Are We “Green” to Buy “on the Green”?

Sofia’s slogan “Grows but does not age” is becoming more and more relevant these days. For the last 10 years the capital has acquired a new look and has rapidly replaced the panel buildings with new modern housing constructions.

The municipality is overloaded with requests for building permits, the notaries – with deals for huge sums, and the court – with disputes between builders and buyers (testamentary from the last building boom).

The “green”* tendency is undoubtedly a fact for more than 10 years. Since 2016 the construction of 4 000 new apartments has begun, and 1/7 of all notarial transactions is related to new buildings. Every year the capital’s population increases with 10-15 thousand people. This brings about the necessity of new housings.

Purchasing “on the green” has its advantages – you do not have to pay the price immediately. You have between 1 and 2 years at your disposal to do so. This could give you the opportunity to save more money or to sell another property to finance your purchase. The vast selection of quadrature and location, the lower purchase price per square, the possibility of you being the first occupant in the building – these are just some of the advantages.

At the same time these privileges come with higher risks. The hidden obstacles which stand in the way of the notarial act are not few.

What are the risks?

The main ways of arranging the relations between the parties of the “green” deal are two. The essential difference between them is the moment of acquirement of the property.

The first option is transfer of right of construction. Here the seller (builder) transfers the right of construction not the right of ownership. This means that the property will be acquired after the building reaches the stage “rough construction”.

From this point the relations between the constructor and the purchaser are arranged with a construction contract. But what will stimulate the constructor to finish the building when the property ownership is transferred? This can be done with the contractual penalty.  However, the mass buyer seldom reads the contract which he is signing. More often the inexperienced buyers are presented with “blank” contracts in which the builder’s default is missing.

The second option is a preliminary contract. The buyer does not always have the whole purchase price and in this case he proceeds to form a preliminary contact. Both sides of the contact arrange a term for signing the peremptory contact (Notary Deed) and spread the payment – for example 10% deposit, 70% on Act 15 and 20% on Act 16 when finalizing the contact. It seems that both sides are content – the constructor has enough time to build, and the buyer has enough time to secure enough funds.

At this point everything seems all right, but is it really so?

When choosing this option you may come across the following situation. You have signed a preliminary contract with a building company and you know you have enough time to provide the purchase price. The date for signing the final contract expires. You contact the constructor so you can arrange a date and hour, but he informs you that he has already sold the property to someone who offered him a bigger purchase price.

You approach the court with a claim aiming to declare the preliminary contract as a final contract. Your claim is subject to recordation with the Property Register. However you find out that previous sale trade has been registered. This creates opposability against third persons and the other buyer’s contract has a binding force. In this case your claim would be unmaintainable since it would be impossible for the court to acknowledge your ownership when the property legitimately belongs to someone else. The only option you have is to claim the restoration of your deposit in double size and to claim a default, if such was arranged in the preliminary contract.

An unpleasant situation may occur concerning not only the future apartment or building, but also the land on which they are to be built. This is possible when the land is burdened – for example with a mortgage or a restraint. The burdens on the land spread over the built on it constructions unless they are explicitly excluded from the mortgage or the restraint. When you buy property “on the green” without investigating the state of the land, you risk becoming a subject of enforcement and being taken out of possession.

It is also possible that the problem is not of a real-estate right nature. The problem could be connected with the status of the constructor as a merchant. In the period between signing the insolvency proceedings. He could be declared insolvent or in a process of liquidation. It is very important that you do your research on the merchant’s state, history and reputation. It is mandatory that you ask how the construction of the building would be financed. You should also take into account that if the seller relies on a bank credit then in a future bankruptcy of the company other creditors will have advantage.

You are spending your own money – do it wisely.

In any case the purchase of a property, whether “on the green” or not, is an activity which demands special caution in the pre-contractual stage. The above mentioned problems are just a few of the risks which every purchase contract holds. The preliminary analysis of the history of the property and land, the status of the constructor as a merchant, the examination of all the documentation, including the preliminary contract, the negotiations with the other side – they all can contribute to arranging a stable and fair contract and can save time and money on initiating judicial proceedings.

Solutions for greater security in contracts “on the green”

A possible solution to all these problems would be creating a register for preliminary contracts. Treating the preliminary contracts as a burden will strengthen the responsibility on both sides of the deal. The inscription would provide opposability against further transactions. The seller would be restrained from new contracts. Even if such contracts are signed this would not have any effect on the acquisition of the property of the inscribed owner. The creation of such a register may lead to additional expenses on both sides of the preliminary contract but it would increase the security in the civilian turnover. For sure the preliminary contract trials would decrease significantly.

Are contracts “on the green” safer today?

During the construction boom ten years ago hundreds of builders and buyers made money from buying “on the green” from companies with no experience and history. These companies aimed at profits from the high demands. Time has sifted the players. The higher control when it comes to issuing a permit for building, the higher requirements for building credits from the banks, the decreasing building terrain in the neighborhoods, the active civilian monitoring of unregulated constructions – they all suggest that only the big players and the serious  construction companies are left on the market. The present growth of contracts “on the green” and the high interest in buying such properties do not exclude a repeated appearance of dishonest constructors who will try to gain profits at the expense of the buyers. The low prices “on the green” and the interest of signing a profitable contract should not fool the buyers. The precursory research would save a lot of future inconveniences (and we are talking about not at all small funds).

* Buying on the green is a term used when someone buys a building or part of a building before it has been built.

Author: Radostina Hadzhieva, Lawyer at Stankov, Todorov, Hinkov & Spasov, Attorneys-at-Law