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The Latest Amendment Of The Act On Management Of Apartment Ownership - August 2011

On 26th July 2011, with State Gazette No. 57/2011, significant changes (by number and importance) in the Act on the Management of Condominium Ownership (herein after the Act) have been promulgated. The official main idea of the legislator was to simplify some procedures (like the calling of the General Assembly (hereinafter the GA) and the registration of the Owners Association), to clarify some badly composed provisions which were bringing misunderstanding and uneven application of the law (like the rules imposing obligations of condominium owners to pay for the various maintenance and management costs) and as a final goal - to make the law practically working and not frustrated by excessively complicated or unachievable requirements.

Our general opinion is that those motives can indeed be seen through in the new changes and these changes have rather made the law better and easier to observe and make use of. The old version of the law allowed for unconscious behavior and abuse of the law by the various affected parties. These defects of the Act have not yet been completely removed, but the changes have made a step forward.

We arise of the assumption that by now, owners of real estates in Bulgaria are relatively well acquainted with their rights and duties as condominium owners, so the purpose of this article is to introduce the more important changes in the Act and to interpret and compare them with the old provisions. Because of the large number of the changes, in order to make it an easier reading, the below statement is not exhaustive, so readers are advised to get acquainted with the full text of the Act or seek professional advice every time they decide to take certain step under the Act.

Costs related to the condominium ownership/common areas:

The most important change in the sections regulating the rights and obligations of the owners, habitants and users (see what "users" means below) to pay the costs related to the common areas is the precision of the different types of costs, which allows for more accurate defining of the nature of the incurred costs, respectively - the way of their distribution. The old Act was using the terms "costs for consumables" and "costs for maintenance of the common areas", but only had definition of the term "costs for consumables" and "maintenance of the common areas" which was vague enough to cause confusion. The new law has taken out the term "costs for consumables" and has introduced the common and more exhaustive term "costs for maintenance and management", which was used as expression in the old version of the Act anyway.

Thus, the Act now has a more clear differentiation of the costs for maintenance, management, repair, consumables etc., which is important improvement, because the distribution of the various types costs between owners is different and it is important to know which cost goes where.

To remind readers, in light of the new changes, these are: Costs for repair, renovation, reconstruction or change of designation of the common areas:

These costs are distributed between owners on the basis of the size of the ideal shares of the common areas, owned by each owner. In other words, the more apartments you own or the larger your apartment is, the more you pay. It is important to remind that there are different types of repairs (urgent, necessary, basic, useful) and the regime for their approval, respectively, for the obligation to cover for their costs depends on their necessity. The same principle applies to renovation, reconstruction or change of designation of the common areas - the least necessary the repair is - the higher majourity of votes at the GA is required.

Like the old version, the new version of the Act contains the requirement for the GA to maintain a Repair and Renovation Fund, also known as Sink Fund, and to determine the size of the fund installments. The new change is that a minimum of 1% of the minimal wage for the state has been set for the sink fund installments. This is done to encourage and ensure a minimum of funds collected. Bear in mind that the obligation of owners to recover or contribute towards costs for repairs and renovation is not limited to the size of the installment, payable to the Sink Fund. The function of the Sink Fund is to guarantee collection and availability of funds, but owners shall still be obliged to cover the full costs of any and all types of repairs and renovations as long as they have been approved and accomplished in observance of the law.

Costs for management and maintenance of the common areas:

The management and maintenance costs include the costs for consumables, costs related to the management of the common areas, costs for remuneration of the management and controlling bodies (now possible option), for electricity, water, heating, cleaning, elevator, janitor and other costs of the sort, necessary for the management and maintenance of the common areas of the building. These costs are distributed between owners, users and habitants, according to their number. The new figure of the "user" defines an individual or entity that has an established real right to use the apartment by the owner. Users have almost the same volume of rights and obligations as owners, with some limitations on their voting rights within the GA and on the obligation to cover costs for repairs. Habitants are the members of the family of the owner, as well as guests, tenants etc. (We put tenants in the group of habitants, because usually they rent an apartment with a simple contract which grants them ordinary temporary right of use, which is different from the real right of use, meant by the legislator in the case of "users". This division is a specific legal matter, unnecessary to go into deeper, but we mention it in order to explain why users have more rights than habitants.)

