The Cost of Unpaid Service Charges to Property Owners

Submitted by Aisling Keenan on Tue, 09/23/2008 - 08:12.

This is an article that I hope to develop in the coming weeks as I have spent some time discussing this topic with colleagues, friends and clients. The wide area that this covers includes unsold properties within a development and owners/investors not paying their annual service charge to their management company. All the while, the common areas, buildings and management company have to be continuously maintained. Those who are paying their service charges in the company are financially carrying the non/slow payers.

In the past 10 years of managing properties in Ireland we have been asked who is liable for service charge payments in developments where there are unsold units? For example there may be an apartment block of say, 50 apartments. In the first year only 40 are sold but services and utilities for common areas still have to be paid for the whole development. Is it the existing owners that have to pay their equal share of these 10? Who is responsible for picking up this tab?

The recent boom years in our economy has seen many new types of investors in the property market. Let's give one hypothetical example: a young single couple late twenties, having purchased their very own investment property. They already live in another house purchased years earlier that gained sufficient equity for their bank to impress another mortgage upon them for an 'investment' property.

This young professional couple have in the past been able to rent out their investment property, a 2 bedroomed apartment within a complex that has electronic gates, large green area, interior common areas with lifts etc. The service charges in this complex for this apartment are €1,400 in 2005, €1,500 in 2006, and €1,600 in 2007. The current year service charges are €1,700 and this young investor is unalbe to get a tenant. In 2005, 2006 & 2007 finding a tenant was not a problem. There were plenty of construction workers working in the area looking for accommodation. The area has now got a surplus of accommodation.

There are numerous apartment blocks built in the area and today most of these constructions workers have moved out of the area, gone back to their home country/county. They no longer require that apartment that they lived in while they were building the block down the street. This investor is already dealing with higher interest rates & rising overheads and is finding it difficult to pay the current 2008 annual service charge for the apartment.

This is of course one such example. This situation has further reaching implications where the 'investor' owns 5 apartments in a development of 20 and has gone into their 2nd year of not paying their service charges. Other owners in this development have much higher service charges as result.

Property owners must factor in the cost of service charges to their own annual budget in advance of purchasing a property within a Management Company.  It is a commitment  just like their mortgage repayments regardless of occupancy. Very often the annual service charges are not factored in and this is where the owners get into difficulty trying to pay their fees.








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