The Special Investigation Service of the Republic of Lithuania (STT) has made public the findings of a study on the administration of apartment buildings, which states that apartment builders may be abused in the appointment of building administrators.
The findings of the study state that in Vilnius and Kaunas about 50 percent apartment buildings do not publish information about their administration. A significant part of these apartment buildings are possibly managed by companies that are related to the builder of the object and have been appointed in violation of the law. The apartment building may be managed by a partnership set up by the owners or by the owners under a joint venture agreement, or by an administrator appointed by the municipality.
The legislation stipulates that after the construction and registration of a new multi-apartment house, a period of 1 month is given during which the apartment owners must establish a partnership or enter into a joint activity agreement for the house. If the owners do not express a wish to manage the house in one of these forms, then the builder must apply in writing to the municipality to organize a tender for the appointment of a new administrator in accordance with the procedure established by legal acts.
The conclusions state that STT, having analyzed the data of the Center of Registers, Vilnius and Kaunas City Municipalities for the period 2018–2021, found that 308 multi-apartment houses were built (completed) and registered in Vilnius, but 141 of them do not have data on the common use of these houses administration of facilities. 107 multi-apartment houses were built (completed) and registered in Kaunas in 2018–2021, but no data on the administration of the common use objects of these houses are available for 48 of them.
From the anti-corruption point of view, the fact that the legislation does not require builders to purchase insurance services and works from economic entities related to administrators is assessed negatively. When purchasing services and works from related economic entities, administrators may not ensure a competitive price, and the service provider (contractor) may not be required to provide adequate services or works.
In order to present the position of the company administering multi-apartment houses, we share the expert insights of Giedrius Eidimtas, the long-term manager of Civinity Lietuva, one of the largest residential building administration and maintenance services in the largest cities in Lithuania.
The findings of the STT study are relevant to the general public
The findings of the study clearly show that there are still “gray areas” left in the administrative market, which create misunderstandings and distort the image of fair competition. The main problem remains non-compliance.
You may have heard that an apartment building may not necessarily be registered as residential. There are cases when the house looks and is used as a normal apartment building from the outside, but the purpose of the object is indicated in the documents – recreation or other non-residential premises. And formally, such objects do not fall within the scope of regulation of apartment buildings. In this way, it is possible to maintain the house without following the rules of administration of multi-apartment residential buildings and avoiding municipal control.
There are cases when the builder chooses the administrator of the newly built apartment building himself, although if the construction of the house is completed, he cannot legally do so. Residents do not participate in such a decision of the builder or receive information about it only by signing a sale and purchase agreement.
If the company provides administrative services for an apartment building, the builder is accountable for its activities and not the residents, there is a risk that the apartment owners themselves will not receive the necessary information from the administrator, and the administrator may submit invoices to the apartment owners without paying for their activities.
Then another sensitive problem arises, the municipality does not properly control the activities of such an administrator, because it does not have information about its activities in such an object. There are also situations where the administrator appointed by the builder may be inclined to act in favor of the builder and avoid defending the interests of the apartment owners due to defects in the building during the warranty period.
It is important to mention that apartment owners can manage an apartment house by choosing one of the forms of management: by establishing a partnership or concluding a joint activity agreement.
Regulatory change proposals
I believe that municipalities should be more involved in the process of appointing an administrator. In this situation, it is clear that the municipality is waiting for information from the builders, but if it does not receive it within the set deadlines, it could take stricter control and require the builders to provide the necessary information, and if it does not do so, hold an immediate vote. Strengthening controls would prevent builders from abusing the appointment of an administrator of an apartment building, and would better protect the interests of owners, which would promote fair competition, better prices and quality of services between companies providing administrative services.