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Eversheds Global Estate Management

Poland

Real Estate Guide

Principles of ownership

Principles of ownership

Freehold/Ownership - is unlimited in time. The freeholder may choose to occupy the property itself or may grant a lease enabling someone else to occupy it. After the lease expires, the right to occupy will return to the freeholder. It is possible to sell freehold land either vacant, or subject to one or more leases.

Leasehold - not applicable.

Common hold/Usufruct - the right of perpetual usufruct is regulated in the Civil Code and in the Land Management Act. According to the definition of perpetual usufruct, land owned by the State Treasury and located within the administrative boundary of a town, or land owned by the State Treasury and located outside such boundary. This includes land designated in a local master plan and assigned for the purposes of the municipal economy, as well as land controlled by local government units or their unions, may all be granted in perpetual usufruct to the benefit of individuals and legal entities. Perpetual usufruct is alienable and hereditary, offering the second strongest (after ownership) right in rem. It may be encumbered with a mortgage. In practice, perpetual usufruct is almost equal to ownership. The main difference is that a holder of this right is obliged to pay an annual fee, the amount of which depends on the current usage of the land. The maximum fee is three per cent of the market value of the land. The fee for land used for residential purposes is usually one per cent of the market value. The fee is subject to assessment. Perpetual usufruct in most cases is established for 99 years and can be shorter in extraordinary circumstances; however, not less than for 40 years. Before that date, the holder of the perpetual usufruct right has a claim for extending it for another 40-99 year term. The authorities may refuse extension of the right only for vital public interest reasons. The holder of such right owns the buildings located on the land.

Condominium ownership - this is the kind of ownership including a separate residential premise or a premise used for other purposes. The owner of the premise is the co-owner of common parts of the property. If the particular property consists of more than seven separate premises, their owners are obliged to appoint a board that manages the property and represents a housing community. With fewer number of premises, the management of the property is the same as in the co-ownership.

Utilisation right - the right of usage is the right the ownership may be burdened with and includes the right of usage of the property and collecting profits from it. The right of usage can not be transferred to another person. Joint/Co-ownership - the co-owners of property shall jointly take all decisions relating to property. The consent of the majority of the co-owners is required for the ordinary management it, and the consent of all owners is required for management of the entire property or for activities exceeding the ordinary management. Each co-owner has the independent right to dispose or burden its participation in the co-ownership.

Registration - each immovable property has a separate Land and Mortgage Register kept by a court. Any transaction involving the property must be entered in the Register. The sale of the perpetual usufruct or establishment of a mortgage over the immovable property becomes effective upon entry in the Register. The Register is public and provides absolute evidence of title and a description of the land, the identity of the proprietor, any matters benefiting and burdening the land, as well as the quality of the title.

 

Restrictions on foreign ownership

Restrictions on foreign ownership

Under Polish law, acquisition of a freehold or perpetual usufruct to a real property by a foreigner requires a permit. The permit must be issued by the Minister of Internal Affairs and Administration. According to this regulation, a foreigner is not only a foreign citizen or company based outside Poland, but also a company or partnership with its registered office in Poland, directly or indirectly under the control of foreigners. These restrictions also apply to the acquisition or take-up of shares by a foreigner in a commercial company or partnership with its registered office in Poland, if as a result of such acts a company, or a partnership as an owner or a perpetual usufructuary of immovable property in the territory of Poland, becomes a company (partnership) controlled by a foreigner. Foreigners, who are citizens or entrepreneurs of the Member States of the European Economic Area, are not required to obtain a permit, apart from when acquiring agricultural and immovable forested properties within 12 years from the day of the accession of Poland to the European Union (i.e. 1 May 2004). Since 1 May 2009 abovementioned foreigners are released from the obligation to obtain the said permit for a second house. The law also provides some exceptions when non-EEA foreigners are not required to obtain a permit. Acquisition of immovable property or shares in a company or partnership by a foreigner in breach of the provisions of the law is invalid. The leasing of immovable property by a foreigner is unrestricted.

 

Title to real estate

Title to real estate

Investigation of title - not applicable.

Transfer of title - beneficial title passes immediately upon transfer, but the right of perpetual usufruct only passes upon registration. In order for the establishing of a mortgage to be effective, it also requires registration.

