Preliminary objection rejected (ratione temporis);Violation of P1-1;Pecuniary damage - reserved;Non-pecuniary damage - financial award

Anna Wyrozumska;Christos Rozakis;Egbert Myjer;Françoise Tulkens;Giovanni Bonello;Ineta Ziemele;Javier Borrego Borrego;Jean-Paul Costa;Josep Casadevall;Khanlar Hajiyev;Kristaq Traja;Luzius Wildhaber;Matti Pellonpää;Mindia Ugrekhelidze;Nicolas Bratza;Peer Lorenzen;Rait Maruste;Snejana Botoucharova;Stanislav Pavlovschi;Sverre Erik Jebens;Viera Strážnická;Vladimiro Zagrebelsky

The applicant, who is a French national of Polish origin, was born in 1931. She lived for a long time in Andrésy, France. At present, she lives in Poznań, Poland. She owns a house and a plot of land in Gdynia, Poland. The property previously belonged to her parents.

Polish legislation on rent control is the result of many historical and recent factors. Legislative schemes restricting the rights of landlords and regulating increases in rent were already in operation before the Second World War. The description below of the general situation is based on the findings of the Polish Constitutional Court (Trybunał Konstytucyjny) which, on 12 January 2000, in one of its judgments concerning the constitutionality of certain aspects of the legislation on rent control, gave thorough consideration to the historical background of this legislation and the factors contributing to the preservation of restrictions dating back to an early stage of the communist regime in Poland.

The rent-control scheme was the consequence of the introduction of the so-called “State management of housing matters” (publiczna gospodarka lokalami) by the former communist authorities (see paragraphs 67-70 below). It was accompanied by provisions drastically restricting the amount of rent chargeable. The applicable provisions originated in the exceptionally rigid distribution of housing resources which characterised the first thirty years of the communist regime in Poland.

The circumstances did not change significantly after the end of the communist rule in 1989. Indeed, at the beginning of the 1990s the housing situation of Poland was particularly difficult, as was demonstrated, on the one hand, by a shortage of dwellings and, on the other hand, by the high cost of acquiring a flat. The State-controlled rent, which also applied to privately owned buildings, covered just 30% of the actual costs of maintenance of the buildings.

In 1994 those social and economic factors prompted the legislature not only to maintain elements of the so-called “special lease scheme” (szczególny tryb najmu) (see paragraph 69 below) in respect of State-owned dwellings but also to continue to apply that scheme – temporarily, for a period of ten years expiring on 31 December 2004 – to privately owned buildings and dwellings. In short, the system was a combination of restrictions on the amount of rent chargeable and of limitations on the termination of leases, even in respect of tenants who did not comply with the terms of the contract.

The material collected by the Constitutional Court in 2000 included a report prepared by the Office for Housing and Town Development (Urząd Mieszkalnictwa i Rozwoju Miast). According to that report, in 1998, after four years of the operation of the 1994 rent-control scheme, the average rent as fixed under that scheme covered only 60% of the costs of maintenance of residential buildings. The shortfall was to be covered by landlords. The scale of the problem was considered to have been very large, since at that time 2,960,000 dwellings (25.5% of the country’s entire housing resources) were let under the rent-control scheme. That number comprised some 600,000 flats in buildings owned by private individuals. The total number of flats in Poland was estimated at about 11,600,000. Flats in privately owned buildings subject to the rent-control scheme constituted 5.2% of the country’s housing resources.

The report stated, among other things:

“Before ... [1994], statutory rent determined by the Cabinet covered about 30% of running maintenance costs. At present, after four years of operation of the [1994] rent-control scheme, municipalities set levels of rent covering on average 60% of maintenance costs. ...

In respect of buildings owned by municipalities, the shortfall is covered by the municipalities, which frequently use for that purpose surplus derived from letting commercial premises.

As regards privately owned buildings where tenants pay controlled rent, the shortfall is covered by the owners of the buildings.”

In 2003-04 the government, in the course of preparation of its bill amending the legislation on rent control (see paragraphs 114 et seq. below), collected a considerable amount of data describing the current general housing situation in Poland.

The situation is characterised by a serious shortage of residential dwellings. According to the 2002 national population and housing census, the deficit, defined as the difference between the number of households and the number of flats, amounts to 1,500,000 flats. There is a particularly acute shortage of flats to let.

Data collected by the Central Statistical Office (Główny Urząd Statystyczny) on the overall financial situation of households, indicate that in the years 1998-2003 household expenses such as rent and electricity bills amounted to 14.5%-15.4% of total expenses (18.6%-19% in pensioners’ households). During the same period, between 7% and 10% of Polish households were in rent arrears (1998: 7.5%; 1999: 7%; 2000: 7%; 2002: 10%; 2003: 9%).

In 2000 about 54% of the population lived below the poverty line, of which 8% were below the abject poverty line. In 2002 some 58% of the population lived below the poverty line, of which 11% were below the abject poverty line.

Various reports received by the Office for Housing and Town Development confirmed that the provisions relating to the protection of tenants as applicable until 31 December 2004 (see paragraphs 85-89 below) limited the availability of flats to let. In the authorities’ view, the introduction of the so-called “commercial lease” (najem komercyjny) – in other words a market-related lease – by lifting restrictions on rent increases for privately owned buildings and freeing private landlords from their obligation to provide indigent tenants with alternative accommodation upon the termination of their lease, should encourage private investors to build tenement houses designated solely for letting.

The Government gave various figures to indicate the number of persons potentially affected by the operation of the rent-control scheme. They stated that, according to information supplied by the Office for Housing and Town Development, the operation of the relevant legislation affected approximately 100,000 landlords and 600,000 tenants. Other sources cited by the Government indicated that the total number of persons concerned was around 100,000 landlords and 900,000 tenants.

The applicant’s house was built in 1936 as a one-family home. It originally consisted of a duplex flat, a basement and an attic.

During the Second World War, the house was occupied by officers of the German army. In May 1945 it was taken over by the Red Army, which quartered some of its officers there for a while.

On 19 May 1945 the head of the housing department of Gdynia City Council (Kierownik Wydziału Mieszkaniowego Magistratu Miasta Gdynia) issued a decision assigning the first-floor level of the duplex flat to a certain A.Z.

In June 1945 the Gdynia City Court (Sąd Grodzki) ordered the return of the house to the applicant’s parents. They began to renovate it but, shortly afterwards, were ordered to leave. A.Z. moved into the house in October 1945.

On 13 February 1946 the Decree of 21 December 1945 on the State management of housing and lease control (Dekret o publicznej gospodarce lokalami i kontroli najmu) came into force. Under its provisions, the house became subject to the so-called “State management of housing matters” (see paragraph 13 above).

In 1948, at a public auction, the authorities unsuccessfully tried to sell the house to A.Z., who was at that time employed by Gdynia City Council, an authority responsible for the State management of housing matters at the material time. At about the same time, the applicant’s parents, likewise unsuccessfully, tried to recover their property.

On 1 August 1974 the Housing Act (Prawo lokalowe) (“the 1974 Housing Act”) came into force. It replaced the State management of housing matters with the so-called “special lease scheme” (see paragraphs 14 above and 69 below).

On an unknown date in 1975 a certain W.P., who was at that time head of the housing department of Gdynia City Council (Kierownik Wydziału Spraw Lokalowych Urzędu Miejskiego), tried to buy the house from the applicant’s brother.

On 8 July 1975 the mayor of Gdynia issued a decision allowing W.P. to exchange the flat he was renting in another building under the special lease scheme for the ground-floor flat in the applicant’s house. That decision was signed on behalf of the mayor of Gdynia by a civil servant who was subordinate to W.P. On 28 January 1976 Gdynia City Council issued a decision confirming that under the provisions governing the special lease scheme the flat had been let to W.P. for an indefinite period. Later, in the 1990s, the applicant tried to have that decision declared null and void but succeeded only in obtaining a decision declaring that it had been issued contrary to the law (see paragraphs 44-49 below).

