Perpetual usufruct without contractual penalties

Perpetual usufruct is still popular

Perpetual usufruct of land is a legal institution dating back to the communist era. Despite the lapse of more than 30 years since the fall of communism in Poland, still many land owned by the State Treasury or local government units is subject to perpetual usufruct. This applies in particular to commercial real estate.

Perpetual usufruct is the exclusive right to use the land within the limits specified by law and the principles of social coexistence as well as an agreement or decision on the handing over of land owned by the State Treasury or local government units or their associations. Within the same limits, the perpetual usufructuary may dispose of his right. The perpetual usufructuary of the land becomes at the same time the owner of buildings and facilities erected on the land by the perpetual usufructuary or acquired by him with the right of perpetual usufruct of the land.

Obligation to develop the land

One of the important obligations of the perpetual usufructuary of land is the development of the land in accordance with the purpose for which the property was given for perpetual usufruct. The perpetual usufructuary may be required to develop the land in a specific way. In such a situation, the contract or decision establishing the perpetual usufruct should set the date of commencement and implementation of the development in accordance with the intended use of the land.

What sanctions for the lack of buildings?

Pursuant to the provisions of the Real Estate Management Act of August 21, 1997 (Journal of Laws of 2021, item 1899), failure to meet the deadline for the development of land given for perpetual usufruct entitles the competent authority representing the land owner to impose additional fees by way of a decision annual. Moreover, the provisions of the Civil Code entitle the owner of the land to demand, in court proceedings, the termination of the buildings or equipment in it. In the jurisprudence of the Supreme Court, the opinion was expressed that the condition of using the land in a manner clearly contrary to its intended use requires the determination of the reasons for the non-fulfillment of the obligation by the perpetual usufructuary, as well as whether, in the light of the circumstances, his behavior can be considered a gross, obvious violation of the terms of perpetual usufruct (cf. The judgment of the Supreme Court of April 7, 2016, III CSK 249/15).

In practice, it happens that contracts for the establishment of perpetual usufruct of land also provide for contractual penalties for untimely performance of the obligation to develop the property by the perpetual usufructuary, e.g. a delay in the construction of a factory, office building or warehouse complex.

Resolution of the Supreme Court

In the resolution of January 20, 2022 issued in the case III CZP 8/22, the Supreme Court took an unequivocal position against stipulating contractual penalties for the perpetual usufructuary. Pursuant to this resolution, the provision of the agreement on the establishment of perpetual usufruct, which specifies the obligation to pay the perpetual user a contractual penalty in the event of failure to develop the property within the period specified in the agreement, is invalid. The justification for the adopted resolution is not published.

The resolution of the Supreme Court is consistent with the previous jurisprudence questioning the right to impose contractual penalties against the perpetual usufructuary for failure to fulfill the obligation to develop the land in a timely manner. Allowing contractual penalties in such situations would result in the perpetual usufructuary being charged with double sanctions for the same infringement. In addition to contractual penalties, the perpetual usufructuary could also be charged an additional fee pursuant to the provisions of the Real Estate Management Act. Moreover, the act provides for the imposition of additional fees in the course of administrative proceedings, and the obligation to pay them arises only when the administrative decision is issued. The agreement for the establishment of perpetual usufruct should therefore not create a competitive procedure of imposing penalties on the perpetual usufruct user.