Collateral for new-build housing
Founding shareholders of new housing projects must provide collateral for the construction phase and thereafter. The collateral is meant to cover any repairs due to defects or errors in the construction. Check the documentation to ensure that the collateral and other sureties required from the seller are in order.
RS projects are new-build housing projects that can be sold off-plan and in which the seller must provide surety documentation and collateral to protect the buyers and the housing company in accordance with the Housing Transactions Act.
The collateral consists of three types of guarantees
- guarantee for the construction phase
- post-construction-phase guarantee
- insolvency guarantee
The system is designed so that each guarantee is replaced by another when it expires. The guarantee for the construction phase becomes valid when construction starts and will be released within three months after the building’s approval for commissioning. The board of directors of the housing company and the buyers approve the release of the guarantee in written. When the guarantee for the construction phase is released, the seller must replace it with the post-construction-phase guarantee, which must be valid for 15 months after the building’s commissioning approval.
The founding shareholder must also obtain an insolvency guarantee before selling the dwellings to consumers. The insolvency guarantee is related to situations where defects occur in the building or one of the apartments 1–10 years after completion, but the responsible party, i.e. the founding member, is not able to rectify the defect, for example due to bankruptcy.
Check the documentation to ensure that the collateral and other sureties required from the seller are in order. The collateral system is defined in the Housing Transactions Act.
The buyer must check the apartment and accept the release of the collateral
The construction guarantee will be released when
- the seller has fulfilled the obligations under the sale agreement and the construction contract
- and the board of directors of the housing company and the buyers have approved the release of the guarantee in written. The building and apartments must be carefully checked before giving consent to the release.
The post-construction-phase guarantee will be released
- after the seller has rectified any clear defects found in the first year’s inspection
- once the defects have been rectified, the housing company and the shareholders will provide written consent to the seller to release the guarantee deposit. Each shareholder signs the consent for their own apartment. The housing company’s consent to the release of the guarantee is recorded in the minutes of the board of directors.
The seller submits the consent to the holder of the guarantee, usually a bank, which is responsible for releasing the guarantee deposit in practice. If the housing company or the purchaser of the housing share objects to the release of the security deposit, for example due to a defect in the apartment, the matter must be taken to the Consumer Disputes Board or a court of law within 12 months after the first year’s inspection.
The guarantor, usually a bank, must be notified of any objection to the release. A notice stating that the matter has been taken to the Consumer Disputes Board or a court of law must be submitted to the guarantor within 12 months of the first year’s inspection. The court of law or the Consumer Disputes Board will decide whether the defect is a fault under the Housing Transactions Act and who has the right to the security deposit.
Buyers and the housing company cannot object to the release of the security deposit “just in case”; the objection must be justified and notified to the seller in notified. If the release of the security deposit is objected to unduly or contrary to the recommendation of the Consumer Disputes Board, the seller may be entitled to compensation.