What does reconstruction of an apartment building entail

Chapters of the article

• Which houses are affected by the reconstruction?
• Reconstruction approval
• Methods of financing

Which houses are affected by the reconstruction?

Houses, like other properties, age and one day the time will come when they require renovation. Most of the historic buildings in the centre of Czech cities have already undergone reconstruction.

These buildings were very neglected and often dilapidated, mainly because they belonged to “everyone”. The problem today may be more the prefabricated houses that have been built in large numbers since the 1960s. Some of them had an estimated lifespan of only thirty to fifty years, i.e. today they are at the limit of their declared lifespan. They are then often inhabited by a large number of diverse people who find it difficult to find common ground on reconstruction priorities.

It is also true that the prices of apartment buildings and individual apartments after reconstruction are higher than those before reconstruction. Therefore, the best option is to get an apartment in a house that has already been renovated and even managed to pay off the renovation. This means that the property is not legally encumbered by a mortgage, which can mean a big saving on fees.

So what is the legal situation with this decision? It always depends on the statutes, whether it is a housing association or a building managed by a community of owners. Ordinary matters are usually decided by majority vote. That is to say, a majority of those present at the relevant meeting. A quorum may be present if at least 50 per cent of those entitled to vote are present. Proxies of absent persons shall be counted. Thus, the consent of more than a quarter of all the occupants of the house is actually sufficient for ordinary decisions.

In a cooperative, everyone has one vote. In a community of owners, the weight of the vote is calculated according to the proportion of the common parts of the house. Thus, whoever has a larger apartment or owns several has more votes. This is a problem especially in houses where over half of the flats are owned by the developer or some other individual.

Approval of reconstruction

In an HOA, the approval of a renovation is decided by the unit owners at a meeting, where a qualified majority will often be needed and not just a majority of those present as in the case of approving ordinary matters. It will depend on what the encroachment on the common areas is and whether a special majority is provided for in the bylaws. If the issue of whether to renovate and how is resolved in the HOA, there is necessarily a decision on who will pay for it. This is again decided by the unit owners at a meeting.

Most of the time it is a single decision, where the committee also presents the results of a “tender” with specific quotations. Such a practice is appropriate, but unlike state and contributory organisations, a tender is not required by law here.

Methods of financing

One option is to finance the works from the so-called “repair fund“. This is a kind of ‘package of money’ that is specifically for repairs and reconstruction of the house. The money is paid into it by the owners as part of their contributions to the management of the house. This includes both payments for the day-to-day running of the house (insurance, hallway lighting, lift operation, waste collection) and payments to the ‘repair fund’.

Contributions to this fund can be a significant amount for those HOAs that save for more substantial repairs. Contributions can thus have both a positive balance in the case of a particular owner (e.g. the owner has “saved” a hundred thousand to the repair fund) and a negative balance (the owner owes the SVJ for the reimbursement of these contributions). This is something to watch out for when buying a property. It is extremely important for both the seller and the buyer to come to an agreement regarding the settlement of the house management contributions.

It is best to do this directly in the purchase contract. The HOA itself will not be of much help in this, because according to the new Civil Code it is not obliged to settle the contributions in any way when selling the flat.

If the seller has saved a considerable amount of money in the “repair fund”, this is nothing more than funds for the future improvement of the apartment, which the seller can sell together with the apartment to the buyer.

Another option is to finance the renovation with a special loan, usually secured by a lien. However, this is very problematic in the case of an owners’ association, as the pledge can be blocked by individual dissatisfied owners.

In a housing association, the situation is somewhat simpler; the house is often owned entirely by the association, which therefore also owns all the flats. At a membership meeting, a majority of those present must vote on a new roof or elevator. At least half of all members of the cooperative must be present for a quorum to be present.

If this is not the case, an alternative meeting can be called where the quorum mentioned above does not apply. Housing associations sometimes call an alternative meeting immediately, perhaps half an hour after the regular meeting. They send out an invitation to this potential replacement meeting at the same time as the regular invitation. However, this is contrary to the law and such a convocation is not in order. The meeting, including its resolution, can be challenged in court for invalidity.

When everything is “voted”, the condo association implements its decision, notwithstanding the outvoted members. The most they can defend themselves with is a lawsuit in court. They can challenge the decision of the members’ meeting or use a members’ action to claim damages against a member of the cooperative body if, for example, he or she exceeded the approved budget or otherwise did not behave as a good steward and caused damage to the cooperative.

This article was prepared for the Lidove 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 work 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