Экзамен зачет учебный год 2023 / European Condominium Law
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plus iuris: Kenneth cannot acquire better rights than his predecessor had. If, on the other hand, liability to pay for arrears is regarded as being a personal obligation of the owner, the community could claim the accumulated arrears from Edmund despite the fact that he no longer owns a unit. The latter view is likely to prevail unless the community enters its claims for arrears in the land register, at which point they become binding on any new unit owners subsequent to the entry (Law on Land Registers and Mortgages art. 16). Accordingly, the community would have to amend the relevant entry every time further arrears accrue, which does not seem very practical. In the present case Kenneth cannot be held responsible for Edmund’s monthly assessments. Each unit owner is responsible for paying their monthly assessments until the unit is registered in the name of his successor-in-title.
Descriptive formants
The remedies of the community of owners against a defaulting unit owner consist of ordinary court proceedings for the collection of debts and the Law on Unit Ownership (art. 16). The priority of the claim of a mortgage creditor on the proceeds of a sale in execution is based on the provisions of the Law on Land Registers and Mortgages.
As a result of uncertainty with regard to unpaid assessments when a unit is sold to a new owner, specific provisions are included in contracts of sale aimed at protecting the new owner from being liable for the unpaid assessments of his or her predecessor. Notaries thus demand that communities of owners produce written certification that the owners of units to be sold are not in arrears with their payments, and that even if they are that the new owner does not have to cover these. Nevertheless, this practice indicates that this issue is unclear in the eyes of the public and even to some members of the legal profession.
Metalegal formants
More comprehensive regulation incorporating a wider range of remedies for the community of owners with respect to defaulting unit owners would seem advisable. Purchasers of units are unsure as to what they can be held responsible for and communities of owners adopt different tactics depending on their particular interpretation of the situation. This causes avoidable anxiety on the market and needs to be clearly resolved. It is also important to note that the wording of article 16 of the Law on Unit Ownership is very general and subject to
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varying assessment, insofar as it refers to ‘arrears for a prolonged period of time’.
Portugal
Operative rules
The monthly contribution to the cost of the management and maintenance of the common property is budgeted for in the annual general meeting. Edmund is obliged to pay his contribution in accordance with the participation quota allocated to his apartment in the constitutive title (CC art. 1424).
If Edmund can easily pay his monthly contributions, the manager would have to resort to ordinary court procedures to enforce the payment of contributions in arrears (CC art. 1436(1)(d)). The minutes of the resolution approving the amount of the monthly contribution is also taken to be a writ of execution (Decree-law amending the legal regime of condominiums of 1994 art. 6), allowing the manager to execute against sufficient of the owner’s property to cover the debt (CCProc art. 821). Edmund is also liable for any interest on arrears (CC art. 555 and Decree Order 291of 2003 setting the statutory rate of interest at 4 per cent) and for all legal costs (CCProc art. 446), including attorneys’ fees (CCProc art 447-D (d)).
In order to encourage the timely payment of contributions, the general meeting might approve penalties for delays in payment. Penalties may be fixed for non-compliance with the provisions of the statute, the resolutions of the general meeting, and the decisions of the manager (art. 1434). These penalties may be imposed on any particular offender up to a maximum of a quarter of the annual contributions payable by the defaulter.
If Edmund’s financial position has deteriorated to such an extent that he cannot pay his contributions, the manager would be left with no other choice than to attach his most valuable asset, namely, his apartment. In such an attachment, the manager is required to specify which of Edmund’s assets are to be attached (CCProc art. 810) and may ask the court to order a forced sale of Edmund’s apartment in order to recoup the unpaid levies.
Bank A’s registered mortgage (hipoteca) against Edmund’s unit will give the bank a right of security that will rank higher than the claim of the manager in a sale in execution of the apartment. Consequently,
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Bank A will be paid first from the proceeds of the forced sale (CC art. 686)556 and only thereafter a surplus, if any, will be paid out to other concurrent creditors such as the condominium.
