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.
There are several models of cooperative housing:
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.
If you have been used to living only in a rental, or if you are familiar with the workings of an HOA (unit owners’ association) and are now considering living in a condominium, many things may be new to you. In contrast to the classic personal ownership of a flat, the principle of operation of a housing association is that the owner of the flats is the association itself, which then rents them out to its members. They have, so to speak, a kind 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.
Tip: You can read more about the difference between a cooperative and a freehold apartment in our next article.
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.
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.
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:
Tip: We can set up a unit owners’ association or a turnkey housing cooperative for you. We will draw up or check the statutes of your HOA or condominium. We will also take care of the follow-up process for the establishment of the HOA or condominium.
As a legal entity, a housing cooperative is formed after the cooperative is registered in the Commercial Register. This is done after a 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:
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.
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.
Some housing cooperatives 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 Cooperatives or the Association of Housing Cooperatives and SVJ. These offer their members assistance in administration, insurance, accounting, etc.
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.
Tip: Are you a member of a housing cooperative? Are you a member of a condominium association dealing with complex legal situations that you don’t know how to handle? Or do you believe that someone has taken the wrong legal action against you? Arrange with us to represent you at a meeting of the members of a housing association.
Themembership meeting should meet at least once a year, but the frequency of meetings may be regulated in the bylaws. 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.
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?
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.
Tip: If a cooperative is not managed as it should be, there can be personal and financial consequences. You can read more about the personal liability of the HOA and BD bodies in our next article.
The advantages would certainly include easier management of the house than with a community of unit owners. Another significant advantage is clearly the lower price 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.
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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