Federal Law No. 214-FZ explains in detail how to sell real estate in houses under construction. It protects equity holders—buyers of housing under construction—from fraudsters and guarantees a refund if the developer fails to fulfill its obligations. In the law, the government stipulated what requirements developers must meet, as well as how they must conduct such transactions.
214-FZ is used if during the construction stage the developer plans to sell:
- apartments in an apartment building,
- townhouse, which consists of at least three blocks.
The law does not apply to individual construction, for example, private houses.
Requirements for the developer according to 214-FZ
To sell apartments in housing under construction, the developer must obtain a special permit from the Ministry of Construction and Housing and Communal Services. The Ministry of Construction checks:
What is the legal form of the development company?
Permission is issued only to business companies: limited liability companies (LLC) or joint stock companies (JSC). The Ministry will refuse to apply to non-profit organizations or individual entrepreneurs.
Who holds leadership positions in the company
The managers of the developer and the chief accountant cannot be persons who:
- have an outstanding or unexpunged conviction for economic crimes or crimes against government,
- solely owned a company that went bankrupt less than five years ago,
- owned at least 5% of the shares of a company that went bankrupt less than three years ago,
- have been disqualified and have no right to engage in such activities.
Is there a project declaration
To confirm that there are no violations in the project, the developer must attach a special expert opinion to the declaration.
How much money does the developer have?
The company must have its own funds in an amount greater than 10% of the project cost of construction. Such funds include not only money in accounts, but also real estate, land plots or accounts receivable.
Also, before obtaining permission, the developer must open an account with an authorized bank. He must deposit 10% of the project cost of construction into the account. If he doesn't have that kind of money, he can take out a loan. The loan amount must be more than 40% of the project cost.
The Ministry of Construction will not issue a permit if the company:
- has not yet paid for previously taken credits, advances or borrowings,
- issues any securities other than shares,
- pledged her property to secure obligations,
- participates in bankruptcy proceedings,
- suspended activities by court decision,
- did not fulfill the contract or agreement after winning the procurement and ended up in the Register of Unfair Suppliers (RNP),
- failed to pay taxes, fees or other government payments on time.
What experience does the developer have?
The developer must participate in the construction of apartment buildings for at least three years. During this time, he must build at least 5,000 m2 of housing. The Ministry takes into account facilities built by related organizations, as well as projects in which the developer was the technical customer or general contractor.
Who owns the development land?
The developer must own the building site or lease or sublease it.
What to do if the house is delivered with defects?
After putting the housing into operation, the developer invites the owner to inspect the apartment and sign the acceptance certificate.
1. Evaluate the quality of the work performed. What to pay attention to during acceptance? This depends on what kind of housing the developer is renting out - open-plan, with rough finishing, or with finishing from the developer.
- In an apartment with an open plan or with a rough finish, the buyer must, before signing the acceptance certificate, check whether the glazing is of high quality; inspect pipe joints and mounting points for heating radiators. Make sure that ventilation, sewerage, and water supply work properly. Check how the front door closes, whether there are any distortions, whether there are cracks in the walls and ceilings, whether the concrete screed is level, whether the electric meter is connected.
- In housing with finishing from the developer, in addition to the points that are important for apartments with rough finishing, you should make sure that the bathrooms and kitchen have the necessary plumbing, sinks, and tiling. That there is electrical wiring throughout the apartment, and all sockets and switches are working properly. The room must have heating appliances, flooring, and interior doors. The walls must be painted or covered with wallpaper. The buyer here should also look at the quality of the finishing work performed.
2. Document any deficiencies found . Be sure to record all violations on the inspection sheet upon acceptance. If possible, take photos and videos. But, most importantly, describe the shortcomings on paper as completely as possible and confirm with the developer’s signature. Be sure to discuss and record on paper the deadlines for eliminating deficiencies.
Important! If you discuss your claims only in words and sign a document without specifying any defects, the developer may later claim that you yourself caused all the operational damage to the apartment.
3. Should I sign the acceptance certificate if defects are found?
- It is better not to sign the act until the developer eliminates all the shortcomings described in the inspection sheet. But this is only if you are sure that the developer is ready to eliminate them.
Important! If the act is not signed and the defects are not recorded in writing, the developer may claim that you evaded acceptance.
- The act should be signed (listing all detected defects) if you are not sure that the developer will correct the defects. In this case, your actions should be as follows: together with the developer, record a list of deficiencies, assess the cost of materials and work necessary to eliminate defects; collect the cost from the developer and sign the deed.
