Selling real estate in times of blight, or what to do when a party to a contract is abroad and cannot be present at the notary's office
Selling real estate in times of blight, or what to do when a party to a contract is abroad and cannot be present at the notary's office
The article is the first of a three-part entry about entering into real estate contracts by the client's attorney who is abroad.
The second part: Law applicable to the power of attorney and the content of the power of attorney
The third part: Is the apostille clause really necessary?
After the borders were closed due to the pandemic, many people were unable to appear at the notary public to enter into contracts, regarding real estate. Today, there are still restrictions on travel to certain countries, and many people still choose not to travel by air. Opportunities to appear at a notary in another country are therefore still limited.
I do not discuss in this blog post the issue of the impact of force majeure on the performance of contracts, relating to real estate (including development contracts and preliminary agreements), as this is a separate topic that requires extensive discussion.
Factual state
In the case under review, after the conclusion of the preliminary agreement in Poland as to the removal of co-ownership of real estate, and before the conclusion of the final agreement, there was a border closure and cancellation of flights due to the declaration of an epidemic. The person who was to enter into the promised contract is of Polish nationality, but lives permanently in Spain. Since the repayment of the shares was financed with funds from a bank loan, the promised agreement had to be concluded within the time limit set by the bank.
For the sake of simplicity, for the purpose of this post, I am calling the promised contract a 'real estate disposal agreement'. The topic under discussion applies to all contracts, relating to real estate (sale, donation, exchange, etc.).
What is the solution?
The simplest solution in the analyzed situation is to grant a power of attorney to conclude the promised agreement. Such a power of attorney can also be granted to a lawyer, a case manager or, for example, a relative in the country.
By the fact that this power of attorney had to be granted abroad (Spain), a legal analysis was necessary as to what form this power of attorney should be drawn up in, as well as what law would apply to the power of attorney itself.
After all, a Spanish notary could draw up a power of attorney in a form familiar to him (which may be different than in Poland) and in accordance with Spanish law familiar to him.
This analysis is important because if the power of attorney were invalid (e.g., as a result of failure to observe the proper form), there is a risk that the real estate sale agreement itself could also be considered invalid (Article 99 § 1 of the Civil Code in conjunction with Article 158 of the Civil Code), regardless of the possibility of later confirming the power of attorney and convalidating the invalid agreement (but this is a completely different issue that goes beyond the subject of the entry).
Form of power of attorney
What follows from international law?
There are no bilateral agreements (between two countries, in this case Poland and Spain) or international conventions that address the form of a power of attorney to conclude a contract as to real estate.
This issue is partially regulated by European Union law, namely the regulation commonly referred to as "Rome I." Regulations are legal acts that are directly applicable in each EU member state, i.e. by both Polish and Spanish judges, etc. In the event of a conflict between EU law and national law, e.g. Polish law, EU law takes precedence.
Pursuant to Article 11(3) of Regulation (EC) No. 593/2008 of the European Parliament and of the Council of June 17, 2008 on the law applicable to contractual obligations (OJ EU.L No. 177, p. 6), referred to as "Rome I."
A unilateral legal act (e.g., a power of attorney) that relates to a contract already concluded or a contract to be concluded is valid as to form if the form requirements prescribed by the law that is or would be applicable to the contract under this Regulation, or by the law of the country in which the legal act was performed, or by the law of the country in which the person who performed the act had his habitual residence at that time, are met.
In turn, as follows from Article 11(5) of the Rome I Regulation:
Notwithstanding paragraphs 1-4, contracts whose subject matter is a right in rem on real estate or a right to use real estate shall be subject to the form requirements provided by the law of the state in which the real estate is located, if according to this law:
- these requirements apply regardless of the place where the contract is concluded and the law applicable to the contract; and
- These requirements cannot be excluded by contract.
As can be seen from the above-quoted provisions, the power of attorney will be valid regardless of whether it is drawn up in the form provided for in the law applicable to the real estate transfer agreement itself (i.e., in our case, in Polish law: the form of a notarial deed) or in another form provided for by the law of the country in which the power of attorney will be granted or in which the person granting the power of attorney has a permanent residence (in this case, Spanish law).
The contract itself, concerning the right in rem (e.g. ownership) of the real estate, is subject to the form requirements provided by the law of the country where the real estate is located (Poland). That is, a contract for the sale of real estate located in Poland must be concluded in the form provided by Polish law, i.e. in the form of a notarial deed.
What follows from Polish law?
In turn, as follows from Article 25 (1) and (2) of the Polish Law of October 13, 2015. - Private International Law (Journal of Laws of 2015, Item 1792, as amended):
(1) The form of a legal act shall be governed by the law applicable to the act. However, it is sufficient to observe the form prescribed by the law of the state in which the act is performed. If a contract is entered into by persons located in different states at the time of the submission of their statements of intent, it is then sufficient to observe the form prescribed for this action by the law of one of these states.
(2) The provisions of the second and third sentences of paragraph (1) shall not apply to dispositions concerning real estate and to legal actions the object of which is the establishment, merger, division, transformation or termination of a legal person or an unincorporated organizational entity.
As can be seen from the above provision, if a legal action (and a power of attorney is a unilateral legal action) concerns the disposition of real estate, it must be done in the form prescribed by law for this action (in this case, in the form of a notarial deed under Polish law).
It can be argued that there is no contradiction between the above provision (of Polish law) and the previously cited EU law (the Regulation), which does not explicitly regulate the form of a power of attorney to conclude a contract for the transfer of real estate. Moreover, it also follows from the Regulation that in the case of contracts transferring ownership of real estate, the laws of the country in which the real estate is located apply.
The power of attorney should therefore be made in the form provided by Polish law, that is, in the form of a notarial deed.
A Polish notary who obtains a power of attorney in this form will not have any doubts about the validity of the power of attorney due to the form.
Author: Julia Armata
