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Everything you need to know about how a housing association works

Co-operative building is beginning to boom again. Some cities, including Prague, are launching projects based on cooperation between the local government and the private sector, which make housing more affordable for citizens. Let’s take a look at how such cooperatives work and what the advantages and disadvantages of cooperative housing are.

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10 minutes of reading

Chapters of the article

There are several models of cooperative housing:

  • Classical housing cooperatives whose members are only natural persons,
  • Cooperatives with participation of legal entities. While the law allows for the membership of a legal entity in a housing cooperative, it also gives individual housing cooperatives the option to prohibit the membership of a legal entity. Membership of a legal entity in a housing cooperative can only be prohibited in the statutes of the housing cooperative. This also precludes the transfer of a cooperative share to the ownership of any legal person.
  • The model outlined above involves a municipality as a member of a cooperative. It acquires a certain share of flats (one third of them in Prague), which it can rent out to people in professions that are needed by the municipality, and the remaining share is intended for ordinary cooperative members.

If you have been used to living only in rented accommodation, or are familiar with the workings of an SVJ (unit owners’ association) and are now considering living in a cooperative apartment, many things may be new to you. In contrast to the classic personal ownership of an apartment, the principle of operation of a housing cooperative is that the owner of the apartments is the cooperative itself, which then rents them out to its members. They have a sort of hybrid status between the owner of the flat and the classic tenant. Compared to the owner, they have slightly fewer rights, but more rights than a normal tenant.

Are you considering buying a condominium?

In fact, it is not a purchase as such, but a transfer of membership rights in a housing cooperative, which we collectively call a cooperative share. We will review your contract, arrange escrow for the purchase price and oversee the transfer at the Land Registry. You can just live in peace.

What is a housing cooperative?

A housing cooperative is a legal entity, a type of cooperative with a focus on housing. In addition to providing for the housing needs of its members, it can also manage houses with flats (or non-residential premises) or run a business. Any profits are used to provide for the housing needs of its members.

Legal regulation of housing associations

If you look for the relevant sections on housing associations in the new Civil Code, you will look in vain. The legal regulation of housing cooperatives is primarily based on the Commercial Corporations Act, where it is subordinated to cooperatives in general. Therefore, some basic provisions such as the establishment of a cooperative or the rights and obligations of members can be found in the general regulation of cooperatives, and other specifics can be found in the sections dedicated specifically to housing cooperatives.

Establishment and early days of a housing cooperative

If you are acquiring a cooperative housing, you generally do not have to deal with the establishment of a cooperative, but if you are one of the founding members, you should know what and how. You need at least three members to set up a housing association. A housing cooperative is established by a constituent meeting of the members of the cooperative, which must be recorded by a notary. This must contain (among other things) two essential things:

  • a list of the founding members of the cooperative and
  • an undertaking to pay the basic membership contribution of each member of the cooperative.

As a legal entity, a housing cooperative is formed once the cooperative is registered in the commercial register. This is done after the constituent meeting of the cooperative on a special form available on the website of the Ministry of Justice(justice.cz). You must then attach the following documents:

  • the notarial minutes of the constituent members’ meeting,
  • an affidavit of the members of the statutory body (or other bodies) of the cooperative and consent to their entry in the Commercial Register,
  • a document certifying the legal reason for the use of the premises where the head office of the housing cooperative is located,
  • proof of payment of the specified part of the membership contribution.

As stated above, the cooperative flats are owned by the cooperative itself, not by the individual members of the cooperative. The flats are leased to them on the basis of an indefinite lease agreement for a cooperative flat. They then acquire a cooperative share and have to fulfil a deposit obligation and start paying rent. This pays for the management of the building and the operation of the cooperative, among other things.

Statutes of the housing cooperative

Thecooperative’s bylaws are the most important organisational and technical document under which the cooperative will operate after its establishment. They should describe the rights associated with membership of the cooperative (typically the right to rent a flat), the management of the cooperative, the mechanism for admitting new members and a number of other important matters. It is certainly not advisable to copy the statutes from a model on the internet. If you discuss them with an experienced lawyer, you can guarantee that they both comply with the applicable legislation and that you can fully take into account the specific requirements for the future operation of the cooperative. The lawyer can also advise you, based on his/her experience, on what to avoid when amending the articles of association in the future.

