Developer's liability insurance for shared construction: features when applicable

The developer is obliged to issue an insurance contractresponsibility before the conclusion of the first transaction with the buyer. Otherwise, he will not be able to register it in Rosreestra. These and other amendments were introduced in 2014 Federal Law number 294 "On changes in some legislative acts.

Essence

Since 2014, the construction company is obligedconfirm the execution of duties by issuing a guarantee or insurance of civil liability of the developer in case of 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:

• evasion;
• delivery of unprepared object;
• bankruptcy before the surrender of the property.

Experts fear that innovation will lead tohigher real estate prices. The government assured that these factors are not interrelated. Insurance costs even for a large company account for 1% of the volume of transactions. Developers will have to allocate funds for these expenses from their budget.

An object

Developer Liability Insuranceshared construction involves the protection of property interests of customers. This transaction is beneficial primarily to buyers. The company can insure the whole house or apartments separately.

Customers

The contract is in favor of shareholders. If certain circumstances occur, they will receive payment. The developer undertakes to pass a reliable quality object. The insurer is obliged to inform the client about the changes in the transaction and pay a fee. If in the process of construction the share holders will change, this must be indicated in the contract, since a separate document is drawn up with the next participant.

Insurers

Not all ICs seek to execute such contracts. It is believed that this type of transaction brings losses. Moreover, the company must meet certain requirements:

• carry out activities on the market for more than 5 years;
• meet the requirements of finite stability;
• have a positive development forecast for future periods;
• have a turnover of at least 400 million rubles, as well as a share capital of 120 million rubles.

Rates

Insurance of the developer in the joint constructionis expensive. The average rates in 2015 were 0.5–0.8%. For long-term contracts, tariffs can be reduced by 10–30%. The insurance company (SK) itself sets the rate, and also calculates the coefficients for the annual percentage, as there is always a chance that the developer will completely evade from the 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 stability.
• Legal support: the availability of all documents and permits.
• Stage of construction.
• Deadline.
• Number of shareholders.

Execution of the contract

To register the DDU, the developer must provide the contract in Rosreestr. For this you need to collect the following documents:

• project declaration;
• permission to carry out construction work;
• certificate of state registration;
• equity construction contract;
• copy of statutory documents;
• feasibility study;
• copy of financial statements;
• information about creditors;
• certificate of the absence of delinquency on loans in banks.

What is protected

Developer Liability Insuranceequity construction involves the payment of compensation if the developer has not fulfilled the obligation, as evidenced by a court decision or bankruptcy of the company. The amount is not paid in case of freezing the construction period or the extension of the period of delivery of the object. The amount depends on the contract price. It can not be less:

• value of the object;
• average market rate for 1 square. m housing in the region.

The law also limits the maximum amount of bonuses.

The following cases are recognized as insurance:

• interruption of construction;
• bankruptcy of the developer;
• lack of housing;
• refusal to return material resources, etc.

Changes in legislation

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 made by the developers themselves. They choose with whom to sign contracts: with the company, a bank, a specialized company.

All members of the compulsory insurance companybear joint and several liability. If the transaction is made with the bank, then a lot of time is spent on collecting papers. Be sure to pay 30% deposit of the value of the object, which serves as a guarantee for the financial institution. In addition, the Central Bank establishes its requirements for such banks:

- the minimum period of work is 5 years;

- authorized capital 200 million;

- property value - 1 billion rubles.

It is more profitable for developers to get a loan than to issue a guarantee. Financial institutions also do not include insurance of a contract of equity participation in construction as a profitable product.

It is better to enter into a contract with the company. In conditions of strong competition, insurers are trying to attract customers with low tariffs and prices. The rate on such transactions remains fixed throughout the term of the agreement. The developer’s liability insurance for shared construction is paid after the execution of the work. Another advantage is the speed of paperwork. The insurer is the developer himself, the beneficiary is the equity holder. The provisioning method is selected for each dwelling separately.

Builder’s liability insurance for shared construction

Companies must provide a deposit. Most often this is the land on which the object will be located. In addition, the document describes a method of securing obligations. The papers are signed before the state registration of the first equity 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 occurring during the period of its operation.

You can insure the whole house or each apartmentseparately. The first option is unprofitable. The developer must immediately make a large sum, to be sure that all apartments will be sold. The second problem is that under such agreements it is difficult to determine who the beneficiary is.

The document comes into force from the moment of transferdown payment. Insurance of the developer in the joint construction under the contract does not provide for the availability of a deductible. The remaining terms of the transaction correspond to the standard:

- the insurer undertakes to inform the co-investors about the amount of the paid compensation;

- the company can apply with a regressive demand to the developer;

- The insurer is obliged to notify all owners of the early termination of the contract;

- The term of the agreement depends on the duration of the construction.

The amount of compensation depends on the price and rates. It must exceed the valuation of the total area of ​​the dwelling. The company itself decides how the payment will be made: at a time or in installments.

Problems of developer liability insurance during shared construction

This transaction 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 guarantee. The second option is more preferable, since credit institutions already have a well-established mechanism, scoring systems, risk assessors, as well as structures that are involved in the organization of the completion of the work process. SC can not 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 transaction is high. Although, after amending the law, the tariffs of companies also rose.

Developer Liability Insuranceshared construction provides for a cumulative effect of losses. In a crisis situation (lower demand for housing, higher mortgage rates) a loss will be borne at once by all developers, and not just one market participant.

Another problem is the lack of opportunityreinsure risks even in a foreign market. In international practice, bonds (sureties) are used in such operations. But their functioning is not fixed by Russian legislation. The main difference of such a product is that the insurer can take the object under construction as a pledge.

Central Bank raised the requirements for the IC, which canprovide services to developers - increased the minimum amount of capital. This greatly narrows the range of possible insurers - up to 19 organizations. Companies that previously accounted for 80% of contracts with developers took off from the new list. What will happen to them now is unknown. Most likely, you will have to enter into new contracts with companies from the "white" list. In the case of revocation of the license, the IC is responsible for the previously concluded transactions within 6 months. Then it either terminates the documents, or transfers the portfolio and obligations to another market participant. Unlike OSAGO or liability insurance for owners of hazardous production facilities, this service has no other types of protection, such as compensation funds that would pay citizens after the insurer's bankruptcy. The market share housing construction is great. But there is no well-established way to regulate the activities of developers.