The last stage of purchasing a plot of land for a development investment is the ownership transfer agreement, also called the promised agreement. Its conclusion is a consequence of previously concluded agreements, i.e. the reservation agreement and the conditional purchase agreement.
If you haven't read about the two previous stages of purchasing land for a development investment, please read the following posts:
Plot of land for development investment and the first stage of its purchase - reservation agreement
Plot of land for development investment. Second stage of its purchase – conditional agreement
It is worth emphasizing that becoming the owner of the property is not the same as making a payment for the plot! According to Polish law, you become the owner of the property at the moment of signing the notarial deed. The issue of making a payment is of no importance here.
Yes, I know it looks a bit strange, but that's how the real estate buying process works in our country. There are of course some exceptions to the rule, but I'll write about that in a moment.
Ownership of the property passes to you the moment you sign the notarial deed of purchase.
According to the provisions of the notarial agreement, you are obligated to pay for the purchased property within a specified time. It is worth having the method and date of payment agreed with the seller in advance, so that there is no "tension" in the seller-buyer relationship.
In practice, the moment the notarial deed is signed, the seller ceases to be the owner of the property. Therefore, for some time there is neither property nor money! Depending on the type of transaction, there are certain solutions for such a situation, which I have personally practiced with the Clients I work with.
The first option is to make a payment for the purchased property during the notarial deed. Increasingly rare, but there are situations when the parties to the transaction settle in cash at the notary's office when concluding the contract. The notary then certifies in the notarial contract that the parties have settled.
Option two, when the purchase price is quite significant, the buyer and seller take a break from the meeting at the notary and go to the bank. The buyer makes a bank transfer, and then both parties return to the notary's office to complete the agreement. The notary certifies in a notarial deed that the parties have settled.
Another option is to make a payment for the property in a notarial deposit. This most often happens in situations where the purchase and sale transaction involves certain costs for the buyer and the risk that the seller may withdraw from the transaction.
The seller then sends a transfer to the technical account of the notary's office with a specified advance notice. The notary then prepares a protocol of the receipt of funds for the notary deposit. At the time of the transfer to the seller's account, the notary prepares a protocol of the release of funds from the notary deposit.
If in previous agreements (reservation and conditional) the buyer and seller have agreed on a payment deadline, e.g. within 7 days from the date of conclusion of the agreement and wish to maintain it in the ownership transfer agreement, the notary enters such arrangements into the agreement. The buyer then settles the payment within the agreed time.
The payment deadline of a few days after the agreement also occurs when the buyer pays for the property with a bank loan. In order to initiate such a payment, the bank needs a document from which it results, i.e. a notarial deed. According to internal regulations, the bank also has a specified time to transfer funds to the seller's account.
There are situations when a given special purpose vehicle purchasing land for a development investment becomes its owner, but is required to make payments in, for example, 3-5 years. Most often, the idea is to settle the payment after the sale of the constructed premises.
This situation causes some complications in later cooperation with the bank that would grant a loan for the construction. From a legal point of view, the special purpose vehicle is the owner of the land. From an accounting point of view, it has a plot of land in the assets of the balance sheet, but at the same time large liabilities on the liabilities side.
In other words, the transaction has not been settled and theoretically there is a certain risk that the seller may apply to the company for a so-called retransfer of ownership. One must be very careful about such situations.
Yes, you didn't see it coming. As I mentioned earlier, there are some exceptions to the rule regarding when ownership is transferred and when payments are made. I want to mention them briefly here.
These exceptions apply to so-called “public trust institutions.” According to the act that normalizes the operation of these institutions, the sale of any property requires that payment be made first, and only then can ownership be transferred.
I personally participated in two such transactions. The first involved the sale of a plot of land from the Military Property Agency, and the second involved the purchase of a residential property from the National Bank of Poland. In both cases, the funds for the sold real estate had to be credited to the accounts of the aforementioned institutions before the ownership transfer agreement.
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Okay, but what if the seller does not pay for the property within the agreed time after the transfer of ownership agreement? How does the law protect the seller?
Article 777 of the Code of Civil Procedure (KPC) and the notarial submission to enforcement contained therein come to the rescue. It is of great importance from the point of view of every creditor. It allows for obtaining very high quality security for debt repayment.
The regulations contained in Article 777 of the Code of Civil Procedure significantly facilitate the pursuit of claims related to the delivery of real estate. The notary enters into the notarial agreement that the debtor submits to enforcement and undertakes to deliver the real estate. Such enforcement simply consists of the compulsory taking of the given thing from the debtor (buyer) and handing it over to the creditor (seller).
All the previously described stages of buying land for a development investment are designed to lead you to buy such land. If, of course, you have checked everything thoroughly and such a purchase is fully justified from a business perspective. Never buy a plot of land "blindly". Check first, then buy!
Development loan or construction with own funds – which is more profitable?
You can find more about developer finances here on this page of my blog, and if you would like to consult with me about your project, please contact me on this page.
I wish you many successful projects,
Paul Pilarczyk