Protection of investors' money and developer transparency. Seven innovations for apartment buyers

Author : Natalia Lebed

Source : 112 Ukraine

Among other things, it is planned that each apartment will be registered as a separate object, and its sale will take place through special funds
12:02, 1 March 2021


The situation when a buyer invests in real estate, and in the end is left without money and without an apartment, is not new for Ukraine. Everyone knows about frauds like the Elita-Center scam - either from their own experience, or from the stories of deceived friends and acquaintances. The Ukrainian lawmaker decided to take care of the investors' deposits by submitting draft law No. 5091 to the Verkhovna Rada for consideration.

Among other things, it is planned that each apartment will be registered as a separate object, and its sale will take place through special funds. How these and other innovations can affect investors?

  1. Permits for construction will become mandatory

The real estate company Smart Realty told about cases when an unscrupulous developer sold real estate without having permits for it. For example, investors received a house without electricity, because one of the developers and Kyivenergo could not agree on the transfer of transformer substations. Residents have been struggling with the situation for 8 months. They wrote collective letters to the Kyiv city administration, met with representatives of the developer. This story had a happy ending, but this is not always the case.

Why is this possible? There may be several reasons. The land under the house most likely did not belong to the developer. Therefore, Kyivenergo did not consider it possible to hand over substations to it. Or, as an option, the developer wanted to deceive city enterprises (like Kyivenergo or Kyivvodokanal) and indicated that according to the documents it planned to build a shopping center, while in fact an apartment building was being erected. Bill No. 5091 is intended to remove this problem and prohibit construction without a full package of documents.

Although, with or without documents, the relationship between developers and utility companies is a separate thing. This bill does not regulate them in any way.

  1. Full transparency of the developer's face

The second innovation has something in common with the first, but with its own peculiarities. Let's say that the developer has everything in order with the permits, but he still hid some of the nuances. Construction can be carried out, so to speak, against an environmentally unfavorable background - when during the preparatory work parks, forests, squares or historically important places are destroyed, which causes violent protests from the public. In addition, there may be a violation of building codes. Or, in the end, there are such scammers who deliberately practice a money laundering scheme (sell the same property several times and the like).

To prevent this, bill No. 5091 requires full information about the developer - who he is, where he is from, where he is building and what background he has. "The developer will no longer be able to cheat on people,” comments one of the co-authors of the document, Olena Shulyak, MP from the Servant of the People faction.

Open data about the developer will help the investor make the best choice. And the Kyiv City State Administration will no longer have to admit that up to 70 "dubious" construction projects are underway in the capital.

Yevgenia Matrosova in an interview notes as a significant positive of the bill that the developer is obliged to tell his entire "biography".

"Because now it is quite difficult to obtain information about the developer - in order to provide the client with a detailed legal analysis. I have to conduct a whole investigation in relation to the developer, make lawyer inquiries to the architectural and construction control authorities in order to understand who you are dealing with. This will not give an answer to the question of whether or not it is worth investing in this object, "the expert says.

  1. Each apartment is registered as a separate object

This is a really important and completely new norm. Olena Shulyak says: “In order to sell apartments, the developer must at least register the house and each apartment as a separate object of property rights. We have also provided for a rule thanks to which people will be able to receive protection from the moment the contract is signed, that is, they will immediately become the owners of a special property right to a future apartment."

According to Yevgenia Matrosova, investors are usually offered several types of contracts: there is no single form. Referring to her experience, she claims: during the maintenance of the purchase and sale agreement, only in 20% of cases it is possible to amend it in favor of the investor. Because basically the developer provides his project, which is drawn up by his lawyers and which protects exclusively his interest.

The bill is about building 100% protection for the investor through property rights to a specific apartment, which is now treated as a separate object. Moreover, this protection begins immediately after the signing of the contract.

  1. Registration of property rights to parts of the object

This innovation complements the previous one, but applies not only to the apartment, but also to the entire infrastructure of the house. Quite often, the developer promises that the residential complex will have its own school and its own kindergarten, but does not fulfill the promise. It is impossible to hold him accountable for such things, but it can be done if it is a part of the house, of which you are a co-owner. For example, let’s talk about parking.

The bill states that the investor obtains ownership of the construction object and its parts (apartments, garages, parking lots, etc.) on the basis of the “one-stop shop” principle. That is, in the absence of such a “parking space”, the defrauded owner can take legal proceedings, indicating that his property rights have been violated.

