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What is a housing cooperative agreement and why is it needed?

According to statistics, up to 30% of apartments in Russian new buildings are sold by concluding a housing cooperative agreement.

A housing construction cooperative is an association of individuals and legal entities who have voluntarily united to build real estate. Members of such a cooperative financially participate in the construction of the house, its reconstruction and maintenance through the payment of share contributions.

The buyer of an apartment in a building under construction becomes a shareholder and signs an agreement with the housing cooperative. In it, the housing cooperative undertakes to transfer to the shareholder an apartment with certain characteristics, and the shareholder is obliged to pay the full cost of the share and accept it. Participants regularly make contributions to the housing cooperative, the total cost of which is equal to the cost of the apartment. After full payment of the share, the participant can become the owner of the property.

The housing cooperative agreement is the most important document that regulates the relationship between shareholders (future apartment owners) and the housing cooperative. It describes the conditions for investing money in the development, the rules for making a down payment and subsequent payments for the apartment, characteristics of the property, the procedure for making decisions in the cooperative and the conditions for the shareholder to leave the housing cooperative.

The housing cooperative agreement contains the rights and obligations of the parties and the most important conditions for the sale of real estate. If many aspects regarding the DDU are stipulated at the legislative level, then all controversial situations between the board of the housing cooperative and the shareholders are resolved taking into account the provisions of the agreement concluded by them. Therefore, its importance is difficult to overestimate.

After signing the contract, all conditions for the sale of real estate are considered agreed upon by the parties, and their legal relationship acquires legal force.

Also, the housing cooperative agreement is one of the documents that is presented by the shareholder when re-registering ownership of an apartment in his favor in Rosreestr.

It is worth noting that the relationship between the cooperative and the shareholder is also regulated not only by the housing cooperative agreement, but also by the charter. In particular, the essential conditions of the cooperative’s work (such as the procedure for leaving or becoming a member of the cooperative) can be specified in the charter, and not in the contract. But when signing the agreement, the shareholder confirms his agreement with all the provisions of the charter.

Participation in construction through mutual funds

03/25/2016 Lyudmila Korneeva Head of the Department of Consulting and Expertise of Special Depository Service Transactions of JSC Specialized Depository INFINITUM

Introduction

For a long time, the issue of taxation of property constituting a mutual investment fund was not clearly regulated at the legislative level, and therefore there were different opinions and disputes on this topic. In 2011, amendments were made to the Tax Code of the Russian Federation, according to which management companies are recognized as taxpayers in relation to real estate, including land plots included in mutual investment funds. In this case, the tax is paid from the property of the corresponding mutual fund. These changes caused a negative reaction from the market, which predicted a possible drop in the volume of investments in real estate and construction through mutual funds.

However, according to NLU, as of January 1, 2011, of all operating mutual investment funds, 38% were real estate funds, and as of February 25, 2021, 42%. Thus, it can be stated that fears were unfounded and investing in real estate and construction through mutual funds is still relevant at the moment.

Moreover, today we have five years of experience in the new conditions of taxation of mutual funds, when the only tax preference for shareholders in comparison with ordinary business companies is deferred taxation of profits: grounds for paying taxes arise only at the time of receipt of income paid to shareholders and/or when redemption of investment units.

Organization of work of closed real estate mutual fund

In accordance with the Regulations on the composition and structure of assets of joint-stock investment funds and assets of mutual investment funds, approved by Order of the Federal Financial Markets Service of the Russian Federation dated December 28, 2010 No. 10-79/pz-n (hereinafter referred to as Regulation No. 10-79/pz-n), real estate funds can only be of a closed type, i.e., accepting applications for redemption of investment units is possible only in a limited number of cases determined by the rules of trust management of the fund, the main of which is the redemption of investment units upon its termination.

At the same time, persons interested in investing in construction through mutual funds have a choice of options for organizing the investment process, depending on the idea, objectives and financial resources available to them. Real estate fund shares may be either unlimited in circulation or intended only for qualified investors, and this determines the set of assets that may be included in the fund, the types of property that can be transferred to pay for the shares, and the requirements for co-investors who may be involved in the project.

