Country - Poland
Sale and Purchase
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A. ACQUISITION OF REAL ESTATE
Applicable legislation
The basic rules for sales and purchases are to be found in the Polish Civil Code. However, there are many other laws which are or may be applicable to specific transactions.
Is the purchase of real estate assets by foreign investors subject to restrictions?
There are restrictions on the ownership and acquisition of perpetual usufruct of real estate by foreign nationals and entities. By virtue of the Act of 24 March, 1920 - on the Acquisition of Real Estate by Foreigners, the acquisition of real estate in Poland by a foreigner requires a permit issued by the Minister of Internal Affairs and Administration. A property sale agreement executed without prior consent shall be considered null and void.
Special rules apply to the enterprises from European Economic Area (EEA) countries which are obliged to obtain the consent only in the case of acquisition of agricultural and forest land.
Do different legal regimes apply to the transfer of title to different kinds of real estate (commercial, residential, manufacturing)?
No.
Do mandatory pre-emption rights apply to the sale of real estate assets?
Yes. Pre-emption rights may result from law or from a contractual obligation.
Under Polish law, pre-emption rights over the sale of both ownership title to the real estate and perpetual usufruct of the real estate are vested in, inter alia:
- community (ustawowe prawo pierwokupu gminy) to real properties entered into the register of historical monuments and designated for public utility purposes (in these cases, pre-emption rights have to be disclosed in a relevant land and mortgage register to be binding) as well as to undeveloped lands acquired by the vendor directly from the State Treasury or from local authorities;
- State Treasury with regard to real estate having particular historical, scientific, cultural or natural scientific meaning;
- tenant of agricultural real estate;
- Agricultural Property Agency (Agencja Nieruchomości Rolnych) with regard to agricultural real estate and forests (on certain conditions);
- co-owners of agricultural real estate; however, the pre-emption right does not apply if an owner wants to transfer their share of the property to relatives;
- manager of a special economic zone with regard to real estate located on the territory of a special economic zone.
Pre-emption rights can be created contractually, for example in a sale and purchase agreement. As an example, the seller and buyer may agree that, if the buyer wants to sell his real estate assets in the future, the current seller will have a pre-emption right to buy.
Is expropriation (compulsory purchase) possible?
If so, under what conditions?
According to Article 21 of the Polish Constitution: "Expropriation is admissible only for public purposes and upon equitable compensation." In addition, the Law on Land Management and Expropriation of Real Estate provides that property may be expropriated only in accordance with statutory provisions such as the construction of public works, national security considerations or other specified cases of public interest.
Is the real estate registered?
If so, is such official information made available to the public?
Yes. Legal title to real estate may generally be assessed on the basis of entries made in the land and mortgage registers maintained by the relevant district courts. The land and mortgage register is public and the excerpts from the land and mortgage register are accessible after filling an application and are subject to payment of a fee.
The Polish land and mortgage register system protects those who acquire real estate in good faith relying on the entries made by the court in the land and mortgage register. A person acquiring land at a price from a party registered in the land and mortgage register, as its owner it will generally become the new owner even if the entry was erroneous. Similarly, encumbrances are binding on a good faith purchaser only if they were disclosed in the land and mortgage register. This "conclusive presumption of correctness of land and mortgage register" is subject to several exceptions, e.g., it does not protect against certain mandatory easements or encumbrances applicable as a matter of law.
The purchaser of shares in a company holding title to land, as distinct from the purchaser of a legal title to real estate, is not protected by applying the "conclusive presumption of accuracy" of the land and mortgage register.
Is transfer of title recorded?
Can other related deeds (for example, preliminary sale agreements) be recorded?
As it was mentioned above, under Polish law, legal title to real estate may generally be assessed on the basis of entries made in the land and mortgage registers maintained by the relevant district courts.
The content of such registers is deemed conclusive regarding the legal title held by an owner or a perpetual usufructuary.
