Bierut's shadow

What is commonly referred to as the Bierut decree (named after Bolesław Bierut, the first communist president of Poland), was the post-war legislation that requisitioned for the state much of the war-damaged and surviving buildings and property in Warsaw. According to lawyer Krystyna Krzekotowska, properties with an estimated value of PLN 1.4 bln will be subject to restitution lawsuits between 2012 and 2014. In its 2012-2014 long-term financial forecast, the city of Warsaw has earmarked PLN 426 mln for such claims. Mostly these are tenement houses taken away from their owners just after the war. However, restitution tussles have led to court cases over such Warsaw properties as the Złote Tarasy shopping centre, the National Stadium and the site of the troubled Museum of Modern Art project on pl. Defilad. The ownership of the Polonia and Metropol hotels also remains unclear as they are claimed by the Grabiński family. "As the law currently stands, the issue of restitution claims is, was and will be a significant element of the property investment process. This results from the fact that there are no statutory deadlines that would limit the possibility of pursuing such claims. Thus a legal analysis is made for practically every project on the property market in order to assess the risks of existing or potential claims. Of course, the risks from the restitution claims concern only the properties that are - or were - owned by the state or local council units," explains Agata Jurek-Zbrojska, a legal counsel at the Hogan Lovells law firm.

Hotel with problems
In a famous case, Warsaw city council signed a decision to return the Polonia Palace hotel on Al. Jerozolimskie in the heart of the city to the heirs of the pre-war owners. On Christmas Eve 2012, city officials made the non-legally binding decision to transfer the property to Maria Jolanta Lubomirska-Pierre, the granddaughter of Konstanty Przeździecki, the first owner of the Warsaw hotel. "The mayor of Warsaw was obliged under the law to issue a decision on the perpetual usufruct of the land where the Polonia Palace is located, in connection with the application of April 26th, 1948," states Marcin Bajko, the director of the real estate management department of Warsaw city council.

The Polonia, which was built between 1909 and 1913, originally had 160 rooms, some of which included bathrooms, and was one of the first hotels to resume operations in 1945. In the same year, pursuant to the Bierut decree, the property went into the hands of a Warsaw administrative district. A municipal company was established - Przedsiębiorstwo Turystyczne Syrena (which was transformed into Hotele Warszawskie Syrena in 1991) - responsible for the management of council-owned hotels. The company managed seven facilities: the MDM hotel (on what is now pl. Konstytucji), the Metropol on Al. Jerozolimskie, the Warszawa, the Saski, the Syrena in Wola district and the Nowa Praga in Praga Północ district, as well as the above-mentioned Polonia. In 1997 Hotele Warszawskie Syrena was privatised. The new owner was Bau Holding (which is affiliated with Austrian company Strabag and Raiffeissen bank). Hotele Warszawskie Syrena (HW Syrena) sold the Syrena and the Nowa Praga and closed down the Saski and the Warszawa hotels. However, the legal status of the Polonia Palace hotel remained complex and opaque. HW Syrena, which is still the current owner and the facility manager, has not given up fighting to keep the place. Between 2001 and 2014, around EUR 30 mln was invested by the company in renovating the hotel. For many years the heirs of the first owner have been battling to reclaim the Polonia, petitioning the city for the return of the property. Its value is now estimated at EUR 100 mln. For a certain period of time Maria Jolanta Lubomirska-Pierre was listed on the land and mortgage register as the owner, but has subsequently been struck off. "The owner of the Polonia Palace hotel is still Hotele Warszawskie Syrena, since this is the current status of the land and mortgage register," points out Krzysztof Szadurski, the president of the board of Hotele Warszawskie Syrena.

"Mrs Lubomirska-Pierre is only not listed on the register as the owner for formal reasons. An earlier court had entered her on the register, but a second court decision considered that certain requirements had not been fulfilled. We did not appeal against the ruling. It is not out of the question that we will apply for a land and mortgage register entry to be made for the Polonia Palace hotel in the future, so this does not deprive Jolanta Lubomirska of her right to the Polonia Palace hotel," retorts Adam Starczewski, a legal adviser who represents Jolanta Lubomirska-Pierre.

There are a number of lawsuits now pending between the parties. "One concerns the rescinding of the perpetual usufruct right, which was awarded to HW Syrena, from the land and mortgage register, as well as the annulment of mortgages attached to the perpetual usufruct right and the ownership of the building. We have submitted a cassation appeal over this issue, which is now to be considered by the supreme court," adds Adam Starczewski.

