Analysis

Legal persons cannot transform perpetual usufruct into ownership title

Legal alert (7/2015)

In its decision dated 10 March 2015, the Constitutional Tribunal stated that regulations that allow legal persons requesting transformation of their perpetual usufruct right into ownership title have been unconstitutional (file no. K 29/13).

In its decision dated 10 March 2015, the Constitutional Tribunal stated that regulations that allow legal persons requesting transformation of their perpetual usufruct right into ownership title have been unconstitutional (file no. K 29/13).

Legal persons have therefore lost the capability to limit their costs of perpetual usufruct through bargain acquisition of real property in the form of transforming perpetual usufruct right into ownership title.

Effective 9 October 2011, following amendments to the Act on transforming perpetual usufruct right into ownership title, legal persons (except of those controlled by State Treasury and local self-governments) holding real property perpetual usufruct rights as at 13 October 2005 could request having it transformed into ownership titles. Their legal successors were also entitled to request such transformation, as well as entities that had acquired perpetual usufruct established before 13 October 2005.

Transformation terms were favourable for the applicants; usually, the costs of transforming commercial properties ranged from 30 to 45 percent of their value. Since the annual fee for perpetual usufruct of such properties amounts to 3 percent of their value, costs of such transformation were soon refunded.

Self-government officials kept pointing out that the right to request transformation of perpetual usufruct into ownership title on terms so favourable for users interfered with the ownership title of self-government entities.

When analysing combined motions of the Szczecin City Council, Ustronie Morskie City Council and Poznań City Council, the Tribunal analysed the compliance of Article 1.1 and 1.3 of the Act on transformation of perpetual usufruct of real property into ownership title of 29 July 2005 with the Constitution. In the discussed decision (subsequently amended by a decision of 25 March 2015) the Tribunal stated that the regulations have been unconstitutional to the extent granting the right to transform perpetual usufruct into ownership title to natural and legal persons that had not had this right before the effective date of the Act amending the act on real property management and certain other acts of 28 July 2011 (i.e. before 9 October 2011).

In practice, following the decision, the right to request the transformation of perpetual usufruct into ownership title will remain valid in very few cases (e.g. if natural persons use real property developed for housing purposes or agricultural property).

As of the date of its publication, i.e. 17 March 2015, the decision of the Constitutional Tribunal has rendered the regulations that allow legal persons requesting transformation of perpetual usufruct into ownership title invalid.Consequently, their ability to obtain ownership title to such properties will depend on owners’ decisions.

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