NIERUCHOMOŚCI CH BECK 9/2025
Practical and legal risks associated with the acquisition of real estate
INTRODUCTION
The dynamics of real estate trading are governed by their own rules, in which time is a key factor. It is the speed of response to individual real estate sale offers that determines their acquisition ahead of the competition. Each such transaction should be preceded by a thorough examination of the legal and factual status of the land – otherwise, the purchase of the property would be too risky. In the case of properties of significant value and development potential, the process of purchasing land is usually accompanied by a professional legal audit of the property. However, taking any steps towards a transaction requires prior knowledge of the real estate market and basic knowledge in this area. This article is entirely devoted to a concise discussion of the elements that make up the examination of the legal and factual status of real estate in the residential and commercial sectors.
LAND REGISTERS, REGISTERS, RECORDS, AND OTHER DOCUMENTS
The first source where interested parties usually look for basic and up-to-date information on real estate is the electronic land and mortgage registers1 maintained by the Ministry of Justice. Land and mortgage registers are regulated by the Act of July 6, 1982, on Land and Mortgage Registers and Mortgages2 (“UKW”) and the Regulation of the Minister of Justice of February 15, 2016, on the establishment and maintenance of land and mortgage registers in the ICT system3 (the “UKW Regulation”). Due to the public nature of the register, an electronic current (ordinary) or complete copy of the land and mortgage register (including additional deleted entries or notes) may be viewed by any interested party who has the land and mortgage register number identifying the real estate. “The provision of Article 2 of the Land and Mortgage Register Act provides for the principle of public access to land and mortgage registers, which excludes the possibility of invoking ignorance of entries made therein in legal transactions.” If you wish to view the land and mortgage register files kept by land and mortgage register courts, you must have a legal interest (e.g., applying for the return of real estate) or an appropriate power of attorney (e.g., from the owner of a residential premises). Interested parties usually decide to review land and mortgage register files in order to thoroughly verify the content of the registers, including the content of current entries or references to entries that are not visible in electronic registers. The primary purpose of land and mortgage registers is to ensure the security of legal transactions involving real estate. A buyer who purchases real estate with an established land and mortgage register benefits from the presumption of conformity of the entry in the land and mortgage register with the actual legal status reserved in Article 3 of the Land and Mortgage Register Act, the public credibility of land and mortgage registers stipulated in Article 5 of the Land and Mortgage Register Act, and the principle of priority of entries provided for in Article 11 of the Land and Mortgage Register Act. The presumption of public credibility of land and mortgage registers consists in guaranteeing the legal force of legal events that are contrary to the actual legal status but consistent with the content of the land and mortgage register, e.g., the purchase of real estate in good faith from a fictitious owner listed in section II of the land and mortgage register. According to the case law of the Supreme Court, “The mechanism of Article 5 of the Land and Mortgage Register Act is that it is a special provision which, ex lege, gives effect to a legal act which, under other provisions (e.g. Article 58 of the Civil Code), should be considered invalid.1” When examining the content of land and mortgage registers, one must be very careful, as any mention of an entry or other exclusion regulated in the Land and Mortgage Register Act may lead to the rebuttal of the presumptions provided for by the institution of land and mortgage registers.
Land and mortgage registers are not the only source of information for analyzing the condition of real estate, as information on land, buildings, and residential or commercial premises can also be found in the land and building register. This information is regulated by the Act of May 17, 1989 – Geodetic and Cartographic Law (“p.g.k.”)1 and the Regulation of the Minister of Regional Development and Construction of March 29, 2001 on the land and building register (“Regulation on the land and building register”) 2. The land and building register is a register of information and data on real estate, kept by district administrators according to the location of the registered plot. The land register includes, among other things, information on the location, boundaries of the area, types of land use or soil classes, land register numbers or collections of real estate documents. The building register includes, among other things, information on the location of the building, its purpose, functional and general functions, data and technical parameters of the building (in the case of premises, including information on the location, functional functions and usable area of residential or commercial premises). The land and building register also includes the owners of the property, their permanent place of residence or registered office address, information on entry in the register of monuments, whether the entire property or part of it is covered by nature conservation, the cadastral value of the property, information on rental or lease, rural development, etc. The land and building register is an official document which plays a key role in establishing a land and mortgage register and introducing changes, in court proceedings, e.g., concerning the acquisitive prescription of real estate, in real estate transactions, in administrative proceedings, e.g., as an attachment to a building permit, or in notarial activities, in which the notary verifies the actual state with the content of the land and mortgage register. Excerpts and extracts from the land register may be accompanied by a clause stating that they are intended for entry in the land and mortgage register. This clause usually reads: “This document is intended for entry in the land and mortgage register.”
