Equity Construction Compensation Fund

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Shared construction today is a fairly popular way to purchase housing. The share agreement is concluded between the construction organization, which will be directly involved in the construction of the building, and investors, that is, equity holders. Both legal entities and individuals can act as a construction customer.

Obligations of the parties

Contractor - a construction organization undertakes to build a house and hand it over to equity holders.

Correctors under the contract undertake to pay for the services of a contractor and accept ready-made housing.

Essentially, a shared construction agreement is an investment transaction, but it is regulated not by the Civil Code, but by special legislative acts.

Problems of shared construction

Shared construction began to develop in our country in 2005. The legislation has undergone many changes regarding such construction, but this has not diminished the problems for investors in finding a bona fide contractor. To this day, equity construction is a huge risk, an investor can simply be left without housing and without funds. Or he himself will have to enter intooperation of the building, or there will be problems with registration of ownership.

The Ministry of Construction for a long time did not abandon attempts to create a compensation fund for shared construction. And, finally, since July of this year, a new instrument has been formed at the government level, designed to protect the interests of homebuyers in newly built buildings and change the rules of the game for developers. Although the compensation fund formally began to exist since January 01, 2017, the procedures for which the formation should operate have not been thoroughly developed.

The essence of the fund

The Compensation Fund is an organization that is designed to protect citizens from possible losses when construction is not completed or the developer fails to fulfill other obligations.

The fund is not entrusted with the obligation to solve the problems of equity holders who already have. Simply put, already defrauded investors have nothing to look forward to. This is due to the fact that if we start solving current issues now, the organization will simply go bankrupt.

Contribution rates

The amount of contributions for developers will be calculated based on the price of each transaction with the shareholder. The developer will have to make a contribution at the time of state registration of a separate agreement on equity participation. However, the tariff for the developer should not exceed the marginal interest rate of the price of the contract for participation in shared development. In general, at the time of signing the amendments to the legislation, developers must pay 1.2% of the cost of each contract. Furtherthe rate may change based on federal law, but no more than once every 12 months.

Contributions must be made by each developer 3 days before the date of registration of the agreement on shared construction.

Now canceled such methods of securing transactions, such as liability insurance or bank guarantee. Now the contracting organization-developer is obliged to make mandatory contributions to the compensation fund, the founder of which is the Russian Federation.

Main functions of the fund

The Compensation Fund was created in the form of a public company and is designed to address several issues:

• receive contributions from developers;
• control the timely receipt of contributions;
• act as an arbitration manager in cases of bankruptcy of developer companies, but only if these companies made contributions to the fund for at least one building under construction;
• reimburse damages to equity holders;
• provide loans (even on an interest-free basis);
• providing, if necessary, financial assistance to developers who will undertake the completion of an unfinished object.

Free funds of the compensation fund can be invested in other assets that are defined in the legislation.

Participation in a self-regulatory organization

Against the background of recent changes in legislation, the circle of persons who are obliged tobe in a self-regulatory organization. The obligation remained with the following persons:

• who have signed contracts for the preparation of project documentation with a technical customer, developer or organization responsible for the operation of a building;
• independently carrying out the preparation of project documentation and the construction of structures and buildings.

Do not have such an obligation for organizations with an authorized capital that is half or more owned by the state or municipalities. It is also not required to join the SRO for enterprises that are state-owned, unitary or state.

Compensation Fund SRO "Enforcement of contractual obligations" is formed to compensate for the subsidiary liability of all members. But in order to form such a fund, applications must be submitted by at least 15 members of the SRO. If there are fewer applicants, then it will not be possible to form a fund for securing contractual obligations, but all collected funds are transferred to the harm compensation fund.

Now, developers and other persons who are members of the SRO will not receive certificates, but will only be registered in the electronic registry, from which you can get an extract to confirm your membership when participating in the competition.

Fears of construction market participants

Most developers believe that double contributions to compensation funds will lead to an inevitable increase in housing prices. Now the developer will have to pay into the shared construction fund andto the SRO fund.

Co-investors, that is, those subcontractors who build engineering networks and communications at their own expense, express some concern, because if the developer goes bankrupt, compensation is primarily provided for individuals. Co-investors have little chance of receiving a refund.

Naturally, such a legislative framework is important for the unstable construction market and is part of the investor protection system. The main thing is that such a fund does not become another burden for construction organizations and the construction market as a whole, and housing prices do not start to rise again.