Management fees are fees that property owners pay for services provided by their development’s Owners’ Management Company (OMC).
You must pay management fees. They generate the cash flow that an OMC needs to provide services and maintain your development. The lease or contract you sign when you buy a property in a multi-unit development sets out your legal obligation to pay these fees. Section 18(10) of the Multi-Unit Developments Act 2011 places an obligation on you as an owner to pay your management fees. Your solicitor should have explained this to you at the time you bought your property.
Depending on your development, your management fees may pay for:
- Repair and maintenance of common areas, car parks, footpaths, roads
- Cleaning common areas, windows, carpets/mats, gutters and drains
- Lift repairs and inspections
- Electricity and lighting for common areas
- Landscaping and gardening, pest control
- Security – internal locks and doors, intercoms, external doors and gates
- Safety – smoke alarms, fire extinguishers, health and safety inspections
- Refuse collection and recycling
- Professional charges (for example block/building insurance, public liability insurance, the OMC’s legal/auditor fees)
The Multi-Unit Development Act 2011 sets out a list of cost categories to be used by OMCs when setting out management fees:
- General maintenance
- Waste management
- Gardening and landscaping
- Concierge and security services
- Legal services and accounts preparation
- Other expected expenditure relating to maintenance, repair and management of the common areas
Management fees are usually due annually, following the OMC’s Annual General Meeting. It can be agreed between the owners and the OMC that management fees can be paid in instalments rather than in one lump sum. Management fees should be set at a level to pay the running costs for your development, and to provide a sinking fund for expenditure on refurbishment, improvement or maintenance of a non-recurring nature, such as the replacement of roofs, lifts, or other items of equipment.
The management fee should not include costs relating to the original design, construction and snagging of the development and the Multi-Unit Development Act 2011 specifically prohibits management fee income being used to complete the development.
Voting on management fees
The proposed management fee must be approved by vote at a general meeting of the members. The OMC should provide you with as much information as possible on how last year’s budget was spent and how it has calculated the fee for the forthcoming year so that you can make a decision about the management fee proposal.
At the meeting, members can vote to approve, to amend or to reject the proposed fees. Where there is disagreement about any part of the management fee proposal, members can vote to amend the management fee proposal on the spot. To do this, 60% of those present and voting must agree this. Members can also block the proposal if 75% of those present and voting agree. In this case, the proposal must be reviewed and an alternative must be presented to the members at a later meeting.
If management fees are approved, a bill will be sent to the owner of each unit. The bill should also explain whether management fees must be paid in total, or whether you may pay in instalments. Some OMCs charge interest on money owed or late payments.
How management fees are calculated
A budget for the running of the entire development is calculated by the Directors of the OMC. The managing agent may help the Directors to decide what the budget should be, but the responsibility for setting the fees and their collection lies with the OMC. This budget may change from year to year, so your own payment may vary. In general, fees should be based on normal wear and tear, inflation and new or additional services.
The percentage of the overall management fee that each owner must pay is calculated in various ways, such as the size of the unit (e.g. floor area), or the type of unit. This should be clear and transparent and information should be provided to all owners. If particular services are provided to some owners only, this should also be clearly explained.
In general, the developer sets out the initial calculation method for management fees and sinking fund contributions. The calculation method should be set out in the contract to buy your property. The initial fee is usually set out in your contract, but the management fee for the following years won’t be known in advance and may change.
What happens if you don’t pay your management fees?
As a property owner, you would have signed a contract or lease when you bought your property which means you are legally obliged to pay your management fees. If you do not pay, the OMC can take legal action against you. Any outstanding debts you have to the OMC can be tied to your property – for example, if you sell your property, the OMC can get a court judgment for your debts to be deducted from the money you get once the sale has gone through.
If owners do not pay their fees, the OMC will also run short of money and in time it may not be able to provide even basic services such as paying buildings insurance or maintaining the lifts. It is a requirement in almost all mortgage agreements that appropriate buildings insurance is in place. If your OMC cannot pay the building’s structural insurance premium, you may be in breach of your mortgage contract.
Get information on what you should do if you are unhappy with the service from your managing agent.
A sinking fund is a pot of money that is put aside every year to cover the cost of major long-term expenses. The Multi-Unit Developments Act 2011 introduced a legal requirement for OMCs to establish and maintain a sinking fund. Developments that do not have a sinking fund must introduce one no later than three years after the transfer of the first property in the development or 18 months after the Multi-Unit Developments Act 2011 was passed.
The Multi-Unit Developments Act 2011 requires that the amount of €200 per unit must be paid into a sinking fund every year, however this amount can be higher or lower once the amount to be paid is agreed by a meeting of the members.
The sinking fund is for longer term expenses, such as lift or roof replacement or repair. The Multi-Unit Developments Act 2011 states that a sinking fund is to be used for refurbishment, improvement or once-off maintenance, or advice from a qualified person in relation to these types of work. It is a legal requirement that money in the sinking fund must be held in a separate account from management fees and the authorisation of the Directors of the OMC is required to access the sinking fund.
You should not expect to see frequent use of your sinking fund, as it is designed to provide for longer term or emergency expenditure items only. A similar voting approach should be adopted for the setting of sinking fund contributions.
Before you buy in a multi-unit development, ask the estate agent or your solicitor what sinking fund is in place or planned for the development. If you are buying in an older development, this is very important as it is more likely that the OMC will need to access the sinking fund than in a newer development.
As a general guide some of the most common uses of a sinking fund are repair, refurbishment or replacement of:
- Building structure
- Windows and walls
- Roof and roof finishes
- Internal partitions
- Floor structure
- Internal and external decoration
- Plumbing and water services
- Heating and ventilating
- Lifts and escalators
- Mechanical and electrical services and infrastructure.
Directors of an OMC should think about employing a chartered surveyor every three to five years to assess the short, medium and long-term maintenance issues that will be needed to keep the development in a state of good repair.