Purchase of real estate in Poland by foreigners – the Polish land and mortgage register system

In recent years, more and more foreigners have decided to purchase real estate in Poland. Forecasts indicate that this trend will continue in the coming years. At the same time, purchasing real estate in Poland, as in any other country, involves a great deal of stress and uncertainty – the investment requires a significant amount of capital and is often linked to life plans. Therefore, every real estate purchase transaction in Poland should be carried out in the safest possible manner, minimising any legal risks for foreigners resulting from a foreign legal system.

In the Polish legal system, the basic legal element securing the purchase of real estate is the verification of the so-called land and mortgage register kept for the property. The Polish land and mortgage register is an official, public register kept by district courts (land and mortgage register departments), whose main purpose is to determine and disclose the legal status of real estate. The land and mortgage register is therefore the foundation of security in real estate transactions in Poland, both for Polish citizens and for foreigners planning to purchase real estate in Poland.

A thorough analysis of entries in the land and mortgage register not only allows you to ensure that the seller has the right to dispose of the property, but also to check a number of other important circumstances, for example, whether the purchase will involve any risks: taking on someone else’s debts or liabilities, restrictions on the use of the property, or the possibility of legal disputes. It can certainly be said that a foreigner planning to purchase real estate in Poland should avoid such legal problems.

Of course, although the Polish land and mortgage register is a powerful instrument for protecting the purchaser, it does not exempt the purchaser from the obligation to conduct a thorough examination of the legal status of the property, especially in more complex transactions, such as the purchase of land, shares in property or property encumbered with third-party rights.

In this publication, we have described the following issues:

–    what is a land and mortgage register and why is it crucial when purchasing real estate in Poland?

–    the recording and information function of land and mortgage registers in Poland

–    the evidentiary function of land and mortgage register in Poland

–    the protective and warning function of land and mortgage register in Poland

–    the principle of public credibility of land and mortgage register in Poland

–    what circumstances exclude the public credibility of land and mortgage register in Poland?

–    does an entry in the land and mortgage register exclude the guarantee in its entirety or only in relation to the right to which it refers?

– what information about the property is contained in the Polish land and mortgage register and what should be analysed?

– Section I-O of the land and mortgage register – designation of the property

– Section I-Sp of the land and mortgage register – list of rights related to ownership

– Section II of the land and mortgage register – ownership and perpetual usufruct of the property

– Section III of the land and mortgage register – rights, claims and restrictions

– Section IV of the land and mortgage register – mortgage

What is a land and mortgage register and why is it crucial when purchasing property in Poland?

Pursuant to Article 1(1) of the Polish Act on Land and Mortgage Registers, land and mortgage registers are kept in order to determine the legal status of real estate in Poland. A land and mortgage register is therefore an official, public register whose main purpose is to determine and disclose the legal status of real estate. The land and mortgage register contains, among other things, information concerning:

• the owner of the property, i.e. the natural or legal person entitled to dispose of the property,
• rights in rem vested in third parties to the property,
• restrictions on the disposal of the property, such as prohibitions on sale, encumbrances resulting from court or administrative proceedings,
• mortgage encumbrances, indicating the creditor, the amount of the liability and the currency of the claim, which may significantly affect the planned transaction.

Access to land and mortgage registers is available online via the Polish Ministry of Justice website, allowing anyone, including foreigners, to conveniently check basic information about a property. At the same time, Polish district courts maintain paper land and mortgage registers containing complete documentation related to the property, including originals of contracts, administrative decisions and surveying attachments. In practice, this means that online verification allows for a quick check of the legal status, while a full analysis of paper documents is generally performed in complex transactions or when the information contained in the online version of the land and mortgage register does not allow for a thorough analysis of the legal issue identified on the basis of online access to the registers.

A practical example from Polish case law:

‘Article 1 of the Act on Land and Mortgage Registers formulates the fundamental purpose and main function of land and mortgage registers, which is to determine the legal status of real estate’ (judgment of the Supreme Court of 19 November 2014, ref. no. II CSK 712/14).

The recording and information function of land and mortgage registers

Polish courts rulings highlight several basic functions of the Polish land and mortgage register system. For foreigners who are unfamiliar or less familiar with the Polish legal system, these functions seem to be particularly important, as they reflect the guiding principles of the Polish legal system concerning both land and mortgage registers themselves and, more generally, real estate transactions.

The most important role of land and mortgage registers is to record the legal status of real estate. This means that the land and mortgage register records, among other things, who the owner is, what rights other persons have, and what restrictions or encumbrances apply to the property.

