In today's 50th alert in the "Mornings for Construction Professionals" series, we analyze the latest provisions of the Act on the Protection of the Rights of Purchasers of Residential Units or Single-Family Homes and on the Developer Guarantee Fund ("New Developer Act"), adopted by the Sejm. This time, we'll highlight the changes that will be introduced in development agreements.
The form remains unchanged: the development agreement will still have to be concluded in the form of a notarial deed. The provisions regarding costs, which will continue to be borne equally by the parties, also remain unchanged.
The mandatory elements of a development agreement are listed in Article 34, Section 1 of the New Development Act. This list is open-ended (i.e., it does not list all the elements that can be regulated in the agreement, only those necessary) and is similar to the current one. However, there are several key differences.
First, points 6) and 15) of the aforementioned article require that the development agreement include "a specification of the usable area of the residential unit or single-family home" and "an indication of the method of measuring the usable area of the residential unit or single-family home." Compared to the current regulations, the legislator explicitly states that they mean usable area, meaning the method of measurement specified in the law. The current development act, however, refers only to "area."
Secondly, the legislator explicitly states that the development agreement will have to include "the buyer's obligation to fulfil the monetary performance resulting from the development agreement" (point 8) of the New Development Act). In practice, such obligations were included in the agreements, so it does not seem to be a significant change.
Thirdly, there's the planned introduction of the Developer Guarantee Fund (DFG). Clause 10 states that the development agreement will include "information regarding the calculation and transfer of contributions to the Developer Guarantee Fund." This change will significantly impact the implementation of the investment, and we'll be exploring the DFG issue for you in a separate article, so we encourage you to follow our series.
Another mandatory new element of the development agreement will be "information about the conclusion of a reservation agreement and the amount of the reservation fee, or the lack of such an agreement" (item 20). We have already written about reservation agreements, so we encourage you to read alerts #48 and #49.
It's also worth noting several additions the legislator has made to the list of essential elements of a development agreement. In cases where construction is based on a construction notification, as referred to in Article 29, Section 1, Item 1 of the Construction Law, the Act explicitly stipulates that the agreement must include the notification number and the designation of the authority to which the notification was submitted, along with information that that authority has not filed an objection (Item 11)
In turn, it seems that the legislator allows for the possibility that the development agreement will not specify the amount of interest and contractual penalties for the parties to the development agreement by adding the phrase "if the parties have so provided" in point 14. However, it is important to remember Article 38, Section 2 of the New Development Act, which states that in cases where the agreement does not provide for contractual penalties or interest, the developer will be obligated to pay the buyer compensation for non-performance or improper performance of the agreement in an amount corresponding to the statutory interest rate to which the developer is entitled for the buyer's delay in fulfilling the monetary obligation arising from the given agreement.
According to point 17), in addition to the date and method of notifying the buyer of the acceptance, the development agreement should also specify the "acceptance date of the residential premises or single-family home." In practice, many developers have specified such a final acceptance date in their previous agreements, so this point of the New Development Act does not introduce a revolutionary change either.
Despite the application of the Act of July 20, 2018, on the Transformation of the Right of Perpetual Usufruct of Land Developed for Housing Purposes into Ownership of Such Land, the legislator retained the developer's obligation in Section 19 to "transfer to the purchaser of perpetual usufruct of the land and ownership of the single-family home constituting a separate real estate." However, upon obtaining a building permit or filing a notice of occupancy (where a building permit was not required), the right of usufruct of the land under the single-family home is transformed into ownership. Therefore, as a rule, the developer should transfer ownership, not the right of perpetual usufruct of the land.
In summary, it should be noted that the absence of any of the elements of a development agreement specified in Article 34 of the New Development Act gives the buyer the right to withdraw from the agreement under Article 42, Section 1, Item 1). As before, the buyer has 30 days from the date of conclusion of the development agreement to do so. It is therefore important to remember that, once the Act comes into force, existing development agreements will require modification.
At the same time, we would like to remind you that the New Development Act will also apply to commercial premises if such an agreement is concluded together with an agreement concerning a residential premises or house, i.e., parking spaces or storage units in garages, as well as to residential premises and houses that have already been completed and put into use. Therefore, next week we will indicate which provisions will be required in other agreements covered by the New Development Act.
This alert is for informational purposes only and does not constitute legal advice.
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