Property Law Ireland

10 Things You Need to Know about Your FRI Commercial Lease

fri-lease

Thinking about leasing a shop unit?

Coffee shop?

Office?

Other commercial premises?

If you are thinking about leasing a commercial shop unit in Ireland there are a number of key areas you need to consider before going ahead.

Set out below is a non-exhaustive list of issues that you will need to be satisfied about before investing your cash in a full repairing and insuring lease (FRI lease).

At the end of the piece I also deal with some common questions I am regularly asked by people looking to start or grow their business by taking on a commercial unit.

1) The term

How long will your lease be? Will you have statutory rights under the Landlord and Tenant (Amendment) Act, 1980? Will you have a break clause? Is Vat payable?

2) Repairs

Who is responsible for repairs? If it is a lease in excess of 5 years you as tenant will likely be responsible.
If it is a lease of less than 5 years you may only be responsible for internal repairs.

The question of whether it is a new building or an older building will also be significant and other issues to be addressed would include latent and inherent defects in the building, what is considered fair wear and tear and what risks are covered by insurance.

3) Insurance

If it is a full FRI lease then you as tenant will almost certainly have to pay the insurance premium held in your landlord’s name.
This will vary depending on whether you are the sole occupier of the building or if it is multi tenanted in which case you will be obliged to pay a proportion of the landlord’s premium.

You will therefore be concerned about the risks that the landlord is insuring against and whether the building is insured for reinstatement value or cost.

As tenant you will also want to insure against public liability, employers liability, plate glass and contents but this will depend very much on the nature of your business.

4) Alterations

You may need to make alterations when you take on the property to ensure that it is right for the purpose intended.
This will generally require the landlord’s consent which cannot be unreasonable withheld or delayed.

5) Alienation of the premises

Alienation is the legal term for your assignment of the lease to a third party; you will need the landlord’s consent to this but the landlord cannot unreasonably withhold or delay his consent.

However the question of reasonableness is one which might be disputed and the landlord may argue that his refusal is in the interests of “good estate management” and is therefore reasonable.

6) Service charges

Service charges may or may not arise in your particular circumstance. If there are service charges in respect of common areas you will need to ascertain exactly what is included and how much your service charges will be.

7) Rent reviews

How the rent will be reviewed will be of critical importance to you; generally rent reviews will take place at 5 yearly intervals and is an area that may require arbitration or some agreement as to how any disputes will be resolved.

8) Guarantee

Will you be obliged to provide a guarantee for rent, rates and other outgoings?

9) Break clause

Is there a break clause in the lease?

10) Stamp duty and VAT

You will be liable for the stamp duty on the lease but landlords also have an option to charge VAT or not. This is another area that you will want to check before investing as it can have a significant impact on your cash flow.

These are just some of the many factors you need to consider and be clear on before leasing a commercial premises.

Here are some questions that crop up repeatedly. If you have any questions simply send them in to me with the contact form below and I will answer them.

Commercial Premises F.A.Q.

‘How long should I sign a lease for?’

This very much depends on

What you want and need
What the landlord wants, needs, and is prepared to give you.

So, it depends on good, old-fashioned negotiation between you and the landlord, or his agent.

You need to consider your future needs and potential expansion/growth; however, you must also consider your business failing. It’s not a pleasant thought but you need to consider it. At least one break clause can give you a way out of the lease, and it could be exercised due to the growth and new needs of your business, or the failure of the business.

‘What documentation will I need?’

When you go to take a look at the premises to speak to the landlord and/or auctioneer, you don’t need any. Later on if you are going ahead, your solicitor will require some identification and anti money laundering papers, but initially when negotiating you don’t need anything.

‘What are my legal responsibilities (and the landlord’s)?’

Your main responsibilities will be to pay the rent, insurance, and any service charge. However, the location of your unit-for example in a shopping centre or multi unit development-may place some extra responsibilities on you. These will all be contained in your lease in the form of covenants and conditions; your landlord’s entitlements and obligations will also be found in the lease, and for this reason you need to negotiate a good one at the outset.

‘As the property is not finished it still needs toilets, railings walls plastered, staircases and a number of other unfinished works. I am unsure as to what I should be asking them to finish as I don’t know what it is they will expect me to finish.’

This too is a matter for negotiation and agreement, and you want to be sure to avoid having to carry out a huge amount of renovations/refurbishments which may only benefit the landlord in the long run.

If there is work to be done, and the landlord undertakes to carry it out, get a surveyor or architect to check the work before signing a lease.

Your solicitor will also be looking for certificates of compliance with planning permission and building regulations from the landlord’s solicitor, but you need to be sure that the work is carried out to a satisfactory standard for your needs.

Ground Rents in Ireland-the Essentials

ground-rent-law-ireland

Are you paying ground rent on a residential or commercial property?

What is ground rent?

Ground rent is rent paid on leases which are at least 99 years old.

Features of ground rent are

* Very low rent (ie not market rent)
* No rent reviews

They can apply to both residential and commercial leases.

The Landlord and Tenant Act 1967 gave the tenant the right to buy out the freehold.

I deal elsewhere on this site with the right to a new lease and in addition to the right to a new lease the tenant may have the right to buy the freehold.

The differences are that

1. the right to buy the freehold only applies to permanent buildings on the land (the right to a new lease applies to any building, not necessarily of a permanent nature)
2. there is an occupancy requirement re the new lease procedure; there is no occupancy requirement to buy out the freehold

Landlord and Tenant (ground rents ) act, 1978

This act changed the test to establish whether the tenant has the right to buy out the freehold.

Essentially it requires that in order to have the right to buy out the ground rent and acquire the freehold then the tenant must comply with all of section 9 of the act and one of the conditions of section 10.

Landlord and tenant (ground rents) act, 1978.

Yearly tenants

If the tenant is a yearly tenant then section 15 of the act sets out the conditions required to obtain the entitlement to buy the freehold.

Restrictions

Section 16 of the act sets out the restrictions to the entitlement to buy out the ground rent.

