Good housing company management: running it like a business

Legally, a housing company is, as the name says, a company. A limited liability housing company (asunto-osakeyhtiö) is a limited company that is a legal person separate from its shareholders, and it comes into being when it is entered in the Trade Register. It differs from an ordinary limited company in its purpose: a housing company exists to own and manage a building for its shareholders to live in, not to make a profit. In everyday terms, though, it resembles a business. It has assets, a budget, contracts, investments and risks, and its decisions have effects that last for decades.

Example: a block of flats with 70 apartments

Imagine a housing company with 70 apartments. The example is made up, but the orders of magnitude are typical. The combined value of the apartments is about €18 million, the annual budget including maintenance and financing charges is about €700,000, and repair needs over the next ten years come to about €6 million.

In a business, managing assets like these would be handed to professionals. In a housing company, decisions are usually prepared by volunteer board members in the evenings and at weekends. Many do the job extremely conscientiously. The challenge is that the company is not always run with the same long-term view, or on the basis of equally good information, as a business of the same size.

Who decides what

Shareholders exercise their decision-making power at the general meeting. The annual general meeting adopts the financial statements, decides on discharge from liability and elects the board. It usually also decides on the budget and the amount of the maintenance charge. Major renovation projects are likewise decided at the general meeting.

The board is responsible for the company’s administration and for ensuring that the property is properly maintained (Limited Liability Housing Companies Act 1599/2009 (opens in a new tab), in Finnish). It prepares the budget and renovation projects for the general meeting, enters into contracts, supervises the work of the property manager and service providers, and takes care of insurance. The board does not change light bulbs or order every maintenance visit, just as a company’s board does not service the machines.

The property manager’s role resembles that of a managing director. They handle property maintenance and day-to-day administration according to the board’s instructions and are responsible for ensuring that the accounts comply with the law and that financial management is reliably organised. The chair leads the board’s work and prepares meetings together with the property manager. Read more about the chair’s role and the property manager’s duties.

What the law requires of the board

The Act says nothing about the value of the assets, nor does it tell you which methods should be used to run a housing company. It does, however, contain three obligations which, when handled well, keep the building in good condition:

• Due care. The board and the property manager must act with due care to promote the company’s interests (chapter 1, section 11). Decisions must therefore be based on sufficient information and consideration.
• Organising property maintenance. The board does not have to inspect or repair anything itself, but it must ensure that maintenance is planned and that the necessary investigations are carried out (chapter 7, section 2).
• Maintenance needs report. At the annual general meeting, the board must present a written report on significant maintenance needs for the next five years and on significant repairs carried out (chapter 6, section 3). Many companies also draw up a longer-term maintenance plan (PTS). Read more about the maintenance needs report.

Everything else is left to the board’s discretion, and that is exactly where well-run and poorly run companies part ways.

What the value of the assets is made of

The replacement value of the buildings of a block of flats easily runs into millions of euros. The value of the assets is particularly affected by:

• the building’s technical condition: roof, facade, pipework, electrical systems, ventilation, foundations and yard
• the repair history and how it is documented
• long-term maintenance planning
• the company’s finances and loans
• the quality of decision-making.

Two buildings on the same street, built in the same year, can develop in completely different directions. The difference often comes down to how the building has been looked after over the years. Even an old building is valuable if it has been repaired at the right time and the repairs have been recorded. The topic is covered from the point of view of shareholders and buyers in the article the value of a housing company.

Decisions based on information

Many boards include people with expertise in finance, law or engineering. Problems most often arise because decisions have to be made on incomplete information: the building’s actual condition is not known, the maintenance plan is not updated, the maintenance company’s observations are not used or a condition survey is postponed. If the condition is not investigated before a decision, a repair may end up too extensive or too limited, and either way it is expensive.

Before a major decision, it is worth going through at least these questions:

• Has the need for repair been investigated sufficiently?
• Has the tendering been done carefully and the alternatives compared?
• How will the decision affect the charges in the long term?
• Can the matter be dealt with now, before the damage grows?

The board does not need to know everything. It is enough that it recognises what information a decision requires and, where necessary, uses the property manager, a condition surveyor, a designer, a site supervisor, an auditor or a lawyer. Using an expert is part of acting with due care.

A building gives warning before damage

Buildings rarely fail without warning. Roof wear, cracks in the facade, damp marks and weakening ventilation usually show long before actual damage occurs. A few examples:

• A small roof defect is quick to repair, but if it goes unnoticed, it can lead to extensive water damage.
• Dirty or unbalanced ventilation worsens indoor air, increases the risk of moisture and can raise energy consumption.
• Ageing electrical panels and loose connections can be a fire risk even if everything looks fine on the surface.

Consider two companies. In the first, the building’s condition is monitored, repair needs are identified in advance and the plan is updated every year. In the second, action is taken only when the roof leaks or the basement floods, and a contractor is chosen in a hurry. In the second company, decisions are driven by whichever problem happens to be loudest. Risks are covered in more detail in the article housing company risks and risk management.

The most common pitfalls

Many companies try to keep the maintenance charge as low as possible, which is understandable. If essential work is put off year after year, the repair backlog grows and costs rise later. Postponing repairs can sometimes be justified, as long as the decision is based on information about the building’s condition.

Another pitfall is a short time horizon. The board naturally focuses on the current year, but a building’s life cycle is measured in decades. A third is choosing on price alone: the cheapest quote is not good value if the work soon has to be done again.

Practical recommendations for the board

The following are practical recommendations, not legal requirements.

Monitor the condition systematically. A regular building walk-through and a check of the apartments reveal small changes before they turn into major repairs.

Record your observations. Photos, dates and observations from previous years build up a body of information that will also be useful to future boards. Read more about information management in a housing company.

Plan repairs in good time. Not everything needs to be repaired immediately, but almost everything is worth planning in advance. A project prepared without haste avoids the extra costs of rushing.

Do not ignore small observations. A single crack or damp mark is not necessarily a problem, but it may be the first sign of something worth investigating.

The indicators to follow and the board’s annual rhythm are covered in the article managing a housing company with information.

Shareholders are owners

When you buy an apartment, you buy shares and with them a stake in the whole company. At the general meeting, shareholders exercise the power of owners, and their decisions affect the value of the apartments, the cost of living and safety. Buyers increasingly read the financial statements, the maintenance needs report and the trend in the maintenance charge before buying.

When the board and the property manager are open about the building’s condition, the finances and the reasons for their decisions, even difficult investments are usually discussed more constructively. An active shareholder, in turn, is often the first to notice developing moisture damage or a ventilation problem. Read more in the article being a shareholder in a housing company.

Frequently asked questions

Is a housing company a business?

Legally, a limited liability housing company is a limited company and a legal person separate from its shareholders. However, it does not carry on business; its purpose is to own and manage a building for its shareholders to live in. The comparison with a business concerns management and financial stewardship.

Does the law require the value of the assets to be preserved?

Not directly. The Act requires the board to organise property maintenance properly and to act with due care in the company’s interests, which in practice supports preserving value.

Can I join the board without experience?

Yes. What matters most is a willingness to learn the role, to work with others and to base decisions on reliable information. The board’s most important duties are covered in the article the duties of a housing company board.

Who decides the amount of the maintenance charge?

Usually the general meeting, on the board’s proposal, when it adopts the budget. The basis on which charges are paid is set out in the articles of association.

This article provides general information and does not replace case-specific legal or technical advice.