Your Partner in Bulgaria.

Benefits of joining a property Owners Association

First, I need to say some words about why Owners association is so important. If you read this you have probably bought at least one property in Bulgaria. May be 80% of you have communication problems and other legal difficulties with the seller of your property. Since the property bubble was quite huge, almost every “construction entrepreneur” in Bulgaria got greedy when they saw the cashflow. Construction quality got poor, client-seller relation got poor. The result is angry property owners constantly opposed by the developer.

As a short initial summary (for those who doesn’t like to read long texts), here are the benefits of having registered Owners Association:

  1. All state and local authorities take the owners seriously if represented by registered legal entity
  2. Everybody has good attitude towards Nonprofit organizations, which protect civil rights.
  3. The rights of the association members can be legally defended by OA’s representatives. Regulation authorities which respect OA litigation actions are courts, Commission for Consumer protection etc.
  4. Joint actions against developer bad practices can be performed by OAs

Normally, in almost every investment property  project there are more than one premises, sold to different individuals. These individuals join informal associations, mainly in web forums and discussion boards. They share the bad experience they had with the seller/developer and talk about maintenance woes. Talking and sharing information is good, but action is better.

Bulgaria is a country where bureaucracy is blossoming. Every authority will ask you for some kind of identification, whether it is a document (signed and stamped of course!!) or some reference from other authority. Many state and local employees won’t even talk to you until you introduce yourself as representative of something that is formally existing in their entity records. Even the developer/seller is not recognizing representatives of informal owners groups (or action groups, as often called)

In our solicitor practice in Bulgaria, we found that this authority behavior can be opposed by simply forming a NonProfit association. This is a formal legal entity, registered in the District court. It has company file number, registered address, management bodies etc. The management basically follows the rules of a company management, but the association is not a trading entity. It is used only to protect its members rights and not to gain profit.

As a case study on the benefits of having a legitimate Owners Association I can provide some examples from our practice. Our law office was helping owners of villas in one particular investment project. The developer has constant conflicts with the local cityhall and the only victims of this fight are the owners. They have addressed the issues to different authorities, but only as individuals, or in their capacity of  informal web formed association. No authority took the problems seriously. As their solicitors, we suggested that all owners formally register a legal entity in Sofia City Court. This would have made the association formal with all legal attributes.

The Owners association was formed successfully. It is managed by Management Committee and represented by the Chairman of the management. The representative addressed several letters regarding the problem to different authorities, such as the SofiaDistrict Governor, the National Construction Audit Directorate, Bulgaria Investment Agency etc. All of the said authorities have not only responded to the official correspondence, but even have agreed to meet the Owners association representative and discuss the problems of its members.

Another successful story is the formation of couple of Owners Associations of owners in Bansko apartment complexes. The developer is virtually “blackmailing” the foreign owners, but forging the common parts percentage and voting for his own company to be the maintenance company of the complexes. Of course no accountability whatsoever is provided by both the maintenance company and the developer. The owners association have been acting as intermediary between the developer and the owners in order to resolve the problems without any complications.

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Major amendments in the Condominium Management Act

New major amendments have taken place in the Condominium Management Act. If one reads them carefully it is obvious the the lobby of the property developers has passed regulations in their favour. Here is a brief description of the major changes (not a complete list):

1. Previous wording of “closed complexes article” didn’t provide who is responsible for filing the registration of the management contract to the Land registry. The new wording is clear: the developer is responsible for this. The lobbing is crystal clear. The so called “closed complexes” are basically a tool for blackmailing and “milking” the buyers. Basically if you buy apartment in such complex, you are bonded to the developer forever. He can charge you whatever maintenance fees he likes. Be careful with this. (Art. 2 Para 2 )

2. A new regulation about small buildings has been introduced. If the building has up to 3 separate premises, owned by different people, the relations between the owners is regulated by the Ownership Act and not by the Condominium Management Act.

3. The new amendments create some new rights to the lessees of the premises(residents), which we won’t discuss in details now.

