Sinking Funds

jim-mcdee

article today


https://www.irishtimes.com/business/commercial-property/vast-majority-of-apartments-need-bigger-sinking-funds-1.3665606



i know were we live we have no sinking fund at all and there is over 130 units here. sleepwalking and disaster are two words that come to mind.

happyfriday74

A lot of loss leading going on after the MUD act came into force with lots of dodgy agents.

A great way to win business was to gut the sinking fund contribution to sell a reduced service charge to the residents.

All those chickens coming home to roost now

Lantus

Service charges can be very hard to enforce as expensive court action is needed. Coupled with lack of investment since the inception of omcs.

The shortfall is compounded by the fact that many of those expensive repairs will be due very soon as many apartments are 15 years old.

The article suggests that 25% have sufficient funds. I would query this and would suggest its lower as agents may be encouraged to overestimate savings in relation to real repair costs. Unless they undertake regular checks on market costs to repair everything.

The government may well be forced to step in with bridging loans. This won't be ideal as estates where are non payment issues will quickly find costs are assigned to owners which will take a chunk of the property cost on sale or transfer.

The omc failed system needs to have the money flow repaired. If people have to pay via the bank with the mortgage or some kind of legal transfer every month everything else becomes easier and doable.

Change that one thing and everything else becomes fixable.

It's hard to see how any of these omcs will fund tens of thousands of cash investment in the next 5 to 10 years when they are struggling to cut the grass or get insurance.

The quick effect is a reduction in property values which hurts all owners, especially those that paid all fees.

Marcusm

Lantus wrote: »

Service charges can be very hard to enforce as expensive court action is needed. Coupled with lack of investment since the inception of omcs.

The shortfall is compounded by the fact that many of those expensive repairs will be due very soon as many apartments are 15 years old.

The article suggests that 25% have sufficient funds. I would query this and would suggest its lower as agents may be encouraged to overestimate savings in relation to real repair costs. Unless they undertake regular checks on market costs to repair everything.

The government may well be forced to step in with bridging loans. This won't be ideal as estates where are non payment issues will quickly find costs are assigned to owners which will take a chunk of the property cost on sale or transfer.

The omc failed system needs to have the money flow repaired. If people have to pay via the bank with the mortgage or some kind of legal transfer every month everything else becomes easier and doable.

Change that one thing and everything else becomes fixable.

It's hard to see how any of these omcs will fund tens of thousands of cash investment in the next 5 to 10 years when they are struggling to cut the grass or get insurance.

The quick effect is a reduction in property values which hurts all owners, especially those that paid all fees.

For those in Dublin where negative equity is reducing or non-existent, the solution is clear for arrears (whether of usual service charge or sinking fund contributions), threaten to apply for a forfeiture of the lease and formally notify the mortgagee (lender). This will raise matters to a higher level.

The more pressing matter is to obligate OMC directors to maintain a planned maintenance and renewal schedule for all properties. Most OMCs will not have the capabilities to do this and most managing agents won’t either. Having had a bad experience in the U.K. of poorly planned maintenance and renewal programmes, I would not like to see it repeated here.

Lantus

Marcusm wrote:

For those in Dublin where negative equity is reducing or non-existent, the solution is clear for arrears (whether of usual service charge or sinking fund contributions), threaten to apply for a forfeiture of the lease and formally notify the mortgagee (lender). This will raise matters to a higher level.

Forfeiture applies generally to a landlord tenant relationship.

Omcs have tried to get seizure of a property as an asset and it has been rejected by the courts.

Contacting the lender about outstanding fees is currently a serious breach of the gdpr.

Claw Hammer

Lantus wrote: »

Forfeiture applies generally to a landlord tenant relationship.

Omcs have tried to get seizure of a property as an asset and it has been rejected by the courts.

Contacting the lender about outstanding fees is currently a serious breach of the gdpr.

Apartment owners are in a landlord and tenant relationship with their management company.
https://www.jdsupra.com/legalnews/irish-high-court-judgement-justice-bud-63153/

In which cases have the courts refused to allow seizure of property as an asset?

Graham

Lantus wrote: »

Contacting the lender about outstanding fees is currently a serious breach of the gdpr.

I would have imagined lenders have some sort of right to know about something which may threaten their security. It's not as if they're some sort of unrelated 3rd party.

Is this your own interpretation of the GDPR or something you've come across somewhere else?

jim-mcdee

Marcusm wrote: »

For those in Dublin where negative equity is reducing or non-existent, the solution is clear for arrears (whether of usual service charge or sinking fund contributions), threaten to apply for a forfeiture of the lease and formally notify the mortgagee (lender). This will raise matters to a higher level.

The more pressing matter is to obligate OMC directors to maintain a planned maintenance and renewal schedule for all properties. Most OMCs will not have the capabilities to do this and most managing agents won’t either. Having had a bad experience in the U.K. of poorly planned maintenance and renewal programmes, I would not like to see it repeated here.

