Compulsory administrator in a housing community – when does the court appoint one and what are the consequences?

The appointment of a compulsory administrator in a housing community is a legal mechanism provided for in Article 26 of the Polish Act on the Ownership of Premises. The main purpose of appointing a compulsory administrator is to ensure (restore) the proper functioning of the housing community. According to the provision, if the management of the housing community:

–    has not been appointed,

–    does not perform its duties, or

–    acts in a manner that violates the principles of proper management,

any owner of a flat may apply to the court for the appointment of a compulsory administrator to manage the housing community.

Due to the fact that in many housing communities in Poland the management boards do not fulfil their statutory duties, remain passive or even act to the detriment of the community, the mechanism of appointing a compulsory administrator plays an important protective role. It serves to safeguard the interests of the members of the housing community and protect them from abuse. In practice, it is often used in situations where it is difficult to dismiss the management board and there are irregularities in the management of the common property within the community.

In practice, an administrator appointed by the court ‘replaces’ a missing or improperly functioning housing community management board. As a result of the appointment of a court-appointed administrator, the existing management board elected by the community formally loses its legitimacy to continue performing its functions and ceases to have any powers to represent the housing community. Of course, in the event of the appointment of a compulsory administrator for the housing community, no further action is required on the part of the housing community to dismiss the management board (e.g. in the form of a resolution), as this is done by virtue of the court’s decision alone. The court’s decision to appoint an administrator therefore has the direct legal effect of terminating the management agreement with the previous administrator, which applies to both the contractual administrator of the housing community and the entrusted administrator.

At first glance, it may seem that a request to appoint a compulsory administrator is a simple means of ‘disciplining’ the housing community’s management. In practice, however, it is an exceptional instrument that interferes with the autonomy of the community and the statutory model of common property management. The court does not treat it as a mere tool for resolving disputes between owners, but as a last resort, used in situations of real and serious threat to the proper functioning of the community.

In this publication, we will answer the following questions:

– When can a court appoint a compulsory administrator for a housing community?

– What does ‘failure to fulfil obligations’ by the housing community management mean?

– What does ‘violation of the principles of proper management’ by the housing community management mean?

– Who may apply to the court for the appointment of a compulsory administrator for a housing community?

– How does the court determine in the course of proceedings whether the conditions justifying the appointment of a compulsory administrator in a housing community have been met?

– What decision can the court issue in response to a request to appoint a compulsory administrator?

– Who can become a compulsory administrator in a housing community?

– What are the powers and duties of a compulsory administrator in a housing community?

When can the court appoint a compulsory administrator for a housing community?

Pursuant to Article 26 of the Polish Act on the Ownership of Premises, the court may appoint a compulsory administrator for a housing community in the following situations:

–    the community’s management has not been appointed,

–    the community’s management is not performing its duties,

–    the community’s management is acting in a manner that violates the principles of proper management.

In practice, administrators are most often appointed in the latter two cases. As indicated in the literature, the grounds for failure to fulfil obligations and violation of the principles of proper management should be understood broadly (Bończak-Kucharczyk, Ownership of premises and housing communities, p. 461 et seq.). This means that an administrator may be appointed on these grounds in many situations where the management board fails to perform any of its duties under the Polish Act on Ownership of Premises. It seems irrelevant whether the management board’s obligation stems directly from the Polish Act or from a resolution of the owners of premises adopted in accordance with the Polish Act on Ownership of Premises.

A practical example from Polish case law:

‘The appointment of a compulsory management board by the court does not constitute a sanction for past violations, but is intended to rationally regulate the management of the common property in the future’ (decision of the Polish Supreme Court – Civil Chamber of 25 March 2024, file ref. no. I CNP 91/23).

What does ‘failure to fulfil obligations’ by the management board of a housing community mean in practice?

In practice, the most common situations in which the management board of a housing community fails to fulfil its obligations are those in which the management board:

– only convenes sporadic meetings of community members (e.g. 2 meetings in 4 years), which prevents the adoption of most housing community resolutions and the proper management of the community;

– does not prepare reports on its activities;

– puts resolutions unrelated to the management of the common property to a vote, which indicates a misunderstanding of the scope of management;

– fails to ensure financial transparency, e.g. by keeping accounts on the manager’s private account, which makes control difficult;

– delays or prevents access to community documents, blocking effective supervision of the management board’s activities by the owners (more on this obligation can be found in the publication: “Control of the housing community management board – right to inspect documents and scope of control” ,

– engages in other activities indicative of improper management of the community.

What does ‘violation of the principles of proper management’ by the housing community management board mean in practice?

With regard to the premise of ‘violation of the principles of proper management’ by the management board of a housing community, it is worth emphasising that this concept is not limited to individual formal errors or shortcomings on the part of the management board, but rather covers the permanent systemic functioning of the management board. Such situations will primarily include violations of the principles of sound management that affect the legal or factual situation of the housing community, in particular in economic terms.

