, repair and upkeep. rather than the lived experience and Building regulations do not focus on hard-wearing costs associated with maintenance, repair and upkeep. Building regulations materials, longevity and lower maintenance costs / do not focus on hard-wearing materials, longevity and lower maintenance costs. There is little by way of collateral warranties or latent defect insurances Researcher viewpoint for apartment buildings. Instead, in the past, they were sold with inadequate We must look at the societal positives of apartment living and the structural guarantees. These guarantees vibrancy it delivers to our cities and towns. State support, by way of specific required damage to occur before any building regulations, controls and guidance, needs to be delivered for apartment remedial works would be available. dwellings, to secure the safety of occupiers, and copper-fasten their security In the case of fire-stopping, it simply as a viable option for home buyers. Robust apartment building regulations that meant that there was no cover available restrict certain materials, and focus on low maintenance and longevity, need to remediate, because the absence of to be introduced. These regulations would protect OMCs and unit owners fire-stopping did not cause damage to from costs associated with short life-cycles arising from poor or inappropriate the building. materials. Research Findings Owners’ Management Companies / 67

Management agents positive move for the sector and for / Management agents “A good or average management agent adds management agents. The educational work in a professional value, a very good to excellent management requirements, compensation fund and agent does more than that…I can see the professional indemnity requirements all capacity within a highly value of a good management agent…it’s deliver some comfort to OMCs. personal and emotive important to have trust and confidence – there is only so much time you can commit The Property Services (Regulation) Act environment. The to running what is essentially a significant 2011 is almost the same age as the management agency is enough business” (Industry and User MUD Act. In another booming economy, often the branded layer interviewee). where the property sector is thriving, residential management agency is not that unit owners and The responses in relation to management the most attractive of career choices residents associate with agents were quite personalised, based for a young property professional. the management of the on specific experiences of particular The OMC sector has typically been individuals. Management agents work a training ground for young property complex / in a professional capacity within a highly professionals, which means that there personal and emotive environment. The is a high personnel turnover and a lack management agency is often the branded of consistency. Management agents of layer that unit owners and residents MUDs have a wide level of exposure associate with the management of to owners, tenants, contractors, etc. the complex. Often, directors do not which is not experienced in other understand who decision-making property sectors. Commercial managers lies with; conversely, there are many deal in a professional environment, circumstances where the agent carries whilst letting and sale agents operate out the instructions of the board of on a transactional basis in a short-term directors without consideration of the relationship with a client. Management validity of the instruction. agents operate in an emotive environment, dealing with people’s Researcher “Management agents should advise, but homes, in a long-term relationship that viewpoint don’t visit enough, it takes a long time to is demanding, and revolves greatly bed them in when you change agent…to around people’s problems with their From the conflicted position find out where everything is, they are often living environment. of being a management agent, overworked, and the service is less than I can sympathise with the satisfactory” (User interviewee). The position does become easier as an viewpoints of many interviewees agent becomes more experienced, but and have experienced many One User Interviewee offered some it also becomes less challenging, which of the issues in my working measured insight, suggesting that their results in progression into less stressful life. I have spent a significant long standing firm of agents “knows and more lucrative areas of the property amount of time explaining to the history of the development and has industry. new property managers that experience with the structural issues but things are not their fault. It is spends a lot of money outsourcing, they are “The myriad of tasks to be completed and easy to blame property managers, not proactive and do not come up with new how mundane and challenging the range but I would also suggest that ideas, there is a high turnover of personnel in goes….I wouldn’t do it for the world!” property managers are often to the agency – we have a new manager every (Industry and User Interviewee on blame. The depth and breadth two years – the agent is just an implementer management agents). of knowledge expected from rather than instigator”. a property manager is diverse, ranging from law to building One Government Interviewee offered construction, debt collection that “management agents performed well and accounting, insurance and and were performing well in general. There gardening. Licencing has helped, will always be complaints for a variety of as has greater knowledge in the reasons, but their contribution is positive”. industry. The introduction of licencing was a 68 / Owners’ Management Companies Research Findings

/ There is a lack of Owners’ Management Companies about a vast range of issues, including information available It was acknowledged amongst all buildings, facilities, company law, interviewees that the current framework accountancy, banking, health and safety, to volunteer amateur and structure requires review and flora and fauna, waste management, directors about what their regulation, and that “in an area that’s conservation, procurement and debt so crucial to the effective function of collection, while being open-minded roles and responsibilities Multi-Unit Developments as a viable enough to take on the views of their co- are. The lack of availability and attractive living option for people, directors and co-owners. of training or any we need something more sophisticated” (Government Interviewee). OMC directors are entrusted with the impartial advisory body executive decision-making powers leaves the board in a “Thankless task managing any cohort of the OMC; many will delegate to very difficult position, greater than 10 people let alone 100… management agents while some will more transparency and how the issues are hold their powers dear for a number often relying on the explained to OMC directors and members of reasons. Ultimately, they will be management agent for helps takes the anxiety out of it…” (User responsible for the repair, maintenance advice and guidance Interviewee). and operation of a multi-million euro property, and the operation of service without an ability to One director interviewed offered that charge and sinking fund schemes worth challenge it / the reason for becoming a director thousands of euro (or much more). They was that he “was the only one in his will decide on service levels, appoint development interested” and that it was contractors and agents, and decide “impossible to recruit new directors and when to enforce lease covenants on people are scared of getting all the work their neighbours. and being asked to do everything”. There is a lack of information available Other interviewees suggested that there to volunteer amateur directors about was “no understanding of management what their roles and responsibilities are. company framework” and that the The lack of availability of training or “consumer in Ireland is ignorant of what any impartial advisory body leaves the comes with apartments”. board in a very difficult position, often relying on the management agent for The volunteer role of an OMC director advice and guidance without an ability is a thankless task. The ideal director to challenge it. That is a thankless task could be a civic-minded, selfless and carries a disproportionate level of individual who is time-rich, reasoned, responsibility. experienced and knowledgeable “An entity should be there to give independent advice, not necessarily regulatory, but something well-funded Researcher viewpoint by government. This would help provide information to OMC members and There is the suggestion that paid, independent directors with particular directors, as well as informing directors skillsets could be appointed to work alongside volunteer directors. These of their responsibilities” (Government directors would take the position of objective and impartial contributors, Interviewee). An OMC director noted guiding the board of directors through aspects of corporate governance, that “how to run an AGM, what the decision-making, and challenging advice. It is also worth noting that the same directors’ responsibilities are, there is independent directors could be removed by the members of an OMC at a nothing out there”. general meeting, where the independent directors themselves do not have a right to vote. Directors should be trained, and be more demanding of members, advisors and management agents, to operate their OMC in a more democratic and transparent manner. Research Findings Owners’ Management Companies / 69