Procedure

There are 2 methods to buy out the ground rent and purchase the freehold

1. For a business premises-you must use the procedure under the 1967 act
2. For a residential premises you can use either the 1967 act or the 1978 act

Landlord and tenant (ground rents) act 1967.
Essentially there are various forms and notices to be served on the landlord and these forms can be accessed on www.landregistry.ie

If the lessor can not be found then you can make application to the County Registrar for the conveyance to be executed. Consult your solicitor to follow this procedure.

The 1978 act procedure, which applies only to residential premises, is called the Vesting Certificate procedure and these certificates are issued by Land Registry, even where the property is unregistered.

Price to buy out the ground rent and acquire the freehold

The price of the freehold is provided for in Landlord and Tenant act 1984 and makes provision for the use of an arbitrator to determine the price. The arbitrator will either be the County Registrar (1967 act) or the Registrar of titles in Land Registry (1978 act).

Generally the value will be approximately one eighth of the market price where the lease has expired.

Where the lease has not expired then Land Registry can advise as to what multiplier they are currently using. It will be approximately 8/10 times the annual rent for residential premises and 18/20 times the annual rent for commercial.

However if you find yourself in this situation it is prudent to engage the services of a professional valuer and your solicitor.

If you are paying ground rent and qualify to buy out the ground rent and acquire the freehold interest, then you would be well advised to do so.

For more information about ground rents check out the Property Registration Authority also.

How to Terminate a Commercial Lease (and the Right to a New Tenancy)

commercial-lease-agreement

Are you a landlord or tenant of a commercial lease?

Do you want to terminate a commercial letting agreement?

Or perhaps you want to lawfully lay claim to a new lease?

This piece aims to give you a good handle on what’s involved.

Termination of a Commercial Letting Agreement

The most common ways to terminate or end a commercial ease are

1) Notice to quit

2) Forfeiture.

Since the Residential Tenancies Act, 2004 lays down the procedure for the vast majority of residential tenancies Notice to Quit and Forfeiture now only apply to commercial tenancies.

You only use a Notice to Quit procedure where the tenant remains in possession after the expiry of the agreed term and continues to pay rent. This tenant is said to be overholding.

Where the landlord wishes to end the tenancy prior to the end of the agreed term, the appropriate procedure is Forfeiture.

Notice to Quit

Notice to quit is the most common procedure to recover the premises where the tenant is overholding, that is the term of the lease has ended.

Anybody who has received prior express authorisation may serve the notice to quit.

Where the landlord is not serving the notice to quit himself it is prudent to arrange prior written authority to be given to the server. This authority can not be given retrospectively.

There is no set form for the notice to quit but it must contain a clear and unambiguous intention to end the tenancy.

A description of the premises must be given and it must be addressed to ‘the tenant and all other persons in occupation’.

It need not be signed but it is prudent to do so.

Length of Notice

Firstly check the written agreement to see is there an agreed procedure. If not the statutory minimum is 4 weeks and the notice must end on a gale day(this is the point when one period ends and another begins).

The crucial question is how is the rent reserved in the lease (this is not the same as how is the rent paid).

A monthly tenancy requires one month’s notice expiring on a gale day.

A quarterly tenancy requires 3 months notice and this should expire on a gale day.

A tenancy from year to year requires 183 days notice expiring on the anniversary of the tenancy.

Personal service is best and in the case of a limited company on the registered office of the company.

Waiver of notice

You will be deemed to have waived the notice to quit if you

Serve another notice
Demand the rent
Accept the rent which falls due after the end of the notice period.

Landlords are advised therefore not to accept rent after the end of the notice to quit has expired.

Care should be taken to check the lease to see if any provision has been made for a specific method of terminating the tenancy.

Forfeiture

This is only appropriate where the term of the lease is still running. But a landlord has no right to terminate a lease prematurely unless the tenant has been in breach of one or more of it’s terms.

A landlord also loses the right to forfeiture if he does not follow certain statutory procedures which give the tenant a reasonable opportunity to remedy any breach.

It is extremely difficult in practice to forfeit a lease, especially if the parties are in court for the first time.

Grounds for forfeiture

The 3 main grounds for forfeiture are

1) Disclaimer by the tenant of the landlord’s title;

2) Re-entry or ejectment where there has been a breach of a condition in the lease;

3) Re-entry or ejectment where there has been a breach of a covenant which provides for re-entry for that breach.

Breach of condition of lease

Breach of a condition of a lease gives the landlord an inherent right to re-enter.

But the landlord must be careful to distinguish between a condition and a covenant.

Breach of covenant in a lease

A breach of covenant in a lease will only give rise to a right to re-enter if the covenant broken also has a proviso for re-entry in the lease.

Before forfeiture can take place a ‘section 14’ notice must be served unless forfeiture is occurring for non payment of rent. In this case there is strictly no need for a ‘section 14’ notice, but it is probably advisable to serve one.

This notice calls upon the tenant to remedy the breach within a reasonable time.

Peaceable re-entry

If the notice is served and the time specified in the notice has elapsed without the remedy of the breach, a demand is again made for possession and the landlord may re-enter if it can be done without the use of force. There is a statutory prohibition on the use of force.

If peaceable re-entry is carried out, and this is difficult, the landlord should make a detailed inventory of property, possessions/stock on the premises and write to the tenant telling him how he can retrieve them, and what will happen if he doesn’t.

Ejectment civil bill on title

If the landlord can not re-enter peaceably the landlord’s remedy is to issue an ejectment civil bill and seek an order for possession in court. If re-entry cannot be carried out peaceably the landlord cannot use force.

Relief against forfeiture

There are 2 reliefs for the tenant to prevent forfeiture of the lease-statutory and equitable.

Statutory

Section 14(2) Conveyancing Act 1881 allows the tenant to apply to court for relief-it is then at the discretion of the court and there are no fixed rules for the court in exercising its discretion.(Much of the Conveyance Act, 1881 has been repealed by the LAND AND CONVEYANCING LAW REFORM ACT 2009 but this relief has not been repealed).

A sub-lessee will get statutory relief and his sub-lease will continue as if the superior landlord was the immediate lessor.

The Landlord and Tenant(Ground Rents) Act 1978 provides that forfeiture can not occur by reason of failure to pay ground rent in the case of a house where the tenant is entitled to buy out the freehold.

In general there is no statutory relief where the landlord forfeits the lease for non-payment of rent.

