Poland: Buying Property In Poland

I. INTRODUCTION

The real estate market in Poland has been of great interest to investors and individuals for years. Real estate investments in Poland provide good yields compared to other European countries. In addition, many people consider Poland to be a good place to live, especially given its attractive location in central Europe, growing economy, stable labor market and lower cost of living than in other western EU countries. On the other hand, buying a property in Poland involves many formalities, requires knowledge of many legal regulations and the local market. This results with an increased demand for real estate legal services.

II. KEY FACTS ABOUT PROPERTY PURCHASE IN POLAND

II. BASIC INFORMATION ABOUT BUYING PROPERTY IN POLAND

1. Who can buy a property in Poland?

Citizens and companies from EEA (European Economic Area) States and Switzerland can freely acquire real estate in Poland.

Individuals and corporations from other States shall obtain "property purchase permit" from the Minister of the Internal Affairs to buy real estate in certain situations.

Such a permit is not required in the case of acquisition by a foreigner of an apartment not located in country-border areas.

2. What kind of properties can be purchased in Poland?

Polish Law distinguishes following types of properties that can be purchased:

1. Lands,
2. Lands along with buildings (as one joint property) such as residential estates, factories, retail centres, warehouses etc.
3. Apartments,
4. Commercial premises.

Certain types of real estate may be excluded from sale due to their designation (e.g., national parks, closed areas) or their sale is subject to various restrictions such as permit for purchase or statutory right of first refusal (e.g., agricultural or forest plots).

3. How to buy a property in Poland?

Purchase of real estate in Poland requires the conclusion of a contract in the form of a notarial deed before a Polish notary public. Upon conclusion of the sales contract, the buyer acquires ownership of the property.

The transfer of ownership of real estate cannot be made on condition or with a reservation of time. This means that the ownership of the real estate is transferred to the buyer unconditionally. The parties also cannot set a time limit after which the ownership of the property reverts back to the seller.

If the sale is to be subject to certain conditions, the sale of the property is usually preceded by a preliminary sale agreement or a reservation agreement.

4. Does legal title to the property is disclosed in public registers?

The purchase of real estate in Poland is disclosed in public registers:

• the land and mortgage registers kept by district courts (Polish: Ksiega Wieczysta), and
• the land and building record (real estate cadastre) kept by starosts (local government bodies).

Disclosure of ownership of real estate in the registers is not a condition for the effectiveness of the purchase of real estate. The entry in the land register is declaratory in nature, i.e. it is only an official confirmation that the buyer has become the owner of the property.

III. BUYING PROPERTY IN POLAND - STAGES:

In practice, buying a property in Poland is not just signing a contract at a notary, but a series of activities preceding and following the conclusion of the final contract.

1. Examination of the Property

The conclusion of the contract shall be preceded by an examination of the legal status of the property, in particular the seller's title to the property, the existence of third-party claims and rights, statutory restrictions for property sale, planning regulations, conservation protection, compliance with construction laws. In the case of more valuable or complex transactions, especially those involving commercial real estate, buyers conduct detailed real estate due diligence combined also with a technical and commercial examination of the investment.

2. Negotiations

The subject of negotiations may be not only financial issues (price, timing and method of payment), but also issues of the parties' liability for risks identified during the course of the property examination or that may become apparent in the future (e.g. possible technical defects in the building, potential disputes with owners of neighboring properties or tenants of the property being sold).

3. Conclusion of the contract

When the legal and commercial terms of the sale are agreed upon, the parties proceed to conclude the sales contract. In many situations however, for legal and business reasons, the real estate acquisition process is staggered and takes place in stages:

1. Preliminary property sales agreement
   The parties specify the essential terms of the future sale of the property. The preliminary agreement must include at least the designation and description of the property and its price. In addition, the parties establish the conditions that must be met for the conclusion of the final sale agreement (e.g., obtaining approvals from various public authorities, obtaining bank financing by the buyer, reclassification of the land, obtaining a zoning decision);
2. Final property sale agreement
   If the conditions set forth in the preliminary agreement have been met, the parties proceed to conclude the sale agreement.

4. Post-closing actions

The parties of the property sale contract, in particular a buyer, have a lot of obligations (administrative, tax, contractual) that should be fulfilled after execution of the contract, including inter alia:

1. The handover of the property;
2. The handover of documents relating to the property;
3. Registration legal title transfer in the land and mortgage register;
4. Reporting transaction for real estate tax purposes;
5. Concluding new contracts with utility supplier;
6. Notifying leaseholders on purchase of the property;
7. Notifying the housing community on purchase of the property;
8. Insure the property;
9. Other contractual obligations.

IV. CONTRACTUAL ASPECTS OF BUYING PROPERTY IN POLAND

Legal requirements and the practice of the real estate market have meant that real estate sales contracts in Poland usually contain some distinctive clauses that must be paid attention to.

