Development of Apartment Ownership Legislation in Estonia in 1994-2009 and Reform Plans in the Context of European Judicial Practice

Author:Priidu Pärna
Position:Magister iuris, Notary of Tallinn

1. Introduction - 2. Apartment Ownership Acts I and II - 3. Development of community of apartment owners - 4. Nature of community of apartment owners - 5. Passive legal capacity of a community of apartment owners - 6. Interrelationship between community of apartment owners and apartment association - 7. Concept of Apartment Ownership Act III - 7.1. Choices between different forms of... (see full summary)

1. Introduction

Apartment ownership represents a construction created by law, which combines the principles of law of property, law of obligations and company law. Particular attention has been paid in legal theory and practice to the legal relationships between apartment owners, i.e., to the internal relationships between owners and the external effects of the relationships. In this paper, I will analyse the development of apartment ownership legislation in Estonia, including the legal nature of the community of apartment owners and its possible development. 1

Since the Apartment Ownership Act 2 (AOA) is largely based on the Apartment Ownership Act of the Federal Republic of Germany of 1951 3 (WEG), I will present a comparative overview of the problems discussed in the local jurisprudence in relation to the community for decades. The German legislator has arrived at the amendment of WEG, by which a community of apartment owners has been given a limited passive legal capacity that was recognised by judicial practice already before. The passive legal capacity of a community of apartment owners has also been recognised in many other legal orders and the AOA also needs to be supplemented.

2. Apartment Ownership Acts I and II

The Principles of Ownership Reform Act of 1989 4 paved way for the privatisation of the dwellings created during the Soviet period. In 1993, the Privatisation of Dwellings Act 5 , was adopted, and pursuant to its § 3, the object of the privatisation was an apartment together with the other relevant part of the dwelling. Here we must say that the reforms went ahead of the development of private law. Civil law did not recognise an apartment that is a physical share of a dwelling as a property law object. Section 14 of the Law of Property Act 6 (LPA), which entered into force on 1 December 1993, provided that a thing could be in commerce as a whole, as a physical share or as a legal share; yet it did not create an institute of an apartment ownership. The reason is that the LPA was based on the draft Civil Code completed by 1940 7 , which did not recognise the physical share of a dwelling. However, during the privatisation of dwellings, hundreds of thousands of objects similar to apartment ownership entered commerce, whereas dwellings were privatised as separate from the plot underneath then, while later on, the plot was transferred to the owners of the apartments usually free of charge and the apartment ownerships were entered in the register (establishment of apartment ownerships).

The Apartment Ownership Act 8 , based on WEG entered into force on 23 March 1994. Section 1 of the AOA defined apartment ownership as the ownership of an apartment which was a physical share of a structure, and of a legal share corresponding to the size of the physical share of both the plot of land and the essential part of the structure which was not a physical share of any apartment ownership. Such an apartment ownership was regarded as immovable by law, and was subjected to the immovable property provisions of the LPA. Although the AOA was an independent Act, it could be seen as an inseparable but non-codified part of the law of property system.

AOA I did not include provisions governing the maintenance of blocks of flats because of the legal policy decision that the blocks of flats would be maintained through apartment associations as independent legal persons. Administration under a contract of partnership was preserved as an alternative. At the same time, the legislative proceeding of the Apartment Associations Act 9 (AAA) was in progress in the Riigikogu and the Act entered into force on 3 August 1995. It became clear over time that the establishment of apartment associations was not going as planned and a need arose for alternative forms of administration. The situation has been described in the explanatory memorandum to the draft AOA of 2001 10 , according to which the need for administering blocks of flats does not depend on whether a separate legal person has been formed, while the duties of an apartment association and its members also remain ambiguous.

AOA II entered into force on 1 July 2001, and continued to define in its § 1 the apartment ownership as ownership of the physical share of a structure together with a legal share of common ownership to which the physical share belongs. The law no longer regards the apartment ownership directly as an immovable; however, according to § 51 of the Land Register Act 11 , an apartment ownership is (registered immovable) entered in the land register as an independent unit. An apartment ownership is a registered immovable from the point of view of formal real right in immovable property, i.e., independent register parts are opened for apartment ownerships in the land register, through which they can be transferred and encumbered. The biggest change included in the AOA was the statutory regulation of the administration of blocks of flats through a community of apartment owners (Chapter 2 'Administration'), which is additionally applied if an apartment association as a legal person has been established to administer the dwelling. 12

At the moment, the Ministry of Justice has completed the concept of AOA III, which is intended to solve the questions of the passive legal capacity of the community, which have proven problematic, and decide on the possibilities of uniting the apartment association and the community of apartment owners as parallel forms. 13

3. Development of community of apartment owners

A community of apartment owners is founded on AOA § 8 (1) which regards as a community of apartment owners their legal relationships concerning the object of common ownership. 14 The authors of the AOA of 2001 viewed as a solution to the administration problems in situations where there were no apartment associations as legal persons in most of the blocks of flats the development of legal relationships under the law of obligations between apartment owners:

Since an apartment ownership creates specific obligations and needs arising from the relevant area, which are independent of the existence of legal persons or entry into contracts, to resolve the problematic situation, it would be necessary to establish provisions that determine the legal relationship developed on the basis of law. In the case of a community of apartment owners, it would be a relationship under the law of obligations set out in the Apartment Ownership Act and specified by the Law of Property Act, General Part of the Civil Code Act, the Law of Obligations Act after it enters into force, as well as other Acts [author's emphasis - P.P.].

I will examine below how these civil Acts detail the community of apartment owners, i.e., to what extent it can be supported by the provisions of the General Part of the Civil Code Act 15 (GPCCA), LPA and the Law of Obligations Act 16 (LOA). It is clear that the AOA considers administration based on law as the principal form of administration. 17

The regulation of a community is problematic because there is no clear definition for a community. 18 Contrary to the expectations expressed in the explanatory memorandum to the AOA, we can find an unambiguous approach to a community neither in the GPCCA nor LOA. In German law, a community is included in the special part of the law of obligations (BGB 19 §§ 741-758). We can find an institute similar to a community in the LOA - a contract of partnership 20 (LOA § 580 ff.) - whereas according to Estonian law, a partnership is characterised by achievement of a mutual objective and making contributions thereto, joint management and decision-making, partnership property that is in joint ownership, solidary liability, integrity of partnership property, non-transferability of the rights of a partner, a possibility to terminate and cancel a partnership. According to § 2 (2) of the Non-profit Associations Act 21 (NAA), associations of persons with non-profit characteristics which are not entered in the register are not legal persons and the provisions for civil law partnerships apply to them. Spouses and co-successors also serve as a community. 22

However, a community was still regarded in LPA § 70 (7) (shared ownership), published in 1999, which precludes the application of provisions of a partnership. Namely, the provision sets out that if a right belongs to several persons (community), the provisions concerning joint ownership are applied thereto unless otherwise provided by law. This section appeared in the draft Law of Property Act, Law of Property Act Implementation Act, Land Register Act and Code of Enforcement Procedure Amendment Act 23 on the initiative of its initiator (Ministry of Justice) before the adoption of the draft, which is why the explanatory memorandum to the draft does not contain the reasons of the amendment. Hence, the general notion of a community has been defined via the law of property or application of the provisions regarding (joint) ownership. If a thing belongs to several persons, it is presumed that a common ownership exists; if a right belongs to several persons, we can presume that the right belongs to the persons in legal shares and we proceed from the rules of common ownership when exercising the rights and obligations relating to legal shares. 24 According to the explanatory memorandum to AOA, the joint exercise of rights...

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