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.