Pre-emptive rights in real estate transactions in Poland

What is a pre-emptive right?

A pre-emptive right is a right to acquire a property before it can be offered to any other person or entity. The property to which the pre-emptive right is subject may be sold to any person, as long as the party with the benefit of the pre-emptive right (the “entitled party”) does not exercise its right. A pre-emptive right is also sometimes translated into English as a “pre-emption right”, “right of pre-emption” or “right of first refusal”.

A pre-emptive right may be contractual (i.e. voluntarily agreed by the parties) or statutory (i.e. may be mandatory in accordance with specific provisions of law in certain situations).

Statutory pre-emptive rights are quite common and apply to specific types of properties and are vested in different authorities.

Sale of real property subject to a pre-emptive right

The seller of a property that is subject to a pre-emptive right should conclude a sale agreement with the third party buyer containing a condition precedent, under which they undertake to conclude an agreement for the transfer of property to that third party, unless the entitled party exercises their pre-emptive right. After the conclusion of the conditional agreement the seller should immediately notify the entitled party of the contents of the agreement concluded with the third party. 

In practice the notary who draws up the agreement delivers, directly or by registered mail (with return receipt), an excerpt of the notarial deed covering the binding agreement. This is the simplest and most complete way of fulfilling the obligation to notify the entitled party about the content of the agreement.

As a result, for the effective transfer of ownership of real property or the right of perpetual usufruct subject to a pre-emptive right four consecutive actions are required:

1. conclusion of a conditional sale agreement;

2. immediate notification to the entitled party of the content of the concluded agreement;

3. submission, within one month, of a statement by the entitled party to the notary about the exercise or non-exercise of their pre-emptive right. If such a statement is not made by the expiry of the deadline, the entitled party is presumed not to have exercised their pre-emptive right;

4. conclusion of an agreement to transfer the ownership of the real property or the right of perpetual usufruct to the buyer where the entitled party has not exercised their pre-emptive right.

When the parties also wish to conclude a preliminary sale agreement (which is quite common when external financing is used, or certain business or legal conditions must be fulfilled before the sale), the purchase transaction is split into three consecutive phases/agreements:

1. Preliminary sale agreement, obliging the parties to conclude the sale agreement within specified deadline. It may also include business conditions precedent agreed by the parties; 
2. Conditional sale agreement, conditional on the non-exercise of the pre-emptive right by the entitled entity; and
3. Agreement for the transfer of ownership / perpetual usufruct right.

Exercising and waiving the pre-emptive right

The entitled party must exercise the pre-emptive right within a month of receipt of the notification referred to above - when it concerns real property, the perpetual usufruct right to land, or a cooperative ownership right to premises. However, special provisions may provide for a different deadline, for example, for certain real estate in a harbour area, a harbour manager has 6 months within which to exercise a pre-emptive right. 

Where the entitled party makes a declaration to exercise their pre-emptive right, as a rule a sale agreement with the same content as the agreement concluded by the seller with the buyer comes into effect between the seller and the entitled party. Thus, to put it simply, the entitled party takes the place of the third party who was to acquire the interest subject to the pre-emptive right.

The exercise of a pre-emptive right by the entitled authorities is very rare. In most cases the process is a formality to be adhered by the parties but it impacts the transaction schedule. It is not possible to speed-up the procedure by obtaining a waiver of the pre-emptive right or a declaration that it will not be exercised in the future, before the conditional sale agreement is concluded. The waiver of right must be provided after the conditional sale agreement is sent to the entitled authority. Also, if a  pre-emptive right was not exercised on a previous occasion, this does not mean that it no longer applies.

The waiver of a pre-emptive right must refer to the property and the conditional sale agreement and must be provided in writing and presented to the notary. That document is always referred to by the notary in the agreement transferring the right. If a waiver is not provided, the parties must wait for the statutory deadline to pass.

