When purchasing an apartment from a developer, legal issues do not always arise before the agreement is signed. Quite often, the buyer has already entered into an agreement for the purchase of the right to acquire real estate under construction, made advance payments, and only afterwards discovers that the developer is delaying construction, changing the agreed specifications of the apartment, demanding additional payments, or failing to fulfil its obligation to transfer ownership.
In such situations, it is important to understand that a signed agreement does not merely impose obligations on the buyer. It also creates binding obligations for the developer, and where those obligations are breached, the buyer has a number of contractual and judicial remedies available.
- THE DEVELOPER FAILS TO MEET THE CONSTRUCTION OR APARTMENT HANDOVER DEADLINE
One of the most common issues is a delay in completing construction or handing over the apartment.
For example, the agreement may provide that the building must be completed by December 2026, but construction works are still ongoing at that time, and the developer simply asks the buyer to wait or to sign an addendum extending the deadline.
Under the Civil Code of the Republic of Armenia, failure to perform an obligation or delayed performance constitutes a breach of obligation.
What may the buyer claim?
Depending on the terms of the agreement and the nature of the breach, the buyer may be entitled to claim:
- performance of the developer’s contractual obligations;
- payment of the contractual penalty;
- compensation for damages;
- in certain cases, termination of the agreement and reimbursement of the amounts paid.
If the agreement provides for a penalty for each day or month of delay, the amount of such penalty should be calculated and an appropriate claim submitted to the developer.
- THE DEVELOPER JUSTIFIES THE DELAY BY REFERENCE TO “FORCE MAJEURE”
In practice, developers sometimes attempt to justify delays in construction by referring to market conditions, increases in the cost of construction materials, delays by contractors, labour shortages, or financial difficulties.
However, not every difficulty may qualify as force majeure.
A person engaged in entrepreneurial activity may be released from liability for breach of an obligation if it proves that proper performance became impossible due to extraordinary and unavoidable circumstances under the given conditions.
Moreover, the law expressly provides that, for example, a breach of obligations by the debtor’s counterparties or a lack of necessary financial resources does not, in itself, constitute force majeure.
In such circumstances, it is necessary to examine:
- the force majeure clause of the agreement;
- the specific circumstance relied upon by the developer;
- the causal link between that circumstance and the construction delay;
- the measures taken by the developer to prevent or mitigate the consequences.
Accordingly, the mere use of the term “force majeure” by the developer is not sufficient to release it from contractual liability.
- THE DEVELOPER SEEKS TO UNILATERALLY EXTEND THE CONTRACTUAL DEADLINE
Buyers often receive a notice or a draft addendum proposing to extend the construction completion deadline by another six months, one year, or even longer.
It is important to distinguish between different legal situations.
If the agreement does not grant the developer the right to unilaterally amend the deadline, the developer may not change an already agreed contractual term merely at its own discretion.
As a general rule, amendments to an agreement require the mutual consent of the parties.
What should the buyer do?
The buyer is not required to automatically sign an addendum proposed by the developer.
Before signing it, it is necessary to assess:
- what new deadline is being proposed;
- whether the developer seeks to exclude liability for penalties that have already accrued;
- whether the buyer is being required to waive claims arising from previous breaches;
- whether any compensation is provided in consideration for extending the deadline;
- whether the addendum restricts the buyer’s ability to seek judicial protection in the future.
Particular caution should be exercised with wording whereby the buyer confirms that he or she “has no claims whatsoever” against the developer.
- THE DEVELOPER DEMANDS AN INCREASE IN THE PRICE OF THE APARTMENT
Another common issue arises where, after the agreement has been signed, the developer demands an additional payment.
If the price of the apartment is clearly fixed in the agreement, the developer may not simply increase it unilaterally on the grounds that market prices have risen or construction costs have increased.
At the same time, an agreement concerning the right to acquire real estate under construction may expressly provide for a price indexation or adjustment mechanism.
Therefore, whenever such a demand is made, the signed agreement itself must be examined in order to determine whether the developer has been granted the right to change the price and, if so, under what specific conditions.
- THE FINAL AREA OF THE APARTMENT DIFFERS FROM THE AREA SPECIFIED IN THE AGREEMENT
Following measurements carried out upon completion of construction, the final area of the apartment may be larger or smaller than the design area specified in the agreement.
If the price is determined on the basis of a price per square metre, under the Civil Code of the Republic of Armenia the final price is determined on the basis of the measurement and state registration data obtained after completion of the building.
However, a number of disputes may arise in this context, including situations where:
- the developer demands additional payment for excess area;
- the buyer requests reimbursement corresponding to a shortfall in area;
- the difference in area is so substantial that the buyer has effectively received an apartment with materially different characteristics;
- there is a dispute as to which particular areas have been included in the calculation.
In such circumstances, the following should be compared:
- the design area specified in the agreement;
- the calculation methodology established by the agreement;
- the official measurement data relating to the completed property;
- the state registration data.
Where the deviation is material, the issue may go beyond a simple price recalculation and may give rise to a claim for improper performance of the agreement.
- THE DEVELOPER HAS CHANGED THE APARTMENT LAYOUT OR FINISHING SPECIFICATIONS
It may also happen that the buyer agreed to acquire an apartment with particular design solutions, but during construction the developer changes:
- the apartment layout;
- the position of walls;
- the location of windows or doors;
- the balcony;
- engineering and utility systems;
- the level of finishing or the materials to be used.
The key issue in such a case is whether the apartment ultimately delivered complies with the obligations assumed under the signed agreement.
An agreement concerning the right to acquire real estate under construction must identify the future property by reference to its design plan and must also describe the condition in which the property is to be delivered to the buyer.
Accordingly, material changes that do not comply with the agreement or its annexes may constitute improper performance of the agreement.
