What happens if a Norwegian housing association gets into financial trouble?
Many Norwegian housing associations have had to raise their members’ monthly payments sharply in order to cover rising costs. But what happens if the association runs into money trouble?
What is a borettslag, and how does it work
When buying an apartment in Norway, you are almost always buying a share in a housing association or borettslag, which comes with the right to live with an apartment in the association.
Those who buy a flat in the housing association buy a share in the housing association itself, as it exists as its own legal entity, similar to how a limited company works.
Associations are run by their members, who choose a board to decide on annual fees, maintenance, economy and other issues.
An association will have its own operating costs, debts, a board and other shareholders. This means that when you buy into a housing association, you will also take on a share of the association's existing loans and debts.
Repayments on these loans and other monthly running costs for the association will be paid monthly and are called felleskostnader.
As interest rates have increased, so have interest repayments on any debts the housing association has. This means that monthly costs for those living in these associations have increased. As an example, the average monthly joint costs in Oslo have increased by 15 percent over the past year. Some associations have seen costs rise by as high as 30 percent, and some will have seen much lower increases.
What can push a cooperative toward a financial crisis?
New builds and blocks that have undergone expensive and extensive renovations will find that the financial plans they laid out at the time may not add up due to rising interest rates, increased inflation and soaring material costs, which can leave members paying much higher monthly costs than they bargained for.
For more established cooperatives, debt can be built by years of financial mismanagement. Fortunately, there is a maximum limit to how much joint debt a housing association can have.
READ ALSO: How to analyse a Norwegian housing association's finances before you buy an apartment
How much can a housing cooperative raise monthly fees?
Housing associations can choose to raise monthly fees. When raising the monthly fee, two-thirds of the board must agree to the increase. This also applies to times when costs increase quickly in a short amount of time.
Monthly costs can also be increased when a board burns through its budget for the year. When monthly costs are raised, residents typically receive a month's notice.
There are no limits on how much joint costs can be increased, though, unlike the rules for renting when prices can only be increased in line with inflation.
If members cannot afford the higher fees, then they risk losing their right to live in the apartment. Missed payments will lead to the apartment being sold to recover the debt. In the worst case, this can mean other members take up their share of the debt, but there are insurance policies which can protect against this.
What happens when a housing association goes bankrupt?
Instances where housing associations go bankrupt are pretty rare, even in light of rising inflation and interest rates.
However, if the housing association goes bankrupt – shareholders will lose the deposit they've paid and all the money they've spent on costs and instalments.
Unit owners who are part of a housing association that goes bankrupt will typically have their housing rights under the old association converted into tenancy rights when a bank or creditor takes over the property. This means that they will not have to move out, but they will no longer own their home and will become tenants paying full market rent.
Typically, housing association members are low on the priority list when recovering money from the sale. This means that once creditors are paid off, they tend to receive very little for their apartment and risk being left with a large chunk of their mortgage to pay off and no home to show for it.
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What is a borettslag, and how does it work
When buying an apartment in Norway, you are almost always buying a share in a housing association or borettslag, which comes with the right to live with an apartment in the association.
Those who buy a flat in the housing association buy a share in the housing association itself, as it exists as its own legal entity, similar to how a limited company works.
Associations are run by their members, who choose a board to decide on annual fees, maintenance, economy and other issues.
An association will have its own operating costs, debts, a board and other shareholders. This means that when you buy into a housing association, you will also take on a share of the association's existing loans and debts.
Repayments on these loans and other monthly running costs for the association will be paid monthly and are called felleskostnader.
As interest rates have increased, so have interest repayments on any debts the housing association has. This means that monthly costs for those living in these associations have increased. As an example, the average monthly joint costs in Oslo have increased by 15 percent over the past year. Some associations have seen costs rise by as high as 30 percent, and some will have seen much lower increases.
What can push a cooperative toward a financial crisis?
New builds and blocks that have undergone expensive and extensive renovations will find that the financial plans they laid out at the time may not add up due to rising interest rates, increased inflation and soaring material costs, which can leave members paying much higher monthly costs than they bargained for.
For more established cooperatives, debt can be built by years of financial mismanagement. Fortunately, there is a maximum limit to how much joint debt a housing association can have.
READ ALSO: How to analyse a Norwegian housing association's finances before you buy an apartment
How much can a housing cooperative raise monthly fees?
Housing associations can choose to raise monthly fees. When raising the monthly fee, two-thirds of the board must agree to the increase. This also applies to times when costs increase quickly in a short amount of time.
Monthly costs can also be increased when a board burns through its budget for the year. When monthly costs are raised, residents typically receive a month's notice.
There are no limits on how much joint costs can be increased, though, unlike the rules for renting when prices can only be increased in line with inflation.
If members cannot afford the higher fees, then they risk losing their right to live in the apartment. Missed payments will lead to the apartment being sold to recover the debt. In the worst case, this can mean other members take up their share of the debt, but there are insurance policies which can protect against this.
What happens when a housing association goes bankrupt?
Instances where housing associations go bankrupt are pretty rare, even in light of rising inflation and interest rates.
However, if the housing association goes bankrupt – shareholders will lose the deposit they've paid and all the money they've spent on costs and instalments.
Unit owners who are part of a housing association that goes bankrupt will typically have their housing rights under the old association converted into tenancy rights when a bank or creditor takes over the property. This means that they will not have to move out, but they will no longer own their home and will become tenants paying full market rent.
Typically, housing association members are low on the priority list when recovering money from the sale. This means that once creditors are paid off, they tend to receive very little for their apartment and risk being left with a large chunk of their mortgage to pay off and no home to show for it.
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