The most important stage of the work is the preparation of rules for trust management of the mutual fund, which define, within the framework established by the legislator, the operating conditions of the fund, the direction of investment of the management company, as well as the maximum amount of expenses, including on the infrastructure of the fund, which can be paid from the property of the mutual fund.

Investments in construction through a closed real estate mutual fund, the shares of which are not limited in circulation

The main advantage of real estate funds, the shares of which are not limited in turnover, is the absence of any requirements for possible shareholders of mutual funds. Such a fund can only consist of rights to real estate, lease rights to real estate and property rights from agreements for participation in shared construction of real estate objects, concluded in accordance with Federal Law of December 30, 2004 No. 214-FZ “On participation in shared construction apartment buildings and other real estate and on amendments to certain legislative acts of the Russian Federation" (hereinafter referred to as the DDU). Thus, besides investing in rights from the DDU, other options for participation in construction are not available to a real estate fund, the shares of which are not limited. Today, the number of such funds is less than 32% of the total number of operating real estate funds (NLU data), which confirms the lack of significant popularity of this form of investment in real estate and construction among market participants.

The main model of operation of such funds is the investment of funds contributed by investors to pay for investment units at the stage of formation of the fund (when issuing additional investment units) in property rights from the DDU with their subsequent implementation by concluding assignment agreements or with the subsequent sale of apartments in already built residential buildings houses - the most common option.

Models of operation of closed-end real estate mutual funds for qualified investors

Real estate funds, the shares of which are limited in turnover, have a greater choice of ways to participate in construction, as well as the opportunity to invest in property rights from the DDU. However, unlike real estate funds, the shares of which are not limited in circulation, there are requirements for persons who can purchase shares of such a fund. Shareholders of such funds can be qualified investors, a limited list of which is contained in clause 2 of Art. 51.2 of the Federal Law of April 22, 1996 No. 39-FZ “On the Securities Market”, or individuals and legal entities recognized by the management company as qualified investors on the basis of documents provided by investors confirming their compliance with one of the requirements established by the same law.

The most common option for the participation of real estate funds, the shares of which are intended for qualified investors, in construction today is investing in property rights associated with the emergence of ownership of a real estate object (part of it) after completion of its construction (creation) and arising from an agreement by a party by which is a legal entity that owns the right of ownership or other property right, including the right to lease, to a land plot allocated in the prescribed manner for the purposes of construction of a real estate object, and (or) having permission to construct a real estate object on the specified land plot, or a legal a person investing money or other property in the construction of a real estate property (hereinafter referred to as the rights from contracts under 39-FZ). Participation in construction in this case is also regulated by Federal Law No. 39-FZ of February 25, 1999 “On investment activities in the Russian Federation, carried out in the form of capital investments,” which defines the distinctive features of the construction project and the object to be transferred to the construction participant, the method of investment , the procedure and form of concluding an agreement, differentiating the procedure for the emergence of rights from contracts under 39-FZ from investing in rights from the DDU. A significant advantage of investing in rights from contracts under 39-FZ is that there is no need for state registration of the fact of concluding such contracts, in contrast to contracts from the DDU.

The most complex and financially costly is investing in construction through a mutual fund, when the management company, acting as a trustee of a real estate fund, directly acts as a developer. According to the requirements of Regulation No. 10-79/pz-n, this opportunity is available only to the management company of a real estate mutual fund, the shares of which are limited in circulation. A necessary condition for independent construction by a management company is the presence of a land plot in the fund on the right of ownership or lease. Taking into account the provisions of Order of the Federal Financial Markets Service of the Russian Federation dated December 9, 2008 No. 08-56/pz-n “On the transfer of property in payment for investment shares of a closed-end mutual investment fund and the timing of the formation of a closed-end mutual investment fund,” such a land plot can be transferred in payment for investment shares both at the stage of fund formation and in the process of paying for investment units when issuing additional fund units. Lease rights in payment for investment shares cannot be transferred; accordingly, they can become part of the mutual fund only after the management company concludes an appropriate agreement with the owner of the land plot.

In order to comply with the requirements for urban planning activities, it is also necessary to develop design documentation, obtain a construction permit, carry out the necessary technical and engineering control during construction, etc.

