Property purchase in Poland

The real estate market in Poland

For several years now, the Polish real estate market has seen a steady and high growth in the number of transactions that has mainly been driven by robust demand for properties for housing and investment purposes. Buying real estate in Poland involves many formalities, requires the knowledge of numerous legal regulations and the local market. This translates into increased demand for legal services relating to real estate transactions.

Types of property transactions

The most common property transactions in Poland include:

Property purchase process in Poland – stages

Buying a property is almost never as simple as signing an agreement in a civil-notary’s office. Usually, before the transaction is executed, the buyer researches the legal status of the property to eliminate potential risks (property due diligence) and negotiates the commercial and legal terms of the transaction . There is also a number of obligations (tax, reporting and contractual) that must be fulfilled after the execution of the transaction. You can learn more about the process and the stages of buying a property below.

Stage 1 – researching the property before transaction

Before you execute a transaction to buy a property, you should first research the legal status of the property.

The research should especially include at least:

  • the seller’s title to the property,
  • the existence of limited real rights and
  • other third-party claims and rights,
  • planning regulations,
  • historic conservation protection,
  • compliance with building and construction laws.

The scope of the research depends on the type and the value of the transaction. For instance, in the case of simple transactions concerning apartments, the research can be limited to the elimination of the basic risks. This is done through the verification of basic documents and the study of records in the publicly available property registers.  In the case of the purchase of or an investment in commercial real estate, the property is usually researched in the course of a detailed process referred to as a due diligence that, in addition to the legal aspects of the property, covers commercial issues, property valuation and the inspection of the technical condition of the property.

Property research process also involves verification whether a foreign buyer will be obliged to obtain a permit to purchase it, or it will be possible to benefit from one of the exemptions.

Stage 2 – preliminary property purchase agreement and the final property purchase agreement

In most cases, the execution of the final property sale agreement without first signing the preliminary agreement is either impossible or inadvisable for legal and business reasons. In practice, property purchase transactions are typically divided into the following stages:

  1. the execution of a preliminary sale agreement that comprises at least:
    • the essential provisions of the final sale agreement, that is the designation and description of the property and its price,
    • the conditions that one or both parties are required to fulfill to ensure that the final sale agreement is executed,
  2. the fulfillment of the agreed conditions by the parties (e.g. obtaining the consents of various public bodies, obtaining bank financing by the buyer, reclassification of the land, obtaining a preliminary planning decision),
  3. the execution of the final property sale agreement.

Stage 3 – post-closing actions – obligations after the purchase of a property

The handover of the property

Once the sale agreement is executed, the seller is required to hand over the property to the buyer. The handover of the property usually involves an on-site inspection of the property and the delivery of items necessary to enter the property, such as keys or an access card. The parties should confirm the handover of the property by signing a handover certificate. Among others, the certificate contains a description of the condition of the property at the time of the handover.

The moment of the handover of the property is crucial from the legal perspective. In accordance with legal regulations, as soon the property is sold, all benefits (e.g. income from rent) and burdens (e.g. operating expenses), as well as the risk of accidental loss or damage of the property pass to the buyer.

The handover of documents relating to the property

In addition, the seller should provide the buyer with the necessary documents concerning the property, including a maintenance logbook for the property, energy performance certificate of the building or documentation relating to all executed lease agreements.

Filing an application for an entry in the land and mortgage register

After buying a property, the buyer should apply to the court to be entered in the land and mortgage register as the owner of the property.  The application may be filed by the buyer in person or by a civil-law notary instructed by the buyer right after the notarial act is signed.

Reporting the transaction for real estate tax purposes

Buyers often assume that the registration for the purposes of the real estate tax takes place automatically upon the execution of the sale agreement. Unfortunately, they are wrong. A real estate buyer is required to report the purchase of a property for the purposes of the real estate tax to the city (municipality) administrative authorities proper for the location of the property using a dedicated form – the form should be submitted within 14 days from the transaction.

Executing contracts with utility suppliers

When a property is bought, contracts with utility suppliers are not automatically transferred to the buyer.  Usually, the new owner is required to sign new contracts. Utility suppliers (electricity and water suppliers, sewage entities) usually require a property handover certificate specifying meter readings.  In some cases, a contract can be transferred / assigned, but to make that happen the buyer and the seller will need to visit the offices of the given supplier (e.g. Internet or cable TV provider).

Notifying leaseholders that the property has been sold

If the space within the property is leased, the buyer will need to notify the leaseholders that the owner of the property has changed. The buyer becomes the landlord in respect of the leased space by operation of law, without needing to sign a new lease agreement or an amending annex to an agreement executed by the seller.

