Selling a coop flat in Czechia is usually accompanied by a number of questions. What are the main differences from selling a freehold flat? And what peculiarities might you face? Read on to learn.
Selling a coop flat in Czechia is usually accompanied by a number of questions. What are the main differences from selling a freehold flat? And what peculiarities might you face? Read on to learn.
The main distinction would be the owner. While a freehold flat belongs to its proprietor, the cooperative owns a coop flat. The occupant of a coop flat is in fact a tenant, not the proprietor. However, you don’t have to rent a coop flat to be a member of the cooperative; members with no lease rights are no exception.
Also, the sale procedure differs: While by purchasing a freehold flat, its new owner takes possession of the unit itself, cooperative membership rights are the subject of a coop flat sale.
This has an advantage: As a sold coop flat technically doesn’t have a new owner, the ownership rights needn’t be transferred at the Land Register.
If none of the aforementioned options are available, the purchaser may take a bridge loan from a building savings account, which precedes taking a standard building savings loan. Alternatively, they may obtain consumer credit, which, however, means less loaned money (approx. 1-2 million crowns with a bridge loan, hundreds of thousands of crowns with consumer credit), a higher interest rate and shorter term of payment.
And, you may easily become lost among them. Familiarize yourself with what problems you could encounter, or leave the formalities and agreements up to us.
Prior to signing the agreements, you need to decide how to finance your purchase. Naturally, it’s best to have ready money; however, most buyers don’t have the whole sum on their hands and need to take a loan. With a coop flat, the standard lien (i.e., the flat is collateralized by the bank providing the mortgage upon signing the purchase contract) may not be applied, as cooperative statutes reject liens burdening their property, and individual members cannot force the issue.
The buyer is thus left with three variants of financing:
Once you’ve secured the financing and the cooperative has no objections, you can proceed with signing the agreement, which in this case is not a purchase contract but a housing cooperative share transfer agreement. And, if you must pay annuities (which we’ll discuss shortly), you will also sign a financial settlement agreement.
Moreover, it’s highly recommended to place the purchasing money in escrow, just as you would with a freehold flat, which means entering into an escrow agreement. The difference from purchasing a freehold flat is that you needn’t transfer the ownership rights at the Land Register when you sign it – you simply wait until the cooperative receives the agreements and sends you your membership certificate. The escrow is necessary due to the period between signing the agreements and receiving the membership certificate.
This term is often associated with a coop share transfer, and denotes repaying a debt (a long-term loan) made while (re)constructing the cooperatively owned house. The coop then repays this loan through its members, who are bound to pay the agreed monthly or annual instalments. Once the debt is settled, the annuity no longer needs to be paid. This should be taken into account during the sale, as the value of a coop share is naturally higher if the annuity has been paid in full.
You’ll be pleased to know that tax obligations are nearly non-existent. The real estate acquisition tax is not paid, as the cooperative retains ownership of the property. Neither must you worry about the real estate tax, as this only concerns the owner as well.
Please note: The real estate acquisition tax was abolished as of 31 Mar 2020. You’ll find more information in the Real Estate Tax Abolishment article.
Cooperative ownership includes several significant negatives. Among the prominent ones is the fact that the members of a housing cooperative don’t actually own “their” flats, but rather are allowed to occupy them as tenants. This is no mere detail, as the cooperative has extensive authority – it may, under certain conditions, go as far as to expel a member, thus giving them notice, which means losing the flat.
And some coops do claim this right, as demonstrated by the case of Jarmila, who turned to us. Jarmila has been suing her cooperative for several years now for unauthorized expulsion. She was expelled for renting out her flat, which was her right. Fortunately for her, the membership is protected. To expel a member, the coop must adhere to a strict procedure and allow the member in question to defend themselves at the members’ meeting. When all else fails, the member must take legal action, as in this case. Any irrevocably expelled member is entitled to a settlement share, which, however, is significantly lower than the market price of the flat.
The mentioned case clearly demonstrates another serious disadvantage of coop flats: They can’t be rented out, as their proprietors themselves are actually tenants. However, that doesn’t make the principle of letting entirely impossible; you’ll merely have to sublet your flat as opposed to renting it out. This may seem an insignificant detail, however, be careful, as it carries a severe implication: The owner’s (i.e, the cooperative’s) written permission is required. Without it, you aren’t allowed to sublet your flat. Thus, Airbnb and similar platforms are effectively regulated.
A coop flat needn’t remain cooperative forever, its ownership may be transferred to freehold. To do so, you need to apply with your cooperative, which will then pass a resolution at a general members meeting. Unfortunately, cooperative members are granted no rights regarding such transfers, which means that unless these rights are explicitly stipulated in the statutes, the cooperative’s eventual refusal is definitive.
On the other hand, if the cooperative approves the transfer, it then enters into an ownership transfer agreement with you and, subsequently registers you at the Land Register, thus completing the transfer. Moreover, it’s possible for some new freehold owners to retain their membership in the cooperative even thereafter.
Although it may seem that cooperatives represent a mere remnant of the past, their benefits have recently been rediscovered in many countries. The community housing which is nowadays popular in Vienna may serve as an excellent example.
Similarly, many Czech developers have started opting for a cooperative when constructing new housing, owing to which they’re able to draw on the subsidies offered by municipalities that are often one of the joint owners. As a pleasant consequence, the purchasing price frequently drops.
Are you about to transfer a cooperative flat into a freehold ownership? We’ll gladly assist with the entire process, from drafting or examining the contracts, guidance on your financial options, to escrow.
Dostupný advokát team of online lawyers will solve it for you.
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