Buying Property in a new development in Georgia. How to Protect Your Rights and Avoid Risks
15 April, 2025
Shalva Giorgadze, Head of the Department of Property Relations
Introduction
The real estate market in Georgia continues to develop and, despite a significant increase in prices over the past two years, remains a rather attractive investment or a choice for those considering purchasing property abroad for residential purposes. The number of new developments in Tbilisi and Batumi is growing, as is the number of transactions. However, purchasing an apartment at the construction stage involves certain legal and financial risks. Among the key issues that need to be assessed at the investment stage are the risk of delays in project completion, discrepancies between construction quality and declared standards, and differences between promotional renderings and the actual appearance of the finished residential complex.
1. Legal Regulation of Investments in New Buildings in Georgia
Georgia lacks specific legislation regulating shared participation in construction — unlike the practice in the Russian Federation or Kazakhstan. The relationships between the developer and the investor are governed based on the general norms of the Civil Code and other general legal provisions, which does not always allow for consideration of the specifics of investment transactions in the construction sector and ensuring the protection of investors' rights. The main legislative acts regulating relations between developers and real estate buyers are:
- Civil Code of Georgia: This document defines the general principles for the conclusion and execution of purchase and sale agreements, and also provides for compensation for damages and the payment of penalties in the event of failure to fulfill obligations (see Articles 408 and 409).
- Law of Georgia "On Consumer Rights Protection: This law obliges sellers and developers to provide accurate information about the quality of the purchased property and protects consumer rights.
- Code on Spatial Planning, Architectural and Construction Activities of Georgia: This regulatory act governs the issues of obtaining construction permits, commissioning of facilities, and establishes liability for violations of construction standards.
- Code of Administrative Offenses of Georgia: Establishes administrative liability for violations in the field of construction, in particular, provides for fines for construction without a permit (Article 150) and for delays in commissioning the facility (Article 152).
2. Developer and Property Due Diligence. Actions Before Concluding a Deal.
Before concluding a deal, the issue of conducting thorough due diligence of both the developer and the investment property itself becomes especially important.
Developer Company check should at a minimum includes:
· General information about the Company: confirmation of the Company’s registration in the Public Register, composition of partners and their reliability, information about management bodies, their authority, and the trustworthiness of the personnel.
· Information about real estate objects owned by the Company
· Information about real estate projects completed by the Company (compliance with deadlines, existence of claims)
· Information about the financial stability of the Developer and its affiliated persons
· Activity of the Company, members of management bodies, and participants in internet media and social networks, general informational background
Property check includes:
· Evaluation of rights to the land plot on which construction is being carried out
· Evaluation of permitting documentation, including the approved project and construction permit
· Verification of the presence/absence of encumbrances and claims on the property
Developer Company check should at a minimum includes:
· General information about the Company: confirmation of the Company’s registration in the Public Register, composition of partners and their reliability, information about management bodies, their authority, and the trustworthiness of the personnel.
· Information about real estate objects owned by the Company
· Information about real estate projects completed by the Company (compliance with deadlines, existence of claims)
· Information about the financial stability of the Developer and its affiliated persons
· Activity of the Company, members of management bodies, and participants in internet media and social networks, general informational background
Property check includes:
· Evaluation of rights to the land plot on which construction is being carried out
· Evaluation of permitting documentation, including the approved project and construction permit
· Verification of the presence/absence of encumbrances and claims on the property
3. Conclusion of the Transaction: Preliminary and Main Sale and Purchase Agreements. Registration of Ownership and Future Ownership Rights
3.1. Preliminary and Main Sale and Purchase Agreements
Until 2022, it was permissible in Georgia to conclude a main sale and purchase agreement and register ownership rights for real estate objects that had not yet been commissioned. Therefore, registering ownership rights for properties that are, in fact, completed, have all utilities (electricity, gas, water, and a functioning elevator), and are successfully in use, but still have the status of "under construction," is not uncommon in Georgia. This status does not hinder the marketability (i.e., the ability to buy, sell, lease, or mortgage) of such apartments at all.
