Interesting times

A fair assessment of 2011 would be that it has been a good year for the polish real estate sector. The volume of new investment has increased. As 2011 draws to a close, what will be keeping property lawyers busy next year?

In April 2012, a new law for residential developers will come into force. It is designed to protect purchasers of apartments and houses, but may cause headaches for both banks and developers.
Developers will be required to provide potential purchasers with a prospectus summarising material information on the residential scheme being offered. Agreements between developers and purchasers will have to meet numerous new criteria. The law provides that money paid by purchasers must be kept in an escrow account. This may either be a 'closed' or an 'open' account. Money deposited in a 'closed' escrow account may only be released to a developer once the legal title of the property has been transferred to the purchaser. With an 'open' escrow account, the developer may only use a portion of money deposited once a corresponding development stage has been completed.

Restructuring
Next year will be a busy one for property restructuring. There was not so much of this happening in 2010, as many creditors and borrowers apparently decided to wait for better times before starting any restructuring. But it seems that the good times are not coming back as fast as everyone might have hoped for. As a result, some developers and investors may need to seek additional equity. Some may need to ask their financing banks - or may be asked by the banks - to restructure existing loans. In many cases, debt restructuring will only be possible if accompanied by a thorough reorganisation of operations, including the open market sales of some assets. We do not expect many insolvencies, but more amicable settlements between creditors and borrowers should take place.
Lawyers are also going to be heavily involved in lease term negotiations. This is because many office leases concluded in 2006-2008 will come to an end in 2012-2016. Companies may come to the realisation that they are leasing too much space and paying rent that is too high. When times are tough lease negotiations often start a few years prior to the end of the lease term. As a result, the lease term is often extended, but with a reduction in either the rent or the space (or both).

Employer-contractor disputes
Employer-contractor disputes are likely to generate a significant amount of legal work in 2012. A lot of infrastructural investment should be completed by next June, when the European Football Championships take place in Poland. If contractors fail to complete their work on time, there will not be much room for the usual negotiations about deadline extensions. So the market may see a number of legal disputes arising between employers, contractors and subcontractors.
On the other hand, contractors and subcontractors who were pushed into offering low prices when tenders were held in the difficult year of 2009 may demand more money if they have done more work than was stipulated in the tender documentation.
We have a very interesting time ahead of us. "May you live in interesting times" as the Chinese curse goes - but hopefully it will be more of a challenge than a curse. As usual, forward thinking and preparation will be the key to success - and not only in the legal business.
Wojciech Szybkowski and Wojciech Koczara are partners in the real estate and construction department of CMS Cameron McKenna's Warsaw office