5 buyer's risks when buying and selling real estate
It is the buyer who is the most vulnerable party in concluding and executing the contract for the sale of real estate, since, in discharging his obligation to pay for the goods, he transfers a significant amount of money to the seller, and it is much more difficult to count on a refund if things did not go smoothly. than to return the property.
Consider the buyer’s main risks in real estate purchase and sale transactions (real estate purchase and sale agreements: apartments, houses, cottages, land, buildings, non-residential premises, buildings).
1) The risk of recognition of the transaction is not concluded
If the real estate sale and purchase agreement is recognized as non-concluded, the refund of money paid by the buyer will be made using the rules on unjust enrichment. As we have already said above, the actual withdrawal of money by the buyer under an unconcluded agreement can be very difficult. So, as follows from Art. 432 of the Civil Code of the Russian Federation, the contract will be deemed to be concluded if, between the seller and the buyer, in the form required in the applicable cases, agreement has been reached on all the essential conditions of the contract.
With regard to the contract for the sale of real estate, the Civil Code of the Russian Federation refers to the essential conditions: a) the subject (Art. 554 of the Civil Code), including: data that specifically identifies the real estate to be transferred to the buyer, including the data defining the location of the real estate on the relevant land plot or in the composition of other real estate; b) price (article 555 of the Civil Code of the Russian Federation). When describing real estate should be as detailed as possible to indicate its identification data on the basis of technical accounting documents, title documents and supporting documents, since the law does not explicitly specify what data regarding the acquired object must be contained in the contract.
Will a contract be considered concluded in which, for example, there is no indication of the number of storeys of the object, provided that all other data are indicated that allow identifying the object? And the contract in which there is no indication of the letter of the building? Judicial practice in such disputes is controversial, and therefore we recommend to describe the property in as much detail as possible. As applied to the indication of the price of real estate, a high risk for the buyer is an indication of the price of the object that does not correspond to the real one. The reason for lowering prices is often the desire to "optimize" taxation.
At the same time, it should be understood that in cases where the contract is recognized as non-concluded, invalid, the buyer will face the fact that it will be very difficult to prove the fact of payment of money in a larger amount than specified in the contract.
2) The risk of invalidation of the transaction
Here a whole range of grounds and situations is possible. Recall that any transaction that is contrary to the requirements of the law is invalid. First of all, in order to avoid the risk of invalidation of the transaction, you should carefully check the authority of the seller / seller’s representative to complete the transaction. If the seller is an individual, get the notarized consent of the seller’s spouse to sell the property, or issue a statement that the property was purchased by the non-married seller. There are frequent situations when the marriage was dissolved long ago, property was not divided.
When purchasing such property, despite the fact that after the dissolution of the marriage has passed a long time, we strongly recommend to request the consent of the former spouse, or to abandon the acquisition of such an object at all. If the seller is a legal entity, you should request the registration, constituent documents of the seller, an actual extract from the Register , documents confirming the authority of the person signing the contract on behalf of the company (appointment protocol or power of attorney), statement of the book value of the object, accountant ersky balance as of the last reporting date.
We take into account that a large transaction requires prior approval by the authorized body of the seller. In addition, the articles of association may provide for cases when a transaction of a certain type, or exceeding a certain amount, must also be pre-approved by the authorized bodies of the company.
3) Risk of reclamation
Not only the real estate sale transaction itself can be recognized as invalid, but also any of the transactions on the basis of which the right of each previous seller arose, as well as an act of a state or municipal body. In a sense, the buyer is protected by a limitation period. However, we will not consider them a panacea for all ills. The limitation of the limitation period begins on the date when the person learned or should have learned about the violation of his rights.
Often this does not allow the use of limitation of actions as a means of protection. The law does not allow reclaiming property from a bona fide purchaser (i.e., a buyer who did not know and could not know that the seller of the real estate did not have the right to alienate the property) if the property was purchased by the buyer for compensation, unless the property was removed from the possession of the owner or persons to whom the property was transferred by the owner in possession, besides their will.
To illustrate the situation of reclaiming real estate from a bona fide purchaser, we give the following example. After the death of the owner, the property was sold with a fake power of attorney by one of the heirs. Subsequently, the object was repeatedly resold, as a result of which the owner was another person who did not know and could not know about the insignificance of the transaction confirming the ownership of one of the previous sellers. Another heir learned about the sale of an apartment a few years later and sued the current owner for obtaining the object from someone else’s illegal possession. The claim was satisfied, despite the fact that the current owner is a bona fide purchaser.
