The UOKiK (Office of Competition and Consumer Protection) have started to work on an amendment to the Act on the Protection of the Rights of a Purchaser of a Dwelling Unit or Detached House (the so-called development act). The new regulations are aimed, in particular, to better protect consumers’ advance payments on flats.

The Office would like to eliminate, among others, open housing trust accounts (OHTA) without security. Purchasers deposit money on these accounts which is subsequently transferred by the bank to the developer in accordance with an agreed schedule. However, if the investor goes bankrupt, the client may be unable to recover the part of the money which has been already spent by the developer on the unfinished construction. After the amendments, the clients’ payments will be deposited in closed housing trust accounts (and transferred to the developer only after the assignment of the ownership of flats) or OHTA with an insurance or bank guarantee.

In addition, clients’ payments will be linked to the progress of construction works. Before transferring the funds to the developer, the bank will verify, among others, whether it has the right in the land, whether the building permit is valid, or that no bankruptcy procedure is pending against it. The bank will be entitled to withhold the payment until all irregularities have been removed. Further, if the developer stops the construction, the bank will be obliged to terminate the housing trust account agreement and return all funds deposited therein to the purchaser.

The draft amendment assumes that the regulations will also apply to finished flats. The purchasers thereof would thus gain protection of their money before the ownership is transferred to them. In addition, the development act will pertain not only to the purchase of flats, but also to the garages, boxes, or shares in the ownership of a housing estate road associated therewith.

The UOKiK also plan to regulate flat reservation agreements, which are currently not subject to any regulations. After the amendment, the reservation fee will not exceed 1 percent of the price.

The Act will also set out the rights and obligations of the parties to a development agreement in the case of bank’s bankruptcy. After the amendments, the developer will have to enter into a housing trust account agreement with another bank within 30 days and notify the purchaser thereof, failing which, the client will have the right to withdraw from the agreement.

The proposed amendments also include the obligation to attach to the development agreement the consent from a bank financing the developer or another mortgagee for the purchaser to receive the flat with clear mortgage after the full price has been paid. The development agreement will be invalid without such consent.

We will keep you updated on the progress of the works on the Act.