As of January 1, 2022, amendments were made to the Spatial Planning Code — now, the registration of ownership rights for properties whose building permits were obtained before the specified date became possible only after the property is commissioned.
As mentioned above, there is no specific legislation in Georgia regulating the sale of properties at the construction stage. Therefore, contractual relations at this stage fall under the norms of the Civil Code:
3.2. Essential Terms of the Contract
When signing a preliminary sale and purchase agreement, the investor should pay particular attention to the following essential terms:
• Clear definition of deadlines: the completion date of the construction, the commissioning date of the property, the date of the apartment transfer to the buyer, and the date of signing the main sale and purchase agreement must be clearly defined.
• Detailed description of the requirements for the property: layout, finishing, materials used, and other characteristics stated by the developer in advertising materials and renderings. Such a description allows later comparison between what was promised and the actual condition of the property, and serves as grounds for holding the developer accountable in case of any violations.
• Payment procedure and schedule. Possibility of early payment.
• Provision for a penalty in case of construction delays or other breaches of the developer’s obligations: absence of an indication of the penalty amount and the possibility of its recovery deprives the investor of the right to claim the penalty in court, allowing only the recovery of actual damages. A statutory penalty for the use of another’s funds, as well as a statutory penalty for the developer, is not established under Georgian law.
• Grounds and conditions for unilateral termination of the contract by the buyer and the developer.
• Encumbrance of the property due to the developer’s obligations (in case the project is financed by a bank) and conditions for the removal of such encumbrances.
• Additional obligations of the buyer, including: entering into a management agreement, obligations not to alter the facade and layout of the property.
• Additional obligations of the developer regarding the provision of infrastructure, management of the property, immutability of the area and technical specifications.
It is very important to compare the language versions of the contracts — by default, the Georgian version of the contract will have predominant legal force.
3.3. Registration of the Agreement and Ownership Right
The basis for the emergence of ownership rights to a real estate object is the registration of the ownership right in the Public Register. The basis for such registration is the purchase and sale agreement. The applicants during the registration are both parties to the agreement. The right of future ownership, which arises on the basis of a preliminary purchase and sale agreement, does not require mandatory registration, but such registration is highly recommended — it guarantees protection against double sales and also serves as unconditional proof of the future owner’s right to the object in the future.
The agreements themselves (both preliminary and main) do not require state registration. Such agreements are concluded in simple written form and are signed in the presence of a registrar, if the signatories are the parties themselves or their representatives acting on the basis of a power of attorney issued in Georgia. If the agreement serving as the basis for the registration of the ownership right (or the right of future ownership) is concluded on the basis of a notarized power of attorney issued abroad, such agreement requires notarized form.
Until 2022, it was permissible in Georgia to conclude a main sale and purchase agreement and register ownership rights for real estate objects that had not yet been commissioned. Therefore, registering ownership rights for properties that are, in fact, completed, have all utilities (electricity, gas, water, and a functioning elevator), and are successfully in use, but still have the status of "under construction," is not uncommon in Georgia. This status does not hinder the marketability (i.e., the ability to buy, sell, lease, or mortgage) of such apartments at all.
As of January 1, 2022, amendments were made to the Spatial Planning Code — now, the registration of ownership rights for properties whose building permits were obtained before the specified date became possible only after the property is commissioned.
As mentioned above, there is no specific legislation in Georgia regulating the sale of properties at the construction stage. Therefore, contractual relations at this stage fall under the norms of the Civil Code:
- Before the property is commissioned, a preliminary sale and purchase agreement is concluded between the Developer and the future owner. This agreement provides for the obligations of the Developer and the Buyer to conclude a main sale and purchase agreement after the property is commissioned. It also describes the requirements the property must meet, determines the price of the property, and outlines the payment procedure.
- After the property is commissioned, the parties sign the main sale and purchase agreement. As a rule, the main agreement is concluded on the condition of full payment for the property by the Buyer.
