When a block of flats has a property manager, many things are quite straightforward. The property manager takes care of the bills, collecting payments, the reserve fund and paying the communal charges. But what can you do if you don’t have a property manager?
Such situations are not uncommon, particularly in smaller blocks where there are few flat owners and you wish to take over the management of the building yourself. In such cases, the question quickly arises as to where to transfer money for communal expenses and the reserve fund, and how to ensure that this money is kept separate from the individual owner’s personal funds.
Under certain conditions, you can also arrange for the communal funds to be managed through a notary. One option you might consider is holding the money in a notary’s custody.
First, an important distinction: a fiduciary account and notarial custody are not the same thing
The Housing Act stipulates that the funds of the reserve fund must be held in a fiduciary account. In the case of buildings where a property manager has been appointed, the property manager opens and manages this account in their own name but on behalf of the flat owners. The funds of the reserve fund are kept separate from the property manager’s assets.
If you do not have a property manager, however, the flat owners must themselves ensure that the tasks normally falling within the scope of property management are carried out. This applies in particular to buildings where the appointment of a property manager is not mandatory.
Notarial custody is a slightly different arrangement.
A notary may, in accordance with their statutory authority, accept money for safekeeping. In this case, the funds are transferred to a special bank account held by the notary for this purpose. The Chamber of Notaries explains that these funds do not form part of the notary’s assets, and the account is separate from those used by the notary for their own business operations.
This means that notarial custody provides a significant degree of segregation of funds, but is not automatically equivalent to a fiduciary reserve fund account under the Housing Act.
What if your building does not have a property manager?
This is where things get interesting, as the Housing Act (SZ-1) stipulates that in buildings where the appointment of a property manager is not mandatory and no property manager has been appointed, the flat owners must themselves ensure that management tasks are carried out.
In practice, this means that you must agree on who will take care of the matters usually handled by a property manager. This includes organising maintenance, paying communal charges, keeping records and other tasks related to the management of the building.
It is very important that communal funds are not mixed with the personal funds of any of the flat owners.
And this is precisely where the issue of notarial escrow may arise.
When holding funds in custody, the notary sets out the conditions under which the funds will be paid out to the beneficiary or returned to the depositor. These rules are recorded in the notarial deed, and the funds are held in a separate custody account.
Why is it important to keep your shared funds separate in the first place?
Imagine a small block of flats with four flats. You agree to take care of the building’s maintenance yourselves. Every month, you pay a set amount towards future repairs to the roof, the façade, shared electricity costs and other maintenance work.
The simplest solution would be to collect the money in one of your personal accounts. At first glance, this seems practical. In practice, however, problems can quickly arise.
What happens if that owner moves out? What if they die, their account is subject to enforcement proceedings, or disagreements arise amongst the flat owners? What if, in a few years’ time, you need to prove how much each person has paid in?
It is therefore essential that the common funds are clearly separated from the personal assets of individual owners.
This is precisely one of the key advantages of fiduciary or custodial forms of asset management. The Bank of Slovenia also explains that funds held in a custodial or fiduciary account are treated separately from the other assets of the person holding the account.
So, can we place our joint funds in notarial custody?
You may wish to explore this as one possible solution, but a distinction must be made between notarial custody and the statutory fiduciary account for the reserve fund.
The Chamber of Notaries expressly permits the safekeeping of money with a notary. In this case, the rules and conditions for disbursement are set out in the notarial record.
However, it does not follow from the provisions of the Notaries Act (SZ-1) that a notary could simply assume the role of administrator and open a fiduciary account for the reserve fund in their place.
This is an important distinction that you need to be aware of before deciding on such an arrangement as flat owners.
If you wish to use notarial custody for funds that you collect jointly as flat owners, it therefore makes sense to check in advance with your chosen notary whether this specific arrangement is feasible and under what conditions.
What if you don’t want a property manager at all?
In the case of smaller blocks of flats, self-management can make perfect sense if you can reach an agreement amongst yourselves and are prepared to take on the responsibilities that would otherwise be carried out by a property manager.
However, it is important to bear in mind that the absence of a property manager does not mean there are no rules.
If your building is of such a nature that a property manager is required by law – that is, if it has more than two flat owners and more than eight separate units – you, as the flat owners, must appoint one. If appointing a property manager is not mandatory, however, you must ensure that management tasks are carried out yourselves.
It is therefore a good idea to check the following before making a decision:
- how many flat owners and individual units there are in the building,
- whether a reserve fund is compulsory,
- whether a property manager is required by law,
- who will cover running costs,
- who will keep records of payments,
- how you will make decisions,
- where you will transfer funds to, and
- how access to the communal funds will be organised.
Communal areas of a multi-unit residential building in Rožna Dolina
Ultimately, one thing is particularly important
If you decide to manage your building yourselves, organising the communal funds should be one of the first things you sort out. Although using one of your personal accounts may be the simplest solution, it is not the most transparent in the long term. Keeping the funds separate gives you greater transparency and reduces the risk of the communal funds becoming mixed up with the personal assets of individual owners.
Notarial custody may be an attractive option if you wish to place your joint funds in safe and clearly defined custody; however, it should not be equated with a fiduciary reserve fund account, which is governed by the Housing Act. Before setting up such an arrangement, it is therefore best to check the specific situation with a notary or legal expert. This will ensure you know which solution is actually suitable for your building and complies with the applicable regulations. For more up-to-date information, follow us, call us on 040 626 131 or email us at tajništvo@bazarealestate.com.
This article is for information purposes only and does not constitute legal advice. When it comes to the specific arrangements for managing a block of flats and handling the reserve fund, we recommend checking the current legislation and consulting a relevant expert.