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The initiative provides for a system of penalties for providing false information about an object. Moreover, the body that will collect the fines is determined. This, according to the bill, is “a central executive body that implements state policy in the field of state control over compliance with consumer protection legislation.

“Why is this good? Because in our legislation fines are not uncommon, but the body that should be responsible for the implementation of such punishment is not often indicated. Here, at least, it is spelled out,” Yevgenia Matrosova notes.

  1. Guaranteed share of ownership in case of bankruptcy of the developer

Bill No. 5091 provides for the introduction of a guaranteed share in the construction of a property in case the customer / developer is unable to finance the completion of the construction. This is a very, very common situation faced by many buyers: yesterday a reliable developer is now going bankrupt.

As of now, investors have a 30-day period from the date of consideration of the case on declaring the company bankrupt. During this time, they had to file a lawsuit in court, deciding in advance whether they want to have material compensation, or still want to wait for the phantom apartment.

At the same time, if the house has just begun to be built, the chances of getting a finished apartment will be several times less, because significant investments are needed to complete the construction. In this case, investors usually give preference to termination of the contract and claims for compensation for damage or non-pecuniary damage. But even here they are in danger: the court may side with the developer, or at least delay the process and decision-making.

With bill No. 5091, there is supposedly no need to worry about the fate of your money: the entire eighth chapter of the document is devoted to determining the guaranteed share. Although Yevgenia Matrosova speaks rather critically about this section of the document.

"The draft law does not fully regulate the mechanism of the guaranteed fund of deposits. It will be determined by the Cabinet of Ministers, but the issue is still" floating ". Because the objects are different, and it is necessary to describe how the safety of investments will be guaranteed in the case of each specific type of object, "she comments.

  1. Clarification of the specifics of operations with unfinished objects

Until now, the unfinished construction project was supposedly an incomplete property, although the investor's money was invested in it - in some places the latter. The bill - according to its name - describes the specifics of operations with unfinished construction projects. In particular, mortgage transactions, sales and purchases, notarization, etc.

“Where does the legal side of construction begin? On the creation of a housing construction cooperative. They are needed only at the stage of sale, and when all apartments are sold out, the housing construction cooperative is liquidated as a legal entity. When it comes to court, it turns out, that there is no one to sue, because there is no defendant, "Matrosova explains.

But if the bill is approved, developers must first accumulate certain funds. So that even in the case when they refuse to further work with the object, someone else could complete it. Yevgenia Matrosova notes that developers will simply hate this bill for this point.

Therefore, the parliamentary lobby of developers may oppose the adoption of the document. The initial development market may "sink" somewhat, predicts Matrosova. On the one hand, this is probably not very good. But on the other hand, there will be more guarantees that new buyers will not be thrown away.

However, it is not known whether the primary real estate market will really "sink". Such consequences not only for the "primary", but also for the entire construction industry can be borne by the initiative to tax the housing of Ukrainians based not on its square, but on the estimated value. Because the cheapest options, which are not profitable for the developer, will most likely be in demand. Such options have already risen in price and will continue to increase in price in the future.

  1. Sale of real estate through special funds

It is planned to introduce intermediaries between the buyer and the seller. Literally this is stated as follows: "The conclusion, execution and termination of contracts for the sale and purchase of future real estate objects (occurs) through construction financing funds, real estate funds, joint investment institutions, as well as by issuing targeted corporate bonds, the repayment of which is carried out by transferring the object (part of the object) construction".

Experts argue that such intermediaries would be needed for additional guarantees of the integrity of the financial transaction. But what such funds will represent is not entirely clear. It is not clearly spelled out which funds we are talking about, what form of ownership they have.

In general, the bill proposes a lot of positive innovations. However, it contains significant gaps and is difficult to understand even for specialists.

But cases of fraud cannot be ignored just because they occurred before the document was written. Specifically, this issue is dealt with by an interdepartmental group that works under the Ministry of Community and Territorial Development in conjunction with the Ministry of Internal Affairs. Olena Shulyak says that investigation is underway, but somewhere "we are gradually bringing communications to problem buildings and preparing documents for commissioning."

One way or another, the implementation of the bill will require amendments to a number of codes, and above all - to the law of Ukraine on state registration of property rights.

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