by Brian Fisher
Investors are intrigued by the property opportunities in Poland, but are unsure about the legal position. However, they can feel secure: the law is becoming increasingly favourable to them, and in fact is quite comprehensible.
The rigid socialist post-war property system has been eroded since 1981 as Poland moves towards a market economy. The total concentration of national property rights; the privileged treatment of state and “socialised” property; and the differentiation of ownership rights depending upon the “class nature” of the given property are all disappearing.
The traditional regulations on property and its protection based on Roman Law and supplemented by socialist principles have recently been subjected to an important amendment. Article 140 of the 1964 Civil Code, which gives the owner of property the right to use the property, draw benefit from it and dispose of it, and Article 222, which gives the owner the right to protection of the property, have been strengthened to the benefit of private ownership. In December 1989 the Act on the Amendment of the Constitution of the Republic of Poland Article 5 now guarantees “the freedom of economic activity without regard to the type of property” and Article 6 states: “The Republic of Poland does protect property and right to succession and guarantees the full protection of personal property. An expropriation is admissible for public purposes only and with equitable indemnity.”
Foreigners can benefit from these changes. The rights of non-Polish persons to acquire and possess property are not as a matter of principle subject to restrictions other than those concerning Polish nationals. The 1965 Act on International Private Law Article 8 says: “Foreigners may have in Poland rights and obligations equal to Polish citizens, except when statutes rule otherwise.” Thus, under the old 1920 Act on Acquiring Real Estate by Foreigners, permission is still needed from the Minister of the Interior. This has recently been modified by the 1988 Act on Economic Activity with the Participation of Foreign Parties (“The Joint-Venture Laws”) and now includes companies which are more than 50% foreign owned. This includes both those registered abroad and those domiciled in Poland but controlled from abroad. Article 126 of the Act says that foreign-owned companies may acquire a perpetual lease on land owned by the state, and that such companies may purchase real estate not owned by the state. The permission from the Minister of the Interior is not difficult to obtain; the procedure is not over-complicated, and not unlike our own planning applications. The application must be for specific land and details of advisers etc must be supplied. Permission should take a maximum of only three months under Polish administrative law. In Warsaw a few letters of intent have already been issued, and there are initial “subject to contract” agreements for the purchase of several plots of investment land.
There are a number of forms of property holdings in Poland, and an important distinction may be drawn between the rural and urban areas. Agricultural land is some 90% in private hands, having been parcelled out in 1944: each holding is limited to a maximum of 100 hectares with some regional differences. This ownership is absolute — prywatna wlasnosc — but there are statutory limitations upon the right of sale; the purchaser must be qualified to farm, and must produce a certificate as proof. The purchaser’s title will be good; an Act of 1971 formalised the status quo of the time and introduced land certificates in the form of notorial deeds as proof of ownership. An agreement to buy without the formal deed may still be valid in contract, but the purchaser may have no right in rem. After the war, though forced collectivisation failed in Poland, agricultural co-operatives became very popular, and a number of spoldzielnia produkcyjna developed, effectively creating enlarged farming units. The general laws governing these are set out in the Civil Code, Articles 195-221. These may now soon be purchasable as single entities, thus removing the last provision in force in Poland which limits the right of an individual to acquire or possess assets. No clear-cut structural agricultural policy has yet been formed. However, a leading writer, Dr Andrej Wisniewski, has recently noted that “the progress of liberalisation will without doubt soon force some far-reaching changes in the maximum size of privately owned estates”.
In the large urban conurbation of Warsaw the highest form of holding is the perpetual “usufruct” (right of enjoyment) or wieczyste uzytkowanie (literally “eternal”). This holding probably makes more sense to the experienced Western investor than the native Polish person. It originated in the feudal system and is characterised by a division — dominus directus, dominic utilis — of ownership. Polish lawyers have traditionally distrusted the term of years, but this holding was introduced after the war to grant significant rights to the user without a final abandonment by the state of the ownership right.
It was introduced into the Civil Code in Article 232-243 and its main characteristics are the following; the minimum term is 40 years and the maximum is 99 years; perpetual usufruct can be held only on state land; the perpetual tenant has the right to enjoy the land and to dispose of his right; it can be inherited. The perpetual tenant owns the buildings which he has erected on the land subject to the perpetual usufruct. He is obliged to pay the agreed rent and the agreement can be terminated in specific cases, such as a breach of a user covenant, but always subject to the law. In Poland the right of wieczyste uzytkowanie is used as a substitute for the right of prywatna wlasnosc. It is used when the state sells off land for commercial or residential property, or even for the sale of separate premises in multi-apartment blocks. Finally, both the regulations currently in force and the draft regulations seem to tend to maintain the perpetual usufruct as the main form for the new privatisation programme of state asset sales.
