Экзамен зачет учебный год 2023 / European Condominium Law

the above information could lead to him declining the sale or negotiating for a reduction of the price of the unit.

Descriptive formants

The Model By-laws provide an opportunity for the owners’ association to secure future payments of arrears, interest thereon and the collection costs for contributions by the registration of mortgages over all units in the scheme. With regard to ranking of charges against the unit, the ordinary rule of ‘first in time is stronger in right’ is followed. The legal position between transferor and transferee is regulated ingeniously by the Model By-laws.

Metalegal formants

This issue is not dealt with in the Law on Owner Apartments. Instead, the ordinary rules pertaining to security rights determine the ranking of the claims of the owners’ association and the mortgage creditor. The Danish government, pursuing a liberal economy, are reluctant to regulate this matter too precisely. Unfortunately, this leaves Danish condominium schemes in most cases in an unfavourable position. Banks normally register mortgages against individual units on purchase of the unit to secure the purchase price and are therefore invariably first mortgagees ranking prior to all subsequent mortgages, such as those of the owners’ association.

England

Operative rules

If Edmund is in sufficient funds to repay the arrears of assessments the directors must ordinarily seek to recover the money, being under a duty to ensure that the obligation of all unit holders to pay assessments is adhered to (CLRA 2002 s. 35(2)). The directors can opt to do nothing if they reasonably think this is in the ‘best interests of establishing or maintaining harmonious relationships between unit holders’ (s. 35(3) (a)). A decision of this sort cannot be justified if it will cause any unit holder loss or significant disadvantage (s. 35(3)(a)).

(a) Given that this dispute is about a duty to pay a large amount of arrears, it is unlikely that a reasonable body of directors could justify a decision not to take action to recover the money. The risk to other unit holders of a supplementary levy to make up any shortfall is also a consideration. If Edmund cannot easily pay the arrears, the directors

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should opt to take the matter to court without further ado without having to make any use of the informal dispute resolution (as allowed by Model CCS para 4.11.11). On the other hand, if Edmund is easily able to find the money, it might be best for the directors to engage in friendly persuasion and invoke the informal dispute resolution procedures, but, if this fails, to take prompt recovery proceedings.

(b)Assuming Bank A holds a first registered charge over the unit, this will take priority over all sums due to the association. In these circum-

stances, Bank A would be able to exercise its statutory power of sale over the unit,533 leaving the association to claim the €8,000 from

Edmund personally in that any surplus funds from a mortgage sale belong to any subsequent mortgagee and then Edmund, but not the association (Law of Property Act 1925 s 105).

(c)During the pre-contract period Edmund may request that the association supply him with a ‘commonhold unit information certificate’, which states the amount of any arrears owed by him (Model CCS pars. 4.7.1. and 4.7.2). Once Kenneth is registered as new unit proprietor, he can be made personally liable, following notice from the association, to pay the sum stated as due in the certificate, but not beyond that amount (pars. 4.7.3 – 4.7.4), unless Kenneth forgot to seek a certificate from his vendor, whereupon his liability is for the whole sum owed to the association by Edmund.

Descriptive formants

The relevant rules as set out above are derived from the CLRA 2002 and regulations.

Metalegal formants

A real remedy, such as forfeiture for non-payment of assessments, is ruled out from any commonhold community statement (CLRA 2002 s. 31(8)). The absence of real remedies on account of default with payment of assessments was the object of adverse comment.534 The original proposals advocated an association lien taking effect as a first charge on the unit, and enforceable by sale.535 The UK government objected,536 ruling

533Law of Property Act 1925 ss. 101 and 103.

534Clarke, ‘The enactment of commonhold’ (2002), pp. 371–2; Jack ‘Commonhold – the fatal flaw’ (2003), p. 1407.

535Commonhold (1987) par. 9.27.

536Frost, ‘Commonhold – not so much flawed as different’ (2004), p. 330.

out a priority lien even for a limited period of default. It is obvious that if assessments are not regularly paid, other unit holders might have to make up the arrears to preserve the security of scheme funds, as by a special levy. It is unfortunate that there is no provision for fines added to arrears, although interest above Bank Rate can be charged to the defaulter, which may be a useful sanction (CCS Ann. 4 par. 1).

Estonia

Operative rules

As an apartment owner, Edmund must pay expenses arising from the management and maintenance of the common property in proportion to his co-ownership share in the common property (Law on Apartment Ownership § 13 (1)).

