An annuity is a periodic payment that a housing association collects from its members to cover the costs of building or renovating an apartment building. In our article, we will explain more about what an annuity means.
An annuity is a periodic payment that a housing association collects from its members to cover the costs of building or renovating an apartment building. In our article, we will explain more about what an annuity means.
An annuity is generally an annual payment. In practice, however, it is used as a humanisedname for the outstanding part of the so-called ‘additional membership deposit’. The cooperative had to pay for the apartment building out of something, so it is usually paying off some long-term loan, essentially through its members. A member of the cooperative thus shares in the investment in the house owned by the cooperative, which includes the cooperative flat that he or she is renting.
This ‘additional member contribution’ is gradually repaid in annuity (annual or monthly) instalments and may, in some cooperatives, already be repaid, i.e. there is no longer any need to pay an annuity to the cooperative. This may of course also affect the value of the share, which will be higher in such a case.
the “additional membership contribution” can also be increased by a decision of the members’ meeting if, for example, the house needs to be renovated. For example, the cooperative takes out a mortgage to renovate or upgrade the house and the repayments are actually spread among the individual members.
Theannuity needs to be watched out for, as it is not included in the purchase price and so effectively increases the cost of purchasing the apartment. It is always important to know what amount is being paid, how many times a year and how long the annuity will be paid before the entire debt is paid off.
The law clearly states that the transfer of a cooperative share transfers not only the annuity but all the debts of the transferor to the housing cooperative and the debts of the housing cooperative to the transferor that are related to the cooperative apartment and its use.
This was a surprise, for example, for Mr. Jiří, the owner of a wine bar in Olomouc. As a new owner, he entered exactly the same position in the cooperative as the seller of the share. He was not prudent and therefore did not know about the debt that had been transferred to him. It was only with great difficulty that the former owner was able to enforce performance. In addition to the annuity, the buyer should also check information about the amount of any other debts. This includes debts owed to the cooperative for various services, such as cleaning the house, running the elevator, etc.
Here we can give another example from practice. Mr Karel went to introduce himself to the management of the cooperative immediately after moving into his new flat. However, instead of a nice meeting, he got an unpleasant surprise. The chairman of the board told him that the original owner had not paid the obligatory fees for almost two years. His debt in the repair fund had reached over CZK 60,000.
It is therefore necessary to find outsuch information from the seller or to check with the cooperative managementand to ask for confirmation that the rent and all deposits have been paid. As in the case of a privately owned apartment, the share in the cooperative may be attached by execution, i.e. the owner is restricted in disposing of the share, and then the share may be sold at auction. And watch out for the seller in insolvency, where there is a similar risk.
The same applies to both buyer and seller in a conventional conveyance, i.e. they should settle their debts. So it is not just the domain of cooperative ownership. It is best to do so directly in the purchase contract. The homeowners’ association itself will not be of much help in this, because according to the new Civil Code it is not obliged to automatically settle the contributions when selling the flat. It is therefore up to the buyer to request the seller’s cooperation. Upon request, the association will then issue a certificate stating that there are no debts on the apartment.
Tip: The establishment of a unit owners’ association or housing cooperative does not only concern the first owners of flats in a newly built apartment building. What are other situations where this happens? And how to proceed and what not to forget? We have prepared a practical and clear guide for you.
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.
Tip: We have written everything about the functioning of the housing cooperative and its advantages and disadvantages in a separate article.
We prepared this article for the Lidové noviny series “Law & Housing”. See also other articles from the series:
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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