The Property Manager and the Co-owners association

 PROPERTY MANAGER

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A property manager may be a legal or natural person registered to perform property management activities. The property manager operates the building on behalf of and for the account of the co-owners, within the limits prescribed by law and defined by the co-ownership agreement and the management agreement. The property manager is not an independent decision-maker – they execute the will of the co-owners.

What must the property manager ensure?

According to the law, the property manager must ensure:

1. Regular maintenance of the building
2. Emergency interventions in case of breakdowns
3. Preparation of annual and multi-annual building maintenance plans
4. Execution of legally prescribed inspections (chimneys, gas, electricity, elevators, fire protection systems)
5. Keeping building and technical maintenance records

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Annual and Multi-Annual Management Plans

• The property manager prepares the annual and multi-annual plans based on the legal provisions on building maintenance and the wishes/instructions of the co-owners communicated through the building representative. Co-owners adopt the plan by a majority of ownership shares, which also determines the amount of the reserve fund (service charge).

• The property manager is obliged to prepare a proposal for the annual maintenance program of the common parts of the building, in line with the multi-annual building maintenance program, obligations arising from court proceedings, and construction-related regulations, and deliver it to the building representative no later than November 15 of the current calendar year.

• The property manager is also obliged to prepare a proposal for the multi-annual building maintenance program in line with construction-related regulations and deliver it to the building representative no later than December 31 of the current calendar year.

 

CO-OWNERS ASSOCIATION

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A co-owners’ association is made up of all owners of apartments, business premises, and other special units within a building. It represents an organized form of managing and caring for the common property of the building, while also serving as a forum through which co-owners exercise their rights and fulfil their obligations.

A co-owner of a residential building is any natural or legal person who owns a separate part of the building – an apartment, business premises, or another independent unit.

An apartment is a distinct part of the building in which all rights belong to its owner, intended exclusively for residential use. In addition to residential units, a building may also contain commercial spaces and open areas such as terraces, which are likewise part of the common ownership. All co-owners are obliged to contribute to the reserve fund, which finances the regular maintenance and improvement of the building’s common areas.

Each co-owner has the right to complete information on all matters related to the management and maintenance of the building.

This is particularly important in financial matters – the funds on the building’s account are provided exclusively by the co-owners, which means it is both their right and responsibility to know how the money is being invested and to participate in the decision-making process.

Under the new draft Law, the co-owners’ association is no longer regarded merely as an informal arrangement, but instead becomes a legal entity. This significantly strengthens its role and legal certainty – the association can enter into contracts, open bank accounts, acquire rights, assume obligations, and initiate or defend legal proceedings.

The fundamental document governing relations between co-owners and the functioning of the association is the co-ownership agreement. This document defines the rights and obligations of all co-owners, the rules of decision-making, and issues related to the maintenance and management of the common parts of the building.

For easier and more transparent operations, every co-owners’ association is assigned its own personal identification number (OIB). The OIB is issued by the Tax Administration, and the data are automatically connected to the State Register of Co-Owners’ Associations. In this way, the association can participate in legal transactions like other legal entities, but solely for the purpose of managing and maintaining its building.

In practice, this means that co-owners, through the association, have a clearer and more effective framework for joint decision-making, planning, and financing works, as well as for protecting their interests in relation to third parties.

1. Legal personality of the co-owners’ association

According to the new legal provisions, the co-owners’ association acquires legal personality only upon registration in the Register of Co-Owners’ Associations. From that moment, the association can independently participate in legal transactions – for example, entering into contracts, maintaining its own bank account, and initiating or defending proceedings before courts and institutions.

Legal personality ceases in cases where the association no longer exists, which may occur:

• if there is only one remaining co-owner in the building (in which case the association is no longer needed), or

• if the association merges with another co-owners’ association (e.g., when two buildings are combined into one organizational unit).

Each co-owners’ association is identified by its OIB and its official name. The name always consists of the word “Building” followed by the address of the building (example: Building, Nikola Tesla Street 10, Zagreb). This address also serves as the official registered seat of the association.

