Managing the common cause
Another area addressed in this series of articles on “Joint ownership” is the section on the regulation of the rights and obligations of joint owners in the management of the common property. Co-ownership of a thing is a very frequent institution regulating property rights, but it is worth noting that the frequency of this institution is matched by the number of disputes that are associated with it. So how is the management of the common property regulated by law, or how should the rights and obligations relating to the management of the common property be defined in more detail?
Management of the common property means the exercise of the right of ownership of the common property by each of the co-owners. The ways of dealing with the common property are broad, including the right to use the common property, to enjoy it, to encumber it for the benefit of a third party (for example, by a right of pledge or the creation of an easement in the case of immovable property), to lease the common property or part of it, to destroy it, to sell it, to donate it, etc.
In principle, the administration of the common cause can be carried out in three modes, namely:
- in the legal regime;
- under the regime of a common management agreement;
- in a regime based on a court decision.
Statutory management regime
Act No. 89/2012 Coll., the Civil Code, as amended (hereinafter referred to as the “Civil Code“) provides for the administration of the common property in such a way that, pursuant to Section 1126 of the Civil Code, each co-owner is entitled and obliged to participate in the administration of the common property. The co-owners must always decide on the method of management of the common property, and the votes of the co-owners in the decision are counted according to the size of their shares, which ensures that the decision reflects the weight of the individual shares.
All legal acts concerning the common property bind all co-owners jointly and severally. This means that each co-owner is equally liable for obligations arising in connection with the common property. The law distinguishes between types of decisions according to their weight, which in effect means that each type of decision needs to be decided by a majority with different numbers of votes.
Making decisions on routine administration
Ordinary management means, for example, deciding how to use the common property, maintaining and adapting it, deciding on the appointment of a manager of the common property, or issues related to securing income and expenses related to the rental of the common property.
The ordinary administration of the common property requires the decision of a simple majority of the co-owners. This does not necessarily mean that all co-owners must participate in the decision, but for any decision to have legal effect, all co-owners must always be informed of the need to make a decision. The exception to this rule is urgent matters which require immediate action.
If a situation arises where one of the co-owners has not been informed in time of the need to decide on urgent matters and cannot fairly be required to endure such a decision, such an omitted co-owner may, within thirty days, apply to the court for a declaration that the decision on the urgent matter has no legal effect against him (i.e. that he is not bound by it).
Deciding on important matters
A decision on a significant matter relating to the common property, in particular on its substantial improvement or deterioration, on a change of its purpose or on its treatment, requires at least a two-thirds majority vote of the co-owners. The case-law considers important changes to the purpose of the common property to be important changes to the common property, for example, which it has interpreted as “cases where there is either a temporary or permanent change in the economic use of the common property”.
If there is disagreement between the co-owners on a significant matter, i.e. if the necessary majority of votes is not reached, the court may decide on the matter on the proposal of one of the co-owners.
A special group of important matters are decisions whereby the common property is to be encumbered or unencumbered, and decisions whereby the rights of the co-owners are to be limited for a period of more than ten years – in which case the consent of all co-owners is required.
Scheme based on an agreement for the management of immovable property
If the co-owners wish to administer the common property in a different way than provided for in the Civil Code, they may agree on a different regime for the administration of the common property. This procedure is, of course, the most advisable, as the law does not lay down any requirements for the content of the agreement on the management of the common property and the co-owners are thus almost unrestricted in setting up the mechanisms by which they will manage the common property. In particular, the scope of the rights and obligations of the individual co-owners, the method of voting on the management, the conditions for the election and dismissal of the administrator of the common property and, last but not least, the regulation of the financial settlement related to the management of the common property are all relevant. By means of a suitably chosen, individualised and sufficiently specific agreement on the management of the immovable property, the co-owners can avoid co-ownership disputes, which are caused by the relatively strict regulation of the statutory management regime.
The formalities for an agreement on the management of the common property are not prescribed by law, with one exception, however, which is matters relating to immovable property. In such a case, the law requires that the agreement be drawn up in the form of a public deed (notarial deed), which, for reasons of material publicity, is entered in the collection of deeds kept by the Land Registry. The reason for this form of agreement on the management of immovable property is the interest in the protection of third parties and the penalty for failure to comply with this form is the absolute nullity of the agreement on the management of the common property.
Regime based on a court decision
The last way in which the legal relations of co-owners can be regulated is by a court decision. The court has the power to adjust the relations of the co-owners on the basis of an action brought by one of them, so that the relations of the co-owners are adjusted in a fair manner and so that easier disposal of the common property is facilitated in the future. According to the case-law, a reasonable discretion is a decision which is rational, does not hinder the further peaceful coexistence of the co-owners and does not give rise to further conflicts between the co-owners.
In particular, the law envisages the following situations in which the court will decide on the relations of the co-owners:
- A situation where a co-owner has been omitted from a decision on an urgent matter of routine administration of a decision on a significant matter and by his application to the court seeks a ruling that such a decision has no legal effect against him;
- A situation where a co-owner has been outvoted by the majority in deciding an important matter and by his motion to the court he seeks to have the court decide the matter itself;
- A situation where a co-owner has been outvoted by the majority in a decision on a routine management or significant matter and by his or her petition to the court seeks to have that decision overturned by the court.
However, it is clear from the above that situations in which a court decides on the application of one of the co-owners require the filing of a lawsuit against the court and therefore it is a classic dispute procedure, in which all co-owners will always be parties and such a solution is typically time-consuming and costly.
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This article is for informational purposes only and does not constitute legal advice or guidance for any particular case.