GENERAL ISSUES

An acronym “OSBB” – association of co-owners of a multi-apartment building (condominium) – has already become customary for the citizens of Ukraine. According to different estimates, the condominiums cover now over one fourth  of the residential stock in this country. For fulfillment of common tasks, the condominiums interact between themselves and join together – therefore, nobody is surprised by the term “condominium association” any more. But it appears that the condominium associations may be different and they are established in different organizational and legal forms for fulfillment of different tasks. And though the word “association” can be used in the names of some of them, from the viewpoint of the effective legislation such an association may be not a condominium association, but another organizational and legal form of a legal entity. So, let us look closely at what is really a condominium association according to the effective Ukrainian legislation.

Condominium association status according to Ukrainian legislation. Differences from other organizational and legal forms of the associations of legal entities 

The word “association” is used in practice in the names of legal entities of different organizational and legal forms. Often, the condominium associations envisaged by the Law of Ukraine “On Condominiums” are confused with the business associations (Article 120 of the Commercial Code of Ukraine) and public associations (Law of Ukraine “On Public Associations”).

Instead of burdening this text with detailed description, we present below a concise and simplified comparison of these organizational and legal forms in a table form.

	Condominium association	Business association	Public association
Legislative act	Law of Ukraine “On Condominiums”	Article 120 of the Commercial Code of Ukraine	Law of Ukraine “On Public Associations”
Status	Legal entity	Legal entity	Legal entity / Without legal entity status
Objective, nature of business	Representation of common interests of the condominiums-association members Management of multi-apartment buildings of the condominiums-association members	Representation of interests of the members in relations with power authorities, other companies and organizations Permanent coordination of business activities of the member companies	Exercising and protection of the rights and freedoms, satisfying public, in particular, economic, social, cultural, environmental and other interests
Members	Legal entities (exclusively condominiums)	Legal entities which are companies	Legal entities of any organizational and legal form Individuals

As we see, for real condominium associations, the Law has identified a number of differences from other associations of legal entities, in particular:

•  condominium association is always established as a legal entity,

•  only condominiums can be its members, and

•  its objective and nature of business is representation of common interests of the condominiums, and also it can be management of a multi-apartment building.

These features together characterize a condominium association as a separate organizational and legal form, especially envisaged by the law for a condominium association. A condominium association may perform a specific function not inherent to other associations of legal entities – management of a multi-apartment building.

Why a condominium association is established? 

We have already named above the objective and nature of business of the condominium associations as defined by the Law. It is representation of common interests of the condominiums which are its members, and management of multi-apartment buildings of its members.

According to the objective of condominium establishment and nature of business of those condominiums interests of which the association represents, nature of business of a condominium association includes:

•  performing functions of management of multi-apartment buildings transferred to the association by the decision of general meeting of the condominiums – its members,

•  ensuring proper maintenance, operation and repair of the multi-apartment buildings and building territories of the condominiums-association members,

•  assisting the co-owners of multi-apartment buildings from the condominium association in receiving the housing and communal and other services of proper quality at reasonable prices,

•  ensuring exercising of rights of co-owners of multi-apartment buildings from the condominium association to own and use common property,

•  protection of interests of the condominiums-association members in the state power authorities and local self-government bodies, before other legal entities and individuals, and

•  maintenance, operation and repair of property which satisfies common needs of the co-owners of multi-apartment buildings in the condominium association.

The above list is tentative, and specific charter of a specific condominium association may specify its nature of business more or less. We have presented our recommendations on this in a sample condominium association charter developed by us. But in any event, a peculiarity of the condominium association is the fact that its subject of activities includes not only representation of common interests of the condominiums-association members, but also management of their multi-apartment buildings. This is a basic distinction of a condominium association from business associations and public associations.

Therefore, when several condominiums face the issue of association, first of all they need to identify the objective of such association. If the objective is seen as exclusively representation and protection (“lobbying”) of common condominium interests, it is better to establish a public association or NGO – then there is no need to even register it as a legal entity. There are numerous examples of successful functioning of such public associations in Ukraine.

But when it is also planned to manage multi-apartment buildings and to maintain them with joint efforts – welcome to a condominium association!

