Transferring a cooperative share in Czechia and in Slovakia: where the rules differ

A Slovak who acquired a cooperative flat in Prague or Brno while studying or working in Czechia is selling it years later. A Czech client is buying a cooperative flat in Bratislava. Both assume that a cooperative flat is the same thing in both countries, because the legislation has common roots. Since 2014, however, when the Business Corporations Act took effect in Czechia, the rules have parted company on points that directly change the content of the agreement and the allocation of risk between transferor and acquirer.

Which law applies

What matters is the law under which the cooperative was formed, not the nationality of the parties. For a Czech cooperative this is expressly determined by the Czech Private International Law Act: the legal order under which a legal person was formed also governs the relations between it and its members (Section 30(1) of Act No. 91/2012 Sb.). For a flat in a Czech cooperative, therefore, Czech law and the articles of association apply; for a Slovak one, the Commercial Code and the articles, regardless of who is buying and who is selling. The terminology differs too: the Slovak act speaks of a transfer of membership rights and obligations, the Czech one of a transfer of a cooperative share.

The cooperative’s consent and the conditions in the articles

In Slovakia a transfer of membership rights in a housing cooperative by agreement is not subject to the consent of the board of directors (Section 230 of the Commercial Code). In Czechia the articles of an ordinary cooperative may make a transfer conditional on the consent of the board (Section 600), but a special rule applies to a housing cooperative. The transferability of the cooperative share of a member of a housing cooperative may be neither restricted nor excluded where the acquirer is to be a person who meets the conditions in the articles for admission as a member (Section 736(1) of Act No. 90/2012 Sb.). Not even the board’s consent, where required, can therefore restrict a transfer to such a person; what decides is the conditions in the articles for admission as a member.

In a Czech cooperative it is therefore necessary to verify before signing whether the acquirer meets the conditions in the articles for admission as a member. This concerns above all situations in which a company is buying the flat: the articles of a housing cooperative may restrict or exclude membership of a legal person (Section 735(1)).

Debts attaching to the share

The greatest difference lies in debts. The Czech act expressly provides that, upon the transfer of a cooperative share, the tenancy of the flat passes to the acquirer together with all the transferor’s debts towards the housing cooperative connected with the use of the flat (and likewise the cooperative’s debts towards the transferor, for example overpayments), on the conditions laid down by the articles (Section 736(2)). The transferor is not released from them by the transfer, because they act as surety for the debts connected with the cooperative share (Section 601(1) of Act No. 90/2012 Sb.); in the case of a housing cooperative the act expressly preserves that suretyship (Section 736(3)).

For an acquirer in Czechia this means that the predecessor’s arrears are taken over by operation of law to the extent the articles allow, and the cooperative’s confirmation of the state of the debts is therefore essential before the price is deposited. For the transferor it follows that they may remain answerable for debts connected with the share even after the sale, and they therefore have an interest in seeing them settled before the transfer. The Slovak Section 230 speaks only of the passing of membership rights and obligations and does not address the question of debts in this express way. It is all the more important to regulate them in the agreement and to rely on the cooperative’s confirmation.

When the transfer takes effect as against the cooperative

The Slovak rules tie the transfer to the moment at which the cooperative learns of it from an instrument:

The membership rights and obligations associated with membership pass to the acquirer in relation to the cooperative upon submission of the agreement on the transfer of membership to the relevant cooperative, or on a later date stated in that agreement. The same effects as the submission of the agreement on the transfer of membership arise as soon as the relevant cooperative receives the written notice of the transfer of membership from the existing member and the written consent of the acquirer of the membership.

— Section 230 of the Commercial Code (unofficial English translation)

The Czech rules are similar, but expressly speak of an effective agreement. The effects of the transfer as against the cooperative arise on the day on which the effective agreement on the transfer of the cooperative share is delivered to the cooperative, unless the agreement specifies a later moment; delivery of a joint declaration of the transferor and the acquirer that the agreement has been concluded has the same effects (Section 601(2) of Act No. 90/2012 Sb.).

If the agreement makes its effectiveness conditional, typically on the price being deposited in escrow, in Czechia it makes sense to deliver it to the cooperative only once the condition has been satisfied, together with evidence of its satisfaction. How to link payment to the transfer in Slovakia is examined in the article the agreement on the transfer of membership rights in a housing cooperative.

Spouses

In both countries joint membership of spouses may arise, but for different reasons. In Slovakia it arises where the right to tenancy of a cooperative flat arises during the marriage (Section 703(2) of the Civil Code). In Czechia joint membership arises where the cooperative share forms part of the spouses’ joint property (Section 739(1) of Act No. 90/2012 Sb.). Where there is joint membership, the safest course is for both spouses to sign the agreement; the Slovak situation is described in detail in the question may one spouse transfer a cooperative flat alone.

Transferring the flat into ownership

The member’s entitlement to have the flat transferred into their ownership, the two-year period for the cooperative and the price in the amount of the unpaid loan, described in the question transferring a cooperative flat into personal ownership, derive from the Slovak Act on the Ownership of Flats. For a flat in a Czech cooperative the procedure must be assessed under Czech legislation and the articles of the particular cooperative.

What this means for the agreement

• Determine under which law the cooperative was formed, and choose the terminology and the procedure accordingly.
• In Czechia, verify the conditions in the articles for the acquirer’s admission as a member, particularly where a company is buying.
• In both countries, obtain the cooperative’s confirmation of debts; in Czechia this is a precondition of a safe transaction for the acquirer, in Slovakia the basis for allocating arrears in the agreement.
• Where the agreement is conditional, deliver only the effective agreement to the cooperative.
• Establish whether joint membership of spouses is involved, and determine accordingly who signs.

We prepare transfers of cooperative shares for flats in Slovak and Czech cooperatives alike; the firm’s lawyer is registered with both the Slovak Bar Association and the Czech Bar Association. We will handle the due diligence on the share, the agreement and the communication with the cooperative as part of our transfer of a cooperative share service.