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Suing Developer

What has a participant in participatory share construction to remember when developer is in default of his obligations under the contract.

Article by Anton Demin, INTELLECT-S lawyer.

Handling a problem of affordable and comfortable housing for citizens has been declared a priority federal national project. One of the significant normative acts to deal with the housing problems was the Federal Law №214-FZ "On Participation in the Joint-Share Construction of Apartment Buildings and other Real Estate Properties and the Amendment of Certain RF Legislative Acts".

Without any doubt, this law is not the only, however, we believe that it is the most protective as to the rights of the individuals which decided to invest in real estate. The consequences of financial instability are particularly pointed in construction. Some developers gave up on new projects, others as a matter of urgency turn efforts to prompt commissioning of already finished buildings.

What has a participant in participatory share construction to remember in case when developer is in default of his obligations under the contract. Generalizing the rights of participants to participatory share construction it could be pointed that the law on participatory share construction provides for a list of remedies available to the participants in the joint share construction for protection of their rights, legal interests and property, including warranty of quality of real estate property (Art. 7); legal provision for fines and liquidated damages (Art. 10, Art. 5, para. 2, Art. 6, para. 2, Art. 9); transparency of information on developer and a real estate property being constructed (publication and filing of project declaration to the relevant authorities) (Articles 19 – 21); obligatory state registration of a Participatory Share Contract (Art. 17); explicit provision for impossibility to apply the legislation on protection of consumer rights (para. 9, Art. 4). Notwithstanding the listed warranties the construction of a building, however, might be frozen, thereafter a question arises: "What the participants to participatory share construction are to undertake in order to terminate the contract in the most beneficial way for them and what compensation are they to count on?" We will try to cover the key moments.

According to para. 3, Art. 6 of the Law on Participation in the Joint-Share Construction in case when construction of apartment building can not be completed in term provided under the contract, not later than two months prior to expiration of time-limit the developer has to notify the a participant to participatory share construction and offer to amend the contract. Amendment of the deadline provided by the contract for delivery of the participatory share construction object to a participant to participatory share construction can be modified upon mutual agreement of the parties. However, there are cases when a participant to participatory share construction refuses to accept the offer due to various reasons – whether he is in need of money or he has no more interest in purchasing the apartment in this building. In such situation, pursuant to Art. 9, a participant to participatory share construction has a right to unilaterally repudiate a contract in view that developer is in default on his obligation to deliver the participatory share construction property when due under the contract or claim to terminate the contract in judicial proceeding if there are present the circumstances visibly evidencing that the participatory share construction property won't be delivered when due under the contract.

In event of rescission of the contract on the ground mentioned above, the developer has to reimburse the participant to participatory share construction of the amounts payed as the contract price including the compensatory interest for use or detention of money on this sum in the amount of one three hundredth of the refinancing rate of the Central Bank of the Russian Federation in effect as of the date of performance of reimbursement obligation in favor of the participant to participatory share construction. This interest is charged from the date of payment in full or in part of the contract price by the participant to participatory share construction till the date the contract price is reimbursed to him by developer. If a participant to participatory share construction is an individual, this interest is doubled. The amount must be reimbursed not later than within twenty work days.

It is possible to claim losses against developer. The Civil Code defines losses as expenses, which the person, whose right has been violated, made or will have to make to restore the violated right, the loss or the damage done to his property (the compensatory damage), and also the undeceived profits, which this person would have derived under the ordinary conditions of the civil turnover, if his right were not violated (the missed profit). In actions on collection of money when the construction of building is not factually completed and a participant to participatory share construction seeks to recover the amount payed under the contract including the additional sum allowing to purchase apartment for updated price, he has to prove the losses. In evidence he can refer to the similar apartment already payed contract and assessment of the market value as of the date of the complaint filing.

Nevertheless, it is not worth the trouble to hurry filing a complaint. Let's say that a court's decision is in your favor and developer has money on his account. It must be borne in mind that several years can pass from the effective date of the contract till the date of delivery of the apartment (2-3 years). The procedure for judicial rescission of contract and collection will take 1-2 years more. In overall, 4-5 years will pass. Isn't it needless to say that the amount payed 4 years ago and the same amount today are a bit different ones (in terms of their purchasing power). Participant gets just the money he payed and instead of satisfying his housing needs he gets a pecuniary compensation far out of apparent increase of housing costs on a regular basis (even taking into account the interest collected). One more point shouldn't be forgotten. When recovering liquidated damages in judicial proceeding, court has a right on the grounds of Art. 333 of the Civil Code of the RF reduce the amount of liquidated damages, and it is not possible to determine beforehead the final amount of reduced liquidated damages.

The judicial practice makes it apparent that, in Ekaterinburg as well, in event if there is an ample evidence the courts take the side of the participants to participatory share construction and satisfy their liquidated damages and losses claims. However, all of these do not solve the most important which is the housing issue! What can be recommended to those for whom it is the apartment which is the most important. For those who borrowed funds, one third of the term has already passed and rescission of contract with bank threatens to incur fines. In this situation it would be wiser to wait until the construction is completed and only thereafter file claims. In any case, prior to undertake any action, the real possibilities should be sized by consulting a lawyer, and only after having weighted all the pros and cons a decisions should be made.

Constructing, Real Estate, Real Estate Disputes

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