Supreme Court stands up for owners of apartment buildings and communal tenants | In Principle

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Supreme Court stands up for owners of apartment buildings and communal tenants

In a case led by Wardyński & Partners, the firm obtained a ruling from the Supreme Court favourable to owners of buildings as well as communal tenants, establishing the rule of the liability of the City of Warsaw for non-contractual use of the property.

The facts of the case were briefly as follows. A building was taken from its former owners under the procedure provided in the “Warsaw Decree” (the Decree on Ownership and Usufruct of Land in Warsaw of 26 October 1945). The real estate initially entered the ownership of the State Treasury, and then as a result of communalisation became the property of the City of Warsaw and a part of the commune’s stock of residential units. Through all of this time individual units in the buildings were turned over to tenants by the commune pursuant to communal lease agreements.

In the 1990s the heir of the former owner of the property took measures to regain the property. Through administrative proceedings, in 2000 it was confirmed that the ruling under the Warsaw Decree via which the State Treasury assumed ownership of the building was invalid, which eliminated the defective ruling from legal circulation with retroactive effect. In consequence, the right of ownership of the building “returned” to the heir of the former owner. As a result of further legal measures, the property was physically returned by the City of Warsaw in 2010.

Because public entities used the property for about 60 years without paying any fees to the rightful owners of the property, the client filed suit against the City of Warsaw for payment of compensation for non-contractual use of the entire property during the last 10 years before actual return of the property.

The Warsaw Regional Court upheld the claim and awarded compensation for non-contractual use of the real estate. Pursuant to an appeal by the City of Warsaw, the Warsaw Court of Appeal overturned that judgment and denied the claim. The court of appeal agreed with the city’s argument and held that because during the period covered by the claim specific apartments had been delivered into the physical possession of communal tenants, it was the tenants who should bear liability to the owner for using the owner’s property. The court thus held that the City of Warsaw could not properly be sued in cases of this type.

The city, not the tenants, should pay

Hearing a cassation appeal by the plaintiff, the Supreme Court of Poland took a different view in its judgment of 4 December 2015 (Case I CSK 1070/14), holding that it is the City of Warsaw that is liable for the non-contractual use of the property, as the independent possessor of the property. In the court’s view, such liability cannot be imposed on the communal tenants who used their flats based on a lease agreement with the city.

In the judgment, the Supreme Court interpreted the regulations governing settlements between the owner of real estate and an independent possessor of the real estate (Civil Code Art. 224 and following) in the context of the existence of a trilateral legal relationship, i.e. owner—independent possessor—tenant. The court upheld the interpretation of these regulations presented by our firm during the proceedings at trial and in the cassation appeal.

The Supreme Court held that the regulations governing “supplementary” claims, and more specifically Civil Code Art. 230 (with a reference to respective application of Art. 224 and following to the dependent possessor of real estate), do not apply to a trilateral relation of the sort that arose in this case. In the court’s view, Art. 224 and following apply in the relation of owner—independent possessor of real estate, and pursuant to Art. 230 in the relation of owner—dependent possessor. The relation of owner—dependent possessor might arise, for example, when the lease relationship ended and the tenant refused to return the premises to the landlord.

In the court’s view, the independent possessor’s delivery of units into the possession of dependent tenants does not mean that the independent possessor loses that status, and in consequence continues to be the proper defendant in a case seeking payment of compensation for non-contractual use of the property. The basis for this holding is directly provided by Civil Code Art. 337.

The Supreme Court stressed that it is impermissible to accept the position that the communal tenants are liable, as this would result in requiring them to pay rent twice for the unit they occupy: first, under their lease agreement, to the City of Warsaw, and a second time to the owner of the building. In that case, the communal tenants would only be entitled to a claim against the City of Warsaw for refund of the rent paid over a number of years under the regulations on unjust enrichment.

The court pointed out that the communal tenants are not debtors of the owner of the building, because their obligation arises solely out of their lease agreement (and only to the City of Warsaw), and not out of the mere fact of occupying the real estate. Meanwhile, the tenants could not be accused of bad faith in occupying their units, as they were part of the commune’s stock of residential units and thus the tenants were justified in believing that the City of Warsaw had legal title to the units.

Liability of public entities

This judgment from the Supreme Court is incredibly important, as it straightens up and clarifies up discrepancies that had previously arisen in the judgments of the Warsaw Court of Appeal and had deprived the owner of the real estate of basic protection in relation to the entity that had entered into possession of the real estate without legal title and unlawfully benefited from the property.

This judgment is also hugely relevant to other cases evaluating the mutual relations of entities based on provisions concerning “supplementary” claims, not necessarily arising out of the complicated settlement of accounts following reprivatisation. The judgment could also be applied to situations where a dependent possessor of real estate, seeking to avoid liability to the owner, transfers the property into the possession of a third party.

The judgment of the Supreme Court is also notable because it satisfies a sense of equity and justice and properly identifies the injured parties in reprivatisation cases. It places the rightful owners of apartment buildings regained in the reprivatisation process on the same side of the barricades as the tenants of those buildings. Both of these groups have been injured in their dealings with the public entities which benefited for years from properties they took over and which now try to avoid liability to the owners of the properties for their unlawful use, or to impose this liability on the communal tenants.

Presenting this issue accurately is particularly important because in Poland, due to the lack of statutory regulation of reprivatisation issues, former owners of real estate enforcing their rights are demonised and portrayed as oppressors of the persons currently residing in their buildings. Moreover, they are unfairly presented as people making up their losses at the cost of fresh injury to others.

Liability for redressing the losses and injuries should be borne only by the public entities which brought about unlawful expropriations and for many years benefited from the properties and now, seeking to avoid liability, generate antagonism in the society.

Leszek Zatyka, Barbara Majewska, Reprivatisation Practice, Wardyński & Partners