Real estate finance law in Poland

Yes. The most commonly used types of securities are mortgages (over real estate), registered pledges (over shares, assets, bank accounts, receivables), financial pledges (over shares, securities, bank accounts, receivables) and security assignments of receivables. All of those forms of security may generally be freely used to secure loans granted by foreign lenders.

In Polish law, buildings are generally part of the same real property as the land on which they are erected (the superficies solo cedit rule). In other words, a “real property” consists of both the land and the buildings erected on it, and therefore, a mortgage on a real property covers both the land and the buildings on the land. There are, however, exceptions to this rule, the most important of which is the possibility to separate part of a building (such as an apartment) to make it a separate real property.

Apart from ownership, Polish law recognises another type of legal title to real property called perpetual usufruct, which is in practice very similar to the right of ownership. Perpetual usufruct applies only to land, but, as a rule, the perpetual usufructee is always, at the same time, the owner of all the buildings situated on the land, and any mortgage established over the right of perpetual usufruct to land also extends to the ownership of those buildings.

2.1  The distinction between mortgages on land and buildings on the land?

The land and the buildings situated on the land generally form one real property, so a mortgage established over that real property extends to both the land and any buildings situated on it. Separate ownership of premises within a building, where those premises form a separate real property, is most common in residential properties.

2.2 Are mortgage certificates for a certain value issued? What is the cost? Are they transferable?

Mortgage certificates are not issued in Poland.

Local district courts maintain land and mortgage books for virtually every real property within their district (in electronic form). Ownership of the real property, as well as other rights to the property and encumbrances (such as mortgages) are registered in the land and mortgage book. A mortgage must be registered to become effective. In order to establish the legal status of a real property (ownership, any mortgages, etc.), it is possible to obtain an excerpt from the land and mortgage book maintained for that property. Also, the current status of a property disclosed in the land and mortgage books can also be checked online on the Ministry of Justice’s website: EUKW - Prezentacja Księgi Wieczystej (ms.gov.pl).

2.3 Can second ranking security be taken? If so, how is it registered? Is a priority deed also registered?

Yes. Polish law allows more than one mortgage to be created over the same real property. The ranking depends on the date of the application for registration of the mortgage. The registration procedure is the same as with first ranking mortgages. This ranking may be altered contractually, which requires the consent of the mortgagees who are to give up their higher ranking.

In the event of the expiry of a mortgage over a property, the owner of the property has the right to dispose of the emptied mortgage place and may establish a new mortgage in the place of the emptied one or transfer another mortgage into its place, with the consent of each (other) mortgagee. If a mortgage expired only in part, the owner of the property may dispose of the emptied mortgage space within the emptied part. In a situation where a mortgage is being deleted from the land and mortgage register without simultaneous entry of another mortgage in its place, the owner of the property may dispose of the emptied mortgage space if (along with the deletion of the mortgage) such right will be entered in the land and mortgage register. It is not permitted under Polish law for the owner to undertake not to exercise its right to dispose of the emptied mortgage space.

 2.4 Can the real estate be transferred to a third party (being still subject to the mortgage) without the lender’s consent?]

Yes. Moreover, it is impossible to deprive the owner of the right to dispose of the property encumbered with a mortgage. Please note, however, that in such a case, the mortgage will still encumber the property, regardless of the transfer of the ownership title.

2.5 Are there any preferred creditors (other than a prior ranking mortgage holders)?

Generally, an enforcement proceeding will first be applied towards enforcement costs, alimony and child support, as well as disability pensions, remuneration of employees (but only for up to three months, and only at the minimum wage level), before being applied towards the discharge of the mortgage-secured obligations.

2.6 Can “all monies” mortgages be taken?

No. This institution is not recognised by Polish law.

2.7 Can a landlord’s right to receive rent be charged, assigned or transferred to a lender by way of security? If so, how?

Yes. The most common form of security over rights to receive rent is a security assignment of such receivables to the lender.