- THE APARTMENT IS DELIVERED WITH DEFECTS
After completion of construction, another common issue may arise: the developer asks the buyer to sign a handover and acceptance act or an ownership transfer deed even though the apartment contains significant defects.
These may include:
- cracks;
- dampness or water leakage;
- defective windows;
- problems with electrical or water supply systems;
- works that do not comply with the approved design;
- use of materials of a lower quality than those specified in the agreement.
In relation to immovable property, the buyer’s acceptance of the property does not, by itself, release the developer from liability for improper performance of the agreement.
Where the property is of inadequate quality, depending on the circumstances, the buyer may be entitled to demand:
- a proportionate reduction in the price;
- rectification of defects free of charge within a reasonable period;
- reimbursement of necessary expenses incurred in rectifying the defects.
How should the buyer proceed?
It is advisable to record the defects before signing the final acceptance or transfer act by means of:
- a written record;
- photographs and video recordings;
- where necessary, an opinion or report prepared by a specialist or expert.
If the act is nevertheless signed, the identified defects and the requirement for their rectification should be expressly recorded in the document.
- THE DEVELOPER REFUSES OR FAILS TO SIGN THE OWNERSHIP TRANSFER DEED
A situation may arise where the building has already been completed and registered, the buyer has fully paid the amount due under the agreement, but the developer, for various reasons, fails to proceed with the transfer of ownership.
The law provides a direct remedy for the buyer in such circumstances.
Following registration of the completion of construction, the ownership transfer deed must be executed within the period established by the agreement, but in any event no later than within six months.
If the deed is not executed within that period and the buyer has fully performed his or her contractual obligations, the buyer may apply to court seeking:
- compulsory execution of the ownership transfer deed, or
- recognition of the buyer’s ownership right to the apartment.
This protection is particularly important because the developer’s inaction does not mean that the buyer must wait indefinitely for its consent.
- THE BUYER NO LONGER WISHES TO WAIT AND WANTS TO TERMINATE THE AGREEMENT
If the developer’s breach is so substantial that the buyer is effectively deprived of what he or she was entitled to expect when entering into the agreement, termination of the agreement may become an available remedy.
Under the Civil Code of the Republic of Armenia, an agreement may, at the request of one of the parties, be terminated by a court, inter alia, where the other party has committed a material breach.
A breach is considered material where it causes such damage to the other party that the latter is substantially deprived of what it was entitled to expect under the agreement.
Depending on the circumstances of the particular case, matters that may be assessed in this context include:
- a prolonged delay in construction;
- substantial changes to the apartment;
- failure by the developer to perform essential contractual obligations;
- unjustified refusal to transfer ownership.
However, it is important to note
As a general rule, the buyer should not simply stop making payments or unilaterally declare that the agreement is no longer in force.
It must first be determined whether the agreement permits unilateral withdrawal or whether the developer’s consent or a court judgment is required.
- THE AGREEMENT HAS BEEN TERMINATED, BUT THE DEVELOPER DOES NOT REFUND THE MONEY
Termination of the agreement does not necessarily mean that the money paid has actually been refunded.
As a general rule, advance payments for real estate under construction are made into the developer’s special account, and in certain circumstances the legislation provides a specific mechanism for refunding such amounts.
In particular, where the ownership transfer deed is not executed within six months following registration of completion of construction, or where the agreement is terminated early or declared invalid, the buyer may, subject to the conditions prescribed by law, be entitled to reclaim the advance payments made into the special account.
If the developer is required to refund the money but fails to do so within the applicable period, the buyer may also have a claim for interest for the unlawful retention or use of another person’s funds.
WHAT SHOULD YOU DO IF THE DEVELOPER BREACHES AN AGREEMENT THAT HAS ALREADY BEEN SIGNED?
Each case requires an individual review of the signed agreement. In practice, however, the legal course of action will generally include the following steps:
- review the agreement and all addenda;
- identify the specific breach committed by the developer and the date on which the breach commenced;
- collect evidence relating to payments, correspondence and the progress of construction;
- calculate the contractual penalty and any potential damages;
- submit a formal written legal claim to the developer;
- where appropriate, initiate negotiations;
- if the developer fails to comply, commence court proceedings;
- where necessary, seek interim measures or measures securing the claim in order to ensure the enforceability of a future court judgment.
HOW CAN A LAWYER ASSIST?
If an agreement with a developer has already been signed and a problem has arisen, legal assistance may include:
- legal review of the signed agreement and its annexes;
- legal assessment of the developer’s breaches;
- calculation of penalties, interest and damages;
- preparation and submission of claims or notices to the developer;
- negotiations concerning amendment or termination of the agreement;
- claims for reimbursement of amounts paid;
- legal claims relating to defects in the apartment;
- claims for compulsory execution of the ownership transfer deed;
- claims seeking recognition of ownership rights;
- court representation against the developer and applications for interim measures or measures securing the claim.
Signing an agreement with a developer does not mean that the buyer’s rights are limited to simply waiting for the apartment to be delivered.
If the developer breaches the construction deadline, changes the contractual terms, demands unagreed additional payments, delivers an apartment that does not comply with the agreement, or refuses to transfer ownership, the buyer may be entitled to require performance of the contractual obligation, as well as to seek contractual penalties, compensation for damages, reimbursement of amounts paid, termination of the agreement, or judicial recognition of ownership rights.
Our law firm is prepared to assist you at every stage of your relationship with a developer — from the preliminary legal review of a draft agreement and assessment of potential risks to the legal analysis and resolution of issues arising from agreements that have already been signed.
We can review the contractual terms, assess the legality of the developer’s actions, develop appropriate legal strategies for the protection of your rights, conduct negotiations with the developer, submit the relevant legal claims and, where necessary, represent and protect your interests before the courts.