In case law and legal literature, a broad approach to the management of housing community assets is adopted, and violations may occur, for example, when the management board of a housing community:

– misappropriates funds from advance payments for the maintenance of common property,

– keeps faulty off-balance sheet records of the costs of managing the common property,

– fails to fulfil its statutory obligations or those arising from the community agreement,

– conducts the community’s financial settlements in an imprecise manner, in violation of the principle of transparency, in particular by failing to create or use a bank account created for this purpose,

– acts in a manner leading to the deterioration of the property, for example by failing to renovate or maintain the property,

– acts contrary to the interests of the majority of the community members,

– is not transparent or hinders inspections carried out by community members.

– performs activities exceeding the scope of ordinary management without first obtaining the consent of the owners of the premises in the form of a resolution (Article 22(2) and (3) of the Polish Act on Ownership of Premises).

Furthermore, legal doctrine indicates that even conflicts of interest between members of the community and difficulties in reaching agreement on key management issues may justify the appointment of a compulsory administrator.

However, as a rule, the appointment of a compulsory administrator in a housing community should be a measure of last resort, in a situation where other mechanisms for defending the rights of flat owners under the Polish Act on Ownership of Flats, in particular attempts to dismiss the existing management board, do not produce the expected results.

A practical example from Polish case law:

‘Failure to fulfil obligations or violation of the principles of proper management, which affects the legal or factual situation, in particular the economic situation, of a housing community, may constitute sufficient grounds for appointing a compulsory administrator.’ (judgment of the Polish Regional Court in Wrocław, 2nd Civil Appeals Division, of 14 February 2019, ref. no. II Ca 766/18).

Who can apply to the court for the appointment of a compulsory administrator for a housing community?

Pursuant to Article 26(1) of the Polish Act on Ownership of Premises, any owner of premises may submit an application for the appointment of a compulsory administrator. This means that the person entitled to do so may be either the owner of a separate flat in its entirety, a co-owner of a flat in fractional parts, or the owner of a non-separate flat. In practice, the application is most often submitted by a single owner or a group of owners of premises, although, of course, it is formally sufficient for the application to be submitted by even one person.

In special cases provided for in Article 26(2) of the Polish Act, the current property manager is also entitled to submit an application, but in practice this is extremely rare.

The doctrine also emphasises that an application may also be submitted by an entity entitled to use the premises on the basis of other property rights, e.g. lease. Broadly interpreting the concept of ‘interested party’, the application may concern both persons whose situation depends directly on the court’s decision and entities whose interests will be indirectly affected (M. Rejdak, in: Marciniak, Piasecki, Commentary on the Polish Code of Civil Procedure, vol. II, 2016, Article 510 of the Code of Civil Procedure, Nb 2).

How does the court determine in practice whether there are grounds for appointing a compulsory administrator?

First of all, an appropriate application must be submitted to the court for the appointment of a compulsory administrator. The application should contain relevant legal arguments, supported by evidence. Next, the court should schedule a hearing during which it will conduct evidentiary proceedings to verify whether the claims on which the application is based are justified.

As a rule, evidence in a court case for the appointment of a compulsory administrator may be anything that is not contrary to the law and serves to clarify the case. In practice, this will most often be:

–    evidence from documents, e.g. the community’s accounting documents,

–    evidence from witness statements, including the owners of premises belonging to the community,

–    expert opinion, e.g. from a certified auditor.

–    inspection of the property.

In practice, in cases concerning the management of housing communities in Poland, evidence may also include conclusions from an audit of the housing community management board’s activities in the area of property management. This may also include, for example, the community’s accounting documents, financial statements, income and expenditure statements, minutes of management board meetings or documentation concerning the implementation of renovation and investment plans.

In many cases, courts consider that any irregularities in the management of the community’s financial affairs, whether intentional or resulting from negligence, constitute a violation of the principle of sound financial management. Most often, these situations concern:

–    improper accounting of community funds,

–    delays in the payment of community liabilities,

–    deficiencies in financial or accounting documentation,

–    failure to comply with resolutions of flat owners regarding expenses or renovations,

–    improper supervision of service providers or renovation contractors.

In such situations, the conclusions of the audit or analysis of the accounting documentation constitute important evidence that the community’s management board is not acting in a manner that ensures the proper management of common property. Their consideration by the court may justify the appointment of a compulsory administrator in order to restore proper order and protect the interests of all property owners.

However, it should be remembered that an application for the appointment of a compulsory administrator should be comprehensive and well prepared. It should cover all circumstances that are confirmed by statutory grounds, be correctly formulated and supported by relevant evidence. It can never be based solely on the applicant’s statements – all claims must be supported by objective evidence. Only then does the application have a real chance of being successfully considered. In our experience, a common mistake is to submit applications based solely on assertions, without submitting documentation. In such situations, however, the court has no solid basis for appointing an administrator, and the application may therefore be dismissed.

What decision can the court issue in response to an application for the appointment of a compulsory administrator?

