Changes in usage to real estate held under perpetual usufruct

On 2 July 2019 the president of Poland signed an amendment to the Act on National Property. The changes to the law have important implications for the application of the Act on Real Estate Management of August 21st 1997 and the Construction Law of July 7th 1994.

The legal changes to the Real Estate Management Act and the Construction Law will enter into force in 30 days from their publication.

The main change governs when, after the right of perpetual usufruct has been granted to the land, there is a permanent change in the usage of the property (resulting in a change in the stated usage of the perpetual usufruct). In such cases, an application for a change in the stated usage should be submitted by the relevant authority (such as the County Governor (starosta), a local government department or official, including community head (wójt)/ mayor (burmistrz)/ city mayor (prezydent miasta)) or the perpetual usufructuary.

A change in state may be applied for, provided that such changes are in compliance with the following:

1. the usage of the property as specified in current the local zoning plan;
2. the occupancy permit for the use of the construction site;
3. the notification of construction or reconstruction work, to which no objections were raised by the architectural and construction administrative authorities;
4. a resolution determining the location of a residential investment or any accompanying investment adopted pursuant to the Act of 5 July 2018 on the Preparation and Implementation of Residential Investments and Accompanying Investments; or
5. a ruling on the development conditions or land usage.

If, due to a change in the stated usage of the perpetual usufruct, the annual fee is reduced (such as from 3 pct to 1 pct of the value of land when the perpetual usufruct usage is changed from office to residential use), the parties may negotiate a one-off fee to the benefit of the property owner, but for no more than twice the previous annual usufruct fee.

If the perpetual usufructuary submits a request to change the usage, the authority must answer the request in writing within 2 months of the receipt of the application in question. Should the authority fail to agree to the change in usage or fails to answer the application, the perpetual usufructuary may file a suit with the local court responsible for the property. In such cases, the change in usage may be decided by a ruling of the Court of First Instance, which would require the local authority to overrule it by declaring its intent (which would de facto replace it).

The above provisions also apply when the usage has not been determined at all.

The amendment also adds an important provision to the Construction Law, according to which: If the right to use the property for construction purposes is based onthe perpetual usufruct, a construction project may not be refused approval for its design or for its building permit on the basis that the future usage does not fit the usage as stated in the usufruct.

This change should put an end to the inappropriate practice of some administrative bodies that have refused to issue building permits on the basis of the perpetual usufruct (despite the lack of a legal basis to their objections).

The changes introduced are certainly significant and good for the industry. Up until now, whenever it was necessary to change the usage of a property, those applying had to face a long procedure, and overall costs were subject to a higher degree on the attitude of the authorities. Once these changes come into law, investors will be given a practical opportunity to "rectify" the stated usage so that it corresponds to how a property is actually used when such usage can frequently lead to high insurance costs to the legal title during the course of many transactions.

However as always, the final assessment should be made only once the authorities have applied the new rules and new practices have been developed.