Role and importance of homeowners association in Georgia

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Role and importance of homeowners association in Georgia

“The way forward for reforms in the housing sector: empowering grass-root homeowners associations in Azerbaijan, Belarus, Georgia, Moldova and Ukraine�

2017


Table of contents

Introduction ............................................................................................................................. .................................. 1 Legal analysis of legislation ......................................................................................................................................2 Practice analysis ...................................................................................................................................................... 3 International law and practice analysis on the example of Germany................................................................... 4 Conclusion ................................................................................................................................................................. 5 Recommendations ............................................................................................................. ........................................6

© Organizations responsible for preparation of the article:   

Local Democracy Agency Georgia; Charity Humanitarian Center “Abkhazeti”; Civil Society Institute.

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Introduction We would like to draw attention to a brief historical overview of the origin of the homeowners association. In Georgia, from the twenties of the XX century, started establishment of cooperatives for consolidation of resources of builders in order to develop home construction. In this context development of legislation for construction business is also related with the same period. A resolution of August 24, 1924, on “Housing Cooperatives”, which was directed to improve living conditions of citizens, considered joint efforts of the state and the population. For this purpose there were established housing cooperatives, which played crucial role in the housing crisis. Function of the same cooperatives included operation and maintenance of existing dwellings. After obtaining independence (1991), mass privatization was declared in Georgia, within the frames of which citizens got their dwelling legalized and given to them in private ownership. Transfer of flats, located in multi-apartment living blocks, from state into private ownership led to rising of both individual and common responsibilities for building maintenance. A Cooperation Agreement was selected as a form of management of mentioned joint activity, common property. In general, the Cooperation Agreement is a common practice while constructing a house, when several persons build a residential building, which eventually is transferred to them in private ownership. Since the independence, the issue of associations was governed by the Civil Code. At present, the law of Georgia on “Homeowners Association”, adopted in 2007, is in force. In neighboring countries there are different forms of common property management within a multi-apartment building. Homeowners associations, as the union of owners, is just one of many forms of an association. As for Germany and France, there is a law on “Homeowners Union”, which regulates common property management rules. In a multi-apartment building it is a homeowners association that provides common property management. It is responsible for overseeing maintenance of the building, provision of appropriate conditions, solution of existing technical problems and any other activity, which is necessary for its effective functioning and development. Legal analysis of legislation In 2007, a bill on “Homeowners Association” was initiated at the Parliament of Georgia. At the time, relations among home owners were governed by the Civil Code of Georgia (Articles 208-232). In the Code, forms of homeowners association were not clearly defined. A concept of a home, determined in it, contained combination of dwellings united only in one system. Thus, it did not apply homes located in so-called Italian yards, which represented isolated dwellings. Because of this, it was impossible at that time to establish a homeowners association in so-called Italian yards. Following from all above, in Georgia in 2007 it was less common to manage and maintain multi-apartment buildings via establishing associations. Considering the above statement it was assumed reasonable in 2007 to adopt a bill on homeowners association. The purpose of the bill was to let homeowners association provide effective legal conditions for exploitation and development of its own assets. The bill envisaged establishment of a homeowners association in accordance with law in

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those multi-apartment buildings, which are located on the same plot of land and consist of more than 2 flats owned individualy. It considered broad notion of an apartment, which included as combination of dwellings united in one system, as well as an isolated dwelling (dwellings), and made it possible to establish a homeowners association in so-called Italian yards. The bill defined capability of a homeowners association to perform non-commercial economic activity and envisaged possibility when a homeowners association is able to transfer the right for using or to sell those roofs, basements and plots of land, which are not in private ownership. The law on associations has also defined the responsibility of a member of a homeowners association, while selling the property, to provide a potential purchaser with complete information about existing or expected liabilities that the homeowners association has. Accordingly, in case of selling an individual property a new owner becomes in charge of unfulfilled liabilities that the homeowners association has. Management of homeowners is performed by a Chairperson, who is chosen by members of the homeowners association and might be a member of the homeowners association or an invited ruler. The Chairperson of the homeowners association acts on the basis of a statute, which is adopted by the homeowners association and outlines basic rules of management of common property of the homeowners association. Individuals, who are bound with the law, benefit from financial outcomes of the homeowners association as long as the law entitles to transfer the right for using or to sell common property of the association, including those roofs, basements and plots of land, which are not in private ownership, and thus to get respective income. The law also envisages possibility of setting membership fees by the homeowners association in order to ensure maintenance and development of common property of the association. As you may know, the homeowners association is not a legal entity. It is a union of owners of residential and nonresidential spaces, including those used for commercial purposes, at a multi-apartment building. In turn multi-apartment building is a house that consists of an individual property object, existing on two or more neighboring plots of land. The purpose of setting up the homeowners association is to maintain, exploit, develop and manage profitably common property of the association, which has to bring an additional benefit to the association. Besides, solution, in a pre-defined and civilized manner, of those issues, which are problematic in relations among neighbors. The homeowners association is not a result of a free will manifestation of its members. A membership of the association is a reality conditioned by the objective circumstance to satisfy elementary household and livelihood requirements. While the reality is that besides their apartments or other type of individual property, residents have also shared spaces. Therefore, the Law on Homeowners Association envisages creation of two types of association - 1. Associations in multiapartment buildings, homeowners association and 2. Individual living houses association. The homeowners association has tasks, objectively derived from its nature, which fact is conditioned with necessity of maintenance of common property. The tasks of the homeowners association are: maintenance, exploitation and development of common property.

