A major new element has recently emerged in real estate transactions in Warsaw. As of March 2022, the City of Warsaw obtained a pre-emptive right to purchase all properties in the revitalisation area designated by Resolution LX/1967/2022 of the Warsaw City Council. This area includes almost all of the Praga Północ district and large parts of Praga Południe and Targówek.
Resolution LX/1967/2022 on Designation of the Degraded Area and Revitalisation Area of the City of Warsaw entered into force on 15 March 2022. The legal basis for the resolution is the Revitalisation Act of 9 October 2015. Revitalisation is a task of the local commune (gmina) and is defined as the process of rescuing degraded areas from crisis, comprehensively, through integrated actions for the benefit of the local community, space and economy on the basis of a municipal revitalisation programme.
Revitalisation is aimed at solving social problems that have arisen in a given area of the commune. Legal, planning, environmental or infrastructural activities are auxiliary to achieving this social aim.
What is a degraded area?
According to Art. 9 of the Revitalisation Act, a degraded area is an area in a state of crisis due to a concentration of negative social phenomena, in particular unemployment, poverty, crime, a low level of education or social capital, insufficient participation in public and cultural life, and a high number of residents with special needs.
In addition to negative social phenomena, a degraded area must be affected by negative phenomena from at least one additional group, which can be:
- Economic (low level of entrepreneurship, poor condition of local businesses)
- Environmental (the presence of waste, or failure to meet environmental standards)
- Spatial/functional (poor technical condition of infrastructure, lack of access to basic services, or failure of infrastructure to meet the requirements of people with special needs)
- Technical (degradation of structures).
The degraded areas designated by Resolution LX/1967/2022 are found in the districts of Bielany, Mokotów, Praga Północ, Praga Południe, Rembertów, Targówek, and Wesoła.
What is a revitalisation area?
According to Art. 10 of the Revitalisation Act, a revitalisation area is an area covering all or part of a degraded area characterised by a particular concentration of negative phenomena described above, in which, due to its great importance for local development, the commune intends to carry out revitalisation.
When designating a degraded area, the commune must also designate a revitalisation area. The revitalisation area designated by Resolution LX/1967/2022 includes almost all of Praga Północ and significant parts of Praga Południe and Targówek. (The boundaries are presented in a map annexed to the resolution.)
The Integrated Revitalisation Programme of the City of Warsaw is in effect for the capital (an annex to Warsaw City Council Resolution XXXIII/809/2016 of 25 August 2016).
Pre-emptive right and ban on issuing zoning decisions
Under Art. 11(5) of the Revitalisation Act, in a resolution designating a degraded area and revitalisation area, the commune council can establish two major legal instruments:
- A pre-emptive right (pierwokup) to purchase all real estate in the revitalisation area
- A ban on issuance in the revitalisation area of a zoning decision referred to in Art. 59 of the Planning and Spatial Development, for all changes in land use, or changes specified in the resolution, requiring a zoning decision, including changes in the use of all or part of a structure, if the state of development of the revitalisation area and the degree of its coverage by local zoning plans indicate that failure to impose a ban may lead to unfavourable changes in the development of the revitalisation area, exacerbating the negative phenomena which were the basis for designation of the degraded area.
The pre-emptive right is vested in the commune. It was introduced by the Revitalisation Act to Art. 109 of the Real Estate Management Act and is entirely subject to the rules set forth in Chapter 3 of that act.
Thus for a large part of the eastern bank of Warsaw, a pre-emptive right has been in force since 15 March 2022.
Pre-emptive right with no exceptions
The Revitalisation Act gives communes the right to establish a pre-emptive right in a resolution, but expressly provides that this right must apply to all properties in the revitalisation area. Thus the resolution cannot exclude any part of the land within the revitalisation area from the pre-emptive right or introduce exceptions and limitations to its application.
In my own view, the lack of flexibility in regulating the pre-emptive right is a major shortcoming of the rules in the Revitalisation Act. It causes this right to cover, for example, the sale of premises (residential, commercial and garage) in new buildings just completed in the revitalisation area or those to be completed in the future.
