Law

New Real Property Developer Act

New Real Property Developer Act

29 April 2022 marked ten years since the Act of 16 September 2011 on the Protection of the Rights of Buyers of Flats or Houses, commonly referred to as the Developer Act, entered into force. During these ten years, the Act has frequently been criticised. It was argued that its provisions were too general and far from precise. Over time, it has become clear that it requires amendments to ensure an adequate level of buyers' protection.

Listening to critical voices regarding the 2011 Developer Act, the Polish legislator proceeded to work on introducing a new law. As a result, the Act on the Protection of Rights of Buyers of Flats or Houses and the Developer Guarantee Fund was enacted on 20 May 2021. It will enter into force on 1 July 2022. The new Developer Act brings significant changes to protect buyers of residential premises better.

SCOPE OF APPLICATION OF THE NEW REAL PROPERTY DEVELOPER ACT

   The new Developer Act will apply both to developer contracts, i.e. those concluded before or during the execution of a development project, and those signed by the developer after the construction has been completed.  Additionally, the legislator provides that the new law will also apply to contracts concerning commercial premises if such agreement is concluded with the contract of sale of a flat or house. Also, the commercial premises must constitute part of the same project. These are the cases in which flats or houses are purchased together with shares in garages or storage rooms. In addition, some provisions of the 2021 Act will also apply to sales contracts of already constructed residential premises concluded by entrepreneurs other than developers, i.e. those who have purchased units from a developer to resell them to consumers. In this case, the new Act will include provisions concerning the reservation contract and acceptance of the acquired property.

RESERVATION CONTRACT

The old Developer Act did not contain provisions on the reservation agreement. This contract has evolved during business practices. In the absence of statutory regulation, developers virtually freely shaped the content of the reservation agreement. That undoubtedly posed a threat to the consumers' interests. Therefore, the legislator decided to introduce the institution of the reservation agreement to the new law.  Per the new regulation, the reservation contract's essence is to temporary exclude the selected flat or house from the sale offer. The reservation agreement should be executed in writing under pain of nullity.

Under the new Developer Act, any contract falling within its scope may be preceded by a reservation agreement. The reservation fee is not a mandatory element of the reservation contract. However, if the parties decide to include one, its amount must not exceed 1% of the price of the residential premises provided in the information prospectus.

PROTECTION OF BUYER'S PAYMENTS

The new Act only provides for two means of protecting the buyer's payments, i.e. open and closed escrow accounts. Before the developer starts selling the housing units, they should sign an open escrow account or a closed escrow account contract with a bank. The 2011 Act did not specify when the developer should open the escrow account. The escrow account contract should be signed for a single development project. However, if a development project has separate stages, each stage should have a separate escrow account.

The significant changes introduced by the new Act also include the developer's obligation to maintain the open escrow account until the last title has been transferred within the development project or its stage.

DEVELOPER GUARANTEE FUND

The new Developer Act also establishes a Developer Guarantee Fund (the "Fund"), a separate account within the Insurance Guarantee Fund.

The Fund's money will come from, among other things, developers' contributions. Such contribution will be calculated as a product of the percentage rate (specified by the competent Minister) and the value of the buyer's or developer's payment to the escrow account. Money accumulated in the Fund will be used, among other things, for reimbursement of buyers' payments to the open escrow account. It shall be paid if the buyer withdraws from the contract or, in case of the developer's bankruptcy,its trustee's withdrawal from the agreement. The creation of the Fund should be perceived positively. Undoubtedly, there was a need for a mechanism enabling the recovery of amounts paid by buyers on account of the price. However, on the other hand, it should be noted that the obligation to pay contributions to the Fund will increase the project's costs, which, as a result, may lead to growing prices of premises in the developer market.

Author: Marcin Witkowski, attorney-at-law, Chudzik i Wspólnicy Radcowie Prawni