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Introduction of the law into practice As noted above, since 2007, creation and functioning of the homeowners association are governed by the Law of Georgia on “Homeowners Association”. After almost ten years, since the law came into force, it is already possible to discuss about successes, achieved during an implementation stage, and shortcomings. Current practice shows that regulation of this subject through the specific law has significantly increased the number of registration of associations. For example, in the capital of Georgia in 2015 there were up to 9000 homeowners associations registered, while before adoption of the law this number was a quarter of the current figure. Scope of existing problems gets broader in line with increase of number of registration of associations. Necessity of sharing an international experience has emerged. The EU-funded project „HOME- the way forward for reforms in the housing sector: empowering grass-root homeowners associations in Azerbaijan, Belarus, Georgia, Moldova and Ukraine” with the lead of „Housing Initiative for Eastern Europe (IWO)” promotes improvement of a lower-level management in a housing management sector since 2015 in Tbilisi, Kutaisi and Batumi. This is particularly where homeowners associations and enhancement of their role are considered. For this purpose, within the framework of the project, in three the most populous cities of Georgia there have been established Technical Advisory Centres (TACs), which provide technical and legal assistance to homeowners associations. Beneficiaries are regularly provided with trainings within the frames of the project. Partner organizations involved in the project support effective reforms in a housing sector through a variety of informative and educational measures. Within the framework of the project in Tbilisi, Kutaisi and Batumi existing practice of housing management has been studied, as a result of which best practices and current challenges have been identified in this field. On the basis of existing practice achievements in terms of both management and buildings maintenance are obvious as in case of old buildings, as well as in regard to newly constructed multi-apartment residential houses. Successful solution of issues discussed by the homeowners association of any given residential house is directly linked with involvement of its Chairperson and members. On the other hand, there has been a general problem revealed on the example of both low-income and high-income homeowners: non-payment of membership fees, non-attendance of general meetings and similar defaults that impede proper functioning of homeowners associations. At this stage homeowners associations face issues of legal, management, social, communication and technical character, successful solution of which conditions strengthening of this institution and improvement of housing management in the country. Among the issues of legal character, related to homeowners associations, it is noteworthy to mention that according to the law adopted in 2007, members of the association do not choose to participate in it, because the law establishes the association if there is more than one homeowner (individual or legal entity) in a multi-apartment house. By the decision of the Constitutional Court of Georgia (#2/2/439), made on September 15, 2009, those provisions of the law, which “automatically” establish the homeowners association, are not considered to be unconstitutional and do not restrict freedom of association.

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The homeowners association is not a legal entity. Income, which is generated by it, may be utilized only for its development purposes. In spite of this, it has the right to open a bank account and is responsible for a debt, if any. Nowadays more and more homeowners associations attempt to have a bank account in order to ensure more transparency while collecting membership fees and incurring expenses. During almost ten years of functioning of the law there are also accumulated various types of disputes, which are connected with obtaining the right of management of common property among individuals and legal entities, member of the homeowners association. In terms of a management of the homeowners association it is worthwhile to point out calling a general meeting, the role of a Chairperson and a rule for decision-making. The Chairperson is elected in accordance with the rule, regulated by the statute. Existing practice of homeowners association shows that in many cases decision-making is complicated, because it requires 2/3 of votes in case of general issues and consent of all members if more substantial issues are reviewed. Accordingly, adoption of many issues are delayed when all members or two-thirds are not present. This situation contributes to the illegal practice of falsification of signatures, which has subsequently become a subject of litigation. Facts that were mentioned hereby rise necessity of provision of a higher level transparency of the homeowners association. Besides, activities during the pre-election campaign and political agitation performed by leaders create mistrust towards the position of a Chairperson of the homeowners association. Accordingly, the priority of Chairpersons of existing homeowners associations must become de-politicization, transparency, effective communication and problem-solving orientation. It is also interesting to view the issue of relation among local self-government and homeowners associations. Registration of the homeowners association at a local municipality enables it to take part in various co-funded programs. These programs are mainly related to different needs of a residential building, such as renovation, replacement of the elevator, etc. Municipalities have certain program allocations to support homeowners associations. Considering current social background it is impossible for the majority of population so far to cover multi-apartment house repair works with their own funds. Accordingly, co-funded programs of local self-governments are on demand. In this regard, it is worth noting the fact that criteria for this type of support must be improved in order to fund residential buildings with the most urgent needs. International law and practice analysis on the example of Germany Legislation of Georgia, in the context of regulation, organization and development of housing economy, refers on legislation of Germany and, therefore, we review the experience of Germany in terms of housing management and organization.

