Termination of the contract: unilateral refusal of the shareholder to execute the equity participation agreement

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1. How many apartments with a mortgage were bought in the summer of 2015 - 2021 in Moscow
2. Scheme for a shareholder to purchase an apartment under a DDU with a mortgage
3. Accreditation by the bank of an object for accelerated issuance of mortgages
4. Grounds for termination of the DDU with a mortgage at the initiative of the shareholder
5. The procedure for the shareholder's actions when terminating the DDU with a mortgage
6. Some features of terminating a DDU with a mortgage

The realities of the Moscow real estate market are such that the majority of new buildings under DDU are purchased with a mortgage loan (source).

When can the termination of a DDU with a mortgage be terminated on the initiative of the shareholder?

It would seem that everything is simple, but the situation becomes more complicated when borrowed or credit funds are used to pay for the DDU. This type of lending is also called a mortgage.

In this case, compliance with all conditions of the DDU on the part of the developer becomes especially important for the client, because he not only pays money, but also overpays interest. If it happens that the terms of the contract were nevertheless violated, the quality of the housing does not correspond to what was declared, then the way out of the situation may be termination of the DDU at the initiative of the shareholder. In this case, the developer is obliged to return all amounts paid, but what if a mortgage was taken out when signing the LDU?

Termination of a DDU with a mortgage at the initiative of the shareholder has its own subtleties. In this case, the reason for changing your mind or not liking the area cannot be accepted as justified.

Indeed, in a DDU with a mortgage, in addition to the parties the developer and the shareholder, there is also a bank, which has the DDU listed on its balance sheet, and all possible actions are limited by the encumbrance. In such a situation, monetary losses can be quite significant.

And yet, in order to answer the question of whether it is possible to terminate a tenancy agreement with a mortgage, you need to determine in what cases termination is generally possible:

1. The main reason is most often problems with the timing of delivery of the finished facility and its commissioning. What is meant here is that the building not only must be built, it must be suitable for habitation. Also, an unscrupulous developer may simply not complete the construction of the property, leaving it for an indefinite period. In case of litigation, these facts will have to be proven through an examination in order to return the money already paid.
2. It is possible to terminate the DDU if the developer has changed the cost of housing by increasing the square footage or changing the project without prior agreement, unilaterally.
3. If illegal actions are detected on the part of the developer, the shareholder has the right to demand termination of the DDU. Such actions include double sale or refusal to register the DDU with the relevant authorities.

The shareholder should know that unilateral termination of the contractual agreement with the developer is possible only through the court, which will be able to determine the procedure for returning the amounts paid.

How is it terminated?

Termination of a shared construction contract is possible as follows:

• by agreement of the parties : the shareholder may invite the developer to terminate the contract and sign a Termination Agreement (with mutual consent). It is signed by both parties and registered in Rosreestr;
• unilaterally : the shareholder can withdraw from the DDU without prior notice by notifying the developer about this in a letter (Part 4, Article 9 of Federal Law No. 214-FZ) You must indicate the reason, attach the calculation of interest and your details. Termination is registered in Rosreestr;
• in court : the list of reasons is provided for in Article 9 of the Federal Law No. 214-FZ

The decision of the shareholder to cancel the DDU may be caused by the following cases:

• gross violation of deadlines for delivery of the object; if the period is exceeded by two or more months, this is a reason to demand money;
• the terms of the contract are not met - the apartment does not comply with them and/or the requirements of technical regulations, is unsuitable for use, and has fatal deficiencies;
• the developer violated basic quality requirements;
• if at the end of the termination of the guarantee to ensure the fulfillment of obligations, a notification about this is not received and the developer does not have another guarantor;
• in other cases provided for by law or specified in the contract.

Under these circumstances, the shareholder has the right to unilaterally withdraw from the DDU, because there is a violation of his rights and interests, and demand the return of funds from the developer after registration of the Termination Agreement.

Alexander Marushchenko Senior Associate

Important: The contractual agreement is considered terminated from the date on which the party’s notice of withdrawal from the contract is sent! Within 20 working days, the developer is obliged to return the funds to the participant in shared construction and pay the penalty. There are few ideal cases. In practice, this process takes many months.

How to terminate a DDU?

The question of how to terminate the DDU with a mortgage and return the money is very important if such a decision is nevertheless made. The correct algorithm of actions can speed up the process and make it less painful. The equity holder should be prepared that the whole procedure takes some time, and all actions must be within the framework of the law and confirmed on paper or other media with the necessary marks.

