Small Reprivatisation Act | DZP commentary

On 17 September 2016, the Act of 25 June 2015 amending the Act on Real Estate Management and the Family and Guardianship Code, i.e. the Small Reprivatisation Act, came into effect. This Act does not actually have much to do with reprivatisation and it could be said that it was adopted in the interests of the capital city of Warsaw and the State Treasury. The amendments adopted in the Act were approved by the Constitutional Tribunal in an award of 19 July 2016 (Kp 3/15), which means there is little practical point in discussing whether the Small Reprivatisation Act complies with the Constitution. All that remains is to examine the new provisions in terms other than the constitutional concerns to which they may give rise. And problems in this respect are major.

Right of first refusal but only on sale

First of all, the Small Reprivatisation Act extends the right of first refusal provided for in the Real Estate Management Act of 21 August 1997 ("REM Act") to the sale of rights and claims specified in the Decree of 26 October 1945on Ownership and Usufruct of Land in the Area of the Capital City of Warsaw ("Decree") and article 214 of the REM Act, and to the sale of perpetual usufruct rights established pursuant to article 7 of the Decree and article 214 of the REM Act.

However, there are agreements other than sale agreements, and even legal transactions or events (such as – to name just a few – exchange, donation, contribution in kind, structure provided for in article 453 of the Civil Code, court or judicial distribution of estate), that enable a right of first refusal to Decree rights and claims to be avoided. Proof that the new amendments are leaky is that the Small Reprivatisation Act completely overlooks the transformation of a perpetual usufruct right established pursuant to article 7 of the Decree into ownership, which is not generally subject to first refusal (unless on other grounds, unrelated to the Decree).

To obtain full control over transactions in rights and claims specified in the Decree and article 214 of the REM Act, the legislator would have to apply the solutions that it adopted for agricultural and forest land, where, in addition to the right of first refusal, there is also the broadly-shaped right to buy back real estate or shares through legal events other than sale. This is not, however, included in the Small Reprivatisation Act, which also confirms that the right of first refusal provided for therein applies only to the sale of rights and claims specified in the Decree and article 214 of the REM Act.

What about prior agreements?

The requirement in article 3(2) of the Small Reprivatisation Act to submit agreements on the sale of Decree rights and claims to court and administrative files before 17 September 2016 is extremely ambiguous, as no indication is given of which exact case files this refers to (a case could even be entirely unrelated to the Decree), which is precisely the 'submission to files' concept and also by whom and in what circumstances this could be done.

It is also obvious that the limitation introduced in article 3(2) of the Small Reprivatisation Act does not apply to agreements other than sale agreements (i.e. legal transactions or even events) covering rights and claims laid down in the Decree and article 214 of the REM Act. These agreements (transactions, events) continue to be valid and effective whether or not they were disclosed in administrative or court files before 17 September 2016.

It is also hard to imagine the new article 111a of the REM Act applying to agreements for the sale of Decree rights and claims concluded prior to 17 September 2016 that were not submitted to court or administrative files, though article 3(2) of the Small Reprivatisation Act seems to stipulate that such agreements should be covered by article 111a of the REM Act. This would, however, be nothing more than the provision having retroactive effect (applying to sale agreements concluded before the current norm came into effect), which would mean breach of the tempus regit actum and lex retro non agit principles, as the legislator did not provide for any transitional regulations laying down how, in this situation, the right of first refusal should be exercised by the President of the capital city of Warsaw (or other competent entity) and also failed to indicate the consequences (sanctions) of failing to submit to court or administrative files agreements on the sale of Decree rights and claims concluded before 17 September 2016. Consequently, these agreements should not be covered by the right of first refusal provided for in the new article 111a of the REM Act and there are no grounds for assuming that they have expired, i.e. lost legal validity or effect. There is nothing like this in the Small Reprivatisation Act, though the new provisions introduced by way of the Act (mainly the new article 111a of the REM Act) should apply only to agreements on the sale of Decree rights and claims concluded after 17 September 2016.

Major problem with compensation

The new article 214a of the REM Act does not generally provide for a compensation mechanism other than that in article 215 of the REM Act. However, the partial award passed by the Constitutional Tribunal on 13 June 2011 (SK 41/09 – indicating a legislative omission) currently indicates the latter and belongs to the category of judgments that are highly controversial in terms of court practice. In addition, article 215 of the REM Act does not cover all the situations listed in the new article 214a of the REM Act. So claiming compensation for a refusal to establish a perpetual usufruct right under the new provisions may be extremely difficult and sometimes even impossible, which has led to complaints already being filed with the European Court of Human Rights in Strasburg.

