The Risks of Collective Self-Construction

by | Nov 14, 2014 | Articles | 0 comments

Self-construction, understood as that building process carried out by the owners themselves, within its different modalities, has generated space for a Promoter to develop building or condominium projects, attracting investors for the acquisition of land as co-owners, in order to award them the real estate units once the building and corresponding registration procedures are concluded.
The advantages offered by this modality for the purchasers is that the costs are lower, as they are co-owners of the land, they do not have to pay any taxes at the time of the subdivision in their name of the constructed real estate, being their expenses the services of the Promoter as coordinator and agent in charge of all the procedures, and the construction that is generally entrusted to the same Promoter or to a related company. However, this modality also has potential contingencies, which can be generated either on the side of the Promoter, who by not risking his capital, the entrance fence to this business does not require him to be a solvent person, consequently the investors may have problems to recover their money in case of default of the Promoter, for example when their contributions are greater than the progress of the work done.

Another contingent front are the investors themselves, who generally do not know each other, and being co-owners, whatever happens to one of them affects the others, for example, the registration of the property in co-ownership may be affected by embargoes affecting only one of the owners, or the work may be suspended if one of them stops making his contributions, bearing in mind that in collective self-construction it is the investors who directly cover the costs of the works, without the financial system intervening on the side of the builder. To this it is necessary to add that the decisions on the destiny of the property in co-ownership are not taken by majority but by unanimity, in such sense, the most probable thing is that an appropriate solution of the problem demands united co-owners.

How to prevent, each case has its own particularities and alternatives, but in general what should be demanded is a suitable guarantee that ensures the compliance of the Developer/Builder, and the indemnification of the damages that may be caused; as well as clear rules among the co-owners that allow making decisions in case of maintaining different positions towards the solution of a problem.