Risks of concluding a preliminary contract of sale of an apartment under construction

Saturday July 9th, 2016

Today, developers often use a preliminary contract of sale of real estate to raise funds for construction. The application of such an agreement is one of the legal schemes to circumvent the requirements of the Law of Ukraine “On financial and credit mechanisms and property management in housing construction and real estate transactions”, which provides for financing construction through construction financing funds and real estate funds.

What should the buyer know when concluding a preliminary contract of sale of an apartment under construction.

  • A preliminary agreement is an agreement to which the parties undertake to enter into a future (principal) agreement within a certain period (within a certain period of time) on the terms established by the previous agreement. The preliminary contract is not a title document that provides any rights to real estate that will be built in the future. Accordingly, in case of non-completion of construction in due time, the buyer will be deprived of the opportunity to demand the conclusion of a contract of sale of real estate, as to conclude such a contract must have already built and commissioned house, and the buyer can only claim a refund under the previous contract. apartment for sale.
  • As a rule, such an agreement does not determine the exact price of real estate, but specifies the “Estimated value”, which may depend on a number of factors: exchange rate, inflation, tax changes, cost of building materials, decency of the developer, who can unilaterally change the value of real estate.
    Very often developers in the preliminary contract provide for payment of the cost of the apartment before the conclusion of the main contract, but as follows from the content..Article 635 of the Civil Code of Ukraine preliminary contract regulates only the relationship between the parties in the future conclusion of the main contract under which the buyer must pay. That is, the preliminary contract may specify the value of the apartment and the term of its payment, but payment must be made only on the basis of the contract of sale (basic contract), which can not be concluded before the commissioning and registration of ownership of real estate by the seller. Therefore, making payments under a preliminary agreement is not legally a payment for real estate.
    The preliminary agreement of purchase and sale of real estate at the construction stage actually hides another transaction, namely: investment agreement, the features of which are regulated by the Law of Ukraine “On financial and credit mechanisms and property management in housing construction and real estate transactions.” Accordingly, such a preliminary agreement can be considered a sham agreement and raise the question of its invalidity.
  • The developer, having received funds from the buyer, actually receives an interest-free loan, becomes the owner of the funds and can dispose of them at its discretion without directing a penny to the construction, therefore, it is important to provide in the preliminary contract for real estate transparent stages of return. , taking into account the exchange rate of hryvnia to the US dollar or euro, penalties in case of default by the developer of its obligations.

If you still decide to enter into such an agreement, in any case it will be appropriate to use the qualified assistance of a lawyer in Lviv to study the provisions of the agreement, determine all the risks and pitfalls of the agreement.

Registration for a consultation

Contact a professional
consultation