(Dis)advantageous restitution: Compensatory damages for returned Warsaw real estate | In Principle

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(Dis)advantageous restitution: Compensatory damages for returned Warsaw real estate

After reprivatisation proceedings lasting many years, the legal successors of the former owners of real estate manage to regain the property that was once lost. But often the current value is grossly low, which justifies pursuing compensatory damages.

The fate of unlawfully nationalised or expropriated real estate before the property is returned to the hands of the former owners or their legal successors is often complex and convoluted. Some properties have been laid waste by years of neglect, some have undergone countless divisions and conversions, and others have been split up and partially sold off in civil transactions. Any act or omission taken in relation to these properties during the time when they were held by public entities can directly impact their value at the time they are restored to the rightful owners.

Not what they used to be

Many properties taken under the procedure set forth in the Warsaw Decree of 1945 are located in central or key parts of Warsaw. They were well served by transport links, with an advantageous, regular shape, access to a public road, and good development prospects. In the old maps they were zoned for residential construction or services.

But by the time the claimants obtain a ruling ordering that the property be restored to the former owners, following long and arduous reprivatisation proceedings, it turns out that the real estate no longer has the value it once had—due to numerous factors.

In many cases, before a decision is finally handed down, it becomes necessary to conduct partition proceedings in order to separate out the land within the boundaries of the former registered plot which is capable of being returned to the prior owners. This can happen because the site was developed and ceased to exist in its original shape. Consequently, the boundaries no longer match the boundaries of the currently registered plots and it is no longer possible to return all of the original site. Then what is returned to the owners might be a chunk of parking lot, sidewalks, a small area between apartment buildings, an oddly proportioned bit of green space surrounding another development, or an internal access road. Such plots often have an irregular shape, a small area and a poor location. They are not suited to separate use, and can’t be developed in any way or used for any purpose consistent with the guidelines for development of the city or the applicable zoning plan. Such sites are often essential to serve other buildings erected next to them. Thus these plots often are of only token value to the new owners.

This all means that the legal and factual status of the real estate at the time the property is returned after many decades has little in common with the potential the property offered at the time it was unlawfully taken over by the state.

Sometimes it is impossible to return all of the former real estate. This may happen because the entities that took over the real estate subsequently sold some of it to third parties. Or part of the property may now be found under a public road, which can only be owned by the State Treasury or the competent local governmental unit. Partial refusal to return the property means that the former owners or their legal successors receive only a fragment of the former property, with little value and very limited options for development or none at all. The successors thus end up in a much worse ownership and economic situation than the original owners before the real estate was taken over by the state.

Therefore, it is recognised in judicial rulings that it is permissible not only to pursue damages for unjustified refusal to establish the right of temporary ownership (perpetual usufruct) under the Warsaw Decree, but also to pursue compensatory damages in the case of partial return of real estate with a reduced market value.

In this concept, the loss is defined as the difference in the value of the real estate based on its condition and development possibilities as of the date of issuance of the unlawful administrative decision refusing to establish the right of temporary ownership and current prices, reflecting the development plan or zoning plan in force when the unlawful decision was issued, as compared to the condition and development possibilities as of the date of issuance of the decision on return of the property and current prices. In other words, the loss is understood as the decline in value of the real estate over the years from defective seizure until it is returned. The loss viewed in this way is a normal consequence of the harmful event of unlawful taking of the real estate, and there is a sufficient causal relationship which justifies the necessity to redress the loss.

Procedure for pursuing damages claims

Pursuing compensatory damages for real estate taken under the Warsaw Decree first requires that an administrative proceeding be conducted to obtain a preliminary finding.

Pursuing a claim for damages through the courts will therefore be possible after:

  • The legal successors of the former owners obtain a final decision finding the invalidity of the decree decision under the Warsaw Decree refusing to award the right of temporary ownership of the property, thus retroactively removing the unlawful decree decision from legal circulation
  • A decision is obtained on establishment of perpetual usufruct, as a result of reconsideration of the decree application to establish the right of perpetual usufruct filed by the former owners in the 1940s or 1950s.

After the administrative route is exhausted, the way is clear to assert a claim for damages through the courts.

The legal basis in the case of claims for damages to redress the injury caused by a final administrative decision issued prior to 1 September 2004 whose invalidity or issuance in violation of Administrative Procedure Code Art. 156 §1 has been confirmed after that date is Administrative Procedure Code Art. 160 §§ 1, 2, 3 and 6 (en banc resolution of the Civil Division of the Supreme Court of 31 March 2011, Case III CZP 112/10). Pursuant to Art. 160 §6, a claim for damages becomes time-barred three years after the date when the decision confirming the invalidity of the decision issued in violation of Administrative Procedure Code Art. 156 §1, i.e. the decision eliminating from legal circulation the defective decree decision refusing to award temporary ownership of the property, becomes legally final. Thus the three-year period under Art. 160 §6 to file suit for damages begins to run when that decision is obtained.

The possibility of pursuing compensatory damages for returned real estate should be regarded as a positive thing, because it tends toward full redress of the loss, which is certainly not achieved by restitution of property of little or no development potential or market value.

Barbara Majewska, Reprivatisation Practice, Wardyński & Partners