On 24 October 1975 the head of the local management and environment office of Gdynia City Council (Kierownik Wydziału Gospodarki Terenowej i Ochrony Środowiska Urzędu Miejskiego w Gdyni) ordered that the house become subject to State management (przejęcie w zarząd państwowy). That decision took effect on 2 January 1976.

On 3 August 1988 the Gdynia District Court (Sąd Rejonowy), ruling on an application by A.Z.’s relatives, gave judgment, declaring that, after A.Z.’s death, her daughter (J.P.) and son-in-law (M.P.) had inherited the right to rent the first-floor flat in the applicant’s house.

On 18 September 1990 the Gdynia District Court gave a decision declaring that the applicant had inherited her parents’ property. On 25 October 1990 the Gdynia District Court entered her title in the relevant land register.

On 26 October 1990 the mayor of Gdynia issued a decision restoring the management of the house to the applicant. On 31 July 1991, acting through her representative, she took over the management of the house from Gdynia City Council. Shortly afterwards, she began to refurbish the house.

On an unknown date in the 1990s the applicant set up a private foundation called the Amber Trail Foundation (Fundacja Bursztynowego Szlaku). Since 1991 she has been trying to make her house the seat of the foundation.

After taking over the management of the house, the applicant initiated several sets of proceedings – civil and administrative – in order to annul the previous administrative decisions and regain possession of the flats in her house.

On 16 June 1992 the applicant asked the Gdynia District Court to order the eviction of her tenants. In April 1993, on an application by the defendants, those proceedings were stayed. On 26 April 1996 the applicant’s claim was dismissed.

In April 1995 the applicant asked the Gdańsk Regional Court (Sąd Wojewódzki) to order Gdynia City Council to relocate the tenants living in her house to dwellings owned by the municipality. She also asked the court to award her compensation, inter alia, for the fact that the authorities had deprived her parents and herself of any possibility of living in their own house, for damage to the property and arbitrary alteration of its use, and for mental suffering. On 5 July 1996 the Regional Court ruled that, under the Lease of Dwellings and Housing Allowances Act of 2 July 1994 (Ustawa o najmie lokali mieszkalnych i dodatkach mieszkaniowych) (“the 1994 Act”), the defendant authority had no obligation to relocate the tenants to accommodation owned by the municipality. It dismissed the remainder of the claims. The applicant appealed.

On 17 January 1997 the Gdańsk Court of Appeal (Sąd Apelacyjny) heard, and dismissed, her appeal. It observed that no provision of the 1994 Act obliged the municipal authorities to relocate the applicant’s tenants or, at her request, to provide them with alternative accommodation (lokal zastępczy). The relevant provisions of the 1994 Act, namely section 56(4) and (7) (see paragraph 77 below), stipulated that a tenant had to vacate a dwelling only if the owner had offered him another flat he owned or the municipality had agreed to provide the tenant with alternative accommodation owned or administered by it. As regards the applicant’s claim for damages for financial loss sustained as a result of the administrative decisions, the Court of Appeal observed that such claims could be determined by the courts of law only if a claimant had first applied for compensation to the administrative authorities and the outcome of the relevant administrative proceedings had been unfavourable. It referred the applicant to the Code of Administrative Procedure (Kodeks postępowania administracyjnego), which set out the rules governing the liability of public authorities for issuing wrongful decisions.

In so far as the applicant sought compensation for damage to the house and for the alteration of its use, the Court of Appeal considered that the defendant authority could not be held liable for the consequences of the laws which had previously been in force. In particular, it was not liable for the enactment of the post-war legislation which had introduced restrictive rules concerning the lease of dwellings in privately owned houses and the State management of housing matters. Nor was it liable for the implementation of the special lease scheme introduced by the 1974 Housing Act and the operation of the 1994 Act, which incorporated certain similar rules for the protection of tenants whose right to rent flats in privately owned houses had been conferred on them by administrative decisions (see paragraphs 71-72 below). Lastly, the court noted that the defendant could not be liable for any damage caused by the applicant’s tenants.

Subsequently, the applicant lodged a cassation appeal (kasacja) with the Supreme Court (Sąd Najwyższy). On 13 November 1997 the Supreme Court dismissed that appeal on procedural grounds. The court held that the applicant had not complied with the relevant formal requirements; in particular, she had not specified the errors of substantive civil law allegedly committed by the lower courts.

In October 1995 the applicant asked the Gdańsk Self-Government Board of Appeal (Samorządowe Kolegium Odwoławcze) to declare null and void the decision of the head of the housing department of Gdynia City Council of 19 May 1945. By virtue of that decision, the first-floor flat in the house had been assigned to A.Z. It had also formed a basis for granting the right to lease that flat in the applicant’s house to A.Z.’s successors (see paragraphs 22-23 and 30 above).

On 26 June 1997 the Board rejected her application. It noted that the impugned decision had been taken pursuant to the Decree on housing commissions issued by the Polish Committee of National Liberation on 7 September 1944 (Dekret Polskiego Komitetu Wyzwolenia Narodowego o komisjach mieszkaniowych), a provision which had at the relevant time governed all housing matters. It found that the decision had not been issued by the competent public authority and, in consequence, had not been lawful. Yet the Board could not declare the decision null and void (stwierdzić nieważność decyzji) because, pursuant to Article 156 § 2 of the Code of Administrative Procedure, if more than ten years had elapsed from the date on which the unlawful decision had been made, the Board could only declare that the decision “had been issued contrary to the law” (została wydana z naruszeniem prawa).

The applicant appealed to the Supreme Administrative Court (Naczelny Sąd Administracyjny). On 15 January 1998 the court dismissed her appeal because she had not availed herself of an obligatory legal remedy in that she had not made an application to the Board for the matter to be reconsidered (wniosek o ponowne rozpatrzenie sprawy).

The applicant subsequently made such an application. On 23 June 1998 the Board upheld its decision of 26 June 1997. The applicant appealed to the Supreme Administrative Court. The Gdańsk Regional Prosecutor (Prokurator Wojewódzki) joined the proceedings and lodged an appeal on the applicant’s behalf.

On 8 June 1999 the Supreme Administrative Court dismissed both appeals. It confirmed that the impugned decision had been unlawful. It added that there had been several procedural shortcomings (for instance, the applicant’s parents had not been notified of the proceedings and had never had any opportunity to challenge the decision; in addition, no legal basis had been given for it). However, in accordance with Article 156 § 2 of the Code of Administrative Procedure, the court could not annul the decision but could only declare that it had been issued contrary to the law. In passing, the court observed that the above-mentioned procedural shortcomings could be rectified by means of reopening the proceedings.

In 1992 the applicant asked the Gdańsk Self-Government Board of Appeal to declare null and void the decision of the mayor of Gdynia of 8 July 1975. By virtue of that decision, W.P. had been granted the right to lease the ground-floor flat in the applicant’s house (see paragraph 28 above)

On 27 January 1994 the Board rejected her application. The applicant appealed to the Supreme Administrative Court.

On 14 June 1995 the court dismissed her appeal. It found that the flats in the applicant’s house had been let under the special lease scheme introduced by the 1974 Housing Act and that, accordingly, the mayor had been competent to issue the decision in question. It further observed that, despite some procedural errors committed by the mayor of Gdynia (which could be rectified by means of reopening the proceedings), the decision had had a legal basis and could not, therefore, be declared null and void.

On 17 September 1994 the applicant asked the mayor of Gdynia to reopen the relevant proceedings and to declare the impugned decision null and void. The mayor rejected her application as being lodged out of time.