Therefore, you need to do the following:

• You must contact the bank with a statement of desire to terminate the DDU on your own initiative. The application must clearly set out the reasons for the decision. There are two ways to send a letter to the bank, this is to deliver it yourself, with receiving a visa on the application and making a copy, and the second, preferred method is delivery by registered mail;
• At the same time, you need to request from the creditor a certificate of the amounts paid and the balance of the debt with the details of the credit account;
• If the parties have agreed to resolve the issue of terminating the contract without the participation of the court, then a letter is sent to the developer’s address indicating the details of the credit account and the amount to be transferred to it, and the details of the second account for the transfer of the shareholder’s own funds. When faced with the fact that the developer ignores the shareholder’s request to terminate the DDU, it is necessary to go to court. In this case, the shareholder has the right to include in the statement of claim the amount of interest paid as losses incurred due to the developer’s failure to fulfill its obligations.

The shareholder's appeal to the court for help must be formalized in compliance with all legal norms.

Procedure

Having decided to give up the long-awaited housing and receive money, the failed new settler must act thoughtfully and consistently:

• Send a statement to the bank indicating your intention to terminate the agreement. It is important to justify why such a decision was made. It is necessary to record the fact that the banking institution received a written request. This will be helped by sending by registered mail with acknowledgment of delivery or having the paper endorsed by a bank representative (the second copy, which remains with you).
• Receive a certificate indicating the amounts paid by the client as part of the loan repayment and how much remains to be paid.
• Take credit account details.

If the developer does not want to accept the demands of the failed new tenant to terminate cooperation, he will have to go to court.

By involving qualified YurConsult lawyers in solving the problem, you will significantly increase the chances of pre-trial settlement of the dispute, minimizing the expenditure of time, effort and money. It may be possible to terminate the DDU with the mortgage by agreement of the parties. If a compromise is not possible, experienced specialists will assist in preparing a package of documentation for the court and represent your interests.

Help from the judiciary

Unfortunately, not all developers comply with the law on pre-trial dispute resolution, especially when it comes to returning funds to their clients. In this case, the only option is to go to court.

We recommend that you read:

What points should you pay attention to when signing a DDU?

In this case, the procedure will be as follows:

1. The statement of claim must be drawn up correctly and substantiated. To do this, you can contact a professional lawyer or lawyer, and you can also call on the Internet to help.
2. Make copies of all pages of the DDU.
3. The claim must be accompanied by documents confirming the non-fulfillment of the terms of the agreement on the part of the developer, which resulted in the need for unilateral termination.
4. You also need to attach documents with calculations that show the total amount to be recovered in favor of the equity holder.
5. And the last thing is copies of the package of documents that were signed when registering the DDU.

A prerequisite for a positive court decision in favor of the shareholder will be the strict and timely fulfillment of all obligations assumed when signing the DDU. After all, if the developer files a counterclaim, he can justify his refusal with any little detail that the shareholder missed at some point.

After the court makes a decision in favor of the plaintiff, the developer has 10 days to return the amounts specified in the court order. Otherwise, you need to contact the bailiffs.

Additionally, you need to take into account the loan agreement, which often states that after the termination of the LDU, the borrower is obliged to repay the balance of the loan, or, conversely, he can use these funds to purchase other real estate with the subsequent registration of an encumbrance for a new purchase.

Judicial procedure for termination of a pre-employment contract

Federal law establishes 2 options for terminating a contract at the initiative of a participant in shared construction. A participant in shared construction has the right to unilaterally refuse to fulfill the contract or, at the request of a participant in shared construction, the contract can be terminated in court.

Sometimes the opportunity to terminate a DDU is provided only through the court. Federal Law No. 214-FZ contains a list of cases when an unscrupulous developer violates the fundamental provisions of the contract:

• if construction is suspended or terminated, there are facts and circumstances indicating the impossibility of full fulfillment by the developer of his obligations - transfer of the apartment to the shareholder on time;
• if the developer changed the design documentation, which led to significant changes, the apartment acquired different parameters;
• if the developer has changed the purpose and/or area of ​​the common property, non-residential premises of the building;
• in other cases established by agreement or law.

These cases characterize and demonstrate the developer’s dishonesty, infringement of the interests of the shareholder and are a legal basis for going to court.

They can go to court even after the conclusion of the agreement, if the party that unilaterally withdrew from the DDU does not repay the debt on time.

DDU with the participation of maternity capital and mortgage, as well as military mortgage

Solving the question of how to terminate a temporary trust agreement with a mortgage and maternity capital and return the money will be difficult and problematic.
In this case, the main problem will be in maternity capital. It is issued once, and if it is returned back to the Pension Fund, which will be difficult to avoid, it may not be possible to use it again. Therefore, a preliminary consultation with the pension fund would be correct. After all, the participation of maternal capital in the transaction obliges the children to be given shares. Otherwise, you will have to deal with the prosecutor’s office and account for the misuse of government subsidies. As for funds borrowed from the bank, the balance of the debt on it will be transferred to the bank using the specified details.

