Health of Management Company Finances

KissKissBang

I'm a buyer and have just received the latest available financial report. Overall the health of the books doesn't seem too bad but I was surprised by the level of arrears owed by around 15% of residents. In total there are 150 apartments, there are arrears of around €100,000 in unpaid service charges. "cash at bank in hand" is listed as 209K. The debt level has dropped a small amount in the last year.

How worried would you be by this if you were a buyer? What questions should I ask? In recent years some reasonably large projects have taken place, 2 which cost over €120K each split over a couple of years. A janitor is employed through the year. The buildings are in a fair condition. There is no plan for any major works in the pipeline.

Marcusm

KissKissBang wrote: »

I'm a buyer and have just received the latest available financial report. Overall the health of the books doesn't seem too bad but I was surprised by the level of arrears owed by around 15% of residents. In total there are 150 apartments, there are arrears of around €100,000 in unpaid service charges. "cash at bank in hand" is listed as 209K. The debt level has dropped a small amount in the last year.

How worried would you be by this if you were a buyer? What questions should I ask? In recent years some reasonably large projects have taken place, 2 which cost over €120K each split over a couple of years. A janitor is employed through the year. The buildings are in a fair condition. There is no plan for any major works in the pipeline.

What is the annual service charge income? If 15% are not paying then it will only take a few years before services need to be curtailed significantly. Sinking funds and other resources should not be commingled to discharge current expense shortfalls. I have lived through this in the past and it can get very difficult.

Solicitors should be engaged by the OMC and formal forfeiture should be sought to frighten the bejaysus out of the owners and, more importantly, their lenders!

KissKissBang

Service charge income is just over €300K. The balance of the sinking fund is now ~180K. Of this, over 120k, was covered by funds in the day to day operational bank account. The rest was in a separately identified bank account

I don't know why there is this percentage who are not paying. Perhaps some are back paying having been in arrears and some continue to make no payments. I'm not sure what level of debt analysis I am entitled to get (?)

I believe from reading AGM minutes that those in debt are being aggressively pursued, hence the reduction from the 2016 levels.

happyfriday74

Sinking funds and other resources should not be commingled to discharge current expense shortfalls. I have lived through this in the past and it can get very difficult.

Agree. this will bite everyone down the line.

100K based on a handful of units is massive. You'd expect the legal cases to be well advanced at this point for each.

antoinolachtnai

happyfriday74 wrote: »

Agree. this will bite everyone down the line.

100K based on a handful of units is massive. You'd expect the legal cases to be well advanced at this point for each.

Overall though, it’s 4 months of arrears (100k debt/300k income * 12 months. . It sounds like it’s being managed. There may be very good reasons this money is not being more aggressively pursued (ie they are waiting for the apartments to be sold).

happyfriday74

There may be very good reasons this money is not being more aggressively pursued (ie they are waiting for the apartments to be sold).]

Also True. you find a lot of people not paying SC are also not paying mortgagees. With Banks clearing a lot of properties off the books by selling them on to funds quite a few long term problem properties after years of no action are now finally being sold and the outstanding service charge balances paid off with the sale.

KissKissBang

To shed a little bit more light. The debt level rose from €30K in 2011 to €120K in 2014. Since then it has steadied and come back down. It is not increasing year on year for the last few years

KissKissBang

Also True. you find a lot of people not paying SC are also not paying mortgagees. With Banks clearing a lot of properties off the books by selling them on to funds quite a few long term problem properties after years of no action are now finally being sold and the outstanding service charge balances paid off with the sale.

Since that appears to be the case with regard to people not paying mortgages and service charges I would have thought that a figure of 100K for a property of that size of (or a bad debt total of about 1/3 of yearly income) wouldn't be that uncommon? The apartment block was built in the late 90s

andekwarhola

I'd be surprised if there was any MCs that didn't have some serial debtors. I'm willing to be proved wrong obviously.

The sad fact is that if somebody doesn't want to sell the property and has enough of a brass neck to simply ignore judgements or debt collection, there's very little you can do to recoup unpaid fees, save stuff like withdrwaing parking permits or bin shed access etc.

antoinolachtnai

KissKissBang wrote: »

Since that appears to be the case with regard to people not paying mortgages and service charges I would have thought that a figure of 100K for a property of that size of (or a bad debt total of about 1/3 of yearly income) wouldn't be that uncommon? The apartment block was built in the late 90s

None of this is ‘bad’ debt. It will all be paid eventually because it needs to be paid in the event of a sale or an insurance payout. The question is when it will be paid.

Arthur Daley

KissKissBang wrote: »

To shed a little bit more light. The debt level rose from €30K in 2011 to €120K in 2014. Since then it has steadied and come back down. It is not increasing year on year for the last few years

And these are the so called good years.

The wholw stroke around not paying mortgages has spread into other areas. You may find a half a dozen of these chancers make up a big chunk of the debt, because they never paid and interest has been compounding for years.

Couldn't care less.

KissKissBang

Unfortunately there is some bad debt which was caused by a debtor (non resident) going into liquidation but at least I'm going in with my eyes open with regard to that. That amount stands at €50k

Marcusm

KissKissBang wrote: »

Unfortunately there is some bad debt which was caused by a debtor (non resident) going into liquidation but at least I'm going in with my eyes open with regard to that. That amount stands at €50k

What debtor could an OMC have who was not a leaseholder? That seems very odd.

pinkypinky

Maybe the OP means a non-owner occupier, i.e. an investor

antoinolachtnai

pinkypinky wrote: »

Maybe the OP means a non-owner occupier, i.e. an investor

Why would that make any difference? Can still recover the debt when the property is sold.