The Importance of Management Companies

P. Breathnach

It is my opinion that conducting due diligence on the management company of an apartment block is at least as important as a structural survey - in some circumstances, more important.

Because of that, I like this advertisement http://www.myhome.ie/residential/brochure/32-the-clayton-the-gasworks-ballsbridge-dublin-4/2582538 because it includes this:

Service Charge for 2013: €2,062.87 (Service Charge: €1,697.41, Refuse: €115.46, Car Space: €250)

In 2012, the transfer to the sinking fund totaled €95,603. This was separate to a retained surplus for the year of €98,799.

The value of the sinking fund at end 2012 was €427,088.

Of course it doesn't tell the whole story, but it tells some of it and, more important, there is a recognition that a potential purchaser should be interested in such matters. It would be good if EAs adopted this approach as standard practice.

Santa Cruz

You are absolutely correct. Finding out as much as possible about both the Management Company and Management Agents are vital if purchasing in to a Multi Unit Development.
Financial returns are available from the CRO.
There have been so many bad cases of mismanagement of Multi Unit complexes.

murphaph

In Germany you're entitled to view the minutes of management company meetings before buying into a block, as well as all the figures themselves.

Potatoeman

A friend of mine has an apartment where a sizable portion of apartments have not paid their fees which resulted in higher fees for all the other tenants. This was going on for years in many cases which ment the sinking fund was shrinking too. A number of them were sold to social housing so they could not get the money back either.

I also know someone else that was a quantity surveyor and had the management company complaining that they could not afford to manage a development. She went and had a look at the apartments and bills, they hadn't even tried to reduce costs, so she swapped some of the support companies and reduced the number of lights in the underground carpark which reduced the overall costs. I have heard that some are very badly managed and try and charge very high rates for maintenance as the sub companies are owned by friends or partners.

odds_on

P. Breathnach wrote: »

It is my opinion that conducting due diligence on the management company of an apartment block is at least as important as a structural survey - in some circumstances, more important.

Because of that, I like this advertisement http://www.myhome.ie/residential/brochure/32-the-clayton-the-gasworks-ballsbridge-dublin-4/2582538 because it includes this:

Of course it doesn't tell the whole story, but it tells some of it and, more important, there is a recognition that a potential purchaser should be interested in such matters. It would be good if EAs adopted this approach as standard practice.

For me, that is what I would call a decent advert, giving the details that a potential buyer should want to know.

However, most EAs won't do that because it involves some work (although the vendor should have the figures from the last AGM at least.

P. Breathnach

murphaph wrote: »

In Germany you're entitled to view the minutes of management company meetings before buying into a block, as well as all the figures themselves.

Proper order, too.

Does that mean the minutes of the company only (i.e. general meetings of the members, either agm or egm) or does it also allow you to view the minutes of directors' meetings?

If I were to buy an apartment in Ireland, I would like to have an opportunity to gauge the performance of the management company, and it would be helpful to have access to minutes of board meetings and to have sight of all non-trivial contracts made by the management company - most particularly, the contract made with the managing agent.

athtrasna

You'd be lucky to find a MC in Ireland that minutes Directors' meetings. Having an active board is rare enough but one that takes minutes...hens teeth.

P. Breathnach

athtrasna wrote: »

You'd be lucky to find a MC in Ireland that minutes Directors' meetings. Having an active board is rare enough but one that takes minutes...hens teeth.

I'd expect anything from no minutes at all (or any record that meetings ever happened) to full, even excessively detailed, minutes.

Have you a basis for suggesting that minuted meetings are rare? Other than an ordinary understanding of human nature.

Management Companies are charged with taking care of assets worth, typically, millions of euros and handling revenues counted in tens, sometimes hundreds, of thousands a year. I'd rather like some compliance with company law and best practice.

ABajaninCork

Potatoeman wrote: »

A friend of mine has an apartment where a sizable portion of apartments have not paid their fees which resulted in higher fees for all the other tenants. This was going on for years in many cases which ment the sinking fund was shrinking too. A number of them were sold to social housing so they could not get the money back either.

I've heard of this happening quite a lot here. What is the procedure for obtaining payment from those who can't/won't pay? Is the matter taken to court and are judgement mortgages obtained? How vigourously are arrears pursued??

Are services then withdrawn? - for example; withdrawal of parking privileges, no lights provided in the block, that kind of thing.

Just interested!

murphaph

P. Breathnach wrote: »

Proper order, too.