4. Wait for the deficiencies to be corrected. The developer checks all detected deficiencies based on the parameters of the existing SNiPs. After this, he is obliged to eliminate the violations within the period specified in the inspection sheet, or within three months.
Responsibilities of the developer during construction
The state imposes restrictions on developers even after they have received permission to build and sell apartments to shareholders. 214-FZ sets out the rules that every company must follow in order to obtain permission to put a house into operation.
Developer qualifications
The developer can carry out construction work independently. However, to perform some work, you need special permission from a self-regulatory construction organization (SRO). If the company does not have access, it can involve a technical customer with the necessary qualifications in the work.
Loans during construction
The only loan a company can take is a targeted loan to finance ongoing construction. Such a loan cannot exceed 20% of the project cost. And the interest rate there cannot differ from the key rate of the Central Bank by more than 2%. For example, in January 2021 the key rate is 4.25%. This means that the developer cannot take out a loan at a rate higher than 6.25%.
Financial condition of the developer
A company cannot issue bonds to raise financing. She also cannot act as a guarantor or pledge her property.
Settlements with counterparties and shareholders
Before starting sales, the developer must select an authorized bank and open an escrow account with it. This is where the shareholders' money will be stored. We talked about how escrow accounts work in a recent article.
All settlements with the technical customer or general contractor must also be made only from accounts in one authorized bank.
Transfers from the developer's account
The developer can only transfer funds from his account for a few reasons. For example, he can spend money on:
- construction work on site,
- design documentation, engineering surveys or examinations,
- construction of utility networks,
- preparation of urban planning documentation,
- construction loan,
- state duty for registration of an equity participation agreement (DPA),
- taxes, fines, penalties or bank commissions.
- employee salaries,
- contributions to the compensation fund,
- refund of money to shareholders who terminated the contract,
- advertising,
- rental of offices and office equipment for employees.
At the same time, he can withdraw cash only to pay salaries to employees. All other funds can only be transferred from account to account.
Periodic reporting
The developer must publish quarterly and annual accounting reports in the Unified Information System in the field of housing construction (UISHS). Quarterly reporting must be submitted no later than 30 calendar days after the end of the quarter. The deadline for submitting annual reports is longer - 120 days from the end of the year. To confirm the accuracy of the report, it must be reviewed by an auditor.
All these rules must be followed before the facility is put into operation. As soon as the first shareholder registers ownership of one of the apartments, the restrictions cease to apply.
How to register an apartment purchased on the secondary market
If the apartment already has an owner (not a developer), the following is provided to the Registration Chamber:
- copies of passports of the parties to the transaction;
- application in the prescribed form (filled out by an MFC employee);
- contract of sale;
- documents on the basis of which it can be clearly established that the seller had legal rights to the apartment. It could be privatized, purchased, received as a gift or inheritance, etc.;
- agreements: credit and mortgage with all attachments;
- technical passport (optional);
- certificate of the number of residents (legally registered). It is possible to replace it with an extract from the house register (not necessary);
- certificates from resource supply organizations confirming the absence of debts (optional);
- permission from the guardianship authorities, if there are minors among the owners;
- consent to sale from the owner's wife, certified by a notary.
Important! The above list is not exhaustive. Adjustments are possible taking into account the specifics of the purchased object.
If we are talking about a private house or townhouse, you will additionally need title documents for the land plot.
Reasons for suspension or refusal of registration
The buyer collects documents, submits them to the Registration Chamber and after 5-9 days finds out that he has been denied recognition of ownership. There are many reasons for this. Let's look at the most common and significant ones:
- the documents came from an inappropriate person;
- the newly declared rights contradict those already registered for this property;
- registered encumbrances have been placed on the apartment. The object cannot be transferred to another person;
- Forged documents were submitted for registration, or the information contained in them is unreliable;
- the lender did not consent to register ownership (if the property was purchased using borrowed funds);
- the applicant did not provide all the required documents;
- the registrar has not received the requested confirmation and information;
- organizations that received interdepartmental requests lack the necessary data;
- documents were simultaneously received from several applicants to register transactions with the same property;
- the validity of the act or resolution on the basis of which the right of ownership arose was terminated in court;
- the boundaries of the land plot coincide with the boundaries of another plot that has a cadastral number. Either the land plot is located on the territory of another plot, duly registered;
- the land plot on which the residential building is built has a different purpose.
In total, the Federal Law of July 13, 2015 N 218-FZ “On State Registration of Real Estate” lists 55 reasons on the basis of which the Registration Chamber can return documents to the applicant without consideration.