There is no express provision on the liability for outstanding debts on transfer of a unit. Both debts due before transfer and debts which fall due after transfer should be borne by the transferee according to their propter rem character. However, Henrique Mesquita557 has claimed that debts which fall due before transfer are borne by the transferor, whereas debts which fall due after transfer are borne by the transferee. Mesquita’s main argument in support of this is that debts due before transfer correspond to the transferor’s enjoyment of property. Therefore, a fair balancing of interests would cause Edmund to be solely liable for any debts due before transfer. An argument against his approach, however, is the fact that there are no mechanisms to ensure that the condominium does not suffer financially when the seller of an apartment has not cleared off all his assessment arrears at the time of the transfer.
Descriptive formants
The above answers are mainly derived from CC art. 1424 on payment of budgetary assessments and Decree-Law amending the legal regime of condominiums of 1994 art. 6, providing that the minutes of the decisions of the general meeting constitute an executive title for enforcement. CCProc (arts. 446, 447-D, 810, and 821) regulate the court procedures to enforce the payment of contributions in arrears and CC (art. 686) ranks the security rights of mortgagees in the case of a forced sale in execution of an apartment.
Metalegal formants
In Portugal, it is not easy to force the defaulting owners to pay arrears of assessments. A provision to the effect that the manager should certify before the notary, the public official, or the registrar that all moneys due to the condominium have been paid or that provision has
556Since the inclusion of a lex commisorium (lex comisoria), whereby in case of nonfulfilment of any term of the mortgage the creditor has the right to acquire the property charged, is prohibited in a mortgage deed (CC art. 694), the mortgage
creditor must resort to a forced auction of the property ordered by the court.
557 ´
Henrique Mesquita, Obrigac¸o˜es Reais e Onus Reais (1990), pp. 316 ff.
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been made for the payment thereof before allowing transfer in the name of the transferee would be most welcome.
Scotland
Operative rules
Any outstanding sum under the TMS or DMS is first claimable from the person of the owner. This is similar to the ordinary claim for any debt, backed up by the normal procedures of law, which could potentially lead to bankruptcy of the person if he is unable or unwilling to repay the debt.
More importantly, any successor in title to the owner regarding the flat may remain liable for any unpaid debt. The key is how such liability can be limited to protect a purchaser. In this regard the TMS and DMS have very different answers.
In TMS, in order to make a purchaser jointly and severally liable with the original defaulting owner, a notice of potential liability for costs must be registered at the Land Register of Scotland or the Register of Sasines. This notice will set out the maximum sum any successor in title will be liable for. A notice is effective for up to three years but may be renewed. This mechanism will ensure that any purchaser will be forewarned about potential liability.558
However, there are potential flaws in the mechanism. As a result of the absence of a management body, this notice can be entered by any owner in the building or the factor employed to manage the building. This raises the potential for misuse or speculative entry by neighbours who are in dispute with each other. Furthermore, there seems to be no way of verifying the validity of the claimed sum under the notice, nor to discharge it when the sum has been paid up. Therefore, once a notice is entered, it would seem that a potential purchaser will have
to be extremely cautious about buying the flat in the next three years.559
The DMS is in a much better position to deal with such ‘transmission of costs’. The owners’ association is the ‘reliable authority’ to state any outstanding liability of any owner. The manager of the scheme must provide a certificate if requested, specifying the amount of unpaid
558Tenements (Scotland) Act 2004, ss.12–13.
559See D Reid ‘Tenements (Scotland) Act 2004’ (2008), pp. 6–60 – 6–62.
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service charge of any owner on the date of the request. This is the maximum amount for which any purchaser can be liable, for any service charge outstanding prior to the date.560
Essentially, there is no procedure for a TMS or a DMS management body to compete directly with a secured creditor for assets in case of financial hardship and bankruptcy of individual proprietors. However, the unit would always be burdened with any default sum. Whoever takes over ownership of the flat in the end, for instance a buyer who bought from the secured creditor after a forced sale of the property, would remain liable for the outstanding debt. In other words, the sum would be repayable by someone in future, unless the flat is never disposed of, which is of course unlikely.
