How to set up an SVJ or housing cooperative

Quick overview

• You must form an HOA once there are at least five units in the building and at least four of them are owned by four different owners.
• Incorporation is usually by approval of the bylaws at a constituent meeting, by agreement of all owners, or by resolution of the sole owner of all units.
• Legally, however, an HOA is only established by registration in the register.
• A housing cooperative is established differently: it needs at least three founding members, a constituent meeting, notarial registration and subsequent registration in the Commercial Register.

Do you need to be sure that the statutes, notarial registration and the proposal to the register will pass without unnecessary delays? Our lawyer for JVUs and housing cooperatives will help you with the preparation of the establishment of a JVU or housing cooperative.

Creation of residential units

The formation of the JVU is logically preceded by the formation of the housing units themselves, i.e. simply put, the flats. Their maximum number is not limited by law, but there must logically be at least two in the house. Their definition occurs either:

• By the construction of a new house under a building contract – here there must be a contractual obligation of the parties to create the units and at the same time the house is at least at a stage of construction that it already has exterior walls and a roof structure. The builders remain co-owners until the creation of the housing unit. However, it is also possible to register the units under construction in the Land Registry; there is no need to wait for the final form. The unit becomes spatially separated as soon as it is enclosed by perimeter walls.
• Dividing a shared ownership house into units by declaration of the owner – if the whole house and all its parts are owned by one owner, it is usually practical to divide it into units, as this will make it easier and more efficient to dispose of the house: some units can be sold, others rented out and others perhaps occupied or used as offices. Even if the owner wants to use the whole house at any given time, it is worth thinking in this way with an eye to the future. The division into units is done by the will of the owner (or co-owners). If a single person is the owner, then he or she also becomes the owner of all the units in the house.

• Conversion of the house into co-ownership units – if the house is co-owned or held in community of property, it is possible to conclude an agreement on separation from co-ownership or on dissolution and division of co-ownership, or an agreement between the spouses on the change of the scope of the community of property or on the division of the community of property. This agreement may be the basis for registration in the Land Register.
• Court decision – in this case, the court decision replaces the declaration of the owner of the building. The court may decide in similar situations as in the previous case, i.e. separation from co-ownership or dissolution and settlement of co-ownership (either of the co-owners may file a petition), or in the case of reduction of SJM or settlement of SJM, unless there is an agreement.

When is it necessary to establish a unit owners’ association?

According to the law, the obligation to establish an HOA arises when there are at least five units in the building and at least four of them are owned by four different persons. It is also possible to establish a unit owners’ association voluntarily in a building with less than five units, but all unit owners must agree to such establishment.

Our law firm was contacted by Mr Filip, who until now owned a three-storey house in Prague 6 with his family. The children were unofficially promised that each of them would own one apartment. One of the descendants wanted to take advantage of his promised right and sell the apartment he occupied and buy a house. The family contacted us for a legal solution.

We prepared deeds of gift for Mr. Filip for the three housing units that he gave to his children as promised. Subsequently, one of the sons was able to start the sale of his apartment. At the moment of transferring the flats to the owners’ children, however, the legal condition for the establishment of a JVU came into being, which we also helped the family to establish, draw up tailor-made articles of association and send the registration form to the registration court. This proved to be necessary before the actual sale of the flat. Although there is no penalty for failure to establish an HOA, it is possible to establish an HOA at a later date, but if the establishment of the HOA is not proven, the ownership of the unit being transferred will not be registered in the Land Registry.

Previously, the HOA could be established automatically on the basis of the law, but such possibilities are no longer allowed by the legislation. As of 1 July 2020, it is not possible to establish an HOA when taking stock of the owner’s declaration or when concluding a construction contract. The establishment of an SVJ under the new Civil Code is thus conditional on the active step of the owners, who must establish the association themselves and register it. The law now provides for the following possible variants of establishment:

• establishment at a constituent meeting of unit owners,
• incorporation by approval of the statutes by all unit owners outside the meeting,
• incorporation by a single owner of all the units.

We have to distinguish the establishment of the HOA, which is a separate phase from phase 1, which is the establishment of the unit owners’ association. The formation of the HOA occurs by registration in the register of the unit owners’ association on the date on which the HOA was registered. The new Civil Code thus makes a clear distinction between the establishment itself and the moment when the formation of the HOA under the new Civil Code occurs by formal entry in the register.

In order to register a unit owners’ association, a form must be filled in and sent together with all attachments to the relevant registration court.

The establishment of an HOA under the new Civil Code is subject to the fulfilment of legal conditions, in particular the number of residential units and their distribution among several owners.

If you are not sure whether the obligation to establish an SVJ has already arisen, do not wait for the transfer of the first unit or a call from the land registry. Our lawyer will verify the number of units, the ownership structure and the correct procedure and suggest the fastest way to register the JVU.

Establishment at the constituent meeting of unit owners

At the constituent meeting, all unit owners gather and the actual incorporation takes place by approving the bylaws. This requires approval by a majority vote of all unit owners. A notary public must be present at the constituent meeting to certify the decision to adopt the bylaws as well as the proper conduct of the meeting by notarial deed.

In practice, mistakes are most often made in the statutes, the invitation to the meeting and whether the decision was adopted by the required majority. If you want to avoid the registry court returning the proposal for completion, have the bylaws and meeting documents checked before visiting the notary.

Incorporation by agreement of all owners

The owners may agree to establish the association outside the constituent meeting. However, even in this case, approval of the bylaws is required and, since it is an approval outside the meeting, it needs to be agreed to by all unit owners in the building. Here, too, the cooperation of a notary is necessary, as the statutes must be in the form of a notarial deed. The owners then express their approval by signing a document that is part of the notarial deed.

Establishment of a housing cooperative

If you are one of the founding members, you should know that at least three members are needed to establish a housing cooperative. 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.

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 must fulfil the deposit obligation and start paying rent. The rent pays for the management of the building and the operation of the cooperative, among other things.

Proper registration in the register is crucial, because it is only through this step that the formation of the SVJ is legally recognised under the new Civil Code.

The most common mistakes when establishing an SVJ and a housing cooperative

The biggest complications usually do not arise because the owners or members of the cooperative do not want to follow the law. More often, it is because they misinterpret the order of steps or use documents that do not match their particular building.

In the case of condominiums, the problem tends to lie mainly in improperly prepared bylaws, missing notarial deed, unclear delineation of units, or the fact that owners start to deal with the establishment only when they want to transfer the apartment. In the case of a housing cooperative, the setting of membership deposits, transfers of cooperative shares, rent rules and decision-making on repairs of the building are often underestimated.

Be especially careful if the house combines family transfers, unit sales to third parties, a development project or historically unclear ownership. In such cases, we recommend preparing a procedure individually, not following a general pattern.

Do you need to set up an HOA or condominium without unnecessary mistakes? We will prepare the articles of association, check the connection to the Land Registry and the Registry Court and guide you through the entire procedure from the first decision to registration.

Summary

You must set up a condominium if there are at least five units in the building and at least four of them are owned by four different owners. Incorporation can take place at a constituent meeting, by agreement of all the owners outside the meeting or by a resolution of the sole owner of all the units, but legally the HOA is only formed when the unit owners register the association. Without proper establishment and registration, complications may arise in the transfer of flats and in the management of the building. A housing cooperative is suitable in a situation where the flats are owned by the cooperative and individual members use the flats on the basis of a cooperative lease; its establishment requires at least three members, a constituent meeting, notarial registration, statutes and registration in the commercial register. In the case of both an SVJ and a cooperative, it is worthwhile not to underestimate the statutes, the correct annexes to the proposal and the connection to the land registry or registration court.