Comprehensive Resolution of HOA Disputes

Why is HOA management a minefield? Understanding the basic principles and sources of conflict

Owners with vastly different financial means, life plans, and ideas about housing are forced to make joint decisions on often costly investments. This creates an environment where a conflict of interest is not the exception, but the rule. In many ways, managing a Homeowners' Association (HOA) is like running a small corporation with mandatory and often divided shareholders.

The basic division of power in an HOA is between the assembly, which is the supreme body composed of all owners, and the statutory body (a committee or a chairperson), which is the executive branch. Disputes can be divided into two main categories:

• Internal disputes: Conflicts within the HOA, such as invalid resolutions, member debts, neighbourly disputes, or the liability of committee members.

• External disputes: Conflicts with third parties, typically with service providers, construction companies, or developers.

At the ARROWS law firm, thanks to managing a portfolio of more than 150 joint-stock companies and 250 limited liability companies, we have deep experience with the principles of corporate governance and managing complex legal relationships, which allows us to effectively prevent conflicts in HOAs before they escalate.

When the assembly decides wrongly: How to challenge an invalid resolution?

One of the most common and legally complex disputes is challenging an assembly resolution. The main tool for defence is Section 1209 of the Czech Civil Code, which allows for a judicial review of an adopted decision. However, this process is fraught with procedural pitfalls that can lead to failure even in the case of a legitimate claim.

Who can file a lawsuit? Definition of an "outvoted owner"

Only a so-called outvoted unit owner can file a lawsuit. This is an owner who voted against the adopted resolution at the assembly. Judicial practice also includes in this category an owner who could not attend the assembly and vote because they were not properly and timely invited. Conversely, an owner who abstained from voting or failed to attend without a valid reason does not have this right.

What is an "important reason"?

Another key condition is the existence of an "important reason". Mere disagreement with the decision is not enough. The reason must be objectively significant, and the decision must tangibly affect the owner's legal standing or the substance of their ownership. Courts consider such a reason to be, for example, the approval of an extensive renovation financed by a large loan or a fundamental change to the articles of association. In contrast, an increase in contributions to the repair fund is not usually considered an important reason.

The deadly three-month deadline

A motion to the court must be filed within three months from the day the owner learned or could have learned of the decision. This is a preclusive period, which cannot be waived, and the right to judicial review expires once it is missed.

Invalidity vs. Nullity – a trap for the layperson

It is necessary to distinguish between a resolution that is "invalid" and one that is "null" (or putative). An invalid resolution is considered valid until a court decides otherwise. A null resolution, on the other hand, is so fundamentally flawed (e.g., it was adopted by a body that lacked the authority to do so) that it is treated as if it had never been adopted. A correct legal assessment is crucial here for choosing the next course of action.

ARROWS' lawyers assess the validity of assembly resolutions daily, prepare legal opinions for clients, and, if necessary, effectively represent them in court proceedings concerning the invalidity of a resolution, thereby protecting their rights and investments.

The following table summarises the most common risks associated with problematic resolutions.

The enemy within: Resolving conflicts with HOA members

The most common and emotionally demanding disputes are those within the community. Whether it's defaulters threatening the financial health of the building or neighbourly disagreements, the key to resolution is timely and professional action.

The relentless fight against debtors – How to effectively recover debts?

Imagine an HOA that cannot carry out a planned roof repair because of one long-term defaulter. Neglect leads to leaks, damage to common areas and other owners' apartments, and the total cost of repair multiplies. In such a case, the committee's inaction is not just an operational failure, but also a breach of the duty of due managerial care, for which committee members can bear personal financial liability.

Effective debt collection is not an optional activity, but a legal obligation. A proven procedure involves several steps:

1. Precise records and correct billing: The foundation is flawless accounting that clearly separates contributions for building management from advances for services.

2. Written demand: The first formal step, calling on the debtor to pay.

3. Pre-action letter from a lawyer: This step has a significantly higher psychological effect and, in the event of a subsequent court dispute, establishes the right to reimbursement of the costs of drafting it.

4. Motion for an electronic payment order: A fast and effective court proceeding that, in the absence of opposition from the debtor, leads to an enforceable title.

5. Enforcement/Execution: The last resort, but a necessary step to recover the amount due.

It is important to realise that all owners are liable for the HOA's debts to suppliers (e.g., for utilities) in proportion to their shares.

ARROWS handles the entire debt collection process, from preparing the pre-action letter to enforcement proceedings, thereby protecting the financial stability of the HOA and relieving the committee of liability.

Neighbour wars and rule-breaking – The power of quality articles of association

Noise, odours from cooking or cigarettes, unauthorised occupation of common hallways with shoe racks and cabinets, or conflicts over pets are a source of constant tension. An extreme solution to these problems can be a so-called negatory action under Section 1013 of the Czech Civil Code, by which an owner seeks to have a neighbour refrain from disruptive behaviour.

However, the best defence is prevention. The basis for peaceful coexistence is precisely formulated articles of association, which also include house rules. Separate house rules that are not part of the articles of association are practically unenforceable, as they lack legal binding force for all members. Quality articles of association must clearly define the rules for using common areas and establish enforceable sanctions for their violation.