Equitable

Courts may use its equitable discretion to grant relief to the tenant, even for non-payment of rent, if it would appear to be just to do so.

Courts lean against forfeiture for non payment of rent and tend to give tenant’s plenty of opportunity to pay up. But it will look at the conduct of the parties prior to going to court.

Other Forms of Termination

The list below is not exhaustive:

Effluxion of time

Where the term of a lease is up there is no need to serve a notice. A letter prior prior to the end of term pointing up the end of the term and demanding possession will suffice.

Merger

A lease may end when the interest of the landlord and tenant become vested in the one person in the same right.

Court Order

The court has jurisdiction under certain legislation to terminate a tenancy.

Exercise of an option (break clauses) in a lease

Commercial leases often have break clauses entitling either party to terminate prematurely.

Legal proceedings

It may still prove necessary to go to court,even after ending the lease by one of the methods outlined above.

Ejectment Civil Bill on Title Based on Forfeiture

The landlord’s claim is based on the fact that the tenancy has ended by forfeiture and the tenant has no right to retain possession. This is a very common procedure, especially where non-payment of rent has occurred.

The landlord may need to go to court a number of times to establish a poor track record of the tenant as the court is very reluctant to grant possession first time for non payment of rent.

Ejectment for non payment of rent

This is based on Deasy’s Act,1860. The huge disadvantage is that the landlord must wait until one years rent is due-not very popular method for this reason.

Ejectment Civil Bill for overholding

This is used following service of a notice to quit or where the original lease has ended and the tenant remains in possession.

From the tenant’s perspective under the Landlord and Tenant Act 1980 he must now serve notice to seek relief, that is to seek a renewal of the lease) within a certain period following service of the notice to quit.

The Entitlement to a New Commercial Lease

The Landlord and Tenant Act 1980 which was amended by Landlord and Tenant Act 1994 provide statutory entitlements to tenants in a landlord/tenant relationship.

The reliefs apply where the property that is the subject of the agreement is a tenement which is a legal description but has been interpreted fairly generously. It includes buildings which are not permanent and can include sheds erected without planning permission.

To qualify for the statutory entitlements the main purpose/use must attach to the buildings. If there is land involved then the land must be subsidiary and ancillary to the main use of the buildings.

Section 16 of Landlord and Tenant Act 1980 provides that a tenant will be entitled to a new tenancy at the expiry of his existing lease if he can prove one of the following equities

* Business equity-if the tenant was in occupation for 5 years continously and was using the premises/tenement for business purposes (this period used to be 3 years); temporary breaks can be disregarded by the courts. The five year period only applies to tenancies/leases which commence after 10 August 1994 and the tenant must occupy the tenement for the entire period

* Long possession equity-this applies to both residential and business property and states that if the person was in occupation for 20 years then he/she was entitled to a new lease

* Improvements equity-this also applies to both residential and commercial property and states that if the tenant would be entitled to compensation for improvements and they accounted for half or more than half of the letting value of the tenement when the notice of intention to claim statutory relief, then the tenant has an improvements equity

Terms of a new tenancy

These terms are to be agreed between landlord and tenant and failing that will be fixed by the court. If the tenant is entitled to a new lease based on business equity the new term shall be fixed at 20 years or such time as the tenant may nominate, provided it is over 5 years.

If the right to a new tenancy is based on long possession or improvements the term of the new tenancy will be 35 years or a lesser term that the tenant can nominate.

Rent

This will be fixed by the court at open market value if the landlord and tenant can not agree on a new rent.

Restrictions on a right to a new tenancy

Section 85 of the act prevented any provision contracting out of the Act. However this was changed re the tenant of an office premises who could contract out of his right if he took independent legal advice and signed a renunciation under sect 4of his right and this had to be done before the commencement of the tenancy.

Other restrictions include the situation where the tenant is in breach of the lease in respect of payment of rent.

Furthermore where the landlord intends to pull the building down in order to redevelop the building/site then he can refuse to grant a new tenancy.

However if this occurs and the tenant would have been entitled to a new tenancy otherwise, then the tenant is entitled to disturbance compensation which is a right of both residential and commercial tenants.

How to claim a new tenancy

The forms required are set out in Landlord and Tenant Regulations, 1980. This notice must be served before the end of the tenancy or within 3 months of the end. (The courts have discretion to extend these time limits in limited circumstances).

Compensation for improvements

This is available to both residential and business premises. Where a tenant quits a tenement because of the termination of the tenancy he is entitled to be paid compensation for every improvement by him or any predecessors in title which adds to the letting value of the premises.

However he will not be entitled to compensation if he has surrendered the lease or the termination is for non-payment of rent.

Improvement notice

Where a tenant proposes to make improvements to the tenement he may serve an improvement notice on his landlord.

If the latter ignores it then the tenant can go ahead with the works and is entitled to compensation. However the landlord can then himself serve an improvement undertaking notice on the tenant and execute the works himself.

Or he can object to the improvement notice and the tenant can then withdraw his notice or apply to court which can allow the tenant to make the improvement or reject his claim based on the fact that he has not been in occupation for 5 years and is consequently not entitled to a new lease.

Any covenants in the lease which prohibit the selling of the building or the change of use of the building will be interpreted as only prohibiting this to occur without the landlord’s consent, and this consent must not be unreasonably withheld.

A similar interpretation will apply to any covenant in the lease prohibiting the making of improvements.

Update

The Civil Law Act 2008 has made some changes to Landlord and Tenant legislation. Previously only the occupier of an office lease could contract out of his right to a new lease as outlined above.

The Civil Law Act 2008 now allows any business user to renounce his right and furthermore allows him to renounce not just prior to the commencement of the lease but at any time. He must still receive independent legal advice.

Commercial Landlord and Tenant Disputes-the Minimalist Guide

commercial landlord and tenant

Landlord and tenant disputes can be bitter and expensive, for both parties.

Landlords are often faced with the choice of trying to recover outstanding rent and/or trying to recover their premises and get the tenant out, accepting that he might be better off taking it on the chin and getting a new tenant in.

Getting tenants out can be slow, though.

Generally the failure to pay rent by the tenant will be a breach of a covenant of the lease leading to a right accruing to the landlord for a straightforward breach of contract and the normal remedies available to the landlord when this occurs.

