A Chathaoirligh agus a chomhchoiste, ar dtús ba mhaith linn ár mbuíochas a ghabháil libh as cuireadh a thabhairt dúinn labhairt libh inniu. We thank the committee for its invitation to appear this morning. My colleague, Bryan Maher, and I are volunteer directors of the Apartment Owners Network and of the owners’ management companies for our respective apartment developments. We propose to briefly address four key themes - the background of the network; the main challenges facing apartment dwellers and home owners in managed estates; the principal difficulties with the governance of the multi-unit development sector and, in particular problems, with current legislation including the Multi-Unit Developments Act 2011 or "MUD Act”; and the main reforms we would like to see in the sector.
The principal object of the Apartment Owners Network is to represent the views of owners, owners’ management companies and directors of owners’ management companies in managed estates. We do not represent managing agents, developers, or landlords per se but there are areas of common ground and common interest with those groups. The detailed objects of the network are summarised in appendix 1 to the written statement we have provided and appendix 2 contains a sample of our recent public consultation submissions. These documents set out in detail the problems in the sector and our suggested solutions and reforms.
We wish to cut through some of the jargon around the operation of owners’ management companies. An owners’ management company, OMC, is a term from the Multi-Unit Developments Act. The OMC is made up of all owners in a development, who elect a board of directors. The board is, in effect, a committee of civic-minded owners who decide to take on the role of director and in that way help to manage their estate for the benefit of the wider community.
To provide context for our remarks, it might be useful to outline the size of the apartment and multi-unit development sector in the country. Census 2016 recorded that about a half a million of the population live in apartments and flats, and that there were approximately 205,000 apartments in the country at that point. It is estimated that there are between 5,000 and 7,000 owners’ management companies in the country. If the board of each management company has at least three directors, there could be more than 15,000 volunteer directors of owner manager companies working stoically for the betterment of their communities throughout the country. There are enough OMC volunteer directors to fill a football stadium but we hear very little about them or their responsibilities. That is part of why we are here today.
In our experience, the biggest problems affecting the apartment and multi-unit sector and facing volunteer directors include OMC potential insolvency. This risk arises from uncollected or underestimated service charges. Studies have shown that many OMCs collect less than 70% of the service costs budgeted and agreed by the community at its annual meeting. Research indicates that some management companies have debtor balances outstanding for five years or more. Cumulatively, service charge debt can exceed 100% of the annual budget required to run the estate.
The absence of sinking funds, also known as building investment funds, is a major issue. Sinking fund provision is in many cases tied up in uncollected annual service charges. This means the OMC is forced to use all of its available cash to meet the day-to-day costs of running the bare minimum estate services such as insurance, waste collection and common area lighting. The company has no cash to set aside for long-term big-ticket spending like lift replacement or emergency fire safety repairs. We all know the names of the apartment blocks where fire has damaged homes, damaged lives and, sadly, even led to loss of life.
Another major challenge is that the service charges set by developers and by OMCs in the early years of a development are simply not enough to cover the following; (i) day-to-day costs, and (ii) future maintenance.
The fourth big issue is the problem of building defects, which if unresolved can lead to breaches of fire safety regulations, a subject with which this committee is very familiar; and in this regard we greatly appreciate its 2017 report, "Safe as Houses? A Report on Building Standards, Building Controls & Consumer Protection".
Next on the list is failure by OMC directors to comply with the basics of company law, for example inadequate accounts filing with the Companies Registration Office, CRO, or the mishandling of board affairs and annual general meetings, AGMs.
The final major issue is poor management practices carried on by OMC directors. This encompasses abuses of positions, conflicts of interest, non-compliance with the Multi-Unit Developments Act 2011, and mishandling of relationships with management agents.
In a “do nothing” scenario, where action on regulation is not taken soon by those in authority, in our opinion it may ultimately fall on the State’s resources to resolve the problems when they crystallise in a crisis. We already have seen examples, such as the high-profile cases of Priory Hall, Longboat Quay and others.
It seems to us that in the absence of urgent reform, considerable funding may be required from either local authorities or national Government to bail out crisis owners’ management companies. To a certain extent we already have seen a comparable situation in the form of the pyrite resolution process. These problems will materialise over the next five to ten years as apartment blocks get older; left unaddressed now they represent a ticking time bomb in the sector. In our opinion the problem will only worsen as the apartment sector grows.
We wish briefly to refer to the problems with the governance of the multi-unit sector, and with the Multi-Unit Developments Act 2011 in particular, being the main piece of legislation affecting the sector. The legislation has been enacted since 1 April 2011, some seven years ago, and has had seven years to prove its effectiveness. In our opinion there is now a legislative itch to be scratched.
From our experience, the main short-comings of the Multi-Unit Developments Act 2011 are that while it provides for the setting up of a sinking fund, it does not provide meaningful guidance on the amount of money an OMC should set aside for its particular building investment needs.