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New Laws: Bulgarian Apartments

Important New Laws: Bulgarian Apartments and news for property owners (apartment blocks, residential complexes and gated communities). In a couple of days time, on 1 May 2009, the overdue new Act on the Management of the Condominium Ownership (the “Act”), adopted on 13 January 2009 by the Bulgarian Parliament will enter into force. At the same time, the relevant section in the existing Ownership Act 1951, regulating the main principles and provisions in respect of the condominium ownership went through significant amendments, which will also enter into force on the same day.



As you will observe in the present article, the Act is finally taking account of the changes that have taken place in the Bulgarian real estate market and residential construction for a period of almost sixty years, since the notorious Ownership Act and the Regulation on the Management, Order and Control of the Condominium Ownership (the “Old Regulation”) were adopted in 1951. It comes to replace the old, completely inapplicable and inadequate rules of these two legislative acts, but while some of the advantages and disadvantages of the new Act can be seen at first sight, its practical use and applicability will be evaluated only in due time.

The new Act is significantly larger than the Old Regulation and it will be virtually impossible to analyse its entire content in the present article. Therefore, we shall cover the matter in two parts: in the first part we shall outline the main differences between the new Act and the Old Regulation, and in the second part we shall introduce the new most significant provisions.

Main improvements in the new legislation:


1.    The general obligations of each unit owner in a building, which is a condominium ownership are explicitly provided in a separate clause (Art. 6 of the Act) and in a much more detailed fashion (17 items), which allows for significantly more efficient direct application of the law in each specific case. Previously, it was very difficult to ascertain whether someone’s actions can be treated as breach of the rules on the condominium ownership, particularly if the person in question may be held responsible, because of the very vague formulations of the Old Regulation.

2.    The right to force an owner to leave its property, if such owner does not comply with the adopted resolutions of the General Assembly of Owners or violates the Internal Rules Order of the condominium ownership. This has been curtailed and restricted to the more realistically enforceable right to impose an injunction on the owner for up to three years forbidding him to access the property. Obviously, the legislator has sought some balance between the ownership rights of the defaulting owner and the entitlement of the rest of the owners to undisturbed use and good order within the condominium.

3.    The mayor of the local municipality or region where the building is located is delegated the function to call a General Assembly of the Owners upon the written request of the owners of at least 20% of the common areas, if this should be the first General Assembly to take place or in case the Manager/Management Board have failed to do so. The idea behind the rule is probably the position that the well-being of the condominium ownership is a matter of local significance and involving the mayor’s functions in it is another way to regulate the condominium ownership more effectively. Read the second part of this article to find out more about the mayor’s new functions.

4.    The set of rules for delivery of invitations for calling a General Assembly, provided in Art. 13 of the Act, is now a little more precise, more detailed and completely waives the possibility of an owner to be summoned at a different address, thus hindering the procedure. The provision is strict and stipulates that:
- the invitation is delivered at least 3 days or in urgent cases at least 24 hours prior to the meeting;
- it is placed at a location visible and accessible by all in the common area of the building;
- to be considered duly delivered, the invitation must be handed over to every owner, to an adult of his/her household or to another occupant in his/her apartment in the relevant building. The delivery is evidenced through the signature of the relevant person;
- if the owner is missing or refuses to accept the invitation, it is considered delivered if affixed to the front door of the owner's property. The reasons for this alternative delivery, as well as the date and hour of the affixing of the invitation must be stated in a special protocol witnessed with the signature of the delivering person and at least one other owner or occupant.
- Beware that unless it is urgent case, the General Assembly may not be called during official holidays and, note, between 15 July and 15 September.

 

This improved procedure of delivery implies that every owner is personally interested in his property, even if he does not live there, and aims to prevent owners from objecting to the validy of a meeting of the General Assembly on the grounds that they had not personally received an invitation at their own address(es).


5.    The manner of empowering third persons to represent an owner is now explicitly provided to avoid confrontations and objections. It is simple and quite appropriate:
- a relative or a co-owner of the property may represent the owner on the basis of a Power of Attorney furnished in writing;
- a third person, not related to the property must be empowered to represent an owner  on the basis of a Power of Attorney furnished in writing with the notarised signature of the owner.
Note that one proxy may only represent up to three different owners according to the Act.

