Legal Services

Poland has for some time been harmonising its laws with EU norms. The accession date for Poland has been scheduled for 1 May 2004, and a large portion of required harmonisation of the Polish law with the standards of the EU law has been now completed, or is scheduled to be undertaken within the upcoming months and years.

The number of foreign companies attracted by these favourable conditions, as well as by the Poland's strategic location, has resulted in an ever increasing demand for property, covering the full range from greenfield site to commercial office or retail developments, the latter, in particular, undergoing very significant expansion in the last few years.

This note provides an overview of some of the more important legal considerations and recent developments which potential foreign investors may find useful.

Legal issues included within the partnership's E-Expert Forum are:

• Freehold and Leasehold Transactions
• Transfer Documentation
• Long or Short Term Leasing Agreements
• Development Issues
• Property Management Agreements
• Investment and Offshore Programmes

Once you have established your home in the Poland, the law advice partnership is also available to advise on all aspects of business and personal issues - offering the combination of consultancy and advocacy that our specialists bring as well respected and licenced advocates.

Buying property

The Polish legal system recognises a number of property interests in land, two of which are particularly suitable for investors, since they create for their holder the opportunity of long-term uninterrupted enjoyment of land and investment. These are: ownership (wlasnosć) and perpetual usufruct (użytkowanie wieczyste).

Ownership is the fullest possible form of enjoyment of land. The ownership right is interminable, freely transferable and the scope within which it is exercised may only by limited by administrative provisions or the neighbours' rights.

Perpetual usufruct is an interest which can only be established with regard to land owned by the State Treasury or municipalities. The perpetual usufruct is established for a minimum term of 40 and maximum term of 99 years. The interest is freely transferable and can be encumbered. The use of the land must be specified in an agreement whereby the perpetual usufruct is established. During the term for which this title was established, its holder becomes also the owner of buildings and fixtures situated on the land, however, the buildings or fixtures cannot be transferred separately form the perpetual usufruct right and the ownership title to the buildings and fixtures expires together with the perpetual usufruct. The holder of the perpetual usufruct is also the only entity to which the ownership of the land concerned can be transferred.

At present, foreign investors intending to acquire real property in Poland still require a permit issued by the Minister of the Interior and Administration. Such permit is also required if the foreigner wishes to acquire shares in a Polish company owning land or being a perpetual usufructuary of land. Any acquisition of Polish land in the absence of such permit is void. The proceedings connected with issuing of the permit may take between two months to a year, or even longer, depending on the nature of the proposed acquisition. However, the average time within permits are issued is two months, if the application submitted by the foreigner is well prepared and contains the complete set of required documents.

In practice, most applications for a permit to acquire an interest in land for business purposes are approved, whilst obtaining a permit to acquire land for private purposes is more difficult, unless the foreigner is living or working in Poland.

Poland's negotiations with the EU regarding the free transfer of land have been now completed. Due to historic, economic and legal reasons, Poland has been granted a relatively long transition period of 12 years, during which the transfer of land can be supervised by the government. Thus, the EU citizens intending to acquire land in Poland during the transition period will be required to obtain a relevant permit. However, the EU citizens, who are now leasing (pursuant to dzierżawa agreement) agricultural land and cultivate it on their own account, will be able to buy such land after 3 years from the date of conclusion of the lease agreement, (however, land in western and northern parts of Poland, can be acquired after 7 years of the conclusion of the lease agreement). In the above situations the "foreign" party to such lease agreement must be a natural person.

Restitution

The issues connected with restitution of the properties of individuals and companies disowned during the communists' rule in Poland still remain to be solved by legislative measures. At present, disowned individuals enforce their restitution claims in administrative and civil proceedings, which results in a situation when the legal status of many real properties remains unclear. Therefore, property investors must continue to exercise all necessary caution when carrying out due diligence of property titles.

