Step forward or back...

Despite high hopes, 2009 will not prove to be a turning point for real estate legislation. Minor changes are being introduced. however, if it is comprehensive changes you are waiting for, then you will need to be patient

The end of another year is approaching, which is traditionally a good time for summaries and, more importantly, to look to the future. It was widely understood that 2009 would bring crucial changes to real estate legislation, particularly since a great number of amendments in bills which were to virtually revolutionize the construction process were announced. The upcoming year-end proves, however, that for comprehensive changes one must be patient. Nevertheless, waiting becomes much harder when the level of optimism on the market drops. The aim of this article is to try to evaluate the legislative changes that have been implemented during the past year, to indicate the next changes proposed and to consider their potential influence on the market in the upcoming year.

Greater freedom in transactions

For a few years now, we have observed successive changes almost every year that have reversed various restrictions on transactions on the real estate market, and this should be evaluated positively. The next change proposed, which will facilitate and optimize the performance of transactions between entrepreneurs, is a planned amendment of Article 358 of the Civil Code. This change will constitute, in a way, the final break with the so-called currency rule whereby, subject to the exceptions provided for in the law, monetary obligations within Poland had to be expressed solely in Polish złoty. Although this rule practically no longer exists in consumer transactions, it still applies to Polish entrepreneurs. For many entrepreneurs, performing commercial transactions in foreign currencies rather than Polish złoty is far more advantageous, since it helps limit the exchange rate risk. The obligation on entrepreneurs to obtain an individual currency permit for each and every transaction from the president of the National Bank of Poland significantly hinders their commercial activity. It is usually a straight-forward formality but it does draw out the transaction. Therefore, the proposed amendment should be evaluated very positively.

Further simplification will result from the adoption of the bill (now returned to the Sejm after a presidential veto was exercised) amending the law on the protection of agricultural and forestry land. Pursuant to such change, agricultural land classed as IV-VI that is located within the administrative boundaries of towns will be excluded from agricultural protection. Until now, in order to reclassify such land from agricultural to another use, an administrative decision upholding the reclassification had to be obtained and, in some special cases, additional consent from the president of the province (marszałek województwa) was also required following a positive decision by the agricultural chamber (izba rolnicza). Once the law comes into force, reclassification of the above-mentioned land will take place under the same rules used for land which is not covered by any specific protection. This means that it will only be necessary to fulfill the requirements set forth in zoning provisions. Furthermore, where land for agricultural use is reclassified, the payments provided for in the law will no longer be necessary. This solution will make land located in cities, which was previously eyed warily by investors due to the lengthy reclassification process, more attractive. It will make dealings more efficient and, above all, will speed up development.

Speaking of simplifications concerning the development of real estate for commercial purposes, one of the most spectacular success stories of 2008 must not be forgotten. On July 8th, 2008, the Constitutional Tribunal ruled a controversial law concerning the construction and development of the large shopping centres to be unconstitutional. This new regulation was not implemented. However, rumours abound that this is only a temporary respite, since many people in power are still in favour of restricting the development of shopping centres.

Immediate plans are needed

Still on the subject of zoning, it is worth mentioning the proposed changes to the zoning law. Not many planning instruments have been implemented so far and consequently it is common that a decision on construction conditions is required. Existing regulation on this matter cannot be evaluated positively and, as a result, a simplified, more efficient administrative procedure is required and a means of putting pressure on local government needs to be established. The draft amendment to the bill envisages the replacement in some situations of the procedure based on agreement of a draft with a procedure based on an opinion, and it also provides for the imposition of penalties on councils that fail to start work on the adoption of zoning plans. Furthermore, shortening from 12 months to 3 months the period for the suspension of the procedure for determining construction conditions and the decision determining where to locate the public investment, is also a significant change. This last provision is particularly burdensome for investors as investment is currently put on hold for a whole year. The plans do offer investors peace of mind as they are constantly trying to figure out to what extent they will be forced to adjust their plans to the new zoning concept.

Another proposed change to the bill is a reduction in planning fees, that is, a reduction from 
30 pct to 10 pct of the maximum fee linked to the value of the real estate as a result of the adoption a new planning instrument. This reduction appears reasonable as it confirms the existing situation – councils apply the maximum fee only very rarely.

Lack of decision, no lawlessness

Moving on to another stage of the investment process, the construction phase, mention must be made of a hotly-debated amendment to the construction law, work on which is currently at the committee stage in the Sejm.

The draft legislation is aimed at simplifying the administrative process applicable to building procedures mainly by: (I) lifting the obligation to obtain a building permit and to report building activities and replacing it with a simpler procedure of making the appropriate entries on the register of building works; (II) eliminating the method of approving designs by way of administrative decisions; and (III) removing the need to obtain a building permit.

As a result, it aims to extend the liability of designers for their building designs while at the same time limiting the role of the authorities in examining compliance of the designs with appropriate planning instrument and administrative decisions issued pursuant to zoning and spatial development regulations.

The proposed changes are quite revolutionary. Although few would disagree with the need to expedite administrative procedures in terms of the preparation and performance of construction works, the question is whether the participants in the investment process are ready to shoulder such a large responsibility, the reality being that unfortunately not all companies present on the market behave in an entirely professional way.

Long-or short-term lease: 
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