There is probably not that many cases where arrears are so bad the OMC is forced to look for possession of the property. I would say in most cases the serious threat of legal action and in some cases actually legal action to recover the dept is enough. There are plenty of things the agent/omc can do to 'encourage' people to pay their fees before it even gets that bad. I feel the problems stem from owners not fully understanding how omcs work, combined with lack of vigilant collect of service charges due to lack of commitment from directors and agents to get serious about collecting fees for whatever reason, and an obsession about keeping fees low at the expense of building a sinking fund. Repossession must surely be an extreme measure, where arrears are reaching a level equal to the value of the property. It should never even reach 10 percent surely.

Fol20

OMC already enforce that the property can’t be sold until fees are paid. Some also add fines that can cumulate over time

Lantus

Graham wrote:

Is this your own interpretation of the GDPR or something you've come across somewhere else?

It's always been the case even pre gdpr to divulge confidential financial information to a third party is a data protection breach. Gdpr adds teeth in that an owner can now seek damages. Not advised.

pinkypinky

Speaking as an OMC director, I find the delays caused by the court process very frustrating. Having been dealing with recalcitrant owners (investors who collect rent) for a decade, we are hampered by what actions can be taken. Judges will only enforce a max of say a couple of hundred euro a month towards arrears. Some people build up so much, even with judgments, that it could be never paid off. The only hope is that eventually the property gets repossessed by the bank and then, as a priority creditor, we get our arrears. We tried getting the sheriff before but tenants don't have to admit him/her and can claim they own all the property therein. Garnishing orders to get the rent have not been entertained.

And we're the conscientious ones making an effort to not let new debt build up - the problems described above are historic - predating the MUD act and most of the directors moving into the building.

The_Conductor

Marcusm wrote: »

The more pressing matter is to obligate OMC directors to maintain a planned maintenance and renewal schedule for all properties. Most OMCs will not have the capabilities to do this and most managing agents won’t either. Having had a bad experience in the U.K. of poorly planned maintenance and renewal programmes, I would not like to see it repeated here.

The majority of OMC directors hold the post on a voluntary basis- often because no-one else volunteered, and as it stands- they are liable to all manner of jurisprudence under the Companies Act- which is why there is such a reluctance on the part of owners to volunteer in the first instance.

If you start putting additional obligations on the part of OMC directors- you're simply going to find that you're not going to have any OMC directors..........

All owners are members of the OMC- and thus- both have a vested interest in- and an obligation towards the OMC. Trying to put a higher requirement on the poor owner who gets off their arse to try and better their development- is both unfair- and totally counterproductive.

OMCs- do not work, period.
We need some sort of a solution to OMCs and their various shortcomings- up to and including a new manner of taking a development in charge- akin to how an estate might be taken in charge- but with some sort of a periodic charge payable to the council- possibly as an addendum to property tax collected by Revenue (who seem to be the only body who have consistent track record in satisfactory collections). While we're at it- property tax- and how its levied on leasehold residential properties- has to be seriously examined too.........

L1011

We should look at some of the Scottish methods of dealing with this (but maybe not full flying freehold - if the top flat is empty or the owner is skint, that roof isn't getting repaired). In Edinburgh common areas in some fully private buildings are council controlled - they are a bit stark as a result, concrete floors and industrial lighting etc.

mdebets

L1011 wrote: »

We should look at some of the Scottish methods of dealing with this (but maybe not full flying freehold - if the top flat is empty or the owner is skint, that roof isn't getting repaired). In Edinburgh common areas in some fully private buildings are council controlled - they are a bit stark as a result, concrete floors and industrial lighting etc.

Do you have any experience of how this works in Scotland, as I can't see many potential repairs that won't affect directly or over a longer time if unrepaired other units, that might have paid.
Also for the Edinburgh example, who owns the apartments and the common areas?

antoinolachtnai

Lantus wrote: »

It's always been the case even pre gdpr to divulge confidential financial information to a third party is a data protection breach. Gdpr adds teeth in that an owner can now seek damages. Not advised.

As I understand it the mortgaging bank typically has an interest in the block insurance as a condition of the mortgage. If the block insurance is not paid and so the corresponding unit is not insured, then the bank must be informed as an interested party.

Marcusm

Lantus wrote: »

Forfeiture applies generally to a landlord tenant relationship.

Omcs have tried to get seizure of a property as an asset and it has been rejected by the courts.

Contacting the lender about outstanding fees is currently a serious breach of the gdpr.

The OMC is the landlord of the leaseholder.

The lender would have a right to know about any pending forfeiture proceedings irrespective of whether they succeed. Any legitimate challenge would not be limited by GDPR at all. This is the greatest current straw man argument for every discussion. In fact, a lender would have a legitimate interest in arrears which might impede proper maintenance and insurance. The lender will be noted as an additional assured on the block policy.

