Red flags before signing contract for apartment

VonLuck · 21-09-2019 9:17am #1

I'm going through the final stages of purchasing a property, solicitors are on board and talking to each other. As part of this process, my solicitor has gotten a bunch of information from the management company for the apartment.

After going through this, I've noticed a few things that are worrying me.

Firstly, there was a sum of money (circa 30k) put towards "Fire alarm configuration". This to me suggests issues with the fire alarm system.

Secondly, there has been a substantial increase in block insurance which nearly doubled from one year to the next, again suggesting an underlying issue.

Finally, I was advised that a building surveyor had undertaken a snagging/defects report for the common areas. The details of this have not yet been given, but they are being unclear as to what the works involve or whether there will be a knock on cost to apartment owners.

From this, my biggest worry from the above 3 points is that there is a fire issue with the building that I'm not being told about. Is this something that I am able to get information on prior to purchase, or what is the best way to approach these concerns? Am I reading too much into it?

Edgware · 21-09-2019 9:34am

This is a major purchase and with some of the stories that have emerged about apartments you are right to be cautious.
The fire alarm issue may relate to the upgrade of the fire alarm system. This is common enough now as the insurance companies are demanding upgrades following the Grenfell Tower fire and other residential blocks fires.
Always check to see the level of Sinking Fund. A good marker, though not official, is for the Fund to be roughly equal to 90 % of the total annual management fees due from the entire ownership. Also check the level of non fee payers and amount outstanding.
A high level of non fee paying indicates bad financial management often caused by owners being dissatisfied with management performance. This would give you a good idea as to how the management company and management agent work.
The correspondence should also tell you projected works to be done and whether the funding is coming from planned annual budgeting, Sinking Fund or by means of a levy.

Regarding the doubling of insurance premiums.
Block insurance has increased across all companies but increases can be controlled somewhat by having a management company that minimises claims, upgrades fire protection and shops around for the best quotes.

VonLuck · 21-09-2019 10:53am

Edgware wrote: »

This is a major purchase and with some of the stories that have emerged about apartments you are right to be cautious.
The fire alarm issue may relate to the upgrade of the fire alarm system. This is common enough now as the insurance companies are demanding upgrades following the Grenfell Tower fire and other residential blocks fires.

That is a fair point. This could just be bringing the alarm systems up to current standards which may be seen as a good thing to have seen on the budget.

Edgware wrote: »

Always check to see the level of Sinking Fund. A good marker, though not official, is for the Fund to be roughly equal to 90 % of the total annual management fees due from the entire ownership. Also check the level of non fee payers and amount outstanding.
A high level of non fee paying indicates bad financial management often caused by owners being dissatisfied with management performance. This would give you a good idea as to how the management company and management agent work.

I just check and I would say that the sinking fund is at about 70% of the total annual management fees. How would I go about checking the level of non fee payers? Are they allowed to release this info to potential purchasers?

Edgware wrote: »

The correspondence should also tell you projected works to be done and whether the funding is coming from planned annual budgeting, Sinking Fund or by means of a levy.

It appears most of the work appears to be separate line items on the budget i.e. will be an addition onto the annual service charge. I would have always thought that upgrade works or repairs are taken from the sinking fund? Why would they be charging residents for this on top of their annual contribution to the sinking fund?

Edgware wrote: »

Regarding the doubling of insurance premiums.
Block insurance has increased across all companies but increases can be controlled somewhat by having a management company that minimises claims, upgrades fire protection and shops around for the best quotes.

Is there any way of assessing this before a purchase? It would be difficult for me to assess a management company's performance being an outside observer.

CIARAN_BOYLE · 21-09-2019 3:35pm

You can figure the level of non fee payers by looking at the balance sheet debtors.

hmmm · 21-09-2019 3:40pm

Your solicitor can submit questions. No guarantee you'll get an answer, but that in itself would tell you something. A good solicitor will ask about any known fire issues for a start.

