Is it worth negotiating the provisions of an agreement related to real estate transactions? Obviously. Is it worth negotiating all the provisions of such an agreement? Not necessarily. In our Law Firm practice, we often come across agreements that contain extremely advantageous provisions for clients, for example short notice periods or very high contractual penalties. However, not everything that glitters is gold and an agreement that conveniently regulates client’s rights and obligations is not always the best agreement for the client.
It would seem that the contractual provisions favorable to the party prove that the party is making good use of its negotiating position. If it concerns the provisions on the amount of rent or the sales price of the property, it probably is true. Nevertheless, there are a number of provisions which the parties argue about during the negotiations, the adoption of which results in a party’s misconception about its rights and obligations under an agreement and may affect the validity of not only individual provisions but also the entire agreement.
Based on art. 3531 of the Polish Civil Code, parties entering into an agreement may determine the legal shape of the provisions of such an agreement at their discretion. This means that the parties can use the already existing models of statutory regulation, but also that they can create an agreement constituting a conglomerate of various legal solutions. The principle of freedom of contract, however, is not unconditional and, in particular, within the real estate market, it experiences limitations resulting both from the nature of a given legal relation, statute, but also from the principles of community coexistence.
It is definitely not worth spending time on negotiating the following provisions of agreements related to real estate transactions:
- resulting in the invalidity of the entire agreement – for example in terms of the form of a legal transaction; of course, it is always worth negotiating such provisions if they are to contribute to a more formalized legal transaction, but we should not try to avoid the costs of a notarial deed by concluding an agreement in ordinary written form, when the provisions require an agreement in the form of a notarial deed, such an agreement will be null and void; you can read more about the form of real estate agreements in the article “How to keep good form”;
- leading to the invalidity of individual provisions of the contract – for example provisions providing for a shorter than the statutory period of termination of the lease agreement, both the provisions of the Civil Code and the Act of June 21, 2001 on the protection of tenants’ rights, municipal housing resources and amendment of the Civil Code (consolidated text Journal of Laws of 2020, item 611, as amended) contain mandatory provisions on the notice period for lease agreements, negotiating a short lease period will invalidate this specific provision and replace it with a statutory wording;
- raising doubts as to the fair conduct, loyalty and trust towards the contractual partner – for example stipulating contractual penalties in the lease agreements disproportionate to the amount of the rent; in the case of court proceedings, we risk that the court, taking into account the principles of community coexistence, will moderate the amount of the contractual penalty.
In the “Real estate law guide” we introduce you to issues related to real estate ownership as well as real estate transactions in Poland. As part of the series of articles, we explain useful notions related to real estate, present legal regulations associated with the real estate market and show what aspects are worth paying attention to when buying, selling or renting real estate.