This year marks 10 years since the MUDs Act came into operation. The MUDs Act introduced a limited statutory regime to manage multi-unit developments and regulate the ownership and management of common areas for the benefit of all residents through an Owners’ Management Company (“OMC”). An OMC is defined in the Act as “a company established for the purposes of becoming the owner of the common areas of a multi-unit development and the management, maintenance and repair of such areas and which is a company registered under the Companies Acts”.
The scope of the MUDs Act applies to residential developments and mixed-use developments, containing both residential and commercial units. A “multi-unit development” is defined in the MUDs Act as a development where the facilities, amenities and services are shared and contain no less than five units. The MUDs Act also applies in a more limited way to developments with between two and five units where the development is residential, and the applicable sections of the MUDs Act are listed in Schedule 1. The Act deals with the transfer of estate common areas, setting of service charges, and related matters for managed estates which were previously contractual in nature.
An OMC is established to become the owner of the common areas and look after the management, maintenance and repair of the common areas and the members of the OMC are the property owners in a development. The obligation on a developer to transfer the common areas in the development to the OMC is one of the key features of the MUDs Act and is set out in Sections 3 to 5.
- Section 3 relates to new developments where no units have been sold prior to the introduction of the MUDs Act on 1 April 2011. For a new development, the developer is required to transfer the legal interest of the common areas to the OMC prior to the sale of a residential unit and the developer will retain the beneficial interest in order to complete the development and to allow flexibility, should the extent of the common areas vary over the course of building out the development.
- Section 4 relates to existing developments where some of the units were sold prior to 1 April 2011 and the ownership of the common areas had not been transferred to the OMC. S.4 of the MUDs Act required the developer to transfer the common areas within 6 months of the Act coming into operation. There now remains an obligation to effect such a transfer as soon as possible. S.4(2) of the MUDs Act provides that the beneficial interest is reserved until such time that the development is finished.
- Section 5 relates to substantially completed developments where at least 80% of the units were sold prior to 1 April 2011 and ownership of the common areas was not transferred to the OMC. The developer was required to transfer the common areas within 6 months of the Act coming into operation and no beneficial interest was reserved for the developer.
In relation to existing developments and substantially completed developments outlined above, there is no provision in the MUDs Act prohibiting or restricting the sale of units where the common areas have not been transferred, however, the obligation to transfer remains. The Conveyancing Committee of the Law Society advised in a practice note to the legal profession in June 2013 that the failure to transfer common areas in a pre-2011 development does not constitute a ‘blot’ on the title and need not of itself form the basis of a qualification of the undertaking or certificate of title to a lender.
Even where a development comprises of a number of units with shared amenities, facilities, roads and services; an obligation to either set up or maintain an existing OMC may not apply. An example is where an entire scheme is developed/acquired by a single owner/entity for letting to the private rented sector (commonly referred to as “PRS”) or where an entire scheme is leased to a local authority to meet social housing needs.
The PRS sector has grown significantly in the recent past, as the current property shortage drives up the cost of renting and thus makes the return on investment attractive. The PRS is not captured by the MUDs Act and likewise may not come within the remit of the Property Services Regulatory Authority (PSRA), which was established under the Property Services (Regulation) Act 2011 (the “2011 Act”) unless a property management service provider engaged to manage a PRS scheme comes within the regulatory framework laid out in the 2011 Act. The PSRA licences and regulates Property Service Providers (PSPs). The 2011 Act applies to all Property Services Providers (PSPs within the meaning of the 2011 Act). Broadly speaking, these are all persons involved in the purchase, sale, auction or letting of any estate or interest in land. It also applies to people who provide property management services. Auctioneers, Estate Agents, Letting agents and property management agents established in the state must be licensed and regulated by the PSRA.
Entire schemes leased under a long term lease to local authorities come within the contractual obligations of the lease entered into between the owner of the scheme (the landlord) and a local authority (the tenant). The template lease sets out a comprehensive list of the property services to be provided by the landlord to the tenant. Thus the tenant/local authority has contractual remedies if there is a failure to provide the property services, which include structural maintenance and repair to include the external and internal common areas.
We now look at why the gaps referenced above arise?:
1. A PRS scheme where all units in a development remain in the same ownership
The MUDs Act does not apply on the basis that a ‘first sale’ of a unit in the development, as envisaged by S.3 has not occurred, and thus the application of the MUDs is not triggered in the absence of a sale. However, the planning permission for the construction of the development will usually contain a condition that the developer put an appropriate management structure in place to provide for the maintenance and upkeep of internal and external common areas and roads and services, which will not be taken in charge by the local authority.
2. Where all of the units in the development come into the ownership of an individual or entity
The MUDs Act does not apply on the basis that the individual or entity would be the sole member of the OMC. The development would no longer come within the definition of a multi-unit development in that there are no longer any amenities, facilities and services which are shared. In such a scenario, the owner of all units in the development will be solely responsible for the repair, maintenance and upkeep of all the external and internal common areas.
3. Where roads and services are intended to be taken in charge
Typically this will apply to a housing estate, albeit there is a reluctance on the part of local authorities to take smaller/infill housing schemes in charge, which often require management structures to be established. There may also be elements in a mixed scheme of houses, apartments and duplexes where certain roads and services are taken in charge and other areas within the same development remain under private management. Where roads and services are intended to be taken in charge, the planning permission stipulates that the developer put a bond in place or lodge cash security, which is retained by the local authority until the taking in charge process is completed.
There are presently gaps where multi-unit schemes do not come within the scope of the MUDs Act or the 2011 Act. There is an argument to be made that the management of multi-unit schemes should be brought within the ambit of the PSRA. This requires legislative amendment and a consideration on how the MUDs Act and the 2011 Act should interact.
Article written with the assistance of Hazel Murphy.