Registration - each immovable property has a separate Land and Mortgage Register kept by a court. Any transaction involving the property must be entered in the Register. The sale of the perpetual usufruct or establishment of a mortgage over the immovable property becomes effective upon entry in the Register. The Register is public and provides absolute evidence of title and a description of the land, the identity of the proprietor, any matters benefiting and burdening the land, as well as the quality of the title.

Information on register - not applicable.

Commercial leases - leasing commercial properties is governed by the provisions regarding lease agreements. There are no special requirements or regulations relating to the lease of commercial properties.

 

Structure of a real estate transaction

Structure of a real estate transaction

Negotiation of terms/Agreement - commercial terms are usually negotiated directly between the seller/landlord and buyer/tenant, who are assisted by lawyers and estate agents. The buyer’s lawyer will investigate the title, carry out searches of public registers, raise enquiries on behalf of the seller and review and negotiate, if necessary, the contract and any draft sale purchase agreement. The buyer will meanwhile commission a building survey, an environmental survey occasionally, and will complete its financial arrangements. The buyer’s lawyer will produce a report on the title to the buyer.

Heads of terms – not applicable.

Investigation of title - not applicable.

Contracts - the draft sale/lease contract is provided by either the seller/landlord or the buyer/tenant. In some sale transactions the draft is provided by the notary, as the sale can only take place in the form of a notarial deed. However, even if the draft is provided by the notary, it is negotiated by the parties’ lawyers. As for the sale, the parties usually execute a preliminary sale purchase agreement conditional upon fulfilment of various conditions such as the positive outcome of surveys and due diligence, and obtaining relevant zoning decisions allowing the development of a particular investment on the land, etc. Usually, those conditions are reserved in favour of the buyer. Once the conditions are met or waived by the buyer, the parties sign a final and unconditional sale purchase.

Completion/closing - completion takes place when the parties have executed the sale purchase agreement/lease. Payment of the price in most cases takes place at the same time, or shortly after completion of a contract. Under Polish law, ownership of the immovable property transfers to the buyer regardless of payment of the purchase price. It is not permitted to sign a conditional sale contract for immovable property however it is possible to sign preliminary agreement.

Post completion - the notary is obliged to collect tax on civil law transactions from the buyer (if applicable) and send the relevant application to the court for registration of the sale in the Land and Mortgage Register.

Leases - as opposed to this structure, parties to a lease contract do not split the agreement and sign a binding agreement without any additional arrangements. In some circumstances, both transactions, i.e. sale and lease transactions, are preceded by a non-binding letter of intent. This letter usually provides an exclusivity term for negotiations and/or the conducting of legal and technical audits by the buyer/tenant.

Purchase deed - as the sale purchase agreement of an immovable property can only be signed in the form of a notarial deed, the notary usually checks all the entries in the Land and Mortgage Register immediately before completion of the sale.

Language requirement – not applicable.

Governance of lease signature/administration – not applicable.

 

Usual commercial lease terms

Usual commercial lease terms

Summary of available lease types - there are two types of lease agreements. The lease agreement can include the right of usage of the property (umowa najmu) or the right of usage of the property and collecting profits form it (umowa dzierzawy).

Alterations/modifications - non-structural alterations to the premises are usually permitted subject to the consent of the landlord, not to be unreasonably withheld or delayed. Structural alterations are not permitted.

Assignment and sub/under letting - it is standard practice that tenants are not allowed to assign the lease to any third party without the prior written consent of the landlord. Usually a change of control over of a tenant’s company is deemed as an assignment and requires prior written consent of the landlord. Landlords usually have the right, without the tenant’s consent, to assign any or all of its duties under the lease. It is standard practice that tenants cannot grant any sublease, management, use or franchise with respect to the leased premises to any third party without the prior written consent of the landlord in each instance.

Destruction/reinstatement - the landlord is obliged to maintain the property in proper condition. If the property was destroyed due to the circumstances for which the landlord is not at fault, he is not bound to restore it to its previous condition. It is common for a tenant to be obliged to reinstate any alterations at the end of the term and to deliver the premises back to the landlord. The tenant is not normally compensated for improvements.

