A new Law Reform Commission report will come as good news to apartment owners, writes Gavan Carty.

AROUND 500,000 people - more than 10 per cent of the Irish population - now live in apartments, so the Law Reform Commission's new report on multi-unit developments will be relevant to many.

The report recommends a number of reforms - one of which is that a developer should set up an Owners Management Company (OMC) in an apartment complex before it is completed. The report also recommends the management company hold back 5 per cent of the purchase price of an apartment until an entire development is finished and signed off.

Other issues include a lack of information on how management companies operate and on the relationship between the management company and managing agent.

The report contains 67 recommendations for reform and a draft Multi Unit Developments Bill.

The commission is no longer calling for a new regulatory body and is now saying that with effective and co-ordinated use of existing powers by various regulatory bodies, it is not appropriate to recommend a new regulator.

In line with the recommendation, that a developer must incorporate an OMC (a specially tailored company for apartment complexes) before completion, it suggests the developer must register the ownership of the legal title of the multi-unit development in the Land Registry before marketing or selling units. The OMC holds the legal title of the multi-unit development in trust for the developer until the scheme is completed.

This provides clarity at an early stage in relation to the entitlements and responsibilities of the developer and home buyer.

The draft bill provides that purchasers pay 5 per cent to the OMC which holds this sum in trust for the developer until the scheme is complete.

This is designed to encourage developers to complete the common areas of developments and will go a long way towards curing those who fail to complete developments. It will also encourage a system of orderly snagging and certification by a professional before handing over the retained sum.

The draft bill provides that managing agents can no longer assume the function of a company secretary and seeks to encourage more involvement by members in the running of management companies. The commission also recommends that the National Property Services Regulatory Authority develops a model contract and letter of engagement for managing agents.

It also recommends a statutory code of practice under the proposed Property Service Regulatory Bill. The bill also makes provision for any clients of managing agents who suffer loss, to be eligible for compensation.

The report makes recommendations in relation to building investments funds or sinking funds in line with other Common Law jurisdictions, including Australia and Canada, where they noted a trend towards making them mandatory. In an empirical study they found that if a building investment fund was not built up over 10 years, home owners could suddenly face bills of around €4,200, even in relatively modest developments.

The establishment of the level of a sinking fund and the list of purposes for which it is used is to be undertaken by the National Consumer Agency in conjunction with the National Property Services Regulatory Authority. The commission also wants to stop builders from using a building investment fund to cover snagging.

The commission provides for a five-year implementation period for existing developments.

The also commission identified certain questionable practises, such as developers setting service charges at an artificially low level for the first couple of years to attract buyers. It identified the problem of home owners absorbing the service charges of unsold units and the non-payment of service charges by home owners causing problems in the orderly management of developments.

The commission recommends that all multi-unit developments maintain a scheme of annual service charges and that adequate information on the breakdown of service charges be provided to home owners.

While the draft Bill does not incorporate all of the report's recommendations it is a welcome development and hopefully will be the precursor to urgently needed legislation.

The report can be viewed on the Law Reform Commissioners website at www.lawreform.ie.

Gavan Carty is a partner at Kent Carty Solicitors