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The insolvency of a property management company poses considerable problems for homeowners. If a property management company gets into financial difficulties, the effects range from tasks that are left undone to potential losses due to misappropriated funds. Quick action is important so that condominiums can protect themselves from financial damage and bureaucratic chaos. In the following article, you will find out which steps and aspects are necessary in the event of insolvency of the property management company.
Property management insolvent: what to do?
Property management companies getting into financial difficulties and becoming insolvent is not an isolated case. Insolvency often occurs when property management companies can no longer meet their financial obligations, for example due to over-indebtedness. Insolvency can affect both the individual running the property management company and the company itself.
If the insolvency of a property management company becomes apparent, it is important for you as the owner to determine the current stage of the insolvency proceedings. As a rule, the property management company files for insolvency in such a case. As long as this application has not yet been filed or the court has not yet made a decision, the property management company remains legally capable of acting and continues to be responsible for the owners.
Alternatively, the competent insolvency court can also order provisional insolvency administration on its own initiative and thus initiate insolvency proceedings. In this case, the court appoints an insolvency administrator who, in accordance with Section 103 of the German Insolvency Code (InsO), has the authority to decide on the continuation or termination of the existing management contract. In the event of termination, the owners no longer have a property management company at their disposal, whereas in the event of continuation, the insolvency administrator takes over the administrative tasks.
Another possibility is that the court rejects insolvency proceedings. This leads to the dissolution of the company or partnership and the complete cessation of its business activities. For your community of owners, this means that you will no longer have a property management company. However, if insolvency plan proceedings are carried out, you may have the option of continuing the management contract with your community of owners. We explain all the important steps in detail below.
The most important steps in the event of insolvency of the property management / WEG management
You are an owner and the property management company of your community of owners is insolvent. Then you need to act quickly and decisively.
Step 1: Check availability of WEG funds
First of all, clarify what has happened to your WEG funds. Then decide whether you want to continue with the insolvent condominium management company or change the property management company.
Unfortunately, in the event of insolvency of the property management company, it often happens that the WEG funds that a property management company has administered in trust are used for purposes other than those for which they were intended. As a result, repayment would no longer be possible. So check your accounts immediately, especially the current account and the reserve account. If there are still funds available, the type of accounts must be clarified precisely.
Although it is not legally permissible, in practice it occasionally happens that condominium management companies keep open fiduciary accounts under the name of the property management company. In the event of insolvency, the insolvency administrator appointed by the court is given power of disposal over these accounts. In order to protect your WEG funds and keep them out of the insolvency proceedings, it is necessary to initiate third-party proceedings in accordance with Section 771 of the German Code of Civil Procedure (ZPO).
If the amounts involved exceed 5,000 euros, the respective regional court is responsible for third-party proceedings and your condominium association must be represented by a lawyer. Open third-party accounts in the name of the community of owners, on the other hand, are automatically excluded from the insolvency proceedings. The insolvency administrator may not access these accounts.
Step 2: Recall insolvent property management company and terminate management contract
In the event of insolvency of the property management company, as is currently the case in Hamburg, it is up to you as the owners' association to decide how to react. However, most communities of owners prefer to separate themselves from an insolvent property management company. The separation principle in WEG law makes this possible by considering the appointment and dismissal of the WEG management as independent legal acts. Consequently, both the dismissal of the management and the termination of the management contract must be carried out separately.
You want to terminate your property management contract. We explain how to do this in this article.
Simple majority decision
In accordance with Section 26 (3) sentence 1 of the German CondominiumAct (WEG-Gesetz), a property manager can be dismissed at any time by a simple majority resolution of the owners. The dismissal of an insolvent property manager is therefore not a problem. In accordance with Section 26 (3) sentence 2 WEG, the administrator contract ends no later than six months after the dismissal.
Under certain circumstances, it is even possible to terminate the administrator contract without notice. Pursuant to Section 626 (1) BGB, good cause is required for extraordinary termination without notice - and an insolvency application by the administrator is often recognized as good cause.
The deadline
According to Section 626 (2) of the German Civil Code (BGB), you as the owner generally have two weeks to give extraordinary notice of termination without notice once you have learned of good cause. However, due to the special features of condominium law, in particular the need to convene an owners' meeting and pass a resolution, many condominiums are often unable to meet this deadline in practice.
The following therefore applies: The condominium can give extraordinary notice of termination within a reasonable period of time. This period depends on the time required to convene the owners' meeting and pass the resolution.
Important: This right also applies if an insolvency administrator wishes to fulfill the administrator agreement but the COA wishes to terminate it.
However, if the notice of termination is not given until two months after the good cause becomes known, the right of termination is forfeited. This means that the condominium owners have lost their right to termination.
Decision necessary
A resolution of the condominium owners is required both for the dismissal of a condominium administrator and for the extraordinary termination of an administrator's contract without notice. If the administrator is not present when the resolution is passed, he/she must be informed of the dismissal resolution or the termination of the administrator contract in writing without delay. The resolution can be passed in two ways:
- Owners' meeting:
- The resolution is passed at an ordinary or extraordinary owners' meeting by a simple majority of the owners present or represented.
- Circulation procedure:
- Alternatively, the resolution can be passed by circular resolution. However, this requires the consent of all apartment owners (unanimity).
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Step 3: Find and switch to a new property management company
Following the termination of the management contract with the insolvent property management company, the appointment of a new condominium management company is pending. To ensure a smooth and legally compliant transition, your concerns should be dealt with as follows:
- Obtain offers
- Get at least three quotes from different condominium management companies. You can get a free quote from Ralph at any time.
- Transparency and comparability
- The offers should be made available to you in good time before the owners' meeting to enable a thorough examination and comparison.
- Resolution
- The decision for new management is usually made by a majority resolution of the owners at the owners' meeting.
The appointment of a new property manager requires that this is a certified manager - unless the community of owners opts for self-administration. This is particularly common for smaller communities with fewer than nine residential units, where one owner takes on the management tasks.
Step 4: Meet payment obligations
If funds are exhausted and outstanding utility bills, payments on account or other payments have not been settled, things can get dicey for your condominium. In such cases, a delay in appointing a new administrator could result in the cessation of utility services. Even an administrator appointed for emergencies cannot automatically avert this situation, as his/her appointment requires the submission of detailed information on the administrator contract - and this is rarely available in the absence of an administrator.
If an insolvency administrator is prepared to continue the existing administrator agreement, it is important that your community of owners does not release him/her from his/her duties. However, if the insolvency administrator terminates the contract, you are required to take action immediately. One option is to authorize the management committee or individual owners to enter into negotiations with the suppliers by means of a corresponding resolution. The aim of these negotiations can be, for example, a deferral of payment or the organization of the necessary financial resources to settle the outstanding claims.
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Your property management company has filed for insolvency and you want to change your property management company? Changing your property management company doesn't have to be complicated. With Ralph, it's practically on autopilot. Simply send us a message to let us know that you are interested in a change and we will contact you immediately to clarify everything else. We take the time to deal with every inquiry personally. Request a free quote now and switch to Ralph!