Land registration

Legal status of Polish properties is evidenced in land and mortgage registers (Księgi wieczyste) (the “LMRs”) and investors should ensure that they have been inspected before the acquisition of land or any interest in land is effected.   LMRs are maintained by district courts. The LMR describes the land, lists its current and previous owners or usufructuaries and any encumbrances on the land, such as mortgages (hipoteka). It also lists other third party rights, such as easements and leases. Most urban land in Poland is registered while most rural land is not. However, it is relatively easy for land to become registered; a sale agreement between the previous owner and the current owner in notarial form is usually sufficient.

The system of land registration in LMR undergoes a process of computerisation. Newly established registers are usually computerised, whereas a large portion of the older registers are still maintained in the traditional form. Registration of title to land is still a lengthy process and its duration depends on the place of registration. In Warsaw, registration can take up to a year, whilst in other big cities, the period is approximately six months. Obtaining a title search from the LMR can also be time-consuming due to the fact that the computerisation of the system has not yet been completed. It is usually quicker and better to visit the court and check the contents of the LMR.

The main purpose of LMRs is to provide protection to prospective purchasers and mortgagees who, subject to a number of exceptions, may rely on the contents of the LMR as conclusive evidence of title. 

 Planning Regulations

Any property development within Poland will inevitably require planning and construction permits. Such permits are the responsibility of various municipal authorities who are most notably concerned to ensure that the development conforms to the designation of the particular area in the local zoning plan, with the architectural surroundings and environmental considerations. Planning permission will only be granted if the project satisfies the approved zoning plan for the region. Planning permits are issued by the planning authority for the relevant district or municipality. The planning permit is usually issued within one month if the application is based upon the zoning plan for the area and the proposed development is consistent with the permitted use within such zoning. However, if an investor is willing to develop the project which is not contemplated in the local zoning plan then it may apply for the plan to be amended. In such a case, it may take several months to obtain a planning permit. This period will be longer if the development is in relation to a proposed shopping centre, as the planning authority will need to prepare a study of the possible impact of the proposed shopping centre on employment, traffic, existing retail businesses and local consumers.

A number of conditions are usually set out in a planning permit (eg in relation to approvals and consents from other separate departments and government agencies involved in the planning process), which must be satisfied before a construction permit will be issued. 

Polish leasehold law

Under Polish law leases are not considered property interests in land, but contractual rights, effective only between parties to a particular contract.  There are two types of lease: “najem” and “dzierżawa”. Most commercial premises are let by way of najem, whilst dzierżawa agreements have traditionally been used for agricultural land.

The Civil Code contains detailed provisions governing the najem and dzierżawa. However, the parties to the particular contracts may deviate from those provisions and substitute them with arrangements of their choice. This is often done in the case of the Anglo-American institutionalwarsaw_properties_best_ lease, which is becoming increasingly common.  However, some provisions regarding both types of leases are mandatory and cannot be effectively substituted for.

Under a najem agreement, a tenant is granted the use of premises either for a fixed period of no more than 10 years or an unspecified period. Conclusion of a najem for a fixed period longer than 10 years, results in the transformation of such lease, upon the lapse of 10 years, into a lease for an unspecified period. It is possible for the lease to provide for a longer term by giving either party an option to renew the initial term for a further term of up to 10 years. However, it is not clear if a court would uphold such a provision, if it were challenged.

Under a dzierżawa agreement the tenant is granted the use of land and the right to collect “fruits” from, the land either for a fixed term or for an unspecified term. “Fruits” may be either “physical” (eg. crops) or “civil” (eg. revenue from the proceeds of a sub-lease of the land). The rent payable by the tenant may be in the form of cash, services performed for the benefit of the landlord, or a percentage of the “fruits” collected from the property.

Most of the Civil Code provisions regulating najem are applied also to dzierżawa. However, the period of a dzierżawa agreement can be up to 30 years or an unspecified period. Also in the case of dzierżawa agreement, conclusion of an agreement for a specified term longer than 30 years results in the transformation of the agreement into the agreement for an unspecified period.

