Can a forest interfere with sale of a residential unit? | In Principle

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Can a forest interfere with sale of a residential unit?

Does State Forests have the right of first refusal on the sale of a residential unit together with a share in a partly forested property? A surprising decision by the Wołomin District Court.

On 12 February 2021, the Wołomin District Court issued an order denying an application to establish separate residential premises with a new land and mortgage register, due to the designated use of the land on which the residential building was erected.

In the decision, the court pointed out that part of the property consisted of forest land, while the contract for sale of the premises also included the sale of a share in the land on which the building was erected. Thus the court held that Art. 37a of the Forest Act of 28 September 1991 was applicable, under which in the event of sale of land designated in the register of land and buildings as forest, the State Treasury, represented by State Forests, had a right of first refusal to purchase such land by virtue of law.

The notary is required to immediately notify the forest district inspector competent for the location of the land about the content of a sale agreement for forest land (Art. 37b(1) of the Forest Act). Here the agreement on establishing separate ownership of the premises and sale of the unit was concluded unconditionally, and therefore, according to the court, this action was performed in violation of Art. 37a of the Forest Act, resulting in invalidity (Art. 37h). For this reason, the application to separate the premises and establish a new land and mortgage register for them had to be dismissed. (Since the land and mortgage register for the separate residential premises had not been established, the application for entry of a contractual mortgage encumbering the property also could not be granted.)

This holding by Wołomin District Court should be regarded as incorrect and harmful to real estate developers and to the trade in real properties with shares in joint property.

First, the owner of a property developed with a multi-family dwelling is entitled to assign one or all of the units in the building by a unilateral legal act, and the Forest Act cannot preclude that.

Second, Art. 37a(1) of the Forest Act provides that the State Treasury, represented by State Forests, has the right of first refusal in the case of the “sale of land.” That is to say, a contrario, this right does not apply to the sale of premises together with associated rights.

Here, it should be pointed out that in the case of legal separation of premises from developed real estate, the ownership right to the premises is the dominant right, prevailing over the rights associated with separate ownership of the premises, including the share in the common real estate, even if part of it is wooded.

This is also reflected in normative acts and case law, indicating that:

  • A share in common property alone cannot be traded without trading in the premises
  • Co-ownership of real estate cannot be abolished as long as there is separate ownership of premises in a building erected on the land that is the subject of co-ownership
  • The right of perpetual usufruct of land developed with a building with separate premises, etc, cannot be extinguished.

In a ruling by the Supreme Court of Poland from 2008 (case no. IV CSK 234/08), the court ascribed a dominant role to the right of separate ownership of premises, “with which both the right to the common parts of the building and the right to the land are associated. Such an arrangement of rights makes it impossible to recognise the ownership right to the premises as an encumbrance established on perpetual usufruct within the meaning of Civil Code Art. 241, as it is not an encumbrance of another right, but an independent right with which a share in perpetual usufruct is associated.”

According to the Supreme Court, “Subject only to statutory limitations, the permanence of the property right is one of its basic features. Any depletion of this right must result from a statute and cannot violate its essence (Constitution Art. 64(1)). However, since a share in the perpetual usufruct of real estate is compulsorily associated with ownership of the premises (the main right), as long as the ownership lasts, the accessory perpetual usufruct cannot be extinguished.”

The ruling by the Wołomin District Court is also surprising because it contradicts the previous practice and the position of State Forests itself. After entry into force of the right of first refusal of forest property, out of caution, notaries notified forest district inspectors of the right to exercise the right of first refusal, but they later ceased this practice in the face of the reaction of State Forests itself, which considered that the right of first refusal did not apply to trading in separate premises.

Incidentally, if the subject of the sale is real estate of which only a part consists of a plot of land referred to in Art. 37a of the Forest Act, then the right of first refusal will be granted, with the reservation that it may be exercised only with respect to such plot of land. In the case of trading in premises and a share in common property, only a part of which is forested, the matter becomes even more complicated (one cannot trade in part of the common property along with the premises).

However, assuming that the right of first refusal would apply to trade in premises created as part of a real estate development project, it is unclear how the development agreement and the agreement conveying the real estate, executed as part of the development agreement, would be structured. The law does not provide for separation of transactions for purchase of premises in such projects into three stages, i.e. a development agreement, a sale agreement conditioned on non-exercise of the right of first refusal, and a dispositive transfer agreement. The law also does not specify the terms of the price settlement between the developer, the buyer and State Forests.

The principles established in the case law governing the sale of premises with an interest in common property should be applied to the sale of premises under the Forest Act, regardless of whether the premises are sold by a developer under a development agreement or by another entity. Accepting that the State Treasury is entitled to a right of first refusal in that case would, if the right were exercised, prevent the developer from performing the lawfully concluded development agreement, and prevent another entity from disposing of the premises.

Marta Kacprowska, attorney-at-law, Reprivatisation practice, Private Client practice, Wardyński & Partners

Michał Gliński, attorney-at-law, Real Estate practice, Wardyński & Partners