CONDOMINIUM ASSOCIATION MEMBERS

It is clear from the very name “condominium association” that its members are condominiums. Everything is clear with this. But when it comes to organization of relations between the association and its members, there appears a number of practical questions which we will try to answer below.

Status of condominiums-association members

Let us formulate antithesis to three most common mistakes about a condominium association and its members. This will give the best characteristics to the status of the latter.

•  As mentioned above, members of the condominium association are condominiums, and only condominiums. The owners of apartments and non-residential premises in the condominium buildings do not become members of the association, and have no rights and duties of association members;

•  A condominium which joins the association preserves its status of a legal entity. Thus, the condominium management bodies continue functioning and performing their tasks: general meeting, management board (including the chairman of the board), auditing commission. The rights and duties of the co-owners with respect to such condominium are also preserved. Even when the functions on management of a multi-apartment building were transferred to the association;

•  Joining the association by a condominium does not necessarily mean that functions on management of a multi-apartment building are transferred to it. If the condominium general meeting did not adopt a decision on transfer of functions on management of a multi-apartment building to the association, this management will continue to be exercised by the condominium management bodies. For association to manage a condominium building, the condominium general meeting must adopt a decision not only on joining the association, but also on transfer of functions on management of a multi-apartment building to it.

Therefore, joining the association by a condominium does not change anything in the condominium status of a legal entity.

 

IMPORTANT! Joining the association by a condominium does not change anything in the condominium status of a legal entity. For association to manage a condominium building, the condominium general meeting must adopt a decision on transfer of functions on management of a multi-apartment building to the association.

When a condominium association is established, often there arises an issue of "special status" for certain association members: for example, about the rights and duties of those condominiums which are the founders of the association (in comparison with the rights and duties of "ordinary" condominiums which joined the association later). Or it may be proposed to divide the association members into "full" and “associated” members – i.e. into those who delegated management of their multi-apartment buildings to the association, and those who did not delegate. We believe this approach is incorrect as the Law of Ukraine "On Condominiums" does not envisage such division, and there is no even vague basis for this in our opinion. All members of the condominium association have equal rights and duties in it, just like all co-owners of a multi-apartment building have equal rights and duties in the condominium.

As there appear a lot of misunderstandings and speculations about this, let us look in more details at the charter of the condominiums – founders of the association. The Law of Ukraine "On State Registration of Legal Entities, Individual Entrepreneurs and Public Formations" uses in fact a notion of "founders" of a legal entity. In interpretation of this Law, the condominiums which made a decision on establishment of the association are its founders. But they only have a status of founders in connection with taking actions on state registration of the association envisaged by the indicated Law. While the issues of current activities of a condominium association are regulated by the Law of Ukraine "On Condominiums", and it uses exclusively the notion of "association member", without making distinction between the members  that became founders of the association, and its members who joined the association later. Thus, we can say that a status of founders for the condominiums which establish the association exists for them only until its state registration – after this, they are in the status of association members. This position is also reflected in a sample condominium association charter developed by us. 

IMPORTANT!  The Law does not envisage division of the association members into “full” and “associated” members, into founders and "ordinary" members, etc.

Organization of relations between condominium association and its members

The next practical question – what regulates relations between a condominium association and its members? At first glance, an answer is obvious – the Law of Ukraine "On Condominiums" and charter of the association. But the existing condominium associations sometimes practice conclusion of contracts with their members (to be fair, conclusion of such contracts – let us call them conditionally "membership contracts" – is also practiced by other associations of legal entities: some business associations or public associations). But this practice does not comply with the effective legislation, and in future may lead to numerous very practical problems both for the association and for its members.

First, part 2 of Article 8 of the Law of Ukraine "On Condominiums" says simply and clearly that the rights and duties of the association members are set in its charter. Therefore, there is no need in additional documents – like "membership contracts".

Second, conclusion of contracts between the association and its members contradicts the very nature of association as membership organization, relations in which are charter relations (not contractual). Membership relations in the association based on its charter envisage that every member has rights and duties with respect to the association in general, i.e. to its other members as well. Instead, when separate contracts are concluded between the association and its members, it appears that every specific condominium that joined the association seems not to be connected to other association members, it is only in contractual relations with the association itself as a legal entity (i.e., with its management board).

