Real Estate Transactions Are Always Risky - Armenia

By K&P Law Firm, Armenia
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The importance of real estate transactions continues to rise, however the culture of legal consulting for such transactions is not formed yet. There are several objective and subjective reasons for reluctance to apply for the services of a lawyer for performance of the real estate transactions in Armenia.

In Armenia the culture of legal consulting is not formed yet.

Generally, buyers and sellers think that consulting and activities of the real estate agent, the notary verifying the transaction and the cadastre performing state registration of the transaction are fully sufficient to execute a reliable transaction.

I would like to introduce the risks related to real estate transactions which are necessary to be aware of.

The value of the real estate must not be artificially reduced during transactions. In some cases the parties, for different reasons, refrain from indicating the real high price of the real estate in contracts. The buyer pays the seller the real price, however the price mentioned in sale and purchase contract is several times lower then the real one. Consequences of such transactions are unpredictable. For example, the buyer of the real estate may purchase from the seller, being a legal entity, real estate in the value of 30 million drams still indicating an unreal price in the sale and purchase contract, for instance 10 million drams.

If, for any reason, the selling legal entity is recognized bankrupt during the following 3 years, than in accordance with the RA law “On Bankruptcy” the bankruptcy case manager may request from the buyer compensation for the unpaid part of real estate, that is 20 million drams, and the buyer shall be obliged to pay the selling company the real amount which was paid to the former director or shareholder of the company without concluding a contract. Invalidity of the real estate transaction may also be risky for the buyer. In such cases the buyer must return the real estate to the seller getting back only the amount mentioned in the sale and purchase contract in return.

The sale price of the real estate must not be fully paid in the notary office. Following the formed practice, the parties to the real estate transaction fully pay the price of the real estate in the notary office before the sale and purchase contract is notarially verified. The buyer’s right towards the purchased real estate arises only after registration of the sale and purchase contract in the real estate cadastre. For example, upon submission to the cadastre of the notarially verified sale and purchase contract for state registration the buyer may find out that the state registration of the contract is being refused.

There may be different reasons for the refusal. For example, the cadastre may receive decision of the compulsory executor a day before the transaction, due to which an arrest has been imposed on the real estate of the seller. I have experienced such a case in my litigation practice. A similar situation may possibly occur when the buyer wishes to purchase a completely renovated apartment, pays the price in the notary office but it entirely devalues as a result of fire a day before transferring the apartment to the buyer.

The real estate may not be purchased based on a template contract. Up to 90% of the real estate transactions are conducted based on template contracts which do not reflect the actual will of the seller and the buyer of the real estate and do not thoroughly protect the rights of the parties to the transaction. Real estate transaction is a complicated transaction consisting of several stages and it must be regulated completely and with a contract thoroughly discussed by the parties.

The contract shall provide detailed description of the real estate (repair works, fixed furniture, etc.), procedure of payment of the price, procedure of acceptance and transfer of the real estate, as well as penalties for cases when the parties breach the contract shall be defined therein. I encountered a similar case in my practice when the seller wanted to detach the kitchen furniture of the sold house substantiating that it is a movable property which was not sold to the buyer.

There was also a case when the buyer incurred essential losses as a result of invalidity of the real estate sale and purchase contract, however he had to prove the amount of the incurred loss through a long lasting court dispute due to the fact that no penalties were distinctly envisaged in the contract. I believe it is necessary to change the risky custom formed in this field.

Risks may always be reduced if one is informed of them by the lawyers and if one enters into contracts discussed in advance and in full protection of the rights of the parties.

ABOUT THE AUTHOR: Tatul Khudatyan
Karakhanyan & Partners Law Office (K&P), a limited liability company, was established in 2004 in Yerevan, Armenia. In 2009 a subsidiary company ‘K&P Law Office’ LLC was incorporated in Kyiv, to operate in Ukraine, which has made a sharp success in its efforts of being established in Ukrainian legal market.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.

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