In the practice of my Law Firm, I am approached by people seeking legal advice when buying premises in a condo model. Unfortunately, recently even more buyers of condo apartments have been contacting me with problems related to investments not completed by developers or claims for payment of arrears under lease agreements. Information about suspended construction projects, financial difficulties of condo hotel companies, or attempts to save investments through buyers’ payments is becoming increasingly loud in the media and on internet forums. In such situations, I often return to my conversation from a few years ago with a friendly real estate agent who, as a rule, does not mediate in condo transactions. As he himself says – this model has so many flaws that he does not want clients to have any complaints about it in the future. So, is investing in real estate in the condo system a bad idea? Every action requires consideration, but there are certain legal aspects that, if considered, will certainly increase the security of investing in apartments in the condo system.
What are condo hotels
In short, condo hotels are a model of investing in real estate in which the buyer buys an apartment, most often in a specially dedicated building or complex, while simultaneously handing over this apartment for long-term management to a hotel operator, based on a lease or management agreement, and profits from renting it for the so-called short term. Initially, in Poland condo properties were built in popular tourist destinations, in the mountains or by the sea. Currently, the condo offer is available throughout Poland, what is more, in tourist destinations it is increasingly difficult to find a hotel that does not have condo apartments for sale in its offer.
Why has the condo model become so popular
The condo system is intended to minimize the owner’s obligations related to the premises while bringing high profits related to its rental. After purchase, the premises are immediately transferred for management to the hotel operator, who deals not only with its marketing and rental, but also with cleaning and current maintenance. The operator also offers a range of services for guests, such as a restaurant or a wellness area.
This model is supposed to eliminate all the problems that the owner has with standard rental of apartment, such as searching for a buyer, managing the lease, or enforcing payment of rent.
In condo offers for buyers, the rent is often calculated as a specific, high percentage of the sale price of the premises, and is therefore an alternative to savings products offered by banks.
Does the condo model always look the same
No. There are no specific legal regulations in Poland in this regard. Entities offering condo properties create their own offer based on the appropriate provisions of law, starting from the location of the investment, through the method of financing the construction, the type of property, the method of management (e.g. lease or management agreement) or the term of the agreement.
Why the condo model does not always work in practice
The success of a condo investment, like any other business, depends on many factors, among which the location of the investment, its standard, an appropriate estimate of future guest interest, competition as well as the appropriate experience of the developer and the operator managing the property are of particular importance.
What to do to invest in a condo more safely
1) Learn as much as you can about the developer and the operator
Most often, the seller (developer) and the operator are separate companies. The investment may operate under the brand of a well-known hotel chain, find out how long such an agreement will be valid and what the plans are for the following years. If you have the opportunity, visit investments already managed by this operator. Verify whether the operator will be able to transfer its rights and obligations from the agreement to a third party without your consent.
2) Check what you are buying
A separate residential premises, a service premises, or maybe a share in a common property? An apartment in a separate building or in a hotel building? Depending on what you are buying, the law will shape your rights differently, both at the sale and rental stages. Remember that you are buying for years, and your property should be relatively easy to sell or rent even if the property operator changes or is no longer there.
3) Make your own calculation
A property in a condo offer is an investment, so it is no wonder that potential buyers are attracted by the guaranteed rent or a potentially high rate of return on investment. However, remember that a higher rent for you means a higher fee for a hotel guest. Check how much a hotel stay costs at the competition and what the actual occupancy is. Pay attention to whether the contract will not oblige you to incur additional costs, e.g. related to refreshing the premises. Calculate and approach the matter with a great deal of realism.
4) Read
Read the important documents regarding the property. Before signing any contract, read its content carefully. In the case of preliminary contracts, it is best to decide to sign the contract in the form of a notarial deed with an entry of an appropriate claim for transfer of ownership in the land and mortgage register. If you have any doubts, do not hesitate to ask the seller questions.
5) Negotiate
If you decide to choose a specific condo offer, negotiate. Remember that negotiation is not limited to the amount of the sale price and rent. Negotiating, e.g. the date of payment of the sale price, terms of termination or withdrawal from the contract, may be equally important.
6) Keep an eye on deadlines
The investment is not moving forward, the developer is not fulfilling his obligations on time, the deadline for concluding the sales agreement has expired. Do not wait. Remember that if you do not act in due time, you may lose certain rights, for example to demand the conclusion of the sales agreement or to pay the overdue rent. Sometimes it may be necessary to terminate or withdraw from the contract, but very often it may be sufficient to conclude an appropriate annex to it.
If you need legal advice before purchasing an apartment in the condo offer, e.g. verification of the contract or conducting negotiations, or you have any doubts related to already concluded contracts, please contact us via the contact form, send a message to our e-mail address: kancelaria@joannakoziollek.com or call us.
If you are an entrepreneur who is implementing or intends to implement an investment in the condo system, we invite you to cooperate in creating an individual legal condo model that will be transparent and friendly to both the buyer, the developer and the rental operator.