Legal risks of investing in real estate

The first group of risks concerns powers to dispose of the object of investment.

For example, if the agreement on purchase and sale of the property is concluded with a person who is not the owner of the object and is not properly authorized by the owner to sell, such agreement will be invalid.

In this case, the bilateral restitution shall be applied to the parties that means each party must return to the other party all that was received on the basis of such an agreement.

The investor bears the risk of both not acquiring the desired object and not return of made payments. To avoid this result, it is necessary to ensure on the pre-contract stage the presence of title documents for the property or the appropriate authority to its disposal, for example, the power of attorney from the owner.

Unprofessional text of investment agreement can lead to lack of a mechanism for protection of investor rights from unfair actions of counterparty.

You should not rely only on the good faith of the counterparty and the general rules of law on liability of business entities.  It is better to define appropriate sanctions for failure to comply with its obligations by counterparty side in the text of the investment agreement. This fact will act as an additional lever influence on the counterparty and reduces the risk of failure to perform its contractual obligations.

In a dynamic rule-making process in the financial and economic sector there is the risk of the conditions changing of investment activity, despite already existing and signed investment agreements. One of the most tangible effects of such changes is the increasing of the minimum costs amount required, for example, for building of real estate. This can result to exceeding of budget approved by the parties, the lack of funds to cover the additional costs of the construction company, and the problem of absence of such provisions in the investment agreement.

There is a problem with finding and involvement of necessary additional funds. It would be logical to think that the additional costs should be assigned to a customer, but on the other hand, he has fulfilled his financial obligations to the contractor in full under the terms of the investment agreement. In this case, it is difficult to make a clear prediction of how the court will resolve the dispute on this issue.

These problems can be avoided if an investment agreement will provide solutions in different situations. The best way out of this situation can be the insurance of commercial (investment) risk by signing an additional insurance contract. You can also use the scheme of investment activity through an agent who undertakes all such commercial risks.

 

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