On 26 May 2023 the Sejm, lower chamber of the parliament of the Republic of Poland, adopted the Act on amendments to the Act on municipal self-government, the Act on social forms of housing development, the Act on real estate management, the Act on tax on civil law transactions and certain other acts (hereinafter referred to as the "Draft" or the "Amendment"). According to the information on the stage of legislative work on the Draft available on the Sejm's official website, the Draft was forwarded to the President and the Chairman of the Senate on 1 June 2022.
The Draft, prepared by the Ministry of Development and Technology, continues the direction of the policy adopted at the meeting of the Standing Committee of the Council of Ministers on 21 June 2018 (Memorandum of Understanding No. 30/2018). It is another proposal of the legislator, after the Act on transformation of the right of perpetual usufruct of land developed for residential purposes into the right of ownership of such land (Journal of Laws of 2023, item 904) adopted on 20 July 2018 (hereinafter "RPU Transformation Act"), in response to the postulate, which representatives of the legal doctrine have been formulating for almost two decades, to eliminate the institution of the right of perpetual usufruct (hereinafter also "RPU") from the Polish legal order.
Episodic claim for the sale of land
The main intention of the Draft is to grant to perpetual usufructuaries (both entrepreneurs and private persons) the right to claim conclusion of an agreement for sale of a real property ("Claim"), upon a respective motion. The Claim will be limited in time (i.e. exercisable only for 12 months from the date of entry into force of the Amendment), and shall be subject to the limitations indicated in the Draft under the newly added Chapter VIA of the Act of 21 August 1997 on real estate management (Journal of Laws of 2023, item 344) (hereinafter: the "REMA") - Episodic provisions concerning the claim for the sale of land to its perpetual usufructuary (Art. 198g - 198k), which will be added to the REMA by the Amendment.
Due to the specific – according to the legislator - legal situation, the Claim will not be eligible in the following cases:
- if the property was granted for perpetual usufruct after 31 December 1997;
- if the perpetual usufructuary has not fulfilled the obligation specified in the agreement granting the land for perpetual usufruct;
- in relation to land located on the territory of maritime ports and harbours within the meaning of Art. 2 item 2 of the Act of 20 December 1996 on maritime ports and harbours (Journal of Laws of 2022, item 1624 and of 2023, item 261);
- if the land is used for the operation of a family allotment garden within the meaning of Art. 2 item 5 of the Act of 13 December 2013 on family allotment gardens (Journal of Laws 2021, item 1073);
- in respect of undeveloped land.
In addition, the Draft stipulates it will be impossible to conclude an agreement for sale of real estate if proceedings for the termination of the agreement on perpetual usufruct are pending.
As a rule, the Claim will not be applicable to real properties of the State Treasury entrusted to the National Support Centre for Agriculture, the Military Property Agency, the State Forestry Company 'Lasy Polskie', state legal entities – national parks, the State Water Management Company 'Wody Polskie' or land located in the areas of maritime ports and harbours, due to the special importance of such land for the national economy and national defence. (1)
The provisions discussed above will apply respectively to the RPU created in another manner than by means of an agreement concluded in the form of a notarial deed.
It should be noted at this point that the possibility of selling land to a perpetual usufructuary does not constitute a novelty. Art. 32 of the REMA providing for such a possibility has been functioning in the REMA since its entry into force in 1997. The difference between the legal institution existing for over 25 years and the one to be introduced by the Amendment lies in the lack of discretionary character of the latter.
Pursuant to Art. 32 item 1 of the REMA, the land granted for perpetual usufruct may only be sold to a perpetual usufructuary (...). Therefore, it is the public entity owning the land that may, at its own discretion, decide to sell the land to the perpetual usufructuary, who, in turn, has no claim to acquire the ownership of such land (2). Art. 198g to be newly added to the REMA will explicitly provide for the possibility for the perpetual usufructuary to demand the sale of the property in his favour. Thus, a literal interpretation indicates that this time the possibility has been granted to the perpetual usufructuary, and the refusal to conclude a sale agreement may only occur in cases enumerated in the Draft (described above).
It is also important to note that the Claim can only be submitted within 12 months of the effective date of the Amendment, so the perpetual usufructuary's entitlement is significantly limited in time.
Amendments to the provisions of art. 32 of REMA
Art. 32 of REMA discussed above is also subject to changes under the Amendment. The most significant one is the exclusion of the possibility to sell a real property to a perpetual usufructuary for 10 years from the conclusion of the RPU agreement. The legislator justifies the introduction of the above-mentioned restriction by the need to follow the sound management principle and to supplement it with a provision ensuring stability of property legal relationships and, additionally, by the need to follow the standards of public property protection, in particular constitutional protection of property of a local self-government, by way of providing the public owner with adequate revenues from annual RPU fees and with the possibility to assess potential rationale for restoring the property to the possession of a competent authority after expiry of the RPU (3).
In addition, the Draft will introduce authorisation for the voivode or the executive body of a local government to adopt resolutions and orders specifying the rules of designation of land held in perpetual usufruct for sale. The scope of the guidelines for executive bodies is to include, inter alia, the principles of qualifying real properties for sale, determining the amount payable for the acquisition of land by a perpetual usufructuary or shaping other terms of the future sale agreement, such as payment of the price or of a surcharge to the market value of the real property in installments.
Price for the sale of land to its perpetual usufructuary pursuant to art. 32 of REMA
The legislator has also distinguished between the mechanism for determining the price of the property acquired by the perpetual usufructuary under Art. 32 of the REMA and under the new Chapter VIA of the REMA, which will be added by the Amendment.
