Changes in regulations on the housing buyers’ safety

On May 20, 2021, the Parliament passed an act on the protection of rights of buyers of residential premises or single-family homes and on a Developer Guarantee Fund prepared by the President of the Office of Competition and Consumer Protection. This is an amendment to so-called Development Act which came into force on April 29, 2012.

New regulations introduce a number of changes aimed, among others, at improving the security of legal transactions of real estate and eliminating the risk of loss of payments to escrow accounts by purchasers of new apartments. In addition, the Act defines new rules, as well as procedure and content of concluding a developer agreement and other agreements concluded between the buyer and the developer aimed at transferring the property ownership right, as well as rights and obligations of the parties to the above-mentioned documents. The key change is the establishment of a Developer Guarantee Fund, the purpose of which is to increase the protection of people buying apartments from the primary market in case of bankruptcy of a developer company.

The Act imposes an obligation on the developer to provide the property buyer with the construction documentation, schedule of works, information prospectus and documentation of the developers’ legal and financial situation before concluding the agreement.

The amendment introduces a maximum reservation fee of 1% of the value of the property specified in the prospectus for the preliminary contract for premises (reservation agreement). Currently, each developer decide on the amount of the aforementioned fee. The amount paid by the customer is credited against the value of the apartment once the developer agreement is signed. If customer does not get a mortgage loan, the reservation fee will be refunded, but if buyer resigns of the property purchase, the amount paid will be lost. In case it is the developer that withdraws from the signed reservation agreement, the customer will receive the double amount previously paid.

The Act obliges the developer to provide an information prospectus to the apartment buyer and defines what information it should contain. Previously, such a prospectus was available at the request of a person interested in concluding a developer agreement. In the event of irregularities or deficiencies in the agreement or the prospectus, the purchaser will have the right to withdraw from the contract.

The new regulations will enable real estate buyers to withdraw from the agreement in case of significant defects of the subject of the contract discovered both during the transfer of the property and those that became apparent after signing of the property handover protocol until the date of transferring the ownership title to the real estate.

The procedure of commissioning the real estate has been clarified, together with consequences of failure to remove defects within the time limit set by the buyer. In matters of dispute, the purchaser of the property may request an opinion of a building surveyor to confirm the existence of defects. A novelty is the possibility for the buyer to withdraw from the agreement in the event of failure to transfer the ownership right to the buyer on time.

In compliance with the provisions of the Act, Developer Guarantee Fund (DGF) will be established to provide financial protection to apartment buyers in the event of bankruptcy of a developer or a bank. The tasks of the DGF will include collecting data on investments, developers, banks running escrow accounts and buyers, as well as accepting payment contributions from developers. Furthermore, DFG will be responsible for payment of due benefits to purchasers and pursuing claims against the developer or bank for reimbursement of funds paid to the purchaser.

Under the current regulations, real estate developers are obliged to collect payments from apartment buyers in banks at closed or open escrow accounts. In case of closed accounts, the bank disburses the accumulated funds to the developer after the property is transferred to the buyer. Open accounts, which are prevalent on the market, allow funds to be gradually transferred to developers in tranches according to the progress of the development project. If the developer goes bankrupt, this puts the buyer at risk of losing both the funds and the property.

The Act introduces the bank’s obligation to verify whether the developer is not in arrears with taxes, social security contributions, payments to contractors and subcontractors, as well as to check whether the DGF contributions are paid in the right amount before transferring the money from the escrow accounts to the developer. In case of financial trouble or bankruptcy of the developer company, the funds transferred by the bank will be secured in the Developer Guarantee Fund, from which in emergency situations the funds paid for the purchase of the apartment by the buyer will be returned. Moreover, in case of bankruptcy, the DGF will pay out money above the amount guaranteed by the Bank Guarantee Fund.

The Developer Guarantee Fund will be financed by contributions paid by developers to secure the money paid in by the customers. The amount of the rates will be determined by the minister competent for construction, planning and spatial development and housing, and their maximum amount shall not exceed 1% for an open escrow account or 0.1% for a closed escrow account.

Regulations introduced by the Act are to ensure security of legal transactions in real estate and to eliminate the risk of purchasers’ financial loss . The proposed solutions will oblige not only developers to incur additional costs, connected with paying contributions to DGF, but also banks, which will be obliged, among others, to invest in new IT systems compliant with the Act requirements. The costs of the real estate industry and the banking sector associated with the implementation of the Act’s provisions may be consequently passed on to buyers through an increase in property prices and mortgage loan costs.

Currently, the amendment is awaiting the President’s signature. The regulations will be effective 12 months after publication in the Journal of Laws, except for some articles which will enter into force on other dates. The application of the regulations in practice will verify whether the introduced changes significantly influence the safety of real estate trading and increase of prices on housing market.

Marta Polkowska
SARFiN System Data Administrator
Senior Maintenance and Development Specialist