Developer contracts: how your money is secured

Anyone buying an apartment that does not yet exist is paying for a promise. The money is gone the moment it is transferred; the apartment comes later – if it comes. The entire risk of a developer contract lies between those two moments, and that is exactly where the Austrian Developer Contracts Act (BTVG) applies.

The BTVG is not well-meaning advice but a regime of security. It requires that the buyer's money be secured before it falls due, and it renders any deviation to the disadvantage of a consumer ineffective (§ 1(2)). Anyone presented with a developer contract therefore does not need to negotiate what the statute already says. What they need to check is whether what the statute requires is actually in the contract.

When the BTVG applies at all

Three points decide this, and all three are regularly underestimated.

The type of contract. A developer contract is any contract for the acquisition of ownership, condominium ownership, a building right, a lease or another right of use including leasing in buildings, apartments or commercial premises to be constructed or comprehensively renovated (§ 2(1)). The statute thus applies to more than new builds. A comprehensive renovation of an older building falls within it too – a case in which many of those involved do not expect to be dealing with a developer contract at all.

The payment threshold. The statute applies where the buyer is contractually required to pay more than EUR 150 per square metre of usable floor space before completion (§ 1(1)). The decisive point is the second sentence of that provision: payments for special or additional services offered or specified by the developer count towards the threshold. A contract that stays just below it and moves the extras into a separate document does not thereby become a contract outside the BTVG.

The detour via a third party. Where the buyer acquires the land from someone other than the builder but the two contracts form a single economic transaction, a developer contract exists nonetheless (§ 2(4)). The courts assume such a transaction where the two contracts are so closely interlinked that, viewed objectively from the buyer's perspective, each is conditional on the other. Merely splitting a single project into a land purchase and a construction contract is therefore no way out of the statute.

Written form is mandatory (§ 3(1)). Only the buyer, however, may invoke a defect of form, and only until the end of the duty to provide security – the form requirement protects one side, not both.

What the contract must contain

§ 4(1) lists nine points that must in any event be included. Three of them are most often passed over in practice.

The hazard status of the site (no. 2): the contract must state if the property or the overall development lies in a torrent or avalanche hazard zone or a flood discharge area, or if the land is listed in the register of suspected contaminated sites or the contaminated sites atlas. Anyone buying in the alpine province of Salzburg should look for this point first.

The latest date of handover (no. 5) – not an "expected" date but the latest one, both for the property itself and for completion of the commonly usable parts of the development. If no final building permit is in place when the contract is concluded, delay caused by lengthy official proceedings that the developer could neither foresee nor avert may be excluded from the consequences of default, but for no more than one year (§ 4(2)).

The price (no. 3), together with charges, taxes and the cost of drawing up and handling the contract. If no fixed price is agreed but a price adjustment clause, that clause is effective only if the cost factors are precisely defined and an upper limit is set – unless the method of setting the price is permitted under the Non-Profit Housing Act (Wohnungsgemeinnützigkeitsgesetz). The consequence of an ineffective clause is sharp and favours the buyer: the base price then applies (§ 4(3)).

On top of this comes the retention: on the acquisition of ownership, condominium ownership or a building right, the developer must allow a retention of at least two per cent of the price for three years from handover to secure warranty and damages claims, or provide a guarantee or insurance instead (§ 4(4)).

The three routes to security

The developer must secure the buyer against the loss of their payments (§ 7(1)). Only charges, taxes and the cost of drawing up and handling the contract are excluded. How the security is provided is the developer's choice – but only among three routes (§ 7(2)). In special cases the duty is deemed fulfilled without them, for instance where an Austrian public authority is itself the developer or payments go to an account held in trust for the buyer that the developer cannot access until handover and the securing of the agreed legal position (§ 7(6)).

Contractual security (§ 8): a guarantee or suitable insurance covering the buyer's restitution claims. Only a credit institution or insurance undertaking authorised to do business in Austria, or an Austrian public authority, may act as guarantor (§ 8(3)). Any right of the developer to dispose of that security would be ineffective (§ 8(4)). One sentence of this provision deserves particular attention: calling on the security is in any event deemed to terminate the contract (§ 8(5)). Whoever draws on the guarantee gets their money – and not the apartment.

