Buying And Living in a Multi-Unit Development Property in Ireland
7. Developers
Continued7.6 Developers and management companies
Typically, in new developments the developer generally establishes the management company at the outset, often before the first unit is sold.
Company law requires every company to have at least two directors and in general the developer will nominate the initial directors of the company.
Often the developer or some of their staff, associates or solicitor may fill these roles.
Before the development has been completed, the developer as owner of the common areas will generally be legally responsible for the management and maintenance of the common areas and the will be controlling member of the management company.
In such instances, it is the developer (acting through the management company) who is initially responsible for management of the development who decides on the services that will (eventually) be provided.
They will also decide who will provide these services (the developer may appoint a managing agent to act on their behalf) and the price that service charges will be set at.
As the primary function of the management company is to maintain the common areas, owners' involvement in the running of the management company should be low while the development is being built.
Even though the individual unit owners may have become members of the management company following purchase of their unit, the developer and/or his nominees may often be in control of the company and remain so until the majority of units are completed or sold.
Until ownership of the common areas is transferred to the management company and the developer relinquishes controlling interest in the management company, the owners may not have control in terms of deciding service provision matters.
During this period if you have concerns about the services that are (or are not) being provided by the developer the remedy is to examine what property law rights or entitlements are open to you under the lease you have entered into with the developer.
The wording of the management company's Memorandum and Articles of Association are critical in terms of setting out how the management company will operate and be controlled and what rights, you, as a member will have.
It is important that your solicitor explains to you what these will be.
7.7 How is ownership of the common areas transferred?
The process under which the developer will transfer ownership of the common areas to the management company is generally set out in a legal document known as the Management Company Agreement or the Contract for the Sale of the Common Areas.
This is a very important document as it sets out the legal terms and conditions of how ownership of the common areas will pass from the developer to the management company and what this will entail.
There is no time limit on when ownership of the common areas of a development must be transferred from the developer to the owners.
Developers should advise purchasers of the intended trigger point under which they will a) transfer control of the management company to the unit owners and b) convey ownership of the common areas.
Where a large-scale development plans for phased completion, any schedule for phased transfer and conveyance should be clearly set out in the contract for sale.
Your solicitor should explain to you when it is intended that control of the management company and ownership of the common areas to the unit owners will take place.
At present, the standard conveyancing documentation provides that the developer will transfer ownership of the common areas to the management company after completion of the development.
The typical phrase in the legal contract will say that this will occur "as and when the last unit has been sold".
If you buy and live in your unit during this period your solicitor should make you aware that you may be buying into a situation where transfer of control of the common areas (and/or the management company) may be deferred for a period of time and owners may have little or no say in how the development is being managed.
In the period prior to the transfer of control of the management company to unit owners, the directors should at a minimum provide half-yearly updates regarding the activities and financial status of the management company.
They should make these updates available on request to any residents committee.
7.8 How is control of the management company transferred?
Transfer of control of the management company may be dependent on the completion of the development and/or the sale of the final unit or both.
In some instances, the absence of a uniform definition of "completion" makes it difficult for unit owners and developers to reach agreement as to the trigger point for transfer of control. Even after the development is completed, the developer may remain part of the management company.
The developer may remain a member of the company if they have ownership of a unit within the development.
However, the voting structure of the management company should not be weighted in such a way that enables the developer to retain a controlling majority after transfer of control of the company to the unit owners.
Before you buy, it is important that your solicitor examines the wording in the Memorandum and Articles of Association to ensure that the terms, particularly as regards your voting rights are acceptable to you as an owner/member.
After transfer of the common areas, the developers' nominees generally resign from their roles as directors. At this stage, unit owners as members of the management company should volunteer to fill the role of directors.
This will generally be done at an Annual General Meeting (AGM) of the management company. At the AGM some members must agree to serve on the board of the company.
This means that owners, by appointing directors from amongst their rank, assume responsibility for the governance of the management company.
7.9 Code of Practice for developers who are members of the IHBA
Through the work of the Multi-Unit Development Stakeholder Forum, the National Consumer Agency and the Irish Homebuilders Association (IHBA) have developed a Code of Practice to be followed by developers who are members of the IHBA.
The Code sets out a series of principles designed to provide a robust framework for the maintenance and management of common areas and for the provision of common services in multi-unit developments.
It presents what is considered to be current best practice in the effective management and administration of multi-unit developments.
A copy of the document is in the Downloads section of this website