Real Estate Development in Poland

Warsaw, 17 April 2019

THE GENERAL OVERVIEW CONCERNING THE LEGAL BACKGROUND OF THE REAL ESTATE ACQUISITION, CONSTRUCTION, PERMITTING AND ENVIRONMENTAL ISSUEAS CONNECTED WITH DEVELOPMENT OF REAL ESTATE IN POLAND

Definitions

Below you will find the list of the meaning of the particular definitions used in the content of this Overview:

1.                       Property and Real Estate Law

1.1                   Overview of the real estate and property law in Poland – with focus on issues of full ownership (freehold) / lease (perpetual usufruct/sublease/other (if any).

Answer:

1.1.1            Kinds of real property

According to Article 46 § 1 of the Polish Civil Code, a real estate property shall be part of the earth’s surface, which constitutes a separate object of ownership (land). Buildings permanently attached to the land and parts thereof (premises) can be an object of ownership only if separate provision grants such attribute (e.g. ownership of the building on land where perpetual usufruct has been established). As a consequence of the above presented division anything that cannot be separated from a real estate without damaging or essentially changing it (component part of a real estate – e.g. a building) cannot be a separate object of the ownership and other property rights (superficies solo cedit rule).

1.1.2            Interests in rem

Numerous clauses are the basic principle of Polish real property law. Law defines all in rem interest in land and no new interests may be created. The Polish legal system recognises only the following in rem interests in real property:

       (a)        full ownership (własność);

       (b)       perpetual usufruct (użytkowanie wieczyste);

       (c)        usufruct (użytkowanie);

       (d)       easement (służebność);

(e)   co-operative right to residential premises or house (własnościowe spółdzielcze prawo do lokalu mieszkalnego lub domu);

(f)   mortgage (hipoteka);

Ownership, perpetual usufruct and co-operative right to residential premises or detached houses are the only titles to the land that can be mortgaged and that are recognised by institutional lenders and investors. The rights listed above in points c) – f) constitute the limited rights in rem.

(a)                    Ownership

Ownership is the broadest right in property, enjoying full constitutional protection. Public owners of real estate (State treasury, local authorities, other public bodies) are not privileged over private ones. Ownership of real estate can be acquired by both natural and legal persons (all entities having a legal personality granted by a statue or by a private agreement pursuant to a provision of law) and also by organisational units not being legal persons that have been granted legal capacity by virtue of statutory law.

(b)                    Perpetual usufruct

Perpetual usufruct is one of the most important interests in land, specific for Poland. It has now become a strong and stable right in property, far removed from its origins, the closest relation to ownership of all property rights.

Perpetual usufruct may only be created on land belonging to the State Treasury or local communities. The right of perpetual usufruct confers a right to use, manage and administer the real property for a specific period of time. Once created, it can be inherited, transferred to third parties and encumbered (mortgage, easements, usufruct). The owner of the land (the State Treasury or local communities) is substantially restrained in its powers: it cannot encumber the property or sell it to an entity other than the holder of perpetual usufruct. Only the perpetual usufructee is entitled to use and collect income from the land, apart from the owner’s right to collect an annual fee from the perpetual usufructee.

The right of perpetual usufruct, although results from an agreement concluded between the State Treasury or  a local community and a private party, is created at the time the right is entered into the Land and Mortgage register established for the relevant real property.

Buildings and other installations erected on State Treasury land or land, which belongs to a local community by a perpetual usufructee, are his property. The same applies to buildings and other installations, which the perpetual usufructee acquired when the agreement of letting the land on perpetual usufruct was made. Ownership of buildings on the land to which the perpetual usufructee is entitled is a right connected with the perpetual usufruct, and the ownership of buildings cannot be separately transferred from the land.

Perpetual usufruct is limited in time. The perpetual of the State Treasury land or land that belongs to a local community can be established for a period of 99 years. In exceptional cases, when the economic purpose of a perpetual usufruct does not require letting the land for 99 years, it is permissible to let the land for a shorter period, however not shorter than 40 years. Extension for a further period of 40 to 99 years may be refused only on the grounds of protection of an important public interest.

(c)                    Usufruct

Usufruct grants its holder the right to use and collect income from the property in compliance with a notarised usufruct contract. Under the contract, the usufructee is granted full economic use of the property, along with all responsibility for making improvements or repairs to the property. Usufruct cannot be transferred to a third party, which is a major inconvenience of this right. There is no maximum time limit for which usufruct may be created.

