Status: Completed

Purchasing new apartments during their construction … there are many people who wish to do so and entrepreneurs who want to construct such houses.

In practice, there are several ways of purchasing such apartments. The simplest one of them is the payment of 100% of the cost of a built apartment, the more complicated and currently popular method is to buy an apartment from a multi-storey house being built on the terms of shared construction.

What is shared construction?

The core content of shared construction is parties’ participation in the construction of a real estate object with their own funds (shares). Under this deal, one party shall be obliged to transfer the share (residential or non-residential premises) to the other party upon completion of the construction of the real estate object, and the other party shall be obliged to pay for, and accept the share (residential or non-residential premises) in the real estate object upon completion of its construction.

Surely, this is a very convinient mechanism for buying apartment. However, there are yet few questions on the protection of rights and legitimate interests of the customers who aim at buying new apartments on the terms of shared construction.

For instance:

– How can the buyer get his initial payment and subsequent monthly payments reimbursed, if the house is not built on time, or not put into use for the buyer or if the house does not meet the quality requirements the buyer expected?

– Where the housing cost increases due to some reasons (construction materials, taxes become expensive, etc.) during its construction period before the house is put into operation for the buyer, is the buyer obliged to pay a new increased price for the apartment?

– Are there any answers to the abovementioned questions in the legislation?

What does the legislation states..

It is worth arguing that the issue of shared construction is not regulated enough by the current legislation.

The issue of shared construction is hardly ever regulated in the Housing Code and the Town Planning Code of the Republic of Uzbekistan, which directly regulate construction and housing issues. To be more precise, it seems that these codes contain only one or two sentences that remind you of the concept of shared construction.

The law, clearly defining the most important issues, that is subjects and objects of shared construction and their rights and obligations, the protection of the rights and legitimate interests of the customers who bought apartments on the terms of shared construction, the effective state or public control system, the liability for infringement of the rights and legitimate interests of the buyers who purchased apartments, does not exist in the current legislation.

Glance at the experience of some foreign countries in this regard

In many countries, issues of shared construction are regulated by separate laws. Specifically:

1. In the Russian Federation the Law “On shared participation in construction of multi-apartment houses and other real estate objects, and making amendments to some legislative acts of the Russian Federation” is in force.

According to this Law, the escrow account will be opened in the bank for selling apartment on the basis of shared construction, and the money paid by the buyer will be accumulated to that account. Once this house is put into operation, the funds available on this account will be permitted for use, i.e. the firm building the house will not be able to use the money paid by the buyers until the house is fully registered by state as ready for use.

2. In the Republic of Kazakhstan, the Law “On shared participation in construction of houses” was adopted in 2016, according to which only after the completion of carcass (“skeleton of a building”) of the real estate object being constructed, it will be permitted to engage the funds of individuals and entities, on the basis of shared construction.

3. Issues of shared construction in the Republic of Belarus are governed by the “Regulation on the shared construction of real estate properties in the Republic of Belarus”.

In Belarus, an organization, operating the construction of house on the terms of shared construction, is obliged at least once a year to conduct audits on the purpose of use of the money paid by the buyers, at its own expense and to present the results of the inspection to district (city) authorities and to its buyers paid for the house. This allows consumers to get information on what purposes their money used for.

4-5. In the Republic of Singapore, the Law “On the Central Reserve Fund” (1953) and in the People’s Republic of China “Rules for the Management of Housing Funds” (1999) are in effect.

To sum up…

The availability of blanks in the legislation of the Republic of Uzbekistan in this area causes difficulties in ensuring compliance with construction standards, sanitary and fire safety requirements during the the construction of houses for selling on the basis of shared construction, protecting the rights and interests of consumers, and creates an opportunity for some unfair “entrepreneurs” to escape from liability in case of violation of rights and interests of buyers.

In addition, according to the press service of Tashkent city administration, some entrepreneurs, in order to avoid the compulsory procedure of getting permission for building multi-apartment house before commencing the construction of such houses, at first get permission to start building individual housing, but then build a multi-apartment house, and eventually sell those apartments to buyers. Also, it occurs the situations of failure to adhere to the rules of putting newly-built multi-storey house into use.

There are clues of tax evasion when describing the houses for sale like the ones individually constructed, and constructing multi-storey residential houses by individual entrepreneurs. According to the State Tax Committee, the Committee identifies a tax base for the activity of individuals engaged in illegal construction of multi-apartment houses and takes measures on taxation of their income.

Legal regulation of purchasing apartments on the terms of shared construction avoids the above-mentioned negative circumstances.

Thus, taking into account the experience of foreign countries and the current situation in the housing market of Uzbekistan, it would be expedient to adopt a separate law to regulate the issues related to the purchase of house on the basis of shared construction. This law should identify, inter alia, the establishment of an effective state or public control system for selling residential premises based on shared construction, the safeguarding of the rights, legitimate interests and property of customers whose funds are engaged therein, measures of liability for abusing the rights and legitimate interests of buyers.

Azam Madaminov

Abdukhalil Tursunov

responsible clerks of

the Research Institute of Legal Policy

under the Ministry of Justice