The Multi-Unit Developments Act 2011 was signed into law on 24th January 2011 and became fully operational on 1st April 2011. The Act provides a statutory framework for the operation and governance of multi-unit developments and addresses problematic issues between developers and home owners, such as transferring common areas, completion of developments, duties of home owners and developers, service charges and dispute resolution.
What is a Multi-Unit Development?
Under the Act “Multi-unit development” means a development being land on which there stands a building or buildings comprising units where it is intended that the units share amenities, facilities and services and where the development contains not less than five units intended for residential use.
The act applies to a building or part of a building which contains at least five residential units with shared amenities, facilities and services. A child care facility may be included in the multi-unit development. Mixed-use multi-unit developments are also covered by the Act which include a commercial unit in addition to at least five residential units. Some provision is also made in the Act for small developments which contain between two and five residential units.
1. Transfer of Common Areas
For all new developments, section 3 prevents a developer from transferring an interest in a residential unit unless:-
• A management company has been established at the expense of the developer
• The common areas and the reversion in the residential unit have been transferred by deed to the management company
• A certificate is issued from a qualified person to the management company to the effect that the relevant parts of the multi-unit development are in compliance with the Building Controls Act 1990, and
• The developer and the management company, prior to the transfer, have entered into a written contract setting out their rights and obligations in relation to things such as statutory requirements, completion of works and dispute resolution, amongst others. Both parties must seek independent legal advice in respect of this procedure at the reasonable cost of the developer.
2. Beneficial Interest
In the transfer of the common areas and the reversion, the developer shall retain the beneficial interest therein in order to facilitate the completion of the development. Under section 11 of the Act, upon completion, the developer is obliged to swear a statutory declaration, the effect of which is that the beneficial interest and legal interest stand merged.
3. Voting Rights
Section 14 of the Act has introduced an important rule in relation to the voting rights of unit owners in new developments. One vote of equal value shall attach to each residential unit in a multi-unit development to which the owner’s management company relates and that no other person is to have voting rights. This welcome provision will prevent the past practice of developers attempting to distort voting rights in the management company in their favour.
A number of significant provisions have also been introduced by the Act seeking to improve the position of unit owners of existing developments.
1. Transfer of Common Areas
Where, prior to the enactment of the Act, the ownership of a residential unit in a multi-unit development has been transferred to a purchaser but the ownership of the common areas has not, or where a multi-unit development has been substantially completed (if the sales of 80% or more of the residential units have been closed), the developer shall arrange for the transfer of the common areas to the management company before 1 October 2011.
2. Beneficial Interest
In the case of substantially completed multi-unit developments, the beneficial interest is reserved to the developer. On completion of the development, the developer is obliged to swear a statutory declaration that the beneficial interest has transferred to the management company.
3. Voting Rights
Section 15 of the Act provides that where the allocation of the votes is not one vote of equal value per unit, any person seeking to exercise those rights must be granted an authorisation from the Circuit Court in order to do so.
1. Completion works
Section 7 of the Act clearly states that the transfer of ownership of the common areas of a multi-unit development does not relieve the developer from “the duty, obligation or responsibility to ensure completion of the development” in compliance with planning and other legislation.
Section 9 ensures that developers retain such access rights as are reasonably necessary to complete the works. Developers are required to indemnify the management company in respect of all claims arising from the completion of works and carry adequate insurance.
2. Sinking Fund
Section 19 of the Act requires all management companies to establish and maintain a building investment fund, referred to as a “sinking fund”, with a payment of €200 per unit per annum, unless otherwise agreed by the members. The sinking fund must be established within certain time periods.
The purpose of the fund shall be to discharge expenditure reasonably incurred on various items such as refurbishment and improvement.
All contributions made to the sinking fund must be held in a separate account which clearly identifies the sinking fund and such contributions should only be used for certain expenditure specified in the Act.
3. Service Charges
Section 18 of the Act requires the management company to establish and maintain a scheme in respect of annual service charges (for discharging such specified items such at insurance, maintenance and repair).
The annual service charge can only be levied after approval by 75% of members present at a general meeting of members.
Section 18(10) is a significant provision which obliges developers to pay service charges in respect of unsold units which will relieve unit owners of having to bear the cost.
In the event of disputes arising in relation to the multi-unit developments, section 24 of the Act provides for a dispute resolution process on application to the Circuit Court.
The court may, at any stage in the proceedings, upon its own motion or upon request, direct the parties to meet to discuss and attempt to settle the matter at a mediation conference. Cost sanctions can be imposed where it is found that a party’s conduct is “substantially the cause of the failure to reach a settlement”.
Restoration to the Register of Companies
The Act addresses the problem of management companies being struck off the Companies Register for non-compliance with reporting requirements. Generally, a company that has been struck off for a period of more than one year (extended to six years in certain circumstances) can only be restored by a costly application to the High Court.
The Multi-Unit Developments Act 2011 will be welcomed by those buying or living in residential developments as it imposes greater legal obligations on developers and provides a sensible framework for management practices. These radical provisions will eliminate many of the problems being faced by new and existing developments and will improve the transparency and security of the development process.
- An owner management company must be established for all multi-unit developments at the expense of the developer.
- Developers must transfer legal ownership of the common areas and reversion to the owner management company prior to the sale of any units within the development or by 1st October 2011 if units have already been sold.
- Developers must complete development and transfer beneficial ownership as soon as practicable after completion.
- One vote is attached to each residential unit.
- A scheme of annual service charges must be established on approval of members at a general meeting. Developers are obliged to pay service charges in respect of unsold units.
- A sinking fund must be established by 1st October 2012.
- Dispute resolution and mediation sections are in place.