Descriptive formants
Transmission of costs was not part of the functions of the traditional concept of real burdens, because any crystallised liability to cost is personal rather than praedial. The Tenements (Scotland) Act 2004 took an adventurous step forward, effectively making any outstanding sum ‘real’ and binding on the property through registration. However, with the rather rudimentary structure in place for a typical tenement, this mechanism is somewhat flawed. Fundamentally, no one is in a position to state how much or little another owner and his successors in title should be liable for. The DMS changed this by logically bestowing the authority on the owners’ association and its manager.
Metalegal formants
There is a strong sentiment against the use of any radical non-financial measure to enforce against monetary liabilities in Scotland. Long gone were the days when people got imprisoned for inability to pay a debt. One of the earlier enactments of this Scottish Parliament since its establishment in 1998 was to abolish the institution of poindings and warrant sales, where the personal belongings of a debtor can be sold to realise their monetary values in order to satisfy the creditors.561 Monetary disputes and liabilities, whether in the context of apartment ownership or not, will therefore be dealt with only in the strictly monetary sense.
560Title Conditions (Scotland) Act 2003 (Development Management Scheme) Order 2009, art.16.
561Abolition of Poindings and Warrant Sales Act 2001.
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Slovenia
Operative rules
The Property Code allocates the financial obligations of apartment owners regarding maintenance and repair of the condominium property to the individual owners in proportion to their co-ownership shares unless a different allocation is prescribed by statute562 or the community by-laws (art. 115). Each apartment owner is required to make a monthly contribution to the maintenance and operation costs of the condominium. If a condominium has more than two apartment owners and more than eight individual units (which tends to be the case in practice), a reserve fund must be established for the scheme and each apartment owner must in addition contribute to the reserve fund in proportion to the criterion set by ministerial decree of 2004 (art. 119).
(a) There are two principal ways to force a defaulting apartment owner to comply with his or her financial obligations. The first method has already been referred to in the answer to Case 4. Apartment owners holding more than 50 per cent of co-ownership shares may adopt a resolution to warn Edmund that he must pay his debt to the owners’ community or to the management association, if established. If despite this warning Edmund fails to pay his contribution, owners holding in aggregate more than 50 per cent of the co-ownership shares may decide to file a suit seeking Edmund’s exclusion from the community and the forced sale of his apartment (art. 123). Any such warning or the threat of a potential lawsuit following the issue of notice would probably suffice to persuade Edmund to pay his contributions. If this does not happen, and if he then refuses to sell the apartment, his apartment may be sold in a sale in execution.
In this event, the condominium’s claim for arrear contributions will probably be secured by a statutory lien (stvarno breme)563 upon Edmund’s apartment, which takes priority over all other claims (Property Code art. 120). The statutory lien is created automatically if the condominium has more than two apartment owners and more than eight individual units, but the priority accorded to the lien is restricted
562A statutory exception relates to the contributions towards the cost of
water, electricity, gas and heating supply where the criteria are set by a ministerial decree.
563This lien is a right in rem similar to a mortgage, but enjoys higher priority in the case of a sale in execution. See Vrenčur, ‘Pravni polozˇaj etazˇnih lastnikov (obvezen rezervni sklad in zakonito stvarno breme’ (2006), pp. 1191–3.
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to five times Edmund’s monthly contribution to the reserve fund.564 On a forced sale of the apartment, such portion of the debts owed to the apartment owners or the association to the reserve fund as is secured by the statutory lien will be satisfied out of the proceeds of the sale, the lien ranking first for payment out of the proceeds of the sale. Unfortunately, the minimum payments to the reserve fund are very low.565 The remainder of Edmund’s debt will be paid only after other higher ranking creditors for instance mortgage creditors such as Bank A have been satisfied (Law on the Execution of Security Rights arts. 197–198). Once execution has been levied against the apartment, the mortgage over it will be terminated and the debt to the bank will be paid out of the proceeds of the sale, even if Edmund is not in arrears with his mortgage payments.