Pursuant to the provisions of the REMA as currently in force, an amount equal to the value of the RPU is credited towards the price of a property sold to a perpetual usufructuary. The value is determined by a property appraiser in a valuation report, in accordance with the guidelines set out in the Regulation of the Council of Ministers on the valuation of real estate and preparation of an appraisal report (Journal of Laws 2021, item 555).
It is worth mentioning at this point that in 2014 the European Commission raised objections to the then binding method of the price determination on the grounds that any deductions from the full value of the real property, including the value of the RPU vested in the purchaser or discounts, constitute state aid granted to the entrepreneur by the state, which consequently leads to the applicability of the regime of state aid provisions in relation to the public administration activity in question.
The key issue in the European Commission's assessment is whether the 'private investor test' can be considered to be met in case of the acquisition of land ownership by a perpetual usufructuary or in case of 'transformation' of the RPU into ownership, and ultimately whether the public authority behaves like any market participant in such a transaction.
The mechanism linking the determination of the sale price of land to the rules on de minimis aid was the starting point for the development of the new rules for the payment for the real property, planned under the Amendment (4).
If the Amendment enters into force, in the case of discretionary acquisition, i.e. under Art. 32 of the REMA, the mechanism for determining the price will depend on whether the land property is used for business activity. If it is, the price will be set at an amount not lower than twenty times the amount constituting the product of the existing percentage rate of the RPU annual fee and the value of the land property determined as at the date of conclusion of the sale agreement, but no higher than the value of the land property determined as at the date of conclusion of the sale agreement. In case of the real property used for other than business activities, the price will be determined as twenty times the amount constituting the product of the existing percentage rate of the RPU annual fee and the value of the land property determined as at the date of conclusion of the sale agreement, subject to discounts provided for in Art. 68 and 68a of the REMA.
It is worth pointing out that in case of land property used for business activities, the difference between the value of the property and the price of that property calculated on the basis of the principles described in the paragraph above constitutes state aid. In the event that the value of public aid exceeds the de minimis aid limit, aid is granted up to the de minimis aid limit and a surcharge will be applied to the value of the land property used to determine its price. The amount of such surcharge will be determined ex officio in an administrative decision.
The payment of the price may be spread over time (up to 10 years), while the value of the property, as determined in the appraisal report, will allow the price to be capped at market level. In case of payment of the price in installments, interest on instalments shall be applied using a reference interest rate set by the European Commission.
In the opinion of the legislator, the experience with the application of the provisions of the RPU Transformation Act has demonstrated the advisability of the measures taken with regard to the envisaged payment model. The proposed mechanism, taking into account the surcharge to the amount constituting the basis for determining the RPU annual fee, will enable the price to be negotiated in a way that minimises the amount of public aid provided under the de minimis limit.
Price for the sale of land to its perpetual usufructuary under the new chapter via of REMA
On the other hand, in the situation of a sale of a land property owned by the State Treasury to its perpetual usufructuary under the proposed regulations (new Chapter VIA to be added to the REMA), the price will depend on whether it is payable as a single payment or in instalments.
In the first case, the price will be twenty times the amount of the existing percentage rate of the annual RPU fee multiplied by the value of the land property determined as at the date of conclusion of the sale agreement, and in the second case - twenty-five times the amount of the existing percentage rate of the annual RPU fee multiplied by the value of the land property determined as at the date of conclusion of the sale agreement.
In turn, with regard to real properties owned by a local government, the price will be set at an amount not lower than twenty times the amount constituting the product of the existing percentage rate of the annual RPU fee and the value of the land property determined as at the date of conclusion of the sale agreement, but no higher than the value of the land property determined as at the date of conclusion of the sale agreement.
The above-described rules for determining the price will also be applied taking into account the provisions on state aid, including the conditions for granting de minimis aid.
The legislator, in the explanatory memorandum to the Draft, emphasizes that the special rules for the disposal of real estate referred to in Chapter VIA, which will be added by the Amendment, do not exclude the application of provisions contained in other sections of the REMA that deal with the disposal of public land, that is, for example, Article 69a and Article 70 of the REMA. In practice, this means that the provision of Article 69a, discussed in Section 3 above, which provides for surcharges on the value of the land used to determine its price, will apply (5).
Currently, a sale of real property, which is taxable with VAT (with no VAT exemption) generally excludes taxation with the transfer tax (at tax rate of 2% of its fair market price) .
The planned amendment remains this rule, but introduces an exception, which is the acquisition of the sixth and any subsequent apartment, located in a building (or buildings located on the same plot of land). What is more, a tax rate with respect to such transaction is going to be at the level of 6% of the acquired property market value.
According to the Impact Assessment of the Draft , in Poland there are currently over 405,000 properties held in perpetual usufruct, and the discussed Amendment is expected to provide an opportunity to further reduce the volume of those assets.
However, it is worth noting that the de minimis aid that can be granted to a single business entity is currently, for most entrepreneurs, EUR 200,000 gross over 3 years. This is not a large amount compared to the prices of land designated for commercial purposes, especially in large cities, so the question is whether the Amendment will actually be attractive to entrepreneurs.
The Amendement raises our doubts as to whether the proposed tax amendments infringe EU law and requires in-depth analysis of the final shape of the amended provisions.
(1) Justification of the Project - https://www.sejm.gov.pl/sejm9.nsf/druk.xsp?nr=3146.
(2) E. Bończak-Kucharczyk [in:] Ustawa o gospodarce nieruchomościami. Commentary updated, LEX/el. 2023, art. 32.
(3) Justification of the Project - https://www.sejm.gov.pl/sejm9.nsf/druk.xsp?nr=3146.
(4) Justification of the Project - https://www.sejm.gov.pl/sejm9.nsf/druk.xsp?nr=3146.
(5) Justification of the Project - https://www.sejm.gov.pl/sejm9.nsf/druk.xsp?nr=3146