SUCCESSFUL APARTMENT LIVING CONTENTS 1. Executive Summary and Recommendations 2. Management of Apartment Developments 3. Other Factors Affecting Apartment Living 4. Privately Managed Housing Estates 5. Detailed Recommendations 6. Acknowledgements 7. Bibliography Evelyn Hanlon Private Housing Unit Housing and Residential Services Dublin City Council [email protected] June 2006 - 1 - Successful Apartment Living 1. Executive Summary Introduction In light of the City’s ambition for more sustainable urban densities it is both inevitable and appropriate that apartments will become the dominant housing form for Dublin in the future. This paper is intended to stimulate discussion about Dublin City Council’s role and contribution, to making apartment living more attractive. The paper is separated into three topics; (a) management of apartment developments, (b) factors other than management that impact on successful apartment living and (c) privately managed conventional housing estates. Management of Apartment Developments Apartment living necessarily involves a high degree of interdependence between unit owners, who own and share the communal spaces and the external structures of their apartments. This interdependence is the reason why some form of overarching body is needed to own, manage and maintain these shared areas. Residential management companies hold the lease to the common areas in both apartment developments and privately managed estates. They also hold the lease to the external structure of apartment buildings. The most common legal form of management structure in apartments is a company limited by guarantee. This format was borrowed from the commercial and industrial property sector, with some minor adjustments. The company limited by guarantee structure is a development of companies limited by shares. The regulation, and reporting requirements for a guarantee company are the same as for a company limited by shares. Both are subject to the requirements of the Companies Acts, and are regulated by the Companies Office, whose sanction is to strike off the company, if it becomes non-compliant. The company limited by guarantee structure is two-tiered, consisting of members and the directors they appoint at the Annual General Meeting. The company needs to be in place when the units are sold, so the developer sets it up and appoints the first members, directors and managing agent. The purchasers become the owners of the residential management company and as such, they become members of the company, able to replace the developer’s directors, company secretary and agent with their own appointments. Management Agents Managing agents are not licensed or regulated and there is insufficient competition. Three or four big agencies hold the lion’s share of the market in Dublin, with only small schemes falling to other agencies. Most large developments employ managing agents, and there have been calls to have agents licensed and regulated to achieve more consistent standards. The Government recently announced its intention to establish a National Property Services Regulatory Authority, in advance of legislation. The authority’s remit is not yet fully public, but it does include licensing and regulating property management agents. Many social housing providers are concerned at the impact of private management on their finances, tenants and property and are not convinced that the system is sustainable. One option for social housing organisations (public and voluntary housing) is to take on the role of managing agent in mixed tenure developments and this should be provided for in the proposed new licensing system. - 2 - Service Charges With more and more apartment developments under construction, the affordability of service charges is now a serious issue for ordinary people. The greater the extent of services and infrastructure that are privately managed, the more expensive the apartment development is for owners. Some owners will have received assistance from capital housing subsidies to help them to buy their homes. Dublin City Council should review the extent to which it may be desirable to take-in-charge some areas/services in large apartment developments in exchange for greater public access and public utility. In theory, since the apartment owners own the company, they have the power to establish the level of service charge, the way services are provided and which agent they employ. Since most of the costs arise from services provided by agents, in reality, the agent sets the service charge. The only effective option available to the management company is to put in place a system of competitive tendering for agency services and to ensure that this is filtered down to the employment by the agent of sub-contractors. Value for money tends to depend on the maturity, control and competitiveness of the market. The type of services that make up the charge include: • Sinking fund contribution towards major capital expenditure, • Payments to contractors for repair, cleaning, maintenance and improvements to infrastructure, lifts, gates, doors, building fabric and landscaping. Management costs for common areas including car parking, open spaces and specialist areas including play areas, recreational, • Structural and public liability insurance, • Professional fees (auditors, lawyers, accountants), • Management agent’s fees and administration costs, • Costs associated with the Companies Office, • Bank Charges, • Energy costs for lighting and other electrical services. Misconceptions There are evident and somewhat understandable misconceptions about the rights and obligations of members, agents and developers both among the general public but also among apartment owners. This leads to the perception that owners (despite being members) are not in control and not involved in the decisions affecting their homes. This is heightened if