An alternative option is for the manager to send Edmund a written warning, stating the amount due and allowing him an extended period for payment. If following this warning, Edmund does not comply with its terms a summary execution procedure can be initiated against any movable or immovable property of the debtor, which the condominium community chooses, including the apartment itself (Property Code art. 119(6)). Therefore, if Edmund persists in default, his apartment can be attached in execution. If the amount of the debt is only a small fraction of the overall value of the apartment, it is unlikely that Edmund would run the risk of this type of sale taking place. In the event of execution against the apartment and a forced sale, the sale proceeds would be dealt with in the same manner as explained previously.
(b) If Edmund is in arrears with payments to both Bank A and the condominium community, both the Bank and the apartment owners or the manager, as the case may be, may put in motion a forced sale of the apartment. It is very likely that the bank will take the initiative here. The most common type of mortgage is based upon a notarial deed, containing an executorial title that enables the mortgage creditor to commence the execution immediately.566 It is important to note
564Vrenčur, ‘Pravni polozˇaj’, p. 1192.
565The fact that the criteria set by ministerial decree for minimum contributions are very low means that this security is ineffective. For example, if the building is thirty to sixty years old, the minimum amount to be paid for an apartment with a surface
area of 100 square meters is €25 per month. This means that the claim is secured only for €125. Vrenčur, ‘Pravni polozˇaj’, p. 1192.
566Vrenčur, Stvarno pravo, p. 80.
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that the mortgage would only allow execution against the mortgaged property (i.e. the apartment). To obtain execution against any other property of the debtor (e.g. his bank account) a specific further executorial title must be obtained from a court. If the mortgage does not provide for a title on which to execute,567 Bank A must first sue Edmund for payment. In such a case the judgement ordering payment would provide the required title allowing the execution against Edmund’s other property. If a sale in execution takes place, the proceeds would be paid out as explained under (a).
In the event that Edmund sells his apartment to Kenneth, the latter will step into the shoes of his predecessor. In Slovenian law this is taken to mean that Kenneth and Edmund will be rendered jointly and severally liable for the debt of Kenneth (Law on Housing art. 69). Consequently, the community of owners or the association is entitled to demand payment from either Kenneth or Edmund. If Kenneth pays Edmund’s debt, he may seek reimbursement from Edmund unless their contract of sale provides otherwise.
Descriptive formants
The above answers are based on the Slovenian legislation on apartment ownership, contained in the Property Code and the Law on Housing. Provisions on sales in execution are to be found in the Law on the Execution of Security Rights.
Metalegal formants
The reason for the introduction of a statutory lien with the highest priority was that the claims of the community of owners ranked below other secured claims, especially those of first mortgage creditors. Once the secured creditors are satisfied out of the proceeds of the forced sale, there will ordinarily remain insufficient funds for the payment of unsecured creditors such as the community of owners. The statutory lien was introduced in 2003 to remedy this situation but unfortunately the lien is limited to five times the monthly contribution of an apartment owner to the reserve fund. As this fraction as laid down by ministerial order is very modest in amount, this security is ineffective. The possibility to sue for the exclusion of an apartment owner and the forced sale of his apartment was also introduced in 2003. Its main purpose is to
567 This tends to be the case particularly as regards maximum amount mortgages.
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give the other apartment owners an effective mechanism through which to convince an unwilling apartment owner to pay his contribution.