Evidential function of land and mortgage registers

Land and mortgage registers in Poland also serve as evidence, i.e. they are a tool for confirming the legal status of real estate. Entries in the register give rise to legal presumptions, i.e. they are treated as true until proven otherwise. This makes it easier to prove one’s rights in court in the event of legal problems after a transaction (although, as a rule, a legal review of the property purchase allows such problems to be avoided). Consequently, it seems crucial to thoroughly analyse the contents of the land and mortgage register before purchasing property in Poland.

The protective and warning function of land and mortgage registers

Land and mortgage registers also serve to protect persons purchasing real estate in Poland. Due to the fact that access to land and mortgage registers is unrestricted, no one can claim ignorance of entries in the register prior to purchasing real estate. The purpose of land and mortgage registers is also to provide information about potential legal risks relating to real estate, such as encumbrances, restrictions on disposal, third-party claims or court proceedings, which will be discussed later in this publication.

A practical example from Polish case law:

‘The register established for the acquired property reflected its correct actual legal status, and it is incumbent on the parties to a property sale agreement, which is so important for the security of transactions, to exercise due diligence in familiarising themselves with its most up-to-date content’ (judgment of the Polish Court of Appeal in Katowice, 1st Civil Division, of 14 November 2013, ref. no. I ACa 760/13).

“Accepting a situation in which the content of the land and mortgage register at the time of its establishment would not fully reflect the legal status of the property would clearly contradict the principle that land and mortgage registers are kept for the purpose of determining the legal status of property. A ‘register’ which, at the time of its establishment, did not meet the requirement to disclose the full legal status of the property could not serve to efficiently record the legal status of the property and thus ensure the security of transactions, and the land and mortgage register procedure serves precisely – not to assert subjective rights, as some participants in legal transactions would like, but to efficiently disclose the legal status of real estate and, consequently, to ensure the security and certainty of legal transactions” (judgment of the Polish Supreme Court of 11 January 2018, ref. no. III CSK 373/16).

The principle of public credibility of land and mortgage registers

It seems that for a foreigner purchasing real estate in Poland, the so-called principle of public credibility of land and mortgage registers, defined in Article 5 of the Act on Land and Mortgage Registers, is also of key importance. According to this provision, in the event of a discrepancy between the legal status of the property disclosed in the land and mortgage register and the actual legal status, the content of the register shall prevail in favour of the person who, by means of a legal transaction with the person entitled according to the content of the register, acquired ownership or other property rights.

The rule will therefore apply in practice when the actual legal status of the property differs from the legal status disclosed in the land and mortgage register kept for the property in Poland. Any action taken by the purchaser of the property with regard to the content of the land and mortgage register shall then be deemed to have been taken in good faith. The public credibility of land and mortgage registers therefore protects purchasers of real estate who, when deciding to purchase real estate, act in reliance on the disclosed content of the land and mortgage register.

In an example situation where the actual legal status of the property differs from what is entered in the land and mortgage register (e.g. someone else is the owner of the property), the new purchaser of the property will still become the new owner, unless they were aware of the irregularities related to the legal status and deliberately ignored them.

A practical example from Polish case law:

“The effect of the public credibility of land and mortgage registers is an exception to the rule applicable to derivative acquisitions, according to which no one may transfer more rights than they themselves possess. The function of the guarantee is therefore to prevent negative consequences for bona fide purchasers of legal transactions carried out with an unauthorised seller listed as the owner in the land and mortgage register contrary to the actual state of affairs. In the absence of this regulation, a contract concluded with a person disclosed in the land and mortgage register as the entitled party, who in fact does not have the right to the property, would be ineffective” (judgment of the Supreme Court of 31 May 2017, file ref. no. V CSK 513/16).

Of course, discrepancies between the actual state of affairs and the state reflected in the land and mortgage register may also concern other situations, not only incorrect entries of ownership rights. Discrepancies may also be related, for example, to:

• easements and other limited rights which in fact encumber the property but are omitted or incorrectly entered in the land and mortgage register,
• mortgages and financial obligations, e.g. the amount of the debt differs from that entered in the register, or the creditor has been incorrectly identified,
• restrictions on the disposal of the property, such as administrative decisions, court orders or enforcement proceedings, which are not reflected in the register,
• rights to use common areas or access roads, which in practice may differ from those disclosed in the register,
• preliminary agreements or third-party claims that may affect the free disposal of the property in the future.

What circumstances excluse the public credibility of land and mortgage registers?

