Analysis

Transforming perpetual usufruct into ownership title

Key factors determining the fee amount

Legal alert (1/2014)

Fees for perpetual usufruct can constitute a significant portion of real property expenses of an enterprise.

Fees for perpetual usufruct can constitute a significant portion of real property expenses of an enterprise. Following adjustment of perpetual usufruct fees, it may be more advantageous to incur the costs of transforming the perpetual usufruct right into ownership than to pay higher usufruct fees.

Right of perpetual usufruct may be transformed into an ownership title upon a request of the perpetual usufructuary, who is entitled to file a motion to launch administrative proceedings in accordance with the Act on transforming the perpetual usufruct of real property into the ownership title of 29 July 2005. The requesting party which has been granted the ownership title, however, is obliged pay a transformation fee to the existing owner, i.e. the State Treasury or local authorities, as appropriate.

Determining the transformation fee amount

The transformation fee should be determined by a competent authority. It should be set out in line with Article 67.3(a) and Article 69 of the Act on real property management of 21 August 1997 (Journal of Laws of 2010, No. 102, item 651 as amended) and Regulation of the Council of Ministers on real property valuation and real property appraisal of 21 September 2004, as appropriate.
Still, if the annual fee for the right of perpetual usufruct was adjusted in the period of two years before filing a request to transform the perpetual usufruct right into an ownership title, the fee is determined based on the real property valuation determined for the purposes of the adjustment.

Application of real property value determined for the purposes of adjustment carried out in the last two years.

Neither the Act on transforming the perpetual usufruct of real property into the ownership title nor the Act on real property management specify the method of counting the two-year period entitling to apply the value determined for adjustment purposes in calculating the transformation fee. In other words, the annual fee adjustment or the adjustment date have not been defined clearly.
Determining the adjustment date commencing the two-year period in question seems particularly important for perpetual usufructuaries, who obtained an advantageous decision of Local Appeals Board or a common court of law concerning the perpetual usufructuary’s request for ascertainment that the annual fee adjustment is unjustified or that a different (lower) amount would be justified.
The recent court rulings do not present an unambiguous position concerning the date of adjusting the annual fee.

Pursuant to the Act on transforming the perpetual usufruct of real property into the ownership title if the perpetual usufructuary obtained an advantageous decision (with the annual fee amount lower than that specified in the notice but higher than the previous valid charge) or if he has concluded an advantageous arrangement the date the decision in question came into force or the date of concluding the arrangement should be considered the date of adjusting the annual fee, in spite of the fact that the new annual fee will apply from 1 January of the year following the year in which the agreement specifying the pervious fees was terminated.

A decision advantageous for the perpetual usufructuary, approving the annual fee at the previous level (currently applied) issued by the Local Appeals Board or a common court of law is a different matter. In this case the question arises whether the annual fee for the right of perpetual usufruct was actually adjusted. In the light of Article 79.5 of the Act on real property management, a decision of the Local Appeals Board or a common court of law accepting the perpetual usufructuary’s request for ascertainment that the annual fee adjustment has been unjustified is a decision determining a new fee amount. This approach is supported by the fact that previous annual fee no longer applies upon termination. Consequently, in line with the Act on transforming the perpetual usufruct of real property into the ownership title, the annual fee adjustment is effected when the decision of the Local Appeals Board or a common court of law setting out the annual fee at the previous level comes into force.

In our opinion, in this case, the two-year period entitling to apply the value determined for adjustment purposes in the process of transferring the right of perpetual usufruct into the ownership right should be counted from the date the decision setting out the annual fee at the previous level came into force.

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