Introduction Polish Real Estate Law Ensures Transparency
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REAL ESTATE IN POLAND Short legal guide 1. Polish real estate law - introduction Polish real estate law ensures transparency and reliability thanks to the codification of rules and the registration of legal titles to property in a court register. The Civil Code is the main source of legal rules governing property rights, whereas the Act of 6 July 1982 on Land and Mortgage Register and on Mortgage provides an additional set of rules relevant for the title registration system and various types of mortgages. Apart from full ownership of real estate, which is similar to the English legal concept of freehold, Polish law also provides for a so-called perpetual usufruct, which is similar to ownership in that it is freely transferable and ensures the use of the property in a similar manner as an owner. Polish law also provides for a number of limited property rights, such as mortgages, usufruct and servitudes (rights similar to easements under English law). On the other hand, under Polish law, two types of lease of property are possible. Titles are registered in the Land and Mortgage Register, which is kept by district courts having jurisdiction over particular properties. The data kept by the district courts across the country is currently being transferred to a national electronic register; a great portion of properties can already be checked at Land Register Information Centre outlets. The register provides a statutory warranty for the acquirer of real estate that the rights entered in the register exist as they are registered, provided that the acquirer acted in good faith and acquired the property for a valuable consideration. 2. Legal titles 2.1 Ownership Ownership title bestows the broadest rights over real estate in Poland. Pursuant to the Civil Code, an owner can possess and use, derive profit and income, encumber, transfer and dispose of its real property, subject only to statutory limitations. Ownership of land extends in the space above and underground; however certain limits in that regard result from the Geological and Mining Law, the Act on Waters, as well as certain general rules resulting from civil law. The Civil Code also contains, $/-$1$3$:à$,,80/138 BABKA TOWER 00-175 WARSZAWA TEL. +48 22 250 11 22 FAX +48 22 250 11 26 [email protected] WWW.MORAWSKI.EU among other things, rules regarding relations between neighbours over adjacent properties. Real estate can be subject to co-ownership, which can exist in two different forms: x fractioned co-ownership (similar to the English law concept of tenancy in common), where each of the co-owners may transfer or dispose of its share by will; x joint co-ownership (which can be compared to some extent to the English concept of joint tenancy), where the co-owners have the same undividable interests in the property, e.g. spouses subject to joint marital status or heirs before the division of an inherited estate. Apart from traditional forms of transfer of real estate, (e.g. sale, donation, inheritance, disposal), ownership can be gained by mere lapse of time, by way of so- called usucaption. Depending on whether the possession of a real property is held in good or bad faith, the ownership title may pass after twenty or thirty years. In the event of a EUHDFK RI D UHDO SURSHUW\ RZQHU¶V ULJKWV WKH RZQHr may claim reinstatement in their rights, a ban on continued breach or a reinstatement in possession. 2.2 Perpetual usufruct right The perpetual usXIUXFW ULJKW ³385´ LV YHU\ FRPPRQ LQ XUEDQ DUHDV DQG HQVXUHV substantially similar rights to those of an owner. The PUR-holder can transfer or encumber its right, as well as protect the title by legal actions on the same terms as an owner. Technically speaking, the PUR is a type of property right by virtue of which the user has a right to use a property owned by the State Treasury or municipality for a limited period of time, usually for 99 years. The user is free to construct on the property, and any construction erected becomes the property of the perpetual user. An annual fee is payable to the State Treasury or municipality in respect of the use of the property. Even though there are differences between an ownership title and the PUR (as described below), the PUR is commonly used for investment purposes both by domestic and foreign investors, whether for development projects or by purchasing buildings developed on land subject to the PUR. Generally, banks have been ready to finance such investments, and insurance companies have provided insurance cover on the same terms as in the case of properties to which an ownership title is attached. The main characteristics of the PUR, as opposed to