A new development law enters into force, thanks to which buyers of apartments on the primary market will be better protected – they will recover all the money they have paid even if the developer goes bankrupt. The Office of Competition and Consumer Protection (UOKiK) and the Insurance Guarantee Fund (UFG) jointly explain major incoming changes.

Buying an apartment or a house is one of the most important financial decisions for most Poles. According to a survey commissioned by the Insurance Guarantee Fund*, 36.5% of respondents intend to buy real estate in the next five years. Poles expect their money invested in real estate to be protected - as many as 85.3% of respondents believe that the money paid to buy a house or an apartment under construction should be covered 100%. As of Friday, July 1, 2022, buyers of new homes and apartments from the primary market gained effective protection thanks to the Development Guarantee Fund (DFG).

The DFG was established under the Act on Protection of Rights of Buyers of Apartments or Detached Houses and on the Development Guarantee Fund. The DFG has no legal personality, and its management was entrusted to the Insurance Guarantee Fund

– From July 1, buyers of houses or apartments on the primary market are protected like never before. The Development Guarantee Fund will provide them with a refund of all the money they invested, both in the event of bankruptcy of the developer and of the bank keeping the residential escrow account in which the funds paid by the developer’s clients were deposited. DFG refunds will also be provided, among others, where the developer fails to transfer ownership of the property to the buyer by a certain date or fails to remedy material defects” – says Małgorzata Ślepowrońska, President of the Insurance Guarantee Fund (UFG).

– This is a much-needed and long-awaited law that increases the security of real estate buyers. Any bankruptcy of developer when the investment is still in progress may be a disaster for people who end up without money or ownership to their apartments, but they still have to repay their loans for many years. The previous legislation did not provide a full guarantee of recovery of all invested funds in such cases. More importantly, if there were problems with the completion of construction and fulfilling the contract, consumers were very often at the mercy of developers. Today, this situation is changing dramatically, as the legal and economic position of consumers in disputes with developers has improved, which is what we have been advocating for for a long time” – says Tomasz Chróstny, President of the Office of Competition and Consumer Protection (UOKiK).

The legal changes that led to the establishment of the DFG were initiated by the UOKiK. However, the responsibility for managing the fund rests with the UFG. – We have extensive experience in managing funds aimed at protecting the economic interests of citizens. We manage the Insurance Guarantee Fund, which supports victims of collisions and road accidents caused by uninsured or unknown perpetrators, the Travel Guarantee Fund (TFG), which guarantees that travellers get a refund for trips which have not taken place due to the organiser’s insolvency, and the Travel Assistance Fund (TFP), which provides support to travellers and tour operators in the event of sudden and unforeseen circumstances. The DFG will be another important fund under our management” – clarifies the President of UFG.

What is a Development Guarantee Fund?

Developers keep clients’ deposits in residential escrow accounts (REAs). These can be closed or open. In the former case, the bank pays the entrepreneur money only after the ownership of the apartment has been transferred to the buyer. However, the market is dominated by open REAs, i.e. those from which funds are transferred to the developer gradually according to the schedule of works on the construction site. For consumers, this used to involve a real risk of loss if the company suspends construction works or goes bankrupt, and the bank has already transferred funds from this account.

Another threat to clients was the bankruptcy of the bank managing the REA. The Bank Guarantee Fund covers amounts of up to EUR 100,000, but apartments may be even more expensive. Besides, the BFG guarantee covers all the consumer’s money in a given bank, including money kept in personal accounts and deposits. Therefore, even with a closed REA, it may be the case that developer’s clients do not recover the entire amount.

The new law introduces the Development Guarantee Fund (DFG), which will secure the buyer’s funds accumulated in these accounts. Developers will make contributions to the fund from clients’ REA deposits. The amounts of percentage rates were set by the Minister of Development and Technology in a regulation – 0.45% for open REAs and 0.1% for closed REAs.

– For an open escrow account with an apartment worth PLN 500,000, the cost of protection is PLN 2,250, assuming that the premium is at 0.45%. So, for the price of a refrigerator, the consumer obtains a guarantee that he will recover all his payments in the event of a crisis situation and protection of what often constitutes a person’s lifetime savings” – says Tomasz Chróstny, President of the UOKiK.

Refund of money paid for the purchase of an apartment or a house will be possible in the event of:

• bankruptcy of the developer and discontinuation of the investment,
• withdrawal from the contract concluded with the client by the receiver or administrator,
• bankruptcy of the bank that keeps the residential escrow account and failure of the Bank Guarantee Fund to cover all the money accumulated in the account that provides a refund of up to EUR 100,000 for all the money of a given client in a specific bank, including (among others) the client’s private deposits,
• withdrawal from the contract by the buyer (e.g. where the developer fails to transfer the ownership of the property to the buyer within a certain period of time or to remedy a material defect), as long as the client has not received a refund so far.

Who is protected under the DFT?

The protection of the Development Guarantee Fund will cover buyers of apartments and houses on the primary market. The property must be purchased under a development agreement rather than as ready-made premises because in the latter case the transfer of ownership takes place immediately. The DFT covers buyers of residential units under development whose sales began on July 1, 2022. If the developer has entered into at least one agreement for an apartment or a house before that date, the entire project will be subject to the previous Development Act for two more years, and buyers will obtain greater protection from July 1, 2024. Information on whether the house or apartment you want to buy is protected by the DFG must be included in the prospectus provided to potential buyers before the agreement is concluded. The DFG protection does not extend to premises purchased for the pursuit of business activity. However, investments in rental housing made by natural persons will be covered - what is relevant in this case is that the premises are used to meet housing needs, even if the owner does not live there.

The UFG and the UOKiK have jointly prepared answers to frequently asked questions regarding the application of the provisions of the new development law, including DFG coverage: www.dfg.ufg.pl (“Frequently Asked Questions”).

DFG’s modern system

The DFG collects and processes a wide range of banks’ and developers’ data on concluded development agreements, the related residential escrow accounts (REAs), deposits to and withdrawals from these accounts, and the history of changes made to the agreements. The data collected from banks and developers will be made available to Buyers at further stages of the development of the system through a dedicated DFG Website (www.dfg.ufg.pl), which will allow to verify the correctness of the data of the development agreement and the payments made towards the purchase of a residential unit. The system will also enable Buyers to file online applications for refunds from the DFG (where applicable).

* The survey was conducted by BST Group in June 2022 using CATI technique on a representative sample of n= 600 adult Poles.

Contact for the media:

Damian Ziąber
Insurance Guarantee Fund
phone: 502 591 655
e-mail: [SCODE]ZHppYWJlckB1ZmcucGw=[ECODE]

Małgorzata Cieloch
Office of Competition and Consumer Protection
 phone: 22 55 60 246
e-mail: [SCODE]bWFsZ29yemF0YS5jaWVsb2NoQHVva2lrLmdvdi5wbA==[ECODE]

For more information on the Insurance Guarantee Fund, visit ufg.pl

For more information on the Office of Competition and Consumer Protection, visit uokik.gov.pl