Arrears in Communities of Property Owners

 

 

Arrears is one of the main concerns in Communities of Property Owners and a cause of conflicts between neighbours. In this article we will try to answer some of the questions that many property owners ask us.

What rights does the Community have when it comes to collecting debts?

Art. 9 of the Horizontal Property Act contains the regulation on the owners’ obligation to pay communal expenses and the way in which the community can make claims for these payments. To claim debts, one option is the order for payment procedure, which provides shorter timeframes to collect debts.

In addition, from 16 June 2022, communities of property owners will have more resources to fight against arrears thanks to the modification of the Horizontal Property Act (CPA). Article 21 referring to non-payment of expenses in Communities has been amended. The text includes the possibility of establishing higher interest rates than the stipulated interest or temporarily withholding the use of non-essential communal elements. In addition, interest will be in force from the date on which payment is due and not on which payment is not made. As a new element, the obligation to issue prior notices is abolished.

When does a debt become time-barred?

Since 2015, the limitation period for claiming communal expenses in a community of owners has been five years, so that after this time they cannot be claimed, according to Art. 1964 of the Civil Code.

What are the consequences of being a property owner in arrears?

Being a property owner in arrears has a number of consequences that affect everything from decision making at meetings to the use of communal areas. Here are some of the consequences.

Losing the right to vote at meetings

Participation in the affairs of a community can also be temporarily restricted until the debts are settled or a payment agreement is reached.

Prohibition on the use of the swimming pool and communal areas that are not considered essential

With the new update to the CPA, communities have more powers to impose sanctions and can now prohibit those in arrears from using certain communal areas, which are not considered essential and only on a temporary basis. For example, the swimming pool, gardens, or sports facilities are among the services for which use can be restricted.

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What are the ways to claim a debt from someone in arrears?

There are several ways to claim debts. The figure of the administrator plays a very important role when it comes to addressing and managing problems due to non-payments, always through dialogue, negotiations, and even through the courts. Below we explain the ways in which debts can be claimed.

Dialogue

The first option is to use diplomatic channels and try to talk to the debtor in order to reach an agreement.

Each case is different and there are some cases of non-payment that are not justified and others that are caused by a lack of financial resources. It is advisable to seek alternatives to legal action. An example of such an alternative is payment in instalments. The decision to be more flexible with a property owner to allow payments to be made in instalments must be approved at a meeting.

Demand for payment

If dialogue and diplomatic channels have not been productive in reaching an agreement on the payment of debts, the next step will be to resort to an official claim through a demand for payment via a burofax (a method of sending documents securely). In order for the debt settlement to be carried out, it is necessary to state the origin of all the expenses claimed (ordinary fees, reserve fund, extraordinary payments, etc.) and to specify at which meeting each amount was approved.

A voluntary payment period of a few days will be established and the debtor will be warned that, if he or she does not pay the debt, the corresponding demand will be filed and, in this case, the order for payment procedure will be initiated.

Is it possible for the limitation period to be interrupted?

Most claims are time-barred by the statute of limitations. In this case, debts are time-barred after five years. However, the law establishes that these time limits can be interrupted and, therefore, they will cease to run when certain actions are carried out.

For example, by sending a notification to the owner in arrears stating the debt and its amount, the statute of limitations would be interrupted.

Mediation or conciliation

There is also the possibility of using mediation or conciliation to resolve a conflict without going to court. A third party will act as a mediator to reach an agreement. This form of mediation is known as arbitration.

Order for payment proceedings

This is a debt claim procedure that forms part of civil proceedings, which differs from other processes as it is simpler to handle. In these proceedings, the timeframes are shorter and the aim is to recover the money as quickly as possible. Now, after the new update of the CPA, the regulation of this process has been modified to make it more streamlined.

A new feature of the regulation is that all unpaid dues from the date of the act until the filing of the lawsuit can be sought. Previously, only non-payments recorded in the minutes were taken into account. Furthermore, according to the CPA, interest could also be demanded when collecting the debt from the property owner in arrears.

To initiate this order for payment procedure, an owners’ meeting must be called to agree that legal action is to be taken against those in arrears and the total debt owed by each owner must be stated in the corresponding minutes.

Once it has been presented to the court, those in arrears will have 20 days to pay the debt.

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What are the advantages for the Community when it comes to collecting debts?

In order to ensure the proper functioning of communities’ services, they have certain guarantees to collect outstanding debts.

The most important thing is to act quickly to avoid issues arising from the statute of limitations.

Communities have priority status over third parties

The amounts owed to the community by the owner in arrears have priority over mortgage payments or liens, as long as the unpaid community fees are for the current year or from the previous three years.

Third-party preference claim

The third-party preference claim is an option available to communities to request that they be recognised as having priority over other creditors for the collection of debts. If the community fails to do so, every year that passes, it will lose the priority to claim debts.

A third-party preference claim can only be sought if the house is mortgaged.

By law, communities may only collect debts for the current year and the previous three years. The current year shall be deemed to be the year in which the claim was initiated. This does not mean that the debts from previous years do not exist, but that they are no longer a priority for collection.

Applying for a third-party preference claim is important because it guarantees the community priority should the debtor sell the house or owe more than one debt.

Buyer’s liability

When a property is purchased, the buyer, who is liable for his or her own property, will be responsible for all community payments, as well as for the amounts owed by the previous owner if these were not paid in full. By law, this buyer will be liable for the last three unpaid years.

When buying a property, it is very important to ask for the community debt certificate where it is stated if there are debts with the community or if the current owner is up to date with payments.

Seller’s liability

The seller is obliged to inform the buyer and mention in the title deed the property’s charges and encumbrances (CC Art. 1483) and in particular whether the seller is up to date with the payment of the general expenses of the community of owners or if he or she is in arrears for any amount (CPA Art. 9.1.e). To do this, you will need to apply for the community debt certificate, which is a formal and informative statement of the debt situation.

At Mediterráneo we are aware of the problems that can be caused by owners who are in arrears in their communities. For this reason, we provide all owners with an exclusive department to manage and control arrears. If you have a situation involving arrears in your Community, we can advise you.