Buying an apartment always involves a number of unknowns. You want to be able to act quickly, so you don't miss out on a good deal, but you also need to be careful not to make an error of judgment in haste.
This task can seem more complicated in a condominium because of the number of documents to analyze (minutes of general assemblies, accounts, balance sheets, etc.).
To help you speed up your decision-making, here are a few tips that will be valuable before you hand over your final purchase promise.
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First of all, it's worth pointing out that when you buy an apartment in a condominium, you will always receive a series of specific documents and information that are defined by law (article 577-11 of the Belgian Civil Code).
The list of information that the purchaser will receive before submitting an offer (purchase offer or purchase promise), is precisely defined and must be transmitted by the syndic on simple request within fifteen days.
This includes the following information and documents:
1° the amount of working capital and reserves;
2° the amount of any arrears owed by the seller;
3° the status of calls for funds, intended for the reserve fund and decided by the general assembly before the effective date of transfer of ownership;
4° where applicable, a list of any legal proceedings in progress relating to the co-ownership;
5° minutes of ordinary and extraordinary general assembly meetings for the last three years, and periodic statements of charges for the last two years;
6° a copy of the latest balance sheet approved by the last ordinary general assembly.
Together, these documents will give the buyer a clear idea of his exact financial commitment, to the purchase of the property, and in addition to the purchase price as such, also to the approximate periodic charges to be expected for the use of the apartment.
Once the compromise has been signed, he will also receive a certain amount of additional information, which serves to provide an updated view of this financial burden, following any decisions made after the offer date.
1° the amount of conservation, maintenance, repair and refurbishment expenses decided by the general assembly meeting or the managing agent before the effective date of transfer of ownership, but for which payment is requested by the managing agent after that date;
2° a statement of calls for funds, approved by the general assembly meeting before the date of the transfer of ownership and the cost of urgent works for which payment is requested by the managing agent after that date;
3° a statement of costs relating to the acquisition of common areas, decided by the general assembly meeting before the date of transfer of ownership, but for which payment is requested by the managing agent after that date;
4° a statement of certain debts owed by the condominium corporation as a result of disputes that arose before the date of the transfer of ownership, but for which payment is requested by the managing agent after that date.
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The challenge for the buyer is to be able to interpret this information correctly, and to identify what should be taken into consideration before committing himself.
For the purposes of this article, only the information available before the offer to purchase is made will be commented on, since the rest will only be additional information transmitted once the sale has already been concluded.
Here are a few explanations and points to bear in mind in relation to each of the items on the above list.
1° The amount of working capital and reserves;
The seller's share of the reserve fund automatically goes to the buyer.
In practical terms, this means that when you buy the apartment at the agreed price, you automatically own your share of the reserve fund.
For example, if the reserve fund is 100.000€, and your share is 500/10.000, then 5.000€ of the reserve fund is yours, as is your apartment.
Note that this 5.000€ share is in no way refundable to the buyer, since the reserve fund was set up by the condominium to cover any major maintenance work or expenses on the common areas that the condominium will have to deal with.
The advantage for the buyer is that, in the event of actual work being carried out, he or she will benefit from a fund built up by the previous owner(s), without having to contribute or buy back this share at the time of purchase. He is therefore legally entitled to this share.
The seller's share of the working capital, on the other hand, must be repurchased by the buyer.
Once the notary has been informed of the finalization of the sale, the syndic will invoice the new buyer for the amount due.
The syndic will then reimburse the seller for the amount paid by the buyer.
2° The amount of any arrears owed by the seller;
Since 2010, a legal mechanism has been in place so that property managers can attempt to recover the arrears owed by a vendor on the sale of his lot in a condominium.
The syndic will be informed of the sale and will be able to communicate the amount of the arrears to the executing notary (= buyer's notary). For the portion relating to the lot sold (in the event that the seller has several lots in the same property) and to the current financial year as well as the previous financial year, the co-ownership will be deemed a priority creditor (this since the law of 18/6/2018).
In other words, in a scenario where a co-owner's arrears amount to 8.800€, i.e. 4.400€ for each of his two lots in the building, and 1.400€ of this second amount relates to the current period and the previous period, the condominium will be a preferred creditor for the latter amount.
In concrete terms, if the sale is concluded for 200.000€, the notary will be obliged to withhold the 1.400€ for the co-ownership (within the framework of a procedure which must respect certain strict rules and deadlines which will not be detailed in this article).