Does that mean the minutes of the company only (i.e. general meetings of the members, either agm or egm) or does it also allow you to view the minutes of directors' meetings?

It's a bit different over there. There are no directors. All the owners can attend at least an AGM where the budgets are discussed and so on. The owners usually contract the day to day running of the block to a private company called a Hausverwaltung but the owners are not tied to a particular company. It's not perfect but you don't hear of the messy horror stories like you get in Ireland.

murphaph

I'm an owner in a block in Germany. Another owner ran into financial difficulties and stopped paying his fees. The other owners voted to begin legal action and ultimately his unit was sold by the court and his debt to our building discharged. Took about a year from start to finish.

padd b1975

murphaph wrote: »

I'm an owner in a block in Germany. Another owner ran into financial difficulties and stopped paying his fees. The other owners voted to begin legal action and ultimately his unit was sold by the court and his debt to our building discharged. Took about a year from start to finish.

They sold his home out from under him??

How much debt had been allowed to build up??

Potatoeman

ABajaninCork wrote: »

I've heard of this happening quite a lot here. What is the procedure for obtaining payment from those who can't/won't pay? Is the matter taken to court and are judgement mortgages obtained? How vigourously are arrears pursued??

Are services then withdrawn? - for example; withdrawal of parking privileges, no lights provided in the block, that kind of thing.

Just interested!

They got clampers to clamp the cars but some just cut them off. If the property was sold the arrears are wiped off.

Paulw

Potatoeman wrote: »

If the property was sold the arrears are wiped off.

If a property is sold then all debts should be settled before transfer can be completed. Wiping the debt seems insane.

In our development, we insist that the debt is paid before the property can be sold, rather than the debt being settled out of the proceeds of the sale. It just means we get the money first, and without the money we block the sale.

Potatoeman

Paulw wrote: »

If a property is sold then all debts should be settled before transfer can be completed. Wiping the debt seems insane.

In our development, we insist that the debt is paid before the property can be sold, rather than the debt being settled out of the proceeds of the sale. It just means we get the money first, and without the money we block the sale.

They were in dispute with the counsil over this but it seemed unlikly they would get anything. Can you block the sale?

athtrasna

Potatoeman wrote: »

They were in dispute with the counsil over this but it seemed unlikly they would get anything. Can you block the sale?

The management company has to provide documents to facilitate the sale of the apartment, they can refuse to do that if there are debts outstanding.

P. Breathnach wrote: »

Have you a basis for suggesting that minuted meetings are rare? Other than an ordinary understanding of human nature.

I've been a director of our management company for nine years, know others who are directors in similar developments and have been involved in a number of inter-development projects. While active, meetings are not minuted, nor are they formal. They involve sitting around in someone's house and going through the issues in the development, either that or spending hours going through all the nooks and crannies of the common areas and gardens. The only semi-formal meeting is when the budget is being worked on but still not minuted. Our AGMs are but personally I wouldn't like issues like reports of anti social behaviour to be minuted as the minutes would identify complainants meaning future directors may identify them.

Electric Sheep

padd b1975 wrote: »

They sold his home out from under him??

How much debt had been allowed to build up??

Yes, I guess they did. In other countries people are expected to pay their debts, only in Ireland do people expect a free ride.

P. Breathnach

I started this thread because I am thinking of purchasing a property, and wanted to discuss the implications of buying into a MUD. I know that "purchasing a property" means becoming in the one transaction a shareholder and a leaseholder in the development.

Irish people often become holders of long-term leasehold interests, and it generally doesn't bother them or cause them worry (and, under older models of lease, they usually have an easy and cheap option of buying out the freehold).

MUDs are different, and the difference is important. It looks to me as if very many people, perhaps a large majority of them, do not fully appreciate what is involved. To many apartment owners, the management company is an outside body that charges them a fee, sets some rules, and provides services. They do not understand the difference between a management company and a managing agent. You might expect that property professionals should know about such things, and I am sure that most of them do.

Here's the rub. I viewed an apartment and considered making an offer. So I told the EA that I would like to perform some due diligence on the management company, and would like sight of the most recent set of accounts. The EA responded by giving me the contact details of the managing agent. Now, I have no formal connection either with the management company or the agent, and therefore have no right to get information from the managing agent.

The vendor should have received the accounts of the management company and, in my view, should have made then available to the EA. If, as often happens, the vendor had lost them, he or she should have requested a copy which would almost certainly been available at no cost, or at a trivial cost.

