Ownership of premises in Poland: Legal framework

Historical background

In Poland, ownership of premises is regulated by the Act of 24 June 1994 on ownership of premises (Ownership of Premises Act). From 1945 to 1989, buildings of flats were, in most cases, developed by the state or by housing cooperatives. People often occupied their flats as tenants or were members of housing cooperatives and occupied flats under special cooperative rights. Although it was possible to acquire ownership rights to flats, most of them were owned by the state or by cooperatives. 

In the late 1980s and 1990s, a private housing sector was created and has since expanded rapidly. Today, it provides the majority of newly developed flats in Poland. This is linked to the fact that in the 1990s, the state and cooperatives stopped supplying new flats to the market and focused on managing the existing stock. Ownership of many state-owned flats was transferred to local municipalities. Municipalities did not have the resources to build new flats and focused on maintaining the existing stock. Since the 1990s, many state or municipality-owned flats, as well as flats owned by cooperatives, have been sold to individuals who live in them, often with very significant discounts provided for under nationwide or local legislation. This has created a situation where most people now live in flats which they own rather than flats that they rent. There is also a growing group of individuals who buy flats to rent them out.

Although there are still housing cooperatives and council flats¹ in Poland, most new housing is supplied to the market by professional developers. Developers usually build blocks of flats with the intention of selling the flats - most are sold to buyers who are private individuals. Very rarely do developers decide not to sell flats but to rent them out. In the last decade, institutional investors have emerged and invested in the acquisition of whole blocks of flats. However, this so-called private rented sector (PRS) is not yet very developed in Poland. Long-term institutional leases are relatively new to the market, and the most desired form of living in a flat in Poland continues to be owning it.

Given these historical and market realities, the Ownership of Premises Act plays an important role in the Polish real property market.

General rules

In Poland, as in many other European countries, the general rule is that the owner of the land is also the owner of all buildings and structures erected thereon. However, there are some exceptions to this rule, one of which is the separate ownership of premises.

For premises to be a separate subject of ownership, certain formal requirements must be met. Firstly, the premises concerned must physically exist (be already developed) and must be completely and permanently separated by walls from other premises and the common areas of the building (and therefore be regarded as “self-contained”²). Secondly, the premises must meet certain technical requirements, whose fulfilment must be confirmed by the local authority. After such requirements have been fulfilled, the premises may become a separate subject of ownership and a land and mortgage register³ may be created for the premises. It is worth mentioning that both residential premises (flats) and non-residential premises (e.g. commercial units, offices, garages) may be the subject of ownership.

Premises that are the subject of ownership may be freely transferred, leased, and encumbered (with a mortgage or other rights). Ownership is not limited in time, may be inherited and may be vested in more than one person. Any transfer of premises or their encumbrance with limited proprietary rights (such as a mortgage or usufruct) requires the form of a notarial deed. Owners are also free to rent premises to third parties (renting flats is, however, regulated by law).

Ownership of premises is connected with a share in the co-ownership of land on which the building is developed and in so-called “common areas” of the building. These common areas of the building include its façade, external and structural walls, main utility networks in the building, staircases, lifts, roofs and other common areas designated for use by all owners of premises in the building. The share in the co-ownership of land and common areas of the building is calculated proportionally to the ratio of the area of the premises owned to the total area of the building. Such share is legally attached to the ownership of the premises and may not be disposed of separately.

Ownership of premises may also extend to ancillary rooms such as storerooms, which are often located elsewhere in the building – in most cases in basements. Such rooms must also be separated by permanent walls and are deemed an integral part of the premises to which they are appurtenant.

Creation of a right of ownership of premises

A right of ownership of premises may be created by a unilateral legal act of the owner of the building, by an agreement with a third party or by dissolution of an existing co-ownership of land and the building erected thereon.

The owner of a given plot of land and the entire building erected thereon may decide that the premises in the building will become separate subjects of ownership – this requires a unilateral act in the form of notarial deed to which all necessary documentation should be attached (for example, a certificate confirming that the premises are regarded as self-contained). After the deed has been signed, the notary files for the creation of new land and mortgage registers for each of the premises. 

