A Q&A guide to corporate real estate law in Poland.
The Q&A gives a high level overview of the corporate real estate market trends; real estate investment structures, including REITs; legislation; title and public registers of title; confidential information; state guarantee of title; tenure; sale of real estate; seller's liability; due diligence; warranties; cost; taxes and mitigation, including VAT and stamp duty/transfer tax; climate change targets; third party outsourcing; restrictions on foreign ownership or occupation; finance; leases; planning law and consents; and proposals for reform.
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This Q&A is part of the PLC multi-jurisdictional guide to corporate real estate law. For a full list of jurisdictional Q&As visit www.practicallaw.com/realestate-mjg.
In 2010, the Polish economy continued to perform well, achieving 3.8% of GDP growth. This had a direct impact on the commercial property market which has started to show signs of recovery, after a considerable slowdown, particularly visible in the first half of 2009. Further, there has been a significantly higher demand for office and warehousing space from occupiers. All these trends continued to exist in 2011.
The most significant deals in the last 12 months include:
The acquisition by Unibail Rodamco of Arkadia and Wilenska shopping centres in Warsaw for EUR400 million (the largest real estate transaction in Poland in 2010) (as at 1 September 2011, US$1 was about EUR0.7).
A sale in Warsaw of North Gate office building by Austrian Volksbank Gruppe to Dekka Immobilien for EUR103 million.
The sale of Horizon Plaza office building by IVG Immobilien to Union Investment for EUR102 million.
Property transactions are usually structured as share deals or asset deals. For various reasons, including tax implications and the accessibility of funding, share deals are preferred by sellers, while asset deals are more attractive to buyers.
The structures used for real estate transactions usually involve a limited liability company (spolka z ograniczona odpowiedzialnoscia) which holds real property. Less commonly, other structures can be used, including limited partnerships (spolka komandytowa) and limited joint-stock partnerships (spolka komandytowo-akcyjna).
The concept of real estate investment trusts (REITs) is not recognised in Poland.
Real estate investors are domestic and foreign, and both institutional and private.
See above, Institutional investors.
The Civil Code contains the general rules regulating real estate, including disposal of and encumbrances on real estate. It also contains regulations on:
Perpetual usufruct. This is a mechanism for holding real estate owned by the Treasury or local authorities for a certain period of time (up to 99 years) in return for an annual fee.
Qualified property rights.
Other rights and obligations related to real estate.
The Real Estate Management Act regulates the management of real estate and its disposal, particularly property owned by the Treasury or local authorities. It also contains rules regulating professions involved in real estate, including rules regulating:
Real estate administration.
Real estate agencies.
The following legislation is also relevant:
Land and Mortgage Register and Mortgage Act. This contains regulations on mortgages and on maintaining land and mortgage registers.
Spatial Planning and Land Development Act 2003. This provides planning rules.
Building Law. This regulates the construction process from an administrative perspective.
Act on the Acquisition of Real Estate by Foreigners. This sets out regulations on the acquisition of real estate by foreign persons.
Generally, the concept of real estate covers land and the buildings located on it. However, the buildings can sometimes be subject to separate ownership, which can also be established for residential apartments or commercial premises.
If land and the buildings on it are owned together, they are disclosed in the same land and mortgage registration (ksiega wieczysta). However, if separate ownership of residential apartments or commercial premises is established in a building, a separate land and mortgage registration for each apartment or premises is required (different from the land and mortgage registration established for a building).
A separate land and mortgage registration may also be established for a co-operative right to a residential apartment or commercial premises.
Title to real estate is usually disclosed in land and mortgage registers (ksiegi wieczyste) kept by land and mortgage register departments in district courts.
The local authorities also keep:
Land registers (rejestry gruntów).
Buildings registers (rejestry budynków).
Records of premises (rejestry lokali).
Among other things, these contain details of the owner. However, if there is a conflict over title issues, the land and mortgage register entries prevail.
