Mgt Company Charge, Defecits, Mis-calcuations and Incompetence?

Hi all,

I'm writing this to get some advice from those of you who may have encountered something similar or even the same - and how you improved the situation. I will let the Property Mgt company remain anonymous (as I don't know if it is okay to name them on these boards?).

I live in a relatively new development near Woodstown in Knocklyon, Dublin. The development comprises Apartments and Houses. The developers are still on site (3 years after the first tenants moved into the estate) as new phases to the development have been launched over the last number of years. As such, I believe that the developers have a say in who the Mgt Company for the estate shall be. Also, it appears that the developer has a relationship (either a brother or partnership or shares or something) with the incumbent Mgt Company.

We have received requests for payments every year for the Mgt Company services. We have a breakdown of costs to differentiate between Apartment fees and House fees. Apartment fees are higher of course.

At our annual AGM this year (I was unable to attend this one in person unfortunately) the Mgt Company advised that a deficit had arisen in the Mgt Company Fees for the year ended December 31st, 2005. The deficit was calculated at €75,000. All residents then received a letter informing of this defecit, and we have been informed that this is related to the cost of Refuse Mgt for the estate in 2005. The €75,000 defecit amounts to an extra charge of €177 per unit (house/apt) for the year ended 2005. The budget for refuse in 2005 came was set at €75,000, but the Mgt Company claim that the actual cost came in at €150,000.

To quote the Mgt Company: The 2005 Amenity Service Charge was €464 per unit, c €160 was in relation to the refuse service. Accordingly allowing for the defecit now the total charged to each dwelling is in the order of c. €330. The defecit arose primarily because of the phasing of the sales of units within the development. When the budget was set for 2005 in Nov/Dec of 2004, the majority of costs for 2005 were estimated. The billed charges were based on estimates of units closing throughout 2005. It was initially estimated that 504 units would be sold by the end of 2005 financial year however the actual figure (at the end of December 2005) was only 482 units. Therefore this meant that the expenditure for the upkeep of the development had to be spread over fewer units and hence a defecit arose.
Secondly the capacity of waste per dwelling and the cost of removal and collection were under estimated....
Thirdly during 2005 the exceptional level of boxing/cardboard generated from people moving into their properties increased the number of required collections and accordingly increased the cost.

My questions are probably obvious but:

• How can a group claiming to be a professional Mgt Company underestimate Refuse costs by 100%? Is this normal practice?
• Is the explanation above something that should be acceptable?
• Is it possible to issue something similar to a "Vote of no confidence" in the Mgt company for it's inabilility to forecast/estimate costs?
• Is it difficult to change Mgt company?
• Should I actually pay my proportion of the "defecit"? (I've been informed by most other residents that they have not paid - but what does this lead to?)

Sorry about the lenght of post, but I wanted to objectively explain the situation to give a background, before getting to the Mgt Company's explanation. All advice and suggestions on how to proceed (alone or with some other neighbours) would be gratefully accepted.

Thanks!

A couple of observations (I too am an owner/occupier in a privately managed development).

• Not being pedantic, but all owners are the Management Company. It is the Managment Agent that is responsible for the budget etc.
• The owners should have representation on the Board of Directors of the Management Company. We have 6/7 owners appointed as directors even though the builder is still on site and retains de facto control of the development.
• As I understand it, the builder was responsible for paying managment fees for apartments that remain unsold-this is how it happened in our development and we received fees from the builder in respect of finished but unoccupied apartments.
• It is a very valid explanation that people moving in generate large volumes of waste packaging etc. This was very apparent in our development. One thing that exacerbated the situation was that people were unbeleiveably lazy and selfish-refusing to break up boxes etc. and so bins filled much faster than should have been the case. We also had people using the refuse service to dispose of xmas trees (when there was a collection point less than 5 minutes away).
• To me, the Managing Agent's explanation seems fairly reasonable-by definition-estimates are just that-you would obviously hope that they improve in time (is it a long established Managing Agent or someone fairly new to the scene?), but for a first cut, it is something I would tend to allow.
• I'd imagine that it is still at the discretion of the builders as to who acts as Managing Agent, but this is something that may be in the Lease/Management Agreement or the Articles/Memo of Association.
• It is possible to fire the Managing Agent, how you go about it may depend on the situation as per my previous point. Will a new agent be any better? Is this refuse budget the 'only' problem?
• If enough of you feel it is worthwhile (I doubt that it is), you may want to club together to engage legal advice on your options.
• What happens if you refuse to pay? It is only yoursleves that you are kidding-if the actual costs incurred were in fact €150,000, then the owners are liable. If a deficit persists, you could find yourself in court, or, other essential services will not be undertaken, i.e. by refusing to pay the refuse charges, their may be no money to clean the hallways, change the lightbulbs, service the lifts etc.