Another issue could be joinder of the right to compensation under the Small Reprivatisation Act and article 417 et seq. of the Civil Code (article 160 of the Code of Administrative Procedure). In light of case law on sources of damage in Decree cases, it should be said that entitled parties can 'save themselves' by the latter but only if their claims for compensation have not yet become time barred (for more on this subject, see Supreme Court resolution of 13 July 2016, III CZP 14/16). It can therefore be generally said that until the legislator performs the award issued by the Constitutional Tribunal on 13 June 2011 (SK 41/09), the problem of compensation relating to a refusal to establish a perpetual usufruct right pursuant to the Small Reprivatisation Act will continue to be controversial and a speedy and clear solution is unlikely to be found.

Discretionary refusal, court control limited

The first thing to be noted is that the Small Reprivatisation Act introduces in the new article 214a of the REM Act administrative discretion in examining Decree applications ("it can be refused"), while article 7 of the Decree is a related provision ("municipality will uphold"). There are also a number of vague concepts in the new regulations, which creates the general impression that the President of Warsaw has broad discretion in – negatively – considering Decree applications and this means a limitation on court control in this respect (as refusal Decree decisions will be discretionary).

Concerns are also raised by the wording of the new article 214a of the REM Act, e.g. does it apply only to land, or to buildings too (separate premises therein)? And how will the President of Warsaw reliably establish, after many years have passed, the circumstances concerning old developed real estate.

So-called "sleepyheads" will still not wake up

Article 214b of the REM Act added by way of the Small Reprivatisation Act is also clearly defective, as it orders proceedings conducted pursuant to article 7 of the Decree to be discontinued if, despite an announcement, the entitled persons do not respond at the appropriate time. However, it is not said to whom and how the President of Warsaw is to deliver decisions on proceedings being discontinued if no entitled person responds to the announcement.

Due to the absence of a special provision, the amendments do not allow application of article 49 of the Code of Administrative Procedure and so it will not be known to whom and how decisions discontinuing proceedings pursuant to article 214b of the REM Act will be delivered, though this is required for a decision to become effective (i.e. to be deemed to legally exist – article 110 of the Code of Administrative Procedure) and to have legal effects (i.e. to be the basis for the State Treasury or the capital city of Warsaw being entered in the land and mortgage register, as provided for in the new article 214b(5) of the REM Act, and for this, the decision has to be final and enforceable, which is the effect of being duly delivered – see, e.g. Supreme Court judgments: of 7 April 1999, I CKN 1079/97; of 9 October 2007, III CZP 46/07; of 14 October 2011, III CSK 251/10).

A solution to this problem can ultimately be sought in article 41 § 2 of the Code of Administrative Procedure (these provisions, in view of the history of inter-temporal regulations, currently apply to all proceedings regardless of the date they were initiated), though this seems highly controversial, as the relationship between this provision and the new article 214b of the REM Act is not entirely clear, since delivering to an applicant in the said way a decision discontinuing Decree proceedings pursuant to article 214b of the REM Act carries a high risk of the decision being found invalid if it transpires that it was sent to adeceased person (article 156 § 1(2) of the Code of Administrative Procedure). This is highly likely, as we are talking about persons and addresses, the most recent information on which is from more than 70 years ago.

And finally, the new article 214b(2) of the REM Act contains a very strict requirement for there to be no other pleading from the party apart from the Decree application. So, overlooking the rather unfortunate (too broad) use of the general concept of party (not applicant or party on whose demand the proceedings were initiated), it is therefore enough for the ownership files to contain a pleading other than the application from a party to the proceedings (not necessarily from the applicant) and applying the new article 214b(2) of the REM Act becomes impossible. For example, if a Decree applicant filed in the 1940s – either in response to a request from the authority or on its own initiative – subsequent pleadings to which it only attached a mortgage certificate or proof of payment of the fee for the application or other document (which happened relatively often), it will not be possible to use the new article 214b of the REM Act, as this provision only applies to cases whose files start and end with a Decree application.

Other problems and concerns

The concerns discussed above are, of course, not the only problems arising from the solutions adopted in the Small Reprivatisation Act, so application of this Act in practice should be expected to give rise to further ambiguities that will have to be resolved as they arise by authorities and courts.