Quick Overview: Repair Fund When Selling an Apartment
- Contributions paid into the repair fund are not refunded to the seller upon the sale of an apartment.
- The repair fund is not a personal account for an individual owner. The money is managed by the homeowners’ association (SVJ) and used for the management, maintenance, and repair of the building’s common areas.
- The seller and buyer may take the homeowners’ association’s financial status into account when negotiating the purchase price; however, they do not automatically settle between themselves every amount the seller has paid in the past.
- The buyer may be liable for the seller’s verifiable debts related to building management fees, services, and advance payments.
- Therefore, before signing the purchase agreement, it is necessary to obtain a statement of debts and to specify the method of their repayment directly in the agreement.
Are you buying or selling an apartment and unsure whether the contract properly addresses debts owed to the homeowners’ association? Have a lawyer review the purchase contract before signing it. A single imprecise sentence can determine who ultimately pays a debt amounting to tens of thousands of crowns.
What are building maintenance fees?
The Civil Code does not explicitly use the term “repair fund.” In practice, it usually refers to long-term contributions from owners toward the management of the building and land, from which the homeowners’ association finances, for example, planned repairs, renovations, or maintenance of common areas. In this article, we therefore use the term “repair fund,” which is familiar to readers; however, legally speaking, it is more accurately referred to as a contribution toward the management of the building and land.
Contributions toward building management can generally be of two types:
1. payments for the day-to-day operation of the building (building insurance, hallway lighting, elevators, trash collection, etc.),
2. payments into the so-called “repair fund” ( funds earmarked for building repairs and renovations).
In particular, contributions to the so-called “repair fund” can amount to a significant sum for those homeowners’ associations that are saving up for more substantial repairs. The average amount can range from ten crowns per square meter of floor area for a building up to 60 crowns per square meter for older buildings that require more extensive investments. The specific amount of the contribution for the management of the building and land is determined by the members’ meeting of the homeowners’ association. The meeting may also decide to change this amount.
As a rule, each unit owner contributes to the management of the building and land in an amount corresponding to their share of the common areas of the building. However, the bylaws may specify a different contribution principle.
Contributions may result in either a positive balance (e.g., the seller “saved” 100,000 in the repair fund) or a negative balance (the seller owes the homeowners’ association payments for these contributions).
The fund is then used to cover everything not included in the annual statement of accounts. This may include:
- operation, maintenance, repairs, structural modifications, and other changes to the common areas of the building,
- inspections of utility networks, the building’s common technical equipment, fire protection systems, lightning rods, and utility lines—including heating, hot water, and drinking water, etc.,
- maintenance of the property and maintenance of access roads to the property.
Tip for article
Selling an apartment involves a lot of things that need to be taken care of. It’s therefore easy to forget something or underestimate the effort required. Read our article to go through all the important steps involved in selling an apartment.
Settle the contributions in the purchase agreement
It is extremely important for both the seller and the buyer to agree on the settlement of building maintenance fees. This is best done directly in the purchase agreement. The homeowners’ association itself will not be of much help in this regard, because under the new Civil Code, it has no obligation to settle these contributions in any way when an apartment is sold.
A positive balance of contributions —meaning the seller has “saved up” in the repair fund—may result in a higher purchase price for the apartment. If the seller has, for example, 200,000 saved in the repair fund, they may want the buyer to reimburse this amount, thereby increasing, for example, the purchase price of the apartment. However, it is again important for the seller to settle this amount directly with the buyer, because the homeowners’ association is under no obligation to refund the seller what he has already paid into the repair fund. Knowing whether the balance is positive is important for the seller.
A negative balance of contributions —the seller’s debts to the HOA (typically, the seller owes money for contributions to the repair fund)—must also be settled in the purchase agreement, as these debts will be transferred to the buyer upon the transfer of the apartment unit. However, a risk also looms for the seller himself, because the seller is personally liable for his debts to the HOA! If the buyer fails to pay the contribution debts left by the seller to the HOA, the HOA may collect these debts directly from the seller. Knowledge of the negative balance is therefore important for both parties, but it should be of particular interest to the buyer.
From legal practice: When reviewing purchase agreements, we often find that the contract contains only a general statement by the seller that there are no outstanding debts associated with the apartment. However, this may not provide sufficient protection for the buyer. In one typical case, a debt of several months owed to the HOA and an already approved special contribution for elevator renovation were discovered just before the contract was signed. Accurately quantifying these liabilities made it possible to adjust the purchase price before the transfer of ownership, rather than having the parties resolve the dispute after the apartment was handed over.
Are you buying or selling an apartment and unsure whether the contract properly addresses debts owed to the homeowners’ association? Have a lawyer review the purchase contract before signing it. A single imprecise sentence could determine who ultimately pays a debt amounting to tens of thousands of crowns.
