Russia has returned a moratorium on fines to developers: what are the risks of shareholders

Buyers of new buildings will not be able to collect fines from developers until the end of the year for delays in the completion of residential complexes and other violations. This is the third moratorium since 2020

Since March 22, Russia has re-introduced a moratorium on collecting penalties and fines from developers for late delivery of new buildings, which was canceled in July last year.

Together with experts, we are looking into why the authorities took such a step and what it means for buyers of new buildings.

What is the essence of the rbc moratorium.group

Participants in shared-equity construction will not be able to collect fines from developers for disrupting construction deadlines until the end of 2024. The relevant government decree was published on the official portal of legal information and entered into force on March 22.

According to the document, in the period from March 22 to December 31, 2024:

  • a penalty (penalty fee) for violation by the developer of the deadline for the transfer of the object to the shareholder is not charged;
  • losses incurred during this period are not taken into account when determining the amount of payment;
  • interest for violation of the repayment period in case of termination of the DDA on the initiative of the shareholder is not accrued;
  • for the payment of refunds that were presented to the developer before March 22, a delay is granted until December 31, 2024;
  • the amount of interest, penalties, fines and other sanctions in the period from July 1, 2023 to December 31, 2024 are determined based on the key rate of the Central Bank, which was valid on the day of obligations, but not higher than the key rate on July 1, 2023. At that time, it was at 7.5%. For comparison, it is now at the level of 16%.

These features apply, among other things, to legal relations arising from the DDA, which were concluded before the moratorium came into force. “The new rules apply not only to contracts for participation in shared—equity construction, which will be concluded from March 22, 2024, but also to previously concluded agreements with the developer,” explained a member of the Association of Lawyers of Russia (AYUR), managing partner of the Vatamanyuk law group&Partners” Vladislav Vatamanyuk. “Therefore, the state, in order to support the construction industry, gave the innovations retroactive effect, that is, extended them to the previous period,” he noted.

Participants in shared-equity construction will not be able to collect fines from developers for disrupting construction deadlines by the end of 2024 

By law, shareholders are entitled to compensation from the developer in several cases. If the developer delays the delivery of the house, the shareholder can collect a penalty from him. It is calculated using the formula:

  • 1/150 (for legal entities 1/300) × the average refinancing rate × the price of an apartment according to the DDA × the number of days of delay in fulfilling obligations by the developer.

In addition, compensation can be obtained if the object is rented with defects. In this case, the DDU participant may, at his option, require the developer to eliminate the shortcomings free of charge, proportionally reduce the price of the contract or compensate his expenses.

Read also: What to do if the developer has missed the deadline for the completion of the house

To help developers

Experts interviewed by RBC-Real Estate explain the moratorium by the desire of the authorities to support developers during a difficult economic situation (high key interest rate, falling demand, sanctions, etc.). The editorial board sent requests to the Ministry of Construction of Russia, at the time of publication there were no responses.

“The federal law provides for significant penalties for violation by the developer of its obligations to the shareholder. In particular, for violating the deadlines for the transfer of apartments,” says the head of the ERZ portal.Russian Federation Kirill Kholopik. In his opinion, the legislator is not ready to mitigate these sanctions forever. “Realizing that at this stage the postponement of the commissioning of houses is often a consequence of sanctions, the government has made a compromise decision to temporarily reduce the amount of the penalty and delay its payment,” he explained.

Irina Dobrokhotova, founder of BEST-Novostroy, considers the introduction of a moratorium on fines for developers as a measure to support the construction business. “The developer now has to solve a huge number of issues related to construction: a shortage of personnel, changes in logistics, complications with construction and finishing materials. The developers were also influenced by the tightening of the conditions of mortgage programs and the upcoming completion of preferential mortgages, the transition to targeted programs,” she explained.

Maintaining a moratorium is one of the anti-crisis measures to support developers and reduce the financial burden on them, since it is rare for an object to be rented on time, added Mikhail Lavrukhin, head of the commercial and residential real estate practice at the law firm Intercession. “Penalties for late delivery of facilities are calculated from the key rate, which is now 16%, respectively, collecting these amounts from the developer is a significant burden for him. That is why the rate in the new resolution for calculating compensation is fixed for July 1, 2023 — and this is only 7.5%,” the expert noted.

Experts interviewed by RBC-Real Estate explain the moratorium by the desire of the authorities to support developers during a difficult economic situation

See also: The moratorium on fines for developers has been lifted. What will this give to home buyers

The third moratorium from 2020

The previous moratorium was introduced into the pandemic in April 2020 as part of anti-crisis measures to support the construction industry. Then a similar mechanism was introduced in March 2022. The moratorium was lifted only in July 2023. Thus, shareholders could apply for compensation in case of delays in new buildings and other violations for almost eight months.