Recovery of Premises

Generally, you will find that most commercial leases will have a covenant providing for the right to recover possession of the premises when there is a breach of a covenant of the lease.

Notice To Quit

If a lease has just expired, that is the time is up, the landlord needs to serve a Notice To Quit giving whatever period of notice is stipulated in the lease itself.

After the service of the Notice To Quit the landlord should mark any rent received as “mesne rates only” as not to do so could be seen as a waiving of the Notice by the landlord.

Forfeiture

Forfeiture procedure is appropriate where the landlord wants to get the tenant out before the term of the lease is up. He will want to do so if the rent is overdue and not being paid and the landlord thinks that he is better off trying to let the premises to someone else.

To do this the landlord must be sure that the lease makes provision for forfeiture in the event of rent not being paid or whatever other breach of covenant the landlord is alleging. Most leases will contain such a covenant; if yours does not it will provide for forfeiture for breach of a condition of the lease.

In order to use the forfeiture procedure the landlord must first, by law, give the tenant the opportunity to remedy whatever breach has occurred.

Firstly the landlord will need to serve a Notice of Forfeiture on the tenant which will set out the alleged breach and the time within which it must be put right or that the landlord will re-enter the premises.

This is called a Section 14 notice as the requirement arises from section 14 of the Conveyancing Act 1881.

If the remedy is not forthcoming and the breach is not sorted out then the landlord can re-enter the premises peaceably-it is important that to note that anything other than the minimum damage can lead to a criminal offence being caused by the landlord.

If resistance is offered by the tenant then it would be very difficult for a landlord to enter peaceably and should withdraw.

Ejectment Civil Bill on Title

If the landlord cannot take the premises peaceably he will need to go the Court route and it is by way of Ejectment Civil Bill on Title. Be warned that this is a slow process and the Courts have traditionally given a fair degree of latitude to tenants giving them more time to put things right.

Tenant Relief

Conveyancing Act 1881, section 14(2), provides some relief for the tenant provided that the landlord has not re-entered and the tenant has put matters right by paying the rent or whatever breach is alleged.

The courts have traditionally been very fair with tenants in these matters and a tenant who has paid up, even late, will be in a strong position to get this statutory relief from the Court.

Commercial Landlord and Tenant Issues in Insolvency and Liquidation

In a liquidation situation, any rental arrears which arose prior to the liquidation will rank as unsecured claims and participate in any dividend on a pro rata basis with other unsecured creditors.

Rent arising where the liquidator occupies the premises to wind up the failed company is deemed to be an expense of the liquidation and will rank, along with the costs of the liquidation, above all creditor claims.

Receivership

Rent accrued prior to the appointment of the receiver will rank as an unsecured debt.

Rent due during the period of receivership, the receiver is obliged to pay the rent as a priority expense of the receivership.

Examinership

Theoretically, rent accrued during examinership should be paid to the landlord. However, proceedings cannot be taken against a company when it is in examinership so it would be very difficult to enforce the payment of rent.

Repudiation of leases during examinership

Section 20(1) of the Companies (Amendment) Act 1990 allows the repudiation of any contracts of a company in examinership.

This includes leases and a Court has jurisdiction to approve the repudiation of a lease of a company in examinership. This is a discretionary power which will be exercised in each case in the particular circumstances of the case.

Disclaiming a lease

Section 290 of the Companies Act 1963 allows a liquidator to apply to Court for an order for disclaimer of onerous property or contracts.

The liquidator has 12 months within which to disclaim a lease and it is a slow process. The landlord will be able to claim as an unsecured creditor for damages as a result of the disclaimer.

However, whether there is going to be a dividend available to unsecured creditors or not will depend on the circumstances of each case.

7 Tips for Buying a House in Ireland

stamp-duty

Are you thinking of buying a house?

Buying a house, especially if it is your first purchase, can be stressful and intimidating.

However, in this piece I will give you 7 tips you need to be aware of, to ensure you reduce your stress levels and make a good purchase.

1.Location-choose well

The location of your property is vital. You can change a lot of things about your house, but you will never change the location.

There is an old saying, a truism, in relation to property investment: the day you buy is the day you sell.

This means you should put yourself in a potential buyer’s shoes 5/10 years down the road, and look at the property from his perspective. That’s what he’ll be doing.

Now is the time for you to be prudent.

With this in mind my advice is to buy the worst house in the best area rather than the best house in a poor area.

You are not just buying your house as an investment, and your focus will be on getting the right place for you and your loved ones.

But circumstances change and you may need to move sooner than you think; if that’s the case you will be happy that you looked at your house purchase from both perspectives-as a home and as an investment-when choosing.

2. Finances

Be careful with your budget and allow for all expenses and outlays, not just the purchase price. These will include

A valuation report
A structural survey
Stamp duty
Legal fees
Commissioner for oaths fees
Property Registration Authority (PRA) fees
Legal searches

3. Negotiation

Don’t disclose all your cards when you are negotiating with the auctioneer, and don’t let him know what your budget is.

Also, consider offering a very specific figure rather than a round one. You will have more credibility when you tell the auctioneer that you are at your maximum, you are flat out with your budget, if you offer €193,200 rather than €195,000 or €200,000.

If you offer €195k or 200 k the auctioneer will assume, rightly or wrongly, that there is another bit in you.

If you tell him your budget is €190,000, and friends and family have chipped in and helped you out, your bid of €193,200 will be more credible as your very best shot, and will be more likely to be accepted.

4. Structural Survey

Get a structural survey carried out on the house. This should be done by an architect or engineer or a suitably qualified professional, who has professional indemnity insurance.

Don’t believe that a well intentioned friend or relative who knows a little about diy can do this for you. The survey needs to be a professional evaluation with a comprehensive report produced.

The surveyor should also give you a good indication whether further investigation is required to check for pyrite, and should check the boundaries of the property vis a vis what is registered with the Property Registration Authority.

5. Planning Investigation

You should consider carrying out your own research in relation to planning. You can attend at the local authority’s planning office and have a formal search carried out. This will show any applications made in respect of the property.

These applications, if granted, should correspond with the planning documentation provided with the title documents as part of the legal process.

