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THE MANAGEMENT COMPANY PROTECTS YOUR INVESTMENT, IT’S THAT IMPORTANT!

By: IT Support October 30, 2020 one comment

THE MANAGEMENT COMPANY PROTECTS YOUR INVESTMENT, IT’S THAT IMPORTANT!

Picture this; after saving for so many years, you have finally moved into your dream home; a few months into the move, you notice that one neighbour has affixed brightly coloured signs on the compound of the premises, another is running a fully stocked retail shop with hundreds of customers in his unit, the stairs, corridors and walk ways in the compound are cluttered with personal items, and the mayhem goes on and on. The image is not the peace and calm that hopeful home owners have in their mind when they make that first step towards property acquisition.

It is for this reason that responsible developers, with the help of their diligent lawyers; have embraced the practice of ensuring all developments have a strong and vibrant management company.

Loosely speaking, a management company/manager, in the context of real estate is the entity that is tasked with ensuring that common areas of the development are well maintained, and holding the reversionary interest. The latter is a legal term that refers to owning the residual rights on the main property once the developer exits from the purchase equation.

In legal standing, a management company is an artificial person, separate and distinct from its members. It has the power to own property, and enter contractual arrangements. This is why when getting into a sub-lease arrangement with a developer, a buyer also enters the agreement with the management company, thus giving birth to a tripartite arrangement. Therefore, in the same way that the lease contains rights and obligations owed by the buyer & developer to one another, it similarly has rights and obligations owed by and to the management company.

Where Management Companies occur

Usually, any development that will have more than one dwelling unit registered on the same piece of land, will have a management company. The ingenuity behind this is that if a developer constructs say, 100 apartments/ maisonettes on a parcel and transfers them to buyers, each of the 100 buyers also acquires a share in the management company; thereafter, the developer transfers the title in respect of the mother parcel to the management company. This is what is called reversion. In addition to holding the reversionary interest, the management company will also own the common area.

Common Area

In any development, the property may be classified in two categories. There is that which is comprised in a unit sold to a buyer. This entails the rooms/ structure as defined in the architectural drawings. Whatever remains after taking away what is comprised in a unit shall constitute the common area. This includes gates, paths, stair cases, elevators, roofs, gutters and other similar amenities.

 

In the same way that unit owners have the responsibility of owning and maintaining what is inside their units, so does the management company have the duty to hold, maintain and repair the common area.

Accordingly, one of the things to look out for as a home buyer is the protection of the common area, more importantly, the power of the management company to maintain the common area in a clean, and orderly state, guaranteeing the home owners equitable access to use of the common area. Ensuring that gardens are well maintained, corridors cleaned, walls repainted, fire alarms and firefighting equipment maintained is therefore within the mandate of the management company in so far as these facilities lie within the common area.

Services offered by the management company

Once in occupation, every home owner has a legitimate expectation that certain services will be provided in respect of their unit, other units and the common area. Where an owner’s unit is concerned, it is the Manager that usually oversees maintenance of the utility meters, pipes and cables connecting to the unit, and for the purpose of safety, it may be a term in the lease that the manager will require units to be fitted with firefighting equipment. The manager will therefore conduct inspection of a unit to ensure best safety standards are complied with.

Despite the fact that each unit owner is entitled to quiet enjoyment of their unit to the exclusion of all others, the gratification of an owner will often be affected by what goes on in the neighbouring units. It is for this reason that the management company is tasked with ensuring all unit holders abide by principles of good neighbourliness. Emitting foul smells, loud noises and keeping animals within one’s premises are some of the nuisances which a manager will not permit in any of the units.

When it comes to the common area, security of the perimeter and controlling access to the premises is perhaps the most important duty that an owner expects from the manager. It also has the responsibility of tending to landscaping and general cleanliness.

As noted above, the manager is an artificial person with powers to delegate its duties to others. It is therefore not unusual to have arrangements where other specialised service providers are sub-contracted to supply cleaning, security, gardening amongst other services.

Payment of government fees such as property rates payable to the county government, and land rent payable to the leasing authority, for now, remain a responsibility of management companies. However, the law on sectional properties is undergoing amendment, and in future, it may be possible for an owner to pay the rates and rent on their respective unit.

 

 

Financing the Manager

From the foregoing, it is clear that your average management company has a lot of responsibilities. To effectively perform on its part, it is crucial for the manager to be provided with adequate and timely financing. This will usually be provided for in the lease document. A well drafted lease requires the unit owners to pay an affordable amount on a regular basis which goes towards the running of the manager’s affairs. This is what is known as service charge.

The idea behind service charge is to enhance owners’ cooperation by pooling together finances to go towards maintaining, managing and developing shared amenities for the better enjoyment of their units.

 

Managing the Manager

 

Something else that your lawyer ought to look out for in the lease document is how the affairs of the manager are carried out. Appreciating the fact that it is a company whose shares are controlled by unit owners, the lease ought to provide for the manner in which, depending on their numbers, unit owners can democratically participate in decision making, formulation of rules and utilization of the finances paid to the manager.

It’s advisable to enlist the services of a company secretary as well as an auditor, tasked with keeping records of members & directors and making sure that financial accountability is upheld.

 

It was Henry Ford that noted, “Coming together is a beginning, keeping together is progress, working together is success!” in the sphere of property ownership the importance of cooperation cannot be overstated. Hazardous and chaotic dwelling spaces don’t just occur overnight; they are a result of dereliction of the responsibility of occupants. It is therefore incumbent on owners to abide by the framework set up by developers from the onset.  This goes a long way in safeguarding the vision of an aesthetically appeasing, secure and harmonious community, which can only be through a strong and vibrant management company.

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