Recourse against poor management company

D

Dmoore

Guest
I own a property in Moylaragh, Balbriggan and have found that the level of service being offered by my Management Company appalling, with two foot of grass in some places throughout the estate. When I called I was told by a rude & abrupt woman that is because a subset of property owners are not paying their management fee. I always pay my fee and on time, and so expect them to honour the services outlined in the agreement.

What recourse have I to ensure that the Management company will fulfill the services outlined in our agreement? I plan on speaking to the local papers, but what legal action can I take?
 
Dmoore said:
I own a property in Moylaragh, Balbriggan and have found that the level of service being offered by my Management Company appalling, with two foot of grass in some places throughout the estate. When I called I was told by a rude & abrupt woman that is because a subset of property owners are not paying their management fee. I always pay my fee and on time, and so expect them to honour the services outlined in the agreement.

What recourse have I to ensure that the Management company will fulfill the services outlined in our agreement? I plan on speaking to the local papers, but what legal action can I take?
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There are two solutions to this, simple and complex. Both will require a reading of your lease agreement.

The simple answer requires the following approach
• Your service charge is based on the estimated cost of providing a number of services during the year (such as grounds maintenance, repairs, lighting, mgt agent fees, audit fees etc)
• Your lease will provide for the reconciliation each year of that estimate costs against actual costs
• Your lease will provide for situation whereby in the event of the provided services costing more than budget, residents are levied with their share of those additional costs
• Your lease will provide for situation whereby in the event of the provided services costing less, or in this case not being provided, residents are entitled to receive a refund of the over payment or a credit against subsequent year’s charge

Let’s assume that your development has 100 units, sharing the costs equally, with the following budget for 2009
Budget
Grounds Maintenance 25,000
Repairs 5,000
Mgt Agent Fee 20,000
Sundry costs 5,000
Sinking Fund 10,000

Total Budget 65,000

Your lease will provide that you must pay your share of this budget – assume an equal share, then you contribute €650

Now in you situation, where a number of residents are not paying their share, the Management Company simply does not have the cash to provide all the services budgeted for. The expenditure of the funds that it does have will get prioritized. Number 1 priority will be the payment of the Management Agent’s fee. Everything else will take second place.
So, assume the following actual expenditure occurs:
Actual
Grounds Maintenance 10,000
Repairs 1,000
Mgt Agent Fee 20,000
Sundry costs 1,000
Sinking Fund 10,000

Total Spend 42,000

Your share of this (1/100) is €420, leaving you with a refund \ credit entitlement of €230. Failure to provide you with this would effectively mean that you are paying a disproportionate percentage of the running costs of the management company, a situation which is not enforceable under the terms of your lease. You let your management company know that you will be enforcing this on receipt of your next service charge bill.

The more complex approach involves attempting to legally enforce the provision of services of the lease (& this can be a double edge sword). Ultimately there is a more serious underlying problem with your development which must be addressed (i.e. the non-payment of service charges). The Board of Directors of your management company have a responsibility to all lease holders to ensure the terms of the lease are adhered to by all sides. To have these terms enforced will require professional legal advice. The Board should be pressured into a more active approach to collections. The collection of service charges is also one of the main services provided (& charged for) by your agent – make sure that they are earning their fee. Speaking from my own experience, I believe that it is most effective to resolve these issues by working with your management company & management agent. At the end of the day, this property is either your home or an investment and ensuring the development is maintained to an acceptable standard should be your main concern.
 
I suggest you should join the Board of Directors of your management company.I presume they are elected on a yearly basis. You will then be in a position to have an active role in upholding standards in your property.
 
Thank Avantarklu, you your response is extremely helpful. I'm not currently on the board but will look into this.
 
I just want to echo jaybirds comments. Avantarklu's understanding of lease agreements is more in line with commercial leases than apartment company leases.
 
jaybird said:
Actually thats not at all how it works in a standard lease. The fee is set, lets say it is €650. No matter what the actual expenditure is, or for what reason the full amount is not used on actual services, the management company is not obligated whatseover to refund to the lessee. In fact the standard contract states that any leftover portion of the agreed service charge will be held over in the accounts of the management company to "expend the same in subsequent years in pursuance of the Schedule and subject thereto upon trust for the owners of the units absolutely."


The lessee certainly may not withold any part of the service charge without prior agreement of the management company for the reasons given above. In such a case the management company may not only charge the full amount but may also add the costs involved in pursuance of money owed to the lessees bill.