HW Syrena is open to dialogue, but it is not planning to walk away from protecting its business. "City hall has signed a decision on awarding Mrs Lubomirska-Pierre the perpetual usufruct, which has yet to be legally validated. Hotele Warszawskie Syrena has appealed against the decision. We are open to an amicable solution, but at the same time we have begun a number of administrative and court proceedings aimed at the protection of the rights of Hotele Warszawskie Syrena. Who will be able to claim compensation and what for will become clear after these proceedings have been completed," declares the president of HW Syrena. He also adds that the functioning of the facility is not endangered in any way. "The restitution claims do not have any impact on the hotel operations of Hotele Warszawskie Syrena and we will continue to receive the revenues that result from these operations," explains Krzysztof Szadurski. He emphasises that he is counting on a measure of good will in resolving the issue. "We have been trying to settle the matter amicably for several years and of course we still see such a possibility for doing so, but this is impossible due to the current divergence of standpoints," claims the representative of Jolanta Lubomirska-Pierre. He adds that in his opinion the whole case results from a mistaken assessment of the investment risk on the part of the Austrian companies. "HW Syrena was aware of the fact that there had been claims filed concerning the property. Gabriele Lubomirska made an official objection to HW Syrena being privatised. According to the documents in our possession, the claims were made in 1991 and were then swept under the carpet. But in April 1992 the city informed HW Syrena in writing about the claims that had been made by Gabriele Lubomirska," states Adam Starczewski.

History in the background
The struggle for the restitution of property is very difficult but can be profitable. The heirs of the Czetwertyński and Przeździecki families, the founders of the Europejski Hotel on Warsaw's royal avenue Krakowskie Przedmieście, are among those who have come out on top. Their representative - Hotel Europejski Spółka Akcyjna (HESA) - started applying for the recovery of the property in 1991. Finally the building was returned to the heirs of the former owners by the supreme administrative court in 2003. It was Orbis who lost the battle this time. Now Vera Michalski-Hoffmann (the majority shareholder of the Europejski Hotel) and the heirs of the hotel's founders are planning to carry out EUR 65 mln of renovations. The hotel is due to come back into operation in 2015.
The Bierut decree also applied to a 10 ha site on which the National Stadium is partly located - and the descendants of its former owners Arpad Chowańczak and Aurelia Czarnowska are now demanding justice. The property, which was bought in 1920, was taken away from them by the state in 1945. In 2009 the minister of infrastructure at the time earmarked the area for the construction of the stadium. Last year, however, the provincial administrative court agreed with the heirs and ruled that he had acted contrary to the law. "The ruling is not legally binding. According to information held by the city's real estate management department, one of the parties, the Ministry of Transport, Construction and Maritime Economy, filed a cassation complaint against the ruling to the supreme administrative court. The subject of the case is the ruling refusing the right of perpetual usufruct to the current owners," explains Marcin Bajko. The litigation continues. In previous decisions, it had been declared that the area had been earmarked for public utility use since the 1930s, and that clashed with the utilisation of the area by the owners at the time. After the announcement of the ruling awarding the right to apply for compensation to the heirs, their proxy, Joanna Modzelewska, claimed that if the state treasury had opted for a settlement, they would have avoided additional costs.
Legal problems have also plagued the investors behind the Złote Tarasy shopping centre. The mall on ul. Emilii Plater and ul. Złota was built on land confiscated under the Bierut decree. The city decided to sign agreements with the heirs to these areas, but Janina Żak, the daughter of one of the former owners, refused. She demanded the annulment of the contract signed in 2001 by the city with ING Real Estate for the construction of a shopping centre. The heir has been fighting for her rights ever since. The case was taken to the European Court in Strasbourg after the Polish courts found against her. In the case of Złote Tarasy, the city determined the amounts to be paid to those who had made what were in their view legitimate claims. This is also taking place in the case of the purchase of land for the Museum of Modern Art, a project which is planned by the city council on pl. Defilad. "The city has been gradually buying the land necessary for the construction of this building," comments Marcin Bajko. At the beginning of the year the city consented to the purchase of the perpetual usufruct rights for the last 655 sqm that was needed. The adopted resolution also states that the rest of the site is free of any claims because the city is the heir of its former co-owners. The rights of the heirs of the former owners of the area were settled previously, in 2012.

Avoiding problems
The Public Information Bulletin website for Warsaw features a list of properties with pending administrative proceedings regarding the establishment of perpetual usufruct rights. So it is worth checking their status before buying any Warsaw properties. "In our experience, the risk gets considerably higher if the property is located within the area affected by the Warsaw decree. Because of the large number of claims filed from former owners, and the general imperfection of the 1940s and 1950s legal procedures for acquiring Warsaw properties, the risk of objections to the purchase of the title to a property by the state is considerable. In these cases it is virtually impossible to avoid the risk of claims. Common practice involves acquiring a number of certificates. However, even if you acquire a certificate with a given date it does not automatically mean there will be no claims in the future," says Agata Jurek-Zbrojska. However, there are some tools which make it possible for investors to protect their businesses. "If claims from former owners or ongoing proceedings are discovered, a clear assessment of their legitimacy and the elimination of the risk of having to return the property are often impossible. A detailed legal analysis of the claims is necessary in such an event, and a solution which is often accepted by investors involves insuring the legal title to the property. Nevertheless, despite the need for a multi-layered and thorough investigation of the aspects of restitution claims, the methods and standards of legal analysis that have been developed and the possibility of insuring against risks of this type are useful tools for investors to ensure the required security of transactions," adds Agata Jurek-Zbrojska.

All of the above examples only go to show how legal cases over the unresolved ownership of a given property can go on for many years and also generate huge costs - and this is the legacy of an unregulated past.