These actions require significant financial investments. The list of expenses that can be paid from the fund’s property is established by Bank of Russia Directive No. 3506-U dated December 24, 2014 “On the list of expenses associated with the trust management of property constituting the assets of a joint-stock investment fund, or property constituting a mutual investment fund "(hereinafter referred to as the List of mutual fund expenses).

Among others, the following expenses may be paid:

• related to the demolition of buildings, structures and structures that constitute the property of the foundation;
• related to carrying out engineering and survey work on land plots that make up the fund, changing their category and type of permitted use, their division and land surveying;
• related to payment for services for the development of technical conditions for connecting (attaching) real estate objects under construction, which constitute the property of the Fund, to external utilities, and obtaining permits for the construction of real estate objects;
• related to the implementation of technical and architectural supervision of construction carried out at the expense of the fund’s property;
• related to payment for construction, construction and installation work on laying engineering support networks, creating infrastructure facilities (unified engineering support) of real estate objects constituting the property of the fund.

The List of Expenses also provides for the possibility of paying at the expense of the fund’s property other expenses not directly specified in the List (hereinafter referred to as other expenses), provided that such expenses are permissible in accordance with the Federal Law of November 29, 2001 No. 156-FZ “On Investment Investments”. funds" (hereinafter referred to as Law No. 156-FZ).

The conditions for payment of other expenses are:

• the presence in the relevant section of the rules of trust management of a mutual investment fund indicating the possibility of payment;
• compliance with the maximum size.

The legislation establishes that the total maximum amount of such expenses, established by the rules of trust management of a mutual fund, for mutual investment funds whose shares are limited in turnover, cannot be more than 5% of the average annual value of the fund’s net assets. It should be noted that payment of other expenses from the property of a fund whose shares are not limited in circulation is also possible, but the established limit is significantly less - no more than 0.1% of the average annual value of net assets.

Closed-end real estate mutual fund as a developer under 214-FZ: is it possible?

Quite often the question arises about the possibility of a management company carrying out construction on a land plot, the rights to which are part of a mutual fund, concluding agreements for shared participation in construction, provided for by Federal Law of December 30, 2004 No. 214-FZ “On participation in shared construction of apartment buildings” houses and other real estate objects and on amendments to certain legislative acts of the Russian Federation”, as a developer for the subsequent transfer of the constructed object to participants in shared construction. Unfortunately, this method of organizing investment in construction is impossible today, due to the limited list of other types of activities with which the activities of a management company that carries out trust management of mutual investment funds can be combined (clause 4 of Article 38 of Law No. 156-FZ) . This position was announced by the Bank of Russia in the corresponding information letter in August 2014.

Participation in construction through investments in business companies

A separate way to participate in construction investment is the acquisition of securities or shares of business companies carrying out construction. In this case, the choice of fund category may not be limited to the category of real estate. Meanwhile, investors often have a question about the “opacity” of the system of their participation in construction, because an investment share in these circumstances will certify the shareholder’s share in the right of common ownership of securities or a share of a business company, and not a share in the right of common ownership of rights from investment contracts, agreements or property rights from agreements on the basis of which the construction of real estate is carried out.

Conclusion

Thus, at the moment, there is a fairly wide range of options for participation in construction using the mechanism of a mutual investment fund, the choice of which depends on the need to attract additional co-investors to the project, whether the investor has assets at the time of formation of the mutual investment fund and other factors. Qualified expert support plays an important role when organizing investment in construction through mutual funds. The experience of specialized depositories in providing services to management companies of such funds can and, in our opinion, should be used from the moment the fund’s operating model is developed and the PDU is registered until the end of the project. This experience allows us not only to select the most optimal type and category of fund, but also to provide assistance in preparing the rules for trust management of a mutual investment fund in order to maximize their compliance with the planned procedure for implementing the project, to identify the bottlenecks that most often raise questions and problems for the management company and investors, ensure objective accounting of the fund's property and provide comprehensive support to the management company throughout the life of the mutual investment fund. In addition, some of the functions of the management company can be outsourced to a specialized depository, thereby minimizing the costs of running an investment project and allowing the management company to concentrate on managing investors’ property.

