Transfer of the apartment to private ownership

JUDr. Ondřej Preuss, Ph.D.
8. September 2023
10 minutes of reading
10 minutes of reading
HOA and housing cooperatives

Is the housing association restricting you from using your apartment? Would you like to own your apartment? And what if the membership meeting doesn’t want to convert your condo building into units? We will advise you on how to proceed.

ruce držící klíče od bytu

Owning a condominium comes with a number of restrictions that can be a bonus for some and a bad dream for others. Most often, you cannot either mortgage the apartment and take out a mortgage or rent the apartment without the approval of a membership meeting. This is because you only own a share in the co-op and you rent the apartment. However, today there are often transfers of cooperative flats into personal ownership and the conversion of housing cooperatives into unit owners’ associations.

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What is a housing cooperative

A housing cooperative is a legal entity, a type of cooperative with a focus on housing. In addition to providing for the housing needs of its members, it may also manage houses with flats (or non-residential premises) or run a business. Any profits are used to provide for the housing needs of its members.

What is a unit owners’ association

a Unit Owners’ Association (HOA) or HOA is made up of people who own flats in a block of flats. The main activity of the HOA is to manage the common property, for example the common areas and the surrounding land. Each community has two basic documents that determine its operation – Statutes and house rules.

Tip na článek

Tip: If you are dealing with the bylaws of an SJV or condominium, it is worth contacting our attorneys. They will make sure that your bylaws are in compliance with the law. They will set up a turnkey unit owners’ association or condominium for you and will draft or review the bylaws of your homeowners’ association (HOA) or condominium development (BD).

How are they different?

The main difference lies in ownership. In the case of a housing cooperative, the cooperative owns the flat and you only have a leasehold interest in the flat, which means that your disposal of your flat is very limited. On the other hand, in the case of an HOA, the apartment belongs to you and you can dispose of it as you wish, so you can sell it or rent it out.

How to transfer an apartment into personal ownership?

Before you go ahead, you should find out about the cooperative, especially the financial information. As a cooperative member, you have the right to see documents relating to the management of the cooperative. It is a good idea to find out whether the cooperative has any outstanding debts and, if so, how much it still has to pay. It is not unusual for a cooperative to decide to take out a loan for renovation, for example. You would then still have to pay off your share of this debt when you transfer ownership.

Tip na článek

Tip: Are you planning to apply for the transfer of your apartment to private ownership at a co-operative meeting? You don’t have to do it alone. We’ll represent you at the meeting, protect your rights and handle complex legal situations for you.

If you are firmly decided, have considered all the pros and cons of personal ownership, and want to go down the transfer route, you need to make an application, which is decided by the tenants’ membership meeting. Unfortunately if your application is refused there is nothing that can be done about it, there is no legal entitlement to transfer. It’s different if the general meeting has already decided to transfer the flats before you joined the cooperative (by buying a cooperative share). If the members’ meeting does not agree to the separation of the flats into private ownership, you can try to convince a larger part of the building’s residents and apply en masse and make a full conversion of the cooperative into a unit owners’ association.

If the co-op agrees to the transfer, it will file a so-called property owner’s declaration with the land registry, thereby declaring that it defines the residential and non-residential units in the building. Owners who do not wish to transfer their share to personal ownership will remain condominium owners even though all apartments in the building will be designated as units.

You will then enter into a contract with the condominium to transfer the unit to personal ownership. The Land Registry will then register you as the owner of the new unit.

Tip na článek

Tip: You probably know that in cooperative housing, you do not own the apartment as such, but only the cooperative share, which is a participation in the housing cooperative. Is there any way to inherit a condominium in such circumstances? Yes. In our next article you will find out how to inherit a cooperative flat and how the transfer takes place.

Bulk transfer

You may also encounter a bulk transfer of all cooperative flats into personal ownership.
As far as bulk transfers are concerned, they are often a very stressful experience for the board members of the cooperative. It is in fact a kind of privatisation on a small scale. And if one remembers how, for example, coupon privatisation was carried out, one can easily imagine the dismay of those in charge of this process.

From law practice: a housing cooperative was transformed into a community of unit owners

In many condominiums in which a co-op operates, they eventually decide to convert the apartments to personal ownership. They then find out which particular option of transfer is the best one in the given situation.

We were recently approached by a Prague housing association about such a matter. After familiarizing ourselves with the case, we recommended the option of a complete and total transformation of the cooperative into a community of owners. In such a case, the cooperative is then dissolved, thus eliminating the double obligation of bookkeeping and the need to dispose of the cooperative’s profits.

