Our developer went bust - what now?
PROPERTY CLINIC: QI live in an apartment block to which a receiver has recently been appointed as the developer has gone bust. What does this mean? Will they take care of all the grounds maintenance and the running of the services in the development and will they be paid to do so?
AThis question covers two possible scenarios: the first is where the receiver is appointed over the development company and the second is where the receiver is appointed over the entire block, part of the block or certain apartments within the block owned by the developer.
My experience is that occupiers can easily and understandably become confused as to which scenario they are in. Whichever is the case, a receiver has a primary duty of care to the lender who makes the appointment. The receiver also has a duty of care to the borrower and to any of the developer’s tenants of units that have been “held back”.
The receiver is required to ensure that the debt is serviced, interest is paid, and to endeavour to see repayment of the debt.
Where the receiver is over the development company, the receiver has a duty to run the business and takes on all responsibilities that that entails.
In this case, this would likely involve finishing out the construction works where a building or buildings were incomplete or, at a minimum, making the site safe.
Where the block of apartments is fully or part sold and occupied, the common areas will have been transferred over to the Owners’ Management Company (OMC) and this was provided for under the Multi Unit Development Act 2011 (the MUD Act). Each owner will have a voting right.
This does not relieve the developer and hence the receiver from their obligation to finish the common areas. Separately, there may be incomplete and unoccupied blocks in the development and the receiver will isolate these blocks on health and safety grounds.
Where the development is fully complete, it is possible that the developer may have held onto a number of the units and this may give the impression that the entire block is in receivership.
You can easily check with the management company. In this case, the receiver is effectively acting as the new landlord of those units that have been “held back”. The developer’s role in the development is over, except that they will be responsible for the usual building warranties.
The management company assumes responsibility for the common areas and is paid to do so and it’s usually done via a management agent who is licensed under the Property Services Regulation Act 2011.
Two budgets will be presented annually – the operating service charge and the sinking fund. The developer and consequently the receiver will be responsible for such payments for any unsold units.
Peter Stapleton is director of Lisney, and a practising property receiver and member of the Society of Chartered Surveyors Ireland
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