Today one of the most spoken-about themes in the Estonian media are the tricks used by some real estate companies when advertising their new developments. Whereas there is now a cooling trend in the real estate market and free parking lots or basement storage are essential needs rather than added benefits, more remarkable offers are being introduced to sell as much property, at higher prices, as possible. Some recent ones offer "no self-financing," "real estate company's financial help" and an "apartment option." These advertising offers do not actually constitute legal terms or conditions of a transaction, so people interested in obtaining property should read them with caution and make sure that they understand the offer properly, with all its merits and drawbacks.
Buying an apartment without self-financing
According to an advertisement by one real estate company, it is possible to buy some apartments without self-financing, as the "self-financing shall be secured by the real estate company." In legal terminology, "securing" generally means securing a loan. Thus, it may be assumed that the buyer can receive a loan in the full amount of the sales price. At first sight this is certainly an attractive opportunity for the buyer, as self-financing is often an obstacle for buying a home, especially for young people. On the other hand it should also be taken into account that this possibility will bring along a remarkably larger financial obligation than a loan on the usual terms, as the interest will be calculated from the total loan sum. There is no information so far, whether and how the loan agreement terms and conditions derogate from customary terms and conditions of the loan agreement, including such conditions as interest rate, payment sums and closing date.
Buying an apartment with a real estate company's financial help
Another possibility is to buy certain apartments using the real estate company's financial assistance. In this case, within the first three years the bank and the real estate company shall pay half of the monthly loan payments of the buyer. Again, for the buyer this is an opportunity to use the saved funds for other needs. At the same time there is no information disclosed regarding contractual terms, which brings up several questions. One of the most important is, who will be responsible to the bank? The answer depends on the aspect of who shall be a party to the loan agreement with the bank as related to the promised compensation. If the loan agreement is concluded between the bank and the buyer, the buyer shall bear full liability before the bank, despite contractual terms and relationship between the buyer and the real estate company regarding the promised loan compensation. In this case the buyer is also responsible for all possible delays and other infringements of the loan agreement. It is also unclear as to what terms the buyer shall request compensation from the real estate company, and whether the certain offer affects the customary loan agreement conditions.
Option of apartments
According to some advertisements the purchaser can buy an option on certain apartments. This option shall grant the right to acquire an apartment for a certain price within a fixed term. An option requires a 10 - 15 percent contribution. In case the buyer fails to acquire the apartment within the time limit, the buyer is entitled to a refund of half the sum of the paid contribution.
Estonian legislation does not have a definition or regulation for option on an apartment. Whether and on what extension the legislation of options of shares shall be applicable is a matter to be tested by future practice. While today it is unclear what will be the contractual form of such an option, it is hard to predict any possible liabilities of the buyer. Furthermore, due to insufficient data it cannot be estimated whether the option agreement shall actually grant the buyer with a right to claim ownership of the apartment.
In order to minimize the buyer's possible legal and financial risks it is absolutely essential, in each individual case, to examine, analyze and negotiate thoroughly the actual terms and conditions of the transaction. To prevent irresponsible expenses, it would be wise to calculate whether one would buy the specific property at the requested price, in case there were no additional offers enclosed.
Annika Vait is a lawyer at Teder, Glikman & Partners, a member firm of the Baltic Legal Solutions, a pan-Baltic integrated network of law firms, including Kronbergs & Cukste in Latvia and Jurevicius, Balciunas & Bartkus in Lithuania, dedicated to providing a quality 'one-stop shop' approach to clients' needs in the Baltics.