Many investors and their lawyers consider property restitution, or as we call it in Poland, reprivatisation, to be a purely historical phenomenon. The aim of this article is to analyse if it is true and whether restitution claims are completely irrelevant to real estate investments in Poland.
In general, property restitution in Poland consists in reviewing the lawfulness of post-war acts of expropriation, leading to restitution of the expropriated property in kind, or compensation, if the claimants can prove that the nationalisation was unlawful.
After the Second World War, the communist government deprived private owners of their property under various legal acts. Since the transition to democracy, Poland has never questioned this seizure of private property as such, and consequently has never adopted comprehensive property restitution legislation. This is why the property restitution process in Poland is limited to situations where it is possible to prove that the property was taken in breach of the law in force at the time, during the communist era. It was quite common for the communists not to follow even their own expropriation laws during the nationalisation of private property. In effect, for the last 30 years, on a case-by-case basis, former owners or their legal successors could file claims challenging the communist nationalisation process.
Given this legal and historical framework, there is no general register or even a list of real properties where it can be simply checked whether any relevant property restitution claims have been filed. In consequence, in many real estate investments in Poland it is necessary to include an investigation of property restitution claims in the due diligence, to assess whether the legal title to the property is certain. The purpose of such examination is to analyse the risk of loss of title as a result of restitution of the property to the former owners or their legal successors. In this regard, the risk of compensation is far less important, since compensation is usually sought from the State Treasury or local authorities and not private investors or developers.
However, in September 2021, a new law entered into force that considerably reduced property restitution claims concerning communist-era expropriation. Although this new legislation greatly reduces the risk related to property restitution, it does not exclude the risk entirely. Therefore, real estate investments in Poland still need a thorough examination of the risk related to property restitution claims.
What to do if the due diligence report identifies some risk related to property restitution claims? There are different strategies to be followed by investors. If they acquire the property, it will usually be possible for the investors, as the current owners, to participate in various administrative and judicial proceedings and attack each action taken by the claimants. This is a long and expensive scenario, and the results are uncertain. Instead, very often it is worth reaching a settlement with the claimants. The scope of the settlement can differ greatly, and depends on the circumstances of the particular property. Usually, the most efficient solution is to simply buy out the claimants, but this can be pricey. Numerous investors decide to structure an agreement with the claimants in a way that determines the legal actions of one party in exchange for the legal actions of the other. This win-win solution allows the investor to secure its legal title to the property and at the same time enables the claimants to complete all the procedures required to seek compensation from the public authorities in civil court.
Last but not least, investors in the real estate sector in Warsaw have many doubts with regard to the certainty of legal title to already recovered properties, which allows us to distinguish a risk related to the de-reprivatisation process in Warsaw. This process has been inspired by irregularities in Warsaw property restitution cases. In 2017, an extraordinary governmental commission for property restitution in Warsaw started its highly controversial activity based on its new interpretation of the communist nationalisation rules. The commission invalidates decisions on return of properties, and also overturns good-faith transactions following recovery of the property. In such circumstances, real estate investors in Warsaw need an in-depth analysis of de-reprivatisation risk in their current or future investments in already returned properties.
With all these factors present, and despite the stricter and stricter limitations on property restitution claims, due diligence in real estate investments still requires an assessment of property restitution risk, because the complex history of ownership in Poland still determines the current legal situation of properties in this country.
Radosław Wiśniewski, adwokat, Reprivatisation & Private Client practice, Wardyński & Partners
The content of this article is a part of Episode 10 of the programme News from Poland – Business & Law. You can watch the episode here >>>