/ There are no difficulties where there are long leasehold interests, where covenants are enforced, and people comply. Where people do not comply, there needs to be a mechanism to enforce compliance. Other jurisdictions have a culture of compliance; Ireland does not, and there is no ambition to change that culture /

Collection of service charges A User Interviewee highlighted an issue Collecting service charges from owners with mixed tenure, where “although the can be difficult, and there is a feeling majority of houses don’t pay, they receive all that taking legal action is costly and the benefits included in our budget and even time-consuming, and that there is a though the apartments pay, we don’t receive burden of evidence placed on the OMC all the services included in our budget”. It is to prove that the debt was due. not greatly understood that OMCs are funded by service charge payments of Arising from an interview with one their members alone. solicitor who is very involved in the Researcher area, it is suggested that there is no Recognition is needed that an OMC viewpoint issue with the legal structure. There is “a small business …and needs money, are no difficulties where there are long debt levels can be high and there is no There is a cultural issue in Ireland leasehold interests, where covenants are adverse consequences for debtors” (User with the payment of service enforced, and people comply. Where Interviewee). charges. Managing cash flow in people do not comply, there needs to poorly funded OMCs is stressful. be a mechanism to enforce compliance. Many unit owners will seek service before Managing relationships with Other jurisdictions have a culture of payment or withhold payment due to service providers when payment compliance; Ireland does not, and there poor service. This is counterproductive, is slow and late does not lead to is no ambition to change that culture. as the less funds an OMC has, the constructive and happy working fewer services it may provide. relationships. These problems It is clear from discussions with advisors give OMCs a poor reputation or agents to OMCs that there is a sense Service charge collection is the lifeblood among independent contractors of powerlessness. There is a feeling that of an OMC. The “importance of financial working for them. The MUD lease covenant enforcement is not as stability of the OMC is lost on most owners Act and requirement to approve absolute as it should be, that taking legal when it comes to dealing with the OMC” service charge budgets at general action is lengthy and costly to the OMC, (User Interviewee). meetings has made the entire and that the introduction of mediation process more transparent and as an alternative to the courts is seen There were repeated suggestions the culture is shifting towards as a compromise when most covenant that legal recourse was “expensive a willingness to pay, although it breaches are absolute. and arduous” and that it was better to remains lower on priorities than it “seek a proposal before going legal”. (User should. Interviewee) 70 / Owners’ Management Companies Research Findings

/ Service charge budgets prepared with little room for discretionary expenditure can lead to deficits or deterioration in services /

Sinking funds and service budget and trying to get service charges charge levels down. Reducing the service charge is There is an overall feeling that sinking legitimate when there is waste or excess” funds and service charge levels are (User Interviewee). This reflects a lot inadequate, but the unpopular of thinking on service charges and decision to strive to increase costs is sinking funds. Focusing on costs rather not relished. There was some confusion than service is a trait of many OMCs, over building investment funds and boards and agents. Service charge MUD Act requirements. budgets prepared with little room for discretionary expenditure can lead to “I would fear that the sinking fund is not deficits or deterioration in services. adequate, a lot of people questioning the As prices increase in a rebounding economy, one interviewee remarked that “we are moving towards a pinch point where the amount of spending is Researcher viewpoint just about covered by the service charges”. This reflects the nature of expenditure I recently reviewed a lease for a well-located Dublin apartment, incurred by OMCs. In times where purchased new in 1997 for £55,000, with an initial service charge payment employment rates are high, pressure is of £940, or some €1,200, for the first year, representing 1.7% of the purchase placed on contractors to raise wages, price. The most recent apartment sale in the development was at a price of which has an impact on all labour- €615,000, with a current service charge of €2,200 representing 0.36% of the related works in OMCs. In addition, value of the apartment. Service charges are not aligned to capital values of energy and insurance costs rarely fall, apartments; however, this example clearly shows the differing levels of inflation and in an environment of increasing in capital values and service charges over the last 20 years. OMC boards’ and health and safety requirements, the members’ attitudes should focus on delivering value for money in a service costs of maintaining life safety systems and standard-led environment, seeking to improve the living experience for and plant and equipment continue to residents. All too frequently, it becomes a race to the bottom for costs and rise. each invoice is viewed as a starting point for negotiation. Research Findings Owners’ Management Companies / 71