4. Owners have to pay for repairs of the common parts, but only from what is collected into the “Repair and Renovation fund”. Our interpretation on this is that owners are required to pay only from their installments made to the “Repair and Renovation fund”, and can refuse to pay interim expenses, which exceed their installments to this fund. (Art. 6 para 1 point 9)

5. There’s a slight change in wording about what expenses are paid by owners. According to the new amendments, owners pay for management costs of the common parts. The previous wording used to be “owners pay for for utilities costs“. It’s clear that a new expense is created here – the management of the condominium. It used to be in the law implicitly but now it is defined more clearly that it’s owners responsibility and is equal to the utility expenses. (Art 6 para 1 point 10)

6. Now every owner/resident of the premises in the building has to subscribe themselves into the Condominium book. Our interpretation is that the owner/resident has to ask the manager (who holds the book by law) to enter them in the book.Before the amendment, it was not specified who is responsible for subscribing the new owners/residents into the book.(art. 7 para 3 )

7. For all dog owners, a specification of what should be entered in to condominium book regarding dogs in the building – the book should include their veterinarian passport details(Art 7 para 6 )

8. Various amendments has taken place in the General Meeting rights and obligations (Art 11):

  • The right for GM to distribute the utilities expenses for the common parts is removed (point 1 para 1 )
  • The act of renovation of the building is no longer registered to the municipality register (point 10, letter “v”)
  • The GM no longer sanctions an owner pursuant to the condominium act. (point 10, letter “k” is removed). This is removed because it has to do with simple majority resolutions (50%+1). The sanctions right still stays, but can be exercised with increased 75% majority.
  • GM decides on connecting or disconnecting the building to gas and heating supplier (point 10, new letter “l”)

9. The owners don’t need to convene GM through the local mayor anymore. The previous wording is removed. The new wording is rather generic. Owners can convene General Meeting according to the provision of the law herein. We, however need to point out that owners cannot convene GM directly, but they first need to ask the manager to do it. If the manager don’t do it, then owners can convene a GM themselves, following the procedure in the law (sending invitations etc.). In short, the mayor is no longer involved.

  • Each owner can convene GM in urgent cases OR at least if one year has passed from the last ordinary GM. ( new para 5). Now here the minimum % of owners for convening a GM has been removed. Each owner can now convene the GM without first asking the manager, but only in the aforesaid cases.
  • A new paragraph has been added for newly established condominiums. Each owner can convene the first General meeting! There are no more requirement for 20% common parts owners. This clears out a big hole in the legislation. nobody knew before how the first GM can be convened without existing manager (elected by the GM). Now the law is clear enough. (new para 6 (old 5))

10. A new Art 13 has been created:

  • GM is convened by sticking the invitation on visible and public accessible place in the building not earlier than 7 days before the meeting. In urgent matters the term is not earlier than 24 before the meeting. (new para 1)
  • Owner/resident who is absent for more than 1 month, has to notify in writing the manager of the condominium and has to leave an email address or postal address on which invitations for GM to be send, as well as a phone number. (para 2 ). That’s a great improvement and making the convening procedure very light. Now we finally enter 21 century by using emails. However the regulation is creating controversy. The person who sends the email may not send them at all and still states that he has send them!! Now how an owner can prove in court that he has ( or not) received an email. That’s a situation we don’t want to be in. (para 2)
  • Notification about GM convening can be done verbally (explaining the invitation text), which notification is certified in writing by the persons who are sending the invitations OR by sending the invitation by post or email if such are provided. We now see that only phone notifications has to be confirmed by second person in writing. Sending emails don’t need to be confirmed. This is huge ground for speculations by the managers who convene GMs (para 3 new)
  • If the owner hasn’t provided email or postal address for receiving invitations, the owner is considered as legally invited for GM pursuant para 1 above. This means that if the owner hasn’t provided email ot postal address, the convening is considered as legal for this owner by only putting a note in a visible public place in the building. (para 4)
  • A major change is removing the ban for convening GMs between 15 July and 15 September. The ban stays only for convening GMs on public holidays (para 8 )

