The dissolution of joint ownership of real estate in Poland

Problems with joint ownership of property – when might termination be necessary?

From the perspective of property transactions, joint ownership, particularly fractional ownership, is one of the most common sources of protracted disputes and restrictions on the effective use of the property.

Under the Polish Civil Code, there are two basic models of co-ownership:

• fractional co-ownership, in which each co-owner is entitled to a specific share (e.g. 1/2, 1/3), which means they may dispose of their share independently, but have limited freedom when it comes to decisions concerning the property as a whole;
• joint ownership, in which there are no specified shares, and the co-owners’ rights are strictly linked to a specific legal relationship (e.g. marital community of property), which precludes the possibility of independently disposing of one’s share.

Fractional co-ownership gives rise to the most practical problems, particularly where there are more than two co-owners and there is a lack of agreement on how to manage the property.

Practical example:

Three people have inherited a property as co-owners. A house has been built on the property which requires a range of renovation works. The co-owners are unable to agree on which parts of the house require repair and how the repairs should be carried out. The co-owners also disagree on which of them should be responsible for finding a suitable renovation team, exactly what scope of work should be commissioned, and who should finance the repairs and in what proportion.

Practical example:

One of the co-owners refuses to pay any fees relating to the maintenance of the property.

Practical example:

Two of the co-owners of the property on which the house stands believe that the trees on the plot should be felled, but the third co-owner does not agree. According to case law, felling a tree on jointly owned land is an action requiring the consent of all co-owners (for example: the judgment of the Polish Provincial Administrative Court in Gliwice of 9 January 2008, case no. II SA/Gl 824/07), and therefore obtaining the consent of the third co-owner is also necessary to undertake such actions.

What are the ways of terminating joint ownership of a property in Poland?

As mentioned in the introduction, the legal solution to the examples of problems associated with joint ownership outlined above may be to terminate it, thereby bringing about a situation where ownership of the property rests solely with a single owner.

Polish law provides for two methods of terminating joint ownership, termination by agreement between the co-owners and termination through the courts. Which of the two methods is used depends primarily on whether the co-owners are able to reach a mutual agreement regarding the termination of joint ownership itself and the terms on which this should be achieved.

Termination of joint ownership of property by agreement before a notary

If there is no dispute between the co-owners of the property, it will be sufficient to enter into an agreement to terminate co-ownership before a notary. The property may then be transferred to one of the existing co-owners (who, upon conclusion of the agreement, will become its sole owner), subject to an obligation to compensate the other co-owner. This procedure is generally straightforward and, in typical cases, is limited to a single visit to a notary.

It should be borne in mind, however, that before proceeding with the notarial procedure, the co-owners must agree on the terms of the termination of joint ownership. The notary does not decide on these matters nor does he or she override the parties’ intentions in this regard – his or her role is limited to drawing up the deed in accordance with the co-owners’ agreements.

It is also important to provide the notary with documents relating to the joint ownership of the property before the date of the notarial deed, namely:

• a document confirming legal title to the property, i.e. the basis on which the co-owners acquired the property (an extract from the notarial deed, and in the case of acquisition of the property by inheritance – a final court order confirming the acquisition of the inheritance or an extract from the registered certificate of inheritance),
• a current extract from the land and mortgage register maintained for the property,
• an extract and a map extract from the land register for the property,
• a map extract from the cadastral map for the property.

A notarial deed drawn up by a notary, on the basis of which joint ownership is to be dissolved, should specify in particular:

• the method of dividing the property in accordance with the parties’ wishes and, in the event that the property is awarded to one of the co-owners, including the transfer of the other co-owners’ shares to that person, resulting in them acquiring sole ownership;
• the rules governing settlements between the co-owners, in particular regarding repayments or additional payments corresponding to the value of the shares held by the individual parties. Where payments are to be made in instalments, the document should specify their amount, number and due dates, as well as any security to ensure fulfilment of the payment obligation.

The cost of terminating joint ownership depends on the value of the property and may be subject to some negotiation between the parties and the notary, provided, however, that the notary’s fee does not exceed the maximum rate set out in the Regulation of the Minister of Justice on maximum notary fee rates.

