Buying real estate from a developer: what to check and how to protect yourself from risks

Before investing, it is important to clearly know what exactly needs to be checked in order not to lose money and time. When buying real estate from a developer, the key role is played by the project participants, in particular the seller and his counterparties. The real estate purchase and sale agreement from a developer is the main tool for protecting the investor’s rights and minimizing risks.

The primary real estate market in Ukraine remains attractive, but at the same time risky: construction delays, problems with documents, and even unfinished construction still occur. Therefore, before investing, it is important to clearly know what exactly needs to be checked in order not to lose money and time. If you do not have experience or doubt the correctness of the sales scheme, you should contact lawyers. In this article, we explain in detail what exactly needs to be checked and how to protect yourself from the main risks.

Land and urban planning documents check (Due diligence)

A proper analysis of the documentation begins even before you get acquainted with the contract. First of all, you need to make sure that construction is possible on this site at all and that all permits are valid and coordinated with each other. It is the legal purity of the land that determines whether the future house will have legal grounds for construction. Be sure to check the following conditions:

• the right to land. This can be ownership, lease or superficies. It is important to look at the term of the contracts, the absence of arrests, mortgages and easements, the correspondence of the intended purpose to the actual type of development;
• urban planning conditions and restrictions (UUO). Check the compliance of the general plan and the State Property Code, the presence of security, sanitary zones, red lines and any restrictions that may affect the parameters of the house;
• permits in the Unified State Register of State Property Code. These include a building permit, design documentation;
• technical characteristics of the object. The planned number of floors and construction queues should be clearly stated. After all, there are cases when a person purchased an apartment on the 13th floor, while only 10 are planned to be built.

We recommend that you keep extracts from the Unified State Register of Housing and Urban Development, screenshots with dates of confirmation of events, and project documentation. This data can become evidence in the event of disputes.

Seller and counterparties are important participants in the verification

When buying real estate from a developer, the key role is played by the project participants, in particular the seller and his counterparties. Often, behind a well-known brand there is a complex corporate structure or a newly created legal entity that formally performs the role of the seller, and the actual control is exercised by another beneficiary. Therefore, before signing any contract, it is important to check the seller and related structures in detail. The mandatory points of the verification include:

• financial condition. These are tax reports, debts, enforcement proceedings, litigation, the level of creditor burden. It is important to assess whether the company is stable and whether there is a threat of mass claims from creditors;
• beneficiaries and group structure. Check the real owners and managers through the services usr.minjust.gov.ua, opendatabot.ua and others. Make sure that the founders and directors really influence the company’s activities, and do not perform only formal functions;
• the project’s judicial history. These may include conflicts with neighbors, land disputes, appeals to the MOU and permits, criminal proceedings or disputes with investors. Data can be found in the Unified State Register of Court Decisions.

A thorough check of the seller and his counterparties allows you to minimize the risks of purchasing problematic real estate and ensure transparency of the transaction.

Contract – the basis for avoiding risks

A contract for the purchase and sale of real estate from a developer is the main tool for protecting investor rights and minimizing risks. Documented conditions allow you to allocate the responsibility of the parties, establish clear deadlines and mechanisms for responding to possible problems. Without a detailed contract, even a proven developer and a modern investment model do not guarantee the security of the transaction. Therefore, be sure to consider the following points when signing the contract:

• subject of the contract. This is an accurate definition of the future apartment/non-residential premises (section, floor, room), permissible deviations in area, conversion rules, technical and economic indicators and plans of the object and floor with a clear location relative to other premises;
• terms. The dates of completion of construction, transfer of the object and signing the acceptance certificate, elimination of defects, refund of funds in case of termination of the contract are prescribed;
• payment mechanisms. Payment in installments after confirmation of the stages of work performed, currency binding in the case of payments in dollars, so that the refund is made rationally;
• transfer of the object. The procedure for acceptance, defect certificate, warranty obligations, technical passport, recording of hidden defects are prescribed;
• conditions for termination of the contract. It is necessary to clearly prescribe under what circumstances either party has the right to unilaterally terminate the contract in the event of violations by the other party (for example, delay in construction or late payment). It is also necessary to determine the procedure for notification of termination, the form of notification (written, electronic) and contact details of the parties for official communication;
• conditions for assignment of rights. A clear mechanism for transferring rights under the contract to third parties is determined;
• secure payments. All payments must be made exclusively to the seller’s official current account. The use of cash or unverified cash documents is undesirable in order to avoid the risk of fraud and ensure the transparency of financial transactions.

