Relinquishing a title to property as a way out of trouble?

From September 24th, it will only take a unilateral owner's statement to relinquish a title to property. As a result, the title to property will be transferred to the relevant local authority (gmina), whose consent will not be required to effect the transfer

At the moment, an owner wishing to relinquish a title to property must obtain the consent of the head of the local community (starosta). Relinquished property then becomes the property of the State Treasury. This, however, never occurs in practice, as no one relinquishes titles to valuable property, whereas no starosta would allow one to relinquish a title to property which contained any problems.

Disposable property
This situation will change on 24 September 2003. Firstly, titles to property will not be transferred to the State Treasury, but to the gmina on whose territory the property is located. Secondly, to relinquish a title to property, an owner will no longer need the consent of any local authority. This change may prove very significant, as it means that any owner may dispose of troublesome property, and the gmina cannot do anything to prevent it.
Let us imagine a polluted industrial property which an owner has acquired from a former state enterprise. Under Article 102 of the Environmental Protection Act, the owner is required to re-cultivate such polluted property, even if a previous owner caused the pollution. The cost of reclamation can be significant but a good solution to that is to relinquish the title to polluted areas.
One should consider this option when planning acquisitions - a comprehensive environmental due diligence investigation need not cover all the real estate, but only that for which an investor has concrete plans. With respect to other property, a rough valuation ought to suffice, without the need to precisely determine the potential reclamation costs.

Run-down apartments
The same applies to former company-owned apartments. State enterprises used to own entire residential complexes in which they rented out apartments to their employees. These are now usually dilapidated, their tenants are unable to pay market rent and no one is willing to buy them. If the maintenance costs of such apartments exceed rental proceeds, it is worth considering relinquishing the title.
When considering relinquishment, it is necessary to take into account the tax aspects. The tax office may decide that the acquisition costs of property which one relinquishes afterwards do not constitute deductible expenses for income tax purposes. A similar problem may arise with respect to input VAT connected with the acquisition of buildings. Thus, when considering the relinquishment of a title to property, one must first check the potential tax consequences and, obviously, make sure that not too much is spent on the acquisition. z

Tomasz Stasiak
The author is an associate with CMS Cameron McKenna