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Peculiarities of Agreements on Share Holding in Housing Construction and Agreements on Joint Activities in Housing Construction

      In view of the fact that currently extensive construction of new housing facilities (reconstruction of old housing facilities) is under way everywhere in Moscow, widespread have become agreements by which financial funds of natural persons and legal entities (hereinafter - "the Sharers") are attracted for financing of such construction.

      Most frequently, such financing is made by signing of agreements between the investors (hereinafter - "the Investors") and the Sharers on share holding in construction and agreements on joint activities.

      In practice some of the Investors, discharging their obligations in bad faith or deliberately unwilling to discharge these, sign such agreements that the Sharers have no cause to request their enforcement in court, to say nothing of penalties.

      In order to protect the Sharers' interests and with due regard for a great number of normative acts regulating these matters, which are hard to comprehend, let us dwell on the most important aspects related to signing of the above agreements.

      First of all, before signing such agreements the Sharers should make sure that the Investors are legally capable to sign these.

      In compliance with the Decree of the Government of Moscow No. 426 dated 19 May 1999 implementation of the investment projects of new construction on the territory of Moscow, provided these are financed from the sources other than the budget, is made on a competitive basis and under investment contracts between the Government of Moscow and an investor concerned.

      The main regulatory documents are an investment contract establishing the right to construct the facilities and the act on the results of the investment project (or its part, phase, start-up complex) implementation which are, in their turn, the basis for legal implementation of property and land relations in a manner set forth by the city normative acts.

      All contracts on reconstruction and construction, as well as supplementary agreements thereto and the acts on the results of housing investment project implementation are subject to registration with the Committee of Municipal Housing (Mayor's Decree No. 935-PM dated 28 November 1997). The investment contracts should be submitted for registration with the above Committee within one month after approval by the Moscow City Expert Commission of the feasibility study (design) with floor-by-floor plan.

      Prior to the above registration of an investment contract, an investor has no right to enter into agreements with individual and legal entities on attraction of funds for construction.

      In accordance with the above Decree, in order to register an investment contract the Investor submits to the Committee of Municipal Housing (i.e. must have) the following documents:

  1. A regulatory document pursuant to which the construction (reconstruction, overhaul) of the housing facilities will be carried out (Resolution of the Moscow Government to provide a land lot, etc.).
  2. The Investor's constituent documents (charter, certificate of registration).
  3. The investment contract signed by an authorized representative by the Moscow Government.
  4. A feasibility study including the design and floor-by-floor plan, approved by the Moscow City Expert Commission.
  5. A protocol of shares distribution per every apartment signed by all signatories to the investment contract.
  6. An agreement signed by the Investor with the organization authorized by the Moscow City Government to prepare apartment passports (provided the investment contract stipulates the Investor's obligation to finance passportization of apartments).

      Legalization of the titles to real estate in the investment object, start-up complex is made in a prescribed manner after complete fulfillment of obligations and the investment contracts terms and conditions (supplementary agreements thereto) by:
  • the Department of Municipal Housing and Housing Policy of the Moscow Government - total apartment areas;
  • the Department of Public and Municipal Property of Moscow - total non-residential area: useful, of joint use and engineering designation;
  • the Moscow Land Committee - land relations after legalization of the titles to residential and non-residential premises.

      The property rights are subject to the statutory registration with the Moscow Committee for Registration of Titles to and Transactions with Real Estate.

      Summing up the above, it may be concluded that prior to entering into the agreements with Sharers, the Investor should obtain all necessary regulatory documents.

      In the event the Government of Moscow does not participate in the construction of housing facilities, the Investor should have the following set of documents by the time the agreement with the Sharer is signed:
  • The investment contract signed between the Investor and the Constructor (in case the Investor and the Constructor is one and the same entity no investment contract is required);
  • Resolution of the Moscow Government to allocate land lots for the construction;
  • Decree of the Prefect of a respective administrative district to lease a land lot;
  • A contract of land lease for 49 years (should be registered with the Moscow Committee for Registration of Titles to and Transactions with Real Estate);
  • Expert opinion of the Moscow State Extradepartmental Expert Commission.