3.2. Essential Terms of the Contract
When signing a preliminary sale and purchase agreement, the investor should pay particular attention to the following essential terms:
• Clear definition of deadlines: the completion date of the construction, the commissioning date of the property, the date of the apartment transfer to the buyer, and the date of signing the main sale and purchase agreement must be clearly defined.
• Detailed description of the requirements for the property: layout, finishing, materials used, and other characteristics stated by the developer in advertising materials and renderings. Such a description allows later comparison between what was promised and the actual condition of the property, and serves as grounds for holding the developer accountable in case of any violations.
• Payment procedure and schedule. Possibility of early payment.
• Provision for a penalty in case of construction delays or other breaches of the developer’s obligations: absence of an indication of the penalty amount and the possibility of its recovery deprives the investor of the right to claim the penalty in court, allowing only the recovery of actual damages. A statutory penalty for the use of another’s funds, as well as a statutory penalty for the developer, is not established under Georgian law.
• Grounds and conditions for unilateral termination of the contract by the buyer and the developer.
• Encumbrance of the property due to the developer’s obligations (in case the project is financed by a bank) and conditions for the removal of such encumbrances.
• Additional obligations of the buyer, including: entering into a management agreement, obligations not to alter the facade and layout of the property.
• Additional obligations of the developer regarding the provision of infrastructure, management of the property, immutability of the area and technical specifications.
It is very important to compare the language versions of the contracts — by default, the Georgian version of the contract will have predominant legal force.
3.3. Registration of the Agreement and Ownership Right
The basis for the emergence of ownership rights to a real estate object is the registration of the ownership right in the Public Register. The basis for such registration is the purchase and sale agreement. The applicants during the registration are both parties to the agreement. The right of future ownership, which arises on the basis of a preliminary purchase and sale agreement, does not require mandatory registration, but such registration is highly recommended — it guarantees protection against double sales and also serves as unconditional proof of the future owner’s right to the object in the future.
The agreements themselves (both preliminary and main) do not require state registration. Such agreements are concluded in simple written form and are signed in the presence of a registrar, if the signatories are the parties themselves or their representatives acting on the basis of a power of attorney issued in Georgia. If the agreement serving as the basis for the registration of the ownership right (or the right of future ownership) is concluded on the basis of a notarized power of attorney issued abroad, such agreement requires notarized form.
4. Sale of the Right to Future Ownership — Assignment of Rights under a Preliminary Sale and Purchase Agreement
During the period before the building is put into operation, it is possible to sell the right to future ownership — as a rule, this takes place based on an agreement on the assignment of rights and obligations under a preliminary sale and purchase agreement. If the right to assignment is not provided for in the preliminary sale and purchase agreement, the Developer’s consent to such a transaction will be required.
In the event that the right to future ownership is registered in the Public Registry, the transfer of this right will also require registration.
As a rule, the assignment is formalized by two agreements:
In the event that the right to future ownership is registered in the Public Registry, the transfer of this right will also require registration.
As a rule, the assignment is formalized by two agreements:
- An agreement/contract for the assignment of rights under the preliminary sale and purchase agreement — a tripartite transaction involving the Developer, the initial Buyer, and the new Buyer.
- An agreement between the initial and the new Buyer, which determines the financial obligations of the parties and the cost of the assignment.
5. Taxes When Purchasing a New Building, Assignment, and After Property Registration
In Georgia, there is no tax on the acquisition of real estate, including new buildings. Therefore, the mere fact of concluding a preliminary or main purchase agreement does not entail an obligation to pay tax.
In the case where the buyer decides to assign the right to future ownership before the object is put into operation and concludes an assignment agreement within two years from the date of the preliminary agreement, the income received from such a transaction (the difference between the assignment amount and the amount paid by the investor to the Developer) is subject to income tax at a rate of 20%.
From the moment of property registration, the Buyer is obligated to pay property tax. Owners whose total annual worldwide family income does not exceed 40,000 GEL are exempt from paying property tax.
