• Alexandra Kurbanova, real estate agent

Developer requests to pay extra before handover. What to do?

Several people have recently reached out to me with the same question: the developer has increased the price of the property that they buy from him right before the signature of the purchase agreement and ask them to pay the difference. Is it legal?

Currently we’re going through unusual times of rapid price increase especially of the energy and building materials. Many developers face the increase of work force prices as well. It’s no wonder that the finalizing a project cost them more than what they have agreed on with buyers several years ago.

Buyers understand it, but it’s not making it easier when they’re suddenly asked to pay several hundred thousand more right before the move into a new home.

Is it legal and what can be done?

Normally a pre-purchase agreement ("smlouva o smlouvě budoucí kupní") does not expressly allow the developer to increase the price. However, generally applicable law allows the developer to initiate re-negotiation of the pre-purchase agreement.

If the buyer does not agree to the increased price and does not sign the proposed amendment, the developer will most probably terminate the pre-purchase agreement in order to sell the property to somebody else for a higher price. In this case the buyer could go to court and ask to replace the purchase agreement with a judgment having the same effect as a rightfully signed purchase agreement. The judgment would transfer the ownership to the buyer in the same way as the purchase agreement.

However, the developer may be able to prove in the court that there was such a change in circumstances (cost of building materials, etc.) that its obligation to sign the purchase agreement expired. In that case, the court would rule against the buyer and he would have to pay the developer its legal costs.

Therefore, the outcome of such court proceedings is hard to predict. The proceedings can also drag on, lasting one or two years or even longer. The developer could also sell the property to somebody else in the meantime, which would mean more legal complications.

My advice

Hence, I see only two realistic ways out of this situation: either to refuse to sign the price increase amendment and to receive back the deposits the buyer has paid or to agree to the price increase and buy the property. In favour to the last option, it’s important to note that the property prices have significantly increased as well for the last couple years. Which means that the buyer could ask his bank to re-evaluate the property value in order to increase the mortgage amount by the increase or could sell the property after the purchase and get some profit.

For those who are considering buying a new construction, I recommend to check carefully the contract terms before signing anything. I can help you with that.

Do you want to get the latest articles and videos right to your email? Subscribe here.

Would you like to contact me? Press here.