No revolutionary changes

We present a review of the most important changes in legal regulations as well as an overview of other events in 2002 which have influenced the various stages of real estate developments.

Pre-Development Phase

The Elimination of Restrictions in Real Estate Acquisitions
Poland's closing of negotiation chapters with the European Union on the issue of the free movement of capital (including the acquisition of real estate by foreigners) can be considered an event of fundamental importance for the phase which directly precedes the investment process. As a consequence, all restrictions on the acquisition of real estate by foreigners for investment purposes will be eliminated immediately after Poland's accession to the EU (transitional periods of between 5 to 12 years will apply exclusively to plots for recreational, agricultural and forestry purposes).

Prior to Poland's Accession to the European Union
According to the latest forecasts, Poland is to accede to the EU on May 1, 2004. Consequently, foreign investors who wish to avoid the time-consuming procedure of obtaining permits for the acquisition of real estate, may enter into a preliminary real estate purchase agreement at present, assuming that the final agreement will be made after Poland's accession to the EU without the necessity to obtain a permit. This does not mean, however, that the period remaining until then cannot be used constructively, for example, in the design process, carrying out an environmental audit (the new regulations in this respect are discussed below) and in obtaining at least some of the required administration decisions (including, first and foremost, a development decision).

Design Phase

Professional Organizations
When selecting designers, investors should take note of the Act on the Professional Organizations of Architects, Civil Engineers and City Planners, which came into force on January 25, 2002, after a one-year vacatio legis. Under the Act, new professional organizations were established, and obtaining a license to practice independent technical functions in the construction industry was made conditional upon membership of the respective professional organization. Consequently, for any design to be eligible for review by competent authorities, the architect who drafted such design must now evidence their membership in a professional organization.

Compliance with Technical Requirements for Buildings and Sites
Investors also cannot ignore the new ordinance on the technical conditions to be met by both buildings and their specific location on a construction site. The ordinance will come into force on December 16, 2002 and will replace regulations which have been in force since 1995. The most important regulations introduced by this extensive legal act include, in particular: (a) modified technical parameters for buildings; (b) detailed terms and conditions for a building's location; (c) amended definitions of certain construction industry terms, e.g., an "ecologically active area" (which will now encompass, among others, one half of the area of landscaped terraces or roofs featuring permanent lawns or flower-beds); or "single-family developments" (understood in the new ordinance as a single family house or a complex of such houses). An interesting novelty is that the development decision now plays a much more important role in determining the permissible location of a building on the construction site. If, for example, an investor wishes to provide certain extra parameters for the location, such modification would only be allowed if expressly provided for in the development decision.
Please note that the ordinance will apply to all administrative proceedings still pending as at December 16, 2002.

Road Investments
The first ordinance on technical and building regulations concerning toll motorways, which came into force on February 23, 2002, will be of uppermost importance for investors in large-scale road projects.

Receipt of Permits and Approvals

Environmental Protection
The principal legislative reform in this area took place in 2001. However, 2002 has yielded a crop of secondary governmental acts. Among those which are particularly important for business entities are the following legal acts issued by the Minister of the Environment: the ordinance on types of installations which may cause significant contamination of particular elements of the natural landscape or the environment as a whole (enforcement date: August 16, 2002); the ordinance on earth and soil quality standards (October 19, 2002); as well as the ordinance on determining the types of projects which may significantly affect the environment and specific criteria used for classifying projects for the purposes of preparing environmental audits (November 13, 2002).

Environmental Impact Report
The last of the above-mentioned ordinances imposes certain additional restrictions to the previous regulations. In particular, an authority's right to impose an obligation to prepare an environmental audit for planned commercial complexes with an area exceeding 3 hectares will now also apply to shopping and retail centers with a usable area of 1 hectare or more.

Water Law
Another significant environmental legal act is the new Water Law, which came into force on January 1, 2002. One of the novelties introduced by this act is, among others, the principle that a water permit may be issued only for a specified period of time, and water facilities constructed without the necessary permits will be subject to compulsory dismantling.

Neighbors Obstructing Constructions
Investors experiencing problems with their neighbors at the stage of obtaining permits can now draw support from the famous verdict of the Supreme Court on October 3, 2002. In this verdict, the court held that the owners of real properties adjacent to a development project have no right to obstruct a construction which complies with the law and the provisions of the zoning plan.

Raising Financing

Mortgage Bonds and Mortgage Banks
In this respect, developers should note a positive amendment to the Act on Mortgage Bonds and Mortgage Banks, which came into force on September 9, 2002 and significantly liberated the activity of mortgage banks. The new provisions extend the bases for issuing mortgage bonds (to include loans secured by or granted to local government bodies) and increase the banks' freedom in granting loans (e.g., the maximum value of loans was increased from 80 to 100 % of the bank-mortgage value of the real estate).

Development Phase

Safety and Health Protection Plan
This year saw the introduction of more stringent on-site health and safety regulations. As of February 13, 2002, under the Construction Law, investors must prepare a so-called health and safety protection plan for the construction works. The site manager will have overall responsibility for implementing the plan. The detailed scope and form of the safety plan, as well as the types of construction works considered a threat to human health and safety, were specified by the Minister of Infrastructure in the ordinance dated August 27, 2002.

Demolition of Unlawful Constructions
This year, the controversial issue of whether or not the demolition of unlawful constructions is in fact constitutional was finally resolved by the Constitutional Tribunal's verdict of March 26, 2002. The Tribunal recognized that Art. 48 of the Construction Law, enforcing the unconditional demolition of any unlawful constructions, is indeed consistent with the Constitution. Nevertheless, please note that under an extensive amendment to the Construction Law, likely to come into force in 2003, there will be a possibility of remedying unlawful constructions, subject to certain conditions, in order to save them from demolition.

Perspectives
In comparison to the numerous and often fundamental legal changes introduced in 2001 (e.g., the new Environment Protection Law, the Act on Protection of Tenants' Rights, and the amendments to the Act on Land and Mortgage Registers and Mortgages), legislative changes in 2002 appear less radical as regards their effect on the real estate market, excluding certain exceptions such as the regulations concerning mortgage banks and the technical conditions to be met by buildings and their location.
However, it is very likely that 2003 will be another turning point. The new proposals will be the subject of our article in next month's edition of "Eurobuild Poland".

Artur Kulawski and Rafal Zboch
The authors are attorneys at Weil, Gotshal & Manges