Marcusm

jim-mcdee wrote: »

There is probably not that many cases where arrears are so bad the OMC is forced to look for possession of the property. I would say in most cases the serious threat of legal action and in some cases actually legal action to recover the dept is enough. There are plenty of things the agent/omc can do to 'encourage' people to pay their fees before it even gets that bad. I feel the problems stem from owners not fully understanding how omcs work, combined with lack of vigilant collect of service charges due to lack of commitment from directors and agents to get serious about collecting fees for whatever reason, and an obsession about keeping fees low at the expense of building a sinking fund. Repossession must surely be an extreme measure, where arrears are reaching a level equal to the value of the property. It should never even reach 10 percent surely.

Seeking forfeiture, in the U.K. for example, is not uncommon when arrears exceed one year - a trivial portion of the property value but, for an OMC with no capital base and limited to no debt raising powers, a potentially critical point for the OMC. In that jurisdiction, lenders often (have experience of this) pay the service charges and add them to the mortgage.

Marcusm

The_Conductor wrote: »

The majority of OMC directors hold the post on a voluntary basis- often because no-one else volunteered, and as it stands- they are liable to all manner of jurisprudence under the Companies Act- which is why there is such a reluctance on the part of owners to volunteer in the first instance.

If you start putting additional obligations on the part of OMC directors- you're simply going to find that you're not going to have any OMC directors..........

All owners are members of the OMC- and thus- both have a vested interest in- and an obligation towards the OMC. Trying to put a higher requirement on the poor owner who gets off their arse to try and better their development- is both unfair- and totally counterproductive.

OMCs- do not work, period.
We need some sort of a solution to OMCs and their various shortcomings- up to and including a new manner of taking a development in charge- akin to how an estate might be taken in charge- but with some sort of a periodic charge payable to the council- possibly as an addendum to property tax collected by Revenue (who seem to be the only body who have consistent track record in satisfactory collections). While we're at it- property tax- and how its levied on leasehold residential properties- has to be seriously examined too.........

Oh for god’s sake; it’s not a school show they are running. The OMC directors have the obligations in their capacity as directors as they have an obligation to manage the company which in turn has obligations under the 999 year leases to maintain the building. The means by which the directors discharge this duty (and thereby avoid sanctions) is to engage competent professionals to manage the building and that is more than office staff to arrange insurance, settle electricity bills and arrange painting. A whole life maintenance plan should exist from inception which is updated regularly to ascertain the cost of security overhauls, lift and window maintenance/replacement. Failure to ensure that the managing agent undertakes these functions means that the directors are not discharging their duties. Given that they are generally occupants too means that they are failing themselves. Often it is the civically-minded plus the busybodies who end up on boards. The civil service has greatly failed in omitting to ensure that the MUD Act is a fairly theoretical document. As with a failure of building control in the past, a failure to ensure a framework for adequate MUD management/maintenance/repair will only result in greater costs in the future (plus loss of value and likely loss of home/life).

bob mcbob

mdebets wrote: »

Do you have any experience of how this works in Scotland, as I can't see many potential repairs that won't affect directly or over a longer time if unrepaired other units, that might have paid.
Also for the Edinburgh example, who owns the apartments and the common areas?

See attached - these are the rules

https://www.gov.scot/Topics/Justice/law/17975/CommonRepair-CommonSense/Rightsandresponsibilitiesoftenementflatowners

jd

Claw Hammer wrote: »

Apartment owners are in a landlord and tenant relationship with their management company.
https://www.jdsupra.com/legalnews/irish-high-court-judgement-justice-bud-63153/

That loophole was closed off afair

Claw Hammer

jd wrote: »

That loophole was closed off afair

It wasn't a loophole.

jd

Claw Hammer wrote: »

It wasn't a loophole.

The legislation was amended, it was never intended that the likes of people not paying their service charges like Gary Mallon had recourse to the PRTB

However, the judgment by Mr Justice Declan Budd upholding an earlier Circuit Court decision by Judge Jacqueline Linnane is likely only to affect long leaseholders who have already brought proceedings before the board.
This is because amending laws were enacted last year to exclude such long leaseholders from access to the board.
The case arose after Gary Mallon, owner of an apartment at Elmfield Court, Clondalkin, Dublin, was sued by S L Management Company, on behalf of the landlord, over alleged arrears of service charges. Mr Mallon bought the apartment and holds it for 500 years from November 2002 under a yearly rent of 25 cent.

hmmm

Marcusm wrote: »

Failure to ensure that the managing agent undertakes these functions means that the directors are not discharging their duties.

