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Development contract

A developer contract secures our savings when we buy a flat from a developer. As part of a guide on the legal aspects of a mortgage, I recently wrote an article: buying an apartment from a bailiff's auction. Today, a development contract is being analyzed. When buying an apartment on the primary market, you must be aware of the consequences of its conclusion. What should be checked in the development contract so that the purchase of an apartment is a source of joy and fulfillment of dreams of own apartment.

what is a development contract?
How is the information prospectus related to the development contract?
what is an escrow account;
is the prospective buyer of the property obliged to conclude a developer agreement in the form of a notarial deed?
what is the entry of the buyer's claim in the land and mortgage register?

Why should you sign a developer agreement?

A developer contract is a type of document, concluded in the form of a notarial deed, in which the developer undertakes to establish or transfer to the buyer the ownership of the house or apartment after the completion of the investment. The buyer of the real estate under this agreement undertakes to pay the purchase price of the property right. Simply put, and most understandable: the developer has an obligation to sell the property that has been constructed, and the buyer has to pay for it. The specimen of the content of such an agreement is included in the Act of September 16, 2011 on the protection of the rights of the buyer of a flat or single-family house (commonly known as the developer act); Chapter 6, Art. 22 - 28.

Few of us remember that in order to become the owner of real estate under development, you must additionally sign an ownership transfer agreement upon completion of construction - necessarily in the form of a notarial deed.

What elements must a development contract contain?

You've probably wondered if the developer contract entails any risk or a threat to the real estate buyer? After all, it is often concluded even before construction begins. Well, the developer act provides for specific protective mechanisms that protect us - future buyers of premises from bad decisions of the developer. Let's start with the fact that the developer agreement must not contain the parties' designation.

What must be included in the development contract to be a full-fledged security document for the buyer?

details of the parties to the contract, as well as the date and place of its conclusion of the development contract,
the developer's obligation to build a building, separate a flat and transfer the ownership right to the buyer and the price of the property,
building permit number along with the date of commencement and completion of construction works,
information about the construction plot, as well as the location of the property within the plot,
schedule specifying the deadlines for payments to the escrow account kept for the investment,
a precise description of the property with a description of the house / premises and the standard of finishing works, including the area and layout of the rooms,
time limit for the transfer of ownership,
the rules for withdrawing from the contract and returning the funds paid, specifying the amount of penalties and interest,
valorization clauses. When signing a contract for the purchase of a flat from a developer, the buyer must first of all pay attention to the provisions of the contract, on the basis of which the developer assigns himself the right to change the final price of the flat or house. Unless, of course, any of the conditions mentioned by him apply. It is worth knowing that the indexation of the apartment price from the developer is an illegal clause.
The developer is also obliged to undertake the construction of a building, separate the apartment and transfer the ownership of the apartment to the buyer, and in the event that there are mortgage charges, the contract must contain information about the bank's consent to separate the apartment without encumbrance and transfer its ownership after paying the full price by the buyer.
it should be noted whether the developer agreement does not contain a provision on a shortened period of warranty for defects arising as a result of poorly conducted construction works. The right to the warranty in the case of apartments and houses from the developer is five years,
the buyer's declaration on the receipt of the information prospectus.

Information brochure - what is it?

First of all, it should be remembered that the information prospectus is integral to the development contract. In other words, every developer must make a prospectus available to the prospective property buyer. The prospectus constitutes an appendix to the developer agreement, so its content must be identical to the agreement, and the developer has the obligation to inform the buyer of any changes made to the prospectus prior to signing the development agreement. Concealing this information or disclosing untruths may result in criminal liability.

What does the prospectus contain?

In this paragraph, I will discuss what an information prospectus is. First of all: remember that it always consists of two parts. General, which includes all information about the developer, our property and the building in which it is located, but also contains information about planned investments that will be located near the building in which we want to live. I always recommend my clients to carefully study this fragment of the prospectus so that they don't get any unpleasant surprises. Second: The second part of the prospectus is the individual part. This is where you will find detailed information on the description of the premises, its parameters and the standard of finish. Please remember that the developer is obliged to attach to the prospectus a floor plan with the indication of the residential premises and the specimen of the development agreement.

Why is the analysis of the prospectus included in the development agreement so important?

If you buy an apartment from a developer, an escrow account is an important instrument that will protect your rights and money against investment failure. The obligation to set up an escrow account in a bank was imposed on developers by the Act on the Protection of the Rights of the Buyer of a Apartment, referred to as the Developer Act. If the developer declares bankruptcy or fails to meet the previously agreed arrangements, we have a chance to receive our invested money thanks to an escrow account. An escrow account may have several variants:

First: the closed variant. This means that the entrepreneur does not have access to the money paid into the account by future real estate buyers until the end of the project and transfer of ownership to the buyer;
Second: the open variant. On the other hand, he assumes that the developer will receive a part of the funds corresponding to the percentage of the value of the given stage after the completion of a given stage of the project and its confirmation by the bank. Open fiduciary accounts often come with one of two types of guarantees. The first of them, i.e. a bank guarantee, guarantees an immediate return of money from the bank in the event of the developer's bankruptcy or withdrawal from the contract - without the need to fight for money in court.

This means that the developer does not really have permanent access to the account. It has the ability to control payments and their amount. Access to the account is opened by the bank, depending on the variant - after the transfer of ownership or completion of a specific stage.

Remember, however, that the provisions of the developer act do not apply to developers who started their investments before its entry into force - that is, before April 29, 2012. In such a case, the company may request money to be paid directly to its account.

Does the developer contract have to be concluded with a notary?

I will answer that this is a necessary condition. The development contract must be concluded with a notary. This gives us a guarantee that if the developer fails to meet its obligations or does not transfer the deed of ownership to us, we can pursue our rights in court. It also protects us against the developer concluding an act of the so-called double sale.

Development contract - what to pay special attention to?

First of all, as I wrote earlier, each development contract must be signed at a notary public. This gives us the certainty of correctness and certainty that all the data contained therein are beneficial to us. Before we sign it, however, we must pay attention to:

First, a thorough analysis of the prospectus, making sure that the information contained in the prospectus is in the contract with the developer.
Second: Let's be sure, in this document, there is confirmation that the money paid to the developer will go to an escrow account.
First of all, however, let us pay attention to the name of the contract. The only permissible is the "development contract".
Let us consider the definition of the finishing standard. Thanks to this, the buyer will be able to demand specific results on the basis of the contract and avoid possible disputes with the developer.
Let's follow the dates of commencement of construction, completion of the investment or receipt of real estate. All of them should be precisely specified in the contract.

Is it worth negotiating the terms of a developer agreement?

I think it's worth it. Thanks to such negotiations, we have a chance to buy a flat in a more favorable amount. Of course, let's remember that we will manage to negotiate the best terms of the contract when the developer is slowly completing his investment, and there are not enough future residents yet. The purchase of premium real estate also offers a wider field for talks, because we start from a higher financial level.

When entering into discussions with the developer, remember that we can negotiate many aspects of the development agreement. These will be both the prices of flats, but also the cost of tenant changes, payment terms and methods, contractual penalties, terms and date of receipt of the premises or terms of withdrawal from the contract.

Remember that if you have any doubts, I am happy to offer you advice and assistance. Let's meet, you will find that my help in choosing the best mortgage can be invaluable.

Feel free to comment. Is the topic of credit analysis interesting for you? Let me know in the comment. Will be happy to help clarify all issues. It is important to me that every topic regarding the mortgage is absolutely explained.