30.05.2022 Real estate law

Developers Guarantee Fund – new obligations for developers

The Developers Guarantee Fund is a fund similar to that operating in the tourism industry. It was established to protect buyers against the loss of funds if the investment is not completed due to bankruptcy of developer or bank operating the escrow account. Developers Guarantee Fund will be financed from obligatory contributions paid by developers.

Pursuant to the provisions of the new act, each developer will have to pay contributions to the Developers Guarantee Fund. Contributions will vary depending on which type of escrow account the developer has chosen to protect the funds deposited by buyers. If it is an open account – the contribution cannot exceed 1% of the apartment price (in the draft regulation this amount was reduced to 0.45%). In the case of a closed account, the contribution will amount to 0.1% of the apartment price. The amount of contributions will be finally determined in a separate regulation the draft of which has already been published.

Contributions will be non-returnable. If developer or buyer withdraws from the contract, the amounts paid to the fund will not be refunded. This will also not happen if the apartment price is reduced. Contributions will be fully financed by developers – they will not be deducted from the buyers’ funds. The developer will have 7 days from the moment the buyer pays the funds to the escrow account to calculate the premium amount and pay it to the bank that operates the escrow account. The bank will transfer the deposited amount to the fund.

See also: Webinar recording The new Real Estate Development Act – key changes for investors

Developers Guarantee Fund – what will change for developers?

The fund will also impose additional obligations on developers such as the need to prepare a report in which developer indicates, among other things, a timetable of development project as well as timetable and payments to be made by the buyer to the escrow account. If this information is not provided, the fund will notify the bank to withhold payment from the escrow account. In the event of premature termination of the contract with the buyer, the developer must provide the fund with information on the amounts returned to the buyer. If the buyer does not receive the total amount paid, the difference will be covered by the fund, and then the fund will claim it from developer.

Another obligation of developer is to notify the bank, each time funds are withdrawn from the escrow account, whether developer is in arrears with any payments to the Development Guarantee Fund. If any arrears are confirmed, the bank will withhold funds from the developer.

New developers act will enter into force on 1 July 2022.


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