To begin with, it is worth clarifying – who are they, the defrauded equity holders of Russia? A shareholder is a person who took part in shared construction by concluding a shared participation agreement with a construction organization (developer).
Hieronymus Bosch. The Conjurer. 1500’s
Accordingly, a “defrauded shareholder” – a participant in the shared construction of a residential building, in respect of which the developer did not fulfill its obligations – did not complete the construction of the property within the agreed time frame, did not provide a share for registration of ownership and often simply cheated. As a result, a shareholder who invested his own funds in construction and hoped to get housing by a certain date is left without funds and living space..
By the way, the Moscow government, starting to address the issue of problematic construction projects, clarified that only citizens who have acquired one apartment for their own use can be considered “defrauded equity holders”. That is, other investors who wanted to make money on the further resale of apartments cannot classify themselves as “deceived” construction participants, although their losses can be even more significant.
Deceived equity holders, as a mass phenomenon, began to appear in Russia in the period from 2003 to 2005.
The government could not ignore this issue, in particular, in Moscow, the completion of “problem” objects was entrusted to the largest construction company of the capital, and already in 2009, Yuri Luzhkov, who was then mayor of Moscow, cheerfully stated that the problem of defrauded equity holders had been completely resolved ( at least in the capital).
Such optimism turned out to be premature – the crisis of 2008 contributed to the emergence of new frozen and abandoned construction projects, and the ranks of deceived participants in shared construction continue to grow to this day..
According to official data provided by the Ministry of Regional Development, in the Russian Federation at the end of the first quarter of 2011, there were over 74 thousand defrauded equity holders.
In Russia, according to the ministry, currently more than 900 shared construction projects are considered “problematic”, that is, these facilities have already violated the deadlines for putting the house into operation, construction has been frozen, and equity holders cannot get their own apartments or at least return the investment.
Speaking about the global nature of the problem, it is worth clarifying that only 16 out of 83 regions of the Russian Federation avoided being included in the sad list of regions that faced the problem of defrauded equity holders. The first place in this rating is occupied by the Samara region, where the Ministry of Regional Development counted 7.2 thousand equity holders who did not receive their housing, in second place was Moscow – 6.8 thousand defrauded equity holders, in Tatarstan there are about 6.6 thousand people who are faced with the problem of obtaining living space, in the Novosibirsk region – about 4.7 thousand defrauded real estate investors, in the resort Krasnodar Territory – 4.6 thousand, and in St. Petersburg – more than 3 thousand defrauded participants in shared construction.
The most resonant were the cases of defrauded equity holders in Moscow, who, wishing to draw the attention of the authorities to their problem, repeatedly held rallies, demonstrations, actions in front of the capital’s mayor’s office, protests and even went on hunger strikes. Among the most notorious cases of the deceived participants in shared construction is the construction of 11 microdistrict in South Tushino, the Moscow Windows housing complex, the Barcelona townhouse village.
Mstislav Dobuzhinsky. Meeting in front of the Palace of Arts. 1920
The example of the 11th microdistrict of South Tushino clearly shows that even objects that were built under the control of the authorities of the capital may be on the list of “problematic”. So, the construction of the 11th microdistrict, located in South Tushino, began in 2002, according to the decree of the Moscow Government. Initially, the date of completion of construction was 2005. Then the deadline for the delivery of objects (it was planned to build nine buildings in the microdistrict) was postponed to 2007, and in 2009, the government of the capital, by its decree, extended the deadlines for delivery until 2012.
Currently, 2 buildings are being completed and the construction of another 1 has been completed, how the fate of the remaining 6 buildings will develop is unclear, since on the territory of the construction site there are still dilapidated buildings to be demolished, the residents of which have not even been evicted.
Responsibility for disrupting the construction deadlines was assigned to the management of Energostroykomplekt-M, in particular, to the head of the company, Andrei Kruchinin, who was arrested in February of this year and is currently being held in a pre-trial detention center. Employees of the Department of Economic Crimes are trying to find out where the equity holders’ funds have gone, numerous claims were also filed by contractors, whose work was never paid by the developer.
