Constraction Scam

Relations Refinement Registration with the Builder. Part II

Continuing a subject of the previous part of a Lawyers daily “Construction Scam” special project  about  the legal niceties relations registration with the builder, in the second part of this subject it will be an interaction features question  between the builder and the investor at a stage of the relations documentary registration.

Options of   relations registration between the builder and the investor are:

  • through Fund of financing of a construction;
  • through Fund of real estate transactions;
  • through the institute of joint investment;
  • by the issue of target bonds of the entities;
  • the current legislation provided other construction financing methods.

Now  apartment purchase and sale agreement conclusion  are very popular the investments registration option into a construction that doesn’t contradict the current legislation.

The law contains the fair number of requirements to similar agreements.What to pay attention to the ordinary investor who has no legal education and never has been dealt with builders?

The main requirements to execution of documentation

Conditionally all important aspects which require attention of the potential investor are possible to group into several sections:

  • legislative requirements concerning the purchase and sale provisional agreement form and content ;
  • the requirements to contents of purchase and sale provisional agreement protecting the investor’s rights.

Further, we will consider each of sections.

1) The legislative requirements to form and content of the purchase and sale provisional agreement

The legislator rather accurately provides requirements imposed to form and content of the apartment purchase and sale provisional agreement and which cause reality of it of the transaction. So, the provisional agreement about purchase and sale has to be:

  • to consist in a notarial form, otherwise, such agreement will be absolutely invalid by law and it will be impossible to recognise it valid judicially. The unique exception is the  cases when the investor  in writing form offered (required) to sign the agreement in a notarial form. However, the builder  groundless  avoided it;
  • to contain a closing date of the basic agreement
  • the characteristics of a real estate object which will be purchased according to the basic agreement;
  • the fixed cost of a real estate object;
  • a permission to the alienation of the apartment from another spouse (if the seller – physical person).

Actually, the specified legislative requirements are quite typical. It is worth paying attention to the last point, as  the apartment alienation  without the spouse agreement could  lead to the contract invalidity recognition.

The investor deposited a money in case the purchase and sale provisional agreement conclusion of a real estate object, for the purpose of the maximum protection of the means. It is worth demanding the reference of permission provision of  the real estate  object purchase and sale contract conclusion  from the individual seller.

2) The requirements to contents of the provisional purchase and sale agreement   which is protecting the investor’s rights 

Having finished the list of legislative requirements to the provisional agreement about purchase and sale of the apartment, it is necessary to list the sequence of steps which will help to provide securitization of investments as much as possible.

Securitization of investments: step-by-step manual

  • specifying in the provisional agreement about purchase and sale of the basic agreement conclusion in the specific date, avoiding formulations such as “not earlier than the input of the house in operation”;
  • availability in the agreement of considerable sanctions (a penalty fee, penalties) for violation of the basic agreement closing dates;
  • the personal liability of the builder director for the accomplishment in the form of the guaranteeof the purchase and sale provisional agreement;
  • the detailed characteristic of a real estate object, together with specifying the list of works and the equipment real estate object which will execute  and establish;
  • an order and terms for notification of the investor by the builder about the conclusion of the basic agreement (and such message shall be advance  is as the investor can be on vacation or on a business trip and won’t be able quickly to react to it. In case of the the main obligation ommission term, the previous agreement loses its legal force);
  • fixation of the project cost of the real estate;
  • lack of additional payments from the investor for a deviation in the area of the apartment to 2 sq.m;
  • a refund order, in the case of refusal the parties from the provisional agreement of purchase and sale;
  • order of modification of provisions of the provisional agreement of purchase and sale.


Any private investor, especially who hadn’t the  experience of purchase of the apartment in a new system shall remember that even on condition of correct accomplishment by the investor of all previous steps, he can lose the investments due to the builder bankruptcy  or corporate rights sale  on the builder company to other persons who aren’t interested in a construction and accomplishment which former management of the builder has provided.

Anyway, it is necessary to check carefully the builder: its history, number of its lawsuits, availability of the affiliated entities and their “biography”, communications with other builders and results of their former projects.


Leave a Comment