I would certainly try to get representatives to meet/liase with the Managing Agent on a regular basis. I would also make sure that you are not being penalised on the basis that there are unsold apartments-the developer should 'pay their way'-the fact that the unsold apartments are not generating expenses (they are to a certain extent) is irrevelant-costs are spread on the basis of ownership, not usage of services (I know that houses and apartments pay different rates, but that is only a rough cut).

Wow - Difficult situation. I've done a bit of researching on these issues, but I'm not an expert. You might get some useful information from posters on this Boards.ie thread also.

I have heard that most such contracts state that the developer will run the management company until the last property is sold, when each property owner becomes an equal shareholder in the management company. On its own, this is a sensible, practical solution to ensure that the site is serviced while new purchasers are getting established. However, I've heard that some developers will hold onto a few properties, thus giving them rights to run the management company for ever and ever. I would imagine that any possible resolutions to this problem would involve expensive legal proceedings.

Perhaps new purchasers should insist on some time limit on the developers involvement in the management company?

Is it possible for you to move to some kind of pay-by-weight system for waste disposal? As long as you have a flat fee, there is no incentive to reduce/reuse/recycle, so the careful householders will pay for the excesses of the others. Can you get the local authority to commence a waste disposal service?

Chief Robert said:

My questions are probably obvious but:

• How can a group claiming to be a professional Mgt Company underestimate Refuse costs by 100%? Is this normal practice?
• Is the explanation above something that should be acceptable?

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• 
  I guess you'd need more detail to seriously assess this. Where did they get their original estimates of use from? How far out were these? Are they paying market rates for waste disposal? It shouldn't come as a huge surprise to property managers that new householders will have lots of cardboard to dispose of.
  
  

  Chief Robert said:

  [*]Is it possible to issue something similar to a "Vote of no confidence" in the Mgt company for it's inabilility to forecast/estimate costs?
  [*]Is it difficult to change Mgt company?

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  Is each householder a member (director or shareholder) of the management company? If so, a majority of householders could take control via votes at EGM or AGM. If not, I don't think you have any voting options.
  
  
  
  

  Chief Robert said:

  [*]Should I actually pay my proportion of the "defecit"? (I've been informed by most other residents that they have not paid - but what does this lead to?)

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  Difficult - If you don't pay, it is more likely that the estate will not be well maintained, which is not in your interest in the long run.
  
  Hope this helps, and I hope others can help.

Thanks CCOVICH,

I understand your point making the distinction between the Mgt Agent and Mgt Company. I am not sure how many "owners" have been elected to be part of the running of the Company. I need to get more clarity on this, but at the Mgt company meeting in January 2005 - there were no owners on the Company. The Company was run by the Developer, the Agent, and a 3rd party representative. I am not sure of the present situation.

Also - a neighbour of mine quizzed regarding the charges, and was informed (over the phone) that a large percentage of homes have never paid the intial annual charge for 2005.

Finally, while I accept that estimates are just estimate - the Mgt Agent is supposed to be a specialist at running such companies. If you had the same experience of people dumping excessive boxes & packaging etc when moving in for the first time - isn't it fair to assume that this is a norm? And if so - shouldn't they have been capable of budgeting for this? I could accept an over-run in the budget - but really, when they budget for €75k and it comes to €150k - aren't they demonstrating real incompentece?

As I say, I am not sure if this is a norm etc so just wanted to get the feedback. If others have had the same experience etc, then no problem. Just seems a little bit sus to me...

Thanks alot!

Chief Robert said:

The Company was run by the Developer, the Agent, and a 3rd party representative.

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Interesting-insist (if possible) that owners have some form of represntation. Who/what is a "3rd party" in this instance?

Chief Robert said:

Also - a neighbour of mine quizzed regarding the charges, and was informed (over the phone) that a large percentage of homes have never paid the intial annual charge for 2005.

