Poland: Significant Amendments To The Polish Construction Law

An amendment of the Polish Construction Law entered into force on 19 September 2020.

The purpose of the Act of 13 February 2020, amending the Construction Law and certain other acts (Journal of Laws of 2020, item 471, "Amending Act") was to simplify and speed up the investment and construction process and to ensure greater stability of decisions made.

As a comprehensive amendment to the Construction Law, the regulations under the Amending Act apply to all participants of the construction process and essentially all market segments. But from the perspective of institutional investors, one of the most significant changes concerns the durability of decisions on building and occupancy permits.

The risk of invalidation of a building permit and/or an occupancy permit is commonly identified during real property due diligence reviews in Poland. This is related mostly to the Construction Law being unclear, frequently amended and differently applied by various local construction authorities. Such risks are purely formal and there are no practical ways for the investor to mitigate them otherwise, than through insurance policies (which is not always possible).

Prior to the implementation of the Amending Act, there was no time limit for these decisions to be invalidated. Therefore, even if the construction works were completed 20 years ago and the building has been operating safely ever since, the construction permit and/or the occupancy permit could theoretically still be invalidated due to formal defects related to their issuance.

The invalidation of the building permit for the completed building might result in the subsequent invalidation of the occupancy permit. If the occupancy permit is invalidated, the building cannot be used and operated. In consequence, the building owner faces a long list of claims to satisfy and a potentially lengthy and expensive legalisation procedure for the so-called "unpermitted building or construction".

Pursuant to the Amending Act, a building permit or an occupancy permit cannot be invalidated five years after its issuance. Therefore, the risk of these decisions being invalidated is significantly reduced. In principle, construction and occupancy permits for buildings more than five years old should no longer be affected by these risks. New buildings will be released from these risks after five years. Consequently, title insurance coverage might become cheaper or obsolete.

"From the perspective of institutional investors, one of the most significant changes concerns the durability of decisions on building and occupancy permits."

The Amending Act also introduces other changes to the Construction Law and clarifies issues like the definition of the area of impact of a construction object, obtaining permissions for deviations from technical and construction regulations, the obligation to obtain a building permit or notification (in this respect, the regulations will also be liberalised to a certain extent), design documentation (including separation of the plot or land development project, architectural-construction project and technical design) and its changes during the construction process, and proceedings in the event of works that do not comply with the Construction Law (including the new simplified legalisation procedure).

Naturally, the final shape and actual impact of the Amending Act on investment and construction will largely depend on how the changes are implemented in practice by the architectural and construction administration, construction supervision authorities and the administrative courts.

Although this is not the first attempt to simplify the Construction Law and it will certainly not remove all the current legal shortcomings, some of the changes, in particular those concerning the durability of decisions, should be seen as a step in the right direction for the real estate market.