On 29 December 1995 the Gdańsk Self-Government Board of Appeal, of its own motion, reopened the proceedings. It found that the contested decision had been made on behalf of the mayor of Gdynia by a civil servant who had been W.P.’s subordinate and that that fact in itself constituted a sufficient ground for reopening the proceedings pursuant to Article 145 § 1 (3) of the Code of Administrative Procedure. That fact had also rendered the decision unlawful. However, since more than five years had elapsed from the date on which the decision had been given, the Board could not annul it. It could merely declare that it had been issued contrary to the law, as laid down in Article 146 § 1 of the Code of Administrative Procedure.

The applicant appealed to the Supreme Administrative Court, alleging that the decision had never been served on the owners of the house and that it should have been declared null and void. On 28 November 1996 her appeal was dismissed.

On 4 October 1994 the applicant asked Gdynia City Council to reopen the administrative proceedings that had been terminated on 24 October 1975 by the decision of the head of the local management and environment office of Gdynia City Council. By virtue of that decision, the applicant’s house had become subject to State management (see paragraph 29 above). She further asked to have the decision declared null and void, submitting that it had lacked a legal basis. In particular, the house had incorrectly been classified as a “tenement house” (dom wielorodzinny), whereas in reality it was, and always had been, a one-family house and, as such, should not have become subject to State management. The decision, the applicant added, had been made solely for the personal benefit and gain of W.P., who had at that time been the head of the housing department of Gdynia City Council. In her view, it had been made to sanction the prior – and likewise unlawful – decision of 8 July 1975 whereby W.P. had acquired the right to lease the flat in her house.

On 7 December 1994 the mayor of Gdynia rejected her application, finding that she had lodged it outside the prescribed time-limit. On 12 June 1995 the Gdańsk Self-Government Board of Appeal upheld the mayor’s decision. Subsequently, the applicant appealed to the Supreme Administrative Court. On 14 November 1996 the court quashed both decisions because the mayor of Gdynia had not been competent to rule on the application.

On 27 February 1997 the Gdańsk Self-Government Board of Appeal reopened the proceedings terminated by the decision of 24 October 1975. On 28 April 1997 the Board declared that that decision had been issued contrary to the law because the owners of the house had not been notified of the proceedings. It found that Gdynia City Council had not acted with due diligence. In particular, it had made no effort to establish who had been the rightful successors to the owners of the house, while at the material time the applicant and her brother had – on a regular basis – paid the relevant taxes on the property to the City Council. Relying on Article 146 § 1 of the Code of Administrative Procedure, the Board refused to annul the decision because more than five years had elapsed from the date on which it had been given.

On an unspecified date in 2002 the applicant asked the Governor of Pomerania (Wojewoda Pomorski) to declare the decision of 24 October 1975 null and void. The application was referred to the Gdańsk Self-Government Board of Appeal, a body competent to deal with the matter. The Board rejected the application on 13 May 2002. It held that the matter was res judicata.

The parties gave differing information as to the actual usable surface area of the flats in the applicant’s house, a factor relevant for the determination of the chargeable rent.

The Government submitted that the usable surface area of the applicant’s house was 196 square metres. They produced an inventory done on 1 August 1991 in connection with the transfer of management of the house from Gdynia City Council to the applicant (see also paragraph 32 above). The usable surface area of the house was estimated at 196 sq. m; no net living area was indicated. There were four flats and no commercial premises. The number of habitable rooms in the flats was twelve. The surface area of those flats was estimated at 148 sq. m. The total surface area of the house was indicated as 255 sq. m.

The applicant stated that the total surface area of the house occupied by the tenants and for which they paid rent was about 250 sq. m. In that connection, she supplied a declaration of 28 May 2001, issued by the Gdynia Association of Landlords and Managing Agents (Zrzeszenie Właścicieli i Zarządców Domów), an agency that apparently administered her property. According to the declaration, since at least the 1950s the applicant’s house had been divided into three flats leased by means of the agreements originating in the administrative decisions described above.

The usable surface areas of those flats for the purposes of fixing rent were as follows: flat no. 1 = 127.38 sq. m; flat no. 3 = 67.90 sq. m; and flat no. 4 = 54.25 sq. m. Accordingly, the total usable surface area occupied by the tenants was 249.53 sq. m.

On an unspecified date in 1995 W.P. asked the Gdynia District Court to determine the amount of the rent to be paid by him. On 20 March 1996 the District Court gave judgment and determined the amount of rent at 33.66 Polish zlotys (PLN) per month. It ordered the applicant to pay costs in the amount of PLN 528.90.

According to the Gdynia Association of Landlords and Managing Agents’ declaration of 28 May 2001 (see paragraph 56 above), the amounts of rent to be paid by the applicant’s tenants were as follows: for flat no. 1 (usable surface area of 127.38 sq. m), occupied by J.P. and M.P.: PLN 500.60; for flat no. 3 (usable surface area of 67.90 sq. m), occupied by W.P.: PLN 322.65; for flat no. 4 (former attic; usable surface area 54.25 sq. m.), occupied by J.W.: PLN 188.25. Dwelling no. 2 (apparently originally the bedroom of the applicant’s parents, later used as a drying room), which had previously been used by W.P. without any legal title or authorisation and for which he had paid no rent, was at that time locked and sealed by the managing agent. W.P. was served with a notice ordering him to pay PLN 2,982.46 for the unauthorised use of the dwelling on pain of being evicted.

At the hearing before the Chamber on 27 January 2004, the Government informed the Court that the rent paid by J.P. and M.P. on that date was PLN 531.63.

Following a request by the Chamber to produce evidence establishing the situation of the applicant’s tenants, the Government supplied a certificate issued by the Gdynia District Centre for Social Services (Dzielnicowy Ośrodek Pomocy Społecznej) on 19 February 1993. The certificate stated that W.P. had received assistance from the centre as from January 1993. He was to obtain a periodical social welfare benefit for March and May 1993. In 1992 he had received assistance for housing purposes. The certificate further stated that W.P. had earlier been assessed as having a “disability of the second degree”, the disability and its degree being subject to a medical verification in May 1993.

On 12 February 2004, in reply to an enquiry by the Government in connection with the present case, the Gdynia City Centre for Social Services (Miejski Ośrodek Pomocy Społecznej) stated that the applicant’s tenants, W.P., J.P., M.P. and J.W., were not receiving any assistance from the centre and they had not received any assistance from social services for the past few years, that is from 1995 onwards.

In reply to a question from the Chamber as to the amount of controlled rent received by the applicant from 10 October 1994 onwards, the Government stated that they had no details of the rent received by the applicant at the relevant time. However, they supplied indicators relevant for the fixing of a controlled rent, as determined by Gdynia City Council for similar houses.

According to this information, in December 1994 the rent per square metre was 9,817 old Polish zlotys; from January to November 1995, PLN 1.04; from December 1995 to October 1996, PLN 2.11; from November 1996 to December 1997, PLN 2.63; from January 1998 to January 1999, PLN 3.37; from February 1999 to January 2000, PLN 4.01; from February 2000 to February 2001, PLN 4.37; and from April 2002 to October 2002, PLN 4.61.

On 10 October 2002, following the coming into effect of the Constitutional Court’s judgment of 2 October 2002, it became possible for landlords to increase the rent up to 3% of the reconstruction value of the dwelling (see paragraphs 86, 102-04 and 113 below).

From December 2002 to 30 June 2003 the relevant conversion index of the reconstruction value of the dwelling (see paragraphs 75 and 85 below) was PLN 2,525.30. From 1 July to 31 December 2003 it amounted to PLN 2,471.86.