In addition, there should be certificates of compliance from an architect/engineer in respect of each development.

You should also consider speaking to residents in the area to check whether there are any adverse developments planned for the area, for example a proposed dump nearby.

6. Lender’s Requirements

Before completion your solicitor will seek the loan funds from your lender, assuming you are borrowing.

You can be very frustrated if the sale does not complete on time due to something simple, which is your responsibility, not being in place for the bank-for example a signed direct debit mandate, a life assurance policy, and property insurance on the property you are buying.

7. Solicitor

Choose your solicitor wisely, and don’t just go for the cheapest quotation you get. One of the biggest causes of the stress associated with buying a house is the uncertainty from your perspective, and not knowing what is going on at each stage of the process.

So, a solicitor who communicates with you promptly and is easy to reach will help reduce the stress and uncertainty.

Good luck!

The Multi Unit Development (MUD) Act, 2011-the Essentials

mud-act-2011

They’ve been doing it in Europe for years.

But apartment living is a relatively recent phenomenon in Ireland.

The Multi Unit Developments Act, 2011 came into effect on 1^st April, 2011 and applies to multi unit developments with shared facilities and services.

A multi unit development under the act has not less than 5 apartments and the Act applies to housing estates too which has an Ownership Management Company (OMC) taking responsibility for common areas.

The OMC (Owners’ Management Company)

The OMC is a company set up to own and be responsible for the common areas of the development once it is completed. It also looks after the estates services such as lighting, cutting green areas, landscaping, cleaning, waste management, and insurance. It would generally appoint a managing agent to carry out this work on a daily basis but would have statutory obligations to file returns with the companies registration office.

Each property owner is a member of the OMC and has one vote. Any member is eligible to become a director of the OMC and a members’ meeting must be held every year to discuss the accounts, service charge for the coming year, and other matters which arise such as a sinking fund for repairs.

The managing agent is obliged to register and be licensed with the Property Services Regulatory Authority.

The Multi Unit Developments Act, 2011

The Act deals with 4 broad areas:

The transfer of ownership of the common areas by the developer to the OMC by 30^th September, 2011. The OMC must allow the developer access to finish the development, where applicable, and the developer must indemnify the OMC against any claims during completion of the development.

The OMC should have independent legal advice to ensure compliance with its statutory duties.

The obligations placed on the developer for the completion of the development stage of the estate and the extinguishment of the developer’s beneficial interest. The developer makes a statutory declaration stating that his beneficial and legal interest has merged and transferred to the OMC.

The developer would also hand over documents such as technical documents, service test records, title deeds, specifications etc.

The MUD Act, 2011 provides new mechanisms for the resolution of disputes and allows the OMC to represent the owners as a collective body in the Circuit Court. Prior to this property owners had to take action on an individual basis. Mediation is strongly encouraged as a dispute resolution mechanism.

If an OMC has been struck off the Companies Register an application for reinstatement can be brought within 6 years. It used to be only 1 year.

The MUD Act, 2011 provides new regulations for service charges, sinking funds, governance and reporting and imposes greater, added responsibilities on the Board of Directors of the OMC. These responsibilities would include a greater obligation to consult with and report to the property owners.

The Act also include obligations in respect of repairs and maintenance and maintaining a sinking fund for the upkeep of the development eg the roofs of apartment blocks.

Service Charges

The MUD Act, 2011 provides that every property owner must pay service charges. The developer is responsible for service charges of unsold units.

Service charges can be pursued through the Courts as a straightforward debt collection task.

Sinking Funds

All multi unit developments must maintain a sinking fund for refurbishment, maintenance of a non-recurring nature, improvement.

Sinking fund monies must be kept separate from the service charge monies in a separate account to ensure that the money is only spent in appropriate ways, and not for ongoing maintenance.

One Vote

Each property owner has one vote.

House Rules

The OMC can draw up house rules for the development, provided they are fair and reasonable, and agreed by the owners.

Summary for buyers of apartments

The benefits of the MUD Act, 2011 for purchasers of apartments, therefore, include:

Improved protection and dispute resolution
Transfers control of the development from the developer to the OMC
Equal voting rights
Compulsory transfer of the common areas from the developer
Reporting about service charges and sinking funds and how they are calculated
A real say in the running of the development by the property owners.

Warning: Why You Need a Structural Survey When Buying Your House

structural-survey

Yes, you’re excited.

But there is no excuse for making this stupid mistake when you are buying a property.

One of the most important things you need to do is to have a structural survey of the property carried out.

And when I say “structural survey” I mean a proper survey by an engineer or surveyor who has professional indemnity insurance.

I don’t mean a well intentioned friend or relative who does a bit of building having a look and telling you, “yes, it looks fine”.

Don’t confuse a structural survey with the valuation report/survey which the lender will want carried out either.

Your surveyor needs to do two things at least:

Give a professional opinion on the structural integrity of the building and flagging up any issues which might occur later; this would include any signs of further investigation being required to establish that there is no pyrite in the building
Check that the property on the ground corresponds with the map of the property with the title deeds/on the Land Registry folio. In other words, that you are actually buying what you think you are buying.

Declaration of Identity

There is one further thing your surveyor should be able to do for you as part of his survey and this applies to one off rural properties only.

That is, provide a Declaration of Identity if necessary. This declaration that all of the necessary services-for example septic tank and water well- for the property are located within the boundaries of the property.

You don’t want to discover that your septic tank is located in a neighbouring field after you have moved in.

A surveyor’s report will probably cost you up to €500 plus VAT but you will get them done for cheaper.

It is money well spent however which can help you avoid a much more costly mistake which could come back to haunt you in later years.

Is Your Home Safe from Pyrite?

pyrite-damage

Pyrite in your property has the potential to break your heart and cause you catastrophic loss.

What is pyrite?

I’m not an engineer but my research has discovered that it is a common mineral that occurs in rocks.

In particular circumstances a chemical reaction, which creates expanding crystals within the material, can occur which causes the pyrite to swell causing the construction material in which the pyrite is present to expand, heave, crack and eventually crumble.

This problem occurs mostly in the floors of houses causing huge problems for the property owner rendering the home virtually unsalable until the problem is resolved.

