Multi-Unit Developments Act 2011

Multi-Unit Developments Act 2011

October 1st 2011 was the date set by the Multi-Unit Developments Act 2011 for the handing over of common areas of private residential development and this date has now passed.  This article examines the consequences for both the unit owner and the developer following the passing of this significant date.

Overview

The Multi-Unit Developments Act 2011 ("the Act") was signed into law on the 24th January 2011 and was enacted on the 1st April 2011.  The main objective of the Act is ‘to amend the law relating to the ownership and management of the common areas of multi-unit developments and also to facilitate the fair, efficient and effective management of bodies responsible for such common areas’.

A 'multi-unit development’ is defined in Section 1 of the Act as being a building or part of a building that contains at least five residential units with shared amenities, facilities and services. The Act also applies to ‘mixed-use multi unit developments’ which must contain at least one commercial unit, the development must also contain not less than five residential units.

The Act places a number of new obligations on developers in relation to the transfer of common areas of multi-unit development and it provides for the establishment of an owners' management company to be set up at the expense of the developer of the multi unit development concerned. The developer must transfer legal ownership of the relevant parts of the common areas to the owners' management company before any units within the development are disposed of or if units have already been transferred, within six months of the commencement of the Act, being the 1st October 2011.

Application of the Act

The Act applies to three categories of developments:

1. Existing multi-unit developments where at least 80% of the units have been sold but the ownership of the relevant parts of the common areas has not yet been transferred to the owner's management company. In this case the developer is obliged to transfer ownership of the relevant parts of the common areas of complete or substantially complete developments within six months of the 1st April 2011 that is by the 1st October 2011.
2. Existing multi-unit developments where a unit or a number of units have been sold but where less than 80% of the units are sold and the ownership of the relevant parts of the common areas has not yet been transferred to the owner's management company. In this instance the developer must transfer ownership of the relevant parts of the common areas to the owner’s management company within six months that is by the 1st October 2011. In this instance the beneficial interest in the common areas remains with the developer pending substantial completion of the scheme and then vests in the owner’s management company by way of declaration.
3. New multi-unit developments where no units have been sold prior to the 1st April 2011. In relation to new multi-unit developments, the Act requires that the common areas are transferred to the owners’ management company before the sale of the first residential unit. The beneficial interest is reserved by the developer pending completion of the relevant part of the common areas and will either be transferred to the owner’s management company at the end of the development stage or at the request of 60% of the owners of the residential units.

What are the consequences for developer of a multi-unit development where the common areas have not yet been handed over?

It is assumed that there are a significant number of either new or existing multi-unit developments around the country in which the common areas have not yet been handed over to an owners' management company.  This can be down to a number of factors including the developer's lack of power, funds or even inclination to comply with the legislation and go through the various procedures required to validly transfer the common areas. 

The legislation does not provide for a specific sanction or penalty against developers for failure to complete the transfer of common areas in a multi-unit development prior to the 1st October 2011.  However, the developer may be open to a circuit court order being made under Section 24 of the Act compelling them to comply with some aspect of the legislation and also of course to an order for costs.  Under this section a range of persons, including the owners' management company or a member of the owners' management company, can apply for a court order on any terms "it considers just and equitable with a view to ensuring the effective operation of the owners' management company".

The developer will also be faced with a situation where a prospective purchaser will be entitled to refuse to complete the purchase of a unit in the development until the situation regarding the common areas has been regularised.

What are the consequences for the owner or purchaser of a unit in a multi-unit development where the common areas have not yet been handed over?

A prospective purchaser of a unit in a multi-unit development will be advised not to complete the purchase of a unit until such time as the owners' management company has been established and the common areas transferred in accordance with the legislation.  To take the risk and complete without satisfactory evidence being produced that the legislation has been complied with would probably mean a significant flaw on title that could leave their property unsellable in the future.  The situation regarding the common areas would also have to be disclosed to their lending institution who would no doubt query in most stringent terms why the common areas have not been transferred and would in all likelihood refuse to release funds to complete the purchase.

For the existing owner of a unit in a multi-unit development the failure to complete the transfer of the common areas can be equally of concern.  For the same reasons discussed above they will be unable to sell the property until such time as the situation has been regularised. If so entitled, the owner may be able to apply for a Circuit Court under Section 24 of the Act for an order to compel the developer to comply with its obligations under the Act.  This could be a time consuming and costly exercise, particularly if the developer in question simply does not have the funds to complete the transfer and discharge the costs of any such court applications. 

It should be remembered however that for the developer to hand over the common areas to an owner controlled management company will require owners of residential units to become actively involved in their management companies including becoming directors. Unfortunately the legislation does not address the fact that unit owners have traditionally been largely unwilling to attend AGM's, act as directors and assume responsibility for their own estates.

Looking ahead

While the Multi Unit Development Act 2011 has been largely welcomed as a step in the right direction for the proper management and regulation of privately managed developments, there are clearly problems ahead for practitioners, unit owners, developers and lending institutions with regard to the implementation of the Act and the implications for a failure to comply with the obligations set out thereunder.  The worst possible outcome is that we are left with a significant number of properties that are unsellable due to the various parties' inability to regularise the common areas and the title defect that results from this situation.  Co-operation between the owners, the developers and the lending institutions will be essential in order to avoid this outcome.

Contact

For further information on this or any other property related matter please contact the authors, Michael Walsh, partner and Joan Ryan, solicitor.