Land and mortgage registers contain:
Basic information about the real estate, such as area, location and details of buildings.
A list of rights relating to the real estate.
Details of the owner, and if applicable, details of the perpetual usufruct (see Question 3).
Information about encumbrances on the real estate, and any claims and restrictions concerning the real estate.
Details of mortgages.
Documents providing the basis for land and mortgage register entries are kept in the land and mortgage register files. These include purchase agreements and documents constituting qualified property rights.
Land and mortgage registers are publicly available. Access to the documents kept in land and mortgage register files is limited to the following persons:
Individuals disclosed in land and mortgage registers.
Individuals who can prove their legal interest.
There is no state guarantee of title. However, real estate buyers are generally protected by the reliability of land and mortgage registers principle. If there is a discrepancy between the land and mortgage register and the actual legal status of the real estate, the content of the register prevails in favour of the real estate buyer or holder of another property right.
Title insurance is available through private insurers, though it is not commonly used.
In addition to ownership (freehold) rights, real estate can generally be held on the basis of:
Perpetual usufruct (see Question 3).
Co-operative right to premises (see Question 4).
Usufruct. This is a qualified property right enabling the holder to use and collect the benefits from the real estate.
Easement. This is a qualified property right enabling the holder to use the encumbered real estate (for example, a right of way).
Lease. A lease creates a contractual right entitling the holder to use the real estate to obtain income in the form of rent.
Tenancy. Tenancy creates a contractual right entitling the holder to use and collect the benefits from the real estate in return for payment of rent.
Generally, real estate is marketed by real estate brokers or agents. Brokers act on behalf of the buyer or seller, and assist the parties throughout the transaction.
Before the parties enter into negotiations, they usually execute a letter of intent which sets out the general conditions of the final contract and the time frame for negotiations. It also demonstrates the parties' intentions to execute a contract.
The parties can also enter into a preliminary contract (which should take the form of a notarial deed) specifying the terms and conditions of the final contract and setting the final contract execution date. In addition, the preliminary contract generally includes the buyer's additional conditions and requirements which the seller should fulfil (such as obtaining a building permit or a land use decision).
The parties usually negotiate the contractual terms and conditions with the support of legal advisers. As soon as the parties agree the final version of the contract, they execute it before a notary. A notarial deed is mandatory for the transfer of real estate.
The sale contract is legally binding on the parties from the time of execution.
After its execution, the transfer deed is submitted for registration by the local court in the land and mortgage register and also by the local authorities in the land register.
Title to ownership is transferred at the time the final contract is executed. However, when perpetual usufruct is transferred, it must be entered in the land and mortgage register to be effective.
The seller is responsible for the accuracy of its real estate legal title. It is common for the seller to make representations in relation to title. If its representations on the legal or physical condition of the real estate are untrue, the seller is liable towards the buyer. The seller can also be responsible under certain specific conditions for environmental liabilities.
Depending on the type of real estate and the buyer's requirements, the issues that due diligence focuses on can vary. Generally, due diligence covers:
Title investigation in public registers.
A land survey description of the real property.
Investigation of permits related to buildings standing on the real estate.
Environmental issues and potential re-privatisation (restitution) claims that may be raised by former owners or their successors.
The seller typically gives the buyer:
Public road access warranties.
Representations that all permits required by law have been obtained.
In certain circumstances, a new owner can inherit liabilities of the former real estate owner, such as:
Liabilities under mortgages established on the property.
Liabilities under lease agreements.
The seller retains liability for misrepresentation in relation to the real property's legal and physical status. The seller also retains environmental liability, provided certain conditions are met.
Both parties are severally liable for notarial fees. However, the buyer usually covers the notary's costs (up to PLN10,000 (as at 1 September 2011, US$1 was about PLN2.9) per deed). The buyer also pays the civil transactions tax or value added tax (VAT) (if applicable) (see Question 17). Each of the parties pays the costs of its legal advisers.