Third, this described incorrect approach also "dilutes" the association psychologically: instead of relations model "us together", relations model "me personally and association management board personally" is formed.

Fourth, conclusion of contracts with the association members raises a number of practical questions about interrelation between such contracts and the association charter:

•  what to do with the "members" with which the management board concluded a "membership contract" without adoption by the general meeting of the decision on admission to membership according to the charter?

•  will the management board be able to ensure identical contents of the contract for all members?

•  what to do if the contract contains list of rights and duties which is different from that identified by the charter?

•  how to bring previously concluded contracts in compliance with a new version of the charter if it is adopted?

•  will termination of the contract mean termination of membership? And will exclusion of members mean termination of the contract?

This list can be continued forever. Though there is just one correct answer to all the questions – the charter always prevails over such contracts. Then why at all conclude the “membership contracts” and provoke misunderstandings?

And fifth, the "membership contract" may be viewed by the state fiscal service as a proof that the association provides certain services to its members (as these contracts usually contain the list of association’s liabilities to its member), which are also paid services (the contract provides for the member’s liability to pay fees to the association). In practice, there are also attempts to accompany these contracts with the "services acceptance certificates"! Experience of some condominiums which made such mistakes demonstrates that the tax officials may require from the association to register as VAT payer, and under certain circumstances – even to divest it of the status of non-profit organization.

We have just reviewed how not to organize relations between a condominium association and its members. Then how these relations should be organized?

First of all, let us remember that a condominium association is a membership organization, and relations in it are charter relations, not contractual relations. Therefore, the association and condominiums – its members should not conclude any "membership contracts".

ATTENTION! Relations of the condominium association and its members are charter relations, not contractual relations!

From the legal viewpoint, for confirmation of membership in the association, it is sufficient to have a protocol (extract from protocol) of the relevant association general meeting where the decision on admission to members was adopted. The copy of this protocol (extract from protocol) should be provided to the newly adopted association members.

In practice, for organizational reasons, it is expedient to issue to the association members the certificates on membership in the association, and copies of the association charter certified by the management board. And instead of “services acceptance certificates” – to provide/distribute to the association members regular reports of the management board on work and use of the association’s funds.

 

CONDOMINIUM ASSOCIATION MANAGEMENT BODIES

The Law of Ukraine "On Condominiums" does not provide direct instructions on composition of the association’s management bodies. Therefore, we will discuss below how a system of the association’s management bodies can be built, and what should be done for this.

Structure of condominium association management bodies

So, the Law of Ukraine "On Condominiums" has not identified the structure of the association’s management bodies. Therefore, let us refer to the Civil Code of Ukraine. Its Article 97 states that "the company’s management bodies are the general meeting of its participants and the executive body, unless otherwise determined by the law". And executive body of the company (according to Article 99 of the Civil Code of Ukraine) may consist of one or several persons.

The condominium association, and the condominiums themselves, are non-entrepreneurial companies, and everything said above applies to it as well. Therefore, the association should have at least the general meeting and executive body (single-person body – director, president, chairman etc., or collegial – management board, directorate etc.). Taking into account that we are talking about condominium association, we believe it is expedient (by analogy with a condominium) to define the management board chaired by a chairman to be the association’s executive body. And, continuing this analogy with a condominium, it is expedient to envisage in the structure of the association’s statutory bodies an auditing commission or auditor.

Therefore, we recommend the following structure of the association’s statutory bodies:

•  general meeting of the association members (highest management body of the association),

•  management board (executive management body of the association), and

•  auditing commission or auditor (controlling body of the association).

Taking into account the above reservations, this structure may also be presented in a different way – but we strongly recommend to follow the structure of the condominium management bodies.

We also recommend to determine the powers of the association management bodies similarly to how the powers of the relevant bodies are defined in the Law of Ukraine "On Condominiums".

Approaches to representation of members in association

Article 8 of the Law of Ukraine "On Condominiums" requires the condominium charter to define “representation from the condominiums”. In connection with this, we see that the charter must answer two questions:

•  who represents in the association a specific condominium-member, including representation at the general meeting?

