The planning gap: Change of the rules for determining compensation and planning fees | In Principle

On 7 January 2023, provisions came into force in Poland amending the rules for determining the value of real estate in the case of adoption of a local zoning plan after a “planning gap.” Will they affect property owners, and to what extent?

What does adoption of a zoning plan change?

Pursuant to Art. 4(1) and (2) of the Spatial Planning and Development Act of 23 March 2003:

• The local zoning plan establishes the designated uses of land and the location of public-purpose projects, and determines the methods and conditions for development of the land
• If there is no local zoning plan, the methods and conditions for development of the land are determined by a planning decision.

Entry into force of a local zoning plan affects not only the method of property use, but also the value of properties covered by the plan.

If in connection with enactment or amendment of a local zoning plan, the use of the property or part of it in the previous manner or in accordance with its previous designation has become impossible or significantly restricted, the owner or perpetual usufructuary of the property may demand compensation for the actual injury suffered or purchase of the property or part of it (Art. 36(1)). The compensation may consist of awarding replacement property (Art. 36(2)). If the owner or perpetual usufructuary has not claimed compensation and sells the property, it can claim compensation from the municipality equal to the reduction in value of the property (Art. 36(3)).

Conversely, if adoption or amendment of a local zoning plan increases the value of the property, and the owner or perpetual usufructuary disposes of the property, the head of the municipality shall charge a one-time fee established in the plan, determined as a percentage of the increase in the value of the property (Art. 36(4)). This fee, known as a “planning fee,” cannot be higher than 30% of the increase in the value of the property.

The rules for determining the amount of compensation for loss in value, or the fee for the increase in the value, are established in Art. 37(1) of the Spatial Planning and Development Act. Under that provision, the amount of compensation for the reduction in the value of property and the amount of the fee for the increase in the value of property shall be determined as of the date of sale of the property.

Calculation of the reduction or increase in the value of a property takes into account:

• The value of the property determined in light of the designated land use in effect after adoption or amendment of the local zoning plan
• The value of the property determined in light of the designated land use in effect before amendment of the plan, or the actual use of the property prior to adoption of the plan.

The planning gap: Lower compensation and higher planning fees

Local zoning plans adopted before 1 January 1995 expired by operation of law on 31 December 2003 (Art. 87(3) of the Spatial Planning and Development Act).

If for a given property the existing local plan was adopted before 1 January 1995 and the new local plan was adopted after 31 December 2003, a “planning gap” was created. As a result, the amount of compensation or planning fee was determined by the actual method of use of the property.

If the value of the property determined on this basis was lower than in the local plan in effect until 31 December 2003, then, depending on the determinations made in the new local plan, the property owner received lower compensation or had to pay a higher planning fee than if the planning gap had not occurred.

Amendment of the act after the ruling of the Constitutional Tribunal

The negative consequences of the planning gap for many owners led to filing of constitutional complaints, as a result of which the Constitutional Tribunal examined the constitutionality of Art. 37(1) of the Spatial Planning and Development Act.

In its judgment of 9 February 2010 (case no. P 58/08), the Constitutional Tribunal held that Art. 37(1) of the act is not compliant with Art. 2 and 32 of the Polish Constitution to the extent that it ties the increase in value of the property to the actual method of use of the property prior to adoption of the local zoning plan, if its use is determined in the new plan the same way as in a plan adopted prior to 1 January 1995 which expired by operation of law under Art. 87(3) of the act. The tribunal found that the burden on owners of property located where new local plans were adopted only after expiration of the old ones differed from the fee obligation imposed on owners (or perpetual usufructuaries) of properties in areas where new plans were adopted while plans from prior to 1 January 1995 were still in force.

As a result of this ruling, as of 10 August 2011, Art. 87(3a) was added to the Spatial Planning and Development Act, as follows: “If adoption of a local plan occurred after 31 December 2003 in connection with expiration of a local zoning plan adopted before 1 January 1995, the second sentence of Art. 37(1) of this act, with respect to the increase in value of the property, shall not apply, provided that the value of the real estate determined taking into account the land use established in the local plan adopted before 1 January 1995 is greater than the value of the property determined taking into account the actual method of its use after the loss of validity of that plan. In such a case, the increase in value of the property referred to in Art. 36(4) shall be the difference between the value of the property determined taking into account the land use in effect after adoption of the local plan and its value determined taking into account the land use established in the local plan adopted before 1 January 1995.”