Another, apparently lesser, form of holding is the dzirzawa. This is probably best understood as a sublease or simply a short lease. It again follows a familiar pattern; the term of years, rights and obligations are open to bargain and agreement between the parties. Lessors may be limited, though, by the so-called “special lease procedure” which applies to most premises in the towns: it limits the lessor’s right of disposition and the rent he can charge. Already significant changes have been introduced to these regulations on rented premises. The protection of tenants in business premises, shops and offices has been lifted; some contracts can simply be terminated and the rents increased. A recent result has been the rapid growth of rents for business premises which can now reach around Plz 50,000 and more per m2 monthly. In addition, an amendment to the Civil Code and a draft new Law of Real Estate Management are expected to facilitate the trade in commercial property as well as lead to further rent rises.
In Poland the law on residential property has been an integral part of the state social policy. Many have lived in dwellings owned by the housing associations and subject to the prawo spoldzielcze or co-operative laws introduced after the war and amended in 1961 and 1983. A prospective tenant first joining the waiting list then could acquire either a stronger transferable title for a premium or a weaker exchangeable interest for a simple monthly rent. Rents can still be very cheap: a two-bedroom flat in a fairly central suburb of Warsaw can be as little as £1 per week.
Another method of housing has been the publicna cospodarka lokalami — roughly similar to our council property. These properties largely stemmed from the post-war expropriations — usually from owners of German origin — but then were administered by the local authorities. Since 1972 the tenant has had the right to buy the flat (plus a share in what in the UK we would term the “common parts”) and thus acquires a fully transferable right. Single-family apartments or houses used to be treated as personal property under Article 132 of the Civil Code, ie they were “things designed to satisfy the personal material and cultural requirements of the owner”: they now come under the provisions of the new amendment on property. Poland has other familiar sights: the courts always have a number of applications by tenants for protection or rent regulation. It has its squatters, too: Article 172 of the Civil Code allows a person the right to a property after 20 years of uninterrupted possession or control through zasiedzenie, or acquisitive prescription.
In the Polish legal system the regulation of property is a strictly statutory matter: the rights of the investor in Poland are protected and are fully enforceable in the courts. Detailed regulations specify the procedures involving the land and mortgage registers and these can be used as guarantees for the purchaser or the mortgagee. In accordance with tradition, property law also regulates easements and pledges etc. A key source of protection is provided by the 1985 Act on Land Management and Expropriation of Real Property. No property may be seized other than under statutory authorisation, ie it can result only from an Act of Parliament or a government regulation issued under a specific delegation of power and properly published. At present the only type of property which may be subject to a compulsory purchase order for the public use is land necessary for local development and for defence purposes. Development plans are issued and reviewed in an established format by the authorities so there is no danger of unexpected sudden seizure. Expropriation must be compensated. Moreover, compulsory purchase decisions are opposable before the administrative courts both as to their necessity and the amount of compensation, and the courts tend to protect the proprietors’ rights to receive a fair market value for their land. Finally, the foreign investor in Poland has an optional extra: under the 1988 Joint-Venture Laws he can require the Minister of Finance to give guarantees for individual investments.
The property investment opportunities in Poland are increasing daily. The 1989 Economic Reform Programme has paved the way for the state treasury to divest itself of state assets: it still is the largest holder of property in the country. Two new government and parliamentary agencies have been created to oversee the progress, and four British government-sponsored privatisations are already underway. Privately the picture is the same: the newspaper columns have an increasing number of property advertisements. There is intense interest in the country property sector. The Minister of Culture publishes a list of old dwors or castles for sale. The prices are low: some have gone for as little as £2,000. For the investor the best guarantee of continuing property opportunities is ultimately the political will of the people: as Poland moves towards full democracy and membership of the European Community the rest will follow.
But Poland knows that it still has one further advance to make if a property investment culture that makes real sense to Westerners is to be created. The days of the “private exchange officer” working from home as a property middleman — and probably without a phone — are numbered: the time is now just about right for the first appearance of the glossy High Street estate agent that we have all come to know!
Brian Fisher is a barrister of the Inner Temple. He is now resident in Warsaw, where he specialises in advising Western clients seeking investments in Poland. Thanks are due to His Excellency the Polish Ambassador in London, Professor Eugene Piontek of Warsaw University and Jan Czierwiakowski and Thomasz Zasacki of the Warsaw Bar for help with this article.
