Irish Times Property Clinic 23rd day of January 2014
Publishing Date; Thursday the 23rd day of January 2014.
Q.I am one of the members of the Owners Management Company and a new managing agent has recently been appointed. We want to know if there are areas where we can seek to reduce items of expenditure on the annual service charge as the budget hasn’t been reviewed in several years. Would you have any advice?
A. As a director of the owners’ management company (OMC) the managing agent will receive your instruction to seek open market tenders for all of the services the development requires as part of the management of the common areas.
I would recommend three tenders for each service are sought so as to ensure that you are satisfactorily informed. It would be prudent to view these tenders on each participating companies letter headed paper. In the event that the agent has not got the particulars of the service provider already on file I would recommend that the insurance details and some client references are also included in the open market tenders.
You should note that a cheaper service does not always bring better value to the members of the OMC.
Here are some tips on reducing costs:
1. Review and agree the service specification you need (for cleaning /Grounds maintenance etc) and annually invite a minimum of 3 contractors to submit quotes
2. Check that the common area lighting systems are on the most efficient tariff – usually this is general purpose and general purpose night saver.
3. Consider having an energy audit carried out - new more cost effective technologies in the market such as LED sensor lighting have payback periods of last than two years can result in 50 per cent annual savings.
4. Consider seasonal adjustment to the grounds maintenance – i.e. less service in the winter when there is limited growth and more in the summer.
5. Promote recycling as management of waste streams can significantly reduce costs (to as low as €100 per apartment).
6. Regarding insurance, ensure buildings are re-valued at regular intervals and adjust valuations and cover in line with current buildings costs.
Service charges are like your health, if you ignore it there can be compounded and expensive complications later on.
The rate of asset dilapidation is dependent on the balance of adequate service charges and an adequate sinking fund or a lack thereof with one or both. The building investment Fund Program will identify each specific element of the development and advise on when the asset will require replacement and the cost to do so over a time scale of say 20 years. It would be prudent to review the program every three to five years to factor adjustments in inflation, replacement costs and industry advances in technologies and materials.
Once the board is satisfied with the budget containing the anticipated outlay for the year ahead, it may then be distributed to the voting members for consideration.
Section 18(2) of the Multi-Unit Developments Act 2011 requires that members consider the proposed budget at a general meeting. Ultimately the service charges will be decided democratically by the OMC voting members.
You should ensure that your agent is fully licensed by the Property Services Regulatory Authority (PSRA) licensed property service provider (see psr.ie) and a member of one of the professional bodies.
Paul Huberman is a member of the Property & Facilities Management Professional Group of the Society of Chartered Surveyors Ireland
Author: Paul Huberman of H&H Property Management Consultants Ltd
Publish Date: 23/01/2014