2.8 It is customary/possible for a lender to take a charge/security over bank accounts of the borrower? Is it usual for lenders to contractually restrict rights to withdraw funds in accounts until the scheduled interest and capital repayments are made?

Yes. Pledges (i.e. registered pledges and/or financial pledges) over bank accounts are a common type of security over a borrower’s receivables under bank account agreements. It is usual for a loan agreement to contain various provisions and restrictions on how the borrower’s bank accounts can be used. In addition, it is customary in the Polish market for a borrower to grant a lender with a power of attorney to bank accounts that would provide for conditional and/or unconditional powers for a lender, to block the respective bank accounts.

Virtually all real properties have land and mortgage books maintained by local district courts, where their legal status (including ownership) is registered. The transfer of ownership of a real property requires an agreement signed in the form of a notarial deed. Registration of the new owner in the land and mortgage book is declarative rather than constitutive in nature, meaning that the transfer takes place when the sale agreement is signed (unless the parties agree otherwise), and not when the new owner is registered in the relevant land and mortgage book. On the other hand, third parties acting in good faith may rely on the content of the land and mortgage register, meaning that, for example, a mortgage established over a property by a person who is disclosed as the owner of the property, but is not in fact the owner, in favour of a bank acting in good faith and relying on the contents of the land and mortgage book, is effective. Therefore, it is in the best interest of landowners to have their title to land properly registered.

The above remarks do not apply to perpetual usufruct and mortgages, which require a constitutive entry of, respectively, the new usufructee and/or the new mortgagee in the land and mortgage book for, respectively, transfer of the perpetual usufruct/establishment of a mortgage to be effective.

3.1 Consequences of failure to register?

A mortgage begins to exist when it is registered (with retroactive effect from the date the application for entry of the mortgage was submitted). A mortgage cannot be registered after commencement of insolvency proceedings in respect of the owner or perpetual usufructee of the real property (unless the application to register the mortgage has been filed at least six months prior to the date of the application for, respectively, the declaration of insolvency or opening of the restructuring proceedings).

3.2 Formalities for execution of security and costs?

The creation of a mortgage requires signing a notarial deed of establishment by the owner or perpetual usufructee, a written statement by the creditor and registration in the land and mortgage book maintained for the property by the local district court. The mortgage is however effective from the date of its registration (with retroactive effect from the date the application for entry of the mortgage was submitted). In practice, the registration process takes up to about six months (based on the information on the average duration of entry proceedings currently provided by the registry courts), although there is no legally defined time limit for registration and the process can take even longer than six months (even up to a year).

The principal costs for establishing a mortgage are as follows:

The notary fee

The maximum amount of the notary fee is a function of the value of the mortgage, and it amounts to half of the standard notarial fee, i.e. half of the value calculated on the basis of the following formula:

1. PLN 710 + 1% of the surplus above PLN 30,000 – if the value of the property is between PLN 30,000 to PLN 60,000;
2. PLN 1,010 + 0.4% of the surplus above PLN 60,000 – if the value of the property is between PLN 60,000 to PLN 1,000,000;
3. PLN 4,770 + 0.2% of the surplus above PLN 1,000,000 – if the value of the property is between PLN 1,000,000 to PLN 2,000,000;
4. PLN 6,770 + 0.25 % of the surplus above PLN 2,000,000, but not more than PLN 10,000.

In practice, on the commercial real estate market we observe notarial fees for mortgages in the range of PLN 2,500 – 5,000.

EUR 100 is approximately an equivalent of PLN 430 as at 23 April 2024.

The court fee

There is a court fee for filing an application for registering a mortgage in the land and mortgage register – 200 PLN per mortgage.

Stamp duty

1. For a “regular” mortgage (i.e., a mortgage that secures the receivables of an existing/fixed value) – 0.1% of the value of the secured receivable;
2. For a “capped” mortgage (i.e., a mortgage that secures receivables of undetermined value) – 19 PLN.

The concept of a trust is not known to Polish law.

