Main schemes for selling apartments in new buildings: the risks and advantages

Developers in Lviv use different schemes for selling apartments in new buildings. There are 5 basic schemes for selling apartments in new buildings in Lviv:
– Housing and Construction Cooperative (HCC)
– Preliminary sale-purchase agreement of apartment;
– Sale and purchase agreement of property rights;
– Construction Financing Fund (CFF);
– Forward contract.
SCHEME №1. PAYMENT OF THE  SHARE CONTRIBUTIONS TO COOPERATIVE (HCC)
You conclude the contract for payment of share contributions  to HCC as the associate member of this HCC.
What are the main risks of purchasing the apartment through HCC?
1. Possibility of double sale (the account of apartments is conducted only by the developer).
2. Initially, all the rights to the building belong to the Cooperative.
3. Impossibility to control the use of the funds of the Cooperative.
4. Possibility of raising funds from buyers without permits on construction.
What are the advantages of the HCC scheme for the buyer?
The scheme does not carry any guarantees for you as a buyer. The advantage is only the financial side of the issue: the registration of ownership on the basis of documents provided by HСC allows you to save on notarial expenses.
SCHEME №2. PRELIMINARY SALE-PURCHASE AGREEMENT OF APARTMENT
The preliminary sale-purchase agreement fixes the intentions of the parties to conclude in the future the main sale-purchase agreement, after which the ownership of the apartment will be registered for the buyer. The preliminary agreement must necessarily be notarized.
What are the main risks of concluding a preliminary agreement?
1. Possibility of double sale (even notarization of the agreement does not exclude this risk, since the apartment as an object of ownership does not exist at the time of the concluding the preliminary agreement).
2. Possibility of raising funds from buyers without permits on construction.
3. Evasion of the developer from entering into a main sale-purchase agreement.
The majority of buyers also consider as the disadvantage the additional costs for notarial services and payment of taxes (1% of the contract amount – the mandatory state pension insurance fee and 1% of the contract amount – the state fee).
SCHEME №3. CONCLUDING SALE- PURCHASE AGREEMENT OF PROPERTY RIGHTS TO THE APARTMENT
Under such agreement you purchase not an apartment, but only property rights to it, that after signing the act of acceptance and transfer of property rights you will get an opportunity to register the property rights.
What are the main risks?
1. Possibility of concluding several such agreements with different persons on the same apartment.
2. Possibility of raising funds from buyers without permits on construction.
What are the advantages of using it? The conclusion of this agreement does not carry any guarantees for the buyers. Only advantage is that this scheme allows avoiding additional expenses for paying taxes, as compared to concluding preliminary sale-purchase contract of the apartment.
SCHEME №4. CONSTRUCTION FINANCING FUND (CFF)
The scheme for selling apartments in new buildings through CFF is not very common in the primary market. Besides the developer there is another legal entity – the Manager of the CFF, which must be a financial institution with the appropriate license.
What are the main advantages of the CFF scheme?
1. Procedure of use is regulated in detail by a separate law.
2. In order for the CFF to be opened, the developer must receive all necessary permits for construction.
3. The manager of the CFF is a financial institution and is under the control of the National Commission, which gives more guarantees.
4. In case of problems with construction, the Manager can replace the developer, and also it is possible to replace the Manager on the initiative of the buyers.
What are the advantages of using such scheme?
1. Often with the existence of the CFF, the price in such agreement with the Manager is much lower than in reality, and the remaining funds are transferred to a private entrepreneur under another contract.
2. The Manager is often under the control of the developer, which means that there is no real control mechanism.
SCHEME №5. USE OF FORWARD CONTRACTS (DERIVATIVES)
This scheme of selling apartments in new buildings in Lviv is not common.
The main risk of using such scheme is that only part of the money is paid for the property rights to the apartment, the rest of the money is paid on the derivative and in the future it usually will not be returned.
The main advantage of using forward contracts – the conclusion of a contract on the Exchange minimizes the possibility of double selling an apartment.
THE BASIC RECOMMENDATION: it is necessary to analyze any scheme with the permission documents. If the developer does not have proper permits, problems with construction cannot be avoided. The sales scheme allows only predicting the complexity of the returning your money in the future, but does not show the full picture. Therefore, you need to check not only the sales scheme, but also documents for the land plot, for construction, information about the developer, etc.
For advice or legal support please contact us: 096-002-01-00 or ua.legalaid@gmail.com.]]>

Main schemes for selling apartments in new buildings: the risks and advantages
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