No offence avantarklu, but I recommend the OP does not take the advice given.
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If I'm wrong then I stand corrected. I did preface my comments with the statement that the OP would need to read their own lease.

My advice was based on my own experiences with my management company (mixed development) and the terms of my lease. My lease specified the obligations on both parties (supply of various services \ payment of service charges) and dealt with the issue of surpluses & deficits where actual expenditure was greater or less than the initial budget.
 
In a residential development the standard fee is as a percentage of the total budget for the development. Any under-spending would be automatically added to the sinking fund.

As stated, in no circumstance should the OP withold any part of their service charge as to do so would be in breach of their lease. Only when you are fully compliant do you have the right to try to sort things out.
 
shesells said:
In a residential development the standard fee is as a percentage of the total budget for the development. Any under-spending would be automatically added to the sinking fund.

As stated, in no circumstance should the OP withold any part of their service charge as to do so would be in breach of their lease. Only when you are fully compliant do you have the right to try to sort things out.
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What about any over spending? I mean no offence but comments like that are based on a lack of understanding of what you have signed up to. Everyone living in a managed development must read and understand their lease.

If your assertions were correct then any management company experiencing collection problems would simply increase the budget in order that compliant members provide the necessary operational cashflow. Problem solved.

As I have already mentioned, my own lease explains that the service charge is initially billed out on the basis of a prepared budget and any variance is charged or credited to members after the year end.

"As soon as practicable after the execution of the Certificate for any Financial Year the Developer or the Management Company shall furnish to the Lessee, an account of the Service Charge for the Financial Year to which the Certificate relates (due credit being given therein for all interim payments made by the Lessee for the year in question or any part thereof) and upon furnishing such account the Lessee shall forthwith pay to the Developer or the Management Company the Service Charge or any balance found due in respect thereof or there shall be allowed by the Developer or the Management Company to the Lessee any amount which may have been overpaid by the Lessee by way of payment on account (as the case may be) and any such allowance to the Lessee may be refunded to the Lessee or utilised as part payment on account to be made in respect of the Service Charge for the following year as the Developer or the Management Company sees fit."

My lease also includes a clause whereby I am entitled to recieve the "Certificate" mentioned above each year, on request, and that in the event of not receiving it, I am entitled to withhold my service charge payment. So there certainly are circumstances under which a member can and should withhold payment.
 
Jaybird, I would challenge you to prove that management company leases are ‘standard’. This discussion suggests that they are anything but. My comment regarding a lack of understanding was based on a sweeping statement which simply can not be applied to all without specific knowledge of the terms of each individual lease being discussed. Going back to my original remark, I recommended that any action will “require a reading of your [OP’s] lease agreement”. Any differences between your lease and my lease are irrelevant to the OP.

Simply being a member of a Board of Directors does not imply any specific expertise and intimate knowledge of one’s own lease does not entitle one to dismiss other contributions. I have intimate knowledge of my own lease and any advice I have offered is based on that. That is why I have suggested that the OP must read their own lease.
The difference between ‘MAY’ or ‘WILL’ is the difference between the quoted paragraph from a legal document and my experience of my management company. Repeated reference to ‘Standard Practice’ does not trump this. Any legal document can be interpreted in different ways, standard or otherwise.

The quoted clause is just one small section of a voluminous document, so you are accurate to highlight the lack of any reference to the overall obligations of the lessee to pay the set fee. It does however explain how an over payment or under payment is to be dealt with, which has been at the heart of my advice all along. The ‘set fee’ is not a blank cheque for the management company. It is the starting point of an overall process, similar to the process adopted by utilities providers who bill you, initially based on an estimate (or budget) and then adjust for it at some point in the future when the actual usage has been ascertained. I find it staggering to think that anyone can have agreed to allow a third party to charge them an amount of money, at whatever level is deemed appropriate, and then determine how or if to spend that money and then hold on to any excess. Is that really how your lease operates???


The ‘Certificate’ I mentioned is covered separately in my lease and refers to a certificate to be prepared, following the year end, by the Company’s auditor certifying the level of expenditure actually incurred. This forms the foundation for our management company to issue final service charge bills for the year based on actual expenditure and to charge\credit or refund any variation against budget. It is also the only grounds within my lease for withholding payment of service charges.

