On the fundamental headings of urban transformation — the demolition and reconstruction of a structure, the choice of the model of implementation, the selection of the contractor or the formation of the construction contract — the owners must express their will by a given majority. The criterion here is not the number of owners; what is decisive is the absolute majority calculated on the basis of the land shares (50% +).
A substantial proportion of the problems encountered in practice arise from an error of calculation. An incorrect addition of the shares, a failure to inform the owners in accordance with the proper procedure, or an incomplete conduct of the process opens the validity of the decisions taken to debate. How the majority is to be calculated and by what procedure the decision is to be formed is therefore one of the most critical links in transformation.
In this briefing note we address when the decision-making process begins, whether a meeting of the owners is mandatory, the calculation of the absolute majority on the basis of the land shares, and the legal position of owners who do not join the decision.
The Decision-Making Process in Urban Transformation
The decision-making process denotes the expression of will by the condominium owners, by the majority required by the statute, for the purpose of choosing reconstruction, strengthening or another method of implementation within the scope of the project in respect of a structure identified as risky.
The Statutory Basis of the Process
The basis of the decision-making process is formed essentially by Act No. 6306 on the Transformation of Areas at Disaster Risk and by the implementing regulations brought into force on the basis of that Act. The instruments in question set out in detail how a risky structure is to be identified, by what procedure the decision is to be taken and in what manner the implementation is to be conducted.
For the process to be capable of operating, the structure must have been identified as bearing the character of a risky structure and that identification must have become final. Finality is the fundamental threshold as regards the legal commencement of transformation.
The Scope of the Decisions Taken
The decisions taken by the condominium owners directly determine the future of the property and draw the framework of the implementation. Those decisions are not confined to the demolition and reconstruction of the building alone; they extend to headings such as the choice of the method of implementation, the selection of the contractor and the formation of contractual relations.
The matters most frequently settled by decision of the owners in practice may be listed as follows:
- Making a choice in favour of strengthening the structure
- Demolishing and rebuilding the building
- Determining the model on which the construction is to be conducted
- Selecting the contractor who is to bear the capacity of undertaker of the works
- Forming the contractual relationship
- Signing the construction contract in return for land shares
- Determining the project, the financing structure or the method of implementation
Each of these headings is decisive as regards the legal progress of the process. Since the decisions taken at the stage of selecting the contractor and forming the contract in particular directly shape the rights and obligations of the owners, compliance with the procedure and the correct calculation of the majority acquire a distinct importance.
The Moment at Which the Process Begins
The decision-making process begins to run with the identification of the structure as a risky structure and with that identification becoming final. Where no objection is made to the identification in time, or where the objection is dismissed, the structure acquires the character of a risky structure in law; the taking of a decision by the owners as to transformation thereby comes into play.
Following the finality of the identification, the owners are in practice generally allowed a period of ninety days for the structure to be demolished. That period is an interval of preparation set aside for the demolition of the risky structure by the owner and for the formation of the decisions relating to transformation. The owners are expected to produce decisions within that interval on matters such as reconstruction, strengthening or the formation of a contract with a contractor.
The process therefore arises in law with the finality of the risky structure decision; in practice, however, it most often takes concrete shape with the owners coming together and taking the fundamental decisions within the ninety-day period.
The Procedure for Holding the Meeting of Owners
How the decisions concerning a risky structure are to be formed and by what procedure they acquire validity is among the matters giving rise to the greatest hesitation in practice. Whether it is a requirement that the owners actually come together also lies at the centre of those hesitations.
Is a Notice of Meeting Mandatory?
The convening and bringing together of the owners at a meeting in the accustomed sense is not a condition of validity under the legislation. Indeed, neither Act No. 6306 nor the relevant regulation contains any express provision requiring the condominium owners to take their decisions by necessarily holding a meeting.
The point that is decisive in law is that the owners should have agreed, as to how the property is to be dealt with, in such a way as to secure an absolute majority according to the land share ratio (50.01%), and that this will should be committed to a written document. The holding of a meeting is a method that facilitates the process and is preferred in practice; it is not, however, an element required for the validity of the decision.
The Written Decision and the Intention to Contract
For the decisions taken to be capable of producing legal effect, the will of the owners must be set out in a written document. It is not a requirement that this document be drawn up in the form of a classic minute of a meeting. What is required is that it be documented in writing that the owners representing the necessary absolute majority in terms of the land shares have reached agreement on a given matter.
In practice the will is most often set out by texts such as a minute of decision, a protocol of common decision or a construction contract in return for land shares. These documents form the fundamental legal basis demonstrating that a common will has been formed on matters such as reconstruction, the selection of a contractor or the determination of the model of implementation.
