New bill for commonly-owned buildings

Will this be the solution to the problems of apartment buildings?

 

By George Mouskides

In order to avoid misunderstandings, we have to admit that there is currently relevant legislation regulating commonly-owned buildings, which, however, is not without significant shortcomings.

The first problem is that quite often there are difficulties in collecting common expenses from late-paying owners. In order to collect, a claim through courts must be launched, through civil action, something which is both a time-consuming and costly procedure, for any Administrative Committee (AC) to embark on.

Fines

With the recently-introduced bill, to be discussed in the House of Representatives soon, the AC can impose a fine on an owner who owes common expenses. Power would be given to municipalities (authorities) concerned to impose an administrative fine on an owner. The authority shall be able to sue a non-payer by filing a civil or criminal case. In order for defaulters to present a defence in the civil action, they will first have to pay the utilities they owe, either to the court clerk or to the AC, and then have a lawyer prepare a defence.

ACs will be in a position to limit the defaulter’s rights, barring the option of limiting access to the defaulter’s property. This provision of the bill begs for further explanation. Namely, what exactly will the AC be allowed to do to exercise pressure on the defaulter to pay?

With the new bill, the land registry will require a certificate of payment of common expenses before authorising a property transfer.

Sinking fund

Another problem is that both in the existing legislation as well as the bill, there is no provision mandating the creation of a sinking fund.

Currently, just a small percentage of buildings have an established sinking fund, used to collect money that will be used for major building repairs such as roof insulation, elevator replacement, entryway landscaping and maintenance (such as repair of major cracks, painting and so on).

It is much easier and sensible to already have a significant amount of cash in the building fund at the time of major repairs instead of requiring owners to come up with a substantial sum of money in a relatively short period of time when the need arises. We believe the new legislation should mandate the creation of a sinking fund.

Major problem

But what seems to be the biggest problem of all? Perhaps the biggest shortcoming of the new bill is that there is no requirement for transparency through a regular and reliable supply of information to owners from the AC. In the existing legislation, there is a general reference for quarterly flow of information while in the bill there is a provision for either bi-annual or annual provision of information during the annual general meeting of owners. This provision is far from satisfactory. Transparency in finances is necessary in order not to generate doubts that the AC may be cannibalising the financial resources of the building and to avoid most misunderstandings and friction between owners.

Electronically

In today’s era of information, we would expect the AC to have this information posted electronically and on a 24/7 basis. If continuous information is not possible then at least a once-monthly update should be estalished in which all of the following are released: (a) the payments and collections of the month, (b) the financial obligations of the building and the receivables from the owners and (c) offers secured for repairs as well as details of work assignments to service providers and so on.

The bill amends the apportioning of common expenses so that only 40 per cent of covered verandas and 20 per cent of uncovered verandas will be taken into account in the calculation of the total surface area of ​​the unit.

It is understood that owners in jointly-owned buildings will continue to have the right to establish their own regulations in deviation from the standard regulations that accompany the legislation. This means that owners with a majority of 75 per cent can alter the provisions of the standard regulations.

The new bill improves the procedures rights, and obligations of the involved owners and the AC in case a unit creates a problem either in relation to another unit or in the common areas.

Keeping records

The bill assigns the supervision of the jointly owned buildings to a district authority of the municipalities instead of the land registry, which is currently the established procedure. The involvement of the land registry in the problems of jointly-owned buildings up until now has been almost non-existent.

We hope that the new agency, within the municipalities, will be able to cope with its mission, so that problems such as absence of an AC, delayed payment of utilities by owners and timely repairs will find their resolution in a short period of time.

We must emphasise that the bill requires ACs to secure a certificate of building suitability from consultants (a sort of MOT for buildings), which is also a requirement of other legislation that regulates citizens’ safety issues. Commonly owned buildings shall be required to register with the agency and inform it on an annual basis of the establishment of the management committee, paying an annual fee (€20).

In summary, the new bill provides some solutions to the main problem of non-collection of common expenses. The second main issue, regarding transparency, is not addressed by the new bill and is something that the House of Representatives should rectify during the discussion of the bill.

A final concern we have is that with the increased obligations and responsibilities of AC members, there is bound to be little if any, interest on the part of owners to participate in ACs. Our suggestion is that all owners should be appointed as members of the AC by law, but for practical reasons, a small group of owners should act as the executive committee of the AC.

 

George Mouskides is director of FOX Smart Estate Agency and Chairman of the Cyprus Property Owners Association (ΚΣΙΑ)