(d)                    Easements

Polish law recognises two types of easements: ground easements and personal easements. The former are established to the benefit of the owner (or perpetual usufructee) of (usually neighbouring) land, and the latter are established to the benefit of an individual. Ground easements are transferred together with the property (whether dominant or servient) and personal easements may not be transferred. Depending on the easement deed, the holder of the dominant tenement may exercise various rights such as: using the servient property to a defined extent (e.g. road easement) or requiring the holder of the servient property not to exercise some of his rights to his property (e.g. not to build closer than x metres to the boundary).

(e)                    Co-operative right to residential premises and detached houses

A co-operative is a special kind of entity acting under the Act on Co-operatives. Each co-operative is a voluntary association made up of an unlimited number of members, with varying composition of members and assets, which performs business activities with a view to satisfying the interests of its members. One of the various kinds of co-operatives is the housing co-operative, of which the main purpose is to meet the housing needs of its members. Detailed rules applicable to housing co-operatives are provided for in the Act on Housing Co-operatives.

Each member of the Housing co-operative is obliged to bear a portion of the investments of the co-operative and thus make contributions in cash. Moreover, by concluding agreements with its members, a co-operative establish limited rights in rem in their favour – a co-operative right to residential premises. Such right is transferable, hereditary and as a limited right in rem, it can be encumbered with a mortgage and can be subject to execution.

The provisions of law regarding a co-operative right to residential premises correspondingly apply to co-operative rights to detached houses. 

(f)                     Mortgage

A mortgage is a security of pecuniary claims on real property, which:

·                         ranks ahead of unsecured debts in terms of the mortgager’s right to be paid off, and:

·                         is effective with respect to every current owner of real property.

As the mortgage remains effective towards every current owner, the mortgager is free to dispose of the encumbered real property at any time, and no contrary arrangements with this respect may be made. The mortgage itself, however, is of an accessory nature to the debt, which means that it may not be transferred nor originated without the debt, and terminates along with the termination of the debt. Nevertheless, it may secure future or conditional pecuniary claims ( ceiling mortgage).

The following categories of mortgage may be distinguished: (i) ordinary “contractual” mortgage, (ii) ceiling mortgage (hipoteka kaucyjna), securing a  pecuniary claim resulting from an existing relationship but whose exact amount is not yet known, (iii) joint mortgage (hipoteka łączna) – one mortgage encumbering several properties, which may be either statutory – in the case of a division of the property, or contractual, (iv) forced, or “compulsory” mortgage (hipoteka przymusowa) – securing a possible claim under an interim injunction or a claim under an enforcement title and (v) mortgage on a mortgaged receivable.

The most popular are bank mortgages (which are ceiling in most cases) and ordinary mortgages (e.g. securing future instalments of the purchase price).

Mortgage encumbers the whole property (including its integral parts and appurtenances). Therefore, it always covers the buildings (no matter if the land is held in full ownership or perpetual usufruct). A separate mortgage on the buildings is not possible.

1.1.3            Landlord and Tenant law

Polish law recognises two forms of lease: lease (najem) and tenancy (dzierżawa). The essential difference between them is that a lease (najem) has a maximum fixed term of ten (10) years, and a tenancy (dzierżawa), with a maximum fixed term of 30 years thirty (30) years. Moreover, a tenancy gives a tenant not only the right to use the subject of the agreement but also a right to collect the benefits from the subject of the agreement. Both are purely contractual in nature. A lease agreement may be established for a definite or an indefinite period of time. A lease agreement concluded for a definite period of time, after the lapse of ten (10) years (in the case of tenancy after thirty (30) years), automatically transforms into an agreement concluded for an indefinite period of time, which may be freely terminated by notice by either party.

Leases for a term of more than one (1) year should be in written form. If not, the lease is deemed to have been granted for an indefinite period of time and to be capable of termination on notice by either party. Leases may be registered in the mortgage register.

Sublease

Under tenancy and lease of the premises agreements the tenant cannot sublease without the consent of the landlord. Under lease agreements the tenant may sublet, unless the lease contract expressly prohibits it.

Sale of the subject of the lease

A purchaser of land has the right to terminate the lease agreement. However, a purchaser may not terminate if the lease is concluded for a definite term and is concluded in written form with a “certified date” (authenticated by a notary) and if the tenant occupies the premises.