Indications of Pyrite Damage

Some tell tale signs include:

Lifting of the floor slab resulting in cracking
Cracking of floor finishes and tiles
Doors catching on floors
Horizontal cracking externally at damp proof course level
Cracking on internal walls over doors
Cracking of ground floor stud partitions and cracking of plasterboards.

Most, but by no means all, of the houses in Ireland where you will find problems with pyrite are located in North Leinster and the Greater Dublin area including Meath, Offaly and Kildare. The reason for this is the use of stone from quarries in this area which contain framboidal pyrite.

IS 398 published by the NSAI in 2013 aims to set new standards in relation to pyrite by providing protocols for testing and categorisation and setting out a methodology for remediation works.

IS 398 provides for 3 certificates in relation to the presence or absence of pyrite in the underfloor hardcore of a house:

Green means it is pyrite free
Amber means the hardcore is susceptible to limited or significant expansion and monitoring of the damage is required
Red means you have a pyrite problem and the stone infill in the floor of the house will have to be removed and replaced. This involves the removal of the floor slab, insulation and damp proof membrane. The replacement stone and remedial works should also be certified in accordance with IS 398.

Buying Your New Home

When buying a house you should make sure to have a structural survey carried out first. Then, your engineer should be able to advise you whether further investigation is necessary to ascertain the position in relation to pyrite.

You may have to insist that you are provided with a report from an accredited laboratory confirming that the property is pyrite free before proceeding with your purchase, especially if the house is in one of the areas where pyrite is a problem.

This will involve the taking of core samples from the floor of the house and a delay of about 3 or 4 weeks as much of the testing is carried out in laboratories in the UK. But it is strongly advisable if your engineer tells you that further investigation is necessary.

If in any doubt, discuss this with both your engineer and solicitor because the consequences of buying a property with a pyrite problem are very serious.

The Pyrite Remediation Scheme

The aim of the Pyrite Remediation Scheme is to procure the remediation of certain dwellings with damage caused by pyritic heave of hardcore under floor slabs.

The Housing Agency is responsible for the testing of dwellings and the implementation of the remediation process. They will engage all necessary construction professionals, advisors and contractors to carry out the remediation of dwellings which are included in the Scheme.

Conditions for eligibility to the pyrite remediation scheme

Dwellings must be located within the administrative areas of Dún Laoghaire-Rathdown, Fingal, Kildare, Meath, Offaly or South Dublin County Councils; or Dublin City Council.
Dwellings must have been constructed and completed between 1st January 1997 and 12th December 2013;
Dwellings must have been assessed, tested and certified as having a damage condition rating of 2 and it must be verified that damage is attributable to pyrite heave;
An application can only be made in respect of one dwelling and the dwelling must have been purchased before 12th December 2013;
The applicant must be able to show, to the satisfaction of the PRB, that he/she does not have available to him or her any practicable option, other than under the Scheme or the use of his or her own resources, to remediate or secure the remediation of the dwelling.

What costs does the Scheme cover?

The sampling, testing and damage verification;
The preparation of the specification of remediation works in accordance with I.S. 398-2: 2013;
The management of the tender process and implementation of the remediation works;
The remediation of the dwelling as per specification and schedule to the required standard;
The monitoring and inspection of works, snagging and final certification.

In addition, the following costs incurred by the applicant may be recovered under the Scheme:

The vouched cost (including VAT) of procuring the initial Building Condition Assessment from a competent person, subject to an overall maximum limit of €500, provided the dwelling is approved for inclusion in the Scheme following the Verification Process;
The vouched costs for the temporary removal, storage and return of furniture, household appliances and effects in order to facilitate the remediation, subject to an upper limit of €2,500 (including VAT);
The vouched costs for alternative accommodation of the household in order to facilitate the remediation, subject to an upper limit of €3,000 (including VAT);
Where a scheme participant satisfies the Housing Agency in advance that suitable rental accommodation cannot be obtained for €3,000 or less, the storage and accommodation expenses may be combined, but is subject to an overall limit of €5,500 (including VAT).

Operation of the Pyrite Remediation Scheme

The Pyrite Remediation Scheme will operate as follows:

The property owner makes an online application to the Pyrite Resolution Board, provided the property meets the criteria. The PRB has prepared a guide to help homeowners to form a reliable opinion as to whether their dwelling has the relevant damage in accordance with the Irish Standard: Information Leaflet for Home Owners.

The Assessment, Verification and Recommendation Process, which is undertaken by the Housing Agency, will establish that the damage recorded in the Building Condition Assessment is attributable to pyritic heave. This may involve inspection of the dwelling and the testing of the hardcore material in accordance with I.S 398:2013 Part 1.

The PRB will consider this recommendation and will notify the applicant of the decision to:

include the dwelling in the Scheme, or
exclude the dwelling from the Scheme.

A decision to exclude a dwelling from the Scheme may be appealed.

The Scheme Participant is issued a copy of the “Guide for Scheme Participants”, which explains what is involved in the remediation process and what is required of Scheme Participants during the process. The guide also provides information to the Scheme Participant on other aspects of the Scheme, such as the programming of Remedial Works, the Homeowner’s Agreement, the process for recouping expenses, etc. In addition, there is a section answering Frequently Asked Questions from Scheme Participants.

The Housing Agency assigns a Project Manager to each project.

Following a tendering process, the Housing Agency will appoint an Engineer from a Framework Panel to prepare a remedial works plan and specification for the remediation of the dwelling.

On completion, the works will be certified in accordance with I.S. 398-2: 2013. The Project Manager or Engineer will inform the Scheme Participant of completion of the work and that the dwelling can be reoccupied. Claims for the payment of vouched costs (storage/accommodation) incurred by the Scheme Participant, which satisfy the conditions of the Scheme, will be approved for payment when the works are completed and certified.

The relevant legislation is the Pyrite Resolution Act, 2013.

The Pyrite Resolution Board only accepts online applications.

The Family Home and Property Transactions-The Essentials

family-home

The Family Home Protection Act, 1976 prevents one spouse, in whose sole name the family home was vested, from dealing with the property without the knowledge and/or consent of the non-owning spouse.

