What is earnest money?

Earnest money is an upfront sum paid to a seller upon signing a contract to secure its execution. It is regulated by Article 394 of the Polish Civil Code. It is most commonly included in preliminary contracts, where both parties commit to executing a final sales deed by a set date.

This payment serves three key functions:

• Confirms that a binding contract has been executed.
• Enforces discipline on both parties, as walking away incurs immediate financial loss.
• Replaces damages, meaning the injured party does not need to prove actual financial loss in court.

How much is an earnest money deposit for an apartment?

Polish law does not set statutory minimums or maximums for earnest money amounts; the total is negotiated directly between buyer and seller. In standard market practice, it ranges between 5% and 10% of the total purchase price, occasionally reaching 20%.

The exact percentage depends on total property value, time remaining until the final sales contract, and financing methods. A lower deposit reduces risk for a buyer awaiting mortgage approval, while a higher deposit binds the seller more firmly when market demand is high.

Earnest money deposits and contract non-performance

The outcome of the deposited funds depends on who breaches the agreement and why.

Rescinding a contract under these rules does not require setting an extended cure deadline for the defaulting party. Claims arising from a preliminary contract expire after one year from the agreed final closing date.

Earnest money vs. Advance payment 

An advance payment is simply a partial pre-payment of the total purchase price. If the sale fails to complete, the advance payment is refunded to the buyer in full, regardless of who was at fault. An injured party can still seek damages, but must prove the exact monetary harm in court.

The contrast is clear with a PLN 60,000 deposit: with an advance payment, a buyer who backs out recovers the full PLN 60,000. With earnest money that buyer forfeits the entire sum, whereas a backing-out seller must return PLN 120,000. Because wording dictates legal classification, specifying "zadatek in the meaning of Article 394 of the Polish Civil Code" eliminates legal ambiguity.

Earnest money deposits and mortgage financing

Mortgage lenders count earnest money payments toward your mandatory down payment, as the sum applies directly to the purchase price. However, risk arises if a bank rejects your loan application. A loan refusal is legally treated as the buyer's responsibility, leading to deposit forfeiture. To protect yourself, include a mortgage contingency clause specifying:

• The exact number of banks where you will submit mortgage applications.
• The timeframe allowed for securing bank credit decisions.
• Acceptable documentation required to prove loan rejection.
• Clear timelines and terms for returning the earnest money deposit.

Set the final sales deed date with an adequate time buffer. Bank processing, property appraisals, and contract preparation usually take several weeks.

Earnest money deposit vs. Reservation fee on the primary market

When buying a new build apartment, the initial payment is typically governed by a reservation contract. Reservation fees operate differently from earnest money deposits and are regulated under the Developer Act:

• The reservation fee cannot legally exceed 1% of the property purchase price.
• The fee is credited directly toward the purchase price upon signing the developer contract.
• The fee is refunded in full if a bank rejects the buyer's mortgage loan.
• The developer must return double the fee if the developer fails to fulfill reservation commitments.

Subsequent installment payments are transferred into a residential escrow account according to the schedule set out in the developer contract. J.W. Construction advisors present this schedule prior to reservation, ensuring you know your exact equity requirements at every stage before committing.

How to properly pay an earnest money deposit?

Bank transfer is the safest payment method because it generates an indisputable financial paper trail. Specify "zadatek", the property address, and the preliminary contract date in the wire transfer memo line. If paying in cash, ensure you obtain a signed written receipt or include a specific clause in the contract confirming cash receipt.

The preliminary contract itself should include:

• Complete details of both parties and property description, including land register number.
• Agreed final purchase price.
• Exact earnest money sum and transfer method.
• Final closing date for the sales agreement.
• Clear refund conditions covering potential loan rejections.

Executing the preliminary agreement as a formal notary deed provides extra legal protection, allowing either party to enforce actual property completion through court rather than settling for monetary deposit adjustments.

Earnest money deposit for apartment lease – sample wording

In rental transactions, earnest money is used when an apartment becomes available weeks later and both parties want to lock in the lease. It is distinct from a security deposit (kaucja). A security deposit secures landlord claims during the tenancy, whereas earnest money secures the execution of the lease contract itself. Sample phrasing may look like this:

"The Tenant pays the Landlord an earnest money deposit in the amount of PLN […] under the terms of Article 394 of the Polish Civil Code. If the lease agreement is not executed by [date] due to reasons attributable to the Tenant, the Landlord shall retain the deposit. If the agreement is not executed due to reasons attributable to the Landlord, the Landlord shall return double the deposit amount to the Tenant within 7 days. Upon execution of the lease agreement, the deposit shall be credited toward the rental security deposit."

This sample requires customization to fit your specific situation, particularly regarding exact sums and dates. The deposit amount typically equals one month's rent.

FAQ – Frequently Asked Questions

How much should an earnest money deposit be for an apartment?

Polish law does not fix an exact sum, but buyers and sellers typically agree on 5–10% of the purchase price (rarely up to 20%). For an apartment priced at PLN 600,000, this equates to PLN 30,000–60,000.

Which is better for a buyer: an advance payment or earnest money deposit?

An advance payment is safer when mortgage approval is uncertain, as it is fully refundable regardless of why the sale collapses. An earnest money deposit  offers stronger protection against a seller walking away, as the seller would owe double the deposit amount.

Is an earnest money deposit for an apartment refundable?

An earnest money deposit is refunded to the buyer if both parties mutually terminate the contract, or if non-performance occurs through fault of neither party or both parties equally. If the buyer unilaterally backs out, the seller holds the legal right to keep the deposit.