The difference between a cooperative and a privately owned apartment

Chapters of the article

• What are the advantages and disadvantages of a cooperative apartment?
• What are the differences of personal ownership of an apartment?
• Always use escrow

Please note that the real estate acquisition tax has been abolished and the effective date in this respect is 31 March 2020. For more information, see the article Abolition of real estate acquisition tax.

The most important difference between cooperative and “personal” ownership, and many cooperative owners do not fully realize this, is that in a cooperative apartment they are only tenants of the apartment, not its owners. The co-op owns the entire building and only the co-op exercises ownership. Under certain (albeit very exceptional) conditions, a member of the cooperative can even have his lease terminated and be expelled from the cooperative and lose his apartment.

Theform of ownership is also related to theprocedure for sale, because while in the case of a privately owned apartment the new owner acquires the apartment unit directly, in the case of a cooperative apartment the object of sale is the membership rights in the housing cooperative.

Thereis also a rather pleasant advantage associated with this, because when the owner of the unit does not change, itis not necessary to change the ownership rights in the land register.

Example from law practice:

A client, Mr. Hrouda from Prague 7, has been suing his cooperative for several years for wrongful exclusion. The cooperative tried to exclude him because he had rented an apartment, for which he had consent. Fortunately for him, however, membership is protected and the co-op must follow a fairly bound procedure to successfully expel a member and give the member an opportunity to defend himself at a membership meeting. And if even that helps, he can go to court as in this case. A member who is finally expelled is entitled to a so-called settlement share.

Another extreme case is the bankruptcy of a cooperative caused by errors in its management. The consequence can be the loss of the entire cooperative’s assets and their sale at auction. However, it should be added here that the owners’ association can also end up in insolvency and the neighbours are actually liable for each other’s debts.

What are the advantages and disadvantages of a condominium?

Experts on the real estate market claim that cooperative flats are sold at a price that is up to units or even tens of percent lower than privately owned flats, so it is possible to get one cheaper. In fact, the transfer of a cooperative flat is easier than a classic transfer of a privately owned flat. It happens between the buyer, the seller and the housing association. There is therefore no need for any registration in the Land Registry. It is not recorded anywhere, only in the cooperative’s database. However, make sure that the share and the flat with it actually passes into the ownership of the buyer.

On the other hand, the members of the cooperative have akind of hybrid status between the owner of the flat and a classic tenant. Compared to the owner, they have slightly fewer rights, but compared to a regular tenant, they have more. It can also be complicated to acquire co-operative housing in co-ownership. It cannot be said that one type of ownership is universally preferable. It is therefore not a bad idea to consult a solicitor before buying.

While under the legislation in force until the end of 2013, it was not possible for a co-operative share to be co-owned by more than one person, with the exception of spouses, the new Corporations Act allows co-ownership. In practice, this means that two or more persons can acquire, by virtue of a purchase agreement, or inherit or receive a gift, a cooperative share in joint ownership. All co-owners of such a share, and thus indirectly of the apartment, then become joint members in the housing cooperative. However, to make it less simple, the law gives individual housing associations the option to prohibit co-ownership of cooperative flats in their statutes.

While it may have appeared that co-operative ownership was on the wane, it may instead be making a comeback. From the West comes the fashion for so-called co-housing, a situation where a group of friends or acquaintances repair an old house together and divide it into flats, while also sharing rooms or perhaps a swimming pool. Co-operative ownership can be used for just this purpose.

What are the advantages of personal ownership of a flat?

Personal ownership as a legal concept does not exist. It is classic direct ownership and this term is used precisely to distinguish it from cooperative “ownership”. One of the reasons for the preference for such personal ownership is that the value of the flat is higher compared to cooperative ownership. The reason for this is prosaic – the flat can be disposed of freely.

Its owner can rent out the flat to a third party without any restrictions, without the consent of the “representatives” in the building. He is also free to mortgage or otherwise encumber the apartment, for example to finance the purchase of another apartment with a mortgage or a large loan for his company. All this is virtually unattainable for a co-operative owner. It is up to the bylaws of the cooperative to determine what conditions it sets for pledging a share, or whether it should be excluded altogether.

Currently, this difference directly affects, for example, so-called short-term rentals, where owners make their apartments available to tourists and various travellers using modern applications such as Airbnb.

In addition, it should be noted that only the owner of the flat decides whether any structural alterations or renovations are to be carried out in the flat, so any major alterations to a cooperative flat are subject to the consent of the cooperative. If a person wants to have a non-traditional modern living, there are a few more obstacles in a cooperative apartment.

Always make use of storage

A solid condominium share transfer agreement always provides for the protection of both parties, so it is a good idea to pay the purchase price for a condominium share transfer out of escrow just as you would for a personally owned condo. The purchase price should be paid out of escrow only after the contract has entered into force, i.e. has legal effect.

However, this is not the moment of signing, as people often mistakenly think. It only takes effect when the co-operative is notified. This is best evidenced by the stamp and signature of the person responsible – usually two members of the cooperative’s board of directors. The ideal is if they not only acknowledge delivery but also agree to the transfer of the lease of the flat. Thus, everything can be done in one day and there is no need to wait for long weeks as for a change in the Land Registry, where registration takes at least 20 days according to the law. Still, it is worth not skipping the escrow. In case of a problem, it can save the funds intended for the purchase price.

We recommend both parties to the transfer to keep the confirmed purchase contract well and also to conclude a new lease agreement for the apartment as soon as possible so that everything is built solidly.

We prepared this article for the Lidové noviny series “Law & Housing”. See also other articles from the series:

1. What to watch out for when buying a property
2. How to get a mortgage
3. What to check before buying a property
4. Who pays the property transfer tax and how?
5. What should be included in the property purchase contract
6. The most common mistakes when drafting a proposal to the Land Registry
7. Buying a property from a developer
8. Keeping the purchase price when buying a property
9. The difference between a condominium and a freehold
10. What is an annuity?
11. How to properly gift a property
12. What is the purpose of an easement or servitude?
13. Making a will and settling an estate
14. What is a collation
15. What shouldn’t be missing from a lease agreement
16. When rent increases can be made
17. Termination of the lease
18. Agreement to end the tenancy
19. How to draw up a work contract with a tradesman
20. Hidden defects and cancellation of a works contract
21. When do you need planning permission to renovate a property?
22. Home Rules
23. What does serving on a condominium board entail?
24. Why not underestimate the bylaws in a condominium
25. Common areas in a block of flats
26. What is involved in refurbishing a block of flats
27. Can a condominium or housing association go into debt?
28. How to renovate a house or cottage
29. What to watch out for when dealing with a construction “company”?
30. Building a house on a “green field”
31. How to remove land from the agricultural fund