Perpetual usufruct – defending against an increase in fee
Perpetual usufruct fee update
The primary obligation of a perpetual usufructuary of a land is to pay the applicable fee. The fee is determined by multiplying the percentage rate and the value of property on the day perpetual usufruct was established. However, one has to bear in mind that this value can change. It can be updated, although not more often than once in three years. When can the update of the fee can take place? When the value of the property – determined on the basis of a valuation prepared by a property valuer – changes. The valuer prepares the valuation on the basis of transaction prices of other properties characterized by similar parameters. It is worth knowing, that such a calculation includes only up-to-date, market prices of similar properties. These prices then have to be related to certain factors, important for a given site , such as for example location or neighborhood.
If the analysis carried out provides for a possibility to change the perpetual usufruct fee, the existing fee will be terminated, and the new amount will be presented by a relevant local government authority.
The bad news for perpetual usufrutuaries of properties is that if the fee is updated, it usually increases considerably. Our practice shows that updated fee is often too high; however, what’s important, there are means to verify whether the proposed increase is justified. We have successfully supported our Clients in carrying out an analysis in this respect.
When the fee goes up
Receiving a letter from the authority informing about the new fee amount does not mean that the perpetual usufructuary has to pay it immediately. On the contrary, he or she has the right to challenge the fee update within 30 days since the previous fee was terminated. What to do? All it takes is to submit an appropriate application to the SKO , competent with respect to the location of the property. The application should indicate that the fee update is unjustified, or that it is justified, but at a different amount. What is important is that the perpetual usufructuary does not need to present an exhaustive justification of his or her opinion, as the burden of proof in this respect lies with the entity that is increasing the fee. The authority has to prove that the conditions for updating the fee have been satisfied. If it fails to do so, it will lose the case.
However, if the authority presents such evidence, and the SKO agrees with its arguments, it does not mean that it is no longer possible to pursue one’s claims. The SKO’s ruling can be challenged by lodging an objection, which equals a request to transfer the case to a common court. The moment the case reaches the court, the general rules of procedure and evidence under the Code of Civil Procedure apply. In that case, it is the perpetual usufructuary wishing to challenge the annual fee update that shall present evidence to support his or her argumentation.
Our practice shows that often only litigation in court gives the results expected by the perpetual usufructuary, namely lowering the amount of the updated annual fee.
Perpetual usufruct right conversion
As of January 1, 2019, the perpertual usufruct right for properties developed for residential purposes, or business purposes in case of multi-housing developments with the majority of housing premises, was transformed into an ownership title by virtue of law. As a result, current owners are obliged to pay the “transformation fee” to the heretofore owner, namely the local government units or the State Treasury for a minimum of 20 years in the amount corresponding to the annual fee for perpetual usufruct before the transformation.
The issue of the current annual fee becomes particularly important in the context of the complete erasure of the perpetual usufruct right and replacing it with the ownership right.
Experience so far has shown that the transformation of the perpetual usufruct into ownership entails and will entail fees, the mechanism of which is based on the current annual fee.
A wave of annual fee updates
The fact that the transformation fee is based on the current annual fee seems logical from the economical point of view of the existing owner.
At the same time, it gave rise to an official wave of annual fee updates for properties of all functions in Poland.
The number and severity of notifications on the update of the annual fee is particularly acute for new perpetual usufructuaries who finalized the land purchase transaction by the end of 2018 and in the recent months.
Costs for developers and investors
The ongoing updates of the fees may have a considerable impact on the costs borne by investors and developers in the immediate term.
In many cases, new annual fees are exaggerated with respect to the objective value of the land, as supported by the project feasibility analysis. In today’s reality of shrinking developer margins, resulting from high construction costs and in the view of the expected market cooldown, the increased property upkeep costs during the development process are of particular importance.
Additionally, in the case of housing projects, the final recipients of apartments increasingly often pay attention to whether the costs of the fraction of the annual fee for
a particular dwelling are not exaggerated. If the cost for the future residents is too high, it may affect the pace of selling apartments by the developer, who developed the project at the property covered with overstated annual fee.
- A DECREASE IN THE PROJECT PROFITABILITY
- A DECREASED PACE OF APARTMENT SALES IN THE PROJECT
Before taking any action pursuant to the above information, we recommend that you obtain a valid opinion of TPA experts and Baker Tilly Woroszylska Legal lawyers.