However, a person purchasing real estate in Poland should bear in mind that the guarantee is not unconditional and there are situations when it is excluded and therefore does not apply. Article 6 of the Polish Act on Land and Mortgage Registers introduces two conditions that limit the scope of the public credibility guarantee of land and mortgage registers. It seems that for foreigners purchasing real estate in Poland, the second circumstance will be key, i.e. the situation where: ‘a person is acting in bad faith if they know that the content of the land and mortgage register is inconsistent with the actual legal status, or if they could easily have found this out.’

In practice, exclusion of warranty means that the buyer of real estate cannot claim to have acted in good faith if they have failed to fulfil their basic duties of care. In practice, this refers to simple, basic precautions that every property buyer should take, regardless of their experience, nationality or education. It boils down to verifying whether, in the given circumstances, standard, basic verification measures have been taken to ascertain the legal status of the property in Poland prior to its purchase by conducting due diligence. In short, the purchaser is acting in bad faith if they have not exercised basic diligence and, as a result, mistakenly believes that the entry in the register reflects the actual legal status. At the same time, it seems that analysing the land and mortgage register is the best way to meet the requirement of diligence and avoid allegations of bad faith.

A practical example from Polish case law:

‘The ease of ascertaining a particular state of affairs is not a static category; the legislator leaves the courts a certain degree of discretion in this regard, allowing them to adapt their decisions to the circumstances of a particular case’ (the Polish Supreme Court ruling of 16 July 2020, ref. no. II CSK 16/20).

‘Assessments of whether the buyer could have easily discovered the discrepancy between the content of the land and mortgage register and the actual legal status should be made taking into account an objective measure of diligence, the level of knowledge of legal regulations, the principles of life experience and the presumption of good faith under Article 7 of the Civil Code.’ (the Polish Supreme Court judgment of 26 January 2011, ref. no. IV CSK 285/10).

Does an entry in the land and mortgage register exclude the warranty in its entirety or only in relation to the right to which it refers?

A reference in the land and mortgage register is disclosed information according to which the land and mortgage register court has received an application for entry which has not yet been examined by the court. In practice, in Poland, land and mortgage register applications are often examined for a very long time – often several months, and in more congested courts even longer. As a result, the reference may remain in the land and mortgage register for a long period of time, effectively blocking or significantly complicating the sale of the property. For a potential buyer, this means prolonged uncertainty as to the final legal status of the property and the need for particular caution when planning a transaction. A reference in the land and mortgage register therefore serves as a warning – it signals a possible discrepancy between the content of the register and the actual legal status of the property.

Pursuant to Article 8 of the polish Act on Land and Mortgage Registers, a reference excludes the public credibility of land and mortgage registers. Our experience shows that for many years this provision was interpreted quite strictly by the courts, and it was assumed that any mention excludes the public credibility of the land and mortgage register in its entirety, which in practice often led to recommendations to suspend transactions until the mention was deleted.

Currently, however, a narrower interpretation is increasingly being presented in practice, according to which, although the reference excludes the guarantee, it does so only in relation to the right to which it relates, and the purchaser bears the risk only in relation to that specific right (e.g. easement) and not in relation to the entire legal status of the property, in particular the seller’s right of ownership. Consequently, any transaction with a reference in the land and mortgage register should be treated as a high-risk transaction requiring individual and in-depth legal analysis, while, as a rule, the existence of a reference does not exclude the possibility of carrying out the transaction.

What information about the property is contained in the Polish land and mortgage register and what should be analysed?

Each land and mortgage register in Poland consists of four sections. Each of them has a separate function and each of them should be analysed before purchasing the property.

Section I-O of the land and mortgage register – property designation

Section I-O of the land and mortgage register serves to precisely identify the property and determine its basic physical and registration characteristics. Although at first glance it may seem purely technical, in practice it is crucial for assessing what exactly is the subject of the transaction. This section discloses, in particular:

• the location of the property, including the town, street and serial number (if assigned),
• designation of the plot or plots, together with the numbers of the cadastral district,
• area of the property, expressed in square metres or hectares,
• use of the property, e.g. land with a residential building, agricultural land, residential premises, non-residential premises.

The analysis of section I-O should include verification of whether the data disclosed in the land and mortgage register is consistent with the content of the sale agreement, surveying documentation and the actual condition of the property.

In practice, the following issues are of particular importance:

• compliance of the property area with the data specified in the sale agreement, extract from the land register, cadastral maps or development documentation,
• the identity of the property designation, in particular the cadastral parcel numbers (incorrect or outdated designations may lead to the purchase of a property other than the one originally intended),
• the compliance of the use of the property with its actual purpose (e.g. residential premises vs. commercial premises), which may have legal significance at a later stage, e.g. in terms of taxes, the possibility of residence or further rental of the property,
• the existence and status of the premises – in the case of residential premises, it should be determined whether the premises have been formally separated and whether they have a separate land and mortgage register.