See above, Buyer's costs.
Generally, VAT is payable on the sale of real estate when the transaction falls within the scope of the seller's business activity that is subject to VAT. This rule applies to the sale of both undeveloped and developed real estate.
However, there are several transactions that are VAT exempt, including the sale of:
Undeveloped real estate other than that intended for development.
Developed real estate after two years from the first occupation of that real estate. First occupation is defined as a transfer of the real estate for use by the first acquirer or user, through a transaction subject to VAT, after completion of the construction of the real estate or improvement work to it, if the improvement costs exceeded 30% of the real estate's initial value. Under certain conditions, the taxpayer can waive this tax exemption and make the transaction subject to VAT.
Developed real estate not covered by the above exemption, if both the seller:
was unable to deduct the VAT on the price paid for the real estate;
did not incur improvement costs exceeding 30% of the real estate's initial value, in respect of which it had a right to deduct VAT.
VAT is charged at 23% of the net sale price, apart from the supply of residential premises where VAT is charged at 8% (these rates apply in 2011).
The seller is responsible for paying the VAT to the tax office. However, the amount of VAT payable is added to the sale price, therefore, the buyer incurs the cost of VAT.
If the buyer of real estate performs business activities subject to VAT and the purchase is related to those activities, the VAT paid on the purchase price is generally recoverable.
Civil transactions tax (CTT) is payable on the sale of real estate if the transaction falls outside the scope of VAT or is VAT exempt. CTT is charged at 2% of the market value of the real estate.
The buyer is responsible for paying CTT. If the transaction is performed in a form of a notary deed, (which is required for the transfer of real estate) the notary public is responsible for collecting the CTT from the buyer and paying the CTT to the tax authorities.
There are several exemptions from CTT, including:
Purchase of agricultural land which is intended to be used as a farm.
Purchase of real estate by a buyer whose real estate was previously expropriated or nationalised.
Sale of residential premises in situations expressly prescribed by law, for example, where the buyer has earlier been expropriated from his property in exchange for indemnification.
There are no commonly used tax liability mitigation methods. Tax relief, such as the deferral of the tax payment date and splitting the tax liability into instalments, is deemed to be public aid, and can only be given to a taxpayer under strict conditions prescribed by law. Tax relief is not given in ordinary circumstances. Any tax optimisation schemes should be discussed with a licensed tax adviser.
Buildings must be designed and constructed in accordance with specific environmental protection requirements. However, there are no special targets for the reduction of greenhouse gases emitted directly by buildings. Entities must participate in an emission trading system for certain installations, such as energy installations with a nominal thermal power of at least 20MW. If a building is deemed to fall under this category, a licence to participate in the emissions trading system must be obtained.
In addition, certain regulations promote solutions leading to the improvement of the energy efficiency of buildings, which are aimed at indirectly helping to reduce greenhouse gas emissions. New buildings must conform to specific technical regulations on energy efficiency and heat insulation. Regulations applicable from 2009 provide for a mandatory assessment of the energy efficiency of new buildings and flats, under which an energy efficiency certificate must be obtained. In relation to used buildings (such as flats), energy certificates must be prepared:
If legal title is transferred.
If they are let for use.
When their energy efficiency changes as a result of reconstruction.
In some cases, the investor may need to carry out an environmental impact assessment before construction starts.
Real estate owners can manage their real estate portfolios and accommodation needs by using third parties specialising in real estate management. The real estate management profession is strictly regulated. Managers must hold a licence and have insurance in place. To be valid, real estate management agreements must be made in writing.
Managing a real estate portfolio using real estate managers is common in the case of larger office, retail and warehouse portfolios. The management of real estate may cover management involving:
Technical aspects (inspections and repairs).
Infrastructure (cleaning, supply and security).
Commercial issues (budgeting and accounting).
