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Published: 2008-03-26

Right of Perpetual Usefruct in Polish Civil Law



The right of perpetual usufruct (RPU) is regulated by the Polish Civil Code in conjunction with the Act on Administration of Real Estate.

A type of in rem right, an RPU is essentially a long-term land lease that grants the lessee the right to keep benefits derived from the land. An RPU can be granted only by the State Treasury (on land located in urban areas or included in urban spatial development plans) or by communes or their unions (on any land, urban or rural). According to Art. 232 of the Civil Code, an RPU may be granted to natural or legal persons on the following types of land: (i) lands owned by the State Treasury and located within the administrative jurisdiction of towns; (ii) lands owned by the State Treasury situated beyond those limits but covered by the spatial development plan of a town and designated to serve its economic needs; and (iii) lands owned by units of local government or their unions. The perpetual usufructuary (lessee) is entitled to use the land to the exclusion of other persons and may dispose of his rights within the same limits.


Buildings and other facilities erected by the perpetual usufructuary on land owned by the State Treasury or by units of local government or their unions belong to the perpetual usufructuary. The same applies to any buildings or other facilities that the perpetual usufructuary acquired when concluding the agreement granting the RPU. The perpetual usufructuary is entitled to recover the market value of such buildings and facilities when the RPU expires.

An RPU may last from 40 to 99 years. Within the last 5 years of the term, the perpetual usufructuary may request an extension of the usufruct for additional period of between 40 and 99 years. In such case, the government may only refuse the extension on grounds of "important public interest".

Establishment

(a) Administrative Decision.

Under certain circumstances provided for under law, an RPU can be established in favour of State-owned entities that already use or manage the property. In such cases the RPU is granted on the basis of a decision issued by the voievode (province governor).

(b) Agreement.

An RPU may also be established on the basis of an agreement (the "RPU Agreement"). Such an agreement, which must be concluded in the form of a notarial deed, determines the period of the RPU and the manner in which the property is to be used. The creation of a right of perpetual usufruct for the property or the transfer of such a right to another person must be entered in the Land and Mortgage Register for the property. In cases where a perpetual usufruct is granted for the purpose of constructing buildings or other facilities on the property, the RPU Agreement shall specify (i) the dates on which the construction work is to begin and to end, (ii) the kind of buildings or facilities and the obligation to maintain them in proper condition, (iii) the conditions and terms of rebuilding the buildings and facilities if they are destroyed or dismantled during the period of perpetual usufruct, and (iv) the consideration due to the perpetual usufructuary for the buildings or facilities that exist on the property on
the day the RPU expires.

The RPU expires when the term thereof lapses or when the RPU Agreement is terminated. Appropriate authorities may demand that the RPU Agreement be terminated if the perpetual usufructuary uses the property in a manner inconsistent with the contractual provisions, and in particular if it failed to construct the required buildings and facilities within the term specified in the RPU Agreement. If the RPU Agreement is terminated, the first fee for perpetual usufruct is returned as well as the total sum of paid annual fees attributable to the unused portion of the perpetual usufruct. However, the maximum total amount of returned fees cannot exceed the value of the RPU as of the date of the RPU Agreement's expiration.

The first payment and annual fees

For the duration of his right the perpetual usufructuary is obliged to pay annual rent (the "Fee"). The first payment for an RPU ranges from 15% to 25% of the price of the land, while the normal annual fee for an RPU is 3% of the property value as established by a proper real estate appraiser who is chosen by the commune rather than the perpetual usufructuary. The property can be revalued, by virtue of law or upon the application of the perpetual usufructuary, though not more often than once a year. If the fee is revalued by virtue of law, the revalued fee will be established on the basis of the former percentage rate applied to the value of the real property on the date of the revaluation. An appropriate authority intending to revalue the annual fee for an RPU should terminate the previous amount in writing not later than December 31 of the previous year, while simultaneously determining the proposed new fee rate.

Transferability

An RPU for a property must be granted in the form of a notarial deed. Transfer of an RPU is valid only after such transfer is recorded in the Land and Mortgage Register. Please note that property on which an RPU was previously granted may be sold only to the perpetual usufructuary. As of the date of execution of the sale agreement, the previously established RPU expires by virtue of law.

Protection of an RPU

According to Polish law, the protection of an RPU is similar to the protection of ownership. The perpetual usufructuary may file a claim for property of which it has been illegally deprived against any unauthorized holder (including the owner) of the property that is subject to the RPU. In order to protect the RPU, a perpetual usufructuary has the right to claim restitution of its lawful position against a person who infringes upon its quiet enjoyment of the RPU in a manner other than by depriving the perpetual usufructuary of actual control of the property.

The period of limitation for filing claims against the perpetual usufructuary for damages resulting from improper use of the land, as well as any claims of the perpetual usufructuary against the governmental authority for remuneration for buildings and any facilities located on the land when the RPU expires is three (3) years from the RPU expiration date.

Land and Mortgage Register recording

The RPU title to real estate exists in the Land and Mortgage Register maintained by the local registry court. The Land and Mortgage Register contains vital information on the legal status of the land, including the name of the owner or holder of the RPU and any encumbrances on the land. Under Polish law, the Land and Mortgage Register reflects the actual legal status of the property and is designated as the proper and only evidence of title recognized by the law. Any granting or transfer of the RPU as well as any provisions of the RPU Agreement that relate to a particular use of the land must be recorded in the Land and Mortgage Register in order to be valid.

Right of first refusal

The commune has the right of pre-emption or first refusal in case of the sale of:

1. ownership of undeveloped land that the seller previously acquired from the State Treasury or commune,

2. any perpetual usufruct on undeveloped land,

3. any real estate located in areas designated for public use, and

4. any real estate registered as a historical landmark.

the last also including perpetual usufruct of the property. However, the owners and perpetual usufructuaries can circumvent this right of first refusal if they contribute the land or perpetual usufruct to companies in the form of a capital contribution or transfer the land either through a gift or exchange of lands or any similar transfer which is not an actual sale.

An RPU is subject to the right of first refusal each time it is transferred to another party, as long as the subject land remains undeveloped.


The right of first refusal may be exercised by the commune within two (2) months from the date the notary prepares the real estate purchase agreement. The right of first refusal must be exercised for the price determined by the parties in the real estate purchase agreement. Provisions in the purchase agreement with a third party intended to forestall the right of pre-emption is ineffective with respect to the entitled person.

Administrative Restrictions

According to the Act on Acquisition of Real Estate by Foreigners, the acquisition of an RPU by a foreigner requires a permit from the Minister of Internal Affairs. Foreigners must also apply for this permit before acquiring any share(s) of a Polish company that holds the RPU and is either (a) already controlled by foreigners or (b) would come under foreign control as a result of the transfer. This restriction applies to both limited liability companies and joint stock companies. The only exception relates to foreigners who are already company shareholders.

Another restriction has been provided by the Act on Companies with Foreign Shareholding. Therefore, establishing an RPU on land owned by the State Treasury for the benefit of foreign subjects, acquiring an RPU by a foreign subject through a contract of sale (from a state-owned legal person), or transferring property as an in-kind contribution (if a state-owned legal person is a new shareholder) all require a permit issued by the Minister of Treasury.