an ownership title, are as follows: 2 x while the State Treasury or a relevant municipality (local self-government unit) own the land, they grant the PUR for development purposes defined in an agreement. A PUR can be transferred to a third party without a further agreement with the consent of the State Treasury or municipality; x a PUR can be granted for a maximum of 99 years and not less than 40 years, with the right of extension for an additional 40 to 99-year period. The State Treasury or municipality can refuse to extend a PUR only in the FDVHRIDQµLPSRUWDQWSXEOLF interesW¶ DQG DQ\ VXFK UHIXVDO FDQ EH FKDOOHQJHG LQ FRXUW ZKLFK ZRXOG QHHG WR YHULI\WKHH[LVWHQFHRIVXFKDQµLPSRUWDQWSXEOLFLQWHUHVW¶,QSUDFWLFHDVORQJDV the basic use for which the PUR has been granted is respected, a refusal to extend a PUR is very unlikely, particularly because it would entail the obligation to reimburse the PUR-holder with the market value of the buildings and facilities developed on the land; x any buildings or other facilities developed on the land subject to a PUR are owned by the PUR-holder, notwithstanding the fact that the ownership title of the land remains, respectively, with the State Treasury or municipality. As explained above, in the event of the termination of a PUR, its holder should be compensated in respect of any buildings or facilities developed on the land; x the PUR-holder is allowed to use the property subject to PUR only for the purposes stipulated in the agreement executed at the beginning, when the PUR is granted (generally such agreement is executed only once, with the first PUR- holder), e.g. residential, commercial or industrial use. In the event the property is used in breach of the provisions under which the PUR has been granted, the PUR can be terminated before the expiry of the relevant term. x An annual fee is payable by PUR-holders to the entity granting the PUR. In the case of the establishment of a PUR, the first holder is liable to make an initial payment, which may range from 15% to 25% of the value of the property. All subsequent annual payments are calculated as a percentage of the land value, and the rates depend on the specific use for which the PUR has been granted, for example: - 1% in the case of land granted for residential, agricultural or sports purposes, as well as for the purposes of technical and other publicly useful infrastructure, - 2% in the case of tourist activity, - 3% in the case of commercial use. The annual fees can be subject to formal adjustment procedures carried out in the event of changes in the land value (however the expenditures incurred in respect 3 of developed buildings and facilities reduce the value of the basis for the calculation of the fee). The value of the real estate, which is calculated according to statutory rules for the specific purpose of calculating the annual PUR fee, is established by a chartered surveyor. The outcome of the adjustment procedure can be contested in court. x Unlike in the case of ownership of real estate, PUR is not subject to property tax. x Upon the consent of, respectively, the State Treasury or municipality that granted a PUR, it is possible to transform the PUR into an ownership title. 2.3 Mortgage A mortgage is an interest in real estate which serves as a security with regard to any liabilities incurred by an owner of such real estate or any third party (in such case the owner should consent to the grant of the PRUWJDJH VHFXULQJVXFKWKLUGSDUW\¶V liabilities) or as a means of enforcement against the owner. The mortgagee, i.e. the party in favour of whom a mortgage has been granted, upon obtaining an enforcement title, has a right to have the mortgaged property sold in a public DXFWLRQ0RUWJDJHVGRQRWOLPLWWKHRZQHU¶VULJKWVZLWKUHJDUGWRWKHPRUWJDJHGUHDO property, including the right to dispose of it; on the other hand the interest of the mortgagee remains notwithstanding any transfers of the property, as the mortgage is separate from the debt it secures. A mortgage can be established through a grant by the owner, as well as by a court order or by an administrative decision (e.g. by tax authorities). For a mortgage to be effective, registration in the Land and Mortgage Register is required. The registration takes effect at the date of filing the relevant application. However, the period between filing and registration can take up to several months, so in the case of any mention of a pending registration request an additional check of the register files is recommended. The following types of mortgages are provided for under Polish law: x Ordinary mortgage, established when a precise amount of the secured or enforced claim is known; x Capped mortgage, when a claim is secured or enforced up to a certain amount, e.g.