Legal interests of third parties, such as lease rights, both personal and real easements and the pre-emption rights, can also be evidenced in the land and mortgage registers, although the registration of such rights is not mandatory. If and when registered, such interests become binding on third parties acquiring the real estate, i.e., registration prevents a third party from claiming lack of knowledge of such interests.
Mortgages, in order to be effective, must be registered.
It should be mentioned that, under Polish law, transfer of the ownership rights occurs upon execution of the sale purchase deed and acquisition of perpetual usufruct right becomes effective upon its registration in the land and mortgage register.
Do buyers usually carry out due diligence?
If so, what due diligence is typically conducted and what is its timing (i.e. before or after contract execution)? Is there any protection for the buyer during the due diligence period (for example, an exclusive right to negotiate or buy)?
The due diligence procedures are conducted. Depending on the kind of deal structure, legal due diligence normally covers: title; encumbrances; easements; planning, zoning, permits, construction and environmental matters; leases; tax (including stamp duty); insurance; service agreements; corporate matters; loans and employment issues.
Due diligence is usually conducted prior to entering into a purchase agreement and the findings are normally included in the agreement. However, from time to time, in the case of share deals, both pre-closing and post-closing due diligence is conducted.
It is not very common for the seller to grant an exclusivity period to the buyer.
Is title insurance available?
The title insurance policies are becoming increasingly popular in practice. This insurance typically covers the effective transfer or acquisition of mortgage and perpetual usufruct rights, which become effective only upon entry into a mortgage register.
There are, as well, rare instances of insurance policies securing effective acquisition of ownership of a real property. The rationale for such insurance is that in certain circumstances and against certain claims (e.g., restitution), entry of the transferor's right in the mortgage register does not guarantee the effective acquisition of the ownership right.
How are deals typically structured?
Deals are structured either as the direct acquisition of the real estate in the form of an asset deal or through the acquisition of a real estate itself or by the acquisition of an enterprise in the meaning of Art 551 of Polish Civil Code, or the acquisition of the company holding the title to the real estate in the form of a share deal.
B. STRUCTURE OF THE CONTRACT
Are there formal requirements regarding the content and structure of a sale and purchase contract?
A real estate sale purchase agreement shall be concluded in a form of a notarial deed, otherwise it is null and void.
According to the Polish Civil Code, a sale purchase agreement shall contain two mandatory elements. First is a precisely described real estate subject to sale, the description shall be based on the excerpt from the land and mortgage register kept for the given real estate and the second element shall be the purchase price. Other elements of the sale purchase contract might be agreed by the parties, with reservation that such a contract may neither be conditional nor contain a postponement clause.
What is a typical contract like?
A typical contract will include the following:
- the parties;
- a description of the real estate subject to sale, made on the basis of the current excerpt from the land and mortgage register book kept for the given real estate. The description shall include all encumbrances, easements, priority and pre-emptive rights, leases etc affecting the real estate;
- the representations and warranties of the parties;
- the purchase price;
- other relevant terms;
- the costs.
Are special consents required for certain transactions (for example, consent of a spouse)?
If the real estate is in a marital joint ownership, the consent of a spouse for disposal is required. The sale purchase agreement of jointly owned real estate is considered as null and void.
The consent of the relevant authority may be required with regard to certain real estate for example, with regard to the sale of a monument registered in the register of monuments the consent of the relevant Conservator of Monuments is required.
What seller's warranties are provided under statute (for example, the state of the building, asbestos etc)?
Can they be excluded or varied by the contractual agreement? Is there a deadline for claims to be made?
The Civil Code does not explicitly set any seller's warranties. However, there is an implicit warranty that the seller is the rightful owner of the object of sale.
The general limitation period for making a claim under the Civil Code with regard to the defects of real estate is three years.
What are the buyer's remedies against misrepresentation by the seller?
