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Is this the death of Poland's perpetual usufruct?

What is a perpetual usufruct?

Perpetual usufruct is a quasi-ownership right established in communist times to enable the State to secure the purpose for which land is used. Land held in perpetual usufruct is owned either by the state treasury or by a local council. 

Perpetual usufruct lasts 99 years but is renewable. During this time, the perpetual usufructuary has the right to use the property, including the possibility of renting or selling it, but has no ownership rights, which is obviously a worry for those in the real estate market.

The holder of a perpetual usufruct owns the buildings that are erected on the land, but ownership rights over the buildings cannot be transferred to a third party without transferring the perpetual usufruct right over the land. 

The statutory fee for land in perpetual usufruct is generally 3% of the land value, payable annually in a lump sum. A reduced rate of 1% applies if the land is used to for residential purposes.

Revolution in the real estate market

In late spring 2023, Poland’s parliament passed an act which will eventually lead to the elimination of perpetual usufruct rights from the Polish legal system.

According the Ministry of Development and Technology, there are currently 505,796 hectares of land in perpetual usufruct. The State Treasury owns approximately 485,000 hectares of that land, with local councils owning approximately 61,000 hectares. 

Land in perpetual usufruct on which commercial buildings are built, or which is intended for development, accounts for over 50% – and in some cases even 100% – of investment land.

Crucial request for investors

According to the newly adopted Act, the transformation from the perpetual usufruct right to commercial land into ownership will not take place by operation of law, but only by a request submitted by the perpetual usufructuary of the land.

The perpetual usufruct right is to be liquidated by selling the property to its perpetual usufructuaries. If the application is submitted within the statutory period by the perpetual usufructuary entitled under the Act, the authority cannot object to the request and will be obliged to conclude a sales contract.

Doubts remain

For many investors, the new regulations will simply not pay off and it may be more beneficial to leave the land in perpetual usufruct. Certainly some companies will benefit from the new rules for the purchase of commercial land, but for many the short timeframe to submit an application (twelve months from entry into force), and the high cost will be an insurmountable barrier. 

As a result, perpetual usufruct may remain part of the Polish real estate landscape for many years to come.

Katarzyna Sawa-Rybaczek is a rarity among lawyers as she uniquely connects banking and finance with transactional real estate work. 

05 October 2023