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In Germany 52% of residential units are dwellings. With the account of the year 2011, there are 18,1 million residential buildings registered in the Federal Republic of Germany, this is approximately 40,5 million dwellings. According to German legislation, homeowners at a multi-apartment house, which may consist of minimum two flats, establish homeowners union in order to ensure joint management and maintenance of common property of the building and other various elements. The following are basic characteristics of German housing management:  According to German legislation a person automatically becomes a member of the homeowners association upon becoming a homeowner, none of the homeowners has the right to refuse the membership; All homeowners jointly establish the association. The homeowners association takes joint responsibility on common property, while members of the association take the responsibility on common property in accordance with their share; General meeting of members represents highest body of the homeowners association and takes all the important decisions; As a rule, majority of homeowners associations do not govern the house jointly. At the general meeting of the homeowners association members take a decision and elect qualified and professional property manager, who manages the homeowners association based on a contract. The manager is in charge of implementation of decisions taken at the general meeting as well as performs other activities, stipulated by the contract;  Expenses that are connected with management and maintenance of common property/assets are reimbursed by homeowners in accordance with their share;  Members of the homeowners association select advisors among themselves (minimum three) who are entitled to provide consultation and support to the property manager. A basic law that regulates the housing sector is “the law on residential property”, which operates since 1951 in Germany, last adjustment was made in 2014. The following are important points, which further demonstrate importance of the homeowners association in the field of housing management: 

While selling a flat the owner is obliged to seek agreement from the other owners or the third party (managing company). Refusal to sell is possible only in the case of acceptable conditions;1

Common owners may require from the owner to sell the flat in case if the owner doesn’t fulfil committed responsibilities to the level when cohabitation becomes impossible;2

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The property manager is obliged to call general meeting if one-fourth of the owners requires it. This has to be done in a written form and the purpose of the meeting and a reason for calling must be indicated;3

Rights and responsibilities of the property manager are specified in the contract and none of the owners (advisors) has the right to restrict the ruler in his/her actions, particularly in regard to implementation of decisions of the general meeting.

In case of selling a flat the owner has to obtain consent from all other owners or a third party (for example a managing company).

Refusal to sell is allowed only in the case when valid reason exists (“The law on housing property”, §12). 2

Common owners may require from the owner to sell the flat in case if the owner doesn’t fulfil committed responsibilities to the level when

cohabitation becomes impossible (§18) 3

Decision, made out of the general meeting, is valid if it is confirmed by all owners in writing (“The law on housing property”, § 23, paragraph 3).

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During familiarizing with the legislation and practice of Germany it was revealed that the homeowners association in many cases hires the management company, which takes care of a common property of the homeowners association. Relations between these two sides are governed by regulatory norms for contractual relations stipulated by the Civil Code. While with owners and individual property declaration (hereinafter the declaration) is signed individually, in which detailed description is provided about property of the individual owner, share, area and boundaries of the land that the owner possesses. Besides, the declaration separates boundaries of individual and common properties, residential and nonresidential areas and at the end it determines the role of each owner in terms of maintenance of common property/assets. In accordance with the legislation of Germany, owners of residential building are obliged to provide monthly contribution to establish a residential building fund, which is meant to be used for current and capital repairs of the residential building, as well as for its future development. The amount of a monthly contribution is determined at the general meeting based on shares of owners. Recommendations  Assuming rights and responsibilities of homeowners by citizens. A membership fee collection problems encountered in practice in case of both low-income and high-income buildings. This gives the ground to suppose that avoiding improvement of the building and maintaining the order are not connected with income of homeowners, but rather they are linked with assuming rights and responsibilities of homeowners by them. The owner, who is aware of his/her own rights and responsibilities, takes care of his/her private and common property;  In case of non-payment of membership fees to reduce minimum debt in order to start compulsory enforcement measures;  Raising awareness of Chairpersons of homeowners associations and provision of technical knowledge to them. Informing Chairpersons of homeowners associations about housing management issues is necessary. Besides, it is desirable to raise awareness among Chairpersons of homeowners associations regarding energy efficiency, environment without barriers, modern innovations of buildings maintenance, in order to enable them to transfer this information to homeowners and to carry out activities for retaining and improving housing fund. Defining criteria for selection of Chairpersons of homeowners associations;  Elaboration of targeted programs from governance side, which would be based on existing needs. It is recommended to create a unified web database of homeowners associations in order to ensure transparency of housing management projects and public involvement;  For further development of homeowners associations it is useful to share national and international experiences; active dialogue with civic, educational and non-governmental sectors.

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