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Real estate

Off-plan purchase of real estate property

In this type of transactions, the preliminary agreement and purchase of a real estate whose construction has commenced or is about to commence in fact constitutes funding of construction. Since in this type of contracts no ownership is preliminarily transferred (parts of the land or the right to construction), a preliminary agreement is signed stipulating the parameters of the purchase of the property to be transferred by means of the notary deed. It is possible that before signing the preliminary agreement, a stop deposit is requested to guarantee to the interested buyer that the property will not be offered to other persons while the negotiations are held and the deal is checked.

Capacity of off-plan buyers

Off-plan buyers are not participants in the construction process. Pursuant to Art. 160, Para 1 of the Spatial Development Act (SDA), such are the assignor, builder, designer, consultant, the natural person exercising technical control over the construction part, the technical supervisor and the supplier of machines, facilities and technological equipment. Buyers under preliminary agreements are not assignors either, since pursuant to Art. 161, Para 1 of SDA the assignor is the property’s owner, the entity holding the right to construction on a third party’s property, and the person holding the right to build on a third party’s property under a law. Buyers under preliminary agreements may only finance construction. Buyers will only become owners once a contract is concluded in the form of a notary deed, or following a procedure to announce the preliminary agreement to be final, but in both cases – not earlier than the completion of the rough construction. According to the provision of Art. 181, Para 2 of SDA, the point in which the right to construction transforms into right of ownership over a building or elements thereof is when rough construction is completed pursuant to §5, item 46 of the Supplementary Provisions to SDA, namely – it is a building or structure whose outside walls and roof have been completed, with or without various stages of completion works.

Preliminary survey of the property

One of the absolutely mandatory steps to be taken before the actual negotiation and signing of contracts is checking ownership of the real estate and checking for encumbrances. An understanding prevails in the practice that if the seller declares compliance, there is a presumption of such, which could not be more inaccurate.

Survey of the assignor and builder

The risks related to the two main participants in the construction – the building assignor and the builder, are related to the possibility that they may not complete the construction due to lack of capacity (lack of experience, organization) and lack of funding. Experience should be proven based on completed construction projects or participation in such projects, through requesting direct data from the entities, or through an independent check. On the other hand, financial standing is a more specific matter and with respect to it the possibilities for checks are limited to a certain point – lack of requests filed for initiating bankruptcy proceedings, court history, lack of enforcement litigation, lack of public payables, etc. Financial standing however varies, and good financial indicators do not necessarily guarantee the absence of over indebtedness or insolvency. Nevertheless, even if during negotiations, before the signing of any agreements, it is possible to conduct a check, such check should be considered mandatory in the process of off-plan real estate purchase.

Preliminary agreement

After a survey of ownership and encumbrances has been carried out for the properties and if there are no grounds to believe that the assignor and builder are risky participants in the construction process, the natural continuation of pre-contractual relations would be signing a preliminary real estate purchase and sale agreement. By means of this preliminary agreement, the parties shall agree all elements of the future deal to be concluded in the form of a notary deed once the building is completed, namely the property’s individualization, price and payment methods, deadlines for completing construction, the stage of completion, forms of default liability, penalties, warranties, collaterals, as well as any other preliminary agreements reached by the parties. The preliminary agreement is concluded in an ordinary written form (Art. 19, Para 1 of the Obligations and Contracts Act). This fact (the requirement for an ordinary written form rather than completing the deal before a notary) is often underestimated by the contractual parties, due to the “informality” and “non-finality” of the procedure. In fact, this wrongful idea may result in the conclusion of dangerous and biased preliminary agreements, since they are binding for the parties and should be observed (Art. 20a of the Obligations and Contracts Act), furthermore – the preliminary agreement should contain provisions regarding the material conditions of the final contract (Art. 19, Para 2 of OCA), which will be the contract in the form of a notary deed.

Notary deed

After all conditions in the preliminary agreement have been met, and most of all, after the building has been completed to the degree stipulated therein, the parties conclude a real estate purchase and sale contract in the form of a notary deed. After the deal is completed before a notary, the notary deed shall be registered in the Registration Office (Property Register) so that it can notify all third parties that might claim right of ownership.

Transfer of possession

It can be stipulated in the preliminary agreement that possession will be transferred in advance, prior to the completion of real estate deal before a notary, or after a certain point. The transfer of possession should be certified by a handover protocol, which, in addition to the date, should also state the condition of the property transferred – its stage of completion, as well as any objections on the part of the buyer. If upon transfer of possession the buyer identifies flaws in the performance of the civil works and wishes to hold the assignor/builder liable, these flaws should be described in the protocol as a form of proof.

Warranty periods

In the preliminary agreement, in a supplementary agreement or upon signing the final contract in the form of a notary need, it is possible to agree warranty periods for the completed construction works, which may not be shorter than the ones stipulated in Ordinance No 2 of 31 July 2003 on commissioning construction sites in the Republic of Bulgaria and minimum warranty periods for civil works, facilities and construction sites of the Ministry of Regional Development and Public Works (MRDPW). According to the Ordinance, the warranty periods commence on the date of commissioning the construction site (issuance of a use permit or commissioning certificate).

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