The Nordis Law is a protective measure that increases transparency for consumers and aims to introduce phased caps. The purchase of a property that is still in the design stage has generated a number of significant risks for buyers, based on the generous advances paid by buyers, delays in the delivery of homes, and the buyer’s inability to verify that the promise of sale is unique. Thus, the Nordis law adopts a series of solutions to these problems.
1.Strict maximum ceilings for advance payments
With the adoption of the law, real estate developers will no longer be able to collect unlimited advance payments.
The law clearly sets maximum limits, namely: 5% of the full price of the property for the purchase reservation agreement, 15% at the time of concluding the promise, 25% after completion of the structural framework, 20% after completion of the installation works, thus establishing a correlation between the advance payment percentage and the construction stages. These caps are intended to limit the amounts of money paid by buyers in advance and reduce the risk of losing large sums in the event of non-compliance with contractual promises by developers.
The money from an advance payment must be deposited in separate accounts dedicated to the project to prevent the funds from being used for purposes other than those for which they were collected, i.e., diverting buyers’ money to other investments.
This measure therefore ensures a higher degree of confidence for buyers, but also provides protection against illegal practices by developers. These provisions are not mandatory and may be waived. Thus, developers will be able to collect advances of more than 5% if they provide an insurance policy, equivalent to a bank/financial guarantee, necessary to guarantee the completion of the project. Therefore, according to the procedure for a bank guarantee, a bank, as guarantor, promises to pay a beneficiary a specified amount if the bank’s customer, the payer, fails to fulfill a contractual obligation. This procedure has the merit of facilitating commercial transactions and, implicitly, better execution of the works.
The 5% advance payment secures the purchase, so the Nordis Law provides for a maximum period of 60 days for the reservation to be converted into a promise of sale. During this period, the promise to sell will be concluded before a notary public, otherwise the advance payment will be refunded within 30 days. This provision is intended to prevent the retention of sums of money paid by the buyer for a reservation agreement that does not proceed. If the necessary steps have not been taken to advance the agreements between developers and consumers, by concluding the promise or contract through the exclusive fault of the developer, the latter will be obliged to refund the full amount to the buyers. However, in the event of the developer’s bankruptcy, the buyers will become privileged creditors, after the Romanian state, with priority in recovering their money.
For greater efficiency and security of operations, penalties are also provided for circumventing legal provisions or defrauding consumers’ interests, such as using funds for other purposes. Therefore, penalties of 1% of the developer’s turnover are provided for. This measure raises a number of difficulties, such as the lack of a turnover history, the lack of procedures for monitoring funds, and the lack of accounts dedicated to projects. All these difficulties require, among other things, a technical and legal review.
Once the law comes into force, promises to sell will have to be recorded in the Land Registry to eliminate any uncertainty regarding the uniqueness of the promise and to prevent successive transfers. This will give buyers access to information about the status of the property, and buyers will benefit from greater transparency in the real estate market, thereby protecting their good faith.
Advances received by developers from customers will be deposited in a separate bank account to ensure that these funds are used solely for the purpose of developing the project and to prevent buyers’ money from being diverted to other investments.
2. Between necessity and applicability: criticism of the Nordis law
Both citizens and real estate developers recognize the importance and necessity of adopting laws that rigorously protect buyers’ interests. However, the bill is not without criticism regarding its lack of clarity and difficulties in its actual application.
Firstly, the law does not provide for clear penalties in the event of non-repayment of the advance if the promise of sale is not concluded within 60 days. Thus, the lack of express penalties gives rise to a lack of predictability in the application of the law. In addition, in terms of project completion insurance, there are still no standardized products of this type in Romania, which makes the provision inapplicable in practice.
At the same time, the law stipulates that the use of advance payments may only be approved by the site manager or project manager. Given that these are employees of the real estate developer, there is a potential conflict of interest. Therefore, the ambiguities of the Nordis law leave room for questions and criticism regarding its effectiveness.
Conclusions
The Nordis law, one of the most anticipated legislative projects of the last year, focuses on the safety of buyers in the ever-developing real estate market. Its provisions limit the amounts collected as advance payments by real estate developers and provide a series of legal guarantees for buyers regarding promises to sell properties that are still in the project stage.