Concluding a sales agreement before a notary public is certainly one of the most important moments in the entire process of acquiring real estate (perpetual usufruct right). It is in this document that the parties make a joint declaration of will, the purpose of which is to unconditionally transfer the right to the buyer. However, not always when signing a sales agreement by the parties, the buyer can already be considered as the owner (perpetual usufructuary) of a real estate.
According to the basic principle expressed in art. 155 § 1 of the Polish Civil Code * the real estate sale agreement is the so-called a double effect agreement. In addition to the obliging effect (obligation to transfer the right), this type of agreement also has a material effect (transfer of the right). Therefore, in principle, it is sufficient for the parties to submit a joint declaration of will for the effective transfer of ownership of the real estate. It does not matter whether the real estate has been handed over to the buyer and whether the new owner has already been entered in section II of the land and mortgage register (declaratory entry). Thus, it means that the buyer automatically becomes the owner of the property upon the conclusion of the sales agreement in the form of a notarial deed.
The rule of double effect of the real estate sales agreement, however, has two kinds of exceptions. Pursuant to Art. 155 § 1 of the Polish Civil Code* the dispositive effect will not occur upon the conclusion of the sales agreement in a situation where:
1) the parties decided otherwise;
2) a special provision provides otherwise.
Lack of dispositive effect due to decision of the parties
The parties to the real estate sales agreement may exclude the dispositive effect in the sales agreement. In such a situation, an agreement with obliging effect is concluded first (only obliging to transfer the right) and then an agreement with material effect (transferring the right). An example may be the conclusion of a sales agreement with obliging effect provided that a third party does not exercise the contractual pre-emption right, and then, after this condition is met, an agreement that transfers the ownership right to the real estate. The buyer therefore becomes the owner of the real estate not earlier than on the conclusion of the second agreement.
Entry in the land and mortgage register and the moment of transfer of ownership
There are many specific law provisions that modify the principle expressed in art. 155 § 1 of the Polish Civil Code *. Due to the specific nature of real estate sales transactions on the primary market, the regulation of the Act on the ownership of premises ** concerning yet non-separated premises is of particular importance. Non-separated premises are premises that do not yet have a separate land and mortgage register, i.e., mostly premises built in new developer investments. Pursuant to Art. 7 sec. 2 of this Act **, to create a separate ownership of the premises, an entry in the land and mortgage register is required. Thus, unlike in the case of premises for which a land and mortgage register has already been established, an entry (constitutive entry) is important for the creation of the ownership right.
The buyer of a housing property obtains ownership only upon an entry in the land and mortgage register. In the period from the date of the sales agreement to the date of entry in the land and mortgage register, the buyer is entitled to the rights resulting from the agreement on establishing the right (sales agreement). Moreover, pursuant to Art. 29 of the Act on land and mortgage registers and on mortgage ***, the entry has retroactive effect from the moment of applying for entry. If the entry is made, it will confirm the ownership right from the date of applying for entry, i.e., from the date of the sales agreement.
Entry in the land and mortgage register and the moment of the right of perpetual usufruct transfer
Same as in the case of non-separated premises, the entry of the transfer of the right of perpetual usufruct is constitutive. Pursuant to Art. 27, second sentence of the Property Management Act ****, both the perpetual usufruct of land and the transfer of this right by agreement require an entry in the land and mortgage register. Regarding the entry of perpetual usufruct, the principle expressed in Art. 29 of the Act on land and mortgage registers and on mortgage ***, i.e., that the entry has retroactive effect upon submission of the application for entry, is also applicable. For determining the date of transferring the right, the moment of submitting the correct application for entry of this right will be of importance, therefore the date of conclusion of the sales agreement itself, most often, will be decisive.
* Civil Code – Polish Act of 23 April 1964 Civil Code (consolidated text, Journal of Laws of 2020, item 1740 as amended)
** Act on the ownership of premises – Act of 24 June 1994 on the ownership of premises (consolidated text, Journal of Laws of 2020 item 1910 as amended)
*** Act on land and mortgage registers and on mortgage – Act of 6 July 1982 on land and mortgage registers and on mortgage (consolidated text, Journal of Laws of 2019 item 2204 as amended)
**** Property Management Act – Property Management Act of 21 August 1997 r. (consolidated text Journal of Laws of 2020 item 1990 as amended)
In the “Real estate law guide” we introduce you to issues related to real estate ownership as well as real estate transactions in Poland. As part of the series of articles, we explain useful notions related to real estate, present legal regulations associated with the real estate market and show what aspects are worth paying attention to when buying, selling, or renting real estate.