Under Polish law, mortgages and registered pledges can be established in favour of, respectively, a mortgage administrator (administrator hipoteki) or a registered pledge administrator (administrator zastawu rejestrowego). In each case the administrator acts in its own name, but for the benefit of all creditors.

Also, certain other market standard contractual security documents, such as security assignment agreements, subordination agreements, guarantee agreements or duty of care agreements, are executed between the respective obligors and one of the creditors appointed by the creditors as a security agent.

As regards the foreign law concept of trustee, it is generally considered admissible to secure the parallel debt owed to the security trustee/agent with Polish law securities.

4.1 What happens if the lenders change later on e.g. on a transfer? Does new security have to be signed?

Unless a parallel debt structure is used, or a security is granted in favour of a pledge administrator or a mortgage administrator, the transfer of a loan generally requires the transfer or establishment of certain new securities. Under Polish law, the transfer of a receivable secured by a mortgage is effective only when the mortgage is transferred as well, and because the transfer of a mortgage requires the registration of the new mortgagee in the land and mortgage book, the transfer of the loan receivable only becomes effective once registration occurs.

As a general rule, the tenant must obtain the prior consent of the landlord to transfer the lease contract to a third party. However, the tenant may sub-lease the premises to a third party, unless it is expressly forbidden in the lease agreement. For a sub-lease, both the tenant and the sub-tenant are responsible for using the leased premises in accordance with the original lease agreement.

6.1 Can a foreign jurisdiction (either a court or arbitral tribunal) be chosen to settle disputes and under what circumstances may such a choice not be recognised?

A foreign state court jurisdiction can be chosen to settle disputes, provided that the agreement on the choice of jurisdiction is valid under the applicable substantive law, and the dispute is not subject to the exclusive jurisdiction of Polish courts and does not concern employment, consumer or insurance matters.

6.2 Does the local law allow for the enforcement of arbitral awards or foreign judgements without review?

Arbitral awards and foreign judgments are enforceable in Poland after completing a simplified recognition/declaration of enforcement procedure before Polish state courts. Foreign arbitral awards are recognised/declared enforceable in Poland on the basis of provisions of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the 1958 New York Convention). State court judgments issued in EU Member States are recognised/declared enforceable subject to the requirements set out in the Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the 2012 Brussels Recast Regulation). State court judgments issued in non-EU states are subject to recognition and enforcement pursuant to the provisions of the Polish Civil Procedure Code and/or any bilateral or multilateral international agreements or treaties to which Poland is a party, if applicable. In either of the above procedures, arbitral awards and foreign court judgments are not subject to a review on the merits by Polish courts.

6.3 How can that security be enforced? Can it be sold to a third party? Is it possible for a secured party to appoint receivers/liquidators and if so how and what are their powers? Can security be enforced directly without recourse to the courts and are private sales of security possible? Does it have to be sold by auction?

A mortgage may only be enforced in court enforcement proceedings, by a court enforcement officer (who may not be freely appointed by the secured party). The real property is sold by the enforcement officer at an auction. If the real property is not sold on two consecutive public auctions carried out by the enforcement officer, the secured creditor may take over the title to the real property.

Registered pledges and financial pledges can be enforced in court proceedings, but the parties to a pledge agreement may choose from one of several out-of-court enforcement methods (please also see the comment on item B.5.1 below).

Security assignments do not require any proceedings to be enforced.

6.4 Is the lender responsible for maintenance and insurance of the real estate after default until sale?

No.

6.5 Is there any method of foreclosure (lender obtaining good title to the real estate in satisfaction of all or part of its debt)? If so, does this require a court order and is it only automatically used when the real estate is not sold at public auction?

The lender has the option of taking over the real property (for an amount equal to two thirds of the valuation performed for the purposes of the enforcement) only after the court enforcement officers fail to sell the property at two public auctions. In such case, the taking over of the real property requires a public court’s decision.

No.

