Real Estate Investment in Poland Your Legal Guide Introduction
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Real Estate Investment in Poland Your Legal Guide Introduction Dear Friends and Business Partners, Poland is the largest economy in Central Europe, with a population of ~38 million. The implementation of large urban and infrastructure projects is one of the pillars of the new economic policy that the Polish government has recently adopted to meet the UEFA requirements (Poland is one of the countries co-organizing UEFA EURO 2012 Football Championship) and to minimize the negative influence of the turmoil in global markets on the Polish market. Large investments are expected to reduce the unemployment rate and secure the further growth of Poland's economy. It is estimated that the value of the infrastructure projects implemented in Poland within the next 7-8 years will amount to at least EUR 60-70 billion. The sectors of vital importance for the further Poland's development will be: real estate, energy & infrastructure, as well as transport & logistics. Our Clifford Chance Warsaw Real Estate, Construction & Infrastructure Department covers all legal aspects related to the successful completion of large real estate and infrastructure projects. We have the same business objectives as both private and public investors: working on a better infrastructure in Poland. We advise investors, developers, contractors, financial institutions, and professional consultants involved in the development process. We have a wide range of expertise in relation to the development of retail, office, warehouse, residential, mixed-use, energy, industrial plant as well as PPP and infrastructure projects, as well as a long record of experience in contracts based on forms such as FIDIC and AiA. We also offer unique expertise in negotiating contracts with marquee international architects and engineers as well as in negotiating contracts concerning PPP projects. We hope that our publication covering major legal and tax issues related to the real estate and construction sector in Poland will become your guide helping with planning new investment projects on this promising and rapidly developing market. We will be delighted to join our capabilities with you working together on Poland's development. Daniel Kopania Partner Head of the Real Estate, Construction & Infrastructure Department Clifford Chance, Warsaw © Clifford Chance, Janicka, Krużewski, Namiotkiewicz i wspólnicy spółka komandytowa 2011 Real Estate Investment in Poland 3 Your Legal Guide 1. SECURING THE LAND 5 s 2. DEVELOPMENT PROCEDURE 11 t 3. REAL ESTATE FINANCING 17 4. CONSTRUCTION ISSUES 23 n 5. LETTING 27 6. INSURANCE 33 e t 7. SELLING THE SCHEME 35 8. COSTS 39 n 9. ENVIRONMENTAL LAW 43 10. APPENDIX 51 o c © Clifford Chance, Janicka, Krużewski, Namiotkiewicz i wspólnicy spółka komandytowa 2011 1.1 Titles 5 1.2 Registration of real estate 6 d 1.3 Unregistered land 7 1.4 Restitution claims 7 n 1.5 Title insurance 8 1.6 Preliminary agreement 8 a 1.7 Purchase from public bodies 8 l 1.8 Pre-emptive right 9 1.9 Acquisition of real estate by foreigners 9 e 1.10 Energy Efficiency Certificate 9 h t g n i r u c e s © Clifford Chance, Janicka, Krużewski, Namiotkiewicz i wspólnicy spółka komandytowa 2011 Real Estate Investment in Poland 5 Your Legal Guide 1.1 Titles land is becoming more and more popular termination date, the owner must extend (as a matter of fact, it was quite popular the term, unless there are serious "social even during the communist era, reasons" for not doing so. The perpetual 1.1.1 Introduction especially with respect to farmland). usufructuary may also request an The existence and form of legal title to extension earlier if developments are land is a vital issue that any developer or 1.1.3 Perpetual usufruct planned on the land, which will be investor must be clear about before One of the most important property depreciated over a period longer than the becoming involved in a new project. This interests in land, specific to Poland, is the remaining term of this right. involves answering a number of important right of perpetual usufruct to land questions: How does the legal title secure (użytkowanie wieczyste). If the holder of the title breaches the the position of the beneficiary? Can it be provisions of the contract concerning the mortgaged? Can construction works be The concept of the right of perpetual development, it could lead to an increase carried out on the basis of a given legal usufruct to land arises from the historical in annual fees, or even the termination of title? What are the costs of maintaining reluctance of the State to hand over the contract. the title? How attractive is the form of title control of properties to full private for a prospective buyer? ownership. Perpetual usufruct has now Upon the creation of a right of perpetual become a strong and stable right in usufruct by virtue of contract, the The forms of legal title to the land under property, far removed from its origins, the perpetual usufructuary is obliged to pay Polish law include: closest relation to ownership of all an "initial fee" amounting to from 15% to property rights. 