Focus groups do not do a good job; 25% thought that service charge collection was the Apartment Owners’ Network most difficult aspect of their job. 30% of As part of this research, AON allowed attendees would not become a director the research team to devote one of of an OMC. When asked what they 56% of those present the Network’s open monthly meetings would improve about apartment design, to a focus group. AON is a volunteer the majority wanted more space. said they adequately led, independent, non-party political understood the organisation that represents the interests Clúid Housing relationship between and views of owners and OMCs in Ireland. Housing managers from Clúid offered some management agents insight. As they are providers of housing, The positives of apartment living were deal with managing agents, and OMCs and OMCs attributable to location, proximity to as unit owners, and deal with residents, facilities, convenience and, on a wider there is some valuable insight available. note, sustainable land use and positive environmental impact. Some of the Overall, there was agreement that we negatives of apartment living discussed need to build more apartments and that, included: for density purposes, it is the right housing • Conduct of neighbours/noise model moving forward. Size, and lack • Storage space/design of outdoor space, were the main issues Over 50% of the • Fle xibility of layout for different identified in relation to apartment design. life cycle stages The biggest risk to OMCs was the difficulty focus group felt that • Poor quality construction/building with collection of service charges. management agents defects do not do a good job In the operation of OMCs, the issues When attention was turned to the OMC raised were: structure, the following issues arose: • Legacy of building defects • Suc cess is too dependent on • Accommodation not ideal for volunteer directors families and does not cater for • Building defects and recourse growing/larger families to developer • Dir ectorship training and more • No dispute/complaint process directors needed • No impartial education or • Adequacy of sinking funds 25% of attendees thought advice available • Inc onsistencies – OMCs differ that service charge • Service charges are too low from block to block • No sinking funds collection was the most • Attitude f o courts/costs/delays The housing managers were divided difficult aspect of an on whether they believed the OMC agent’s job Regarding management agents, the structure works as a method of co- issues identified were: ownership. However, when elaborated • Clear communication lines being on, the issues identified were the imperative, across board, members, operation rather than the structure, and and residents the lack of empowerment available to • Clarity of service required; tasks the OMC to enforce lease covenants. delegated and clear expectations Most believed that service charges regarding service delivery delivered good value for money which, • Collection fo service charge levies coming from professionals working in the • Slow to respond built environment, is positive feedback. The responses were more divided on Of those present, only 56% said they the matter of design and suitability for adequately understood the relationship families and, surprisingly, on high-rise between management agents and OMCs. apartment buildings. The response was Over 50% felt that management agents an emphatic negative when asked about 72 / Owners’ Management Companies Research Findings

/ Many owner-occupiers the quality of facilities and infrastructure development of mixed use, developed stated that they had never in place for new developments. in the mid-2000s in an emerging and successful district of North West been asked if they would Dublin, and a third being an estate of become a director of their Case studies almost 200 apartments in South Dublin, OMC but confirmed that developed in 1997. As part of the study, research was they would consider it / carried out on three apartment Research measured satisfaction with the complexes in Dublin; interviewing operation of the OMC, amongst other both owner-occupier and non-owner questions. In order to measure satisfaction residents. with the OMC it was necessary to ascertain if the occupier was happy overall with The apartment blocks vary in age and their apartment and location, as it was location, with one building located in felt that dissatisfaction with this would a mature part of North Dublin, built adversely influence satisfaction in the 1970s, another being a large with the operation of the OMC.

Table 5: Results of Door to Door Survey at 3 Multi-Unit Developments

Question Mid-2000’s 1997 Southside 1970's North N/W Dublin Dublin Dublin

Number of respondents 59 50 15

Number of owner occupier 24% 36% 27%

Are you or would you become a director of the 14% 8% 5% OMC?

Are you happy with the apartment overall? 83% 83% 73%

Are you happy with the location of the apartment? 88% 96% 93%

Why did you choose the apartment? Location/Amenities Location Location

Are you satisfied with the design of the development 86% 86% 61% and apartment block?

Are you happy with the upkeep of the development? 78% 89% 83%

Do you know what the OMC is? 44% 44% 87%

Do you know the difference between an OMC and 22% 80% 100% the Management Agent?

Have you attended a general meeting of owners? 62% 39% 75% (Owners only)

Would you attend a general meeting of owners in 100% 34% 75% the future? (Owners only)

Do you think your service charges are good value for 29% 100% 75% money?

Do you know what a sinking fund is? 100% 100% 100%

Have you heard of the MUD Act? 22% 66% 50% Research Findings Owners’ Management Companies / 73

The questions on the operation of The majority of owner-occupiers had at the OMC were asked only of owner- some point in time attended a general occupiers, and responses do not vary meeting of their OMC, and were aware significantly from the satisfaction levels of the difference between the OMC with the standard of upkeep of the and the management agent. They were development. also aware of the role of the directors. Interestingly, many owner-occupiers Research would indicate that tenants stated that they had never been asked were not well informed in relation to if they would become a director of their OMCs, and associated the common OMC but confirmed that they would areas more with the management consider it. As the election of directors agent. This viewpoint was also common is a required agenda item at annual amongst owner-occupiers. Negative general meetings, it might suggest that comments largely related to specific the formal nature of the meeting does issues experienced by residents, that not encourage owners to come forward they had raised when they had needed to act as directors. to. Many negative comments related to crime, behaviour of other residents, and specific repair issues, rather than any Summary overall feeling of disenfranchisement.

There are many positives to take from the qualitative research element. In As the overall satisfaction rate was very essence, the criticisms of the OMC structure would appear to refer to its high, it would suggest that residents operation, rather than relating to a fundamental flaw in design. and owners did not feel that there was reason to complain about the operation The opposition to apartments derives from a lack of control in building of the OMC. This would correlate with construction, poor design, and poor implementation by our local authorities in anecdotal evidence of attendance at the provision of facilities before development takes place. OMC general meetings, when poor attendances typically indicate a general The barriers can be overcome and the problems solved by direct intervention sense of satisfaction with the operation from government. This intervention is intended to change the way in which of the OMC and estate. apartment developments are planned, to focus on the lived experience and the greater built environment, and delivery of infrastructural offerings as the occupiers arrive.