The OIB is issued by the Tax Administration through an automatic data exchange with the Register of Co-Owners’ Associations. This system introduces greater transparency and simplifies dealings with banks, contractors, and other partners.

In summary: the co-owners’ association becomes a legal entity only upon registration, and its identity is based on the building’s address and its OIB.

2. Tax treatment of the co-owners’ association

Although the co-owners’ association acquires legal personality under the new rules, it is not considered a corporate income tax payer as long as it carries out only the activities for which it was established – i.e., the management and maintenance of the building. In this respect, its position is comparable to other non-profit legal entities.

A tax liability arises only if the association begins to engage in commercial activities that generate profit or income beyond its primary purpose. In that case, corporate income tax is calculated and paid exclusively on the income from that commercial activity. When assessing whether an activity is considered commercial, the actual operations and intent are evaluated – whether the activity is aimed at making profit and how that profit is used.

3. Liability of the co-owners’ association

As a legal entity, the co-owners’ association is liable for any damage resulting from the failure to carry out, or the improper performance of, building maintenance obligations. It is also liable for damages caused by the common parts of the building in situations where it cannot be determined from which specific unit the damage originated.

Liability does not rest solely with the association – all co-owners are jointly and severally liable, and the building manager may also be held liable if it is proven that the damage resulted from their failure to perform legal or contractual duties. The aim of this provision is to provide stronger protection for third parties and to encourage both co-owners and managers to ensure responsible and regular building maintenance.

4. Merger of co-owners’ associations

The new law also provides for the possibility of status changes, including the merger of one co-owners’ association into another. Such a decision is adopted by an absolute majority of co-owners in each of the associations involved in the process.

The merger is formalized through a merger agreement, which sets out in detail the mutual rights and obligations of the associations. This option has been introduced to make management simpler and more efficient, particularly in cases where two or more buildings share common interests or function more effectively as a larger organizational unit.

5. What co-owners and representatives need to know

• Co-owners are responsible for decision-making – The property manager cannot independently decide on important matters such as building renovation, elevator installation, or changes to the reserve fund amount. These decisions are made by co-owners through a majority vote.
• Co-owners elect the building representative – by an absolute majority of ownership shares.
• The building representative is a key figure – The representative communicates with the property manager and conveys the decisions of the co-owners. They play an important role in coordinating and implementing the decisions of the community.
• Co-owners must be informed and involved – Active participation of co-owners in decision-making and in monitoring the work of the property manager is essential for effective building management.

Co-owners are protected under:

1. The Law on Ownership and Other Real Rights (NN 91/96, 68/98, etc.)
2. The Law on Lease of Apartments and the Law on Building Management and Maintenance
3. The Co-ownership Agreement – the key document defining the relations and rights of co-owners

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6. Key Mechanisms for Protecting Interests

 

CO-OWNERS’ REPRESENTATIVE

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The authorized representative of the co-owners of a building does not have independent authority to manage the funds of the common reserve or to withdraw cash from the building’s transaction account. In accordance with the provisions of the Co-ownership Agreement, the authorized representative, together with the building manager, co-signs payment orders for building maintenance invoices issued by contractors. To execute any payment from the building’s account, both the authorized person and the manager must sign the order. At the end of each year, all co-owners receive a report containing a list of all payments made from the building’s transaction account.

What is the procedure for changing the co-owners’ representative?

Changing the authorized co-owners’ representative requires the following steps:The majority of co-owners must give their consent for the appointment of a new authorized person and submit it to the manager.An annex to the Co-ownership Agreement is then prepared to officially document the change.The new authorized representative signs the annex to confirm their status.The annex is notarized to legalize the change. Finally, the signature of the new authorized representative is added to the signature card deposited at the bank where the building’s reserve fund account is held.

