Sale of an attic by a housing community – when can the resolution be challenged?

Sale of an attic as an act exceeding ordinary management

An attic, loft, basement, corridor, roof, façade, staircase or other elements of the building constitute part of the common property. This means that they do not belong to one owner of a unit, but serve all owners within the common property.

A decision by a housing community to sell such part of the building or to allocate it for new residential units does not fall within the scope of ordinary management of the property. It is an act of significant financial, organisational and legal importance for the entire housing community.

In practice, the housing community is therefore required to adopt an appropriate resolution, which may include, among other things:

• a change in the intended use of part of the common property,
• consent to the sale of the attic or part of it,
• consent to the adaptation of the attic into one or more residential units,
• consent to the establishment of separate ownership of new units,
• consent to a change in the shares in the common property,
• granting a power of attorney to the management board of the housing community to conclude agreements with the investor.

Each of these elements will have a significant impact on the legal and factual situation of the owners of units forming part of the housing community. Therefore, the resolution should precisely define what the property owners are actually consenting to.

Does the sale of an attic require the consent of all unit owners?

One of the most important issues concerning the sale of an attic by a housing community is whether an ordinary majority resolution is sufficient, or whether the consent of all unit owners is required. If the sale of the attic leads to the exclusion of part of the common property, the establishment of a new unit and a change in the shares in the common property, the matter is not limited to an ordinary management decision. In such a case, the rights of unit owners may be changed.

Particular importance should be attached to the distinction between:

• a technical correction of shares resulting, for example, from an earlier mistake,
• an actual change in the shares in the common property resulting from the sale or separation of part of the common property.

In the latter case, an ordinary majority resolution may prove insufficient. If the resolution leads to a permanent change in the rights of owners, including a change in shares, it may be necessary to obtain the consent of all unit owners and to observe the appropriate form of the legal act.

A practical example from Polish case law:

“A decision of a housing community concerning consent to the division of the common property, the dissolution of co-ownership of part of the common property – the attic, the exclusion from the common parts of the building of a separated area intended for a residential unit, its sale to third parties and consent to a change in the amount of shares connected with the ownership of individual units – must be adopted by a resolution of all unit owners in the form of a notarial deed” (judgment of the Polish Court of Appeal in Białystok, 1st Civil Division, of 19 December 2014, case no. I ACa 578/14).

“The Court shared the claimant’s position, finding that the adoption of the challenged resolution would result in the disposal of part of the common property. Such an act, without the consent of all co-owners, is invalid.” (judgment of the Polish Regional Court in Gdańsk, 1st Civil Division, of 7 July 2016, case no. I C 881/14).

Lack of valuation of the attic as a risk for the housing community

Before adopting a resolution on the sale of an attic, the housing community should first reliably determine the value of the part of the property to be sold. In practice, this means the need to obtain a professional valuation, preferably prepared by a property valuer, because the management board of the housing community does not, as a rule, have the necessary expertise to prepare a reliable valuation of part of the common property.

At the same time, failure to prepare a valuation report may lead to a situation in which the housing community sells a valuable part of the property at a price below market value. As a result, this affects the financial interests of each owner of a unit in the property. This issue is particularly important in buildings located in attractive areas, where the adaptation of an attic may have considerable investment value.

The valuation should take into account not only the current condition of the attic, but also the adaptation potential of that space. Relevant factors may include, among others:

• the surface area of the attic,
• the possibility of converting it into a residential unit,
• the technical condition of the building,
• access to installations,
• limitations resulting from construction law,
• conservation-related restrictions,
• the impact of the planned works on the structure of the building.

If, therefore, the housing community adopts a resolution on the sale of the attic without obtaining a reliable valuation of its value, the owner of a unit may argue that the resolution infringes the principles of proper management of the common property. Consequently, the owner may challenge the resolution of the housing community.

Lack of measurement and technical analysis of the attic

Moreover, it often happens that the sale price of an attic is determined without reference to its actual surface area and technical condition. If the housing community does not know precisely what the surface area of the attic is, it is difficult to assess whether the sale price corresponds to market value.

A technical analysis is equally important. The adaptation of an attic into residential units may involve interference with structural elements of the building, including the roof, ceilings, load-bearing walls, installations and staircase. In older buildings, the technical risk may be particularly significant.

