Investment in the development of commercial or office real estate, or the acquisition of such property, is usually financed from external sources. Thus those looking to invest in such projects generally apply to financial institutions for funding to cover the costs of their investment. It should be noted that any risk for the investor that the project may fail (which could arise from many different factors), also constitutes a risk for the bank financing the investment.

Under the Polish regulations governing the banking sector, a bank has a right to obtain any information from the borrower which may be important to verify his creditworthiness.

All the issues that may potentially affect the project are thoroughly examined by the banks (with the assistance of specialist legal advisors) in order to assess the risk involved, and ways to mitigate or eliminate such risk.

Aspects related to legal title

Before providing finance, the bank will assess any legal risks connected with the title to the property. One such risk, relatively common in Warsaw (due to the special nationalization regulation adopted in connection with the post-war reconstruction of the city), where many office development projects are situated, are potential restitution claims which originate from the post-war process of expropriation. For more on this in the context of title insurance, see Pawel Bialobok and Konrad Piech, “Title insurance—limitations and challenges in the Polish market” Real Estate Gazette (Issue 13, 2013) page 27ff.

Legal risks in terms of ongoing restitution claims may be assessed by verifying with the various public authorities whether any such claims exist. This should be done as a matter of course as part of a bank’s due diligence procedures.

Restitution claims aside, one of the most important aspects of the investor’s legal title to the property (and any potential threats to it) relates to the right of perpetual usufruct in respect of the real estate.

The right of perpetual usufruct is a type of right over property owned either by the State Treasury, located within city boundaries (or outside those boundaries, but within the city’s local zoning plan area  and allocated for the economic benefit of the city) or by local government authorities or their associated bodies.

Under the Polish legal system, the right of perpetual usufruct is very similar to a right of ownership, in terms of entitlement to use and dispose of the property, which entitles the perpetual usufructuary to use the real property to the exclusion of third parties, as well as to dispose of this right.

Any buildings or other structures erected by the perpetual usufructuary on the property subject to the usufruct are owned by the perpetual usufructuary. However, the ownership  of those buildings or other structures can only be transferred in conjunction with the perpetual usufruct.

The main difference between the right of perpetual usufruct and the right of ownership is that the right of perpetual usufruct is granted for a fixed period of time.The minimum duration of the perpetual usufruct is 40 years and it is subject to a maximum limit of 99 years.

Moreover, the entity being granted a right of perpetual usufruct (and all its legal successors) must use the property for the purposes specified by agreement. Failure to comply with this requirement constitutes a ground for dissolution of the agreement establishing the right of perpetual usufruct.This would result in the perpetual usufructuary’s loss of legal title to the property. Therefore banks thinking of lending to investors in commercial development projects must take into account whether the existing or contemplated use of the property is compliant with the designation specified in the agreement.

This is clearly extremely important from the perspective of financing the transaction since non-compliance leads to the risk of loss of legal title to the property. However, such a risk can be mitigated by making payment to the original owner of the property to have the right of perpetual usufruct converted into one of ownership.

Thus, in many cases, banks will make conversion of the right  of perpetual usufruct into an ownership right a condition precedent for providing finance.

Lease   agreements

Another factor to be considered in relation to financing transactions concerning the acquisition of commercial or office buildings which are already occupied and in use is the stability of lease agreements (in Polish: najem). The stability of the lease relationship and therefore the likelihood of generating stable rental income is extremely important in any assessment of the creditworthiness of the borrower, especially where this income is to be used to repay the loan.

Early termination of the lease agreement (entailing the loss of rental income and the need to find a replacement tenant) constitutes a significant risk to the borrower’s capacity to satisfy the terms of the loan. Thus the term of the lease is important. Leases entered into for an indefinite period give each party the right to terminate the lease, on giving notice of the length provided for. In order to ensure a stable lease relationship (and thus reliable rental income), leases should be entered into for a fixed period since under Polish regulations, fixed term leases may only be terminated if this is expressly stated in the lease agreement.

Furthermore, this fixed period should be as long as possible, although note that where commercial entities enter into a lease for a fixed period of more than 30 years, once that period has ended, the lease will be considered to run for an indefinite term thereafter, and the lease may be terminated by either party, provided the statutory notice is given.

The other significant factor to be taken into account when looking at lease agreements is the amount of rent to be paid. The location of the premises and the amount of the tenant’s profit will significantly influence the projected level of rental income.


In sum, there are many legal aspects to be considered by banks before they finance investment in commercial property development in Poland. Most of these are similar to those that will be encountered by financing institutions in other jurisdictions but some, such as those related to the right of perpetual usufruct, are unique to the Polish legal environment. It is therefore crucial to obtain specialist legal advice in this area.