MULTI – UNIT DEVELOPMENT (MUD) ACT New Rules for Management Companies
The Multi – Unit Development Act came into force on the 1st April 2011. The implications of same are outlined briefly below.
The Act applies to residential developments where there are 5 or more units. This includes developments of apartments and houses. It also applies to mixed developments with commercial properties however they are treated slightly differently for example regarding voting rights and the sinking fund. The Act does not cover developments which are exclusively commercial.
Schedule 1 of the Act details the sections that apply to residential developments of 2 to 4 units and Schedule 2 of the Act applies to multi-unit developments consisting solely of houses which have an owner’s management company structure.
In the case of future developments the common areas will have to be transferred from the developer to the management company before a single unit in the development can be sold. This is set out in section 3 of the Act. The developer will however retain a beneficial interest in the common areas until the units are sold to enable him to complete the development. Once the development has been completed the Developer will swear a statutory declaration to the effect that the beneficial interest in the common areas and the reversion has been transferred to the management company. On completion of the multi-unit development the developer will have to furnish to each owner’s management company the documentation set out in schedule 3 of the Act.
It is important to note that developers will have to employ an independent solicitor to deal with the transfer of the common areas. The developer’s own solicitor cannot act for them in this regard.
In the case of Existing Developments: These are dealt with under section 4 and 5 of the act. The Act provides that all existing developments must transfer the common areas to the management company within 6 months of the 1st April 2011. This is extremely problematic as a lot of developments have not complied with the act. This is going to create problems for people trying to sell a house or apartment in the development as a potential purchaser may be advised not to purchase the property until the common areas have been transferred. This will create delays in sales and potentially make it very difficult to sell such a property. While the property owner can go to court to enforce the provisions of the Act this will be very costly and has other problems also for example in cases where the developer is no longer in existence. The Act does not address the problem of what happens when the developer is no longer in existance.
Developers ought to be aware that Section 18 of the Act deems the developer to be the owner of the unsold units and therefore responsible for the unsold unit’s service charges. In addition to this Section 19 provides that the developer in these types of developments must also contribute to the sinking fund in respect of the unsold units.
Section 24 of the Act deals with resolution of disputes in respect of multi-unit developments. The Act provides that a person may apply to the Circuit Court to enforce any rights conferred or obligation imposed under the Act. The Court may make an order or orders as it deems appropriate if it is satisfied that a right has been infringed or an obligation has not been discharged. The Act also confers unique jurisdiction to the Circuit Court to order the parties to engage in mediation in any multi-unit dispute. All parties must comply with the direction to engage in mediation. It is important to be aware that the chairman of the mediation will provide a report to the court and if it emerges that a participant did not cooperate and actively engage in the process the court may make an order for costs against the uncooperative party.
While this new piece of legislation attempts to provide protection and dispute resolution for future apartment purchasers it has been argued that it does not go far enough. It is unclear at the moment how the provisions of the Act will be policed and enforced. In particular the provision for assuring completion, maintaining standard of construction and facilitating a more efficient snagging and successful handovers have not improved significantly. The act has a number of problems and leads to serious difficulties for developers and for people trying to sell an apartment or a house in an existing development where the common areas have not been transferred particularly where the developer no longer exists. It would appear that in the absence of amendments to the act disputes are likely to increase.