Defects Scheme for Apartments and Duplexes Approved

Defective Celtic Tiger Apartments to be Repaired With Government Assistance

On the 18th January 2023 the Irish Government granted approval to the Housing Minister Darragh O'Brien to draft legislation establishing the financial support scheme for apartments and duplexes in Ireland. The scheme covers issues related to fire safety, structural safety and water ingress defects. The scheme when introduced will be limited to apartments and duplexes buit between 1991 and 2013. The introduction of the new Building Regulations compliance framework in 2014 is the reason for the cut off date.The legislation will give effect to a remediation scheme aimed at restoring and rectifying fire safety and other defects in the orignal construction.

The Background to the Scheme

Over the last few years Council Fire Officers in Ireland have reviewed and identified a number of shortfalls in construction and fire safety requirements applied by builders in ireland, particuarly during the contruction boom of the Celtic Tiger economy. This resulted in serious concerns being rasied by the Officers in question. The most well known outcomes of such reviews is the Priory Hall episode in Dublin. Residents in this scheme were ordered by Dublin City Council to vacate their apartments due to very serious fire safety defects in the oiringal contruction of the apartments. The proper remediation of the defects involved to a large extent the reconstruction of the apartment blocks.

The Priory Hall event and the Grenfell Tower disaster in London also became the catalyst for a series of reviews of fire safety in apartment blocks in Dublin and around the country. The onset of orders for improvements and fire safety upgrades of apartment schemes is the result, causing considerable financial burden to the owners of the aparmtents in each scheme.

How do defects and upgrades create a financial burden?

The legal structure of buying apartments in Ireland has two important elements. Firstly a long lease is granted to the purchaser of the internal surfaces of the apartment only. Secondly the ownership of the buildings exterior, halls, passageways and all remaining common areas are transferred to a Management Company established for the management of the estate outside of the apartments. Every apartment owner is a member of the management comapny and obliged by the covenants in each lease to contribute to the costs of upkeep and maintenace of the common areas, including a contribution to the "sinking fund".

What is a Sinking Fund?

A sinking fund is in essence a portion of money set aside and retained in the the company's account for significant refurbishment or construction works that a Management Company must make to its managed estate. Prior to 2011 the fund was a common feature but not always implemented. The Multi Unit Developments Act 2011 (often called the "MUDS Act") made the creation and management of a sinking fund compulsory in all managed estates. The extent of the contribution to the sinking fund by each member in their annual service charge is set at the company's annual general meeting.

The shortfall in this process is that typically, given the desire to minimise annual service charge payments, the contribution to the sinking fund was a modest sum resulting in funds that are now inadequately resourced to meet the siginficant costs of upgrade works required by the relevant Fire Officers. The consequence of this is that Management Companies have had no option but to exhaust the sinking fund and seek to impose additonal service charge liabilities by way of levies on each individual owner. Often these levies have been between €5,000.00 and €20,000.00 or more per owner. The other significance is that the sale value of each apartment is now impacted by the ongoing burden of debt. This is the motivation behind the Government's decision to finally step in an act.

What will the Redress Scheme Cover?

The redress scheme will cover the costs for remediation of apartments and duplexes with fire safety, structural safety and water ingress defects, constructed between 1991 and 2013. As it is proposed, the redress scheme will only cover defects that arose during original construction and this is an important point to understand. Amongst the orders currently issuing from the Fire Officers are upgrade works required to bring older apartment complexes up to the current regulatory standards. A reading of the release from the Government suggests that such upgrade works will not in fact be covered and the owners of such apartments are still facing signficant levies and additional costs.

A further limitation on the scheme is that only defects that are attributable to defective design, defective or faulty workmanship, defective materials (or any combination of these) and were in contravention of the relevant Parts of the Building Regulations applicable at the time of construction will be eligible for inclusion in the scheme. Any defects that originate from inadequate maintenance, poor management etc., will not be included within the scope of the scheme.

A reading of the text also suggest that there may be compensation for parties whom have paid such charges prior to the date of the annoucement on the 18th January last. The remediation costs will apply from the date of the announcement. The Government has approved in principle allowing costs already incurred or levied to be included in the legacy defects scheme, if these works come within the scope and defined parameters of the scheme. Again more detail is needed.

