Defective liability – Newspaper Kommersant No. 18 (7463) of 02/01/2023
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The Supreme Court of the Russian Federation (SC) will consider the issue of liability for violations in the construction of residential buildings. In a dispute referred to the Economic Board, the management company was unable to confirm the guilt of the developer, who handed over the house with defects, since the courts placed an excessive burden of proof on it. Lawyers and market participants consider the issue very relevant. The transfer of the case to the Supreme Court, according to experts, may increase the responsibility of developers, which is now underestimated.
The Supreme Court will clarify the limits of liability of the developer who delivered houses with violations. In 2015-2016 JSC Mosstroymekhanizatsiya-5 put into operation three apartment buildings (MKD) in the Moscow region. Subsequently, CJSC Estate Service Directorate Kurkino SZAO (management company, UK) revealed a number of shortcomings in houses and engineering and technological equipment, including defects in roofing, fire-fighting and elevator equipment, lighting wiring, and finishing works.
On this basis, in 2017-2018, the company sent a number of claims to JSC with a request to eliminate the shortcomings, the developer guaranteed that the work would be completed within a certain time frame. But the defects were not corrected, and the Criminal Code went to court with a demand to oblige the developer to eliminate them free of charge.
The Arbitration Court of the Moscow Region in August 2021 refused the company, deciding that it did not prove the fact of improper fulfillment by the developer of obligations under the equity agreement. The court proceeded from the fact that the houses were put into operation and transferred to the participants in the construction, together with the equipment, without claims to the quality, quantity and composition of the common property. Therefore, the court decided, this indicates the occurrence of defects already during the operation of the house, and not as a result of violations during construction.
The forensic examination, which revealed the occurrence of a “significant part of the violations” precisely during the construction process, according to the court, did not establish “the connection between the identified shortcomings and the developer’s violation of building codes.” Regarding the objects, the experts could not give an answer due to the developer’s failure to provide project documentation. The appeal appointed another examination, as a result of which it considered the developer’s guilt established and partially satisfied the claim of the Criminal Code (within the warranty period). But the cassation upheld the decision of the first instance.
The Criminal Code appealed to the Supreme Court, arguing that the courts had incorrectly distributed the burden of proof and charged it with the duty to substantiate the developer’s guilt in the violations of SNiPs and GOSTs, which led to the limitation of his liability. The defendant had to prove his innocence, but he did not dispute the presence of shortcomings in the houses, but, on the contrary, acknowledged them in response to the claims. Based on these arguments, the case was referred to the Economic Collegium of the Armed Forces, and consideration is scheduled for February 21.
Lawyers note that disputes with developers over defects in houses built by them are common, claims can be filed by the management company or the participants in shared construction themselves. The plaintiff must prove the fact of occurrence of defects within the established time limit, and the developer is obliged to eliminate them or reimburse the costs, unless he proves that the defects appeared later, due to improper operation or repair of the house or its normal wear and tear, explains NSP Senior Associate Aram Grigoryan. At the same time, he clarifies, the courts “often make mistakes in the distribution of the burden of proof, although it is quite clearly defined in the law,” which leads to the release of developers from liability.
This case demonstrates how “the developer can cover up the shortcomings of the work,” says Veronika Litvinenko, head of the legal department at Yustikom. Due to the failure to provide the necessary documentation, the examination could not clearly answer the question about the moment the defects of the house appeared, “thus, the defendant managed to hide bad faith,” the lawyer believes. Meanwhile, in the presence of such violations at the stage of building a house, “defects must be eliminated as soon as possible in order to prevent the creation of a threat to life and health of people,” Ms. Litvinenko emphasizes.
The plaintiff proved the presence of defects and their conditionality due to low-quality construction, but contrary to the law, “the courts did not take into account the passive behavior” of the developer, who avoided proving his innocence, and “without sufficient grounds, released him from liability,” agrees atLegal co-founder Nikolai Titov. He also notes “the negligent attitude of the courts in such disputes to the evaluation of conflicting expert opinions.”
If the Supreme Court decides in favor of the Criminal Code, Aram Grigoryan says, this will help “unload the plaintiffs from unnecessary work on proving, and the burden of refuting warranty defects in the MKD will be placed on the developers as the professional side of the equity agreement,” which should motivate them to better perform works.
However, Alexandra Belous, president of the synergy intersectoral association of self-regulators in the field of construction and design, clarifies that if the decision of the Supreme Court in the case of Mosstroymekhanizatsiya-5 is not included in the review of judicial practice approved by the presidium of the Supreme Court, then it is not a fact that, when considering similar proceedings, the courts will make similar decisions, since “our legal system is not precedent.”
As part of this dispute, the UK is not affiliated with the developer. “In practice, the situation is complicated by the fact that often the acts of acceptance and transfer of a built house are signed by the UK, controlled by the developers. Then the issues of detecting defects after putting the house into operation are decided by the parties out of court, ”explains Lina Tkachenko, head of the board of the Association of Real Estate Companies.
But even this does not guarantee that the shortcomings will be eliminated, as evidenced by numerous complaints from equity holders. It will be possible to avoid such situations if buyers of apartments are included in the procedure for accepting shared property of MKD and acts will be signed by a homeowners association (HOA), Ms. Tkachenko believes. According to her, the problem is the absence of a legislative norm allowing the creation of HOA in new buildings: “It existed until May 2011, but on the initiative of the State Duma deputies, headed by Pavel Krasheninnikov, it was canceled.”
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