Poland Property Ownership

Real estate consists of land and buildings permanently connected with land or parts of such buildings, unless pursuant to regulations such buildings or parts constitute object of ownership separate from land. Real estate can be object of ownership. Owner (including State Treasury and communal estates) can grant perpetual usufruct. Within limits defined by laws and principles of social coexistent, and by contract, perpetual lessee may use land to the exclusion of other persons. Within the same limits, perpetual lessee may dispose of his right by sale or inheritance. Use of State Treasury land by perpetual lessee must be defined in lease. Foreign companies enjoy unrestricted access to the Polish market, apart from legal limitations on foreign ownership of companies in selected strategic sectors and registration of medical products. One exception is real estate, particularly involving agricultural land, which remains politically sensitive for historic reasons (US Export Guide, 2005).

The sale of agricultural land to foreigners has long been a sensitive issue. The 1920 Law on Acquisition of Real Estate by Foreigners prohibited a foreigner from acquiring real estate without Polish Government permission. In 1996, Poland liberalized that law as part of its effort to join the OECD. From the day of accession to the EU, foreigners of the European Economic Area (EEA) countries generally do not need permission to purchase real estate and to acquire or receive shares in a company, which own real
estate in Poland. There are two exceptions: the acquisition of agricultural real estate where Poland was granted consent to introduce 12-year transition periods with respect to unrestricted acquisition of agricultural real estate by foreigners (with certain exceptions); and the acquisition of the so called "second houses" where a 5-year transition period was introduced (with some exceptions). After Poland’s accession to the EU the requirements of the Act on Acquisition of the Real Estate by Foreigners to obtain
the permit from the Ministry of Internal Affairs and Administration (with the consent of the Defense and Agriculture Ministries) still apply to foreigners from non-EEA countries. Non-EEA foreigners are allowed to own an apartment, 0.4 hectares (4,000 square meters) of urban land, or up to one hectare of agricultural land without a permit. Companies report that procedures on acquisition of the real estate are transparent and the whole process is not burdensome. Permission might be refused for reasons of social policy or public security.

Since the collapse of communism in 1989, potential expropriation in Poland has not been an issue. The Law on Land Management and Expropriation of Real Estate provides that property may be expropriated only in accordance with statutory provisions such as the construction of public works, national security considerations or other specified cases of public interest. Full compensation, at market value, must be paid for the expropriated property. Article 21 of the Constitution states that "Expropriation is admissible only for public purposes and upon equitable compensation." Although there have been no cases of expropriations since reforms began in 1990, the implementation of a major highway construction program in Poland may involve some expropriations of land under the above-mentioned law.

Poland Trade Associations

Polish Real Estate Federation
ul. Sliska 52, 00-826 Warsaw, Poland

Tel: (+48 22) 654 58 69
Fax.: (+48 22) 825 34 95

e-mail: federacja@pref.org.pl
http://www.pref.org.pl

Poland Forms of Ownership

Full ownership/Perpetual usufruct on real estate

The two main types of legal title to real estate are full ownership (or co-ownership,as the case may be) and perpetual usufruct. Full ownership gives the broadest scope of rights towards the real estate and is practically unlimited. The right of perpetual usufruct is similar in the scope of rights, but is granted for a definite period of time only; usually for 99 years. A substantial part of in the territory of Poland constitutes the ownership of the State. Treasury or local authorities, which grant perpetual usufruct rights of these lands to third parties.

Lease and Tenancy

Lease (najem) and tenancy (dzierzawa) in Poland are regulated mainly by the provisions of the Civil Code. The main distinction between the two is that a tenant under a lease agreement is entitled to use the leased thing, whereas in case of a tenancy agreement the tenant is also entitled to the fruits of the subject of the lease. The provisions of lease and tenancy agreements may be freely regulated by the
parties, subject to the mandatory provisions of the Civil Code, such as the payment of maintenance costs or termination periods.

