DEALING WITH PROPERTIES IN POLAND
This Part provides guidance and advice on dealing with a property in Poland, as follows:
The EC Regulation on Insolvency Proceedings 2000 (‘the Regulation’) (see Chapter 41) generally provides that the law applicable to the bankruptcy is that of the Member State in which the bankruptcy order was made [note 1] (see paragraph 41.51).
The Insolvency Act 1986 provides that property, wherever situated in the world, forms part of the bankruptcy estate [note 2] [note 3], and the Act gives the trustee a power of sale over the property [note 4] [note 5].
There are, however, exceptions to the general rule in the Regulation. The exceptions include special provisions relating to property. In particular, the opening of the proceedings does not affect the ‘rights in rem’ (see paragraph 43.16.5) of a creditor or third party in respect of assets belonging to the bankrupt which are situated in another Member State at the time of the opening of the proceedings, in this instance Poland [note 6].
The EC Regulation allows member states to require that a foreign insolvency order is registered within the state [note 7] and this requirement will usually be enforced before any action can be taken in relation to property situated within that state. Further, a member state may require publication (in a state gazette, for example) of the foreign insolvency order where that person traded from within the state [note 8].
It appears that Poland does not require either registration or publication of foreign insolvency orders.
Information regarding the Polish bankruptcy register can be viewed here:
As outlined at paragraph 43.16.3, the Regulation provides that ‘rights in rem’ are subject to an exception to the general rule that the law of the country in which the order was made takes precedence.
Broadly speaking, ‘rights in rem’ include security rights such as a mortgage charge on a property, and the Regulation provides that it is the law of the country in which the property subject to security is located that would take precedence when considering the effect of the proceedings on those rights.
In order to comply with the regulation, the official receiver will therefore have to follow Polish law when dealing with the rights of chargeholders – for example, the right of a chargeholder to repossess the property (see paragraph 43.16.10).
There are a number of ways that land and property can be held in Poland, but the only types which can be mortgaged and are recognised by institutional lenders are full ownership (‘własność’) (similar to freehold – see paragraph 31.3.16) or perpetual usufruct (‘użytkowanie wieczyste’), which separates the ownership and the right to collect an income from the property (see paragraph 43.16.7).
A perpetual usufruct may only be created on land belonging to the state treasury or local authorities. Once the perpetual usufruct has been created it can be inherited, transferred to third parts and be subject to a mortgage charge.
The perpetual usufuctee is the owner of the buildings and other constructions on the land and the owner of the land is the state treasury or local authority.
The beneficiary of a perpetual usufruct has the right to enjoy unfettered use of the property for a term of between 40 and 99 years (though the use and time may be limited by agreement), which term must be extended by the owner, on request, except in limited circumstances. The usufructee has the right to draw benefits from the property such as rental income. A fee of around 15% to 25% of the value of the property is paid by the holder of the holder of the usufruct to the owner at acquisition, and a further fee of around 3% of the value of the property is paid annually thereafter. At the conclusion of the term, the owner has to compensate the usufructee for the current market value of the property and any improvements made. In many ways, perpetual usufruct is very similar to property held on a leasehold basis in the UK (see paragraph 31.3.18).
It is likely that a jointly-owned property in Poland held by a married couple will be held on a basis similar to the principle of a joint tenancy (see paragraph 31.3.22) in the UK, though such a presumption can be displaced by agreement and the property held instead in distinct and separate shares, more similar to tenants in common (see paragraph 31.3.22).
Where the property is owned other than in a marriage, it is more likely that each owner holds the property in separate (not necessarily equal) shares.
Where there is an indication that the shares are held other than in equal proportion, the split held may be established from papers provided by the bankrupt (see paragraph 43.16.15), or from the notary who dealt with the original purchase by the bankrupt (see paragraph 43.16.27). Any split that provides for the bankrupt to receive an interest of less than 50% should be carefully considered (see Chapter 31.3, Part 4)
The most common form of security in Poland is a standard mortgage, which may be held over properties held on the basis of full ownership (see paragraph 43.16.6), or properties held on the basis of perpetual usufruct (see paragraph 43.16.7).