On the other hand, identified discrepancies between the content of section I-O of the land and mortgage register and the actual state of affairs or technical documentation may potentially indicate:

• unregulated legal status of the property,
• errors in the land and building register,
• the lack of formal separation of the premises,
• unauthorised changes in the use of the property,

and should always be subject to thorough legal analysis before buying a property in Poland.

Section I-Sp of the land and mortgage register – list of rights related to ownership

Section I-Sp of the land and mortgage register covers the rights of the property owner that are permanently associated with the property and increase its functionality or utility value. Unlike Section III, which discloses the rights and claims encumbering the property, Section I-Sp concerns the ‘active’ rights enjoyed by the owner.

This section discloses, in particular:

• shares in internal roads, ensuring access to the property,
• the right to use common areas, e.g. staircases, corridors, lifts, technical rooms or common areas in the case of multi-unit buildings,
• land easements attached to the property, such as rights of way, passage or utility connections, which encumber other properties but serve the property being purchased.

Although section I-Sp is often overlooked in a cursory analysis of the land and mortgage register, in practice it can be of significant importance in assessing whether the property can be used for its intended purpose. Failure to disclose certain rights in this section may lead to serious restrictions on the use of the property, even if it is formally free of encumbrances.

For those purchasing land, one of the key issues is determining whether the property has legally guaranteed access to a public road. This access can be provided in various ways:

• directly – when the property borders a public road,
• indirectly – through participation in an internal road,
• through an established right of way.

The lack of a right of access to a public road disclosed in section I-Sp may mean that the use of the property will in fact depend on the goodwill of the owners of neighbouring land, which constitutes a significant investment risk and may, for example, prevent the planned development from being carried out. It is also doubtful whether the transaction to purchase the property without access to a road can be concluded at all.

In the context of Section I-Sp, particular caution should be exercised in the following cases:

• imprecise or laconic descriptions of rights (e.g. without indicating the scope of the easement),
• inconsistencies between the content of section I-Sp and the actual use of the property,
• use of roads or utilities ‘based on custom’, without a formal legal title.

Section II of the land and mortgage register – ownership and perpetual usufruct of real estate

Section II of the land and mortgage register is crucial from the point of view of the security of real estate purchase transactions in Poland, as it determines who is entitled to dispose of the property. It is on the basis of the entries in this section that the buyer can assess whether the person offering the sale has the right to transfer ownership or perpetual usufruct of the property.

Section II discloses, in particular, data concerning:

• the owner or co-owners of the property, including an indication of shares in the case of fractional co-ownership,
• the perpetual usufructuary, if the land has been granted for perpetual usufruct, as well as the entity to which the ownership of the buildings is vested,
• the basis for the acquisition of the right by the current owner, e.g. a sale agreement, donation agreement, inheritance, acquisitive prescription or court ruling.

The analysis of Section II should first aim to clearly determine whether the person claiming to be the seller is the person disclosed in the land and mortgage register as the owner or perpetual usufructuary. In practice, particular attention should be paid to the following circumstances:

• seller’s identity – personal or company details disclosed in the land and mortgage register should correspond to the seller’s identity documents or registration documents,
• joint ownership of the property – if the property is jointly owned, in order for the transfer of ownership to be effective, it is generally necessary for all co-owners to participate or for only a share to be sold, which, however, significantly affects the nature and risk of the transaction,
• basis of acquisition – an analysis of the title of acquisition allows an assessment of whether the seller’s right is stable and indisputable.

Any ambiguities, data inconsistencies or complex ownership structures should be treated as a signal for in-depth legal analysis, especially in the case of foreigners, for whom the Polish legal system related to real estate transactions may differ significantly from solutions known in other jurisdictions.

Section III of the land and mortgage register – rights, claims and restrictions

Section III of the land and mortgage register is one of the most problematic and, at the same time, most important sections from the point of view of the security of real estate transactions in Poland. It is here that the rights and claims of third parties and restrictions are disclosed, which, although they do not deprive the owner of legal title, may significantly affect the possibility of using the property or even prevent it.

Section III may disclose, in particular:

• land and personal easements, such as right of way, right of passage, transmission easement or residential easement,
• life estate rights, which in practice significantly limit the purchaser’s ability to freely use the property,
• claims arising from preliminary agreements, including claims for the conclusion of a final agreement,
• rental or lease rights disclosed in the land and mortgage register,
• warnings about pending court, administrative or enforcement proceedings.

