- There are legislative works underway intended to regularize the possibility to transform perpetual usufruct of land into ownership.
- According to the draft act, the transformation will cover only such properties that have been predominantly earmarked for residential purposes.
- Territorial self-government units will be able to establish perpetual usufruct for residential purposes only in connection with their participation in the National Housing Program.
Transformation of perpetual usufruct into ownership poses a serious problem both for owners of premises in buildings erected on land held in perpetual usufruct and entrepreneurs willing to use such properties in their business activities. By the judgment of the Constitutional Court of 10 March 2015, the latter group was practically entirely deprived of the possibility to gain the ownership of land held in perpetual usufruct. However, in consequence of the presently undertaken legislative works, the situation may be essentially changed to the benefit of developers, who will have a chance for wider possibilities to become owners and, consequently, to be facilitated in implementing their investments.
Serious problems of perpetual usufructuaries
On 28 July 2011, the Polish Legislator granted the right to demand transformation of perpetual usufruct into ownership to every natural and legal person. This was a revolutionary step, especially if we take into consideration that previously such right had been vested only in natural persons who as on 13 October 2005 had been perpetual usufructuaries of properties developed for housing purposes or built-up with garages, or properties intended for such use, or agricultural properties. Those solutions were enthusiastically received by investors operating in the property market. The Act allowed to easily solve the problems of perpetual usufractuaries holding the land tenure by acquisition of ownership. It must be remembered that perpetual usufruct – although similar to ownership – involves a number of limitations. An investor undertaking works on a property held in perpetual usufruct must cope not only with restrictions imposed by urban planning regulations, especially the local zoning plan, but also ones following from the intended use of the perpetual usufruct.
The matter of perpetual usufruct requires legislative clarification
Restriction by the purpose of establishing a perpetual usufruct is a controversial problem for investors who, e.g. as owners of an adjacent property, need the land subject to perpetual usufruct to carry out their investment. Even if they acquire such plot, in many cases they will be unable to put their plans into action. For instance, if a territorial self-government unit or the State Treasury establishes perpetual usufruct with the intention to carry out a public purpose (e.g. construction of a school), the land must not be used in any other way. Moreover, a problem arises with establishment of separate ownership of premises in a building erected in an area of two different tenures, e.g. partly on a plot subject to ownership and partly on a plot subject to perpetual usufruct. It is obvious that from the perspective of an investor it is most advantageous to buy the ownership of land – as the widest of all rights in rem.
An amendment to the existing legislative framework should be of interest also to owners of premises in buildings located on land held in perpetual usufruct. Their situation is even more complicated. They are holders of three types of rights: separate ownership of premises, co-ownership of common parts of the building and co-perpetual usufruct of the land. Although last year the Supreme Court, by a resolution of seven judges (resolution of 25 August 2017, file reference III CZP 11/17), decided that expiry of the term for which perpetual usufruct of a plot was established does not result in extinction of the separate ownership of premises located in a building erected on such plot, this does not change the legal chaos relating to perpetual usufruct and the fact that it may be remedied only by an intervention of the legislator. The latter has worked on appropriate regulations since 2016, however, there is no end of such works in sight, and the latest shifts in the powers of specific ministers delayed the legislative process even further.
Transformation possible only with more than half of premises intended for housing purposes
According to the current wording of the draft Act on the Transformation of Shares in Perpetual Usufruct of Plots of Land Developed for Residential Purposes, such transformation will only cover properties developed with buildings predominantly (over half of the premises) intended for housing use. As a result, the transformation will also refer to plots developed with buildings of a mixed residential/commercial use, as long as there are more residential than commercial premises. Transformation of perpetual usufruct into ownership is to be published in land registers and the cadaster based on certificates issued by an appropriate authority – most often a starost or (village or city) mayor. Besides, such transformation is to entail payment for a 20- or 33-year period of a fee whose amount will be equal to the perpetual usufruct fee. At the same time, units of territorial self-government will be able o establish perpetual usufruct for housing purposes only in connection with their participation in the National Housing Program, which makes another incentive for self-government units to become a part of the program. For their part, transformation proceedings pending under the 2005 Act in matters covered by the new provisions will be discontinued.
A chance for developers planning new investments
From the point of view of developers who have not built up their land held in perpetual usufruct, the so called delayed transformation procedure will be of the essence. Under the draft, where after the entry into force of the Act separate ownership of at least one apartment is established on a plot of land handed over as perpetual usufruct for purposes of residential construction (assuming that out of the total of non-separated premises more than half is intended for housing use), shares in the perpetual usufruct of the land arising from separation of premises will be transformed – on the date of entry in the land register of the ownership of the first apartment – into the ownership of land. The obligation to pay transformation fees will be transferred by the developer to the housing cooperative or the buyer of the premises – proportionally to their share in the ownership of land, which is going to protect entrepreneurs from restrictions relating to public aid. The fee will accrue as of 1 January following the date of transformation.
Investors should even now consider the planned legislative amendments
The proposed solutions are definitely keenly awaited by all entrepreneurs who invest in the property market. Unfortunately, they do not solve all problems relating to perpetual usufruct. The new possibilities will not be taken advantage of by, e.g., commercial investors – constructing office buildings, service facilities or shopping malls. In face of the amendment, it is worth thinking about implementation of investments in such way – especially with regard to the number of housing premises – so as to “fit into” the transformation framework. Unfortunately, these are not final proposals, the legislative works are still underway, and, from the point of view of the problems accrued in connection with perpetual usufruct, one may only urge the legislator to conclude the works as soon as possible.