•  how many votes a specific condominium-association member has at the general meeting?

A legal entity in relations with other legal entities and individuals is represented by its manager. But the relevant functions can also be delegated to another person - representative, with issuing the power of attorney to him/her. Let us stress that in every case it is competence of the condominium management bodies themselves to resolve the issue on who will represent a condominium in the association.

IMPORTANT!  It is competence of the condominium general meeting and/or management board to resolve the issue on who will represent a condominium in the association, not the statutory bodies of the association.

The most important function of a condominium representative (or, let us say, chairman of the board or representative according to the proxy) in the association is participation in the general association meeting.

The law does not define how many votes each condominium-association member has at the general meeting. Therefore, the condominiums which establish the association may resolve this issue at their discretion during establishment – by defining the procedure of votes distribution in the charter (let us remark that every founder has one vote at the statutory meeting of the association – we will tell about this in more detail below when looking at the issue of association establishment).

We suggest for consideration two options of votes distribution between the association members: “one member – one vote” or proportionally to space of the apartments and non-residential premises.

The principle "one member – one vote" is the simplest organization-wise, it ensures equal influence of every condominium on the results of voting at the association general meeting. But attractiveness of this simplicity ends where financial issues begin.

The condominiums-association members have to pay fees for it to carry out the statutory activities. If activities are limited to representation of common interests, amount of fees may be equal, and, respectively, equal may be the number of votes belonging to every association member at the general meeting.

If the association also performs management/maintenance of the buildings of its members, the fees for management and maintenance of buildings will definitely differ depending on total space of the residential and non-residential premises in every condominium. In such conditions, equal number of votes of every association member would cause the situation when "weight" of vote of a specific condominium in adoption of the decisions at the general meeting would not correspond to its financial contribution. For approval of the association budget, this situation is unacceptable because it may cause conflicts between the association members.

To make selection between two above options for votes distribution easier, we will present the recommended selection "matrix":

	Buildings of condominiums-association members are approximately equal in space, the number of buildings in different condominiums is equal	Buildings of condominiums-association members differ in space, the number of buildings in different condominiums is different
Association only represents common interests of its members	"One member – one vote"	"One member – one vote"
Association performs management/maintenance of buildings of its members	"One member – one vote" or Proportionally to space	Proportionally to space

 
We have presented the options for formulation of the relevant provisions of the association charter in sample condominium association charter developed by us.

Approaches to formation of management board and auditing commission of association 

Election of the condominium association management board is an exclusive competence of the general meeting, so the representatives of the condominium members will decide on its personal composition exactly at the general meeting.

The law does not contain any restrictions regarding who may be a member of the association management board (the law in principle allows to deal with just one-person executive body – president, chairman, director, etc.). Therefore, depending on will of the association members, elected to the management board may be both representatives of the condominiums-association members, and “outsiders” whose professional and business qualities are required by the association. The legislation also does not regulate the issue of labor remuneration in the association management board: this work may be performed pro bono, and also may be paid.

A separate issue is "representation" of the association members in the management board. Sometimes, you can hear an opinion that positions of the management board members are "fixed" for certain condominiums, and these condominiums-association members may independently recall or appoint "their" members in the association management board. But this approach is incorrect. As contents of part 1, Article 99 of the Civil Code of Ukraine shows, establishment of the executive body (which is the management board) and identifying its competence and composition is the competence of exclusively general meeting. This means that exclusively the association general meeting identifies personal composition of its management board, and actual transfer of this function to another body or even to another legal entity will contradict the law.

Thus, for example, the chairman of the board of one of the condominiums elected to the association management board will preserve his/her status of the association board member even in the case when he/she is excluded from the management board of his/her own condominium – until he/she is re-elected by the association general meeting. 

In practice, according to agreement between the condominiums-association members, the management board may really include representatives of separate condominiums, and they even can be "rotated". But this is always the issue of consensus between the association members which cannot be fixed in its charter.

IMPORTANT!  Identifying personal composition of the association management board is exclusive competence of the association general meeting. If the chairman of the board of one of the condominiums is elected also to the association management board, replacement of the chairman in this condominium has no impact on composition of the association management board: new chairman of the board of the condominium cannot  "automatically" have a place in the association management board.


