Newsletter of Ruster Immobilien GmbH, Issue 1/2016

Dear customers and property owners,

In our continuing efforts to shed light on our property management duties by providing our customers with insights into the latest developments as they unfold, we at the Rustler Group have begun issuing regular editions of our owners’ newsletter.

As your trusted partner on all matters related to property management, we would like to keep you informed of any and all interesting developments in order to ensure that you are updated on important issues such as the Condominium Act or special rent management.

Due to our involvement with numerous newly developed owners’ communities in our role as First Administrator, we seek to examine the topics with which we are particularly acquainted. This allows us to facilitate the path for new members into an owner’s community.

In addition to the general property management business, another of our key tasks is the planning and advising of owners with regard to the sound accrual of reserve funds. You will also find information about that here.

Furthermore, the successful execution of the annual meeting requires preparation and skill in the management, not only on the part of the property manager, but also on the part of the owners as they are often asked to participate in long and, from time to time, contentious discussions concerning the casting of votes. Hence, we pay especially close attention to this issue, particularly in the event of a recent decision by the Federal Court of Justice.

Finally, in order to promote understanding of the fact that, as a rule, the property manager must limit him/herself to the judiciary decisions which have already been taken, and in light of the fact that there is often little room left for the documenting of individual contributions made during a meeting, we devote ourselves to following a proper decision-making protocol.

Yours sincerely,

Matthias Jeckstaedt

Inhaltsangabe:

1. Beginning of the owner’s community according to the Condominium Act

2. An important aspect of proper management: The development and preservation of the reserve fund

3. Recall of the voting during the owner’s meeting?

1. Beginning of the owner’s community according to the Condominium Act

   For the so-called advance division of existing rent houses under §8 Condominium Act, a developer or other owner of a house carries out the subdivision and development of single condominiums for subsequent sales.

   After the building authorities have issued the separation certificate and the declaration of division has been notarized, then the buyers can make a purchase. Nevertheless, even then, no owners’ community exists within the meaning of the law. This requires additional legal steps. Only with the closing of the land register page for the undivided house and the arrangement of single land register pages by the competent district court for every single flat, the registration of a so-called conveyance reservation in department 2 of the land register of the first flat, payment of the purchase price for this flat and the handing over of the first flat to the buyers, can, legally speaking, a developing owner’s community become an owner’s community.

   From this time, a housing subsidy is owed and the economic plan is put into execution. Up until this time, the buyers are not yet obliged to make housing subsidy payments, as the costs are offset against the previously existing rented house. According to at which point in time the individual buyers’ transfer of ownership occurs, varying lengths of time may pass until the revival of the condominium community, particularly with respect to the existence of any housing benefit requirements.

   Therefore, the first fiscal year is considered to be either during the course of the year or extends, by way of exception, beyond the turn of the year. In accordance with the law, the owner always receives the bill the following year or the year after. This is done at the time when the entry in the land register is made, as this mostly results in the situation that the buyer and not the seller also receives the initial accounting for the previous period.

   According to the regulations of the Condominium Act, all matters related to condominiums are handled at the annual owner’s meeting in compliance with the §23 I Condominium Acts. The owners of the housing development are invited to this meeting. The law speaks about the meeting of the condominiums in every respect in the §§23 I, 24 and 25 Condominium Acts. Ownership of properties and the rights equivalent to real property such as special property, including special rights of use originate, according to §891 Civil Code, from prior agreement on the transfer of property and the subsequent registration of the new owner in department I of the condominium register. In terms of §25 paragraph 2 of the Condominium Act the condominium owner is, therefore, the person who is registered in the land register.

   This substitutes for the handing over of the purchased item for the purposes of the abstraction principle and documents the transfer of property for any and all third parties. This also clarifies the question as to who the owner is with regards to legal dealings and the Condominium Act. In addition, this determines who receives an invitation to the meeting of the owners. Hence, up to the transfer of ownership, the previous owner, who may also still be the seller, can be invited. Only after the transfer of the new owner in the land register does the buyer become the new owner. Nevertheless, oftentimes this is already resolved, as it usually states in the notarial bills of sale that the buyer is authorized by the seller to take part in the meeting.