25% of the value of the land. Thereafter, - ownership (własność) ; he pays annual fees of 3% of the land Perpetual usufruct may only be created value. The percentage of those fees may - perpetual usufruct (użytkowanie on land belonging to the State Treasury be lower in certain specific cases, for wieczyste); or local authorities. Once created, it can example in relation to some non-profit be inherited, transferred to third parties organisations and for historic monuments. - usufruct (użytkowanie); and encumbered (mortgage, easements, Please see section 8.2.2 for more details. usufruct). The perpetual usufructuary is - easement (służebność); the owner of buildings and other Upon termination of a perpetual usufruct constructions erected on the land. In contract, the perpetual usufructuary loses - 30-year lease (dzierżawa); comparison with the wide powers his right, and the land (together with the granted to the holder of the perpetual buildings and other improvements) is - 30-year lease (najem). usufruct right, the owner of the land (the taken over by the owner. The owner is, State Treasury or the local authority) is however, obliged to reimburse the Ownership and perpetual usufruct are the substantially restrained in its powers: it perpetual usufructuary for the current only titles to the land that can be cannot encumber the property or sell it to market value of the buildings and other mortgaged and that are recognised by an entity other than the holder of improvements legally made on the land. institutional lenders and investors. The perpetual usufruct. Only the holder of the ownership of buildings and other perpetual usufruct right is entitled to use 1.1.4 Usufruct structures is always vested with the and collect income from the land. Usufruct grants its holder the right to use owner (or perpetual usufructuary) of the and collect income from the property in land. Other titles mentioned above either One of the fundamental differences compliance with a notarised usufruct serve an accessory role (e.g. road between perpetual usufruct and contract. Under the contract, the easements) or are temporary (temporary ownership is that perpetual usufruct is usufructuary is granted full economic use leases before the acquisition of supposed to be created for a defined of the property, along with all responsibility ownership or perpetual usufruct). purpose (the development of a project or for making improvements or repairs to the for conducting some sort of activity) as property. Usufruct cannot be transferred 1.1.2 Ownership set out in a contract. The period may vary to a third party, which is a major Ownership is the broadest right in from 40 to 99 years depending on the inconvenience of this right. There is no property, enjoying full constitutional purpose of its creation, but usually it is 99 maximum time limit for which usufruct protection. Public owners of real estate years. may be created. (the State Treasury, local authorities, other public bodies) are not privileged If the holder requests an extension within over private owners. Private ownership of five years before the scheduled © Clifford Chance, Janicka, Krużewski, Namiotkiewicz i wspólnicy spółka komandytowa 2011 6 Real Estate Investment in Poland Your Legal Guide 1.1.5 Easements of the lease is 10 years. The other basic opened. Via the Ministry of Justice Polish law recognises three types of contractual right is a 30-year lease website (www.ms.gov.pl) anyone can easements: ground easements, personal (dzierżawa) granting the right to use and check, free of charge, the current status easements and transmission easements. to collect income from the object. The of the entries in a relevant mortgage Ground easements are established for main practical difference between them register. The search is only possible if one the benefit of the owner (or perpetual lies in the scope of the tenants' rights. knows the number of the mortgage usufructuary) of neighbouring land, After the lapse of their statutory personal easements are established for maximum terms, both contracts register. The next stage of the reform the benefit of an individual and transform into agreements for an aims to allow print outs of the content of transmission easements are established unspecified period of time (and are thus the mortgage register, which will have the for the benefit of a business entity which subject to termination upon notice). status of original excerpts. intends to build, or owns on the third Without entering into theoretical nuances, party land, utilities infrastructure. Ground it is fair to say that dzierżawa may be The mortgage register is broken down easements are transferred together with signed with respect to farmland and into four sections.