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Foreclosures urged for service charge arrears
By Donal Buckley
Wednesday March 14 2012
Apartment management companies should be allowed to dispossess those member owners who willingly and persistently fail to pay their management service charges. Otherwise there is a serious risk that some owner management companies (OMCs) may go bust.
This proposal was made in the last few days by a leader in Irish property management. Paul Whelan, chairman of the Irish Property & Facility Management Association (IPFMA), warned that the Government's proposed Personal Insolvency Bill may raise concerns amongst apartment owners, especially those on the boards of OMCs.
Under the Bill's proposals they may not be able to collect the full outstanding management service charges when some property owners in a development get partial protection under the new law.
Consequently the OMCs may run out of money and become unable to finance the repair and maintenance of the apartment blocks.
"I believe an OMC should be able to apply to the courts for possession of the apartment, say in a case where arrears reach either 20pc of the value of the property, or where three years of service charges are outstanding," he said.
That would give them the necessary teeth and deterrents they so badly need to protect the interest of other owners and especially those who live in the same apartment blocks.
The IPFMA chairman called for reform of the legal system on the recovery of service charges. Changes are needed "to sustain apartment living in Ireland and ensure that OMCs remain solvent", he said.
He proposed the creation of a dedicated court to fast track collection cases, saying "this would be a far more cost-effective and efficient debt collection system for these struggling companies".
He called on the Government to introduce greater legal protections for the companies as well as deterrents to ensure members pay their charges.
While welcoming the badly needed new personal insolvency legislation to help hard-pressed homeowners with their burden of mortgage debt and who are also faced with negative equity, he explained that the new law may have "unintended consequences" for many apartment owners.
Service charge arrears could be captured under the proposed insolvency definitions in the Bill. Speaking at the IPFMA 2012 annual members' lunch, Mr Whelan stated that if this were the case, then apartment owners in arrears could bring some OMCs to breaking point, resulting in the estate falling into disrepair. In the worst case scenario, many essential services such as insurance cover or maintenance of safety systems would be withdrawn, leading to unacceptable health and safety risks.
While acknowledging that some owners with difficult personal circumstances really cannot continue to pay all of their service charges, Paul Whelan said: "It is the mounting level of arrears from those owners who have never paid their service charges, even when times were good, that is the problem and of much greater concern to OMCs."
He declared that apartment owners who avoid service charges, particularly investors with rental income from their property, cause huge financial difficulties for the OMCs which they themselves own and which are trying to protect the value of their properties.
Mr Whelan calls on the Government to put greater legal protections and deterrents to non-payment in place, and proposes that when an apartment owner in arrears, comes to sell the property, then the OMC should be able to make it a condition of sale that any arrears pass to the successor in title.
"That will have the effect of arrears being discharged at the time of a sale and by the apartment owner who incurred them," he said.
Furthermore, he added, if tax reliefs on service charges are being claimed, then these should be based "on what is paid, rather than what is owed".
The IPFMA chairman called for the introduction in Ireland of measures similar to those in place in other countries, saying that "in countries where apartment living is long-established, they cut to the chase. The basic enforcement measure for continuous non-payment of service charges allows an apartment to be sold and arrears recovered from the sale proceeds".
Paul Whelan, who is managing director of O'Dwyer Property Management, also stated strongly that the OMC must be able to take action itself against more persistent offenders.
He ended by saying that "making owners who already pay their fair share to also pay for those who have not, can hardly be the desired effect of the new Personal Insolvency Bill.".
At an event attended by over 250 members and guests, Mr Whelan also paid tribute to the 25 new graduates of the 2011 IPFMA Diploma Course, who were awarded their diplomas at a graduation ceremony earlier in the day.
This is the last graduation for this course, which has now been replaced by a new two and a half year Higher Certificate in Property & Facilities Management.
The new educational course, launched last September, is accredited by the DIT Bolton Street and is the first of its kind in Ireland.
It provides a higher level qualification, giving its students a firm, in-depth knowledge of property, asset and facility management that will equip them fully for their future careers.
It should also meet the PSRA's (Property Regulatory Service Authority) educational requirements for licensing within the multi-unit and mixed use sector.
- Donal Buckley
Originally published in PROPERTY PLUS