Six tips for investors
There are some things that new investors – and seasoned ones too – need to keep in mind when buying a property in Poland. They may seem obvious, but it’s amazing how many times they are overlooked or not carefully considered.
Public law pre-emption rights
Under Polish law the state or local authorities, and even some public companies, may hold pre-emption – or first refusal – rights to properties. These can be, for example, undeveloped properties previously acquired by the seller from the state or local authorities, a perpetual usufruct over an undeveloped piece of land, a property entered in the register of monuments or a property located in a special economic zone. A contract on the acquisition of a property in breach of public laws on the pre-emption right is null and void. We have recently advised on several projects where, due to statutory pre-emption rights, it proved necessary to structure the transaction by going through three separate contracts before the title was acquired: a preliminary purchase agreement followed by a conditional purchase agreement and finally an agreement transferring the ownership title (or perpetual usufruct title) to the property. Thanks to these steps, the safe acquisition of the property, ready for the investment project, was secured.
It is crucial to establish if a property has been expropriated in the past. Previous owners or their heirs may have certain claims to the property, for example the pre-emption right or even the right to request the return of the property. Any potential expropriation claims may turn out to be important for the entire transaction, necessitating additional security of the purchaser’s interests or, in some cases, leading to the project being dropped.
An investment project must comply with an existing local zoning plan. Should the property not be covered by such a plan, the investor is obliged to obtain an individual zoning permit defining some of the permitted technical parameters, for example some capacities of a production facility, the area percentage of real estate available for development, media supply parameters – prior to applying for a construction permit. An investment carried out in breach of the local zoning plan can lead to severe legal consequences that could even include a demolition order against erected buildings. There are some possibilities to mitigate such harsh legal consequences but an investor has to take the necessary steps fast in order to be able to counter the actions of building authorities.
Under Polish law some types of business activity require an environmental permit prior to commencing the investment, for example before applying for a construction permit. Moreover, for investments that may have a major impact upon the environment, an environmental impact assessment must be conducted – including, in some cases, producing an environmental report to the authorities. In practice, obtaining a construction permit without prior receipt of an environmental permit because of incorrect classification of an investment (i.e. as an investment not requiring an environmental permit) may result in the construction permit being rendered invalid.
Exclusion of land from agricultural use
If an area is designated by the authorities for agricultural use, the investor needs to obtain a decision excluding the land from such use at the very beginning of the investment, before applying for a construction permit. This entails the payment of fees which may total up to 437,175 zł per hectare. Again, should the construction permit be granted without previously obtaining a decision on excluding the land from agricultural use, the construction permit may be declared invalid.
An investment in Poland may receive state aid financing, for example in the form of a cash grant under the lengthily-named “Programme of support of investments of considerable importance to the Polish economy in 2011 – 2023”. In addition, locating an investment in one of the fourteen special economic zones in Poland, and obtaining a permit for conducting business there, allows the investor to benefit from special tax incentives. This has proved highly attractive for a number of foreign investors over the last few years.
Paweł Żelich, Associate Partner, Attorney at Law, Co-Head of the Real Estate Investment Group and Head of Litigation, Arbitration & ADR Practice Group in Warsaw, has over 16 years of experience in real estate transactions and construction / infrastructure projects, contract law, litigation and arbitration proceedings