Phuket Property – check your project management

PHUKET: When buying property in a managed estate in Phuket, careful scrutiny of the project management might be one of the most neglected points.

This may have negative consequences particularly in cases where the applicable laws or regulations do not provide minimum standards and a legal framework regarding project management.

Typically, poor management causes disputes between residents and their project manager. Therefore, the manager should perform all duties in a diligent, cost effective and transparent manner and maintain proper statements of account itemizing all income and expense and make such statements accessible to the residents if requested.

A buyer should initially check whether the appointed manager has the required expertise and a proven track record. In the case where an internationally recognized management company has been appointed, this might be some indication that the management services will be performed with the necessary professionalism. Talking to existing project residents may also provide first hand insight.

Furthermore, a buyer should investigate whether project residents can participate in the project management through voting rights in a corporate body or committee managing the project, for example.

In some cases, buyers are required to sign a management agreement appointing a project manager. Such management agreements should, as a minimum, describe what management services shall be provided, what pro-rata payments will need to be made by the residents to the manager and what remedy or sanctions will apply in case that either the manager or a resident is in breach. Furthermore, the residents and their manager should agree on a fair and effective dispute resolution mechanism.

Before signing a management agreement a buyer should discuss with the developer whether all relevant points are clearly described in the agreement, i.e. what costs may incur in connection with the management services. Such costs may include monthly management fees payable for the management, maintenance and upkeep of the common areas and facilities, utilities expenses, insurance premiums and property taxes. The management fees are generally paid pro-rata by all project residents and calculated either on a “sqm-unit-basis” or standardized rates subject to change from time to time.

In addition, buyers may be required to contribute to a capital reserve or sinking fund, which is normally a one time payment to provide the manager with additional funds required to repair or partially replace a common area or facilities. However, a buyer should note that the replenishment of such a sinking fund may be necessary once the initial contribution has been used up.

A buyer should further understand that besides the costs for common area management additional expenses will occur and be payable in connection with its specific unit such as renovation works, insurance premiums and utilities expenses.

To summarize, careful scrutiny of the project management is of great importance to avoid a rude awaking when the first bill of running costs suddenly arrives at your dream home.

This article has been written by International Law Office Patong Beach Co., Ltd., a Phuket based law firm for informational purpose only. In case of inquiry, please contact Michael Greth, Consultant by phone: 076-222-191-5 or email: michael@ilo-phuket.com.

— International Law Office Patong