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New Laws: Bulgarian Apartments Part Two

Owners of Bulgarian apartment property are informed further on the changes in law regarding condominium ownership and management in part two of our article. In part one on Bulgarian apartment and condominium law changes, which was hopefully interesting, informative and useful to all readers, we introduced the main differences between the new Act on the Management of the Condominium Ownership (the “Act”), applicable as of 1 May 2009, and the old Regulations, where a comparison between the new and the old provisions, regulating the same matters, was made. The article also dealt with some omissions and significant disadvantages of the new regulations, which could be noticed at first glance, without it even being necessary to experience their application before knowing whether they are good changes or not.

Regretfully, just a couple of months later, one major legislative change, which we defined as disadvantageous, already showed its “results”!  As we suspected, the new voting rule, according to which voting rights correspond to the ideal shares of the respective owner, has put all small investors in gated holiday complexes in our resorts in a very unfavourable position. This has been particularly true where the developer has been left with many units unsold and therefore a respectively large percentage of the ideal shares, as they have a greater financial interest in controlling the residential complex. This not only arises from their larger ownership right but also from the business intention to provide maintenance and management of the complex.

So, as promised, here are the main new legal standings, introduced with the new Act:

Explicit rules for preparation of the protocol for the General Assembly

A generally positive new regulation, which was missing in the old Acts and Regulations, is the explicit set of rules for the preparation of the protocols of the meetings of the General Assembly (Art. 16, Par. 4 – 9).

The protocol of the meeting is prepared by a secretary, chosen amongst the owners, attending the meeting by the proposal of the chairman of the meeting, with ordinary majority. The protocol must contain the date and place of the meeting, the set agenda, the attending owners/representatives and the respective ideal shares of the common area which they represent which determine their voting rights, a record of the announcements, the proposals and adopted decisions.

The protocol is to be prepared within seven days of the meeting and is to be signed by the chairman and the secretary. If either of them refuses to sign the protocol, this must be noted in it. The owners must be notified within the same term of the prepared protocol and the notification must be conducted under the same rules regulating the calling of meetings. The notification must be placed in a visible place in the condominium ownership as well. The Manager must provide the protocol or a copy thereof to any owner by demand.

This means obviously that owners must only be notified, but not directly provided with a copy of the protocol, within the term set above. This may in certain cases affect the owners’ ability to object to the content and authenticity of the protocol, because the term of objection is only 7 days as from the notification, but not later than one month from the placing of the notice on the door of his apartment, when the owner is missing. The objection itself must be prepared in writing and addressed to the Manager/Management Council. This new regulation is a good start for putting in order the delicate relations between condominium owners, but features the same deficiency which marks the whole act – that of being incomplete.

The Act does not say what happens if any owner objects to the protocol – is the manager obliged to take notice of the objection and make a decision? if the answer is yes, how is the manager’s decision going to be controlled? What happens if the protocol is amended upon the objection of an owner? Does the manager have to notify all owners again that the protocol is amended and are they in such a case entitled to an additional term of objections of the new protocol? Abuse is possible in both directions – by an unconscientious secretary or by an unconscientious owner. The practice shows that these concerns and suspicions always accompany the management of apartment ownership, therefore the legislator should not have left such unresolved matters, relying on mutual trust and good faith between owners.

Book of owners – the old new rule

The Book of owners is not something new to our regulation of apartment ownership. During the communist period in Bulgaria every separate entrance was obliged to have a “home book”, containing personal details of all owners and habitants, which was controlled by the Police. After the “changes” in 1989 the “home book” was revoked together with many other instruments, defined as “communist” and “police” measures, which violated privacy of personal details. The result of this was that there was no legal way to find out who lived in any apartment and who could be chased to cover common expenses or bear any other responsibility.

Now art. 7 of the Act provides that “a Book of Owners” must be kept in every building or an entrance and must contain the full names of the owners and his family members or other inhabitants, the occupied unit and the starting date of occupation. The entering of the details in the Book is due within 15 days from acquiring ownership or the starting date of occupation for occupants. For protection of personal details, only the Manager/Council of managers, the control organ (if any is elected), some state and local municipal authorities and the owner regarding his own details, have access to the book.

The details of the Book of owners must be presented by the Manager/Council of managers upon obligatory registration of the building or the separate entrance in the special public Registry of buildings in regime of apartment ownership. This registration is obligatory according to art. 44 of the Act and only as recently as 3 July 2009, the overdue Ordinance regulating the creation and keeping of the public Registry and the set of rules for registration was published in the State Gazette.