Acquisition of land by foreigners

The Act of March 24, 1920 on the acquisition of real estate by foreigners requires foreigners to obtain a permit from the Minister of Internal Affairs and Administration. This permit is re quired in case of direct acquisitions of real estate, as well as acquisitions or subscriptions by foreigners of shares in a company having its registered office in Poland and which is the owner or perpetual usufructuary of realproperty, if the transaction results in control over the Polish company. In certain events, foreigners are nevertheless exempted from this obligation namely in case of acquisition of non agricultural property, the total surface of which does not exceed 0,4 ha within certain urban areas. Since May 1st, 2004, for EEA nationals, the permit is only required for the acquisition of agricultural or forest land and secondary residences.

Poland Real Estate Info Summary

Title & Contracts in Poland

Owner (including State Treasury and communal estates) can grant perpetual usufruct. Within limits defined by laws and principles of social coexistent, and by contract, perpetual lessee may use land to the exclusion of other persons. Within the same limits, perpetual lessee may dispose of his right by sale or inheritance. Use of State Treasury land by perpetual lessee must be defined in lease.

Procedure 1*. Obtain an excerpt from the Land Registry
Time to complete: 7 days
The seller must obtain an excerpt from the Land Registry, which will need to be presented to the notary later. The excerpt discloses the owner or perpetual usufructor of the real estate. It also discloses whether there are any mortgages or other encumbrances over the real estate.

According to the new legislation, the Property Registry shall be maintained in the electronic form.

The process of migration of registry into the computer system, which started in the vast of Polish registration courts about September 2004, is still pending. As part of the registers are within the computer system and the work in the registration courts has been thereby facilitated, collecting the excerpt should take less time (approx. 7 days rather than 15-30 days as last year) even if that particular file is not yet migrated.

The request will eventually take 1 day (if the real estate is registered within the computer system) or up to 7 days (if the real estate is registered within hardcopy documents only). So far, 7 days is the most appropriate time period.


Procedure 2*. Obtain an excerpt from the cadastre
Time to complete: Up to 7 days
Comments: Obtain an excerpt from the cadastre held by respective geodesic authorities, stating the evidentiary number and the boundaries of the real estate on the official map.


Procedure 3*. Obtain an excerpt of the local spatial development plan
Time to complete: 14 days (Approx.)
Comments: Obtain an excerpt of the local spatial development plan, in order to establish that the real estate in question is not an agricultural real estate. In such a case limitations as to the transferability of that real estate would apply.

Due to recent changes of legislation in Poland many local spatial development plans have extinguished and new plans have not been adopted yet. Therefore in many cases the notary must be presented with a certification that for the specific area in question there is no spatial development plan.

The cost of a certification that there is no spatial development plan amounts to PLN 16.00 (PLN 5.00 for the application and PLN 11.00 for the certification).


Procedure 4*. Obtain an excerpt from the register of entrepreneurs of the National Court Register
Time to complete: 1 day
Cost to complete: PLN 30 (current excerpt); PLN 60 (full excerpt)
Comments: If the purchaser or the seller is an entrepreneur, an excerpt from the register of entrepreneurs of the National Court Register is required, in order to establish who is authorized to act on behalf of the entrepreneur (e.g. who is an authorized director in the case of a limited liability or a joint stock company)

Procedure 5. A notary executes the sale or transfer agreement
Time to complete: 1 day
Cost to complete: Notary’s fees according with the following schedule:

Value of property (in PLN): Fees (in PLN)
Up to PLN 3,000: PLN 100
From 3,000 to 10,000: PLN 100 + 3% of excess over 3,000
From 10,000 to 30,000: PLN 310 + 2% of excess over 10,000
From 30,000 to 60,000: PLN 710 + 1% of excess over 30,000
From 60,000 to 1,000,000: PLN 1,010 + 0.5% of excess over 60,000
Above 1,000,000: PLN 5,710 + 0.25% of excess over 1,000,000

The fees cannot exceed the sum of 6 average monthly remunerations (as estimated in the official journal)
Comments: The agreement on the transfer of ownership or perpetual usufruct of a real estate must be executed in the form of a notarial deed.
Documentation shall include: Excerpt from the Land Registry (obtained in Procedure 1)
Excerpt from the Cadastre (obtained in Procedure 2)
Excerpt of the local spatial development plan (obtained in Procedure 3)
Excerpt from the register of entrepreneurs (obtained in Procedure 4).