Everything said above also refers to the auditing commission of the association. Formally, existence of the auditing commission (auditor) in the condominium is not mandatory, and this was already mentioned above. But, by analogy with the condominium statutory bodies’ structure, we recommend to establish an auditing commission in the association (or to elect an auditor).

Additional/advisory bodies of association 

We view the structure of condominium association statutory bodies described above as the minimum required structure. If necessary, the association may establish other bodies which may perform additional/advisory functions. These bodies should not have competence of the management bodies – association general meeting and management board.

For establishment of the additional/advisory bodies of the association, they should be either directly envisaged by the association charter, or the charter should envisage a possibility of their establishment.

In practice, establishment of these additional bodies is expedient if the association has a need to ensure control over fulfillment of a certain task not "post factum" but in advance. For example, a condominium association establishes the so called revolving fund from which the condominiums-association members receive financing in certain sequence. In this situation, the general meeting may be interested in having oversight over allocation of funding (observance of sequence, fairness, other criteria defined by the general meeting) prior to allocation of funds to a certain recipient, and not after this (as it happens when audits are conducted by the auditing commission once a year). Therefore, it is expedient to establish the so called "supervisory board" which in every specific case will grant permission to the management board to allocate funding from the revolving fund.

ORGANIZATION OF MAINTENANCE OF BUILDINGS OF CONDOMINIUMS-ASSOCIATION MEMBERS

One of distinctive features of the condominium association is an opportunity provided by the law to manage multi-apartment buildings of the condominiums-association members (after decisions of the general meetings of such condominiums, of course). This management is filled with practical contents through maintenance by the association of the buildings and building territories of those condominiums which are members of the association.

Two models are possible in organization of maintenance by the association of multi-apartment buildings of its members, let us call them "centralized" and "distributed" models. The "centralized" model which we will discuss below envisages that the association (both de facto and de jure) maintains the buildings of its members, and has for this the relevant (common) fund. The "distributed" model envisages that though the association management board coordinates work on maintenance of the buildings of condominiums-association members, every condominium has own fund for these purposes and hires separately the relevant employees: one employee is employed at 1/4 rate in four condominiums. From a formal and legal viewpoint, the "distributed" model does not envisage maintenance of the buildings by the association, so we will not discuss it here in detail.

Organization of fee payment by condominium association members

The most important issue in payment of fees to a condominium association is how to organize properly passing of "cash flow" from co-owners to the condominium, and then – to the condominium association, or directly from co-owners to the association, bypassing the condominium?

In connection with this, let us remind that members of the association are condominiums, and not co-owners of multi-apartment buildings. The association has no charter relations with the co-owners. And an obligation to pay fees may be vested by the association charter only with its members, and by the condominium charter – only with the co-owners of its multi-apartment building or buildings. In other words, the condominium association has no legal grounds for receiving fees directly from the co-owners.

Therefore, correct sequence for passing of money will be as follows: first, the co-owners pay their fees to the condominium, then the condominiums-association members pay their fees to the association.

Accordingly, the condominiums-association members must have a bank account to receive fees and to ensure accounting of these fees. Therefore, it is impossible to save on the relevant organizational expenses. Also it should be taken into account that not always and not all fees paid by the co-owners in condominiums will be transferred to the association, i.e., on the condominium level it will be necessary to ensure receipt and accounting of fees paid by the co-owners.

Proceeding from the above, the work on fee collection, including court work, will be performed by the condominiums-association members. The association may take part in such work only on behalf of the condominium, or on its instruction.

For the sake of objectiveness, let us mention that in theory the condominiums-association members could instruct the association to accept their fees from the co-owners and offset them against condominiums’ fees to the association. But this "cash flow" structure will be too complicated and non-transparent legally and organizationally, and the risks which it brings to the association are incomparable to its benefits (savings on bank servicing). Therefore, we do not recommend this model.

Proceeding from the above, there are no issues of cash or non-cash fee payment to the association – the condominiums pay their fees to the association exclusively to its bank account.