A company director has a legal and fiduciary responsibility to a Company and its shareholders. In my opinion, this responsibility covers the OP’s question and, I believe, the advice I have offered. A director of a management company has a responsibility to ensure the timely issuance of service charges to all members, the effective and efficient collection of all amounts outstanding and the appropriate and agreed disbursement of all amounts charged. Failure to carry out these may leave a director open to being held liable for the debts of the company.
 
Precisely Jaybird!!

Indeed I am a director and know my lease and all the variant leases in our development (for the different unit types) in detail.

When we prepare a budget at the start of the financial year we can get quotes for fixed items such as insurance, refuse etc. We can only estimate expenses such as maintenance, common area lighting and landscaping. These are very easy to over-spend on the budgeted figure as we're not psychic, and cannot predict all the work that needs doing.

And so we issue the development budget each year. Fees are calculated as per lease agreements (each size unit pays a certain % of the budget so a 1 bed pays less than a 2 bed etc) and invoices are issued. If we under-spend in any areas, the additional money goes into the sinking fund, if we over-spend then the contribution to the sinking fund is less than predicted. We try to avoid taking money out of the sinking fund as we are not too far off having to paint the exteriors of the blocks which is a major expense.

So avantarklu for you to accuse me of lack of understanding is crazy!

Does your lease allow for a sinking fund? If they are refunding money at the end of the year it doesn't sound like you can build a decent fund.

Regarding collection problems, its not a problem in our development, our fees are reasonable and we have 95-100% payment year on year. If we needed to raise more money then of course we would have to increase fees, that's basic maths. We would not envisage ever increasing fees to make up a shortfall in collections as we have a very good legal team who follow up where necessary. Our development has been 100% sold for over 4 years now so the issue of unsold units does not arise.
 
shesells said:
Precisely Jaybird!!

Indeed I am a director and know my lease and all the variant leases in our development (for the different unit types) in detail.

When we prepare a budget at the start of the financial year we can get quotes for fixed items such as insurance, refuse etc. We can only estimate expenses such as maintenance, common area lighting and landscaping. These are very easy to over-spend on the budgeted figure as we're not psychic, and cannot predict all the work that needs doing.

And so we issue the development budget each year. Fees are calculated as per lease agreements (each size unit pays a certain % of the budget so a 1 bed pays less than a 2 bed etc) and invoices are issued. If we under-spend in any areas, the additional money goes into the sinking fund, if we over-spend then the contribution to the sinking fund is less than predicted. We try to avoid taking money out of the sinking fund as we are not too far off having to paint the exteriors of the blocks which is a major expense.

So avantarklu for you to accuse me of lack of understanding is crazy!

Does your lease allow for a sinking fund? If they are refunding money at the end of the year it doesn't sound like you can build a decent fund.

Regarding collection problems, its not a problem in our development, our fees are reasonable and we have 95-100% payment year on year. If we needed to raise more money then of course we would have to increase fees, that's basic maths. We would not envisage ever increasing fees to make up a shortfall in collections as we have a very good legal team who follow up where necessary. Our development has been 100% sold for over 4 years now so the issue of unsold units does not arise.
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..........none of which offers any assistance to the OP

(and yes, we have a sinking fund. It forms part of the agreed budget and not some balancing figure made up of what ever is left over at the year end. It does not subsidise day-to-day spending)
 
avantarklu said:
..........none of which offers any assistance to the OP

(and yes, we have a sinking fund. It forms part of the agreed budget and not some balancing figure made up of what ever is left over at the year end. It does not subsidise day-to-day spending)
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Well to be honest, the OP's biggest issue is they don't seem to know the difference between management company and agent and don't realise that being a member of a management company brings rights and responsibilities!

Your posts indicate a method of budget allocation & fee calculation that is rare. I'm active in a number of inter-development groups and have yet to hear of fees being calculated in such a way as yours...so while you do preface your posts with a direction to the OP to read their lease, your examples may not be relevant. The OP in their reply did not indicate which way the fees are calculated in their development.

Going back to the original subject, if grounds are not being maintained, it is initially an issue for the management agent, who would be employing a groundskeeper/gardener and would have a contract for a certain level of services, weekly grass cutting, weeding etc. If they have been unable to retain such services due to a shortfall in fee collection it is the duty of most agents to put measures in place to collect fees. Failing to do so would be a negligence of duty IMO.

I see from the neighbours.ie site that the MA is SPM. The key to progressing with this company is to build a good relationship with your property administrator...or their boss. I've found that going straight to the top has resolved many issues!
 
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