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The Warsaw Voice » Real Estate » September 24, 2008
Gide Loyrette Nouel
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Do We Need an Office for the Protection of Developers?
September 24, 2008   
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The Office of Competition and Consumer Protection (UOKiK) has turned its gaze on developers and started to clamp down on any application of unlawful contractual clauses in transactions involving consumers. While consumers naturally deserve protection, the scales have started to swing too far and developers are starting to suffer from overprotection.

The UOKiK has drawn up and continues to add to a special blacklist of more than 1,500 clauses, which, if included in contracts, may lead to substantial fines for the entrepreneur. This fine may amount to as much as 10 percent of the revenue from the previous financial year. The Polish Developers Association (PZFD) tried to support the UOKiK in combating developers abusing their dominant position by creating a "Code of Good Practice," or a set of rules for developers and their customers to follow when entering into contracts. Unfortunately, this document failed to meet the demanding expectations of the UOKiK, which challenged some of its provisions. This means that developers cannot use the code as a good example in their contracts.

Some of the clauses listed as unlawful have been seen as controversial and overprotective of consumers. This is true in relation to clauses whereby developers may increase the price if the rate of VAT is increased. The PZFD code conceded that the customer may withdraw from the contract if the total price increases by more than 10 percent. However, this was deemed to be insufficient by the UOKiK, which expected the consumer to have the right to withdraw in the event of any price increase, regardless of the amount. Any clause not complying with this standpoint is deemed unlawful, effectively placing the burden of the risk of a sales tax increase firmly on the shoulders of the developers.

Another similar unlawful clause relates to potential changes in the actual area of residential premises against the area set out in the contract. Given the realities and the nature of the construction sector, such differences are the rule rather than the exception. Although the UOKiK, in theory, admits provisions allowing a slight change in area, and which are fully in line with the technical standards in the construction industry, in reality it included a series of such contractual provisions in the list as unlawful. For example, one of the provisions rules unlawful any price change on a +/- difference in area by as little as 1 percent. The PZFD code tried to secure developers by limiting the consumer's right to withdraw from the contract to cases where the difference between the actual area and the agreed area is 2 percent or more. This proposal was rejected by the UOKiK, and developers are left with continued uncertainty about how "slight" a change in area is acceptable, and what clauses could be considered abusive.

If the above examples could be seen as too stringent on developers, there are also cases of excessive leniency on consumers. One example involves contractual penalty clauses imposing penalties for withdrawal by consumers. The UOKiK stated that the common penalties of 5 percent of the property value are too high, and that lower penalties, such as 3 percent, may also be deemed too much. It seems obvious that developers require a certain level of assurance that consumers will not be able to withdraw from a contract without retribution. It is equally apparent that any such penalties cannot be disproportionate, but the question is what should be considered excessive, and who should decide. The UOKiK's position of 5 percent appears to be arbitrary and ungrounded; it would seem more reasonable for the issue to be regulated by the legislator.

Similarly controversial is the commonly used but now deemed unlawful reservation fee clause. This provides security for the developer that, if the conditions and dates specified in the reservation contract are met, then the customer will enter into a developer contract or will forfeit the reservation fee. It seems astonishing that, although this form of security deposit is widely used by our European peers and is universally recognized and accepted in the Polish legal doctrine, the UOKiK refuses to allow developers to include such clauses and secure their position.

These clauses are just a few examples of a continually growing pool of unlawful contractual clauses. developers are finding that it is practically impossible to avoid all of them when entering into a contract. Maybe the developers should call for the UOKiK to set out a list of lawful clauses, as the list would probably be shorter and clearer, or even suggest that an Office for the Protection of Developers should be appointed to counter the moves of the UOKiK. But all jokes aside, this is an area that clearly should be looked at again by the UOKiK and the legislator, not only to verify and trim the current list of unlawful clauses and to ensure that the list reflects the economic reality and the ever-increasing consumer awareness, but also to establish periodic reviews of the list, for example on an annual or triannual basis, to ensure that it remains relevant in the years to come. This is particularly important as the UOKiK is now demanding higher penalties and growing ever stricter.

Andrzej Lulka, legal advisor and partner in charge of the Real Estate Law Department at Gide Loyrette Nouel law firm
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