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:
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.
You can read more about the difference between a cooperative apartment and a privately owned 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:
We will set up a community of unit owners or a turnkey housing cooperative for you. We will draw up or check the statutes of your HOA or housing cooperative (BD). We will also take care of the follow-up process for the establishment of the HOA or BD.
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:
There is therefore no comprehensive register of housing associations. However, all cooperatives and information about them can be found in the commercial register.
As mentioned above, the cooperative flats are owned by the cooperative itself, not by the individual members of the cooperative. The flats are rented to them on the basis of an indefinite lease agreement. They then acquire a cooperative share and have to fulfil a deposit obligation and start paying rent. The rent pays for the management of the building and the operation of the cooperative, among other things.
Thanks to its affordability, cooperative construction is again becoming fashionable, especially in larger cities. It is popular in Berlin, for example, but you can also find it here (most often in Prague).
The cooperative’s bylaws are the most important organizational and technical document under which the cooperative will operate after its establishment. They should describe the rights associated with membership in 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 take full account of 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 one of the existing associations, 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, although the statutes may specify a higher number. Another important body is the audit committee.
As the name implies, this committee controls all the activities of the cooperative, especially those of the board of directors, hears members’ complaints 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.
Are you a member of a housing cooperative? Do you deal with complex legal situations with your co-op members 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 your housing association.
The membership 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 by proxy to represent you at the members’ meeting.
In addition to residents of cooperative flats, members of the cooperative may also be so-called non-residents of the housing cooperative. This is a person who does not own the right to rent any flat or non-residential space owned by the cooperative. Their membership share is not linked to the right to rent and therefore they do not usually live in the cooperative’s building.
Membership of the Board of Directors is associated by law with a number of obligations. 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.
If a cooperative does not manage as it should, 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. In general, the basic benefits of a cooperative include:
While it is not completely out of the question to take out a mortgage to finance a condominium, it does make it much more difficult. The disadvantages include, for example, the limited right to dispose of the flat and the risks associated with the unsustainable management of the housing association. In general, the basic disadvantages of a cooperative include:
The acquisition and financing of cooperative housing and the transfer of the cooperative share itself are discussed in our article.
We were contacted by Mr Jiří who claimed that he had been excluded from a housing association. The co-operative’s share had passed to him following the death of his father, Mr Jiří had failed to perform his duties as a member of the co-operative for a number of months, which he acknowledged, and he did not dispute the expulsion itself. 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. The purchaser of a condominium share should therefore have a reasonable degree of certainty that the investment he has made in securing the housing (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.
A housing cooperative is a legal entity that owns apartments and rents them to its members. The members do not own the flat, but a cooperative share which gives them the right to use the flat. This makes the purchase of the flat cheaper, the transfer of the share is simpler and subject to less regulation, for example it does not require registration in the Land Registry. On the other hand, the cooperative cannot freely sell, mortgage or donate the apartment without the cooperative’s consent.
The establishment of a cooperative requires at least three founders and registration in the commercial register. The functioning of the cooperative is governed by statutes which regulate the rights of the members, the management and administration of the house. The supreme body is the members’ meeting, the executive board of directors, the control is ensured by the control commission.
The advantages of cooperative housing are a lower purchase price, quick and cheap transfer of shares, partial protection from foreclosure and the possibility to influence the functioning of the house and the choice of neighbours. The disadvantages are the limited possibility of mortgage financing, the risk of exclusion from the cooperative, the limited right to dispose of the apartment and the dependence on the cooperative’s management. If the co-operative mismanages the flat, this can also affect the use of the flat.
Practical experience shows that it is possible to obtain a fair settlement even if you are expelled from the cooperative – if the cooperative share is linked to the rent of the apartment, it should have a real value and the cooperative should not profit disproportionately from its transfer.
We provide a complete package of legal services related to real estate sales and purchases, including reservation contracts and escrow services. We will also help you with all tax and land registry issues. Our work is fast and accurate, ensuring a worry-free transaction. You’re also welcome to pay after services are provided.
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.
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