The raise in incomes and low interest rates on mortgage loans led to rapid recovery and growth in the construction sector. We have witnessed a significant increase in deals for real estates that have not yet been completed or their construction have not even begun. In this regard, prospective buyers of such properties should be particularly careful and examine closely to whom they are entrusting their savings or borrowed funds.
Here are some key aspects that you should focus on when purchasing a real estate before or during construction:
1.Investor (Assignor)
First of all, you should carefully look at the physical or corporate investor. The investor is the owner of the property, the person who has the right to build in someone’s property or the person entitled to build a property with compliance to legislative act. It is the investor who will be the real estate vendor and he will transfer ownership to you by signing a notarial deed. In this regard, it is important to verify its reputation and financial stability. It is not uncommon for investors to begin building a residential building, hoping that the construction will be completed entirely with the funds of the buyers who have decided to buy a real estate “on a green” (prior construction). Unfortunately, such cases often result in an unjustified delay in construction due to the lack of capital and, in some cases, the abandonment of the construction and the bankruptcy of the investor. For this reason, before starting negotiations for the acquisition of real estate during construction, give yourself enough time to investigate the real seller. From the available public information in the Commercial and Property Register, a preliminary assessment of the legal and economic status of the investor can be made. We advise you to do so before starting negotiations.
2.Builder
The builder is the person to whom the investor has commissioned the construction of real estate against payment or other form of indemnity. There is no legal obstacle a legal or natural person to be both an investor and a builder, but in practice this hypothesis is avoided in order to limit the risk. Choosing a builder with experience in the field is essential for the following reasons: 1) Ensure quality construction in accordance with applicable national and world standards; 2) Keeping with the deadlines set in the gradual completion of the building; 3) Ensuring liability after the building was completed. From the abovementioned you can see that an indirect link exists between the purchaser of a real estate and the builder, from which various rights and obligations may subsequently arise. That is why choosing a builder with good reputation and financial stability is essential to avoid further complications. It is necessary to obtain information about the builder, the agreed warranty periods between the Investor and the builder (which cannot be less than the statutory ones), the limit of the builder’s insurance coverage, etc. before or immediately after the negotiations. It should also be noted that the builder should be listed in the register kept by the Construction Chamber for the relevant group and category of construction works executed.
3.Real estate
Prior to the signing of the Preliminary Contract, it is essential to carry out a detailed inspection of the ownership of the land on which the construction will be carried out. This is necessary in order to limit the risks of significant complications after the completion of the construction and the transfer of ownership by the investor. The first check should be made in the Real estate register, with particular attention to the following circumstances: 1) Is the investor the owner of the real estate in which the construction will be carried on? If he is not the owner, does he legally have the right to build on a foreign property (Superficion or other permission under a special law); 2) Are there signs of previous court proceedings regarding the ownership of the real estate – ownership claims, enforced injunctions, other acts subject to registration? 3) Are there registered mortgages, foreclosures for debt collection or foreclosures imposed by public authorities? The results of this check are essential when deciding whether to purchase of real estate before or during construction. This way you will be aware of any risks that may prevent you to legally receive ownership or your responsibility for additional costs or payments. Next, check for correct description of the property in the cadastral map, absence of border disputes, etc.
4.Preliminary contract
The Preliminary Contract is essential for the proper settlement of the relationship arising from the purchase of real estate during construction. The parties should agree on this: 1) The subject of the future sale with its detailed description according to the approved construction plans; 2) The price of the property including all taxes and fees due; 3) The terms in which the price of the property should be paid; 3) The term for the transfer of ownership by the investor in notary form; 4) The finish of the common areas of the building (Electricity, plumbing, RV installations, flooring, doors, interior equipment, lifts etc.); 5) Costs arising from the transfer of ownership; 6) The place, date and time for a notary to transfer the ownership;) 7) The liability of the investor (the seller) and the penalties governing compensation for delays, misconduct, etc.
It is important to point out that it is essential for the purchaser to acquire ownership of the property at the earliest possible moment. This way against the initial partial payment, the buyer acquires legal right of ownership which minimizes the risks of property acquisition. There are two main options in this respect: 1) If the construction of the building has not yet begun or is at an early stage, the buyer may request to acquire the right to build on the property for the object chosen. This guarantees the right to acquire it at the completion of the building in a “rough construction”, which is automatically done by virtue of the law and no further action is needed. 2) If the construction has begun and a small part of it has been completed, the buyer may ask for the ownership to be transferred to him at the completion of the building in a “rough construction” (reaching this stage is determined by the municipality for which a certificate is issued). In this case, even if the building is not yet completed, the buyer has already acquired ownership of a particular object within it and may freely dispose with it. It is good practice of paying in stages in as the building is completed. This approach is advisable in order to stimulate the investor and the builder to meet the set deadlines.
5.Notary act
In order to give effect, the transfer of the ownership of the immovable property should be done by a contract in a notarial form. For this purpose, parties should provide their presence or a person authorized by them to represent them in the notarial deed. Here, it is important to agree on a specific end date and time in the Preliminary Contract for this procedure. In this way stability and predictability are imposed in the behaviour of the parties in the purchase and sale of the property. In addition the penalties in the Preliminary Contract stimulate the timely implementation of the commitments undertaken by the investor. Upon appearance before a notary, the investor must present in his / her original all necessary documents proving his / her right of ownership on the property sold, the required documents under the Commerce Act (in case it is a company), as well as documents explicitly requested by the buyer by indicating them in the preliminary contract. It is advisable to ask the notary for a draft of the notarial deed or to present a draft, so that you are aware of all the rights and obligations that will arise upon signing it. It is important to note that the prevailing case law accepts that the Preliminary Contract does not lose its legal effect with the conclusion of the notary deed. The clauses, which are not explicitly amended by the notary deed remains into force. It follows that even after the transfer of ownership the buyer and the investor continue to be bounded by the preliminary contract.
6.Approval for use of the bilding
After the actual construction of the building it is necessary to proceed to its “legal” completion. This involves conducting an administrative procedure according to the category of construction, which, after establishing compliance with the statutory acts regulating the construction processes, ends with the issuance of an administrative act. From the issue of the administrative act and its entry into force a number of consequences are present, which we will mention some of them: 1) Establishing the completion of the construction and allowing its usage as intended; 2) The occurrence of the obligation for the owner to pay the building tax and the waste fee for the property; 3) Starting point from which warranty periods for new construction begin to run. It follows from the mentioned above that the admission of the building is essential for the normal and peaceful use of the newly acquired property. That is why it is advisable that the investor and the builder have experience and good reputation confirming their ability to complete the building in accordance with the regulatory requirements.
* This article cannot cover all issues of the matter and is intended only to provide information on certain aspects in the acquisition of real estate before or during construction and should not be accepted as legal advice. In case you need to consult or prepare documents do not hesitate to contact us.
