Report on Multi-Unit Developments - Law Reform Commission

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sound position and cannot afford to pay. In many jurisdictions, unit owners who come under each category are treated differently. 7 For those who cannot pay in many jurisdictions 8 liens are automatically imposed over the property and, sometimes, even the over the contents of the property in the case of default in payment. 9 7.09 In this State, the most widely used enforcement mechanisms are the threat of legal action and, if that is not effective, the initiation of a claim against the unit owner for breach of a covenant agreement in the District Court. The Commission turns now to discuss and briefly assess the range of enforcement mechanisms available in other jurisdictions. (i) Use of rent money to pay the service charge 7.10 In the case of unit owners who are financially sound and can afford to pay their service charges, alternative mechanisms are used. The Commission is aware that some unit owners hold the view that owner-investors are sometimes uninterested in the day to day maintenance of the development, although the Commission believes that this does not apply in general. The difficulties associated with enforcement are exacerbated in cases where the unit owner lives overseas. The Canadian province of Ontario, for example, specifically targets unit owners who fail to pay service charges by requiring tenants of the defaulting landlord to pay the service charge value to the owners‘ management company rather than paying rent to the landlord. Thus, the payment can constitute payment towards rent under the lease. 10 7.11 This diversion of funds away from the unit owner constitutes a relatively straightforward means of enforcement. Where the unit is not leased and the owner defaults on a service charge payment, an automatic priority lien is created over the unit. 11 As a result, the Commission believes that it is open to the Oireachtas to consider providing, as an enforcement option, that where an ‗owner-investor‘ defaults on payment of service charges or building investment fund contributions, the rent payable by the tenant to the unit owner should be 7 See: van der Merwe and Muniz-Arguelles, ―Enforcement of Financial Obligations in a Condominium or Apartment Ownership Scheme‖ (2006)16 Duke Journal of Comparative & International Law 125 8 Ie: France, Ontario, British Colombia, Spain, Singapore, Puerto Rico and the United States. 9 These are ―rights of security as against property for money owned‖- Coughlan, p.lvii. 10 Section 87(6), Ontario Condominium Act, 1998 C.19. 11 Section 86 (1) Ontario Condominium Act 1998 C.19. 162
diverted to the owners‘ management company. Alternatively, diversion of rent from the owner-investor to the owners‘ management company could be provided as an option for the owners‘ management company to include as a covenant in the conveyancing agreement on a contractual basis. (ii) Penalty for late payment 7.12 Another potential enforcement mechanism is the imposition of a penalty for late payment. This sanction is used in Puerto Rico and Singapore. In Puerto Rico, 10% interest may be charged on any contributions which are more than 15 days overdue. In Singapore, unit owners can be prosecuted for failure to pay within 2 weeks of a written demand for payment from the management company, the maximum fine being a fine of S$10,000 plus a sum not exceeding S$100 for every day the service charge remains unpaid. 12 It has been noted that the daily fine mechanism can prove to be very effective. 13 However, it may also be counterproductive. It can be argued that both sanctions will punish the unit owners who, it transpires after the finalisation of the sale of the unit, simply do not have the money to pay the service charge, thus exacerbating their financial problems. Moreover, it is questionable as to whether the relatively draconian penalty fees system in Singapore constitutes a proportionate punishment to offset any harm suffered. Accordingly, the Commission considers that this would not be a constructive response to non-payment in this jurisdiction. (iii) Liens 7.13 A clear disadvantage of the lien system is that the owners‘ management company has to wait until the unit is sold until it can recoup money owed to it. Owners‘ management companies are generally very dependant on a strong and current cash flow system to function properly. Another disadvantage is the expense and inconvenience the owners‘ management company will be subject to as a result of enforcing the lien. Furthermore, it may be some years before the unit owners who default on payment sell the unit, resulting in a huge delay in recouping the defaulted payment. Notwithstanding these concerns however, it is arguable that the current apartment ownership scheme in Ireland is suitable for the creation of an equitable lien over a unit, 14 as the owners‘ management company has de facto control over the unit owner‘s share in the freehold. 12 Singapore Building Maintenance and Strata Management Act (Act 47 of 2004), art 40(10). 13 Van der Merwe and Muniz-Arguelles, p. 132. 14 On liens, see Coughlan Property Law (Gill and Macmillan, 2 nd ed, 1998) at p. 351. 163
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MULTI-UNIT DEVELOPMENTS (LRC 90 - 2
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LAW REFORM COMMISSION‘S ROLE The
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LAW REFORM RESEARCH STAFF Director
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CONTACT DETAILS Further information
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National Association of Building Co
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TABLE OF CONTENTS INTRODUCTION 1 CH
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D (9) Reports, Acc
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TABLE OF LEGISLATION Building Contr
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TABLE OF CASES AWA Ltd. v. Daniels
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B This Report and
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this makes it difficult to sell the
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Draft Sustainable Residential Devel
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freehold basis. 22 In 2005, as part
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managing agent and the owners‘ ma
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currently a wealth of expertise ava
