Transformation of perpetual usufruct of residential land into ownership – important changes from January 1, 2019

In the coming year 2019, there will be some significant changes in the residential real estate sector. In addition to the Act on Real Estate Investment Trust on which Parliament is currently working, which will likely enter into the force in 2019, on 1^st of January 2019 there will be significant changes related to the transformation of the right of perpetual usufruct of lands developed for residential purposes into ownership of these lands.

The right of perpetual usufruct is in force in the Polish legal system from the 1960s. The right of perpetual usufruct entitles the user to exclusive use of land within the limits set by law, rules of social coexistence and the contractual terms of usage of the land for perpetual usufruct. The right of perpetual usufruct is a transferable law. In contrast to the right of ownership, the land is put into perpetual usufruct for a fixed term (as a rule, 99 years), however, it is possible to extend the perpetual usufruct period for a further period, which in practice is the rule. In addition, the perpetual usufructuary is obliged to pay an annual fee to the owner of the land (the State Treasury or the proper local government unit).

The right of perpetual usufruct occurs on a large scale on the grounds of the State Treasury and local government units. It enables the usage of lands of state or local government units located in urban areas for the needs of residential construction.

The provisions which has passed in 2018 entail transformation the right of perpetual usufruct of land built for residential purposes into the ownership right of these lands. As a result of the transformation, the perpetual usufructuary of the land will become its owner. What is important, the transformation takes place by virtue of the law, so the current perpetual ususfructary will not have to apply to the court or the governmental body with a request to transform this right. Whereas, disclosure of the new owner of the land in the land and mortgage register as well as land and building record will be based on a relevant certificate confirming the transformation. The certificate will be issued ex officio by the competent authorities representing the recent owners.

The transformation will involve the obligation to pay the transformation fee to the current owner of the land. The amount of the fee is equal to the annual fee for perpetual usufruct, which would be binding on the day of transformation. The fee is paid for a period of 20 years, counting from the date of transformation, however, the new owner of the land may, at any time, pay the full fee in a one-off payment in advance in the amount to be repaid.

It should be emphasized that the transformation of perpetual usufruct by virtue of law shall apply only to land developed solely with:

1. residential single-family buildings,
2. multi-family buildings in which at least half of those apartments are residential units, or
3. buildings referred to in point 1 or 2, together with outbuildings, garages, other construction objects or construction equipment, enabling appropriate and rational use of residential buildings.

Therefore, the transformation shall not include lands developed by buildings with premises, in which, at least half of the number of units are business premises. In addition, there will be no transformation of land entered into land and mortgage register book different than book kept for building, on which garages, utility rooms or access roads to the building are located.

The above means that the new regulations do not coherently solve the problem of perpetual usufruct of land intended for residential purposes.

More information on the new regulations and services of our Law Firm within real estate sector can be found at [email protected]