The specific nature of the real estate market also includes land entered in the register or inventory of monuments. Conservation protection is regulated by the Act of July 23, 2003, on the protection and care of monuments1 (the “Monuments Act”). The entry of an individual property into the register of monuments or urban layout, park or complex of buildings by way of an administrative decision has relevant legal and financial consequences. In particular, the entry of a property into the register of monuments means that the municipality may exercise its right of first refusal. Furthermore, the owner or user of a monument is obliged to care for it through conservation, restoration or other construction works in accordance with the rules set out in the Monument Protection Act. The municipal register of monuments is not binding like the entry in the register of monuments, but its scope is broader, and the regulations and accompanying legal consequences require prior examination. Of course, the nature, status, and parameters of real estate can be described through countless documents, registers, or certificates, but in this article, the author focuses solely on highlighting the concise elements that make up the examination of the legal status of real estate. Another document that may determine the status of a residential or commercial premises is a certificate of independence of premises regulated by the Act of June 24, 1994, on the ownership of premises1 (“u.w.l.”). Separate ownership of premises means that the premises in question constitute a separate object of ownership from the land and the building. The owner may dispose of their property regardless of other owners of premises. In addition, they hold shares in the land and common parts of the building in which their premises are located. Both residential premises and premises for other purposes, e.g., garages, commercial premises, may be independent.
In advanced negotiations aimed at purchasing real estate, another important document is the certificate of no tax arrears or tax arrears referred to in the Act of January 12, 1991, on local taxes and fees1 (“Act on No Arrears”). For the seller, it is proof that they are in control of their tax liabilities and are a reliable taxpayer. For the buyer, it provides certainty that they will not have to cover the tax debts of the previous owner after taking over the property. It is possible to sell real estate without the above-mentioned certificate, but this involves the risk of assuming tax liabilities. Other sources of information about real estate may also include: the geodetic network of land development, the base map, the state geodetic and cartographic resource, industry information systems, e.g., about buildings, the Digital Building Register in c-KOB, the Electronic Construction Journal – EDB, or other statistical studies devoted to real estate.
OWNERSHIP STATUS AND PLANNING ASPECTS
A key element that is analyzed during the examination with the intention of purchasing a future property is its ownership status. First, the entity interested in the property should check whether the ownership right is joint ownership within the meaning of the Civil Code or joint property within the meaning of the Act of February 25, 1964 – Family and Guardianship Code (“FGC”). 1. It is also advisable to check the legal title on the basis of which the selling party came into possession of the property in question; in particular, preliminary information on this can be found in section II of the land and mortgage register, e.g., a decision confirming the acquisition of inheritance, a certificate of inheritance, or a property purchase agreement with information on the date and notarial deed. When examining the ownership structure model, it is important to ascertain who specifically and on what terms has rights to the property, e.g., in a marital relationship, whether there is a prenuptial agreement, or whether the property was acquired as personal property. In the real estate world, it often happens that the object of interest and acquisition is a share in joint ownership, which constitutes an independent subject of the transaction. It may also happen that real estate is a key asset of a company (corporation), in which case corporate resolutions approving the sale may be required, or the entire company may be subject to a legal audit for the purpose of its acquisition, covering employee, corporate, financial, and other aspects. Sometimes the property is an asset of a civil law partnership, which, as a contract listed in the Civil Code, is subject to its own rules, including joint ownership by the partners of the civil law partnership.
In the Polish legal system, an alternative to real estate ownership is often a legal construct in the form of perpetual usufruct. Therefore, before purchasing real estate, the future perpetual usufructuary should be aware of the rights and consequences associated with the specific nature of perpetual usufruct, e.g., the obligation to pay an appropriate fee for perpetual usufruct. The subject of perpetual usufruct is land owned by the State Treasury or local government units. In practice, perpetual usufruct is most often established by way of a notarial deed (an entry in the land and mortgage register is constitutive); less often, it is established by way of an administrative decision or by operation of law. “The feature that distinguishes perpetual usufruct from ownership is primarily its temporary nature. As a rule, perpetual usufruct expires at the end of the period specified in the agreement or upon termination of the agreement before the end of that period. Moreover, unlike ownership, usufruct is a purpose-specific right in the sense that an agreement for the transfer of land for perpetual usufruct should specify the manner in which the land is to be used or developed, in particular by erecting buildings or other facilities on it.1” The future perpetual usufructuary should therefore consider whether the designated use of the perpetual usufruct is compatible with the purchaser’s investment plans; alternatively, if no such designated use is specified, check the purpose of the land as specified in the planning documents referred to below.
