Review of the latest amendments relating to shared construction

On 13 July 2020, Federal Law No. 202-FZ (Law No. 202-FZ) was adopted. It introduces a new set of amendments to Federal Law No. 214-FZ "On Shared Participation in Construction" dated 30 December 2004 (Law No. 214-FZ) and other laws. The majority of amendments relate to shared construction, however Law No. 202-FZ also introduces other amendments related to broader real estate related matters.

Below is an overview of the main changes introduced by Law No. 202-FZ.

1. New rules on using funds designated for shared construction

1.1 The possibility to receive escrow funds earlier than before

According to Law No. 202-FZ, developers are now entitled to receive funds from escrow accounts of shared construction participants immediately after the newly constructed building is commissioned. Under previously effective rules, the developers had to wait until the first registration of the title of a shared construction participant to an object of shared construction (residential or non-residential premises) in such building.

1.2 Wider options of using funds for certain developers

Developers entitled to implement a construction project without using escrow accounts are heavily restricted in their ability to receive financing and dispose of funds of shared construction participants. Law No. 202-FZ softens these restrictions. In particular, developers have become entitled to:

• perform operations on the developers' current accounts related to the provision of special purpose loans to their subsidiary companies (that are also developers) to implement the construction projects; and
• spend the funds received from shared construction participants on engineering surveys and the preparation of a design documentation for the construction and reconstruction of the infrastructure necessary to connect a newly constructed building to utilities supply networks and social infrastructure facilities.

2. Simplification of certain procedures in the sphere of shared construction

2.1 Registration of the title to an object of shared construction

Developers are now entitled to register the title of a shared construction participant to an object of shared construction without a power of attorney from the relevant shared construction participant. Following such registration, the relevant developer will provide the relevant shared construction participant with an extract from the Real Estate Register (Register) certifying the registration.

2.2 Cancellation of a mortgage of a land plot underlying a newly constructed building

When a land plot underlying a newly constructed building (or a lease or sublease rights to such land plot) is mortgaged in favour of shared construction participants and/or a financing bank, this mortgage will be cancelled at the moment of the building’s cadastral registration. Previously such mortgage was subject to cancellation only after the transfer of all objects of shared construction to the relevant shared construction participants.

3. New requirements for developers related to information disclosure

Developers must disclose the following information in the Unified Information System for Residential Construction maintained by Dom.RF:

• design documentation and all changes thereto;
• information on beneficial owners who control more than 5% of the voting shares (stakes) of the developer directly (earlier – only indirectly);
• additional information on individuals and legal entities belonging to the group of the developer (SNILS, TIN);
• information on a construction project: (i) the general contractor, (ii) the parameters of permitted construction, and (iii) the term for transferring objects of shared construction to shared construction participants; and
• information on special purpose loans provided to a developer stating the loan amount and the repayment term.

4. Other Amendments in the sphere of Shared Construction

Law No. 202-FZ also introduces the following amendments in the sphere of shared construction:

• a violation of the term for commissioning apartment houses and other real estate objects financed by shared construction participants by a developer or its affiliates by more than three months is no longer considered a reason for refusing to issue to such developer a certificate on the compliance of the developer and project declaration with the requirements of Law No. 214-FZ. This certificate is required in order to enable a developer to commence raising funds from shared construction participants; and
• amendments related to (i) the procedure of maintaining the Unified Register of Problematic Objects, (ii) the bankruptcy of developers, (iii) the use of "maternity capital" for payments under shared construction contracts, (iv) advertising developers and their projects; and (v) additional powers of Dom.RF.

5. Amendments related to the commissioning and state registration of newly constructed properties

5.1 Permitted deviation of the total area of a newly constructed property

Under Law No. 202-FZ, a newly constructed real estate property may be commissioned if the discrepancy between the actual total area of such property and its total area indicated in the design documentation and construction permit does not exceed 5%.

The cadastral registration of a newly constructed property would be suspended if (i) the actual total area of such property exceeds the permitted discrepancy referred to above; and/or (ii) other parameters of this property (the number of floors, premises, and/or parking spaces) do not correspond to those indicated in the design documentation and construction permit.

5.2 Limitation of responsibility of Rosreestr while reviewing documents related to new constructions

Law No. 202-FZ has narrowed the scope of the review to be performed by the Federal Service of the State Registration, Cadastre and Cartography (Rosreestr) when examining the documents submitted for the state registration of the title to a newly constructed property. Such review should be limited to a review of the compliance of the information contained in the technical plan with the information contained in (i) the design documentation and/or construction permit (in case of new construction or reconstruction); and (ii) the act of acceptance commission (in case of alteration (pereplanirovka).

This compliance check would also be further limited to the following parameters: the total area of the property and the number of floors, premises, and parking spaces.

Rosreestr and state registrars should not be responsible for losses caused to the life and health of citizens arising from violations committed during the construction, reconstruction, commissioning, or redevelopment of real estate property.

Law No. 202-FZ entered into force on 13 July 2020 except for certain provisions. Access the full text of the official publication of Law No. 202-FZ.