The non-payment of contributions is a commonly encountered phenomenon in Slovenia, especially in apartment blocks that were built before the privatisation of housing in 1991. Privatisation enabled the tenants of state-owned apartments to buy their apartments for a fraction of their true market value. Consequently, many people now own an apartment, even though they would have been unable either to buy or cover the cost of recurrent maintenance of an apartment under normal market conditions. As a result, older apartment buildings are often in a very poor condition and there is not sufficient money to pay for maintenance and repairs. Even though the legislation on the surface seems to provide an effective mechanism to collect overdue contributions, the apartment owners are reluctant to use it. Furthermore, given that there is only a small pool of rented accommodation, selling an apartment as a result of one’s inability to maintain it and then renting an apartment instead is not ordinarily a realistic proposition.
The reason for making the seller and buyer jointly and severally liable for the contributions owed by the seller is that the contribution is regarded as a kind of real burden that encumbers the apartment and not so much the person of the owner.
South Africa
Operative rules
Edmund is obliged to pay his monthly contribution to the cost of the management of the scheme and the maintenance of the common property in accordance with the participation quota (share value) allocated to his apartment. Non-payment of his contribution would have the effect that the available funds may not be sufficient for the proper administration and maintenance of the scheme.
(a) Several sanctions can be instituted against Edmund for the nonpayment of his contributions if he can still easily afford to pay his contributions. First, contributions are recoverable in any court, including the court of first instance (magistrates’ court) (Sectional Titles Act s. 37(2), Ann. 8 rule 31(1) – (4)). This time-consuming procedure has now been superseded by a swifter procedure to the newly appointed Ombud Service, which has the authority to make an order for the payment of contributions (STSMA s. 3(2) and CSOSA s. 39(1)(e)). Second, the model
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rules (by-laws) under the Act make a defaulting owner liable for interest on arrears568 and for all legal costs (including costs between attorney and client), collection commission and expenses and damages incurred by the management body in the collection of arrear contributions (Ann. 8 rule 31(5)).569 Third, Edmund’s entitlement to vote at general meetings is suspended if he is in arrears with the payment of his contributions. The suspension applies only to ordinary resolutions and not to special or unanimous resolutions. The defaulter may still attend and speak at the meetings and his mortgage creditor may vote as his proxy at any general meeting (Ann. 8 rule 64(a) and (b)).570
(b) It stands to reason that none of the above sanctions would be effective if Edmund’s financial position has deteriorated to such an extent that he cannot pay his contributions. The management body would be left with no other choice than to attach his most valuable asset, namely, his apartment, and to sell it in a forced sale in order to recoup the unpaid levies. The Sectional Titles Act places an embargo on the transfer of a unit unless a conveyancer certifies to the land registrar that at the date of registration of the transfer the management body has certified that all monies due to it have been paid, or that provision has been made for the payment thereof (s. 15B(3)(a))(i)(aa)). However, this remedy is only effective if the unit is not heavily mortgaged in favour of Bank A, and the transferor (Edmund) has sufficient funds left after the forced sale to pay off the arrears.
The South African courts have struggled with the question of whether this embargo could be construed as a tacit lien, charge or preferential right in favour of the management body, ranking above the previously registered mortgage of Bank A. The Supreme Court of Appeal presently makes a distinction between the cases where Edmund is insolvent and the case where Edmund is solvent.571 If Edmund is insolvent, the Supreme Court of Appeal decided that the embargo on transfer can be accommodated as part of the ‘cost of
568The interest rate to be set by the executive committee may not exceed the rate set under the Prescribed Rate of Interest Act 55 of 1975. The current rate is set at 15.5 per cent.
569See Van der Merwe, Sectional Titles, pp. 9–7 – 9–8.
570See Van der Merwe, Sectional Titles, pp. 9–9 – 9–10. Further minor remedies outside the Sectional Titles Act include the attachment of movables of the defaulter and the rent received by the defaulter for renting out the apartment. See Van der Merwe, Sectional Titles, pp. 9–10 – 9–12.
571See First Rand Bank Ltd v Body Corporate of Geovy Villa 2004 3 SA 362 (SCA) par. 27.