Property Clinic: I can’t afford to pay the service charge

Q I bought an apartment in a large complex in Dublin in 2006. I could initially afford my service charge payments in addition to my mortgage repayments as I was on a reasonable salary. As with a lot of people, I took a significant pay cut in the height of the recession and found myself struggling to make all of my repayments.

I missed a few service charge payments and eventually stopped making these payments altogether. I know for a fact that there are other owners who have done the same or similar.

There is now a new management company in place who are chasing my backlog of missed payments and the service charge has also increased. I cannot afford to pay this amount and don’t really see why I should if others aren’t also.

What’s the worst that could happen if I ignore these reminders and if it’s a case that I really must pay them, is there a way to seek that they be reduced or that I don’t have to pay the backlog?

A You would be aware that you must pay your service charges as your solicitor would have advised you on your contractual obligation to do so when you purchased your property. You will also recall signing documents when you purchased your property, thus you were entering into a contract with the owners' management company (OMC). The lease agreement binding you as a property owner to the OMC is, amongst other things, an obligation to pay service charges in full to your OMC for the running of the development each year.

The consequences for your actions or lack thereof are that your fellow members have been forced to pay twice; once to cover your costs whilst you did not contribute and secondly to pay for legal proceedings to recover the money you owe.

A competent and functional OMC would arrange for debt collection proceedings against its debtors so that the company can remain solvent and that paying members can see evidence of equity to ensure they continue to pay.

The legal process would be as follows: firstly issue a demand letter advising of the monies due to be repaid within a short period of time to the OMC. If you fail to respond to the solicitor’s letter with payment or to acknowledge the letter, the solicitor will make an application to the relevant court for judgement. There would not be a need for a court hearing if you choose not to defend.

The relevant court of jurisdiction will depend on the money you owe, that is: the District Court for sums not exceeding €15,000; the Circuit Court for sums not exceeding €75,000; or, the High Court for sums over €75,000.

If you choose to defend, the case will be heard by a judge. Once the OMC has a judgement against you, they may wish to publish the judgement by way of reference to the register of judgements through an organisation like Stubbs Gazette.

They may also seek to enforce the judgement from a variety of options including: referring the matter to the Sherriff who will have powers to collect the monies due from you or recover assets from you; seek an instalment order against you meaning you would be required to attend the court to provide it with a statement of means so the appropriate amount of regular instalments required to clear the debt can be determined; or, seek a judgement mortgage meaning a judgement against your property will be registered.

In recent years the latter option of a judgement mortgage was not favoured as the property would be worth less than the mortgage value and as such the bank would have a preference on the property over any existing burdens. It may now be that if the property was sold there would be sufficient funds to cover any burdens and the money owed to the OMC. The OMC may then seek to have the property sold and have the debt paid from the sale by way of a Well Charging Order and the Order for Sale. As you say many people have had their income reduced so it is unfair to your fellow members to expect them to cover your service charge payments when they may well be experiencing similar pay cuts to you.

Your predicament is grim and you should act immediately. I would recommend you liaise with the OMC and try to arrange an amicable payment plan. You may also wish to seek independent legal advice. FLAC or MABS will be of assistance to your cause if you are unable to arrange for a solicitor.

As I have outlined, there are many consequences should you fail to sort this out amicably, not only for yourself but your fellow members may be forced to pay higher service charges by way of legal fees and thus, there would be less funds available for maintenance and repair of the development, meaning the sale price or rental value will decrease for all of the units.

Paul Huberman sits on the Property and Facilities Management Professional Group of the Society of Chartered Surveyors Ireland scsi.ie

Q I've just bought a small office unit and the council are chasing me for rates that are due since before I bought the property. Am I liable for these as the new owner?

A To find yourself in this predicament as a recent purchaser is alarming but I'll discuss this further on. The extent of your liability will depend on when the property transfer took place. If as in your case it is very recent, it is likely to be governed by provisions of the Local Government Reform Act 2014.

Under this new legislation, there is an explicit onus on the vendor to pay outstanding rates for which he/she are liable, at the time of property transfer and in addition to notify the appropriate local authority of the change in property ownership, where there will be also a change in occupier.

Failure to notify the authority of the transfer may lead to the imposition of an equivalent charge on the previous owner equal to the sum of no more than 2 years outstanding annual rates liabilities, as incurred by the previous occupier.

Whilst the local authority will continue to pursue the parties primarily liable for the debt, be it the former property owner or occupier, the Act empowers the authority to register any unpaid equivalent charge against the property for a period of 12 years from the date that the rates were originally liable. If such a charge is registered, it could have financial consequences for you, if deciding to subsequently dispose of your property within the relevant 12 year period.

Finally, as part of legal due diligence carried out during the sale process, your solicitor should have sought proof from the vendors that any rates liabilities attached to the property had been discharged prior to sale closing. In certain circumstances, it might be agreed that the vendor’s solicitors undertake to discharge any rates liabilities from the sale proceeds, before any monies were passed to the vendor. I would be very surprised if this standard legal practice was not followed and suggest that you speak with your solicitor.

Eamonn Maguire is chair of the Commercial Agency Professional Group of the Society of Chartered Surveyors Ireland scsi.ie