Reprivatisation claims and the acquisition of adjacent real estate by residential cooperatives

Monetary compensation for former owners of Warsaw Decree properties could help in many instances to remove the barrier to acquisition by residential cooperatives of adjacent plots of land to improve the conditions for development of their own real estate.

Incorrect partition of plots of land in connection with establishment of separate ownership of individual units is a serious problem for most residential cooperatives in Warsaw created in buildings that once belonged to the State Treasury but then (after 27 May 1990) belonged to municipal communes in the capital (as a result of communalisation of state land). In prior years it was a fairly common practice to divide plots along the footprint of buildings or in other dysfunctional manners, often in the attempt to reduce the fees for perpetual usufruct of the land. As a result, technical infrastructure enabling proper use of the buildings is often located on a neighbouring plot with a different owner. The case is similar with public roads where the access to the road is through an adjoining plot with a different owner. This situation gives rise to numerous conflicts making it difficult for both of the properties to be used properly.

To solve this problem, a special regulation was adopted (Art. 209a of the Real Estate Administration Act) providing for the possibility of acquiring adjoining land or a portion of the land. Moreover, the sale is made under unusually preferential conditions, as the City of Warsaw awards a discount of 99% off the sale price of the plot. But this solution is not possible if proceedings are pending concerning the correctness of the acquisition of the property by the State Treasury or local government authority. In other words, the transfer of ownership of adjoining property may occur only after the competent authorities consider the applications by the former owners or their heirs for restitution of ownership of the real estate. In practice this is a fairly common barrier to acquisition of neighbouring plots by members of cooperatives, because the plots are in many cases subject to claims arising under the Warsaw Decree of 1945. This results from the fact that adjoining properties, including plots where buildings are erected, in the past typically constituted consolidated registered plots, which then were partitioned at the time separate ownership of units in the buildings was established. Currently they are separate pieces of real estate (with their own land and mortgage registers), but claims to those properties continue to be asserted by the former owners.

However, there cannot be said to be a barrier to acquisition of the adjoining property when the applications by the former owners (or their legal successors) have been ruled on in legally final administrative decisions, in performance of which agreements delivering perpetual usufruct of the land have been concluded, but currently there is only a land and mortgage register proceeding pending in order to enter the right of perpetual usufruct in the land and mortgage register. This is because the land and mortgage register proceeding is purely formal in nature and cannot be regarded as a proceeding concerning the correctness of acquisition of the adjoining real estate by the State Treasury or local governmental unit.

A major problem does arise, however, when a plot subject to reprivatisation claims (for a fractional share of the property) was joined after nationalisation with other plots not subject to reprivatisation claims, with access to a public road only through the first plot. In that situation, if the claim for establishment of perpetual usufruct to the plot were granted, the plot would first have to be partitioned into a separate land and mortgage register in which the neighbouring plot would have to be ensured an easement of passage. Pursuant to Art. 99 of the Real Estate Administration Act, if ensuring access to a public road is to consist of establishment of an easement, then the partition of the real estate is made under the condition that the easement is established upon disposal of the plots separated as a result of the partition. Under Art. 4(3b) of the act, disposal is understood to include delivery of the property in perpetual usufruct. This means that without effective establishment of an easement, delivery of the joined plot in perpetual usufruct to the former owners (or their legal successors) and establishment of a new land and mortgage register for that plot is impermissible.

The prevailing view in the case law and the legal literature is that an easement always exists for an entire piece of real estate and cannot be established on a fractional part of the plot. This follows from the nature of an easement, which is intended to improve the usefulness of the dominant estate by a specific use of the servient estate as a whole, and not an abstract share of the servient estate which cannot be physically identified.

But reprivatisation claims are often asserted only to portions of a plot (e.g. in the case of buildings in which separately owned units were partitioned out before the Second World War, if the former owners of some of the residential units do not pursue their rights). This results in perpetual usufruct being granted only to a certain share in the land (associated with the rights to a portion of the units that were taken under the Warsaw Decree), on which the former owners or their legal successors cannot establish an easement. Then it is also not possible to impose an easement on the entire right of perpetual usufruct, because this right arises only with respect to a portion of the land. Nor may an easement be established on a right that did not exist, or on a right which the given person cannot dispose of. In that situation, in the view of many courts, the disposal of the neighbouring plot by delivering it to the former owners (or their legal successors) is invalid under Art. 99 of the Real Estate Administration Act because the condition of establishing the relevant easement is not fulfilled. Consequently, the land and mortgage register courts deny applications to establish land and mortgage registers for the adjoining plots and to enter the right of perpetual usufruct for the former owners or their legal successors in the register.

It also cannot be excluded that the local government authorities will treat the land and mortgage register proceeding as a continuation of the actions seeking to obtain a definitive ruling on the applications of the former owners for restitution of ownership of the adjoining real estate, which is to be joined by the members of the cooperative. This risk is all the greater because—as indicated above—non-fulfilment of the condition of establishing the relevant easement means, according to some courts, that delivery of the adjoining plot to the former owners (or their legal successors) in perpetual usufruct becomes invalid. In other words, the authorities may assume that proceedings concerning the proper acquisition of the adjoining real estate are still pending, and in that situation the members of the cooperative would not be entitled to demand conclusion of an agreement transferring ownership or perpetual usufruct.

These circumstances lead to an absurd situation. The former owners (or their legal successors) cannot obtain perpetual usufruct of the given plot in a fractional share only because that plot cannot be partitioned on condition of establishment of an easement on the plot. At the same time, the members of the residential cooperative cannot acquire the adjoining plot of land which would enable them to make proper use of their own real estate.

A solution could be to satisfy the reprivatisation claims by payment of compensation rather than returning the property in kind. But, as is well known, this solution is not easy to achieve.

Przemysław Szymczyk, Real Estate & Construction Practice, Wardyński & Partners