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Owners’ associations; wake up!

29

September

2016

Many owners’ associations do not function well or are resting on their laurels. The mandatory contribution is not being collected and no funds are being set aside for maintenance. Maintenance plans are not being made; in short, owners’ associations exist, but they are hardly active at all.

The result of this lax attitude is that the buildings and apartments that fall under the owners’ associations’ care are poorly maintained. When there is no sound maintenance plan in place, maintenance is not carried out at the right times or at all. When maintenance is required, there is often no money available because contributions are too low or have not been collected for years on end. All this leads to the deterioration of the building with all due consequences.

In 2015, a bill was drawn up to improve the functioning of owners’ associations. On the one hand, the bill increases owners’ associations’ options when it comes to carrying out necessary maintenance and, on the other hand, it improves owners’ associations’ options to finance the preservation of their buildings.

In 2008, new regulations required owners’ associations to establish a reserve fund. The goal was to ensure that owners’ associations build up sufficient reserves with which to fund their maintenance activities. Given the fact that no minimum sum was established for the reserve fund at the time, it has hardly led to any progress in practice. In 2012, only 35% of owners’ associations had a multi-year maintenance plan in place – not to mention having sufficient financial reserves.

The bill has now concretised these obligations. The owners’ associations must draw up a multi-year maintenance plan or allocate an annual amount of 0.5% of the reinstatement value of the building to a reserve fund.

The multi-year plan must outline the required maintenance and repair activities, as well as any future renovations. This makes it possible to create an overview of the costs of these activities per year (the multi-year plan must cover a period of at least five years).

If an owners’ association chooses not to draw up a multi-year plan, the requirement to reserve 0.5% of the reinstatement value applies.

The bill also states that it must be recorded that an owners’ association can take out a loan to fund the costs of maintenance (if the reserve fund is insufficient or if more money is required for unforeseen expenses). This establishes the fact that an owners’ association is allowed to take out a loan, although the question remains whether banks and other financial institutions are all that eager to lend money to an owners’ association. Given the fact that the owners’ association’s members are liable to repay the loan, it is also unsure whether members would even agree to taking out a loan. Furthermore, it is highly doubtful whether banks and other financial organisations would be willing to provide financing to an owners’ association, both because of the administrative workload (the banks will want to establish each resident’s liability) and because the question remains what guarantees an owners’ association can offer a bank.

In any case, the new law (assuming it is adopted in its current form) does afford owners’ associations some additional opportunities to set funds aside and draw up maintenance plans. Hopefully, the intended law results in more active owners’ associations, which will, in turn, lead to more buildings receiving proper maintenance.

If you have any questions about the position of the owners’ association, feel free to contact Erwin den Hartog or Pascal Willems.

Written by:
Erwin den Hartog
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