Procedure for drawing up a contract

Before concluding an agreement, a potential shareholder should check the following information:

1. Information about the cooperative : when and where the cooperative was registered (with which Federal Tax Service).
2. The reputation of the housing cooperative : in particular, reviews and mentions about it on the Internet.
3. Availability of litigation involving housing cooperatives.
4. Is the cooperative in the process of liquidation , bankruptcy or financial recovery?
5. Find out how many other housing cooperatives are registered under the chairman (if there are several of them, this can be a dangerous signal).
6. Does the housing cooperative have a building permit on the land specified in the contract ? Very often, problems during construction for housing cooperatives arise due to the rights to land plots not being properly registered.

If the housing cooperative involves an external contractor in the construction, then documents such as the project declaration, the validity period of the construction permit and the certificate of ownership are checked with the developer.

After the preliminary stage is completed, the procedure for signing an agreement with the housing cooperative involves going through the following steps:

1. The future shareholder submits a free-form application to the chairman with a request to become a member of the housing cooperative.
2. When submitting such an application, you must receive a receipt from the cooperative stating that it has been accepted for consideration.
3. A month is allotted for consideration of the housing cooperative's application.
4. The candidacy of a shareholder must be considered at the general meeting of the cooperative.
5. If a positive verdict has been made against the shareholder, then he is given a certified extract from the decision of the general meeting to join the housing cooperative.
6. The shareholder pays membership fees to the housing cooperative and receives payment documents about this.
7. An agreement is signed between the housing cooperative and the shareholder.

Court decisions

How to return money for an apartment if the contract was not concluded in accordance with No. 214-FZ
Penalty from the developer Dalpiterstroy

Gray sales schemes in new buildings

Dispute with LLC Lenspetsstroy

The apartment plan does not correspond to the contract

How to sue a developer for a penalty

Content

The issue of the content and form of the housing cooperative agreement has not been regulated by law. Its content and structure are free and determined by agreement of the parties. The terms of the contract are free.

The housing cooperative agreement must be in writing and drawn up according to the number of participants. The housing cooperative agreement must stipulate the following conditions:

1. Characteristics of the property and apartment under construction : floor and area. It should be clearly clear from the contract which apartment the shareholder will receive, with what characteristics and in which building.
2. An algorithm for increasing the cost of a square meter of an apartment (the main thing is that the contract stipulates that this issue should be resolved by decision of the meeting of participants).
3. Procedure for making membership and share contributions.
4. What contributions, in addition to the share contribution, are provided for in the housing cooperative , the procedure and frequency of their payment.
5. Information about the land plot on which the house is being built, its cadastral number (the shareholder should clarify who owns the specified plot and whether the housing cooperative has the right to develop it).
6. Construction completion dates (it is in the interests of the shareholder that there is also a clause on the developer’s penalty in case of delay in obligations).
7. Payment of utility bills in a house under construction (who should pay for utilities).
8. Procedure for providing an apartment.
9. Conditions for leaving the cooperative and terminating the contract . The exclusion of a shareholder from the membership of the cooperative can occur on his initiative or by decision of the meeting of the housing cooperative (such a decision can be made by the meeting due to the shareholder’s failure to fulfill his obligations).
10. The procedure for returning money to a shareholder upon leaving the cooperative.
11. Penalties for the shareholder and housing cooperative in case of violation of their obligations (for example, for delay in making a share contribution).
12. Details of the cooperative (they should be additionally checked with data from the Unified State Register of Legal Entities, which is publicly available).
13. Information about the shareholder.

A sample housing cooperative agreement can be downloaded here. The agreement is signed by each of the parties and comes into force from the date of its signing.

The agreement is an internal document and is not subject to mandatory registration with Rosreestr.

What is the difference between a housing cooperative agreement and a DDU agreement?

The difference between a housing cooperative agreement and a public housing cooperative agreement lies in their legal regulation. Work with shared participation agreements is regulated by 214-FZ “On Equity Participation...”, and work with housing construction cooperatives is regulated by 215-FZ “Law on Housing BC”.

Equity participation agreements or DPAs are a scheme according to which apartments in houses under construction are sold between shareholders. In essence, persons who contribute funds under the DDU become construction investors.