11. Major changes in Art. 14:

  • New amendment has been introduced in connection to representation of owners on GM by their relatives. The relatives need to be registered in the condominium book in order to represent the owner. (new para 1)
  • A pleasant surprise is that lawyers, registered in Bar can represent owners on GM only by using normal power of attorney in writing. No notarization required! (para 3)

12. Changes in Art. 15

  • A 67% quorum is not required in cases of art.17, para 2 point 1-4. This means that most of the important resolutions a quorum is not required. This doesn’t makes sense, but it’s in the law. (para one)
  • If there’s no quorum, the GM is postponed by one hour and can continue only if 33% of the common parts are present. It used to continue with no matter what % is present, now 33% has to be present (para 2)
  • If there’s no 33% on the postponed GM, the GM is convened on the next day. If it is non-working day, the GM is convened on the first working day after that. (para 3 new). On the next day (second postponing), the GM can continue no matter how many owners have attended.

13. Changes to Art. 16:

  • The notice that the GM minutes are ready has to be stuck on a public visible place in the building. A protocol is drafted, evidencing the sticking and it is signed by the manager and one resident/owner. The protocol consists of date and time of the sitcking the notice. A copy of the minutes is provided to owners upon request. Here we have a witness of the anouncing the minutes. This is important for appealing GM resolutions, since if no such sticking is done, or no formal protocol for it is signed, there is a formal legal ground for GM to be stopped from enforcing. (para 7)
  • New changes has been introduced to the start of the term for contesting the GM resolutions. The procedure for sticking the notice to the door is removed from this regulation. The terms starts from the moment of sticking the minutes on the public place in the building. This clause saves time to the manager. Instead of going to each apartment door, they only make one notice in the building. (para 9)

14. Changes in all points of para 2 of Art 17. This concerns the majority for adoption of resolution on important matter:

  • 100% majority is required for construction works for new floors, building attachments or establishing building rights in the common condominium land.
  • 75% majority is required for removing an owner from its property for not more than 3 years period. The % of common parts of the removed owners are not added to those 75% and and taken in consideration.
  • 75% majority is required for usefull expenses and receiving of credits.
  • Few more points are created, specifying majority for resolution on different condominium matters.

15. I’m making this a separate point since the information is important and concerns the common parts calculation – one of the trickiest parts in condominium management. As I wrote before, developers are playing hard with this matter and sometimes lie about what common parts are owned by them and owners. Since a proper credible information about the common areas cannot be obtained  from any government or local authority, this issue becomes very serious. The new paragraphs 4 , 5 and 6 try to bring some light to the subject, but in my opinion it is not enough. It’s unofficial translation, so I apologize if there’s nonsense in some sentences. I’m waiting for the official government translation into English.

(4) (New – SG. 57 of 2011) When the ownership documents of the individual objects in buildings in the condominium property are not specifying the respective shares of common areas, for the purposes of this law, the ideal parts for each individual site is defined as the ratio between the sum of the size of the individual object and storerooms, assigned to the object, divided by the sum of the area of ??all individual objects and assigned storage areas, thereby resulting number is converted into percentages.
(5) (new – SG. 57 of 2011) Under paragraph. 4 the established the ideal parts of common areas are based on data submitted by the owners or information under Art. 23, para. 1, p. 10, where:
1. sum of the percentages of undivided shares of the owners in common areas is not equal to 100;
2. management is carried in each input, and the sum of the percentages of undivided shares to the owners of the common parts in the input is equal to 100.
(6) (new – SG. 57 of 2011) all common parts set out under par. 4 and 5 are approved by the General Assembly by a majority of not less than two thirds of independent objects in the building entrance. The General Assembly may refuse to approve certain common parts only if an error in calculation.

Now, we can see that when the deed doesn’t state percentage, the calculation of each owner common parts percentage is calculated as a ratio between the total area of the owners premises (apartment, basement etc), divided to the sum of all areas of all individual premises the building. The ratio is converted to percentage and that is the common parts percentage which owner can use to vote on GM.

Note on the Owners associations

There are various changes in the law regarding the owners associations, registered according to this law. I’m not going in details about them because I think owners associations are rare in practice. This doesn’t concern the Owners Association, registered pursuant the Not For Profit Organizations Act.

