Shared participation in construction: term, area and penalty under the contract

People usually come with questions about shared participation after a problem has already arisen: the building was not commissioned on time, on measurement the area turned out to be larger or smaller than the design area, the developer offers to charge extra or refuses to pay a penalty. Less often they come before signing — to understand which contract terms actually protect the buyer and which shift the risks onto them.

From this article you will learn who takes part in shared participation in construction and how the contract is structured, which terms and wording on area need to be checked before signing, how to calculate the delay and substantiate a penalty, and how a claim, court and enforcement proceedings differ. Termination of the contract, the developer's positions and Kazakhstan court practice are covered separately.

Shared participation in construction: what it is and who takes part in it

A shared participation in construction agreement is an arrangement under which one party undertakes to build a property and, after commissioning, to hand over a specific unit, while the other contributes and accepts the result. The relations are governed by the Law of the Republic of Kazakhstan on Shared Participation in Housing Construction. A participant in shared construction is a citizen or legal entity that has invested funds in the construction of the property.

The developer is an organisation that has obtained the right to attract shareholders' money and is responsible for commissioning the building on time. The shareholder is entitled to demand handover of the unit by an acceptance certificate and, if the terms are breached, to protection of their interests. A consultation with a lawyer on shared construction helps assess the risks at the stage of signing the contract.

• Developer — a developer attracting shareholders' funds on the basis of permits.
• Shareholder — a participant in shared construction investing funds in the property.
• Object of shared construction — residential or non-residential premises to be handed over after the building is commissioned.
• Contract — a written agreement subject to mandatory registration with the authorised body.
• Term — the term for handing over the object, breach of which entails the developer's liability.
• Area — a characteristic of the premises, deviation in which affects the parties' obligations.

Shared participation agreement: which terms to check before signing

The Law of the Republic of Kazakhstan on Shared Participation in Housing Construction requires the term for handing over the object to be stated. Wording such as "not later than" without a date, or "approximately", deprives the shareholder of the right to a penalty for delay. Checking the term is the first thing in a lawyer's consultation on an SPA before signing.

The design area is fixed in the contract and the technical description. A discrepancy is grounds for recalculating the price, if the recalculation procedure is set out. Otherwise, payment for extra square metres is left to the developer's discretion, and no refund is made for the shortfall.

The parties' liability must be mutual. Where a penalty is provided only for the developer and there is no liability of the shareholder for late payment, courts adjust this, but it is better to check the balance before signing. A lawyer on an SPA assesses how realistic recovery of the penalty is under the specific wording.

• Transfer date: a specific date or a period stating the month and year.
• Design area: the figure, the procedure for measurements and the formula for recalculating the price.
• Liability of the parties: the amount and conditions of the penalty for the developer and the unit holder.
• Amendment procedure: which terms may be changed only by written agreement.
• Termination: grounds, notice periods and the procedure for returning funds.
• Warranty obligations: the period and scope of remedying defects.

Transfer date under shared construction participation: how to calculate it and what to do in case of delay

The transfer date of the property is determined by the shared construction participation agreement. Under the Law of the Republic of Kazakhstan on Shared Participation in Housing Construction, the agreement must contain a specific date or period of transfer, rather than a wording about the readiness of the building. If only a year or a quarter is stated, the deadline is deemed to have fallen due on the last day of that period.

Delay begins on the day following the day the contractual deadline falls due. An additional agreement to postpone the deadline is valid only if made in writing and registered with the justice authorities; oral assurances from the developer's representative are of no effect. If the deadline is breached, the unit holder is entitled to claim a penalty in the amount established by law, and in case of substantial delay — to withdraw from the agreement.

• Check the transfer date in the agreement against the actual date in the acceptance certificate.
• Send the developer a written pre-action claim demanding transfer of the property.
• Record the expenses and losses caused by the delay.
• Prepare a calculation of the penalty for the period of delay.
• Keep the developer's reply or the notice of delivery of the claim.
• Seek a legal assessment of the prospects for recovering the penalty.

Apartment area under shared construction participation: design, actual and additional payment

In a shared construction participation agreement, the apartment area is stated as the design area; after construction is completed it is verified against the technical survey data. The discrepancy arises from masonry, finishing layers and redevelopment, so the actual area may differ from the design area both upwards and downwards. The contract price is determined per square metre, so a change in area directly affects the final amount. The term on additional payment or refund must be set out in the agreement; otherwise the dispute is resolved under the norms of the Civil Code of the Republic of Kazakhstan on recovery of the difference.

