Settlement of utility deposits or: what are the rights and obligations of Unit Owner, Tenant and the Owners’ Unit Community?

22/11/2023

What if the Owners' Unit Community fails to provide the unit owner with a utility bill? What even is an Owners' Unit Community? What if the Landlord fails to provide the Tenant with a utility bill? And what are the consequences of late or incorrect utility deposit billing?

First of all, Owners' Unit Community (in Czech: Společenství Vlastníků Jednotek, in short: "SVJ") is a legal entity established for the purpose of building and land management, when a building has multiple apartment units. By law, it must be created by apartment owners when there are at least five units in the building, at least four of which are owned by four different owners. Unit owners are members of the SVJ (membership is tied to the ownership of the unit) and they meet regularly to discuss issues regarding the common areas of the building, vote on bylaws, on members to serve in executive and supervisory bodies of the SVJ or on investments (e.g. a new elevator) and other issues. Members also must pay fees that go into a fund for repairs and maintenance necessary in the building, as well as on the costs of SVJ operation (e.g. accounting). In principle, it serves the same purpose as a condominium association (COA) or a homeowners association (HOA).

This article focuses on the advances on the utility costs. Now, which "utilities" are we talking about? In particular:

- heat supply and centralised hot water supply,

- water supply and sewage disposal,

- lift operation,

- lighting in the common areas of the building,

- cleaning of common areas in the house,

- sewage disposal and cleaning of septic tanks,

- enabling the reception of radio and television signals,

- operation and cleaning of chimneys and

- removal of municipal waste.

In summary, these are advances for utilities connected or related to the use of the apartment, which one party provides for the other. Whoever uses the apartment is the recipient of the utilities. Whoever provides (arranges) the recipient with those utilities is the provider. If the apartment is used by the Owner of the unit, the utility provider is the SVJ. If the apartment is used by a Tenant, the utilities provider is the Owner of the unit. Of course, third parties (energy suppliers, elevator maintenance, cleaning) supply the services.

The Owner of the unit or the Tenant who uses the apartment is obliged to pay deposits to the provider. The amount of the advance payment is negotiated or decided by the SVJ. Should the price of a service change during the year, the provider may unilaterally change the amount of the advance payment for that utility - the advance payment in the new amount may be requested (at the earliest from the first day of the month following receipt of written notification of the new advance payment amount).

Settlement of advances

The utilities' provider (i.e. the SVJ to the unit owner or the unit owner to the tenant) is obliged to provide the recipient with a settlement bill for the actual costs and advances for the individual services. The billing must state

- the actual cost of the services, broken down by the utilities provided, with all necessary particulars; and

- the total amount of monthly advances received for utilities,

in such a way that the amount of any differences in the settlement bill is clear and auditable in terms of the methods and rules agreed for the billing. Utilities that are paid for by a lump sum shall not be billed (typically e.g. payment for internet, but may be a lump sum for all services provided if agreed between the recipient and the provider).

The settlement bill must be made and delivered to the utilities' recipient within 4 months of the end of the billing period. The billing period is a maximum of 12 months and the start of the billing period is determined by the utilities' provider - typically one calendar year.

What if the number of people living in the apartment changes? In this case, the recipient has a notification obligation towards the provider. The recipient must notify the provider in writing and without delay (within a few days) of the change in the number of persons. The number of persons is important for the calculation of the utilities charge.

Objections to settlement bill

What if the settlement bill doesn't seem correct to the recipient? Does he or she have the opportunity to check the billing documents? Yes, the utilities' recipient has this possibility by law (according to Section 8 of Act No. 67/2013 Coll.). Within 30 days from the receipt of the settlement bill, the utilities' recipient may request in writing that the utilities' provider provide him with evidence of the costs of the individual utilities, the method of their allocation, the method of determining the number of advances for utilities and the execution of the settlement according to this Act and that he allows him to obtain a copy of the documentation. The provider must comply with this request within 30 days of receipt. Copies of the documents shall be made at the expense of the applicant.

What should the recipient of the utilities do if he/she finds inaccuracies in the settlement bill? The recipient of utilities is entitled to object to the settlement bill. They must do so within 30 days of receipt of the settlement bill or, where appropriate, of the supporting documentation for the statement of account (above). The objections must be submitted to the utilities' provider, who must deal with them within 30 days of their submission, i.e. by examining them and either accepting them and correcting the settlement bill or rejecting them with reasons.

If he does not object, the recipient is deemed to have accepted the settlement bill (both its method and its content).

Penalty for default

The law provides for a relatively strict consequence for the non-performance of mutual obligations between the provider and the recipient. If one party fails to fulfill its legal obligation towards the other party, it becomes liable to pay a default penalty to the other party. For example, if the recipient of utilities fails to notify the provider of a change in the number of persons living in the dwelling. Or if the utility provider fails to deliver the deposit account to the recipient on time or to allow the recipient to inspect the documentation. Or the provider fails to deal with objections to the advance payment account in a timely manner.

How much is this penalty? By law, the penalty is CZK 50 for each day of delay (a lower rate can be negotiated or decided by the SVJ). Delays can therefore become more expensive.

Practical example. The Tenant and the Landlord (the owner of the unit) end the lease of the apartment in bad blood. The Tenant moves out and they stop communicating. The Landlord fails to provide the Tenant with the last year's advances settlement. Regardless of whether he should refund the overpayment to the Tenant, or whether he might ask the Tenant to pay the underpayment (even if the amounts are very small), the Landlord has breached his duty. The Tenant can therefore claim a late payment penalty from the Landlord. Such a penalty will amount to CZK 9,000 for a six-month delay in delivering the settlement bill.

Similarly, the SVJ may, for example, fine a unit Owner who fails to notify without undue delay that the number of persons living in the apartment has changed.

Case law: if the recipient fails to notify the provider in writing in a timely manner of a change in the number of persons living in the unit, does this mean that the provider is not required to bill the recipient for the advance payments for utilities? No. The Supreme Court addressed this issue (n. NS 26 Cdo 2088/2022 of 19 April 2023) and reached the following conclusion:

The obligation to deliver the settlement bill on time is not conditional upon the fulfillment of the obligations imposed by Act No. 67/2013 Coll. on the recipient of utilities (written notification of the change in the number of persons in the apartment). If, however, the settlement bill is not correct because it includes an incorrect number of persons relevant for the billing of utilities, the utilities' provider is not obliged to pay a late payment penalty (due to incorrect calculation) pursuant to Article 13 of Act No 67/2013 Coll.

If you are in doubt about the rights and obligations of the recipient and the utilities' provider, we recommend you contact a qualified Attorney-at-Law.