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Are management fees still owed after you sell your apartment

In our lawyer practice in Varna and Black Sea region we face various types of property management contracts. Some of them are drafted professionally by other lawyers and others are done pretty bad by the property developers themselves. Generally there are two types of property management contracts:

  1. Property management contract for the common areas of the condominium and
  2. Property management contract for the individual apartment or other commercial premises in the building

The first type of contract (#1 above) has to be signed by the Management Committee or the Manager of the condominium. The Condominium Management Act stipulates that contracts for management of the common parts of the building are signed by the representative of the condominium BUT ONLY after the contracting party is approved by the General Meeting of the condominium. In case of such contract all owners of apartments and other individual premises in the building are obliged to mind the General Meeting’s resolution. Also in this case “the management contract follows the ownership of the apartment” i.e. if you sell your property the new owner will be obliged to pay any outstanding management fees.

In the second type of contract (#2 above), the legal theory is diverse. The prevailing lawyer’s opinion is that property management of individual apartment is contracted by the owner as individual and therefore any outstanding payments for the management company should be paid by the person who was owner at the moment of signing the contract. This type of management agreement is not considered as part of the ownership, but rather than a separate service rendered to the person.

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General Meetings of the Condominium at Black Sea resorts (Varna, Bourgas etc.)

It appears that the builder’s lobby in the Condominium Management Act has prevailed. The Act was adopted during the property bubble, when all builders had plenty of work and clients. They were trying to predict who they can benefit their further business and how to squeeze more out of the foreign buyers. They were trying to find loopholes and adjust the legislation in a way so their business can be run smoothly. In my opinion one of the loopholes is the ban for convening General Meetings during the summer season.

Art.13  para 8  of Condominium Management Act explicitly states:

(8) Except in urgent cases, a General Assembly shall not be convened during:

1. the period between 15th July and 15th September;

2. days declared as official holidays;

3. days declared as holidays by the Council of Ministers;

As you can see the ban matches the summer season i.e. when all holiday property buyers are going on vacation and stay in they apartments. Oddly and surely very convenient when all condominium members are in the building a General Meeting cannot be convened. In my opinion there should be distinction between summer and winter resorts properties. Unfortunately the law doesn’t make that distinction.

Furthermore, because the owners can’t attend the GMs, they need to authorize solicitors or other third parties. Builders count on the fact that power of attorneys involve costs (depending on the way you choose to notarize the document) and apartment owners don’t bother making PoAs at all. This way the management of the condominium (usually the builder via a local limited company) creates obstacles and ensures themselves a majority on the GM and consequently adopting resolutions in builder’s favour i.e. supporting their post development business.

 

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Land lease – not so common in Bulgaria

When foreigners buy apartments or studios in Bulgaria they are explained that they can buy that property without forming a limited company. This is true, because they are buying only the individual premises in the building and not the land beneath the building. Usually the builders keep the land for themselves by “extracting” the right for building from the land ownership. This enables them ti build (or even sell the right for building to third party) on the land while keeping the land ownership for themselves. Consequently they can sell the building (or individual premises in it) without affecting the land ownership.

Now what happens when new apartment owners come and use their apartments? Owners from UK often compare the property relations with the UK law. The common mistake is that the land beneath the building is regulated by the so called “land lease” rules. According to Wikipedia:

A land lease or ground lease is a lease in which the tenant rents and uses the land, but owns the temporary or permanent buildings and other objects placed upon it.

Unfortunately the legal regulation is completely different. The land is owned by the owner and it is not leased. All rights and obligation for land management are for the owner and not for apartment owners. The only right they have upon the land is the “right for passage” i.e. they are allowed to pass through the land in order to get to their apartments/building.  The owner is obliged to maintain all facilities that are not permanently attached to the land and not owned by third parties. The individual apartment owners are not obliged to maintain the land because it’s neither leased to them nor owned by them.

Because of this difference a lot of problems arise. Builders often try to gain profit over the apartment owners by obliging them to pay land maintenance fees. Unless there is such contract and apartment owners has explicitly agree to pay such fees, everything that builders asks for land maintenance is illegal.

