Does the preliminary agreement entail an entitlement to dispose of the real estate for construction purposes?

Does the preliminary agreement entail an entitlement to dispose of the real estate for construction purposes?

Before the commencement of the construction, the investor must fulfil a number of duties. One of them is to submit a statement on holding a right to dispose of the real estate for construction purposes. This is also one of the conditions for obtainment of a permit for construction. But not only. Such an obligation also arises at the time of reporting an intention to perform construction work or submission of an application for approval of the construction design. Even though it is clear that the right to dispose of real estate for construction purposes derives from the ownership title, what happens in the situation in which we only have a preliminary agreement?

 

 

 

Who has a right to dispose of the real estate?

A catalogue of rights constituting a title to dispose of the real estate for construction purposes is specified in the act – the Construction Law. But it is not limited only to the ownership title. Such title is also constituted by the right of perpetual usufruct, the holding of a right to manage the real estate or the establishment of a limited property right to the benefit of the investor. Construction may also be conducted on the basis of an obligation relationship, such as lease or tenancy. However, it is necessary for such relationship to entail a right to perform construction work. All of the aforementioned conditions are characterized by their definitiveness. But how to approach preliminary agreements or promises which merely constitute “preparation” for the conclusion of the relevant promised agreement? Recently, this concern has been settled.

 

Preliminary agreement

The Supreme Administrative Court, in its judgement of 17 July 2017 (II OSK 2316/16), stated that each obligation relationship which, in its essence, covers a right to perform construction work, forms the basis for the disposal of the real estate. It is not justified to distinguish between a definite agreement and a preliminary agreement, because each of them constitutes and obligation relationship, and their evaluation is performed on the basis of the provisions of the civil law. Therefore, if a preliminary agreement or a promise is sufficiently detailed to include the right to perform construction work, then the investor may submit an application for a permit for construction.

 

Is this really so simple?

Such a solution may seem very beneficial for the investor. If, due to various reasons, the time of conclusion of the promised agreement is delayed whether due to negotiations of the term of the agreement or other circumstances concerning either party, then the investor may, without waiting for the conclusion of the agreement in its final shape, apply to the relevant authority for a permit for construction. This helps to accelerate the formal aspects of the proceedings. In consequence, if the application is complete and meets all the requirements, it is possible to commence the construction after 65 days from the submission of the application.  Such a deadline for consideration of the matter by the authority is stipulated in the Construction Law.

A possibility of applying for a permit for construction before the applicant becomes the owner of the real estate seems to be a good solution. However, there is a risk that during the period of performance of the construction work by the investor on the real estate, the owner does not proceed with the conclusion of the promised agreement. Then the problem may be the issue of mutual settlements and claims. In order to avoid such situation, it is recommended to enter into a preliminary agreement in the form of a notarial deed. Such a form of an agreement provides for the entry of the claims driving from the agreement in the land and mortgage register of the real estate, and therefore it constitutes a certain form of security of the interests of the investor. Moreover, a good solution seems to be the inclusion in the preliminary agreement of provisions concerning a contractual penalty.

 

Summary

The basing of the right to dispose of real estate for construction purposes on the preliminary agreement definitely constitutes a promising solution for the investor for whom time is of essence. However, in order to make sure that more is gained than lost, one should remember about the sufficient level of detail of the provisions of such agreement and its form. It is important not only to include the provisions concerning the rights of the investor to conduct the construction work on the real estate, but also the method of settlement of accounts in the event of possible withdrawal of the owner before the signature of the promised agreement. That is why it is in the interest of the investor to precisely prepare the agreement or order its preparation from professionals in this field.

 

 

The author of the article is Roksana Waltrowska, a lawyer at GWW.