The sale of agricultural real estate also requires compliance with specific conditions set out in the Act of April 11, 2003, on the shaping of the agricultural system1 (“Agricultural Act”). The purpose of the amendment to the agricultural system was to improve the situation of Polish farmers and to protect against the possible purchase of agricultural real estate by foreign entities. The trading of agricultural real estate may be subject to certain restrictions, including, as a rule, that the purchaser must be an individual farmer; the purchaser must run a farm for 5 years (if the property is not within the administrative boundaries of a city); and a prohibition on selling the property for 5 years. Examples of agricultural real estate exempt from the agricultural law regime: agricultural real estate with an area not exceeding 0.3 ha may be purchased by anyone (less than 0.3 ha); properties consisting entirely of internal roads; properties included in the agricultural property resources of the SP; land under ponds (in the land register) covering at least 70% of the property area; agricultural properties located within the administrative boundaries of cities, if a resolution has been adopted to determine the location of a residential or accompanying investment in relation to these properties.
Another prerequisite for real estate transactions is the status of the buyer, which should be verified. Pursuant to the Act of March 24, 1924, on the acquisition of real estate by foreigners1 (“Act on Foreigners”), you need a permit to purchase real estate in Poland if you are a foreigner from outside the European Economic Area (this area consists of the European Union countries, Iceland, Liechtenstein, and Norway) or Switzerland. Entities classified as foreigners are: a natural person who does not have Polish citizenship, a legal person with its registered office abroad, a company of the above-mentioned persons without legal personality with its registered office abroad, a legal person and a commercial company without legal personality based in the territory of the Republic of Poland, controlled directly or indirectly by the above-mentioned persons, or commercial law companies. The purchase of real estate, both residential and commercial, is accompanied by a number of other circumstances and legal risks which, due to the limited scope of this article, cannot be described here.
HISTORICAL ASPECTS
Real estate subject to reprivatization should be subject to a special legal audit. Reprivatization (also known as property restitution) is the process of restoring ownership of real estate that was previously seized by the state; specifically, it is regulated in [the Act]. In Poland, this primarily applies to real estate seized after World War II under the decree establishing state ownership. Examples of reprivatization proceedings include the following: the decree on implementing the agrarian reform, the conditions for property restitution, reprivatization claims, the course of compensation proceedings, the reprivatization commission, and many other issues accompanying the real estate reprivatization procedure in Poland. A property encumbered with a reprivatization claim is classified as legally defective, with a complex legal status, which impacts real estate transactions, for example, the potential emergence of heirs to the former owners in the future. It is necessary to verify Section III of the Land and Mortgage Register (KW) for any entries (or even mentions) regarding reprivatization claims. Due to numerous violations (forgery of documents, unpredictable judicial decisions), purchasing these properties has become very risky for a private owner. On the other hand, these properties often have very attractive locations, such as restored tenement houses in the capital’s city center. According to the Supreme Court resolution – “A party to the receivables assignment agreement [reprivatization claim] specified in Art. 7 sec. 1 and 2 of the Decree of 26 October 1945 on the ownership and use of land within the area of the capital city of Warsaw (Journal of Laws of 1945, No. 50, item 279, as amended), is not entitled to the status of a party within the meaning of Art. 28 of the Code of Administrative Procedure to obtain the right of perpetual usufruct in administrative proceedings for the issuance of a decision on the basis of Art. 7 sec. 2 and 3 of the aforementioned Decree.”
Another common practice in the residential and commercial real estate investment market is the transfer of building permits between developers. Taking over a commenced development project with an existing building permit accelerates the investment and construction process, thanks to the possession of a final building permit (faster and more reliable than starting with the design stage and submitting a building permit application). Due to the time constraints, developers decide to transfer the existing building permit pursuant to Article 40 of the Building Law (a binding decision). In such a case, such a building permit also becomes an important element of transaction verification, particularly in terms of the new developer’s ability to implement the intended project and the submission of a declaration of acceptance of the terms specified in the assigned building permit. According to case law, the essence of transfer within the meaning of Article 40, Section 1 of the Building Law is: comes down to enabling a new entity, other than the addressee of the building permit decision, to take over the right to implement a specific construction project, in a simplified procedure, in which this entity takes the place of the original investor, who was granted a building permit by a final administrative decision.1 Effective takeover of the investment in this form, however, requires prior verification whether the future investor of the development project is capable of implementing the already commenced investment under the terms strictly stipulated in the administrative decision.
SUMMARY
Ideally, when interested parties begin the process of examining the legal and factual status of a property, they should be curious about its history, planning and ownership conditions, and other aspects related to land analysis. This passion for discovery and a vision of the property’s intended use will provide the detective power to uncover further secrets of the property under investigation and its potential in the residential or commercial sector. The issues discussed in this article are only a sampling of the legal and factual aspects that should be considered when purchasing a property.
Managing Partner Alicja Sławińska
www.alicjaslawinska.pl