In short, what is essential in the process is not that a meeting should actually have been held, but that the will representing the majority should take concrete shape in a written text. The written decision or the contract is an indispensable element as regards the progress of the process and the treatment of the decisions as valid.
The Position of Owners Who Do Not Attend the Meeting
That some owners do not join the decision or are not present at the meeting does not of itself render the decision invalid. So long as the necessary absolute majority is secured on the basis of the land shares, the decision taken affects the legal position of all the owners and forms no obstacle to the progress of the process.
That said, the decision taken and the terms of the contract must be notified to the owners who did not join the decision in accordance with the proper procedure. The notification is most often made through a notary; those owners are then faced with the possibility of joining the decision within a given period or of encountering measures relating to the process of sale of the property.
Not being present at the meeting or not signing the decision therefore does not take the owner outside the process; where the majority is secured, the decision has effect in respect of the non-participating owner as well.
The Majority Ratio Required
In urban transformation, decisions are now generally taken not by a two-thirds majority but, to a large extent, by an absolute majority according to the land share (50.01%). As a result of the amendments made to the legislation, the ratio required for the fundamental decisions relating to reconstruction has been markedly lowered and the production of decisions has been made easier.
By contrast, it cannot be said that the same ratio applies to every decision; different majority ratios may be applied according to the nature of the decision.
The Ratio Required for Reconstruction and for the Formation of a Contract
As regards the determination of the terms of the new structure to be built in place of the building demolished or ordered to be demolished, the selection of the contractor and the signature of the construction contract, an absolute majority of the co-owners by reference to the land share ratio (50.01%) is required.
Where that ratio is secured, the decision taken produces legal effect in respect of the non-participating owner as well.
Important note:
Once the majority has been formed, the shares of the co-owners who do not take part in the process or do not join the decision may be made the subject of a process of sale at the market value, in accordance with the procedure laid down in the statute. The sale in question is an independent process conducted by the administration once certain stages have been completed.
The Ratio Required for a Strengthening Decision
Strengthening is assessed under a legal status different from the demolition and rebuilding of the structure; it may therefore be subject to different rules of majority.
Before a structure can be spoken of as being strengthened, it is a precondition that the technical feasibility of the strengthening be established by scientific and technical reports.
Decision ratio:
In structures subject to condominium ownership, a decision to strengthen is as a rule subject to the provisions of the Condominium Ownership Act No. 634, and in practice a four-fifths (4/5) majority of the condominium owners is generally required. Where, however, an identification of the structure as risky has been made and strengthening is regarded as an option within the scope of the legislation, the decision-making process may be assessed differently according to the features of the particular case.
The Calculation of the Voting Ratio
For decisions to be treated as valid, the correct calculation of the majority is decisive. The most widespread misapprehension in practice is the belief that the calculation may be made by reference to the number of independent units. In urban transformation decisions, however, the criterion is not the number of owners but the land share ratio in the property.
For that reason, in making the calculation the share of each co-owner in the property is taken as the basis and it is considered whether half of the total land share has been exceeded. An erroneous calculation may render the validity of the decisions open to dispute and may equally lead to a delay in the process.
Calculation on the Basis of the Land Share
The majority is found not according to the number of owners but according to the land share ratios recorded at the land registry. In the calculation the share held by each owner is taken into account, and for the decision to be valid the owners representing more than half of the total land share, that is to say 50.01% of it, must express their will in the same direction. In practice this ratio is often expressed in the form "50% + 1", and that phrase may be understood as meaning something like 51%. Since the criterion is the land share, however, the technically correct formulation is that half of the total land share be exceeded.
Because of this structure, a small number of owners holding a high share may secure the majority. By contrast, it is possible for a numerous group of owners whose shares are low to be unable to form the majority.
Voting Rights in Properties Held in Shares
Where an independent unit belongs to more than one person in the form of shared ownership, the voting rights of the co-owners are determined according to the share ratio they hold. In other words, each co-owner may cast a vote only to the extent of his or her own share.
If the co-owners do not act together, the land share falling to the independent unit is divided and taken into the calculation accordingly. For that reason, in calculating the majority in properties held in shares, the share ratio of each co-owner must be observed separately.
Although it is thought in practice that one of the co-owners may decide on behalf of the whole of the independent unit, this is possible only with the express consent of the other co-owners or with the authority they give.
The Effect of a Dissenting Vote and of Non-participation
That some owners do not attend the meeting or cast a vote against the decision does not of itself render the decision invalid, so long as the necessary majority is secured. What is decisive is that the majority required in terms of the land share ratio has been formed.
Accordingly, an owner’s refusal to sign, failure to join the decision or open dissent does not halt the implementation where the majority exists. Those owners must, however, be informed in accordance with the proper procedure as to the decision taken and the terms of the contract.