1. Designation / Identification of the Real Estate
   The correct description of the property is key to the proper designation of the subject of the sale. Contracts include information on the property location and area, its registration numbers, designation in planning regulations, as well as its legal and factual status as disclosed in the land registers and the real estate cadastre. Very often they occupy the largest part of the contract document.
2. Price and method of Payment
   Real estate is among the most valuable types of assets, hence sales prices are usually higher than in other types of transactions. This makes it necessary to adequately secure payment through a notarial deposit, escrow account in a bank, submission of the buyer to execution as to the obligation to pay the price on time. It is important to remember that in Poland there is no practice to pay for the property purchase with cheque.
3. Earnest money
   When the parties enter into a preliminary property sales contract, the seller usually requires the earnest money from the buyer against the future price. The customary amount of the earnest money in Poland amounts to 10-20% of the sales price. The stipulation of an earnest money in a preliminary contract usually has the effect that if the buyer, without legitimate reason, refuse to conclude a final sales contract or does not meet the conditions required to its conclusion, the seller may keep the received earnest money and withdraw from the contract. On the other hand, if the conclusion of the final contract does not occur because of the seller, the buyer can demand twice amount the earnest money paid. If the conclusion of the sales contract has not occurred due to reasons beyond the control of the parties or due to both parties, the earnest money is refundable in a nominal amount. However, the parties may change the above rules, stipulating other terms for the settlement of the earnest money or circumstances justifying its retention or return.
4. Reps and warranties of a seller
   The real estate sales contract contains numerous statements by the seller regarding the factual and legal condition of the property, as well as the seller's financial situation. The information and warranties provided to the buyer in the contract affect the seller's liability to the buyer. According to the statutory rule, the seller is not liable for physical and legal defects in the property if the buyer knew about them at the time of the contract. Often, however, this rule is contractually modified in business transactions, usually involving commercial real estate, where sellers try to exclude their liability also for defects that the buyer could or should have learned about, for example, during due diligence. In addition, contractual clauses may also limit a seller's liability when the assurances it makes relate to its best knowledge. In such cases, he is liable on a fault basis (i.e., for failing to exercise the due diligence required of a professional when making a representation), rather than on a strict liability basis for the veracity of the assurances made. Finally, possible and common in commercial transactions are clauses limiting liability over time, e.g., 2 years instead of the statutory 5 years, or introducing a minimum value of damage for which the seller is liable (de minimis clause);
5. Handover of a property
   Once the sales contract is concluded, the seller is obliged to hand over the property to the buyer. The handover of the property usually involves an on-site inspection of the property, the handing over of keys and access cards, an inventory of utility meters, a description of the technical condition of the building. The handover of the property should be confirmed by signing a handover certificate. The moment of handover of the property is crucial, because at this point all benefits (e.g., rental income) and burdens (e.g., operating costs), as well as the risk of accidental loss or damage to the property, are transferred to the buyer.

V. TAXES RELATED TO BUYING PROPERTY IN POLAND

The purchase of real estate may be subject to VAT or PCC (tax on civil-law transactions).

1. VAT on Property Purchase

As per Polish Tax Law, the sale of real estate will be subject to VAT when the seller sells as a VAT taxpayer, which usually involves the seller's business activity.

The sale is subject to VAT in case of:

1. undeveloped land, classified as a building area in accordance with the local zoning plan or the zoning decision (decision on the conditions of development and land use);
2. developed real estate from the primary market, e.g. a plot of land with a house, residential or commercial premises in a building, not older than 2 years;
3. developed real estate from the secondary market, if the buildings and structures have been significantly improved by the seller (the value of the improvements exceeding 30% of the initial value);
4. other developed real estate from the secondary market, if the seller and the buyer voluntarily submit a statement to the tax office on the inclusion of such sales under VAT. The VAT opt-in option is only available if both parties to the transaction act as active VAT taxpayers.

The purchase of a residential Post-closing actions of floor area or a Post-closing actions of floor area is subject to a reduced 8% VAT.

If the building or apartment has a larger area, the portion exceeding these thresholds is 23%.

The purchase of undeveloped construction land and commercial buildings or structures is subject to a VAT rate of 23%.

The tax base is the sales price indicated in the sales contract. VAT is part of the sales price paid to the seller by the buyer. The VAT payer is the seller.

2. Transaction Tax on Property Purchase

Real estate sale contracts (with certain exceptions), which are not subject to VAT, are subject to civil law transaction tax.

Civil law transaction tax on the sale of real estate is 2% of the market value of the property. The PCC is charged to the buyer. The duty to collect and pay the tax is borne by the notary drawing up the sales contract. In practice, the buyer must pay the PCC tax to the bank account of the notary's office even before signing the sales contract.

3. Real estate tax

Real estate in Poland is subject to real estate tax to the municipality of the place where the property is located. The purchaser of real estate is required to independently report the acquisition of real estate to the relevant office for real estate tax purposes on a special form. The notification must be submitted within 14 days from the date of real estate acquisition.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.