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Poland - Game changer of real estate transactions from the perspective of due diligence

28 May 2020
Katarzyna Dębińska Pietrzyk and Karol Stępniak in the latest alert prepared by the real estate department, answer the question how will the upcoming changes affect the real estate transactions?

Recently, we have had the opportunity to discuss the amendment to the Act of 7 July 1994 - Construction Law, which will come into force on 19 September 2020, but how will the upcoming changes affect real estate transactions?

  • In accordance with Article 37b of the Act in question, a 5-year period will be implemented for the annulment of a building permit and the occupancy permit. This amendment will affect the certainty of the real estate market and thus the risks revealed in the Due Diligence legal audit. Undoubtedly, the threat to a potential investment that was caused by the uncertainty related to the potential triggering of a decision on the building permit after several decades from the start of the construction works will be eliminated;
  • Pursuant to Article 40, the obligation to obtain additional consent of the real estate seller to transfer the decision on the building permit to the buyer will be excluded. However, it will be necessary to obtain a decision of the architectural and construction administration body confirming the transfer of the decision to the purchaser. This will make it easier to determine the addressee of the decision on the construction permit, which is a part of the Due Diligence legal examination;
  • Under art. 49f, a simplified legalisation procedure will be implemented if at least 20 years have passed since the completion of the construction works and the construction of the building object has been found to have been completed without the required decision on the building permit or without the required notification. The provision in question makes it easier to conclude transactions involving real property on the secondary market. In particular, this will facilitate the legalisation of buildings established many years ago, and as a result of missing documentation confirming the legality of the property, it is not possible to proceed with e.g. with concession proceedings;
  • A formalised building permit procedure will be implemented. In order to obtain the building permit, the investor will be obliged to submit significantly fewer documents, i.e. only a part of the building and fewer copies of the project as opposed to the current practice. 

Increased stability may encourage potential Polish and foreign investors to operate on the Polish market. These changes will also dispel many interpretation doubts that are an obstacle for the investor and thus increase the cost of legal services, which is reflected in the overall investment cost.

Although existing provisions of the Act shall apply to cases commenced and not completed before the date of entry into force of the proposed act (i.e. on 19 September), the new regulations could be treated by authorities and courts as a kind of interpretations rules for the past, completed cases which cause doubts.

In the case of performance of construction works, on the basis of the final building permit or effective notification, issued before the date of entry into force of the Act, the existing regulations shall apply.

To sum up, the existing provisions will apply to:

  1. cases commenced and not completed before the entry into force of the Act, i.e. on 19 September;
  2. when construction works are implemented on the basis of a building permit or effective notification issued before entry into force of the proposed law;
  3. if the investor submits a motion - within 12 months following the entry into force of the Act - with an application for a building permit; approval a construction project; or submit a notification attaching the project prepared in accordance with the existing provisions.

Should you have any doubts concerning the current legal situation of any of the parties to a lease agreement in a shopping centre or the scope of their rights, please feel free to contact us.

Authors: Katarzyna Dębińska Pietrzyk and Karol Stępniak 

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