The remainder of the amount owed by the seller, i.e. 7.400€ in this fictitious case, could remain totally or partially borne by the co- ownership, if other priority creditors had been reimbursed with the remainder of the amount obtained from the sale.
Thus, in a scenario where this debt remains, this amount will represent a loss for the co-ownership, which could give rise to possible costs if the decision is taken to take legal action against the seller.
3° The status of calls for funds, intended for the reserve fund and decided by the general assembly before the effective date of transfer of ownership;
At each regular general assembly, the owners must vote to approve the budget for current expenses for the year. It's up to the syndic to prepare this estimate for the coming year's budget, based on past expenses and considering market trends.
If the disposable amount (= working capital) is no longer sufficient to cover the condominium's cash requirements, either because of rising prices or because the condominium has many defaulters, it may be necessary to increase the working capital to be able to pay suppliers on time.
This is done by means of a working capital call.
As for reserve funds, they are intended to meet specific financing requirements for more extensive work on the condominium, which falls beyond the scope of routine maintenance and consumption expenses, and which are systematically the subject of a specific decision at the general meeting (ordinary and/or extraordinary).
As the reserve fund is acquired by the buyer, the seller cannot be reimbursed for anything already paid before the sale date. Working capital, on the other hand, is not, and the seller thus recovers his share in the event of sale, regardless of the date on which he would have paid his share for a call for funds.
These calls for funds will therefore often generate an additional financial burden for the buyer, which he will have to bear shortly after becoming the owner.
4° Where applicable, a list of any legal proceedings in progress relating to the co-ownership;
It's not uncommon for legal proceedings to include actions taken against defaulting co-owners. The problem for the co-ownership, and hence the prospective buyer, is that as long as the co-ownership has not obtained either a conviction or a discharge of the debts, it is up to the other owners to assume not only the charges of the co-owner(s) in question, but also the additional costs of these proceedings (administrative costs, lawyers, possible supplements from the syndic, etc.).
The unknown factor for the buyer will also be whether it's a condominium where the problem of payment arises on a recurring basis and generates additional fixed costs, so to speak, or whether it's a one-off and therefore negligible problem.
In addition to this classic case, there are other potentially more problematic cases that should attract the buyer's attention:
- In the case of new buildings, it is not uncommon for the co-ownership to take legal action against the property developer when refusing to sign the final acceptance document. In such cases, the buyer must bear in mind that these procedures are often very costly and take a long time to resolve.
- In less frequent cases, and in buildings that are not new constructions, disputes can also arise following renovations carried out in the condominium, especially if the purpose of these renovations was to resolve recurring damage problems, without the intervention having brought any positive results. It should be noted that all works carried out under the supervision of an architect are covered by an obligatory warranty.
5° Minutes of ordinary and extraordinary general assembly meetings for the last three years, and periodic statements of charges for the last two years;
In addition to the above-mentioned information, which the property manager will have specifically transmitted, the minutes of general assemblies and appendices may contain valuable additional information.
These will, of course, include decisions taken by the general assembly concerning the execution of works and their financing (generally via a call for reserve funds), but they may also contain additional information concerning the progress of a legal case, recent changes to the internal rules and regulations, a more complex damage claim requiring a vote, etc.
Utility bills, on the other hand, give an idea of the annual cost of the building, giving the buyer a complete picture of its financial commitment.
The elevator cost, for example, is often quite high. However, it often happens that the share of this item is not distributed according to the 'standard' distribution key (as in, the share represented by the apartment sold over the whole building), but according to a specific distribution key. In many buildings, for example, the ground-floor apartment does not contribute, or contributes proportionately less, to the costs generated by this expense. This type of information can be found in the condominium rules but can also be deduced quite easily by examining the allocation keys used in the utility bills.
A separate article will deal with the different types of condominium bookkeeping and the impact of these choices on owners.
6° A copy of the latest balance sheet approved by the last ordinary general assembly.
The balance sheet will always show the amount of reserve and working capital.
It's important to remember here that a high reserve fund is good news for the buyer, since he won't have to buy back his share, which is automatically acquired. In the event of major works, there will be a smaller budget to put on the table.
The working capital serves as a fund to cover periodic building expenses. The purchaser must buy back his share of the working capital.
The balance sheet also contains other information, such as receivables owed by co-owners to the co-ownership. However, it is difficult to derive relevant information from this, as it is not possible to know from the balance sheet alone exactly what this account is made up of, and hence how long the amounts have been stagnant.