4) Risk of default by the seller of its obligation to transfer property
The transfer of the object is made on the transfer act or other document on the transfer (such document often is the contract itself, in which the condition is included that at the same time it performs the functions of the transfer act). In case of non-fulfillment of the obligation to transfer, the buyer has the right to demand that the item be taken away from the seller and transferred to itself on the conditions provided for by the contract. However, according to the provisions of the Civil Code, this right is no longer applicable if the thing has already been transferred to a third party who has the right of ownership, economic management or operational management. If a thing has not yet been transferred, the advantage is that of the creditors, in whose favor the obligation arose earlier, and if it cannot be established, the one who had previously filed a lawsuit. Instead of the requirement to transfer the property, the buyer is entitled to claim damages.
5) The risk of acquiring property encumbered by the rights of third parties
The transfer of ownership of immovable property does not entail the termination of lease agreements concluded in respect of the object being sold. Accordingly, the buyer may be in a situation where the acquired property is burdened with existing lease agreements, under the terms of which the landlord is deprived of the possibility of unilateral extrajudicial termination of the contract, and the rental rate is significantly lower than the market rate.
In order to minimize these risks, an extract from the USRR on the purchased object should be requested (and for residential real estate - also an extract from the house register), and the contract should include the seller’s guarantee that there are no encumbrances on the object. It also adjoins the risk of a possible arrest of an object by a court, a bailiff for third-party claims to the seller until the state registration of the transfer of ownership of the object from the seller to the buyer.
Ways to minimize the risk are the same - a request for an extract from the USRR with a date as close as possible to the date of the transaction, as well as the inclusion in the contract of the relevant guarantees of the seller.
p.s. We stopped at the main, most common and "dangerous" risks for the buyer. Alas, this list is open - a considerable number of other dangers lurk for the real estate buyer. Here are some of them:
a) the risk of acquiring real estate of inadequate quality, including those with hidden flaws;
b) the risk of the seller evading the actions necessary for the state registration of the transfer of ownership to the buyer;
c) the risk of suspension, refusal of state registration of transfer of ownership for various reasons (often, to eliminate the comments made by the registering authority, the seller or his authorized representative is required, and the absence of such in the “reach zone”, his lack of contact or unwillingness to assist may significantly complicate the life of the buyer interested in the early registration of their rights);
d) the risk of the acquired property to be inherited in the event of the death of the seller before the state registration of the transfer of ownership;
e) risks associated with the need to “legalize” redevelopments that were not properly executed by the previous owner (s) (legal, financial, temporary, risks of being brought to administrative and other types of liability);
e) risks associated with the acquisition of a cultural heritage object;
g) the risk of the seller disputing the fact of payment for the object (draw up and keep receipts, record the fact of payment in the contract, act);
h) the risk of the seller evading the removal of encumbrances from the object in the event of the sale of real estate with a deferred payment, etc.
p.s.s. In order to minimize risks, we offer the following tools, in particular:
a) the use of various methods of securing obligations;
b) the use of transactions under the condition, for example, when the transfer of funds is carried out only under the condition that the documents on the coordination of the previously made and discovered redevelopment are submitted;
c) inclusion of conditions related to warranties and assurances.
July 21, 2015
Galina Korotkevich
Partner, law analyst. I am writing articles, looking for interesting information and proposing ways of its practical use. I believe that thanks to high-quality legal analytics, clients come to a law firm, and not vice versa. Do you agree? Then let's be friends on Facebook.
________________________________________________________________________________________
Types of services provided by us:
- advice on any issues related to real estate;
- legal expertise (audit) of documentation for transactions or business processes relating to real estate;
- preparation of documentation for real estate transactions, including those related to the determination of the most optimal ways of investing in real estate or during construction;
- support of the process of acquisition and (or) disposal of real estate;
- litigation.
________________________________________________________________________________________
We also offer our clients our legal services in the following areas:
1) business support;
2) protection of intellectual property;
3) litigation;
4) corporate practice;
5) real estate.
We recommend reading our blog on legal and judicial cases (arbitration practice), and read the materials in the "Articles" section.
Our law firm provides various legal services in different cities of Russia (including Novosibirsk, Tomsk, Omsk, Barnaul, Krasnoyarsk, Kemerovo, Novokuznetsk, Irkutsk, Chita, Vladivostok, Moscow, St. Petersburg, Yekaterinburg).
Call or write right now!
Phone +7 (383) 310-38-76
Email address info@vitvet.com
Law Firm "Vetrov and partners"