Before adopting a resolution, it is therefore worth considering:

• measuring the attic,
• assessing the technical condition of the attic space,
• assessing the load-bearing capacity of the ceilings,
• analysing the impact of the adaptation on the building structure,
• determining whether conservation approvals are required,
• determining who will bear the costs of any expert assessments and protective works.

The absence of such analyses may result in the adoption of a resolution without full knowledge of the technical and financial consequences of the investment, and consequently in the resolution being set aside.

Lack of clear criteria for selecting the investor

A resolution concerning the sale of an attic by a housing community should specify at least the basic rules for selecting the investor. As in the case of selecting a renovation contractor in a housing community, also in the case of selling an attic or selecting an investor, the community should apply transparent offer evaluation criteria. It should not be the case that owners consent to the sale of part of the common property without knowing the criteria according to which the buyer will be selected. The absence of clear criteria for selecting the bidder may give rise to the allegation that the resolution grants the management board of the community excessive discretion and deprives the owners of real control over the transaction.

The resolution should therefore specify at least:

• whether a tender procedure will be carried out,
• what criteria will be taken into account,
• whether only the price will matter or also the investor’s experience,
• whether the draft agreement with the investor will be presented to the owners before it is signed.

If the resolution does not contain such elements, it may be considered contrary to the principles of proper management of the common property and, consequently, set aside.

A practical example from Polish case law:

“Moreover, the above resolution infringes – in the Court’s opinion – Article 22(3)(5) of the Act on Ownership of Premises, because it enables the Management Board to conclude an agreement on behalf of the Community without any control on the part of the Community. Reference to the ‘discretion of the Management Board’ may result in the adoption of provisions unfavourable to the Community. The resolution should specify at least the basic criteria of the tender procedure for selecting the investor, such as the cost estimate and the bidder’s previous experience, and as regards the price of the units, the resolution should specify in detail both the market price and the rules for settling the costs of extension or redevelopment. A resolution granting consent to specific actions should have a concrete management content that can be reconstructed and reviewed. A resolution in which unit owners, in a blanket manner, divest themselves of a certain segment of powers in favour of the management board of the housing community, without a substantive indication of the essential content of the disposal exceeding ordinary management, infringes from the outset the principles of proper management and may lead to harm to the members of the community as a result of its execution by the management board” (judgment of the Polish Court of Appeal in Warsaw, 1st Civil Division, of 21 August 2019, case no. I ACa 495/18).

The draft agreement with the investor should be known to the owners

The sale of an attic or its adaptation into residential units requires the conclusion of an agreement with the investor, regulating many issues important for the housing community. Therefore, the owners should know at least the basic terms of the planned agreement before adopting the resolution or before it is implemented. Otherwise, they may consent to a transaction whose real consequences they are unable to assess.

The agreement with the investor should regulate in particular, although its scope may of course vary depending on the type of investment, the legal status of the property and the scope of the planned works:

• the scope of construction works,
• the investment schedule,
• payment rules,
• security for payment of the price,
• contractual penalties for delays,
• the investor’s liability for damage,
• the rules for using the common parts during the works,
• supervision over the implementation of the investment,
• the method of acceptance of the works,
• the rules for terminating the agreement in the event of non-performance of obligations.

The absence of a draft agreement or the absence of basic contractual assumptions may justify the allegation that the resolution is too general and does not adequately protect the interests of the community.

Settlement of the price in the form of construction works

In practice, it sometimes happens that the investor does not pay the entire sale price in cash, but undertakes to perform specific renovation or construction works for the benefit of the housing community. Such a model may be permissible, but it requires particular caution.

If the intention of the housing community is precisely to structure its relationship with the investor in this way, the resolution should clearly specify:

• what works are to be performed,
• what their value is,
• who will verify the cost estimate,
• who will supervise the performance of the works,
• what technical standards are to be observed,
• who is liable for defects in the works performed,
• what sanctions apply in the event of non-performance or improper performance of the works.

If the resolution allows for the price to be settled in works, but does not specify a mechanism for controlling the value and quality of those works, this may create financial risk for the housing community. The community may receive a performance whose value is lower than the actual value of the part of the property being sold.

Allocation of funds from the sale of the attic

The resolution should clearly indicate how the funds obtained from the sale of the attic to the investor will be used. Most often, housing communities allocate such funds to the renovation fund, renovation of the façade, roof, staircase or other modernisation works.

