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In February the Ministry of Development and Technology unveiled drafts of three legislative acts  with a potential to have a profound impact on the functioning of real estate and construction markets in Poland. The first of these acts – Act on amendment to the Act of 27 March 2003 on Spatial Planning and Development was already adopted on 4^th April and came into force on 7^th May this year. The draft amendment to the Construction Law of 7 July 1994 is currently undergoing further modifications.  The third draft is a new Act on Solutions to Increase the Availability of Land for Housing (henceforth “Land Availability Act” or “LAA”). In last month’s article we discussed the first two of these proposals, as well as those provisions of Land Availability Act that would introduce changes to the Act on Spatial Planning and Development, the Construction Law, and the Act of 5 July 2018 on Facilitating the Preparation and Execution of Housing Projects and Accompanying Investments (so-called “Lex Developer”). In the present article, we take a look at Land Availability Act’s other provisions that are relevant and important for construction project owners.

I. Developers given option to pay commune to build public road instead of building it themselves

Article 16 of the Act of 21 March 1985 on Public Roads stipulates that where the execution of a (private) construction project of a non-road character creates the need to build a new public road or to reconstruct an existing public road, such construction or reconstruction is the responsibility of the owner of the non-road project (henceforth developer), with detailed terms to be specified in a so-called road agreement concluded between the road administrator, i.e. the commune, and the developer. Under Land Availability Act, the developers would have the option to fulfil the above obligation by providing the road administrator with appropriate funds to build/reconstruct the road, instead of executing the road project on their own. While such an arrangement has already been frequently employed in practice, but its compatibility with the above provision of the Act on Public Roads is subject to controversy. LAA ends the controversy by explicitly permitting it.

Although in many cases the developers prefer to carry out the road project on their own, as it gives them greater control over its costs and schedule, paying the road administrator to execute the project can often be the more beneficial solution for both sides. In particular, it may be advisable in a situation where the road administrator already has road-building or reconstruction plans in the area and the developer’s project only requires some additional solutions to be included or certain parameters to be modified, but the road administrator executing all the road works would be more cost-effective and efficient. The proposed change gives the developer greater flexibility to make arrangements with the road administrator as to the manner of fulfilment of the developer’s obligation to bear the cost of the necessary changes to the road network.

II. Lifting of restrictions on trade in agricultural land in cities

The current provisions of the Act of 11 April 2003 on the Formation of the Agricultural System (henceforth “AFAS”) impose a number of restrictions on trade in agricultural properties. The most important of them include: (i) the requirement to obtain the consent of the Director of the National Support Centre for Agriculture (“KOWR”) for the purchase of an agricultural property that is 1 hectare or larger in cases where the buyer is neither an individual farmer, nor a person close to the seller, nor one of a closed list of other eligible entities; (ii) a five-year ban on the resale (or letting use) of a purchased agricultural property without the consent of the Director of KOWR, and the requirement to directly operate an agricultural farm on the property during this period; and (iii) KOWR’s right of pre-emption to buy an agricultural property if the owner decides to sell.

In general, the above restrictions apply equally to agricultural land located in rural areas and within the administrative boundaries of cities. The ban on resale, and the requirement to cultivate, during the first five years after purchase do not apply only to those agricultural plots in cities that are smaller than 1 hectare. A general exemption from AFAS restrictions has been granted only to those agricultural properties in cities with respect to which the commune has adopted “a resolution to determine the location of a housing project” or “a resolution to determine the location of an accompanying investment” as part of the Lex Developer procedure, or which are being sold for the purpose of a housing project or accompanying investment as part of the Lex Developer procedure (Art. 1b of AFAS). However, if the planned housing project or accompanying investment is not completed within a specified period, KOWR has the right to purchase the property from the developer at a market price. (In such an event, KOWR asks a court to issue a ruling on the purchase of the property by KOWR for a price reflecting its market value.) Specifically, the above right on the part of KOWR arises if the developer fails to obtain a building permit or “a resolution to determine the location of a housing project/accompanying investment” within two years of the acquisition of the property, or fails to complete and put into use at least 50% of the housing project or accompanying infrastructure within five years of the building permit becoming valid, as the case may be (Art. 9a of AFAS). These deadlines may be extended by KOWR at the developer’s request, though, if the original ones could not be met for reasons beyond the developer’s control – but by no more than a year. The above provisions of Articles 1a and 9a of AFAS were to be repealed on 1 January 2026 due to the planned expiry of Lex Developer on that date. However, as a result of the recent amendment to the Act on Spatial Planning and Development (described in the last month’s article) ,operation of the Lex Developer has been extended by six more months, until 1 July 2026.

Now, Land Availability Act removes all agricultural properties located within the administrative boundaries of cities from coverage by AFAS. This means that all the restrictions on their sale and use, including the pre-emption rights held by KOWR, will be lifted. The objective is to unlock more land in cities for housing.

Such a change is definitely a positive one. There is no merit in KOWR exercising additional oversight over trade in agricultural land in cities, because while there are still large swathes of agricultural land within city boundaries, such properties, by virtue of their location, are not intended to serve typical agricultural production, and other existing laws are sufficient to protect them against development in a manner that is contrary to a rational spatial policy. It should be remembered that, if the above restrictions on trade in agricultural land in cities are removed, building on such properties will still be possible only if permitted by the local spatial development plan or a decision on development conditions, with the exception that designation of an agricultural property in a city for non-agricultural purposes in the local development plan where the land represents class I-III tillable farmland does not require the consent of the Minister of Agriculture. Also, agricultural properties located in cities are subject to the provisions of the Act of 3 February 1995 on the Protection of Agricultural and Forest Land, which means that a decision to exclude a property from agricultural production may have to be obtained before applying for a permit to build on this property, and the applicable fees subsequently paid. As we see, agricultural land in cities is sufficiently protected by other laws, and there is no reason to expect that removal of the additional restrictions imposed by AFAS would lead to their improper development on a large scale.