In 2004 the conversion index was fixed at PLN 2,061.21. The Government submitted that the reconstruction value of the dwellings in the applicant’s house was calculated on the basis of the following three elements: the 3% mentioned above, the usable surface area of the flats and the relevant conversion index (PLN 2,061.21). The monthly rent per square metre in the applicant’s house corresponded to 3% of the conversion index of the reconstruction value of a square metre divided by 12 months (3% x PLN 2,061.21 = PLN 61.83/12). It accordingly amounted to approximately PLN 5.15 per square metre. Having regard to the usable surface area of the house as indicated by the Government, the maximum monthly chargeable rent was PLN 1,009.40 (PLN 5.15 x 196 sq. m). Taking into account the surface area as indicated by the applicant, the relevant amount was PLN 1,285.08 (PLN 5.15 x 249.53 sq. m).

According to the applicant, in the years 1994-99 the free-market rent for the three flats in her house would have amounted to 1,700 United States dollars (USD) per month (USD 800 + USD 500 + USD 400 respectively, depending on the size of the flat). In the years 2000-02 the rent would have decreased to USD 1,250 per month (USD 600 + USD 350 + USD 300). In 2003 it would have been further reduced to USD 900 per month (USD 450 + USD 250 + USD 200). She stated that her prognosis as to the decrease in rent was based on such factors as the devaluation of the house owing to its age and the decreasing demand and increasing supply of flats to let on the market.

In their referral request of 20 May 2005, the Government informed the Court that two of the applicant’s flats had become vacant because W.P. had moved out on 2 June 2003 and J.P. and M.P. had moved out on 6 September 2004. They also stated that J.W. had recently been offered a council flat by the authorities and was about to move out.

At the oral hearing, the Government said that J.W. was still living in the flat but that she was to move out in the coming weeks.

On 18 April 2006 the Government informed the Court that J.W. had moved to a council flat on 15 February 2006.

The Cabinet Decree of 21 December 1945 on the State management of housing and lease control (Dekret z 21 grudnia 1945 r. o publicznej gospodarce lokalami i kontroli najmu), which came into force on 13 February 1946, introduced “State management of housing matters”, which also applied to dwellings or commercial premises in privately owned buildings (see paragraph 13 above).

Later, on 1 September 1948, the Decree of 28 July 1948 on the lease of dwellings (Dekret o najmie lokali) came into force. Under its provisions, the State authorities administered all housing matters in the public and private sectors alike. The authorities were given power to issue a decision assigning to a tenant a particular flat in a privately owned building. Those provisions also laid down rules concerning rent control.

The 1974 Housing Act introduced the “special lease scheme”, which replaced “State management of housing matters”, although it did not significantly change the principles on which the right to lease was based. For instance, the right to lease a flat in a building subject to “State management” did not originate in a civil contract but was conferred on a tenant by an administrative decision. The owner of such a building had no say as to who could live in his or her house and for how long. The special lease scheme applied to residential and commercial premises.

Decisions on “allocation of a dwelling” (przydział lokalu) were, for all practical purposes, tantamount to “granting” a right to lease a dwelling (or commercial premises) under the special lease scheme. They were issued by the relevant departments of the local council (depending on which of the many reforms of the system of public administration was being carried out, those departments were called variously “housing departments”, “departments of local management and environment”, “dwelling departments”, etc.).

The Act came into force on 12 November 1994. It was intended to bring about a reform of the law governing the relationship between landlords and tenants. Although it abolished the “special lease scheme” and relaxed the control of rent by, for instance, allowing rents of commercial premises to be market-related and determined freely, as well as allowing rents for residential dwellings to be fixed freely in civil contracts between landlords and tenants, it maintained the control of rent of residential dwellings in which the right to lease a flat had earlier been conferred on a tenant by an administrative decision.

The 1994 Act introduced the system of “controlled rent” (czynsz regulowany) and set out detailed regulations on the calculation of rent for residential dwellings which had so far been subject to the “special lease scheme”. The provisions concerning controlled rent, the ratio legis of which was to protect tenants in a difficult financial situation during the transition from a State-controlled to a free-market housing system, were to remain in force until 31 December 2004.

The 1994 Act maintained, albeit with slightly modified wording, the rules concerning the protection of tenants against the termination of leases continued on the basis of previous administrative decisions and the right of succession to a lease.

Section 8(1) of the Act read:

“1. In the event of a tenant’s death, his or her descendants, ascendants, adult siblings, adoptive parents or adopted children or a person who has lived with a tenant in de facto marital cohabitation, shall, on condition that they lived in the tenant’s household until his or her death, succeed to the tenancy agreement and acquire the tenant’s rights and obligations connected with [the lease of] the flat, unless they relinquish that right to the landlord. This provision shall not apply to persons who, when the [original] tenant died, had title to another residential dwelling.

In cases where there is no successor to the tenancy agreement, or where the successors have relinquished their right, the lease shall expire.”

Section 20 set out the following:

“(1) Under the lease agreement the tenant is obliged to pay the rent.

(2) In the cases provided for by the present statute, the rent shall be determined in a manner specified in this Act (controlled rent). In other cases the rent shall be determined freely.

(3) The rent shall be determined with reference to the physical state of the building in question, its surface area and the condition of the flat and other factors which increase or reduce the flat’s value.

(4) The parties shall specify the rent in their agreement.”

Section 25, which, pursuant to section 56(2) (see paragraph 77 below), also applied to privately owned flats subject to the previous special lease scheme, provided:

“(1) Subject to the reservation set forth in section 66, controlled rent shall be paid by tenants of dwellings belonging to municipalities, the State Treasury, State legal entities or legal entities administering dwellings for non-profit-making purposes, except for housing cooperatives.

(2) The maximum controlled rent must not exceed 3% of the reconstruction value of the dwelling [wartość odtworzeniowa lokalu] per annum.

(3) The reconstruction value of the flat shall be the product of its usable area and the conversion index of 1 square metre of the usable area of the building.

(4) The [relevant] Governor shall, by means of an ordinance issued quarterly, determine the conversion index of 1 square metre of the usable surface area of the residential building.”

Under the transitional provisions of the Act the right to lease a flat conferred on a tenant by an administrative decision was to be treated as a lease originating in a lease agreement concluded under the relevant provisions of the Civil Code. Tenants of such flats were to pay controlled rent until 31 December 2004.

Under section 55 of the Act the lease of a flat on the basis of an administrative decision issued under the 1974 Housing Act was to remain in force.

Section 56 laid down further regulations in respect of such “administrative leases”. Its relevant parts provided:

“(1) Under this Act, a lease which originated in an administrative decision on the allocation of a flat, or had another legal basis [that existed] before State management of housing or the special lease scheme was introduced in a given locality, shall be treated as a contractual lease signed for an indefinite period under the provisions of this Act.

(2) Until 31 December 2004 inclusive, the rent for flats let in the manner specified in subsection (1) in dwellings owned by natural persons shall be determined in accordance with the provisions concerning controlled rent.

(4) If an owner referred to in subsection (2) intends to dwell in his flat and with that intention has vacated the flat which he has hitherto rented ... from the municipality, the tenant shall be obliged to vacate the owner’s flat and move into the flat [offered to him], provided that the [condition of] the flat in question complies with the requirements laid down by this Act in respect of alternative accommodation. If such is the case, the owner may terminate the lease under section 32(2).

(6) If the owner’s adult child or parents are to dwell in his flat, subsection (4) ... shall apply by analogy.

(7) If the landlord has offered the tenant alternative accommodation which he or she owns himself or if, at the owner’s request, such alternative accommodation has been provided by the municipality, subsection (4) shall apply by analogy.”

