Legal Alert - 17/2011Act introducing uniform rules on apartment sales and additional protection for purchasers |
The Act on protection of purchasers of residential premises or single-family houses dated 16 September 2011 provides a number of measures aimed at reducing the risks attendant upon purchasing housing from property developing companies. The amendments will become effective in the second half of April 2012, but it is worthwhile to have a closer look at the principles underlying the Act now.
The Act is aimed to systematize and regulate the relations between property developers and clients by laying down the conditions of apartment purchases. The legislator sets up a fairly strict supervision regime regarding the funds entrusted by purchasers to property developing companies by introducing an obligation to make the purchase-related payments to a special trust account kept with a bank. The bank is to make payments to the property developer based on the progress of the construction work. According to the strictest of the variants provided for in the Act, the payment should be made to the property developer only upon signing the final agreement to transfer the apartment ownership – then the trust account becomes closed.
The bank plays a very significant role under the new legislation - prior to paying the funds accumulated on the trust account it inspects the completion of each stage of the property development project against the schedule. Then, if specific milestones set in the project schedule are reached, the bank pays out successive instalments.
Banks are sure to benefit from the introduction of the new regulations. Beginning from the effective date of the Act, they will be able to put the purchasers’ money to profit – in the past such funds used to be employed by property developing companies to finance the construction works. Thousands of trust accounts will be opened and property developers will need to pay the due fees. Banks will also profit from the technical and accounting supervision of investments the costs of which will be transferred to the developers. They will scrupulously monitor the developers’ accounts in the scope of investment expenditures and the realisation of the investment will be subject to supervision as well.
As far as the property developer contract goes, an obligatory requirement of the form of a notary’s act is imposed with respect to preliminary contracts. This requirement is crucial in situations where the seller evades signing the promised contract. The purchaser may demand that the seller should make a declaration of intent before the Court concerning transfer of the real property title to the purchaser. In this way the legislator wants to eliminate the possibility of executing an ordinary preliminary contract in writing which does not permit recording the ensuing claims into the land and mortgage register kept for the real property regarding which the investment is carried out.
The Act also puts property developers under an obligation to make a collateral security in addition to the trust account. Developers must provide a bank guarantee or an insurance guarantee to protect the clients who buy apartments that have not been constructed yet against the developers’ bankruptcy. In the case of bankruptcy, the Act stipulates that the developer is obliged to guarantee payment of the funds needed to finalise the investment. Interestingly, the client is allowed to withdraw from the concluded contract, for instance when the property developing company is late with placing the property into service or if the information provided for in the Act is not included in the information prospectus. Property developing companies are also under an obligation to keep a Factsheet (Arkusz Informacyjny) with detailed information about the risks linked with the investment.
