This Article follows a series of articles which discuss the draft law on the protection of the rights of purchasers of a dwelling or a single family house and on the Developer Guarantee Fund (hereinafter referred to as the ‘Development Act’).
In the previous articles, the outline of the work on the original draft amending act, as well as the draft bill currently consulted in the Standing Committee of the Council of Ministers, was discussed and the resulting amendments were presented, such as the establishment of the Developer Guarantee Fund, the new rules for the payment of funds from the residential trust account, the extension of the obligations of the developer before the conclusion of the reservation agreement, the development agreement and the pre-accession agreement.
Consent to unburdened separation of residential premises
Moving on to the substantive part, let's start with continuing the institution's consent to an effortless separation of residential premises. The agreement of a mortgage-backed bank or creditor to unencumbered housing separation is a regulated institution Act dated 28 February 2003 – Bankruptcy law.
If the property on which the development project is carried out is mortgaged, the property is still subject to the mortgage in the event that the developer is no longer the owner.
A mortgage creditor's consent to the unpaid separation of the premises means that, at the time of the buyer's payment of the entire amount for the premises, the mortgage no longer covers such premises at the time of the separation of the premises.
The draft new development bill imposes on developers, who fund their development venture with a mortgage-backed loan on the property which is the subject of the development project, the obligation to obtain the aforementioned consent.
This solution is intended to secure buyers in the event of the bankruptcy of the developer, who has completed the development project but the premises have not yet been isolated. The developer will also be required to have such approval in the event of the conclusion of a booking agreement and a pre-accession agreement.
Booking agreement to 1% real estate prices
The current law on the protection of the rights of the buyer of a residential or single-family house does not regulate the question of the so-called reservation agreement, which in practice is often used by developers. Potential buyers seeking credit are often called upon by banks to submit documentation on the premises, and in the absence of the possibility to draw up and sign a development agreement (e.g.: no investment has been started) often the only document remains a reservation agreement. The booking agreement consists of the developer withdrawing a particular apartment from his offer of sale to the buyer, who usually pays the booking fee. Reservation contracts as unregulated contracts shall not require the developer to draw up and submit an information prospectus. Lack of regulation poses a risk of the buyer losing the booking fee. The development bill introduces the parties' freedom to enter into a reservation agreement, but sets the upper threshold of the booking fee at the level 1% the prices of a single-family establishment or home. In addition, it shall specify the situations in which the booking fee is recoverable. Such situations include:
- • failure to obtain credit by the reservation holder;
- • non-execution by the developer of an obligation to temporarily exclude the reserved premises from the offer of sale; and
- • make changes to the prospectus or its attachments by the developer without informing the booking party.
The developer will be required to transfer the booking fee to a residential trust account in the event of a development contract or a preliminary contract being signed.
In cases where a development agreement or pre-accession agreement has been preceded by a booking agreement and the developer or entrepreneur other than the developer has not removed the defects submitted to the collection protocol and the buyer has not signed the contract transferring the property, the booking fee shall be refunded in a double amount.
The same applies if the developer, when signing the booking agreement, fails to comply with the obligation to temporarily exclude the premises reserved from the offer of sale.
In addition to safeguarding consumer interests, the regulation of the development contract in the Act will also have a positive impact on the developers themselves, as the institution of the reservation agreement will provide them with the opportunity to demonstrate to the lender the level of consumer interest in their development offer.
Change in the prospectus to the buyer information
The responsibilities of the developer in accordance with the provisions of the draft law will be to inform, during the course of the booking agreement, of changes made to the information prospectus or its annexes in such a way as to identify them, indicating what the amendment relates.
The purpose of the designer is to protect the buyer from unilateral changes in the information prospectus by the developer. This is important from the point of view of the bookkeeper, as the amendment may be important in terms of his decision to buy a residential or a single-family house.
Extension of the scope of the Development Act to new types of contracts concluded with buyers
Another change envisaged by the development bill is the extension of the scope of the development bill to new types of contracts concluded with purchasers, the subject of which is the transfer of property of a dwelling, a single family house or a utility premises purchased with it. Currently, preliminary contracts concluded by developers for the sale of a dwelling or a single-family house are not regulated by the applicable law, which in practice means that they do not require the opening of residential trust accounts for a given development project.
In the last article in this series, I will present the issue of the reception of a residential/single-family house and the planned extension of the conditions for withdrawal from the development contract or one from other contracts concluded with the purchaser, the subject of which is the transfer of ownership.