(a)If Edmund falls in arrears, interest on the arrears will be charged as a penalty for late payment (Law on Obligations § 113). In the event that the apartment owners have not agreed previously on the interest rate, the rate as set by the Law on Obligations applies, namely, the interest rate applicable to the main refinancing operations of the European Central Bank plus 7 per cent. If the owners have formed an apartment association, the Law on Apartment Associations allows the management board to charge a penalty for late payment of up to 0.07 per cent of the amount due for each calendar day from the first day of the month following the non-payment of administrative costs (§ 7 (4)). A harsher remedy is available to the other owners if an apartment owner is in arrears for at least six months’ management expenses for more than three months. In such circumstances the owners may adopt a resolution by majority vote to request the defaulting owner to sell the apartment (Law on Apartment Ownership (§ 14 (2) (2)). This remedy may not be ruled out or restricted by any contrary agreement of the apartment owners (§ 14 (3) and (4)). If the defaulting owner fails to sell his apartment, one of the apartment owners or the manager may approach the court for a forced public sale of the apartment.

(b)If Edmund is also in arrears with the instalment under the mortgage with Bank A, the other apartment owners have no possibilities to influence this legal relationship. The Bank may use its contractual remedies against Edmund, or call in the mortgage and then demand a forced sale of the apartment. In such a case the Bank, as a secured creditor, will be satisfied first from the proceeds of the sale and the apartment association will only be able to share in the surplus as a concurrent creditor.

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The position of Kenneth depends on the form of management body chosen by the apartment owners. Unless otherwise agreed, a new apartment owner cannot be held liable for the debts of the previous owner. But if the owners have formed an apartment association for the scheme, Kenneth will be liable for any debts owed by Edmund to the association. The Law on Apartment Associations provides that upon transfer or inheritance of an apartment, the transferee of the apartment becomes liable to the association for the payment of management costs and other costs not paid by the transferor or testator (§ 7 (3)).

Descriptive formants

The Law on Apartment Ownership provides that an apartment owner must participate in the costs of maintenance, irrespective of his or her knowledge of the actual amount.537 The sanction of interest on arrears charged as a penalty for late payment is based on provision of the Law

on Obligations while the harsher sanction of demanding a forced sale of the apartment is contained in the Law on Apartment Ownership.538

The Supreme Court of Estonia has found that a demand for transfer of the apartment may be submitted also by an apartment association.539 The higher ranking of a mortgage in a public sale of the unit is based on the rules pertaining to the ranking of security rights. The purchasers of an apartment are not normally held liable for the debts of their predecessors (the sellers).540 However, if an apartment association has been opted for, the Law on Apartment Associations renders successors in title liable for the debts of their predecessors.

Metalegal formants

Timely payment of contributions is the life blood of a condominium. A lack of funds to undertake maintenance and repair of the buildings and facilities could cause the condominium to eventually degenerate into a slum, with a devastating effect on the financial investments of

537Decision of the Civil Chamber of the Supreme Court of 2 November 2005 in matter 3-2-1-105-05 (RT III 2005, 38, 371).

538Decision of the Civil Chamber of the Supreme Court of 22 November 2006 in matter 3-2-1-107-06 (RT III 2006, 44, 373).

539Decision of the Civil Chamber of the Supreme Court of 27 November 2007 in matter 3-2-1-110-07 (RT III 2007, 44, 352); Decision of the Civil Chamber of the Supreme Court of 16 September 2004 in matter 3-2-1-83-04 (RT III 2004, 24, 264).

540Decision of the Civil Chamber of the Supreme Court of 2 November 2005 in matter 3-2-1-105-05 (RT III 2005, 38, 371).

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(i)The management body is entitled to demand that every co-owner pays their charges in advance, before any expenses are incurred (Law of 1965 art. 14-1 and Decree of 1967 art. 35).

(ii)In terms of a swifter procedure introduced in 2002, the management body will send the defaulter a formal letter of demand by registered

post. If the charges are not paid within thirty days, an appeal can be made to the President of the High Court who will order the defaulter to pay his debt (liquid claim) (Law of 1965 art. 19-2).

(iii)The debtor is obliged to pay interest at the legal rate calculated from the date that a formal demand for payment had been addressed to the debtor (Decree on Apartment Ownership of 1967 art. 36).

(iv)If the debt is not paid, the manager can, without authorisation from the management body at a general meeting, obtain a writ of execution from the court to attach Edmund’s assets in the form of his movable and immovable property as well as his salary (Decree of 1967 art. 55).

