Property law: Co-ownership of shopping centers

Since such projects require large amounts of capital, in some cases they are developed and subsequently owned by two or more investors who lease premises in the center.

Co-ownership caveat

From a legal perspective, at first glance such a situation does not bear a significant risk for the owners as landlords. However, after a careful review of the jurisprudence of the Polish Supreme Court, a very important but not widely recognized problem arises. The Supreme Court in its judgments has presented the view that in a situation where one of the co-owners of the premises executes a lease agreement with a tenant, the other co-owner's consent may be required since breaking the lease for the premises in the center may be considered an action exceeding the scope of general management of the co-owned property.

For such actions, the consent of all co-owners is required. In some circumstances, if it is assumed that this does not exceed the scope of general management, the consent of co-owners holding at least half of the shares in the property may be required, and, consequently, minority co-owners will be required to obtain consent. The lack of such consent results in the invalidity of the action undertaken, which, in the aforementioned scenario, may have a significant impact on the center.

An amicable solution

Nevertheless, there is a solution. The co-owners may sign a co-ownership agreement before entering into the lease agreements with tenants. A co-ownership agreement provides for a "division for use" (quoad usum) of the center, expressly indicating which parts are to be operated, and leased by each respective co-owner, as well as the rules of operating the common areas of the center. The parties may also appoint a property manager who would be responsible for ongoing contact with the tenants.

According to the Supreme Court, this form of agreement is sufficient to exclude actions such as the breaking of lease agreements from the scope of the management of the common property, and therefore it is not required to obtain the consent of the other co-owner.

Apart from the above-mentioned quoad usum agreement, the best solution in the case of co-ownership of the center would be to conclude an agreement with the other co-owner concerning the dissolution of the co-ownership. Separate real properties constituting the premises (e.g. the hypermarket and the shopping gallery as two separate properties) would be created and a co-ownership agreement for the common areas set up. In such cases, each of the co-owners would become the sole owner of a real property, including the premises it intends to lease to the tenants and the problem of any requirements or associated risks would no longer exist.

Paweł Lis is a junior associate at Linklaters law firm. E-mail: pawel.lis@linklaters.com