General Contractor of Housing Industrialization in Iran

Discussion Place of Arbitration in Pre Sales Building Contracts

Reza Sahmdini , Hossein Ghorbanian , MULTITEMAS, Vol (26), No 3 (2015), 71-76


One of the contracts which used today is building pre sales contracts. To be lower supply some of commodities and lacking possibility for paying cost of it by the buyer are factors for developing this contract. The producers produce commodity with pre sales and receive amounts as prepayment and supply some of their capital. During past years, pre sales of apartment and automobile was so vast incredible, in some of transactions, the cost was not determined and a strategy was recognized, in other case, the cost will be assigned to the seller and in other; there are special methods for it. (Mameizadeh, 1997).
About pre sales of apartment and automobile under construction, there are many difficulties. As for long term building projects and prices frequencies of first materials and wage of workers and changes of governmental tariff like cost of building permission and frequent changes in scale of banking interest, there are many distortions and the producers tried to insert terms in their benefit to make balance on it, for example, they conditioned that the cost of pre sales will not be definite and will be changes as for increment of costs.

Also, it is possible the changes due to prices frequencies return into buyer (it is rare). For example, for pre buying commodities which have possibility for reduction cost, determination of final cost will be loss on the buyer and it is possible it is assigned to future.
According to article 2 of pre sales apartment law, in pre sales contract, the following cases are emphasized: introduce arbitrators. Also in article 20 of said law, it is cited that all conflicts due to interpretation and administration of contents of contract will be resolved by board of arbitrators including one arbitrator from the buyer and one arbitrator from the seller and one neutral arbitrator and in the event of lacking consent, one arbitrator with presentation of head of the judiciary. As required, the arbitrators can use theory of official expert. The bylaws of it will be provided by Ministry of Housing and Urbanism and the Judiciary and will be confirmed by the Board of Ministries. The arbitration of this law is function of code of prosecution of general and revolution court in article 3 of this law, it is cited that: pre sales contracts and contracts for assign rights and duties to it shall insert in Notary Public by observation of article 2 and its summary will be sent to registration office. As for said, it is indicated that in the event of conflict between owners of claims about pre sales apartment, it is necessary to refer it into arbitration and subject of conflict and subject of article 20 will be regulated. And before conflict, based on paragraph 10 of article 2 of said law, the parties are required to present arbitrator according to article 34 of constitutional law which cites the arbitration is for all and they shall access to suitable courts and article 159 of constitutional law informs that the judiciary is reference for resolve disputes, thus we shall obtain background about arbitrator.

Pre Sales Contract
Pre sale means to sell property or grain before preparation or take cost before delivery and in other word, it is to sell something which is not and the seller takes money and delivers it next. (Amid, 1990, 509)
In our regulations, there is general definition, but in article 1 of pre sales building contract approved 2010, building pre sales contract is defined: each contract with any title in which the official owner of land is entitled to establish or complement building unit and the said building unit will be delivered to other party after completing or after ending building operation with and utilization or during construction, fro regulation point of view, this law is regarded as building pre sales contract.
The jurists did not offer definition of pre sales contract, but it can be said that pre sales contract is contract based on, the seller is entitled to prepare something which is recognized in contract and delivers it to the buyer against amount.
In Islam jurist, pre sales of property is named as fruit transaction and the famous theory is that it is void to sell fruit before it’s mature and it is reasoned that since fruit is not complete and the transaction is not, thus it is void. (Nadjafi, Bita, 59)
In England laws, property pre sales is named as sale of future goods and in French law it is vente de la chose future that some of jurists translated it into Future Transaction. (Jafarolangroudi, 1978, 508)
In law of Arabian countries, pre sales contracts are discussed as future things transaction. Article 131 of Civil law of Egypt informs that: the cases can something in future. In civil law of Syria, Libya, Sudan and Lebanon, it is cited, but if the property is not before mature, the transaction will be void. (Faraj Sadeh, 1974, 322)

