As announced, starting today, we will be analyzing the subsequent provisions of the government's draft bill on the protection of the rights of purchasers of residential premises or single-family homes and on the Developer Guarantee Fund (hereinafter " Draft "). We previously wrote about the Bill and the proposed changes in Alert #40 . As we indicated, the proposed changes are not revolutionary, but they will have a significant impact on real estate development in Poland. Implementation of the draft bill in its current wording will strengthen the position of individual purchasers, expand the scope of regulated contracts, including reservation agreements, prioritize closed housing escrow accounts, and introduce the Developer Guarantee Fund.
The purpose of today's article is to introduce you to the changes regarding the reservation agreement.
Reservation agreement currently
The very high demand for apartments on the primary market means that contracts are being concluded for units that will be built in the future. In many cases, especially in attractively located developments, the apartment sales process begins so early that it is not yet possible to conclude a development agreement with the client. Sometimes (when the scope of the investment allows for such an agreement) it may be necessary to undertake appropriate preparatory steps, both on the part of the developer and the buyer.
In all these cases, the parties most often decide to enter into a reservation agreement , sometimes called a preliminary agreement or a letter of intent. Contrary to popular terminology, this is not a legally defined agreement. This agreement has been developed through practice and market requirements, and therefore constitutes an innominate agreement, meaning one that has not been explicitly regulated or designated by any legal act. In the event of interpretation issues, the provisions on mandates in the Civil Code apply accordingly.
The purpose of a reservation agreement is to obligate the developer not to offer a specific apartment or single-family home to other clients during a specified period. The reservation agreement may also include an obligation to conclude a development agreement and pay a reservation fee, which typically amounts to a maximum of several thousand złoty. The purpose of the reservation fee is to protect the developer's interests by discontinuing the search for buyers for the apartment or home. If the buyer withdraws, the developer may retain the fee, depending on the terms of the agreement.
The conclusion of a reservation agreement is therefore based on the principle of freedom of contract. This means that the content of the agreement depends primarily on the will of the parties deciding to enter into it.
It is precisely this discretion that the Office of Competition and Consumer Protection sees as a problem. As indicated in the justification for the Draft, "the lack of regulation in this area may constitute a potential source of threats to the buyer's interests. There is a risk of losing the money paid by the buyer in reservation fees, which may be significant."
There's no doubt that with high demand for apartments, the developer has a stronger position. Furthermore, it's noticeable that the parties don't attach much importance to the reservation agreement, treating it as something temporary and temporary, even though it impacts their existing obligations and generates certain financial liabilities.
Proposed changes
The Draft Act explicitly introduces the institution of so-called reservation agreements . Concluding such an agreement will be optional, and it will specify, in particular:
- parties, place and date of signing the contract;
- the price of the apartment or single-family house selected by the person making the reservation from the sales offer;
- the amount of the reservation fee referred to in Article 31 paragraph 1, if such a fee has been provided for by the parties;
- the period for which the apartment or single-family house selected by the reserving party will be excluded from the sales offer;
- determining the location of the residential premises in the building;
- determination of the usable area of a residential premises or single-family house, the area and layout of the rooms.
The subject of the reservation agreement will be the obligation of the developer or an entrepreneur other than the developer referred to in Article 4 of the Project to exclude from the sale offer, for the period specified in the agreement, the residential premises or single-family house selected by the reserving party.
If the person making the reservation applies for a loan, this time should include the period necessary for the person making the reservation to obtain a credit decision.
The optionally charged reservation fee may not exceed the amount corresponding to 1% of the price of the apartment or single-family house specified in the information prospectus and will be in the nature of a deposit included in the price.
The project also specifies situations in which the reservation fee will be refunded:
- the person making the reservation has not obtained a positive credit decision or a promise to grant credit,
- the developer or an entrepreneur other than the developer referred to in Article 4 of the Project fails to fulfil the obligation arising from the reservation agreement;
- the developer makes changes to the information prospectus or its annexes without informing the person making the reservation.
In situations other than those indicated above, the reservation fee will not be refunded.
Interestingly, the Draft introduces a contractual penalty for the developer. If the developer fails to fulfill their obligations under the reservation agreement, they will be obligated to refund double the reservation fee. This structure is therefore very similar to a deposit. The same will apply if the sales agreements referred to in Articles 3 and 4 were preceded by a reservation agreement, and the developer or a contractor other than the developer fails to remedy the defects reported in the acceptance protocol, and the buyer fails to sign the agreement transferring ownership of the property.
It's also worth noting that the proposed regulations link the reservation agreement to the information prospectus. This means that the prospectus should already exist at the time the reservation agreement is signed, whereas currently, the prospectus is often created later and sent before the development agreement is signed. We will analyze the issues related to the information prospectus in the draft next week.
Regarding the legislative process, the draft of the new development act has now passed its second reading in the Sejm. On April 15, another report from the Infrastructure Committee was prepared, and according to the planned agenda, the report on the draft's work is scheduled for a vote at today's Sejm session.
This alert is for informational purposes only and does not constitute legal advice.
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