Buying an apartment in complex where investor owns majority - management co. concerns

Shelflife

Well down the path of buying an apt.

Original investor owns 20 Apts, selling 10 of them. Built approx 10 years ago.

Mgmt company exists in name only, no sinking fund ,no fees structure etc. As he was effectively the only person involved I can understand this.

Is it too big a risk to take to enter into a mgmt co set up where one person can dictate the whole direction that is to be taken?

Also if that person cant/wont pay the service fees that are set what can be done about it ?

Basically worried that I would have little or no say in how the mgmt company is run.

Any advise ?

Aka Ishur

Shelflife wrote: »

Well down the path of buying an apt.

Original investor owns 20 Apts, selling 10 of them. Built approx 10 years ago.

Mgmt company exists in name only, no sinking fund ,no fees structure etc. As he was effectively the only person involved I can understand this.

Is it too big a risk to take to enter into a mgmt co set up where one person can dictate the whole direction that is to be taken?

Also if that person cant/wont pay the service fees that are set what can be done about it ?

Basically worried that I would have little or no say in how the mgmt company is run.

Any advise ?

Run a mile I'd say, you'd be totally at his mercy.
Anything needs fixing you'll be waiting for him to pay up.

April 73

Sorry to say I wouldn't buy an apartment here either without some serious investigation.
How is the company set up? One vote per owner or one vote per unit? If it's one vote per unit you will have a de facto dictatorship with the guy who owns ten units running the show.
Have you had dealing with the seller? What has been said about how the company will be run? What are the annual costs? How will they be divided? Who can be elected as a director & how? What about common areas? Are they vested in the management company? If not, when?

There must be less troublesome places to buy.

john the one

From my own research, a Sinking fund is essential, what do you do if a lift breaks down? 2k to fix it needs to come from somewhere and without a sinking fund I guess it's coming straight from the owners?

April 73

From the sounds of it there are only 20 units so there may not be any lifts?
Also the maintenance costs could be relatively low if it's a small block built on a small site without a lot of common areas or landscaping or underground parking.
It sounds like the original developer has rented the units for ten years & paid the maintenance himself so the management company hasn't really been run as a going concern. It's what happens in the future that would concern me.

Why has he suddenly decided to offload half of the units? Rents are high at the moment. Is there a problem with the block that hasn't been revealed?

Has the owner been keeping accounts for the running costs over the last ten years? Can the OP get access to these?

Lots of questions!

antoinolachtnai

On the other hand it might be great. This guy has an incentive to keep the place well and keep costs down.

If you are buying directly from this guy you could look for undertakings about paying the management fee and arrangements for a casting vote.

I'd be looking how well the place is run. I wouldn't rule it out.

I would also consider what would happen if this guy disposed of his remaining ten apartments.

athtrasna

Your solicitor would be negligent in allowing you to purchase in a development with a malfunctioning/non existent management company. Run away from this one

the_syco

Shelflife wrote: »

Original investor owns 20 Apts, selling 10 of them. Built approx 10 years ago.

Mgmt company exists in name only, no sinking fund

I'd wonder if there being no sinking fund and 10 apartments being sold off have anything in common?

But if he does sell 10 apartments, what's to stop him selling the other 10, and getting out of the game? Although it may seem foolish as he'd lose money, he may be running so he doesn't lose more? Without knowing all the facts on why he's selling, I'd be wary, esp with no sinking fund.

Toots

Jesus with no sinking fund I'd run a mile. The apartment complex I live in had a few directors that were playing silly buggers with the maintenance, and when a new set of directors were brought in it was discovered that there was a load of stuff that should have been done that wasn't - water tank maintenance, drainage issues with the water fountains outside, etc. Had it not been for the fact that we had a very healthy sinking fund we'd have really been up the creek. Luckily all the stuff got resolved, and there was only a minor increase in the fees the following year, which was mainly to try and top up what had been taken out of the sinking fund.

Del2005

Complex built in the last 10 years and now the main owner is pulling out of half of them with no sinking fund. I'd be getting a very though check of the fire proofing in the complex if I was thinking of buying.

Victor

How many units total?

Note that under the Companies Acts that a majority share holder isn't allowed oppress the minority share holders.

Shelflife

Victor wrote: »

How many units total?

Note that under the Companies Acts that a majority share holder isn't allowed oppress the minority share holders.

20 in total , selling 10. Not a majority but only needs one other owner.
May not opress but can dictate the direction, size of fees etc.

Shelflife

One of my other concerns is what happens if he can't pay the agreed mgmt fee.

Mrs OBumble

athtrasna wrote: »

Your solicitor would be negligent in allowing you to purchase in a development with a malfunctioning/non existent management company.

It's true that the solicitor would be negligent if they did not advise of the consequences. But solicitors give advice, they don't make the decision for you, ie "allow" you do things.


OP, the management company deficiencies can be fixed, with some legal work. The lack of a sinking fund to date would need fixing, and there would be some complex negotiations re what the seller should be putting in, but it could be worked, However I wouldn't touch it, because the one owner has a majority share. They simply have too much control over what future fees etc are.

Lantus

I would get the company accounts for the last few years to see what has been happening.

As the developer still holds all the units the normal rules of omcs don't apply as it doesn't have any members yet. Typically you need a certain percentage to be sold first. You can't expect the developer to hold an agm with himself and then approve his own budgets set himself a service fee and then reminders if he forgets to pay?

Its not an impossible scenario just a more less developed one. I'm not sure the developer even needs to operate a sinking fund at this stage. The odce handbook covers this. Worth a read.

I'd also want to see the primary lease for the property and the common area transfer lease agreement first
They will outline responsibilities at timed stages.

Shelflife

Shelflife wrote: »

20 in total , selling 10. Not a majority but only needs one other owner.
May not opress but can dictate the direction, size of fees etc.

It might be the exact opposite.

He may be proud of 'his' block and may insist on first class maintenance. How does the place look now? is it clean and tidy? Do the common areas look good? What is the condition of the apartments that are for sale?

Theres nothing worse than a blocking majority of owners who consider every penny spent on looking after the place is a penny too much.

See which camp he's in and get a proper surveyors report.

handlemaster

Barge pole and run a mile come to mind.

jd

Victor wrote:

Note that under the Companies Acts that a majority share holder isn't allowed oppress the minority share holders.

Sure, but would you want the hassle of enforcing your rights if this happens?