Property law: Regulation of polluted lands

The regime is known as the "holder pays principle" under which a person holding land (defined as the owner or any other person, such as a holder of the right of perpetual usufruct, formally, an entity registered as holding title to the land in the register kept by the local authority) is obliged to perform any decontamination works at its own expense. Decontamination is understood as any operation performed by the use of technical means aimed at restoring such land to a condition which complies with the standards determined by law.

There are exceptions to the "holder pays principle" which aim to apply the "polluter pays principle," however, a holder (purchaser) of the land may not, as a matter of principle, be released from liability on the grounds that the pollution had occurred before it acquired title to the land.

Two major exceptions to this were introduced by the 2001 Act on Entry into Force of the Environmental Protection Law, Law on Wastes and other statutes. Firstly, an entity obliged to perform decontamination works may prove that the pollution was caused before September 1, 1980, in which case the obligation to conduct decontamination works can be limited to the extent necessary to eliminate any threat to human life or health, other serious damage or spreading of the pollution.

Secondly, Article 12 of that act stipulates that holders of contaminated land on October 1, 2001 were obliged to notify local authorities of that fact no later than by June 30, 2004, in which case they would not have been held liable and thus would not be obliged to perform decontamination (provided the authorities did not object to notification by way of an administrative decision). In relation to this regulation, two major questions arose: (1) whether a successor of the holder of the land can benefit from this institution (provided that he was able to notify the authorities before June 30, 2004), and (2) whether the fact of notification will also liberate future holders of the land (in the case the land is sold after June 30, 2004).

Certain aspects of these problems were addressed by the Polish administrative courts. The courts were initially of the opinion that under Article 12 there were no grounds to exclude entities who could benefit from the exemption of the decontamination irrespective of whether the legal predecessors contaminated (also only potentially) the land. However, the Supreme Administrative Court ruled contrary to the previous jurisprudence of the administrative courts, finding that a purchaser of contaminated land cannot, by citing Article 12, free itself from the obligation to perform decontamination works if the contamination was caused by its legal predecessor. The main reason, according to the court, was that Article 12 relates strictly to contamination caused before the Act entered into force (October 1, 2001) and therefore only historic contamination can be included into its scope (and as it could be assumed, not pollution caused after October 1, 2001).

It must be underlined, however, that the legal relations between a historic holder of the land (seller) and subsequent holder (buyer) are strictly a matter of contractual mutual obligations and can, as such, be a part of a transaction. It is a very common practice in Poland to include in the transactional documents indemnification mechanisms, various representation and warranties and deeds of covenants. These are usually included  in order to spread the liability for decontamination works, which in some case can have considerable value.

Finally, a question arises whether a seller who has notified the authorities of the pollution, and has therefore freed itself from the obligation to perform decontamination works, can "transfer" such benefit to a purchaser of the land. Given the administrative nature of the provisions of Article 12, one should instead take the opinion that a purchaser of land could benefit from the exemption only if the land is acquired indirectly (i.e. through a share deal) or thanks to contractual remedies.

In view of the above, one should be very skeptical as to the effectiveness of the notification as a way to cut off historic land pollution constituting an important commercial risk in many real estate transactions.

Jakub Kutzmann is an associate with Linklaters law firm. e-mail: jakub.kutzmann@linklaters.com