Property law: The disadvantages of perpetual usufruct from the investor's viewpoint (part I)

The institution of perpetual usufruct - the legal right to use and derive profit or benefit from property that belongs to another person as long as the property is not damaged - has always been a problem for Western investors interested in real estate in Poland. This problem has its roots in a kind of intellectual and cultural barrier which results from historical factors.

The institution itself

Although the institution of perpetual usufruct is unknown in the legal systems of other European Union member states, its roots can be found in Roman law. Polish perpetual usufruct does not give certain rights to real estate, in contrast to the right of property, and this can be unpleasantly surprising for foreign investors, making it a risky unknown when investing in Poland.

Some apologists of perpetual usufruct argue that it exists in various forms in other civilized countries. Yet they do not take into account the fact that, in comparison with this variety of forms, Polish perpetual usufruct is quite investor-unfriendly. Western investors feel that it is safer to be in possession of a freehold property than a quasi-property, such as the right of perpetual usufruct. In addition, potential real estate investors do not trust the state, which does not necessarily lose its rights and treats the investor patronizingly.

The matter in practice

In practice, the most difficult matter for an investor interested in the acquisition of perpetual usufruct rights is the risk of the appearance of the former owners' heirs, whose property was taken by the Treasury or local government units and then held in perpetual usufruct. It should be kept in mind that even though a purchaser acquires perpetual usufruct rights - and this is stated in the land and mortgage register - the title can hardly ever be proven with complete certainty. This is the result of historical background and legal situations in Poland following World War II.

This is also why people apply for restitution certificates, which are issued by the relevant administrative authorities - municipal, county or the Ministry of Infrastructure - and acknowledge that there are neither restitution nor claim proceedings against a given real estate. Such a certificate does not guarantee that the inheritors of former proprietors haven't brought any claims, but it does serve as a vital source of information for a potential real estate investor.

The Act on the Appropriation of Perpetual Usufruct does not offer a way to avoid the issue due to the fact the usufruct might not refer to the land and mortgage registers. Land and mortgage registers are a warranty and a form of protection if both list the acquisition of the title to real estate as a result of legal proceedings. However, if both list the acquisition of the right to real estate as a result of appropriation, then there is no protection.

The role of the state

The main factor leading to the implementation of the institution of perpetual usufruct was simple fear of both the privatization of state-owned real estates and the return of former proprietors or investors. Additionally, in those times the authorities' popular habit of not "getting rid of" real estate was unusual, even in comparison with other socialist countries in which lands were transferred and held in typical usufruct. To this day, there remain both supporters and opponents of the right of perpetual usufruct in Poland.

If we assume that the Treasury and local government units should control real estate only in the course of their necessary public responsibilities, then there is no reason for the institution of perpetual usufruct to exist. Still, it is a commonly held conviction in Poland that the state can efficiently use its property to better address the needs of the public. The conflict about perpetual usufruct is in fact a conflict about the role the state performs in our lives. Even though there seems to be no solution to this conflict, the right of perpetual usufruct could be improved so that it took on a proper legal form without any administrative pressure.