Management Charges - thoughts on how they might be restructured

The_Conductor

Curious situation with respect of Management Charges that I'd be grateful for people's opinions on.

A development has a mixture of 1,2 and 3 bed apartments- spread over 3 floors.
Secure multi-storey car with security cameras
Lobby entrance to building with monitored post boxes etc
2 lifts at either end of the development (also has stairs access for use if the lifts are broken, or in the event of an emergency).

Management company is breaking even- not a massive sink fund, but it is in the black.

The Management Charges are structured in a bizarre manner- which is a source of constant acrimony at AGMs.

Essentially the Management charge is broken down into 500 payment units- the 1 bed apartments pay 1 unit, the 2 bed apartments pay 2 units- and the 3 bed apartments pay 3 units.

The owners of the 3 bed apartments habitually turn out for the AGM- and veto any increase in the Management Charge- and argue for the largest possible reductions- as they pay 3 times more than do the owners of 1 bed units. This has lead to the situation where the very competent management agent- has pared services to the development to an absolute minimum- and is successfully running the development at a small surplus- it is however looking tatty and a bit run-down.

The 1 bed owners don't give a hoot- the 2 bed owners are a bit unhappy- and most of the 3 bed owners are voluntarily painting the exteriors of their units (often in conjunction with one another) and bringing in a gardiner to tidy up the shared spaces that they have access to.

The one bed owners- have it copper fastened in their 900 year leases that their management charge is 1/2 as much as a 2 bed owner, and 1/3 as much as a 3 bed. The 2 bed owners are keeping quiet- they're probably paying a fair and reasonable contribution- but the 3 bed owners are getting completely reefed by the system.

Given the management charges are stipulated in such a manner in the leases- is there anything that can be done to remedy this situation- as it is quite untenable?

E.g. could contributions to the sink fund be ring fenced from the Management Charge- or could car parking facilities be auctioned off to residents (and anyone else)- at market rates- to keep headline management charges at a minimum- but keep cashflow at a sufficient level to actually run the development in a reasonable manner?

I.e. I'm guessing the 1 bed owners are going to kick up a fuss over anything that increases their contribution at a ratio over and above the 1:2 or 1:3 they currently get away with- however, if we manage to ring fence some of the other assets vested in the company- other than the core units- would this be a viable manner of addressing the inequity?

By rights- the management charges should have been apportioned on a square footage basis- not by the number of bedrooms- its the first time I've seen it dealt with in a manner such as this- and I would be grateful for people's thoughts on what would be a fair manner of addressing this issue.

As an aside- there is also an issue with at least 2 of the units which have been used on airbnb and booking.com for short term lets which resulted in an improbably large number of visits late at night (the local Gardaí strongly suspect they were used as a brothel- however it was only for 2-3 weeks last summer- and hasn't recurred, but they're still up on airbnb and booking.com

Its a messy situation- that I've no idea how it was seen as a fit and fair manner of dealing with management charges- but now we have to deal with it (aside from any other reason- we have 35-40k worth of woodwork and painting that has been put on the long finger for a couple of years now- but can't really be avoided any longer).

Thoughts?

whippet

i'm no expert in MUDs and all the delights that go with them.

However; i'd throw this in to the mix. The payment breakdown is obviously written in to the articles etc of the Management Company. Can these articles be altered at an AGM by a simple vote of members?

Other than that; would it be a possibility to have an orderly dissolution of the Mgt company and a new one set up immediately with new articles etc?

The_Conductor

No- you can't amend the leases that the owners hold on their units.
If you were to dissolve the Management Company- and try to reconstitute it in a fair and equitable manner- you'd probably end up in court, as you are reducing a legal right the one bed owners have.

The short and simple fact- is the 3 bed apartment owners are unfairly subsidising the 1 bed owners- and its all tied down legally in their 800 year leases.

You'd need unaminous agreement from all shareholders to any change in the payment structure- not a simple majority vote- to amend the management charges.

Technically- you could also end up in a fight with banks/mortgage holders on any of the 1 bed units that are mortgaged as you are lessening the security the lenders have against o/s loans.

Its a mess.

Michael D Not Higgins

The MUD Act defines the service charges and sinking fund separately but says a single request for payment can be applied for simplicity. Does the lease specify only the service charges on a 1:2:3 basis? The sinking fund could be apportioned on a 1:1:1 basis if no other requirement is set down in the lease.

The_Conductor

Michael D Not Higgins wrote: »

The MUD Act defines the service charges and sinking fund separately but says a single request for payment can be applied for simplicity. Does the lease specify only the service charges on a 1:2:3 basis? The sinking fund could be apportioned on a 1:1:1 basis if no other requirement is set down in the lease.

Thanks for that suggestion- I'm going to look into it- I'm not clear that there is any distinction in the lease- so if we could fall back on the MUD Act- it would be a reasonable manner for addressing at least a fair proportion of it.

markpb

It's been a long time since I read it last but I think the MUD act has some references to service charges being equitably calculated so there's a chance the three bed owners could petition the court to change everyone's lease agreements to split it more fairly.

Even if you're successful, someone will have to pay for all the leases to be redrafted, signed, verified and (I think) stamped.

It's an uphill struggle.

The_Conductor

Separate direction- would this constitute oppression of minority shareholder rights- in the case of the 3 bed owners, under the Companies Act?

Cuddlesworth

The_Conductor wrote: »

Separate direction- would this constitute oppression of minority shareholder rights- in the case of the 3 bed owners, under the Companies Act?

I think it would be a no-go regardless, at the end of the day everybody signed their leases and agreed to that split of the charges. How can you justify changing it years later because you feel its not equitable.

You need a lawyer. It completely depends on the wording of the contracts.

Michael D Not Higgins

Cuddlesworth wrote: »

You need a lawyer.

Agreed on that.

Mrs OBumble

Can you get a voluntary housing association interested in purchasing units as they come up for sale - eventually it would get to the point where the only shareholders are them and people who want to change the leases, so you'd have your majority?

A long term strategy I know, and with certain challenges associated with it. But if the place is going to turn into a slum anyways because there's not enough in the kitty to maintain it, then it might be the better option.

The_Conductor

Mrs OBumble wrote: »

Can you get a voluntary housing association interested in purchasing units as they come up for sale - eventually it would get to the point where the only shareholders are them and people who want to change the leases, so you'd have your majority?

A long term strategy I know, and with certain challenges associated with it. But if the place is going to turn into a slum anyways because there's not enough in the kitty to maintain it, then it might be the better option.

Its getting a bit tatty- yes, but its by no means a slum- and indeed, the landlords are privately doing some of the work themselves- rather than countenance paying increased management charges (given how they're structured).

However- its not a simple case of getting a majority- you can't modify the leases- without unanimity- I've asked.........

In addition- they only seldom come up on the market- its in a high demand area- and people are coming up with all manner of models to hold onto them, even through financial difficulties- there is even a progressive local company who manage Airbnb and Booking.com lettings on behalf of landlords who don't want to get involved in the nitty gritty of tidying up after each letting (there can of course be a couple every week).

Anyhow- have had another discussion with the Management Agent- who also isn't happy with the situation- will discuss again.

Lantus

So the lease contains the legal breakdown of how fees are calculated per unit. Not the mud act.

There is provision in the mud act to petition the court to make a lease change. You will need large scale agreement and a lot of legal advice to achieve this.

It's near the end.