Today's alert addresses the possibility of changing the price of residential premises in development agreements with consumers. Contract provisions allowing for price changes have been the subject of scrutiny by the President of the Office of Competition and Consumer Protection ("UOKiK"), who has frequently deemed such provisions unlawful . Currently, in our practice, we encounter two situations where the parties allow for price changes: (i) changes in the floor area of the premises resulting from the as-built survey, and (ii) changes in the value added tax (VAT) rate. We are increasingly hearing questions about the possibility of introducing price adjustment provisions due to high inflation, increases in the minimum wage, or rising prices of materials and services in the construction market. We analyze each of these circumstances below.
The possibility of price changes resulting from changes in the floor area of a residential unit is based on the fact that even a perfectly planned and designed development project does not guarantee full compliance with the construction documentation. This stems from the very nature of such investments, where, given the scale of the project, it is very rare to complete the building in full compliance with the construction design. Consequently, the final floor area of the unit may be larger or smaller than the one designed and agreed upon in the development agreement. Consequently, it is advisable to clearly define in the development agreement solutions that allow for price flexibility in the event of a change in the floor area of the unit. Such provisions typically shape the mutual rights and obligations of the parties to the development agreement by requiring the consumer to pay an additional fee to the developer if they benefit from the change in the floor area of the unit, while in situations where the floor area of the unit is smaller, the developer is obligated to refund the portion of the price already paid by the consumer.
Court case law indicates that provisions of a standard contract that stipulate the final price of the premises based on their actual area, which is determined after the investment is completed, cannot be deemed to grossly violate the consumer's interests . However, such a provision should include the consumer's right to withdraw from the contract to ensure that their interests are not violated due to uncertainty regarding the final contract costs (see, among others, Supreme Court judgment of September 12, 2014, I CSK 624/13, and judgment of the Administrative Court in Warsaw of June 24, 2015, file reference VI ACa 1885/14).
Additionally, such a provision cannot assume arbitrariness regarding final changes to the surface area of the premises. Court case law has established a margin of tolerance within which a development agreement is deemed properly executed. This margin is +/- 2% of the difference between the surface area of the premises specified in the development agreement and the actual surface area. In the event of a larger difference, the consumer should have the full right to withdraw from the development agreement and receive a full refund of the paid price.
Another factor prompting the introduction of provisions that adjust the price of a property is a change in the VAT rate. The implementation of a development project is spread over time, sometimes even over several years, and therefore there is a risk of changes in the VAT rate during the project, which is completely beyond the control of the parties to the development agreement.
Similarly to price adjustments due to changes in the floor area of the premises, court case law also allows the use of provisions in development agreements allowing for the possibility of changing the price of the premises due to changes in the VAT rate, provided that the economic risk associated with this rate does not rest solely with the consumer . In practice, these provisions should allow for price adjustments both when the VAT rate increases and when it decreases. A different provision, i.e., one that only reserves the possibility of increasing the price for the premises due to an increase in the VAT rate, constitutes an unlawful contractual provision (see the judgment of the Court of Competition and Consumer Protection in its judgment of 10 March 2010, file reference XVII AmC 1161/09). Such a provision must also necessarily provide the consumer with the right to withdraw from the development agreement in the event of a change in the VAT rate.
The above provisions, which reserve the developer's right to adjust the price of a unit, are typical and widespread in the market. However, given the current economic situation, particularly rising inflation and the rising prices of construction materials and services, questions arise regarding the possibility of introducing additional provisions of an indexation nature in contracts concluded with consumers . It is already not uncommon for contractors to be unable to estimate final construction costs precisely due to the significant fluctuations in the construction materials market. This leads to the desire to introduce indexation clauses, allowing for the indexation of remuneration in concluded construction contracts, which will also have a direct impact on the prices of units accepted by developers for the purposes of development agreements.
It seems that in such a case, developers will have arguments justifying the inclusion of such indexation clauses in development agreements. Case law indicates that an agreement may provide for indexation of performance as long as it is based on objective factors, and as long as the mechanism works both ways and is independent of the developer's subjective decision (judgment of the Court of Appeal in Warsaw of 3 September 2015, file reference VI ACa 830/15).
It's therefore important to remember that indexation clauses should be clear, legible, and equitable to both parties . This means allowing for both price increases and price reductions in specific cases, based on objective data. This could include, for example, data published by the Central Statistical Office, such as the Construction and Assembly Production Price Index.
An additional safeguard for the developer against potential allegations of using prohibited contractual clauses could be the introduction of a limit above which the price will not change . It seems that the change should not exceed +/- 5% – such a limit allows the consumer to estimate the potential maximum price of the property at the time of entering into the development agreement. Furthermore, to minimize the risk of such a clause being deemed prohibited, it is important to ensure that the consumer has the option to withdraw from the agreement if the circumstances specified in the indexation clause arise.
In summary, including provisions in a development agreement that provide for price adjustments based on objective factors such as changes in the area after the as-built survey, changes in VAT rates, or changes in prices and services in the construction industry does not automatically mean that the developer is using prohibited clauses . However, these clauses are often subject to review by the President of the Office of Competition and Consumer Protection (UOKiK), so it is important that such provisions clearly define the rights and obligations of the parties and, as a rule, grant the consumer the right to withdraw from the development agreement, particularly in the event of a price increase.
Next week we will be focusing on the issue of the burden of proof in proceedings before the President of the Office of Competition and Consumer Protection and at the stage of court proceedings.
This article is for informational purposes only and does not constitute legal advice.
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