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Poland: Real Property Reprivatization Decisions in Warsaw May Be Revoked

Legislation recently passed by the Polish Parliament grants a Parliamentary Commission the right to rescind reprivatization decisions previously issued with respect to real property in the city of Warsaw. Such a rescission would remove the legal grounds for return of the property to the ex-owner or its legal successor, which could lead to seizure of the real property by the government.

The legislation still requires approval by the Senate and signature by the president, but this is expected.

A brief history is required to understand the background of this law. During World War II, Warsaw was completely burnt down and demolished. After the war, the new communist government was determined to rebuild the city but felt very little need to protect private owners of real property. Thus, in 1945, the government enacted a decree that extensively nationalized real property in Warsaw. In theory, the decree read that owners could apply for compensation, but in fact the compensation was very often denied – the one exception was if the owner was a foreign citizen. The Polish government often signed an agreement with other governments and paid a certain amount in exchange for a waiver of claims of such citizens to forfeited property in Warsaw.

Years have passed, communism collapsed and governments have changed, but Poland has still not dealt with the taking of Warsaw real property in a complex manner. The lack of a comprehensive approach triggered waves of individual applications for reprivatization of Warsaw property illegally seized by the state. Heirs of the owners have tried to regain property, but the process has proved long and complex. In certain cases, reprivatization claims were sold to professional “real estate hunters” who bought them for pennies but were able to regain real property worth tens of millions of zlotys. The usual method was to challenge the decision to nationalize the property and to have it replaced with a new decision ordering the return of the property (a so-called “reprivatization decision”).

The entire situation erupted in a large scandal when the magnitude of the process and methods used by certain real estate hunters recently came under intense scrutiny. Several persons engaged in this process have been arrested and members of the Warsaw self-government have been accused of negligence in safeguarding public property.

The current Polish government has decided to deal with the situation and the new piece of legislation provides for a solution, but it is, as one may clearly see, a very controversial one.

The new act appoints a special commission, members of whom are appointed by the prime minister and Parliament, with the main goal of “removing legal effects of reprivatization decisions issued in violation of law”. The members of the commission are not obliged to have any special qualifications, save for a law degree or “necessary knowledge in real estate management or the use of state property”. The members of the commission are granted immunity for their actions in such capacity.

The commission is empowered to initiate, ex officio, proceedings to determine whether there are grounds to conduct an investigation. If in the commission’s view it is probable that a breach of law could have occurred when issuing a reprivatization decision, the commission can open an investigation and carry out proceedings aimed at eliminating the violation of law.

During the proceedings, the commission may call the parties to appear, request searches of the property as well as the files of all court and administrative proceedings and information connected with the process. The commission may also issue interim relief by prohibiting disposal of the real property that is the object of the proceedings.

Having conducted the investigation, the commission may, by virtue of its decision, uphold any reprivatization decision, rescind it in part or entirely or revert the matter to the authority that issued it for reevaluation. The repeal of a reprivatization decision removes the legal grounds for return of the property to the ex-owner or its legal successor, so one may assume that such real property will be seized by government, subject to the exception below.

Real property regained by ex-owners (or their successors) could have been sold to a third party. If the commission finds that the reprivatization decision was issued in breach of law but that irreversible legal effects have occurred, the commission confirms this by way of its decision. The act defines irreversible legal effects as transfer of title to real property either to a third party (other than transfers without consideration), provided that the third party acted in a bona fide manner, or use of the real property for public purposes as defined in applicable law. Therefore, bona fide buyers of reprivatized properties should be protected with respect to their title to the real property.

The act provides for a long list of reasons that the commission may rely on to adopt its decision. Apart from typical reasons, such as the reprivatization decision being issued on the basis of false evidence or in consequence of a crime, the commission may also repeal the reprivatization decision if its issuance led to effects grossly contrary to the public interest – which gives the commission wide discretionary power to decide on repealing previously issued decisions. What is very controversial is that the commission does not have to wait for a competent court to judge that the evidence was false or that a crime was committed – the commission may find that the crime is evident and thus the commission replaces a court of law. Further, once the commission commences its proceedings, any proceedings related to the real property in question (i.e., concerning damages, compensation for use of real property or aimed at challenging the reprivatization decision) are suspended (the act is silent on what would happen once the commission issues its decision).

Another controversy is that the commission is, in the government’s plan, a special type of ad hoc administrative authority, the authority of which replaces and surpasses all other authorities, without any respect to their competences provided for in other acts. Further, it is not clear whether the commission’s decision may be challenged before the administrative courts – one may assume that this would be possible under general principles of law, though the act is silent on that. As existing law would very likely suffice to remedy the existing situation, the need for special measures is not justified simply on grounds of closing a gap in the legal system.

The fact that the commission is vested with powers normally vested to the courts, and that it ignores the rules of administrative proceedings and yet may issue decisions depriving citizens of property, may give rise to serious doubts as far as the constitutionality of the new piece of legislation is concerned.

The act, passed by Parliament on 10 February 2017, still requires Senate approval and a presidential signature. Given that the government has a majority in Parliament and the Senate, it is very likely that the act will be voted and signed into law by the president.

© Copyright 2019 Squire Patton Boggs (US) LLP

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About this Author

Peter Swiecicki, Warsaw, Squire Patton Boggs, Infrastructure Financing Lawyer, Privatization Matters Attorney
Partner

Peter Swiecicki is the Managing Partner of our Warsaw office and his practice includes some of the largest infrastructure financings and privatizations in Central and Eastern Europe. His experience includes financings of the largest and most complex toll motorway project in Poland, as well as the main gas pipeline and the tallest office building in Central Europe.

Peter has served as an advisor to the Government of Kuwait on PPP projects, and advised on the financing of the Żywiec Hospital PPP project.

He has...

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Marcin S. Wnukowski, Squire Patton, Warsaw, foreign investment matters lawyer, acquisition transactions attorney
Partner

Marcin Wnukowski focuses his practice on foreign investment matters and merger and acquisition transactions in Poland in a broad range of industries including pharmaceuticals, automotive, financial services, hotel and hospitality, and real estate. His clients include private equity firms and multinational investors. State aid and competition law approvals are among his core practice areas. He also serves as de facto outside general counsel to various clients in different industries.

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