In some cases, a permit must be obtained from the Minister of Internal Affairs and Administration before a foreign party can buy real estate or shares in a company that owns real estate. Foreign parties from European Economic Area (EEA) countries and from Switzerland do not usually require a permit, except when acquiring agricultural or forest real estate. However, they can acquire shares in Polish companies that have ownership title to agricultural or forest real estate without a permit.
There are no restrictions on foreign parties occupying real estate (for example, under a tenancy or lease agreement) or on foreign guarantees or security for ownership or occupation. However, there may be some restrictions under foreign exchange law if funds are transferred.
Change of control of a company (including buying shares in a company holding real estate) does not affect the company's real estate holdings, as the real estate owner remains unchanged (only the shareholder changes). However, in some cases, acquisition of control (whether directly or indirectly) by a foreign party over a company holding real estate can require a permit from the Minister of Internal Affairs and Administration.
The compulsory purchase of real estate is possible:
If the local development plan designates the real estate for a public purpose.
When a decision is issued on the location of a public purpose investment (decyzja o lokalizacji inwestycji celu publicznego).
Before commencing compulsory purchase proceedings, the authorities hold negotiations with the real estate owner. If negotiations fail, compulsory purchase proceedings are then initiated. Real estate ownership is transferred once the compulsory purchase decision becomes final. Compensation at market value is paid in accordance with a valuation made by a real estate valuer.
For certain investments, compulsory purchase proceedings can be expedited and simplified. This mainly applies to road and railway investments, and projects related to Euro 2012 (the UEFA Football Championships).
The tax payable on the occupation of business premises is Real Estate Tax (RET). The tax rate is set by local authorities and differs throughout regions. However, maximum rates are set in the national legislation. The rate is set as an amount per square metre of real estate (in case of land and buildings) or as a percentage of the value recognised for income tax purposes (in case of other constructions).
The RET liability is calculated annually. The owner or perpetual usufructuary of the real estate pays RET in monthly instalments.
There are few exemptions from RET available in the RET Act. However, local municipalities can introduce exemptions from RET according to the rules set in the RET Act.
The most popular way of financing the acquisition of real estate or of companies holding real estate in Poland is through a bank loan. The sale and leaseback of real property is becoming increasingly popular, but bank loans still remain crucial.
Real estate is most commonly used as security for bank loans in the form of a mortgage. Real estate can also be sold by its owner (who consequently receives the required funds) and simultaneously leased back by the owner from the buyer.
The most common form of security over real estate is a mortgage. To validly establish a mortgage, the owner or perpetual usufructuary of real property should make the appropriate statement (generally, in the form of a notarial deed) and the mortgage should then be registered in the relevant land and mortgage register.
Real estate securitisation is not common. Generally, the assignment of receivables secured by a mortgage requires registration of the assignment in all land and mortgage registers where the mortgages securing receivables are entered. This time-consuming requirement makes securitisation unpopular.
There are certain restrictions under mandatory legal provisions that affect lease contract contents. These restrictions mainly apply to defining the parties' rights and obligations connected with:
Maintaining the object of the lease.
Termination rules, including termination on major events of default entitling the injured party to terminate the agreement.
Protection of the tenant's rights.
However, there are many issues that are freely negotiable.
Where the duration of a lease is more than a year, it should be executed in writing.
If this formality is not observed, the lease is considered to be executed for a non-fixed term. Further, it is recommended that the lease contract bears an authenticated date (for example by a notary). In this case, if the lease is also executed for a fixed term in writing and the object of the lease is handed over to the tenant, an acquirer of the object of the lease is not allowed to terminate the lease before expiration of its term.
The law does not provide for a rent indexation obligation or a ban on rent indexation, or any restrictions in relation to these concepts (except for certain specific rules applicable to residential premises only). Under leases, indexation clauses referring to various consumer price indices are usually applied. VAT is payable on rent due under both rental (najem) and tenancy (dzierzawa) contracts.
There are generally no restrictions on lease terms. The term can be fixed or indefinite. In commercial rental or tenancy contracts, an agreement entered into for a period of more than 30 years is deemed, on expiry of that 30-year period, to be entered into for a non-fixed term.