Under the Law of the Republic of Kazakhstan on Shared Participation in Housing Construction, the developer is obliged to transfer the apartment with characteristics corresponding to the design documentation, and any deviation is recorded in the certificate. If the actual area is larger than the design area, the unit holder usually pays the difference at the price stated in the agreement; if it is smaller, the developer refunds the overpaid amount. The parties determine the timeframes and procedure for such settlements in the agreement, and breach of these terms becomes grounds for a claim.

• Price term: a fixed amount or a price per square metre.
• Measurement procedure: who carries it out and by which methodology.
• Timeframes for additional payment or refund after measurement.
• Permissible area deviation without recalculation.
• Liability for delay in additional payment or refund.
• Procedure to follow if the developer refuses to recalculate.

If the contract does not contain a condition on recalculation, the general provisions of the Civil Code of the Republic of Kazakhstan on compensation of the difference apply.

Penalty for shared participation: grounds, calculation and time limits

The right to a penalty arises when the developer breaches the deadline for handing over the object under a shared participation agreement. If the participant has paid in full, they are entitled to claim a penalty for each day of delay. The ground is the very fact of delay, confirmed by the agreement and the handover act. No penalty is accrued if the participant evaded acceptance or the parties changed the deadline by a supplementary agreement.

The calculation is based on the contract price and the period of delay. The amount of the penalty and the procedure for calculating it are determined by the agreement and the Law of the Republic of Kazakhstan on Shared Participation in Housing Construction. The period runs from the day following the handover date under the agreement to the day of actual handover.

• Breach of the deadline for handing over the object under a shared participation agreement.
• Full payment of the contract price by the participant.
• Absence of the participant's fault in the delay of acceptance.
• Calculation of the penalty from the contract price for each day of delay.
• Calculation of the penalty under the terms of the agreement and the Law of the Republic of Kazakhstan on Shared Participation in Housing Construction.
• Compliance with the limitation period from the moment of the breach.

A shared participation agreement is won or lost before it is even signed: the handover deadline and the procedure for determining the area are the two terms from which almost every penalty dispute later grows.

Recovery of a penalty under a shared participation agreement: claim, court and enforcement proceedings

If the deadline for handing over the object is breached, the participant is entitled to claim a penalty. Under the Law of the Republic of Kazakhstan on Shared Participation in Housing Construction, the developer must notify of completion of construction and readiness for handover. If the flat is not handed over on time, the participant sends a written claim with a calculation of the penalty and a demand for its payment. The claim is delivered against signature or sent by registered letter with acknowledgement of receipt.

If the claim is not satisfied voluntarily, the participant files a claim with the court at the location of the defendant or at their own place of residence. The agreement, payment documents, the claim and the calculation are attached to the statement of claim. In court, the fact of delay, the period and the amount of the penalty, as well as the existence of grounds for reducing it, are established.

• Sending a pre-trial claim to the developer with a calculation of the penalty.
• Preparing and filing a statement of claim with the agreement and payment documents attached.
• Participating in court hearings, presenting the calculation and objections.
• Obtaining the writ of execution after the judgment enters into force.
• Submitting the writ to the court enforcement officer and monitoring the enforcement proceedings.
• Levying execution on the developer's accounts and property in the course of enforcement.

Lawyer for shared participation: when help is needed in a dispute with a developer

A dispute with a developer begins where the agreement ceases to be performed on the signed terms. Delay in handing over the flat, a discrepancy between the actual and the designed area, refusal to remedy defects, unilateral withdrawal from the agreement — on each ground the participant is entitled to demand performance and compensation. A lawyer for shared participation steps in when correspondence reaches a dead end and a position is needed, supported by the agreement, acts and the Law of the Republic of Kazakhstan on Shared Participation in Housing Construction.

A change in area comes to light after measurements: the difference affects an additional payment or a refund. The developer does not always treat this as a breach, so it is important to check the term of the agreement against the Legal Cadastre records. The developer must remedy defects in the flat or the common property, and refusal becomes a separate subject of the dispute. A unilateral withdrawal by the developer from the agreement is challenged if there were no lawful grounds.

Defence of the developer in shared participation disputes: legal positions

When faced with claims and lawsuits for a penalty for delay in handing over an object of shared construction, the developer builds its defence on the absence of fault and the existence of force majeure. Under the Law of the Republic of Kazakhstan on Shared Participation in Housing Construction, it is responsible for the timely handover of the flat, but is released from liability if the breach was caused by extraordinary and unavoidable circumstances. The lawyer checks whether the events meet the signs of force majeure and prepares evidence of the causal link with the delay.