There is no differentiation between husband or wife and section 3(1) Family Home Protection Act, 1976 states:

3.—(1) Where a spouse, without the prior consent in writing of the other spouse, purports to convey any interest in the family home to any person except the other spouse, then, subject to subsections (2) and (3) and section 4, the purported conveyance shall be void.
		(2) Subsection (1) does not apply to a conveyance if it is made by a spouse in pursuance of an enforceable agreement made before the marriage of the spouses.
		(3) No conveyance shall be void by reason only of subsection (1)—
		(a) if it is made to a purchaser for full value,
		(b) if it is made, by a person other than the spouse making the purported conveyance referred to in subsection (1), to a purchaser for value, or
		(c) if its validity depends on the validity of a conveyance in respect of which any of the conditions mentioned in subsection (2) or paragraph (a) or (b) is satisfied.
		(4) If any question arises in any proceedings as to whether a conveyance is valid by reason of subsection (2) or (3), the burden of proving that validity shall be on the person alleging it.
		(5) In subsection (3), “*full value*” means such value as amounts or approximates to the value of that for which it is given.
		(6) In this section, “*purchaser*” means a grantee, lessee, assignee, mortgagee, chargeant or other person who in good faith acquires an estate or interest in property.
		(7) For the purposes of this section, section 3 of the Conveyancing Act, 1882, shall be read as if the words “*as such*” wherever they appear in paragraph (ii) of subsection (1) of that section were omitted.

So, the prior written consent of any non-owning spouse must be obtained prior to any conveyance of the family home since 1976. (Note: ‘conveyance’ includes mortgage)

However, section 54 of the Family Law Act, 1995 imposes a six year time limit within which proceedings must be taken by the non-owning spouse to have a conveyance declared void:

Proceedings shall not be instituted to have a conveyance declared void by reason only of subsection (1) after the expiration of 6 years from the date of the conveyance.

Exceptions

There are four exceptions provided for in section 3(1) above:

Agreements made in contemplation of marriage
Conveyance to a bona fide purchaser for full value (the purchaser must act in good faith-this means that the purchaser must make proper and reasonable enquiries and inspections to ascertain the position. This means that a solicitor acting for a purchaser must carry out all necessary investigations to clarify the position concerning the family home. Failure to do so will leave his client open to a challenge from the non-owning spouse)
Conveyance of an interest by a person/body other than a spouse (eg mortgagee bank/lender)
Where a Court orders the sale of the home in a judicial separation.

What is a Family Home?

A family home is defined in section 2 Family Home Protection Act, 1976 is a dwelling in which a married couple ordinarily resides. However a family home also includes the former residence of a couple who are separated as well as the current home of a married couple.

It also includes a dwelling in which a spouse is residing having been forced to leave the family home by the other spouse.

2.—(1) In this Act “family home” means, primarily, a dwelling in which a married couple ordinarily reside. The expression comprises, in addition, a dwelling in which a spouse whose protection is in issue ordinarily resides or, if that spouse has left the other spouse, ordinarily resided before so leaving.
		(2) In subsection (1) “dwelling” means—
		(a) any building, or
		(b) any structure, vehicle or vessel (whether mobile or not),
		or part thereof, occupied as a separate dwelling and includes any garden or portion of ground attached to and usually occupied with the dwelling or otherwise required for the amenity or convenience of the dwelling.

Prior Written Consent

Where the property being sold is jointly owned by a married couple, no spousal consent is required to a conveyance.

The spousal consent must be prior to the purported conveyance and be in writing.

It is also important that the consent is informed-the spouse must know what he/she is consenting to.

The need for spousal consent can be dispensed with by a Court in certain circumstances (section 4(1), Family Home Protection Act, 1976)

4.—(1) Where the spouse whose consent is required under section 3 (1) omits or refuses to consent, the court may, subject to the provisions of this section, dispense with the consent.
		(2) The court shall not dispense with the consent of a spouse unless the court considers that it is unreasonable for the spouse to withhold consent, taking into account all the circumstances, including—
		(a) the respective needs and resources of the spouses and of the dependent children (if any) of the family, and
		(b) in a case where the spouse whose consent is required is offered alternative accommodation, the suitability of that accommodation having regard to the respective degrees of security of tenure in the family home and in the alternative accommodation.
		(3) Where the spouse whose consent is required under section 3 (1) has deserted and continues to desert the other spouse, the court shall dispense with the consent. For this purpose, desertion includes conduct on the part of the former spouse that results in the other spouse, with just cause, leaving and living separately and apart from him.
		(4) Where the spouse whose consent is required under section 3 (1) is incapable of consenting by reason of unsoundness of mind or other mental disability or has not after reasonable inquiries been found, the court may give the consent on behalf of that spouse, if it appears to the court to be reasonable to do so.

Generally, this occurs where a spouse is unreasonably withholding consent.

The Family Home Protection Act, 1976, the Judicial Separation and Family Law Reform Act, 1989 and the Family Law (Divorce) Act, 1996 grant powers to Court to deal with the family home which it does by way of property adjustment orders and/or orders for the sale of the family home.

A Court also has power, pursuant to section 5, Family Home Protection Act, 1976 to make any order in relation to the property where it is of the view that the conduct of one spouse could lead to the loss of the family home.

Where a Court makes any property adjustment order in respect of the property in a divorce or judicial separation, the Registrar of the Court is obliged to register the order as a burden on the folio with Land Registry or in the Registry of Deeds.

Planning Considerations When Buying or Selling Property in Ireland

planning-permission

The first significant planning law in Ireland was the Local Government (Planning and Development) Act, 1963.

The next major piece of legislation dealing with development and planning was the Local Government (Planning and Development) Act, 2000 which consolidated Irish planning law by incorporating 9 planning and development acts passed since 1963.

The Local Government (Planning and Development) Act, 2000 was itself amended by the Planning and Development (Amendment) Act 2002 and the Planning and Development (Strategic Infrastructure) Act, 2003.

The Act at section 4(2) (a) provided for planning regulations, the main one now in force being the Planning and Development Regulations 2001.

Planning Register

Section 7 of the Local Government (Planning and Development) Act, 2000 provides for a planning register to be kept by a planning authority (section 2(1)). However there is no guarantee that the planning register is kept up to date by the authority as they may do so “as soon as may be”.