Entries in Section III very often mean that the property is the subject of a dispute, security for the interests of a third party or a limited property right that will also bind the purchaser after the transfer of ownership. Unlike a mortgage, the financial effects of which can generally be accurately estimated, the effects of entries in Section III are sometimes more difficult to predict and often require in-depth legal analysis.

For foreigners who are unfamiliar with Polish legal realities and court practice, entries in this section are a particularly significant source of risk and cannot be ignored.

Entries that should immediately raise caution and prompt the suspension of a transaction or its thorough analysis include, in particular:

• a warning about the inconsistency of the legal status disclosed in the land and mortgage register with the actual legal status, which in practice excludes the protection resulting from the public credibility of land and mortgage registers,
• a claim for transfer of ownership of real estate, most often resulting from a previously concluded preliminary agreement,
• an entry on the initiation of enforcement proceedings against the property, which may lead to the sale of the property by bailiff auction,
• an entry on the prohibition of sale or encumbrance of the property,
• disclosure of a life estate or easement of an apartment, which in practice significantly reduce the market value of the property.

In practice, an entry in Section III very often means that the transaction should not be carried out without first removing the encumbrances or without precisely regulating the legal situation in the sales agreement. Ignoring entries in this section may lead to:

• the acquisition of property encumbered with third-party rights,
• the inability to use the property for its intended purpose,
• long-lasting and costly court disputes.

For this reason, Section III is the part of the land and mortgage register that requires the utmost caution, especially in the case of foreigners investing in the Polish real estate market.

Section IV of the land and mortgage register – mortgage

Section IV of the land and mortgage register is dedicated to mortgages established on real estate, which secure the creditor’s (usually a bank’s) claims against the property owner. Although the mere presence of a mortgage does not preclude the sale transaction, an entry in this section requires particular caution and precise regulation in the contract so that the purchaser can use the property without the risk of possible subsequent claims. It should be remembered that, as a rule, a mortgage ‘follows the property’, and therefore, if it is not effectively deleted before or in connection with the transaction, the new purchaser of the property takes over the property encumbered with the mortgage and bears the risk of enforcement by the mortgage creditor.

Section IV discloses, in particular:

• the amount of the secured claim, which indicates the amount up to which the mortgage protects the creditor’s interest,
• the currency of the claim, which is important for liabilities in foreign currencies, e.g. in euros or dollars, as this may affect the amount of the liability in zlotys in the event of exchange rate fluctuations,
• the details of the mortgage creditor, most often a bank, although it may also be another financial institution or a private entity,
• the type of mortgage – usually it will be a mortgage established in favour of a bank (contractual mortgage), but in some cases it may be a compulsory mortgage established by a court or bailiff.

The entry of a mortgage in Section IV does not automatically prevent the sale of a property in Poland, but it must be taken into account in the transaction process and the sale agreement. The main issues to be considered are:

• the mortgage creditor’s consent to the deletion of the mortgage – in most cases, the bank or other creditor requires the entire debt to be settled or security to be established in the form of a notarial deposit before agreeing to the deletion of the mortgage,
• method of debt repayment – the sales agreement should specify precisely how the debt will be repaid in order to avoid a situation where the property remains encumbered with debt after the transaction, and thus the mortgage ‘follows’ the property,
• securing the buyer’s interests – a notarial deposit is often used for this purpose, which guarantees that the funds for the repayment of the mortgage will be transferred to the bank only after all legal and formal conditions have been met.

Unregulated or misinterpreted entries in Section IV may lead to serious consequences for the buyer, including:

• acquisition of real estate encumbered with a financial obligation, the repayment of which rests with the buyer,
• the inability to enter the ownership right in the land and mortgage register without first deleting the mortgage,
• disputes with the creditor, which may result in mortgage foreclosure.

For foreigners purchasing real estate in Poland, the entry in Section IV is particularly important, as the procedures for deleting a mortgage can be time-consuming and require strict compliance with Polish civil and banking law.

Summary

The land and mortgage register system in Poland is one of the foundations of secure real estate trading, but its effectiveness depends on the correct interpretation of the entries contained therein. For foreigners planning to purchase real estate in Poland, an analysis of the land and mortgage register should be part of the mandatory legal due diligence.

In practice, a professional analysis of the land and mortgage register – combined with an assessment of the administrative requirements for foreigners – allows you to avoid costly mistakes and effectively secure your investment.