In layman's terms it appears the scheme will only cover the brininging up to current fire safety standards, work that was orignally defective and in breach of the then applicable regulations. There therefore have to be concerns about limitations to the scheme that reduce its benefit to the current issues facing apartment owners in Ireland. The addition of the particular preconditions also suggests the possiblity for disputes between the Agency and the OMC's as to whether works qualify for relief under the Scheme. A critical component of successful applications would therefore involve close collaboration with the relevant Fire Officer for the area in question.

How Will the Redress Scheme be Administered?

A ‘whole building’ approach is quoted by the Government announcement to ensure the remediation of common areas and shared spaces where required to the relevant standard. The proposal is that the scheme will be administered via the Housing Agency and that Owners’ Management Companies (OMC's) will be funded to carry out the necessary remediation works, with specific limitations or exemptions on certain commercial owners. These specific exmeptions are not yet explained and more detail is needed.

When does the Financial Support Commence?

The Government has decided that the financial support should commence from the date of the annoucement, the 18th January. This is a welcome development in it's intentions. However as the legislation has not yet been passed and the Housing Agency has not yet been tasked with the administration of the scheme, no standards have been identifed for works that qualify for the redress. This carries the distinct risk that works, other than pre-approved fire safety works, carried out to apartment complexes between the 18th January and the implementation of the scheme will not in fact meet the then applied conditions for financial redress. Whilst the Government has confirmed that important fire safety works carried out and agreed with local authority Fire Services should be recoverable, this does not cover the risk for works not related to fire safety but otherwise qualifying for support e.g. water ingress and structural issues. OMC's should therefore take care to identify qualifying works that meet the conditions and separate these works from works that do not qualify. OMC's it appears should await the implementation of the scheme before completing non fire safety related remediation works.

The Minister for Housing has established an advisory group to develop a Code of Practice with guidance for relevant professionals on fire safety and buildings, including guidance on interim safety measures. The timeline for completion of the Code of Pactice is not known however and it is anticipated therefore that substantial works will need to be completed before such guidance is available.

Enhancements to the Inspection Regime

The introduction and enactment of the Building Control Act 1990 in essence changed an inspection-based compliance system under the prior Building Bye Laws, where developemnts had to meet the approval of Local Authority inspectors, to a largely self-regulating system placing the burden on architect's to ensure that they were in a position to certify compliance with both the planning permission for the scheme and the Building Regulations. The weaknesses in this system have been exposed by the Government's own estimates that between 50% and 80% of the apartments constructed during the relevant period were in fact not built to a compliant standard.

It appears that the Government are now contemplating the creation of a specific authority by way of a Building Standards Regulator. The role it appears of the Regulator will be to exercise powers of inspection and enforcement and an appropriate suite of sanctions to apply when non-compliance arises in respect of buildings. This does not suggest a repeat of the pre 1990 regime of inspection during construction, rather a regulator to which applications for redress can be made after the completion of a premises. An equivalent framework exists in the private market where structural guarantee providers such as Homebond and Premier Guarantee cover the costs of remediation works to newly constructed properties that were in fact constructed to a negligent standard. Again this "after the fact" model of redress does not contemplate the upset, inconvenience and additional loss and expense to homeowners who have had to move out to faciliate the remediation works. Arguably the role of the Regulator then needs to combine the redress element and the pre-completion inspection regime to ensure that issues that have arisen in recent memory are not repeated.

Other Options to Property Owners

Homeowners may not be aware that in instances where compliance certificates have been issued by architects and the subsequent investigation reveals defects with building regulations and/or fire safety compliance, a right of action may lie against the certifying architect.

Assistance is Available

The Abacus Legal Network includes experienced property law specialists. Our property law solicitors are reconised experts in the field of buying and selling property. They will ensure that an often already complex process runs smoothly and with as little stress as possible. If you or your Management Company are impacted by defects in the original construction of your apartment or duplex, contact us today and we can set up a connection with your local expert to discuss your options.

Credit

We would like to thank our Property Solicitors Dublin MP Moloney Solicitors for the review of the Goverment press release and their opinion on its content.