REAL ESTATE LAW GUIDE: Time is money… and safety – why it is worth to sign the promised agreement promptly

The conclusion of final agreement should be considered, from the legal regulation point of view, as a fundamental stage of the sale of the real estate transaction. Buyers, however, often, for various reasons, take steps to postpone the performance of their obligation to conclude such an agreement resulting from the preliminary or developer agreement or even fail to appear on the date of the promised agreement previously agreed by the parties. Before changing the date of concluding the promised agreement, it is worth considering the consequences as well as the potential risks associated with it.

 

The willingness to postpone the conclusion of the promised agreement is motivated by buyers by the lack of time, an inconvenient deadline, or a sudden change of plans, but also by more objective factors, such as the desire to put pressure on the developer to perform repair works faster or even to reduce the sales price. If the payment schedule and the delivery of the real estate are modified accordingly along with the postponement of the final agreement, such action constitutes a comprehensive change to the contractual terms. On the other hand, if the delay in concluding the final sales agreement of real estate is not related to the performance of other obligations, it is worth considering to what extent such a change is necessary and whether it is entirely safe for the buyer.

 

The importance of the transaction schedule

 

As a rule, the buyer and the seller have freedom to set a real estate sales schedule. Signing the sales agreement, depending on the will of the parties, may therefore take place before the payment of the price and the handover of the real estate, after these events, but also between them. Within the developer market, the exception to this rule was set out in art. 27 of the Developer Act*. On its basis, the delivery of a flat or a single-family house takes place before the transfer of ownership to the buyer. Moreover, pursuant to the Developer Act, the developer is paid the sale price either in parts (open escrow account) or once after the ownership is transferred to the buyer (closed escrow account). The nature of the transactions preceded by the conclusion of the developer agreement and the market practice show that the buyer pays the entire sales price to the escrow account before the final agreement is concluded and before the real estate is handed over.

 

Postponement of the promised agreement after payment of the entire sale price and / or delivery of the real estate

 

In the case of transactions to which the Developer Act applies, as well as many transactions on the secondary market, the conclusion of an agreement transferring ownership of the real estate is the last act of the parties. In such a situation, the request to postpone the conclusion of the final agreement is made by buyers often 1) after the payment of the entire sales price of the property, respectively, to an open or closed escrow account (in accordance with the Developer Act), or directly to the seller’s bank account or a notary’s escrow account, 2) after signing a delivery and acceptance protocol of the real estate and reporting or not any defects that the seller is processing or has already processed, or the refusal to accept the real estate due to the reported defects. In the described case, the buyer’s refusal to conclude the promised sales agreement or his request to postpone the sale date results in an extension of the period in which the buyer no longer has the paid purchase price of the property, and at the same time does not have the right to dispose the property as the owner.

 

In the period after the payment of the sales price and / or acceptance of the premises, the buyer’s right related to the real estate is based solely on the provisions of the developer or preliminary agreement and the claim to conclude a promised agreement, provided that such a claim has been entered in section III of the land and mortgage register kept for the real estate.

 

During this period, the Buyer, in particular:

  • cannot sell the real estate (he is not its owner yet);
  • may have problems with concluding contracts for the supply of utilities to the real estate or real estate insurance (no legal title to the real estate);
  • if the subject of the sale is a residential apartment, it is not possible to register the residence in the apartment (no title to the apartment);
  • should consider the risks associated with the performance of finishing works (for example, he incurs expenses for finishing works in the apartment which are not his property yet).

 

Furthermore:

  • if the funds for the selling price came from a bank credit, the costs related to the credit are rising; depending on the provisions of the credit agreement, the buyer may risk the financing bank withdrawing from the agreement;
  • depending on the contractual provisions and the basis for not signing the promised agreement, the buyer exposes himself to the risk of the seller withdrawing from the agreement and maintaining the advance in full, imposing contractual penalties or claiming compensation;
  • the longer it takes to conclude the promised agreement, the greater the probability of various random situations preventing the seller from signing the agreement (for example declaration of bankruptcy, illness).

 

When it is worth considering postponing the promised agreement?

 

It is worth considering the postponement of the final agreement conclusion date, for example when:

  • we suspect that the real estate has legal defects, until it is verified whether the defects exist and whether they affect the transfer of ownership;
  • the condition of the real estate is not consistent with the condition described in the preliminary / developer agreement, for example the premises has a different area (above the percentage margin specified in the agreement) or a different layout, but we are still interested in it and we want to talk to the seller about changing the terms of purchase; in such a situation, we also refuse to accept the property;
  • during the delivery material defects of the property were found, considering that the material defects are defects that threaten life or health, but it is possible to remove these defects; in such a situation, we also refuse to accept the property.

 

It should be noted that before refusing to conclude a promised agreement, you should always carefully analyze the provisions of the developer / preliminary agreement as well as applicable regulations in this regard, as they may provide for defined deadlines, form, and consequences of performing specific activities or refusing to perform them. It is also worth considering whether the reasons why we want to postpone the conclusion of the promised agreement are not, at the same time, grounds for withdrawing from the developer / preliminary agreement.

 

*Developer Act – Act of 16 September 2011 on the protection of the rights of the buyer of a flat or a single-family house (consolidated text Journal of Laws of 2019 item 1805 as amended)

 

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.

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