Assuming real estate is held in a locally incorporated single purpose vehicle to provide an alternative to enforcement of the mortgage over real estate:

Yes. The most commonly used type of securities over shares are registered pledges and financial pledges. A single registered pledge may secure more than one claim, whereas a single financial pledge may secure only one claim. There are no specific restrictions in respect of entities, in favour of which a registered pledge may be established, whereas a financial pledge can be established in favour of entities specified in the act on specific financial collateral of 2 April 2004 (“Act on Specific Financial Collateral”) (which includes banks, credit institutions, financial institutions and investment firms).

Yes. Polish law allows more than one registered pledge and/or financial pledge to be created over the same shares. The ranking depends on (i) the date of application for registration of the registered pledge – in respect of registered pledge; and (ii) in respect of financial pledge, the date of its establishment and notification of a company on its establishing. The registration procedure in respect of further ranking registered pledges is the same as with first ranking registered pledges. This ranking may be altered contractually, which, of course, requires the consent of the pledgees whose registered pledges or financial pledges have a higher ranking.

Registered pledges must be registered in a pledge register kept by district courts. The application (made in Polish) to a relevant pledge register needs to be filed on a standard form (available in the courts or on the internet) with the registered pledge over shares agreement attached. The agreement should be in Polish and if it is in another language, a sworn translation into Polish must also be attached. Information on existing registered pledges can be obtained from the Central Information on Registered Pledges.

Financial pledges are established pursuant to the respective agreement and do not require registration in the register of pledges. However, in accordance with the Act on Specific Financial Collateral, a company should be notified on the establishment of a financial pledge and an annotation on establishment of a financial pledge should be evidenced in the shareholders’ register maintained by the given investment firm (in respect of joint-stock companies), or in the book of shares (in respect of a limited liability company). The agreement may be concluded in Polish or another language. Information on existing financial pledges may be obtained by obtaining information from the entity maintaining the shareholders’ register or by inspecting the book of shares.

3.1 Consequences of failure to register?

The registered pledge begins to exist when it is registered. A notification of the company on the establishment of a financial pledge over the shares is required.

3.2 Formalities for execution of security and costs?

To create a registered pledge, a written agreement between the owner of the shares (pledgor) and the lender (pledgee) needs to be signed. The registered pledge is effective from the date of its registration. An application to the relevant court is required in order to register a registered pledge in a pledge register. A court fee for filing such application of 200 PLN per registered pledge is required.

There are no specific costs in connection with establishing a financial pledge. Please note, however, that in the event any assignment of rights relating to shares is contemplated by the pledge agreement (such as dividends and/or other payments to which a holder of the shares is entitled to), for the purpose of the effectiveness of such assignment against a (potential) bankrupt entity’s assets, the date of the share pledge agreement should be certified.

No. The shares do not have to be transferred. However, the establishment of the registered pledge and the financial pledge over the shares should be noted in the shareholders’ register maintained by the investment firm (in respect of joint-stock companies) or in the book of shares kept by the management board of the company (in the case of a limited liability company).

The registered pledge and/or the financial pledge may be enforced by way of court enforcement proceedings, or, if expressly provided for by the pledge agreement, a seizure of the ownership of the shares or a sale of the shares in a public auction.

5.1 Can it be sold to a third party? Is it possible for a secured party to appoint receivers/liquidators and if so how and what are their powers? Can security be enforced directly without recourse to the courts and are private sales of security possible? Does it have to be sold by auction?

The shares are usually encumbered with a registered pledge and – provided that the pledgee is an entity set out in the respective laws – then it is encumbered with a financial pledge. If a financial pledge cannot be established, the shares are usually also encumbered with an ordinary pledge, which may only be enforced through a court enforcement procedure.

The enforcement methods of a registered pledge and financial pledge are slightly different. Both may be enforced by court enforcement procedures as well as out-of-court enforcement methods.

When it comes to the sale of the shares encumbered with a registered pledge, it can be done only by way of sale in a public auction. Sale of the shares in a public auction may be conducted only by a notary or a court enforcement officer. The shares encumbered with the registered pledges may be also sold by the pledgee directly to a third party, provided that, firstly, the shares have been taken over by the pledgee.