DoozerT6 · 21-09-2019 5:52pm

Apart from the issues you mentioned, also factor in your yearly management fee increasing at least every couple of years. Mine has increased by 50% in the years that I've lived here, including the most recent increase. It's a significant amount on top of my mortgage payments to budget for.

Edgware · 21-09-2019 7:24pm

Even though apartment ownership has increased immensely in Ireland too many owners ar still ignorant of their rights and responsibilities as owner i.e in actual fact shareholders in the Management Company. Too many have the " Us versus them" attitude towards the Management Company when in actual fact there is no " them" it is all "us".
Owners should attend AG.M.s and check the financial records. Where a Management Agent is employed they should question their performance and questin any increase in fees, price being paid for maintenance, landscaping, insurance etc. Any rise in management fees should be explained and justified

jd · 21-09-2019 7:25pm

VonLuck wrote: »

That is a fair point. This could just be bringing the alarm systems up to current standards which may be seen as a good thing to have seen on the budget.

Our development is having its fire detection system upgraded. It is not legally necessary, but it is the right thing to do.

jd · 21-09-2019 7:28pm

VonLuck wrote: »

It appears most of the work appears to be separate line items on the budget i.e. will be an addition onto the annual service charge. I would have always thought that upgrade works or repairs are taken from the sinking fund? Why would they be charging residents for this on top of their annual contribution to the sinking fund?

If the sinking fund has been historically underfunded, necessary works may have to be funded through additional levies..

Edgware · 22-09-2019 10:15am

jd wrote: »

If the sinking fund has been historically underfunded, necessary works may have to be funded through additional levies..

That is often the case. I have been at A.G.M.s where some owners have criticised the steady building up of Sinking Funds but the practice has been proved right when faced with costly projects. Not every owner can afford to fork out for a levy. Developments with lifts will eventually have to face the cost of replacements which will be a considerable cost

listermint · 22-09-2019 10:19am

I'd assume insurance has exploded in the last few years. nothing particularly to do with your individual block. Across the country.

Del2005 · 22-09-2019 3:51pm

DoozerT6 wrote: »

Apart from the issues you mentioned, also factor in your yearly management fee increasing at least every couple of years. Mine has increased by 50% in the years that I've lived here, including the most recent increase. It's a significant amount on top of my mortgage payments to budget for.

My management fee has been fairly stable for 10 years. Your OMC either went too low at the start, usually too little into the sinking fund before the MUD Act came in, or there's been other issues.

VonLuck · 24-09-2019 3:05pm

Would an apartment survey identify any issues relating to potential fire problems? I have gotten a structural survey which did not highlight any problems, but I envisage issues relating to fire would not be visible without opening up walls or ceilings. Am I correct in that assumption?

AngryLips · 25-09-2019 1:58pm

Edgware wrote: »

This is a major purchase and with some of the stories that have emerged about apartments you are right to be cautious.
The fire alarm issue may relate to the upgrade of the fire alarm system. This is common enough now as the insurance companies are demanding upgrades following the Grenfell Tower fire and other residential blocks fires.
Always check to see the level of Sinking Fund. A good marker, though not official, is for the Fund to be roughly equal to 90 % of the total annual management fees due from the entire ownership. Also check the level of non fee payers and amount outstanding.
A high level of non fee paying indicates bad financial management often caused by owners being dissatisfied with management performance. This would give you a good idea as to how the management company and management agent work.
The correspondence should also tell you projected works to be done and whether the funding is coming from planned annual budgeting, Sinking Fund or by means of a levy.

Regarding the doubling of insurance premiums.
Block insurance has increased across all companies but increases can be controlled somewhat by having a management company that minimises claims, upgrades fire protection and shops around for the best quotes.

Just a follow-up question on the above: at what stage in the purchasing process do you check this information typically? Is it done by the solicitor normally or should the buyer deal with the estate agent in this regard? And before or after making an offer or giving a booking deposit?

Red flags before signing contract for apartment

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