In addition, the strengthening of powers of the OMC will provide the catalyst for the cultural change required to empower the collective over the individual in co-operative living environments, and introduce micro-societies built on mutual respect. 74 / Owners’ Management Companies Recommendations

Key recommendation: A regulator for OMCs on a statutory basis Recommendations Owners’ Management Companies / 75

6 / Recommendations 76 / Owners’ Management Companies Recommendations

Recommendations

Summary

The key recommendation of this report is that the Government establish a regulator for OMCs on a statutory basis. The functions of the regulator would be:

• To offer guidance on all aspects of the operation of OMCs

• To maintain a register of OMCs and process annual returns to incorporate additional return requirements, thereby ensuring compliance within the sector by OMCs

• To collect data through the annual returns process in respect of expenditure trends, the size of the sector and monitor variances in service charge levels and collection

• To provide a dispute resolution process through an online tribunal system

• To impose sanctions on OMCs for non-compliance

• To appoint independent directors as a sanction on OMCs, or at their request

• To provide mandatory training to OMC directors

• To provide individual guidance and advice to OMC members and directors

• To carry out research in the interests of OMCs and unit owners

• To provide an inspection regime for new apartment developments to ensure compliance with building regulations and fire safety

• To provide an inspection regime for existing apartment developments to ensure compliance with building regulations and fire safety

• To provide emergency assistance where an OMC fails in its duties or abilities Recommendations Owners’ Management Companies / 77

In addition to the creation of the office of the regulator, this report recommends that the MUD Act be amended:

1 To reflect the creation of the office 10 To oblige directors to undertake training of the regulator within six months of their appointment

2 To increase the reporting duties of 11 To oblige developers to provide a OMCs and to transfer the Companies builder’s bond, of 2% of construction Registration Office annual return value, to be held until 12 months after requirement to the new regulator’s office the completion of the estate

3 To provide to the regulator the relevant 12 To oblige the OMC to have a building jurisdiction for all disputes arising in an inspector attend and prepare a report OMC, including around the payment in advance of the release of the of service charges developer’s bond

4 To oblige OMCs to register with the 13 To develop a prescribed method regulator of periodic inspection during the construction of an apartment building 5 To oblige OMCs to carry out fire safety by an independent building inspector audits every five years and submit a certificate to the authority confirming 14 To oblige the developer to prepare same a full maintenance schedule for the operational costs for the first year of 6 To oblige OMCs to carry out a Building the estate, disregarding any warranty Investment Fund report every five years or maintenance periods and submit a statement of adequacy in relation to same 15 To oblige the developer to prepare a full Building Life Cycle Report (BLCR) 7 To oblige OMCs to submit confirmation costing, with individual contributions of insurance with their annual return, set out from year one and to be and to carry out a reinstatement incorporated in the initial charge valuation (where applicable) every five on closing years, and to submit a statement of adequacy in relation to same 16 To prescribe the agenda for annual general meetings 8 To submit an annual auditor’s report with its financial statements 17 To allow for tenant representation at board meetings in certain circumstances 9 To prescribe the format of annual financial statements to allow the 18 To place more structure around the regulator to issue specific guidance transitionary period between developer and training for their preparation and and OMC control in new developments interpretation

 78 / Owners’ Management Companies Recommendations

Recommendation 1 Sinking funds

• Each OMC to be required to • The OMC will be obliged to confirm commission a BLCR to identify the the level of sinking fund on an annual 1 renewable elements of the MUD, the basis as part of its annual return to the replacement cost of same, and the regulator, and confirm whether the level annual contribution required from is above or below the recommended owners to fund the replacements. level contained in the BLCR. • The OMC should be required to • The OMC will make the most recent circulate the report to all members report available to all members at and consider the report at the next any time. annual general meeting. • Clarify the wording in the MUD • The OMC will be obliged to evidence Act to confirm that sinking fund this action at every five-year interval. contributions should be levied in accordance with title provisions.

Objective of recommendation To encourage OMCs to obtain professional advice regarding the recommended level of sinking fund and to encourage transparency by sharing the report with owners. To include the sinking fund recommended level and actual level, disclosing the sinking fund status of the OMC to potential purchasers. To clarify the current MUD Act wording.

Recommendation 2 Fire safety

• Each OMC with a Fire Safety Certificate • The OMC shall, when carrying out every five years to be required to any alterations to the building or its 2 commission a fire safety report from a fabric, obtain confirmation that the suitably qualified building professional. works do not interfere with the The report should identify works integrity of the Fire Safety Certificate. required to be carried out, and any • Wher e the OMC carried out works recommended upgrades since the last that interfere with the fire strategy for report based on industry practice. the MUD, they must obtain professional • The OMC will be required to circulate advice from a suitably qualified the report to all members within 60 building professional and, if necessary, days of its completion. advise the fire officer. Any amendments • The OMC shall make the most recent must be certified, and such certification report available to all members at submitted to the authority as part of any time. the OMC online data.

