The insolvency of a property management company poses significant problems for homeowners. If a property management company gets into financial difficulties, the consequences range from unfinished tasks to potential losses due to misappropriated funds. To protect themselves from financial losses and bureaucratic chaos, quick action is essential. In the following article, you will learn what steps and aspects are necessary in the event of a property management company becoming insolvent.
Property management insolvent: what to do?Link to this section
It's not uncommon for property management companies to experience financial difficulties and become insolvent. Insolvency often occurs when property management companies can no longer meet their financial obligations, for example, due to excessive indebtedness. Insolvency can affect both an individual managing the property and a company.
If a property management company is facing insolvency, it is important for you as the owner to determine the current stage of the insolvency proceedings. Typically, the property management company will file 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 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, thereby initiating insolvency proceedings. In this case, the court appoints an insolvency administrator who, pursuant to Section 103 of the Insolvency Code (InsO), has the authority to decide whether to continue or terminate the existing management contract. In the event of termination, the owners no longer have access to property management services; in the event of continuation, the insolvency administrator assumes the administrative duties.
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 homeowners' association, this means that you will no longer have a property management company. However, if insolvency plan proceedings are initiated, you may have the option of continuing the management contract with your homeowners' association. Below, we explain all the important steps in detail.
The most important steps in the event of insolvency of the property management / WEG managementLink to this section
If you're a property owner and your homeowners' association's property management company is insolvent, then swift and decisive action is required.
Step 1: Check WEG funds for availabilityLink to this section
First, clarify what has happened to your condominium funds. Then decide whether to continue with the insolvent condominium administration or to Change property management want.
Unfortunately, when a property management company goes bankrupt, it often happens that the condominium funds held in trust by a property management company are misused. This would make repayment impossible. Therefore, check your accounts immediately, especially your checking account and reserve account. If any funds remain, clarify the exact nature of the accounts.
Although it's not legally permissible, in practice it occasionally happens that condominium management companies maintain open trust accounts under the name of the property management company. In the event of insolvency, the court-appointed insolvency administrator receives control over these accounts. To protect your condominium funds and keep them out of insolvency proceedings, it's necessary to file a third-party objection action in accordance with Section 771 of the Code of Civil Procedure (ZPO).
For amounts exceeding €5,000, the relevant regional court has jurisdiction over a third-party objection, and your condominium association must be represented by a lawyer. Open third-party accounts held in the name of the condominium association, however, are automatically exempt from insolvency proceedings. The insolvency administrator is not permitted to access them.
Step 2: Dismiss insolvent property management and terminate management contractLink to this section
How you react in the event of the property management company's insolvency, as is currently the case in Hamburg, is up to you as the condominium association. However, most homeowners' associations prefer to separate from an insolvent property management company. The separation principle in condominium association law makes this possible by treating the appointment and dismissal of the condominium management company as separate legal acts. Consequently, both the dismissal of the management company and the termination of the management contract must be handled separately.
You want your Terminate property management . In this article, we'll explain how to do it.
Simple majority decision
According to Section 26 Paragraph 3 Sentence 1 of the Condominium Act ( WEG Act ) A property manager can be dismissed at any time by a simple majority vote of the owners. Thus, dismissing an insolvent property management company is not a problem. According to Section 26, Paragraph 3, Sentence 2 of the German Condominium Act (WEG), the management contract ends no later than six months after the dismissal.
Under certain circumstances, even termination of the management contract without notice is possible. According to Section 626, Paragraph 1 of the German Civil Code (BGB), an extraordinary, immediate termination requires good cause—and an insolvency application by the manager 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 notice of extraordinary termination without notice after learning of an important reason. Due to the specific nature of condominium law, in particular the need to Owners' meeting and to make a decision, in practice it is often not possible for many WEGs to meet this deadline.
Therefore, the condominium association may issue an extraordinary termination within a reasonable period of time. This period is determined by the time required to convene the owners' meeting and adopt the resolution.
Important:This law also applies if an insolvency administrator wishes to fulfill the management contract but the condominium association wishes to terminate it.
But:If the termination occurs two months after the good cause has been discovered, the right to terminate the tenancy is forfeited. This means that the property owners have lost their right to terminate the tenancy.
Resolution necessary
Both for the Removal of a WEG administrator Both the extraordinary termination of a management contract without notice and the termination without notice require a resolution of the property owners. If the manager is not present when the resolution is passed, the dismissal resolution or the termination of the management contract must be communicated to him/her immediately in writing. 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 condominium owners (unanimous vote).
Step 3: Find and change a new property management companyLink to this section
Following the termination of the management contract with the insolvent property management company, the appointment of a new property management company is required. To ensure a smooth and legally secure transition, your request should be handled as follows:
Obtain offersGet at least three quotes from different condominium management companies. You can get a free quote from Ralph at any time.Transparency and comparabilityThe offers should be made available to you in good time before the owners' meeting to allow for a thorough review and comparison.ResolutionThe decision for a new administration is usually made by a majority decision of the owners at the owners' meeting.
The appointment of a new property management company requires that this is a certified administrator unless the homeowners' association decides to manage the property itself. This is particularly common in smaller communities with fewer than nine residential units, where one owner takes over the management tasks.
Step 4: Meet payment obligationsLink to this section
If financial resources are exhausted and outstanding utility bills, advance payments, or other payments remain unpaid, things become critical for your condominium association. In such cases, a delay in appointing a new manager threatens the suspension of utility services. Even an emergency manager cannot automatically avert this situation, as their appointment requires the submission of detailed information on the management contract – and this information is rarely available if there is no manager.
If an insolvency administrator is willing to continue the existing management contract, it is important that your homeowners association does not release them. However, if the insolvency administrator terminates the contract, you are required to take immediate action. One option is to Administrative Board or authorize individual owners through a corresponding resolution to enter into negotiations with the utilities. The goal of these negotiations could be, for example, a deferral of payments or the organization of the necessary financial resources to settle the outstanding claims.
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