Establishing the legal status of real property: A formality, or the key element for determining the property’s value and price?

Determination of real property’s legal status is one of the major stages preceding purchase of the realty in which an investor has taken interest. The legal status of a piece of property is the rights, both property and liability-related, vested relative to a given property. Its correct disclosure is of importance not only from the standpoint of business trading – it is primarily part of the property owner’s interest. No regulated legal status is a serious legal defect of a real property.

Non-regulated legal status of a real property is nothing else than incompliance of land-and-mortgage registry entries with the actuality. The basis for determining a property’s legal status is the content of the land-and-mortgage register or collections of documents. Land-and-mortgage register is an official register aimed at determining the property rights upon a real property, that is, the ownership and any other rights pertinent to the real property in question. A land-and-mortgage register is set up and kept for a real estate pursuant to the Land-and-Mortgage Registry & Mortgage Act of 6th July 1982 (i.e. Journal of Laws 1982, No. 19, item 147; as amended thereafter). A separate land-and-mortgage register is kept for each single piece of real estate, which is true also for retail properties and realties with singled-out retail properties. As for the legal status of realties for which no land-and-mortgage register has been set up or there is no documentation collection in place, can be proved based upon either of: legally valid court ruling (e.g. positive/acquisitive prescription); final administrative decision (e.g. expropriation/dispossession/compulsory purchase); legal actions carried out in the form of notarial deed, executed agreements and settlements/compositions in judicial and administrative procedures, any other documents of probatory force for establishment of proprietorship or possession. The legal status is stated taking into account the documentation as complemented by the interested party.

Determination of the legal status should be started from getting acquainted with the land-and-mortgage register or collection of documents kept by the Land-and-Mortgage Registry Department of the District Court competent with regard to the real property’s location. In practice, a land-and-mortgage register copy can be obtained on the spot or its content read at any court, the condition being it is kept using an IT system. Land-and-mortgage registers are overt and accessible to everyone. Yet, the most important rule, or feature, of land-and-mortgage register is the principle of its public credibility. What it means is that in the event of a discrepancy between the legal status as revealed in the land-and-mortgage register and the real legal status, it is the register’s content that determines to the benefit of the one who, according to the register, has acquired proprietorship or any other property right though a legal action with the authorised person.

In a land-and-mortgage register, all the pieces of data entered in such register – inter alia, the property’s marking, area of land plot, the proprietor or perpetual usufructuary – require being checked. Particular attention should be paid to entries made in Section III and IV of a land-and-mortgage register where rights and claims of any other parties, restrictions to use of real property and, in the first place, mortgages can be revealed. In the event that any section of a land-and-mortgage register appears to feature any mention of a motion or application, the latter’s content should be learned. This is to be done in person or by telephone at the District Court competent for the property’s location. Such motions in most cases refer to establishment of a limited property (real-estate security) right, e.g. easement/right of habitation or establishment of mortgage. In case a transaction is being entered into, it is very important to have updated knowledge on the register’s content – preferably, as at the date the contract is concluded. This obligation rests with the notary public as well.

In order to gain a complete picture of the property’s legal status, ensuing from the land-and-mortgage register’ content, getting acquainted with the register’s file is recommendable as it is there that the whole documentation is stored pursuant whereto consecutive proprietors/mortgages have been entered. It is there that information can be found concerning proceedings relating to the real property. Unfortunately, there are limits to entitlement to browse through the file. As per the Land-and-Mortgage Registry & Mortgage Act of 6th July 1982, the authorised parties include those with a legal interest (e.g. the proprietor, perpetual usufructuary) or a notary public.

Another element of essence to investigation of the legal status is to obtain an extract from the register of lands and buildings for the allotments of our interest, as can be received from a communal/municipal authority (gmina) or district authority (starostwo) or a city with district rights. An extract contains the number of the real property’s land-and-mortgage, area, limits, reference number and the location of lands, type of arable land, class of land and the plot’s proprietor.

The extract’s data should be compared against those in the land-and-mortgage register and in case of any incompliance, further action should be taken to determine the reasons and, possibly, bring up to date the land registry data or amended land-and-mortgage register entry. It should be borne in mind that it is the register-of-lands-and-buildings extract that provides the grounds for marking the real property in the land-and-mortgage register’s Section I-O. Consequently, in case there appears any discrepancy in the property’s marking (area, location) between the register’s content and the extract’s content, it is the latter data that prevail.

Getting acquainted, in turn, with deeds regarding spatial development/zoning will enable us to be informed on the realty’s future purpose or assignment, which extends to adjacent properties. Spatial-development information is obtainable from the communal/municipal authority or the town council. Anyone can have access to the zoning plan and can obtain textual and graphical extracts from the same. The plan will tell us, among other things, of the land development conditions admissible for the realty or burdensome investment projects planned in the surrounding area, such as e.g. industrial plants. In case, however, there is no binding local spatial development plan in place, it should be checked whether any valid planning permission has been issued for the plot of land being purchased. Such planning permission, commonly referred to in Polish as a ‘WZ’ [warunki zagospodarowania being the Polish for ‘conditions of development’], comprises the entire information on permissible developments and the plot’s purpose.

Other essential elements enabling to minutely examine the real property’s legal status include the following decisions: the building permit and the operation permit. Pursuant thereto, it is to be determined whether a building or retail premises have been built in accordance with the law and whether it can be operated.

It is also worth our time to visit the Provincial Heritage Conservator to check whether the property is possibly listed in a heritage register. Conservator’s protection entails a series of restrictions to exercise of proprietary right, with particular emphasis on those pertaining to renovation or redevelopment. Any such action requires being based on the Conservator’s decision.

In case that not a property right but a right of perpetual usufruct is being acquired, the terms-and-conditions of the agreement providing for establishment of such right should be read, wherein the obligations of the perpetual usufructuary are set forth.

Moreover, one of the most important stages in investigating the realty’s legal status is to check with the appropriate town council or district authority if there are any proceedings pending with regard to a specific real property in view of return to former owner(s).

However, the most important action one should perform upon buying a real estate is to check the legal title vested in the present proprietor. This in most cases would be the property transfer agreement drawn up as a notarial deed or a court’s decision on acquisition of the estate of a deceased person. It is worth checking whether such a title is disclosed in the land-and-mortgage register as a basis for the proprietor entry.

Apart from determining the real property’s legal status as per the relevant documentation, each of the documents mentioned above should be investigated formally. It should namely be checked in the first place whether the documents delivered to us are original (copies being what we most frequently deal with, in fact); whether they have been issued by the duly authorised authority, prove to be legally valid, etc. Of high importance is their being checked for completeness, i.e. if they comprise all the annexes enumerated therein and all the pages as due in the sequential order.

Examining the legal status of real property is quite a difficult and time-consuming task. This is caused for most part by difficulties in obtaining complete documentation. However, if one places a bet on making a decent investment in a piece of real property while preventing an obvious instance of legal defect such as non-regulated legal status, no efforts should be spared in investigating into it. Services of the legal department of a real estate agency of experience and expertise, or a specialised law office, may be used in certain exceptional circumstances.

In many a situation, however, we will be left on our trust in honest approach of the proprietor selling the real property to us. Then, the seemingly simple question: “Can I afford such a risk?” will have to be answered by the prospective buyer themselves.

Source: Property Jornal Polska Giełda Nieruchomości 06-07/09