Constraction Scam

Relations Refinement Registration with the Builder. Part IV

Closing a topic of legal relations registration niceties with the builder, we have approached to the last which  Lawyers Daily so-called as a”scheme” of investment attraction. It is apartment purchase through securities.
This method deserves a special attention because it is simple, reliable and becomes more and more popular. Therefore builders practice the conclusion thicket and more often with the investor of forward contracts (they are securities),thus, arranging, the involved investments.
So: what are forward contracts? What risks / benefits for the investor  do involve such agreements ?
First of all, we speak about the concept of “forward contract”. It is one of the derivatives types. It is the agreement according to which the builder undertakes to give  a real estate object to the investor. The investor undertakes to pay such object and to accept it.
Actually, the legislator imposes the same requirements to content as well as to the provisional agreement of purchase and sale to the forward contract.  You could read in details about provisional agreements of purchase and sale here:

Is there a difference
The forward contract differs from the purchase and sale provisional agreement only in a conclusion order. The contract is signed at commodity exchange and respectively is registered in the same place.

In practice builders sign 2 contracts with the investor:

  • forward contract;
  • purchase and sale agreement for property rights.

Thus, the builder divides the total amount of an acquired real estate object (which will be created in the future) into 2 agreements. The investor   pays 50%according to the forward contract and other 50% according to the purchase and sale agreement for property rights.

Benefits of the forward contract

The forward contract gives to the investor certain guarantees:

  • minimization of the builder possibility to sign several contracts with different persons for the same construction object;
  • risk minimization in a case of project payment cost of the real estate as payment by instalments.

About risks

Of course, the conclusion of the forward contract won’t be able to secure you for all 100%. A lot of things depend on conscientiousness of the builder, on the  presence of all construction documentation and many other conditions which Lawyers Daily has already informed the readers.

Therefore, summing up the results after consideration of all popular mechanisms of relations registration of the builder-investor which were stated in the previous articles, the  potential investors want to give the following very important advice:

  • check “history” of the builder;
  • check documents for the land under an expected construction;
  • check the technical documentation for a construction object;
  • read documents based on which you will purchase the real estate, regarding the hidden risks and obligations of the investor to make additional payments for benefit of the builder;
  • check availability of allowing documents;
  • be not afraid to ask lawyers for the help as the cost of legal services in an audit of an object costs much less than the cost of investments.

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