Apartment Owners and Service Charges (Irish Times)

Cash-strapped apartment owners are not paying service charges resulting in a fall in maintenance standards at many developments

WHILE REPORTS of home repossessions and negative equity are a constant reminder of the mess we are in, relatively little attention has been paid to new findings which show that there has been a fairly serious fall-off in maintenance standards at many of Dublin’s apartment enclaves.

“The service charges are too high”; “the bins haven’t been collected for weeks”; “the lift is not working”; “security staff have been withdrawn from the site” – these are some of the problems causing frustration and annoyance to apartment owners and their tenants. The reason for the reduced level of services is not – for once – the ineptitude of the management companies but the ever increasing number of owners failing to pay their service charges.

A recent survey by the Society of Chartered Surveyors and the Irish Property Managers Association has shown that half the property managers who responded estimated that up to 20 per cent of owners had not paid up in the past year. The remainder put the number of defaulters at between 20 and 40 per cent.

Not surprisingly, apartment blocks built in the past five years are worst affected because a high proportion of the units was bought by investors who are now in negative equity. As well as having to cope with an increased number of void periods, these owners have had to settle for rents up to 25 per cent lower than in the boom times.

With mortgage rates certain to rise later this year, the situation can only deteriorate further. A combination of all these factors, plus the fact that the rental market is over- supplied in many areas and that there is every likelihood that increased property taxes are on the way, could mean that the residential investment market will remain dormant for a considerable time to come.

The second group falling behind with their service charges are – wait for it – developers who built the apartment blocks and opted to cauterise their losses by fitting out unsold apartments and putting them on the letting market. Never mind the fact that by offering entire blocks for rent almost at any cost to ingratiate themselves with their Nama bosses they have frequently undermined their very own clients who often paid them over the odds for the apartments. A reduced cash flow since Nama started calling the shots has meant that for many developers the service charges are well down the list of priorities. The reduced funding has meant that cleaning, maintenance and security have either been reduced or dropped in many developments.

However, the largest property managers, Wyse, who handle apartments in up to 200 different locations, say by and large they have managed to avoid maintenance cutbacks by persuading service providers to reduce their charges. “However, with up to 30 per cent of service charges remaining unpaid, mainly in newish apartment blocks, we are finding it increasingly difficult to meet our obligations,” says managing director Ben Gough.

Many of the other property managers have already cut back on services because of the shortfall in funding and the possibility that the number of defaulters could increase further if the economy continues to deteriorate.

Poor maintenance means that owners of apartments who pay up can take as big a hit as those who do not. Once maintenance and repairs are reduced or suspended, the overall apartment block suffers, leading to a depreciation in values. When an apartment scheme is allowed to deteriorate – and there are any number of examples – it is a difficult thing to reverse.