Timofeev promised that the Moscow government will allocate apartments to all equity holders of the Tushino microdistrict at the expense of the budget.
Interestingly, at first the main developer of the 11th microdistrict was the company GlavMosStroy Holding Company, and only then the Moscow government decided to transfer the construction site to Kruchinin’s company, despite the fact that at that time the authorized capital of the company was only 9 thousand rubles.
Currently, 1,940 people who have become deceived equity holders of the construction of the 11th microdistrict in southern Tushino are trying to get an answer from the Moscow government – whether the construction of the rest of the residential buildings will continue and when they will finally be able to get their square meters. Sergei Sobyanin has already signed a decree “On the termination of the implementation of the investment project for the development of microdistrict 11 of the South Tushino district”, the government decree on the development of this object was declared invalid.
Numerous actions, such as the hanging of a “defrauded shareholder” in front of the Moscow mayor’s office and rallies of participants in shared construction, led to the fact that Konstantin Timofeev, who holds the post of chairman of the Committee for ensuring the implementation of investment projects in construction and control in the field of shared construction, promised that the Moscow government will allocate apartments to all defrauded equity holders of the Tushino microdistrict at the expense of the budget. However, when this happens, in which area the equity holders will be able to get new apartments, whether they will correspond to the apartments that were promised to the participants in the shared construction when signing the contract with CJSC Energostroykomplekt-M, is still unknown..
How to reduce the risk when participating in shared construction? Despite the fact that buying apartments in a building that has not yet been erected is quite a profitable business, because the price of such real estate is much lower than the already finished housing, the risk of becoming one of the defrauded real estate investors is quite high. The following precautions can reduce the likelihood of replenishing the ranks of shareholders who did not receive the promised housing:
Paul Gauguin. Eve. Don’t Listen to the Liar. 1889
- careful study of the developer’s reputation. Some points can be alarming already at the stage of studying the history of the company, which acts as the main developer of the object – newly created firms with too little authorized capital, previously participating in the construction, which was frozen – all these organizations automatically fall into the group of developers that cause the greatest concern. Many lawyers advise, before signing an agreement with a developer company, to apply to the Arbitration Court and check if the organization has participated in litigation earlier. This can be done on the website of the Arbitration Court. It is not bad if the developer, before the start of the construction of this facility, has already taken part in the construction of residential buildings that were successfully and on time commissioned;
- You should definitely demand from the developer the presentation of the following documents: a permit for the construction of an apartment building, a project declaration, a lease or sublease agreement for a land plot, or a certificate of state registration of ownership of the developer company to a land plot on which the construction of an apartment building will be carried out. All these documents must be mandatory, so the absence of at least one of them is a reason to refuse to participate in shared construction;
- study of the contract for participation in shared construction. You should not agree to sign a bill of exchange agreement or a preliminary investment agreement, since in this case the developer can terminate the contract unilaterally, and the shareholder receives as compensation only the cost of the securities that he allegedly acquired. Also, the contract must contain the following points – the definition of the specific object of shared construction to be transferred, the period for transferring the object of shared construction by the developer company, the price of the contract, the term and procedure for its payment, as well as the warranty period for the shared construction object.
Also, when choosing a real estate object where funds will be invested, you should be wary if the developer of this apartment building has already changed, perhaps even more than once, the cost of the apartment is too low, compared to other similar objects in the area, the initial construction period was extended , and the developer provided false information at least once. All this suggests that the likelihood of becoming a “defrauded shareholder” for this object increases many times.
As modern Russian experience shows, it is unlikely that it will be possible to achieve a 100% guarantee that the facility will be put into operation exactly on the terms specified in the contract, but the above listed precautions can certainly significantly reduce the risk of becoming a participant in “problem” shared construction. Also, it will not be superfluous to seek help from a professional lawyer who has extensive experience in this field and is able to give qualified advice..