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Condominium problems – common areas calculation often forged

The most recent rip-off scheme used by the Bulgarian (Varna, Bansko, Bourgas etc.) developers is “blackmailing” the foreign investors through property management fees. So how does it work?

The Common Parts issue

Most of the foreign investors have bough their properties off-plan. The developers has sold whatever they can, but there is certain amount of apartments which are still owned by the developer. Since the property bubble has popped, the only money source for the developers is the annual property management fees. The new Condominium Management Act stipulates that the management of the common areas can be assigned to external company with a contract between the condominium and that management  company. Now where’s the catch?

The catch is that the management company shall be chosen by the majority on the General Meeting (GM). The majority is counted on the basis of the common parts, which each premises in the building possess. It’s counted in percentage. Now the problem occurs because the percentage table of contents of common parts is created by the developers themselves.

In our lawyer practice in Varna and in Bulgaria as a whole, we face numerous cases e.g. there are different tables with common areas in the local municipality office, with the notaries who certified the property sales, with the regional office of the National Construction Audit Directorate. This often is made deliberately bu the developers, so the can manipulate the voting on the General Meetings. This gives them advantage to vote for their own management companies and subsequently rip-off the foreign investors. This also provides illegal opportunity to pronounce themselves as Condominium Managers and dispose owners money at their own discretion (often not connected to the management).

So how this common areas problem can be solved? The most straightforward way is to have proper measurement of the building done by court expert. Owners from the building should hire a lawyer/solicitor who will file a claim for establishing the real common areas percentage. After the measurement is done, the court expert can do the proper common areas calculations and will assign the proper percentage to each premises in the building. The court will establish this calculations as legal by issuing a court resolution on that matter.

As from the moment, the court resolution enters into force, the General Meeting of the condominium will have to take the new common areas calculation into consideration.

Electricity and Water Supply Issue

Often the new so called “closed apart complexes” have no properly installed individual meters (both for  electricity and water).There is only one general meter for the whole building which has been registered with contract with the supplier (CEZ, EON, EVN). Foreign investors are told  that they cannot have individual contracts because of various reasuons such as the suppliers don’t want to have individual contracts, the power grid of the building was not planned for higher capacity appliances etc.

The fact is that the developer is ripping off the other property owners by overbilling the utility bills. Since the utility invoice is just one for the whole building one can easily be confused in the calculation of the individual electricity and water consumption.

Some developers are claiming that they are not overbilling, which is correct, but they do something different – they invoice the utility bills to the owners, but take back the VAT from the state over that invoice. This makes the VAT pure profit for them.

Both of the above cases are examples of illegal practice because everyone who charges for electricity and water has to has a license issued by the State Energy and Water Regulatory Commission. Each company which doesn’t possess such license is subject to big fines.

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Changing the property management company

  • 08.12.2009
    • , by 
  • by Milen Hristov
  •   3 Comments

If you are not satisfied with your current property management company, there is a way you can replace it with another, diligent one. The process is regulated by the newly adopted Condominium Ownership Management Act. First you need to know that if you are owner in closed apartment complex, the only valid form of the management agreement is written notarized agreement. Agreement which are simply signed are not legally valid. This agreement shall also be registered with the Land Registry. This is stipulated in Art. 2 of the act:

Article 2. (1) The management of common areas of buildings under condominium ownership arrangements in closed-type residential complexes shall be agreed by written contract with notarially certified signatures, concluded between the investor and the owners of individual units.

Pursuant to the new Condominium Act the condominium is managed by a body called General Assembly of the owners or association of owners. Basically it has the powers of a General Meeting in a company. One of the most important powers the General Assembly of the owners is stipulated in Art.11, para 1 point 11 :

Article 11. (1) The General Assembly:

……….

11. may adopt a decision to assign maintenance works on the common areas of the building to a legal entity or natural person in return for remuneration, also establishing the specific powers of the Managing Council (Manager), which can be assigned for implementation by these persons;

This means that the General Assembly can vote to replace the current property management company with  another one when certain requirements are not met or there is another important reason for that.

You can read the full Condominium Ownership Management Act HERE

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