If I had made an offer, it would have been made subject to scrutiny of the accounts of the management company. That's one extra obstacle to the successful conclusion of a sale - and we all know that there are enough bumps on that road already.

As it happened, for other reasons I did not make an offer on the particular property, but I expect to be dancing the same steps repeatedly as I continue my search. I think that one of the reason why EAs might not have the information to hand is that many potential purchasers do not demand it at the negotiation stage.

And I'm not sure if a Requisition 37 cuts it for me.

athtrasna

The most recent accounts should have been filed with the CRO and are downloadable for a small fee?

P. Breathnach

athtrasna wrote: »

The most recent accounts should have been filed with the CRO and are downloadable for a small fee?

Only if I know the name of the management company.

And I'd rather delve a little more deeply than a set of accounts that meets the minimum requirements of the Companies Acts. In particular, I would be interested in knowing the profile of the debtors' ledger, because arrears of management charges could be material.

athtrasna

P. Breathnach wrote: »

Only if I know the name of the management company.

And I'd rather delve a little more deeply than a set of accounts that meets the minimum requirements of the Companies Acts. In particular, I would be interested in knowing the profile of the debtors' ledger, because arrears of management charges could be material.

Sorry but you're living in a dream world if you think you as a non member of the Management Company has a chance of seeing that. For starters there are data protection issues. In fact we originally used to file ours with out accounts but were advised by the CRO that we could leave ourselves open to legal action for breach of this so we ceased immediately.

I admire your determination to go into this with your eyes open and can see that you would be a very valuable member of a management company but you are asking for info that you are not entitled to. No information beyond that in the public domain/filed with the CRO should be made available to potential buyers, the management company has no role in incentivising a sale.

odds_on

As well as accounts, another interesting thing to look for is the names of the directors, and if they are directors of other companies.

It worries me is I see what appears to be husband and wife both on the board, or close family members all on the board of directors. It would seem like a family takeover and may be difficult to break.

P. Breathnach

athtrasna wrote: »

Sorry but you're living in a dream world if you think you as a non member of the Management Company has a chance of seeing that. For starters there are data protection issues. In fact we originally used to file ours with out accounts but were advised by the CRO that we could leave ourselves open to legal action for breach of this so we ceased immediately.

I admire your determination to go into this with your eyes open and can see that you would be a very valuable member of a management company but you are asking for info that you are not entitled to. No information beyond that in the public domain/filed with the CRO should be made available to potential buyers, the management company has no role in incentivising a sale.

I did say "profile of the debtors' ledger". That does not mean a listing of the debtors, but a breakdown of debtors by category. In many MUDs the only significant debtors are the members.

Suppose the total management charges were running at about €90k p.a., and the total amount owed by members was in the region of €50k, that's something of a concern.

I agree that a management company has no role in incentivising a sale. But it has some obligations to its current members, including anybody who is currently attempting to sell his/her interest in the development. That's why I think the proper channel for enquiry is to go through the EA to seek from the vendor information that he or she should have received from the management company in connection with the most recent a.g.m.

athtrasna

P. Breathnach wrote: »

I did say "profile of the debtors' ledger". That does not mean a listing of the debtors, but a breakdown of debtors by category. In many MUDs the only significant debtors are the members.

What other debtors could there be? Management companies aren't allowed to make profits so apart from income due from members what other monies could be incoming?

P. Breathnach

athtrasna wrote: »

What other debtors could there be? Management companies aren't allowed to make profits so apart from income due from members what other monies could be incoming?

Debtors need not always arise from revenue items. Possibilities include:
- an amount due from a developer from the time the MUD was set up (perhaps for work not completed by the developer);
- an insurance claim due but not yet received;
- moneys due from a contractor who failed to complete contract obligations in a satisfactory way;
- the proceeds of sale of a surplus asset
- income earned from investment of the sinking fund but not yet realised.

But yes, in general the debtors' ledger is largely members' payments outstanding.

anncoates

odds_on wrote: »

As well as accounts, another interesting thing to look for is the names of the directors, and if they are directors of other companies.

It worries me is I see what appears to be husband and wife both on the board, or close family members all on the board of directors. It would seem like a family takeover and may be difficult to break.

This makes me laugh.

What benefits accrue from being a director?

I became a director out of pure frustration - trying to get rid of s useless management agent and improve our development.

It's a thankless task that requires responsibility and work ( as well as having a career and family) with damn all thanks from residents half of whom continue to enjoy communally funded facilities while refusing to pay their fees.

odds_on

anncoates wrote: »

This makes me laugh.