Legal Nature of Pre Sales Contract
Since pre sales contract are different and the parties don’t regulate its contents and effects in their relation, thus we cannot consider special nature for it, but at sum, it is pointed to contractual, pre transaction, general transaction or contracts included article 10 of civil law. Since determination of legal nature of the contracts is out of this paper, but it is considered accuracy of the contracts subject article 10 of civil law more.
Since in some of pre sales contracts, the case is not during contract, it is possible to reason that it is not true to name it as case, but it shall say it is not necessary the case is during contract and this limitation is definite based on article 361 of civil law.
Thus, it is not required to analysis said law based on article 10 of civil law, because, it is not necessary to have case during contract. But there is distance between contract and its effect (means ownership) and concluded as if ownership will be determined after. Thus, it is better the pre sales contract is regarded in transaction for tangible properties like automobile and its effects are current. It is worth to say in some of votes of courts, pre sales contracts are regarded as transaction.

About pre sales contract of intangible properties, the case is different, because, about their nature, it is difference and its origin is about regulations about necessity of intangible transaction based on official deed, thus, since majority of pre sales contracts are regulated by normal form (contractual), some included it on article 10 of civil law and other regarded it as transaction. (Mmaizadeh, 1997)

Validity of Pre Sales Contract
About different insights about nature of pre sales contracts, it is definite about penetration and validity of them. In current discussion, determination of legal nature of pre sales contracts is not useful because it shall cover basic terms of accuracy of contracts in article 190 of civil law. Determination of legal nature of the contracts are as subjective in regular of verdicts not in effects about general patterns of contracts and since subject of present paper is to discuss legal situation of indefinite cost, it is not influenced on legal nature of it. What is important, is that the pre sales contracts are valid when will be legal effects in which accuracy terms are observed (in addition to exclusive terms)
Limitations of Issuance of Arbitration about Pre Sales Contracts
In contracts, the arbitration is forcible for the parties and the arbitrator can issue his verdict to persons who signed arbitration term. But in some of contracts like pre sales contracts, perform commitment of one party depends on other party and consequently in these contracts, issuance of arbitration confronts with limitations. So that sentence of one of the parties in arbitration is opposite with third party. As for above we discuss limitations of issuance of verdict in pre sales contracts and normal ones.

Normal Pre Sales Contracts
In pre sales contract, the seller is entitled to obtain building permission and destruction and establish and deliver and obtain finishing work and separation of original title deed and regulate official deed of six portions in the name of the buyer. The commitments of the seller are under participation in construction which is base of contract.
Now the question is if the seller is manufacturer who is not owner of six portions of land, can the arbitrator issued verdict to sentence manufacturer for obtaining building permission and establish and deliver and separation title deed?
Absolutely, the answer is negative so that each of commitments are in relation with intangible properties that official owner is someone otherwise seller and issuance of verdict is required absence of official owner and intervention in property, additionally, official owner doesn’t participate in arbitration.
In other word, since owner of contract did not sign the pre sales contract, the arbitration terms is not accelerated to him and arbitrator cannot sentence official owner as well as manufacturers, thus, it is not possible to issue verdict about said commitments.
Even, if the claim is under court, the buyer shall consider official owner as well as seller otherwise, rejection of claim is issued and the buyer can cite his claim in the judiciary is reference for investigation but it is not possible in arbitration of the owner.
In other side, issuance of arbitration vote is required to order to court and partnership contract in construction which required the party of the party and hearing defendants of the owner. So that owner of one the party of the contract is the partnership. And partnership contract is cancelled before or after pre sales contract and the seller doesn’t sell something.
Thus, the court doesn’t issue order to verdicts about above cases and then the owner shall entitle to protest to vote and pay material and spiritual costs.
Therefore, arbitration term is an imaginary term in the pre sales contracts in which the violations of manufacturer is not owner of six portions of land and it is true for sentence of manufacturer and return cost and damage. Thus, buyer has not strategy but exemption of arbitrator and cites about seller and official owner to the judiciary. Now, if the arbitrator doesn’t exempt from it, and he insists on arbitration, lacking issuance of arbitrator is void for arbitration verdict.

