Every homeowner has certainly encountered a contribution to the repair fund. How to determine how much the individual owners should contribute, what all can be paid from the fund and how to understand it from an accounting point of view? We will focus on all this in today’s article.
No one calls it anything other than a repair fund contribution, but its legal name is the ‘house and grounds maintenance contribution‘. By law, the fund is created by the owners of the dwelling units in the amount determined by the owners’ assembly, usually according to the size of the share in the common parts (unless otherwise determined).
Payments to the repair fund are sometimes referred to in the statutes as contributions, sometimes as advances. However, it is not possible to juggle these terms arbitrarily.
The correct term is indeed contribution, as it is understood that payments made by individual owners are non-refundable and not accounted for. They remain in the community’s account and are intended for the repair, management and reconstruction of the building (by contrast, the term ‘advance’ would imply, as a rule, a once-a-year settlement, recovery of arrears or return of overpayments. Typically, the advance payment system is used for utility payments).
The amount of the contribution is generally based on the proportion of the common parts. If any of the common parts are for the exclusive use of one or more of the owners, the nature, size and location of that part is also taken into account.
Tip: Common area management means anything that does not belong to the individual unit owner and is in the interest of all owners and can be considered necessary or expedient for the proper care of the house and grounds as a functional unit.
The community of unit owners can create its own system for calculating contributions to the repair fund. A common method of accounting may be to determine the payment according to the floor area of each apartment. The specific rate per m2 is then set at the owners’ meeting. The calculation may also take into account the use of the individual units in the building. In non-residential units there may be less (but conversely more) traffic, which can be included in the calculation.
Attention! It is important to remember that the deviating rules for determining the amount of contributions must be enshrined in the owner’s declaration after the amendment of the law, not only in the statutes. However, if an agreement of this type already exists in the HOA, it automatically becomes part of the owner’s declaration under the transitional provisions of the Act. Therefore, the HOA must not only take this into account if it wants to change this existing agreement, but should also prepare a new complete version of the owner’s declaration and file it in the Land Registry and the Commercial Register.
As a rule, the practical procedure for fixing the amount of the individual payments is that the Community Committee proposes the amount and method of calculation. Subsequently, the specific amount, rules for the creation and use of the fund are approved by the unit owners’ assembly. It also sets the deadlines for payment, which the unit owners are obliged to respect.
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A common question from landlords is whether the tenant can also pay the repair fund or whether the landlord can pay the repair fund exclusively. Especially in the case of long-term, multi-year leases, it makes sense for landlords to pass this obligation on to their tenants.
It follows from the nature of the fund and the statutory definition that the contributions are paid by the unit owner member of the community, and the HOA therefore negotiates with the unit owner and recovers any unpaid contributions. The ability to pass on the repair fund contribution to your tenant is not allowed by law. However, some landlords include this contribution covertly in the rent and the tenant has no chance of knowing that the rent has been increased by this amount.
Tip: We have discussed the determination of the rent and its individual components in our separate article.
In the case of a housing cooperative, the above principles apply by analogy, of course with the basic difference that the individual members of the cooperative are not the owners of the cooperative apartment, but de facto tenants of the cooperative apartment with a valid lease agreement.
Unit owners pay their contributions on the basis of payment regulations for a period of usually one year. The payment schedule breaks down the payments made by each unit owner, together with the payment of the utility deposits. The payments themselves are then usually made on a monthly basis. However, it is possible to imagine, for example, quarterly payments, etc. It is the responsibility of the committee members or the external administrator to check that all payments are properly made according to the schedule, and if not, then recovery should be initiated (initially in the form of notices, reminders, etc.).
In the event of late payments, statutory interest on late payments may be applied to the flat owners. The amount of the interest rate is the annual repo rate set by the Czech National Bank for the first day of the half-year in which the default occurred, plus 8 percentage points.
As a rule, the general tendency of homeowners is to pay as little as possible. However, at owners’ meetings, there may be a call for an increase in payments in order to build up a sufficient reserve, as it can be difficult to raise money when a large sum is suddenly needed. Not all owners will be able to afford a payment of, for example, CZK 20 000, and the committee or the community in general may be paradoxically paralysed at a time when rapid action is required.
The age and technical condition of the house should be the primary consideration in determining the amount of contributions. With an experienced builder or other expert, it is advisable to go through the various parts of the house and quantify both what repairs or investments are urgent (e.g. dehumidification of the cellars, construction of a lift) and what payments are at risk in the event of breakdowns or accidents and what their probability is (in this context, it is also worth thinking about quality insurance for the house).
It is important to think about both types of payments and make sufficient provision for them. The aforementioned case where it is immediately necessary to collect many thousands from each owner may ultimately lead to the need to take out a loan, which may be considerably disadvantageous.
If, after a long period of time when the house has been left fallow, younger owners who are interested in a complete and high-quality repair and maintenance come to the committee, it can be assumed that the proposed level of contributions will hurt the owner a little. On the other hand, when buying a flat in a new building, the monthly contributions to the repair fund are likely to be lower, usually a few hundred crowns per month. Massive investment in repairs is not expected any time soon.
The use of the repair fund has relatively clear rules, which are laid down in a government regulation.
These include:
In some condominiums, the fund also pays for house insurance, management company fees, and other similar items. It should be noted that in such cases the repair fund is used contrary to its purpose.
In accounting terms, the repair fund is recorded as a long-term advance. It is not, therefore, an accounting fund made up of net profit. As we have indicated above, its use is intended to be for more than 12 months and is not intended to finance recurring annual reimbursements.
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