Notifying the housing community or cooperative that the property has been sold

If you bought a property that is a part of a larger complex, for instance, an apartment building, you will need to report the sale to the housing community or cooperative.

Property insurance

Taking out an insurance against fire and other random events for the property and an insurance against third-party liability for the buyer is not mandatory, but it is recommended.

Other obligations resulting from the type or circumstances of a transaction

The above list is just an example of obligations the buyer will need to fulfill. Depending on the type and circumstances of the transaction, the buyer may be required to perform other actions as well, which are not listed above (e.g. actions related to the agricultural tax, the right to perpetual usufruct, its conversion into ownership).

Agreements in property purchase process in Poland

If you want to buy a property in Poland, you will need to execute an agreement (usually a sale agreement) in the form of a notarial act drawn up by a Polish civil-law notary. In many cases, you may also be required to enter into other agreements, in addition to the sale agreement. The type of the additional agreements will depend on the type of the property about to be purchased and the stage in negotiations. You can read more about the agreements you may encounter when buying property here.

1. Property reservation agreement

A reservation agreement is typically executed in the case of property is sold through a real estate agent (real estate agency). By virtue of a reservation agreement, the seller the property undertakes not to sell it to other person for a specified period of time. A reservation agreement should include, among others, the property designation, the sale price, the period of reservation, and the reservation fee (if any). This type of an agreement does not have to be executed in the form of a notarial act.  It can have the form of an ordinary written contract.

2. Development agreement

A development agreement is a special type of a contract related to residential properties. Under a development agreement, a developer undertakes to erect a building and transfer the title to a property to the buyer. This type of an agreement requires the form of a notarial act. The terms and conditions of a development agreement are to a large extent regulated by legislation designed to protect the buyer of a house or an apartment as the party to a contract with weaker bargaining power. Importantly, the terms of a development agreement which are less favorable to a buyer than the provisions provided in legislation are invalid. If the terms of a development agreement are found less favorable, the relevant legislative regulations will apply in their place.

The law states that a development agreement should specify with precision:

  • the designation and location of the building or the dwelling unit;
  • the area and the rooms layout, as well as the scope and the standard of fit-out works to be carried out by the developer;
  • the date when the title is to be transferred to the buyer ;
  • the price, due payment date, and payment terms;
  • the start and end date for the construction of the development project;
  • the terms related to the rescission of a development contract, as well as to the refund of money paid by the buyer in the event of rescission;
  • the interest and contractual penalties for the parties to a development agreement;
  • the method used to measure the area of the dwelling unit or the house.

The law states that all price and fees due to the developer under a development agreement should be paid to an escrow account kept by a bank, however, if:

  • the bank keeps an open escrow account, the money deposited in such account is disbursed to the developer once it is ascertained that a given stage of the development project is completed;
  • the bank keeps a closed escrow account, the money deposited in such account is disbursed to the developer after the title to the house or the dwelling unit is transferred to the buyer.

After the construction works end and the relevant construction supervision authorities issue the required approvals for the building, the developer hands over the dwelling unit or the house to the buyer in accordance with the terms of the development agreement.

Once the approvals are issued, the developer and the buyer enter into another agreement in the form of a notarial act whereby the title to the house or the apartment is transferred to the buyer.

3. Preliminary property purchase agreement

When the closing of the transaction cannot happen right away, the parties can ensure that the sale of the property will happen at a specific point in the future by executing a preliminary property purchase agreement. A preliminary agreement should set out at least the essential terms of the final property purchase agreement – the exact designation of the property and the sale price. Moreover, a preliminary agreement should specify the date when the final agreement is to be concluded. In absence of the date in the preliminary agreement, the law requires the final agreement to be executed within an appropriate time limit set by the party entitled to seek the execution of the final agreement. If both parties are entitled to seek the execution of the final agreement (which is usually the case) and each of them sets a different date, the date stated by the party who first submitted the relevant statement will prevail. If a year passes from the execution of the preliminary agreement and the date of the execution of the final agreement still has not been set, neither of the parties is entitled to seek the execution of the final agreement.

In many cases, preliminary agreements include conditions which must be fulfilled before the execution of the final agreement, such as obtaining bank financing by the buyer, conducting a subdivision survey or obtaining a building permit for the planned project. The preliminary agreement should also specify the party that bears the risk in the event that the conditions are not fulfilled and the claims that can be raised by the other party if this happens. Usually, the parties agree in the preliminary agreement that the buyer should pay a portion of the sale price (ranging from 5 to 20% of the price) to the seller immediately after the execution of the preliminary agreement as earnest money (zadatek) – for more see below.