2. An important aspect of proper management: The development and preservation of the reserve fund

   All buildings and facilities are subject to wear and tear. This comes in addition to the changing demands under public law, for example those related to energy conservation or for the adaptation to changed living conditions. The whole lot of these measures is connected with costs that every property repeatedly incurs during its life cycle. In contrast to real estate for private use, i.e. as in the case of the classic private home, the members of an owner’s community are dependant, to a certain extent, on the vote of their co-owners, as well as on the economic efficiency of the remaining owners and, lastly, on the skill and professionalism of the property manager.

   According to §21 Condominium Act (Condominium Act), the accrual of an adequate reserve fund is part and parcel of proper management as it is in the interest of all owners. This means that the owners, as represented by the management, are obliged to save money for measures related to the maintenance of the common property.

   The term reserve fund refers to a part of the managing assets of all the owners who are entitled to them as members of a community of joint owners. This means for them that, ideally, they are entitled to a portion of these assets. However, all owners, as represented by the management, have access to these assets. In case of the purchase or sale of a condominium, this portion remains in the purview of the owner’s community. Hence, the community cannot possibly pay the seller of a flat from the allotted portion of a co-ownership share. However, during sales negotiations, it might be worth mentioning that one has access to a well endowed reserve fund as this could be used to increase the purchase price.
   The law does not stipulate the obligatory amount of the reserve. Nevertheless, certain principles and formulas have been developed in regards to these assets under tenancy and/or case laws. The correct valuation depends on the age and condition of the real estate. The property manager usually explains this to the owners as part of the preparation of the economic plan. In the absence of a regulation in the Condominium Act, it is incumbent upon the owners to determine where the reserve fund is to be held. According to section 27 I Nr. 6 of the Condominium Act, this is the responsibility of the property manager. Although every attempt should be made to maximize the type of investment, property managers are obliged to, first and foremost, invest safely and not speculatively. At the same time, however, they must also ensure short-term availability to funds in case of need. As a result, most reserves are kept, with good reason, in current or instant access saving accounts. In addition, the legal obligation is supplemented by the securing of credit through the deposit protection fund for all banks in Germany.

3. Recall of the voting during the owner’s meeting?

   Essentially, depending on the size, importance or complexity of a meeting, owners may vote in various ways. For example, participants can vote by using a hand signal, submitting a voting card, or even, occasionally, electronically or confidentially. Nevertheless, with all these volitions at the meeting one thing is important; they have to be clearly recognizable and unequivocal, both for the chairperson of the meeting as well as for the other co-owners. This ensures that they can be recorded. Thus, the chair people of the meeting attach great importance to the model of the vote, which is often perceived as being very formal.
   The vote by show of hands is certainly the most common kind of vote at most meetings. The Federal Court of Justice recently had to deal with the question of what should be considered valid, in the event that, during a vote, an owner wishes to remain undecided, or even change his/her vote, after expressing his/her volition.

   The case concerned a vote by voting card that had a fundamental significance for all owners’ meetings. The issue at hand was whether or not it would be possible to, after the submission of the vocal card or the registering and counting of the raised hands, change a “No vote” into a “Yes” or “abstention” vote.

   The court has clarified here that, from the moment the chairperson of the meeting has unambiguously performed the casting of votes, mainly by count, and the vote has been cast according to lawful regulations, it cannot be revoked. Therefore, once a hand has been raised or a ballot has been cast, it is no longer possible for an owner to change his/her vote.

   In regards to the voting process this means that, after the pertinent item on the agenda has been invoked, all questions and arguments should be conclusively discussed. At the end of this process, the chairperson of the meeting will close the debate and begin the vote. No subsequent requests to speak can be made until the voting process has been completed. This means that the owners must have reached enough of a consensus so as to allow for the carrying out of a subsequent unequivocal casting of votes. A recall of a given vote on the part of the owner is no longer possible according to current case law. (Federal Supreme Court judgment v. 13.07.2012, V of ZR 254/11)