Objective of recommendation To ensure a comprehensive regime of fire safety is in place in the interests of all MUD residents. Recommendations Owners’ Management Companies / 79

Recommendation 3 Housing Regulatory Authority

• The establishment of a Housing • The Authority will receive, store Regulatory Authority, with and maintain Fire Safety Certificate responsibility for OMCs, under applications, confirmations and 3 the Department of Housing, amendments as part of its OMC Planning & Local Government. database for the benefit of the OMC. • The Authority will have responsibility • Pr ovide consumer guidance and for developing and maintaining a assistance for all owners, users database of OMCs in Ireland and and occupiers in OMCs in Ireland, their annual return and disclosure including a guide to buying a processes, together with collecting property in a MUD. an annual registration fee for each • Pr ovide an inspectorate regime for OMC. This return will exempt the OMC compliance with legislation, OMC from Companies Registration building regulations and fire safety. Office returns. (Data and records • Pr ovide emergency assistance to returned will be similar to current OMCs where the company fails in returns, with additional items as its obligations, in the interests of detailed). owners and residents, to include • The Authority will hold as part of the imposition of directors, agents its database a register of members, or other officers as it sees fit. directors, agents, auditors, and other • Pr ovide mandatory training to officers of OMCs. directors of OMCs and other • The Authority will provide a public related parties. database of OMCs online, with • Pr ovide guidance, assistance and access to specified data on the advice to OMCs, related parties company, including disclosures and the public in matters relating contained in its annual return. to OMCs. • The Authority will collate and analyse data received as part of the annual return and disclosure process, to monitor trends in the sector in order to influence future policy.

Objective of recommendation To regulate OMCs and provide a structure of support and training for the sector. To establish a culture of transparency in the sector, and enable oversight by the Authority of the compliance levels of OMCs. To hold, and allow to be maintained, significant data for the benefit of the OMC. 80 / Owners’ Management Companies Recommendations

Recommendation 4 Regulatory Authority Tribunal

• The Authority will operate a • The Tribunal will have authority specialist Tribunal to adjudicate over to impose sanctions or fines on 4 disputes in OMCs, with jurisdiction any party. similar to that of the Circuit Court. • The Tribunal will have the authority • The Tribunal will operate an online to impose an independent director dispute process for a small fee, on an OMC if appropriate, and the payable on acceptance of application cost of the director will be added of the dispute. to and paid from the OMC • The Tribunal will be open for service charge. applications from anyone, in relation • The Tribunal will publish all disputes to any breaches of covenant or online, available to the public. statute. • The Tribunal will have the authority • The Tribunal will have authority to to award costs. adjudicate over all service charge debt, breaches of lease provisions, and breaches of house rules.

Objective of recommendation To introduce a specialist Tribunal with intimate knowledge of the sector, to process complaints efficiently and provide an effective and economic alternative to the courts. The public register will provide valuable case history to inform OMCs and other stakeholders and set the tone for resolution of OMC disputes. To improve the ability of OMCs to collect service charges and sinking fund levies, and reduce the cost of obtaining judgement.

Recommendation 5 Regulatory Authority inspectors

• The Authority will engage building buildings or buildings of shared inspectors to carry out periodic structure, to ensure compliance 5 inspections of existing MUDs and with building regulations. report on health and safety and • The Authority may engage other fire safety procedures in place. inspectors as it sees fit to inspect • The Authority will engage building and examine any operations and inspectors to carry out periodic processes of OMCs, to ensure inspections on new apartment compliance with law.

Objective of recommendation To introduce an inspection regime in the interests of all owners to ensure that their building and OMC are operating within the law. Recommendations Owners’ Management Companies / 81

Recommendation 6 Owners’ Management Companies – returns to the Authority

• OMCs will be exempt from • OMCs will maintain data in relation Companies Registration Office to the number of units within a 6 returns, and will instead make their MUD, service charge levels, debtor returns to the Authority. performance, and specific outlay, • OMCs will be required to return to enable the Authority to digest financial records in a format specified data and review trends in the by the Authority. interest of the sector. • OMCs will be required to maintain a • OMCs will disclose to the Authority database of members/owners with any notices served by any other the Authority via an online portal. Government department or office. • OMCs will be required to maintain a • An OMC will pay its annual database of directors, officers, agents registration fee to the Authority and auditors via an online portal. on submission of its annual return. • OMCs will lodge an annual data • OMCs will pay penalty fees for return, disclosing relevant non- late filing or non-compliance. financial data, including insurance policy details, fire safety statements, and BLCRs.

Objective of recommendation To enable the Authority to keep a directory of OMCs in Ireland and measure their performance. To make certain data available to the public, in order to allow the review of relevant non-sensitive data in the public interest.

Recommendation 7 Lease covenant and house rule enforcement

• Legisla tion to be altered to make the • Specific prohibitions on nuisance enforcement of lease covenants and and unauthorised alterations to 7 house rules more robust. property to be enforced. • OMCs and related parties may apply • Authorise the Tribunal to apply to the tribunal for adjudication over sanctions and damages for breaches breaches of lease covenants or of covenants and house rules. house rules.

Objective of recommendation To assist in ensuring the quiet enjoyment of their properties by all residents in the MUD, and to encourage compliance by all owners and residents. 82 / Owners’ Management Companies Recommendations

Recommendation 8 Role of directors

• Obligation on directors to undertake • Empower the Authority to mandatory training within six months disqualify a director from acting 8 of appointment/election as director of as a director of an OMC, without an OMC. The training is to be provided such disqualification interfering with by the Authority and is valid for a the individual’s standing to act as a period of seven years from completion. director of other types of companies. • The roles of directors of OMCs • Allow the OMC to authorise needs to be confirmed in statute remuneration for directors at a (to specify that they act in the general meeting. interest of all owners/members). • Allow the appointment of an • The Authority should have the ability independent director for a fee at the at a future date to impose a Code request of the OMC, subject to the of Conduct for OMC directors. approval of the Authority. The fee to • Ro tation of directors should include be payable from the service charge. the express provision for a director • Allow for the appointment of an to be re-elected after a term of independent director for a fee by the three years. Authority, on its own initiative or at • Consider ation should be given to the request of the OMC board. allowing members to view minutes • Con firm that voting rights of of directors’ meetings, with personal directors are not tied to voting rights data redacted. of their OMC membership holding.

