I want to get my block insurance details, but l have outstanding management fees. What should I do?
Thank you for your query, which is interesting as it goes to the heart of the role of an Owners’ Management Company, which is often misunderstood.
Owners’ Management Companies (OMCs) and their operation are covered by the Multi-Unit Developments Act, which was introduced in 2011. The legislation put in place additional obligations (on top of the Companies Act) on OMC boards of directors relating to consulting with owners and reporting on all aspects of the OMC’s role including the use of funds.
As a property owner, you are a member of the OMC and should have a say in how the common areas owned by the OMC are maintained and managed, and in how funds are spent. This means that you get an opportunity to approve the decisions of the directors and can ask questions about the services, usually at the AGM.
When you purchased your property, the legal documents you received should have set out the services the OMC has to provide. Examples of common services are block insurance (including public liability); cleaning of common areas; maintenance/management of the car park; repair of roofs and gutters. These services are budgeted for on an annual basis and the budget should be approved by the owners at an AGM. Service charges are then levied on all owners; however these are to pay for that year’s approved budget only.
The annual service charge will also include a contribution towards a long-term sinking fund. The 2011 Act introduced a legal requirement for OMCs to establish and maintain a sinking fund and the amount to be paid is also agreed at the AGM as part of the budget approval process.
A report published by the SCSI in 2018 saw 78 per cent of managing agents reporting that their respective OMC sinking funds were inadequate. While under provision in budgets is one reason for this, the main factor in many cases is that the sinking fund consists of large blocks of service charge debtors.
Essentially an OMC does not generate any excess revenue based on its annual budget as all of the charges levied are required to run that OMC for that year. When owners do not pay their service charges in full, then elements of the budget cannot be delivered. Hence you get a chicken-and-egg situation where an owner may advise a managing agent that they won’t pay their service charges unless the landscaping improves. However, by taking this approach they are actually further depriving the OMC of the resources to meet their own request for improved services.
Service charges are legally due in full from the day they are levied. They are one of the few debts which is protected under personal insolvency legislation and cannot be included in an insolvency arrangement which writes off personal debts. This reflects the communal nature of an OMC where every owner is required to pay their share of the operating costs of an apartment block or housing development.
In some European countries a much more forceful approach is taken to the collection of service charge arrears. This recognises their longer experience of apartment and shared common area living.
The current OMC structure and supporting legislation is far from perfect, as highlighted in the recent report produced by Cluid and The Housing Agency. However, it does ensure both transparency and openness with recourse to the Property Service Regulator in certain circumstances. It still requires that each owner understands the OMC’s role and that they play their part in supporting the OMC in its work.
If you have financial difficulties and are finding it difficult to pay your service charges in full, then I would recommend engaging directly with your managing agent. Notwithstanding the requirement to pay in full when demanded, many OMCs via their agents have recognised that Covid-19 has impacted on the economy and are currently willing to set up payment plans using direct debits which can help you to pay the charges over a number of months.
Ultimately the value of your property in the long term is dictated by the financial wellbeing of your OMC.
Enda McGuane is a chartered planning and development surveyor and a member of the Society of Chartered Surveyors Ireland (SCSI), scsi.ie