If, in the course of the proceedings, the court determines that the application for the appointment of a compulsory administrator is justified because the conditions provided for in Article 26 of the Polish Act on the Ownership of Premises are met, it issues a decision appointing a compulsory administrator. However, if, based on the circumstances of the case, the court finds that none of the conditions have been met, it will issue a decision dismissing the application for the appointment of an administrator. The application for the appointment of a compulsory administrator will therefore be ineffective. Each party to the proceedings whose rights or interests have been affected has the right to appeal against the decision.

Who can become a compulsory administrator in a housing community?

The provisions of the Polish Act on the Ownership of Premises do not specify who can act as a compulsory administrator, nor are there any such guidelines in the Code of Civil Procedure. The court is therefore free to choose a person for this function, but should be guided by the principle of objectivity and take into account the needs of the specific property.

In the literature, it is assumed that the court may appoint both a person from among the owners of premises and a third party as a compulsory administrator of the property. In practice, it may often be more effective to appoint a person from among the owners of premises, as they are familiar with the specifics of the community, are aware of the management’s misconduct and are often the initiators of audits of the community’s activities. This allows them to restore the proper functioning of the community more effectively and better respond to the needs of its members.

On the other hand, doctrine and case law increasingly emphasise the need to entrust the function of compulsory administrator exclusively to professional property managers who perform this activity in an organised and profit-making manner. This argument is based primarily on the need to ensure an adequate level of diligence, transparency and security of transactions. A professional manager acts as an entrepreneur specialising in property administration, has the appropriate organisational, human resources and accounting facilities at their disposal, and their activities are subject to the standards applicable to a professional market participant. Importantly, they are covered by compulsory civil liability insurance, which strengthens the protection of property owners and the community itself in the event of damage caused in the course of management. In practice, this means a real possibility of claiming damages in the event of improper performance of duties.

In addition, unlike one of the co-owners, a professional manager generally remains an external and impartial entity with regard to existing conflicts within the community. This is particularly important in situations where the appointment of a compulsory manager is the result of a deep and long-standing dispute between property owners, which is often the case in practice. Entrusting the function to a neutral person minimises the risk of further escalation of the conflict and allegations of bias.

What are the powers and duties of a compulsory administrator?

A compulsory administrator in a housing community has a wide range of powers, which include both the management of day-to-day affairs of the common property and the representation of the community externally. Their main objective is to ensure the proper management of the property, stabilise relations between co-owners and replace a malfunctioning or missing executive body.

The specific powers and duties, as well as the rules and objectives of compulsory administration, are generally determined by the court in its decision to appoint a compulsory administrator. The court should also set the amount of the administrator’s remuneration in the document.

First and foremost, the basic duty of a compulsory administrator appointed under the Polish Act on the Ownership of Premises will be to take all necessary factual and legal steps to appoint a new functioning management board for the housing community. This applies not only to situations where the court appointed an administrator due to the lack of a housing community management board, but also to situations where the existing management board did not perform its duties properly or violated the principles of proper management.

In practice, the compulsory administrator of a housing community has the following rights and obligations:

– the right to independently perform ordinary management activities related to the property, such as carrying out necessary repairs, concluding agreements concerning the maintenance of common property, collecting fees and advance payments from flat owners, and day-to-day administration of the property,

– the obligation to ensure the impartial and proper functioning of the common property, including keeping records and performing factual and legal activities necessary to maintain the property in an undeteriorated condition,

– representing the community in its own name but on behalf of the community, which in practice means that in legal and procedural contacts it acts as a party, both suing and being sued, but not as a representative of the co-owners, but performing tasks resulting from its judicial authorisation,

– in the scope of activities exceeding ordinary management, the compulsory administrator (similar to the management board) may act only with the consent of the owners of the premises and, in the absence of consent, with the appropriate permission of the court. Importantly, in its decision to appoint an administrator, the court may impose an obligation on the administrator to perform specific activities, which may even go beyond ordinary management, in order to remedy irregularities in the functioning of the community, which were presented in the application for the appointment of a compulsory administrator.

In the course of compulsory administration, the administrator is also required to submit reports on the Polish Activities performed and financial statements documenting his actions, the effectiveness of the measures taken, and the income earned and expenses incurred, which are then subject to verification by the court.

A practical example from Polish case law:

‘The role of the compulsory administrator boils down to replacing the management board of the housing community in the performance of its duties. In other words, during the period specified by the court, the compulsory administrator acts as the management board.’ (judgment of the Polish Regional Court in Nowy Sącz, 1st Civil Division, of 9 October 2014, file ref. no. I C 518/14).

Summary

The appointment of a compulsory administrator in a housing community by a court has significant legal consequences for the housing community, including, above all, a fundamental change in the relationship between the co-owners of the property. The co-owners are, to a certain extent, excluded from the possibility of independently managing the common property and, at the same time, are obliged to comply with the decisions and actions of the administrator, who acts on behalf of the housing community. In practice, therefore, the compulsory administrator takes over the full powers of the housing community’s management board, conducting its affairs, representing it externally and undertaking activities both within and beyond the scope of ordinary management within the limits specified by the court. In many cases, however, the appointment of a compulsory administrator will be the only way to ensure the proper functioning of the housing community.