Purchasing an Apartment and the complex issues your Property Law Solicitor will guide you through
When purchasing a property many people are finding that apartment living suits their lifestyle and their financial situation better than purchasing a house. Whether you are a first time buyer or have owned a number of properties throughout your life, there are a number of issues which you must be aware of when thinking of buying an apartment. We look at some of the issues involved in apartment living.
We have completed this article as an initial reference for people considering purchasing an apartment, however we recommend that you discuss fully with your solicitor all aspects of your apartment purchase, including references to the Management Company, service charge and other issues.
How does an apartment differ from a stand alone detached house?
The key distinguishing feature of an apartment is that you, as an owner, will share in the benefit of common areas, amenities and services with your fellow apartment owners. These areas may include:
- The roof of the apartment block
- A lift
- Gardens and green areas
- Car parking, access roads and footpaths
- Access points, corridors and stairwells
- External walls
- Sewage and drainage systems
- Electricity and gas supply
- Security, cleaning, maintenance and waste disposal services
You will have exclusive ownership of your apartment, including internal structures and normally internal walls, floors and ceilings. In addition, when you purchase your apartment, you, along with the other apartment owners, will be responsible for the upkeep, maintenance, repair and insurance of the common areas, amenities and services.
When purchasing an apartment you should seek from your solicitor the following documents that should be readily available:
- A copy of the map or plan of the apartment and the apartment development to check what exactly you will own outright and what you will be responsible for with the other owners;
- A copy of the lease and any other relevant documents in relation to the apartment. This is so that you have these for future reference. Your solicitor will explain what is contained in these documents.
How are apartment blocks managed?
This is an issue you will wish to discuss with your solicitor. It is likely that a Owners Management Company (OMC) will be set up and be responsible for the upkeep, maintenance and insurance of common areas, amenities and services. This Owners Management Company will be made up of the apartment owners, who will each have an equal share in the common areas, amenities and services and equal voting rights. There has been a significant development in the area of legislation governing apartments as a result of the Multi Unit Development Act, 2011. Prior to your signing contracts for the purchase of your apartment your solicitor will raise a significant amount of queries in relation to the OMC's compliance with it's obligations under this legislation. This is in effect a legal and financial health check of the Owners Management Company .
What is a service charge?
A service charge is the fee that apartment owners pay as a contribution towards the maintenance and upkeep and insurance of the common areas, amenities and services. You should check out the following in relation to the service charge before agreeing to purchase an apartment:
- How much is the service charge?
- Is it paid monthly/ every six months or every year?
- How is it paid? By direct debit, standing order or by cheque?
- How is the service charge made up?
- Has the service charge been paid up to date by the current owner?
- Is there a sinking fund?
- Is the service charge reasonable given the nature of the development?
- Can I afford to pay the service charge in addition to all other outgoings in respect of the apartment?
What should I look out for when considering purchasing an apartment?
The key things to identify is what system the management of the development has in place and whether it is working effectively. Your solicitor should check this information for you. The following information should be furnished to your solicitor before signing contracts for sale for the purchase of an apartment:
- Copies of any correspondence relating to the Owners Management Company and payment of the service charge
- Copies of the latest available audited and filed accounts
- Details of any planned future expenditure
- Details of the "sinking fund"
- Details of the block policy insurance arrangements
- Details of the managing agents appointed?
- Details of the annual expenditure and retainer that the management agents have in place?
- Details of the number of individuals who are not discharging their annual service charge?
- Any other relevant documents regarding the running of the Owners Management Company. It must be understood that the amount of the service charge can vary from year to year and may go up in the future.
From this information, you and your solicitor should be able to make a reasonable assessment as to whether the development is currently being managed effectively, if there is likely to be a requirement for any significant investment to ensure the upkeep of the property in the near future and whether there is adequate provision to pay for this from the sinking fund.
What is a "sinking fund"?
A "sinking fund" is a term for the proportion of collected service charge monies which are put away to cover significant investments that may be required to ensure the long term sustainability of the development in the future, for instance repairing the roof. If a sinking fund is not provided and works are required, then the current apartment owners will have to come to an agreement to pay for the works themselves. This can be a significant burden and it can be difficult to come to agreement. Normally any such additional one off payments are approved of at the Owners Management Companies Annual General Meeting or Extraordinary General Meeting when approval must be voted upon by the members of the Owners Management Company. Any additional sums sought are then added to the annual service charge levied against each property.
What are my responsibilities?
Your most significant responsibility is to pay your service charge as and when it falls due. In addition to paying your service charge as a shareholder of the owners management company, you have a general responsibility to keep actively involved in the work of the owners management company. You should do this by:
- Attending annual & extraordinary meetings
- Contributing to discussions and decisions relating to the management of the development
- Analysing the accounts and ways in which the service charge monies are spent. It is important that you do this to ensure that your home is properly maintained and your money is properly used. Keep copies of all paperwork in connection with the apartment. You may need this in the future and will need to be able to pass this on to a purchaser if you decide to sell your apartment. We always recommend that clients keep a folder with all correspondence from the time of purchasing their apartments.
It is very important that the apartment building is fully insured at all times. If this is done by the Owners Management Company or a managing agent get written confirmation that the apartment building is insured. Also make sure that you take out any other insurances that you may need such as contents insurance.
How will management of the common areas work in practice?
When you first move into your apartment, it may be the case that not all of the apartments have been sold by the developer and so the developer, or his agents, may be responsible for the maintenance and upkeep of the development. After a certain percentage of the apartments are sold there is a legal obligation on the developer or builder to pass over the legal title to the common areas of the development to the Owners Management Company. This is set out in the Multi Unit Development Act, 2011.
If all apartments have been sold the Management Company should be fully established and have appointed Directors and perhaps a Company Secretary. It is likely that the Management Company will appoint a managing agent to carry out the day to day management of the development. In these circumstances, the managing agent will carry out or engage contractors to complete the cleaning, maintenance work and should make recommendations to the Owners Management Company for more substantial works such as painting the development or repairing the roof. It is important that the Owners Management Company maintains overall control of the development and ensures the managing agent executes his/her duties effectively. As an owners and member of the owners management Company you have a part to play in this and should stay involved in the Owners Management Company and raise any concerns about the effectiveness of the managing agent with the Company Directors and Secretary or at meetings.
What if I have a dispute with my neighbours?
The relative close proximity between neighbours in apartment blocks can lead to difficulties. The most common issue to arise is complaints regarding noise. It is likely that your development will have a set of "house rules" which set the standards and rules of behaviour expected of apartment owners. When purchasing an Apartment a copy of the house rules would be sought by us from the Owners Management Company or their managing agents prior to the signing of contracts for sale and a copy will be furnished to you.
We have acted in relation to the purchase of apartments in many developments within the Dublin City and County Areas and in many counties throughout the country. There is a huge amount of due diligence work involved in acting on behalf of an individual or couple that are considering purchasing an apartment.
In engaging us as your property law solicitors you are ensuring that you are going to have all necessary information furnished to you in advance of your making a decision on proceeding to purchasing a particular apartment or not.
We have on many occasions had to advise client's not to proceed with the purchase of an apartment in circumstances where the Owners Management Company was not properly functioning. This is advice that we do not give out lightly but we would be failing in our professional duty to our clients if we did not advise in such circumstances. It also is the case that if having completed all of the pre contract due diligence on the owners management company we have noted serious flaws in the Owners Management Company, our clients lending institution may not be in a position to lend funds if we have to certify the title to the property.