      Secondly, before signing, the text of the agreements should be subjected to legal analysis.

      Below are given the following recommendations on the content of the agreements on attraction of funds to housing construction between the Investor and Sharers.

      The above agreements should include the following mandatory terms and conditions:
  1. The terms and conditions of the agreement on attraction of funds to housing construction should not run contrary to the terms and conditions of the investment contract in whose framework it is signed.
  2. The Investor's obligation to register the agreement with the Municipal Housing Committee.
  3. Description of individual apartment(s) in accordance with the approved design estimates specifying the individual number of the facilities.
  4. The amount of the investment contribution, payments schedule, the manner and terms and conditions of their change in the course of construction.
  5. Construction deadline (acceptance of the house by the State Commission) and transfer of apartments to the ownership of the Sharers who have financed the Investor under the agreement.
  6. Liability of the parties for the failure to fulfill the terms and conditions of the agreement. Terms of termination and assignment of rights.
  7. Obligations of the Sharers who have transferred the funds for housing construction, to make available for registration with the Municipal Housing Committee the agreements on assignment of rights under the agreements on attraction of funds to housing construction.

      Of no minor importance is incorporation in the agreements of provisions allowing protection of the Sharers' interests. For this purpose, it is necessary to stipulate in the agreement the following:
  1. Who is assigned to carry out a statutory registration of the Sharers' titles to real estate and in what manner.
  2. The Investor's obligation to ensure safe-keeping of the real estate facilities till completion of the title registration.
  3. The grounds for unilateral refusal of the Sharer to discharge the obligations under the agreement (default on commissioning of the house, the failure to legalize the Sharer's title in a prescribed manner).
  4. The requirements to the quality of the real estate facilities (compliance with the state standards and other mandatory requirements to construction).
  5. Establishment of warranty period for real estate facilities (such provision will make it possible to eliminate at the Investor's expense all defects identified during this period, which could not be identified when inspecting the house and signing the acceptance act).

      It should be noted once again that the agreements underlying the investment contracts signed on behalf of the Moscow Government for housing construction and reconstruction in Moscow, and all agreements on attraction of funds to construction, except for the agreements signed by the city investor (the Department of non-budget city development planning), are subject to mandatory registration with the Municipal Housing Committee.

      The third phase - statutory registration of the Sharer's title to real estate facilities he has financed.

       If under the agreement the statutory registration is to be carried out by the Sharer, he should follow the following guidelines.

      The statutory registration of titles comprises the following stages:
  • delivery of the documents required for the statutory registration of titles and complying with the requirements of the Federal Law On the Statutory Registration of Titles to and Transactions with Real Estate and registration of such documents attached with the documents confirming payment of the registration fee;
  • legal expert assessment of the documents and verification of the legality of the transaction concerned;
  • establishment of the absence of contradictions between the titles applied for and the titles to the same real estate already registered, as well as establishment of other grounds for refusal or suspension of the title statutory registration;
  • execution of notes on title confirming documents and issue of certificates of the title statutory registration.

      The statutory registration of the Sharer's title to real estate is attested by the certificate of the title statutory registration.

      The statutory registration of agreements is executed by making a special note on the document expressing the content of the transaction.

      The statutory registration of title is effected against the Sharer's or his authorized representative's application, and the latter should have a duly executed power of attorney. The application for the title statutory registration should be attached with the requisite documents.

      A document confirming registration fee payment should be delivered together with the application and the attached documents. An individual also presents his ID, while a representative of a legal entity presents the constituent documents of the legal entity, his ID and the document verifying his authorities to act on behalf of the legal entity concerned.

      The applicant receives a receipt for the documents accepted for the statutory registration, which lists the documents delivered and indicates the date these have been filed. The receipt verifies acceptance of the documents for the title statutory registration.

