Property law: Pitfalls in securing your title

In recent years, the real-estate investment market in Poland has shown an impressive growth rate and attracted a great number of investors. Although low prices and attractive market prospects appear ideal for potential investors, the maze of legal regulations can turn investments into a nightmare.

 

What's in a title?

The lawful entitlement of the vendor constitutes a sine qua non condition for the valid purchase of land. Therefore, before you purchase land or commercial property, it is imperative to thoroughly investigate the vendor's title.

The most straightforward way of verifying the vendor's title is to examine the land and mortgage register book (księga wieczysta). Land and mortgage registry books are public judicial registers that not only evidence the legal conditions of the real estate, but also provide credibility to the entries made therein. This feature is known as the public trust of the data contained in the land and mortgage register books. Under this principle, the purchaser is afforded the benefit of certainty that the individual or entity who is entered in the land and mortgage registry book holds valid title to the property. Accordingly, in the event that real estate is acquired by way of an asset deal from the registered owner or perpetual usufructor of the real estate, the purchaser may generally rest assured that he has acquired title to the property.

Exceptions to the rule

However, the principle of the public trust is subject to certain exceptions. In particular, the public-trust principle is waived in cases of gratuitous transactions (albeit unusual in the commercial world) or where the purchaser does not act in good faith (i.e. knows or ought to have reasonably known through diligent investigation that the vendor's entitlement to the property is questionable). Furthermore, you may not rely on the principle of the public trust of the land and mortgage books in the event that notices, applications and warnings have been filed and envisaged in the relevant sections of the land and mortgage book. Therefore, upon purchasing the land, one should always thoroughly examine the files maintained by the court and obtain an excerpt as of the date of signing the purchase deed. A power of attorney issued by the vendor is required to effect such examination.

An internal matter

Yet another factor that must be verified when acquiring property from Polish subsidiaries of foreign entities is the permit issued by the Ministry of Internal Affairs and Administration (Ministerstwo Spraw Wewnętrznych i Administracji). Prior to Poland's accession to the European Union (May 1, 2004), both the acquisition of shares in a company holding title to property and the direct acquisition of property by foreigners required the prior issuance of such a governmental permit. At present, this restriction, with certain exceptions regarding agricultural land and forests, is lifted with respect to business entities and citizens of the European Economic Area (EU member states, Norway, Lichtenstein and Iceland). It must be emphasised that failure to obtain such a permit invalidates the acquisition by virtue of law. Due to the fact that the regulations relating to the duty to obtain the governmental permit were unclear, and often circumvented, it is particularly important to double-check this issue.

 

Patryk Figiel is an associate with Linklaters law firm. E-mail: patryk.figiel@linklaters.com