Problems with apartment sector could be a ‘time bomb’ for taxpayer

Major problems are accumulating in the apartment and multi-unit accommodation sector that, if not addressed by government, represent a time bomb that will go off for the taxpayer in five to 10 years time.

That is the view of the Apartment Owners' Network which on Thursday gave a sobering, low key but nonetheless dramatic assessment to the Joint Oireachtas Committee on Housing, Planning and Local Government.

Problems highlighted include uncollected or underestimated service charges, an absence of sinking funds to pay for longer term, large scale maintenance, raiding of sinking funds to pay for day-to-day maintenance, building defects, and a failure of volunteer directors to adhere to basics of company law.

Citing examples in Canada, Australia and New Zealand, Network volunteer directors David Rouse and Bryan Maher, called for regulator for Owner Management Companies (OMCs).

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“In a ‘do nothing’ scenario,” said Mr Rouse, “where action on regulation is not taken by those in authority, in our opinion it may ultimately fall on the State’s resources to resolve problems when they crystallise in crisis.”

He cited the examples of Priory Hall, which is costing Dublin Council €27 million to refurbish, and Long Boat Quay, where over €3 million to fix fire safety problems will be split between the developer and the city council, as harbingers of problems elsewhere.

“These problems will materialise over the next five to 10 years as apartment blocks get older,” said Mr Rouse.

“Left unaddressed now, they represent a ticking time bomb in the sector. In our opinion, the problem will only get bigger as the apartment sector grows.”

As a result of the number of apartments and mixed unit complexes (those with houses, duplexes and apartments in the one development) built during the boom and since, there are now over half a million people live in over 200,000 apartments across the country, according to the Network.

There are between 5,000 and 7,000 owner/occupier management companies run by some 15,000 volunteer directors.

“The number of OMC volunteer directors could fill a football stadium, and yet we hear very little about them,” said Mr Rouse.

He itemised the problems.

Sinking funds

"Studies have shown that many OMCs collect less than 70 percent of the service costs budgeted and agreed by the community at the annual meeting. Research has indicated that some management companies have debtor balances outstanding for five years or more. Cumulatively, service charge debt can exceed 100 per cent of the annual budget required to run the estate," said Mr Rouse.

He said an absence of sinking funds, set up to pay for so-called big ticket items such as replacing lifts or major roof repairs, meant that OMCs were forced to use all money collected to pay for waste collection, insurance and lighting with “no money set aside for [the] long term”.

Service charges set by developments and OMCs in the early days were inadequate and cannot meet the costs of rectifying building defects.

Many OMC volunteer directors were ignorant of the basics of company law and there were issues with what Mr Rouse described as bad management practices including “abuses of positions, conflicts of interest, non-compliance with the Multi Unit Developments (Mud) Act, and mishandling of relationships with management agents”.

A regulator, such as the Condominium Authority of Ontario was "a good template" for what was needed in Ireland because many of the issues arose "from the conduct of owners' management company directors", said Mr Rouse.

Training for volunteer directors was needed.

The government should use powers under the Mud Act to have sinking fund provision is assessed professionally. Legal changes were also necessary “to allow efficient and timely recovery of service charge debts”.

Darragh O'Brien, a Fianna Fáil TD for Dublin Fingal where there are many apartment and multi-unit developments, said the Network highlighted "real and very serious problems".

While the State had a role, he said that individual owners who did not pay their dues, or builders responsible for defects, could not “simply be let off the hook”, he said.

Independent Senator Victor Boyhan said there was a problem with the companies owners retained to maintain complexes and common areas were really only interested in securing their own fees and so sometimes advised against spending that was necessary.

Ruth Coppinger, a Solidarity TD for Dublin West, agreed that a regulator was needed.

She highlighted the ire of homeowners in mixed complexes who resented paying the Local Property Tax as well as communal charge, for which they felt they got nothing back.

Mr Maher said that a “robust regulator” was needed for the sector because people were “absolutely petrified” of getting involved in OMCs because of the feared responsibilities.