Another month has passed, so on the first Tuesday in June we should prepare for you a summary of changes in the law in May and June - and (in our subjective opinion, of course) nothing is more urgent now than the end of the transitional period for the application of the Act of 16 September 2011 on the protection of the rights of purchasers of residential premises or single-family houses ("old developer act"), which ends on 1 July 2024 and is a very big change.
For many developers, the transitional provisions of the Act of 20 May 2021 on the protection of the rights of purchasers of residential premises or single-family houses and on the Developer Guarantee Fund ("new Developer Act") are still unclear and we receive many inquiries in this respect, hence we decided to write about two important issues related to the continuation of development projects or investment tasks after 1 July 2024.
First of all, we invite you to read our articles in which we analyzed the changes introduced by the new Development Act in 2021, and to contact us directly, as this is how we could best advise you on implementing the new Development Act in your organizations.
Moreover, at this point we would like to thank the Polish Association of Developers and the Polish Bank Association, which, by submitting inquiries to the President of the Office of Competition and Consumer Protection (UOKiK), obtained answers, the conclusions of which we would like to present to you today.
Contribution to the DFG
The legislature's primary objective in adopting the new Development Act was to provide buyers with the greatest possible protection, including with respect to funds deposited into escrow accounts. This formed the basis for the creation of the Developer Guarantee Fund ("DFG"), whose primary purpose is to refund funds deposited by buyers towards the purchase price in the event of the developer's or bank's bankruptcy (we wrote more about the scope of DFG protection here ). To achieve this protection, developers are required to make timely payments to the DFG, depending on the chosen protection measure, either an open or closed escrow account.
The contribution is the product of the percentage rate specified in the regulation referred to in Article 49, Section 8 of the new Development Act, and the value of the payment made by the buyer into the housing escrow account. This regulation regarding the percentage rates used to calculate the contribution to the Developer Guarantee Fund was signed by the Minister of Development and Technology on June 21, 2022, and entered into force on July 1, 2022.
Meanwhile, Article 49, Section 6 of the new Development Act stipulates that the DFG contribution is calculated according to the percentage rate applicable on the date of commencement of sales of residential units or single-family homes as part of a given development project or investment project. However, at the time of commencement of sales of residential units in development projects or investment projects that took place before July 1, 2022, no regulation specifying the rate was in force.
Therefore, for development projects or investment projects in which sales commenced before 1 July 2022, and in which development agreements or binding agreements referred to in Art. 2 paragraph 1 points 2 and 3 of the new Development Act will continue to be concluded from 2 July 2024, the percentage rate according to which the DFG contribution amount is calculated will be 0%. It is worth emphasizing, however, that regardless of the fact that the contribution will not actually be paid, buyers will be protected by the DFG system, and developers will still be obliged to fulfill their obligations to submit data to the DFG register.
The President of the Office of Competition and Consumer Protection (UOKiK) noted this loophole and requested that the relevant minister amend the regulations. However, no draft proposal for such changes has been presented to date. The President of the UOKiK also holds the legislative initiative in this regard, and it is possible that amendments to the regulations will be introduced in this regard.
Escrow accounts for investments under the "old" and "new" rules
The transitional provisions in the new Development Act are short and very vague. Therefore, another legal loophole that sparked much debate was the issue of what should be done with escrow accounts for development projects or investment projects that were partially completed under the old Development Act but will continue after July 1, 2024.
Article 78, section 1 of the new Development Act, which states that "the existing provisions and the provisions of Article 10, sections 1–3 and Article 11 of this Act shall apply to agreements on maintaining a housing escrow account referred to in Article 5 of the Act repealed in Article 80 [i.e. the old Development Act – note by JB]" does not provide an answer to this question.
Therefore, the Polish Bank Association submitted this inquiry to the Office of Competition and Consumer Protection (UOKiK). In response, UOKiK indicated that it favors a solution whereby, for the purposes of further investment implementation after July 1, 2024, developers should enter into new escrow account agreements with banks, consistent with the new Development Act . In practice, this means that two escrow accounts will be maintained for such investments.
Although the Office of Competition and Consumer Protection (UOKiK) has no legal basis for issuing binding interpretations of the law, it presented its position as the drafter of the new development act, and it was accepted by the banks. This isn't a perfect solution, as it should be explicitly stipulated in the regulations, but at least it avoids a situation in which developers would be forced to withhold signing agreements with buyers simply because it's unclear which escrow account the price should be deposited into.
The issues described above are just two of many that continue to concern residential developers. We also see the need for up-to-date information based on the attendance and active participation of participants in the training sessions we conduct, both with the Polish Association of Developers and for individual developers. Therefore, we encourage you to contact us and remind you that less than a month remains until sales are brought into compliance with the new Development Act for all development investments in the residential market.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of June 3, 2024
author/editor of the series:
