The Multi-Unit Developments Act 2011 (the "Act") was signed into law by President McAleese on 24 January 2011 and all sections were commenced with effect from 1 April 2011 by virtue of a Commencement Order dated 2 March 2011 by the Minister for Justice and Law Reform.
The stated aims of the Act are:
- to seek to address problems relating to the ownership and management of the common areas of both existing and future developments containing a multitude of units; and
- to facilitate the fair and effective management of bodies responsible for the management of those areas.
The Act applies to any "Multi-Unit Development" ("MUD"), being a development on land on which there stands a building or buildings comprising a unit or 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. In tangible terms, the Act applies to apartment blocks, housing estates and mixed use developments where there are five or more residential units1. The Act does not apply to developments that comprise solely commercial units or to those parts of a mixed use development that solely serve commercial units.
A "residential unit" is characterised by the existence of self-contained bathroom and cooking facilities intended for exclusive use by the occupants of that unit. Interestingly, particular reference is made to childcare facilities which do not principally share facilities and amenities with commercial units in a development and so are included in the definition and treatment of "residential unit" for the purpose of calculating the number of units within a development.
Of most immediate concern for property practitioners are those parts of the Act that deal with the transfer of ownership of the common areas in a MUD. These provisions only apply to MUDs where there are five or more residential units.
The simplest scenario, being a MUD (yet to be constructed, already completed or anywhere in between) where no sale has yet occurred, is governed by Section 3 of the Act. That section provides that a person shall not transfer a residential unit in a MUD prior to (i) the establishment of an owners management company ('OMC') at the developer's expense, (ii) the transfer of the legal interest in the relevant parts of the common areas and any reversionary interest in the residential unit to the OMC, (iii) the provision of construction and fire safety certification and (iv) the conclusion of a contract between the developer and the OMC2 relating to the completion of the development and the process for resolving disputes between the developer and the OMC. While the developer will continue to retain the beneficial (as opposed to legal) interest in those common areas necessary to complete the development, the OMC (as bare legal owner) will need to join in any transaction relating thereto, limiting the developer's unilateral control.
Sections 4 and 5 of the Act govern MUDs where sales have taken place before 1 April 2011. These sections both provide for the transfer of the ownership of relevant parts of the common areas together with the reversion in any sold residential units to the OMC within six months of the coming into operation of the legislation (ie before 1 October 2011) but there is no requirement for the developer to establish a contract with the OMC or to provide construction and fire safety certification. Where the MUD is "substantially completed" (ie not less than 80% of the residential units are sold) before 1 April 2011 then the developer is not entitled to retain the beneficial interest in the property transferred. Where the beneficial interest is reserved in other scenarios, provision is made for its merger with the legal interest on completion of development.
The introduction of the Act requires immediate attention by developers, their lenders and any receivers appointed or to be appointed. It will be necessary to establish a structure before 30 September 2011 to ensure that all obligations imposed by the Act are complied with while ensuring that title and all necessary easements relating to their interest in the MUD are held intact and reserving as much flexibility as possible for future alterations to the scheme. We believe that each MUD will need to be considered on a case by case basis.
The primary focus of this note is on the implementation of the first aim of the Act as set out above. However, it is also useful to briefly note some other principal elements of the Act:
- The Act places the onus on the developer to transfer, with the relevant parts of the common areas, all necessary rights of way or other easements required for the reasonable use and enjoyment of the residential units.
- The Act ensures that a developer is not relieved of its obligations to complete a MUD by reason of the transfer of ownership of its interest in any relevant parts of the common areas. Rather, the Act requires a developer to carry out any other works for which it is responsible with a minimum of inconvenience to owners and to maintain insurance and indemnify the OMC against all risks associated with its use or occupation of the MUD.
- The owner of each residential unit in a MUD, who shall automatically become a member of the OMC on acquisition of their unit, shall have equal voting rights in the OMC, which must implement a fair and equitable service charge structure. Voting rights in an OMC relating to a mixed use development and the apportionment of services charges therein shall be allocated on a fair and equitable basis. A unit owner is required to furnish details of the owner and occupier of a unit to the OMC and update such information as required. Special rules apply to the exercise of voting rights in existing management structures.
- An OMC is entitled, in certain circumstances, to carry out emergency repair works (and recover the costs thereof) over property that is not in its ownership or control.
- The Act requires OMCs to establish a sinking fund to deal with certain expenditure incurred in relation to the MUD. This sinking fund must be established before the later of three years from the first transfer of a unit or 18 months from 1 April 2011. The Act suggests a contribution of €200 per annum per unit but this amount may be varied by a meeting of the OMC.
- An OMC can not enter into contracts relating to the MUD that have a duration or effect for more than three years nor can a director of the OMC be appointed for a term of more than three years. An existing director in position for longer than that period will be deemed to have vacated the position on or before 1 April 2014. If an OMC is struck off the register of companies the Minister for Justice and Law Reform or an officer of the OMC may, notwithstanding time limits in the Companies Acts, apply for it to be reinstated within six years of strike off.
- The benefit of any warranties or guarantees received by a developer in relation to a MUD shall automatically transfer to the OMC without the requirement for any assignment or notice to a warrantor or guarantor and notwithstanding any provision to the contrary. This provision could deprive a developer of its rights against any warrantor or guarantor.
- The Act does not contain any particular sanctions for those who fail to comply with their obligations in respect of MUDs. Rather, dispute resolution under the Act is the responsibility of the Circuit Court which may make an order to enforce rights conferred or obligations imposed under the Act.
As you can see, the Act is certainly a step towards the aim of addressing issues that exist in the effective management of MUDs but whether it is the answer to all problems is, at present, as clear as mud!
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.