Section 9 of the Act set out a detailed list of landlords’ duties under a tenancy. It applied both to landlords letting flats for a freely determined, market-related rent and to landlords receiving controlled rent. It also listed the types of maintenance work to be carried out by landlords under lease agreements. The relevant parts of that section provided:

“(1) The landlord shall ensure that the existing technical facilities in the building are in working order; shall enable the tenant to use lighting and heating in the dwelling; shall ensure that the dwelling is supplied with cold and hot water; and shall ensure the proper functioning of lifts, the collective aerial, and other facilities in the building;

(3) The landlord shall, in particular:

maintain in working order and keep clean any shared premises and facilities in the building; the same should apply to the vicinity of the building;

carry out repairs in the building and its dwellings and facilities, and restore any building which has been damaged, regardless of the cause of such damage; however, the tenant shall bear the costs of repairing damage for which he is liable;

carry out repairs in the dwellings, repair or replace installations and technical facilities and, in particular, carry out repairs for which the tenant is not responsible; in particular, he shall:

(a) repair and replace the water supply installation in the building and the gas and hot water supply installations, and repair and replace the sewage, central heating (including radiators), electricity, telephone and collective aerial installations – the latter, however, without fittings;

(b) replace or repair furnaces, window and door frames, floors, floor linings and plasterwork.

In practice, if such a tenant had not fallen into more than two months’ arrears of controlled rent, the lease could not be terminated unless he had used the flat “in a manner inconsistent with its function”, damaged the flat or the building, repeatedly and flagrantly disturbed the peace and public order or had sublet the flat without obtaining the prior consent of the landlord (sections 31 and 32 of the 1994 Act).

However, even if a tenant had fallen into rent arrears exceeding two months, a landlord was obliged to notify him in writing of his intention to terminate the lease agreement and to grant him a period of one month to pay off both the arrears and the current month’s rent.

If, following the termination of the lease agreement, the tenant did not vacate the flat (which was very often the case, given the acute shortage of cheap dwellings for rent and the high costs involved in buying a flat), the landlord had to bring an action for eviction against him. If an eviction order was issued, the landlord, in order to have it enforced and the flat vacated, had to ask the relevant municipality to provide the tenant with “substitute accommodation”. As there was a very short supply of such accommodation, the enforcement of the eviction order and vacation of the premises could take many years. Once an eviction order had become final, the tenant, as long as he lived in the flat, was obliged to pay so-called “compensation for extra-contractual use” (odszkodowanie za bezumowne korzystanie), equal to 200% of the current rent. If that sum did not cover the losses incurred by the landlord in connection with maintenance of the flat, he could sue the tenant for supplementary compensation.

On 12 January 2000 the Constitutional Court, ruling on a point of law referred to it by the Supreme Court, declared unconstitutional section 56(2) read in conjunction with, inter alia, section 25 of the 1994 Act (see paragraphs 75 and 77 above). It found that those provisions were in breach of Article 64 § 3 (admissible limitations on property rights) read in conjunction with Article 2 (rule of law and social justice) and Article 31 § 3 (principle of proportionality) of the Constitution (see paragraphs 107 and 109-10 below), and Article 1 of Protocol No. 1, because they placed a disproportionately heavy and, from the point of view of the permitted restrictions on the right of property, unnecessary financial burden on the exercise of property rights by landlords owning flats subject to rent control.

The court ruled that the unconstitutional provisions should be repealed on 11 July 2001. That in practice meant that by that date Parliament had to enact new, constitutional, legislation dealing with the matter.

Before giving its judgment, the Constitutional Court asked the President of the Office for Housing and Town Development (Prezes Urzędu Mieszkalnictwa i Rozwoju Miast) for information concerning the implementation of the 1994 Act and, more particularly, the manner of determining the “conversion index of 1 square metre of the usable surface area of the residential building” as referred to in section 25 of the Act. According to the information received, levels of controlled rent had never reached the statutory 3% of the reconstruction value referred to in section 25(2) but were determined by the municipalities at 1.3% of that figure. As a result, the levels of controlled rent covered merely 60% of the maintenance costs of residential dwellings. The rest had to be covered by landlords from their own resources. That did not allow them to put aside any savings for repairs.

In the judgment, the Constitutional Court attached much importance to the fact that the relevant regulations concerning controlled rent had brought about a situation whereby the expenses incurred by owners of dwellings were much higher than the rent paid by tenants and that the former “had no influence on how the rates of controlled rent were determined”. In its view, that shortfall of the rent actually received had resulted in the progressive reduction of the value of tenement houses and this, with the passage of time, entailed consequences similar to expropriation.

The judgment contains extensive reasoning, the gist of which can be summarised as follows.

“One of the essential elements of the right of property is the possibility of deriving profit from the object of ownership, which is of particular importance in a market economy. The legislature may regulate and limit this right in view of, among other things, the social context of enjoyment of property and duties towards the community that are inherent in ownership. In exceptional cases, ... it is even [acceptable] to exclude temporarily the possibility of ... deriving an income from goods that are the subject of ownership. However, if the limitations on a property right go even further and the legislature places an owner in a situation in which his property necessarily inflicts losses on him, while at the same time imposing on him a duty to maintain the property in a specific condition, it can be said that there is a limitation which impairs the very essence of that right. ...

The Constitutional Court observes that the applicable provisions very seriously limit the possibility for a landlord to use and dispose of his dwellings, as referred to in section 56(1) of the 1994 Act. In particular, under this section all earlier tenancy relationships, in so far as they originated in administrative decisions on the allocation of a dwelling ... were transformed into contractual leases for an indefinite period. ...

The Constitutional Court will not assess the compatibility of those regulations with the Constitution, as this is not the object of its ruling. It merely observes that, against that background, the owner of a building is practically deprived of any influence on the choice of tenants in his building and on whether the lease relationships with those persons should continue. ...

Thus, the possibility [for a landlord] to enjoy and dispose of property is very considerably limited. While it is not totally extinguished, as he may still sell his building (dwelling) or take out a mortgage on it and there are no restrictions on succession rights, the exclusion of the owner’s right to dispose of dwellings subject to the provisions of the 1994 Act results in the depreciation of the market value of the building. By the same token, other attributes which have so far not been taken away from the owner, such as the possibility of enjoying and disposing [of his property], are substantially reduced and his property right becomes illusory.

At the same time, the legal provisions impose on the owner of the building a number of onerous duties ... Not only do most of the applicable laws impose specific duties on the owner but they also provide for specific penalties for failure to comply with those duties or to discharge them properly. ...

The Constitutional Court considers that the 1994 Act and, especially, its practical application have not secured a sufficient mechanism for balancing the costs of maintaining a building, its equipment and surroundings and the income from controlled rent. ...

The Constitutional Court considers it necessary to draw attention to two further points which are relevant for the situation of the landlord.

Firstly, the inadequacy of controlled rent vis-à-vis real expenses for maintenance of a building does not allow ... [landlords] to put aside savings for repairs and for keeping the building in a good condition. As a result, the tenement houses are gradually losing value. In terms of property rights, this should be perceived as a process of gradual deprivation of this right, leading, with the passage of time, to results similar to expropriation. Also, it has a general impact on the community because many tenement houses are approaching the time of their ‘technical death’ and, in consequence, not only will the owner lose his property but tenants will also lose the possibility of housing, which will hardly be compatible with Article 75 § 1 of the Constitution.

Secondly, the inadequacy of controlled rent vis-à-vis real expenses for maintenance of a building has not been duly recognised by the tax laws ... [Under those laws], landlords are treated in the same way as businessmen or persons letting dwellings for a profit and must bear the financial consequences of all losses caused by the lease of their dwellings. ...

[As regards the principle of proportionality laid down in Article 31 § 3 of the Constitution]

... it may be justified to fix rent in such a way that it will not be disproportionate to the financial standing of tenants, so that it will be possible for them to maintain a decent standard of living (or at least a minimum standard) after paying the rent. Thus, it is in conformity with the contemporary perception of a ‘social State’ to demand some sacrifice from all members of society for the benefit of those who cannot provide subsistence for themselves and their families. By the nature of things, the extent of that sacrifice depends on the level of income and imposes a heavier burden on those who are better off. By the nature of things, the owners of property may be required to make sacrifices, according to the general principle that ‘ownership entails obligations’. However, the distribution of burdens among specific members of society cannot be arbitrary and must maintain rational proportions.

