The Developer Act does not prohibit the use of indexing clauses, so they are not commonly used by developers. However, the WCPC president wants to see how many developers include such clauses in their contracts and how they are worded. The market research covers 87 entrepreneurs.
An indexation clause is a contractual clause that provides that the value of a benefit may be indexed to some accepted measure of value other than cash. Such a clause can be included in the contract when at the time of its conclusion it is difficult to determine how much the goods or services will actually cost, especially when it takes a long time from signing the contract to handing over the object to the customer. .
It is difficult for developers to determine the final price of an apartment
This is a real estate issue. Let’s say that in 2019 a developer sold a house that was supposed to be built within two years. The price was specified in the contract and the whole procedure was carried out correctly. Just from 2019 to 2021, a lot has changed in the real estate market. Just a year and a half ago (before the start of the series of interest rate hikes), apartments were being sold “on the spot” and prices were rising every quarter. To some extent, this was due to the rise in the price of building materials, but the developers also considered that they could afford to raise prices, because sooner or later there will be a buyer for each apartment.
Due to the skyrocketing prices of materials, it was very difficult to determine the final price of the apartment in the two years of construction. Some developers claimed that they had to pay extra to build buildings to an agreed standard. With this surcharge, it’s more of a play on words, but it can’t be ruled out that they’ve made less profit on some of the investments they’ve passed on than previously thought.
It was profitable for the developers to terminate the contracts and sell the apartment again
Today, when real estate sales have fallen significantly (in the third quarter of 2022, apartment sales from listed developers were almost half as much as in the same period in 2021), it’s hard to believe, but in 2021, when sales were going like crazy, some developers reported their clients contracts and sold apartments at higher prices. Although they had to pay a penalty to their customers for not fulfilling the contract, it still paid off, because prices since 2021 have been much higher than at the time the contracts were signed a year or two earlier.
Indexation clauses are provided for precisely such price changes that are difficult to predict. The Builder Law does not prohibit the inclusion of GUS price indexation clauses, but few developers use them in their contracts. Could their popularity increase in the future? On the one hand, it is now very difficult to find clients, so it is difficult to imagine that developers will resort to methods to ensure their interests, which will additionally scare away potential buyers. On the other hand, inflation and the risk of unexpected increases in material prices mean that some investments can become unprofitable, and after all, the entrepreneur must earn money, and not give up profits just to finish the construction. Therefore, it cannot be ruled out that developers will slowly introduce such clauses into contracts.
87 entrepreneurs will answer the questions of the President of UOKiK
President of the Office for Competition and Consumer Protection Tomasz Chrostny decided to be proactive and conduct market research in the industry. It will analyze nearly 90 entrepreneurs in terms of whether they use indexation clauses in their contracts.
“As part of the explanatory proceedings, 87 entrepreneurs received requests for information and necessary documents, one of them is already under explanatory proceedings,” the UOKiK said in a statement.
- Agreements must be formulated unambiguously and in an understandable way regulate the relationship between the parties. Consumers have the right to know what obligations they undertake, what specific conditions they agree to. The power of the developer to change the price cannot lead to abuse of its position by disproportionately burdening consumers with the consequences of changes in economic conditions on the market. – said Tomasz Chrostny, president of UOKiK.
Source: Wprost