A detailed contract provides legal clarity and reduces investment risks.

Guarantees and risks after the transfer of real estate

Having received the keys to an apartment or premises, the investor is not completely protected from risks. It is important to know who is responsible for warranty obligations and how to record detected defects so that they are eliminated in a timely manner. The following should be provided for:

• warranty periods for structural elements, engineering systems and internal premises;
• the procedure for recording defects (acts, photos, elimination deadlines) and the responsible person;
• transitional support: commissioning work, acceptance of common property by the condominium association/manager, transfer of executive documentation and certificates.

A clear definition of guarantees and obligations after the transfer of the object minimizes disputes and protects the interests of the owner.

What to do when construction is frozen

A construction freeze is one of the most dangerous situations for an investor, which can lead to a loss of funds. It is important to have a clear plan of action so that in case of problems you know how to protect your rights and interests. Below is an algorithm that helps to systematically respond to critical situations:

1. Record delays. Note calendar deadlines, take photos and videos of the construction status, save correspondence with the developer, extracts from the Unified State Register of Construction and Construction of Ukraine and conclusions of independent technical supervision.
2. Make claims. Officially demand the completion of work or the commissioning of the facility. If this is not possible, terminate the contract with a refund. Clearly specify the amount of the claim, taking into account the funds paid, inflation, fines and possible losses.
3. File a lawsuit. Depending on the investment model, demand the recovery of funds, termination of the contract, invalidation of individual provisions or application of their consequences, an obligation to transfer documents or submit for registration, or recognition of ownership of property rights or an object. Use combined and alternative claims if this arises from the dispute.
4. Ensure the enforcement of the claim. File a motion to seize property rights, prohibit registration actions regarding your object, seize funds in accounts, or prohibit the alienation of corporate rights/share contributions.
5. Coordinate collective actions of investors. Agree positions, delegate representation, jointly finance expert opinions and legal support. Communicate publicly without disclosing personal data and trade secrets.
6. Parallel actions. Contact law enforcement agencies for signs of fraud or abuse and to state construction control authorities in case of violation of project documentation requirements.

Timely compliance with this algorithm helps minimize risks and preserve invested funds. If you doubt the correctness of your actions or are faced with a complex dispute, contact lawyers for professional support.

How a lawyer helps when purchasing real estate in a new building

Buying an apartment in a new building may seem simple, but even a reliable project hides a number of legal risks. Professional support from a lawyer allows you to protect your rights, minimize risks and avoid unforeseen financial losses. Lawyers of the company “DE-JURE” work comprehensively, supporting the client at all stages of investment:

• check the developer and counterparties. Analyze the financial condition, ownership structure, beneficiaries, court history, the presence of debts and encumbrances;
• conduct an audit of the land and permitting documentation. Check the rights to the plot, urban planning conditions, building permits, compliance of the project with regulations;
• prepare a purchase and sale agreement. The agreement clearly defines the object, terms, payment terms, mechanisms for protection and assignment of rights;
• accompany the agreement and registration of rights. They monitor notarial registration and entry of data into state registers, check for the absence of arrests and encumbrances;
• support in controversial situations. Protect your rights in case of construction delays, freezing of projects or violation of the terms of the contract. Prepare official claims against the developer, file lawsuits in court, secure the seizure of property rights or funds if necessary, and accompany the entire legal process.

Thanks to the professional work of the lawyers of “DE-JURE”, you receive full legal protection and confidence that the investment in a new building will be as safe as possible.