Who should pay into the repair fund and how much?

Quick overview

• The owners of the apartments in the building, not the tenants, contribute to the repair fund.
• The amount of the contribution is determined by the owners’ meeting.
• It is usually calculated according to the co-ownership of the common parts of the building or the floor area of the apartment.
• The money is used for repairs, maintenance and management of the house.

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How the amount of the repair fund is determined

No one calls it anything other than a repair fund contribution, but its legal name is the “house and grounds management contribution“. According to the Civil Code, the fund is created by the owners of the housing units, in the amount set 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).

In practice, we often see that apartment owners confuse the repair fund with advances for services. While service advances are regularly accounted for, the contributions for the management of the building remain the property of the owners’ association and are not refunded.

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 shall also be taken into account.

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 after the amendment to the Civil Code, the deviating rules for determining the amount of contributions must be enshrined in the owner’s declaration, not just in the articles of association.

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 law. 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 Register 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 payment deadlines which the unit owners are obliged to respect.

Who pays the repair fund?

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 and recovers any unpaid contributions.

In the law practice, disputes during the sale of an apartment are quite often encountered when the buyer discovers only after the transfer of the unit the seller’s debt for contributions to the repair fund. Therefore, when buying an apartment, a certificate from the HOA is usually required to confirm that the seller is debt-free.

How to charge the tenant for the repair fund?

The question of how to account for the tenant’s repair fund arises mainly in long-term leases where owners want to pass on as much of the cost as possible to the tenant.

However, it is clear from the law that the contribution to the repair fund is to be paid solely by the landlord, not by the tenant. However, some landlords include this contribution covertly in the rent and the tenant has no chance to know that the rent has been increased by the amount in question.

Therefore, how to charge the tenant for the repair fund cannot be dealt with as a separate line item in the bill – it is usually included in the total rent. However, it is important to remember that even this hidden method is not legally binding and the HOA always recovers payments only from the owner.

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.

Payment of contributions

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 service 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 practice, it often happens that the debtors start to react only when the JVU takes legal action or threatens legal enforcement of the debt.

In the case of late payments, statutory interest on late payments can be applied to the apartment owners. Its amount corresponds annually to the repo rate set by the Czech National Bank for the first day of the half-year in which the default occurred, increased by 8 percentage points.

To pay a little or a lot?

As a rule, the general tendency of homeowners is to pay as little as possible. In practice, however, it turns out that a long-term low repair fund can be risky for the building – when major repairs are made, owners have to pay large lump sums or the community takes out a loan.

At owners’ meetings, however, there may be a call for increased payments to build up a sufficient reserve, as money can be difficult to raise 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 proceedings of the committee or the community in general may paradoxically be paralysed at a time when rapid action is required.

It is the question of the amount of contributions that tends to be one of the most frequent disputes between unit owners that we observe when representing the HOA, because everyone has a different idea of how much of a reserve the building should build up.

When determining the amount of contributions, it is first and foremost necessary to base it on the age and technical condition of the house. 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.

What is paid from the repair fund?

The use of the repair fund has relatively clear rules, which are laid down in a government regulation.

These include:

• operation, maintenance, repairs, alterations and other changes to the common parts of the house,
• revisions of technical networks, common technical installations of the house, fire-fighting equipment, lightning rods, energy distribution systems including heat, hot water, drinking water, etc.,
• maintenance of the land and maintenance of access roads to the land,
• exercising the right of access to the apartment in the event that the owner of the unit makes structural alterations to his/her apartment, including the possibility of requiring the submission of construction documentation in justified cases.

In some condominiums, the fund also pays for house insurance, management company fees, and other similar items.

Repair fund from an accounting point of view

In the accounting system, the repair fund is recorded as a long-term advance. It is therefore not a 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.

Summary

The contribution to the repair fund (properly, the house and grounds management contribution) is a legal obligation of each unit owner and its amount is usually determined by the size of the co-ownership interest in the common parts of the building, or by square metre. The exact amount and method of calculation is decided by the owners’ assembly, and different rules must be newly regulated directly in the owner’s declaration, not just in the statutes. The fund pays for repairs, maintenance and technical inspections, not for services or current operating costs, and is recorded in the accounts as a non-accountable long-term advance. The tenant does not pay the repair fund – the HOA deals exclusively with the owner, although some landlords reflect the amount indirectly in the rent.