Resolution of the Government of the Russian Federation No. 423 of 2 April 2020 established specific rules for applying penalties (fines, late-payment penalties), other financial sanctions and other liability measures for non-performance or improper performance of obligations under shared construction agreements established by the legislation on shared construction, as well as specific rules for including in the register of problem properties apartment buildings and (or) other real estate properties in respect of which the developer has breached by more than 6 months the deadlines for completing construction (creation) of the apartment building and (or) other real estate property and (or) the obligation to transfer the shared construction property to the shared construction participant under a registered shared construction agreement.
This Resolution was adopted by the Government in accordance with clause 3 of Part 1 of Article 17 of Federal Law No. 98-FZ of 01.04.2020 "On Amendments to Certain Legislative Acts of the Russian Federation on the Prevention and Elimination of Emergency Situations" and is intended to support developers during the COVID-19 Pandemic.
The new rules for applying penalties under shared construction agreements seem to me extremely "raw" and raise a host of questions.
Thus, paragraph 1 of Part 1 of the Resolution provides that the period for charging penalties (late-payment penalties) under shared construction agreements does not include the period from the date the resolution enters into force until 1 January 2021.
At the same time, this period can hardly be called reasonable or fair, since Federal Law No. 106-FZ of 3.04.2020 gives the other Party to shared construction agreements – the Participants – the possibility of using "credit holidays" for a period of no more than six months. Thus, in addition to the fact that Developers do not merely receive the right to a "holiday" but are exempt from penalties for the period from 03 April 2020 to 01 January 2021, they have an additional advantage over the "Participants", since they are not limited by a six-month period or any other conditions.
Moreover, the Resolution exempts all developers from penalties, regardless of the reasons for the delay and of whether or not there were obstacles to handing over the apartment before the high-alert regime was introduced.
The equality of the Parties to shared construction agreements is violated even further by paragraph 5 of Part 1 of the Resolution, under which interest payable to the shared construction participant in accordance with Parts 2 and 6 of Article 9 of the Federal Law "On Participation in Shared Construction of Apartment Buildings and Other Real Estate Properties and on Amendments to Certain Legislative Acts of the Russian Federation" for the period from the date this resolution enters into force until 1 January 2021 is not charged.
The most common reason for terminating an agreement with a developer is a delay of more than 2 months in handing over the shared construction property. Before Resolution of the Government of the Russian Federation No. 423 of 2 April 2020 was adopted, termination of a shared construction agreement on such grounds was accompanied by recovery of the money paid under the Agreement, as well as interest for the use of the money – from the day it was paid until the day it was returned. Thus, developers have effectively been given permission to withhold a shared construction participant's money with impunity for 9 months, without any link between the grounds that caused the breach of the Agreement and the high-alert regime or other circumstances caused by the pandemic, which in turn deprives a bona fide participant of the right to receive their money in good time and invest it, for example, in buying another property.
Among other things, the lawfulness of this provision is also highly doubtful:
Clause 3 of Part 1 of Article 17 of Federal Law No. 98-FZ of 01.04.2020 "On Amendments to Certain Legislative Acts of the Russian Federation on the Prevention and Elimination of Emergency Situations" provides that the Government of the Russian Federation may adopt decisions establishing specific rules for applying penalties (fines, late-payment penalties), other financial sanctions and other liability measures for non-performance or improper performance of obligations under shared construction agreements established by the legislation on shared construction.
At the same time, the Civil Code of the Russian Federation provides for two types of interest: interest as a measure of liability for breach of obligations and interest for the period of use of money.
Under Part 2 of Article 9 of the Law on Participation in Shared Construction, where an agreement is terminated on the grounds provided for in Part 1 of that article, the developer must, within twenty working days of the termination of the agreement, or, where an agreement is terminated on the grounds provided for in Part 1.1 of that article, within ten working days of the termination of the agreement, return to the shared construction participant the money paid by the participant towards the price of the agreement and pay interest on that amount for the use of the money at the rate of one three-hundredth of the refinancing rate of the Central Bank of the Russian Federation in effect on the day the obligation to return the money paid by the shared construction participant is performed. This interest is charged from the day the shared construction participant paid the money or part of the money towards the price of the agreement until the day the developer returns it to the shared construction participant.
Thus, the interest established by this provision is payment for the use of money, not a measure of liability, and therefore the Government of the Russian Federation, within the meaning of clause 3 of Part 1 of Article 17 of Federal Law No. 98-FZ of 01.04.2020, had no authority to cancel the charging of this interest.
However, in my opinion the most controversial and outrageous innovation is paragraph 6 of Part 1 of the Resolution, under which a deferral until 1 January 2021 is granted for payment of penalties (late-payment penalties), interest and compensation for losses provided for in this clause, where claims for them were presented to the developer for enforcement before the date this resolution entered into force.
Since this provision provides for a deferral of the payment of penalties, interest and compensation for losses, i.e. measures of civil liability, the entirely reasonable conclusion suggests itself that the Government considers it more necessary to support unscrupulous Developers than bona fide Shared Construction Participants, for whom these payments may be of enormous importance. It is also worth noting that the deferral granted to Developers is unconditional and requires neither separate approval nor proof that a deferral is needed.
