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Checking the Developer Before Buying Property in a New Building
Buying property in a new development always seems like an attractive idea. Modern layouts, new utilities, energy-efficient materials, and the ability to choose an apartment at the construction stage create the feeling that you are acquiring the perfect home — and not just a home.
However, reality is not always so bright. A simple drive around the city reveals numerous frozen construction sites and unfinished buildings. Behind each of these failed projects are thousands of people who invested in their dream homes but never received what was promised. Such situations often arise due to a lack of due diligence on new developments, which could reveal the potential financial instability of the developer, legal issues, or a history of misconduct and unreliability.
Real estate lawyers from the law firm “Dominion” use their experience to help avoid these risks, safeguard your money, and ultimately secure the dream property.
What Does Developer Due Diligence Include?
Developer due diligence is a comprehensive process that involves analyzing the land, documents, reputation, financial status, and legal standing of the company. Let’s examine the key aspects to consider before purchasing property.
1. Land
Verifying the land on which construction is taking place is one of the most critical steps in assessing a developer’s reliability. The land itself is the foundation of the project’s legal legitimacy. If the developer lacks ownership rights or if the land’s designated purpose does not permit residential construction, the risks for investors increase significantly.
First, it is essential to check whether the developer has documented proof of ownership or lease of the land. It is also necessary to ensure that the land’s designated use aligns with the intended construction. For example, residential buildings cannot be erected on land designated for agriculture or industrial use. Additionally, it is crucial to review the land’s history: whether its acquisition was contested in court and whether there are any claims from state or other authorities.
It is important to remember that for residential buildings, the designated land use must be: “for the construction and maintenance of a multi-apartment residential building”!
2. Construction Documents
A developer cannot legally begin construction without the appropriate permits, and the absence of even one necessary document can cast doubt on the entire project.
During a legal review of a new development, real estate lawyers at “Dominion” examine key documents, including the construction permit, urban planning conditions and restrictions, approved project documentation, and other necessary paperwork. A construction permit confirms that the project complies with all legal norms and requirements. Urban planning conditions define the parameters of the development: height, density, and type of structure. If these documents are missing or do not match actual conditions, this may indicate violations that could lead to a halt in construction by regulatory authorities.
Construction documents for developers in Kyiv and across Ukraine can be independently verified through the Construction Activity Register. However, only real estate lawyers can accurately determine the presence or absence of necessary documents and their compliance with real circumstances.
3. Who Is the Developer?
Even if all land and construction documents appear in order, issues with the developer — such as lawsuits, financial difficulties, questionable reputation, or sanctioned affiliates — can threaten the successful completion of the project.
Start by checking for ongoing legal proceedings involving the developer through the Ukrainian Judiciary website or the Unified State Register of Court Decisions. This can help identify whether the developer is involved in cases related to debt, bankruptcy, contract breaches, or conflicts with the government. It is also crucial to assess the company’s financial standing, including financial transparency, tax debts, licenses, and other relevant information available through the tax service’s “Learn More About Your Business Partner” service. Financial difficulties may cause the developer to halt construction at any stage, leaving investors empty-handed.
Past buyers are the best source of information about a developer! Review customer feedback, previous projects, and the company’s track record in meeting deadlines and quality standards. Additionally, check the developer’s website: it should be professional, informative, and include up-to-date information about projects and permits. If anything seems suspicious or unclear, it is best to consult a lawyer for a detailed review.
4. Contract with the Developer
The final stage of developer due diligence in Kyiv and across Ukraine is reviewing the contract with the developer. This step is crucial for protecting your rights as an investor. Developers use various legal structures to formalize agreements with buyers.
The most common types of contracts for purchasing property in new developments include:
- investment agreement;
- cooperation agreement;
- preliminary apartment sale and purchase agreement;
- shared participation agreement in a housing cooperative;
- sale and purchase agreement for property rights to an apartment;
- forward contract (derivative purchase and sale agreement);
- participation agreement in a construction financing fund, among others.
While all these contracts aim to achieve the same goal — the sale and purchase of real estate — each carries its own nuances and risks.
Pros and Cons of Different Contracts for Buying Property in New Developments
Preliminary Apartment Sale and Purchase Agreement
Pros: simple and widely used.
Cons: the developer may sell the same property to multiple buyers, delay project completion without liability, or raise funds without necessary permits.
Participation Agreement in a Construction Financing Fund
Pros: legally regulated; requires the developer to have all necessary permits.
Cons: complex and difficult for buyers to understand; involves many legal intricacies.
Sale and Purchase Agreement for Property Rights
Pros: Simple and widely used.
Cons: may involve raising funds without necessary permits, potential misallocation of funds, and no guaranteed refund if construction halts.
Regardless of the contract type, special attention should be given to critical terms. Check the signatory’s authority (whether they are the actual developer or an intermediary and whether they have the right to sign and sell the property). Review the rights and obligations of both the developer and the buyer. Ensure there are penalty clauses for construction delays. Examine the terms of final payment and property handover.
