Report on Multi-Unit Developments - Law Reform Commission

4.43 Aside from the obvious benefits of having a development completed
punctually and to a high standard, the Commission considers that its proposals
will be of further benefit to unit owners as it will counter the knowledge deficit.
The completion of the development and the handover of the 5% balance of the
purchase money will signal for unit owners an important milestone in the life
cycle of the development. It will emphasise to them that they will have control
over the owners‘ management company and, by extension, over ownership
interests in the common areas and structure of the development.
4.44 Furthermore, the Commission considers that this recommendation
will be straightforward in terms of practical implementation. The operation of the
proposal is broadly analogous to the system used by local authorities and
developers with development bonds. As a result, developers have experience
with the operation of this type of scheme.
4.45 A final and key benefit is that under the recommended system, where
the developer has not properly snagged the development on completion, there
is a fund available which can be used for the purpose of completion.
4.46 The Commission recommends that pending completion of a multi-unit
development or a phase of it, 5% of the purchase price of each unit will be held
in an interest-bearing account in the name of the owners‟ management
company on trust for the developer.
(4) Taxation
4.47 The Commission is concerned that its recommendation will be tax
neutral and will not introduce any additional charge to taxation. It is therefore
necessary to look in particular at both the charge to Value-Added Tax and
stamp duty and comment on how these charges will apply under the new
proposals the Commission has recommended. To do so, it is important to
summarise the key elements in this Chapter, in particular the sequence of
events:
The transfer of legal title to the owners‘ management company (OMC),
which will be compulsorily registrable, before the completion of the
conveyance of a unit to a unit purchaser. This transfer will be for a
zero consideration - the developer will remain the beneficial owner of
the multi-unit development.
The contractual arrangement between the developer and the Owner‘s
Management Company will provide that the OMC will hold the multiunit
development in trust for the developer and its nominee. The OMC
will be obliged to facilitate the completion and sale of units in the multiunit
development by the developer and not to frustrate or prevent the
conveyance of any unit in the development.
108