Buying from a developer
Late delivery of a new apartment from a developer: when compensation is due and how much
The delivery date in the contract is almost always an optimistic one. The law sets out what the purchaser is entitled to when it is not met, including compensation for late delivery, and nothing in the contract can derogate from that.
First of all, what is your delivery date?
Contracts for buying from a developer set out the delivery date in several layers: a target date, a permitted period of postponement, and events that extend it. Before talking about compensation, you need to read the clause to the end and establish the exact contractual date from which the delay is counted. That is why the delivery clause is one of the most important clauses to review before signing.
The grace period: one month
Section 5A of the Sale (Apartments) Law establishes a statutory compensation mechanism. Following Amendment No. 9 to the Law, which came into force on 7 July 2022 and applies to agreements signed from that date, the grace period was shortened to one month. A delay of no more than one month does not give rise to compensation under the section. Beyond that, an entitlement to monthly compensation begins.
Compensation rates
Compensation is based on the rent for a similar apartment in size and location, and increases the longer the delay continues:
| Length of delay | Monthly compensation |
|---|---|
| Up to one month | No compensation under the section |
| First to fourth month | 100% of the rent for a similar apartment |
| Fourth to tenth month | 125% of the rent for a similar apartment |
| Beyond ten months | 150% of the rent for a similar apartment |
Compensation is paid for each month of delay and does not depend on proof of actual loss. In other words, even a purchaser who lived with family in the meantime and did not rent an apartment is entitled to it. However, a purchaser who suffered greater loss may claim his full loss under the law of contract, and the statutory compensation does not necessarily limit him.
When is the developer exempt from paying?
The law recognises situations in which the delay does not give rise to compensation, mainly where it was caused by an act or omission of the purchaser himself, or by external circumstances that the developer could not have foreseen and whose consequences he could not have prevented. This is in effect the rationale of the doctrine of frustration, and it is applied narrowly. Developers tend to stretch arguments of this kind, and not every such argument is accepted.
Note the other side of the coin as well: the purchaser himself may cause a delay, for example by ordering late changes or by paying late. Keeping orderly records of the dates of orders and payments protects you against such an argument.
What should you do right now?
- Keep a signed copy of the contract and of every appendix, including the payment schedule and the specification
- Record in writing every change ordered, every payment and every confirmation received from the developer
- When the delivery date approaches and there is no sign of completion, write to the developer and ask for an updated date
- Collect data on the rent for similar apartments in the area as at the date the delay began
- Do not sign a waiver or a settlement at handover without checking what you are giving up
At handover, after years of waiting, it is easy to agree to any document put on the table just to get the keys. That is precisely where waivers of compensation that has already accrued are sometimes signed.
And what if the contract provides for lower compensation?
The provisions of the Sale (Apartments) Law on this matter are designed to protect the purchaser, and a contractual term that seeks to derogate from them does not stand. However, the contract can affect the starting point, for example through the definition of the delivery date itself and through the list of events that extend it. That is exactly why it is worth reviewing the delivery clause before signing, while it can still be changed.
Questions and answers
My contract was signed before July 2022. What applies to me?
Agreements signed before Amendment No. 9 came into force are governed by the previous version of section 5A, under which the grace period and the compensation rates are different. You should check the date of signing and the version that applies to it.
The developer claims the delay was caused by general delays in the industry. Does that exempt him?
Not every delay gives rise to an exemption. The exemption is intended for circumstances that could not have been foreseen and whose consequences could not have been prevented, and it is applied narrowly. A general argument about the state of the industry is not sufficient in itself.
Can I also claim for additional loss beyond the monthly compensation?
Possibly. The compensation fixed by law does not necessarily rule out a claim under the law of contract for greater loss actually suffered, but the loss must be proved. It is worth considering the appropriate route in light of the specific facts.
Not sure the deal is safe? Let's start with a conversation
In an initial conversation we will go over the property, the other party and the payment schedule, and tell you what needs to be checked before you sign.