On the other hand, this is not the right option in every situation. The cooperative can serve as a trustee and also possibly deal with the issue of premises that no one wants or can transfer to personal ownership. However, this did not play a role in our case.

Establishment of SVJ

You need toset up an HOA in a building where there are at least 5 units, at least three of which are owned by three different owners. The SVJ is created by approving the statutes. The by-laws will then determine the chairman of the JVU and the rest of the committee members, and possibly other details about the voting of the JVU or heat distribution. However, beware that the model by-laws, which are freely downloadable, may be unsuitable for your particular case and may cause considerable complications in the future. It is always worth seeking professional advice when drawing up the articles of association.

There is also the question of whether you will pay property tax on the acquisition of the property? The transfer of a condominium to personal ownership is exempt from this tax. However, as of November 1, 2016, the acquirer must still file a tax return. Certainly, the whole process is not easy and can take several years, in particular it can all come down to bad agreement and the reluctance of some co-operative owners to transfer their flat. Indeed, you should first consider whether it is better to conclude a purchase contract for another flat in private ownership instead of investing energy, time and money in this “fight”.

Tip na článek

Tip: Are you planning to set up an LLC? We will guide you through the incorporation process and offer all the services you need for your business.

Advantages and disadvantages of personal ownership compared to a housing cooperative

Higher apartment value

As it is sometimes (half-jokingly) said, money comes first. This is the first reason for the preference for personal ownership. The value of a privately owned apartment is higher than that of a cooperative ownership. however, this also means that the purchase price is much higher than for cooperative flats.

Experts on the real estate market claim that privately owned flats sell for up to units or even tens of percent higher than cooperative flats. On the other hand, the transfer of a cooperative apartment is faster and easier.

The reason for the frequent reluctance to buy a cooperative flat (besides the distrust of many people to enter cooperative ownership) is mainly the possibility to finance the purchase of a flat in private ownership with a mortgage. In the case of a condominium transfer, the purchaser must have sufficient spare cash or another property to pledge to the bank, which limits the pool of buyers considerably.

“Tenure of the flat”: who owns the flat?

The most important reason, however, and many co-operative owners do not fully realise this, is that in the case of a co-operative flat they are only tenants of the flat, not its owners. Only the co-operative owns the flat and the house, and only the co-operative exercises the right of ownership. Under certain conditions, a member of the cooperative may even have his lease terminated and be expelled from the cooperative and lose his apartment.

The settlement share that the expelled member receives is certainly not the market value of the cooperative flat. However, an extreme case, which would not be the first or last time in our history, is the bankruptcy of a cooperative caused by errors in the cooperative’s management. The consequence can be the loss of the cooperative’s assets and their sale at auction. However, it should be added that an owners’ association can also end up in insolvency, and neighbours are in fact liable for each other’s debts.

Easier renting and adaptations

If you have a freehold flat, you can dispose of it freely – rent it out, run a business in it or sell it. However, this is not so easy with a cooperative flat and renting out a cooperative flat is usually prohibited.

On the other hand, selling it is simplified in that you are not selling the flat itself, but only the share in the housing association. This saves you a lot of time and paperwork, as the sale does not need to be registered in the Land Registry or require the consent of the housing association.

In addition, it should also be mentioned that only the owner of the apartment decides whether any building modifications or reconstruction will be carried out in the apartment. Therefore, any major alterations to a condominium apartment are subject to the consent of the condominium. If a person wants to have a non-traditional modern home, there are a few more obstacles in a cooperative apartment.

As far as ongoing charges are concerned, in a condominium you pay a monthly rent which includes utilities, repair fund charges and possibly an annuity. In a freehold flat, you do not pay rent, but you have to pay regular common area management charges (for example, regular cleaning), repair fund charges, utilities and property tax each year.

Lastly, if you don’t have the cash to buy a flat, then a co-operative flat is almost out of the question, as the bank will not give you a mortgage loan for it.

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Are you solving a similar problem?

Lawyer for HOA and housing cooperatives

We will provide you with a lawyer for HOA or housing cooperative for 6 or 12 months. He or she will be available at any time to represent you in court or with the authorities and help you with any legal issue. All this for a price you know in advance and the option to pay after the service is completed.

I want you to help

Author of the article

JUDr. Ondřej Preuss, Ph.D.

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.

Education
  • Law, Ph.D, Pf UK in Prague
  • Law, L’université Nancy-II, Nancy
  • Law, Master’s degree (Mgr.), Pf UK in Prague
  • International Territorial Studies (Bc.), FSV UK in Prague

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