The form of a notarial act is not required for the preliminary property purchase agreement, however, it is recommended, especially from the perspective of the buyer. Where a party to the preliminary agreement executed as a notarial act refuses to sign the final agreement, the other party can force the conclusion of the final agreement by way of court proceedings. What is more, the agreement executed as a notarial act is the basis for an entry of the buyer’s claim for the execution of the final agreement and the transfer of the title to the property in the land and mortgage register. In the case where the seller is disloyal and attempts to sell the property to a third person in spite of the preliminary agreement with the buyer, the buyer whose claim is recorded in the land and mortgage register enjoys additional protection. When a property is sold to a third party despite the claim for the transfer of title recorded in the land and mortgage register, the person with the claim to the title can request the third party to transfer the title to the property in question to them.

If a party to a preliminary agreement which was not executed as a notarial act defaults on the obligation to execute the final agreement, claiming damages is the only recourse that the other party has. If the agreement does not specify the scope of liability for damages, the aggrieved party can only claim damages for losses they suffered because they assumed that the final agreement would be executed (e.g. legal fees, sworn translator fees).

Earnest money in property purchase contracts – zadatek

Unless the agreement provides otherwise, the payment of earnest money entitles the seller to rescind the agreement without setting an additional deadline and keep the money in the case where the buyer defaults on the terms of the preliminary agreement.  Whereas if it is the seller who defaults on the preliminary agreement, the buyer, who paid earnest money, is entitled to seek the payment of double earnest money from the seller.  In this type of cases earnest money plays the role of a contractual penalty for a breach of the preliminary agreement and replaces damages.

4. Final property purchase agreement

The final property purchase agreement requires the form of a notarial act. It is essentially a property purchase agreement executed in performance of the preliminary agreement executed earlier.  So, the final agreement should include all the elements of a property purchase agreement, such as:

  • the exact designation and detailed description of the legal status of the property, including information about changes (if any) in the legal status of the property following the execution of the preliminary agreement,
  • the sale price and the payment terms and, if the buyer paid earnest money, a provision stating that earnest money will be credited towards the sale price,
  • the conditions and the date of the handover of the property to the buyer.

When the parties sign the final agreement, the title to the property is transferred to the buyer, unless the agreement states that the title will be transferred at a later date. If this is the case, the parties will need to execute a separate contract transferring the title to the property.

What properties can be purchased?

Following types of properties may purchased by the foreigners:
a. Lands,
b. Lands along with buildings (as one joint property),
c. Buildings, and
d. Apartment.

What entitlements to properties may be purchased?

a. Ownership

Typically you would be buying right of ownership to the property in Poland.

Ownership is the broadest property entitlement that includes:
– right of possession,
– right of usage,
– right of disposal.

b. Perpetual usufruct

Perpetual usufruct is very similar to ownership. Lands, which are subject to perpetual usufruct, are formally owned by Polish State or State entities, although substantial rights belong to the usufructor. A perpetual usufructor (a natural or legal person) can possess, use and dispose of the right to the property. Moreover, the buildings, which were erected on the lands, which are subject to perpetual usufruct, are owned by the perpetual usufructor. The perpetual usufruct agreement is concluded for 99 years or – in some exceptional cases – for 40 years. Extension of the right of perpetual usufruct for further periods is a matter of formality. Key disadvantage of the perpetual usufruct is the obligation to pay annual usufruct fee.

c. Share in the building with assigned apartment

In exceptional situations, the right to the apartment in Poland might source from someones entitlement to share in the land or buildings, which comprises of apartments. In that particular situation:
– share in the main property usually reflects size of the apartment,
– share in the main property indicates entitlement to particular unit/apartment.
This type of entitlement to apartment is rather unpopular due to its complicated nature. Besides type of entitlement is rather weak as in reality it is co-ownership of building rather than separate ownership of apartment. It is a relic of Polish People’s Republic. Foreigners as a rule may buy an ownership to separate apartment without a permit, but the permit will be required necessary when buying share in property with assigned apartment.

d. Cooperative member’s ownership right in an apartment

Cooperative member’s ownership right to an apartment it is very similar to ownership – it includes right of possession, usage and disposal. The right is transferrable, inheritable and enforceable. The difference sources mainly from the fact that formally it is the cooperative who owns the property.

e. Cooperative housing tenancy right

Cooperative housing tenancy right to an apartment is very similar to lease – it includes right of possession and usage, but not right of disposal. The right is untransferable, noninheritable, and unenforceable.

Expert team leader DKP Legal Marcin Kręglewski
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