Differences in cooperative and private ownership of apartments

7.9.2017

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If you are considering the purchase of a unit, you can choose out of two options. You can buy a unit owned by a private person, or a share in a housing cooperative that will entitle you to use a particular unit. Both ownership forms have their advantages and disadvantages, and the choice depends on the preferences of each party.

Apartment with a private owner

The ownership title is recorded by the Land Registry, and the authorised person can dispose of the apartment without any restrictions. They can pledge it, rent it, change its layout and furnishing, etc. In blocks of flats, the authorised person is a member of the association, and the decision-making powers are directly proportional to the share. The drawback is that the administration of the association is often complicated, and it is hard to achieve a decision. The members of the statutory body often hold their functions because they are required to, and they do not get involved. In many cases, it is thus difficult to remedy the poor technical condition of the shared areas and the inappropriate conduct of some owners. However, this disadvantage has been reduced because the new Civil Code says that any individual or legal entity can sit on the statutory body without being a member of the association of owners. Associations that are unable to administer themselves can thus hire a professional president, i.e. a company that performs this function for consideration. Another disadvantage of privately owned apartments is that transfers are demanding in terms of time and money. It is necessary to pay the tax on the acquisition of real estate, a fee for the record in the Land Registry, etc. For expensive houses, the expenses are in excess of two hundred thousand crowns. Importantly, association members guarantee debt up to the amount of their share.

Cooperative apartments

If the authorised person uses a unit based on the membership right in a cooperative, they are not the legal owner, but they derive similar benefits. The units are owned by the cooperative. For this reason, such an apartment cannot be mortgaged. This is, however, often offset by the possibility to repay the price of the apartment to the cooperative, which took a loan to finance the construction. Accordingly, to enter the cooperative, the member only pays a small membership fee and then makes regular payments. If the member wants to rent out the unit, the cooperative mostly has to approve the future tenant. In some cases, renting out is impossible, in other cases the approval is a formal matter only. The same holds for any modifications to the unit. The significantly lower demands in terms of time and money when transferring the membership is a great benefit.

Looking at the aforementioned facts, it cannot be clearly said which ownership type is more appropriate. It depends on what a person prefers. Similarly, it cannot be said whether private-owned apartments are more expensive or cheaper than cooperative apartments. If possible, experts should use samples with the same form of ownership when performing a comparative appraisal. If, in specific cases, they see that the different types of ownership do not impact the pricing parameters or of if comparability can be ensured by adequate corrections, it is possible to use samples with different types of ownership.

Author: Jakub Šrámek, Valuation Consultant, e-mail: sramek@apogeo.cz, phone: +420 267 997 752

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