Сonsumer extremism: constructors want to build, but they are likely to be extorted

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Сonsumer extremism: constructors want to build, but they are likely to be extorted
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Is a consumer always right? Under our conditions this rule generally works, though not always

We have become used to the fact that many citizens raise claims to developers for disruption of construction deadlines or for low quality construction. But in the background of this process the phenomenon of so-called consumer extremism is developing. A number of co-investors are consciously and carefully looking for real and sometimes invented reasons in order to maintain an action against constructors. This practice has become so common and large-scale that many constructors are thinking of leaving the market. Vladimir LITVINOV, President of the Sky Group GC, discusses the exact state of things.


— What is the source of consumer extremism, from your point of view?

— If a developer has not put a house in operation on time the shareholders try to get money from him for a disruption of construction deadlines, and this is possible by law. But courts rarely decrease the amount of citizens’ claims to construction companies and, as such,, they may be vast: up to 200,000—300,000% of the current refinancing rate. Plus, according to the Consumer Right Protection Law, there could be fines, if constructors do not pay the sums on time. Say, 300,000 roubles is the percentage payment, then the delay’s damages might be 150,000 roubles more. And some shareholders, being aware of the opportunity to get this money, drag the feet of the process concerning getting their own housing. As such, they go to court.

These claims are often formally reasonable. I mean, construction is a complicated and not always predictable business. Not everything depends on a construction company, as it has many subcontractors and suppliers. Partners might get something wrong.

There is another way of blackmailing, though. During the whole guarantee period, the residents hunt around for different drawbacks and then lodge claims. Often they only target getting money from a company, and sometimes they do not even want to go to court, so to increase the chances of getting a payment they overestimate their claims.



— What happens when the court satisfies citizens’ claims to constructors?

— The court decrees a resolution in favour of a claimant. The latter brings an execution writ to a construction company with a demand to award reparation. There is another variant: an execution writ might be passed to the bank where there the company’s account is. And shareholders’ money connected with other projects then enters this. The bank pays this money under the execution writ; meaning that a company pays its former client with the money of other people.


— Sometimes shareholders do not know how to demand and obtain money from a company, they need qualified assistants.

— Of course they cannot do without assistants. There are even legal companies specialising in such cases. They make money on the process regarding the transfer of flats from developers to co-investors. And they search for different drawbacks and suggest people’s claims to the court.

In the vicinity of a construction site one may see advertisements of such lawyers promising help in wringing money out of constructors. For their hard work they take good commission, and they promise to take money from the developer so that the people aggrieved by them have no expenses themselves.

I can give an example. We commissioned a residential building two months behind its deadline. Almost immediately notices appeared in the entrance halls offering help in preparing claims against the developer.

What might such help result in? There are 150 flats in the building, and the residents of each of them might put in a claim against us for the delayed commissioning of the object. Courts usually treat constructors disloyally, and are more likely to support a customer. If a construction company went bankrupt, or its directorate disappeared, the co-investors might receive nothing at all. But if a company works on the market and is steady, it will have to meet all the claims.

And sometimes the claims gather like a snowball.

Сonsumer extremism: constructors want to build, but they are likely to be extorted


— How much are the losses from such claims?

— Due to two month’s delay we have had claims against us for 15 m roubles. We managed to adjudge 4 m roubles. But this only concerned 30 flats, and there are 150 in the house. Potentially, the total might grow multi-fold. 

There is one more important detail: when the court makes the decision that a co-investor should be paid compensation for either real or imaginary faults, we have to pay the executive writs yet have no power to check how the residents spend the money awarded, which might be far from dealing with any construction faults.


How do you access the prospects of consumer extremism development?

— To my mind, the prospects are rather unfavourable. On January 1st, 2017, the 8274 Federal Law was amended. Now it contains the notice obliging one to provide a co-investor with an instruction on how to operate a flat. This instruction advises what a resident should do if he finds out any faults and drawbacks. Conflicts are likely to arise between developers and citizens as the latter will use the document for claiming against constructors. Actually, it is an instruction for consumer extremism.

The new law makes the control over developers’ activity stricter: we must publish a project’s declaration, which is very complicated, on the website. Co-investors’ money is spent under tight control, and this is purpose-oriented. A requirement has been introduced on the increase of the authorised share capital, which depends on the amount of square metres under construction. If a company builds one multi-family building the sum equals 10 m roubles, and if it is three houses it will already be 80 m roubles. 

Сonsumer extremism: constructors want to build, but they are likely to be extorted


— How does the growth of consumer extremism impact the construction market, and do developers want to deal with this kind of business?

— I think that a conscientious developer will stay on the market anyway, but will try to commission a house in time and improve the quality of construction. But a developer does not depend only on himself, but on contractors, and drawbacks might occur in their work. Thus, it is not due to consumer extremism, but the strengthening of legislation requirements may make small companies leave the market. They will not cope with new conditions. Nevertheless, consumer extremism is a serious obstacle in constructors’ work.


— Has your company any legislative propositions on how to ease the pressure of consumer extremism?

— I must say that we have made some important decisions inside our company. For example, if the deadline is postponed we must talk it over with the co-investors and find a compromise before they go to court, including our paying some money for the compensation, to economise on court taxes. 

The same refers to the quality of construction work: it is necessary to find a compromise in all cases. And to eliminate defects, of course, if there are any. But sometimes co-investors do not want this and demand money. However, a construction company is not a feed box or a money-box to take money from.

From our point of view, the instruction on the operation of a flat should be made more carefully. As it was introduced on January 1st, 2017, developers have not come across it yet, but they should be ready. Additionally, legislation should be improved. I mean the collection of penalty interest. It is reasonable to introduce a gradation depending on the overdue period and degree of a developer’s guilt.

Vladimir GURVICH