Reservation agreement and developer down payment – what you should know?

Signing a reservation agreement is the first formal step towards buying your dream apartment, and paying a developer down payment secures your rights in the next stages. However, poorly worded documents or lack of awareness about financial consequences can lead to unnecessary stress and costs. In this text, we explain the differences between a reservation agreement and a preliminary agreement, how to set the down payment amount, and what to pay attention to in order to protect your interests.

Tips and best practices

• Distinguish between types of agreements
  • Reservation agreement: a short document that holds the offer for a specific client for a set period (usually 7–14 days).
  • Preliminary agreement: a more detailed legal document that includes a commitment to sign the final agreement and transaction details (amounts, deadlines, conditions).
• Set clear deadlines and withdrawal conditions
  • State in the agreement the exact reservation period and until when you can withdraw without losing the down payment.
  • It’s good to include an option to extend the reservation for an additional fee if you need more time to decide.
• Secure form and payment method
  • The down payment should be transferred to the developer’s specified account or, even better, to an escrow account in a bank.
  • Avoid handing over cash directly – always ensure a transfer confirmation or written receipt.
• Protective clauses in the agreement
  • A clause for a full refund of the down payment if the developer does not provide all documents necessary to sign the developer agreement (e.g., occupancy permit).
  • A contractual penalty for delays in handing over the apartment – a percentage of the down payment or a fixed amount per day of delay.
• Down payment amount and installment structure
  • Typically, the down payment is 2–5% of the property price, though it can be higher for highly sought-after investments.
  • Consider splitting payments into installments: part at reservation, further installments upon signing the developer agreement, and then according to the construction schedule.
• Check settlement conditions for the difference
  • The preliminary agreement should specify how and by when you will pay the difference between the down payment and the final price – e.g., by the date of signing the developer agreement or before apartment handover.
• Securing the buyer’s funds
  • If the developer does not open an escrow account, demand a clause for a deposit in a bank or an insurance guarantee to secure your down payment.
  • Ensure that in case of the developer’s bankruptcy, your funds are protected (closed account) or refunded.
• Consulting a lawyer or advisor
  • Before signing the preliminary agreement, it’s worth consulting the draft with a lawyer specializing in real estate or using an independent advisor.
  • This ensures that all clauses comply with the law and your interests are protected.

The reservation agreement and developer down payment are not just formalities but tools for protecting your rights as a buyer. Clear provisions on deadlines, payment amounts, payment channels, and protective clauses will help prevent misunderstandings and allow you to smoothly proceed to the next stages of the apartment purchase.