Planning fee vs. betterment levy. What are they, what are the differences and can they be avoided?

The obligations of the parties to the real estate sale transaction are affected, among others, by its legal status and other factual circumstances linked to it. Two of the public law obligations closely related to real estate transactions are often confused with each other, even though they have been functioning in the Polish legal system for many years. Their imposition is most often a significant financial burden for property owners. We are talking about betterment levy and planning fee. In this article you will find the answer to when these fees may be imposed, who sets them and what can be done to mitigate the risk of them being incurred.

At the beginning, it is worth noting that the planning fee results from the introduction of the Local Spatial Development Plan or its amendment, which is connected with the fact that the owners or perpetual users of the property most often learn about the obligation to pay it when the property is to be sold, while the betterment levy is imposed as a result of actions taken by the owner or perpetual user of the property.

What is an betterment levy?

The betterment levy is regulated in the Act of 21 August 1997 on Real Estate Management. It is defined as a public law fee imposed on real estate owners and perpetual user in relation to the increase in value of real estate caused by the construction of technical infrastructure facilities with the participation of the State Treasury, local government units, funds from the budget of the European Union or non-refundable foreign sources, or a fee established in connection with real estate consolidation and division, as well as division of real estate. If the value of the real property increases due to the above, the head of the commune, mayor or town mayor may fix the fee for that reason.

The amount of the rate is determined by a resolution by the municipal council. According to the Act, the amount of the betterment levy may not exceed 30% of the difference in the value of the property in the event of its division. Persons who have received new properties separated as a result of the merger and division are obliged to pay to the municipality betterment levy of up to 50% of the increase in the value of these properties in relation to the value of the properties previously owned. In the case of the construction of technical infrastructure facilities on the property with funds from the State Treasury or local government units for properties located in the Special Revitalisation Zone, the amount of the betterment levy may be up to 75% of the increase in its value. The authority that decides on the imposition of the fee is the mayor of the municipality, although the imposition of the fee is possible only if the municipality determines its percentage rate. In addition, when adopting a resolution on real estate consolidation and division, the municipality should include in it information on the date, manner of payment and amount of the betterment levy. The initiation of proceedings to establish the betterment levy may take place within 3 years from the date on which the decision approving the division of real property became final or the decision on the division became final. It is possible to pay the betterment levy in instalments, however, the payment period may not be longer than 10 years.

The question is: who will be obliged to pay the betterment levy in the event of sale of the real estate? In such a situation, the date on which the decision to charge the fee became final will be decisive – if the decision became final before the date of the transaction, then the seller of the real estate will be under the obligation. When buying a property, it is worthwhile for the buyer to analyse the legal situation of the property, so as not to be surprised later by unexpected fees. Avoiding or reducing this fee is not the easiest thing to do, although it is possible, e.g. if an error is made by an official or a property valuer. Verification of the correctness of the fee imposition should start with checking whether the local government’s resolution on betterment levies was in force at the time of putting the constructed technical infrastructure into use (if the case concerns the increase in the value of the real property caused by the construction of technical infrastructure facilities). It should also be remembered that the office can impose a fee for up to 3 years. As a next step, it is also worth analysing the correctness of the appraisal report (preferably with a specialist). In case of mistakes, it is possible to challenge the fee decision at the Local Government Appeal Court and the administrative court.

What is a planning fee?

Under the Act on Planning and Spatial Development, a planning fee is imposed if, in connection with the adoption of the local plan or its amendment, the value of the real property increases and the owner or perpetual user sells the real property. In such a case, the head of the commune, mayor or town mayor collects a one-off fee established in the plan, set as a percentage of the increase in the property value. This fee is the municipality’s own income. The amount of the fee cannot exceed 30% of the increase in the value of the property. For example, there may be a situation in which a plot of land, which so far has been defined in the local plan as agricultural land, after its change is reclassified as a building plot, which results in increase in its value. If the owner sells the plot, the authority may then charge the owner a planning fee. When a party applies for an extract from the local plan for its property, the municipality is obliged to specify the amount of the planning fee of the area covered by the extract from the plan. It is worth remembering that the fee can be imposed up to five years from the date the plan was adopted or amended and is charged to the seller. Therefore, one way to avoid the fee is to wait – the seller will not be obliged to pay the fee if he sells the property later than 5 years from the date of the change/introduction of the Local Development Plan. Another way is to conclude a pre-contract, because it does not transfer ownership rights and therefore does not impose the obligation to pay the fee, and only after the expiry of 5 years from the change/introduction of the Local Development Plan to sign a proper contract. In the case of a donation agreement, the fee will not be charged either, because the land disposal should be paid until the fee is imposed. In order to avoid the fee, it is also possible to appeal to the Self-Government Board of Appeals or the administrative court, challenging the appraisal report and the relationship between the increase in the value of the property and statements in the local plan.

Summary

In summary, both the betterment levy and the planning fee are related to the increase in the value of the real property. The main difference between the two is the moment, at which the obligation to pay it is imposed – in the case of the planning rent, the obligation is imposed when the real estate is being sold, whereas the betterment levy should be paid regardless. Another difference is the reason – in the case of the betterment levy, it may result from the action of the owner or perpetual user of the real property (e.g. division of the real property, merger and subdivision) or the state/ local government units (e.g. construction of utility networks, roads), while the planning rent arises from the introduction or amendment of the Local Development Plan.

Karol Kacprzak
Analysis and Development Specialist