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11 April 2008
The Developers' Contract Act concerns agreements for the acquisition of apartments or other real property prior to the construction of the building. The act generally intends to protect the buyer against onerous provisions dictated by the typically stronger developer.
Parliament has recently passed a reform of this act. The reform mainly aims to increase the protection of the buyer. The main changes lie in (i) a modified payment scheme and (ii) a deferred payment of 2% from the final price. The reform will be applicable to developers’ contracts concluded after July 1 2008.
One of the main aims of the Developers' Contract Act is to provide adequate securitization for advance payments by the buyer. This security can be, among other things:
If developers do not provide any of these types of security, they must not accept advance payments. In this case the purchase price must be deposited in an escrow account and paid to the developer commensurate with the building process. The Developers' Contract Act sets out in detail what percentage of the purchase price should be paid at what stage of the construction works.
The reform modifies this payment scheme in two ways. First, developers will receive the purchase price at a later stage. Second, developers are now given the choice between two alternative payment schemes.
The regular payment scheme provides for the following payments:
The alternative payment scheme can be agreed upon only if the developer provides the buyer with a bank guarantee or insurance for at least 10% of the purchase price. The scheme provides for the following payments:
After the reform, the developer will have the choice of accepting the payments at a later stage (and thus increasing the cost of financing) on the one hand or accepting the payments at an earlier stage and in turn bearing the cost of a bank guarantee.
The reform further provides that the buyer is allowed to retain a 2% deduction from the final price for three years, which will cover warranty claims and expenses for possible damages. The developer may substitute the deduction by bank guarantees or insurances which cover the same amount and duration.
The reform entails the following additional changes:
During the preparation of the reform, developers’ interest groups were fighting an uphill battle against consumers’ associations. While increased consumer protection is certainly welcome, it must be borne in mind that such an increase of protection comes at a price: it is estimated that the reform will lead to an increase in project costs of between 3% and 5%. These costs must be added to the increased costs of financing that are the result of the subprime crisis. In the present market environment in Austria it is likely that a large part of these costs will be passed on to the buyer.
For further information on this topic please contact Nikolaus Pitkowitz or Martin Foerster at Graf & Pitkowitz Rechtsanwälte GmbH by telephone (+43 1 401 17 0) or by fax (+43 1 401 17 40) or by email (firstname.lastname@example.org or email@example.com). The Graf & Pitkowitz Rechtsanwälte GmbH website can be accessed at www.gmp.at.
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