Subsequently, in the Constitutional Tribunal judgment of 22 May 2019 (case no. SK 22/16), concerning a claim for compensation for reduction in the value of the property due to the adoption of a local plan, the tribunal held that Art. 37(1) of the Spatial Planning and Development Act of 27 March 2003, understood to allow the determination of a less favourable purpose of the property than in a local zoning plan adopted before 1 January 1995, is not compliant with Art. 64(2) of the Polish Constitution.

In connection with that ruling, under the Act of 16 November 2022 Amending the Planning and Spatial Development Act, new rules were introduced for determining the amount of compensation for the reduction in the value of property caused by adoption or amendment of a local plan. Art. 87(3b) was added as follows: “If adoption of the local plan took place after 31 December 2003 in connection with expiration of a local plan adopted before 1 January 1995, the second sentence of Art. 37(1) of this act, with regard to the reduction of the value of property, shall not apply if the value of the property determined taking into account the purpose of the land determined in a detailed local plan adopted before 1 January 1995 is greater than the value of the property determined taking into account the actual method of its use after that plan expired. In such a case, the reduction in the value of the property referred to in Art. 36(3) shall be the difference between the value of the property determined taking into account the land use established in a detailed local plan adopted before 1 January 1995 and its value determined taking into account the land use established in the local plan.”

Art. 87(3a) was also amended by adding the word “detailed” in the first sentence.

According to Art. 26(1) of the Spatial Planning Act of 12 July 1984 (which was in force until 1 January 1995), local plans could be general or detailed. A general local plan determined the natural, social, economic, cultural and landscape conditions for spatial development of a municipality or parts thereof and the objectives and principles of the spatial policy of local government units. A detailed local plan specified the use of land, set the demarcation lines of the land, established the rules for the presence of utility networks and the rules for shaping of development, as well as other conditions and guidelines where necessary. Detailed local plans were prepared for areas specified in the general local plan or as needed.

Impact of the latest amendment

In the course of work in the Senate on the amending act of 16 November 2022, a written comment on the bill was submitted by the Association of Polish Cities, claiming that it was detailed local plans, not general local plans, that determined the land use. Indeed, it is only in the definition of a detailed local plan that land use is mentioned. But it cannot be overlooked that according to Art. 33 of the Spatial Planning Act of 1984, the local plan—that is, both a general plan and a detailed plan—constituted the basis for land management, issuance of decisions on the use of land for development purposes, and decisions to reclassify agricultural or forest land for non-agricultural and non-forestry purposes. Therefore, when determining the value of property in the event of a planning gap, both general plans and detailed plans enacted before 1 January 1995 should be taken into account. However, the judgment of the Constitutional Tribunal underlying the amendment of 16 November 2022 concerned the legal and factual situation arising under a general local plan.

This issue was left out of the amendment to the Spatial Planning and Development Act which came into effect on 7 January 2023. The government draft of the Act Amending the Spatial Planning and Development Act and Certain Other Acts of 26 January 2023 does not provide for any changes in this respect.

In the current state of the law, pursuant to Art. 87 (3a) and (3b) of the Spatial Planning and Development Act, when determining compensation or the planning fee in the event of a planning gap, the value of the property should be determined taking into account the land use established in the detailed local zoning plan adopted before 1 January 1995. An assessment of which type of plan applied to a particular property should be guided not by the name or title of the plan, but by its content, as it sometimes happened that local plans were called “general plans” even if they met the requirements for a detailed plan.

Summary

Before 1 January 1995, no more than 30% of Poland’s territory was covered by local zoning plans, and mostly they were general plans. Therefore, Art. 87 (3a) and (3b) of the Spatial Planning and Development Act is unlikely to be universally applied.

If for a given property there was no detailed local zoning plan in effect before 1 January 1995, for the purpose of compensation or a planning fee for entry into force of a new zoning plan, the value of the property will continue to be determined on the basis of the actual use of the property.

Significantly, under the current line of case law, in particular the Supreme Court judgment of 12 January 2022 (case no. II CSKP 20/22), whether a property can be used in the current manner or in accordance with its current designated purpose should be assessed not only on the basis of the pre-existing actual use of the property, but also taking into account the possible uses. Therefore, it is necessary to examine not only how the property was used, but also how it could have been developed.

Also, the concept of property use includes the possibility of carrying out specific projects or intentions and is not limited to situations in which the owner (or perpetual usufructuary) has already taken specific factual or legal action aimed at determining the method of property use. Thus, a potentially permissible use is treated on par with an existing actual property use. For example, if the municipality has not adopted a local zoning plan, the potential property use during the period when no plan was in force was determined by a planning decision. If there is no such decision, determining the potentially permissible property use will require a detailed planning analysis.

Iwona Kasperek, Real Estate practice, Wardyński & Partners