Role of the Co-owners Representative:

• Represents the interests of the co-owners
• Acts as the link between co-owners and the manager
• Serves as a contact point with all entities involved in the functioning of the building
• Initiates meetings and collects signatures for decisions
• Has the obligation to regularly inform co-owners about all important matters
• Must submit an annual report on their work at least once per year
• Monitors works and supervises the quality of delivered services
• Cannot independently make decisions on behalf of co-owners or dispose of the reserve fund at their own discretion (unless otherwise defined in the Co-ownership Agreement)
• Is accountable to the co-owners for their work and may be required to compensate for damages if found liable

*The Co-ownership Agreement specifically includes

• the name of the co-owner authorized to represent and act on behalf of the co-owners towards the manager and third parties, as well as the scope of their authority

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*Important Notice to Co-owners

The property manager is obliged to issue a written notice to all co-owners who have not elected a co-owners’ representative, instructing them to do so within 60 days from the date of delivery of the written notice.If the co-owners fail to act in accordance with the written notice, the manager will appoint an interim (compulsory) co-owners’ representative until the co-owners notify the manager of the election of their representative. The property manager is obliged to inform all co-owners of the appointment of the interim representative within 15 days.

 

MANAGEMENT AGREEMENT AND CO-OWNERSHIP AGREEMENT

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The management of a multi-residential building is based on two key documents:

1. Co-ownership Agreement

A written agreement among co-owners regulating their mutual relations concerning the management and use of the common parts of the property, in accordance with the Law on Ownership and Other Real Rights (Art. 375, NN 91/96).

2. Management Agreement

Concluded between the co-owners (or their representative) and the property manager, defining the obligations and powers of the manager in carrying out regular and extraordinary maintenance.

 

PROPERTY MANAGEMENT AGREEMENT

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Authorizations and obligations of the property manager:

• organizing the regular maintenance of the building’s common parts and installations in terms of construction and functionality,
• carrying out periodic and annual inspections of the property,
• determining the amount of the reserve fund contribution owed by each co-owner,
• organizing the collection of reserve fund contributions,
• managing the funds allocated by co-owners for covering the maintenance costs of the building’s common parts and installations, in accordance with the annual or multi-annual program,
• organizing building insurance against risks in accordance with the annual program,
• taking out loans to secure additional funds for building maintenance costs, based on a co-owners’ decision,
• representing co-owners before courts and other state authorities in proceedings arising from building management,
• providing legal assistance to the co-owners’ representative in management-related matters …

Note: An integral part of the Management Agreement is the Management Program for a defined period, i.e. the Annual Management Program (GPU). This document sets out the proposed work plan of the manager for a defined period (annual or multi-annual), including planned works and funds to be spent on building maintenance. Another integral part of the Management Agreement is the Handover Report, which establishes the scope of maintenance works for the building’s common parts and installations, as well as the condition of the building on the date of signing the Management Agreement.

 

CO-OWNERSHIP AGREEMENT – the foundation of building management

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According to Article 375 of the Law on Ownership and Other Real Rights (NN 91/96), a Co-ownership Agreement is a written contract by which co-owners regulate their mutual relations regarding the management and use of the property.

The Co-ownership Agreement represents a key document for functional, lawful, and transparent building management.

What does the Co-ownership Agreement include?

• the size of co-ownership shares of the property
• conditions and method of managing the building
• information about the property manager (name, powers, scope, and responsibility)
• method of collecting and managing the reserve fund
• powers of the co-owners’ representative and the limits of such powers
• use of common areas, apartments, and land
• organization of utility bill collection (if not included in the reserve fund)
• participation in the selection of contractors
• verification of work orders as confirmation of completed works
• rules on the use of common parts as agreed by the majority of co-owners

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Legal obligation and effect

1. Decisions from the Co-ownership Agreement are binding on all co-owners if concluded by a majority (more than 50% of co-ownership shares).
2. The agreement is binding on future co-owners, i.e. those acquiring ownership after the agreement has been concluded.
3. It formally defines the scope of decision-making and the appointment of the building manager (pursuant to Art. 375, para. 2, item 3 of the Law).