Perpetual usufruct is not forever

'Perpetual usufruct' (użytkowanie wieczyste) is peculiar to Polish civil law. Introduced during Communist rule, as an ownership substitute to facilitate construction on state-owned land, it's still alive and kicking.

So what is perpetual usufruct? You could liken it to owning property on a 99-year leasehold, but it's not quite that simple.
On the one hand perpetual usufruct is similar to ownership, as perpetual usufructors, like owners, may use land to the exclusion of other persons and may dispose of their rights. On the other hand, however, perpetual usufructors' rights to land are limited in time and may have further limitations under perpetual usufruct agreements.  Most importantly, the State Treasury or local authority remains the landowner.

'Perpetual' in name, but valid for 99 years
Land is delivered for perpetual usufruct for 99 years.  In theory, in exceptional cases, the legislator allows land to be delivered for perpetual usufruct for a shorter period of time (40 years min.) but, in practice, this rarely if ever happens. Perpetual usufructors may also request, in the last 5 years of the perpetual usufruct period, that the term be extended by an extra 40 to 99 years, if the amortization period for projected investments on the land is considerably longer than the period remaining on the perpetual usufruct. The landowner, i.e., the State Treasury or local authority, may refuse to extend the term only on important public interest grounds.

Object of perpetual usufruct
Perpetual usufruct can be granted on land owned by the State Treasury (located either in or outside cities, but included in the urban master plan and serving to implement its economic objectives), or by local authorities and their affiliates.
The right of perpetual usufruct may be established both for the benefit of natural persons and legal entities.  Buildings and other plant located on the land delivered for perpetual usufruct are owned by the perpetual usufructor.
The right of perpetual usufruct arises out of an agreement between the State Treasury or a local authority and a natural person or legal entity, in which the parties determine the term, specify the manner of using the real estate, the type of buildings and the deadline for construction (if applicable).  Where the land delivered for perpetual usufruct is developed, the buildings located thereon must be sold at the same time. This also holds true for any plant located on that land. To be valid, any agreement for delivery of land for perpetual usufruct (including sale of buildings) must be executed by way of a notarial deed. This also applies to any agreement on extending the term of perpetual usufruct.  Moreover, to arise, the right of perpetual usufruct must be recorded in the Land and Mortgage Register, and the right once granted has retroactive force from the date of filing.

Trading in perpetual usufructs
For a perpetual usufruct to exist in law it must first be accurately recorded in the Land and Mortgage Register. Prior to making the entry in the Land and Mortgage Register, the right of perpetual usufruct may not be effectively transferred to any third party.  An entry in the Land and Mortgage Register is also required when extending the term of perpetual usufruct.
As a matter of principle, real estate is delivered for perpetual usufruct by way of tender and, in exceptional cases, without tender.  The perpetual usufructor, in addition to paying a fee to set up the perpetual usufruct, also has to pay an annual fee for the entire term of use.
Land delivered for perpetual usufruct may be sold exclusively to the perpetual usufructor. It is, nevertheless, possible to transfer ownership of the real estate delivered for perpetual usufruct by way of an agreement between the State Treasury and a local authority or between local authorities; however, such transfer may be effected only upon notice to the perpetual usufructor.

Expiration of perpetual usufruct
Perpetual usufruct expires upon lapse of the term set forth in the perpetual usufruct agreement or by premature termination.  The real estate owner may demand termination if the perpetual usufructor is using the real estate in a manner other than that set forth in the agreement and, specifically, if the real estate was not developed by the agreed deadline. The agreement for establishing perpetual usufruct may also be terminated by mutual consent of the parties.
In cases of expiration of perpetual usufruct at term or termination of the perpetual usufruct agreement, the perpetual usufructor is entitled to remuneration for buildings and other plant it has constructed or acquired.  Such remuneration should be equal to the value of those buildings at expiration.  The perpetual usufructor is not entitled to payment for buildings and plant constructed contrary to the agreement.

How to effectively transfer perpetual usufruct
Perpetual usufructors may dispose of their rights and transfer them to third parties but, to be valid, the perpetual usufruct sale agreement, as well as any agreement to transfer the right of perpetual usufruct, must be executed in the form of a notarial deed.  With developed land, transfer of the right of perpetual usufruct should take place at the same time as transfer of  ownership of any buildings and plant constructed on the land.  For perpetual usufruct to be transferred by way of agreement, it must be recorded in the Land and Mortgage Register and the right is acquired by the new perpetual usufructor only after such entry is made, but with retroactive force from the date of filing.  Until such time as the new perpetual usufructor has been recorded in the Land and Mortgage Register, it may not transfer the right to another person. There are no obstacles, however, to concluding a preliminary agreement on transfer of right.
It is worth noting that, in the event of sale of the right of perpetual usufruct to undeveloped land, the municipality has the right of first refusal.  In practice, though, municipalities do not exercise this right, primarily due to a lack of money.
In conclusion, it should be added that acquisition of perpetual usufruct by foreigners is subject to the same legal regime as acquisition of ownership of real estate and requires a permit from the Interior Minister. The same permit is required when acquiring shares in a company which is a perpetual usufructor of real estate, if following such share acquisition the company becomes a foreign entity in the eyes of the law, and the shares are acquired by a new foreign shareholder. z
 

Agnieszka Lasota
The author is an Attorney at Salans.