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The Warsaw Voice » Special Sections » February 23, 2012
The Real Estate Voice
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Change of perpetual usufruct into ownership—a chance not to be missed
February 23, 2012   
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When purchasing perpetual usufruct of land, foreign investors in Poland are usually promised that this is almost ownership. The land used by a perpetual usfrucutuary is owned by the State Treasury or local government authority but most of the prerogatives of the owner are transferred to the perpetual usufructuary. In fact, there is no significant difference in the transactional value of perpetual usufruct and ownership, so investors expect that they will be in the position of owner, perhaps only with a more exotic name.

Sometimes “almost” makes a huge difference
But it is not only a question of purchasing a right with a strange name—there are some other differences. First, the right is limited in time. Second, the contract establishing perpetual usufruct may oblige the perpetual usufructuary to use the land in the way described in the contract. Most common is an obligation to commence and finish certain investment projects on the land within the time limits set out in the contract. In case of the transfer of perpetual usufruct before the obligations have been properly fulfilled, the new perpetual usufructary is liable for fulfilling them. The consequences of failing to do so are severe: they start with additional fees and end with the right of the owner to terminate the contract, resulting in a permanent loss of perpetual usufruct. Third, the owner has to be paid annual fees. The fees refer to the value of the real estate and may increase if it goes up. This has been especially visible after the boom on the Polish real estate market in 2002-2008. All owners implemented evaluation procedures, which resulted in sharp increases in annual fees for perpetual usufruct (even several hundred percent), very often coming as a huge, unpleasant surprise to perpetual usufructuaries.

Why not ownership instead?
Recent changes to the Act of July 29, 2005, which came into force on Oct. 9, 2011 and regulate the conversion of the right of perpetual usufruct into real estate ownership, enable institutions and companies to transform perpetual usufruct into ownership simply by submitting a motion for an administrative decision to a mayor or similar official. Previously this possibility was reserved only for individuals. Now institutions and companies may also use this fast-track solution and the fees for a change of status (the difference between the value of perpetual usufruct and the value of ownership) may be paid on the request of a perpetual usufructuary in installments over a period of 10 to 20 years.

Agnieszka Łuszpak-Zaj±c, PhD
Sdzlegal Schindhelm
www.schindhelm.com
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