Legal ease

 Things are looking up

According to Stefan Jacyno, managing partner of the Wardyński and Partners law firm: “Investor interest dropped substantially, while the development proceeded of such commercial properties as office buildings, which had been planned as early as 2000 and were completed between 2002 and 2004.”

Andrzej Lulka, head of the Real Estate Department in Gide Loyrette Nouel says: “The earlier practice had been for legal firms mainly to advise direct investors, who purchased a property, completed the investment project, commercialized it and later sold it on. For several years now the most eagerly awaited customers of law firms have been investment funds and other investors who acquire ready products, individual properties or entire portfolios.”

Professional qualifications

In the opinion of Andrzej Lulka, it is cross border transactions of portfolios of properties in different countries that are the most problematic. Formal legal difficulties also crop up when each of several properties in one transaction is in an entirely different situation.

Piotr Szafarz, a partner in the Clifford Chance legal firm, believes that “a well written tenancy contract, which is the foundation of real estate business, was still hard to come by five years ago. At present, most tenancy contracts in new buildings satisfy institutional standards.” In the main, the level of transaction complexity does not depend so much on its substance complexity as on whether both sides are represented by people who know the business and are committed to bringing the transaction to a close.

Though Warsaw transactions are the most lucrative, they are generally seen as the most risky. Ghosts from the past haunt investors, amongst them the reprivatisation claims stemming from the so-called Warsaw decree of 1945. The potential outcome of such a claim could prove fatal for a planned investment.

The huge competition among property purchasers is another difficulty leading not only to price rises, but also pressuring buyers into often accepting what are transactions with very poor terms. Mention must also be made of the absence of any consistent application of the law by the administration and courts of law, and also of the negative impact of the passage of time and the effects of an improper application of the law in the past.

Things great and small

Michał Siwek, a partner at Clifford Chance, thinks that “the most lucrative are acquisitions, i.e. transactions to buy commercial properties. In such cases a customer has to pay for both the due diligence report, also for servicing the transaction proper and quite often for its financing too.” Artur Michalski of Wardyński and Partners adds that: “Selling five shopping centres, for instance, is a lucrative transaction, particularly if the land on which they stand was accurately researched by earlier investors. The volume, price and the property that is the subject of the transaction, make it much more attractive than selling a tenement with tenants.”

 The five-year period which lies ahead will see many changes on the investment market, and law firms should already be making preparations to service such transactions in order to keep their heads above water. The number of transactions to acquire land for housing development is bound to rise, while purchases of completed properties by foreign investment funds and wealthy individual investors will become increasingly frequent. The secondary investment market will also expand.

Paweł Dębowski, partner and head of the Real Estate Department of Clifford Chance, thinks Poland is again becoming increasingly attractive to developers, particularly in logistics and specialist shopping centres. Offices are also winning approval. He goes on to say: “As for acquisitions, there will be more and more portfolio transactions, while the real estate itself will be increasingly better prepared, i.e. well rented and managed, offering no great technical or legal problems.”

Stefan Jacyno of Wardyński and Partners believes that the “acquisition of land for commercial development will be increasingly difficult since a restrictive policy is presently in place in Poland. In the case of commercial properties, more renting contracts will be concluded since owners are looking to cash in on their assets through ‘sale and lease back’ transactions. This will streamline business without having to freeze capital in property. Investors will also be more readily acquiring properties of smaller values to demolish them and have new ones built in their place.”

Patryk Laskorzyński of Allen & Overy expects that: “Legal practitioners will become increasingly attached to different sections of real estate law. Knowledge of solutions practiced abroad will be of decisive importance, as will the ability to adapt them to Polish conditions. The ability to work in an international group employing lawyers with various specializations will also play a large part.” Paweł Kuglarz of Beiten Burkhardt adds that: “When you take into consideration the expected increase of secondary market business, it is natural that the demand for services to analyze the legal status of a property will also increase (including the risk of third-party claims), the concepts involved in real estate transactions will become more complex, as will representing customers in negotiations and preparing the contracts and documentation required to conclude transactions. The unresolved problem of reprivatisation is stimulating the growth of new segments in the legal services market, for example, the one concerned with insuring legal rights.” Paweł Dębowski thinks the number of forward purchase, forward finance and joint venture transactions will increase, in which the developer meets the investor long before the project comes to an end or even before it begins. Anna Brzoza, a CMS Cameron McKenna lawyer, on the other hand expects the further dissemination of contract standards, since foreign investors are generally already used to FIDIC regulations in the investment and development process and to standard comprehensive long-term tenancy contracts for large office and shopping space.

Reaching the ripest fruit

Customers mainly appreciate the quality and comprehensiveness of the offered services, and especially value the opinions and recommendations of their lawyers.

So is there still room for new companies on the legal services market? The high demand should bring a corresponding increase in the supply of such services, but the impression seems to be that the cake has already been divided. Andrzej Lulka is of the opinion that: “A new international lawyers’ office would have to cope with many problems, but the market for small and medium enterprises is bound to expand, which means there will be more space for small and medium-sized legal firms.”