To sum up, I note that the Resolution under review appears highly controversial, upsets the balance of interests of the parties to a DDU and, as regards the prohibition on charging interest provided for in Parts 2 and 6 of Article 9 of the Law on Participation in Shared Construction, does not comply with the law.
This Resolution was adopted by the Government in accordance with clause 3 of Part 1 of Article 17 of Federal Law No. 98-FZ of 01.04.2020 "On Amendments to Certain Legislative Acts of the Russian Federation on the Prevention and Elimination of Emergency Situations" and is intended to support developers during the COVID-19 Pandemic.
The new rules for applying penalties under shared construction agreements seem to me extremely "raw" and raise a host of questions.
Thus, paragraph 1 of Part 1 of the Resolution provides that the period for charging penalties (late-payment penalties) under shared construction agreements does not include the period from the date the resolution enters into force until 1 January 2021.
At the same time, this period can hardly be called reasonable or fair, since Federal Law No. 106-FZ of 3.04.2020 gives the other Party to shared construction agreements – the Participants – the possibility of using "credit holidays" for a period of no more than six months. Thus, in addition to the fact that Developers do not merely receive the right to a "holiday" but are exempt from penalties for the period from 03 April 2020 to 01 January 2021, they have an additional advantage over the "Participants", since they are not limited by a six-month period or any other conditions.
Moreover, the Resolution exempts all developers from penalties, regardless of the reasons for the delay and of whether or not there were obstacles to handing over the apartment before the high-alert regime was introduced.
The equality of the Parties to shared construction agreements is violated even further by paragraph 5 of Part 1 of the Resolution, under which interest payable to the shared construction participant in accordance with Parts 2 and 6 of Article 9 of the Federal Law "On Participation in Shared Construction of Apartment Buildings and Other Real Estate Properties and on Amendments to Certain Legislative Acts of the Russian Federation" for the period from the date this resolution enters into force until 1 January 2021 is not charged.
The most common reason for terminating an agreement with a developer is a delay of more than 2 months in handing over the shared construction property. Before Resolution of the Government of the Russian Federation No. 423 of 2 April 2020 was adopted, termination of a shared construction agreement on such grounds was accompanied by recovery of the money paid under the Agreement, as well as interest for the use of the money – from the day it was paid until the day it was returned. Thus, developers have effectively been given permission to withhold a shared construction participant's money with impunity for 9 months, without any link between the grounds that caused the breach of the Agreement and the high-alert regime or other circumstances caused by the pandemic, which in turn deprives a bona fide participant of the right to receive their money in good time and invest it, for example, in buying another property.
Among other things, the lawfulness of this provision is also highly doubtful:
Clause 3 of Part 1 of Article 17 of Federal Law No. 98-FZ of 01.04.2020 "On Amendments to Certain Legislative Acts of the Russian Federation on the Prevention and Elimination of Emergency Situations" provides that the Government of the Russian Federation may adopt decisions establishing specific rules for applying penalties (fines, late-payment penalties), other financial sanctions and other liability measures for non-performance or improper performance of obligations under shared construction agreements established by the legislation on shared construction.
At the same time, the Civil Code of the Russian Federation provides for two types of interest: interest as a measure of liability for breach of obligations and interest for the period of use of money.
Under Part 2 of Article 9 of the Law on Participation in Shared Construction, where an agreement is terminated on the grounds provided for in Part 1 of that article, the developer must, within twenty working days of the termination of the agreement, or, where an agreement is terminated on the grounds provided for in Part 1.1 of that article, within ten working days of the termination of the agreement, return to the shared construction participant the money paid by the participant towards the price of the agreement and pay interest on that amount for the use of the money at the rate of one three-hundredth of the refinancing rate of the Central Bank of the Russian Federation in effect on the day the obligation to return the money paid by the shared construction participant is performed. This interest is charged from the day the shared construction participant paid the money or part of the money towards the price of the agreement until the day the developer returns it to the shared construction participant.
Thus, the interest established by this provision is payment for the use of money, not a measure of liability, and therefore the Government of the Russian Federation, within the meaning of clause 3 of Part 1 of Article 17 of Federal Law No. 98-FZ of 01.04.2020, had no authority to cancel the charging of this interest.
However, in my opinion the most controversial and outrageous innovation is paragraph 6 of Part 1 of the Resolution, under which a deferral until 1 January 2021 is granted for payment of penalties (late-payment penalties), interest and compensation for losses provided for in this clause, where claims for them were presented to the developer for enforcement before the date this resolution entered into force.
Since this provision provides for a deferral of the payment of penalties, interest and compensation for losses, i.e. measures of civil liability, the entirely reasonable conclusion suggests itself that the Government considers it more necessary to support unscrupulous Developers than bona fide Shared Construction Participants, for whom these payments may be of enormous importance. It is also worth noting that the deferral granted to Developers is unconditional and requires neither separate approval nor proof that a deferral is needed.
To sum up, I note that the Resolution under review appears highly controversial, upsets the balance of interests of the parties to a DDU and, as regards the prohibition on charging interest provided for in Parts 2 and 6 of Article 9 of the Law on Participation in Shared Construction, does not comply with the law.