Registration in the land register combined with the instalment plan (§§ 9 and 10): the standard route for condominium ownership. There, the notation of the grant of condominium ownership under § 40(2) WEG 2002 constitutes sufficient registered security (§ 9(2)). What is easily overlooked comes on top: the property must be free of encumbrances – except for encumbrances the buyer contractually assumes – or future freedom from encumbrances must be secured, and that requires an agreement between the mortgagee and the developer in the buyer's favour undertaking the release (§ 9(3)). Without that release undertaking, registered security is not what it appears to be.

Security by mortgage (§ 11): a mortgage offering sufficient cover, optionally in favour of the trustee for several buyers and also as a maximum-amount mortgage.

The forms of security may be used alongside one another or exchanged later by agreement, as long as their purpose is not impaired (§ 7(3)). The duty to provide security ends only with the actual handover of the completed property and the securing of the agreed legal position (§ 7(5)) – not with moving in.

The most effective sentence in the whole statute sits between these: the developer's claims only fall due once, and to the extent that, the security is in place (§ 7(4)). Anyone who pays although no security exists is paying a debt that was not yet due.

Instalment plan A or instalment plan B

Under an instalment plan the price is paid in tranches, each falling due only once a construction stage is complete (§ 10(1)). The statute provides two plans, and the figures are ceilings, not requirements (§ 10(2)):

• Start of construction on the basis of a final building permit: 15 % (A) / 10 % (B)
• Shell and roof completed: 35 % (A) / 30 % (B)
• First-fix installations completed: 20 % each
• Façade and windows including glazing: 12 % each
• Ready for occupancy or agreed early handover: 12 % (A) / 17 % (B)
• Completion of the overall development: 4 % (A) / 9 % (B)
• Remainder after three years from handover, unless a guarantee or insurance under § 4(4) is in place: 2 % each

Both plans add up to 98 per cent; the remaining two per cent are the retention. The difference lies in the distribution: plan A draws the money in earlier, plan B holds more back until the development is finished. The statute therefore attaches a condition to plan A that is rarely raised: where the acquisition is to meet the pressing housing need of the buyer or a close relative, the developer must provide an additional guarantee or insurance of at least 10 per cent of the price under plan A. It must cover all financial disadvantages arising from delay or discontinuation of the project because of the developer's insolvency (§ 9(4)). If plan A is offered without that additional security, that is the first point to query.

An instalment before construction begins is permissible only where the registered security already suffices on its own because of the high value of the land (§ 10(3)). Whether a construction stage is complete is judged by the degree of completion of the main structure; the trustee may call in a chartered engineer or a court-certified expert, who are directly liable to the buyer and are expressly not deemed to be the trustee's agents (§ 13).

The trustee is not a formality

The developer must appoint a trustee no later than on signature of the contract, and the trustee's role ends only with the end of the duty to provide security (§ 12(1)). It can be waived only where contractual security covers all restitution claims. Only a lawyer, a law firm or a notary may act as trustee (§ 12(2)).

The trustee's duties are set out in the statute (§ 12(3)) and describe precisely what a buyer cannot do alone: to advise on the nature of the contract and the available forms of security, including the consequences of the developer's insolvency and the significance of the retention; to monitor compliance with the duty to provide security; to account at least annually; and to ensure that payments go only to accounts over which the trustee has power of disposal and which are safeguarded through the trust facility of the relevant bar association or a credit institution under § 109a(5) of the Notarial Code. Where security is provided through the land register, the trustee additionally checks the mortgagees' release undertakings and supports the buyer in adhering to the instalment plan by monitoring the progress of construction (§ 12(4)).

If the trustee is unavailable for a longer period and the contract makes no provision for it, the district court in whose district the property lies appoints another on application (§ 12(6)).

The right of withdrawal and its deadlines

The right of withdrawal under § 5 is the statute's answer to the rushed signature. Unlike doorstep selling under the Consumer Protection Act, there is no catalogue of exceptions in which it falls away – it either exists or it does not.

It does not exist where the developer delivered in time. The developer must notify the buyer in writing of the intended contents of the contract and – depending on the form of security chosen – of the wording of the agreement with the credit institution, of the certificate or of the security at least one week before the buyer's declaration of contract (§ 5(1)). That one-week period is the real protection: it is meant to prevent anyone from reading a developer contract for the first time at the developer's table. If the documents and the instruction on withdrawal arrive in time, the buyer has no right of withdrawal under § 5.

