Client Alerts
New hurdles for consumers buying real estate?
For that reason the initial Developers Act required developers to conclude development agreements in the form of notarial deeds and disclose purchaser title claims in the land and mortgage register. Consumers were thus able to enforce title acquisition and become secured creditors in developer bankruptcies so that funds obtained from the sale of the real property at issue would be primarily refunded to purchasers. Even more importantly, as a rule, developers have been obliged to keep any payments made by consumers in separate escrow accounts of two types – closed and open. Funds collected in closed accounts are kept by the bank until the investment is completed and title is transferred to the customer. Funds collected in open accounts are partially released to the developer as construction phases are completed.
According to a 2014 study by the Polish government, the Developers Act has achieved much of its goal. However, according to some developers, the formal requirements associated with the Developers Act tend to extend sale procedures and make it more difficult for smaller entrepreneurs, in particular, to enter and succeed in the market – although it should be noted that it seems that no significant bankruptcies have been attributable to the more rigorous requirements of the Developers Act. The study did find at least one significant shortcoming in the current law in that it does not sufficiently protect consumers against the potential insolvency of the escrow bank.
A number of consumer oriented proposals to amend the Developers Act are currently taking shape that may, if they result in legislation, significantly affect the market.
It should be noted that there has already been one very recent amendment (effective at the end of 2016) which provides that every consumer signing a development agreement is secured by the Polish Bank Security Fund up to EUR 100,000. Under prior law such amount was only available to the developer.
A widely discussed proposal is the elimination of open escrow accounts that are not accompanied by a developer provided bank or insurance company guaranty. Supporters of the change emphasize that an open account does not adequately protect the consumer throughout the whole process and that, having completed initial stages and drawing down significant amounts of the escrow, the developer may then become insolvent or fail to complete the project for other reasons. However, many developers assert that financing stages of the construction works from open accounts is part of their business model, particularly smaller developers, and the practice is essential for their market survival.
Proposed amendments would give greater control over escrow accounts to banks enabling them to supervise the progress of the construction. Additional payments would also be covered, including so-called "reservation fees" which are paid before a development agreement is signed.
Under current law developers generally take the position that the Developers Act does not apply to a finished building or apartment. However, because a consumer may need protection against a developer becoming insolvent even at very last stages of a project, proposed amendments would make the Developers Act applicable to more accomplished projects, including those having an occupancy permit in place.
Under proposed amendments a failure to comply with the obligations under the Developers Act will result in imposing sanctions on developers. That is important because developers do not currently bear such consequences for non-compliance.
Although the proposed amendments to the Developers Act are still taking shape, to date they all seem well thought out and strike a reasonable balance between the interests of consumers, developers and the overall health of the residential market in Poland. The Consumer Protection Office should be taking the next steps in the legislative process within the next few months but it is currently impossible to predict exactly when the Developers Act will in fact be amended. However, it does seem very likely that it will be amended and, if the amendments follow the current proposals, primary market transactions should become more secure and entrepreneurs should not be excessively burdened by additional requirements on their businesses.
According to a 2014 study by the Polish government, the Developers Act has achieved much of its goal. However, according to some developers, the formal requirements associated with the Developers Act tend to extend sale procedures and make it more difficult for smaller entrepreneurs, in particular, to enter and succeed in the market – although it should be noted that it seems that no significant bankruptcies have been attributable to the more rigorous requirements of the Developers Act. The study did find at least one significant shortcoming in the current law in that it does not sufficiently protect consumers against the potential insolvency of the escrow bank.
A number of consumer oriented proposals to amend the Developers Act are currently taking shape that may, if they result in legislation, significantly affect the market.
It should be noted that there has already been one very recent amendment (effective at the end of 2016) which provides that every consumer signing a development agreement is secured by the Polish Bank Security Fund up to EUR 100,000. Under prior law such amount was only available to the developer.
A widely discussed proposal is the elimination of open escrow accounts that are not accompanied by a developer provided bank or insurance company guaranty. Supporters of the change emphasize that an open account does not adequately protect the consumer throughout the whole process and that, having completed initial stages and drawing down significant amounts of the escrow, the developer may then become insolvent or fail to complete the project for other reasons. However, many developers assert that financing stages of the construction works from open accounts is part of their business model, particularly smaller developers, and the practice is essential for their market survival.
Proposed amendments would give greater control over escrow accounts to banks enabling them to supervise the progress of the construction. Additional payments would also be covered, including so-called "reservation fees" which are paid before a development agreement is signed.
Under current law developers generally take the position that the Developers Act does not apply to a finished building or apartment. However, because a consumer may need protection against a developer becoming insolvent even at very last stages of a project, proposed amendments would make the Developers Act applicable to more accomplished projects, including those having an occupancy permit in place.
Under proposed amendments a failure to comply with the obligations under the Developers Act will result in imposing sanctions on developers. That is important because developers do not currently bear such consequences for non-compliance.
Although the proposed amendments to the Developers Act are still taking shape, to date they all seem well thought out and strike a reasonable balance between the interests of consumers, developers and the overall health of the residential market in Poland. The Consumer Protection Office should be taking the next steps in the legislative process within the next few months but it is currently impossible to predict exactly when the Developers Act will in fact be amended. However, it does seem very likely that it will be amended and, if the amendments follow the current proposals, primary market transactions should become more secure and entrepreneurs should not be excessively burdened by additional requirements on their businesses.
