Two apartment owners in my small complex have abandoned their properties and stopped paying management fees

July 2013

Question

I live in a small complex of 13 apartments, of which nine are owner occupied. It’s managed by the management company which reduces costs and which we have found to be, until now, effective.

Recently two apartments have been abandoned by their owners, they are vacant and management charges have not been paid. We have approached the banks that finalised the transactions to have the position regularised and they refuse to reply to correspondence despite the fact that we continue to insure these properties with their interests noted. We are also concerned that there may be water leaks in one of them requiring repair.

We would appreciate any advice you could give on this matter.

Answer

All service charges are deemed collectable. Therefore title to a property should not pass without all service charges due to your owners management company (OMC) being discharged by the vendor.

The service charge is a contractual obligation imposed by the lease, and must be paid by the lessee (the apartment owner), and all successors in title.

It is a charge on the lessee in respect of the ownership of the property, and if it’s not discharged by the lessee in possession, — as is the case in your Management Company — then a breach of covenant exists, and the incoming lessee takes on the breaches of covenant which have to be remedied.

Arguably any new purchaser would be obliged to pay all arrears if they are not discharged by the current owner.

Your OMC should put the bank (or receiver should one be appointed) on notice of the breach of covenant so that, in the event that they proceed to close a sale, the OMC will hold the incoming lessee responsible for any outstanding service charges and the bank (or receiver) should put the incoming lessee on notice accordingly.

It is in the bank’s interest to deal with these issues as they may affect the saleability of the property.

The non-payment of service charges may put an unfortunate strain on the cash flow within your OMC, albeit for the short to medium term, and the board of directors, and members of the OMC, may consider introducing a service charge contingency and bad debt provision to ensure you have sufficient funds to maintain all essential common area services.

The OMC should make the bank aware of the current water ingress problem that may not only affect their property but may also be impacting on other properties, the common area, the insurance policy, etc. After giving the bank reasonable notice to rectify the water ingress issue within their own demise, in the interest of good estate management, the board of directors, exercising its right under the lease agreement, may have no alternative but to undertake the necessary repairs itself.

Furthermore, the solicitor acting for any purchaser should be advised of the service charge arrears and water ingress. It may cause the bank to take action if a sale is to proceed

Pearse McElroy is a member of the Irish Property and Facility Management Association