the: • Developers hold onto voting rights through the original members or through weighted share arrangements for commercial or residential units, • Developers’ original directors are not replaced at the Annual General Meeting (or even worse if an AGM is not held), • Common areas and external structures are not vested by the landlord/developer in the management company. As well as, addressing these issues and introducing a licensing system for agents, an awareness raising and skills training programme is required, to support and empower owners, to take control of their homes and management companies. - 3 - There are a number of bodies looking at issues that are relevant for residential management companies and apartment developments: - • The Company Law Review Group is considering a new, simplified structure for “Mom and Pop” type companies limited by shares, to be known as Designated Activity Companies. There may be some scope for residential management companies to change over to this new form. But there will always be concern when a structure designed for one purpose is used for another purpose. Limited companies may have been acceptable when there were very few apartment developments but the situation now is that the majority of new dwelling units provided in Dublin City are apartments. This growing sector needs a secure and appropriate legal framework to provide for its specific requirements, (information, accountability, transparency, governance, legal remedies, licensing and regulation of agents, registration, training and support for the management body and templates for reporting, and comparative analysis). Instead of this it is trying to adopt and adapt a model designed for commercial trading needs, which does not meet its needs and is relatively expensive to operate. • The Charities Regulation Bill 2006 will introduce a mandatory registration, regulation and supervision of organisations working for ”charitable purposes”. The proposed reform is partly a response to the problems charities experienced in using the company limited by guarantee. Not all charities use the structure and there is no single register of charities. In both residential management companies and charities there is concern about a lack of transparency and accountability, in Companies Office returns. While there are significant differences between charities and residential management companies, there are similarities too i.e. between voluntary housing associations (usually registered charities) and non-profit, management companies in apartment developments. • The Auctioneering and Estate Agency Review Group queried the appropriateness of the company limited by guarantee as a vehicle for residential management companies in their July 2005 report to the Minister for Justice. While they made no proposals for a new legal form, they did suggest the establishment of an independent, statutory body to regulate property services including agents involved in management and lettings. • The Law Reform Commission are examining the legal issues in relation to multi-unit developments and their paper is expected in 2006. • The Dáil and Department of the Environment, Heritage and Local Government have raised the issue with local authorities, particularly in relation to privately managed conventional housing estates. • The City and County Managers Association have asked the Local Government Management Services Board for a report on residential management companies. Remedies for Non Compliant/Failed Companies When a limited company fails it is liquidated and when it does not comply with the requirements of the Companies Acts, the Companies Office can strike it off the register of companies, from this point onwards it is no longer a legal company and has to cease to operate as such. When the company is struck off or liquidated the dwellings cannot be sold because the company has no legal standing. This means it cannot enter into contracts for insurance, agency or other services, or become involved in legal transfers of ownership of common areas to purchasers of apartments. A central assumption in limited companies is that the assets of the company can be liquidated and sold off to pay creditors, lenders etc. In the case of an apartment development, (or housing estate) the assets are; the sinking fund/bank balance, the common areas and external structure of the buildings. Clearly there a few (if any) circumstances when dissolution/liquidation/strike - 4 - off are desirable remedies. Owners would find it difficult to find a buyer solely for the common areas, even if they wanted to sell it, e.g. a long-term investor to buy the lease in return for a ground rent type income and ownership of land when the lease expires. Without the ability to realize the value of the assets limited liability cannot be implemented in the way envisaged in the Companies Acts. Particularly when the amount guaranteed is nearly always nominal and is usually a single euro. Needs of Apartment Owners The reporting requirements of limited liability companies are geared towards protecting the interests of lenders, creditors and external funders. These are not critical issues for apartment developments; rather it is apartment owners who are themselves in need of protection since they can even lose the right to sell their homes. Owners, need access to management accounting information for decision-making, they do not obtain this information from the annual reports filed in the Companies Office. Frequently all they receive is a one line invoice from the agent, showing the total amount payable, with no detail of the makeup of the items or report on how the company fared in previous years. The only formal occasion when members meet the directors (as a body), is at the Annual General Meeting when they are presented with the annual report and accounts before they are filed in the Companies Office. If