Separate ownership of premises may also be created contractually – by an agreement concluded between the owner of the land (and the building) and the buyer of premises. This is usually the case for new developments. In the case of residential developments under construction, the first stage of the process involves concluding a so-called “development agreement”⁴ with the residential developer. It is concluded when the building is not yet developed (or when construction is in progress) and is a kind of preliminary sale agreement in which the developer agrees to develop the building and create separate ownership of premises for its clients in exchange for payment of an agreed price, usually in instalments. The agreement is heavily regulated by law and clients are protected by various legal measures, such as escrow accounts or the Developers Guarantee Fund (which helps in the event of a developer’s insolvency). The process of concluding such an agreement is also regulated, including certain disclosure obligations of the developer. After the building has been developed, handover of premises takes place and the developer concludes an agreement with its client in which separate ownership of premises is created and such ownership is transferred to the client. Very often, the client also acquires from the developer a share in the garage where his/her parking space will be located. 

If a building has already been developed (regardless of whether it is a new development or one which has existed for years), the owner of the land and building may conclude an agreement creating separate ownership of premises and transferring it to the buyer. This process can be repeated until all the premises in the building have been sold. 

As premises are sold to subsequent buyers, the share in the ownership of land and the building that is vested in the “original owner” gradually diminishes and ceases to exist when the last premises are sold. 

A right of ownership of premises can also be created in a building that is co-owned by several people. By means of an agreement (or a court decision), co-ownership of land and the building thereon can be converted into ownership of premises granted to the co-owners. In practice, this scenario occurs in the case of larger (often historic) buildings inherited by many family members. 

Management of common areas

Every owner of premises in a building is entitled to use the land and common areas of the building, and is obliged to participate in maintenance costs. Owners must use their premises in a manner that is not burdensome to others and without breaking ‘house rules’. In exceptional cases, if an owner fails to adhere to these obligations, the other owners may adopt a resolution ordering the compulsory sale of the premises of such owner. In practice, however, this happens very rarely.

All owners of premises in one property (usually one building, but sometimes a property is made up of several buildings) form a flat owners’ association⁵, by operation of law. This is a kind of legal entity that manages the common areas of the building and the land – it can conclude agreements, for example, concerning utilities, renovations or services. Owners of premises, who are by law members of the flat owners’ association, are obliged to pay monthly fees for the maintenance of common areas, which usually cover the costs of utilities, management services and cleaning, and finance a renovation reserve (which funds repairs or renovations). 

If there are more than four premises in a building, the flat owners’ association is represented by a management board which handles day-to-day affairs. The board may consist of one or more persons, who are usually owners of premises in the building. They are elected by the owners by means of a resolution adopted either during a meeting of the owners or by circulation. The management board represents the flat owners’ association in all dealings falling within the scope of the ordinary course of business. The management board may carry out its duties by itself, but very often the board is assisted by professional property managers employed by the flat owners’ association, who take over most of the duties of the management board. These professionals usually have the right to represent the flat owners’ association as attorneys-in-fact under a service contract (in exchange for a monthly fee) – they handle the day-to-day management and maintenance of the building.

Any dealings beyond the scope of the ordinary course of business (in particular, matters that are specifically mentioned in the law) require a prior resolution of the owners, approved by the majority of them. In general, each owner has a vote proportionate to his/her share in the common areas, but in some cases the decision may be made that each owner will have only one vote (irrespective of the area of the premises he/she owns). A resolution is deemed adopted once it has been approved by owners of premises holding more than a 50% share in common areas. Usually once a year, the flat owners’ association holds a general meeting during which the owners vote on the most important issues, such as the amount of monthly fees, the choice and fee of the property manager, the budget, plans for any major renovations etc. Resolutions may also be adopted by circulation without holding a meeting. Each owner has the right to challenge a resolution in court if it has been adopted in violation of the law or if it infringes on his/her rights.

The default rules of managing common areas may be altered by the owners of premises. In particular, the owners may decide that there will not be a management board and a professional company will manage the property instead. However, any change to these such rules requires a notarial deed.

The current legal framework for the ownership of premises has been in use for almost 30 years – the Ownership of Premises Act has not been amended significantly since its adoption. It is well known, as many Poles are owners of their flats and actively participate in the management of their buildings. The latest changes in the legal framework relate mainly to the protection of buyers of premises from developers, which issue is currently regulated in separate legislation, i.e. the Act of 20 May 2021 on protection of rights of buyers of residential premises or single-family homes, and on the Developers Guarantee Fund. The aforementioned legislation supports buyers who are private individuals, imposes certain duties on developers and currently provides a high level of protection, which significantly reduces the risks connected with investing in residential property in Poland.