Our small owners’ management company is self-managed by the board of directors. Like most OMCs in Ireland, we are constantly grappling with the problem of management service fee arrears. Some who owe significant arrears specify (on their cheques or in their payment references) that the amount being paid is to be applied to the current year’s fees. In this way owners are trying to avoid paying their arrears by simply waiting out the six-year statute of limitation on breach of contract.
I just read an Irish Times article by Aisling Keenan, published June 13th, 2023, that said this statute of limitation does not apply to management fees, because the payment of the annual service charges is legislated for in the MUD Act 2011, which does not specify a limitation. I hope that is still the case?
Nonpayment of arrears is an insult and injury to the owners who keep their accounts current, and makes it very difficult for the OMC to fund all of the services budgeted.
Legal action has not worked for us. We eventually collect when properties are sold, but some of our worst offenders show no sign of selling.
RM Block
We would like to apply payments first to the oldest outstanding debt (arrears), before applying them to current charges. But we are having difficulty getting straight answers to our questions:
- Is this permissible under Irish law?
- If so, is it necessary to revise our Constitution to include this?
For example:
Payments for management fees will be applied to arrears and any accrued interest or penalties before being applied to any current charges or future amounts due.
Although the response I get from AI says that Ireland’s MUD Act supports this, we have been unable to find any source documents on the internet that conclusively state that this would be permissible. We also cannot get an answer from any of our local solicitors – all of them cite conflicts of interest since they also represent individuals who are members of our OMC.
We would appreciate a definitive answer, if you could please provide it, or point us to someone who can.
The issue you are raising is something that we are coming across increasingly in our work. Having said that, I regret to say that no definitive answer can be provided to your question. Subject to taking your own legal advice on this matter, here are some observations that you might wish to consider and raise with your solicitor.
Firstly, there is no written provision or reference addressing the method by which paid service charges are to be applied to an owner’s account. If an owner who owes arrears on service charges sends a payment to the OMC with an instruction that the payment is for a particular period, the OMC should reject this. It is for the OMC to decide how the payment is applied and not the owner, particularly when it is an owner who is acting in bad faith trying to defeat or hinder the OMC in their lawful claim for service charges.
The OMC should create a company policy on the collection of service charges and have this included so that it is clearly set out how service charges are applied. A company policy can be ratified at the annual general meeting and is then binding on all owners. Also, the OMC could consider amending the company’s constitution to provide for this. They should consult with a solicitor when doing so.
When an owner doesn’t pay their service charges to an OMC, the unpaid amounts form a single debt, not multiple separate debts for each year. This is because of the collective responsibility inherent in the OMC structure. Even though invoices are issued annually, all contributions go into one collective fund to pay the annual bills of the OMC, and when some owners don’t pay, others carry the can in the short term. The amount owed by a nonpaying owner simply reflects what is due for that year’s contribution to the collective fund. We do not believe it creates separate annual debts, nor is it carried over as multiple debts. In short, the debt owed by a nonpaying owner is one continuous debt, representing their share of the collective shortfall. This is why the statute of limitations should not apply to service charge debt. I would like to stress once more that this is our take on this issue and repeat my initial recommendation that you seek your own legal advice.
The MUD Act Reform Group are working to ensure that service-charge debt forms part of the legislative reform that is long overdue to clarify and provide for service charge debt. When this happens there should then be a definitive answer to your question which will be grounded in law.
Aisling Keenan is a property managing agent, consultant and an associate member of theSociety of Chartered Surveyors Ireland
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