In the past weeks the media has been in a frenzy revealing numerous irregularities in the "re-privatization" of property expropriated under the so called "Warsaw Decree".
This prompted the mayor of Warsaw to shut down the administrative office unit in charge of returning confiscated property and declaring that she would put all pending re-privatization cases on hold. The complications of the corruption scandal are in addition to a pair of recent legal developments that will further diminish the prospects of former owners of expropriated property.
Based on the Decree of the Council of Ministers dated 26 October 1945 on Ownership and Usufruct of Real Properties in the Capital City of Warsaw, all plots located within the boundaries of the Capital City of Warsaw at that time were municipalized. The idea of the Warsaw Decree was to enable the efficient rebuilding of the Capital and to facilitate further growth and the prompt and proper use of land in accordance with national needs. Pre-war owners were granted an option to file for the establishment of a perpetual usufruct on their previously owned land (a right similar to ownership which enables the use of the land for up to 99 years) for a nominal fee. Once a timely filing was made, the City was able to refuse a perpetual usufruct only if it would not be in compliance with the designation of the land in a master plan. This has two important implications. Firstly, a refusal could not be sanctioned in cases where there was no master plan enacted for the area in question. Secondly, a refusal could not be justified simply on the grounds that the land was designated for public purposes as not all public purposes exclude private possession of land or buildings on it.
In practice, many refusals were made with no justification or in obvious violation of the rules. Over the years, the provisions of the Warsaw Decree have not only been applied in an improper manner but also in such a way so as to cause as much delay as possible without payment of any compensation to expropriated owners. Many filings have been under consideration for nearly 70 years. Claimants, whose motions were illegally renounced in the past, may seek confirmation of such illegal renouncement, which in turn reopens administrative proceedings under the Warsaw Decree for establishment of a perpetual usufruct or enables them to seek compensation from the State Treasury under tort damages theory for illegal administrative decisions. Others, who have not filed a motion or whose motion was validly rejected, need to wait for an ordinance, as contemplated in the Warsaw Decree, to be issued to regulate payment of compensation for nationalization. The ordinance has not been issued to date.
Poland is one of the few countries in the CEE region which has not addressed the results of nationalization in a comprehensive way. For the past 27 years, since the fall of the communist regime in 1989, numerous governments in Poland have been working on draft laws to regulate the issue of compensation for expropriated real estate. Instead of a comprehensive approach, only ad hoc and partial solutions have been offered, an example being recent amendments to the Act on Land Management and the Family and Guardianship Code that became effective on September 17, 2016, also known as the "Small Re-privatization Act"
Small Re-privatization Act
The former President of Poland raised concerns about the Act's conformity with the Constitution and referred it to the Constitutional Tribunal in 2015. The Constitutional Tribunal recently found the Act compliant with the Constitution, thus opening the way for the current President to sign it. The Small Re-privatization Act is supposed to help regulate numerous problems stemming from the improper application of the Warsaw Decree. Among its most important provisions:
- granting a pre-emption right to the City towards claims under the Warsaw Decree, as the City considers that some claims have been traded at a discount;
- introducing prerequisites supplemental to the Warsaw Decree enabling refusal of the establishment of a perpetual usufruct. These are, predominantly, designation or use for public purposes and significant involvement of public funds in renovation of buildings destroyed during the war;
- the possibility to discontinue the proceedings in cases where the parties or their addresses cannot be identified.
The latter two changes are extremely controversial as there are concerns that the new regulations narrow down the possibilities for pre-war owners or their legal successors to regain their estates and offer no compensation for property that cannot be restituted. To many pre-war owners and their legal successors it seems that the Small Re-privatization Act over-prioritizes the public interest and significantly diminishes their rights and claims.
As new aspects of the re-privatization scandal come to light on a daily basis and the political commotion increases, it seems that re-privatization carried out on a case-by-case basis, through individual administrative and judicial proceedings, may be over. Politicians announce that a comprehensive national (not just Warsaw) re-privatization act should be adopted to compensate owners who lost their real estate assets as a result of state nationalization. It remains doubtful whether any such compensations would be fully paid or significantly reflect current property value.
The Supreme Court's stance on the limitation period for compensatory claim
In a controversial decision dated July 13, 2016 the Supreme Court solved a longstanding dispute over how to determine the limitation period for claims arising under the Warsaw Decree. It discussed the relation between administrative proceedings for establishment of a perpetual usufruct and the limitation period of a compensatory claim for damage caused by non-establishment of such right. As mentioned above, claimants whose filings were illegally rejected in the past may seek confirmation of such illegal repudiation, in which case the administrative decision (usually issued in the late 1940's or 1950's) is declared null and void. That, in turn, reopens administrative proceedings under the Warsaw Decree for establishment of a perpetual usufruct. Such proceedings take years to finish. A damage claim against the State Treasury for such a decision is barred by the statute of limitations three years after the day on which the decision was declared null and void. As long as an administrative proceeding for establishment of a perpetual usufruct is pending there is still a possibility that the damage could be remedied by establishment of a perpetual usufruct. If there is restitution in kind there is no need for compensatory damages. However, if, after years of proceedings, a perpetual usufruct is denied, the compensatory claim for damages caused by non-establishment of such right could be time barred as the limitation period is only three years.
The issue discussed by the Court was whether in such a case the limitation period should be interrupted as long as the administrative proceedings are pending. This would be advisable for many practical reasons, including basic fairness.
The Supreme Court decided otherwise. In its resolution the Court stated that administrative proceedings to establish a right of perpetual usufruct do not interrupt the limitation period for seeking compensation for damage caused by not gaining this right due to a decision that had been declared null and void.
The decision is extremely unfavorable to claimants and beneficial to the State. It is also controversial because the Supreme Court had in several previous judgments required that before a claimant applies for compensation administrative proceedings for establishment of a perpetual usufruct had to be finished. There have been parallel lawsuits in the past, filed out of caution, but not every claimant wanted to risk losing the case and/or court fees by doing so. A positive aspect of the decision is that it is now clear that compensation actions can and should be commenced without waiting for the outcome of administrative proceedings. However, all in all, the resolution is still very unfavorable to many 1945 owners and their legal successors.
By Emilia Binder, Associate, Wolf Theiss