Property law: The new draft residential law

A combination of the exponential increase of apartment prices and increasing demand has produced an ideal situation for developers, encouraging them to expand their offers. However, due to various circumstances (such as the lack of local-zoning plans, which results in more time-consuming administrative building procedures), the number of apartments being constructed has surprisingly remained stagnant.

The Ministry of Construction has prepared a draft "Act on management of real properties owned by the State Treasury for the purposes of residential development" with the purpose of the State Treasury offering more land to developers for construction purposes. The Ministry of Construction believes that the act will have a positive impact on the market.

Perpetual usufruct

According to the draft, the Ministry would be responsible for issuing an annual list of real properties which are to be granted in perpetual usufruct by public authorities. The perpetual usufruct would be given by way of a public tender. Such a tender would be subject to tender rules as provided in the Act on Real Estate Management. The winner of the tender would be entitled to conclude an agreement on the establishment of a right of perpetual usufruct directly with the entity managing the property on behalf of the State Treasury. Such an agreement would contain conditions that the developer shall commence construction works within 18 months of the date of the agreement and complete such works within two years of that date. In the event where such conditions are not satisfied, the State Treasury may terminate the agreement with immediate effect.

Pursuant to the draft, developers would be granted a right of perpetual usufruct over the specific properties. The right of perpetual usufruct may be established for up to 99 years and is, broadly speaking, akin to the right of ownership. A developer automatically acquires ownership title to buildings constructed on such properties. Developers would also be required to pay a significantly reduced annual fee for the right of perpetual usufruct than that which is currently provided for under the general rules of Polish law. Moreover, after the lapse of the initial five years of the developer acquiring the right of perpetual usufruct, it may apply to local authorities to have the right of perpetual usufruct converted into the right of ownership. Local authorities have the discretion to designate various properties for residential development, and may do so by amending the local-zoning plans or reclassifying the agricultural land in cases where it would be required.

Unclear provisions

Furthermore, such an agreement would oblige the developer not to construct apartments exceeding 75 sqm in area. The price of such apartments is to be calculated in accordance with the statute and the apartments may only be purchased by those who do not own other apartments. If the owner of the apartment disposes of it before the lapse of the initial five-year period after the purchase, s/he would be obliged to reimburse the difference between the purchase price and the market value of the apartment. This provision seems to be unclear, since it does not specify who should be reimbursed with such difference.

The draft proposed by the Ministry of Construction does not only limit the area of the apartment and the number of potential purchasers, but also may be seen as adversely affecting the owner's statutory right to freely dispose the real property. Therefore, it appears that the act would not have as much of a positive impact on the market as envisaged by the Ministry of Construction.

The draft act is now subject to internal governmental consultations.

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