Official Pre Sales Contract
According paragraph 1 of article 1 and paragraph 1 of article 4 of building pre sales contract, an investor (manufacturer) can sell building without he is official owner. In other side, in article 20 of law, arbitration is cited as referral for resolve disputes and the authority is arbitration only.
Now, as for above discussion on limitation of arbitration, are there limitations about arbitration true in official contracts? And if there is limitation, what is duty for resolve disputes about regulation of official deed?
It seems that since official owner is supposed as informed and he is consented to regulate official contract for investment in order for regulate official pre sales contract, thus arbitration term is accelerated. Of course, the owner cannot use arbitration term but it is true about claim of seller and buyer. Thus arbitration authorities shall act about regulation of official deed in notary public to sentence official owner as seller.
Of course, the other theory is regulation of official contract (partnership in building) means permission for arbitration. Thus, the buyer shall cite regulation of official deed on Notary Public.

Forcible Arbitration in Subjective laws of Iran
a- forcible arbitration in terms of arbitration: if the parties agree in terms of contract they refer to arbitration in the event of dispute, till the parties don’t return it, it is necessary to perform it. In the event the parties cite claim in the court, the related court will inform and issue lacking hearing pertain to article 472 and 454 and paragraph 1 of article 481 of civil law.
b- Forcible arbitration in terms of law: it is when the law maker orders that dispute shall refer to arbitration without consent. Some of legal regulations are:
1- Articles 5 and 6 of law for protection family approved Feb.4, 1975 which cites that all disputes from marriage and family claims in terms of demand of the parties will be needed to one to three arbitrators.
2- Law for amendment regulations pertain to divorce approved March 12, 1993 of Islamic Consolatory Council which requires referring to arbitration for divorce.
3- Article 17 of law for stock exchange approved 196 cites that the arbitration board of stock is formed as permanently and resolve disputes between sellers and buyers and entrepreneurs.
4- Arbitration subject dispute governmental organization subject note 12 of budget 2001 which its referral is commission with supervision of management and planning organization.
5- According to article 20 0f pre sales apartment law approved Feb. 7, 2009 of Islamic Consolatory Council which requires to arbitration. (Sarvi, 2011)
Is necessity of the parties for resolving disputes conflict with constitutional law?
In response, we shall say firstly the referral of laws subjective constitutional law is due to Guard Council and the council removed its violation. Secondly, there is background for law making in relation to forcible of arbitration and its result is about forcible of pre sales of apartment, thirdly, majority of trials in the judiciary is confront with problem by quantity and quality and can longer time of trial and needs judgment and advantages which are on arbitration and confidence of the parties and saving costs and dominance of the arbitrators compared governmental arbitrators. Fourthly, the arbitrators have not absolute powers and since in pre sales apartment contract, it is not cited, it is function contract, thus, verdicts issued are contrast with regulations inserted in article 489 of law and the arbitration verdict lacks validity and will not be performed, additionally, each of parties of the arbitration in perform article 490 of law, can demand for void of verdict. According to article 489 of law, following verdict is void and doesn’t perform: (Mamizadeh, 1997)
1- Verdict issued is contrast with rightful laws
2- The arbitrator issued verdict about content which had not subjectivism.
3- The arbitrator issued verdict out of his capability, in this case, the part of verdict is out of capability of arbitrator is void.
4- Verdict of arbitrator is submitted after expire of duration.
5- The arbitrator’s vote is opposite with what is inserted in Notary Public and has legal validity.
6- The vote is issued by the arbitrators who have not authority for issuance.
7- It was invalid to referral to arbitrator.
Thus, forcible of subject arbitration is suitable action if was compiled with observation of social capability and rights of the owners which plays vital role in order to investigate justice. (Sarvi, 2011)