Tenants' rights are protected under the rules applicable to ownership protection. This means that the tenants' right to occupy premises cannot generally be interfered with unless there are exceptional circumstances.
Tenants do not have a statutory right to renew a lease. However, under the freedom of contract principle, provisions related to lease renewal can be incorporated in the lease.
Generally, the tenant can sublease or give over the object of the lease to a third party for free of charge use, unless this is contractually prohibited. However, tenants must generally obtain the landlord's consent before doing so.
If an entity wishes to share the premises with another company from the same corporate group, it can share the premises under a:
Sublease of part of the premises.
Free of charge giving over for use agreement.
The landlord's consent is usually required when subleasing or giving over premises for use, unless the relevant contractual provisions of the master lease allow for unrestricted subleasing or giving over for use.
The landlord must keep the leased premises in a condition suitable for the agreed use, and must maintain it in this condition throughout the lease period. However, the tenant carries out minor repairs connected with day-to-day use.
Generally, the tenant must:
Insure the actual leased premises (against fire, flood and other force majeure events, burglary, and accidents).
Hold civil liability insurance.
The landlord also takes out one or both of:
Civil liability insurance (to cover potential damage caused to third parties, such as the tenant's employees or clients, by actions taken by the landlord on the real estate).
Insurance against loss of rent.
If a lease is for an indefinite term, it can be terminated with notice. No grounds need to be given to make the notice effective. Fixed-term leases can be terminated for reasons specified in the agreement (such as arrears in lease payments and other breaches of major contractual provisions).
There are statutory means for the landlord to terminate a lease, including:
The tenant using the property contrary to its purpose or in a manner contrary to the contract.
Misusing the property in a way leading to risk of loss or damage to it.
Making the use of neighbouring premises in the building difficult.
Arrears in rent payment for at least two full payment periods. For rental of premises and tenancy, termination on this basis must be preceded by:
a one-off demand for payment;
an additional term being set for payment to be made.
The tenant can terminate the lease with immediate effect if there are defects in the premises posing a hazard to human health, even if the tenant was aware of the defects when entering into the lease. The tenant can also terminate the lease if defects (that make the agreed use of the property impossible) are not removed by the landlord when requested to do so, or if they are not removable.
Generally, if the tenant becomes insolvent leading to a petition in bankruptcy, leases remain valid. Therefore, any contractual provisions on automatic lease termination if the tenant is declared bankrupt cannot be considered effective under the Bankruptcy and Reorganisation Law.
The effects of a tenant being declared bankrupt depend on the type of bankruptcy. If the pending bankruptcy proceedings are intended to achieve an arrangement with creditors and continuation of the tenant's activity, the landlord cannot terminate the agreement (except with the consent of the tenant's creditors' committee) for the lease of premises on which the tenant's going concern is located.
In the event of bankruptcy through liquidation, either party can rescind the agreement if, on the date the bankruptcy petition is filed, the object of the lease has not yet been handed over to the tenant. If the object of the lease has been handed over to the tenant, it is the official receiver (syndyk) who can terminate the agreement even if termination is not contractually provided for.
The most important legislation concerning planning is the Spatial Planning and Land Development Act.
From the investors' perspective, local master plans adopted at municipality level by competent municipal councils are important. At the end of 2007, about 25% of Poland's total area was covered by valid local master plans and the situation has not significantly changed since then.
For areas not covered by valid local master plans or land use decisions, or where public investments are concerned, the municipal executive bodies issue decisions on the location of a public investment (see Question 41).
The administrative consents for a development project can be divided into three stages:
Planning phase. The scope of possible land use and development is specified in the local master plan, or for areas that are not covered by valid local master plans, by land use decisions or decisions on the location of public investments (see Question 40). These documents set the type and general parameters of the development and serve as a basis for feasibility studies, as well as further designing and planning. Depending on the type and size of the development, a number of other consents, opinions or decisions may be required.