In the circumstances obtaining in Poland, under Article 31 § 3 it may be justified to maintain the provisions limiting landlords’ property rights and, more particularly, excluding unrestricted freedom in fixing rates of rent and other charges collected from tenants. ... It may still – in any event in the transitional period – be justified to impose wider restrictions on property rights, precluding the freedom to derive profit by fixing levels of rent in such a way as to cover only the costs of maintenance and upkeep of the building.

However, an assessment of the 1994 Act leads to the conclusion that the applicable restrictions do not stop there. The present regulations deliberately set the levels of controlled rents below the costs and expenses actually incurred by owners. That, in itself, would not necessarily have had to be considered unconstitutional had there been any parallel legal mechanism compensating for incurred losses. No such mechanisms have been set up. In consequence, the applicable provisions are based on the premise that property must – until the end of 2004 – entail losses for the owner and that, at the same time, the owner has a duty to incur expenses to maintain his property in a particular condition.

That means that the 1994 Act placed the main burden of the sacrifices that society had to make for tenants, or at least for tenants in a difficult financial position, on the owners of property. Besides, other remedies – such as, for instance, subsidising from public funds the costs of maintaining and repairing buildings referred to in section 56(1), ensuring full recognition in the tax regulations for losses and expenses incurred by landlords and making the level of rent dependent on the tenant’s income – have not been employed. Instead, the simplest means (being apparently the cheapest in social terms) have been applied, namely setting a low maximum level of rent and allowing the municipalities to make exceptions to that level. Consequently, it has been assumed that owners will cover the remaining costs of maintaining their property out of their own pockets. No proportionality whatsoever has been maintained in respect of the distribution of burdens (sacrifices) among the owners and the other members of society.

The Constitutional Court would stress once again that in the present context there is a constitutionally acknowledged necessity to protect the rights of tenants ... and this may be reflected in, among other things, provisions fixing a maximum level of rent. However, there is no constitutional necessity to afford them such protection mostly at the expense of private individuals – the owners of dwellings – because the duty to help the underprivileged and [the duties inherent in] social solidarity are incumbent not only upon those persons. It is possible to adopt other legal solutions so as to secure at the same time the necessary protection to tenants and the minimum financial means needed to cover the requisite costs to the landlords. ... It is not for the Constitutional Court to indicate concrete solutions and to determine the ratio of costs to be incurred by tenants, landlords and the community as a whole. However, this Court considers that there are no constitutional considerations which justify imposing the greater part of those costs on the landlords. ...

Consequently, section 56(2) is incompatible with the Constitution. A limitation on the right of property ... which is not ‘necessary’ does not satisfy the constitutional requirements of proportionality.

[Other considerations]

The finding that section 56(2) infringes the principle of proportionality makes it unnecessary for the Constitutional Court to determine whether that provision also infringes the very essence of the right of property since [a further finding to that effect] will not affect the merits of the ruling. It should merely be noted in passing that the question whether the ‘essence’ of the right of property has been preserved must also be assessed ... against the background of the combination of existing limitations on this right. ... The manner in which [rent control] has been effected by section 56(2) taken together with other provisions regarding privately owned buildings has [resulted] in the owners being deprived of even the slightest substance of their property rights.

It is the Constitutional Court’s opinion that, in consequence, the right to derive profit from property, which is an important element of the right of property, has been destroyed and, at the same time, the second element, the right to dispose of one’s property, has been stripped of its substance. In consequence, the right of property has become illusory and unable to fulfil its purpose in the legal order based on the principles listed in Article 20 of the Constitution [principles of social market economy, economic activity, private ownership, solidarity, dialogue and cooperation].

[As regards the constitutional aspects of the situation of tenants]

A kind of obligation has been placed on the legislature to ensure that up to 31 December 2004 tenancy relationships concerning municipal dwellings and [privately owned] dwellings should retain their present form, including the level of rent [3% of the reconstruction value of the dwelling] ... The Constitutional Court considers that, having regard to the principle of maintaining citizens’ confidence in the State and the law made by it and the principle of legal certainty, which ensue from the rule of law laid down in Article 2 of the Constitution and are binding on the legislature, renouncing that obligation will be admissible only in the event of exceptional public necessity. At present, there is no such necessity ... It should be noted in passing that setting a time-limit for the operation of the rent-control scheme in buildings owned by natural persons also places an obligation on the legislature – for the benefit of landlords – to repeal the scheme in its present form by the end of 2004. This obligation should also be seen from the perspective of the principle of maintaining citizens’ confidence in the State.

[Final considerations]

The constitutional inadmissibility of setting the income received by landlords below a certain minimum does not automatically mean that the rent chargeable to tenants has to be increased, because that problem can be resolved by allocating public financial resources.”

In a judgment of 10 October 2000, the Constitutional Court held that section 9 of the 1994 Act (see paragraph 78 above), laying down landlords’ obligations, was incompatible with the constitutional principles of the protection of property rights and social justice because, in particular, it placed a heavy financial burden on them, a burden which was in no way proportionate to the income from controlled rent. The Constitutional Court ruled that that provision should be repealed by 11 July 2001.

Following the Constitutional Court’s rulings of 12 January and 10 October 2000, Parliament adopted a new law governing housing matters and relations between landlords and tenants. The relevant statute – that is to say, the Law of 21 June 2001 on the protection of the rights of tenants, housing resources of municipalities and on amendments to the Civil Code (Ustawa o ochronie praw lokatorów, mieszkaniowym zasobie gminy i o zmianie Kodeksu cywilnego) (“the 2001 Act”) – came into force on 10 July 2001. It repealed the 1994 Act and replaced the previous scheme of controlled rent with another statutory rent-control mechanism that restricted the possibility for landlords to increase levels of rent.

The 2001 Act was then successively amended. The most important amendments, adopted by Parliament on 17 and 22 December 2004, came into force on 1 January 2005 (see paragraphs 124-32 below).

Section 9 of the 2001 Act listed situations where a landlord could increase rent. The relevant parts of that provision, in the version applicable until 10 October 2002 (see paragraph 102 below), read as follows:

“(1) Increases in rent or other charges for the use of a dwelling, apart from charges that do not depend on the landlord [e.g. those for electricity, water, central heating, etc.] may not be made more often than once every six months;

(2) If a landlord increases other charges that do not depend on him, he shall be obliged to provide the tenant with a table of charges and the reasons for the increase;

(3) In a given year the increase in rent or other charges, except for charges that do not depend on a landlord, shall not exceed the average general yearly increase in prices for consumer goods and services in the previous year in relation to the year preceding that year by more than:

50% – if the annual rent does not exceed 1% of the reconstruction value of the dwelling;

25% – if the annual rent is higher than 1% but not more than 2% of the reconstruction value of the dwelling;

15% – if the annual rent is higher than 2% of the reconstruction value of the dwelling.

Information on the increase in prices referred to in the first sentence [of this subsection] shall be communicated in official bulletins of the President of the Central Statistical Office;

(8) The reconstruction value of a dwelling shall be the product of its usable area and the conversion index of the reconstruction cost of 1 square metre of the usable area of the residential building. ...”

A further restriction on rent increases by landlords followed from section 28(2) of the 2001 Act, which provided that controlled rent could not exceed 3% of the reconstruction value of the flat. That provision was in force until 31 December 2004, the deadline that had already been set under the 1994 Act (see paragraph 77 above).

Section 28(2) read:

“Until 31 December 2004, in all tenancy relations subsisting before the date of entry into force of this Act, the level of rent in respect of dwellings that were subject to the controlled-rent scheme on the date of the entry into force of this Act, may not exceed 3% of the reconstruction value of the dwelling per year.”

Section 11 of the 2001 Act listed situations in which a landlord could terminate a lease agreement that originated in an administrative decision.

