The Act on protection of the rights of the purchaser of a residential premises or a single-family house
What is the amendment?
REal Knowledge –about the Polish real estate market 3/ 2021
On 1 July 2022, an amendment to the Act on the Protection of the Rights of the Purchaser of a Residential Premises or Single-Family House came into force.
According to its justification, the amendment should result in:
- improving the effectiveness of the protection of purchasers of a dwelling or a single-family house;
- strengthen the security of legal transactions;
- favorable approach of professional entities to the amended rules governing the trade in this type of real estate industry.
- The solutions are to be aimed primarily at eliminating the risk of loss by purchasers of funds deposited on housing escrow accounts, which is to be achieved primarily through the creation of a Developers’ Guarantee Fund.
- The developer will be required to provide funds representing a percentage of the deposit made by the purchaser of the property (which should not be higher than 1 % in the case of an open-ended escrow accounts and 0.1% in the case of a closed-ended escrow-accounts). The actual rate will be determined by the relevant governmental regulation.
- Another important change is the resolving of uncertainties regarding the scope of application of the purchaser protection. The Act will apply to each agreement concluded by a development company with a purchaser, in which the development company undertakes to build a residential premises or a house and establish the separate ownership right, to meet the requirements of the construction law regarding legal use of the real property and to transfer the ownership right to the residential premises or the house. Thus, also in the case of agreements concluded after the completion of construction and before obtaining the occupancy permit for the building (or completion of an equivalent procedure under the construction law).
- In the amended "Development Act" we will also find regulation of the issues related to conclusion of a reservation agreement, which so far has not been subject to statutory regulation. The reservation agreement will be able to precede each of the agreements covered by the Act. The reservation fee will not exceed 1% of the transaction price specified in the information prospectus. This fee will not be paid into an escrow account. The reservation fee will be returned in strictly defined cases, which include:
- failure of the reserving party to obtain a loan due to negative creditworthiness assessment;
- failure of the developer to fulfil the obligation to temporarily exclude the reserved unit from the sales offer;
- changes made by the developer to the prospectus or its attachments without informing the reserving party about it.
- An important issue is the fact that, pursuant to the Act, the reservation fee will not be returned if the reserving party resigns from concluding the development agreement, which is to protect the developer against possible abuse by reserving parties.
- It should be underlined that in view of the amended Act the subject matter of the transactions should be exclusively real properties in a state free of encumbrances and rights and claims of persons disclosed in the land and mortgage register. This means that the ownership right may be transferred to a purchaser in a free state with the exception of encumbrances to which the purchaser has agreed.
- Therefore, the changes will also concern the issues connected with providing the information prospectus. At present, the Development Act indicates that the developer provides the purchaser with the information prospectus upon request of the interested party. After the amendment, providing the information prospectus to the purchaser will constitute the investor's obligation. Therefore, the prospectus and its attachments will have to be provided even before the conclusion of the reservation agreement.
- Subject of clarification was also the procedure for delivery acceptance of the unit. The purchaser will not only have the right to report defects, but will also be given the opportunity to refuse to conclude the agreement transferring an ownership. The Act allows the purchaser to refuse the acceptance if he finds that the property has a material defect and at the same time the developer refuses to record such defect in the protocol. If the developer acknowledges the material defect in the protocol, but does not remove it, the buyer may withdraw from the contract. It may also happen that the purchaser, upon the second inspection, finds that the defect has not been removed. In this case, he will have to prepare a request for an opinion from a building surveyor. If the expert determines the existence of a material defect, the cost of the opinion will be charged to the developer and the buyer will be able to withdraw from the agreement. If there is no material defect, the purchaser will have to bear the cost of the opinion. If the sale agreement has been preceded by a reservation agreement and the developer has not removed the defects reported to the acceptance protocol and the purchaser has not proceeded to sign the agreement transferring the ownership, the developer will reimburse the purchaser the reservation fee in double amount.
- The Act also introduces the institution of substitute performance. If the developer does not remove the reported defects within 30 days (counting from the day of signing the protocol) and does not indicate the date of their removal, the deadline is set by the purchaser. Upon its ineffective expiration, the purchaser may remove the defects at the developer's expense.