Developer Liability Before a Residential Building Is Commissioned
It is a common occurrence in the construction market that a residential building is not commissioned even after all of its apartments have been sold. Construction companies (developers) breach their contractual obligations and fail to bring the building, including its interior and exterior, to the condition agreed between the parties and set out in the construction design. As a result, the building cannot be commissioned.
Who Is Affected When a Building Is Not Commissioned?
In such circumstances, the buyer, although the owner of the apartment and possibly already living in it, does not receive what the contract promised: a residential building whose compliance with safety standards is confirmed by a certificate of commissioning. This raises a question of practical importance: can a developer be held financially liable before the building is commissioned?
JUSTICE LEAGUE’s Experience and the Court’s Approach
The JUSTICE LEAGUE team has successfully concluded a dispute against one of the major construction companies (developers). The dispute concerned the developer’s breach or improper performance of its obligations under the sale and purchase agreement and the preliminary sale and purchase agreement for an apartment, and its liability arising from the failure to commission the building. The claim sought an order requiring the developer to pay the buyer a monthly contractual penalty and lost profits. The case is notable because the court imposed continuing, monthly financial liability on the developer for the period before the building is commissioned. In other words, the longer the developer delays commissioning, the greater its financial liability to the buyer. Through this approach, the court protects the buyer’s interests and remedies the infringement of the buyer’s rights. At the same time, because delays in construction become a heavy financial burden for the developer, the approach gives the developer an incentive to perform its obligations in good faith and on time.
What Does This Mean for the Real Estate Market (Buyers and Developers)?
It follows from the judgment that commissioning the residential complex forms part of the developer’s contractual obligations, and that transferring ownership of the apartment to the buyer does not release the developer from this obligation. Accordingly, where the contract so provides, the buyer may seek to hold the developer financially liable before the building is commissioned. For developers, in turn, failure to commission a building will have a significant deterrent effect.
How Does the Court Assess a Developer’s Liability When a Building Is Not Commissioned?
In this case, the developer argued that “the claimant suffers no damage whatsoever from the property not being commissioned; moreover, commissioning would not affect the value of the apartment.”
In its judgment, the court rejected the developer’s position and explained: “The Chamber notes that the owner of real property has the right to receive a residential building in a condition that meets the safety standards set out in the construction documentation and is sound in structural and architectural terms, etc., as confirmed by the certificate of commissioning (in accordance with the Code of Georgia on Spatial Planning, Architectural and Construction Activities).”
The court further stated that “in view of the regulations established by law, the court agrees with the claimant’s position and clarifies that the owner of real property has the right to be confident that the property they have acquired and live in is safe and secure, meets the safety standards set out in the construction documentation, and is sound in structural, technological and architectural terms” (the judgment is final and binding).
What Should Be Considered When Buying or Developing Real Estate?
In similar circumstances, buyers are advised to: – review the terms of the sale and purchase, construction or services agreement, including the provisions on the commissioning deadline and contractual penalties; – document the delay and the amount of lost profits; – send the developer a written demand and, if this produces no result, bring the matter before the court.
For developers, this case law underlines the need to set realistic deadlines in their contracts and to plan the commissioning process in good time.
JUSTICE LEAGUE advises clients on managing these risks, on drafting contracts and other documents in line with legislation and current case law, and on court representation and dispute resolution. For enquiries on similar matters, please contact us at justiceleague.ge.