It must be presented to the notary public on the execution of the deed, because the notary must establish whether the persons, who sign the agreement in the form of the notarial deed are actually authorized to represent the company.

If the purchaser or the seller is a joint-stock or a limited liability company, corporate consent for the transfer of the real estate is required, unless such necessity has been excluded in the articles of association of the company.

The corporate consent of the Shareholders' Meeting for the transfer of a real estate is required by the Companies Code unless the AA excludes such necessity. The lack of such corporate consent, if required, will result in the invalidity of the contract. The relevant corporate consent must be presented to the notary public, in order to establish the validity of the transfer of a real estate.


Procedure 6. Apply for registration at the Land Registry or registry court
Time to complete: About 6 months
Cost to complete: The registration fee is calculated as the 20% of the amount that results from the following schedule (with a maximum of PLN 100,000):

Value of the property (in PLN): Registration fees
Up to PLN 10,000: 8%, but no less than PLN 30
From 10,001 to 50,000: PLN 800 + 7% of excess over 10,000
From 50,001 to 100,000: PLN 3,600 + 6% of excess over 50,000
Above 100,000: PLN 6,600 + 5% of excess over 100,000
Comments: Entry into the Land Registry. Although the entry into the Land Registry is basically not a requirement for the valid transfer of a real estate, the owner is still obliged to file an application for registration with the registry court.

The registration is however a requirement for the valid creation and transfer of the perpetual usufruct. In principle the establishment or transfer of ownership of a real property is not recognized only upon registration. Sufficient requirement is that the deed of transfer is executed in a form of a notarial deed.

There are however exceptions:

First, the perpetual usufruct right, which is not full ownership, but which in practice corresponds with the scope of ownership, is created or transferred only upon registration in the land registry. Perpetual usufruct right is a unique Polish legal concept. Perpetual usufruct can only be established upon an agreement on the land owned by the State or local governments, which remain the owners of that land even after establishing perpetual usufruct. A perpetual usufructor has a very similar position to an owner and may transfer his right to other parties.

The ownership of the buildings erected by a perpetual usufructor stays with him. As a result the State or local governments are the owners of the land and the perpetual usufructor is the owner of the buildings, which he erected on that land. The right of perpetual usufruct is limited in time and lasts in principle 99 years.

Second, the property of a separate residential local in a building is also created or transferred only upon the registration in the land registry 6 months for the registration of the change of ownership in the land register is the average waiting time where the property is already entered in the land registry.

In case the property has not been registered before the waiting time may be longer extending to one year or even more. All time limits can only be rough estimates, since the land registry is in fact not bound by any term, within which the registration should be completed (World Bank Group, 2005).

Contract may be concluded as a result of offer and acceptence or of negotiations. Offers are declarations of intent to execute contract with specific person, specifying essential contract provisions. Contract is considered concluded when offerer recieves declaration of acceptence; or, if such declaration was not required, when other party started performaing contract. If parties conduct negotiations with aim of concluding with aim of concluding a specific contract, such a contract is concluded when parties reach an understanding as to provisions which were objects of negotiation.

Debtor must redress damage resulting from nonperformance or improper performance of obligation. If one party delays performing obligation under mutual contract , other party may indicate appropriate additional time limit for performance, under the condition that, in the event of passing of time limit without performance, it may renounce contract. Persons obliged for damages, are liable only for normal damanges. Contract may stipulate that redress of damage resulting from nonperformance of non-pecuniary obligation will take the form of specified payment.

Property Taxes:

Stamp duties apply to such legal acts as applications to authorities, certain documents, official certificates, permits and commercial deeds (sale and exchange contracts, loan agreements, articles of association, etc.). They are subject to stamp duty when dealing with goods situated in Poland or property rights exercised in Poland, and also whenever the purchaser has its registered office or residence in Poland and the acquisition takes place in Poland. For instance, one pays 2% of the market value of real estate or other goods being sold or swapped, between 0,1% and 2% of the authorized capital under articles of association, and 2% of the sum a company borrows.

