Refund of the reservation fee by the developer – when is it due and how much?

The refund of the reservation fee in Poland is one of the most common problems when concluding reservation agreements with developers. In practice, buyers are often unsure whether, in a given situation, the developer is obliged to refund the funds paid, and if so, within what time frame and in what amount. However, the refund of the reservation fee is not discretionary, but is due in strictly defined cases provided for in the Polish Development Act and cannot be arbitrarily limited by the provisions of the agreement.

A reservation agreement in Poland is a document concluded between a developer and a person interested in purchasing a property even before signing a development agreement. The main purpose of a reservation agreement is to ‘reserve’ a specific flat or single-family house by the future buyer, i.e. to temporarily exclude it from the developer’s offer.

In the Polish Development Act, the legislator explicitly stated that a development agreement or other agreement obliging the transfer of ownership of real estate may be preceded by the conclusion of a reservation agreement.

In most cases, the conclusion of a reservation agreement entails the obligation to pay a reservation fee (Article 32(2) of the Polish Development Act), which in practice raises the question of when the reservation fee is refundable by the developer.

As a rule, the reservation fee:

• is credited towards the price of a flat or a single-family house – if, after concluding the reservation agreement, the parties conclude a development agreement, a sale agreement or another agreement transferring ownership (Article 32(3) of the Polish Development Act), or
• is retained by the developer if no such agreement is concluded.

However, there are exceptions to this rule.

In practice, one of the most common problems when concluding reservation agreements in Poland is determining whether and when the developer is obliged to refund the reservation fee paid by the reserving party. These cases are regulated in detail in Article 34 of the Polish Development Act and will be discussed later in this publication. For those reserving flats and houses, a proper understanding of this mechanism is crucial, as the reservation fee often amounts to several thousand or even tens of thousands of zlotys. At the same time, the provisions of the Polish Development Act in this regard are not always formulated in an unambiguous manner, which in practice may lead to a dispute between the developer and the future purchaser of the premises.

In the rest of this article, we discuss in detail:

• Can a developer limit the right to a refund in a reservation agreement?
• When is a developer obliged to refund a reservation fee?
• When is the reservation fee refunded in double the amount?
• What to do if a developer refuses to refund a reservation fee.

Refund of the reservation fee – when is the developer obliged to refund it?

Firstly, it should be noted that the developer has an absolute obligation to refund the reservation fee if any of the conditions specified in Article 34 of the Polish Development Act, discussed in more detail below, are met. What is particularly important is that all grounds for refund are mandatory, i.e. they are completely independent of the will (or lack thereof) of the parties to the agreement. The Polish Development Act uses the unambiguous wording that the reservation fee ‘shall be refunded to the reserving party’ and not, for example, “may be refunded to the person making the reservation.

In practice, this means that:

• the developer has no right to refuse to refund the reservation fee in the situations specified in Article 34 of the Polish Development Act,
• the developer may not negotiate the refund of the reservation fee,
• the developer may not make the refund of the reservation fee conditional on the fulfilment of additional conditions by the reserving party,
• the developer may not require the reserving party to take any additional actions not directly resulting from the Act.

If there are statutory grounds for a refund, the developer is obliged to refund the reservation fee by law, regardless of the content of the reservation agreement or their own assessment of the situation.

Refund of the reservation fee in the event of mortgage refusal

One of the most common situations in practice where a developer is obliged to refund a reservation fee is when the person making the reservation has not obtained a positive credit decision in Poland or a mortgage commitment due to a negative assessment of their creditworthiness by the financing bank (Article 34(1)(1) of the Polish Development Act).

In practice, this means that the person making the reservation has received a decision from the bank rejecting their loan application, in accordance with Article 24(1) of the Polish Mortgage Credit and Supervision of Mortgage Credit Intermediaries and Agents Act. In such a case, the person making the reservation should immediately send the decision to the developer, who is then obliged to refund the reservation fee.

However, not every situation where no credit decision has been made entitles the person making the reservation to a refund of the reservation fee from the developer. A refund is not due if the lack of a decision is the fault of the person making the reservation, for example due to:

• failure to submit the required documents to the bank on time,
• incomplete application, errors in the loan application,
• submission of a loan application for a property other than the one covered by the reservation agreement.