However, a general indication of the purpose alone may not be sufficient. It is also worth specifying:

• who will prepare the cost estimate for the planned works,
• whether the owners will approve the spending of the funds,
• how invoices and costs will be settled,
• what will happen to any surplus,
• whether the funds may be allocated to other purposes,
• how the owners will be informed about expenditures.

The lack of rules for controlling the expenditure of funds may give rise to the allegation that the resolution does not ensure transparent management of the community’s assets, which is one of the fundamental principles of the functioning of the management board of a housing community.

Challenging a housing community resolution concerning the sale of an attic

If one or more of the irregularities described above occur in a given case, there is a significant likelihood that the resolution may be successfully challenged before a court under Article 25 of the Act on Ownership of Premises. This applies in particular where the community adopted the resolution without a reliable valuation of the attic, without measuring its surface area, without a technical analysis, without clear criteria for selecting the investor, without presenting the owners with the basic terms of the agreement, or without determining the method of settling the price and controlling the expenditure of funds.

In such cases, the unit owner may argue that the resolution was adopted without sufficient knowledge of the legal, financial and technical consequences of the planned transaction. This may lead to the conclusion that the resolution infringes the principles of proper management of the common property or the interest of the unit owner. The final assessment always belongs, of course, to the court and depends on the specific documents and circumstances of the case, but the more blanket, imprecise or devoid of control mechanisms the resolution is, the greater the risk that it will be set aside.

The time limit for challenging a resolution of a housing community is six weeks. This time limit runs:

• from the date on which the resolution was adopted at a meeting of unit owners,
• or from the date on which the owner was notified of the content of the resolution adopted by individual collection of votes.

Suspension of the execution of a housing community resolution

Challenging a resolution of a housing community does not automatically mean that the resolution ceases to be binding or that the management board may refrain from implementing it. Under Article 25(2) of the Act on Ownership of Premises, the challenged resolution is subject to execution unless the court suspends its execution until the end of the case.

In practice, this issue is very important in cases concerning the sale of an attic, adaptation of an attic space or conclusion of an agreement with an investor. If the unit owner, as a member of the housing community, only files a claim to set aside the resolution, it may turn out that the resolution is implemented during the court proceedings. In practice, this may involve the signing of an agreement with the investor, the sale of part of the common property, a change in the manner of use of the property, the commencement of construction works or the taking of further steps leading to the establishment of separate ownership of new units.

For this reason, in cases of this type, it is usually necessary to submit, together with the claim, an application for securing the claim by suspending the execution of the housing community resolution. In such an application, it is necessary to demonstrate not only that the resolution may be defective, but also that its execution before the end of the case may seriously hinder or even prevent the achievement of the purpose of the proceedings.

In the case of resolutions concerning the sale of an attic, the legal interest in obtaining interim relief may consist in particular in the fact that the execution of the resolution may have consequences that are difficult to reverse. If, before the end of the case, an agreement with the investor is concluded, construction works are commenced, the structure of the building is interfered with, or further steps are taken towards establishing separate ownership of units, the subsequent setting aside of the resolution may not provide the unit owner, and indirectly the community, with real protection.

For this reason, in cases concerning the sale of part of the common property, the analysis of the resolution should not be delayed. If there are significant irregularities, such as the absence of a reliable valuation, lack of surface measurement, lack of technical analysis, lack of a draft agreement with the investor or a blanket authorisation granted to the management board, it is worth considering not only an action to set aside the resolution, but also an application to suspend its execution until the case is finally concluded.

Summary

A resolution of a housing community concerning the sale of an attic, adaptation of an attic space or change in the intended use of part of the common property should be prepared with particular care. Such a decision may lead to a permanent change in the rights of unit owners, a change in shares, interference with the structure of the building and the creation of significant financial risks.

The most common problems concern the lack of consent of all owners, defective voting procedure, lack of a valuation report, lack of measurement of the attic, lack of a draft agreement with the investor, unclear rules for selecting the bidder and lack of mechanisms for controlling the execution of the resolution.

If the resolution infringes the law, the principles of proper management of the common property or the interest of a unit owner, it may be challenged in court. In cases where the execution of the resolution could produce effects that are difficult to reverse, it is also worth considering an application to suspend the execution of the resolution of the housing community.