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I would get clarification on this point:

1. Is it that there were a large percentage of unsold apartments that did not contribute; or
2. Owners did not pay

Point 2 needs expansion-it is generally the case that you have to pay over fees for the year on signing the contracts-was this the case? Or did people move in and take possession prior to 2005?

If a sizeable percentage are refusing to pay this is a cause for concern as it is only yourselves that will suffer.

Chief Robert said:

Finally, while I accept that estimates are just estimate - the Mgt Agent is supposed to be a specialist at running such companies. If you had the same experience of people dumping excessive boxes & packaging etc when moving in for the first time - isn't it fair to assume that this is a norm? And if so - shouldn't they have been capable of budgeting for this? I could accept an over-run in the budget - but really, when they budget for €75k and it comes to €150k - aren't they demonstrating real incompentece?

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I agree that the Agent should be able to do their job-I have no doubt that they are being paid well enough.

But one incident doesn't generally demonstrate incompetence (in my view anyway)-it really depends on their experience, or the experience of the person within the agency who is responsible for your development-i.e. the more experience they have, the higher the expected standard. But regradless, I still don't think that a once -off (so far) incident demonstrates incompetence, and they haven't necessarily cost you any money, some/a lot of frustration I'm sure, but if the €150,000 is bona fide, there isn't much you can do but pay up. I'm pretty sure we ran a deficit in our first year, and our refuse costs have been very high compared with all other costs.

On some of the issues that RainyDay has referred to, we actually received indepedent legal opinion on the issue of 'forcing' the developer to hand over the development and were told that the agreement they have to retain the development until all units are sold is 'cast iron' so to speak. It is an issue that I'm sure many would like to challenge.

Thank you both RainyDay and CCOVICH for the advice offered above - it is much appreciated. All I am really looking for is an objective analysis and experience others may have of similar situations. So thank you both again.

As my original post was quite lengthy I didn't elaborate on the perception that many of the residents had regarding the performance of the Mgt Company. The Mgt company didn't have a good reputation prior to all of this in the first place. But perhaps very few of them do anyway? This is a first home for most residents, so we don't have much experience to compare and evaluate good performance with poor performance. It began with little things like lack of refuse collection and then little things became more annoying. For example, it was quite irritating to be charged for "Lanscaping charges" when you don't see anything happen over the course of a year bar 1 annual walkaround the estate by people with a weedkiller gun and a spray mask!!! Then little things like questions unanswered, lack of communications, telephone calls/queries never being taken as "no one was available" and no-one ever returning calls became larger issues.

Regarding the 3rd Party - I can't recall exactly, but I think the guy was a Solicitor who also happened to be a Commisioner of Oaths. I will check out who makes up the Board of Directors of the Management Company. If there are some owners appointed as directors then I guess I need to trust their integrity in these matters - even though as you say the builder is still on site and retains de facto control of the development.

Also - I will check out if the builder was responsible for paying managment fees for apartments that remain unsold. This will be interesting to find out.

Finally, I will ask the Mgt Company to explain how they calculated their original estimates for 2005? As you both have said it shouldn't come as a huge surprise to property managers that new householders will have lots of cardboard to dispose of. But I will check.

Am I right to ask them to provide me with this visibility and transparency before paying the defecit? This should not be an issue for them to provide me with I hope?

Thanks again...

Chief Robert said:

Am I right to ask them to provide me with this visibility and transparency before paying the defecit?

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Yes.

Chief Robert said:

This should not be an issue for them to provide me with I hope?

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No. But don't hold your breath if they won't return your calls.

Our Management Company (when it was setup) was created as a Ltd Company (as they all are) and there were three directors nominated by the builder to set it up - his secretary, solicitor and his brother. They then had control over all of the decision making processes - whenever the residents approached the mgt company about getting work done it was at the mgt co's discretion whether it would be done or not.

As such the Residents Association decided that they wanted to take control of the mgt company. We got legal advise and it is possible to remove the directors and replace with duly elected directors.

We had to force an EGM - to do this we needed a petition signed by > 75% (or maybe more -can't remember details) of all shareholders in company (ie residents - 1 vote per household). The existing directors were notified and the agenda was set with the main item to vote on removing the directors and replacing with new ones. This happened and there are now 5 residents on the executive committee of the Mgt Company. This gave us power to dictate what we wanted done with the mgt fees.

