+48 602 255 619
Report the property
Report a search

Articles

Developer’s agreement – what is it and what should I pay attention to?

Developer’s agreement – what is it and what should I pay attention to?

Before entering into a developer’s agreement, which is the first step in purchasing a new apartment during the construction phase, there are several important issues with which it is worth familiarizing yourself. This document, while beneficial to both parties, is primarily intended to legally protect the purchaser of the apartment. In this article you will learn:

  • What is a developer agreement?
  • The stages of cooperation with a developer.
  • What does the developer’s agreement contain?
  • Information prospectus – what is it and what does it contain?
  • What are the responsibilities of the developer?
  • What is an escrow account?
  • When can a DEVELOPER withdraw from a development agreement?
  • When can a BUYER withdraw from a development agreement?
  • What is worth paying attention to before signing the contract?

What is a developer’s agreement?

A developer’s agreement is a formal document when you purchase an apartment directly from a developer who is developing a specific housing project. It is signed only by individuals, even when purchasing an apartment for business purposes. Its purpose is to protect the interests of both parties: the purchaser of the apartment and the developer, who is carrying out a specific housing project and undertakes to sell the selected dwelling.
However, the contract itself does not make you the owner of the apartment. Only after the completion of the development project is another agreement concluded, transferring ownership. The signing of the developer’s agreement must take place in the form of a notarial deed, and the costs are split 50-50.

Signing a contract with a developer ensures that the property is reserved exclusively for you, that the price remains stable and that the payments made are secured. The contract also specifies security measures, such as escrow accounts, and enters your claim in the land registry, preventing another sale. In addition, it specifies withdrawal situations, sanctions for the developer and conditions for the return of funds.

 

Stages of cooperation with the developer.

The interval between the developer’s agreement and the promised agreement is usually about 1-2 years, which coincides with the development period. Although the development agreement imposes payment obligations on the buyer, the ownership of the property will be transferred only after the signing of the promised contract. In the subsequent stages of cooperation with the developer, other types of documents are signed, one of which is the development agreement.

 

  1. The reservation agreement is a tool that allows developers to assess customer interest in the investment and plan the next stages of construction. Usually a reservation fee is paid, acting as a kind of deposit. Although it is not a standard on the market, it is used by smaller companies or large entities when they want to bind the customer to an offer, such as in the case of less attractive apartments or projects that are nearing completion.
  2. The preliminary agreement is a step towards the conclusion of the final contract transferring ownership. It is signed at a notary and its form depends on the developer.
  3. The final promised contract, concluded in the form of a notarial deed, is based on the earlier preliminary contract, regulating all the arrangements and conditions previously negotiated by the parties. Amendments to the contract can be made with the consent of all parties involved and include issues such as price, payment schedule, transfer of ownership, etc.

 

What does the developer’s agreement contain?

According to Article 22 of the Law on the Protection of the Rights of the Purchaser of a Dwelling or Single-Family House, the development agreement must contain the following elements:

 

  • Details of the parties to the agreement and the place and date of its signing.
  • Determination of the price of the property and all information about the property itself, such as the area of the plot, its legal status, information about the owner, mortgage encumbrances and easements.
  • Detailed descriptions of the single-family house or multi-family building in which the apartment being purchased is located, including its location and features.
  • Information on the location and layout of rooms in the apartment being purchased.
  • The scope and standard of finishing of the apartment, for which the developer is responsible.
  • The date of transfer of ownership to the purchaser and the establishment of payment terms and conditions.
  • Details of the escrow account, bank or insurance guarantee, including the account number, terms of disposal of funds, and information on costs.
  • The number of the construction permit and the authority that issued it, including information on its finality or any appeals.
  • The date of commencement and completion of construction work.
  • Conditions for withdrawal from the contract and return of funds if this right is exercised.
  • Determination of interest and contractual penalties.
  • The method of measuring the area of the property.

When buying a property from the primary market or conducting an investment with a developer, the buyer should take care of collateral such as a prospectus and a cash deposit for the purchase price of the property.

 

Information prospectus – what is it and what does it contain?

A prospectus is a document that contains key information about the developer, his experience in the real estate market and his obligations before entering into a development agreement, as described in Chapter 5, Article 18 of the Development Law. The developer is obliged to provide this document, which allows analysis of the key points of the development agreement.

