The developer is obliged to issue a liability insurance contract before the conclusion of the first transaction with the buyer. Otherwise, he will not be able to register it with Rosreestr. These and other additions were made in 2014 by Federal Law No. 294 “On amendments to certain legislative acts.
Essence
Since 2014, the construction company is obliged to confirm the fulfillment of obligations by issuing a surety or civil liability insurance of the developer in shared construction. This will allow the buyer to return their funds in case of unforeseen situations.
The adopted bill establishes the responsibility of the developer for:
- avoidance of obligations;
- delivery of unfinished object;
- bankruptcy before handover.
Experts fear that innovations will lead to higher prices forthe property. The government assured that these factors are not interrelated. Insurance costs, even for a large company, amount to 1% of the volume of transactions. Developers will have to allocate funds for these costs from their budget.
Object
Builder's liability insurance for shared construction involves protecting the property interests of customers. This deal is beneficial primarily to buyers. The company can insure the whole house or apartments separately.
Customers
The agreement is concluded in favor of equity holders. Under certain circumstances, they will receive a payment. The developer undertakes to hand over a reliable high-quality object. The insurer is obliged to notify the client about changes in the transaction and pay remuneration. If equity holders change during the construction process, this must be indicated in the contract, since a separate document is drawn up with the next participant.
Insurers
Not all ICs tend to draw up such contracts. It is believed that this type of transaction brings losses. Moreover, the company must meet certain requirements:
- operate in the market for more than 5 years;
- meet financial stability requirements;
- have a positive development outlook for future periods;
- to have at least 400 million rubles in circulation, as well as authorized capital in the amount of 120 million rubles.
Fares
Builder's insurance for shared construction costsexpensive. Average rates in 2015 were 0.5–0.8%. For long-term contracts, tariffs can be reduced by 10-30%. The insurance company (IC) itself sets the rate, and also calculates the coefficients for the annual percentage, since there is always a possibility that the developer will completely avoid fulfilling obligations.
What determines the rate:
- Participation of the developer in the holding.
- Positive experience of previous transactions: deadline, number of objects, work in different regions, no complaints.
- Financial sustainability.
- Legal support: availability of all documents and permits.
- Construction phase.
- Deadline.
- Number of shareholders.
Contract execution
To register a DDU, the developer must submit an agreement to Rosreestr. To do this, you need to collect the following documents:
- project declaration;
- permission to carry out construction work;
- state registration certificate;
- shared construction agreement;
- copy of statutory documents;
- feasibility study;
- copy of financial statements;
- data on creditors;
- certificate of no delinquency on bank loans.
What is protected
Builder's liability insurance for shared construction implies payment of compensation if the developer has not fulfilled the obligations, which is confirmed by a court decision orcompany bankruptcy. The amount is not paid in the event of a freeze in the construction period or an extension of the commissioning period. The amount depends on the contract price. It cannot be less than:
- object cost;
- average market rate for 1 sq. m. of housing in the region.
The law also limits the maximum amount of premiums.
The following cases are recognized as insurance:
- construction interruption;
- developer bankruptcy;
- not getting housing;
- refusing to return material resources, etc.
Legislative changes
In 2014, Federal Law No. 294 was amended, according to which the liability insurance of the developer of equity participation in construction is now mandatory. Contracts are drawn up by developers themselves. They also choose with whom to sign contracts: with a company, a bank, a specialized company.
All members of the compulsory insurance company are jointly and severally liable. If a deal is made with a bank, then a lot of time is spent on collecting papers. A 30% deposit of the value of the object must be paid, which serves as a guarantee for the financial institution. In addition, the Central Bank sets its own requirements for such banks:
- minimum tenure - 5 years;
- registered capital 200 million;
- the value of the property is 1 billion rubles.
It is more profitable for developers to get a loan than to issue a guarantee. Financial institutions alsoconsider insurance of an equity participation agreement in construction to be profitable products.
It is better to sign a contract with a company. In a highly competitive environment, insurers are trying to attract customers with low rates and prices. The rate on such transactions remains fixed throughout the term of the contract. Builder's liability insurance for shared construction is paid after the work is completed. Another advantage is the speed of paperwork. The insured is the developer himself, the beneficiary is the shareholder. The method of provision is selected for each dwelling separately.
Builder liability insurance for shared construction
Companies are required to provide collateral. Most often this is the land on which the object will be located. In addition, the document describes how to secure obligations. The papers are signed before the state registration of the first share agreement and are valid until the object is handed over. Termination of the transaction does not release the company from the obligation to pay compensation for cases that occurred during the period of its validity.
You can insure the whole house or each apartment separately. The first option is not profitable. The developer needs to immediately deposit a large amount, to be sure that all apartments will be sold out. The second problem is that under such contracts it is difficult to determine who is the beneficiary.
The document comes into force from the moment the first installment is credited. The developer's insurance for shared construction under the contract does not provide for a franchise. The rest of the terms of the deal are standard:
- the insurer undertakes to inform shareholders about the amount of compensation paid;
- the company can file a regression claim against the developer;
- the insurer is obliged to notify all owners of early termination of the contract;
- the duration of the agreement depends on the duration of construction.
Refund amount depends on price and rates. It must exceed the value of the total area of the dwelling. The company itself decides how the payment will be made: in a lump sum or in installments.
Problems of developer liability insurance in shared construction
This deal is very specific. In fact, we are talking about protecting the financial risks of the developer. Companies have a choice - to issue a policy or a guarantee. The second option is more preferable, since credit institutions already have an established mechanism, scoring systems, specialists who assess risks, as well as structures that organize the completion of WIP. SC cannot boast of such advantages. But they offer low rates. People are used to the fact that banking services are expensive. This is true because the risk in the trade is high. Although, after the amendments to the law, the tariffs for companies also increased.
InsuranceThe liability of the developer in shared construction provides for the cumulative effect of losses. In a crisis situation (a decrease in demand for housing, an increase in mortgage rates), all developers will suffer losses at once, and not just one market participant.
Another problem is the inability to reinsure risks even in the foreign market. In international practice, bonds (guarantees) are used in such operations. But their functioning is not enshrined in Russian legislation. The main difference of such a product is that the insurer can take a facility under construction as a pledge.
The Central Bank has increased the requirements for insurance companies that can provide services to developers - increased the minimum amount of capital. This greatly narrows the circle of possible insurers - up to 19 organizations. Companies that previously accounted for 80% of contracts with developers have left the new list. What will happen to them now is unknown. Most likely, it will be necessary to conclude new contracts with companies from the “white” list. If the license is revoked, the IC is liable for previously concluded transactions within 6 months. It then either terminates the documents or transfers the portfolio and liabilities to another market participant. Unlike OSAGO or liability insurance for owners of hazardous production facilities, this service does not provide other types of protection, such as compensation funds that would deal with payments to citizens after the bankruptcy of the insurer. Equity markethousing construction is great. But there is no well-established way to regulate the activities of developers yet.
