Apartment Living – Don’t let Management Company issues compromise your sale

July 11, 2019

The number of apartments in Northern Ireland has grown significantly in the last 20 years, with more being built each year. From first time buyers to down-sizers, from city centre living to a holiday home by the sea, more people are choosing to buy apartments, and provided the apartment complex is running correctly, an apartment can be a sound investment.

When you buy an apartment, you buy the internal structures of that apartment. The remainder of the apartment building including the roof, exterior walls, hallways, lifts, communal doors, garden and car parking areas are all shared by all the apartment owners. These areas are usually referred to as “Common Areas”. Most apartment developments are set up in such a way that a Management Company is formed to take ownership and look after these common areas, dealing with important matters such as insurance and maintenance, which is funded by each apartment owner who pay a service charge. All the apartment owners are shareholders, and these shareholders organise how the management company runs the common areas. In smaller apartment blocks, shareholders may run the management company themselves, whereas in larger developments a professional managing agent, usually an estate agent, may be appointed by the management company.

If the management company is not fulfilling its obligations, this could cause you a number of difficulties, including ultimately not being able to sell your apartment.

What can go wrong

When you sell your apartment, the purchaser’s solicitor and their mortgage lender will carry out certain checks to make sure the management company is functioning properly. This includes but is not limited to the following;

  • Has the management company been filing its accounts and complying with companies Registry Obligations on an annual basis? This is important as if not, the company could be dissolved, meaning that it ceases to exist and there is no legal entity in place to look after the common areas.
  • Is the management company the legal owner of the common areas? Most apartment blocks are initially owned by the developer, who builds and then sells off all of the individual apartments to the various owners. The Developer should then have transferred the remaining common areas into the name of the management company. If this doesn’t happen the management company has no legal ownership of the common areas. This can be further complicated if the Developer was a limited company and has been dissolved. Where a company ceases to exist, any assets still held in its name by law become “Bona Vacantia” (property with no legal owner) and ownership therefore passes to the Crown and it can be a long and complex process to make a claim to the Crown to have the common areas transferred to the management company.
  • Is the management company fulfilling all its obligations in respect of the common areas i.e. are the common areas, tidy and well maintained, are they properly insured?

If the answer to any of these questions is no, you may find you have difficulty in selling your apartment.

Warning signs

If your apartment management company is in difficulty, you may notice one or more of the following;

  • You are not paying a regular service charge;
  • The common areas are falling into disrepair and you have received no information for proposed maintenance works;
  • You haven’t received any notification of insurance renewal;
  • There are no notifications from the management company or any invitations to residents’ meetings or AGMs.

What can I do?

The good news is that in many cases, any problems can be resolved, but it can take some time and if you suspect there may be a problem, don’t wait until your apartment is on the market. Take action now to avoid jeopardising a future sale.

  • Contact your managing agent if you have one. Most will be more than happy to provide you with details of what they do and copies of accounts, insurance policies etc.
  • Check your management company’s details on companies registry https://beta.companieshouse.gov.uk/. All filings should be up to date and the company status should be “active”. If the company status is dissolved or struck off, this is a clear indication that there could be a problem.
  • If you are in doubt contact your solicitor for more information and guidance.

This article has been produced for general information purposes and further advice should be sought from a professional advisor. Please contact our Residential Conveyancing Team at Cleaver Fulton Rankin for further advice or information.

Kristina Killen, Associate Solicitor, Residential Conveyancing, Cleaver Fulton Rankin.