Stjepan Lović: Apartment buyers can refuse the return of the deposit if it is not defined as a withdrawal fee in the contract

Lider recently published an article titled 'Investors to buyers: We will return your double deposit, but the apartment will be sold at current market conditions.' In it, colleague Ksenija Puškarić writes that apartment buyers who have made a down payment have recently been hit with a cold shower – the investor informs them that the market situation has changed.

– We are sorry, the market situation has changed so much since the beginning of the project that we are operating on the edge of profitability. We will return your paid down payment, and that by contractual obligation, double the amount paid, and the apartments you reserved will be put on the market at current market prices – investors inform buyers.

Thus, apartments were sold to buyers a year or two ago, but that money, due to changed circumstances, is not, they say, sufficient, and they would rather return the double deposit and sell the apartment to another buyer for a much higher amount.

In this way, the old buyer is put in a disadvantaged position, having planned to move into the apartment, believing that he had secured the apartment for a certain amount, and is now forced to look for a new apartment at a much higher price.

Buyers are not completely helpless

We asked lawyer Stjepan Lović from the law firm Grubišić, Lović, and Lalić how a buyer can protect themselves in the contract to avoid a situation where the investor unilaterally cancels the sale of the apartment.

Lović says that investors are in a better negotiating position in such cases because they will generally easily find a new buyer willing to pay a much higher price for the apartment, but despite this, buyers still have certain mechanisms available to protect and strengthen their initial position.

He notes that deposits are regularly contracted as withdrawal fees, especially recently, and that deposits for withdrawal fees are more in the interest of investors. However, he emphasizes that a deposit as a withdrawal fee is an exception to the general rule prescribed by the provisions of the Obligations Act, according to which the party that has given the deposit cannot withdraw from the contract leaving the deposit to the other party, nor can the other party do so by returning double the deposit.

Lović explains this more concretely by stating that the law indeed provides the possibility for the deposit to be considered a withdrawal fee, but only, he emphasizes, when the right to withdraw from the contract is contracted along with the deposit. Consequently, in the event of withdrawal from the contract by the party that has given the deposit, that party loses it, and if the party that has received the deposit withdraws, they are obliged to return the amount of the deposit in double. In other words, if the contract does not state that the deposit is also considered a withdrawal fee, the buyer has the right to refuse the return of the deposit.

This is one way, says Lović, to initially strengthen the buyer’s position and protect them from unwanted termination of the contract initiated by the investor. However, he also warns that it is best to define contractual provisions as precisely as possible and emphasizes that, although the deposit is not considered a withdrawal fee until it is so agreed, for caution’s sake, it is recommended to explicitly state in the contract that the deposit is not considered a withdrawal fee and that one party cannot withdraw from the contract by leaving the deposit, nor can the other party do so by returning double the deposit.

Three possible options for buyers

Furthermore, Lović explains that in the event of non-fulfillment of the contract due to the fault of the investor, the buyer can choose to demand the following:

• fulfillment of the contract, if that is still possible, or;
• seek compensation for damages and return of the deposit, or;
• seek the return of double the deposit.

In any case, when demanding fulfillment of the contract, the buyer also has the right to compensation for damages suffered due to the delay in one of the three mentioned ways. If the buyer chooses the option of contract execution and delivery of the agreed real estate, the investor has no right to withdraw from the contract by returning the buyer the amount of double the deposit.

In a situation where the investor refuses to voluntarily fulfill the buyer’s request for contract fulfillment, the buyer will be forced to initiate proceedings before the competent court. The buyer’s claim can be set as a claim aimed at fulfilling the contract, or the buyer can demand from the seller the conclusion of a purchase contract.

Additionally, the institute of dispute registration is available to the buyer as a legal protection mechanism. Namely, this is the registration of a dispute in the land registry based on which it is visible that it is a property for which a dispute is being conducted before the court or other competent body, and whose outcome could affect the registration, belonging, existence, scope, content, or burden of that right. Although the registration of a dispute does not prevent the current holder of the registered right (the investor) from selling that apartment, this registration has the effect that a final judgment in favor of the first buyer who gave the deposit also applies against those who purchased the apartment even though they knew there was a dispute in court.

In that case, the registration of the ownership right of that third party would be deleted ex officio, or all registrations requested after the registration of the dispute would be deleted if they are contrary to the judgment in favor of the original buyer. In this way, the first buyer who gave the deposit would be registered as the owner of the property.

Thus, Lović reminds once again, despite the circumstances that have significantly changed from the moment the contract was concluded to the due date of obligations, which investors refer to in order to justify unilateral termination of the real estate purchase contract, buyers are not helpless. Already in the pre-contract or the contract, provisions should be stipulated in favor of the buyer in such a way that the deposit is explicitly contracted as a sign of contract conclusion, not as a withdrawal fee, in order to prevent investors from abusing this institute. In the event that any misunderstandings between investors and buyers are not resolved amicably, buyers have the option to protect their rights in proceedings before the courts.