Termination of a DDU with a mortgage is a very troublesome and ambiguous task, however, this does not mean it is impossible; sometimes the equity holder manages to resolve all issues with the developer peacefully, without any trial. Reaching such agreements is called an agreement of the parties. The situation is the same with regard to military mortgages.

True, in this case, the DDU is also on the balance sheet of the Federal State Institution “Rosvoenipoteka”.

The following actions are carried out:

• the developer returns the funds to the bank account;
• The bank transfers the received money to the FGCU account.

Here the serviceman has no rights to any amounts, unless he contributed his own funds, which is extremely rare.

Agreement of the parties

In situations where the developer is a reputable organization, and the shareholder, for justified and objective reasons, requests termination of the LDU, despite the bank’s participation in such an agreement, it is possible to reach an agreement out of court. To do this, you need:

• notify the creditor by means of a statement and a parallel request for a certificate of interest paid and the balance of the debt;
• submit an application to the developer, which clearly states the reasons for termination and details for the return of amounts paid.

If the company already has such a practice, then the shareholder is informed of the possibility of signing an agreement on termination of the DDU, which will indicate the terms for the return of funds. In the future, such an agreement must be registered with Rosreestr.

Upon termination of the contract, if the developer offers the option of returning the funds received after resale of the subject of the contract, then this fact should not be misleading. In this case, you may not receive anything at all, and still remain in debt. Also, you should not follow the lead when the developer postpones the transfer date day after day in violation of his own obligations.

Consequences of termination of the DDU with a mortgage at the initiative of the shareholder

Termination of a DDU with a mortgage can entail quite serious consequences for the shareholder, because he is still a borrower from the bank.
Before making a decision on termination, it is necessary to study the loan agreement, so that according to it, even if the borrower is no longer a participant in shared construction, loan obligations are not removed from him. Most often, the loan agreement is not directly tied to the LDU, and its termination does not oblige the lender to expect the return of the funds paid by the equity holder from the developer. That is, he may demand full early repayment of the balance of the debt. It is equally important to know that as long as the mortgage record is not repaid, the bank has the right to the collateral, which the borrower is obliged to provide.

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What is the difference between an agreement for shared participation in construction and a housing cooperative and which is better?

When considering the issue of termination of the DDU, the shareholder needs to carefully assess the financial condition of the developer. Indeed, in the event of bankruptcy, the risk of being left without compensation while the trial is ongoing is very high. At the same time, during the period of returning the money to the shareholder, he, in fact, remains both without funds and without the collateral, which, again, in the event of the developer’s bankruptcy, can be sold, thereby compensating part of the costs.

Another reason for a balanced approach to the termination of the DDU is the losses of the shareholder, namely:

• expenses associated with paying interest on the loan;
• costs associated with the process of obtaining a mortgage, such as assessment and state duty for registering a residential property;
• the difference between the amount paid and the market value due to price changes. For example, we can consider the last three years, when prices rose sharply and then began to decline again;
• expenses associated with the services of third parties, if any (example: real estate services).

It is very difficult to guarantee the return of all these expenses, even through court.

How to terminate a share participation agreement?

What is an equity participation agreement?

2. In what cases can the shareholder terminate the contract?

The real estate market is going through hard times, despite the fact that the state, having abolished subsidies for mortgage rates, announced that the crisis in the market was over. Moreover, according to experts, only about 30% of construction companies deliver their projects on time. Delays and imperfections, alas, cannot be called something out of the ordinary. Sometimes buyers have no choice but to terminate the equity participation agreement.

What is an equity participation agreement?

An equity participation agreement (EPA) is the main document that governs the relationship between the developer and the client. It is a legalized form of investment activity. After all, the construction company attracts funds from shareholders to work on the project. As part of this agreement, the developer undertakes to construct the facility within the agreed time frame.

Experts call this form of contract one of the most reliable in the real estate market.

In what cases can the shareholder terminate the contract?

The shareholder has the right to terminate the contract both unilaterally and through the court.

Previously, the mass termination of the DDU could bankrupt the developer. But now only financially stable companies are allowed to start construction.

Rumors about the bankruptcy of a particular developer are often spread on social networks. Who benefits from the “panic” around the construction of residential complexes?

Is it worth trusting assistance companies that promise to easily terminate the MTPL, and even with a plus?

Experts say that there is nothing complicated in the procedure for terminating a contract; any buyer can carry it out independently, without the help of lawyers. Another issue is the return of money, especially in difficult situations related to bankruptcy. In this case, it is really better to turn to professionals, but you need to understand that no one will (and indeed cannot) guarantee a return on your investment. Often, the bankruptcy of a developer ends with the fact that its assets are not enough to cover the expenses of shareholders, and in this situation it will no longer be possible to receive any funds from the construction company.

How is the termination of the DDU carried out?

Either by agreement of the parties, or unilaterally by court decision.

