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Tomasz Wachowski Opinion about: 18 million for a lot with an office building

Makrum Group disposes of it's assets, including a property in Bydgoszcz on Gdańska and Kamienna St.., where currently there is an office-retail-service building. read full article >

Right of perpetual usurfruct means nearly the same as ownership, although "nearly" does make a difference...
Therefore, when buying property with the right of perpetual usurfruct you need to take into account additional issues, in order to avoid unnecessary problems at a later stage.


First of all, pay attention to the duration of the perpetual usurfruct. Right of perpetual usurfruct for a land can be granted for a period from 40 to 99 years. So perpetual usurfruct is limited in time and it extinguishes after the period for which it was granted (unless it has been prolonged). The cessation of usurfruct also means that all encumberances created on it by the usurfructuary extinguish as well, including mortgages, easements and  lease or tenancy agreements concluded by the usurfructuary. Moreover, ownership of buildings and facilities erected on the land, which the usurfructuary enjoyed as an assioated right, expires as well. Usurfructuary does have a claim against the owner of property for buildings and facilities acquired together with the land or built on it, but when buying an office block an investor is usually going to enjoy the benefits from the building lease rather than from a single payment for the loss of his property. Also, in the event of resale, a short period of remaining right of perpetual usufruct may lower the price. Fortunately, before perpetual usurfruct extinguishes (even 5 years earlier), the usurfructuary can apply for an extension of the duration of perpetual usufruct to the owner of the land. Such a request should normally be granted. However, the owne can also refuse to extend the duration of perpetual usufruct due to an important social purpose. It is therefore worth checking how much time is left until usurfruct extinguishes before buying an office building. Perpetual usufruct appeared in Poland in the 60's, so for some property time for which it was established is slowly coming to an end.

 

Another important issue which needs to be considered before making the deal is the indication in the agreement (decision) as to how the land should be used by usurfructuary. The usurfructuary can use the land only within the limits described in the agreement (decision) for letting the land for perpetual usufruct. Such provisions are binding not only for the first usurfructuary, but also for each subsequent purchaser of that right. Therefore, if the current way of using the land is contrary to the purpose specified in the agrement (decision) to let the land for perpetual usurfruct, then the owner (the State Treasury or local government) can, in extreme cases, terminate the agreement prematurely. Such a risk exists for example if the usurfructuary has put up an office building let for usurfruct whereas the agreement (decision) specified that the land is intended for the construction of an industrial building or a sports centre. There are also cases when the usurftuctuary does not have to develop the land let for usurfruct in any specific way. This happens when the agremment for letting the land for usurfruct did not impose such an obligation or when the perpetual usurfruct was created by operation of law due to granting ownership laws to public legal persons (mainly state-owned enterprises); however, you always need to check it.

 

The third issue worth focusing on is the significance of registering the usurfruct in Land Register. Both letting the land for usurfruct and further contract-based transfer of rights to another entity requires land registration, otherwise they will not be valid. The law sets out that in such a situation land registration is a constituent factor, which means that the actions have a legal effect only when the entry in the Land Register has been made. Therefore, the buyer acquires the right of perpetual usufruct only after the land registration has been made, though it happens with a retrospective effect from the date when application for registration was made. Until that time, the buyer cannot transfer perpetual usufruct to another party, as he isn't formally entitled yet, though he may enter into obligation contracts, such as a lease or tenancy agreements for this property. This is an important difference when compared to transactions concerning ownership rights, where transfer of the right to the property buyer becomes effective at the moment of concluding a dispositive contract and land registration merely reveals the change of ownership in a declarative way.

 

The last important issue which must be taken into account when purchasing property let for perpetual usufruct are fees associated with this right. For letting the land for perpetual usurfruct, the owner incurs so-called first fee as well as annual fees - in case of commerical property these amount to 3% of the market value of the property. The first fee (15 to 25% of the real estate) is paid by the first usurfructuary, and he has to pay annual fees for the whole duration of perpetual usufruct. These fees can be updated according to the current valuation of real estate; local governments make use of increase in property prices eagerly, as it allows them to repair their budgets by incurring higher fees for perpetual usufruct. For these reasons, if you are planning to buy property let for perpetual usurfruct, you might want to check what the annual fee is and when it was last updated.

 


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