Construction phase. For the majority of development projects, a building permit is required to commence construction. It should comply with the local master plan or the land use decision. However, the Construction Law provides a number of exemptions, mainly concerning smaller objects or facilities that are subject only to notification to the construction authority.
Operational phase. Depending on the type of development and contents of the building permit, an occupancy permit may be required. However, there are certain exemptions where it is only necessary to notify the construction authority that construction has finished and the structure is to be put into use.
The competent municipal executive body issues land use decisions (see Question 40). The executive body at county level issues building permits (powiat) level.
Third parties can object to the draft local master plan and can also raise objections during administrative proceedings for land use decisions and building permits. This applies to parties that are directly identified as participants in the proceedings, such as:
Property managers of neighbouring real estate.
Other third parties can request permission to participate in the proceedings provided the third party can demonstrate its legal interest, that is, that the expected ruling may have an impact on the proprietary or personal rights of the objecting party. Where non-governmental organisations are concerned, they must prove that their participation in the proceedings is duly justified in the light of their statutory tasks and the public interest.
A public inquiry is always held during the spatial planning process, at the spatial planning study phase (that is, the preliminary phase of the spatial planning process) and the draft master plan. Drafts of the study and the master plan are made available to the public. Any individual can submit requests and comments on the drafts. Similarly, a public inquiry is held if environmental impact assessments are carried out (before an application for a land use decision) for development projects that have or that may have a significant impact on the environment.
There is no specific time limit by which a land use decision must be issued. General rules provide that the decision should be issued within 30 days of a complete application being filed with the competent body. However, this time limit can be extended. In some circumstances, the proceedings can be suspended for up to 12 months. The proceedings should be resumed if either:
Within two months of the date of suspension, the municipal council has not resolved on starting the master plan procedure.
Within the suspension period (that is, 12 months) the master plan has not been adopted.
Relevant decisions are generally issued within two to six months.
A land use decision (and a building permit) can be appealed by any party that is dissatisfied with the ruling. An appeal is filed with a higher instance administrative body. If the appealed ruling is upheld, the interested party can file an appeal with the administrative court. If a further appeal is then filed against the ruling issued by the administrative court, the case may be subject to review by the Supreme Administrative Court.
Discussions and legislative work are currently in progress and aimed at:
Introducing the right to develop. This will replace the right of perpetual usufruct and will also allow development over or under the third person's land.
Simplifying and accelerating the master plan procedure.
Improving spatial planning efficiency and coherence.
Since the proposed amendments are still at the discussion and consultation phase and the government has not yet submitted an appropriate bill to parliament, it is difficult to predict the final shape and scope of the amendments and when they will come into force.
Main activities. The Ministry of Infrastructure is responsible for the majority of matters concerning real estate, including relevant legislation and administrative procedures.
Main activities. The Ministry of Internal Affairs and Administration is responsible for issuing permits to allow foreign parties to acquire real estate.
Main activities. The Ministry of Finance is responsible for tax issues.
Main activities. These are responsible for registration of legal title to real estate.
Qualified. Poland, 1984
Areas of practice. Real estate transactions, particularly cross-border investment projects; administrative and court proceedings, with special focus on reprivatisation issues.
Representing Bank Handlowy (Citigroup) in reprivatisation proceedings and advisory services in the sale of real estate.
Advising Bank Millennium on matters related to execution and performance of lease agreements.
Advising BBI Development NFI on the acquisition of real estate designated for development (housing) projects.
Advising DIE Inwestycje on the acquisition, disposal and development of real estate designated for housing purposes.
Advising Franke on the acquisition and development of real estate designated for the construction of a production plant.
Advisory services for Harmony Office Center and EKO Park in the lease of office space designated for the registered office of a leading bank (the largest transaction in terms of office space leased in one transaction in the history of the Polish market according to data from 2007).