When it comes to the security of new home buyers, the guarantees provided by construction companies often fall short. One of the most difficult situations for buyers is when the developer of a new property goes bankrupt in the middle of building the home. This can be particularly problematic if the buyer has paid for an apartment or terraced house while construction work is still ongoing.
In Finland, a large portion of new projects involve RS properties or apartments that are already sold during the construction phase. However, other new developments differ in that apartments are not sold until after building control has approved them for use. If a developer goes bankrupt during construction, it could potentially take the project to completion.
One legal expert interviewed by STT notes that if a building is almost finished and bankruptcy strikes, there may not be enough assets in the estate to complete the project. Similarly, if advance payments have been made on apartment sales and construction work is far from completion, it’s unlikely that buyers will get their money back even if there is no money in the bankruptcy estate.
One solution for buyers who find themselves in this situation is to continue with the project themselves. However, finding a new company to build an unfinished house can be challenging and expensive, with additional costs involved. In addition, there may be no guarantee against defects or other issues that arise during construction once a builder has gone bankrupt.
The only security available to buyers in RS properties during construction is a security deposit at least five percent of the contract price at the beginning of construction and ten percent later on. However, this amount may not be sufficient to complete a project if it goes awry unexpectedly. In practice, a non-performance guarantee may offer some protection against defects discovered years after a developer files for bankruptcy, but it may also come with deductibles and other limitations that make it difficult to claim damages or recover funds lost due to errors or omissions by previous builders or developers.