a new legal vehicle is developed for residential management companies, the needs of owners should be central: • Service Level Agreement should be developed, showing key indicators against which performance can be measured and reported. • Owners need to know how service charges are calculated and distributed among units. They need information about the composition of service charges including an itemised budget showing breakdown between contractors, agents, other professional fees, administration, insurance and sinking fund and charges such as waste management/utility bills. • They need to be able to review the factors and variables affecting service charge levels including those which can be remedied, but also those which cannot be changed because they were determined at design, planning and construction stage. • They need to see a variance analysis showing actual spending against budgeted, with explanations for over or under spending. They need an analysis of debtors and creditors showing actions taken and proposed. • Owners need information about how expected useful live of major items of plant, equipment and infrastructure are determined, and how often they are reviewed and compared to existing provision. • Disbursements from the sinking fund need to be the subject of a separate system of authorisation. The funds should be held separate to the revenue bank account where the money, for day-to-day payments, is held. The sinking fund account should be held in the name of the management company or in a managed client account held on their behalf by the agent. Each year this account should be audited and a report provided to members. • Owners need assurances that the contracts for annual services are awarded competitively both to the agents and to their subcontractors. The tendering procedures, used for contractors, including the number of quotations needed should be agreed with the members. In cases where the agent has a conflict of interest, this should be disclosed to the members before the decision is made. Conflicts could include relationship with subcontractors or developers. - 5 - • There should be a separate system to authorise extraordinary items such as breakages and consideration should be given to making provision for items in subsequent years’ budgets. • Regular reports are needed showing how one apartment development compares to other similar ones, so owners can assess the impact of service charges, sinking fund levels and quality of management on property prices in their scheme relative to others in the area. The new property authority could provide this type of comparative analysis for existing owners and purchasers. • The management body should put a system in place to enforce agreed “house rules” including enforcing conditions in the lease relating to sub-letting apartments and commercial units. Obsolescence Apartment developments have a finite life expectancy and most will need refurbishment within a few decades. Expected useful life will depend on: • Quality of applied, cyclical maintenance • Initial design • Construction methods, quality and finishes • Degree of flexibility in the scheme to facilitate refurbishment/redevelopment In some cases demolition and redevelopment will be the most economic and effective solution. The management company needs to take a decision in an agreed manner, e.g. voting at an Extraordinary General Meeting. The method of agreement can be set out in the constitution or Memorandum and Articles of Association. If a procedure is agreed in advance and it forms part of the legal documentation it will speed up the process, even if, disgruntled owners take their objections to the Courts. Successful Apartment Living If Dublin is to remain relatively compact it cannot expand any further, so new accommodation must be provided in apartments in the City, both inner city and suburbs. Cities need a mix of tenures, incomes and households and cities need families. Developers prefer to build apartments for single people and couples without children in inner city locations, and houses for families in suburban locations. As a result apartments are generally designed for single people and childless couples rather than for families. Dublin City Council is committed to taking a lead in ensuring that apartment living becomes a successful housing form, for a diverse range of people. Effective management is necessary for apartment developments to succeed, but other issues influence families in choosing whether to live in conventional housing away from the city or in apartments within the city. The debate needs to focus on why families find it hard to live in existing apartments and the importance of issues such as: • Design of the apartment and layout of the scheme, • Facilities for children and young people, • Standard of construction, • Quality and cost of management, • Location factors e.g. schools, parks and other amenities, • Concern about crime and fear of crime, vandalism and anti- social activity, • Local management including cleanliness, litter and graffiti. - 6 - Design Issues Apartments will be and easier to manage and live in if the design provides for: • Greater internal storage space and storage space for bulky items outside apartments, e.g. in lock up area in basement. • Families, especially those with young children, need frequent access to laundry facilities and these should be provided in a separate area away from the kitchen, particularly in apartments with open plan layouts. • Both kitchens and bathrooms need to be designed with families in mind. • Children’s bedrooms need to cater for play and study to take the pressure off the living space. • Terraces that can be enclosed create more flexibility, particularly in cold or wet weather. • Balconies need to be large enough to be useable by a number of people simultaneously. • Carefully planned treatment of the transition