Acquisition of real estate by foreigners: Permits are still an issue

The limitations on acquisition of land by foreigners fell dramatically when Poland joined the EU, but acquisition of agricultural land still requires a permit and causes many practical problems.

Poland’s accession to the EU, and accompanying amendments to the Act on Acquisition of Real Estate by Foreigners of 24 March 1920, eliminated much of the requirement for foreigners who are citizens or business entities from the European Economic Area or Switzerland to obtain permits before acquiring real estate in Poland. However, this problem has not disappeared entirely and still arises in many transactions, particularly when acquiring agricultural land or woodland. The interpretation and practice of applying the act raise a number of interpretational problems and lead to some real conundrums.

We will focus on the acquisition of agricultural land, leaving aside the issue of woodland, which does not raise quite as many practical issues.

The act does not define agricultural real estate. As amended in 2004, it merely states that acquisition of agricultural property is subject to the Agricultural System Act of 11 April 2003, which defines agricultural property with direct reference to the definition in the Civil Code. Therefore, the definitions contained in both the Civil Code and in Agricultural System Act must be referred to.

Art. 461 of the Civil Code defines agricultural property as property which is or may be used for agricultural crop and livestock production, including horticultural, orchard and fish production. This definition is extremely broad, largely due to the phrase “may be used.” Therefore the agricultural nature of land is determined by its potential agricultural use, rather than its current use. Thus land which could be used for agricultural purposes, but is not, including fallow and uncultivated land, still constitutes agricultural land. Parties sometimes mistakenly treat property in a contract in terms of its location, classification in land description records, mode of use and development, whereas in light of the regulations it is still agricultural property, and so its acquisition requires a permit.

Art. 2(1) of the Agricultural System Act defines agricultural property in the same way as the Civil Code, but excludes properties in areas designated in zoning plans for non-agricultural use. Analysis of both definitions leads to a clear situation if a foreigner presents the local zoning plan showing that the property is in an area designated for non-agricultural use. In other cases, a detailed examination of documents is necessary, and it can be difficult to classify the land clearly.

If no zoning plan exists for a particular property, how can one determine that the property is not agricultural? Publications by the Ministry of the Interior state that this is done using documents, which, in addition to the certificate of allocation in the local plan, include official decisions on such matters as construction conditions, location of a public construction project, or removal of land from agricultural production, and also employing land description records. In practice, it is accepted that if the first two decisions show that the property is classified for non-agricultural use, then a foreigner from the EEA or Switzerland is exempt from seeking a permit to purchase the property. This should be treated with caution. But is it possible to apply a broad interpretation to Art. 2(1) of the Agricultural System Act? And can property assigned for non-agricultural use in a decision on construction conditions or on location of a public construction project be treated as the equivalent of such designation in a zoning plan? The agricultural property definition in Art. 2(1) makes no reference to the designated use of real estate as defined under the Zoning Act, but refers to just one strictly defined planning instrument: the zoning plan.

Although in the absence of a local zoning plan, decisions on construction conditions and on location of a public construction project determine the way in which land is to be developed and the terms of land use, nevertheless they differ in nature from a zoning plan and are issued under a completely different procedure. Leading commentators argue against attempts to recognise such decisions as substitutes for a zoning plan. Similarly, they cannot be deemed to exclude the real estate from classification as agricultural property. We recommend great caution and in-depth analysis if an EEA or Swiss investor intends to purchase property for which a decision has been issued on construction conditions but the property is or may be used for agriculture.

The land description record may not be conclusive either, as the following example illustrates. Such a record described developed land of about 0.1 hectare, for which there was no zoning plan, as “other built-up areas.” There seemed to be no reason to regard the property as agricultural. Nonetheless, analysis of documents revealed that the property was previously classified as pasture. The change in the land description record came about not from a change of use of the real estate, but from property tax guidelines issued by the state authorities. Under these guidelines, developed land was classified as developed agricultural land only if it was associated with operation of a farm exceeding 1 hectare in area. The change in classification in the land description record did not change the nature of the property. A cowshed was located on the land, and although it was not being used for cattle farming at the time it could have been used for animal husbandry at any time. And if this was the case, it was agricultural property.

An interesting problem also arises when a property is designated for non-agricultural use in the zoning plan, but the plan envisages leaving drainage ditches on the property serving other real estate. Pursuant to land and buildings record regulations, drainage ditches are actually classified as farmland and therefore are agricultural land.

Therefore, it is crucial to clarify the status of the property. Only a thorough analysis of each case will avoid serious consequences, such as invalidation of the property’s acquisition.

Iwona Kasperek, Tomasz Zasacki, Real Estate & Construction Practice, Wardyński & Partners