The shares encumbered with a financial pledge may be sold by the pledgee directly to a third party.

It is not possible for a pledgee to appoint public receivers/liquidators as this is done by a court in court enforcement proceedings, but for the purpose of selling the shares to a third party (as described above, after taking over the shares in the case of the registered pledge and directly in the case of the financial pledge), the pledgee may engage a professional entity that is not a public receiver/liquidator, in order to conduct the sale.

5.2 Are loans from shareholders subordinated? If so, how is this done? Is it customary for such loans to be waived or written off contractually as part of an enforcement of a share pledge should a default occur?

In the case of Polish market standard financing: (i) the repayment of intra-group loans is subordinated to the repayment of the loans granted by the senior lenders and (ii) receivables under the intra-group loans are assigned (either conditionally or unconditionally) to the senior lender.

Write-off of the receivables under the intra-group loans towards the borrowers by the senior lender is customary in case of the enforcement of the pledges over the shares of the borrowers.

Legal issues that would be likely to impact upon the valuation and the security of income from an investment perspective.

1.1 Typical lease length?

The lease length is determined by the parties in accordance with their economic needs, subject to the comments below.

The market standard for a commercial lease is a fixed term agreement (as opposed to an indefinite term agreement; see below). For the largest asset classes in Poland like offices, logistics or retail, the most typical lease length would be 5 years. In the industrial sector the term usually varies from 5 to10 years and in the hotel sector the typical term can reach up to 15-30 years.

The lease renewal may involve extension for a shorter period than the usual lease term.

Due to the rising costs of fit-out works, we observe a market tendency to extend the lease term so that the landlord would be better positioned to offer the tenant a fit-out contribution as a greater incentive.

1.2 Maximum/minimum lease length if any?

A lease may be created for a definite or an indefinite period of time. The statutory maximum fixed term of a lease is:

1. 30 years for a lease concluded between business entities; and
2. 10 years for all other parties.

A lease agreement concluded for a definite period of time longer than 10 or 30 years respectively, after the lapse of such time is automatically transformed into an agreement for an indefinite period of time, which may be freely terminated by notice by either party.

1.3  Statutory controls and obligations re renewal/termination of leases (does tenant have automatic right to renewal or can they apply to the courts for a new lease); also does some form of notice have to be served to terminate a lease to avoid renewal?

A fixed term lease terminates after the lapse of the period for which it was created. A lease created for an indefinite period is terminated after the lapse of the notice period specified in the termination notice served by one of the parties to the other party. However, the notice periods cannot be shorter than the statutory notice periods. In respect of leases of business premises under which the rent is payable monthly, the lease may be terminated by both parties on 3 months’ notice counted from the end of the calendar month in which the notice is given.

If after termination of the lease, the tenant is still using the property with the approval of the landlord, the lease is deemed to be extended for an indefinite period of time by law (this provision is, however, usually excluded from commercial lease agreements).

1.4  Any overriding statutes concerning the ability of the tenant to break a fixed term lease (whether or not included as a term of the lease)?

A tenant may terminate the lease agreement with immediate effect if:

1. at the time of being delivered to the tenant the premises had defects which made it impossible to use them in the way indicated in the agreement;
2. such defects arose later, and the landlord, in spite of being notified about those defects failed to deal with them with the appropriate time;
3. if such defects cannot be remedied;

or, if the defects of the premises are such that they are health hazards to the tenant or members of its household or persons employed by it.

1.5 Any other security of tenure provisions available to a tenant that would frustrate possession or prevent receipt of market rents?

If the leased premises have defects that limit their usefulness for the agreed purpose of the lease (and the tenant was unaware of those defects when signing the lease agreement) the tenant may demand a rent reduction until the defects are fixed.

This provision is subject to freedom of contract and many commercial lease agreements exclude the former.