It is important that the content of the prospectus must be consistent with the content of the agreement, and the developer must inform the buyer of any changes made to the prospectus before signing the development agreement. It consists of two parts: general and individual. The general part contains information on the entire development project, such as planned developments within a 1 km radius. The individual part, on the other hand, contains specific information about the price of the property, its description and location.

What are the responsibilities of the developer?

In the developer’s agreement you will find all the key information and terms, and it is important that you pay attention to the following points:

 

  • Before signing the developer’s agreement, the developer must provide you with a prospectus with attachments free of charge, in a durable medium.
  • The developer’s agreement must contain elements specified by law, such as the designation of the parties, the price of the apartment, the features of the apartment, the date of transfer of ownership and details of the development.
  • The developer must also provide you with access to relevant documents, such as the land register or building permit, upon your request.
  • The developer’s contract also specifies how and when the apartment price is to be paid. The later you pay, the more favorable it is for you, but developer agreements can be complicated in this regard.
  • Contracts under the new Development Law cannot specify a method of payment that is less favorable than the rate of progress of construction work. In contrast, agreements under the old law may regulate this issue differently.
  • The developer’s contract may contain clauses on price changes, for example, if the area of the apartment or the VAT rate changes. It is important to carefully examine the contract in this regard to avoid surprises about the price.

 

What is a trust account?

An escrow account is a way of securing the money paid by real estate buyers in accordance with the provisions of the Development Law. There are two main types of trust accounts governed by the Development Law: closed and open residential trust accounts.

The closed residential escrow account belongs to the developer and is used to collect buyers’ payments. These funds are paid out once the development is completed, i.e. after the transfer of ownership of the property to the buyer.

An open residential trust account also belongs to the developer and is used to collect funds from buyers. Withdrawals from this account depend on the progress of construction work and according to the schedule of the development project.

The bank that operates the trust account keeps detailed records of deposits and withdrawals for each purchaser. The trust account agreement can be terminated only for valid reasons, which is the right of the bank. Costs associated with trust accounts are always borne by the developer.

When can a DEVELOPER withdraw from a development agreement?

The developer has the right to withdraw from the development agreement in three situations:

  1. If you fail to pay the price in accordance with the terms of the development agreement (i.e., fail to pay by the agreed date or amount) – but only after receiving a written demand for payment, for which you have 30 days.
  2. If you fail to show up for the acceptance of the apartment – despite being called twice in writing to do so within at least 60 days.
  3. If you fail to purchase the property by the deadline – also after you have been called twice in writing to do so at least 60 days apart.
  4. In any case of cancellation (both on the part of the buyer and the developer), all the money paid by the buyer must be returned to him.

When can a BUYER withdraw from a development agreement?

  1. If the developer has violated regulations regarding the content of the development agreement, you have 30 days to decide after signing it.
  2. If the developer has violated the provisions of the prospectus with attachments, or the development agreement, you also have 30 days to decide after signing the agreement.
  3. If the developer fails to repair a material defect in the apartment in accordance with the new Development Law, you have the option to withdraw, although this does not apply to projects completed before the introduction of the new legislation.
  4. If the rights under the development contract are not transferred to you in time, you can withdraw, but you must first give the developer an additional 120-day deadline.

The development agreement may also provide for additional withdrawal rights for you, but it may also be more favorable to the developer. So it is worthwhile to carefully analyze its terms and possibly negotiate additional withdrawal rights, for example, if you do not obtain a bank loan.

 

Before signing a development agreement, it is worth paying attention to several important issues:

 

  1. Carefully analyze the features of the selected apartment and property, and check the prospectus and its appendices, especially the model development agreement. The prospectus may contain key information.
  2. Particularly pay attention to how the area of the apartment is calculated, which should be in accordance with construction standards. Avoid situations in which the developer tries to include additional areas, such as balconies.
  3. Check carefully the date of the transfer agreement specified in the developer’s contract.
  4. Verify whether the price to be paid to the developer can be changed, and under what conditions.
  5. Review the rules on when and how to pay the price, as well as the amount of any interest and liquidated damages.
  6. Check the terms of withdrawal from the development agreement. If possible, try to negotiate the possibility of withdrawal in case of, for example, failure to obtain a bank loan.

In conclusion, before signing a development agreement, it is worth carefully analyzing all its key elements and, if necessary, use the help of a specialist to avoid unforeseen problems in the future.

CHECK WHY WE ARE UNIQUE

CONTACT US