By agreement of the parties:

— The party wishing to terminate the contract notifies the other party in writing of the reason for termination;

— If the parties respond satisfactorily, the place and time for drawing up the agreement are determined;

— Drawing up an agreement between the parties on the termination of the DDU;

— Determination of the procedure and timing for the return of funds;

— Registration of the agreement in Rosreestr (otherwise it will not have legal force).

If the developer did not attend the meeting and refused to agree on termination:

— the statement of claim along with a package of documents is submitted to the court;

— a corresponding notification is sent to the developer;

— hearings are held;

— the court obliges the developer to pay the shareholder the amount paid, interest, and fines.

As experts note, it is difficult to conduct a case in court without a lawyer. Only a qualified specialist will be able to competently draw up a statement of claim and provide strong evidence that the developer has violated the terms of the contract, and the client must receive not only the money paid and interest, but also a penalty (in case of delay in delivery of the project), a fine under the law “On the Protection of Consumer Rights” , compensation for expenses incurred.

Can I terminate the tenancy agreement if I purchased an apartment with a mortgage?

Does inflation affect the return of funds upon termination of a long-term contract?

The developer returns the amount (plus interest) specified in the equity participation agreement. Neither the developer nor the participant in shared construction compensate each other for the market rise (or fall) in prices. That is why termination of the contract at the final stages of construction is economically unprofitable for the shareholder, since in fact an object purchased two or three years ago could have risen in price by 20-30%, and only the contract price will be returned.

Why do construction companies drag their feet and not terminate the contract?

When a DDU with a mortgage at the initiative of the shareholder is impossible

Despite the fact that the shareholder has the right to terminate the DDU at any stage, there are situations when this still becomes impossible.
More precisely, after signing the acceptance certificate, especially after the warranty period has expired. You also need to know that the LDU cannot be terminated without the consent of the developer in the case when he complies with all his obligations without violating the current legislation. It is not a fact that even a trial will have a positive result for the shareholder.

An essential condition for the termination of the DDU is the grounds specified above.

It should be taken into account that the developer also has rights that he can use:

• submit a counterclaim with demands;
• eliminate violations on the part of the shareholder.

After all, different situations happen to each person, and it is not always possible, especially over a long period of time, to predict one’s own financial situation.

Additionally, it is worth saying that if the DDU is terminated, it is necessary to record this fact with the authorities for registering rights to real estate. This must be done in accordance with current legislation and in the prescribed manner.

Risks of the equity holder-borrower

You should not console yourself with the thought that the termination of the DDU on the initiative of the shareholder will necessarily bring benefits. Possible difficulties:

• There is a risk of losing housing and money if the developer is on the verge of bankruptcy. A preliminary legal check of his financial status will help avoid problems.
• It is not a fact that you will be able to compensate for all the expenses incurred. These are loan interest, costs for obtaining a mortgage loan, and payment for real estate services.

An unpleasant surprise may also be a jump in prices on the real estate market, when the purchase of another home will require significantly more funds than were invested in the first case. An informed decision is what is required of you.

How is a DDU with a mortgage repaid at the initiative of the equity holder?

In order for the terminated DDU to be finally canceled or extinguished, it is necessary to enter the relevant information into the register of rights to real estate.

To do this, you need to contact the local branch of Rosreestr or the MFC with an established package of documents, which includes:

1. Statement
2. The document on the basis of which the DDU was terminated.
3. A notice confirming the desire to terminate the DDU, since this happened unilaterally.
4. The applicant’s passport; if there are several, then everyone’s passport is needed.
5. Notarized consent of the spouse to the transaction, if there is a marriage.

It may seem that this is enough, but in the case of a mortgage there is an encumbrance, and a package of documents is required from the bank, and more specifically a mortgage note with a note that the debt has been repaid. This document is the main one.

Among other things, you will need a power of attorney from the bank so that the shareholder can independently sign the application on behalf of his creditor. If the bank does not hand over the required package to the borrower, then an authorized person of the bank must appear at the registering authority as a pledge holder.

Anyone who is planning to participate in shared construction, especially involving a mortgage, is simply obliged to weigh the pros and cons. Unfortunately, very often among developers there are unscrupulous companies that are aimed only at making a profit.

Under no circumstances should you rely solely on the opinions of others. It is necessary to carefully study the company’s reputation, the availability of all documents for the proposed new building, assess the financial situation and familiarize yourself with standard agreements with shareholders.

It is also important to study the legal framework on your own, in case you still have to resort to radical measures after signing the agreement. Its registration with government agencies is no less important. A situation where the developer evades this may put the future shareholder on guard. Well, if, having already become a dissatisfied shareholder, a decision has been made to terminate the DDU, it is very important to carefully weigh everything, consult with the creditor and a lawyer, and only then make a final decision.