Real estate has to be consolidated and covered by a single land and mortgage register for example when someone wishes to create separate units in a building standing on two plots listed in separate land and mortgage registers. Before commencing a development project it is also advisable to commission a legal analysis to determine whether the legal criteria for this measure are fulfilled; otherwise this could prove difficult or impossible.
Real estate can be consolidated and registered in a land and mortgage register under Art. 21 of the Act on Land and Mortgage Registers and Mortgages of 6 July 1982, where the lots are adjacent or form a commercial whole (for example they are used to run a smallholding or a property development project is being realised on them). This provision also states that an application of this kind can be filed by the owner. A legal issue has arisen of whether a perpetual usufructuary can apply to do this.
Can a perpetual usufructuary apply for consolidation of real estate lots?
This issue has been addressed by the Supreme Court of Poland repeatedly. Initially, the Supreme Court resolution of 7 April 2006 (III CZP 24/06) stated that only an owner enjoys this right. In the resolution of 13 March 2015 (III CZP 116/4) it was also found that division and consolidation of real estate in the meaning of a land and mortgage register is a matter for the owner.
However, an earlier ruling given by the Supreme Court of 23 January 2013 (ICSK 258/12) stated that a perpetual usufructuary has a right to apply for consolidation of a number of lots in a single land and mortgage register if all of the lots are owned by the same person. A different view would breach the legal right of a perpetual usufructuary to dispose of a right. This right includes the entitlement of a perpetual usufructuary to transfer a part of the real estate to another buyer, after all.
Due to the above, Supreme Court case law is inconsistent on this issue. Recently the predominant view has been that a perpetual usufructuary must obtain consent to consolidation of lots in a single land and mortgage register.
In the case of perpetual usufruct of two lots to be consolidated in a single land and mortgage register, it also has to be determined whether the perpetual usufruct periods for the two lots match.
Agreeing order of priority of exercise of limited property rights
Under Art. 22(1) of the act, limited property rights on any of the consolidated lots will apply to the entire property formed after consolidation. This does not affect the scope of exercise of an easement and usufruct. If there is a mortgage on one of the lots being consolidated, it will cover the entire property once the two lots are joined. This means that in court enforcement proceedings a party holding rights under a mortgage will have a share of the funds generated by the sale of the entire consolidated property. Easements and usufruct will apply to the entire property, but can only be exercised with respect to that lot or part of the lot as laid down in the agreement establishing those rights.
Under Art. 22(2), parcels of real estate subject to limited property rights can be joined once the holders of the rights reach agreement on the order of priority of those rights on the real estate formed following consolidation. According to a literal interpretation of Art. 22(2), whenever consolidated lots are subject to limited property rights, an agreement is needed between the holders of the rights, specifying the order of priority of the rights in relation to the consolidated real estate. This is the predominant view among commentators.
A different view is also expressed in the legal literature, that an arrangement must be reached if joining the lots would lead to conflict between limited property rights that hitherto were not conflicting rights in relation to the individual parcels of real estate. The issue of order of priority only arises in the context of conflict between exercise of limited property rights to the same item, as under Art. 249(1) of the Civil Code a right cannot be exercised to the detriment of a pre-existing right.
No conflict, no agreement needed (inconsistent judicial practice)
In our view the need to enter into an arrangement concerning the order of priority of limited property rights only arises when these rights conflict. This conflict should be considered in a broad sense, taking into account the scope of exercise of limited property rights and the share in the proceeds from sale in enforcement proceedings of the encumbered real estate formed through consolidation. This was the view in a ruling given by the Łódź Regional Court of 11 April 2017 (III Ca 360/17). The court found that where real easements, transmission easements, and right of first refusal are registered in two land and mortgage registers maintained for two lots, there is no conflict. All limited property rights, and personal rights as well, are identical because they were transferred automatically by law to new land and mortgage registers when parts of lots were separated. This means that in this case there is no breach of interests of any persons, and consequently there are no grounds for requiring that an agreement be presented on order of priority of limited property rights and personal rights.
However, where two lots encumbered by mortgages with different mortgage creditors as the beneficiaries are consolidated, an agreement defining the order of satisfaction of their claims will be needed.
Under Art. 22(3) of the Act on Land and Mortgage Registers and Mortgages, Art. 22(1)–(2) apply to the order of priority of personal rights and claims respectively. The comments cited above regarding order of priority of limited property rights continue to apply. An agreement regulating the order of priority of personal rights and claims will only be needed when those rights and claims conflict. If claims under property development agreements concerning other residential units are recorded in chapter III of these two land and mortgage registers, and these other units are to be built in two different buildings, the interests of the rightholders will not be breached either.
Land and mortgage registry courts in Warsaw are not consistent in practice. In one case handled by our firm, a land and mortgage registry court refused to consolidate lots in a single land and mortgage register due to an agreement between parties entitled under a real easement not being submitted with the application. The court failed to notice that the easements listed in chapter III of the two land and mortgage registers had been established in one legal transaction for a single entity and only differed with respect to the way they were used. The court was only persuaded on appeal that there were no logical grounds for requiring an agreement in such a case, as the agreement would be concluded by one entity with itself.
The legal condition for consolidation of plots in a single land and mortgage register is submitting with the application for consolidation an agreement between the holders of the property rights established on real estate on order of priority of rights with respect to the property created.
A court should not demand that an agreement of this kind be concluded in every case. This only applies where limited property rights might conflict when exercised or when enforcement proceedings are conducted with regard to the consolidated real estate.
Whatever the circumstances, the status of the encumbrances on particular lots should be examined closely in order to determine sufficiently in advance whether an understanding is required to establish order of priority. If a court finds that an agreement of this kind is needed and the applicant does not submit it with the application, the application will be rejected without the applicant being given an opportunity to provide the missing materials.
Sylwia Moreu-Żak, legal adviser, Real Estate, Reprivatisation & Private Clients practice, Wardyński & Partners