The registration is free of charge and is within the obligation of the Manager/Council of managers. Since there is no explicit clause to provide whose obligation it is to prepare and keep the Book of Owners, my conclusion is that again the Manager/Council of managers must have this obligation. The Book of owners, if kept properly, will help in finding who are the owners of units in one building or entrance which is often a problem in holiday residential complexes and puts any decisions or meetings at risk of being appealed due to breach of someone’s rights. The Book of owners however will not provide details on the respective ideal shares of the common areas of every owner, so the problem of finding what voting rights every owner has will remain, because investors in most cases (and often intentionally) do not provide any architectural plans or tables showing the ideal shares adjacent to every separate unit.

 

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Owners Association

The Owners Association is the new optional form of managing the common areas of the building/entrance. Its structure basically repeats the “old” organs – a General Assembly, which is composed of every owner and operates under the same rules as the standard General Assembly of apartment owners, a Manager or Council of Managers to whom the same rules apply, and a Controller or Council of Controllers (Note: another annoying discrepancy of the Act is that it does not clarify whether the Council of Controllers/Controller is an optional body where no Owners Association is formed or if it is obligatory – art. 10 thereof lists the managing bodies – 1) a General Assembly and 2) a Council of Managers/Manager. Then art. 24 below provides for the set of rules of election and operation of this new type of managing body, without specifying whether it is optional, given that it is not pointed in art. 10 above.)

The set of rules on the constitution, registration, manner of operation and liquidation of the Owners Association is provided in details in Section III, art. 25 – art. 37 of the Act and it is impossible to repeat it all here. What is interesting to know is what is the difference between the two forms of managing the common areas, since the Owners Association has the same bodies – a General Assembly and a Manager/Council of managers, and a controlling organ, which obey the same legal rules.

The main difference is that the Owners Association is a non-commercial  legal entity which is subject to registration in a Public Registry kept by the relevant regional or municipal administration. This means that unlike the General Assembly of condominium owners, the Owners Association is a separate juridical person which can have contractual and other relations with other persons, institutions and authorities. One clear example is that a standard General Assembly of condominium owners may decide to assign a certain maintenance company, but then all owners must sign separate maintenance agreements with this company, because neither the General Assembly of condominium owners nor the Manager/Council of managers are legal entities which can sign on behalf of owners whether they agree or not. The Owners Association can sign one single contract which will be binding all owners, who are by law members of the Association. Being a separate legal entity, the Owners Association can also benefit from the legal possibilities to obtain funding from different European funds for repairs. In my personal opinion, the provision of art. 28, Par. 1, item 5 of the Act according to which the Agreement on the establishment of the Owners Association may contain any other terms on which the owners have come to an agreement, provides a better legal basis for owners to agree upon different, more flexible and convenient terms on the calling, conducting and operation of the General Assembly of the Owners Association. Art. 11 of the Act which provides for the functions, rights and obligations of the ordinary General Assembly of condominium owners, does not contain such a common provision, on which such new or additional agreements could be based.

Provision of fines for breach of the Act

In chapter V, art. 55 to art. 57 provide for the different fines that can be imposed by the relevant regional or municipal administration, based on a Fact Finding Protocol prepared by either the Council of Managers or by the Manager and two owners, appointed by the General Assembly, or in case the defaulting owner is a member of the managing organ - by the Council of controllers, or by a Controller and two owners, pointed by the General Assembly. The old regulation also provided for some powers of the managing organ to impose fines, but the size of those fines was not determined and they were supposed to be provided in the Regulation on the Internal Order, adopted by the General Assembly, which often lacks detail. Now the new Act stipulates explicitly the different types of breaches and the applicable fines:

-    for an owner or an occupant physical person, breaching the law – from 20 to 100 leva, if it is a legal entity – from 150 to 350 leva;
-    for an owner or an occupant physical person, breaching the internal set of rules or anyhow disturbs the other owners and occupants – from 50 to 150 leva, if it is a legal entity – from 200 to 500 leva;
-    for a member of the managing bodies, breaching his/her obligations – from 300 to 1000 leva;
-    for breach of the obligation to register in the Registry of buildings in regime of condominium ownership the fine is from 100 to 500 leva.

The acts by way of which the breaches are ascertained and the fines are imposed, are subject to appeal.

