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Greenfield & Brownfield investments: Acquiring real estate

Send Print Download added: Patrycja Operacz | 2017-05-09 13:31:37
invest in poland, doing business, greenfield, brownfield, investments, acquiring real estate, real estate

This article includes information about: legal entitlement to real estate, ownership, perpetual usufruct, fee for perpetual usufruct, usufruct, real estate easement, transmission easement, real estate acquisition, transactions related to agricultural property, pre-sales agreement, real estate and mortgage register, public purchase, acquisition of real estate by foreigners, shares acquisition, exemptions for European Economic Area companies, procedure of permission process.

Legal entitlement to real estate

Entitlement to real estate is regulated by the Polish Civil Code from 23rd April 1964. Real estate is understood to be grounds with premises, including facilities such as apartments, and houses etc., which are separate subjects of property in accordance with Polish Law. Full ownership gives the can be restricted only under certain circumstances, defined by the Civil Code (neighbour or zoning regulations), administrative law or the owner’s will. Ownership is the ultimate right to real estate and provides the owner with a complete range of usage. Ownership is legally protected against any third parties acting against the owner. Ownership is not time-limited. Neither the government nor public offices have any right to intrude ownership, the only exceptions being those presented in the zoning plan.

 

The Polish legal system offers several types of rights to real estate:

  • ownership,
  • perpetual usufruct,
  • usufruct,
  • real estate easement,
  • transmission easement,
  • mortgage,
  • lease

 

Ownership

Full ownership gives the widest scope of rights related to real estate and can be restricted only under certain circumstances, which are defined by the Civil Code (neighbour or zoning regulations), administrative or willingness of the owner. Ownership rights are the most complete and have a full scope of the usage of the property of land or building. The right of ownership is protected against all third parties, who are trying to act against the owner. The ownership rights are not time limited. The government or public offices do not have any right to influence the ownership, except the zoning and taxation regulations. In some cases properties may be expropriated with compensation for the construction of a public road.

 

Perpetual usufruct

Perpetual usufruct is established with respect to land owned by the State Treasury or local government authorities. It is usually created for 99 years (the minimum period is 40 years) and may be extended. The perpetual usufructee is allowed to use the land in the same scope as the owner. However, the purpose of land use is defined by an agreement and should be recognised before purchasing the right of usufruct. This is because the owner (State Treasury or local government) may terminate the agreement if the land is used in a way contradictory to the way defined in the widest scope of rights related to real estate and agreement. The purpose is generally defined by development and zoning regulations. Right to terminate the perpetual usufruct agreement is used by State Treasury or local governments only in exceptional circumstances (continuous and flagrant violation of purpose).

 

The perpetual usufruct is transferred under the same rules as regular ownership and property rights for real estate. No special permit from the owner (the State Treasury or local government unit) is required (except when the transfer is carried out by foreigners). In most cases the perpetual usufruct may be transferred to full ownership upon application and payment of the transformation fee.

 

Fee for perpetual usufruct

Usufructees must pay the government an annual fee (until 31st March 2009) separate from the obligatory land tax. The fee is calculated with respect to land value and cannot be changed more than once a year (for special types of land this period can be extended to five years). Because of fee perpetual usufruct is recognized to be more expensive than regular ownership.

 

Ownership vs. perpetual usufruct

A substantial difference between perpetual usufruct and ownership is that in the building is a separate object of ownership from the land, and acts as a second object. After constructing a building, the perpetual usufructee becomes its owner with full ownership rights. In case of the termination of the perpetual usufruct, the usufructee has the right to obtain an equivalent market value of the building from the State Treasury or a local government, which is part of the property held in the perpetual usufruct.

 

Usufruct

Usufruct is a qualified property right established bythe owner or perpetual usufructuary in a notary deed. Usufruct allows for both using the real estate and gaining benefits therefrom. Usufruct can be either payable or free of charge. However in case of the latter it may be subject of additional taxation. The usufructuary is also obliged to incur costs related to the real property maintenance. Usufruct is non-transferable, and it can’t be transferred onto any other natural or legal person.

 

Real Estate easement

Real estate easement is a qualified property right, under which the owner of a real estate may either use another real estate to a specified extent (defined in an easement contract), or possible actions with respect his/her property are limited in order to increase usefulness of another real estate. Easements are established by contracts between property notary deed. Easements shall be revealed in the land register.

 

Transmission easement

Transmission easement is a qualified property right that can be established for a grid operator that in tends to construct or owns facilities used to transmit and electricity. The easement authorizes a grid operator to use the real estate to a specified extent, in line with the intended use of transmission facilities. The owner of the property may claim compensation from a grid operator (in case of all utilities) for limitations in property use related to the presence of transmission facilities.

 

Another right to real estate

The Polish Civil Code also recognises the right to use but real estate in the form of lease, without ownership rights. Any legal entity, including a foreign company natural person, may lease land without any special permit from the Ministry of Interior and Administration or any special conditions from local authorities. The freeholder may give his right to use and additionally to gain profit from the property to a third party.

 

The Polish Civil Code recognises two types of lease contracts: umowa najmu (where only its use is possible) and umowa dzierżawy (for use and profit gain). According to the above property rights and contractual rights related to usage by third parties, the law recognises so-called sales and leases back contracts. These allow a foreign company or natural person to get long-term rights for property use.

 

Real estate acquisition

Real estate acquisition is regulated by the provisions the Polish Civil Code. Property transfer may be based only on a sales agreement, which stipulates all the parties’ rights and obligations. Both real estate and perpetual usufruct transfers become valid through a sales agreement, which is obligatorily signed in front of public notary in the form of the notary deed.

 

Transactions related to agricultural property

According to the new law regulations which came to into effect on May 1st, 2016, the sale of state owned land will be suspended for 5-years; leasing is to be the basis of the management of agricultural land owners in the form of land owned by the Agricultural Property Agency. The sales prohibition does not cover:

  • Land used for non-agricultural purposes.
  • Real estate located within special economic zones.
  • Houses, dwellings, outbuildings, garages, home gardens.
  • Agricultural property with an area of less than 2 ha. Some restrictions regarding the purchase lease of agricultural land which were also introduced.
  • The land can be bought by an individual farmer who has qualifications, manages the farm himself, and his farm (both owned and leased) cannot exceed the size of 300 ha.
  • An individual farmer should live at least 5-years within the commune where one of his properties
  • For other entities, the purchase will be possible under certain conditions. Other forms of entities than individual farmers will have to receive permission from the Agricultural Property Agency to buy land (an administrative decision) if all the pre-emptive buyers are excluded.
  • Young farmers (up to 40-years old) who want to start a farming business and buy land will have to declare that they want to cultivate the land and that they will live within the commune where the land is located.
  • The bought land cannot be sold for a minimum of 10-years and must be cultivated. It is not clear if the land will be able to be leased.
  • The land bought from Agricultural Property Agency (after 5-years of moratorium) cannot be sold for 15-years counting from the date of acquisition.
  • The APA receives additional rights to also be one of the pre-emptive buyers throughout the transaction of selling land greater than 2 ha. The new land Act exempts 2 cases in which the Agricultural Property Agency has no pre-emptive for purchase; firstly when changing ownership is amongst family members for both farms and companies (father to son, brother to brother etc.), secondly, when the buyer is from the neighbourhood and his aim is to enlarge his own existing farm (but only up to 300 ha).
  • When the Agricultural Property Agency will use its rights as a pre-emptive buyer, the Agricultural Property Agency will decide on a case by case basis about the criterion on how to calculate the land price.
  • The Church and religious organizations are exempt which means they can also buy agricultural land.
  • The Ministry of Agriculture by means of regulation will propose a way for calculating the lease payment depending on the production potential of the lease object, including, especially, the type of soil, location and the value of agricultural buildings.
  • Land of a size up to 0.3 hectares is fully exempt from this regulation, which means that a buyer does not need to have agricultural qualification and live in a commune.

