From perpetual usufruct to full ownership: new rules for businesses
Perpetual usufruct is one of three types of property rights in Poland, similar to ownership, but more costly and involving certain restrictions. It was introduced by the Communist government in 1961 in line with its ideology that land should be state-owned.
A perpetual usufructuary essentially has the same rights as an owner, but for a period not exceeding 99 years. After this time, the perpetual usufruct agreement should be renewed, unless the owner cannot do so due to a significant public interest. There is some uncertainty with respect to the obligation of paying an annual fee, which can change over time. It also entails restrictions with respect to real property divisions.
In August 2023, an amendment to the act on real property management came into force, continuing the trend of eliminating the right of perpetual usufruct from the Polish legal system. The first step was taken in 2019 and applied to residential real estate.
The latest amendment enables businesses to acquire ownership rights to real estate. A general rule has been introduced that real estate may be sold to its perpetual usufructuary after 10 years. Interestingly, some episodic provisions are provided which grant some perpetual usufructuaries a claim for a transformation. These apply to perpetual usufruct established before 1998 and to developed real estate, although this possibility may be exercised in the relatively short period of one year. Contrary to the transformation of residential real estate, the current legislation does not provide for a transformation by virtue of law.
Due to the amendments, many entities are granted the opportunity to transform a time-limited perpetual usufruct right into ownership. Transformation will certainly mark the end of the unpredictable annual perpetual usufruct fee and future acquisition. On the other hand, each business must assess its opportunity individually. The sale price may not be lower than 20 times the annual fee, but not exceeding the market value. If the price is lower than the market value and that difference exceeds de minimis aid, than an extra fee is to be paid.
While the newly introduced legal instrument may not lead to the complete elimination of the perpetual usufruct right in Poland, it is a major step forward. It will undeniably help clarify the Polish legal system.