Comments made by Senior Associate Evgeny Zverev to an article entitled “Treacherous safety deposit box”

2 September 2009

The banks leasing out lock boxes praise their reliability, but nobody can give 100% guarantee of safety of its content, because banking organisations are sometimes attacked, although such attacks are infrequent. Should a bank be liable for losses incurred by its client? It is a disputable question. It is not impossible that accidents similar to the recent event with the depositary on Gangutsky street will legalise secondary housing market – many transactions at this market are still made in cash via a lock box.

The situation may be called stalemate - a bank should guarantee both safety and confidentiality of items contained in a lock box. That is why it is impossible to make a precise estimation of content of such box. A box opened by robbers might well be empty or contain an amount of money enough to buy a flat, and even hundreds thousand dollars. Such boxes usually contain receipts, etc. as well. As a result, an unsuccessful buyer of real estate is left with nothing .. or with a broken safety box.

It is not our fault

It is to be recalled that on August, 23, a depositary of commercial bank “Holding Kredit” located in Gangutsky street was attacked by robbers. According to some versions, from two to six robbers in masks entered the premise, and having beaten a sole security guard and a bank employee, opened from eight to twenty lock boxes. Armour-plated doors of the depositary turned to be opened and alarm system on the doors was deactivated.

According to branch manager Lyudmila Rots, currently the extent of damage is being estimated and the issue of indemnifications is being settled. However, the clients disagree with her. “The Chief Security Officer has declared that robbery is a force majeure event, and bank is not liable for it. He has advised us to file a police report, and to let the police find the malefactors. Why have I leased the lock box? It would be more safe to put the whole amount into a mail box near the entryway, a luggage locker at a railway station or to keep it home”, – complained a client, who has put a sum necessary to buy immovable property into a lock box of “Holding-Kredit”.

Is a bank liable for preservation of items put into a lock box? All the interviewed experts were quite positive – yes, it is expressly liable for it. “The lessor is liable for inviolability of a lock box; should he fail to ensure such inviolability, it shall be considered as improper performance of obligations entailing losses for the other party, – explained Nikolay Vilchur, director of international consulting company “Vilchur and partners”. –In this case, it would be inappropriate to make reference to force majeure events, since plunder as penal action of specific persons, is not an extraordinary or insuperable condition. I suppose that security measures provided by lessor of a lock box were insufficient to ensure proper performance of obligations”.

Andrey Pimenov, branch manager of «Gorodskoy Ipotechny Bank» in St.-Petersburg is agree with him: “Preservation of contents and inviolability of a lock box appear from the essence of obligation assumed by a bank. No circumstances that may be reasonably prevented subject to due diligence exercised by a person, can be deemed force-majeure events. Thus, for example, fire cannot be considered as a force majeure event, since it could be avoided if the premises were provided with fire-extinguishing equipment. The same applies to an armed assault of an entity, which can be avoided provided that the due protection is available . This being said, the number of security guards and respective costs are of no importance”, – noted the banker.

Don’t hide your money

However, the victims are unlikely to obtain fair compensation for the damage – any content of a safety deposit box is confidential (even for the bank) and no certificates or inventories of items stored, and consequently, stolen should be provided. “The party affected will be bound to prove that a certain amount of money was placed into a safety deposit box, which is impractical”, – believes Nikolay Vilchur.

But Evgeny Zverev, Senior Associate of the law firm S&K Vertikal” considers it possible: “In this case, to show damages one may present not only testimonial evidence, but also documents – settlement deals, documents confirming that funds were placed into a safety deposit box, etc. It is very important that transaction parties, most likely, will have no reasons to contradict each other. And the issue of estimation of all above circumstances is to be settled only by court. Any available data on precedents of similar disputes in St.-Petersburg are scarce and inconsistent.”

Robbery of “Holding-Kredit” made actual the issues related to lawfulness of cash real estate transactions. Why paying via a safety deposit box? Why should one give oneself a hard time and to risk everything? Lawyers suggested that perhaps: “Sellers are interested in cash transactions if they dodge the personal income tax. This being said, if an immovable property has been owned by them for more than three years, there is no need to pay tax – a tax benefit equal to transaction value is declared. As to buyers, they are not always willing to answer questions related to source of funds spent on property acquisition – and they also inclined to carry out transactions via safety deposit boxes. Naturally, in this case the parties bear additional risks”, – believes Nikolay Vilchur.

“If a person wishes to conceal something – there is nothing more convenient than a safety deposit box. And there is nothing more transparent, than a bank account, – said Natalia Sibgatulina, director of law firm “ASN”. – Everyone knows that real estate transactions are oftentimes carried out on a minimum amount – under 1 million roubles, and the rest is checked in a safety deposit box and recorded only by receipts. In this case both the seller, and the buyer will be affected, but only in theory if the transaction is contested. Actually, there is a huge gap in the legislation and it would be useless to make comments regarding this issue.”

“It is needless to say that payments made with unrecorded funds are malicious, – notes Evgeny Zverev. – the payment obligation is fulfilled by the buyer when money is received by the seller, and the latter should confirm it in writing. If the buyer hasn’t obtained a receipt, then he shall bear the risk of of loss funds placed in the safety deposit box. Being the owner of money, he is at liberty to do as he pleases - to place them in a bank as non-cash resources, or to rent a safety deposit box, or to invent any other payment method. As to the seller (if he has recorded actual amounts and the payment procedure in the contract), he can at delay in payment (even caused by force-majeure circumstances) to raise an issue of dissolution of a contract.”

Bankers also disapprove cash transactions and offer safe methods of settlements in real estate operations. “It can be clearing settlements by letter of credit –all participants of the transactions will be perfectly aware of the amount money to be transferred by the bank into the seller’s account after the closure, – explains Andrey Pimenov. – the Parties will not need to recalculate and check money before the transaction and to put them in a safety deposit box. The seller will take the money from bank cash desk, and the bank should give out this cash in any case. However, such model of settlements is not widely applied in practice. In my opinion, these events will induce both the buyer and the seller to revise their views of methods of payment”, – believes the banker.

For reference:

Monthly rental charge for an average-sized safety deposit box to make payments related to real estate transactions is about 2000 roubles. To establish a letter of credit (including all standard operations) one should pay 5000 roubles regardless of the amount.

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