(v)The management body (syndicat) has a special lien over the furniture of the owner placed in the apartment (privile`ge mobilier special) let as a furnished apartment. This lien gives the management body the right to attach the movable property and to have it sold at a public sale in execution with a prior ranking to the proceeds of the sale (Law on Apartment Ownership art. 19 read with CC art. 2332-1). This security is seldom used because of the relatively modest value of movables and the cost involved in such proceedings. Where an apartment is let, the management body has the same right of preference with regard to the rent. This remedy is, however, also seldom used in practice.

(b)If Edmund is not only in arrears with the payment of the administrative charges owed to the management body, but also with the instalments on the mortgage bond with Bank A, the apartment may be attached by either the manager as representative of the management body (syndicat) or the mortgage creditor (Bank A). With regard to the ranking of the claims of Bank A and the management body, French law protects the position of the management body in two respects:

First, a unit is, by operation of law, automatically charged with a legal mortgage in favour of the management body (syndicat) for all debts that have become due to the management body within the previous five years and which had not been satisfied despite a formal demand for payment having been made (Law on Apartment Ownership art. 19). This legal mortgage does not need the consent of the owners but the management body (syndicat) is still required to register the mortgage in the Land Register (art. 19-1). Second, if the unit is sold

either by the owner or by a forced sale in execution, the management body (syndicat) has a legal privilege ranked above all other creditors including mortgage creditors with prior registered mortgages, with regard to certain claims against the defaulting owner. This legal right arises by operation of law and need not be registered. Under CC art. 2374 the management body (syndicat) will have an automatic prior claim (privilege) over that of any mortgagee and all other creditors for the debt accumulated in the current year as well as that of two previous years. For the debts related to the previous third and fourth years, the mortgagee and the management body (syndicat) are treated on an equal footing without any preference to one or the other. If the proceeds of sale are not sufficient, they will be paid in proportion to their debt. For debts older than four years, the management body (syndicat) loses its legal privilege, and the mortgagee will be paid first. The second legal privilege are relied upon more frequently in practice because the first legal mortgage under the Law on Apartment Owership must be registered in the land register.

(c) If Edmund sells his apartment to Kenneth, the latter is not liable for the arrears of the seller. However, this would not happen in France. When an apartment in a condominium scheme is sold, the notary must inquire from the management body as to whether the management body has any claims outstanding against the seller (Law on Apartment Owership art. 20). If so, the management body will place an embargo on the payment of the sale price until all debts of the purchaser have been paid. If the notary, despite this ‘opposition’, pays the full price to the seller, the notary would be liable for the debt of the seller. Thus, the seller who wants to claim the full purchase price will instruct the notary to pay any outstanding debts to the management body.

All owners are proportionally liable for the debts of the management body in proportion to the size of their quotas. The seller is liable for all debts becoming due before the transfer of the apartment, while the purchaser is liable for the debts that become due after transfer (Decree of 1967 art. 6-2).

Descriptive formants

The various remedies made available to the management body (syndicat) are based on the Law on Apartment Owership as amended and a provision of the French Civil Code. It is also possible for the management body (syndicat) to take out an insurance policy covering the risk of non-payment of charges by the co-owners. However, the premiums for

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such policies are very high and due to the availability of the above remedies this type of policy is not really necessary. The crucial need is for the charges to be paid as swiftly as possible and that is why an emergency appeal to a judge was introduced in 2002 to grant the management body (syndicat) a writ of execution against the defaulting owner.

Metalegal formants

It must be emphasised that persons who have bought into a condominium scheme are not always aware that they are liable to pay administrative charges in addition to their mortgage payments to the Bank. Even if they are aware of this, the extent of condominium charges can often amount to a nasty surprise for them.

The management body may not deny Edmund access to his apartment if he does not pay the charges: such action would be an intolerable violation of his property right. Edmund should further not be deprived of his right to vote at general meetings because of his default in paying his contributions, and such a provision in the by-laws of the scheme would be void (see Case 9, metalegal formants). Even if such a remedy were provided by the law it would surely be ineffective because owners who do not pay their contributions seldom attend general meetings.

Germany

Operative Rules

In Edmund’s case the owners’ association must acquire a title of execution for their claim. Such a title (writ) will either be issued by a court after a regular hearing or by a notary if Edmund has signed a notarised title of execution regarding any future arrears with the payment of assessments (German Code of Civil Procedure § 794 par. 1 no. 5). Some scheme constitutive agreements oblige every owner to sign such a notarised title in advance to lower the risk of a subsequent shortfall in payment. Once in possession of such a title and Edmund does not pay, the association can execute its claim through a foreclosure auction or by means of a sequestration of the unit or by attachment in execution of any other asset. The monies collected during execution are distributed by a specific order, which usually follows the rule that charges registered first are satisfied first.