 


Management contract in “gated complexes”

I will quote precisely this most ridiculous provision of the new Act, contained in art. 2, named “Special regime of management of common areas”:

“Art. 1, Par. 1. The management of the common areas of buildings in condominium ownership regime in a residential complex of a closed type, is to be regulated with a written contract with notarisation of the signatures, between the investor (developer) and the owners of separate units.

Par. 2. The contract under Paragraph 1 is to be registered in the lot of every separate unit and is binding on subsequent buyers.”

The additional provisions of the Act provide for the meaning of the term “residential complex of a closed type”, namely: “a complex set up as a separate regulated landed estate, in which buildings in a condominium ownership regime and other objects are erected, which serve the owners and the habitants, where a special controlled access of outsiders  is observed”

While I understand the supposed argument of the legislator that gated complexes are difficult to manage due to the different facilities located in them, owned by different owners and therefore require higher volume and quality of maintenance, somehow regulated by the law, I do not understand why this short, incomplete and absolutely inappropriate clause was found sufficient to solve the numerous existing problems in these complexes. The below questions illustrate what I mean:

-    For what reason was the investor given the exclusive right and privilege to conduct the management of the common area? After the complex is sold out, on what grounds is the investor put in a more favourable position than the other owners?
-    In the best case the investor is still owner of some of the facilities for common use such as the pool, the gym, the spa centre, but what if there are no such facilities and yet the complex can be defined as “residential complex of a closed type”? What if owners pay for the use of these facilities, will they still be obliged to sign a maintenance agreement with the investor and what would justify such obligation then?
-    What if the investor does not have the ability, the capacity or even the wish to deal with the management of the common areas? Why are owners obliged to sign a maintenance agreement with an investor/developer whose main subject of activity is, in the best case, construction, but may also be any other activity, having nothing to do with construction or moreover management. In Bulgaria during the construction booming every businessman with some free assets became “an investor” and now such investors, who are predominantly, say, a cherry exporter for example (inspired by a real case though), will manage the common areas of the poor buyers, if we follow this provision;
-    What would this contract state and since the legislator has ensured the rights of the investor/developer, how can they be limited? The investor may thus use this clause and impose any maintenance fee and any terms! Where are the consumers' rights here?
-    Is this clause to be applied from now on and will investors of already erected buildings, maintained by outside maintenance companies be entitled to “step in” their rights for the future?
-    What would the term of such binding relation between owners and investor be?

Many other questions like the above can be posed and, in my opinion, until the legislator realises how inadequate this clause is and revokes it, I suggest a few ideas how to overcome it:

-    If we interpret the clause literally, it will apply only to complexes where more than one holiday building is erected. If your complex consists of one building and a pool for example, you may argue that the clause is inapplicable. The plural is used in both art. 2 and the term definition.
-    Again if we interpret the clause literally, if there are no other objects erected outside the building, but for example there is only an indoor pool, the gym and the sauna are also inside the building, it may be argued that the clause is inapplicable – the condition is the “buildings and other objects are erected”;
-    If there are buildings and other objects, but no controlled access is provided – for example there is no life security or other means like a gate with remote control, the clause is inapplicable.

As a whole, in my opinion, the obligation to sign a contract with the investor/developer will be very difficult to enforce in its present form. If I, as an owner, refuse to sign such agreement, the investor cannot go to the notary without me and cannot register the contract without my signature. If the investor takes me to court I wonder what would the court rule when I object that such contract violates not only my consumer rights, but also the main principle of freedom of contractual relations. And finally, the investor will have to take all owners to court, with separate claims, which cannot be combined in the same court case and I will be curious to see an investor who will find such actions sufficiently justified.

This article, as well as part one, cannot be exhaustive in the matter of apartment ownership and its legal regulation. It may serve as a guideline outlining some of the most interesting new provisions of the new Act.

A lot more questions can be raised, a lot more issues can be discussed and surely the new Act can bear a lot more criticism. Besides, when it comes to application of the law, many more factors of the reality and your relations with the investor/developer and the other owners will influence your decisions and actions. Therefore, on every separate occasion make sure you are acquainted with the precise and up to date legal regulation and get proper independent and professional legal advice.

Related Articles
Part One of the New Laws Governing Bulgarian Apartments

Asja Mandjukova
Partner, GPNG Law Firm, Sofia
www.gpng-law.org

 

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