2.1 Rental income receivable quarterly/monthly in-advance/in-arrears?

If the dates of payment are not specified in the lease agreement, the rent should be paid in advance, as follows:

1. if the lease is to last no longer than one month – for the whole period of the lease;
2. if the lease is to last longer than one month or if the lease is created for an indefinite period – monthly in advance, not later than on the tenth day of each month.

The contractual market standard position is that the rent is payable upfront, usually in the first week of the given month. This is due to the landlords’ tax obligations and also for liquidity reasons.

2.2 Periodicity of reviews?

The statutory rule is that with regard to premises lease other than residential, the landlord may increase the rent (at any time) by giving the tenant one month’s notice. If the tenant does not agree to the increase, the termination period specified in the lease or in the Civil Code will apply. However, it is disputable if the above rule applies to lease agreements concluded for a specified period of time. With regard to residential lease, the landlord generally cannot unilaterally increase the rent.

However, the described unilateral rent review mechanism is excluded in virtually all commercial leases (i) either by the contract; (ii) or by jurisprudence (since it is deemed as not applicable as long as the agreement provides for other indexation mechanism).

2.3 Basis of review (upwards-only or variable, indexation or market rent)?

A common market standard for a commercial lease is annual rent indexation, upward only, based on the HICP (annual average or on a given month-to-month basis).

2.4 Are rents/reviews subject to statutory control in regard to quantum or increase (i.e. rent control)?

Yes, but only for residential premises.

3.1 Internal maintenance, decoration and repair?

Small outlays connected with the ordinary use of the leased premises are borne by the tenant.

In reality, for commercial leases this obligation of the tenant is often extended.

3.2 External maintenance, decoration and repair?

The landlord is obliged to keep the leased premises in a condition suitable for the agreed use and maintain them in such condition throughout the period of the lease.

In reality, the commercial lease’s maintenance and certain repairs (the opex but not the capex) is often transferred to the tenants via a service charge.

3.3 Structural repairs?

All costs of repairs that are not “small outlays connected with the ordinary use” of the leased premises must be borne by the landlord. If the leased premises are destroyed as a result of circumstances for which the landlord is not liable, it is not obliged to restore the premises to their former condition.

In reality, the commercial lease’s structural repairs are the responsibility of the landlord.

3.4 Insurance?

Insurance is not obligatory. In practice all the expenses connected with the insurances are borne by the tenant.

3.5 VAT?

The landlord. However, in practice this obligation falls on the tenant to reimburse the landlord.

3.6 Rates?

The landlord. However, in practice this obligation falls on the tenant to reimburse the landlord.

3.7  Other typical outgoings?

A perpetual usufruct fee (when the landlord’s title to the land is perpetual usufruct) and real estate tax. In practice, this obligation falls on the tenant to reimburse the landlord.

3.8 The ability to recoup any landlord outgoings (including management costs) by way of service charges?

The common practice in Poland is to execute “triple net” leases under which the tenant, in addition to the rent, is obliged to pay the costs of maintenance and repair, insurance as well as taxes. The market standard position is that the catalogue of service charge items is open; however, tenants sometimes tend to request certain exclusions.

4.1 Are terms of leases/contracts recognised and supported by case law in the jurisdiction?

No.

5.1 To be recognised in the courts, does an appraisal have to be prepared by some domestically regulated/qualified party or is an RICS (Royal Institution of Chartered Surveyors)-qualified appraisal report accepted and recognised in each jurisdiction?

If the valuation is to be recognised by a court, a property valuation must be made by a domestically regulated and qualified expert appointed by the court. An appraisal by a RICS qualified professional may be at most treated by the court as private opinion evidence and has limited credibility.

5.2 Is it possible/customary to obtain environmental reports from a local government agency or a qualified, insured environmental professional?

It is customary to obtain environmental reports from a qualified environmental professional.

5.3 Is it possible for liability in respect of past or present breaches of environmental laws to attach to a lender by it holding or enforcing a mortgage over real estate?

No.