Duration of lease - typically, a lease is concluded for a term of between five and ten years. Under Polish law, the maximum fixed term for a lease including only the right of usage of the property is ten years and thirty years for lease contract including the right of usage of the property and collecting profit from it.

Forfeiture/irritancy - not applicable.

Insurance - the landlord will maintain standard fire, perils and loss of rent coverage insurance on the leased premises and the other structures and improvements which are part of the landlord’s premises. The cost of such insurance is included in the service charge. For the tenant’s protection, the tenant will usually maintain at its expense, insurance for fire, perils, theft, loss of revenue and other coverage on all of its personal property, including trade fixtures, located in the leased premises. The tenant will also maintain comprehensive liability insurance policies that will insure against any liability or claim for bodily injury, death or property damage.

Rent review - it is standard practice to have index-linked rent review clauses in lease contracts. In most cases, base rent is increased each year by the CPI (Consumer Price Index).

Repair/decoration/furnishing - the tenant will be obliged to keep the premises in good repair and to redecorate them regularly. The landlord will be responsible for external redecoration and repairing the structure and common parts of the building, and will recover such costs through the service charge.

Service Charges - not applicable

Tenant’s duties - the tenant is obliged to use items in a manner appropriate to their nature and purpose, and to conduct small repairs related to their daily exploitation, unless the agreement provides otherwise. The tenant is also required to pay rent on time and return the items after the term of the lease in the same condition. However, the tenant is not responsible for the wear and tear of the items resulting from their normal use.

Termination/break clauses - the party to the lease agreement has a right to extraordinary termination of the lease, in the event of the other party’s failure to comply with any of its material obligations under the agreement, and such terminating party fails to cure such non-compliance within an appropriate term, after receipt of a written notice from the other party on such failure. Break options, except for extraordinary termination, are not common in lease agreements. It is forbidden to terminate a lease agreement in case of a court declaring the bankruptcy of one of the parties to the lease.

 

Increasing covenant strength

Increasing covenant strength

Lease deposit - usually the tenant is obliged to pay the landlord in advance a deposit amounting to rent, taxes and any service or utility charges which are due for a three month period. The deposit is kept by the landlord as a security for any payments due from the tenant.

Surety - it is possible but it is less common.

Warranty - typically warranties by both parties are included in the agreement however the scope of the warranties is limited.

Rent deposit/bank guarantee - usually the tenant is obliged to pay the landlord in advance a deposit amounting to rent, taxes and any service or utility charges which are due for a three month period. The deposit is kept by the landlord as a security for any payments due from the tenant.Instead of a rent deposit, the tenant may negotiate to provide the landlord with an unconditional bank guarantee.

 

Security of tenure

Security of tenure

The tenant is protected as much as the owner. He has the right to request the abandonment of violating his rights and to issue the thing that is the subject of the lease. The tenant of another kind of property is entitled to require the cessation of the violation of the ownership.

 

Taxes

Taxes

On sale/acquisition of real estate - the sale of real estate is subject to either tax on civil law transactions or VAT. Tax on civil law transactions is paid at the rate of 2 per cent. VAT is due at either 8 per cent or 23 per cent. The type of the tax and its rate depends on the land designation, i.e. if it is agricultural or designated for development, and if it is used for residential or industrial purposes. It is also relevant as to whether the sale is concluded within the scope of the seller’s business activity or whether the seller does it occasionally and is not registered for VAT purposes. Civil law transactions tax is not recoverable by the buyer as opposed to VAT, which if it is paid by the buyer being an entrepreneur registered as a VAT payer, may be recovered from the tax office. Of course a general rule that the expense from which VAT is to be recovered has to be incurred with respect to VATable activity of the taxpayer needs to be obeyed

Holding - real estate tax is payable usually by the owner/perpetual usufructuary of a real property or building. The amount of the tax depends on the amount of square meters of a real property or building, and the value of the structures located on the real property. The tax rate is different for private persons and entrepreneurs and depends on the location of the real property, since the tax rate is established by local governments.

Immovable property tax - not applicable.

Income tax - not applicable.

Land tax - not applicable.

Lease tax - not applicable.

Local tax - not applicable.

Mortgage - not applicable.

Other taxes - not applicable.

Property lease tax - not applicable.

Value added tax - not applicable.