The current heavy demand for new apartments in the market sometimes results in developers offering contracts of adhesion which buyers think they have little opportunity to modify. Under these market conditions, building management contracts for the management of common elements in apartment buildings sometimes pose particular challenges. When a buyer enters into a purchase and sale agreement, the buyer is also usually confronted with the requirement to sign a building management agreement, which is often an integral part of the purchase and sale agreement.
On the one hand, this can be good for the buyer, as the law requires that all building owners are responsible for the management of the common elements of their property. Entering into a management agreement would appear to be an easy way to fulfill such a duty. Unfortunately, sometimes this easy way borders on the imposition of an unfair "take it or leave it" type proposition. In such cases, the buyer may wish to consider their legal rights.
According to the law, it is the meeting of the co-owners of the property which must decide about property management issues.
The calling of such a meeting of co-owners is not the exclusive domain of the developer. Anyone who has become a co-owner is entitled to call the first meeting of the co-owners. It is precisely at a co-owners meeting where the management agreement is approved. However, the question arises as to whether each unit owner's separately acquired signature can serve as an adequate legal substitute for the calling of the first meeting of co-owners.
If the co-owners were to decide at a meeting that they would prefer to utilize an alternate building management supplier or arrangement, would the existing manager have any compensation rights given that the contract under which it became the manager was a unilaterally imposed contract of adhesion? The answer is probably no, despite the understandable intent of a developer to put in place a management system prior to when the first units in the building are sold.
So what are we to make of these contracts of adhesion? Some contracts make removal of unilaterally imposed management contacts difficult. An example is where a management contract provides that a co-owner meeting can be called only upon the initiative of the manager or at least 75 per cent of the co-owners. Also, some contracts provide that a co-owner meeting has a quorum for the passing of resolutions only if at least 75 per cent of the co-owners of the building are in attendance.
The law provides that the first co-owner meeting is to be called by one or more co-owners. Of course they are all to be served notice. At the first meeting, the ground rules are typically set for further co-owner meetings. Therefore, a stipulation that notice of a co-owners' meeting requires 75 percent co-owner approval is invalid unless such a procedure is approved at the first meeting of the co-owners. The law also provides that a resolution of the meeting of the co-owners is binding upon all of the co-owners if a simple majority of the co-owners has voted in favor of such resolution, regardless of how many co-owners participate in the meeting. Therefore the quorum is determined not by the number of those co-owners in attendance but instead by the number of actual co-owners in the building.
Potential buyers are well advised to carefully review management agreements which tag along with purchase and sale agreements. If they contain terms that are in contradiction to the law, despite being presented as contracts of adhesion, they may in fact be challenged later on by any co-owners caring to raise such challenges.
Tina Luce, Associate, Kronbergs & Cukste, a member of Baltic Legal Solutions, a pan-Baltic integrated legal network of law firms which includes Teder Glikman & Partnerid in Estonia and Jurevicius, Balciunas & Bartkus in Lithuania, dedicated to providing a quality 'one-stop shop' approach to clients' needs in the Baltics.