Until 2007, owners’ associations faced the problem that in the majority of cases banks were repaid first because their mortgages were registered in the land register long before the association of owners obtained their title. Today, assessment claims constitute an exception to this rule. They are repaid prior to any registered mortgage bonds, although not necessarily in full. This special prior ranking (‘right of first service’) applies to assessments that fell due in the year of execution and the two previous years and is limited to a total amount of 5 per cent of the taxable value of the unit (Law on Foreclosure § 10 par. 1 no. 2). Overdue assessments exceeding this amount are satisfied only after the bank has been fully repaid.

If the bank in question has started its own execution proceedings against Edmund’s unit, the owners’ association can lodge its own assessment claims for consideration by the court during the distribution of the monies collected (the proceeds of the auction). The distribution follows the same rules as if the owners’ association had commenced proceedings itself. The lodgement of the assessment claims need not take the form of a title of execution (Law on Foreclosure § 45 par. 3).

In addition, Edmund is liable for interest on arrears and for all legal costs incurred as a result of his failure to pay promptly (CC §§ 280 and 286 and German Code of Civil Procedure § 91). He does not, however, lose his right to participate in or vote at the general meeting.542 Not even the scheme’s constitutive agreement can validly disenfranchise any owners who are in default.543 The arrears can, at least in theory, cause the other owners to expel Edmund from the scheme (Law on Apartment Ownership § 18). The legislator made some amendments in 2007 to simplify the expulsion procedure, which was in fact more complicated than foreclosure proceedings (see Case 6). Nevertheless, this measure is still not frequently resorted to in practice.

Kenneth is only liable for the arrears incurred during Edmund’s ownership if the constitutive agreement of the scheme contains such a clause.544 In practice this is unusual. He is, however, liable for the debts of the owners’ association in one of two ways. First, if the owners decide to collectively raise enough additional funds to cover the debts, Kenneth must pay his part in the form of additional assessments.

542See BGH NJW 2011, 679; OLG Celle, 3.9.2001 (4 W 228/01 (Juris)).

543See BGH NJW 2011, 679.

544See BGH NJW 1994, 2950; Palandt and Bassenge, BGB Kommentar, § 16 no. 39. This is not applicable if Kenneth had acquired the unit in a foreclosure sale: BGHZ 88, 302.

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Second, according to the prevailing view, the liability of any unit owner arising from the Law on Foreclosure § 10 par. 1 no. 2 exists independently of the personal liability of the registered owner from time to time.545 In other words, the liability attaches to the unit and not to the individual owning the unit at the time when the debt was incurred. This means that Kenneth has the ‘choice’ either to put up with foreclosure of his newly acquired unit or to pay the debts of his predecessor, which could amount to up to 5 per cent of the taxable value of his unit. Any debts falling outside the scope of the provision of the Law on Foreclosure –assessments not falling within the year of execution or the two previous years or exceeding 5 per cent of the taxable value of the unit – do not justify foreclosure of Kenneth’s unit.

Descriptive and metalegal formants

Every owner is liable to creditors of the owners’ association management for debts that originate or become due during their membership of the owners’ association (Law on Apartment Ownership § 10 par. 8). This liability is, however, limited by the fact that each owner is liable only for the amount that corresponds to his co-ownership share. In practice, however, this does not mean that the debts of bankrupt owners will not be re-distributed among solvent owners: Since creditors can seize all the assets of the owners’ association, solvent owners must fear that their monthly assessments will be used to cover unpaid debts. Furthermore, according to the Federal Court of Justice,546 owners are obliged to pass resolutions that will furnish the owners’ association with sufficient assets. If they do not do so, they are liable to the owners’ association for its lack of sufficient funds. This claim of the owners’ association against owners to keep it solvent can itself be attached in execution by creditors of the owners’ association, which allows the creditor access to the assets of the solvent owners. Suppose owner A in a five-owner scheme with equal co-ownership shares goes bankrupt. If the owners’ association does not have any funds, the creditor of the owners’ association can collect 80 per cent of its claim from owners B–E directly under the Law on Apartment Ownership § 10 par. 8 sent. 1. As for the other 20 per cent, until June 30, 2007, the

545BGH NZM 2009, 439; LG Berlin ZMR 2011, 156; Ba¨rmann and Becker, WEG Kommentar,

§16 no. 185; Schneider, ‘Der dingliche Charakter von Hausgeldanspru¨ chen gema¨ß

§10 Abs. 1 Nr. 2 ZVG’ (2009), p. 165; dissenting AG Heilbronn ZMR 2010, 241.

546See BGHZ 163, 154 (NJW 2005, 2061, 2067).