Section 11(1) and (2) read in its relevant parts as follows:

“(1) If a tenant is entitled to use a dwelling for rent, the landlord may give notice only for reasons listed in this provision ... Notice should, on pain of being null and void, be given in writing.

(2) The landlord may give one month’s notice effective at the end of a calendar month, if:

the tenant, despite a reminder in writing, still uses the dwelling in a manner contrary to the terms of the agreement or in a manner inconsistent with its function, thus causing damage; or if he or she has damaged equipment designed for the common use of residents; or if he or she has flagrantly or repeatedly disturbed the peace, thus severely upsetting [czyniąc uciążliwym] the use of other dwellings; or

the tenant has fallen into more than three months’ arrears of rent or other charges for the use of the dwelling and, despite being informed in writing of the landlord’s intention to terminate the agreement and given one month to pay off both the arrears and the current month’s rent, has not paid those amounts; or

the tenant has sublet the flat or part of it, or allowed it, or part of it, to be used free of charge by another without the landlord’s authorisation; or

the flat used by the tenant has to be vacated in view of the impending demolition or substantial renovation of the building ...

Under section 11(3), a landlord who received rent which was lower than 3% of the reconstruction value of the dwelling could terminate the agreement if the tenant had not lived in the flat for more than twelve months or if he had title to another flat situated in the same town.

Section 11(4) provided that a landlord could terminate the agreement with six months’ notice if he intended to dwell in his own flat and had provided the tenant with “alternative accommodation” (lokal zastępczy) or the tenant was entitled to a dwelling which met the conditions for “alternative accommodation”.

Under section 11(5), a landlord could terminate the agreement with three years’ notice if he intended to dwell in his flat but had not provided the tenant with any “substitute accommodation”.

However, section 12(1) further limited the possibility of terminating leases. It stated that if a landlord intended to terminate a lease on the grounds mentioned in section 11(2)(2) (rent arrears unpaid despite the fact that a warning notice had been served and a further time-limit had been set for payment) and if the tenant’s income would entitle him to obtain a lease on “social accommodation” (lokal socjalny) belonging to the municipality, no notice could be given unless the landlord had proposed a settlement to the tenant concerning the arrears and running charges.

As regards situations where, despite the termination of the lease agreement, the tenant did not vacate the flat, the landlord had to – as under the previous regulations – bring an action for eviction against him and, even if he obtained an eviction order, could not repossess the flat until the tenant had obtained a substitute dwelling from the municipality.

The 2001 Act, in the version applicable up to 1 January 2005, did not contain any specific provisions setting out the duties of landlords and tenants with regard to maintenance and repairs of dwellings and residential buildings. Those issues were governed partly by the relevant provisions of the Civil Code (which applied in so far as a given matter had not been addressed by the 2001 Act) and partly by the Construction Act of 7 July 1994 (Prawo budowlane) (“the Construction Act”), which lays down the general duties of owners of buildings.

Article 662 of the Civil Code, which lays down a general rule, reads in its relevant part:

“1. The landlord should give the object [of a lease] to the tenant in a usable state and should keep it in such a state for the duration of the lease.

Minor repairs related to the normal use of the object [of the lease] are incumbent on the tenant.”

Article 675 of the Civil Code, in its relevant part, reads:

“1. After the termination of a lease, the tenant shall be obliged to return the object [of the lease] in a condition not worse [than when he took possession of it]; however, he or she shall not be responsible for any deterioration of the object caused by reasonable wear and tear.”

Article 681 lists minor repairs for which a tenant is responsible. It reads as follows:

“Minor repairs for which the tenant is responsible are, in particular: minor repairs of floors, doors and windows, painting of walls and floors and the inner side of the flat’s entrance door, as well as minor repairs to installations and technical equipment that enable the use of lighting, heating, the water supply and the sewage system.”

Section 61 of the Construction Act provides:

“The owner or manager of a building shall be obliged to maintain and use the building in accordance with the rules set out in section 5(2).”

Section 5(2) states:

“The conditions for use of a building shall be secured in accordance with its purpose, in particular in respect of:

(a) the water and electricity supply and, if need be, the supply of heating and fuel, regard being had to their effective use;

(b) sewage, waste disposal and rainwater drainage.”

The relevant part of Article 691 of the Civil Code provides:

“1. In the event of a tenant’s death, the following persons may succeed to the tenancy agreement: his or her spouse if the latter has not been a party to that agreement, his or her children, his or her spouse’s children, any other persons to whom he was obliged to pay maintenance, and a person living with the tenant in de facto marital cohabitation.

The persons referred to in paragraph 1 shall succeed to the tenancy agreement if they lived in the tenant’s household until his or her death.

If there are no persons in the categories referred to in paragraph 1, the lease agreement shall expire.”

On 11 December 2001 the Ombudsman (Rzecznik Praw Obywatelskich) made an application to the Constitutional Court and asked, inter alia, that section 9(3) of the 2001 Act (see paragraph 85 above) be declared incompatible with the constitutional principle of the protection of property rights. The Ombudsman referred to numerous complaints he had received from landlords, who claimed that levels of rent as determined under that section did not cover the basic maintenance costs of residential buildings. He also submitted that the recent rules for the determination of rent put landlords at a bigger disadvantage than the rules which had been laid down in the 1994 Act and which had already been repealed as being unconstitutional.

He criticised the legislation on the ground that it was exceptionally inconsistent. He referred, in particular, to the – in his view erroneous – statutory correlation between rent increases and the increase of prices for consumer goods and services, which were not related in reality to the costs of maintaining a building. He added that there were still no provisions to allow the landlords to recover losses incurred in connection with expenses for the maintenance of property.

The representatives of Parliament and the Prosecutor General (Prokurator Generalny) asked the Constitutional Court to reject the application.

The Constitutional Court invited organisations of landlords and tenants to take part in the proceedings and submit observations in writing. The Polish Association of Tenants, the Polish Union of Property Owners (Polska Unia Właścicieli Nieruchomości) and the All-Polish Association of Property Owners (Ogólnopolskie Stowarzyszenie Właścicieli Nieruchomości) filed their pleadings on 16, 17 and 18 September 2002 respectively.

The Polish Union of Property Owners supplied considerable statistical material, showing that the level of controlled rent represented on average around 1.5% of the reconstruction value of the building, which in turn amounted to some 40% of the costs of maintenance of residential buildings. They presented a sample calculation of monthly rent based on the average reconstruction value, the average size of a flat and the average gross income.

Assuming that the average reconstruction value was PLN 2,200, that 1.5% of that value was the average maximum reached by controlled rent and that the average flat had a surface area of 40 sq. m, the average monthly rent amounted to PLN 110. That amount, they stressed, represented 5% of the average gross income, whereas, according to them, in European Union countries rent accounted for 25 to 30% of the average gross income.

The All-Polish Association of Property Owners submitted, among other things, that the impugned legislation was in breach of the constitutional principle of proportionality because a group of some 100,000 landlords had to bear the main burden of social protection afforded by the Polish State to about 900,000 tenants, without any financial support from some 15,000,000 Polish taxpayers.

The Polish Association of Tenants considered that the contested provisions were compatible with the Constitution. It drew attention to the fact that a large group of tenants, especially those who had been granted the right to a lease by means of administrative decisions, were in a poor financial position. It stressed that during the period of State management of housing matters those tenants had made investments and had thereby contributed to the maintenance costs of buildings, even though they had not been legally obliged to do so. At the hearing, in reply to questions from the judges, the President of the Polish Association of Tenants admitted that tenants paying controlled rent also included well-off persons, in respect of whom an increase in rent would be justified.

On 2 October 2002 the Constitutional Court, sitting as a full court, declared section 9(3) of the 2001 Act unconstitutional as being incompatible with Article 64 §§ 1 and 2 and Article 31 § 3 of the Constitution (see paragraphs 109 and 110 below). The provision was, accordingly, repealed. The repeal took effect on 10 October 2002, the date of the publication of the judgment in the Journal of Laws (Dziennik Ustaw).