Who has to prove what decides any dispute about it. It is for the developer to prove that the documents were sent in time – worth knowing as a buyer before signing an acknowledgement of receipt. Sending them by email suffices for that purpose on the prevailing view; a qualified electronic signature is not required, because sending the documents is not in itself a declaration of intent. Conversely, it is for the buyer to plead and prove that the conditions for withdrawal are met.

An acknowledgement of receipt with a signature and a date is permissible as such. It becomes questionable only where adverse legal consequences attach to it – a waiver, for instance – or where it is worded so that the buyer cannot tell what they are confirming.

The deadlines. Withdrawal may be declared until the contract is concluded, irrespective of when the declaration of contract was made, and within 14 days thereafter. The period begins on the day the buyer receives the documents together with written instruction on the right of withdrawal, but no earlier than the conclusion of the contract. It lapses six weeks after the conclusion of the contract at the latest (§ 5(2)). That long-stop is worded unconditionally: it runs even where the documents never arrived. Anyone who suspects that something is missing should therefore not wait for them.

No particular form is prescribed for the declaration itself (§ 5(4) in conjunction with § 3(4) KSchG); the former written-form requirement has gone. And the deadline is met once the declaration is dispatched within it – not only once it arrives. It may be addressed to the developer or to the trustee.

Withdrawal also covers the contract with the third party. Where the deal was split into a land purchase and a construction contract and the two form a single economic transaction, withdrawal applies to the contract with the third party as well (§ 5(5) in conjunction with § 2(4)). The buyer is therefore not left holding a plot on which nothing will now be built.

A separate right of withdrawal exists where housing subsidies underlying the contract fail to materialise in whole or in substantial part for reasons not attributable to the buyer (§ 5(3)); its deadlines are its own.

Rights to demand rescission or amendment of the contract under other provisions remain unaffected (§ 5(4), final sentence) – as do all rules more favourable to the buyer than the BTVG (§ 1(2)).

If the developer becomes insolvent

This is the case the statute is built for, and the reason why security must not remain on paper.

Reclaiming payments. The buyer may reclaim everything paid contrary to the BTVG, with interest from the date of payment at the base rate plus eight percentage points (§ 14(1)). The claim becomes time-barred after three years and cannot effectively be waived in advance (§ 14(2)).

Three points from the case law make the claim usable in practice. It does not depend on withdrawal: a buyer who wants to keep the contract and the apartment can still reclaim an instalment paid too early. Interest runs from the moment the claim arises, regardless of whether the buyer has demanded payment. And the claim runs empty as construction progresses, to the extent that the instalment has since fallen due – but the interest accrued up to that point remains (RS0129152). Anyone who notices a premature payment should therefore not wait until the next construction stage is finished.

Taking the defect claims along. Where enforcing warranty and damages claims against the developer is impossible or substantially impeded by the insolvency – or for other reasons – the buyer may demand assignment of the claims the developer holds against third parties, above all the contractors. The transfer takes effect as soon as the written demand reaches the developer (§ 16). This is often the only way not to be left alone with a construction defect.

Breaches are also administrative offences: failing to draw up a compliant contract carries a fine of up to EUR 14,000; agreeing, demanding or accepting payments contrary to the statute, or failing to involve a trustee, up to EUR 28,000 (§ 17).

Developer projects in Salzburg

In the Province of Salzburg, land transfer law regularly comes on top of the BTVG. The Salzburg Land Transfer Act 2023 has applied since 1 March 2023; in municipalities and areas subject to second-home restrictions, certain transactions are subject to notification, and separate declaration duties apply to apartments and tourism properties. Whether the municipality of the project is among them belongs before signature, not after – it determines which steps are needed before registration. How this fits into the course of a purchase, and what incidental costs arise, is set out in our article Buying property in Salzburg: process and costs.

What to check before signing

Six questions answer most of the risk:

1. Which of the three routes to security has been chosen, and is it expressly named in the contract (§ 4(1) no. 7)?
2. Does the security actually exist – the guarantee instrument, the notation in the land register, the mortgagee's release undertaking?
3. Under plan A with a pressing housing need: is the additional security of at least 10 per cent in place?
4. Does the contract state a latest handover date, or only an expected one?
5. Is the price fixed, or does it adjust – and if it adjusts, are the cost factors precisely defined and an upper limit set?
6. Were the documents handed over at least one week before the declaration of contract?

We review developer contracts before they are signed and advise developers on drafting their contracts and choosing the form of security – both sides, but never in the same project. More on our work in real estate and construction law; talk to us while the contract is still a draft.