      Registration actions commence from the moment the documents are accepted for the title statutory registration. The statutory registration of the titles to and transactions with real estate follow the sequence determined by the procedure of the documents acceptance. A transaction is deemed registered and legal consequences - having occurred as of the date of entry about the transaction or title in the Unified State Register of Titles.

      General requirements to the set of documents submitted for registration.

      The following set of documents should be submitted for registration of the titles to residential premises and transactions therewith:
  • an application;
  • a document verifying registration fee payment;
  • documents on the subjects of the title (natural persons and legal entities);
  • documents describing the objects of the title (residential premises);
  • documents serving as the basis for the statutory registration, i.e. the documents verifying the title applied for registration;
  • other documents necessary for the title statutory registration in line with the current laws.


      The payment confirming documents may be:
  • a payment receipt;
  • a payment order or its copy;
  • a payment notice or its copy.

      An original should be submitted together with a copy of the payment order or notice, which is subsequently returned to the applicant.

      Documents about the title subject.

      Natural persons deliver their IDs and their copies, if necessary (including those of the page with a marital status stamp).

      1) The identification documents of a citizen of the Russian Federation are:
  • internal passport (old one, of the USSR citizen);
  • internal passport (new one, of the Russian Federation citizen);
  • a military ID;
  • an external passport of the Russian Federation for individuals leaving Russia for permanent residence abroad with a note "for living abroad", "accepted for registration at the permanent residence";
  • a certificate from respective authorities of the Ministry of Interior with a photo and number of the lost passport (Form No.1);
  • a certificate of refugee with a photo issued by the territorial department of the Federal Migration Service (valid for three years from the date of issue).

      2) Foreigners from former Soviet republics (neighboring countries) deliver their IDs attached with the notarized Russian translation. Other foreigners deliver their IDs and visas.

      3) Legal entities deliver:
  • a certificate or another document of legal entity registration (resolution of the Executive Committee of the Soviet of People's Deputies);
  • constituent documents with every and all amendments, addenda, and certificates of their registration;
  • a copy of the letter from the State Statistics Committee advising about the statistical codes attached;
  • a copy of a regulatory document on setting up a unitary enterprise whose authenticity is witnessed by the signature of the head of the enterprise concerned and its seal;
  • copies of the minutes of GMS of legal entities - parties to the transaction - on appointment (election) of the (General) Director or extracts therefrom whose authenticity is witnessed by signatures of respective heads and seals of the legal entities concerned.

      The documents of the statutory registration and constituent documents are accepted in notarized copies, and the originals should be also shown.

      4) Requirements to the power of attorney. The power of attorney is delivered in the original.

      A power of attorney granted by an individual should be notarized. If the power of attorney has not been notarized, the documents for registration are accepted only from the applicant himself who should produce his ID.

      Documents on the object of title.

-       The applicant delivers the documents describing real estate facilities the title to which has been applied for registration, or their copies certified by the issuing authority or notarized.

      Residential premises are described in a floor-by-floor plan and explication issued by the Bureau of Technical Inventory.

      Documents - grounds for the statutory registration.

      The documents - grounds (the agreement on share holding in construction, etc.) are delivered in originals and copies. The copies should be notarized.

      Other documents requested for the statutory registration of titles in accordance with the current laws are the approval of the guardian- and trusteeship authorities, the spouse's consent to transaction, the co-owners' consent to registration of the title to a share in common shared property, etc.

      In view of the fact that conclusion and execution of agreements on share holding in the housing construction and agreements on joint activities in construction are, on the one hand, complicated for individuals from the viewpoint of the necessity to perform many required formalities and, on the other hand, achievement of the goal of investment - acquisition of real estate - is of a special value and importance for the individuals, it seems reasonable to seek already at the stage of entering into these agreements the assistance of the specialists possessing sufficient knowledge and skills which will make it possible to achieve the required results.

Olga V. Zabelinskaya,
Doctor of Law,

Maxim Yu. Kryzhansky,
associate lawyer

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