In the case where the buyer decides to assign the right to future ownership before the object is put into operation and concludes an assignment agreement within two years from the date of the preliminary agreement, the income received from such a transaction (the difference between the assignment amount and the amount paid by the investor to the Developer) is subject to income tax at a rate of 20%.
From the moment of property registration, the Buyer is obligated to pay property tax. Owners whose total annual worldwide family income does not exceed 40,000 GEL are exempt from paying property tax.
6. What to do if…
Even a perfect contract and a thorough check of the Developer and the property before the deal do not protect the investor from everything going wrong. As a rule, purchasing an apartment in a new building involves two basic risks:
6.1. If the developer fails to fulfill the obligations regarding the project delivery deadlines, the investor has the right to:
6.2. In case of identifying defects or non-conformities after the handover of the property, the investor may:
In practice, the implementation of these protection mechanisms requires thorough legal and practical evaluation and is not always possible (due to the lack of necessary mechanisms in the contract) or advisable (due to long court proceedings and uncertain prospects of enforcement of the court decision).
- Delayed construction or unfinished development
- Poor construction quality or non-compliance of the property with declared specifications (you expected what was shown in the rendered image, but in reality got something different)
6.1. If the developer fails to fulfill the obligations regarding the project delivery deadlines, the investor has the right to:
- Demand fulfillment of obligations: send the developer a written demand to complete the construction within a reasonable time.
- Claim a penalty: this is possible if the contract provides for penalties for delays and clearly defines the deadlines, the violation of which entails liability.
- Terminate the contract and demand a refund: in case of a significant delay, the investor may file a claim in court to terminate the contract and request the return of the paid amounts.
6.2. In case of identifying defects or non-conformities after the handover of the property, the investor may:
- • Draw up a handover certificate listing all defects: this will serve as the basis for subsequent claims against the developer.
- Demand the elimination of defects: the developer is obliged to rectify the identified defects within a reasonable time.
- • In case the developer refuses to eliminate the defects: apply to the court with a demand to eliminate the defects, reduce the purchase price, or compensate the expenses for independent rectification of the defects.
In practice, the implementation of these protection mechanisms requires thorough legal and practical evaluation and is not always possible (due to the lack of necessary mechanisms in the contract) or advisable (due to long court proceedings and uncertain prospects of enforcement of the court decision).
Comprehensive Protection of Investor Rights Through Legal Support
Given the absence of specific legislation regulating equity participation in construction and the need to rely on general provisions of the Civil Code, the protection of investor rights requires special attention to the details of contract drafting.
Proper preparation of a preliminary purchase agreement, including a clear definition of timelines, requirements for the property, and provisions on penalties, is key to a successful transaction and the minimization of future losses. Thorough due diligence of the developer and the property, as well as notarization of the transaction (including when signed under a notarized power of attorney), help minimize risks and ensure legal protection for the investor.
The law firm Just Advisors provides a full range of services for reviewing developer documentation, auditing preliminary agreements, and supporting real estate purchase transactions, as well as representing investors/future property owners in disputes with developers. Our specialists ensure the preparation of identical texts in Russian and Georgian, assist in including all necessary provisions in the contract, and register future ownership rights in the public registry, which is an important tool for protecting your investments.
Proper preparation of a preliminary purchase agreement, including a clear definition of timelines, requirements for the property, and provisions on penalties, is key to a successful transaction and the minimization of future losses. Thorough due diligence of the developer and the property, as well as notarization of the transaction (including when signed under a notarized power of attorney), help minimize risks and ensure legal protection for the investor.
The law firm Just Advisors provides a full range of services for reviewing developer documentation, auditing preliminary agreements, and supporting real estate purchase transactions, as well as representing investors/future property owners in disputes with developers. Our specialists ensure the preparation of identical texts in Russian and Georgian, assist in including all necessary provisions in the contract, and register future ownership rights in the public registry, which is an important tool for protecting your investments.
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MARIA GUSEINOVA
Leading Manager of Commercial Department
Leading Manager of Commercial Department