Objective of recommendation To offer clarification on the role of directors of an OMC and to enable the OMC to procure expertise at board level, if desired. To ensure that proper rotation and representation are present at board level. To empower the Authority to introduce a Code of Conduct for OMC directors following a review of current practices. Recommendations Owners’ Management Companies / 83

Recommendation 9 OMC communication obligations

• Obligation of OMCs to issue an • Obligation to identify for the Annual Report in accordance with members the directors, officers, the MUD Act as a separate report to management agent and auditor 9 the financial statements. of the OMC. • Obligation to issue financial • Obligation to keep owners and statements in prescribed form. residents informed of the house rules. • Obligation to issue service charge • Obligation to disclose material items budgets in advance of meeting, to members within 60 days of the for approval. directors becoming aware of the item.

Objective of recommendation To encourage transparency between the board and the members of the OMC, and to reduce the burden of knowledge placed on the directors.

Recommendation 10 Ability of OMC to borrow

• Authority in statute for the OMC to • The members must be made aware borrow funds from a relevant lender. of the proposed resolution, and be 10 • The process that the OMC must provided with documentation in follow to borrow funds must be relation to the loan agreement and detailed in legislation. area of expenditure, at least 10 • All borrowings made by the OMC days prior to the meeting. must be to fund specific projects, • Details of the period of repayment and approved at a general meeting must be included in the of owners convened for purposes to documentation, clearly indicating include the passing of a resolution to the repayment cost per unit. authorise the board to borrow funds.

Objective of recommendation To authorise OMCs to borrow money to fund specific projects, subject to the agreement of members by resolution at a general meeting of owners. 84 / Owners’ Management Companies Recommendations

Recommendation 11 Mixed use schemes

• Review provisions in the MUD Act • Permit the Authority to appoint in relation to mixed use MUDs. directors to represent smaller 11 • Allow the Authority to adjudicate stakeholders, in the interests over the OMC structure regarding of equity. service charge apportionment, director representation, and voting rights.

Objective of recommendation To prevent the oppression of minority shareholders, and ensure that the interests of all members are represented at board level.

Recommendation 12 Management agents

• Specify that when engaging an agent • Authorise the Tribunal to include OMCs must engage licensed property the management agents in any 12 service providers, holding a relevant adjudication where the Tribunal license. believes that there is cause.

Objective of recommendation To ensure that OMCs are afforded the protections under the PSRA licensing regime. To prevent the frustration of dispute resolution by the Tribunal determining that jurisdiction for the complaint lies with the PSRA, rather with the Tribunal itself. Recommendations Owners’ Management Companies / 85

Recommendation 13 Insurances

• Specify the policies of insurance that • Oblige the OMC to disclose each OMC must obtain to protect its insurance details as part of its members. Annual Return to the Authority. 13 • Oblige OMCs to inform owners and • Oblige the OMC to carry out a members of the nature of insurance building reinstatement valuation and the excesses on the policy. every five years, and to return the • Oblig e OMCs to disclose any valuation certificate to the Authority. changes in their insurance policy or • Oblige the OMC to inform all owners cover as soon as possible, but within and residents, on an annual basis, 14 days of cancellation or 28 days of that the insurance policy in place a material change, endorsement or does not extend to their home alteration to cover. contents or their own liability.

Objective of recommendation To ensure that the OMC procures adequate insurance cover, and keeps its members informed of the nature, extent and limitations of cover in place.

Recommendation 14 Financial statements

• Remo ve entitlement to audit • Format to include detailed income exemption for OMCs. and expenditure analysis, in • Prescribe a format for preparation of prescribed form, to enable data 14 accounts for OMCs so that standard analysis, industry-wide. data is disclosed in each set of • Format to include detailed assets accounts. and liabilities analysis, to enable debtor and sinking fund analysis, industry-wide.

Objective of recommendation To provide to the owners the protections associated with an audit. By homogenising OMC financial statements, to enable the Authority to provide guidance and training on OMC accounts to the public and directors. 86 / Owners’ Management Companies Conclusion

90,000 extra apartments will be needed in Dublin to meet population growth in the next 20 years Conclusion Owners’ Management Companies / 87

7 / Conclusion 88 / Owners’ Management Companies Conclusion

Conclusion

In Designing the Compassionate City, Jenny Donovan writes: “the players that influence the relationship between people and place can be generalised into three overlapping groups: government, civil society and industry” (Donovan 2018).

/ Government has never Government sets the political context In Ireland, we have developed a built recognised the complexity for things to happen and how they environment in our cities with little of fractional ownership should happen; Industry – through oversight, where soft legislation and developers, builders, architects and industry influencers have taken the in MUDs. Apartment other professionals involved in the position of control, moulding our owners have never been built environment – are responsible cities and homes. The failings of for implementation, and Civil Society self-certification and Government to protected by legislation or is the end users; the enjoyers of the implement, not only a robust building recognised as a significant built environment, the individuals and control environment, but a framework housing sector / populous that it is all delivered for, for co-operative and communal living, whether for financial reward or civic have negatively impacted those in betterment. society for whose benefit Government and Industry are working. Government has never recognised the complexity of fractional ownership In this report, it has been illustrated how in MUDs. Apartment owners have other societies and jurisdictions have not never been protected by legislation left this important civil issue to Industry or recognised as a significant housing to define. They have had the foresight sector. to impose restrictions and regulations for the betterment of society, and the Government should recognise that enjoyment of the homes concerned. embracing apartment living and ownership is positive for the nation We have set out rules for construction and its growing population. The through building regulations since 1992, increase of higher density housing but could not hold anyone accountable means that Government can provide for building defects until 2014. We have transport and other infrastructure in an understood the need for regulation efficient manner. Local authorities and in our housing sector and introduced other state services (such as policing, legislation regulating the private rented education and healthcare) can capture sector, social housing sector, and a greater number of people within property service providers, without a smaller geographical area, making regulating OMCs. We have designed our services more effective. regulation to confuse and create barriers to users of property, through separate This recognition should also start a agencies created for different segments debate about the inequity of the Local of industry. Overall, one could take the Property Tax when based on value, view that the system is designed to avoid when it is clear that local authorities responsibility and decision-making, can provide services more efficiently to making it easier to identify another high-density housing than to traditional department or regulator that may be housing having a greater geographical responsible. spread. Conclusion Owners’ Management Companies / 89

