The end of July of this year marked four years since the adoption of the Act of 20 July 2018 on the transformation of the right of perpetual usufruct of land developed for residential purposes into the right of ownership to such land (hereinafter " Act "). Thanks to this Act, as of 1 January 2019, the right of perpetual usufruct of land developed for residential purposes was transformed into the right of ownership .
Since its adoption and entry into force, the Act has raised many interpretational doubts that could not be resolved by the authorities applying it themselves, which often resulted in changes to the regulations (and there have already been six of them).
One of the most significant problems during the first year of the Act's implementation was the lack of a clear possibility of converting land on which, in addition to single-family or multi-family residential buildings, there were also other buildings, structures, or construction equipment. However, this legal loophole was remedied by the third amendment to the Act, signed upon the adoption of the Act of June 13, 2019, amending the Act on the National Real Estate Resource and certain other acts . This amendment had significant consequences, as it explicitly allowed residential land on which, in addition to residential buildings, kiosks, food pavilions, or transformer stations were also located to be converted into ownership. However, municipal and city authorities had to re-verify all land and issue certificates to property owners who had previously been denied such approval due to the presence of structures unrelated to residential purposes.
Another question that arose during the application of the Act concerned the classification of an individual as an entrepreneur. As a reminder, pursuant to Article 14, Section 1 of the Act, "The provisions of the Act shall be applied taking into account the provisions on public aid." Public aid provisions apply only to entrepreneurs, with the concept of an entrepreneur under the Transformation Act understood through the prism of European Union law. This concept is very broad – it encompasses all categories of entities conducting business activity, regardless of their legal form and sources of financing, and regardless of whether national regulations grant the entity the status of an entrepreneur. Therefore, the authority issuing the certificate of transformation of the right of perpetual usufruct of real estate to ownership determines whether the entity is an entrepreneur or not. This is crucial for the property owner. Determining the transformation fee, i.e., determining the amount of the transformation fee for entrepreneurs, constitutes de minimis aid, the amount of which is limited to EUR 200,000.00 for the last three tax years. If, due to the transformation into ownership, the de minimis , an additional payment is applied up to the market value of the real estate determined on the basis of the market value of the real estate constituting the basis for determining the fee or on the basis of an appraisal report prepared at the request of the entity obliged to pay the additional payment.
While regulations are common, the practice of classifying landowners as entrepreneurs varies. Most Polish offices have adopted the guidelines of the Office of Competition and Consumer Protection, according to which "the concept of an entrepreneur encompasses all categories of entities conducting business activity, regardless of their legal form and sources of financing, and regardless of whether national regulations grant them the subjective status of an entrepreneur." (…) Economic activity should be understood, according to the case law of the European Court of Justice, as offering goods and services on the market." Despite this, many problems arise, particularly when classifying individuals who rent residential premises as entrepreneurs. As it turns out, the practice of offices varies. Some automatically classify such landlords as entrepreneurs, while others base their decision on the factual circumstances (e.g., whether the property is rented as part of a private lease, i.e., for residential purposes, or the method of acquiring the premises) and whether the person rents out apartments as part of their business activity. Some offices even indicate that a natural person, regardless of whether they run a business or not, who owns a residential premises and rents them out as part of a private lease (for residential purposes) is not considered an entrepreneur within the meaning of the regulations on permitted de minimis public aid. This means that whether or not we are classified as entrepreneurs depends on the office issuing the certificate, or even on the official reviewing the case. In practice, there are still no uniform guidelines adopted by all administrative bodies. government and local government.
In the practice of applying the Act, another important question also arose – whether transformation of the right of perpetual usufruct into the right of ownership is possible if, after 1 January 2019, the use of a building is changed to residential purposes . This question was answered by the Provincial Administrative Court in Warsaw in its judgment of 11 August 2020, reference number I SA/Wa 351/20. In the said judgment, the Court found that in this case there would be no transformation of the land, because Article 13 of the Act concerning delayed transformation will not apply – in accordance with this provision, if after 1 January 2019 on the land under perpetual usufruct there is developed for residential purposes, within the meaning of Article 1 sec. 2 of the Act, in accordance with the local zoning plan or a decision on the conditions of development and land use, a residential building is put into use within the meaning of the Building Law, the right of perpetual usufruct of this land is converted into ownership of the land on the date the residential building is put into use. This provision therefore applies to situations where the building is residential in nature and is put into use after January 1, 2019.
As a commentary, the first thought that comes to mind after reading Article 13 of the Act is that this provision is not entirely accurate and may cause difficulties in practical application. As previously pointed out in the literature, this article is burdened with an idem per idem logical error – "The provision refers to "real estate developed for residential purposes within the meaning of Article 1, Section 2 of the Act" – that is, literally the same real estate that is subject to transformation under Article 1 anyway. However, since under this provision, real estate is subject to transformation only upon the commissioning of the residential building, it cannot be the same as real estate developed for residential purposes within the meaning of Article 1, Section 2 of the Act. In other words, it must be developed, but not developed to the point that an occupancy permit has already been issued." * Furthermore, the justification for the draft Act emphasized that it was intended to be comprehensive, i.e., to cover all perpetual usufructuaries of land developed with residential buildings, along with accompanying structures enabling the proper use of the property for residential purposes, and to eliminate perpetual usufruct for residential purposes. Therefore, one might inevitably have the impression that the inability to apply the delayed conversion mechanism to land on which the building's use has been permanently changed to residential purposes actually places this group of perpetual usufructuaries in a worse situation than perpetual usufructuaries of land developed with residential buildings on January 1, 2019, or land on which geodetic division was made to achieve this goal after January 1, 2019. To change this situation, another amendment to the Act would certainly be necessary.
The above legal loopholes and resulting ambiguities are just some of many that the practical application of the Act has brought. However, despite all these dilemmas, it must be stated that this act was and remains extremely important for Polish law. It allowed for the elimination and limitation of perpetual usufruct – a relic that caused numerous legal, social, and functional problems in the Polish legal system.
We cordially invite you to follow our series of articles – next week we will present the topic of easements during the investment process.
* M. Tollik, Coverage of undeveloped real estate by the effects of the act on the transformation of the right of perpetual usufruct of land developed for housing purposes into the right of ownership to these lands, Palestra 2020, no. 2, pp. 55-62.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of August 9, 2022
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