The second line is the participant's fault. Where the next payment is not made on time, documents for registration of the agreement are not provided, or the participant evades acceptance of the flat, the handover deadline is adjusted or the developer's liability is excluded. Courts of the Republic of Kazakhstan examine the correspondence, payment schedules and notices of readiness of the object, establishing whose actions led to the delay.

• Force majeure circumstances: natural disasters, acts of state bodies prohibiting construction, epidemics and states of emergency.
• Absence of fault on the part of the developer: disruption of supplies through the fault of a counterparty that is not the developer's contractor, provided that the developer selected and supervised that counterparty in good faith.
• Creditor's delay: the unit holder's evasion of the signing of the handover certificate or of receipt of the notice of completion of construction.
• Failure by the unit holder to perform counter-obligations: non-payment of the contract price on time, refusal to pay the additional amount for an increase in floor area.
• Disproportionality of the penalty: comparison of the amount claimed with the consequences of the breach and the average rent for comparable housing.
• Existence of a force majeure clause in the contract: the parties expressly listed the events that release the developer from liability.

Termination of a shared construction participation agreement: grounds and consequences

A shared construction participation agreement is terminated by agreement of the parties or by court order. The unit holder is entitled to withdraw from the contract where the developer breaches the deadline for handing over the property, where the quality does not conform to the terms of the contract or the design documentation, where the floor area changes substantially, and also where money for construction was raised unlawfully. Where termination occurs through the developer's fault, the unit holder claims a refund of the amounts paid and a penalty in the amount established by law.

The developer terminates the contract where the unit holder systematically breaches payment deadlines, is late with the next instalment, and in other cases provided for by the contract and the law. Termination is formalised by written notice; if a party disagrees, the dispute is heard by a court. Before going to court, the unit holder will benefit from a legal review of the documents — this is carried out by a shared construction participation lawyer.

• breach by the developer of the deadline for handing over the shared construction property;
• non-conformity of the quality of the property with the terms of the contract or the design documentation;
• a substantial change in the floor area or other characteristics of the property;
• raising money from the unit holder in breach of the requirements of the legislation on shared construction participation;
• systematic late payment on the part of the unit holder;
• other grounds expressly provided for by the contract and the law.

Court practice on shared construction participation in Kazakhstan

In disputes over the deadline for handing over the property, the courts proceed from the contract and the Law on Shared Construction Participation in Housing Construction. Where the deadline is breached, the unit holder is entitled to claim a penalty for the period of delay and compensation for losses. Termination is permitted in the event of a substantial delay, where the property has not been handed over within a reasonable time after the contractual date.

Disputes over floor area arise from discrepancies between measurements and the design area. The courts check whether the contract provides for an additional payment or a refund of part of the price where there is a deviation, and what permissible limits apply. Without a price recalculation clause, a change in price is possible only where a substantial deviation is proven. The evidence is the technical passport and measurement certificates.

• Recovery of a penalty for breach of the deadline for handing over the property.
• Termination of the contract in the event of substantial delay and refund of the amounts paid.
• Recalculation of the price where the design and actual floor areas differ.
• Challenging unilateral measurement certificates and demands for additional payment.
• Recovery of losses in excess of the penalty where causation is proven.
• Reduction of the penalty by the court on the developer's application.

The table is indicative only: the outcome of a case is determined by the terms of the contract and the evidence.

Documents for a lawyer under a shared construction agreement: what to prepare for a consultation

To analyse a shared construction agreement and prepare a claim or lawsuit, a lawyer needs a set of documents on the terms of the transaction and the fact of the breach. Without them it is impossible to determine the shared participation scheme under the Law of the Republic of Kazakhstan on Shared Participation in Housing Construction and to calculate the period of delay. A consultation is built on primary documents, not on a retelling of the circumstances.

The basis is the shared construction agreement with all addenda and annexes, including the layout and the payment schedule. Attached to it are payment documents: payment orders, receipts, acknowledgements, bank statements. Separately, the acceptance certificate or a written refusal to sign with a list of defects is prepared.

• the shared construction agreement with all addenda and annexes
• payment documents: payment orders, receipts, acknowledgements, bank account statements
• the acceptance certificate or a written refusal to sign with a list of defects
• correspondence with the developer: claims, notices, replies, letters and messages
• documents on the developer and its rights to the construction object
• documents identifying the applicant and confirming their rights to the object