6.    There is a very important amendment, introduced in the Act, which from our professional experience may be evaluated as a problematic issue benefiting only big investors and developers at the expense of small owners:

From 1 May 2009 the owners from the condominium ownership will have votes proportionate to their respective shares of the common areas.

Thus, a developer, which has failed to sell its apartments (which is not so uncommon in these times of economic and financial crisis), may gain great advantage and will control the rest of the owners through its own decisions. This unjustified and unbalanced power arises from ownership of ideal shares from areas designated as “common” - precisely because they are for common use and all of the owners have to make use of them.

7.    A qualified majority of votes is required for adoption of three types of decisions (as an exclusion of the general rule for adoption of decisions with an ordinary majority of more than 50% of the votes):
- unilaterally – when decision for construction of new objects or for creation of construction rights or rights for use to third parties is adopted;
- more than 75% majority – when a decision for extraction of an owner is adopted, in this case the required quorum (see below) is obligatory;
- more than 67 % majority – when a decision for renovation or basic repair is adopted, in this case the required quorum (see below) is obligatory

 

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8.    The composition, rules of election, manner of work, rights, obligations and representative powers of the managing body – a Manager or a Management Board - is much more detailed and fills in a lot of gaps in the Old Regulation. The Manager or the Management Board are two alternative/optional management bodies with equal functions. Without being exhaustive, some more interesting provisions are:

- the Management Board is composed of an odd number of members, but not less than three, without ties or relationship between. The Board is elected for two years and meets at least every three months;
- the Management Board has the same functions as before, but also keeps the book of owners (see below), the plans of the building, the technical passport, keeps account of expenses, prepares the annual budget, annual plan and reports.

9.    The role and functions of the Supervising Council/Supervisor stands out under the new law and its more detailed regulation provides a good basis for transparency and efficient control over the management of the condominium ownership. The principles of election and work of the Supervising Council are basically the same as those for the Management Board.

10.    The manner of conducting and financing major renovations, basic repairs, necessary reconstruction, urgent repairs or simply daily maintenance is regulated in detail in the Act, with separate rules on the adoption of decisions and distribution of expenses for each specific case. For example:

- renovations, basic repairs or reconstruction of the common areas can only be made after a decision of the General Assembly of the Owners is adopted. The expenses for these are borne proportionately to the respective ideal shares of each owner;
- when the building needs urgent repair, no resolution of the General Assembly of the Owners is required, but only a decision of the Manager/Management Board, as the latter may make use of the special “Repair and Renovation” Fund, which must be created and supported by the General Assembly of the Owners. For the execution of these duties the Manager or the Management Board may rely on the assistance and delegated power of the mayor.
- the expenses for daily maintenance are distributed between all owners (NOTE – not proportionately to the respective ideal shares, but to the number of owners, which is not too fair, in view of the other stipulation of the Act mentioned above) and occupants of the building. The old rules regarding offices, restaurants and other professional/business premises remain in force.

Omissions and disadvantages of the Act in comparison with the Old Regulation:


1.    The Act contains several great and inexplicable mistakes or omissions. As pointed out above, the matter of condominium ownership had always been regulated by at least two laws:
–    the Ownership Act, being the main law regulating the ownership relations in Bulgaria, and
–    the Old Regulation between 1951 and 1 May 2009, and the Act from 1 May 2009.

The two laws have always been applied and interpreted together, and in case of contradiction, the higher law (the Ownership Act and not the Old Regulation) used to prevail.

From 1 May 2009 we will have three applicable laws – the Ownership Act, the Old Regulation and the new Act. In addition, the new Act provides for the issuance of a new Regulation on its application, which was supposed to be enacted not later than 31 March 2009 (§ 11 of the Act's Final and Transitional Provisions). As often happens in Bulgaria, such new Regulation has not been passed as yet (as of 24.04.2009). The new Act does not explicitly cancel the Old Regulation and we do not know if the expected new Regulation on the application of the Act will fix this omission. Therefore, currently we do not know if the Old Regulation is still applicable. Of course all its provisions, which explicitly contradict the new Act will not apply, but shall we be able to apply the rest of its provisions?

