The right of perpetual usufruct

What is perpetual usufruct?

The right of perpetual usufruct (commonly known as “RPU”) is a specific for the Polish legal system title to the real property, and is an intermediate right between ownership and limited proprietary rights. It first appeared in its current form in 1961 and was intended as a substitute form of long-term use of state land for construction purposes, mainly residential. The RPU was primarily established in favour of natural persons and some legal entities as well as housing cooperatives. 

After political and economic transformations in 1989-1990 the RPU could also be established on local government land. It was also extended to include uses in addition to residential development. By the end of 1990 many entities had started acquiring perpetual usufruct of public land, including state-owned enterprises which became separate legal entities and received (by force of law - under specific regulations) their own title to the land.

How is perpetual usufruct established?

The RPU can only be established on land owned by the State Treasury or local governments. It can be established by agreement executed in form of a notarial deed, which should set out the specific purpose of the right and the permitted use of the land, as well as other provisions regarding erection of buildings on the land and remuneration for their erection. 

In practice, the RPU is often established by virtue of law, therefore no agreement is ever concluded. In such cases, a decision of the local voivode (the official in charge of the administrative district in question) confirms the acquisition of a particular right by a particular entity and is a substitute for an agreement. These decisions often do not mention the purpose of the right, which sometimes leads to difficulties in practice. The scope and purpose of the right may however be changed by executing an annex with the landowner.

Establishment of the right of perpetual usufruct requires entry of the right in the land and mortgage register maintained for the land in question.

How exactly is perpetual usufruct different from regular ownership?

The RPU holder (called the “perpetual usufructuary”) may use the land to the exclusion of third parties and dispose of it within the limits set by: 1) the relevant binding laws, 2) so-called principles of social coexistence and 3) the agreement establishing the right. In practice, the position of the perpetual usufructuary is very similar to that of the owner, although limited by the purpose of the RPU. 

It is possible to transfer perpetual usufruct, however the transfer must be entered in the land and mortgage register maintained for the land. Perpetual usufruct may also be encumbered by limited proprietary rights such as a mortgage, so financing its acquisition is similar to the acquisition of a conventional ownership right.

The RPU is established for a specific term, usually 99 years, however in exceptional cases it can be shortened, but to not less than 40 years. The perpetual usufructuary may request an extension for a further period. Refusal of the extension is permissible only on the grounds of important public interest.

A perpetual usufructuary is also supposed to pay for their right: an initial fee (from 15% to 25% of the price of the land) and an annual fee (which varies depending on the purpose of the right (for most business purposes it is 3% of the land value). Annual fees can be updated no more frequently than every 3 years. Discounts on the fees may be established by the competent authority.

A very distinctive feature of the perpetual usufruct is that buildings and other facilities erected on land by the perpetual usufructuary are owned by them. The same applies to any buildings and other facilities that the perpetual usufructuary acquires under the agreement of perpetual usufruct. Ownership of those buildings and facilities cannot be disposed of separately from perpetual usufruct and vice versa. 

Land encumbered by perpetual usufruct can only be sold to the perpetual usufructuary. Currently, the owner of the land may freely decide whether or not the land will be sold, however this is about to change – see below.

How does the RPU expire?

The RPU can expire if the period for which it was established expires and  was not extended, or if the land is sold to the perpetual usufructuary. 

An agreement concerning perpetual usufruct may also be terminated before the expiration of the agreed term if the perpetual usufructuary uses the land in a manner that is clearly contrary to its intended use as specified in the agreement, particularly if, contrary to the agreement, the perpetual usufructuary has not erected buildings and facilities.

The right can also expire by virtue of law, as happened in 2019 when a change in the law transformed the right of perpetual usufruct of land developed for residential purposes into ownership of such land. Expiry in this way requires the introduction of specific law provisions.

What are the proposed changes to the perpetual usufruct?

According to a bill which is now being processed in Sejm (the lower chamber of the Polish Parliament), a perpetual usufructuary of land may within 12 months from the date that the Act comes into force require the owner to sell the land held in perpetual usufruct. The perpetual usufructuary will then have an enforceable claim against the owner. This is a significant change as presently, the perpetual usufructuary has no enforceable claim for the transfer of full ownership of the land. 

The sale of the ownership right may not, however, take place before the expiry of a period of 10 years from the date of execution of the agreement   establishing the RPU. 

There is also a range of exclusions from the right to require a sale - for instance: 1) if the RPU was established after 31 December 1997, 2) if the perpetual usufructuary has not fulfilled all statutory duties, 3) where land is located within harbours, 4) where land is undeveloped.

In general, the purchase price is calculated according to the following formula: the annual fee percentage x the value of land x 20 (or x 25 – in the case of payment in instalments). 

So far, this is just a draft bill and therefore its provisions may change before it is enacted.