Property law: Restitution claims - a new approach?

As a result of restitution claims, an administrative authority may grant the ownership or the perpetual usufruct right to the property's former owners. In some events the applicant may be awarded compensation upon fulfilling conditions required by law. Therefore, for a potential investor or purchaser it is very important to evaluate the risk regarding restitution claims.

General category

The term "restitution claim" is used as a general category, covering various claims of previous owners, without regard to the legal grounds of such claims, that is, including claims based on the October 26, 1945 Decree on the Ownership and Usufruct Right of Land Within the Boundaries of Warsaw (Journal of Laws No. 50, item 279, as amended) and claims related to improper expropriation.

Claims referring to the expropriation regulations introduced after the Second World War play an important role. Presently this issue is very complex due to the fact that a significant amount of time has elapsed, and former owners were expropriated pursuant to various communist regulations which were amended or reversed. All this makes it difficult to issue consistent judicial decisions that could constitute an indication of possible solutions in a particular situation.

Legal obstacle

According to one line of judicial reasoning, the disposal of a property by a public administrative body, that is, by selling or by establishing a perpetual usufruct right in favor of a third party, constitutes a legal obstacle to proceeding with restitution claims (the restitution claim may not infringe on the perpetual usufruct or the essence of the right of perpetual usufruct).

On the other hand, the Supreme Court held in another case that the interests of the former owners prevail over the interests of the perpetual usufructuary, in particular where the former owner has submitted an appropriate application establishing that the perpetual usufruct is invalid.

In that context, the latest judgement of the Supreme Administrative Court (I OSK 1712/06 dated November 30, 2007) may play an important role. In it, the court found that according to Polish law, only one prerequisite - the failure to fulfill the purpose for which the property was expropriated - should be taken into consideration in determining the return of expropriated real property. The issue of the possession of the property by the State Treasury or a local authority, and the current legal status of the property, should not be considered.

If the purpose for which the property was expropriated is not fulfilled, the administrative body has the obligation to notify the previous owners of the property of this fact in order to enable them to regain ownership of the property. Therefore, the infringement of this statutory obligation by an administrative body constitutes an unlawful act, in particular where the administrative body had already disposed of the property after the restitution claim was filed. In this event, the disposal of the property could be treated as invalid (according to Article 58 of the Polish Civil Code).

Previous owner prevails

The Supreme Court has pointed out that the interest of the previous owner should prevail over the legal consequences of the unlawful acts of administrative bodies. For that reason, before issuing a decision regarding restitution claims, the administrative body should suspend the administrative proceedings in order to regulate the legal status of the property so as to enable the administrative body to dispose of the real property, thus making the decision to return the property enforceable, for example in the course of civil proceedings regarding the validity of the civil act of the property's disposal.

In the case in which the above judgement was passed, the State Treasury disposed of (sold) a property while restitution-claim proceedings were pending. Therefore, the Supreme Administrative Court ruled that the State Treasury was obliged to restore the original state of the property. The case is returned to the administrative authority of first instance, which should consider the restitution claim again.

Agnieszka Koniewicz is an Associate with Linklaters law firm, e-mail: agnieszka.koniewicz@linklaters.com