Winning the battle for permits and approvals

One of the most challenging tasks facing real estate developers and investors in Central Europe today is winning the battle for their schemes to be approved and permits granted. Experienced developers know that it is not enough for their team to have a comprehensive understanding of local laws and regulations to assure success in obtaining approvals. It is equally important to be prepared in advance to defend against protests from so called 'interested' third parties who can seriously impede the process.

The opportunities for 'interested parties' to become roadblocks to real estate projects in Central Europe stem from a number of legal and administrative factors, including:

• the broad definition of 'interested parties' who are allowed to challenge development permits;

• the emphasis by administrative authorities on formal, technical requirements, which often form the basis for protests, appeals and other challenges;

• gaps in legislation, combined with a lack of clear regulatory guidelines, which create uncertainty and ample room for mistakes in permit applications;

• overburdened administrative agencies and courts, which often give claimants the upper hand in permit battles, where lost time can be fatal; and

• relatively easy access to administrative courts by claimants, with low costs and few sanctions in place to guard against abuse of the process.

Definition of groups
Laws regarding the development process in Central Europe often open the door to broad, ill-defined, groups of 'interested parties' to challenge permits within relevant statutory protest periods.
In Poland, the term 'interested party' is defined in the Code of Administrative Proceedings as any party who has a legal interest in, or obligation as a result of, the project in question, or who demands authority to act in accordance with his/her legal interest or obligation. Within this somewhat convoluted definition, a person is deemed to have a 'legal interest' if there is provision in the law which allows that person to protect his or her rights in a particular administrative proceeding concerning a development. The Zoning Law stipulates every person has the right to protect their legal interest during the development of land owned by a third party. Moreover, the Building Law provides that real estate may be developed only when 'justified interests' of third parties are taken into account. In practice, 'interested parties' in Poland typically include landowners, developers, neighbours and other parties who might be negatively affected by the development.
The Czech Building Act defines 'interested parties' with reference to various types of procedures, i.e. for zoning and planning and building permit proceedings, as well as for occupancy permits. The Administrative Procedure Act provides a broader definition of 'interested parties', which includes anyone who claims that their rights are affected or could be affected by the final decision of an administrative body.
In Hungary, the Administrative Procedures Act offers a similarly broad definition of 'interested parties' as any individual, entity or governmental organisation whose rights or lawful interests are affected by the issue of a permit. Here too, the class of parties who qualify as 'interested parties' has traditionally been quite expansive due to provisions in the Hungarian Civil Code.
Complicating the statutory framework in Central Europe are various laws, which expand the number of 'interested parties' who can challenge development permits. For example, under Poland's new environmental law (which came into force in October 2001), 'interested parties' include various environmental groups, most of which are legitimate, but some of which are notoriously more interested in challenging permits than environmental issues.

Protecting against claims
Since the risk of various 'interested parties' slowing down or blocking permit proceedings is substantial in Central Europe, it is critical that developers closely monitor formal notification procedures which provide all necessary supporting documents and, in particular, show a willingness to coordinate, facilitate and cooperate with the issuing authority.
In Poland, there is generally no provision of law, which would expressly allow developers to ensure that all possible 'interested parties' have been notified of a particular permit application. Further, there is generally no legally binding way to obtain a waiver of statutory rights of appeal, although, in practice, such waivers are obtained as a kind of insurance policy. However, in some cases it may be possible to convince an administration authority in advance that a particular party is not 'interested' and therefore should not receive notice of a particular permit application or a copy of the relevant permit decision, which could form the basis of an appeal.
To facilitate the formal aspects of notifying all 'interested parties' of permit proceedings, the Czech Building Act provides authorities with the means, in specific cases, to notify all involved parties publicly by posting its decisions for a period of 15 days. If the building authority, when commencing proceedings, delivers notifications of potential parties to the proceedings by such a public notice (in contrast to the traditional way of serving notifications and decisions to a specific list of participants), it generally prohibits adverse parties from later claiming that they were omitted from the proceedings due to a failure of notification and eliminates their ability to challenge the validity of permits.
In Hungary, the most common method used to facilitate the process and avoid challenges to permits, is to obtain waivers of the statutory right to appeal the decision to issue the permit from all potential 'interested parties'. This is possible in the Czech Republic as well, but it is limited to the waiver of current rights of a potential 'interested party' only, as future rights cannot be waived.

Defending claims
If it is determined that an 'interested party' claimant meets the relevant definition, then it is necessary to determine if all legal requirements were fulfilled in making the protest. Due to the fact that the validity of decisions often rests on compliance with formal and technical administrative requirements, it is possible that an error or missed step by the protesting party, such as the failure to fulfil applicable environmental law requirements relating to the participation of different environmental associations or compliance with the rules of representation, can play a significant role in the defence of such a challenge and invalidate the protesting party's claim.
In the context of a pending challenge to a development permit, there are a myriad of litigation strategies, which can be employed to legitimately speed up or slow down the proceedings to a developer's advantage as the development project progresses. However, these strategies are not without risk to the developer and require careful consideration on a case-by-case basis.

Groundless claims
Unfortunately, it is not uncommon for so-called 'interested parties' to launch claims with no legitimate motive other than to extract money from developers. Such claimants often have legal standing to sue form a purely technical point of view, but the subject of their claim is without merit. Here, the quickest and most cost effective solution may be to seek an amicable monetary settlement in order to avoid costly delays. However, there are numerous ways in which a claimant may circumvent carefully drafted settlement agreements. In many cases settlement agreements are not binding with administrative authorities and do not provide complete protection for developers. Finally, it is difficult to keep such settlement agreements confidential. Payments to one 'interested party' may encourage endless claims from others.

There is hope
The fact that development activity in Central Europe continues to be robust is proof that the challenge of obtaining necessary permits and approvals is not insurmountable. In most cases, various legal measures may be employed to prevent or defend against various forms of protests, challenges, claims and adverse administrative decisions. These measures can reduce overall development risk and help ensure that real estate projects are delivered reasonably on time and on budget.

Eric Rosedale, real estate attorney in Central Europe, recognised by Chambers Global Guide of World's Leading Lawyers, for his vast experience and knowledge.