Property Clinic: The management company has applied compound interest to the monies due from 2008
When it comes to resolving a dispute over monies owed, a pragmatic rather than a principled course of action may be called for.
Patrick O’Connor, Solicitor and Managing Partner at our firm, recently featured in The Irish Times Property Clinic. You can read the original article here and or read the full article below.
Patrick O’Connor Managing Partner
Please can you help me regarding a question on the management fees in my apartment block? I moved into my two-bedroom apartment in June 2006. I had a few problems with the management company, and I then ran into financial problems of my own in 2008. I did not pay any fees for approximately one year. These unpaid fees amounted to €1,200.
Since then, I have been paying the fees which have fallen due but never addressed the outstanding balance of €1,200, which with interest now stands at €7,000. I can no longer afford to keep the apartment and want to sell it. But the management company want me to pay the €7,000 even though €5,800 of this figure comprises interest upon interest. I have tried to engage with them to no avail.
What is my legal standing? Without settling with them I cannot sell the apartment. As I am selling the property for less than I paid for it, I am in negative equity. I am so stressed and worried about this problem.
The situation you find yourself is most unfortunate particularly as the property you purchased is in “negative equity”, writes Patrick O’Connor.
Firstly, review and look at the title documents and those papers that are ancillary to them in relation to the apartment. Read the memorandum and articles of association of the management company. What is said in those documents about the payment of the management fees?
On one reading of your query, it looks as though the management fees of €1,200 for the year 2006, may be statute barred under the Statute of Limitations Act 1957. While there can be a claim made against a person who owes money for six or 12 years (depending on the circumstances), the person who is owed the money (in this case the management company) may not be able to obtain judgment for that money if the Statute of Limitations defence is used successfully.
Secondly, you should look at the right, if any, of the management company, to impose interest charges for outstanding money due. It is rarely the case that compound interest, as appears to have been applied by the management company to your situation, is appropriate. Generally simple interest may apply but then only if the management company has the legal right to do that under its rules.
Thirdly, (this is most important), you should be absolutely clear that any money you paid to the management company through the years specified the period for which it was applicable. For example, if you paid management fees in 2008 or in later years was the amount that you paid referable only to those years or was it applied to your account with the management company for other periods?
While it is one thing to rely on the law and the legal rights that you may have to defend any claim by management company for fees and interest, it is another matter to try to sell your property without having discharged all of the liabilities affecting it, including the management fees.
No purchaser will buy the property if there are liabilities outstanding to a management company unless they are paid before the sale is completed. Furthermore, the management company may be entitled under the memorandum and articles of association of the company to refuse to accept any transfer of assignment of the membership of the company by you to the purchaser if you have not paid the fees outstanding.
The costs associated with trying to resolve the issue through litigation would be in excess of the amount that seems to be properly due by you. Your solicitor should be in a position to try to negotiate a reasonable settlement on your behalf with the management company. If the solicitor cannot do that then offer to have the matter referred to an independent mediator who would help to get the parties to come to some agreement on the amount outstanding for management fees and the appropriate amount of interest payable, if any.
In conclusion, it may be that you will have to pay the management fees together with whatever appropriate interest may be applicable to have your property sold.
A pragmatic rather than a principled course of action is called for.
Patrick O’Connor is managing partner at P O’Connor & Son solicitors