Acquirers of real estate often apply to the administrative authorities for a certificate on assertion of reprivatisation claims. Does this practice serve any purpose?
Soon it will be 30 years since Poland’s transformation from communism to a free-market democracy, but there is still concern about assertion of reprivatisation claims as a consequence of policies followed by the authorities and actions taken by public officials in the People’s Republic of Poland.
Assertion of claims may block the sale of real estate, an enterprise or shares in a company, or prevent the acquirer from obtaining bank financing.
What are reprivatisation claims?
In common parlance, “reprivatisation claims” refer to claims by former owners or their legal successors arising out of:
- Defective acquisition of real estate by the State Treasury or a local governmental unit, or
- Expropriation of property unnecessary for the purpose of the expropriation.
With respect to parts of Warsaw that were located within the city’s boundaries as of 1 September 1939, there are also claims arising out of application of the Decree on Ownership and Usufruct of Land in Warsaw of 26 October 1945 (commonly referred to as the “Warsaw Decree”).
The passage of time since the property was taken over by the State Treasury or local government has had no effect on the state of claims. The scale of claims has remained at about the same level since the 1990s.
Rulings on nationalisation of property took the form of an administrative decision. In the current legal and factual situation, obtaining a finding of the invalidity of a decision issued in gross violation of law is not subject to any limitations period.
When a finding is issued that the nationalisation decision was invalid or that expropriated property was not essential for the purpose of the expropriation, theoretically there are grounds for satisfying reprivatisation claims in kind by return of the property to its former owners or their legal successors. Reprivatisation proceedings are lengthy, often exceeding one year.
Assertion of reprivatisation claims may cloud the title to the real estate held by the current owner or perpetual usufructuary. But in most instances assertion of reprivatisation claims does not affect the legal status of the property, due to the principle of public reliance on land and mortgage registers which is in force in Poland.
Public reliance on land and mortgage registers
Art. 5 of the Act on Land and Mortgage Registers and Mortgages of 6 July 1982 provides that an inconsistency between the legal status of real estate disclosed in the land and mortgage register and the actual legal status is resolved in favour of a person who has acquired ownership or other rights to the property through a transaction with the person indicated in the land and mortgage register as the rightful holder of the property—the principle of public reliance on the land and mortgage register. However, under Art. 6 of the act, the principle of public reliance on the land and mortgage register does not protect dispositions made without consideration or apply to an acquirer acting in bad faith. Under Art. 8 of the act, public reliance on the land and mortgage register is excluded by entry in the register of a notation of an application, review of a ruling by a judicial referendary or an appeal or cassation, or a caution that the legal status disclosed in the land and mortgage register may be inconsistent with the actual legal status of the property.
If acquisition of ownership of the property (or the right of perpetual usufruct) by one of the owners (or perpetual usufructuaries) was protected by public reliance on the land and mortgage register, that is sufficient to prevent the former owners of the property from effectively demanding return of the property in kind or asserting any claims against the current owner (or perpetual usufructuary). In that case, possible reprivatisation claims by the legal successors of the former owners will be satisfied through compensation paid by the State Treasury.
There are instances where public reliance on the land and mortgage register does not occur. This applies for example to a situation where acquisition by a state legal person of the right of perpetual usufruct of the land and ownership of the buildings occurred through expropriation. Under Art. 2(1)–(3) of the Act of 29 September 1990 Amending the Act on Administration of Land and Expropriation of Real Estate, plots of land owned by the State Treasury or local governmental units under the management of state legal persons or local governmental legal persons, respectively, became the subject of perpetual usufruct as of 5 December 1990. With respect to buildings, fixtures and premises on those plots, those legal persons acquired the right of ownership on that date. Acquisition of the right of perpetual usufruct of land and ownership of buildings under Art. 2(1)–(3) of the act of 29 September 1990 is commonly referred to as expropriation of legal persons. The expropriation is confirmed by an administrative decision by the competent authority (the expropriation decision). The expropriation decision then provides grounds for entry in the land and mortgage register.
In our practice we primarily encounter purchase of real estate, in-kind contribution of real estate to a company, acquisition of shares in a company that is the owner of real estate (or the perpetual usufructuary of the land and owner of the buildings and fixtures), and lending against property as security.
Prior to the transaction, the acquirer of real estate has at its disposal, at least, access to the land and mortgage register for the property, and typically has the ability to review the land and mortgage register and the documents constituting the basis for entries in the register. This enables the acquirer to determine the legal status of the property and clarify issues of public reliance on the land and mortgage register.
If the protection of public reliance on the land and mortgage register applies, then it is irrelevant whether reprivatisation claims have been asserted against the property.
The absence of public reliance on the land and mortgage register should lead to examination of the nationalisation process, an evaluation of the known claims, and identification of potential claims that could arise in the future. A decision to acquire the property or lend money for acquisition of the property should then be taken on the basis of a legal opinion on reprivatisation.
Information about reprivatisation claims
A practice has developed of applying to the competent administrative authorities for information about reprivatisation claims, at the request of the prospective buyer or lender. A certificate or public information in this respect is issued on the basis of the data indicated by the applicant and concerns pending or completed proceedings.
These documents do not permit a determination of the possibility of assertion of claims in the future, the effect of reprivatisation claims on the legal status of the property, or an evaluation of the risk of loss of the property as a result of assertion of claims.
Nonetheless, obtaining information about claims is often the first step in evaluating the property. Often the assertion of reprivatisation claims will disqualify the property from consideration for acquisition or lending backed by a mortgage on the property—regardless of whether the claims are justified or public reliance on the land and mortgage register applies.
Considering the legal arguments discussed above, it seems unnecessary to obtain such documents from the administrative authorities, but it is hard to alter the existing practice of seeking such information.
Iwona Kasperek, Real Estate and Construction practice, Wardyński & Partners