Taking the view that Government This report recommends a Housing and / The failings of exists for the good of society, and the Property Regulator to bind the Property self-certification promotion of society’s interests over Services Regulator and Residential the interests of any individual, hence Tenancies Board together in a new, and Government to the need for laws, we cannot leave all-encompassing regulator for housing implement, not only a a fundamental requirement such as and property. It would not only regulate robust building control housing to remain in an unregulated or residential tenants in the public and ambiguous environment. private sectors, and property service environment, but a providers, but also include AHBs, framework for co- On 1 November 2018, a number developers, construction companies, of stakeholders were invited to and OMCs. The use and amalgamation operative and communal Clúid Housing, where initial draft of the Property Services Regulator and living, have negatively recommendations were presented. Residential Tenancies Board to provide impacted those in a single location for all housing and It was encouraging to receive significant property issues, data collation, dispute society for whose benefit support from all present in respect resolution, guidance and education, Government and Industry of all recommendations offered. The would provide a meaningful civic are working / significant tone of the room was that office, delivering widespread services the country did not need another in housing. Is housing not important regulator in the property and housing enough for this? area. The consensus, confirmed by a show of hands, suggested that certain existing organisations could be merged and expanded. 90 / Owners’ Management Companies References

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Hayden A. & Jordan B. (2018) Rebuilding the Irish Kearns P. & Ruimy M. (2010) Redrawing Dublin. Gandon Neighbourhood: How Can We Make Mixed Tenure Communities Editions, Kinsale. Work? Housing Agency. Dublin. Law Reform Commission (2006) Consultation Paper on Helliwell, J., Layard, R., & Sachs, J. (2018). World Happiness Multi-Unit Developments (LRC CP 42-2006). Dublin. Report 2018, New York: Sustainable Development Solutions Network. New York, NY. Law Reform Commission (2008) Report on Multi-Unit Developments (LRC 90 – 2008). Dublin. HM Courts & Tribunal Services First Tier Tribunal Property Chamber (Residential Property) (2017) Guidance on Service Leasehold Advisory Service (LEASE) (2002) Right to Manage Charges, Administration Charges and other management matters. Commonhold and Leasehold Reform Act 2002. London. T541. London. 92 / Owners’ Management Companies References

Leasehold Advisory Service (LEASE), Association of Retirement Society of Chartered Surveyors Ireland (2018) Sinking Funds Housing Managers (ARHM), Association of Residential in Apartments, Meeting the Challenge. Dublin. Managing Agents (ARMA) (2013) Living in Leasehold Flats – A guide to how it works. London. Statistics Canada (2018) Condominium dwellings in Canada National Household Survey (NHS), 2011. Ottawa, ON. Lyons R. (2018) Where's the plan to provide 20 new homes www12.statcan.gc.ca/nhs-enm/2011/as-sa/99-014-x/99- per acre in Dublin? The Irish Independent. 11th June 2018 014-x2011003_1-eng.pdf www.independent.ie/life/home-garden/ronan-lyons- wheres-the-plan-to-provide-20-new-homes-per-acre-in- Tziamalis A. (2018) The Simple Solution to UK’s Housing dublin-36993600.html Problem – Apartments. The Independent. 28th April 2018. www.independent.co.uk/life-style/design/the-simple-solution-to Malone F. (2017) Financial Planning in Multi-Unit Developments. -uks-housing-problem-apartments-a8326056.html Unpublished Masters Thesis, Dublin Institute of Technology, Dublin. United Nations Department of Economic and Social Affairs (UN DESA) (2018) 2018 Revision of World Urbanization Prospects. Ministry of Justice, Finland (2012) Limited Liability Housing www.un.org/development/desa/publications/2018-revision-of- Companies Act 2009 – Unofficial Translation. Helsinki. world-urbanization-prospects.html www.finlex.fi/en/laki/kaannokset/2009/en20091599.pdf United Nations Population Fund (UNPF) (2007) State of world National Asset Management Agency (NAMA) (2018) End of population 2007 Unleashing the Potential of Urban Growth. Year Review 2018. Dublin. www.nama.ie/uploads/documents/ New York, NY. www.unfpa.org/publications/state-world- NAMA_End_of_Year_Review_2018_INFO.pdf population-2007

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Appendices Appendix 1: Periodic Information Certificate as required under Ontario regulations 94 / Owners’ Management Companies Appendices Appendices Owners’ Management Companies / 95 96 / Owners’ Management Companies Appendices Appendices Owners’ Management Companies / 97

Appendix 2: Australia model for tenant participation at board level

November 2016 Tenant participation In a strata scheme

To find out what´s happening where they live, tenants Tenants may be excluded from meetings where financial may attend meetings of the owners corporation. matters are discussed. They also must gain the owners corporation´s permission before they can speak at the In some circumstances, tenants may also be able to elect meeting. a tenant representative to sit on the strata committee, which looks after the day-to-day running of the strata Option to have a tenant representative scheme. In strata schemes where at least half of the lots are Tenants should also be aware of tenancy laws that apply. tenanted, the tenants have the right to nominate a tenant For details visit the Renting a home section of the Fair representative to the strata committee. Trading website. The tenant representative is entitled to:

Check you are registered on the strata ● receive a copy of the agenda and any minutes of roll meetings held The landlord, or property manager acting on their behalf, ● attend and speak at strata committee meetings. is responsible for completing a tenancy notice within 14 However, they can be asked to leave the meeting if days of a new lease being signed. This information financial issues are to be discussed. includes an address at which the tenant can be The tenant representative does not have a vote. They contacted. The landlord must give this to the owners cannot make up the quorum of a meeting (that is, the corporation to allow a new tenant to be registered on the minimum number of people needed for a vote to be strata roll. valid). You need to be registered on the strata roll to: Nominating a tenant representative ● exercise your right to attend meetings of the owners The strata committee determines if at least half of the corporation schemes are tenanted. A person entitled to convene an ● be communicated with (for example, receiving 7 days annual general meeting (AGM) must advise eligible ´ notice of meetings, which you may wish to attend) tenants (those who appear on the strata roll) of the ● be counted in the lots that are tenanted. This lets meeting to select their representative. your strata management determine if your strata block is eligible to have a tenant representative on The meeting to elect a tenant representative can be held the strata committee. at any time before the AGM but must be called at least 14 days beforehand. Attending meetings of the owners Tenants must receive notice of the meeting at least 7 corporation days in advance of it being held, which can be: Tenants (whose landlords have given notice of the ● sent to tenants´ address on the strata roll tenancy to the owners corporation) can attend meetings ● posted on the scheme´s noticeboard (if one is of the owners corporation. A tenant cannot vote unless provided). they are an authorised proxy, allowing them to vote on someone else´s behalf. The meeting can be chaired by the chairperson of the strata scheme or a tenant nominated by the eligible tenants present at the meeting. 98 / Owners’ Management Companies Appendices

November 2016

An eligible tenant may nominate themselves, or another By-laws in a strata scheme page on the Fair Trading eligible tenant. The tenant representative is then to be website. determined by a majority vote of the tenants present at the meeting. The quorum for the meeting is one person. Landlords cannot prevent their tenant from nominating as a tenant representative. At the coming AGM, the chairperson announces the name of the tenant representative who was elected. At the end of the AGM, the tenant representative´s appointment officially begins. Period of appointment A person´s term ends as a tenant representative when:

1. the person stops renting a property in the scheme 2. they resign in writing to the owners corporation 3. the following AGM (after the one at which the tenant representative is announced) ends.

If a tenant representative´s appointment ends early, the secretary of the owners corporation must convene a meeting of eligible tenants to elect a replacement for the rest of the term. By-laws Each strata scheme has its own by-laws, which are a set of rules that cover things such as the behaviour of residents and the use of the property. The by-laws apply to all owners and residents of a strata scheme, including tenants.

Landlords or the property manager for the tenancy must give their tenants a copy of the current by-laws within 14 days of the tenancy agreement being signed.

If a tenant breaches a by-law, the owners corporation or managing agent (if their agency agreement gives them the authority) can serve a 'Notice to Comply with a By- Law' on the person who is breaching it. A continued breach may result in a penalty. For more details, visit the

www.fairtrading.nsw.gov.au This fact sheet must not be relied on as © State of New South Wales through NSW Fair Trading Fair Trading enquiries 13 32 20 legal advice. For more information about You may freely copy, distribute, display or download this information with some important TTY 1300 723 404 this topic, refer to the appropriate restrictions. See NSW Fair Trading's copyright policy at www.fairtrading.nsw.gov.au or email Language assistance 13 14 50 legislation. [email protected] Appendices Owners’ Management Companies / 99

Appendix 3: Questionnaires – Example

OMC research questionnaire – owner occupiers

Are you / Have you been a director of the OMC Current Past Never

The apartment

Right amount of bedrooms Yes Too few Too many

Scale of 1 to 5 how happy are you with the apartment taking 1 2 3 4 5 into account space, design, fixtures, fittings and storage etc. Poor Excellent

Environment

On a scale of 1 to 5, how satisfied are you with the location 1 2 3 4 5 of your apartment, taking account of transport, amenities, safety etc.?

What were your main reasons for choosing this apartment?

The development

On a scale of 1 to 5, how satisfied are you with the design 1 2 3 4 5 and appearance of the apartment block?

On a scale of 1 to 5, how satisfied are you with the upkeep 1 2 3 4 5 of the common areas in the apartment block?

Owners questions

Do you know what the Owners’ Management Company (OMC) does?

Do you know the difference between the OMC and agent?

Have you been to an OMC Meeting?

If so what was the meeting like?

Would you go again?

Have you ever been asked to be a director of the OMC?

Do you know what a director does?

Would you consider becoming a director?

If not – why?

Have you had contact with the OMC or agent? 100 / Owners’ Management Companies Appendices

If so what kind – complaint or request for information etc.?

What happened?

How much is your service charge?

Do you think it represents good value for money?

Would you be prepared to pay more if necessary?

On a scale of 1 to 5, how satisfied are you with the operation 1 2 3 4 5 of the OMC?

Do you know what a sinking fund is?

What do you think are the main problems with the OMC?

What could be done to make the OMC work better?

Have you heard of the Multi Unit Developments Act?

Do you have contents insurance for your apartment?

The Housing Agency Clúid Housing For further information, 53 Mount Street Upper 159-161 Sheriff Street Upper please visit: Dublin 2 Dublin 1 www.housingagency.ie t: (01) 656 4100 t: (01) 707 2088 www.cluid.ie e: [email protected] e: [email protected] Company number: 212249 Registered charity number: 20029975