Such a regulation must raise significant concerns especially for those bound by current development contracts, as well as developers’ future customers. Indeed, if the City of Warsaw exercised its pre-emptive right (which is unlikely, but cannot be ruled out), it would raise significant problems with the settlement of the purchase price by the buyer and expenditures on fitting out the premises made by buyers in the period between the developer’s delivery of the premises to the buyers for their use and conclusion of the agreement establishing separate ownership of units and selling the unit to the buyer. At a time of rising inflation and difficulties in obtaining mortgage loans, this is a significant risk woven into real estate transactions in the eastern half of Warsaw.
This also imposes an additional administrative burden on the city, impeding its operations, especially since the process of converting perpetual usufruct into ownership has still not been completed. Now the municipal administration must examine all real estate sales contracts with binding effect (e.g. conditional agreements) to identify those that, in line with the purposes of the Revitalisation Act, require exercise of the pre-emptive right. This is not an objection to the resolution of 17 February 2022, but a suggestion for future improvement of the Revitalisation Act.
Perhaps unsurprisingly, the question of whether the pre-emptive right provided for in the Revitalisation Act applies to perpetual usufruct remains without a clear answer. Traditionally, the sanction of invalidity of an unconditional sale, under Civil Code Art. 599 §2, would also result in application of the rigours associated with the pre-emptive right in the case of a sale of perpetual usufruct.
A ban on zoning decisions—only for certain land
In its resolution of 17 February 2022, the Warsaw City Council also exercised the authority provided for in Art. 11(5) of the Revitalisation Act and imposed a ban on issuing zoning decisions in the revitalisation area. Unlike the pre-emptive right, this ban can be framed flexibly.
As provided for in Art. 59 of the Planning and Spatial Development Act, the resolution established a ban on issuing zoning decisions for changes in land use involving the construction of residential buildings and other buildings with residential functions, as well as the conversion of buildings or parts of buildings to residential functions and changes in the use of buildings or parts of buildings for residential purposes.
This ban applies to land designated in the land and building registry as:
- Agricultural land (symbol Br, Lzr, Ł, Ps, R, S, W or Wsr)
- Industrial areas (symbol Ba)
- Other built-up areas (symbol Bi)
- Recreational and leisure areas (symbol Bz)
- Railroad areas (symbol Tk).
Thus, the ban does not include residential areas (symbol B) or urbanised undeveloped or under-development areas (symbol Bp).
According to Art. 62(1a) of the Planning and Spatial Development Act, introduced by the Revitalisation Act, if the commune council adopts a resolution designating a degraded area and revitalisation area or a resolution establishing a special revitalisation zone in the revitalisation area, providing for a ban on issuing zoning decisions, the authority must:
- Refuse to initiate proceedings seeking a zoning decision
- Suspend such proceedings initiated but not completed before the effective date of the resolution
- Resume the suspended proceedings if the resolution ceases to be in force, if no local plan or local revitalisation plan is in force for the area covered by the application for a zoning decision.
This provision greatly modifies the general rule in Art. 62(1) of the Planning and Spatial Development Act.
Under Art. 37f of the Planning and Spatial Development Act, a local revitalisation plan is a special form of local zoning plan, and whenever the Planning and Spatial Development Act or separate regulations refer to a local zoning plan, it should also be understood to mean a local revitalisation plan. The local revitalisation plan is adopted for the revitalisation area.
Both the pre-emptive right and the ban on issuing zoning decisions will cease to be effective if a resolution of the Warsaw City Council establishing a special revitalisation zone within the revitalisation area is not adopted within two years of entry into force of the resolution of the Warsaw City Council of 17 February 2022. A special revitalisation zone is established to ensure efficient implementation of the revitalisation projects included in the list of planned basic revitalisation projects of the municipal revitalisation programme (an appendix to Warsaw City Council Resolution XXXIII/809/2016 of 25 August 2016).
Tomasz Zasacki, adwokat,Wardyński & Partners