Legal challenges in the living sector (PRS, PBSA)

The Polish real-estate market has seen a surge in alternative housing models including purpose-built student accommodation (PBSA), private rented sector (PRS or build-to-rent) and senior housing.

The Polish living market is driven by multiple factors such as urbanisation and migration,  a growing middle class, a gap in the supply of homes,  the increasing number of institutional investors, a shift to rent as younger generations tend to choose renting over ownership and affordability as rent is often cheaper than a loan instalment and more resilient for individuals. 

Despite the fact that the living sector promises high growth, legal and regulatory ambiguity may constitute a significant barrier for this sector.

In this article, we intend to outline the main legal issues currently facing the living sector.

Zoning issues and ambiguity in defining residential and non-residential buildings
The Polish zoning regulations, especially the regulation of the Ministry of Development on the required scope of the master plan, do not provide a separate category of designation of land-use corresponding to the PRS function. The lack of a clear definition of the PRS function in the master plans creates ambiguity as to whether PRS can be built in areas designated for services or for multi-family housing.

As a rule, the PRS investments serve housing needs regardless of whether the leases concluded with end users are executed for the long- or the short term. Nevertheless, in the event that the PRS development is structured in such a way that the development in question is classified as a ‘non-residential building’, depending on the exact wording of the master plan, it is not entirely excluded that such a development could be built on area designated for ‘services’ in the master plan.

Referring to the planning issue, there is a lack of consistency of terminology in the legislation relating to the definition of residential and non-residential buildings used in the Polish legislations. Under  Polish law, there are difficulties in determining whether a building is residential or non-residential. According to the Polish Classification of Construction Facilities, residential buildings are defined as buildings of which at least half of the total area is used for residential purposes –  designated for permanent living of people in order to meet their housing needs. On the other hand, non-residential buildings are defined as buildings used mainly for non-residential purposes. In addition, the Polish Classification of Construction Facilities provides a list of developments which should be treated as residential and non-residential. For example, hotels and tourist accommodation are treated as non-residential buildings, whereas collective accommodation buildings, including residential houses for elderly people (senior living) and dormitories (PBSA) are treated as residential buildings.

However, the other important regulation – the Regulation of the Minister of Infrastructure on technical conditions to be met by the buildings and their location – classifies collective accommodation buildings as ‘buildings intended for temporary stay’ (student housing, hotels, guest houses, hostels) and not as residential buildings, which may argue that PBSA can be classified as non-residential buildings and built on service areas in master plans.  In addition, the jurisprudence does not provide a clear answer whether PBSA serve permanent housing needs or whether running private students’ accommodation should be treated as the provision of accommodation services within the meaning of master plans due to, for example, the high rotation of students in student dormitories.

Possibility to issue a certificate of independence of premises with respect to collective accommodation buildings (hotels)
An additional issue that mainly concerns aparthotels – service premises with a hotel function – is the possibility of issuing a certificate of independence of such premises (in Polish: zaświadczenie o samodzielności lokalu). However, there are also judgments stating that the authorities may not refuse to issue a certificate of independence of premises focusing exclusively on the building’s function as a hotel. In addition, there is no legal provision prohibiting the operation of a hotel in independent premises and the mere issuance of a certificate of independence of premises does not result in a change of use of the buildings from, for example, hotel to residential use.

Types of the agreement concluded with the final users
Another important legal aspect in PRS investments are types of contracts concluded with end-users. The most common types of agreements in PRS investments are lease agreements subject to the Civil Code, or the Act on Protection of Tenants’ Rights – depending on whether a dwelling is used to meet housing needs, or is subject to accommodation service agreements.

Polish law does not differentiate short-term or long-term lease agreements and does not stipulate the minimum or the maximum number of days for which the premises might be leased. If the premises are designated for the residential purposes, such lease will be regulated both by the Civil Code and Act on Protection of Tenants’ Rights which in general provides stricter protections for the tenant and limits the landlord’s right to terminate the lease agreement or to increase rent.

In addition, the Act on Protection of Tenants’ Rights introduces the sub-category of the lease agreement – the ‘institutional lease’ – which might be concluded between a landlord engaged in the business activity of renting premises and a tenant who is obliged to provide the landlord with the act on voluntary submission to enforcement as regards the surrender of the premises.

On the other hand, the accommodation service agreement is not regulated by the Civil Code. A useful regulation for determining the scope of an accommodation service agreement is the Polish Classification of Products and Services which provides that tourist accommodation is a short-stay accommodation (daily or weekly). Notwithstanding the above, the Polish Classification of Products and Services is used mostly for static and fiscal purposes and as stated above, Polish law does not differentiate short-term from long-term lease.

The main difference between the accommodation service agreement and lease agreement is that with respect to accommodation service agreements, the owner of the property provides additional integrated services such as luggage storage, wake-up calls, laundry service or deposit of valuable items. In addition, apart from the accommodation service agreements, end-users usually have to obey additional regulations such as check-in/check-out hours, rules concerning the use of the rooms, use of parking spaces, etc. Also, the tax law provides different tax rates depending on whether the premises are subject of the lease agreement or accommodation service agreements (this tax topic is however extremely complex, and it would require a separate article addressing the tax implications and tax risks of the living sector).

Summarising, this article shows that PRS and PBSA investors have to operate in an uncertain legal situation (in some areas) and that current regulations have not kept pace with the dynamic development of the PRS and PBSA market in Poland.

This article does not constitute any legal opinion. It provides a general overview of issues discussed in the article. If needed, we recommend approaching Polish legal advisors for further analysis of the issues raised in this article.