So, for example an owner, who has 2 apartments and his family is composed of 3, will participate in the distribution of these costs with 3 "shares", conditionally speaking. If an owner has 3 apartments, but lives alone, he will participate in the distribution of these costs with 1 "share". Tenants also participate in the distribution of these costs. The idea of the law is that unlike the previous type of costs, this type of costs is directly related to and dependent on the actual use of the common areas, in other words - the costs for cleaning, electricity, water and lift rise as the number of people who live there grows. Therefore the law provides for the right of owners, habitants or users, living in the complex no more than 30 days within the calendar years, not to pay for such costs. Similarly, owners, users or habitants who are absent for more than 30 days within a calendar year, may be released by the GA from 50% of the due costs for that period of absence.



Either, to remind readers:
- the GA determines the size of the installments, payable by each owner, habitant and user, to cover for this type of costs;
- Owners, habitants and users who exercise a profession or activity in their units and do not have a separate entrance to them, are obliged to pay up to five times the size of the above installment. The exact size is determined again by the GA, only the amended Act provides for a minimum of three times the general installment.
- pets are counted as one habitant.

Calling and conducting of the General Assembly (GA):
The changes in this section are designated to simplify the procedure for calling a GA and in principal we welcome them. The previous regulation did not provide as many different ways of calling an owner lawfully and at the same time the procedure was too clumsy with all the sealing of invitations, certifying receipts, witnesses.

Calling a General Assembly
Like before, the GA is usually called by the Management Council (Manager) or the Controlling Council (Controller). Like before, the calling may be initiated by owners representing at least 20% of the common areas. But now, if the manager fails to call a GA by their request, they will not have to refer to the mayor of the municipality, but will be entitled to call it themselves. What a relief!
An important amendment is the right of every owner or user to call a GA in urgent cases or when a GA has not been conducted for more than a year.

According to the new regulation, the main way of announcing the calling of a GA is not personally to every owner. The initiators (be it the Management Council, the Controlling Council or a group of owners) may only seal one invitation on a visible spot at the entrance of the building. They have to do so at least 7 days in advance (it was 3 days before) or no later than 24 hours prior to the meeting in urgent cases. Like before, the invitation must announce the agenda, the date, hour and place of conducting.

Personal calling of owners or users is only provided as a subsidiary option for owners or users who are absent for more than one month from their property and have informed the managing bodies in written about this fact, leaving an address, a telephone number and an e-mail address for calling. Such owner or user will be deemed lawfully invited if he is orally informed (this means by telephone) of the content of the invitation or receives the invitation by e-mail or to the postal address left. A missing owner who has not left an e-mail address, a postal address and a telephone number, will be deemed lawfully called through the sealing of the invitation on the front entrance of the building.

The above regulation would have been very appropriate had it not posed the requirement for absent owners to present a postal address, an e-mail address and (not or) a telephone number altogether and had it not given the option to choose any of the means of calling. While sending an invitation by e-mail or through registered post can be tracked and proven relatively easily, a telephone call is almost impossible to prove, which provides a good precondition for unconscious recording of calling which has not actually taken place.

Apart from this defect, the idea of introducing all these options for calling is very good - it will save the managing bodies the multiple sealing of invitations and knocking on the doors of owners, the dragging of witnesses to certify every refusal or absence, the composition of a protocol for absence or refusal or two receipts for each successful delivery. On the other hand owners are given the opportunity, but also transferred the responsibility to participate more actively in the upkeep of the common areas. If they are absent and don't leave their coordinates, that will be at their cost, they will still be bound by the decisions of a lawfully called GA they have missed.

Another appropriate change is the abolishment of the prohibition to call a GA within the period 15 July - 15 September. For holiday complexes at the sea-side this will provide a better chance for owners, resting in their properties to combine the pleasant with the useful.