The Polish Act stipulates that the reservation fee is refundable only if the lack of a credit decision results from a negative assessment of the reserving party’s creditworthiness, and not, for example, from failure to obtain a decision.

As a rule, it is sufficient to present the lender’s decision confirming the negative credit assessment, unless the circumstances of the case indicate that the lack of a decision was due to reasons attributable to the person making the reservation. The buyer of the premises is not obliged to take any additional steps or submit any additional applications in order to obtain a refund of the reservation fee from the developer.

Refund of the reservation fee when the developer fails to perform its obligations under the reservation agreement

The developer’s primary obligation under the reservation agreement is to temporarily exclude the premises or house from the sale offer. Although the Polish Development Act does not explicitly regulate all the details of the developer’s obligations under the reservation agreement, failure to fulfil this basic obligation may result in the need to refund the reservation fee. What is more, the refund is double the amount, so if the person making the reservation paid PLN 50,000 as a reservation fee and the developer did not remove the flat or house from the sale offer, the developer is obliged to refund PLN 100,000 to the person making the reservation.

If the person making the reservation notices that the developer is not fulfilling their obligations under the reservation agreement and wants to claim double the fee, they should gather relevant evidence, and above all:

• documents confirming that the property has not been withdrawn from the offer,
• e-mail correspondence with the developer.

The refund of double the reservation fee does not preclude the possibility of pursuing additional claims against developer for damages under Article 471 of the Polish Civil Code if the developer’s actions caused greater damage to the person making the reservation.

Refund of the reservation fee in the event of changes to the developer’s prospectus

The Developer Act provides that the person making the reservation is entitled to a refund of the reservation fee if the developer has made changes to the developer’s prospectus without informing the person making the reservation.

However, it should be noted that the Polish Act does not specify the moment from which the obligation to refund arises, nor does it indicate the deadlines by which the developer should inform the person making the reservation about changes to the prospectus. In practice, if the parties are preparing to conclude a development agreement in Poland, any changes to the prospectus should be presented to the person making the reservation for review before signing the agreement, as the prospectus forms an integral part of the development agreement.

For this reason, situations in which a change to the prospectus results in an obligation to refund the reservation fee are rare in practice and are of a marginal nature.

Refund of double the reservation fee in the event of defects in the premises and refusal to sign the contract transferring ownership of the property

The Polish Development Act provides that the person making the reservation is entitled to a double refund of the reservation fee if all three of the following conditions are met:

1. the buyer reported defects in the flat or house in the acceptance report,
2. the developer did not remove the reported defects within the deadline.
3. the buyer did not proceed to sign the contract transferring ownership of the property.

In such a situation, the reservation fee ‘acts as a kind of bonus for the buyer, encouraging developers to effectively remove the reported defects and hand over the flat or house without defects’ (Justification for the draft law on the protection of the rights of buyers of residential premises or single-family houses and on the Polish Developer Guarantee Fund, Sejm Document No. 985 of the 9th term).

In practice, disputes arise as to whether every reported defect actually constitutes a defect in the premises. It seems that not every minor defect will be considered a defect within the meaning of the Polish Act – what counts are significant defects that affect the use of the premises or house. The lack of uniform case law in this area means that the resolution of disputes between developers and buyers often requires individual legal and technical analysis.

Can a developer introduce rules for the refund of the reservation fee other than those provided for in the Polish Development Act?

Apart from the circumstances described above, which result directly from the Polish Development Act, the parties may also provide for the refund of the reservation fee in the event of other events, provided that these changes are beneficial to the person making the reservation. However, the developer does not have the right to:

• exclude the obligation to refund the reservation fee in situations specified in the Act,
• make the refund conditional on the fulfilment of additional conditions (e.g. the developer’s consent, timely submission of statements going beyond the Act),
• introduce provisions that would indirectly lead to circumvention of the provisions of the Polish Development Act regarding the refund of the reservation fee.

If the reservation agreement provides for different, i.e. less favourable to the reserving party, rules for the refund of the reservation fee, such provisions may be considered invalid and non-binding on the consumer.

Consequently, even if the reserving party signed an agreement containing incorrect provisions, their right to a refund of the reservation fee is determined solely by the provisions of the Polish Development Act, and not by the content of the agreement concluded with the developer.