from public to semi-public and private open space is important to create privacy, but also to minimise anti-social behaviour and manage the shift of uses from public to private. Semi-private and private open space can be provided through roof terraces; semi-private gardens can be at first floor level over shopping. Both options would restrict casual trespass in private areas. • Open space needs to be landscaped with a diverse range of households in mind. It needs to be viewed as a place to use as well as to look at. In particular there needs to be outdoor play /recreational provision for children and young people. This can either be in nearby facilities or built into the scheme itself. Young children have to be catered for on site and must be able to play and socialise in the open space provided. Design should allow children to use all the open space including recognising that they will use the car parking area and that it is impossible to effectively restrict this use, so it needs to be catered for in the design e.g. visibility around corners, exits and layout that reduces driver speed. • Insulation is important to minimise the nuisance caused by internal noise (adult parties and children’s play), music, TV, lift vibrations and traffic noise from outside. • Mechanical and passive ventilation to counteract condensation particularly since most units have double and some even have triple glazing. On-Site Management Building supervisors (either residential or during office hours) will improve management and be cost effective in larger schemes. Full time building supervision would permit an atrium design for the entrance area with benefits for supervision and monitoring, but it is also a good way to provide an informal area where social mixing can occur. The capital cost can be shared and service charges reduced so that the “pay back period” would justify it over time. Dublin City Council should consider its ability to promote building supervision through the planning system and through its own and voluntary housing associations’ involvement in mixed tenure apartment developments. Social Cohesion One criticism of Irish social housing supply, in the past has been its geographic concentration in specific locations and its lack of social mix. Recently, due to scarcity of supply but also to increase social cohesion, social housing units (both public and voluntary) have been provided in privately developed apartment schemes. Mixed tenure is now built into regenerated local authority estates. - 7 - Social mix will achieve social cohesion most effectively if tenures are spread throughout the scheme. If there are obvious separations or differences, between social and private units in a development, social mix will not improve social cohesion since social mixing will tend not to occur. The tendency to separate social and private tenures into separate blocks may reduce management costs but if it undermines social mix it will not be beneficial in the long run. Therefore, if voluntary and local authority housing bodies, find it expensive to pay service charges from rental income, then this needs to be addressed rather than risking compromising the achievement of social cohesion, to save on management costs i.e. by clustering instead of pepper potting to save money. Part V apartment developments need to be managed well and need to be financially efficient. Where there is concern about affordability in developments with significant mixed tenure, it would be appropriate for voluntary housing associations and/or local authorities to establish arms length management wings to provide management services to the entire scheme. In other cases they can act as expert advisors and sit as directors on boards of management companies. Sustainability Interventions • Housing authorities appreciate the importance of providing support to tenants to maintain their tenancy. This should be extended to mixed tenure apartment developments. Support for vulnerable and/or chaotic households including families, improves the lives of the families being supported. It also provides a way, to tackle poor behaviour towards neighbours by these households. • Generally, communities take a long time to develop social and support networks. Communities develop different patterns of mixing. Networks will eventually grow up among people who live together for a long time. They grow more quickly when there is an intervention to promote community activism. Often a starting point is to focus on the needs of children. The strength and speed with which networks grow is less important in conventional housing estates. Proximity and interdependence in apartment developments can heighten sensitivities that need to be diffused in constructive ways. Effective management companies need strong activists and volunteers. An added advantage is that motivated people will promote voluntary activity and create opportunities for social mixing. It is important to offer supports to residents, who want to become involved in management companies, as committee members or directors. People often need to be mentored to overcome their nervousness and worry about lack of experience, before they will take an active role. Family supports and interventions to promote community activism need to be provided in apartment developments, particularly those with mixed tenures. The most easily recognised benefits of apartment living are proximity and convenience to amenities, work, city centre, and transport systems. While apartment size and design are important, amenities in a neighbourhood significantly influence people’s perception of apartment living. Families with children will be concerned about schools and most people worry about crime and personal safety. Standards of management in the physical environment e.g. cleaning, litter and graffiti management are associated in people’s minds with crime and cause