Dáil Éireann - Volume 445 - 11 October, 1994
Written Answers. - Sale of Local Authority Flats.
Mr. G. Mitchell Mr. G. Mitchell
228. Mr. G. Mitchell asked the Minister for the Environment if he will introduce legislation and/or regulations so  that the sale of maisonettes and flats can now go ahead to Dublin Corporation tenants; if he will make a statement on the legal advice received by senior counsel and forwarded to his Department; and if he will make a statement on the matter. [89/94]
Ms F. Fitzgerald Ms F. Fitzgerald
235. Ms F. Fitzgerald asked the Minister for the Environment if the legal issues involved in the sale of local authority flats to tenants who have applied to purchase same have been resolved; if not, if further legislation is required; and, if so, when that legislation may be introduced. [269/94]
Minister of State at the Department of the Environment (Mr. Stagg) Minister of State at the Department of the Environment (Mr. Stagg)
Minister of State at the Department of the Environment (Mr. Stagg): I propose to take Questions Nos. 228 and 235 together.
It is Government policy that as many local authority tenants as possible should have the option of purchasing their dwellings. The 1993 tenant purchase scheme envisaged that, in principle, both local authority houses and flats could be purchased by tenants. However, as I stated in reply to previous questions, important issues have arisen in relation to the question of offering local authority flats for sale.
A detailed examination of all the aspects involved in developing suitable arrangements for the sale of these flats, including the need for any changes in the law, has been carried out by my Department in consultation with the local authorities principally concerned and with the assistance of independent legal advice.
The effect of the legal advice is that any workable arrangements for the sale of local authority flats that would have due regard to the interests of all the parties involved would have to follow the same general principles that apply to the sale of private flats. This would require the setting up of a management company to take over ownership and responsibility for the management and maintenance of each flat block from the local authority. Each tenant purchaser  in the block would hold a share in the company and the local authority would hold shares equivalent to the number of unsold flats in the block. The responsibilities of the management company would have to include: the establishment of an adequate reserve fund so that moneys would be available for future refurbishment, and repair of the flat block and its facilities, obtaining buildings and public liability insurance, day to day management and maintenance of the building, grounds, common areas, services, etc. and the setting and collection of service charges from the owners of the individual flats to finance these management functions.
It is fundamental to the sale of any flat that an adequate reserve fund be established to meet the cost of major structural or other works to the complex that would arise over time. Otherwise, the flats would deteriorate and depreciate in value. To create a reserve fund, a contribution would have to be made by each tenant-purchaser — and by the local authority for each flat not purchased — as part of the service charge they would have to pay to finance the operations of the management company. A case study undertaken by Dublin Corporation in relation to a typical local authority flat complex — not high-rise — indicates that the repairs and refurbishment works that would be needed over a ten year period would require a contribution towards a reserve fund of almost £50 per week in respect of each flat. As well as contributing to the reserve fund, the service charge would have to cover the cost of insurance, routine maintenance and day to day management and would be additional to the tenant-purchaser's loan repayments on the purchase money. As a consequence, the level of the total outgoings on the flat clearly would be unaffordable and would compare very unfavourably with current rent levels.
Another major difficulty would relate to insurance against public liability claims. While a local authority, as owner, in the absence of insurance,  could carry these liabilities themselves, a management company could not be exposed to such risks and would have to have insurance cover. However, inquiries to the insurance industry, indicate that, because of the prevailing level of public liability claims affecting local authority flat complexes, public liability insurance would not be available, or would be available only at an unrealistic price.
A further point of difficulty concerns the saleability of purchased flats. A second-hand flat which did not have access to an adequate reserve fund and proper insurance cover would not be saleable and would not be considered a marketable security by a mortgage lender. A situation would then arise in which tenant-purchasers or their successors would end up with a property which they no longer needed, or on which they were paying unaffordable service charges, but which they would have no prospect of selling at a realistic price.
Against this general background it is clear that any decision to proceed with the sale of local authority flats ultimately would prove to be a disservice to tenant purchasers by leaving them with a liability for unaffordable service charges, flats that were unsaleable and the likelihood of declining standards of maintenance and services. The latter would also affect tenants who had elected not to purchase. In the circumstances, I have had to conclude that, notwithstanding any new legislative provisions that might be introduced, no practicable arrangements could be made for such sales that would prove to be satisfactory to tenant purchasers and to tenants who did not wish to buy. I am confirmed in my view by the very unsatisfactory experience with the sale of flats by local authorities in the United Kingdom.
The local authorities concerned have now been informed that there is no option but to exclude flats from tenant purchase schemes. Authorities have been requested to fully explain the reasons for this decision to tenants and  to give them particulars of the other options for home ownership; these include shared ownership, the mortgage allowance scheme, the £3,000 new house grant and the local authority house purchase loans scheme. Authorities have also been asked, where possible, to facilitate tenants wishing to transfer to an ordinary local authority house so that they can have the option of buying the house under the tenant purchase scheme.
The difficulties outlined above relating to flats may not, however, apply to all local authority maisonettes, particularly those which do not have common areas which would not, as a result, require the establishment of formal management arrangements or payment of service charges. Therefore, authorities have been asked to consider whether satisfactory arrangements can be made for the sale of maisonettes to tenants who express an interest in purchasing.
To ensure that tenants of flats have the best possible quality of housing services, my Department will continue to impress on local authorities the importance of improving the standard of management and maintenance of flat blocks in accordance with the statutory statements of policy that have now been adopted by all authorities. In this regard, the need for authorities to increase the involvement of tenants in the management process has been emphasised in order to promote community development, to give tenants a greater say in how their flat complexes are run and, as a consequence, provide them with the best possible living conditions and environment.
Dáil Éireann 445 Written Answers. Sale of Local Authority Flats.