Termination of joint ownership of property by the Polish court – what does the procedure involve?

In practice, however, co-owners are often unable to reach an agreement on the dissolution of joint ownership, both as regards the decision to dissolve it and the terms on which this would take place. The most common scenarios involve situations where each co-owner believes that they should be granted sole ownership, or that the settlement amount offered by the other co-owners is too low in relation to the property’s value. In such circumstances, the only solution is to have the co-ownership of the property dissolved through the courts, as described later in this publication.

Who can apply for the dissolution of joint ownership of a property and when?

Importantly, the procedure for dissolving joint ownership may be initiated by any of the co-owners at virtually any time during the period of joint ownership of the property. In other words, any co-owner may apply to the court for the dissolution of joint ownership.

It should also be borne in mind that, in the course of proceedings to terminate joint ownership, the court rules not only on the division of the property itself, but also, as a rule, on mutual settlements between the co-owners. This includes, in particular, expenditure incurred on the property and the costs of its maintenance borne during the period of joint ownership.

Once the court proceedings concerning the dissolution of joint ownership have been concluded, it will no longer be possible to pursue these claims. However, given the complexity of this matter, the issue has merely been touched upon here and, in every case, requires detailed consultation with a solicitor.

The methods of dividing fractional co-ownership set out below also do not apply to the judicial dissolution of co-ownership of agricultural holdings, which are governed by the legislature under different rules.

How does a court dissolve co-ownership of property? Possible methods of resolution

The judicial dissolution of co-ownership may take the following forms:

• physical division of the property (division in kind),
• allocation of the property to one co-owner with an obligation to compensate the others,
• sale of the property and division of the proceeds,

The choice of a specific method depends on the circumstances of the case, including the nature of the property, the relationship between the co-owners and the possibility of ensuring equivalent settlements.

Physical division of property upon termination of joint ownership – when is it possible?

Under this procedure, the court will divide the property, for example into two equal plots, or will create separate properties within a house (flat). It should be noted, however, that it may not always be possible to terminate joint ownership of a property through physical division. The court will not carry out a division if it would be contrary to the provisions of the Act, the local spatial development plan or the socio-economic purpose of the property, or if it would entail a significant alteration to the property or a substantial reduction in its value.

Typical situations where physical division may not be possible include circumstances where:

• the property is too small to be divided,
• due to technical constraints, it is impossible to divide the premises into two separate units,
• the plot proposed for separation would not have access to a public road following the division,
• the local spatial development plan does not provide for the division of plots covered by the plan.

Exceptions to the possibility of terminating joint ownership through the physical division of property are of a general nature and have been clarified by case law on the basis of specific factual circumstances.

A practical example from Polish case law:

“The termination of joint ownership by partitioning the property is not permissible, although a physical partition would be possible in a situation where such partition would result in the creation of two plots, one of which would be significantly less useful and significantly less valuable than the other, and, moreover, would have no access to a public road, and the establishment of an easement for such a road across the other plot would be practically impossible due to the acute conflict between the parties” (judgement of the Polish Supreme Court of 15 November 2001, case no. III CKN 1439/00).

Allocation of the property to one co-owner – rules and compensation

In practice, this solution corresponds to the contractual procedure for the dissolution of joint ownership, with the significant difference that the value of the property is determined by a court-appointed expert rather than by agreement between the parties. In the absence of a consensus amongst the co-owners as to which of them the property should be awarded to, the decision in this regard is taken by the court, guided by the overall circumstances of the case, including the financial capabilities of the parties and the socio-economic interest.

Based on an analysis of case law on this matter, there are a number of arguments relating to the facts of a specific case which the court will take into account in reaching a decision. Examples of such circumstances include:

• interest in and attachment to the property,
• the principles of proper property management,
• the family and financial circumstances (ability to repay) of the parties,
• whether the co-owners hold other properties,
• the value of the expenditure incurred on the property,
• the ongoing maintenance of the property.

