Non-payment of service charges is a growing problem

THERE IS a growing issue with the non-payment of service charges in respect of apartments and commercial properties.

This is creating situations where services, such as cleaning and security, are being suspended due to a lack of funds.

A survey by the Society of Chartered Surveyors (SCS) – in conjunction with the Irish Property Facility Management Association (IPFMA) – reported that an increase in the non-payment of service charges in 2009 was recorded by around 90 per cent of property managers. Investors were the largest proportion of those withholding payment.

Around 44 per cent of the developments surveyed suffered from a situation where services had been decreased or withdrawn due to lack of funds. In the years to 2009, 62 per cent of respondents said 80-100 per cent of service charges were paid, yet this dropped to 25 per cent in 2009.

The shortfall in service charges is resulting in more occupiers/investors refusing to pay charges as they do not wish to continue paying for services that are not being delivered. Without funds, properties cannot be maintained.

In most cases, non-essential repairs and redecoration were being deferred, along with reductions in security, marketing and cleaning services. Some respondents said sinking funds are being used for ongoing maintenance – sinking funds are normally used for major repair works.

In other cases, insurance premia are lapsing, leading to a questionable future for these assets, along with a possible myriad of legal problems.

There are ways to tackle this issue. Property managers can pursue payment through the courts but the costs incurred are not generally awarded in successful claims. In a poor market, the threat of being precluded from selling the unit is also insufficient to enforce payment of service charges. As the multi-unit housing stock deteriorates, it will require greater levels of maintenance.

A system of enforcing the payment of service charges will become a critical issue, economically and socially, along with the regulation of the property management industry already underway.

The SCS has proposed ways to improve the situation to the Department of Finance. These will not entirely correct the problem but could help to increase the payment of service charges.

They include: as part of the annual Form 12 Tax Return, a residential investor claiming Section 23 or similar relief must include proof of service charge payment before the relief is provided; make proof of service charge payment mandatory to qualify for mortgage interest relief for owner-occupiers; and make service charge payment mandatory when registering tenancy details with the Private Residential Tenancies Board (PRTB).

These proposals would be relatively cost-effective and could substantially increase the number of service charge payments.

Claire Solon is chair of planning and development at the SCS