• UOKiK is working on an amendment to the Developer Act.
• The aim is to offer even better protection for those purchasing apartments.
• The Authority intends to do away with unsecured trust accounts maintained by developers, to condition the payments on construction progress, and to introduce detailed regulations concerning reservation agreements.

The Office of Competition and Consumer Protection has presented a framework amendment to the Act on the protection of apartment or home buyers’ rights, which is hereinafter referred to as the Developer Act. A number of new solutions should be expected intended to secure the rights of those buying a new home or apartment in a situation in which the developer declares bankruptcy, ceases to continue construction, fails to transfer the ownership right in due time, or in a scenario in which the bank terminates the housing trust account agreement.

- The Developer Act of 2011 was a tool that considerably improved the situation of property buyers. It failed, however, to solve all the problems that they were faced with – says Marek Niechciał, President of the UOKiK. – Now, after several years have passed, we know what else needs to be improved in order to protect the interests of those buying their new home even more effectively. The decision they are making is, after all, one of the most important investments of their life.

The amendment aims, primarily, to better protect the advance payments made by future apartment owners. UOKiK has come up with a whole set of solutions that are designed to offer the degree of protection required.

Safe account

UOKiK intends to do away with the unsecured type of open housing trust accounts. These are used by buyers to deposit money which is then transferred by the bank to the developer, in accordance with an agreed schedule. The progress of work remains beyond any control, however. If the investor declares bankruptcy, the customer may be in danger of losing that part of their money that has already been transferred to the developer and spent on unfinished construction.

- Open housing trust accounts are taken advantage of by approximately 80% of developers. This solution fails to duly protect the consumers from losing their money, for instance when the developer goes bankrupt or fails to finish the build – explains Marek Niechciał, President of the UOKiK.

After the changes planned, money contributed by buyers will be deposited in a closed housing trust account (the developer will receive the funds once the block of flats has been completed, i.e. after the ownership right to the individual flats has been transferred), or in an open account protected by means of an insurance or a bank guarantee. This solution will enable the buyers to recover, in the case of the developer’s bankruptcy, the entire amount paid.

Pursuant to the amended regulations, the customers’ contributions are to be conditioned on the progress of work at the site. This will mitigate the risk of all money being lost in the case of a potential bankruptcy of the developer or of the bank. Prior to transferring the money to the developer, the bank will be required to verify, in a diligent manner, whether the developer has the title to the land, whether the building permit is valid, and whether no debt restructuring or bankruptcy proceedings are in progress. If any problems are encountered, the bank will have the right to suspend the payment until all irregularities are corrected.

Furthermore, shout it turn out that the build has been discontinued by the developer - the bank will be obliged to terminate the housing trust account agreement and return all the funds deposited thereon to the buyers.

After the changes, the trust account will be opened separately for each undertaking distinguished within a given development project. Hence, in the case of any problems (bankruptcy of the developer or of the bank, discontinued build), buyers will find it easier to pursue their claims (e.g. get their money back) than it would be the case if the trust account was opened for the entire project that comprises, in many cases, several stages of work.

UOKiK’s proposal assumes also that the investor will be able to close the trust account only once separate ownership titles to all unsold flats have been established. Sales agreements - of the variety relied upon on the used home market - will be the only solution taken advantage of by developers thereafter. The developers will be still bound, however, by regulations related to the information prospectus and apartment hand-over and acceptance procedures.

Finished apartments and garages

The current Developer Act protects only those consumers who purchase apartments prior to the commencement of or during the build. UOKiK would like the same regulations to cover finished flats as well. Such a solution would offer the buyers additional protection of the money they pay, until the ownership right has been transferred. The money would not be lost in the case of the developer’s bankruptcy. The buyers would also enjoy the same privileges related to the hand-over of the flat and to reporting any defects therein, as those who joined the investment at an earlier stage.