Participation agreements in a Housing Construction Cooperative are a scheme according to which apartment buyers make share contributions (they are also called shareholders). In fact, they join a community of citizens whose goal is to build a residential building.

Let's consider the difference between an equity participation agreement and participation in a housing cooperative.

Features of equity and share construction

The pros and cons of purchasing housing as a shareholder or shareholder are as follows:

1. Registration of an agreement with Rosreestr before the start of construction is a lengthy process, but excludes the possibility of selling one apartment into the hands of several shareholders. The presence of two or more owners is not uncommon when making a transaction through housing cooperatives.
2. The final price per 1 m2 from the shareholder does not differ from the initial one, but exceeds the cost of an apartment of the same area owned by a member of the cooperative.

Having set a price for 1 m2, the developer does not have the right to change it under the terms of shared construction. A proposal on his part to sign an additional agreement, which provides for an increase in the price of 1 m2, may be rejected by the shareholder on legal grounds. Moreover, in such a situation, the person who signed the DDU has the right to demand termination of the main contract, return of funds already paid and payment of a penalty.

We invite you to read: Forced seizure of property from the owner is not allowed

According to the terms of the agreement with the housing cooperative, its chairman can increase the price per 1 m2 at any stage of the construction of the house by agreement with the other members of the housing cooperative.

1. Violation of the deadlines for putting the house into operation is financially unprofitable for the developer when signing the DDU, since this gives the shareholder the right to demand payment of a penalty for each day of delay. The law provides for only 2 months beyond the agreed period under the contract, during which the developer is obliged to resolve all legal issues and provide the owners with their apartments. Signing an additional agreement to extend the deadline for handing over the house is the right of the shareholder, and not his obligation.

In this matter, equity participation is better than joining a housing cooperative, since the agreement with the housing cooperative does not stipulate clear dates for the start and completion of the construction of the house. Accordingly, the developer also does not incur financial costs in the form of penalties.

1. The difference between a shareholder and a shareholder also lies in the fact that good building cooperatives provide their members with installment plans, which do not depend on whether the house has been delivered or is under construction. The shareholder is limited in this right and is obliged to pay the entire amount upon completion of construction work.
2. At the time of the start of construction of an apartment building according to the DDU, the project was approved and all permitting documentation was received. This is a guarantee that when the house is put into operation, the number of storeys and the presence/absence of extensions will correspond to the initially stated conditions.

What the cooperative house will be like is decided by its members by voting. However, if it is necessary to attract additional shareholders, the house may end up being one floor higher or one staircase larger than was originally agreed upon.

1. The share agreement clearly defines the mandatory conditions for its termination and return of funds, which makes it difficult for the shareholder to terminate relations with the developer. When signing an agreement with a housing cooperative, other pitfalls arise: the resale of such property is burdensome, as it forces the new owner to join the cooperative.

We suggest you read: How to restore a car after disposal

Which is better for an apartment buyer: DDU or housing cooperative

It is impossible to unequivocally answer the question of which agreement the buyer should prefer (DDU or housing cooperative). Each real estate purchase situation must be considered individually. At the same time, a potential buyer should understand the advantages and disadvantages of different forms of interaction with developers.

Advantages and disadvantages of DDU

Purchasing an apartment under the DDU has its undeniable advantages, including:

1. The developer must have his own permitting documentation and project declaration.
2. The contract contains a fixed price for the apartment , which cannot be revised by the developer unilaterally. Developers must independently solve the problem of increasing the cost of building materials without involving shareholders.
3. The house will be built exactly in the form in which it was laid out in the design documentation . It cannot unexpectedly and unplannedly increase by several floors; extensions and other buildings will not appear in it.
4. The contract guarantees a transparent scheme for its termination and compensation for losses incurred.
5. There are clear developer warranty periods for different types of work.

But although the legislation protects the rights of shareholders quite well, this agreement is not without certain shortcomings:

1. The cost of apartments under DDU is usually higher than under housing cooperatives . And due to the mandatory deduction of part of the cost of apartments to a special compensation fund, apartments under DDU have become even more expensive. According to current legislation, builders must contribute 1-1.5% of the cost of apartments to the compensation fund.
2. The share participation agreement involves a long stage of their registration.
3. The agreement contains a limited list of grounds for termination.

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