Deadline for refunding the reservation fee – what does ‘immediately’ mean?

The developer may not retain the reservation fee in situations where it is required by law to refund it. According to the Act, the fee should be refunded ‘immediately’. However, how should ‘immediately’ be interpreted in practice?

In practice, Polish courts interpret the term ‘immediately’ on the basis of linguistic interpretation, pointing out that in Polish ‘immediately’ means without delay, right away, instantly (W. Doroszewski, Słownik poprawnej polszczyzny [Dictionary of Correct Polish], Warsaw 1973, p. 408; W. Dunaj, Słownik współczesnego języka polskiego [Dictionary of Contemporary Polish], vol. I, Warsaw 2000, p. 616). However, this does not mean a moment in the absolute sense, as it is a real term that takes into account the circumstances of the performance of the service.

A practical example from Polish case law:

“The term “immediately” means a real deadline, taking into account the circumstances of place and time, as well as the provisions of Articles 354 and 355 of the Civil Code” (judgment of the Polish Supreme Court of 30 June 2011, file ref. no. III CSK 282/10).

Polish case law also often adopts a strict 14-day period as the equivalent of ‘immediately’ in the case of civil law performance.

A practical example from Polish case law:

“In typical situations, where the circumstances do not indicate otherwise, it should be assumed that performance immediately after the debtor has been called upon to perform (Article 455 of the Civil Code) means performance within 14 days of the call” (judgment of the Polish Court of Appeal in Warsaw, 6th Civil Division, of 26 March 2018, ref. no. VI ACa 2023/16).

Regardless of which interpretation is adopted, it therefore appears that the developer should refund the reservation fee within a maximum of 14 days from the date of receipt of the payment request, unless exceptional circumstances require a shorter or longer period. If the developer fails to refund the reservation fee within the statutory period, the person making the reservation has the right to file a lawsuit for the refund of the reservation fee in a civil court. The lawsuit may seek not only the refund of the amount paid, but also, in certain situations, statutory interest for delay.

How to request the developer to refund the reservation fee?

In practice, the first step will be to send a payment request to the developer. This request should be clear, precise and specify:

• the amount to be refunded
• the bank account number to which the developer should transfer the funds,
• the refund deadline; it is recommended to specify a 14-day deadline for the refund, as this period is in line with court practice and is considered to meet the requirement of ‘immediately’.

It may also be added that the request is final and pre-judicial, which is important in a situation where there is a risk that the developer will not make the refund voluntarily. If the developer fails to respond, the request constitutes the basis for filing a lawsuit for the refund of the reservation fee together with any interest.

Does the developer have to refund the reservation fee if the person making the reservation withdraws from the purchase?

From the developer’s perspective, the key question is whether the reservation fee is refundable if the person making the reservation decides not to proceed with the purchase. The Polish Development Act does not explicitly regulate this issue, which in practice may give rise to many interpretative doubts.

In such a situation, it should be assumed that (unless there are statutory grounds for a refund) the developer is entitled to retain the reservation fee. This amount should be treated as the developer’s remuneration for performing the obligation under the reservation agreement, which is to temporarily exclude the flat or house from the developer’s sale offer.

It is worth noting that the legislator uses the term ‘fee’ instead of ‘remuneration’, but in practice it is remuneration for the provision of a service, i.e. protecting the flat or house from being sold to other customers during the reservation period.

Summary – reservation fee in the reservation agreement

The reservation fee in the reservation agreement under Poolish law is an amount paid by a person interested in purchasing a property in order to temporarily exclude the flat or house from the sale offer.

The reservation fee is refunded only in specific situations provided for by law or the agreement, i.e. refusal of a mortgage due to creditworthiness, failure of the developer to fulfil their obligations, changes in the prospectus or defects in the property that prevent the signing of the transfer of ownership agreement. In some cases, it is possible to obtain a double refund.

However, the person making the reservation should carefully check the terms and conditions of the reservation agreement, keep documents confirming the payment and correspondence with the developer, and, in case of doubt, consult a solicitor specialising in property law. The reservation fee primarily gives the right of first refusal to purchase the property, but does not replace the development agreement.