In today's alert, we analyze further 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"). This time, we will indicate which provisions will be required in preliminary agreements to which the provisions of the New Developer Act will apply.

First, however, we're sharing the latest information regarding the legislative process. The new Development Act was debated in the Senate last week. On May 13, 2021, it was passed with amendments, including a reduction in the DFG contribution to 1% for open escrow accounts and to 0.1% for closed escrow accounts. Furthermore, the amendments stipulate that the DFG contribution would only be collected upon the first contract for a given unit. The Senate also voted to remove certain bank obligations related to verifying the developer's standing (regarding payment of all taxes and subcontractor liabilities). We would like to congratulate the Polish Association of Developers, thanks to which these changes were implemented.

Moving on to today's topic, the very title of Chapter 6, "Development Agreement and Other Agreements Concluded Between the Buyer and the Developer, the Purpose of Which is to Transfer Ownership of a Residential Unit or Single-Family Home, " leaves no doubt that the scope of the New Development Act's regulations has been expanded compared to the existing Act. We've already mentioned these "other agreements" several times in our articles, and they can be divided into two basic categories:

1. contracts with binding effect – i.e. contracts in which the developer undertakes to transfer ownership rights to a flat or a single-family house, which we will call " preliminary contracts under the Developer Act ";
2. Contracts with binding and dispositive effect – i.e., sales agreements that transfer ownership of residential premises (individually or together with commercial premises) from a developer or other entrepreneur to the buyers for the first time. We'll discuss this category of contracts next week.

Preliminary agreements under the Developer Act can be further divided into two subcategories based on their subject matter, i.e.: (a) residential premises/single-family house or (b) commercial premises or a share related to such commercial premises.

Preliminary agreements under the Developer Act covering a residential unit or single-family home differ from a developer agreement in that they are concluded after the development project has been completed and an occupancy permit has been obtained . These agreements will therefore be concluded between the buyer and the developer, in which the developer commits to, among other things:

1. establishing separate ownership of a residential premises and transferring ownership of this premises and the rights necessary to use this premises to the purchaser;
2. transferring ownership of the residential premises and the rights necessary to use the premises to the buyer;
3. transfer to the buyer the ownership of a real estate with a single-family house or the perpetual usufruct of a land property and the ownership of a single-family house situated on it, constituting a separate real estate, or transfer of a fractional part of the ownership of this real estate together with the right to exclusive use of a part of the real estate used to meet housing needs.

Currently, such agreements are concluded as preliminary agreements based on the provisions of the Civil Code, and after the entry into force of the New Development Act, they will have to contain the mandatory elements listed in Art. 35. It should be noted that, as in the case of a development agreement, this is not an exhaustive list and such agreements should include in particular: i) the identification of the parties, place and date of conclusion of the agreement, ii) the purchase price of the rights arising from the agreement, iii) the developer's obligation to establish or transfer the rights referred to in points 1)-3) above, iv) the buyer's obligation to fulfil the monetary obligation arising from the agreement, v) the date of transferring the rights arising from the agreement to the buyer and the date the decision on the occupancy permit becomes final and, if this decision is not issued, the indication of the date on which the deadline for filing an objection by the building supervision authority to notify of the completion of construction expired, vi) the date of issue of the certificate of independence of the premises and the date of establishing separate ownership of the premises (if it concerns the premises), (vii) the date of establishing separate ownership of the premises if the premises have already been separated.

Furthermore, the preliminary agreement under the Development Act will be required to include appropriate elements of the development agreement regarding the description of the development project, permits, completion dates, the building and premises (description, usable area, and measurements), escrow accounts, bank consent for an unencumbered sale, a reservation agreement, and an information prospectus. Provisions regarding withdrawal and the amount of interest and contractual penalties will also apply.

The second subcategory includes preliminary agreements under the Developer Act, which cover commercial premises or a fractional share in ownership of commercial premises (e.g., garages, bicycle storage units, or storage units, if they constitute separate premises), if such an agreement is entered into concurrently with a development agreement or preliminary agreements under the Developer Act regarding residential premises/single-family homes. The drafter indicates that the condition is also "that the commercial premises be located within the same development project or investment project as the purchased residential premises or single-family home." This subcategory therefore includes agreements in which the developer commits to:

1. construction of a building and transfer of ownership of the commercial premises, or
2. transfer of ownership of commercial premises, or
3. construction of a building and transfer of a fractional part of the ownership of the commercial premises, or
4. transfer of a fractional part of ownership of a commercial premises.

The above agreements differ from a development agreement in their subject matter, namely that they concern commercial premises or a share therein, not residential premises. Preliminary agreements under the Development Act, indicated in points 1) and 3), will be concluded before the building is approved for occupancy, while those in points 2) and 4) will be concluded after approval.

The elements that must be included in agreements in the second subcategory are specified in Article 34, section 4 of the New Developers Act. It lists, in particular, the following elements: i) identification of the parties, place and date of conclusion of the agreement; ii) the price for acquiring the right arising from the agreement; iii) identification of the location and essential features of the commercial premises that are the subject of the agreement; iv) identification of the area of ​​the commercial premises and the standard of finishing work which the developer undertakes to perform; v) the date of transfer of the right arising from the agreement to the buyer; vi) the buyer’s obligation to fulfil the monetary performance arising from the agreement; vii) the amount, dates and method of making payments to the housing escrow account; viii) date and method of notifying the buyer of the acceptance of the commercial premises and the date of acceptance of the commercial premises; ix) information on the consent to the unencumbered transfer of the share or the obligation to grant it; x) the developer’s obligation to transfer the rights referred to in items 1)-4) above; xi) provisions regarding development agreements regarding information about the property and premises, measures to protect the buyer’s payments, interest and contractual penalties, the method of measuring the usable area and confirmation of receipt of the information prospectus.

In the justification, the drafter explicitly indicates that agreements from the second subcategory may be included in one document with development agreements or agreements from the first subcategory, so there will be no need to repeat common elements for these categories of agreements.

Like development agreements, preliminary agreements under the Development Act must be concluded in the form of a notarial deed. Furthermore, if reservation agreements are concluded before the actual conclusion of the agreement, the provisions on reservation agreements set out in the New Development Act (we wrote about them in #47) must be applied.

In summary, it should be remembered that, pursuant to Article 41 of the New Development Act, if contractual provisions are less favorable to buyers than the provisions of the Act, such provisions will be invalid, and the relevant provisions of the New Development Act will apply in their place. This means that prior to the sale of investments commenced after the New Development Act comes into force, draft agreements will require detailed review for compliance.

Next week we will want to present to you which provisions of the New Development Act will also apply to contracts for the sale of residential premises, depending on whether the seller is a developer or another entrepreneur.

In just two weeks, we'll be celebrating the first year of our "Tuesday Mornings for Construction" series. We'd like to thank all the authors who contributed to this compendium of knowledge about construction law and other laws regulating the real estate market in Poland . Starting today, we'll be publishing thank-yous to individual authors over the coming weeks.

We invite you to revisit all previous "Mornings" at www.porankidlabudowlanki.pl

This alert is for informational purposes only and does not constitute legal advice.

Dr. Joanna Barzykowska

Attorney, partner
+48 502 677 504 | j.barzykowska@kglegal.pl

Paweł Kopytowski

Trainee attorney
+48 22 856 36 60 | p.kopytowski@kglegal.pl