These are usually people without commercial experience, and “green” contracts are one of the most complex in the legal and commercial world.
Sofia, Bulgaria27 June 2023, 20:10 152838 read 0 comments
Construction companies unilaterally terminate contracts for the purchase of properties “on the green” due to the increase in energy sources, building materials and inflation. Most of them were concluded before the war in Ukraine. At the Consumer Protection Association, we already receive reports of many such cases. For example, this is done by the company “Greenlife Property” EOOD for the construction of the residential complex “1 Home” in Sofia.
“If you refuse an annex to the contract, in which the price of the property is updated upwards, the company directly terminates the contract unilaterally and informs that they will return the money. This is an unfair action, given that there is no such clause in the agreement, which is related to inflationary processes. The client or the user is harmed, as he is actually the initial creditor of the construction company,” commented Peyo Mayorski, chairman of AZP.
According to him, the state, in the form of the Consumer Protection Commission, should deal with these cases because the rights of citizens have been violated. It must exercise control over these contracts.
It is usually about people without commercial experience, and “green” contracts are one of the most complicated in the legal and commercial world in the country. Very often, builders or real estate brokers put in clauses that sometimes do not come into effect, but in an emergency situation such as a pandemic, war or inflation, some weaknesses in these agreements have been triggered and exposed. That is why it is necessary for consumers to be protected when buying a new home at a very early stage, Mayorski believes.
Before the pandemic, until 2020, the main risks of buying green included the risk of incomplete construction; risk of the builder selling the property for which you entered into a preliminary contract to a third party with a notarial deed or risk of buying a property with a mortgage in favor of a bank against a bank loan granted to the builder for the construction of the site. The same risks are relevant now, but after the pandemic, the war in Ukraine and galloping inflation, some builders unilaterally increase the price under a preliminary contract for the purchase of a property “on the green” due to an increase in the price of construction materials.
They argue with the so-called “economic intolerance”, legal status regulated in art. 307 of the Commercial Law, which states: “The court may, at the request of one of the parties, amend or terminate the contract in whole or in part, when such circumstances have occurred that the parties could not and were not obliged to foresee, and the preservation of the contract contrary to justice and good faith’.
However, consumers should be aware that when the builder has failed to fulfill his obligation under the contract with the buyer, depending on the nature of the default, the buyer can rescind the contract and ask the court to award him the agreed penalties. Even when signing the preliminary contract, care should be taken as to how the penalties for non-performance are agreed upon.
It is preferable to negotiate firm figures, such as BGN 10/day for each day of delay, or the rental price of the purchased real estate, for example BGN 500/month. In practice, liquidated damages are usually a percentage of the value of the “work in progress”, and what that value is is difficult to ascertain, even in a legal process.
With the increasingly common hypothesis of a unilateral price increase under a preliminary contract concluded by the builder, buyers should keep in mind that such an increase should be made in the form of a written request from the builder. The customer, for his part, can refer the dispute to the court, and in the course of the case, the validity of the request for a price increase is established.
The court examines the question of whether and by how much the value of the materials and labor has been increased and whether the builder does not aim to increase his remuneration. Even if the increase in prices is proven, there may be a hypothesis in which no additional payment of remuneration to the builder is required. If the value of the property is covered and all the costs of the builder are covered, then the court will allow an increase in his remuneration only if he is damaged.
If the builder is late in completing the construction, the price change after the agreed term will not be taken into account by the court and the request for an increase will be rejected, Pejo Mayorski explained. The duration of such cases drags on for about a year to a year and a half per instance.
Therefore, from the AZP, we insist on legislative changes for the participation of persons – specialists in property law (lawyers) in the process of concluding transactions with real estate. This will provide the highest degree of certainty that the deal will be concluded under the most clear, transparent and favorable conditions for the client. A similar measure has been introduced into the legislation and practice of a number of EU member states – Germany, France, Belgium, the Netherlands.
“We believe that the mandatory participation of lawyers possessing the necessary legal capacity in the process of concluding transactions for disposal of real estate is imperative and should be regulated by law, with a view to protecting the rights and interests of consumers,” emphasized Peyo Mayorski.
An additional argument in support of the above finding is the fact that at the present moment an extremely unfavorable trend has taken hold, most builders, brokers and/or agents who provide consulting services on the real estate market in the country and do not possess the necessary legal qualifications (legal education and legal professional experience), to advise clients on any legal issues related to the acquisition, resp. the disposal of real estate.
This is a violation of the Law on Advocacy, which strictly regulates the requirements for the provision of legal services, namely only by persons who have acquired the status of a lawyer in accordance with the law. The situation inevitably gives rise to extremely negative legal consequences for consumers, most often expressed in material losses of significant financial proportions.
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2023-06-27 18:14:08
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