Taxation

All investors should, as a matter of course, seek detailed tax advice prior to entering into any form of commercial transaction in Poland. Taxes with regard to the ownership, sale and purchase of property include stamp duty (now known as “tax on legal acts”) (“LAT"), VAT and real estate tax (“RET").

 LAT/Stamp Duty

LAT is payable on the transfer of ownership of, or a perpetual usufruct title to land. It is payable at the rate of two per cent of either the purchase price or the official compulsory valuation of the property, whichever is the higher. LAT is principally payable by the purchaser, although the vendor is, by statute, also responsible for the payment of LAT, and any failure by the purchaser to pay the tax will result in the tax authorities turning to the vendor for payment. It is possible, however, to limit LAT. For example, if the property is being transferred to a company as a capital contribution in exchange for shares in the company, LAT is generally payable at the rate of 0.1% of the value of the share capital covered by the contribution in kind. 

The basic rate of VAT is 22%. The sale and purchase of land or of perpetual usufruct does not attract VAT, although, in principle VAT will be payable in respect of new buildings and in respect of najem and dzierżawa agreements, if they are entered into by a VAT payer. All Polish companies undertaking activities on their own behalf and on their own account are considered VAT payers in circumstances indicating an intention to conduct such activities continually. Foreign companies conducting activity in Poland will be required to register for VAT purposes if they sell goods, provide services or undertake other activities subject to VAT.

RET

RET is payable by the registered owner or perpetual usufructuary of land. RET is also payable by entities holding land or structures erected on such land under the arrangements with the State Treasury or local authorities.

The annual rates of RET are determined by relevant local authorities, however, maximum rates that can be adopted by those authorities are specified in article 5 section 1 of the Act of 12 January 1991 on Local Taxes and Fees.  The basis for such determination is (for buildings and land) their area or (for other structures)  value. The highest RET rate is the rate for the buildings used commercial purposes and shall not exceed the amount of 16.83 PLN (ca. €4.2) per one square metre of usage area.

Natural persons pay the RET in four instalments payable until 15 March, 15 May, 15 September and 15 November of each year.

Legal persons as well as entities which do not have legal personality pay the tax in monthly instalments.

 Other taxes

Income taxes may also be payable depending on the investor’s business activities in Poland, but a detailed consideration of these is outside the scope of this note.

This note is written in general terms and should not be relied on as legal advice with respect to any particular transaction on specific set of circumstances.

A guideline :

•  Ensure that you have full ownership of the property upon completion, and that the relevant documents are available for the lender.

•  With newly constructed properties, ensure that you know the date that the property will be registered to you. The lender cannot lend on the security of the property until it has registered.

•  Due to the Polish legal and administrative system, there may be slight delays on securing your loan, despite the fact that all reasonable steps will be taken to avoid this. So be prepared.

•  Make sure you have researched every possible cost that you may incur, whilst purchasing a property in Poland . Note, you may be charged by the government in addition to the lenders legal costs (the Lenders costs however are usually specified when the Lender offers you the mortgage).

•  Unless you are very experienced in purchasing abroad, it is very important that you seek some sort of legal advice before signing the contract for a property or paying a deposit. The Lender will require a copy of these signed documents together with an application form, however you will be able to sign these documents 'subject to mortgage finance', once the contract is signed it is legally binding, so if you do not state this and the Lender does not wish to do business with you, this could be a huge problem

•  Legal advice may be costly, so ensure that you receive a complete quote, incorporating all costs, before applying for a loan.

•  A New Polish bank account will be required (however some lenders may offer this as part of the package).

• The completion of a Polish mortgage takes place in front of an appointed Polish notary and all parties to the mortgage, including the vendor, lawyers and a representative of the lender need to be present. However a power of attorney may be used to sign on your behalf for the mortgage and land deeds. A copy of this power of attorney will need to be presented to the lender in good time before completion.

•  It is advisable that a life assurance policy is set up on all mortgages.

•  Properties in Poland can be purchased by an individual or in joint names.

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