The buyer, in the case of the seller's misrepresentation, is entitled, depending on the circumstances to:
- withdrawal from the agreement;
- reduction of the purchase price;
- claim for damages.
Are there any interests in real estate other than exclusive ownership?
If so, what are they?
In addition to the ownership which, under Polish law, is the title over property having the broadest legal rights, Polish law recognises perpetual usufruct, which is a transferable, alienable and mortgageable right of use. Perpetual usufruct may be granted by the State in relation to a state-owned real estate, or by a municipality with respect to real estate it owns for a specified period of time. It may be granted for a maximum period of 99 years, after which it expires if not extended for another 40 to 99 years. Buildings located on land subject to the right of perpetual usufruct are owned by the perpetual usufructuary. The usufructuary is required to pay an annual fee, to the State or the municipality.
Polish law provides, among other things, for the following real estate interests other than ownership and perpetual usufructuary rights, such as:
- lease (najem) – the right to use the property for a definite or indefinite period of time subject to payment;
- tenancy (dzierżawa) – the right to use and collect profits from it for a definite or indefinite period of time subject to payment;
- easements (real and personal).
C. PUBLIC LAW ASPECTS RELATED TO THE ACQUISITION OF REAL ESTATE
What are the most important areas of public law for an investor to consider when purchasing real estate?
- planning and zoning;
- environmental law and nature conservation law;
- protection of ancient monuments and;
- construction issues;
- tax.
Is the buyer of a real estate asset responsible for soil pollution or contamination of the building even if it is not caused by him?
No. According to the Polish environmental and civil law, the basic rule is that liability in case of pollution or contamination may be imposed on the buyer (owner of the property) if it occurred with his fault (intentional or negligence). However, in some cases, when real estate is a part of an enterprise, the owner of the property is liable for any harm caused to a person or property resulting from its business activities irrespective of its fault (responsibility for risk), unless such harm is caused by force majeure or an act of a third person.
How can a buyer ascertain the possible uses of an area under the applicable zoning or planning laws?
Can such uses be changed?
Zoning plans are available to the public at the real property department of the local authority. Anyone may view the plan and obtain a confirmation concerning the designation of particular real estate in the zoning plan.
The uses may be changed within the scope of the relevant zoning plan. Zoning plans can be amended by the municipality within the scope of the zoning studies, which are documents providing the main features of the local development politics. A property owner may submit an application for amending the zoning plan but the municipality is not obliged to make the change.
Is it possible to enter into specific development agreements with the relevant public authorities in order to facilitate a project?
Yes. If the intention is to develop a project with public authorities, then, in most cases, public procurement regulations will apply or other specific laws governing the authorities' power to enter into a contract. It is also possible to develop a project in the public private partnership formula.
Can public authorities collect a charge for this?
No, as public authorities would not render any services to facilitate a project.
D. TAXES RELATED TO ACQUISITION OF REAL ESTATE
Are there transfer taxes or sales taxes?
Asset deal
A 2 % tax on civil law transactions (PCC) calculated on the basis of the market value, which, in most cases, is the purchase price (in the event that the purchase price does not correspond with the market value, the tax authority will request a correction and may finally assess the value based on an authorised expert's opinion) and a fee for the registration in the Land and Mortgage Register amounting to PLN 200 (EUR 55) are due. For acts between entities conducting business activity, VAT is to be paid at 22%. In such cases the PCC is not due.
Share deal
If all the shares are transferred to the buyer, tax on civil law transactions at 1% is due, calculated on the basis of the market value of the shares (see also the text in the brackets above).
What are the normal transaction costs?
Transaction costs are normally 2% of the purchase price increased by the court fee and notary fee of up to PLN 10,000 (EUR 2,800), however those costs do not include potential VAT or legal assistance costs.
How are transaction costs shared by the buyer and the seller?
Costs are subject to negotiation and agreement between the buyer and the seller. Normally, the buyer pays the transaction costs. The tax on civil transactions is paid by the buyer according to the law.
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