25 February 2004

The amendment of the Act on the acquisition of real estate by foreigners.

Current act
The Act for the acquisition of real estate by foreigners, dated 1920, is one of the oldest acts in force. The Act is now 84 years old. According to its provisions, agreements for the acquisition of real estate, and shares in companies which own or have the right to perpetual usufruct of real estate, in Poland are legal if the relevant permit has been obtained. In the period of 1990-2002, the Minister of Internal Affairs issued approximately 20,000 permits, and slightly over 2,000 negative decisions. The need to amend the Act resulted from Polish attempts to join the European Union. In addition, the long period of time during which the Act remained relatively unchanged despite the changing conditions of the free market in Poland meant that amending this Act seems very desirable. The following are a few comments regarding the planned amendment.

The draft amendment
The draft amendment of the Act is after its first reading in Parliament, which means that there will be a second reading and it will be sent to the Senate. After that, it will be passed to the President to be signed, and then will be ready for publishing.

The present form of the draft amendment is a result of fulfilling the provisions of the accession treaty by Poland. In the governmental justification it is said that the amendment is aimed at accelerating the procedure of issuing permits for the acquisition of real estate by foreigners. This aim is to be achieved by, among other things, removing the requirement to obtain decisions from the Minister of National Defense and the Minister of Agriculture (while obtaining the permit of the Minister of Internal Affairs) and giving these ministries only the right to object within 14 days (a maximum of two months). The draft also provides certain definitions, for example the definition of a commercial company.

Foreigners will only be truly free to acquire real estate in Poland after 2009. This is a result of a fear that the real estate in Poland will be steadily bought out. However, no increased interest regarding real estate in Poland has been noted.

The most important amended issues
The amendment of the Act provides for State control over the acquisition of stocks or shares in holding companies which control the companies which own or hold in perpetual usufruct real estate in Poland. This structure of holdings, as it is known, is popular and is becoming more frequently used in Poland. The present Act does not cover the acquisition by a foreign investor of stocks or shares in a parent company, which does not own real estate directly, but is dominant to land-owning companies. Article 3a, as amended, states that the minister of internal affairs is required to accept each legal transaction, effectively meaning that a company which owns (or holds in perpetual usufruct) real estate becomes a controlled company. Consequently, it provides for supervision of every movement in a capital structure which results in the acquisition, by whatever means, of controlling blocks of shares in holding companies which possess shares in companies-owners of real estate, by, for example, canceling shares or changing the preference of shares in respect of the number of votes.

The amendment introduces the term "second house," which means real estate devoted for housing or recreation buildings, which, however, is not the permanent place of residence of a foreigner. It covers all sorts of domiciles. The acquisition of a second house by a foreigner will require, in light of the amended act, a permit of the Minister of Internal Affairs. There are, however, exceptions to this rule. The acquisition of a second house from May 1, 2004 until April 30, 2009 will not require a permit, if the foreigner is (a) a citizen of the EEA (the European Economic Area comprising member states of the European Union and Sweden, Norway, Iceland and Liechtenstein); and (b) has legally resided in Poland for at least 4 years. The second exception relates to the acquisition of such a real estate in order to run commercial activity in the tourist sector. Foreigners from outside the EEA who acquire real estate will be required to obtain a permit.

The amended Act aims to make it easier to acquire real estate by persons of Polish origin or Polish nationality, spouses of Polish citizens and persons who possess a permit to reside in Poland for a limited time or to settle in Poland. As a result of the liberalization of the law, there is no longer a requirement to obtain a permit for the acquisition of independent garage quarters, or a share in it if it is connected with satisfying housing needs. This means that, if a foreigner already has a house, they will be able to acquire, for example, a garage or a parking place without a permit.

The Polish fight in Brussels resulted in one of the longest transitional periods-12 years for the acquisition of agricultural and forest real estate, and five years in relation to a second house (see above). The draft amendment lists regions in which the acquisition of agricultural real estate will not require a permit. These exceptions are a result of warning from EU representatives that such a strict approach in relation to real estate transactions will only delay economic integration between Poland and member states of the European Union.

Obviously, persons who acquire agricultural real estate, Polish and foreign, are bound by the provisions of the Act on the agricultural system, according to which every person who wants to acquire an agricultural farm is required to have an agricultural education (secondary and higher education) or experience as a farmer, and to reside permanently on that farm. In addition, the Agricultural Property Agency has a pre-emptive right in relation to agricultural real estate.

According to the draft amendment to the Act, from the date of accession to the European Union, the presently binding article which introduces preference for entrepreneurs from European Union, will cease to be in force.

The validity period for permits for the acquisition of real estate has been prolonged from 1 year, as it is currently, to 2 years, and of a promise-to 1 year.

Results of the amendment
It seems that, as a result of briefly analyzed amendment, Poland will only deter investors as having a too tightly restricted market. The governmental draft bears the hope that the amendment will increase the attraction of Poland as an open market. We can be sure that time will verify these opinions. As for now, no stimulation in investment in Poland has been noted, and there is growing fear that the enacted amendment in its present form will merely result in Poland becoming less attractive in respect of investment for foreign capital.

Compliance with EU law
During the work on the amendment, there arose a question about compliance of the amendment with EU law. Opinions on this matter are divided. The governmental justification expresses the opinion that it is consistent with EU law, while the Committee for European Integration claims that it is not. Everybody agrees that the final judgment depends on the judgment of European institutions.

Anna Antczak
CMS Cameron McKenna spółka komandytowa, 53 Emilii Plater St. 00-113 Warsaw

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