Clear as MUD?

Originally Published 02 Oct 2009

There has been a lot of talk about MUD, LRC, DoJ and the other members of the alphabet soup but the one question every apartment owner is asking is “What does it mean for me?”

The MUD legislation is proposed law which greatly improves the rights of apartment owners, both present and future. It stops developers abusing their power and clearly lays out their rights and responsibilities. It improves the relationship between owners and their management company by controlling what can be charged for, how the service charge is calculated and forces the management company to hold a meeting where owners can vote on the budget each year.
What does it mean for developers?

The first and major part is that developers of new estates have to hand ownership of the land over before they can sell any apartments. You may see a line in your lease saying that they will “vest no later than 30 days after the sale of the last unit”. This legal technicality means that after all the apartments are sold, the developer will transfer ownership of the land and stairwells (called the common areas) to the company. Too many developers have held onto one apartment to avoid this but they can’t avoid it any longer. Existing developments (completed or in progress) must be handed over within six months of the bill becoming law.

The next major part is that developers cannot have majority shares, golden shares or any other sting in the tail used to ensure that they can out-vote everyone else in the estate. For example, in an estate with 50 apartments, the developer may make his share worth 51 votes so he can never be outvoted. This is no longer possible so owners will finally have a proper say in the running of their apartment block. It also stops developers signing long-term contracts so they cannot influence the running of the company (or give jobs to their friends) before they resign. The caveat at the moment is that owners of multiple apartments (or developers who have unsold apartments) have multiple votes.

One of the best parts to this bill is that developers must pay the full service charge for all un-sold units. This means that management companies won’t start off on a bad financial footing like so many did at the moment. The only caveat is that it only covers units which are available for sale so there could be some problems but we’re still looking at that.

Lastly, if a developer stops working and leaves the site abandoned, a vote of 60% of the owners can be used to remove them. If they leave the site in an unsafe condition – the management company can make repairs and bill them for the work.

What does it mean for owners?

To make the running of the management company more transparent, the directors have to produce an annual report. This must show the money coming into and going out of the company, any assets or liabilities, how much is in the sinking fund (rainy day fund), insurance cover and any contracts the company has. This report must be given out 10 days before the AGM. Meetings must be held close to the apartment and must have 21 days notice.

The AGM is also used to vote on the budget. The directors have to calculate the budget in a fair and transparent manner. If the directors want to change the budget, a vote must be called and 75% of the owners at the meeting must not vote against the change. If it cannot be agreed, the old budget stays in effect. If the budget is especially unpopular, the old one remains in effect for 4 months and another vote on a new budget must be held. This means that owners have more involvement in the running of the company and money is not being spent without their consent and understanding.

The bill says that every company must have a sinking fund and owners must contribute to it after the third year of the companies existence. The minimum figure was €200 but it has now been changed so the directors can decide on the amount.

The directors can also suggest changes to the House Rules. These must also be voted on at an AGM and agreed by a majority of the owners present. This gives the house rules more power than they currently have. It also forces landlords to make their tenants sign a copy of the house rules when they move in.

Last but not least is Dispute Resolution and Recovery. The new law moves the jurisdiction for management companies from the High Court (read: expensive) to the District and Circuit courts (read: less expensive). It also introduces out-of-court mediation which is even cheaper again. This is designed to make it easier and more affordable to resolve problems in management companies. It has far-ranging powers that can even be used to alter company documents and your lease agreement if the judge agrees. It means owners have a more affordable manner of tackling misbehaving developers or management companies.

Finally, if a management company breaks company laws (for example, by not sending a copy of the annual accounts to the CRO), it can be struck off. This has devastating consequences for owners and can even block the sale of your apartment. Currently the time-limit for this is 1 year but it has been extended to 6 years, give you more time to sort out the problems. This applies to existing developments as well so it should help thousands of apartment owners.

What’s not covered?

Apartments in mixed management companies (where there are shops, offices and apartments together) are covered by the bill but because of their complexity, they’re not fully covered.

The big sore point at the moment is completion. It’s very hard, under Irish law, to force a developer to properly and fully complete an estate. If they decide to stop working without putting the final road surface down, without doing any soft landscaping or leaving the site like a construction site, there’s not a lot you can do. If you find build problems with your apartment or with the common areas, you just have to hope you have a professional builder who will fix them. The bill talks about a contract between the owners management company and the developer. Ideally the developer would sign a contract agreeing exactly what needs to be done and can be brought to court if they fail to do so. This was introduced at a late stage so it’s unclear exactly how it would work.

What needs fixing?

By now, most of the things on our wish list have made it into the bill. (We’re as surprised as you!) There are still some things left to fix. The completion needs to be fleshed out or a better alternative found. The lack of enforcement for house rules is understandably legally difficulty but still a disappointment and the possibility for the developer or large investors to take control of the company isn’t ideal either.

We’re still talking to everyone who will listen about these issues so they might still go away before it becomes law.

It’s okay though….

On the whole though, it’s a huge step forward for apartment owners. Together with the proposed regulator for managing agents (the NPSRA) and the new DoEHLG guidelines on apartment construction, it should make apartment living less stress and more attractive to everyone.

If you have any questions on this document, Contact us .