Finally let us look at what fees a condominium must pay to the association, and who introduces them. It is clear that the list and amounts of fees for the association members are set by its general meeting. But peculiarity of financing a condominium association is the fact that it receives funds of the co-owners of multi-apartment buildings through their condominiums. And if the association introduces fees for its members, the relevant funds should be planned in the budgets of the condominiums-association members, and the relevant decisions should be taken by the general meetings of such condominiums. Thus, the association’s decision on introduction of a certain fee will just remain "on paper" if it is not "duplicated" on the level of every particular condominium.

Minimum list of condominium fees to the association which maintains the buildings of its members consists of two items:

•  fee for support of the association (administrative personnel salary, stationary and postal expenses, etc.), and

•  fee for maintenance of the buildings of the condominiums-association members.

We believe that amount of the first of these fees may be set both as equal for all association members, and depending on space of the apartments and non-residential premises of their buildings. And the maintenance fee – with taking into account requirements of Article 20 of the Law of Ukraine “On Condominiums” – should be set only proportionally to space of the apartments and non-residential premises in the buildings of the condominiums-association members.

If association members decide to form common repair and reserve funds, the abovementioned list will be supplemented with the relevant fees. 

Association budget and funds

For a condominium association as non-profit organization, it is important to observe the principle of targeted spending of funds of the association.

Remember that subitem 133.4.2, item 133.4, Article 133 of the Tax Code of Ukraine envisages that "income (proceeds) of a non-profit organization shall be used exclusively for financing of expenses for maintenance of such non-profit organization, fulfillment of the objective (goals, tasks) and directions of activities identified by its statutory documents". In other words, spending of funds of a non-profit organization must be targeted and must comply with the statutory objective.

In practice, targeted spending of funds in the association and in the condominium is ensured through annual budget approval by the general meeting, and further spending of funds by the management board only according to expense items identified by such budget. In addition, it is expedient to form the relevant funds of the association, and to account for proceeds and spending of the association funds in them. The association which maintains the buildings of its members must envisage at least:

•  fund for support of the association (formed from the relevant fees of the association members, spent for salaries of the chairman of the board, accountant, other administrative needs), and

•  fund for maintenance of the association buildings (formed from the relevant fees of the association members, spent for the needs of maintenance of their buildings).

The list above is not exhaustive – association members may adopt a decision on formation in it of other funds, for example, common repair fund, or other funds. For example, this link provides sample regulation on the “revolving” fund for financing of the energy efficiency measures in the association. These common funds of the association are something like “mutual aid fund”, in which each of the association members receives in turn access to the accumulated funds.

If there are other sources of proceeds in the association (charitable contributions, easement payments, etc.), it should be envisaged to include them in budget revenues under this or that targeted fund. This approach will ensure, on the one hand, transparency in activities of the association, on the other hand, – compliance with the abovementioned requirements of the Tax Code of Ukraine related to targeted spending of funds.

Formation of condominium association staff

We have mentioned above two models for organization of maintenance by the association of multi-apartment buildings of its members and called them conditionally “centralized” and “distributed”. In fact, the “centralized” model when key personnel is formed in the association, and not distributed among separate condominiums, should be the key model for the association. The elements of “distributed” system may be a supplement to the key work model in the cases when and if this is organizationally and/or financially feasible. For example, the association may have common personnel necessary for maintenance of the buildings of its members, but every condominium must have a separate contract on electricity supply for lighting of common areas.

The issue of accounting is important for the condominium association members. Because after joining the association, the condominium still must maintain accounting and submit tax reporting. Who must do this?

In general, there are several options in organization of accounting in the condominiums-association members. Let us look at the options which are directly recognized by Article 8 of the Law of Ukraine "On Accounting and Financial Reporting in Ukraine":

•  maintenance of accounting by an accountant in condominium staff,

•  services of accounting specialist registered as an individual entrepreneur,

•  maintenance of accounting on contractual basis by a centralized accounting office or audit firm, and

•  independent maintenance of accounting and compilation of reports directly by the condominium chairman of the board.

The most obvious option – every condominium must have an accountant on staff, or one accountant may work simultaneously in several condominiums on the terms of incomplete working day or week (at 1/4, 1/8, 1/16... rate). Or an accountant-entrepreneur may service simultaneously several condominiums. But in this case, every condominium will still have to plan expenses in the budget for accountant’s remuneration – either salary or payment to an entrepreneur according to the contract.

