Magdalena Zienkiewicz is legal counsel and partner at Wierciński, Kwieciński, Baehr sp.k., a Warsaw-based law firm. She heads the firm’s real estate and investment team and her areas of expertise include real estate transactions, city zoning law and construction law
by Beata Socha
Why do so few investors decide to invest in restoring old tenement houses?
Extensions, redevelopments or restorations of old tenement buildings are all complex projects in legal, technical and organizational terms. The complexity and specific nature of such investments makes these processes time-consuming, and demands considerable effort and financial resources.
At a later point in time, all of that can be reflected in high lease rates or selling prices for premises located in such buildings. Although there are few investors specializing in such investments, recently we have seen increasing interest in tenement building renewal from development companies, mostly due to the attractive locations and architectural value of such buildings.
The process of purchasing old tenement buildings is also complex, isn’t it?
That’s right. One of the main problems involved in the purchase of tenement buildings is the often unclear legal status of the property and the multitude of persons from whom the property rights must be acquired. A common issue in Warsaw is that some re-privatization proceedings pursuant to the Decree of 26 October 1945 on land ownership and use in the Capital City of Warsaw have not been completed yet.
Sometimes investors would purchase claims for the recovery of tenement buildings under that Decree from the heirs of former owners, and they join the proceedings, taking over the risk of success or failure.
In any case, it is extremely important to perform a careful and reliable legal due diligence of a property before purchase, in order to confirm the legal title of the property of the current holders, or the validity of re-privatization claims, and to determine the potential corrective measures that must be taken to allow for an effective purchase.
What if a tenement building has tenants?
If a tenement building is purchased by an investor as a whole, then in principle it must be vacated before construction works begin. In practice, investors are not interested in maintaining the existing tenancies, usually due to the low rents paid by tenants.
This is not a simple process, because the investor must comply with the provisions of the Act of 21 June 2001 on the protection of tenant rights and on municipal housing resources, which imposes a number of restrictions in this respect.
First of all, the investor is not free to terminate tenancy agreements and evict the tenants. The process is time-consuming and challenging in many respects. In a situation where some premises within a building are already owned by individual persons, and the investor has only purchased a part of the building or plans to extend or convert the loft, then the investor’s plans require the approval of those owners, who form a housing community.
Those processes are also complex from the legal perspective, due to the need to address the common areas of the building and to secure the rights to purchase floor space which does not exist yet. In such situations, investors often agree to renovate the entire building (e.g. facade, staircases) in exchange for the housing community’s approval of their investment plans.
What legal challenges are involved in the restoration process of old tenement buildings?
In the case of listed historical monuments, or buildings located within a monument protection area, the investor’s freedom of design and development is considerably restricted. Construction works must be discussed with a curator for historic buildings, and his/her guidance must be followed.
In some situations, the officer may ban certain solutions, if he believes they would compromise the historical value of the building or its structure. In particular this could be the installation of air conditioning systems or lifts, which are very important in the case of office buildings.
The conditions in which such investments are carried out are usually tough, owing to little space between neighboring buildings, no room for site facilities and often the need to occupy the road.