Buying and selling propertyCapital gains There is no distinct capital gains tax regime in Poland. Capital gains are taxed at thegeneral corporate income tax rate of 19%, unless otherwise determined by the provisions of an applicable tax treaty.Most of the treaties concluded by Poland provide for exemption from Polish taxation ofcapital gains on the sale of shares of Polish real estate holding companies. However,foreign companies are subject to Polish corporate income tax at the standard tax rate oncapital gains realised on the sale of Polish real estate. Recently, Poland has renegotiated various double tax treaties, introducing, amongstothers, changes in taxation of real estate disposals through sales of shares. New doubletax treaties feature a clause for the application of Polish tax on the sales of shares in aPolish company in which most of the assets are real estate (while the general rule is nontaxation of such profits in Poland); compare double tax treaties with Denmark and theone with Germany (binding as of 1 January 2005). Such a clause is not included in thenew treaty with the Netherlands. Please note that income derived from the sale of all or part of real estate included in anagricultural holding is exempt from taxation under the Polish tax regulations. Thisexemption does not apply to income earned from the sale of such real estate, if the saletakes place within five years from the end of the calendar year in which the real estatewas acquired.

Land Use & Control:

The changes in land use between 1990 and 1997 were much more significant than the changes in land ownership. Land users in Poland fall into three categories: corporate farms, individual private farms and household plots. The indavidual sector consists of 3 million units that cultivate nearly 85% of agricultural land. Land use by the state sector has declined from 3.7 million ha in 1990 to less than 1.5 million ha in 1997, a decrease of 60%. Almost 2.3 million ha shifted from the use of state farms to the use of individual farms and new private companies, increasing the land resources used in the private sector by nearly 15% relative in 1990. The state is an important source of land for private agriculture (Csaki and Lerman, 2001).

Poland Mortgages & Financing

Institution of mortgage is Law of July 6,1982 on Land Registry Books and Mortgages. Entry into land registry book is necessary to establish mortgage. Mortgage is established on entire real property, including accessories, and is maintained in its entirety until entire secured claim expires. Expiration of claim secured by mortgage results in mortgage expiration, unless specific regulations provide otherwise. If mortgage is deleted from land registry book without valid legal grounds, mortgage expires after ten years. In case of mortgage expiration, mortgagee is obligated to accomplish all necessary activities enabling mortgage to be deleted from registry.

Specific regulations concerning bank credits permit for documents issued by bank confirming granting of credit, amount of credit, interest on credit and terms of repayment to be entered into Land Registry books to establish mortgage.

Two mortgages exist in addition to regular type: mortgage to cover future debts and mandatory mortgage. Mortgage to cover future debts serves as security for claims for unspecified amount of money up to a certain limit and usually secures existing or future claims resulting from given legal relationship or claims connected with mortgage claims, but not included in regular mortgage automatically by virtue of law. Mandatory mortgage is established upon unilateral demand of creditor to secure claim confirned by executory document with writ of execution, specified in provisions on executory proceedings. On such basis, creditor may acquire mortgage on real property of debtor.

In an attempt to stimulate business activity, strict banking regulations on the provisioning of loans have been relaxed reducing lending costs. Bankruptcy law and the administration of real estate registers have been improved.