A practical example from Polish case law:

“The sentimental considerations of the appellant, emphasised in the appeal, are not persuasive in this case. His alleged attachment to the property in question must be regarded as raising significant doubts, given that for a number of years he has been living with his family in P., where he occupies a flat jointly owned by his spouse” (order of the Polish Regional Court in Nowy Sącz, 3rd Civil Appeal Division, dated 24 May 2016, case no. III Ca 172/16).

Furthermore, the court determines the amount of payments due to the remaining co-owners and the deadline for their payment by the person to whom the property has been awarded as sole ownership. In justified cases, the court may allow the payment to be made in instalments, with the repayment period extending up to 10 years.

Sale of property upon termination of joint ownership – when does the court order it?

If it is not possible to divide the property in kind, and none of the co-owners is willing or able to take sole ownership of it whilst repaying the others, the court may order the sale of the property through enforcement proceedings. The proceeds from the sale are then divided amongst the co-owners in proportion to their respective shares. In practice, this solution is regarded as a last resort.

In its ruling of 4 November 1998, ref. no. II CKN 347/98, the Supreme Court stated that where, upon the dissolution of joint ownership, none of the co-owners consents to being granted sole ownership of the property, the court should, as a general rule, consider the sale of the property and the distribution of the proceeds.

In turn, in its ruling of 12 April 2001, file ref. II CKN 658/00, the Supreme Court emphasised that the sale of the property as part of the termination of joint ownership may also be justified where the co-owner seeking to be granted sole ownership is unable to meet the obligation to make payments to the other parties to the proceedings.

It should be noted, however, that, as a general rule, this will be the least cost-effective way for co-owners to dissolve their co-ownership of the property. This is primarily due to the fact that the co-owners will have to bear the costs associated with the sale of the property. The co-owners will then incur not only the costs of court proceedings, but also the costs of proceedings conducted by a bailiff, who will be entitled to deduct their fees from the proceeds of the sale of the property.

What are the costs of terminating joint ownership?

Under Article 41 of the Polish Act on Court Costs in Civil Cases, a fixed fee of 1,000 zł is charged for an application to terminate joint ownership. However, if the application includes a mutually agreed draft for the termination of joint ownership, i.e. all parties to the proceedings accept the method of division or allocation of the property, the fee is PLN 300. This fee is fixed and does not depend on the value of the jointly owned property.

In proceedings to terminate joint ownership of property, in addition to the court fee, there are also additional costs, the amount of which usually depends on the course of the case and the method of terminating joint ownership adopted.

Where the parties cannot agree on the value of the property or the amount of compensation, and the court awards the property to one of the co-owners, evidence in the form of an expert valuation report is usually admissible. The expert’s fee is usually several thousand zlotys.

In the event of a physical division of a property, it is also necessary to appoint a qualified surveyor. The cost of the surveyor’s report may also amount to several thousand zlotys, and depends on the complexity of the division and the number of boundary points to be marked out.

In the (least favourable) scenario of terminating joint ownership through an auction sale, the costs of the proceedings may rise significantly, as they include the bailiff’s fees, the costs of notices and other enforcement expenses, which together may amount to several thousand zlotys.

Furthermore, if the parties raise mutual claims relating to the ownership of the property, such as claims for reimbursement of outlays or the settlement of benefits, it may be necessary to obtain further expert evidence, which generates additional costs of the proceedings.

Summary

As indicated in this article, joint ownership of property can be problematic not only because of the need to obtain the consent of all co-owners when one of them wishes to sell the property, but also in many situations concerning the management of the jointly owned property.

The only practical solution to the situation may then be to dissolve the joint ownership of the property. Joint ownership may be dissolved either by mutual agreement or through the courts. If the co-owners reach an agreement on both the need to terminate the co-ownership and the terms on which it is to be terminated, the most effective option will be to proceed by mutual agreement.

However, in the event of a lack of agreement between the co-owners regarding the terms of the termination of co-ownership, it will be necessary to resort to court proceedings. In court proceedings, co-ownership of a property may be terminated in three ways: by dividing the property, by awarding the property to one or some of the co-owners, and by selling the property and dividing the proceeds amongst the existing co-owners.