My advise - get advise from a solicitor (payable by the mgt company). And do it properly - it's worth it in the long run.

nai-did this situation arise after the developer had sold all units in the development?

While we have had our own directors elected (the developer had no objections to this), the fact remains that they sill own units onsite and hence have de facto control.

Hi again,

Just to update - by chance there appears to be a groundswell of solidarity among the residents against the "Mgt Fee Rip Off!" A residents meeting is being held in the coming days with local TD's present to agree on how to proceed.

This thread started off about the refuse charge issue.

As I have said-if the Managing Agent can indeed prove that the €150,000 is a legitimate expense, there is no rip-off. Poor/inadequate budgeting/estimation, yes, but if you are being charged on the basis of actual expenditure incurred, then there is no choice but to pay really.

The issue you have referred to in the post above is a much wider one, and is arguably beyond the scope of this thread. It has been discussed on AAM before if you care to use the 'search' facility you will find the thread and you may wish to post there.

CCOVICH said:

nai-did this situation arise after the developer had sold all units in the development?

While we have had our own directors elected (the developer had no objections to this), the fact remains that they sill own units onsite and hence have de facto control.

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Hi CCOVICH

Yes - the developer had sold all of the units on the site (just kept a few 5-bed detached houses for himself and his family to live in !).

By you saying they had de-facto control - do you mean the developer owns a majority of the units ? i assume this is the case. Nonetheless - the op appears to be moving into a much broader issue as you have said (the whole legality of mgt co's and servicing of estates).

cheers,
nai

By de facto control I mean that the developer has a 'golden share' or some such provision so that they can control the development, even though they may only own one unit etc. and there are more owner directors than developer directors.

To illustrate, our directors can make minor decisions regarding expenditure etc, but we couldn't apply for planning permission to make alterations unless the developer agreed.

It's something I want to learn more about, I may actually request the legal opinion that our management company received on this issue

CCOVICH said:

This thread started off about the refuse charge issue.

As I have said-if the Managing Agent can indeed prove that the €150,000 is a legitimate expense, there is no rip-off. Poor/inadequate budgeting/estimation, yes, but if you are being charged on the basis of actual expenditure incurred, then there is no choice but to pay really.

The issue you have referred to in the post above is a much wider one, and is arguably beyond the scope of this thread. It has been discussed on AAM before if you care to use the 'search' facility you will find the thread and you may wish to post there.

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I guess I am deviating to an extent from my original question, but I was hoping to emphasise the reputation of the Mgt Company and Agent. I did some quick checks. If waste collection reverted to the council it would cost €6 per bin. On average I put out a full bin once every 3 weeks which would equate to €104 for the year. Even if you put one out every week it would be little more than €300. That's tax deductible too which would take a chunk off it.

As long as you don't say anything that is potentially defamatory (you have mentioned incompetence, which could be taken as such) then it's ok to name them.

However, please send a PM to Brendan first, as it really his call. Ih he gives to ok, then by all means go ahead.

Unless they are 'managing' a number of estates and developments then there is no point in naming them. If they appear to be sizeable and if there appears to be a wide pool of victims then its different of course . !!

CCOVICH says: Wider discussion split into this thread.

Please keep this thread on the refuse charge issue.

2Pack said:

CCOVICH says: Wider discussion split into this thread.

Please keep this thread on the refuse charge issue.

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Anyone know why tax relief can't be claimed on refuse charges that are part of a maintenance fee?

AKA said:

Anyone know why tax relief can't be claimed on refuse charges that are part of a maintenance fee?

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It can-what makes you think that it can't? At least one person in our development was able to make a claim for relief. Have you talked to the Revenue about this?

Did anyone see the feature on Primetime last night on service Charges ?

I thought the discussion was really interesting and shows the attitude of FF towards the people. The FF TD was so badly briefed on the subject and all the government is using the law reform commission as an excuse for doing nothing on this subject which affect mainly younger people.
This is a great example of why government does not work as the government's function is one of regulation and I would expect my government to be pro active rather than reactive

Note to M Mulchay TD The council cannot take charge of estates until all the houses are complete per the developer

Labour have produced a useful leaflet on management companies which you can download from [broken link removed].

For the record, I'm a Labour party member.