According to the observations of lawyers interviewed by RBC-Real Estate, the number of new cases after the lifting of the moratorium increases by an average of 10%. “Developers with and without a moratorium often rent new buildings with delays (on average six months), this is a static moment. In general, the number of such cases in the courts is large,” explained the head of the commercial and residential real estate practice at the Intercession law firm. Usually, after the moratorium is lifted, the number of appeals to bailiffs and banks with writ of execution to recover funds from the developer according to previously adopted decisions increases, the lawyer added.

Traditionally, conflicts between shareholders and developers are among the common phenomena in Russian courts, added a member of the Association of Lawyers of Russia (AYUR). “Buyers of new real estate often resort to judicial protection of their rights due not only to late delivery of housing by the developer, but also to the shortcomings in it. At the same time, quite often such cases are far—fetched,” he noted.

Read also: Consumer extremism in new buildings: how to find a balance of interests

Risks for buyers of new buildings

The main risk of the moratorium, according to lawyers, is that by the end of 2024, developers may not deliver the facilities on time. “Accordingly, the sanctions provided for by FZ-214 against the developer will not be accepted during this period,” Mikhail Lavrukhin noted. “At the moment, developers have been given a free hand in terms of housing delivery dates. It is quite obvious that this may contribute to the late delivery of premises to shareholders, who, in turn, are deprived of an effective remedy in terms of collecting a penalty from the developer,” Vladislav Vatamanyuk added.

For buyers, this measure will also become a negative factor due to rising costs – for example, for repairs, rental housing, added Anastasia Vladimirova, managing partner of IPM Consulting. “In conditions of regular growth in prices for building materials, the budget for the repair of future housing is unstable and regularly increases, and this is not 5-10%, but much more. Therefore, buyers bear significant financial risks that they cannot compensate for due to temporary legal restrictions,” the expert explained.

In addition, shareholders are deprived of the opportunity to compensate for the cost of renting an apartment until their own housing is ready. “The practice of introducing a temporary moratorium next year may also be repeated, which, again, is not good for buyers. But against the background of the practice of maintaining the industry, this measure will be interpreted as an argument in favor of developers,” Anastasia Vladimirova added.

The main risk of imposing a moratorium, according to lawyers, is that by the end of 2024, developers may not deliver objects on time

Read also: New rules for the acceptance of an apartment in a new building. What has changed

However, not all experts see the risks of disrupting the deadlines of new buildings. According to the head of the ERZ portal.Of course, this measure will not relax developers. “They have enough other economic motivations to build as quickly as possible. Suffice it to mention that escrow accounts are disclosed only after the house is put into operation. Therefore, the resolution will not affect the timing of the commissioning of houses in any way,” Kirill Kholopik explained.

Now the number of postponements of commissioning permits (RVE) in Moscow is at the usual level, no spikes have been recorded, despite the complication of construction conditions, Irina Dobrokhotova added. “At least in the short term, we do not see any serious risks of delaying the completion of new buildings. On the other hand, this moratorium is able to stop those unscrupulous buyers who seek to obtain unjustified benefits from the developer,” the expert believes.

According to Anton Glushkov, president of the National Association of Builders (NOSTROY), the change in commissioning dates primarily affects premium-class housing, where there is a problem with disruption of logistics links, with import substitution of certain categories of building materials and equipment, as well as a shortage of personnel. NOSTROI and the government conducted an analysis that confirmed that it is now difficult to commission premium—class facilities in due time,” Anton Glushkov said. “There was a debate about whether to extend the norms or not. And according to its results, everyone came to the conclusion that the norm still needs to be extended for the next period. Of course, it will not be permanent and concerns a fairly small number of facilities, primarily premium class,” the President of NOSTRA added.

This has practically no effect on comfort-class housing, the expert noted. “If we analyze the facilities that were commissioned last year, as well as the facilities that are planned to be commissioned this year, then the number of those who took advantage of this moratorium and postponed deadlines in the regions is minimal,” he added.

How long is the commissioning of new buildings postponed now

According to the ERZ.In the Russian Federation, the average postponement of the planned dates for the commissioning of new buildings in early 2024 was 5.5 months. Compared to January 2023, the indicator decreased by 22%, or 1.6 months. Taking into account the facilities whose construction has been stopped, the average postponement by developers of the planned commissioning dates was 8.8 months, which is 0.8 months, or 8% less than a year ago.

The largest postponements of the planned dates for the commissioning of new buildings were recorded in Ingushetia (37.3 months), Omsk (25.8 months) and Vologda (24.1 months) regions. The minimum figures for planned transfers are in the Orenburg Region (0.3 months), the Republic of Tyva (0.3 months) and the Republic of Mari El (0.3 months). In Moscow, the average postponement of the planned commissioning dates for facilities under construction is less than 5.4 months.

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