The sale of a cooperative apartment is often associated with a number of issues. What are the main differences from the sale of a flat in so-called private ownership? And what peculiarities can we encounter during the sale? The answer can be found in this article.
First of all, it is necessary to mention what the difference between a cooperative apartment and a flat in so-called personal ownership actually is. The main difference lies in the owner of the unit. While in a so-called freehold flat it is, as the name suggests, the private owner himself, in a cooperative flat the owner is the cooperative. The occupant of the condominium is then only a tenant, not the owner of the unit. However, renting the flat is not a condition for membership of the cooperative. Members without the right to rent a particular apartment may also be members of the cooperative.
Ownership is also related to the procedure for sale, because while in the case of a privately owned apartment the new owner acquires the apartment unit directly, in the case of a cooperative apartment the object of sale is the membership rights in the housing cooperative.
There is also one rather pleasant advantage associated with this, because at the moment when the owner of the unit itself does not change, it is not necessary to change the ownership rights in the Land Registry. Therefore, when selling a cooperative apartment, there is no need to deal with the cadastral office.
And it’s easy to make mistakes. Read on to find out what you can expect when transferring a cooperative apartment, or use our services and leave all the formalities and contracts to us.
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The procedure is similar to that for selling a flat in private ownership, but it has its own specifics. We often encounter questions about whether the cooperative can prevent the transfer of the share. Primarily, transferability cannot be excluded or restricted. However, the exception is the restriction in the statutes that only a natural person may be a member of a housing association. In such a case, an existing cooperative member cannot transfer his share to a legal person. We have discussed other situations that you may encounter when transferring your co-operative share in another article.
Selling an apartment involves a lot of things that need to be arranged. It is therefore possible to forget or underestimate something. Read our article to find out all the important steps in the process of selling a flat.
Before signing the contracts, the financing of the purchase of the property needs to be resolved. The easiest option is, of course, to buy from your own funds. The vast majority of buyers, however, do not have the full purchase price at their disposal, so they need to take out a bank loan. In the case of a cooperative apartment , a classic mortgage cannot be used, where a contract is signed with the seller and the apartment is pledged in favour of the bank providing the mortgage loan. This is because housing associations refuse pledges on their properties and individual members cannot enforce them.
The buyer is offered three different financing options through loans:
If the cooperative has no objections against the buyer and the financing of the apartment is settled, the contract can be signed. In this case, it is not a traditional purchase contract, but a contract for the transfer of the cooperative share in the housing cooperative. If the annuity, which is dealt with later in this article, also needs to be resolved, a financial settlement agreement is also signed.
At the same time, it is advisable to sign an escrow agreement because, as with the sale of a freehold flat, it is definitely necessary to use a solicitor’s or other escrow for the money. The only difference is that after signing the contracts, it is not necessary to file a petition for the entry of the ownership right into the Land Registry, but only wait for the delivery of the contracts to the cooperative and its confirmation of the acceptance of the new member. Since there is again a certain time lag between the signing of the contract and the cooperative’s expression of interest, escrow of the purchase price is a necessary option.
When transferring a cooperative apartment, we often talk about the so-called annuity. This is the repayment of a debt (long-term loan) incurred during the construction or renovation of the house. The cooperative then repays this loan through its members, who gradually pay a predetermined amount in monthly or annual instalments. Once the debt has been repaid, this means that there is no longer any need to pay the annuity. This fact must also be taken into account when selling, because the value of the share in the cooperative is obviously significantly higher if the annuity is paid up.
As far as tax obligations are concerned, in the case of a cooperative apartment, it is relatively simple – and also very pleasant for the future owner. There is no property tax to pay (because the property does not change hands, which remains the co-op) and you don’t have to worry about property tax. This applies to the owner of the property, in this case the co-op.
The only tax you have to pay in connection with the sale of a condominium is income tax. This is payable by the seller, who may be exempt from payment if:
Please note that the real estate acquisition tax has been abolished and the effective date in this respect is 31 March 2020. For more information, see the article Abolition of real estate acquisition tax.
However, cooperative ownership also brings with it some rather significant disadvantages. The first is the already mentioned fact that the owner is not the actual owner in the case of a cooperative apartment, but rather a tenant who is allowed to use the apartment by the cooperative. You may now be thinking that this is rather a matter of wordsmithing. However, the co-operative does indeed have great powers – it can exclude a member under certain conditions and thus terminate the tenancy agreement. This also results in the loss of the flat itself.
The fact that this practice is indeed resorted to from time to time is evidenced by the case of Ms Jarmila, which we deal with in the Accessible Lawyer. Ms. Jarmila has been suing her “cooperative” for several years for wrongful exclusion. The cooperative excluded her because she rented out her apartment. However, she had consent to do so. Fortunately for her, however, membership is protected and the co-op has to follow a fairly bound procedure to successfully expel a member and give the member an opportunity to defend themselves at a membership meeting. And if even that doesn’t work, she can go to court as in this case. A finally expelled member is entitled to a so-called settlement share. However, this does not correspond to the market value of the apartment.
In the above example from practice, the second major disadvantage of a cooperative apartment has already been mentioned – the impossibility of renting it. The owner himself is a tenant of the flat. However, this does not mean that he cannot provide housing for a fee to someone else. It is just that in this case it will not be a lease, but a sublease. However, this is not just a matter of words either. The written consent of the owner, in this case the cooperative, is always required. If the association does not agree, you must not sublet the flat. This also effectively regulates Airbnb and other similar platforms in cooperative apartments.
A co-operative flat does not have to remain a co-operative flat forever. It is legally possible to change ownership to so-called personal ownership. If you decide to convert to personal ownership, you must submit an application, which will then be decided by the members’ meeting. However, there is no legal entitlement to the transfer. If the application is rejected and the cooperative’s statutes do not explicitly recognise the right, there is unfortunately nothing that can be done.
Otherwise, i.e. if the application is approved, the cooperative will enter into a special transfer agreement with the cooperative and the cooperative will subsequently file a petition for registration of the new owner in the Land Register.
The apartment will then be transferred, although some unit owners may still remain cooperative owners.
Although at first sight it might seem that cooperative ownership belongs more to the last century, in some countries its potential and advantages are only now being discovered. One example is the now very popular community housing, which is used by many people in Vienna, for example.
But even here, however, cooperatives are not just a matter for older apartment blocks. They are often found in new buildings as well. The reason why they are so popular with developers is the possibility of obtaining subsidies for construction. The shareholder is often the city in whose territory the construction is taking place. The advantage for the buyer can then be a lower purchase price.
Are you about to transfer your condominium? We will help you with everything you need. We will take care of the contracts, advise on financing and arrange for a solicitor to hold the money.
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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