Poland’s Forest Act significantly interferes with trading in forest land. This raises the question of which legal actions causing the transfer of ownership in forest land trigger a right of the State Treasury to acquire the land.
Art. 37a(1) of the Forest Act of 28 September 1991 provides for a pre-emptive right of the State Treasury in the case of sale by a natural person, legal person or unincorporated organisational unit with legal capacity of land not owned by the State Treasury:
- Designated as forest in the register of land and buildings
- Designated for afforestation in the local zoning plan or a decision on conditions of development and land use, or
- Constituting a fragmented forest, covered by a simplified forest management plan or decision of the county executive (starosta) specifying forest management tasks.
In these cases, the State Treasury, represented by State Forests, has a right of first refusal.
The Forest Act does not expressly state that the pre-emptive right also extends to the sale of perpetual usufruct. Therefore, it may be assumed that if the parliament wished to extend the pre-emptive right to land held in perpetual usufruct, it would have indicated that explicitly, as it did for example in the Agricultural System Act of 11 April 2003. However, some take the view that as a precaution, it is worth assuming that the pre-emptive right may also exist with respect to the right of perpetual usufruct. This position is safer for land transactions, particularly to protect the buyer, because preventing State Forests from exercising its pre-emptive right (on behalf of the State Treasury) results in invalidity of the agreement.
Acquisition right vested in the State Treasury
Further, Art. 37a(2) of the Forest Act states that if forest land is acquired as a result of:
- Conclusion of an agreement other than a sale agreement, or
- A unilateral legal act,
then State Forests, representing the State Treasury, may declare that it is acquiring the land for a monetary equivalent (known as the right to acquisition).
Therefore, the acquisition right vested in the State Treasury is triggered by conclusion of an agreement other than a sale agreement or by a unilateral legal act leading to acquisition of forest land.
Examples of agreements other than a sale agreement resulting in acquisition of forest land include, in particular, agreements for exchange, donation, a life estate, elimination of co-ownership, or division of succession, a marital property agreement, or an agreement on in-kind contribution of forest land (or an enterprise comprising forest land) to a company or partnership. On the other hand, a unilateral legal act leading to acquisition of the forest land includes a founding deed, a will, acceptance of succession, or relinquishment of a share in co-ownership of forest land. Acquisition of forest land results in a change of ownership in section II of the land and mortgage register.
Acquisition of forest land as a result of a corporate merger, division or transformation
Based on the provisions discussed above, a question arises whether the pre-emptive right or acquisition right for forest land applies in the case of a corporate merger, division or transformation.
Before we address this question, it is worth considering certain provisions of the Agricultural System Act. This act establishes the right to acquire real estate by the National Support Centre for Agriculture acting on behalf of the State Treasury, if the acquisition of agricultural real estate results from an agreement other than sale or a unilateral legal action. This provision is identical to the one in Art. 37a(2) of the Forest Act. However, Art. 4(1) of the Agricultural System Act introduces an additional provision granting an acquisition right if acquisition of the agricultural property occurs as a result of “another legal transaction or other legal event, in particular, division, transformation or merger of commercial companies [or partnerships].”
The Forest Act does not frame the acquisition right so broadly, and is silent on application of this right in the case of a corporate division, transformation or merger. Also, the Forest Act does not contain an equivalent of Art. 3a of the Agricultural System Act, which reserves a pre-emptive right to acquire shares in a company that is the owner or perpetual usufructuary of forest land.
It should be stressed that when the parliament significantly interferes with a fundamental property right, i.e. ownership, such provisions cannot be interpreted broadly or by analogy, especially as the sanction for violation of regulations on the pre-emptive right and the acquisition right is invalidity of the act.
A merger of companies by transfer of all assets or formation of a new company (Commercial Companies Code Art. 492) results in transfer of assets to the acquiring company or the newly formed company, respectively. A transfer of assets also occurs in the case of division of a company by takeover, formation of new companies, takeover and formation of a new company, or separation (Commercial Companies Code Art. 529). Thus, there is undoubtedly an “acquisition of land,” since the merger results in change of the owner of the forest land.
Therefore, the question boils down to whether corporate mergers, divisions and transformations fall within the category of “concluding an agreement other than a sale agreement” or a “unilateral legal act.” Comparing the Forest Act and the Agricultural System Act, one can conclude that the parliament deliberately excluded from the scope of application of the Forest Act an acquisition through “another legal act or other legal event, in particular, division, transformation or merger of companies [or partnerships].”
A corporate merger or division involves universal succession of the rights and obligations of the acquired or divided company, as a consequence of strictly defined corporate acts, followed by a constitutive decision of the registry court entering the merger or division into the commercial register. In the event of a merger, the acquiring or newly formed company assumes, as of the date of the merger, all rights and obligations of the acquired company or companies merging by formation of a new company. Similarly, upon division, the acquiring companies or newly formed companies set up in connection with the division assume the rights and obligations of the divided company, as set forth in the plan of division, as of the date of division or separation. On the other hand, in case of a transformation, subjective continuity of the transformed entity occurs, meaning that the entity emerging from the transformation is entitled to all rights and obligations of the transformed entity.
In each of these cases, even if they resulted in acquisition of forest land, this would not occur either as a result of concluding an agreement or as a result of a unilateral legal act, and consequently, the State Treasury would not have a pre-emptive right or acquisition right.
Acquisition of forest land as a result of in-kind contribution to a company
The situation looks different when the forest land is contributed to a company in kind. This is because making an in-kind contribution involves conclusion of an agreement (other than a sale), as a result of which the company acquires the object of the in-kind contribution—in this case, the forest land. And the effect of acquisition is not dependent on the decision of the registry court for the company. Thus, this type of agreement may be classified as an agreement other than a sale agreement resulting in acquisition of forest land within the meaning of Art. 37a(2) of the Forest Act. Therefore, in this case, State Forests, representing the State Treasury, may exercise the right to acquire the land for the payment of a cash equivalent.
As can be seen, depending on the legal form applied, acquisition of forest land may result in different legal consequences in the form of a pre-emptive right or acquisition right vested in the State Treasury, represented by State Forests, or in the lack of such rights. There are also significant differences depending on whether the trade involves farm land or forest land. The Agricultural System Act provides for further-reaching restrictions on trading in agricultural land than the Forest Act does with respect to forest land.
Dr Kinga Ziemnicka, attorney-at-law, M&A and Corporate practice, Wardyński & Partners
Tomasz Zasacki, attorney-at-law, Real Estate practice, Wardyński & Partners