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Ghost Estates - Who will pay?
The estimated 2,800 unfinished housing developments across the Irish countryside (of which 1,655 have substantial works outstanding) represent the most obvious manifestation of the recent turmoil in the property/construction market. These developments, often called “ghost estates”, give rise to significant financial, legal, and public safety issues.
The National Asset Management Agency (“NAMA”) announced on 16 July 2011 that it is to provide €3 million to fund urgent remedial works at a number of ghost estates linked to NAMA loans. This announcement follows on from a series of reports, which signal some of the options to resolve these issues. The thorny question remains – who will pay to remedy the situation?
REPORT ON UNFINISHED DEVELOPMENTS
On 9 June 2011, the Minister for Housing and Planning, Willie Penrose, T.D., published the Report by the Advisory Group on Unfinished Housing Developments, ”Resolving Ireland’s Unfinished Housing Developments” (the “Report”), together with the action response to the Report issued by the Department of the Environment, Community and Local Government on (the "Department") on the same date.
Key recommendations in the Report are:
(a) to resolve public safety issues urgently
(b) developers, financial institutions, local authorities, NAMA, housing bodies, State agencies and residents (the stakeholders) should adopt a “co-ordinated and partnership” approach
(c) a stronger legislative and policy framework should be implemented
(d) establish a National Co-Ordination Committee (“NCC”) with a monitoring function
(e) the stakeholders should adhere to the imminent “Guidance Manual on Managing and Resolving Unfinished Housing Developments” (of which a draft is available) and Code of Conduct.
WHO WILL PAY?
Minister Penrose (who will chair the NCC) announced that the first tranche of funding of €1,493,556 from the Department, will be allocated to local authorities to tackle the most urgent works. However, Minister Penrose stated that this expenditure “must ultimately be recouped” from developers “and their funders”.
The Report highlights difficulties and delays in obtaining funding to finish the developments. For example, local authorities are experiencing delays and difficulties in securing the release of money under development bonds. The Report makes recommendations to address these issues.
Local authorities have extensive statutory powers to deal with unfinished developments. Powers include the power to order owners/occupiers to prevent unfinished developments becoming derelict or dangerous structures. Where the owner/occupier fails to comply, the local authority can carry out the necessary works, the cost of which can be recovered from those responsible for the development, as a simple contract debt. However, where the owner/occupier is insolvent, then local authorities may have to consider compulsory purchase powers which can be used to ‘pay’ the debt. That is, the costs of any remediation works taken into account in the acquisition price.
Developments declared to be derelict can be made subject to an annual levy (calculated as between 3% and 10% of the market value. A range of penalties are prescribed for failure to comply with the relevant legislation/statutory notices, from fines of up to €3,000 and/or 6 months imprisonment on summary conviction, to a fine of up to €15,000,000 on conviction on indictment, together with the possibility of ongoing daily fines.
Although the Report and Guidance Manual are helpful, they do not fully address the legal implications where many developments are in receivership or the developers are in liquidation. The interaction between the statutory powers of a local authority to pursue a developer or owner in respect of an unfinished development, and the position of a receiver or liquidation is both practically and legally complex.
The steps taken to date may be the tip of the iceberg in remedying the problems associated with unfinished developments. Intervention from government may increase significantly. The powers, obligations and penalties conferred by statute to deal with these unfinished developments can be onerous and can be more or less effective. The Environmental and Planning Group and the Commercial Property Department in Matheson, working with our Insolvency Group, are uniquely well placed to advise stakeholders in relation to these issues.
APPENDIX – SOME RELEVANT LEGISLATION
Current relevant legislation includes:
1. The Derelict Sites Act, 1990
2. The Local Government (Sanitary Services) Act, 1964
3. The Planning and Developments Acts, 2000 to 2010
4. The Waste Management Acts 1996 to 2010
5. The Multi-Unit Developments Act, 2011
6. The Litter Acts, 1997 to 2003
7. The Water Services Act, 2007
8. The Local Government (Water Pollution) Acts, 1977 to 2007
9. The Public Health (Ireland) Act, 1878, as amended
10. The Safety, Health and Welfare at Work Act, 2005
11. The Safety, Health and Welfare at Work (Construction Regulations) Act, 2006