On 1 July 2022 the Act on the Protection of the Rights of the Buyer of a Housing Facility or Single Family Home and the Developer Guarantee Fund entered into force. The new regulation has introduced a number of innovative solutions that are intended to protect buyers in their relationship with the developer, as well as to counter the loss of funds paid by buyers in case of a failure of investment.
Buying your own apartment was a great emotional experience for most people. As housing prices rose, tolerance for those interested in purchasing risky decisions also grew. In the public space, information about the collapse of another developer and the loss of funds by customers of this developer has occasionally appeared. It was these situations that prompted the legislator to introduce revolutionary changes to counter such situations.
Developer Guarantee Fund
The Act introduces the Developer Guarantee Fund as a separate account in the Insurance Guarantee Fund.
Fund funds are to be used for the reimbursement of payments made by purchasers to an open residential trust account in connection with the implementation of a development contract or contract in the event of situations identified in the contract, including in the event of the bankruptcy of the developer.
This change is beneficial for the purchasers, as it secures their contributions, thereby minimising the loss of funds contributed to the development investment.
In view of the widespread bankruptcy of developers in the past, it is important to assess the positive introduction of the Developer Guarantee Fund, which should prevent loss of purchasers' savings in the future.
Obligation to carry out investment checks
The bank was also required to carry out extensive investment checks before paying the developer the funds collected on an open residential trust account.
The audit shall include, inter alia, verification of whether restructuring or bankruptcy proceedings have not been initiated against the developer, whether the developer holds the title of ownership or the right to use the perpetual property on which the investment is carried out, whether the developer has a permit to build or has filed a construction application, as well as an analysis of whether the funds paid are in accordance with the financial objectives of the development project.
Therefore, the scope of the bank's control over the development investment process becomes a kind of guarantee that the developer will allocate the buyer's funds to the development project.
New obligations for the developer
There was also an information obligation on the developer's side, which from 1 July 2022 it will have to submit to the person concerned the decision to permit the use of the premises, the declaration of the autonomy of the premises and the act establishing the separate ownership of the premises.
The legislator also introduced the so-called presumption of recognition of defects. It shall apply in case the developer fails to respond to the defects reported by the buyer within the time limit 14 days.
In such a situation, there is a presumption that the defects in question have been recognised by the developer and that it is required to repair them within the time limit 30 days from the date of signature of the Protocol.
Lack of repair makes it mandatory for the developer to set an additional deadline for repairing defects while identifying the causes of such a situation – but this cannot be associated with excessive inconvenience on the part of the buyer.
Moreover, the Act provides that in the absence of correction of defects within the time limit 30 the days and the absence of an additional deadline for their removal or, in the absence of a removal of the defects within the additional time limit, the purchaser has the right to repair the substitute defects to which the developer is charged.
The Act also introduces on the buyer's side the right to refuse to accept the subject matter of the contract due to its significant defects which the developer did not recognise in the protocol.
If the developer recognizes a defect in the material subject matter of the contract and then fails to remove it, the buyer is entitled to withdraw from the development contract.
However, it should be stressed that the refusal to accept the subject matter of the contract again because of the existence of a material defect requires the submission of an opinion of a construction expert which confirms the existence of a material defect in the subject matter of the contract.
In such a situation, the buyer may withdraw from the development contract.
These changes are rational in ordering the situation to date and should be assessed positively.
Author: Maksymilian Kulczycki
The author is a graduate of the Kozminski Academy in the field of Law and Finance and Accounting. From 2022 Associated with Russel Bedford Poland. In 2018 He completed his bar application at the District Bar Council in Warsaw. In 2019 obtained a positive result from the bar exam. His professional interests include the law of commercial companies, in particular mergers and acquisitions, conversions and tax law, in particular corporate income tax.