Co-operative housing as an alternative to private ownership? Fears of expropriation are unnecessary, property can be protected
Co-operative housing has a tradition lasting more than 100 years, yet developers have virtually resigned themselves to building co-operative properties. One of the reasons is the frequent fear of misappropriation of cooperative funds. However, attorney Pavel Strnad from AK Polverini Strnad points out that this can be very well taken care of with bank financing. From the point of view of legal protection of assets, there is no need to worry.
“For buyers, cooperative housing is a more affordable alternative and for tradesmen, for example, it is often the only way to buy a new property, because they cannot get a mortgage due to the high regulation. There is no need to look for new models like rent-to-own, which we have no experience of, when we have a time-tested form of ownership that can be well secured legally. The frequent fear of misappropriation of the cooperative’s funds can be practically eliminated, for example, by involving bank financing, the need for which is almost always there,” says attorney Pavel Strnad of the Polverini Strnad Law Firm.
In the case of bank financing of real estate construction, the risk that the cooperative’s authorities would illegally dispose of its property – for example, by encumbering it with a loan or even stealing it – is virtually eliminated. Several control mechanisms are in place in the case of bank financing. “The key is that the cooperative’s assets are pledged to the bank to the extent of the loan and other claims. Thus, no one – not even the cooperative’s management – can dispose of it without the bank’s express consent,” says Strnad.
Cooperative housing can have a number of advantages. The key for the buyer is that they do not have to deal with financing the property through a mortgage and thus does not have to meet the limits set by the Czech National Bank, such as the ratio of the applicant’s total debt to his net annual income, which is now 8.5 times the applicant’s annual income. The property is repaid by the member directly to the cooperative. The loan for the property is taken out by the cooperative and can have a term of up to 40 years, which is ten years longer than the maximum term for a mortgage. This will also significantly reduce the amount of the homebuyer’s monthly payment.