The lawyers at ARROWS specialise in drafting and revising articles of association and internal regulations that are "tailor-made" for a specific building and effectively prevent the vast majority of neighbourly disputes.

The following table shows the risks an HOA exposes itself to if it does not resolve internal disputes.

Battles on the external front: Disputes with suppliers and construction companies

Disputes with external entities pose a significant financial risk for HOAs. These are asymmetrical conflicts where on one side stands the HOA, often represented by laypeople, and on the other, professional companies with their own legal teams and contracts formulated in their favour.

When service providers fail to meet their obligations (utilities, cleaning, maintenance)

Problems with utility suppliers, cleaning companies, or management companies often revolve around incorrect billing, poor quality of services, or simple non-compliance with the contract. While it is possible to turn to the Energy Regulatory Office (ERÚ) for utility issues, its powers are limited and it cannot, for example, change the content of a contract.

The foundation of defence is always a quality contract. Our lawyers at ARROWS specialise in drafting and revising supplier contracts, which include a clearly defined subject of performance, measurable quality indicators (KPIs), strict penalties for non-performance, and unambiguous complaint conditions, thereby minimising the room for future disputes.

Defects in work: The nightmare of every renovation

A roof or facade renovation or window replacement can quickly turn into a nightmare if the work shows defects. A defect is not just an obvious functional fault, but any deviation from the contract, including unfinished work or aesthetic shortcomings (Section 2615 of the Czech Civil Code). For buildings, the contractor's five-year statutory liability for latent defects is key, which applies even without an explicit provision in the warranty certificate.

The HOA's rights differ depending on whether it is a material or non-material breach of contract. In the case of material defects (e.g., using an unsuitable material that prevents final building approval), the HOA can demand repair, a discount, or even withdraw from the contract. For non-material defects, it is entitled to repair or a discount.

An exceptionally treacherous trap is the issue of standing to sue (active legitimation). If the HOA was established in a new building, it often cannot claim defects in common areas from the developer, because the purchase contracts were concluded by individual owners, not the HOA. Without a contractual assignment of rights from liability for defects from individual owners to the HOA, a lawsuit by the community is doomed to fail for lack of standing. This step is absolutely crucial and requires expert legal assistance.

ARROWS provides complete legal services for construction projects and renovations, from preparing ironclad work contracts, through securing the assignment of rights for defects, to representing HOAs in challenging disputes with construction companies and developers.

The following table summarises the key risks when dealing with external partners.

The international element in an HOA: When a dispute crosses borders

In today's globalised world, it is not uncommon for an apartment owner to be a foreigner or for the supplier of technology for the building to be a foreign company. This brings specific challenges: problems with serving documents, language barriers, complications in attending assemblies, or uncertainties about the applicable law and jurisdiction in a dispute with a foreign supplier.

A standard local law firm is often not equipped for these situations. How do you effectively serve a lawsuit on an owner living outside the EU? How do you conduct a dispute with a German company under German law?

Here, the unique strength of our firm becomes apparent. Thanks to the ARROWS network built over ten years, we are able to provide effective legal services regardless of borders. Whether it's communicating with a foreign owner in their language through our partner offices, or handling a complex commercial dispute with a foreign supplier.

The path to peace: Dispute resolution and prevention strategies

Not every dispute has to end in court. While court proceedings offer the certainty of an enforceable decision, they are costly, time-consuming, and often irreparably damage relationships in the building. An alternative is out-of-court resolution, such as mediation, which is faster, cheaper, and focused on finding a mutually acceptable agreement. However, it requires a willingness from both sides to compromise.

ARROWS' strategic approach is to always first carefully analyse the situation and recommend the most effective course of action to the client. Sometimes this is uncompromising court enforcement, other times it is the tactical initiation of mediation with the aim of reaching a quick agreement and saving the client time and money.

The best dispute is one that never arises. That's why we focus on prevention. For the statutory bodies of HOAs, we offer professional training with a certificate, which teaches committee members how to properly manage an HOA, what decisions to make in accordance with the law, and how to avoid the risk of personal liability for any damages.

Moreover, our services extend beyond traditional legal advice. We pride ourselves on building a community and are happy to listen to interesting business ideas. If we see an opportunity, we actively connect our clients, among whom are many prominent investors and companies, and thus help them find new business or investment partners.

Peace in the building starts with professional legal support

The management of a homeowners' association is a complex discipline that requires not only managerial skills but, above all, a deep knowledge of the law. As this article shows, legal risks lurk at every step – from formal errors in convening an assembly to liability for debts and asymmetrical disputes with large suppliers.

A proactive approach and a professional legal partnership are not an unnecessary expense, but the best investment in protecting your property and the smooth functioning of the entire building. Our experience from long-term care of more than 150 joint-stock companies, 250 limited liability companies, and 51 municipalities and regions gives us a unique insight into the issues of administration and management.

Whether you are facing the threat of an invalid resolution, collecting debts from defaulters, or dealing with serious construction defects with a developer, our specialists at ARROWS are ready to provide you with fast and high-quality legal assistance. Contact us for a no-obligation consultation and find out how we can protect your property and ensure peace in your building.