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Tip for article
Tip: Every apartment owner has surely encountered the issue of contributing to the repair fund. How do you determine how much each owner should contribute, what expenses can be covered by the fund, and how should it be treated from an accounting perspective? We’ll address all of these questions in a separate article.
What to Do If the Seller Owes Money in Homeowners’ Association Dues?
Here’s a simple and practical guide on how to ensure, when buying an apartment, that debts owed to the homeowners’ association aren’t swept under the rug and don’t come as an unpleasant surprise later on.
1. Find out if the seller owes the homeowners’ association any dues
Ask the seller to request a statement from the homeowners’ association confirming how much the seller owes in dues, or a statement confirming that they owe nothing. The homeowners’ association is required to issue such a statement to the seller. If you fail to do this and do not obtain the confirmation from the HOA, it is your responsibility, and any debts the seller may have will be transferred to you.
2. Adjust the purchase price of the apartment
If you discover that the seller owes money in HOA dues, begin negotiating a reduction in the purchase price, as you will have to pay this debt on the seller’s behalf, which will affect the total amount you pay for the apartment.
What should I do if I owe HOA dues?
It is very important for the seller to have the purchase agreement explicitly state that the debt for HOA dues has been settled with the buyer through a reduction in the purchase price; this prevents the buyer from seeking compensation from the seller for the same reason in the future. Such a provision will also give the seller the option in the future to recover the amount of this debt from the buyer in the event that the homeowners’ association invokes the law and seeks to collect the debt from the seller as a guarantor.
What should I do if I have savings in the repair fund?
If the seller has a significant amount saved in the repair fund, this is nothing more than funds intended for the future appreciation of the apartment, which the seller can sell to the buyer along with the apartment. Therefore, try to use this amount to increase the purchase price of the apartment.
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Can the seller demand a refund of contributions to the repair fund?
As a rule, the seller cannot demand that the homeowners’ association or the buyer refund contributions that have already been duly paid. A contribution to the repair fund is not a refundable deposit nor an amount held in the owner’s personal account.
Negotiating the purchase price is a different matter. A well-managed homeowners’ association, a built-up financial reserve, or renovations that have already been paid for can increase the apartment’s appeal. Similarly, a large loan taken out by the homeowners’ association or a planned costly repair can lower the price. However, this does not mean that the repair fund is automatically settled on a one-to-one basis upon the sale of an apartment.
Tip for article
Tip: The Civil Code primarily protects the weaker party to a contract. In a lease agreement, it considers the tenant to be the weaker party and thus imposes restrictions on the landlord in many respects. While it is possible to deviate from certain provisions of the Civil Code by mutual agreement, others simply cannot be “circumvented.” So what are the rights and obligations involved in renting a home? What benefits the landlord and what benefits the tenant, and what should a lease agreement include? We’ll cover that in a separate article.
Summary
The repair fund is not automatically settled upon the sale of an apartment. Contributions already paid remain with the homeowners’ association, and the seller has no general right to a refund from either the homeowners’ association or the buyer. However, the HOA’s financial status, repair plan, or the building’s debt burden may affect the agreed-upon purchase price. The buyer may assume, along with the unit, any identifiable debts the seller owes for building management fees, utilities, and advance payments. Therefore, before signing the contract, the buyer should request an up-to-date confirmation from the HOA and specify the exact settlement of debts in the purchase agreement, or, if necessary, through an attorney’s escrow account.
Frequently Asked Questions
Is the repair fund returned to the seller when an apartment is sold?
No. As a rule, contributions that have already been paid remain with the homeowners’ association. The seller is not automatically entitled to a refund from the homeowners’ association or to reimbursement of the same amount by the buyer.
Is the buyer required to pay the seller's contributions to the repair fund?
It is not required. The parties may take the financial status of the homeowners’ association into account when negotiating the purchase price; however, this does not constitute a legally mandated settlement of contributions paid.
Does the debt owed to the repair fund pass to the new owner?
It may be transferred if it concerns a debt related to building management or services that the buyer had at the time of the transfer and could have discovered. The seller is liable for any outstanding debt owed to the homeowners’ association.
Who issues a statement of debts owed to the homeowners' association?
The confirmation is issued by the person responsible for managing the building, typically the homeowners’ association. The seller should request this document prior to the transfer and present it to the buyer.
Is a confirmation that the seller has no outstanding balance with the repair fund sufficient?
That’s not necessarily the case. The buyer should also check for any outstanding utility bills, advance payments, and other obligations related to the unit. Approved repairs and loans taken out by the homeowners’ association are also important.
