In today's article, as a continuation of the series on PRS investments, we will present the subject of land for the above-mentioned investments, including the risks associated with the implementation of investments in individual areas.
As we pointed out in the previous article, PRS-type residential investments are divided into those built for acquisition by a single entity, which then hands them over to a professional operator (BTR), and those built for resale to small, private investors who lease the purchased units (BTL). Currently, BTR-type residential investments dominate the Polish market.
Currently, the real estate market is experiencing a shortage of land for residential development. As a result, investors are forced to seek out and acquire land for purposes other than built-up areas. So, could PRS investments provide a solution to the existing shortage of residential land?
First of all, it should be considered whether PRS investments can be implemented on land designated for purposes other than residential use in the local development plan.
Under current law, there is no specific category for the function of PRS investments. It is correct to assume that they are essentially multi-family residential buildings. However, can these investments be considered as meeting the criteria for classification as collective housing buildings, and therefore be implemented in areas designated for services in local zoning plans?
Polish law distinguishes between residential and non-residential buildings. Pursuant to the Regulation of the Minister of Infrastructure of April 12, 2002, on the technical requirements for buildings and their location, residential buildings include single-family buildings, multi-family buildings containing two or more apartments, and residential buildings in rural developments. Collective housing, on the other hand, is defined as buildings intended for temporary stay outside of their permanent residence, including hotels, guesthouses, rest homes, student dormitories, and social welfare homes.
The Polish Classification of Buildings classifies collective housing buildings differently, including these types of buildings as residential buildings.
Pursuant to the definition of the Act of 21 June 2001 on the protection of tenants' rights, municipal housing resources, and amending the Civil Code, " premises " shall be understood as premises used to meet housing needs, as well as premises serving as a studio for an artist to conduct activities in the field of culture and art . For the purposes of the Act, premises intended for short-term stay of persons, in particular those located in boarding houses, dormitories, guesthouses, hotels, holiday homes, or other buildings used for tourist or recreational purposes, are not considered premises.
Therefore, deciding to implement a PRS investment in an area designated for services in the local development plan may initially raise the risk of such an investment being challenged at the building permit stage. If the authority determines that the planned investment is in fact an attempt to circumvent the law by locating residential buildings in an area designated for services, it may ultimately result in a refusal to issue a building permit for such an investment.
Another risk that should be addressed is offering these types of investments in areas designated for services as residential premises. These services do not meet the statutory definition of a residential premises.
It should also be emphasized that the admission of collective housing buildings may result in a lack of interest from investment funds as potential buyers of such an investment.
Therefore, PRS investments should generally be planned on land designated for multi-family housing in local plans. However, locating such investments on land designated for services should be considered risky, both in terms of implementation and subsequent investment interest on the part of the fund.
Additionally, it is important to note that in the absence of a local development plan, PRS-type investments are not excluded. The investor has the option of obtaining a decision on development conditions, provided all statutory requirements for issuing such a decision are met. Furthermore, under current law, the investor has the right to pursue planned investments based on the institutions provided for in the so-called lex developer, which allows for the implementation of investments regardless of planning arrangements, provided that such investments do not conflict with the provisions of the spatial development conditions and directions study and that the required distances from public facilities are maintained.
In the next article, we will present the subject of contracts for the implementation of PRS investments.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of September 13, 2022
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