Rent

Usually, rent is calculated on a per square metre per month basis. Rental payments for shopping centres or office buildings are commonly tied to a business’ turnover.

The Civil Code provides that, unless the lease provides otherwise, a landlord may increase the rent (at any time) by giving the tenant one month’s notice. If  a tenant does not agree to the increase, the termination period specified in the lease or in the Civil Code will apply. However, the above provision does not apply to lease agreements for a specific period of time, unless the agreement provides otherwise. In practice, leases usually provide for annual rent increases in accordance with indexation.

Termination of the lease

If the term of a lease is not specified, both parties may terminate the lease by giving notice either in accordance with the express notice provisions of the lease or under the notice provisions provided in the Civil Code. In cases of leasing the premises, if the lease period is not defined and the rent is payable monthly, the lease agreement may be terminated by either party at the latest upon three months’ notice at the end of the calendar month.

Either party to a lease agreement concluded for a specified period of time may terminate the agreement only in accordance with statutory termination or in events expressly provided for in the agreement.

Specified and unspecified period of lease – statutory right of termination.

(a)                    landlords may terminate the lease with immediate effect if a tenant is in arrears with the rent payments for two rental periods and was given an additional one month’s “grace” period, or for other material breach.;

(b)                    tenants may terminate the lease with immediate effect where there are any defects which made it impossible to use the property in the way contemplated by the lease or amount to a health hazard.

1.1.4            Regulatory law in the context of the property development process

Zoning

Zoning plans designate the permitted use for properties in the area they cover. Currently zoning plans have only be adopted for around 20% of the total area of Poland

Planning

If a site is not covered by a zoning plan, a planning permit must be obtained prior to submitting building permit documentation. The law distinguishes between planning permits for public developments and those for private schemes. “Private” planning permits are more difficult to obtain.

Building permits may be obtained if a project complies with the relevant zoning plan or, where no zoning plan has been adopted if it complies with a planning permit and the application is submitted within the validity period of the planning permit. In order to obtain a building permit, a developer needs to hold some form of legal title to the site. This title may be ownership rights to the land, a perpetual usufruct right, a lease agreement or an agreement with the owner authorising a third party to undertake construction at the site. As with a planning permit, a building permit may be transferred to a third party, provided that in case of the building permit such third party itself holds relevant legal title to the site, allowing for the construction.

Use of a buildingmay be commenced once the relevant authority has been notified and no objections are made within 21 days of the notification , unless the building permit requires that a permit for use has to be obtained. In such a case, the notification is not required.

Environmental

Developments that may have an impact on the environment require the preparation and approval by the sanitary and environmental authorities of an environmental impact assessment In addition such developments require a “decision on environmental conditions” prior to filing for a building permit. The decision on environmental conditions is valid for four (4) years and will be binding on the building authority while granting the building permit.

Under Polish law, the polluter, not the owner of the land, is liable for pollution that occurred after 30 April 2007.   In cases of pollution that occurred before this date, the current occupier of the land is held liable regardless of whether or not he occupied the land at the time of the pollution, unless he can prove that the pollution was committed by a third party after he took over the land. The above-mentioned rule concerns only the public law obligation to carry out the reclamation works imposed in the administrative decision.

1.2                   Can one buy full title (freehold) with respect to any real-estate? What are the conditions to buy a freehold title? When does one need to buy lease (perpetual usufruct over real-estate? What are the common terms (periods)?

Answer: Ownership of real estate can be acquired by both natural and legal persons (all entities having a legal personality granted by a statue or by a private agreement pursuant to a provision of law) and also by organisational units not being legal persons that have been granted legal capacity by virtue of statutory law.

Acquisition of full right of ownership can undergo only when the seller holds the ownership title to the property and no entity, who optionally has the pre-emptive right or priority right to the property, exercises it. The property purchase agreement must be made in the form of a notarial deed, unless it is invalid. The transfer of the ownership title has to be registered in the Land and Mortgage Register.

For perpetual usufruct right see appropriate section of point 1.1.2. (b) of this Overview.

1.3                   Registration procedures of property rights in Poland (court of registration).

There are two (2) types of land register in Poland:

(i)            Land and Mortgage Registers (księgi wieczyste, also referred to as “KW”), which describes the legal status of real property. The local courts hold these, but information on the status of entries may also be obtained through the computerised Central Information System.