As the poster you quote said, we are asking ordinary non-experts to take on these relatively onerous tasks, often because no-one else can be bothered. Then the usual busybodies and backstabbers will be complaining about the work they do, and won't hesitate to threaten legal action, but won't take on the task of becoming a director themselves.

We do need some other ideas about OMCs as it is unfair to expect well-meaning but non-expert people to take on these roles.

happyfriday74

Its quite simple. You need to get the sinking fund report done in the first year of construction for a new build and religiously stick to it. I've been in situation where big issues have come across and because we were diligent we had a large sum of money in place to deal with it without having to issue a levy. Great feeling to tell a room full of people that they wont have to put the hand in the pocket for more money because things have been done properly to date.

Older blocks are tricky as you have to put the report in place mid way through the cycle and it could show that you have been seriously under spending to date and a big increase is needed to play catch up. Best thing is take the pain and do this and at least you are on notice that there is a funding shortage and you can actively plan to deal with it.

Regarding getting $$ in solicitors are the last line of defence here and there quite a lot the agent and OMC can do to try recover debt before the point where you start opening your tab on a solicitors.

Claw Hammer

jd wrote: »

The legislation was amended, it was never intended that the likes of people not paying their service charges like Gary Mallon had recourse to the PRTB

That is not what the courts found. The PRTB claimed that, but couldn't establish it as a fact. At all events it clearly establishes that OMC's and apartment owners are in a landlord and tenant arrangement.

Marcusm

hmmm wrote: »

As the poster you quote said, we are asking ordinary non-experts to take on these relatively onerous tasks, often because no-one else can be bothered. Then the usual busybodies and backstabbers will be complaining about the work they do, and won't hesitate to threaten legal action, but won't take on the task of becoming a director themselves.

We do need some other ideas about OMCs as it is unfair to expect well-meaning but non-expert people to take on these roles.

I think you misunderstand; simply by agreeing to be directors the individuals have already taken on these responsibilities. That is the nature of a directorship, a fact commonly misunderstood by many.

happyfriday74

e are asking ordinary non-experts to take on these relatively onerous tasks

Hence why a Directors and officers insurance has to be place to protect them.

The alternative is having paid professionals carry out the role of directors. That would be a very hard sell to members who already don't like paying an management agent.

Then you have the fun and games of conflict of interest between the professional paid Director and the property management agent as both would have to be from different organisations.

hmmm

happyfriday74 wrote: »

Hence why a Directors and officers insurance has to be place to protect them.

Agreed, but that doesn't really address the issue. We're asking lay people to take on relatively legally onerous duties.

Personally I'd prefer to see some powers to vary fees taken off owner management companies. It will affect well-run blocks a little, but have a big beneficial impact on poorly run blocks. Similarly there could be blunter powers used against apartment owners who don't pay their fees, and less onus on the OMC to come up with some way of getting the money.

therightangle

hmmm wrote: »

see some powers to vary fees taken off owner management companies.

I presume from what you are saying that owner management companies can vary fees but you would prefer if they couldn't? Why not?

From what I gather, Owner management companies can impose a once-off levy in addition to the yearly fee, where the sinking fund cannot meet a impending cost.

Where a development is mostly in receivership, could the one-off levy be considered a good thing, as the receiver is likely to meet such costs?

The_Conductor

Depends on the particular scenario- and would have to be reviewed on a case-by-case basis.
The issue is- a housing estate can be 'taken-in-charge' and the local authority pay for its upkeep, security, lighting etc etc- whereas an apartment complex- despite being liable for the same property tax as the aforementioned housing estate- which is supposed to fund services in the functional area of the local authority- cannot or is not eligible in most cases, to be similarly taken-in-charge.

Rather than abdicating the collection of management charges/fees to the local authority (or whoever)- a fairer reflection of the facts on the ground- would be to allow owners of leasehold units- the ability to offset management charges wholly against local property taxes.

Marcusm

The_Conductor wrote: »

Depends on the particular scenario- and would have to be reviewed on a case-by-case basis.
The issue is- a housing estate can be 'taken-in-charge' and the local authority pay for its upkeep, security, lighting etc etc- whereas an apartment complex- despite being liable for the same property tax as the aforementioned housing estate- which is supposed to fund services in the functional area of the local authority- cannot or is not eligible in most cases, to be similarly taken-in-charge.

Rather than abdicating the collection of management charges/fees to the local authority (or whoever)- a fairer reflection of the facts on the ground- would be to allow owners of leasehold units- the ability to offset management charges wholly against local property taxes.

That’s not at all comparable, however. When an estate is taken in charge its communal areas (roads, green spaces etc) become available to the public at large. There would be no equivalent common gain with an apartment block. .

As regards an offset for management fees against LPT, there would have to be dn equivalent offset for householders for premises insurance etc. Taken together with a lack of commonality of services (some apartments have pools, concierges while most do not) would render this entirely unworkable.