worry about personal safety. These issues take precedence over design, location and convenience, particularly for families. People who can most easily afford to move away from perceived problematic areas will tend to lead the way. Service providers in education and policing need to be aware of their sector’s impact on successful apartment living. Privately Managed Conventional Housing Estates Dublin City Council has some conventional housing estates that are not taken-in-charge. They are mostly located on marginal lands and infill sites. Both developers and consumers created a - 8 - demand for privately managed conventional housing estates. Consumers were worried about property values and developers were pushing for innovative designs and layouts that permit higher density. Developers will generally have used materials, designs, layouts and construction standards, which are likely to present a challenge for current taking-in-charge standards within Dublin City Council. Owners have begun to query the equity and affordability of privately managed housing estates. As a housing authority, Dublin City Council is concerned about the affordability of service charges, particularly for people who needed capital housing subsidies to purchase their homes in the first place. Section 180 Planning Act 2000 provides a mechanism for taking-in-charge following a plebiscite request by residents. Section 180 does not exclude estates that are not to existing taking-in-charge standards. Aside from the any potential impact that S180 might have, the standards need to be reviewed and new ones agreed. The functional areas that Dublin City Council that are involved include planning, roads, water, parks, drainage, public lighting, sewerage although housing, waste management and fire services should be included in developing new standards and procedures for taking-in-charge. The Department of Environment, Heritage and Local Government want the Construction Industry Federation consulted about taking-in-charge standards, this should happen after a City Council standard has been agreed internally. In addition to agreeing new taking-in-charge standards, a review of the procedures is required to ensure that regular quality control inspections occur and that there is a timely process for completed estates to be taken-in-charge. In general, gated housing estates and apartment developments should be discouraged at the planning stage; they operate against social cohesion at community and urban level. In principle, external areas in housing estates should not be privately managed. Existing estates need to be taken- in-charge on an incremental basis, as and when, requested by the residents and provided the owners of the land are in agreement (Section 180, Planning Act 2000). Some developments have development potential and if these are taken-in-charge with a transfer of ownership rather than only control it could reduce the development potential. The different options for taking-in-charge in relation to ownership and control need to be considered from the perspective of the local authority and the owners. - 9 - Summary of Recommendations 5.1 Dublin City Council should actively promote a new legal and operational framework for management companies in apartment developments to increase the sustainability and chances of success of the apartment development sector. 5.2 Dublin City Council should establish its role in registering, regulating, monitoring, supporting and strengthening management and sustainability of apartment developments. This role should include registration of management companies, licensing managing agents and supporting apartment owners. It could be provided by the local authority as an agent of the new national property services authority. Interim arrangements should be put in place as soon as possible, pending the establishment of the national authority. 5.3 Dublin City Council should develop a coalition of stakeholders, to improve the design, construction, quality and cost of management and maintenance of apartment developments. The group should include representatives of management companies, agents, developers, local authorities, research and review groups and professional and educational bodies. It should aim to develop a better understanding of how the sector is operating through research, feasibility studies and surveys. It should consider how obsolescence in apartment developments would be dealt with when the time arises. 5.4 Dublin City Council should extend interventions for family support and community activism to privately provided apartment developments, particularly those with mixed tenures. Dublin City Council should consider ways in which it can influence education and policing, to improve the perception of neighbourhoods where family apartments are being provided. It should focus on activities within its own remit that affect perceptions of the area. The City Council should work to resist school closures in established areas and in inner city locations where apartment developments are proposed. 5.5 The development of apartments for a range of household sizes and types needs to be encouraged. Dublin City Council can provide demonstration projects on land, which it controls or has influence over, to show that there is a market for family apartments across all tenures including market-rate owner/occupiers. 5.6 Dublin City Council should decide to reduce the number of privately managed conventional housing estates by a programme of taking-in-charge and insisting on new estates being publicly managed and taken-in-charge. It should review the extent to which areas within apartment developments can be taken-in-charge. It should develop new agreed taking-in-charge standards that recognise the importance of sustainable urban densities and customer demand for high quality open space in all types of housing developments. - 10 -