(ii)          Land Registers (ewidencja, rejestr gruntów), which describe, among other things, the physical position, area, designation and occupier of the land. Local governors (starosta) hold these.  The Land Registers are used for reference only and are not conclusive in all circumstances. The information in the Land Registers is binding only for the purposes of type of use, tax assessment and classification of land in the Land and Mortgage Register.

The Land and Mortgage Register defines the legal status of real estate and is embraced by the presumption that all entries in the register are accurate with the real estate’s legal status. That presumption may be challenged on the basis of the final court’s verdict during the special proceedings. The legal interests of third parties (such as interests under lease agreements or pre-emptive purchase rights) may also be disclosed in the Land and Mortgage Register, although this is not mandatory.

Purchasers who acquire real estate in good faith based on the entries in the Land and Mortgage Register are protected against third parties’ claims. Before executing the property purchase agreement, the Land and Mortgage Register has to be examined in order to verify legal status of the property and possible encumbrances established on it.

The transfer or ownership and perpetual usufruct right has to be registered in the Land and Mortgage Register. The appropriate application is usually submitted through the notary public who drawn up the notarial deed of property purchase agreement. It is also important to point out that the valid transfer of the ownership is simultaneous with the conclusion of the sale/purchase agreement, while the transfer of the perpetual usufruct becomes valid as from the moment of the registration in the Land and Mortgage Register (with retroactive effect from the date of the transaction concluded).

1.4                   What is the practical meaning of “perpetual usufruct” and can it be registered? Is there a difference between different types of land or ownership (i.e. – are there different laws for land registry in Warsaw for example, and Gdansk and Krakow? Is there a difference if land was previously owned by the state or by local authorities or for military purposes? Is there a difference if the land was annexed to Poland after Second World War, etc.).

Answer:Perpetual usufruct is created at the time the right is entered into the Land and Mortgage register established for the relevant real property. The holder of the perpetual usufruct right has to pay a yearly management fee and must exercise his right in accordance with the purpose set out in the agreement of transferring the property for perpetual usufruct.

There are no different laws for land registry in different Polish cities.

When the land was previously owned by state or local authorities or for military purposes, there is always a possibility, depending on the type of the land, that in certain cases public bodies have a statutory pre-emption right. Failure to observe these rights renders the sale agreement null and void. For example, the local community’s pre-emptive rights apply to the sale of the following kinds of properties: (i) undeveloped real estate previously acquired from the State Treasury or from the local community; (ii) perpetual usufruct right to undeveloped land, regardless of how the right was acquired by the seller; (iii) land designated for public use in the local zoning plan (if the pre-emption right is registered in the Land and Mortgage register); and (iv) a historical monument (if the pre-emption right is registered in the Land and Mortgage register). The local community in question has two (2) months following the notification of a conditional sale agreement to exercise its right. In practice these rights are almost always waived.

With respect to lands in Warsaw within the borders in 1945 and lands which were annexed to Poland after Second World War, reprivatisation claims constitute the important issue. Since the legal status of these lands is often not regulated and the reprivatisation act has not been yet adopted, the former owners of these lands may issue claims for returning their properties.

Please note that the other issue are the potential restitution claims, which may be brought in respect of properties seized during the nationalisation processes under communist Poland. However, unless a purchaser knew, or was able to easily acquire information about restitution claims or had cause to doubt that such restitution claims are pending in respect of the property, i.e. acted in a bad faith, such claims are unlikely to be successful. 

1.5                   What is the procedure and what is usually the time required to execute and finalize transfer of ownership/lease/sublease over certain real estate?

Answer: The procedure and the time required to execute and finalize transfer of ownership depends on many factors, such as i.e. negotiations between parties, concluding preliminary and then final purchase agreement and optional conditions which have to be fulfilled between executing these two agreements. The transfer of ownership takes place at signing of a sale agreement in the form of the notarial deed. Lease and sub-lease are not the transferable rights.

1.6                   Is there any hindrance or prevention of any kind to exercise a commercial transaction (including sale of freehold or perpetual usufruct), when the rights belong to cooperative or a similar entity? Is there any impediment that a cooperative will lease (or sub-lease or grant a perpetual usufruct right) its land for a long term (at least 80 years) for the purpose of using the real estate as a service and retail site?

