The main risks of buying a home at the initial stage of construction in HBC

Saturday July 9th, 2016

Today offers a significant number of investment mechanisms for buying a home at the initial stage of construction. For the most part, such mechanisms attract a flexible scheme of depositing funds, a relatively small cost of 1 square meter. real estate area, at first glance, the transparency of the relationship between buyer and developer. It is often difficult for the average person to navigate and choose the safest and most reliable way to invest in housing.

Schemes offered by housing cooperatives (HBCs) are quite popular – a legal expression of building investment relations between a developer and a private investor.

The Law of Ukraine “On Investment Activity” prohibits the use of any legal models of investment in construction, which are not provided by this law and are not regulated by a separate law. The method of financing construction with the help of HBC is not directly provided by the Law of Ukraine “On Investment Activity”, but the legal status of HBC is determined by the Civil Code of Ukraine and the Law of Ukraine “On Cooperation”.

First of all, I would like to dwell on the very term housing cooperative (HBC), which is presented in the Rules of maintenance of residential buildings, which states that HBC is a legal entity formed by individuals and / or legal entities that have voluntarily merged on the basis of their property contributions for participation in the construction or reconstruction of a residential building (buildings) and its further (their) operation.

Joining the cooperative as a full member is based on a written application. The person who has applied for membership in the cooperative, pays an entrance fee and a share in the manner and amount determined by its charter. The decision of the board or chairman of the cooperative on admission to the cooperative is subject to approval by the general meeting of its members. Full members of HBC have the right to vote. Associate membership is also allowed in the cooperative for persons who recognize the charter of HBC and have contributed shares. Associate members enjoy an advisory vote.

So, what risks can a person face when concluding a housing contract with HBC:

As a rule, the developer offers a private investor to become an associate member of HBC. As a result, the investor is only financially involved in the construction of the HBC apartment building by making a share, and at the same time is excluded from any managerial influence on the activities of the HBC and its management.
According to Art. 19-1 of the Law “On Cooperation”, a member of the cooperative becomes the owner of the apartment in case of redemption in HBC, and before redemption a member of the cooperative has the right to own, use, and with the consent of HBC and dispose of property. Thus, it turns out that a member of the cooperative, in particular an associate, for registration of the received apartment in the property must not only make a mandatory share, which is actually the amount of investment in building a house, but also pay HBC the cost of the apartment. As a rule, in practice, the redemption is replaced by the exchange of the property share of a member of the cooperative for an apartment, ie HBC sells housing to its member, and he – sells to the cooperative his share.
Very often we have to deal with contracts for participation in HBC, the terms of which provide for the direct transfer of the apartment after the commissioning of the construction object to a member of HBC without registration of housing for HBC. In their legal content, such agreements are agreements of equity participation in construction and have nothing to do with the legal essence of cooperative relations. That is, we can talk about the “imaginary” of such an agreement. What can an unscrupulous developer use?
Also from the point of view of taxation, direct transfer of an apartment to a cooperative member without redemption is considered free acquisition of property, as formally the cooperative member transferred HBC not the cost of the apartment, but the share, which allows the shareholder to become a member of HBC. In this case, the full value of the apartment is taxable income, which may mean additional costs for a member of the cooperative.

If you plan to buy an apartment in the above way, be sure to consult a lawyer. Consultation of a lawyer in Lviv, Oksana Turkas, free of charge!

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