The Polish Ministry of Agriculture provided a special e-mail address to which questions can be sent in case the Act is unclear. Questions can be sent to: ustawaoziemi@minrol.gov.pl

 

Pre-sales agreement

Prior to the final transfer of rights, decision makers may establish a so-called pre-sales agreement for selected land (or land with buildings). It is not necessary but highly recommended to make the pre-sales agreement in front of a public notary. In the pre-sales contract it is possible to oblige the second party to realise specific conditions related to the property in question, such as clarifying legal status, the payment of mortgage and preparing for final sales. The presales agreement may guarantee the rights for future property transfers, even without any pre-payment or minimal amounts as pre-payment.

 

Real estate and mortgage register

The above mentioned rules are binding for ownership or perpetual usufruct transfer. Both transactions differ in terms of when they actually come into force. In the case of ownership transfer, the date of signing the final agreement is the day the buyer becomes the property owner. Perpetual usufruct transfer requires (apart from signing the sales agreement) entering the new usufructee into the real estate and mortgage register kept by the proper court. As a consequence of the new entry of the buyer, the perpetual usufruct is transferred.

 

Public purchase

Purchasing real estate from public or governmentcontrolled authorities entails a special procedure, which involves public tender or auction. Public or government authorities guarantee equal conditions to all potential buyers.

 

Acquisition of real estate by foreigners

When on 1st May 2004 Poland became a member state of the European Union and consequently joined the European Economic Area, the real estate purchasing procedure was altered to become more attractive for foreigners interested in investing in Poland.

However, certain binding regulations of Polish Law defined by the Act from 24th March 1920 about the Acquisition of Real Estate by Foreigners (further referred to as the AARE), still states that foreigners with a seat registered outside the European Economic Areaintending to purchase real estate in Poland must obtain a permit from the Minister of Interior and Administration. The required permission is issued in the form of an administrative decision. This means that neither a public notary nor a Polish court or Government body can register or proceed with such action, and that the non-European Economic Area entity will become neither owner nor usufructuary.

 

Shares acquisition

This rule also applies to any acquisition of transactions or other legal actions when the transaction concerns the shares/stocks (with the exemption of listed companies) of a legal entity with a registered seat in Poland, regarding the owner or perpetual usufructuary of the real estate. Permission from the Ministry of Interior and Administration is required via acquisition or other legal action. A Polish company becomes controlled by a foreign company (which takes place when more than 50% of votes on the Shareholder/ Stakeholder Meeting belong to a foreign entity or when a company is controlled by similar naturals as members of governing bodies like Board of Directors).

 

Exemptions for European Economic Area companies

The AARE classifies foreigners according to a foreign company’s registered seat or foreign natural persons place of abode when they are located both within and outside the European Economic Area.
When foreign companies and nationals are registered inside the European Economic Area they are exempt from obtaining an acquisition permit. These entities do not re-quire any permit for the acquisition of shares/stocks or real estate, except agricultural land and a forest. However, purchasing agricultural land or a forest (12 years from 1st May 2004) or the so-called ‘second house’ (five years from 1st May 2004 until 30th of April 2009) still entails obtaining a permit, even for foreigners registered inside the European Economic Area.

 

Procedure of permission process

The standard procedure involves obtaining a permit from the Ministry of Interior and Administration, which takes on average three-four months of administrative procedures. Moreover, it is also necessary to collect all required documents, which is a time-consuming process.

 

A foreign businessperson may apply for a promise regarding a prospective acquisition. Such a promise is in the form of a guarantee that he/she will obtain the permit without any special conditions or requirements. However, the promise is not an act that allows purchasing real estate or shares/stocks. In order to close or transfer ownership, a permit is mandatory.

***

Source: Polish Investment and Trade Agnecy, Poland your business Partner. Invest in Poland, 2016.