The new real estate development act – UOKiK and the Government want to increase the protection of real estate buyers

Currently, the Government is working on a bill of a new act on the protection of the rights of a buyer of housing apartment or a single-family home, and on the Development Guarantee Fund, also colloquially referred to as the development act. The bill is to replace the existing Act of 16 September 2011 on the protection of the rights of a buyer of a flat or a single-family home.

The bill of the new development act has been prepared by the President of the Office for Competition and Consumer Protection (UOKiK). In the assumption of the President of UOKiK, the new act should increase the protection of purchasers of a housing apartment or a single-family home by eliminating the risk of losing funds paid into trust accounts by the real estate buyers.

In the opinion of the President of UOKiK, this risk is currently primarily associated with an open housing trust account offered without additional securities in the form of a bank or insurance guarantee. This form of a trust account is currently the most commonly used in development contracts, which generates the risk of losing funds deposited into an open trust account in the case of:

• the real estate developer’s bankruptcy,
• the real estate developer does not transfer ownership of the flat or house to the buyer within the time specified in the property development contract,
• the real estate developer does not start construction or works of a commenced construction are not carried out,
• termination of a bank or insurance guarantee agreement by the bank (in the case of, for example, cessation of construction).

In the light of the bill of real estate developement act, increasing the protection of funds paid by the buyer to a fiduciary account is to consist primarily of the establishment of a Real Estate Development Guarantee Fund

The Real Estate Development Guarantee Fund

The Real Estate Development Guarantee Fund will constitute a separate account in the Insurance Guarantee Fund.

The resources of this Fund will come mainly from the following sources:

• contributions due from the real estate developers in the amount determined by the Minister for construction, spatial planning and development, but no more than 5% of the payment made by the buyer to an open trust account or 1% of payment made by the buyer to a closed trust account;
• interest on cash accumulated on the Fund’s bank account and investment income from the Fund’s deposits;
• recourse claims;
• incomes from the bankruptcy estate in the event of the developer’s bankruptcy;
• funds obtained by the Insurance Guarantee Fund from loans and credits to the Fund;

According to the scope of regulation of the project, the Real Estate Development Guarantee Fund will be intended, i.a., for:

1. return of payments made by buyers to an open residential trust account in connection with the execution of the contract concluded with the real estate developer in the case of:
   1. bankruptcy of the real estate developer,
   2. withdrawal from the contract by the buyer in the cases provided by law;
2. return of payments made by buyers to an open residential trust account or a closed residential trust account in connection with the execution of the contract concluded with the real estate developer in the event of suspension of the bank’s activity by the PFSA or submission of bankruptcy application by the bank.

In the opinion of critics of the real estate development bill, the introduction of an obligatory Real Estate Development Fund will increase the prices of real estates on the primary market as a result of offloading fees paid by real estate developers to the Fund onto buyers.

It is worth noting that UOKiK withdrew from some original idea of the total liquidation of an open trust account, which in the general opinion of representatives of the real estate development industry would result in the elimination of many smaller companies from the market, mainly with Polish capital, mostly due to lack of possibility to use an open trust account they would not be able to finance the costs of ongoing investments.

As of today, the bill has not yet been presented to the Sejm. The bill is subject to opinions during legislative works at the governmental stage.

We invite you to use our Law Firm’s services in the field of:

• legal advisory on real estate transactions, including real estate development contracts
• representation in disputes regarding the execution of real estate development contracts, both on the real estate developers’ side and on the side of real estate buyers,
• consultancy on real estate development investments.