Errors Frequently Made in the Calculation
Certain errors are seen again and again in practice when the majority is calculated, and those errors lay the ground for serious disputes as to the validity of the decisions.
The mistakes most frequently encountered are as follows:
- The calculation being made by reference to the number of independent units rather than to the land share
- The land shares being added incompletely or erroneously
- The share ratios not being taken into the calculation in properties held in shares
- The number of signatures collected being treated as sufficient for the majority
- Regard being had to the actual use of the property rather than to the land registry record
In determining the majority, therefore, the land registry records must be examined with care and the land shares correctly calculated. A condominium owner who takes the view that the distribution of the land shares is unjust has, if the conditions are met, the possibility of bringing an Action for the Rectification of the Land Share at this stage.
The Position of Owners Who Do Not Join the Decision
That some owners do not join the decision taken or take no part in the process at all is a frequently encountered picture. Where, however, the necessary majority in terms of the land share is formed, the decision produces effect in respect of the non-participating owner as well and does not prevent the process from advancing.
That situation does not mean that the owners in question lose their rights altogether. Owners who do not participate have certain protected rights, and in some situations it is possible for them to have recourse to the courts.
The Rights of Owners Who Do Not Participate
The rights of owners who do not join the urban transformation decision rest on the idea that the right of property should be protected and that the genuine value of the property should be paid to them. Within that framework, the principal rights of those owners are as follows:
- The possibility of bringing unlawful measures before the courts
- The right to require that the decision taken and the terms of the contract be notified to them in accordance with the proper procedure
- The right to object to the sale price determined and to bring an action on that matter
- The right to require that the property be sold at its market value
These rights have been taken into the legislation with a view to the protection of owners left in the minority in the course of transformation.
The Sale of the Shares of Owners Who Do Not Participate
Once the necessary majority in terms of the land share has been formed, the shares of the owners who did not join the decision may be made the subject of a sale in accordance with the procedure laid down in the statute. This is a measure conducted by the administration and tied to certain stages.
In practice the process generally follows this order:
- The majority required on the basis of the land share is formed
- Notification is sent through a notary to the owners who did not join the decision
- Those owners are allowed a given period in which to join the decision
- If no participation takes place within the period allowed, the shares are put up for sale at the market value
The lawful conduct of the sale carries a decisive importance, particularly as regards the assessment of the price and the auction stage.
Actions That May Be Brought
Owners who take the view that the process has been conducted unlawfully may have recourse to various forms of action. Those actions generally concern the validity of the measure or whether the price determined reflects the genuine value of the property.
The principal actions that owners who did not join the decision may bring in order to protect their rights are as follows:
- Action for the annulment of title deed and registration
- Action for the annulment of the sale
- Action for the annulment of the contract
- Action for the assessment and increase of the price
These actions may be heard in different branches of the judiciary according to the features of the particular case; whether the process has been conducted lawfully is reviewed by the court.
In conclusion;
The majority ratio required in transformation decisions has been considerably simplified by the amendments to the legislation, and an absolute majority according to the land share (50.01%) has been adopted as the basic principle. The element determining the validity of the decision is not the number of owners who sign but the land share ratio those signatures represent.
The existence of owners who do not join the decision does not halt the process where the necessary majority exists. That said, the property rights of those owners are protected; their possibilities of having recourse to the courts against unlawfulness at the stages of the sale, the assessment of the price and the contract are reserved.
For the validity of the decisions, therefore, the majority must be correctly calculated, the will must be documented in written form and the rights of the owners left in the minority must be observed. A process conducted in accordance with the proper procedure ensures both that the transformation is accelerated and that disputes liable to arise in the future are forestalled.
Independent Legal Assessment
A significant part of the disputes we encounter in urban transformation files arises not from a legal argument but from a simple error of calculation. Confusing the number of independent units with the land share ratio, taking shares into the calculation without dividing them in independent units held in shares, or working from a land registry record that is not up to date can render invalid a decision taken at the end of months of negotiation.
For that reason we recommend that a table of shares based on the land registry records be prepared before the decision stage is reached, and that all notifications be documented in a manner capable of proof. In concrete processes the following headings stand out in particular:
- Drawing up a table of land shares by co-owner from up-to-date land registry records
- Verifying whether the identification of the structure as risky has become final and the point from which the ninety-day period runs
- Giving concrete written form to the will of the majority through a minute of decision or the text of a contract
- Sending the notifications to be made to the owners who did not join the decision in accordance with the proper procedure and in a manner capable of proof
- Clarifying in advance the majority ratio to be applied in files where the option of strengthening is on the agenda
- Reviewing the consistency of the price assessment with the market value before the stage of sale is reached
Independent Legal provides legal advisory and litigation services throughout urban transformation processes, from the framing of the decision-making stage to contract negotiations and the actions to be brought against sale measures.