Examples of the most common statutory pre-emptive rights:

• in favour of the commune – on the sale of undeveloped real property previously acquired from the commune or the State Treasury;
• in favour of the commune – on the sale of perpetual usufruct right (RPU) of undeveloped land; 
• in favour of the National Forest Authority – on the sale of land designated for forestry purposes in the Land Register or in the local zoning plan;
• in favour of the commune – on the sale of real property located within the revitalization zone (subject to further conditions);
• in favour of co-owners of agricultural real property who farm on common land – on the sale of a share in a co-ownership right;
• in favour of a leaseholder of agricultural property - upon fulfillment of the relevant conditions;
• in favour of the KOWR (National Center for Agricultural Support, PL: Krajowy Ośrodek Wsparcia Rolnictwa) representing the State Treasury - upon resale of a property by the purchaser within 5 years of acquiring the property from KOWR;
• in favour of a national park – on the sale of a property located within the boundaries of the national park;
• in favour of the manager of a special economic zone – on the sale of the ownership or perpetual usufruct of real property located within the special economic zone;
• in favour of the State Treasury – in the case of land covered by inland stagnant waters;
• in favour of the commune – on the sale of real property registered as a monument, provided that the entry in the monument register and the pre-emptive right are revealed in the land and mortgage register;
• in favour of a harbour manager or commune – in the case of land located within a harbour area.

The pre-emptive rights listed above are examples and this list is not exhaustive. Statutory pre-emptive rights regarding the acquisition of real property/ a right of perpetual usufruct of land are contained in more than twenty statutes, which makes the entire regime very extensive and sometimes difficult to apply in practice. Given this maze of regulations on statutory rights of pre-emption, it is easy to overlook the relevant provisions. In practice, the most commonly used provisions are those relating to the pre-emptive rights in favour of the commune and the pre-emptive rights of the National Forest Authority.

Where the pre-emptive right is granted by law to (i) the State Treasury, (ii) a local government unit, (iii) a co-owner or (iv) a leaseholder, a sale made unconditionally (i.e. without adhering to the pre-emptive right) is considered null and void, and cannot be rectified. A later declaration of non-exercise of the pre-emptive right (waiver of the right) cannot rectify a void unconditional sale agreement. Because a previous violation of a pre-emptive right can be a potential reason for the invalidation of sale agreements, this is always an area for due diligence for lawyers acting on real estate transactions.

Indivisibility and non-transferability of a pre-emptive right

A pre-emptive right is indivisible, unless special provisions permit the partial exercise of the right. The principle of the indivisibility of a pre-emptive right does not prevent its exercise if a sale involves only a part of the property subject to the pre-emptive right, e.g. a plot of land. The indivisibility of a pre-emptive right means that it is impermissible to exercise the right with respect to a part of the property subject to it, if the holder of the right can exercise it in relation to the whole. As a point of clarification, it is worth noting that in Poland, real property can consist of one or more plots of land.

When a property previously acquired from the State Treasury consists of several plots of land - A, B, C,- and the entire property is sold, the commune cannot exercise its pre-emptive right with respect to a single plot of land, e.g. B. In contrast, when the holder of a pre-emptive right is entitled to the entire property, and a part of it, e.g. one plot of land, is sold (not the entire property as in the previous example) the holder may exercise the pre-emptive right to that part and retains the pre-emptive right in the event of a further sale of the remaining parts (the remaining plots of land as a whole or individually). 

The indivisibility of a pre-emptive right does not prevent the right from belonging to several persons, e.g., a contractual pre-emptive right can be inherited by several heirs or it may be established in favour of several persons by contract. 

A pre-emptive right may be inherited but cannot be otherwise disposed of.

The importance of the pre-emptive right in real estate transactions

The complexity of legal regulations relating to pre-emptive rights often makes it difficult to apply them in notarial practice. These regulations should be always approached with caution as the failure to notify the entitled person may cause the invalidity of concluded agreements.