When a solicitor is acting for a purchaser of a property he/she should have a planning register search carried out before allowing his client sign the contract for sale.

Development

Development is defined in section 3(1) of the 2000 Act as:

3.—(1) In this Act, “development” means, except where the context otherwise requires, the carrying out of any works on, in, over or under land or the making of any material change in the use of any structures or other land.

So there are 2 separate parts to “development” as defined:

Carrying out of works and
Material change of use.

However unauthorised developments can only have taken place after 1^st October, 1964.

Exempted Development

Exempted development is development where an applicant is exempt from the obligation to obtain planning permission which occurs in 3 circumstances:

Where the development took place before 1^st of October, 1964
Where section 4 of Local Government (Planning and Development) Act, 2000 provides that certain types of development are exempt
Where the Minister made regulations providing classes of development to be exempt, which he did under the Local Government (Planning and Development) Act, 2000 and the Local Government (Planning and Development) Act, 1963

One of the most important categories of exemption is contained in the 2000 Act and includes:

a) where development consists of carrying out works which affect only the interior of the structure and
b) works which does not materially affect the external appearance of the structure.

From a solicitor’s perspective, he/she should get an architect to furnish a Certificate or Declaration confirming that particular work is exempt and the grounds which bring the development under an exempt category.

Planning Permission

Planning permission is required for all development of land carried out since 1^st October, 1964 and which is not exempted development or for the retention of unauthorised structures.

Part III of the Local Government (Planning and Development) Act, 2000 deals with planning permission, and sets out the procedure for applying for permission, time periods, notices, and gives the planning authority the power to impose conditions when granting permission.

The solicitor needs to read all conditions imposed in any planning permission and must ensure that any financial condition imposed has been complied with.

Enforcement

Part VIII of the Act provides for enforcement mechanisms including

Criminal prosecution
An enforcement notice under section 154/5 of the Act
A planning injunction under section 160 of the Local Government (Planning and Development) Act, 1963.

Vital Questions

Critical questions to be answered in relation to the property are

Has there been in relation to the property any development (including change of use or exempted development) within the meaning of the Planning Acts on or after the 1^st October 1964.
Evidence of Compliance with the financial conditions by way of letter/receipt from the Local Authority.
Certificate/Opinion from an Architect/Engineer that the Permission/Approval relates to the property and that the development has been carried out in conformity with the Permission/Approval and with the Building Bye-Law Approval (if applicable) and that all conditions other than financial conditions have been complied with.

If there is formal confirmation from the local authority that the roads and services have been taken in charge, this is acceptable that the financial contributions and/or lodgement of bonds with the council has been complied with.

Exempted Development

Even where it is claimed that particular development is exempt a certificate or opinion from an architect/engineer should be obtained as every exemption has limitations placed on it.

Building Control Regulations

The Building Control Act, 1990 is the important Act here and provided for building regulations to be drawn up to ensure buildings were built in accordance with the best Code of Practice. The main provisions of this act came into force on 1^st June, 1992.

A Certificate/Opinion of Compliance with building regulations from an architect/engineer is essential. There should be no reservations or exceptions in it.

Local Government (Multi-Storey Buildings) Act, 1988

This Act deals with buildings with 5 or more storeys and a basement is considered to be a storey.

The Building Regulations

The Building Control Act, 1990 and the Regulations made under it are “the Building Regulations”. Prior to the Building Regulations some, but not all, parts of the country had building bye-laws.

The Building Control Act, 1990 did away with the need to obtain bye-law approval from 1^st June, 1992. If no notice was served before 1^st December 1992 in respect of works carried out prior to 13^th December 1989 the works are deemed to have been carried out in accordance with the bye-law.

From 1^st June, 1992 the Building Regulations apply in relation to works carried out, and this includes alterations or extensions of existing buildings.

The Building Regulations set out a new system to regulate building practice in Ireland and to improve building standards.

In a similar way to the Planning Acts, the Building Control Act, 1990 provided that certain classes of development are exempt.

For all works and uses to which the Building Regulations apply a commencement notice must be submitted to the building control authority.

The Building Control Regulations 1997 provide for the need for a fire safety certificate to be obtained before work commences on a development. Domestic dwellings are exempt and there is a list of other exemptions also.

There is a limit of 5 years from completion of the works or change of use after which no enforcement notice may be served by the local planning authority.

General Condition 36-the Planning Warranty

General condition 36 of the standard Law Society contract of sale requires the production of a certificate or an opinion on compliance with planning and building regulations from an architect/engineer professionally qualified to so certify or opine.

It also provides a warranty to the purchaser that all developments on or to the property since 1^st October, 1964 comply with all the requirements of the planning acts and building regulations/bye-laws. It also warrants that if a planning permission has been implemented then the vendor warrants that the conditions have been substantially complied with.

Because of the extensive nature of this warranty it is common for this condition to be deleted or varied by special condition. Non-disclosure of any problem re planning prior to signing of the contracts could lead to rescission of the contract and legal proceedings for damages.

Architect’s Certificates of Compliance

It is common practice to seek a certificate of compliance with planning permission and building regulations from an architect/engineer.

The certificate of compliance should

Contain the qualifications of the person giving the certificate
Confirm the means of knowledge
Confirm that the planning permission relates to the development in sale
Confirm that the design conforms with the Building Regulations
Confirm that the development complies with the planning permission
Not contain any qualifications or exceptions which are not generally acceptable
Be dated and signed.

Certifiers may also be asked for a copy of their professional indemnity insurance to confirm the adequacy of same.

Be careful about the difference between a Notification of a Decision to Grant Permission/Approval and the actual planning permission which is the Notification of Grant of Permission/Approval.

Checklist for Planning Documentation

Here are 5 good things to check in relation to planning documentation:

Is it a final grant and not just a notification of a decision to grant?
Does it relate to the property you are buying?
What is the expiry date of the permission? (A planning permission generally lasts for 5 years).
Was the development carried out within the lifespan of the permission?
Take a close look at the conditions of the permission, especially the financial conditions (if any).

The key questions to ask when buying are:

Is there planning permission?
Were building regulations or building bye-laws complied with?
Is there an architect’s certificate confirming compliance with planning permission and building regulations/building bye-laws?