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The Warsaw Voice » Real Estate » October 29, 2008
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Perpetual Usufruct and Claims Based on the Warsaw Decree
October 29, 2008   
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Despite the turbulence on global financial markets, Poland's real estate market still has huge investment potential. Developers have many attractive sites to choose from for their projects. In most cases, they acquire such land from private owners, but some build their projects on land owned by the state or municipality. In such cases, the state or municipalities do not want to waive their ownership rights to the land and instead decide to hand it over to investors on the basis of a perpetual usufruct agreement.

Perpetual usufruct (użytkowanie wieczyste) is characteristic of the Polish legal system, being a cross between ownership and long-term lease. On its basis, the perpetual user is authorized to use the land in the way agreed upon with the owner for a period of 40 to 99 years, for an appropriate fee. During this time, their rights are equivalent to the rights of an owner. A building erected on land handed over for perpetual usufruct becomes the property of the perpetual user. Both the right to perpetual usufruct of land and the right of ownership of a building erected on that land (and any distinctly separate premises constituting that building) are transferable rights.

In principle, this form of acquiring the right to a piece of land is safe and sure for the investor. Problems may emerge if third parties lay claim to the land in question. Most often these are claims by former owners of what is referred to as "the Warsaw land" and their heirs.

This "Warsaw land" is land located within the prewar boundaries of Warsaw which, under a decree (the "Warsaw Decree") issued by the communist authorities, as of Nov. 21, 1945 was transferred to the ownership of the Warsaw Municipality of the time. Estimates put the number of properties covered by the Warsaw Decree at 26,000, occupying a total area of about 14,000 hectares. Developers seeking attractive construction plots in today's central part of Warsaw have to be prepared for the effects of the Warsaw Decree, which has not been revoked to this day.

One such effect are the claims of former owners and their heirs. According to the decree, the owners of expropriated real estate were entitled to submit applications for "temporary ownership" (today: perpetual usufruct rights) of the land taken from them. Such applications were usually turned down. A great number of them were not reviewed at all over subsequent decades, and decisions on many of them have not been reached to this day. The applications that pose a threat to today's investment projects are those which have yet to be reviewed and those which were reviewed in violation of the law, as they carry the risk that the proceedings could be reopened.

In accordance with currently binding judicial decisions, real estate cannot be transferred to the perpetual usufruct of an investor unless the issue of former owners has been fully resolved. Otherwise the investor would be at risk of lengthy court proceedings, attempts to halt the project or even attempts to take away their right to perpetual usufruct.

In such cases investors can safeguard their rights to land by being diligent about determining the real estate's legal status at the moment of obtaining perpetual usufruct rights. In particular, investors should take care to check the land and mortgage register entries and inspect the real estate's file in the city office's decree department. If all this does not reveal any decree-based claims, we can assume the investor is safe, because the investor is protected by the land and mortgage register's public credibility warranty. If investors display due diligence, any subsequent reference of former owners or their heirs to filed applications or ongoing proceedings based on the regulations of the Warsaw Decree will not jeopardize the investor's position.

Work is currently in progress on a reprivatization law that would provide for two solutions to the problem of decree-based claims-the return of real estate in kind when this is possible (when the real estate is not burdened by the rights of third parties), and in all other cases-compensation paid by the Treasury. Regulating these issues through an act of parliament will serve to satisfy the claims of heirs of former owners, but it will also additionally safeguard investors.

Renata Robaszewska, Attorney-at-Law, Lengiewicz Wrońska Berezowska i Wspólnicy Kancelaria Prawnicza, law firm

LENGIEWICZ WROŃSKA BEREZOWSKA I WSPÓLNICY Kancelaria Prawnicza s.c. l TEL. +48-22 826 30 33, 828 14 73; e-mail:lwb@lwb.com.pl
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