APARTMENTS IN PRIVATE AND COOPERATIVE OWNERSHIP. WHAT MAKES THEM DIFFERENT?
Definition of a housing cooperative
A cooperative is a company that has its own statutes and bodies (the highest body is the so-called members’ meeting, others are the board of directors and the control committee). Each cooperative may specify the rights and obligations of its members in its statutes. Members of a cooperative can be natural persons and sometimes legal persons. Members have the possibility to influence the cooperative’s activities through their vote at the membership meeting, they have the right to look at the cooperative’s accounting documents and they can also be elected to the cooperative’s bodies.
Community of unit owners (in the Czech Republic called “SVJ”)
An HOA (Homeowners Association) is established by law in any building with at least five apartments, at least three of which are owned by three different owners, regardless of the will of the unit owners. The HOA also has its own bodies (assembly and committee) and statutes. The legal regulation of the unit owners’ association is newly defined in the Civil Code No. 89/2012 Coll., but you will also encounter the legal regulation under the already repealed Property Act No. 72/1994 Coll.
Advantages of cooperative ownership
You will generally buy a co-operative flat for around 5% – 10%. However, this is due to the fact that such flats cannot be financed with a mortgage loan. Nowadays, this is no longer 100% true, but it is advisable to approach an experienced financial advisor in this matter, who will find you a bank that is not opposed to financing a cooperative apartment. If such a bank is found, it is likely that you will have to factor in a higher interest rate. Alternatively, another property can be mortgaged. It is this fact that reduces their market value. Co-operative flats therefore represent a more advantageous purchase for someone who has their own funds and does not need a loan.
The transfer of a co-operative share is noticeably quicker and simpler because the owner is not registered in the Land Registry as the natural person who owns the property. The owner of the cooperative flat basically owns the lease right to the unit, i.e. he/she is the owner of the so-called membership rights. If you buy the membership rights from someone, it is sufficient to conclude a transfer agreement and deliver it to the cooperative, or pay the transfer fee to the cooperative. That settles the matter.
It is easier for the cooperative to carry out the renovation and to obtain a renovation loan more easily and cheaply. The approval of the reconstruction is done according to the statutes, e.g. by a ¾ majority vote of the cooperative members.
The cooperatives as a whole pay lower property taxes.
The cooperative can also partly influence the choice of neighbours, as Czech legislation allows cooperatives to exclude non-payers or problematic housemates. The cooperative as owner can prohibit or restrict cooperatives from entering into sublease agreements and thus directly influence who will live in the house.
It should be noted that the cooperative form of ownership is not a constant form. It is common for apartments to be transferred from cooperative to private ownership if a significant number of cooperative members express an interest. However, this is more of an individual matter, and it is not always possible for interested parties to push this through. It therefore depends not only on the interests of individuals, but also on the situation and interests of the cooperative as a whole.
Benefits of personal ownership
The apartment can be financed with a mortgage loan and pledged to the bank.
You can dispose of the apartment at will, e.g. use it as an investment.
Compared to a cooperative apartment, you can continue to rent out a privately owned apartment without restrictions instead of subletting it. It should be remembered that in the case of cooperative ownership you are de facto buying a lease, so you continue to sublet the flat. And not all prospective tenants flock to sublet a flat, even though subletting is not that extremely different from renting. As for restrictions, these are set by the individual cooperatives at their discretion (e.g., that a purchased apartment can no longer be sublet to anyone who is not a citizen of the Czech Republic, etc.).
The ownership of your apartment is recorded in the Land Registry.
You can also guarantee the apartment in case you want to borrow money, e.g. for your business or to buy another property.
If you buy an apartment as an investment to rent it out, you can depreciate it and reduce your tax base for income tax, which is not possible with a cooperative apartment.
If you want to sell the flat you live in, you are exempt from income tax after two years of owning it. For a co-op, this is 5 years.
Where to next?
Do you want to know the value of your property? Feel free to contact me anytime.