Representation, quorums and voting:

Some good changes improve the rules for authorizing a third person to represent an owner: - except in written, a third owner or a member of the family (registered in the Book of Condominium Ownership, previously - Book of Owners) may be empowered by an owner orally, at the previous GA for the next one. In line with the Attorneys Act, solicitors may now be empowered by an owner with a written Power of attorney only, without a notarization.
A significant complication of the requirement for quorum has been adopted. According to the old regulation, if less than 67 % of the common areas are represented at the announced hour of the meeting, it may continue an hour later with as many shares as are represented. The new requirement is that an hour later at least 33% of the common areas are represented. If the reduced quorum is not achieved, the meeting of the GA can continue only the next day (unless it is a holiday or a day off), with as many shares as are represented.

There is no change in voting rights - every owner/user has a voting right proportionate to his/her share in the common areas. Like before, some decisions require a higher majority of votes of the common areas, others - an ordinary majority of more than 50% of the represented common areas.

Some new provisions allow for adoption of decisions with a qualified majority of 67% to 75% of the common areas - for release, postponing or spacing out of duties, for renovation, basic repair and for European, state or municipal funding, for connection to the heating, electricity, water or gas network or for cutting of the gas or heating connection of the condominium ownership.
An alternative way of estimation of voting rights:

We are particularly fond of this brand new section of the law, which fills a gap that was causing confusion and risk of objection and cancellation of any decision taken by a GA. We are about to see whether the present formulation of this amendment will work well, but it was necessary so having it in the law by itself is a step forward. It is well known that some notary deeds do not contain the relevant percent or sometimes not even the real figure of the common areas, adjacent to the property, subject of the notary deed. In such cases it is difficult or even impossible for an owner to make a precise estimation of his voting rights. Often the estimation would not even be correct, because the total percent of all common areas would not come to a 100%. Additionally, sometimes the percent of the common areas, stated in a Notary deed prove to be wrong either. In our practice we have had experiences of both types - accumulating the percents of common areas of all owners in the complex, as per their title deeds, did not make a total of 100%. On another case our attempt to fill a gap and estimate the percent, corresponding to the size of the common areas, stated in the notary deeds, ended with a final figure far from 100%.

Therefore the new legal provision, allowing the manager to estimate the percents of ideal shares of every owner when they have not been estimated, or to re-estimate them, when they have been wrongfully estimated, is timely and appropriate. The principle is simple and fair - the manager acquires information on the total size of each unit (including the servicing premises) from each owner or from the Cadastral agency. Then the size of each unit is divided to the total size of all units and the result is converted into percent (by multiplying to 100).

This way of estimating the percent of common areas adjacent to each apartment shall apply in three cases:
- When the percent of the common areas is not shown on the Notary deeds;
- When the percent of the common areas is shown on the Notary deeds, but the total percent of all common areas is not equal to 100;
- When in a complex with several entrances, separate management of each entrance applies and the total percent of all common areas in this entrance is not equal to 100;
The estimation, done by the manager/management council, is subject to approval by the General Assembly, where this is the only case, provided in the law, when each independent unit gives one vote for its owner. The required majority is 2/3rd. Refusal to approve the estimation is allowed only in case an estimation mistake was made.

The Owners Association:

When the Act on Management of Condominium Ownership was first adopted in 2009, the Owners Association was introduced for the first time as a specific type of legal entity of non-commercial purpose. The idea was good, because the Owners Association, being registered in a special register, would be more recognizable by authorities and third parties, than the standard managing bodies of condominium ownership. The great problem which practically deprived this regulation from functioning was the requirement for unanimous decision of all owners to constitute the Owners Association, as well as the very high risk of its quick and easy dissolution if only one owner resigned of it.

The long awaited change of these strict requirements finally took place and some clarifications of the purposes and functions of the Owners Association were introduced as well.

According to the changes, a majority of owners, representing 67% of the common areas is required to constitute an Owners Association. Respectively, it will be dissolved if the resigning of an owner leads to a lower percent of the common areas represented. Another important amendment is the possibility for owners in a separate entrance to constitute their own Owners Association.
Furthermore, it is clarified that the Owners Association may be constituted for the purpose of acquiring European, State, Municipal or alternative funding or for the expenditure of their own funds for repair and renovation. It is also provided that the Owners Association may be constituted for the execution of any other activities related to the management of condominium ownership and that it may be created only for the purposes of the Act.

Article was written by Asya Mandjukova (Ms.) Attorney at law.

The subject is complicated so if you have further queries from this article please contact Asya.

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