The adoption of the statutes will then most often take place at the constitutive meeting of the members of the cooperative.

If the articles of association are amended in the future, the proposal to adopt the resolution must be in the form of a public deed(notarial deed), a copy of which is then sent to the members of the cooperative. The member’s statement shall also state the content of the draft resolution of the members’ meeting to which the statement relates; the member’s signature on the statement must be officially certified.

Association of housing associations

Some housing associations have sufficient knowledge for their operation and administration, while others may find it advantageous to join an existing association, such as the Association of Czech and Moravian Housing Associations or the Association of Housing Associations and SVJs, which offer their members assistance with administration, insurance, accounting, etc.

Bodies of the housing cooperative

The highest body of the cooperative is, of course, the meeting of all members. However, practical issues are decided by the statutory body, i.e. the board of directors. This usually has three members, but the statutes may specify a higher number. Another important body of the cooperative is the control committee. As the name implies, this committee controls all the activities of the cooperative, especially those of the board of directors, hears complaints from members and can consult all cooperative documents. However, no one can be a member of both the Audit Committee and the Board of Directors at the same time.

Members’ meeting

The members’ meeting should meet at least once a year, but the frequency of meetings may be regulated in the statutes. If at least one third of the members of the cooperative request a members’ meeting, it must be granted. A members’ meeting shall be convened by the board of directors within 40 days of receipt of the request. If you are unable to attend the meeting in person, you may authorise another person to represent you by proxy.

Board of Directors of the housing cooperative

The law attaches a number of duties to membership of the board of directors. What must the board of directors of the cooperative deal with?

  • Problems with non-payers,
  • proposing changes in rent levels to the membership meeting,
  • optimising the cooperative’s costs,
  • convening a membership meeting at least once a year,
  • timely execution of the accounts and their publication in the collection of documents of the commercial register,
  • the day-to-day running of the building, carrying out regular inspections and rectifying defects from those inspections. This can also be addressed by a house management contract, whereby an external administrator is entrusted with these duties.
    A general but equally important duty is the duty to manage with due care, i.e. in a conscientious and responsible manner, as in the care of one’s own property.

Advantages and disadvantages of cooperative housing

The advantages would certainly include simpler management of the house than with a community of unit owners. Another significant advantage is clearly the lower cost of cooperative housing and the absence of paying property tax. As a member of a co-op, you also have more control over who your neighbours will be. It is possible to exclude corporate membership in the co-op, prohibit members from renting to others, etc.

Disadvantages of cooperative housing

While it is not completely out of the question to take out a mortgage to finance a housing association, it is very difficult to do so. The main disadvantage is the limited right to dispose of the flat and the risks associated with the unsustainable management of the housing association.

Tip: We have covered the acquisition and financing of cooperative housing in our article.

From the practice of the Available Advocate: Mr Jiří contacted us claiming that he had been expelled from a housing association. He had been expelled from the co-operative after his father died, he had not performed his duties as a member of the co-operative for many months, which he acknowledged, and he did not dispute the expulsion. However, he disagreed with the amount of the settlement share paid to him by the cooperative, which was determined by the cooperative only in the light of the existing membership contribution and not in the light of other factors such as the development of the market prices of the flats. The cooperative offered the membership share at around three times its value.

We invited the cooperative to reconsider its position and calculation by means of a pre-action notice. In doing so, we referred, among other things, to the case law of the Supreme Court, which held that a cooperative share, with which the right to rent a cooperative apartment is attached, is an item in the legal sense that is commonly traded on the housing market and is perceived as a full-fledged alternative to ownership of housing units. A purchaser of a condominium share should therefore have a reasonable degree of certainty that the investment he or she has made in securing the housing (it is irrelevant whether it was Mr George or his late father) will be preserved. At the same time, there is no reasonable reason why a housing association should profit from the termination of its member’s interest. The housing association accepted the arguments in the pre-action notice and reconsidered the amount of the settlement share to Mr Jiří’s satisfaction.

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Author of the article

JUDr. Ondřej Preuss, Ph.D.

Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.

Education
  • Law, Ph.D, Pf UK in Prague
  • Law, L’université Nancy-II, Nancy
  • Law, Master’s degree (Mgr.), Pf UK in Prague
  • International Territorial Studies (Bc.), FSV UK in Prague

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