What benefits accrue from being a director?

I became a director out of pure frustration - trying to get rid of s useless management agent and improve our development.

It's a thankless task that requires responsibility and work ( as well as having a career and family) with damn all thanks from residents half of whom continue to enjoy communally funded facilities while refusing to pay their fees.

While I realize that directors have all the problems of the company and get no thanks but rather much grief, usually from those that have paid their management charges, when a board of directors consists for several people of the same or related family, I would be very worried that it is more "a family affair", and it may be difficult to remove them.

On one estate I nearly bought a bungalow, one of the directors was paid 5k per annum and he was also a director of at least one other management company which paid him in excess of 7k. His total from 2 management companies is more than I get from my pension. To remove him is next to impossible as he has many friends who all bought several properties in the development thus has many friends to keep him in situ.

Lantus

P. Breathnach wrote: »

Debtors need not always arise from revenue items. Possibilities include:
- an amount due from a developer from the time the MUD was set up (perhaps for work not completed by the developer);
- an insurance claim due but not yet received;
- moneys due from a contractor who failed to complete contract obligations in a satisfactory way;
- the proceeds of sale of a surplus asset
- income earned from investment of the sinking fund but not yet realised.

But yes, in general the debtors' ledger is largely members' payments outstanding.

I'm not sure they qualify as debts. The OMC wont of issued a bill to the developer for outstanding works and as far as I'm aware is not entitled to.

Insurance claims are not debts as the company is not owed the money because it didn't pay it out.

money due from contractors? Like a refund?

Proceeds of a sale as a surplus were never a debt to start with.

sinking funds cannot be invested like in some rogue hedge fund investment (you probably could but would be mad to consider it.) but they can accrue interest. That's not debt.


The ONLY real debt is the money owed to the company through non payment of fees. that's is the money the company requests and is legally required to be paid.

OMC's generally cannot borrow money so they cannot accrue debt other than service fees.

P. Breathnach

Lantus wrote: »

I'm not sure they qualify as debts. The OMC wont of issued a bill to the developer for outstanding works and as far as I'm aware is not entitled to.

Insurance claims are not debts as the company is not owed the money because it didn't pay it out.

money due from contractors? Like a refund?

Proceeds of a sale as a surplus were never a debt to start with.

sinking funds cannot be invested like in some rogue hedge fund investment (you probably could but would be mad to consider it.) but they can accrue interest. That's not debt.


The ONLY real debt is the money owed to the company through non payment of fees. that's is the money the company requests and is legally required to be paid.

OMC's generally cannot borrow money so they cannot accrue debt other than service fees.

Of course they are debts due to the management company. Any sum due to the company that has not yet been paid is a debit balance in the company's accounts. Basic accountancy.

There are (properly) restrictions on how a sinking fund can be invested, and I have not looked hard into that, but I would be confident that bonds are permissible. I won't argue that case because I don't feel like doing the research right now.

Let us look at other scenarios:

• If defects are discovered in a development and the management company makes a claim against the developer who agrees to pay, say, €10k for remediation works, then that amount is a debt between the time the amount is agreed and the time it is paid.
• If there is a fire in an apartment block it is imaginable that the management company might pay for repairs and then make a claim under the block insurance. From the time the claim is made until the time it is paid, it counts as a debt.

As I already indicated, in most cases the bulk of the debts due to a management company comprises members' contributions due. But not necessarily always.

odds_on

I was considering a property but the management company's sinking fund had less than 5 k and there were some 150 properties in 3 blocks, and about 9 years old.

I wasn't going to buy a property and and then fork out another many thousands if there was suddenly found problems which required costly works.

P. Breathnach

odds_on wrote: »

I was considering a property but the management company's sinking fund had less than 5 k and there were some 150 properties in 3 blocks, and about 9 years old.

I can visualise circumstances in which such a small fund might be okay: if the sinking fund had been cleaned out in restoring everything to "as-new" condition. Then the management company should start building up the fund again. I can't imagine this being a plausible circumstance in the case you describe.

At what stage in the process did you learn about the sinking fund?

I wasn't going to buy a property and and then fork out another many thousands if there was suddenly found problems which required costly works.

To my mind the important questions about management companies are:

• administration of finances, including collection of management charges;
• creation of a solid sinking fund and administering it in a prudent manner;
• quality of general management of the property (which might be mainly a matter of appointing a good managing agent on a suitable contract).