The general method of realisation of a mortgage (‘hypoteka’) charge by the mortgagee is through non-judicial repossession. The right for such repossession is usually provided for in the mortgage contract or underlying loan contract.
If no such non-judicial repossession is possible under the contracted terms, permission to repossess will be granted on application to the district court. The mortgagee then appoints a bailiff distrains upon the property, giving the debtor one final opportunity to repay the outstanding arrears. If such payment is not forthcoming the bailiff will have the property valued and auction it with a starting price not lower than three-quarters of the assessed value. If that auction is unsuccessful, a second auction is held with the starting price being not lower than two-thirds of the assessed value. If neither auction is successful, the proceedings must be discontinued and not re-started until a year has passed.
The system of land registration in Poland is two-pronged – one register (called the Real Estate Cadastre) records information regarding the ownership, size, description, taxation value and boundaries of the property. The Real Estate Cadastres are kept by ‘powiats’ (local government units).
The other system (called the Land and Mortgage Register) records details of ownership, registered rights (such as charges) relating to the property, along with any restrictions or rights relating to the ownership of the property. The register is maintained by the local courts of justice. Guidance on conduction a search of the Land and Mortgage Register is provided in paragraph 43.16.19. Land and Mortgage Registers are available for public view, even by those with no legal interest.
As with any other asset the official receiver, as trustee, should ensure that the value of the property to the estate justifies any action taken or expense incurred in relation to the protection or realisation of the property.
It is accepted that this may be something of a circular matter, in that it may be necessary to incur some expense to find out that the property has no value.
Where there is no prospect of the property achieving sufficient proceeds to make realisation worthwhile, the official receiver, as trustee, may cease to take any active steps in dealing with the property, effectively ‘abandoning’ the property to the chargeholder. If there is some onerous obligation relating to the property (the need to obtain public liability insurance, for example), the official receiver should consider if a disclaimer (see Chapter 34) would be more appropriate. If a disclaimer is issued, the notice of disclaimer served on the interested parties should be accompanied by the document at Annex G, which explains the purpose and effect of a disclaimer, in Polish. Annex H is an English translation of Annex G.
Where this position is established prior to the process of registering his/her interest at the land registry (see paragraph 43.16.22), the official receiver may discontinue that process. The official receiver should, though, ensure that his/her interest is noted by the mortgagees in the event of a surplus arising.
In simple terms, the calculation of the value of a Polish property to the estate involves the same process as would be required for a property in England and Wales (that is, the value of the property less any charges or third party interest – see Chapter 31.3, Part 4). What may be more difficult is obtaining accurate information regarding the value of the property and the amount and level of any outstanding charges.
The most likely source of information regarding the value of the property will be from the information or documentation provided by the bankrupt, for example:
In Poland, as in the UK, there are websites that give the prices of properties that are for sale and an example is given here:
It may be possible to use the information on that, or similar, web-sites to obtain an approximate value of the bankrupt’s interest in the property.
Alternatively, it is possible that a local Polish estate agent may be willing to offer an opinion regarding value, assuming that communication in English is possible. An estate agent may be located through the regional associations on the following website:
Alternatively, the national federation of estate agents may be able to assist in locating a suitable agent:
Where it is necessary to obtain an accurate valuation of the property, the official receiver, as trustee, may consider appointing the Polish equivalent of a surveyor. As this service is likely to attract a fee, the official receiver should weigh up the necessity of the need for a valuation against the likely benefit to the estate. A surveyor may be located on the following website:
It is likely that the surveyors on this database will be able to speak English.
Alternatively, the Association of Polish Valuers may be able to assist in locating a suitable valuer:
It is likely that, as with a UK property, the official receiver, as trustee, will be able to establish what charges there are against the property from information or documentation provided by the bankrupt. Alternatively, a search of the Polish Land and Mortgages register (see paragraph 43.16.19) may be required.
Assuming the identity of at least one of the chargeholders is known, a letter should be sent in the normal way (see paragraph 43.16.21) to obtain details of the amount outstanding under the charge and the identity of any other chargeholders.
It may be necessary to conduct a search of the Polish Land and Mortgage Register (see paragraph 43.16.21) where, for example, the nature of the bankrupt’s interest in the property is uncertain.