Furthermore, we cannot tell which of the two Acts will prevail in case of contradiction of their respective provisions – the Ownership Act or the Act on the Management of the Condominium Ownership (the Act). This is a very important issue because:

- firstly, we were about to start our list of main amendments, according to which from 1 May 2009, the immediate management and control on the condominium ownership will be delegated by the General Assembly to a single body only – the respective duly elected Manager, without having the option to form a corporate body – a Management Board. This change was introduced in Art. 42 of the Ownership Act and we assumed that this change was aimed at the simplification of the process of management of the condominium ownership, which has previously proved to be difficult and often caused disagreements between owners, or even members of the management body when it consisted of more than one person. However, as you read above, the optional body – Management Board is still as valid as before, according to expclicit provisions of the new Act, having even more detailed functions, rights and obligations. There is a flagrant contradiction between the amendments of the Ownership Act and the enactment of the Act.

- secondly, we were about to continue with the important change of art. 43, Par. 1 of the Ownership Act, which cut the required legal quorum necessary to conduct a General Assembly from ¾ of the owners (in the Old Regulation) to ½ of the owners (according to the Ownership Act). The new Act has also cut the required legal forum (art. 15, Par. 1 of the Act), but to…. votes of the owners owning more than 67 % of the common areas.

It is interesting that both the amendments of the Ownership Act and the new Act were adopted, respectively promulgated on the same dates, and of course they should have been drafted and enacted by the same people. They both enter into force on 1 May 2009.

2.    As we have pointed above, we will find out how good and efficient the Act is only when we start to apply it. But we already noticed one major disadvantage, which from our point of view will cause great discontent, conflicts and insolvable issues between owners, despite the new active function delegated to mayors.

This is the balance between the voting rights and the obligations of owners. On one hand the Act has introduced a brand new voting rule, according to which voting rights correspond to the ideal shares of the respective owner. As noted above, this provides great advantage to the big investors and developers to control the condominium ownership, in comparison to those who have invested their lifetime savings in order to buy one single apartment. The ideal shares of these big investors would most probably prevail over the ownership rights of small investors.

On the other hand, the legislator has attempted to make a clearer division between the expenses for basic repairs, renovations etc. and the daily maintenance expenses, when it comes to covering these expenses. It is reasonable to make such division, according to which the expenses for major repairs are distributed proportionately to the respective ideal shares, while daily expenses are borne by occupants or owners who live constantly in the building, and to relieve, at least partially, such owners who do not live in the condominium ownership, respectively do not use the elevator, the electricity, do not create waste, etc.

A very unfortunate attempt at such division, in our view, is the provision of Art. 51, Par. 1 of the Act. It stipulates that these daily expenses, are distributed proportionately to the number of owners and occupants. It may turn out that an owner of let us say 10 apartments, who has 10 times more ideal shares than the other owners, may rule the decisions of the General Assembly, but at the same time may pay as much as the owner of only one apartment for the daily expenses. Or even less, if he can apply Art. 51, Par. 3 of the Act (otherwise reasonable provision), according to which owners who are missing more than one month from the building, can only pay 50% of those expenses. For comparison, the municipality gathers waste charge for each apartment, not per owner. The provision of Art. 51, Par. 1 is too unfortunate also for another reason – it may be interpreted that 3 owners of one and the same apartment pay three times the daily expenses, while the single owner of 10 apartments, as already said – three times less, compared to them.

3.    The new Act has taken into account the new type of closed residential complexes (gated communities), but seems to acknowledge the need of their internal regulation only when it comes to serve the developer’s interests (this will be discussed in the  second part of our article). The new regulation of this matter is a great disappointment – it protects the interests of the developer and gives no protection whatsoever to the small investors.


To be continued. In Part Two:

New legal standings regulated by the Act:
Explicit set of rules for the preparation of the protocol of the meeting of the General Assembly.
Book of owners – the old new rule;
Owner’s Association;
Provision of fines for breach of the Act;
Registration of buildings in condominium ownership;
Contract between investor and owners in closed type complexes;
The role of the Mayor.

Part Two of New Laws: Bulgarian Apartments

 

Asja Mandjukova and Roumen Petrov
GPNG Law Firm, Sofia, Bulgaria
www.gpng-law.org

 

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