Answer:With respect to cooperatives, the meeting of members of the cooperative adopts a resolution concerning the disposal of the property. However, the following steps in the transaction, such as negotiating the purchase price, are taking by the management board of the cooperative. Disposal of the property by the cooperative without the appropriate resolution of the meeting of the members is invalid.

The cooperative may lease the property and if the lease agreement is concluded for a definite period of time, after the lapse of thirty (30) years, automatically transforms into an agreement concluded for an indefinite period of time.

Lease for 80 years fixed term is not possible. The maximum fixed term of the lease is for 20 years and for tenancy is 30 years (see point 1.1.3. above)

1.7                   Is there a legal difference between an agricultural land and an urban land? And more specifically: can a lease or sub-lease be registered over an agricultural land, a part of which is used for an existing service and retail site?

Answer: Difference between agricultural and urban land has great impact with respect to permitted use of those lands, and consequently possible investments (change of the permitted use of agricultural land – see in point 1.8 below).

The tenancy (dzierżawa) of an agricultural land can be registered in the Land and Mortgage Register maintained for the property. If a part of the land is used for service and retail site, than the permitted use of this part must have been changed from agricultural into service one.

1.8                   Change the permitted use of a certain site from agricultural land to another use and more specifically – a service and retail site?

Permitted use of a land for agricultural purposes is set out in the zoning plan, so the change of permitted use for i.e. service and retail purposes must be conducted under the procedure of amending the zoning plan.

If the land is not covered by the zoning plan, the change of permitted use must be conducted in the planning permit.

1.9                   Can a foreign entity company buy any real estate rights in Poland (including agricultural land) or it needs to be a EU/Polish entity?

Answer:Prior to acquiring land in Poland, a foreign entity is obliged to obtain a permit issued by MIA in the form of an administrative decision. A property sale agreement executed without this permit is null and void.

However, after the accession of Poland to the EU in 2004 entrepreneurs from the European Economic Area and a Polish companies, including wholly owned subsidiaries of a foreign entity, cannot be prevented from purchasing real estate in Poland, apart from certain types of protected properties mentioned in the Law on Acquisition of Real Estate by Foreigners (agricultural land, forests and “second houses”).

However, acquiring (taking-up) shares by citizens or entrepreneurs from the European Economic Area, in a company with its seat in Poland, being the owner or the perpetual usufructee of a real estate within the territory of Poland, does not require a permit issued by MIA.

Purchase of the agricultural land by foreigners requires obtaining an appropriate permit issued by the MIA with lack of objection from the Ministry of Agriculture. The same rule applies to the foreigners from the European Economic Area, however only during the 12-year interim period, which started at the moment of Polish accession to the EU in 2004. After elapse of the said 12-year interim period, purchase of an agricultural land by foreigners from the European Economic Area will not require obtaining the appropriate permit from MIA.

2.                       Environmental/Ecology

Legal requirements with respect to environmental issues

For some types of real estate development, that may influence the environment, such as factories, power plants, shopping centres etc. the most essential legal administrative act to be obtained by the potential investor is the decision concerning the environmental conditions of the planned project. The Environmental Decision provides all of ecological requirements connected with the planned project, which have to be met in order to keep the environmental protection in line with the provisions of Polish law.        

In case of lack of Environmental Decision, the investor shall not be able to apply for the Building Permit.

3.                       Permits, Licensing, etc.

The following permits, licenses and other official certificates are obligatory to develop real estate:

·                Planning Permit;

·                Environmental decision (for certain types of development such as  e.g. factories, power plants; trade centres etc.)

·                Water Permit;

·                Permit for the exclusion of the land from agricultural or forestry production (in case the land is purposed for agricultural or forestry production in accordance with the Land Register);

·                Building Permit;

·                Use Permit;

The list of licenses/permits indicated above might vary with the demanded depending on particular state of facts. Consequently, some other decisions/ permits may be required to obtain.

3.1                   Terms and conditions to obtain the permits.

Some of proceedings concerning licenses/decisions required last couple of weeks, others even couple of months. Moreover, every single case is treated individually, which make impossible the precise indications of the period needed for obtainment of such decision/permits, however we would like to point out that the whole procedure of obtaining necessary permits for common development (e.g. residential or office buildings) takes in practice approximately 3- 12 months.

Below we would like to present the table including the basic information concerning terms and conditions pertaining to the obligatory licenses/decisions to be obtained.