This is achieved on the following web-page:
To conduct a search, which is free of charge, the property’s unique number (similar to a UK title number) must be entered in the first box. The official receiver should endeavor to obtain the title number from the bankrupt (see paragraph 43.16.15).
It is unlikely that the official receiver will have need to search the Real Estate Cadastre (see paragraph 43.16.11) as that register is primarily concerned with describing the land and property and its use for taxation purposes.
In the first instance, the official receiver should contact any chargeholder and request that they note his/her interest in the property (see paragraph 43.16.21).
In addition to informing the chargeholders of the making of the bankruptcy order, it may be necessary to register the official receiver’s interest in the property at the land register office (see paragraph 43.16.22).
The official receiver should write to the chargeholder informing them of the bankruptcy order and seeking information relating to the property. Annex A is the standard letter which is sent to the mortgage company in a bankruptcy [note 9] that has been amended to be more relevant in respect of a Polish property.
Annex B is the standard letter requesting the chargeholder to note the official receiver’s interest in the property [note 10] that has been amended to be more specific in respect of a Polish property.
Where appropriate (see paragraph 43.16.13), the official receiver should take steps to ensure that his/her interest in the property is recorded at the Land and Mortgages Registry (see paragraph 43.16.11). This is provided for in the Regulation [note 11].
The letter to the Land and Mortgages Registry should be accompanied by a sealed copy of the bankruptcy order and a certified copy of the notice of no meeting.
The address of the central land registry is as follows:
Centralna Informacja Ksiag Wieczystych
Ul. Czerniakowska 100
As with a property in England and Wales, the official receiver should seek to transfer dealings in relation to the property to the appropriate LTADT as soon as possible after his/her interest in the property has been protected (see paragraph 43.16.20).
As outlined in paragraph 43.16.3, the Act gives the official receiver, as trustee, the power to take possession of and sell a property that forms part of a bankrupt’s estate. Under the provisions of the Regulation [note 12] [note 13], however, the official receiver must have respect for domestic (Polish) law when taking steps to realise the interest in the property. In particular, he/she must follow rules in Polish law in regards to the conveyance of the property (see paragraph 43.16.25).
Whilst the following paragraphs give an overview of the procedures and processes for dealing with a bankrupt’s property in Poland, it is not expected that the official receiver should enter into such a procedure without expert guidance from a lawyer (probably based in Poland) well versed in Polish law (see paragraph 43.16.29).
The first stage in the conveyancing process is for the purchaser and vendor to choose a notary to agree a pre-sales contract, at which time the purchaser will pay a 10% deposit to the notary (see paragraph 43.16.27). A preliminary contract may be drawn up before the final contract to enable the buyer to find the necessary funds to purchase the property and to check the condition of the property.
The notary will then obtain all the relevant searches and property reports, before the conveyance proceeds to the next stage, which is completion. The notary will draw up the deed of sale to be signed in front of him/her by the parties involved in the transaction. Generally, the timescale between pre-sales contract and completion is about three months.
It is not expected that the official receiver would be required to travel to Poland to undertake the procedure required to complete a sale (see paragraph 43.16.25). Instead, it is envisaged that the local legal representation (see paragraph 43.16.28) would deal with this part of the process. For this to happen, the local representation would need to be given a power of attorney by the official receiver. The local representation should lead the official receiver in this process.
The notary is a government appointed official whose role it is to oversee the property conveyancing process. He/she does not act for either side and is interested only to see that the sale proceeds in line with the process set down by the law of Poland. In particular, he/she is responsible for drawing up legal documents, ensuring that the necessary taxes are paid and registering the change of owner at the Land and Mortgage Register (see paragraph 43.16.11).
It is not envisaged that official receivers should attempt to deal with the sale of a property in Poland directly, and it is recommended that local legal representation is obtained to deal with the particular aspects of Polish conveyancing and insolvency procedures – not least the need to be personally present at the signing of sales contracts (see paragraph 43.16.25).
Solicitors engaged by the official receiver in this country may be able to recommend a solicitor in Poland with which they have some connection or arrangement.
The website of the Law Society has a database of lawyers that may be searched by location and specialism:
Alternatively, the official receiver can use commercial databases to find a suitable lawyer, such as the following database:
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