Buying an Apartment? Ask the Right Questions
Recent years have seen a proliferation of new apartment developments in the Island and sales of apartments account for a substantial proportion of residential property sales – over 45% in 2017 and again in the first three-quarters of 2018 according to the latest Jersey House Price Index report.
Very many Jersey residents are therefore buying into a communal property-holding arrangement, whether a ‘flying freehold’ or a ‘share transfer’ structure. Whilst there are important legal differences between these two bases of dividing up a property for multiple ownership, there are some key questions to be considered which apply in either case:
Is the constitution clear and equitable?
In the case of a flying freehold property, each apartment owner has the absolute ownership of their apartment together with an interest in common with the other owners in the common parts. The constitutional document is known as a declaration of co-ownership. In the case of a share transfer property, the whole property is owned by a company, in which the apartment owners hold specific shares conferring the right of exclusive use and enjoyment of their respective apartments. In the former case, the owners together form a legal entity known as an association; in the latter case, the owners will be shareholders of the company and some or all of them may also be directors of the company.
- Whatever the nature of the constitution being considered, it should be clear and free from ambiguity and its terms should be equitable as between the parties bound by it. Particular points to consider include the following:
- Whether the description of the individual apartments and other relevant parts of the property is clear. There should not be any ambiguity as to whether particular elements form part of an apartment or of the common parts.
- Whether there is clarity as to responsibility for carrying out particular works and paying particular costs.
- How communal expenses are allocated between owners.
- The basis upon which decisions affecting the property and/or the communal entity are to be taken.
- The nature of any restrictions on the use of apartments and/or the common areas set out in the constitution and any power to make ‘house rules’ conferred upon a delegated body.
- Whether there is any impediment to the free disposal by an owner of their apartment.
How are expenses dealt with?
It is important to know not just what the constitution says about expenses but how they are dealt with in practice. An incoming owner will wish to be satisfied that all necessary expenditure on the property will be able to be met. With this in mind, relevant questions include the following:
- Are contributions from owners made in accordance with comprehensive budgets?
- Are funds paid into a sinking fund to cover significant costs that will or may arise from time to time?
- Is there any history of default by owners in paying what they owe and, if so, how has this been addressed?
Who is managing the property and administering the communal entity?
A share transfer company, like any other Jersey company, requires a company secretary. Similarly, a flying freehold association requires an association representative. Whilst it is possible for either these roles to be held by an individual owner, they are roles that require both a certain level of expertise together with time and diligence. In all but the smallest developments, it is advisable for appropriate professionals to be appointed to hold these positions and to manage the property. It is all too often a false economy to dispense with the services of experienced professionals.
Buying an apartment involves joining a club. As with any club, prospective new members need to be satisfied that the club’s rules are clear and fair, that the club’s finances are sound and that the club’s affairs are properly and efficiently managed.