III. Restoration of the possibility to let public land into perpetual usufruct for the purpose of housing construction, with the option of excluding its automatic transformation into ownership.

Land Availability Act would restore the possibility for communes and the State Treasury to let a property into perpetual usufruct for the purpose of housing construction, which was abolished effective from 1 January 2019 by the provisions of the Act of 20 July 2018 on the Transformation of the Right of Perpetual Usufruct of Land Developed for Housing Purposes into Ownership (henceforth “Transformation Act”). This would happen by repealing Article 13(1b) of the Real Estate Management Act of 21 August 1997 (“REMA”), which prohibits letting land into perpetual usufruct for the purpose of housing construction, except where the objective is to satisfy claims of entitled persons or where the perpetual usufruct is established for the benefit of a housing cooperative or by the National Real Estate Resources (“KZN”). In the explanatory memorandum to Land Availability Act, it is emphasized that, in contrast to the unconditional sale by a public entity of a property to a private developer, with perpetual usufruct the public entity can exercise effective control over the manner in which the developer uses the property, which is particularly important in the case of land handed over to help implement public housing policy objectives. If, after being granted the right of perpetual usufruct, the developer fails to complete the housing project within the agreed period or builds a project that differs from the agreed one, the public entity, which remains the owner of the property, has the option of terminating the perpetual usufruct agreement in accordance with Article 240 of the Civil Code and transferring the property to another entity that will ensure its development in accordance with the intended purpose.

Under existing law (Art. 13 of Transformation Act), in the event a residential building is built on land let into perpetual usufruct, the perpetual usufruct is automatically transformed (ex lege) into ownership upon completion of the building, and the new owner is obliged to pay to the previous owner transformation fees equal to the annual perpetual usufruct fee in force in the year in which the building was put into use. Land Availability Act would change that: parties to a perpetual usufruct agreement would be entitled to stipulate in the agreement that the perpetual usufruct will not be transformed into ownership upon completion of the construction project – either for a specified time period or at all. The public entity will remain the owner, retaining control over the use of the property and having the power, for example, to terminate the perpetual usufruct relationship in the event the property is being used for purposes other than housing.

Land Availability Act also introduces relevant changes to Transformation Act itself, notably regarding the option to exclude the transformation of perpetual usufruct into ownership if the parties so agree, as well as a provision on “delayed” transformation into ownership, effective from 1 January 2026, of perpetual usufruct rights to properties built up with residential buildings that were let into perpetual usufruct after 31 December 2018.

IV. Restoration (for another two years) of the possibility to acquire full ownership of built properties let into perpetual usufruct before 31 December 1997.

On 31 August 2023 an amendment to REMA came into force that introduced provisions (Articles 198^g – 198^l) granting all perpetual usufructuaries of built properties let into perpetual usufruct before 31 December 1997 the right to acquire full ownership of these properties, on terms set out in these provisions. The right could not be exercised only by those perpetual usufructuaries who did not perform the obligations laid down in their perpetual usufruct agreements, and by perpetual usufructuaries of properties: (i) located in ports and marinas, (ii) used to run a family allotment garden or (iii) in respect of which proceedings for the termination of the perpetual usufruct agreement were ongoing. However, this right could only be exercised within 12 months of the amendment’s entry into force, i.e. until 31 August 2024. In practice, this deadline turned out to be too short for many perpetual usufructuaries – including entrepreneurs – interested in taking advantage of the possibility to acquire full ownership.

Under Land Availability Act, perpetual usufructuaries of built properties that meet the above criteria will be given another 24 months (from the date of LAA’s coming into force) to acquire full ownership of the properties from the commune or the State Treasury, as the case may be.

V. Communes allowed to divide properties based on Lex Developer resolutions.

Under Article 93 of REMA, in principle, a property may be divided geodetically only if such division is consistent with the local spatial development plan, and in the absence of a local plan, if such division is consistent with the decision on development conditions issued for the property and does not contravene other applicable regulations. Article 95 of REMA specifies cases in which division is possible regardless of the local plan or decision on development conditions. However, there is controversy as to whether it is possible to divide a property that is covered, neither by a local plan nor a decision on development conditions, and where none of the special circumstances specified in Article 95 of REMA apply – but for which the commune has adopted “a resolution to determine the location of a housing project” or “a resolution to determine the location of an accompanying investment” as part of the Lex Developer procedure. And such division is often necessary in Lex Developer projects, e.g. to carve out into a separate plot the part on which the accompanying investment, which would eventually belong to the commune, is to be built.

Again, Land Availability Act ends the controversy. It states unambiguously that it is possible to perform a geodetic division of a property for which “a resolution to determine the location of a housing project” or “a resolution to determine the location of an accompanying investment” has been adopted in order to carve out a part of it into a separate plot, regardless of the local plan or decision on development conditions.

All the changes discussed above are positive. They respond to genuine practical needs of both developers and communes, and may indeed have the intended effect of boosting the availability of land for housing, as well as facilitating the execution of housing projects. Worryingly, however, the legislative process to adopt LAA has slowed markedly. Although consultations of the draft text began back in February, the Government Legislation Centre’s website has not reported any progress since then.