Criticism and Discussion Suggestions in terms of Arbitration for apartment Pre Sales
In above law, the parties are entitled to introduce arbitrator and determine third party since after dispute, forcible referral to arbitration in article 20 of law is advantage but it is possible to entitle the parties before disputes.
1- Disputes between parties ( seller and buyer) is not emerged and returning probable costs tolerate illegal costs to them.(Jafarilangroudi, 1997)
2- It is possible to intervene without it because to select the arbitrators in performs contents of building pre sales contract.
3- Since it is nor recognized what step is established between the parties, thus, selection of the arbitrator is not suitable for it and deprives the parties from their rights.
4- Determination of persons is due to cancellation of parties and death of arbitrators and difficulty in case.
5- Lacking exclusive situations for arbitrators causes issuance of illegal verdicts and some of votes are protested or cancelled from parties in judiciary and mean of law maker is resulted to unsuitability and their difference is resolved. If this is true, not only subject of arbitration of said law doesn’t help envy but doesn’t help to reduce entrance volume of files in judiciary.
6- Since in article 20 of law, it is cited that administrative bylaws will be approved by board of ministries about arbitration and also, in current part, it is cited that subject of code of civil law is on general and revolution court, thus, it is suitable to excersie special situations for arbitrators in related courses the votes haves necessary strong. (Jafarilangroudi, 1997)
7- In administrative bylaws, it is cited that from instructions point of view, firstly, the arbitrators shall observe basic elements about time limitations, for example, in order to confront with time limitations, voidance of arbitration verdict, relative and absolutely prohibitions are explained in code of civil law, manner of informing verdict, penal responsibility and disciplinary, there are different predications about arbitration that don’t void verdict. (Sarvi, 2011)

Building pre sales contract is contract in which official owner of land or investor (pre seller) is entitled to establish or complement building unit in said land against other party. This contract is legal ones which has not background in jurists and civil law. Thus, recently the law maker approved legal law in order to remove deficits in domain of building pre sales and regulates parties’ relations which its main elements are stability of ownership, facilitation on investigation due to contract and predications for warrant. Present research analyzed and investigated descriptions and administrative warrants of contracts, weakness and strength of new law as well as discussion its nature and concluded that firstly, building pre sales contract is contract with incredible specifications which its nature will be determined by new law and secondly, from warrant and thirdly in regard to facilitation and acceleration to disputes du o contracts, the law maker predicated arbitration institute that the said arbitration is imperative from type of arbitration and are legal arbitration from nature.
As for importance and role of arbitration as helper of judiciary in resolving legal violations and as for imperative of arbitration subject in law, it is necessary to remove its barriers and disadvantages to consider it more. Consideration of imperative role of arbitration in apartment pre sales contract not only is not contrast with judiciary from resolving conflict but if it is compiled accurately, plays vital role in investigation with supervision of judiciary authority.

1- Nadjafi Sheikh Mohammadhassan, Bita, 1417, Emerald of Word, volume 24th, Beirut, Arabian
2- Faraj Alsadeh Abdmonem, 1974, Contract theory in Arabian Laws, Beirut
3- Jafarilangroudi Mohammadjafar, 1978, Encyclopedia of Civil Law and Commerce, Volume1, Tehran, Mashale Azadi Press
4- Katouziyan Naser, General Patterns of Contracts, volume 3, Enteshar Publish Company, 5th Press, 1990
5- Pirhadi Mohamadreza, 2010, Ownership Transfer in Contract, Shalizeh Press, 1990
6- Mamizadeh Mehdi, 1997, Nature, Terms and Effects of Building Pre Sales Contracts, Kanon Magazine, No.92
7- Arbitration Law of International Commerce approved Apr.15, 1997 of Islamic Consolatory Council
8- Jafarilangroudi Mohammadjafar, Legal Terminology, 8th Press, Ganje Danesh Press, 1997

9- Sarvi Mohamadbagher, 2011, Discussion Placement of Arbitration in Building Pre Sales Law, Judgment Magazine, no. 86885870,

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