The developer is required to draw up a liability insurance contract before concluding the first transaction with the buyer. Otherwise, he will not be able to register her with Rosreestr. These and other additions were made in 2014 to Federal Law No. 294 “On amendments to certain legislative acts.
Essence
Since 2014, the construction company has been obliged to confirm the fulfillment of duties by issuing a guarantee or civil liability insurance of the developer for shared construction. This will allow the buyer to return their funds in unforeseen situations.
The adopted bill establishes the responsibility of the developer for:
- avoidance of obligations;
- delivery of an unprepared object;
- bankruptcy prior to the surrender of property.
Experts fear that innovations will lead to higher real estate prices. The government assured that these factors are not interconnected. Even a large company has insurance costs of 1% of the volume of transactions. Developers will have to allocate funds for these expenses from their budget.
An object
Developer liability insurance for shared construction involves protecting property interests of clients. This deal is primarily beneficial to buyers. The company can insure the whole house or apartments separately.
Customers
The agreement is in favor of interest holders. In certain circumstances, they will receive a payment. The developer undertakes to deliver a reliable quality object. The insurer is obliged to notify the client of changes in the transaction and to pay a fee. If during the construction process interest holders will change, this must be indicated in the contract, since a separate document is drawn up with the next participant.
Insurers
Not all UK companies strive to draw up such contracts. It is believed that this type of transaction causes losses. Moreover, the company must meet certain requirements:
- carry out activities on the market for more than 5 years;
- meet the requirements of financial stability;
- have a positive forecast for future periods;
- have in circulation at least 400 million rubles, as well as authorized capital in the amount of 120 million rubles.
Tariffs
Property insurance for shared construction is expensive. 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 chance that the developer will completely evade obligations.
What determines the rate:
- The 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.
- The number of interest holders.
Contract execution
In order 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 perform construction work;
- certificate of state registration;
- shared construction contract;
- copy of statutory documents;
- feasibility study;
- copy of financial statements;
- data on creditors;
- a certificate of the absence of delinquencies in bank loans.
What is subject to protection
Developer liability insurance for shared construction implies 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 extending the commissioning period. The amount depends on the contract price. It can not be less:
- the value of the object;
- average market tariff per 1 sq. km. m. of housing in the region.
The law also limits the maximum amount of premiums.
The following cases are recognized as insurance:
- interruption of construction;
- bankruptcy of the developer;
- lack of housing;
- refusal to return material resources, etc.
Legislative changes
In 2014, the Federal Law No. 294 was amended according to which liability insurance of the builder of shared participation in construction is now mandatory. The execution of the contracts is done by the developers themselves. They choose with whom to sign contracts: with a company, a bank, a specialized company.
All participants in the compulsory insurance company are jointly and severally liable. If the transaction is executed with the bank, then a lot of time is spent on collecting securities. Be sure to pay a 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:
- minimum term of work - 5 years;
- authorized capital of 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 also do not classify insurance of an agreement on participation in construction as profitable products.
It is better to conclude 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 contract. Developer liability insurance for shared construction is paid after completion of work. Another advantage is the speed of paperwork. The insurer is the developer himself, the beneficiary is the shareholder. The method of provision is selected for each dwelling separately.
Developer liability insurance for shared construction
Companies must provide collateral. 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 moment of delivery of the object. Termination of the transaction does not relieve the company from the obligation to pay compensation for cases that occurred during its validity.
You can insure the whole house or each apartment separately. The first option is disadvantageous. The developer needs to immediately make a large amount, be sure that all apartments will be sold out. The second problem is that under such agreements it is difficult to determine who is the beneficiary.
The document comes into force from the moment the first installment is credited. Under construction contract insurance for the developer does not provide for a franchise. The remaining terms of the transaction comply with the standard:
- the insurer undertakes to inform interest holders about the amount of compensation paid;
- the company may apply with a regression requirement to the developer;
- the insurer is obliged to notify all owners of the early termination of the contract;
- The duration of the agreement depends on the duration of the construction.
The amount of compensation depends on the price and rates. It should exceed the cost estimate of the total area of the dwelling. The company itself decides how the payment will be made: one-time or by installments.
Developer liability insurance problems in shared construction
This deal is very specific. In fact, it is about protecting the financial risks of the developer. Companies have a choice - to issue a policy or guarantee. The second option is more preferable, as credit organizations already have an established mechanism, scoring systems, risk assessors, as well as structures that organize the completion of the work in progress. SK cannot boast of such advantages. But they offer low rates. People are used to the fact that banking is expensive. This is true because the risk in the transaction is high. Although, after amending the law, companies also increased tariffs.
Developer liability insurance for shared construction provides for the cumulative effect of losses. In a crisis situation (reduction in demand for housing, increase in mortgage rates), all developers will suffer a loss at once, and not just one market participant.
Another problem is the inability to reinsure risks even in the foreign market. In international practice, such operations use bonds (guarantees). But their functioning is not fixed by Russian legislation. The main difference of such a product is that the insurer can take a pledged facility under construction.
The Central Bank has increased requirements for insurance companies that can provide 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 flew out of the new list. What will happen to them now is unknown. Most likely, it will be necessary to conclude new agreements with companies from the "white" list. In case of revocation of the license, SK is responsible for previously concluded transactions within 6 months. Then it either terminates the documents or transfers the portfolio and obligations to another market participant. Unlike compulsory motor third-party liability insurance or liability insurance of owners of hazardous industrial facilities, this service does not have other types of protection, such as compensation funds, which would deal with payments to citizens after the insurer's bankruptcy. The shared housing market is large. But there is no streamlined way to regulate the activities of developers.