You concluded a reservation agreement for the purchase of a plot of land for a development investment in a civil law form. This allowed you and the seller greater flexibility at the initial stage of talks. However, it also caused the risk of a quick withdrawal from the transaction.
You will find an entry about the first stage of purchasing a plot for a development investment below.
Plot of land for development investment and the first stage of its purchase - reservation agreement
A detailed analysis of the plot is associated with specific financial costs and takes a lot of time (several, and sometimes even a dozen or so months). Starting such an analysis at the stage of concluding a reservation agreement is crucial, but its full completion is unlikely due to the time required.
In this situation, it is difficult to expect the seller to agree to wait a long time for the sale of the plot to be finalized without having a "stronger" notarial confirmation of the developer's readiness to purchase. It is also difficult to imagine the developer bearing the costs of the team analyzing the plot. There is also a risk that the owner of the plot will find another investor and finalize the sale with him.
At this stage, usually a few or a dozen weeks after signing the reservation agreement, the buyer and seller go to a notary. Signing the agreement in the form of a notarial deed will significantly reduce the risk of the purchase-sale transaction for both parties. It will also make their mutual intentions credible.
Buying a plot of land for a development investment differs from buying a plot of land for the personal needs of a private person. A plot of land is a "goods" that should meet certain requirements so that a specific product can be prepared from it. Such a final product of the developer's activity is premises in which one can live or rent them.
The notarial agreement should therefore contain a list of all the conditions that the land plot must meet in order for its purchase to be justified. This form of notarial agreement is called a conditional agreement.
You purchase a plot of land as a special purpose vehicle that you establish to carry out a specific investment.
Unlike a preliminary agreement, the purchase of a plot of land is dependent on the fulfillment of certain conditions in a conditional agreement. Their fulfillment, however, may take more or less time. Only if certain conditions are met can a purchase and sale agreement (promised agreement) be concluded.
In the case of a regular preliminary agreement, the purchase is dependent only on the specified date on which the purchase and sale agreement will be concluded. The buyer usually gives the seller a deposit (although sometimes these are also advance payments) usually in the amount of 10% of the price of the plot. The preliminary agreement specifies that regardless of whether the plot meets certain criteria, the transaction will be concluded on the specified date.
However, if for some reason the transaction does not take place, in the case of a conditional contract the deposit is refundable (if the required conditions have not been met), and in the case of a preliminary contract the deposit is non-refundable.
In a preliminary contract, the purchase is dependent on a specific date, and in a conditional contract on the fulfillment of a specific condition.
The more criteria that allow for a quick start of construction the plot meets, the better and safer for you. The worst thing that could happen to you is to buy a plot on which nothing can be built.
In a conditional agreement for the purchase of a plot of land for investment purposes, it is worth including the following sample issues:
It is worth emphasizing that when purchasing a plot of land for investment, the fulfillment of the above-mentioned conditions is the responsibility of the buyer. Failure to fulfill them due to the buyer's fault may result in the loss of the deposit paid!
In order not to temporarily engage the owner of the plot, it would be necessary to obtain from him an appropriate notarial power of attorney to dispose of the plot for construction purposes. This will allow you to represent the owner before the appropriate offices and act on his behalf. After all, you are buying a plot of land for a development investment.
The power of attorney should also specify in detail the scope of activities that are required to prepare the development project. Additionally, it should also give you the opportunity to obtain a building permit for the company implementing the investment, and not the current owner of the plot. This will eliminate the need to copy the building permit or other documents and save you some time.
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As I wrote earlier, signing a contract in the form of a notarial deed (conditional contract) will significantly reduce the risk of the real estate purchase and sale transaction. One of such transaction security measures at this stage is the entry of a claim in the real estate land and mortgage register.
When concluding a conditional land purchase agreement, the notary submits an application to the court to enter a claim into Section III of the land and mortgage register. This application concerns the claim to conclude a final land purchase agreement, i.e. a purchase and sale agreement. This is a kind of possibility, not an obligation.
The entry of such a claim effectively prevents the sale of the plot to another buyer. In order for the owner of the plot to sell, they must receive your consent! If they do not receive it, then only one year after the deadline for the purchase and sale of the plot has passed, the entry of such a claim will be removed from the land and mortgage register of the plot.
What's more, such a claim does not automatically expire. It can only be deleted on the basis of a request for deletion, which the seller will submit. Considering the speed of the courts' consideration of applications and taking into account all the previously mentioned deadlines, it may turn out that the plot will be blocked from sale for several months!
In some situations, the seller is keen to finalize the sale of the plot as soon as possible. On the other hand, the developer is unable to speed up certain administrative procedures in offices or during geotechnical soil tests. The sale transaction may then drag on for many months.
In such a situation, it is worth both parties playing with open cards and being ready to compromise. What could be such a compromise? If the seller finds another customer in the meantime who is willing to pay an even higher price for the plot and agree to a quicker purchase, the seller will be able to sell it to him, but I, as the current buyer, will be able to exercise the right of first refusal.
Thanks to this, the seller will not be blocked by us in the sale. The buyer, on the other hand, will be able to make a purchase on their own terms. They will also have the option of using an additional right that protects them from losing the plot at an advanced stage of its analysis or obtaining the appropriate permits. Both parties win.
You can read about the final stage of purchasing a plot of land for a development investment in the next entry below.
Land for development investment. The third stage of its purchase – ownership transfer agreement
You can find more about developer finances 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