Real estate expropriation

Real estate expropriation is one of the procedures described in the Polish Act of August 21, 1997 on Real Estate Management (Journal of Laws 2020, item 1990) that regards to the possibility of depriving or limiting (under an administrative decision) the right of ownership, perpetual usufruct or the right in rem to real estate. This procedure is possible only for real estate located in areas designated in local spatial development plans for public purposes or for real estate with a binding decision to determine the location of a public investment. Moreover, expropriation may take place only when public goals cannot be achieved in the other way than by depriving or limiting rights to real estate. The expropriation procedure may only be carried out by the starost, who is the competent authority in this type of cases. Deprivation or limitation of rights to real estate in this procedure may only be made for the benefit of the State Treasury or local government units.

Basic principles of the expropriation procedure

1. Expropriation may apply to the entire property or just to its part. However, if the procedure concerns a part of the real estate, and the remaining part cannot be properly used for the current purposes, the owner/ perpetual usufructuary may request the purchase of the remaining part of the real estate, which from his point of view will lose its properties.
2. The initiation of expropriation proceedings must be preceded by negotiations between the starost and the owner/ perpetual usufructuary or a person with limited rights in rem to real estate. During the negotiations, the authority may offer the expropriated party a replacement property.
3. The proceedings are initiated ex officio (in case of expropriation for the benefit of the State Treasury) or at the request of the executive body (in case of expropriation for the benefit of a local government unit). The commencement of expropriation proceedings is recorded in the land and mortgage register at the starost’s request.
4. The transfer of the ownership right to the State Treasury or local government unit takes place on the day, on which the decision on expropriation of the real estate becomes final and valid. Similarly, in case of the right of perpetual usufruct – it expires on the date, on which the decision becomes final. However, in case of limited rights in rem – they expire after 3 months from the date, on which the decision becomes final.
5. The expropriated person receives a compensation for the expropriated real estate.

STAGES OF EXPROPRIATION PROCEDURE

source: own study based on https://www.pb.pl/procedura-wywlaszczenia-nieruchomosci-701174 (access: 12.02.2021)

Compensation for expropriated real estate and the role of a real estate appraiser in the expropriation procedure

According to the article no. 128 of the Real Estate Management Act, the expropriation of real estate, perpetual usufruct or right in rem relates to the compensation for the expropriated person. The amount of compensation is related to the value of these rights. In Polish law, compensation for expropriated real estate is narrowly defined, which means that the compensation is determined in accordance with the value of the real estate, and not the actual damage suffered by the expropriated entity. This means that when determining the amount of compensation, no other damage, loss or cost is taken into account, such as e.g. costs of moving to another place or lost profits, but only the loss of the right to real estate of a certain value.

The amount of compensation is presented by the starost in the decision of real estate expropriation. However, he does not determine it himself, but after obtaining the opinion of a real estate appraiser determining the value of the property (in the form of an appraisal report). The amount of compensation is calculated according to the condition, purpose and value of the expropriated real estate as for the date of the expropriation decision. Article no. 134 of the Real Estate Management Act indicates that the basis for determining the amount of compensation is the market value of the property. Interesting aspects that the valuer must take into account during the valuation are the issues regulated in paragraph 3-4 of the article no. 134 of the Act. They constitute that the value of real estate is generally determined according to the current type of use – if the purpose of the real estate, consistent with the purpose of expropriation, does not increase its value. However, if the type of use consistent with the purpose of expropriation increases the value of the property, the value for the purposes of compensation is determined according to the alternative use that results from that type of use. This is called ‘the benefits principle’. In practice, this means that the appraiser must assess, whether the expropriated entity will be more advantageous: while evaluating real estate in line with its current purpose, or with the purpose resulting from the expropriation purpose. The most common situations regarding the expropriation of land for public roads are as follows:

A real estate, on which a single-family residential building is constructed, is expropriated for a public road. In this case, the value of the property in accordance with the current purpose is usually much more favourable than the value determined in accordance with the new purpose – for public roads. The appraiser will therefore evaluate the property in accordance with the current type of use and purpose, which will be the basis for determining the amount of compensation.

Agricultural land is expropriated for a public road. In this case, the value of the property in accordance with the current purpose is usually less favourable than the value determined in accordance with the new purpose – for public roads. The appraiser will evaluate the real estate in accordance to the new type of use and purpose, searching for road real estate transactions on the market (provided that if there are too few sale transactions of such real estate on the market, it is possible to appraise the real estate assuming the intended use of the land adjacent to the valued property).

Summary

Real estate expropriation is a procedure provided in Polish law to ensure the achievement of public goals. Considering the extensive protection of property rights in Poland, expropriation procedures make it possible to implement investments that are important from the perspective of the entire community. Such procedures may seem controversial, especially from the point of view of entities directly affected by expropriation, as they may force perpetual owners/ users to make unforeseen changes in their lives, e.g. having to move to another place. However, it is worth remembering that expropriation may only be carried out if the area has been designated for the public purpose in the local spatial development plan (in case when a local plan is in force) or if a decision to determine the location of the public purpose investment for a given area has been issued (in case when there is no local plan). Therefore, by purchasing real estate or being its owner, we can check whether it is or may be threatened in the future by the expropriation procedure. In addition, it is worth remembering that Polish law provides the expropriated entity a compensation for depriving the rights to real estate, and it is also possible to obtain a replacement property.

Barbara Mariańska
Maintenance and Development Specialist