Another option – maintenance of accounting in the condominiums-association members is ensured by the association’s accountant(s). In fact, officially accounting in this approach will be maintained by the managers of legal entities – chairmen of the boards in the condominiums-association members. And actually maintenance of accounting will be provided by the association’s accountants (without them becoming staff of the condominiums) – within the framework of charter activity of the association on “informing and consulting the association members on the issues of accounting and tax accounting” (we hope you will use the wording from the proposed sample association charter). In other words, accountants on staff of the association will perform all the necessary work for condominiums, and their chairmen of the board will only have to put their signatures on the documents prepared for them.

ESTABLISHMENT OF CONDOMINIUM ASSOCIATION: “PRO”, “CONTRA” AND ACTION SEQUENCE

This section could be a beginning of our analytical material but we decided to place it at the end – so that you make a decision on establishment of a condominium association after you learn about key issues in organization of its activities.

Comparison of condominium association with other forms of multi-apartment building management 

Article 9 of the Law of Ukraine “On Peculiarities of Exercising Ownership Rights in Multi-Apartment Buildings” envisages the following forms of management of a multi-apartment building:

•  by co-owners,

•  by a manager, and

•  by a condominium (condominium association).

Below, we present comparison of these management forms in a table form:

Criteria	Independent Management by Co-owners	Manager	Condominium	Condominium Association
Establishment of legal entity by co-owners	Not required	Not required	Required	Required (condominium + association)
Who performs daily management	Nobody (meeting of co-owners is held when needed)	Manager’s employee	Condominium management board elected by the condominium general meeting	Condominium association management board elected by the condominium general meeting
How relations between co-owners and subject performing management are regulated	Law	Law, contract	Law, condominium charter	Law, condominium and association charters
Administrative expenses	Absent	Manager’s remuneration	Salary of chairman of the board, accountant, etc.	Salary of chairman of the board, accountant, etc.
Management of several buildings	Impossible	Possible, without formal restrictions	Possible, with restrictions (co-owners of several buildings having common building territory and/or infrastructure may establish one condominium)	Possible, without formal restrictions

As we can see from the table above, a condominium association differs from other management forms in the same ways as a condominium differs from them: this is a legal entity established and controlled by the co-owners of multi-apartment buildings. This means undertaking by the co-owners of certain administrative expenses and preserving control over those who manage the buildings. In comparison to a condominium, a condominium association allows to cover a wider circle of multi-apartment buildings, and due to this to achieve “economy of scale” effect when expenses for supporting association in calculation per each separate co-owner decrease.

Therefore, a condominium association is a good choice for those co-owners of multi-apartment buildings who want to control themselves who personally manages the buildings (to form independently the management bodies, and not to rely on the manager’s personnel policy), without being restricted with their own building, but together with the co-owners of other buildings, to resolve more ambitious tasks on the level of micro-district or city.

Association establishment

A condominium association is established and registered according to the same procedure as any other legal entity in Ukraine, pursuant to the requirements of the Law of Ukraine “On State Registration of Legal Entities, Individual Entrepreneurs and Public Formations”.

Sequence of actions is as follows:

1. General meeting of the condominiums – future association founders take a decision on association establishment.

2. The representatives of these condominiums gather for the association’s statutory meeting, take a decision on its establishment, adopt its charter, elect the statutory bodies.

3. After state registration of the association, the general meeting of condominiums-association members takes a decision on transfer to it of functions on management of multi-apartment buildings.

The third item is not related to establishment and state registration of the association but it is necessary to start its full-fledged work, as was mentioned above.

In order to make your work on condominium association establishment easier, we have developed its sample charter, as well as sample minutes of the condominium general meeting and statutory meeting of the association. You can find these documents at the following link.

We would like to remind and stress separately that founders of the association are not the co-owners of multi-apartment buildings, they are legal entities – condominiums. Participants of the association statutory meeting are the representatives of these condominiums, and no matter how many buildings there are in a specific condominium, this condominium is just one legal entity and has only one vote. This is the difference between the association and condominiums for which the law envisages different distribution of votes at the statutory meeting.