Introduction of Mortgage Bonds and Mortgage Banks Act in 1997 opened a possibility oforganisation of a new type of banks. With the end of 1999 firs two mortgage banks were create and early next year started their operations. They were Reinhyp-BRE and HypoVereins followed, by Slaski Bank Hipoteczny in September 2001. Quite recently the next mortgage bank, Nykredit Bank Hipoteczny, has been granted a primary licence and will commence its operations next year. The scope of activityAccording to Mortgage Bonds and Mortgage Banks Act mortgage banks are allowed to run only a certain types of banking business, specified in the Act. Hence their business activity is limited to: • Lending secured with mortgages and lending to local governments • Other lending with a guarantee or surety of National Bank of Poland, ECB, EU governments and Central Banks, as well as most OECD countries, and of local governments • Purchasing receivables from other banks arising from the above mentioned loans • Opening deposit accounts and other accounts for servicing credit facilities Beyond that business, mortgage banks can provide consultancy and advisory services, when property market is concerned. In the future a right to managing receivables of other banks, arising from mortgage lending, can be an important source of revenues. The mentioned restrictions are aimed on maximum security of mortgage banks, higher than of commercial banks. In exchange for the limitations, mortgage banks have a right to issue mortgage bonds; debt securities covered by a pool of mortgage loans, separated from other assets of mortgage banks. The separation of the cover makes the pool immune against possible insolvency of the issuer – mortgage bank. Another special type of debt security are public mortgage bonds. They are covered with loansand credits granted to local governments or guaranteed by NBP, ECB, governments and Central Banks of EU countries as well as most OECD countries. Both type of bonds are exceptionally secure for the investors for the following reasons: • Restricted freedom of business for mortgage banks • Bankruptcy remoteness – assets pool separation is obligatory • Supervision of independent Trustees • Preferential claim• High quality of mortgage assets due to the specialist bank principles and valuation rules Current market position of mortgage banksThere are three mortgage banks operating up-to-date. Their total own funds exceed 400 million PLN and total receivables from customers reach 1.4 bn PLN. Comparing to the business of commercial banks the nominal numbers are not very impressive. But, it must beremembered that the history of contemporary mortgage banking in Poland is a short one, and the business environment is highly competitive. Despite that, the growth of mortgage loansportfolio is about 250% this year. Last year it was more than 800%, but the base of the end of 2002 was really low. The currency structure of most bank mortgage portfolios is specific, due to the dominant position of foreign currency denominated loans. The share of PLN loans is estimated at only10%, but is growing one, due to the rapid interest rate fall. Average individual loan has a tenor of around 20 years, but it can be up to 30 years, and variable interest rate linked to 3, 6, or 12 moth market base rate. As of today mortgage banks have about 3% market share in the total real estate portfolio of Polish banks, which is estimated at PLN 40 bn. If we make a distinction between lending for housing purposes and commercial lending we will see a big difference between the market share of commercial and individual products. Mortgage banks participate in financing of the housing market in maximum 1.5%, while their participation in commercial lending is substantially higher and amounts to 10%. The above results can be disappointing for someone expecting financing and supporting housing lending at the first place. But there are certain reasons for that situation. Mortgage Bonds and Mortgage Banks Act – especially before change in September 2002 – was very restrictive with respect to: • Maximum Loan-to-Value ratio per single loan (80%, now increased to 100%) • Average LTV ratio for the whole portfolio (60% + 10% of the total assets secured with mortgages, now increased to 60% + 30%). There are still restriction for mortgage banks like: • Obligatory mortgage-lending valuation of real estates • Type of ownership (co-op ownership right is excluded) In the reality appeared that the average individual customer needs LTV not only 60% but inmany cases even 80% of mortgage-lending value. Obligatory mortgage lending valuation generates additional cost (it can reach more than 1% of the total loan value), as it can be prepared only by licensed specialist. In addition, the rules of mortgage lending valuation result in lowering available amount of a loan (mortgage lending value has an embedded buffer for real estate price fall). Exclusion of the co-op ownership right also reduces the potential market, as that type of ownership is quite common in some places in Poland. On the other hand commercial banks, avoiding long-term commercial lending, makes a natural niche for mortgage banks. All that reasons make commercial lending more effective in building loans portfolio ofmortgage banks. Assets fundingThe major distinction between commercial and mortgage banks is the right of mortgage banks to issue mortgage bonds and public mortgage bonds. They should be a major source of funds for mortgage banks. But the reality is different. The most available and common source for today is interbank market. Mortgage bonds finance only about 25% of mortgage secured assets. Up-to-date there is more than PLN 350 million of outstanding mortgage bonds issues,but they make only 1% of the total non-government debt market. These are mainly foreign currency denominated securities with variable interest rate to match the parameters of the cover pool of mortgage loans. Up-to-date there has not been a public mortgage bonds issue.