I recently bought an apartment in a development in the Greater Dublin Area that has both residential and commercial properties. At a recent management company meeting, management fees, based on the square footage of each unit, were outlined. For my two-bed apartment of 90sq m, a fee of €3,000 per year was proposed. This seems excessive to me as a yearly fee for a residential unit in a development that does not include a lift. Three commercial premises on the ground floor are being charged purely on square footage, the same as the residential units.
My question is, as the commercial units are profit-making, should they not be charged at a higher rate than the residential units? For example, if the annual fee for my apartment was in the region of €1,200 per annum (as advised by the agent prior to the sale), I would be satisfied to pay this, with the commercial units paying more to make up the full fees required for the running of the building.
Finbar McDonnell replies: First of all, it is good that the budget was considered at a meeting and that you attended. Agreement of the budget for the next financial year at a general meeting to which all property owners are invited is a key provision in the 2011 Multi-Unit Developments (Mud) Act and this offers owners the chance to discuss the budget in advance and to vote on its adoption. Normally a budget is proposed by the directors of the owners' management company (OMC) and the managing agent, and the meeting allows them an opportunity to present the rationale for the budget.
Regarding how the total OMC annual budget breaks down between the different residential and commercial properties, the main determinant of this is the lease agreements that all owners signed when they purchased their properties.
The lease agreements normally set out the range of different services the OMC must provide and the portion of the overall budget payable by each individual owner. In some cases, there is just one service charge but, in other cases, there may be more than one – for example, if you have a car-park space or if your property forms part of a wider estate.
As such, you should review the lease agreement you signed when you purchased the property. If you don’t have a copy to hand, your solicitor should be able to provide one.
You say that the charges in your development are organised on a square footage basis. This is common for commercial service charges but would be less common for residential charges (which would more normally be charged as “one-bed”, “two-bed” and so on). However, there is no reason why residential service charges should not be billed on a square footage basis if that is what is set out in the lease.
In relation to your point about the commercial units being “profit-making”, this would not be a consideration for changing the service charges and, like you, the commercial units would also be bound to what is in their lease agreements. They will have to pay these charges in years when they make losses as well as years when they make profits. The owners of these units will also have to pay the charges even if the units lie empty for periods.
As your development contains both residential units and commercial units (other than a childcare facility), it is a “mixed use multi-unit development” under the Mud Act. In relation to different classes of units in such a development (such as commercial and residential units), the Act states that “a fair and equitable apportionment of the costs and expenses attributed to the different classes of units is applied”.
For example, if a service is used exclusively by either the residential or commercial units, then it would probably make sense that just those units pay for this service. From the information provided in your query, it is not clear that there is anything that is unfair or inequitable in the current arrangement.
Having said the above, and without knowledge of your specific development, an annual service charge of €3,000 for a two-bed apartment in a block without a lift seems on the high side. However, one would need to see the full annual budget to understand the basis for this.
For example, it may be that the OMC is undertaking a specific upgrade project and requires extra funds for this. It could also be that the members have agreed higher charges so as to build up the longer-term sinking fund. The fact that the sales agent mentioned a charge of €1,200 may mean that the charge has increased recently. As such, you may wish to send an email to the managing agent for the development to see if they can provide further information on the charge and whether its current level is likely to be maintained in the medium term.
Finbar McDonnell is a chartered property manager and a member of the Society of Chartered Surveyors Ireland, scsi.ie
