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What is an annuity

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.

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5 minutes of reading

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.

Examples from practice

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.

Real Estate Purchase or Sale

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:

  1. What to watch out for when buying a property
  2. How to get a mortgage
  3. What to check before buying a property
  4. Who pays the property transfer tax and how?
  5. What should be included in the property purchase contract
  6. The most common mistakes when drafting a proposal to the Land Registry
  7. Buying a property from a developer
  8. Keeping the purchase price when buying a property
  9. The difference between a condominium and a freehold
  10. What is an annuity?
  11. How to properly gift a property
  12. What is the purpose of an easement or servitude?
  13. Making a will and settling an estate
  14. What is a collation
  15. What shouldn’t be missing in a lease agreement
  16. When rent increases can be made
  17. Termination of the lease
  18. Agreement to end the tenancy
  19. How to draw up a work contract with a tradesman
  20. Hidden defects and cancellation of a works contract
  21. When do you need planning permission to renovate a property?
  22. Home Rules
  23. What does serving on a condominium board entail?
  24. Why not underestimate the bylaws in a condominium
  25. Common areas in a block of flats
  26. What is involved in refurbishing a block of flats
  27. Can a condominium or housing association go into debt?
  28. How to renovate a house or cottage
  29. What to watch out for when dealing with a construction “company”?
  30. Building a house on a “green field”
  31. How to remove land from the agricultural fund

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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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