How to check a developer before you sign the contract

In Poland, the sale of a flat by a developer is regulated by statute, and the buyer has built-in protection that many people do not know about. But that protection only works if you use it, which means reading the documents before you sign, not afterwards.

1. Who is selling: the company, not the brand

The name of the project and the name of the company are usually two different things. Developers set up special-purpose companies for individual projects, so the reputation of a “big firm” does not necessarily stand behind this particular estate.

Check in the KRS (National Court Register) who the contracting party is: how long the company has existed, what its share capital is, who sits on the management board, and whether it is linked to an entity with a longer track record. Companies’ financial statements are public and available in the document repository.

2. What the same company has already built

Completed projects say more than visualisations do. Look for answers to three questions: were earlier phases delivered on time, did the handovers go without widespread defects, and after handover did the developer respond to warranty claims.

Residents’ forums and neighbourhood groups are more useful here than press releases, with the caveat that they are written mostly by people who are dissatisfied.

3. The escrow account: open or closed

This is the most important mechanism protecting the buyer’s money. Payments do not go to the developer but to a residential escrow account at a bank.

The difference between the two types is real: with a closed escrow account, the developer receives the money only after ownership has been transferred; with an open one, it is released in tranches as construction progresses, after verification by the bank. The open type is more common and is not a problem in itself, but it is a different level of security, and you should know which one you are signing.

In addition there is the Developer Guarantee Fund (Deweloperski Fundusz Gwarancyjny): a contribution is paid from every instalment, and the fund covers claims if the developer goes bankrupt.

4. The land and mortgage register of the plot

Before a register is created for your unit, there is a register for the plot on which the project stands. Three sections are checked in it: who the owner or perpetual usufructuary is, whether Section III contains no claims or warnings, and whether Section IV has no mortgage hanging over the land.

A mortgage on the land is not in itself a reason to walk away. Developers finance construction with a loan, and that is normal. What matters is whether the contract provides for the release of your unit from any encumbrance, that is, the bank’s commitment to release it from the mortgage.

5. The information prospectus

The developer is obliged to hand it over free of charge before the contract is concluded. It is not an advertising brochure but a document with hard data: the legal status of the land, the schedule, the method of financing, the developer’s experience and, which is sometimes the most interesting part, planned developments in the neighbourhood.

That last part is the only place where you will learn that in two years another building may rise outside your window.

6. The developer agreement: three places where things tend to go wrong

The agreement is concluded as a notarial deed, and its cost is split equally between the parties. As you read, pay particular attention to:

• The deadline and the consequences of delay. The deadline alone is not enough; what matters is what happens if it is missed: whether there are contractual penalties, after how many days, and whether you are entitled to withdraw.
• The permitted change in floor area. Contracts typically allow a deviation of a few percent. For a 60 m² flat, two percent is over a square metre, and a square metre costs over ten thousand zł, so check whether the settlement of the difference works both ways.
• The scope of the finishing standard. The annex with the standard is part of the contract. If something is not in it, it will not be there, regardless of what the visualisation showed.

7. Technical handover inspection

The handover inspection is not a formality; it is the step after which it becomes harder to pursue defects. Everything that raises doubts goes into the handover report, even small things, because anything not included in the report requires a separate complaint procedure later.

It is worth going with someone who does this professionally. An inspector’s fee is a fraction of the price of the flat, and the list of defects from a professional inspection is often several times longer than the one a buyer compiles alone.

What we do about it

Points 1, 3, 4 and 5 we check for every project before we even show it to a client; if we do not like something, we say so plainly. We go through point 6 together with the client before the visit to the notary, and we arrange point 7 with an inspector.

If you found the flat yourself and only need the documents checked, that is a separate service, legal support for the transaction, and it does not require us to handle the whole transaction.