End of perpetual usufruct

28/09/18

Perpetual usufruct rights of lands where residential buildings are located will be soon transformed to the land ownership. 

The President signed the act on transforming the perpetual usufruct right of lands developed for housing purposes into land ownership, under the act the transformation will take place on 1 January 2019. This is another regulation – after the recently adopted act on facilitations in preparing and executing housing investments and accompanying investments – which is to affect positively the satisfaction of housing needs and improvement of housing conditions in Poland. 

 

Which lands will be transformed?

The main purpose of the act is to transform the perpetual usufruct right on lands occupied by housing buildings. According to the statutory definition, these lands are occupied exclusively by single-family or multi-family housing buildings. Hence, the act does not cover all lands, only those which are developed for housing purposes. It is allowed that utility buildings, garages and other buildings or equipment are located on these lands, if they serve for proper and reasonable use of housing buildings. 

What is important, in the case of multi-family buildings, the condition is that at least half of its units should be housing units. Thus, the scope of the act also covers lands occupied by buildings of mixed, housing and commercial function, if the housing function prevails in such building. For example, these will be buildings with service or commercial premises located on the ground floor of housing buildings. 

If the land is occupied simultaneously by a housing building and for example a shop or a restaurant (i.e. buildings which do not serve directly to use housing buildings), transformation of perpetual usufruct right to ownership will be possible only after the plot of land have been divided. For such lands, the transformation will not take place as of 1 January 2019, and only on the day when the new land and mortgage register is established or on the day of excluding from the existing land and mortgage register the plot of land on which non-housing building is located. 

The lands occupied exclusively by commercial buildings (e.g. warehouses or office buildings) will not be transformed. 

Furthermore, the act covers also lands on which housing buildings will be developed after 1 January 2019. For this kind of buildings, the moment of transformation will be handing it over for use, referred to in the provisions of the construction law. The lands handed over for perpetual usufruct under the Act on the National Property Resource are excluded from the regulations of the act. 

 

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What does transformation mean?

As of 1 January 2019 the current perpetual usufructuaries will become the owners of real estate. This will also relate to perpetual co-usufructuaries who will become co-owners, respectively. Buildings and other devices erected on the land, which until now have constituted separate ownership from the land, will become, by virtue of law, parts of the land. Courts will make entries of land ownership right ex officio without necessity to bear court fees on this account by the new owners. 

 

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Transformation fees

The most important effect of the discussed regulation seems to be cessation of obligation to pay annual fees for perpetual usufruct. New owners will be obliged to pay so called transformation fees. The amount of transformation fee is to be equal to the perpetual usufruct fee in the amount applicable – as a rule – as at the date of transformation. Under the general rule, new fees are to be paid by each and every owner of a given real estate and all of its successors in title for the period of 20 years within the time limit similar as for the current annual fees, i.e. every year until 31 March. Claims for payment of transformation fees will be disclosed ex officio in section III of land and mortgage registers so that there is no doubt as to that the obligation to pay them is transferred to a new buyer in case of sale of the real estate.  

Some perpetual usufructuaries will be exempted from payment of transformation fees. These will be natural persons or their heirs and housing cooperatives in the situation where they have paid one-off annual fees for the whole period of perpetual usufruct or when they obtained perpetual usufruct in exchange for expropriation or takeover of land property for the State Treasury and on the basis of the so called Warsaw decree. 

 

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Discounts on fees

The act provides for the system of discounts on fees. In particular in the case of payment of one-off fees – fees paid in advance for the whole term of transformation fee. For example, if the one-off fee is paid in a year in which the perpetual usufruct right of land have been transformed, the discount on this fee will be 60%. In every subsequent year (until the sixth year following the transformation) the discount will decrease by 10 percentage points. However, a guarantee to obtain such discount is applicable only to natural persons who are the owners of single family housing buildings or housing units, or housing cooperatives and relates only to the lands belonging to the State Treasury prior to the transformation day. In the case of real estate constituting the ownership of territorial government units prior to the transformation date – such discount could be granted by the competent authority under the resolution of the relevant council or regional assembly. Moreover, the law enables also the competent authority to grant the discount on the fee for a given year for the group of entities indicated above. 

According to the literal content of the act, the possibility of obtaining a discount in the payment of fees will not therefore apply to: 

  • premises other than designated for housing purposes, for example commercial or service premises, unless they belong to the housing cooperative, and 
  • premises whose owners will become other entities than natural persons and housing cooperatives, for example companies. 

 

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When other real estate will be transformed?

According to the information published by the Ministry of Investment and Development, the government plans in the near future to completely replace the perpetual usufruct right with ownership right. Such change would cover not only lands developed for housing purposes, but also commercial real estate. However, it is necessary to ensure compliance of such regulation with the EU regulations on public aid for entrepreneurs, therefore government plans need to be first agreed with the European Commission. Such provisions are to be similar to the provisions on housing real estate, and it is unlikely that the possibility to grant significant discounts to entrepreneurs will be maintained. However, currently it is difficult to specify the time limit after which another changes can be expected. 

 

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Contact us

Katarzyna Barańska

Counsel, Attorney-at-law, PwC Poland

Tel: +48 519 504 635

Jan Adamus

Associate, Legal Advisor, PwC Poland

Tel: +48 519 504 668

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