Hello and welcome to our blog. In this article we will deal with a topic of great importance for any community of owners. We are going to talk about how to finance the works in the communities of owners.
Funding: always a complicated issue
This is a tricky and to some extent sensitive issue. This can often be a source of conflict, having to deal with works of a certain magnitude, due to the economic cost involved. The financing of works in homeowners' associations is one of the most recurrent and complicated problems to solve.
While energy consumption and ordinary maintenance costs of common services are included in the ordinary budgets approved during community meetings (and consequently financed through community fees), large-scale refurbishment and renovation works are not.
Quotas are often not enough
When a community has to carry out maintenance work on the building or installations, such as renovating the façade, renovating the lifts, changing the floor in the entrance hall or making improvements to increase the energy efficiency of the building, the ordinary payments of the residents' fees are often not enough.
This is due to the fact that any budget for this type of work of a certain volume is usually quite high. Thus, even though the community may have savings or money left over from previous years and a positive balance in the bank account, this amount is usually not enough to cover all the costs involved in such works.
What financing options do we have for our community works?
Having reached the point of having to consider how we are going to finance the works that our residents' association needs, we find that there are three different possible ways to meet the cost. We explain them below for your information.
Approval of the meeting of the Board of Directors of the company:
The most common way of obtaining income to support the costs of community works is usually through the payment of contributions by homeowners.
These fees must be agreed after a meeting of neighbours, normally extraordinary, as established in the Horizontal Property Law.
They also often involve a significant additional financial effort, especially if they are extended over a long period of time, which is not always affordable for all budgets.
Supplier financing
A traditional variant to cover the costs of community works is often the financing through the service providers themselves.
It consists of deferring the total payment of the works for a period that can last several years and paying monthly instalments in instalments. These payments can also be made in instalments, but they are more affordable as they are lower in amount and can be paid over a longer period of time.
Although this is an interesting solution to consider, it is not always feasible. In the case of very high invoices or when there are several suppliers for the same project, for example, it can be difficult to reach agreements for financing.
Another cause that may make this option unfeasible is the percentage of delinquency within the community. If this is significant, we may find ourselves faced with a difficult obstacle to overcome, which would make this method of financing not the most recommended.
Financing through banks:
Finally, there is a third possible way of financing the remodelling and refurbishment works of the homeowners' association. We are referring to obtaining a bank loan.
This is certainly a form of financing that is rarely used. The problem here is that the community of owners is an entity without legal personality, which can complicate the processing. It must be taken into account that this fact obliges each and every owner to sign a joint and several liability agreement. It is very important that all owners agree and comply with the payment of the loan instalments in order to avoid future problems.
What does the law say?
This joint and several liability was an almost insurmountable obstacle for most communities until a few years ago. The picture changed radically with the proclamation of the Royal Decree Law 8/2011, of 1 July, on measures to support mortgage debtors.which, in Article 20, empowered communities to
"to act in the real estate market with full legal capacity for all transactions, including credit transactions".
RDL 8/2011
This law was subsequently endorsed by the Royal Legislative Decree 7/2015, of 30 October, approving the revised text of the Law on Land and Urban Rehabilitation.In one of its articles, it states the following:
"The communities of owners may act in the real estate market with full legal capacity for all operations, including credit operations, related to the fulfilment of the duty of conservation, as well as participation in the execution of rehabilitation actions and in the corresponding urban regeneration and renovation actions".
RDL 7/2015
Thanks to this new legislation, this method of financing works for residents' associations is becoming increasingly standardised and more and more banks are jumping on the bandwagon, offering loans in line with the amount of the works and focused on energy efficiency, accessibility and building refurbishment projects.
Meridional team, your trustworthy administrator for your community
At Meridional Team we have the means, the knowledge and the most qualified professionals to advise you on all these issues. We work to facilitate the management and administration of your community of neighbours. Do not hesitate to consult us on any matter related to the best bank financing options.
We will be pleased to help you to get the best financing opportunities for the works of your community of owners.