Do you want to buy a cooperative apartment? In reality, you only get a membership share

Cooperative housing is a relatively common thing in the Czech Republic, but it can still cause some confusion. It is not a classic form of ownership. When you buy a cooperative apartment, you do not buy and own the property as such, but only a membership share in a housing cooperative, which gives you the right to use a specific housing unit. This legal construction is also reflected in the financing options, because you cannot take out a conventional mortgage for a cooperative apartment. The property is still formally owned by the cooperative and transfers are not registered in the Land Registry. This is what makes it difficult to get a mortgage.

How does buying a co-operative flat work?

If you want to buy a co-operative flat, be prepared for the transfer of the flat to have different rules to buying a freehold flat. The co-op will first enter into a reservation agreement with the prospective buyer; this is not mandatory, but we definitely recommend it. This is because there may be more interest in the flat, and before you can get financing (for example, through a co-op loan), someone else may “blow you away”.

The next step is to sign an agreement on the transfer of membership rights and obligations in the housing association. It is the signing of this agreement that effectively realises the purchase of the cooperative flat, because by transferring the membership share you get the right to use the flat. The contract must contain a precise identification of the cooperative and the membership share, the price for the transfer, the specification of the apartment that goes with the share, and any arrangements for the transfer of the rights and obligations associated with the apartment. Some cooperatives are required to have this agreement in the form of a notarial deed, particularly if their statutes so provide.

The consent of the housing association to the transfer of the share is a very important step. Not every cooperative automatically grants it; some reserve the right to approve or reject the transfer in their statutes, or stipulate specific conditions for the transfer (for example, that the interested party is debt-free). Therefore, always consult the cooperative’s statutes before signing the contract, or ask the cooperative’s committee for prior approval of the planned transfer. Without the consent of the cooperative, the entire transfer may be completely null and void or ineffective.

Once the contract has been signed and the co-operative’s approval has been obtained, the apartment is handed over and the buyer physically takes over the apartment. At the same time, the transfer must be notified to the cooperative. In practice, this usually means providing a copy of the signed contract, requesting that the new member be registered in the list of members of the cooperative and sometimes also providing a copy of the ID card and an affidavit of debt-free status. The registration of the new member in the cooperative’s register is essential because the cooperative does not keep any records in the land register, as the apartment remains its property.

After the transfer of the share, the cooperative makes a change in the accounting records – it registers the new member as the person entitled to use the specific apartment and all obligations related to housing (payment of rent, utility deposits, etc.) are transferred to him.

Thanks to the fact that no registration in the Land Registry is required, the whole process is less time-consuming than in the case of a transfer of a flat in private ownership.

Buying a condominium has certain risks

Buying a condominium can be tricky, especially for less experienced buyers. The main risk to consider when buying a co-operative flat is the limited transferability. Some co-operatives impose conditions under which membership rights can be transferred and it may not be easy to sell a co-operative flat afterwards.

There is also the risk of hidden debts. If a previous member had any debts to the cooperative, then they automatically pass to the new owner when the apartment is transferred (for example, an unpaid annuity).

Owners of cooperative flats also often face restrictions on the disposal of the flat. They always need the co-operative’s consent for more or less everything, whether it is renovation, subletting or changing the layout of the flat.

Finally, financing is also more complicated because, as we will show you below, a loan for a condominium has its own rules.

You can’t get a mortgage for a condominium

Getting a loan for a co-operative flat is more complicated than getting a mortgage for a freehold flat. Since you don’t de facto own the flat, you can’t use it as collateral, which is a prerequisite for a conventional mortgage. So if you want to get finance for a new home, you have several options:

1. A consumer loan without collateral: the advantage is that you do not have to guarantee the property. However, you pay extra for this advantage with a higher interest rate, shorter repayment period and a lower amount that the bank will lend you.

2. A mortgage secured by another property: Do you have someone who can guarantee your home? For example, the home of your parents often acts as collateral to help their children.

3. Special loan for a co-operative flat: Some banks (such as Česká spořitelna or Raiffeisenbank) offer products specifically for cooperative housing. They usually combine the advantages of consumer and mortgage loans. Some, however, provide for a later transfer to personal ownership.

A loan for a cooperative apartment is not a completely common product and the offers of individual banks vary considerably. Therefore, always approach several institutions at the same time and ask for specific conditions.

Is it possible to convert a cooperative apartment into private ownership?

If the members’ meeting decided to transfer the flats to private ownership before you joined the cooperative, you are automatically entitled to transfer it. If this is not the case, you must submit an application, which is subject to the approval of the members’ meeting. It should be noted that the owner of a co-operative share does not have an automatic right to transfer to personal ownership; it is always purely up to the co-operative’s decision whether to allow the transfer.

The condition for the transfer is often the repayment of the remainder of the loan (the part that belongs to the owner), which the cooperative has drawn, for example, for the construction or realisation of the house. The so-called annuity is allocated among the individual flats and can be in the order of hundreds of thousands.

If the cooperative agrees to the transfer to personal ownership, it will file a declaration of ownership with the Land Registry. This document officially defines the individual residential and non-residential units in the house – i.e. divides the house into separately registered parts. Even if all the flats in the house are demarcated in this way, some members of the cooperative may decide to keep their flat in the cooperative regime. Therefore, they will continue to be tenants of the co-operative flat only, even though there will already be units in the house.

Once the units have been demarcated, the co-operative and the owner will enter into a contract for the transfer of the flat into personal ownership. On the basis of this contract, the Land Registry will then register the person as the new owner of the unit.

Summary

Buying a co-operative flat is fundamentally different from buying a privately owned flat – you are not buying the flat itself, but only a membership share in the co-operative which allows you to use the flat. This specific legal framework brings with it limited financing options, as you cannot get a regular mortgage for a condominium. Instead, you must use a consumer loan, a mortgage with a mortgage on another property or a special loan for cooperative housing. The transfer of the share itself takes place outside the land registry and requires the consent of the cooperative, the terms of which are laid down in the statutes. After the transfer, the cooperative registers you as a new member and the rights and obligations associated with the use of the apartment are transferred to you. The transfer of the apartment to personal ownership is only possible with the consent of the cooperative, often after the annuity has been paid, and is effected by registration in the land register on the basis of a transfer agreement. Despite the lower purchase price, cooperative housing carries legal and financial risks that should be carefully considered by the buyer.