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39. The Commission is conscious tha
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CHAPTER 1 SUSTAINABILITY OF MULTI-U
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1.03 This Chapter aims to consider
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comment, the Commission noted that
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has published guidelines for new ho
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Environment, Heritage and Local Gov
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1.22 In the Consultation Paper, the
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charge. 43 The wording of that prov
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has concluded that the scope of s.1
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developments should be subject to p
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Charge Protocol agreed between Kilk
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subject, the authority may form the
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District Court, the maximum penalti
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2 CHAPTER 2 THE ROLE OF DEVELOPERS
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appropriate responsibilities and en
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2.11 The Commission supports the re
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the proposal for a Designated Activ
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which would lead to clarification a
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development and reflect good practi
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planning authority where they are n
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equired to furnish a completion cer
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3 CHAPTER 3 THE OWNERS’ MANAGEMEN
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3.05 As noted in the Consultation P
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Companies Consolidation and Reform
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3.14 The Commission recommends that
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ecommendations constitute minimum l
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epresents the overwhelming majority
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system for economic activities 43 w
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law, limited liability companies mu
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obligations imposed on the company.
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3.51 The Commission also recommends
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entitlement to vote at owners‘ ma
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3.67 The Commission recommends that
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3.74 Sanctions imposed under compan
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Companies before the common areas h
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that the person should take reasona
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3.92 The Commission acknowledges th
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mindful that the core obligations s
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service charges, (d) maintain the f
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4 CHAPTER 4 TITLE AND CONVEYANCING
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to unit owners and any other person
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etween unit owners in these develop
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names of the additional joint owner
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owners‘ management company, thus
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equire to have compulsorily registe
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(2) Owners’ management company jo
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development in a timely manner. The
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A contract for the sale of a unit i
Page 131 and 132: 4.52 Under the existing arrangement
Page 133 and 134: purchaser on the transfer or convey
Page 135 and 136: espected. 62 The parties to the pur
Page 137 and 138: At development stage: - a responsib
Page 139 and 140: developers, legal practitioners and
Page 141: - an obligation to keep the managem
Page 144 and 145: managing agent has de facto control
Page 146 and 147: 5.10 The Report al
Page 148 and 149: valid tax clearance certificate. 15
Page 150 and 151: may supplement the hugely important
Page 152 and 153: 5.28 The Commission recommends that
Page 154 and 155: of the time and effort involved in
Page 156 and 157: B (1) Overview Building Investment
Page 158 and 159: every development for the purposes
Page 160 and 161: some owners‘ management companies
Page 162 and 163: pursue on spending the funds of the
Page 164 and 165: uilding investment fund to any pote
Page 166 and 167: mandatory for gated developments to
Page 168 and 169: older multi-unit developments which
Page 170 and 171: 6.52 The Commission acknowledges th
Page 172 and 173: surprising, as such standards are c
Page 174 and 175: edrooms in a given apartment. The r
Page 176 and 177: change their managing agent if they
Page 179 and 180: 7 CHAPTER 7 REMEDIAL MEASURES AND R
Page 181: C Remedial measures for non-payment
Page 185 and 186: very difficult to enforce in practi
Page 187 and 188: through them. The NPSRA will also b
Page 189 and 190: is an immediate problem with the ro
Page 191 and 192: 7.39 The Commission envisages there
Page 193 and 194: 8 CHAPTER 8 SUMMARY OF RECOMMENDATI
Page 201 and 202: - an obligation to discharge all re
Page 203: 8.65 The Commission recommends that
Page 206 and 207: Even though legal title is transfer
Page 208 and 209: ‗Completion of development‟ inc
Page 210 and 211: The remainder of this Appendix cont
Page 213 and 214: APPENDIX B DRAFT MULTI-UNIT DEVELOP
Page 215 and 216: DRAFT MULTI-UNIT DEVELOPMENTS BILL
Page 217 and 218: Duties and entitlements of develope
Page 219 and 220: (a) the name of the company in acco
Page 221 and 222: (a) that each unit owner shall abid
Page 223 and 224: (e) develop covenants and agreement
Page 225 and 226: purposes of a multi-unit developmen
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