All apartment owners have to become members of a management company - and some will have to be its directors. Dr Thomas McCourtney explains the responsibilities

IT CAN still come as a surprise to some first-time apartment owners to learn from their solicitor that in addition to getting the keys to an apartment they also get a certificate of membership in a management company.

Living in an apartment complex, for an apartment owner, if not for a tenant, carries with it certain rights and responsibilities. Apartment owners have the right to expect that the common areas in their building will be kept clean and maintained, that insurance will be arranged for the building, that lifts will be serviced and that provision is made for their repair, overhaul and, eventually, their replacement.

There are also responsibilities. All these services can only be provided where owners pay a service charge - but there is more to apartment owning than the simple financial responsibility to pay service charges. All apartment owners will have to become members of a management company and some will have to be its directors.The need for a management company stems from the fact that while there will be private owners of the apartments in a complex, not all areas can be owned privately.

Apartment owners have a shared duty to oversee the provision of the services mentioned above which will typically be provided by a property management agent. Because the legal owner of the common areas is a company, the group of people responsible for taking management decisions will be company directors.

It is here that many apartment owners first encounter company law as they assume the role of directors of their management company.

Every company must have at least two directors but boards will commonly be comprised of more in order to achieve a broad based representation among the apartment owners who will, as company members, appoint the directors from amongst themselves.

In the usual run of things when all of the apartments in a new complex have been sold, the property developer will transfer the common areas within the complex to the management company. This company will have been formed at the beginning of the development and all apartment owners will have been required to become members as they purchased their apartments.

Throughout the development and sales process, the developer will have retained control over the management company and will only relinquish control when all apartments have been sold, when the legal title to the common areas will be transferred into the name of the management company. The developer should then move on, leaving behind a structure within which the new owners of the property can enjoy their apartments.

As of December 31, 2006, some 8 per cent (or 13,700) of all companies on the Companies Registration Office's register were guarantee companies and while some of these are charities, the vast majority of the rest tend to be management companies. Company directors owe duties at common law - such as, to act in good faith in the company's interests, to avoid conflicts etc - and in statute. The most tangible and relevant obligations of the directors of management companies will be found in the Companies Acts.

Among the most significant statutory duties is the duty to ensure that proper books of account are maintained; that annual accounts are prepared and audited; that the annual return and accounts are filed every year with the CRO; to convene the annual general meeting (AGM); and to abide by all common law and other statutory duties.

Problems can arise where apartment owners do not get any annual financial information on the management company's affairs, where the AGM is not held or where the company is dissolved for failure to file its annual return in the Companies Registration Office.

The dissolution of a management company can have very serious consequences for apartment owners and scupper the sale of an apartment. In some cases these problems will arise when the developer is still in control of the company. The Law Reform Commission published its proposals some months ago on, among other things, these issues, and it is expected to issue further proposals following consultation with a number of State agencies. It has to be on the cards that a competent regulator, possibly within an existing government department, will be charged with the regulation of the management of property that is owned in common. Great care will have to be taken to ensure that any state intervention in this area is proportionate to the perceived mischief and delivered with sensitivity to the property market.

It must be remembered that the problems identified above can and do arise after a developer has handed over control of the management company to apartment owners. Law and regulation can only go so far and management companies will not run themselves.

The best property management agents cannot supervise themselves; apartment ownership requires homeowners to collaborate in their mutual interests and for some this will involve playing an active role in managing their neighbourhood.

Dr Thomas B Courtney is a partner with Arthur Cox and Chairman of the Company Law Review Group