The amendment assumes that the Developer Act would cover not only the purchase of apartments, but also of garages, bike lockers or shares in the right to housing estate streets. Currently, two separate agreements are concluded when buying an apartment and a garage, with payments towards the purchase of the parking spot not being covered by the provisions of the Developer Act.

Reservation agreements

UOKiK intends to regulate reservation agreements concluded, for instance, for the period of time required to obtain a bank loan. At present, such agreements may be freely shaped by the developers, as no specific legal provisions exist. This may mean, for instance, that the buyers are required to cover extensive fees, or face the risk of losing the money paid. Following the amendment, the reservation fee would be limited to 1% of the total price.

- The reservation fee should be treated as a deposit. If the conclusion of a developer agreement follows, the deposit will be set off against the price of the apartment and will be transferred to the trust account. If the reservation agreement is terminated, for instance due to the bank failing to provide a loan, the customer will get their money back. If, in turn, the agreement proper is not signed due to reasons attributable to the developer, he will be required to refund twice the amount of the deposit - explains
Marek Niechciał, President of UOKiK.

Information about price and risk

UOKiK intends to require the investor to disclose additional data in the information prospectus that has to be provided to the customer prior to the conclusion of the agreement. First and foremost, the investor will be obliged to inform about the price of the apartment offered - no such requirement is in place at present. Furthermore, they will have to warn the buyer about the risk of losing some of the money (amounts in excess of EUR 100,000) in a situation in which the bank maintaining the trust amount declares bankruptcy.

The draft regulation is also to provide for the rights and obligations of the parties to the developer agreement, in the case of the bank’s bankruptcy. Since October 2016 customers buying apartments are no longer threatened by losing, in such a situation, all money deposited in the trust account - they are entitled to a refund of up to EUR 100,000 paid by the Bank Guarantee Fund. No regulations are in place, however, that would specify how that money is to be handled. After the amendment planned, the developer will be obliged to conclude, without delay (within 30 days), an agreement for maintaining a housing trust account with another bank, and to communicate that fact to the buyer. Failure to comply with the aforementioned obligation will authorize the customer to withdraw from the developer agreement.

Bank consent and sanctions for developers

UOKiK proposes that an obligatory appendix to the developer agreement be required, containing the consent of the bank (providing financing to the developer) or of another mortgage-secured creditor to release the apartment to the buyer, after the full price has been paid, without any mortgage-related encumbrances. No such consent is required at present, which means that if the developer goes bankrupt, it is the creditor bank that is given priority when it comes to satisfying its claims. The new regulations will benefit the buyers, who will receive an apartment not encumbered with a mortgage. Failure to attach the consent will render the developer agreement ineffective.

The amendment planned provides for sanctions against developers as well. If any of the compulsory payment protection measures are not provided to customers, developers will be subject to a monetary fine, “restriction of freedom” or imprisonment of up to two years.

With the assumptions presented above taken into consideration, UOKiK is currently working on drafting specific solutions that will be subject to public consultation.

Most important changes

UOKiK has come up with a wealth of solutions that are designed to improve the degree of protection offered to those purchasing homes and apartments. The most important of them include the following:

• Elimination of the unsecured type of open housing trust accounts.
• Conditioning the payments made by buyers upon the progress of the build.
• Obligation of the bank to terminate the trust account agreement if the developer fails to complete the build.
• Trust accounts being maintained for separate investment undertakings distinguished within a given development project.
• Developer being able to close the trust account only if ownership rights to all unsold flats have been established separately.
• Provision for the rights and obligations of the parties to the developer agreement, in the case of bankruptcy of the bank maintaining the trust account.
• Developer being required to obtain a consent of the bank or of another mortgage-secured creditor to transfer the ownership right to the flat to the buyer, without encumbering the mortgage of a given apartment.

Additional information for the media:

UOKiK Press Office
Pl. Powstańców Warszawy 1, 00-950 Warsaw
Phone: 695 902 088
Email: [SCODE]Yml1cm9wcmFzb3dlQHVva2lrLmdvdi5wbA==[ECODE]

Twitter: @UOKiKgovPL