Real Estate COVID-19 Help Desk in Poland

Poland is recognized as one of the most attractive European real estate markets for foreign investors. It was the only EU country to avoid recession during the 2008 global financial crisis (in 2009 it reported a positive rate of GDP growth) and still holds a leadership position in the CEE region in terms of GDP.

The Polish real estate law is rather stable and generally flexible to foreign investors. Commercial real properties can be freely bought by members of EEA and Switzerland. In case of other investors, the acquisition of real estate requires prior approval of the Minister of Interior and Administration. Foreign investors can also freely buy residential units in Poland.

There are some limitations as to the acquisition of real estate in Poland applicable both to Polish and foreign investors where the main ones relate to agricultural properties; the regulations specifying who is entitled to acquire agricultural property and granting the National Support Centre for Agriculture the pre-emption right to such property or to shares in companies being the owner thereof, came into force in 2016 and have had a significant influence on number of transactions of agricultural land sale.

The long-term consequences of the COVID-19 outbreak on Polish real estate market are still hard to predict. Undoubtedly, however, the current situation has already caused much disturbance to the entire retail sector as well as hotel and construction industry who suffer major losses; the key contributory factors include not only the workforce shortages or disruption in the supply chain but also legislation and measures adopted in Poland.

In the period between 14 March and 3 May 2020 (inclusive), the business activity of majority of tenants in shopping facilities with sales area of more than 2,000 sq. m. was prohibited or must have been significantly limited. In all these cases, the obligations arising under the lease agreements were no longer in force, including also the tenants’ obligation to pay the rent, service charges or any other fees. Additionally, the term of lease agreements of any type of premises concluded before 8 March 2020 and which expires before 30 June 2020, may be prolonged until 30 June 2020 based on the tenant’s statement. Also, with certain exceptions, neither the lease nor the rent amount can be terminated by the landlord until 30 June 2020. In case of leases of the State Treasury’s properties, any payments due for the period from 14 March 2020 and during the term of the state of epidemic may be redeemed, postponed or split into installments.

Subject to the special legal measures adopted in relation to the COVID-19 outbreak described in point 1 above, the possibility to cancel, suspend or modify the lease agreement depends upon the wording of the agreement as well as specific circumstances. Usually, however, the commercial lease agreements are concluded for a fixed term with very limited possibilities of termination; thus, in most cases, the termination or modification of the lease conditions requires a mutual will of both parties. If there are no special contractual provisions and no agreement is reached, parties’ claims may refer to the impossibility of parties’ services clause and the resulting expiry of the lease, warranty for legal defects in the leased property or a very general clause of abuse of subjective rights. The parties are also entitled to claim in the court for amendment or even termination of the lease based on rebus sic stantibus clause.

The short-term effects of the outbreak are already visible at every stage of the transactions. Most of them got suspended or they progress much slower. Due diligence processes have been disrupted due to difficulties in collecting documents which result also from suspended activity of public authorities and courts up to 16 May or even 23 May 2020. As a result of the lock-down, the activity of public notaries has also been limited. No special measures have been adopted by the government in this regard. In case of real estate transactions, however, the target’s value is usually represented by the underlying asset and not the business of the company being the owner. Thus, although the wording of reps and warranties in the SPAs may be affected or some additional CPs to closing may enter for use more often, it does not appear they will play a key role in the real estate transactions. Importantly, in the recent period we observe the transaction market seems to awaken slowly.

During the period from 2 April 2020 up to and including 3 May 2020, the operation of hotel services, and up to and including 17 May 2020 the use of hotel restaurants was significantly limited. There are no specific provisions regulating possibility of cancelling the contract due to the outbreak. In any such situation, it depends on the wording of the contract as well as specific circumstances. Also, the general provisions of the Civil Code, in particular, those relating to the impossibility of performance and the relating expiry of the contract, may apply. In addition, a special law applicable in the event of termination of the contract with the client in connection with the COVID-19 outbreak has been adopted, under which all the fees paid by the client must be returned within 180 days from the date of termination of the contract or alternatively, upon the client’s consent, a voucher for services for the same amount to be provided during the year.

The main challenges in the Polish construction industry are currently delays resulting from proceedings for the issue of required decisions suspended until 16 May 2020 (in some cases up to 23 May 2020), limited labour availability and supply chain issues. With respect to the facilities related to the COVID-19 counteraction, the construction process has been accelerated as there is no need to obtain a zoning, building or use permit. There are no such remedies for other type of investments – neither public nor private ones. The form of relief depends on the wording of the contract as well as specific circumstances. Force majeure clause is usually the starting point, however, there are also some general statutory entitlements, such as the right to withdraw from the contract or rebus sic stantibus clause. As regards the public sector, under Polish law options to modify the contracts are generally limited, however, a special law enabling for them has been adopted.

There is no difference between public and private sector here. The competence of court shall be depended upon the contract provisions. In case of no special contractual arrangements, the place of residence or registered office of the defendant shall be decisive, however, the claim may also be brought in the court competent for the place of performance of the contract. The amount of court fees depends on the value of a claim and amounts to 5% thereof but no more than PLN 200,000 (ca. EUR 45,000). The related costs may also include lawyer or expert costs, translations etc. The duration of the court proceedings is usually at least several months and can take even up to a few years in case of particularly complex cases involving large construction contracts. Due to the temporarily reduced activity of courts mentioned above, the extension of these time frames may be expected.

Extension for payments of perpetual usufruct fees and fees for transforming perpetual usufruct into ownership at least until 30 June 2020; exemption or extension of the payment term of real estate tax on land, buildings and structures related to business activity by entrepreneurs whose financial liquidity has deteriorated as a result of the COVID-19 outbreak; simplifications in obtaining funding from the state budget for the implementation of a construction project concerning the maintenance of continuity of essential services; reliefs in certain payments for the use of the State Treasury’s properties; extension of the deadline for the application of subsidies under the government programme concerning financial support for families and other persons in purchasing their own housing.