In the reasoning of its judgment, the Constitutional Court extensively cited its judgment of 12 January 2000 (see paragraphs 80-82 above).

In conclusion, it held that the fact that the 2001 Act had abolished the scheme of rent control had not improved the situation of landlords because, instead, it had introduced a defective mechanism for controlling increases in rent. In its opinion, section 9(3) had not only “frozen” the disadvantageous position of landlords, a situation which had already been found to be incompatible with the Constitution, but had also, owing to the changing economic circumstances, significantly reduced any possibility of increasing rent to cover expenses incurred by them in connection with the maintenance of property.

The court repeated what it had already stated in its judgment of 12 January 2000, namely that the relevant provisions placed the main burden of the sacrifices that society had to make for the benefit of tenants in a difficult financial position on the owners of property. It went on to find that section 9(3) perpetuated the state of a violation of property rights that had subsisted under the 1994 Act, especially as landlords had not been relieved of any of their previous duties in respect of maintenance of property.

The main thrust of the Constitutional Court’s reasoning was as follows:

“During the transition from controlled rent to contractual rent it is necessary to control the increase in rent. ... In most European countries legislative bodies exercise control over rent increases. The introduction of such a mechanism into Polish law seems to be particularly justified and the need for it follows quite evidently from the shortage of flats and the absence of a lease market which would influence rates of rent. This very low supply of flats for rent has caused a situation in which tenants are exposed to undue demands from landlords. Hence there is a need to regulate rent increases.

While recognising this necessity, the Constitutional Court is convinced that the mechanism introduced by the impugned provision is defective and is objectively inappropriate for accomplishing the aims pursued by the legislature. ...

To begin with, the Constitutional Court will examine the impact of the operation of section 9(3) of the 2001 Act on landlords who were subject to controlled rent under the 1994 Act. In this Court’s view, the contested provision has not only ‘frozen’ the disadvantageous position of landlords subsisting under the 1994 Act, a situation which was already found to have been incompatible with the Constitution, but has also actually aggravated that situation on account of changing economic circumstances. ...

At the time when the present legislation came into force, tenants paid rent determined by the municipalities. [The rent paid], according to the information supplied by the Office for Housing and Town Development, covered merely 60% of the costs of maintenance of residential buildings. The 2001 Act did not increase rent to the level that could have been established according to the principles set out by the Constitutional Court in [the judgment of 12 January 2000]. Nor did the legislature give landlords an opportunity to increase rent to a level ensuring recovery of their expenses. The 2001 Act has frozen rates of rent and fixed them as a reference level for the calculation of future increases. ...

In the Constitutional Court’s opinion, in order to arrive at reasonable levels of rent it is necessary to take one of the following two measures: either a one-off increase in deflated rates of controlled rent, accompanied by a restrictive protection of tenants against further increases or, while freezing the applicable rates, permitting considerable increases in relatively rapid succession until an acceptable level has been reached. However, the legislature fixed an unreasonably low basic rent and allowed only strictly regulated increases, correlated with the inflation rate. The legislature did not take into account the fact that the rate of inflation was constantly declining, which means that permissible increases have been insignificant, amounting merely to a few percentage points of the basic rent and giving no opportunity, for purely mathematical reasons, to reach levels that would ensure profitability, or at least recovery of maintenance costs. The decrease in the inflation rate, although a generally positive sign of economic stability, has resulted in the stagnation of rents at low levels.

The deterioration of the situation of landlords receiving controlled rent is also shown by a comparison of rent increases under the 1994 Act with increases permissible under the 2001 Act. As transpires from information supplied by the Office for Housing and Town Development [in respect of the operation of the 1994 Act], at the relevant time, municipalities raised controlled rent annually to a significant extent: in 1996, when the inflation rate was about 20%, by 30% on average, but in 1997, when the inflation rate was 13%, by 31%. The pace of transition to reasonable levels of rent was faster than at present, if only because municipalities, themselves owning residential buildings, had a strong interest in securing genuine increases in rent. Finally, the previous regulations gave landlords the hope of relaxing rent policy. Irrespective of the rates of controlled rent imposed on them by municipalities, they knew that from 2005 they would be able to negotiate rents freely. However, that encouraging prospect was wiped out by section 9(3) of the 2001 Act. Even though the ceiling of 3% will no longer apply after [31 December] 2004, given the provision of section 9(3), this ceiling will not be reached in reality.

In the Constitutional Court’s view, the above circumstances give sufficient grounds to find that the situation of landlords who formerly received controlled rent is now unquestionably less favourable than it used to be under the 1994 Act. ... [O]n the contrary, section 9(3) has perpetuated the violation of the right of property. At this point, it is necessary to determine how the landlords’ situation looks in other respects, apart from the restrictions on rent increases. If, following the ... judgment of 12 January 2000, the legislature had significantly changed any aspect of the legal position of landlords, thereby compensating for losses resulting from reduced rent, the evaluation of levels of rent in the present case would have had to be based on other criteria than those referred to by this Court in 2000.

Since 12 January 2000 there have been no changes to legislation, apart from the enactment of the 2001 Act, which seriously aggravated the situation of landlords. They still bear the burden of obligations imposed by the Construction Act, whose non-fulfilment, as stressed by the Ombudsman, is subject to penalties. There have been no changes to regulations on income tax, at least in respect of deductions from tax (or from taxable income) of amounts spent on the maintenance of buildings in which flats are let to tenants. Nor has the legislature introduced preferential loans for repairs. ... The Constitutional Court also points out that the 2001 Act has not materially improved the situation of landlords in respect of termination of leases. ...

Accordingly, it is fully justified to rely on this Court’s findings in respect of section 56(2) of the 1994 Act. Even though the provisions under consideration have changed, and the Court is now considering completely different legal instruments (control of rent increase as opposed to the scheme of rent control under the 1994 Act), the core of the dispute and the issues under consideration remain essentially the same, namely the situation of landlords on whom the legislature has imposed reduced levels of rent. In addition, section 9(3) leads to a difference in the treatment of landlords, depending on whether they are parties to lease relationships formerly governed by the rent-control scheme, or to lease contracts based on freely determined rents. As shown above, in practice the rent increase mechanism adversely affects the first group of landlords and, at the same time, unjustifiably and at the tenant’s expense, favours the second group.

In view of the foregoing, the Constitutional Court finds that the [operation of] the contested provision is tantamount to the continued violation of the right of property vested in a specific group of landlords, namely those who entered into a lease relationship by virtue of administrative decisions on the allocation of a dwelling, or on another basis, prior to the introduction of State management of housing matters in a given municipality. Not only did the legislature fail to adjust rates of controlled rent, despite their having been found to be unconstitutional, but in fact, through the introduction of restrictive provisions on rent increases, it practically froze such rents at levels that cannot be regarded as consistent with constitutional guarantees of the right of property. ...

It is worth reiterating, having regard to the [judgment of 12 January 2000], that the restrictions in question are undoubtedly guided by the need to protect public order and the rights of other persons, namely tenants. However, according to the Constitutional Court’s case-law, Article 31 § 3 of the Constitution requires restrictions on the rights guaranteed therein to be necessary. In respect of the rent [control scheme], the Constitutional Court qualified as ‘necessary’ – at least during the transitional period – the restriction on the right of property ‘precluding the freedom to derive profit, by fixing levels of rent in such a way as to cover only the costs of maintenance and upkeep of the building’. A reduction below that minimum was seen by this Court as unconstitutional. Placing the financial burden of subsidising rent on a single social group, namely landlords, was also considered to have been unconstitutional since ‘the duty to help the underprivileged and [the duties inherent in] social solidarity are incumbent not only upon those persons’. The Constitutional Court envisaged and still envisages the possibility of applying other legal solutions ... which would result in a more uniform social distribution of the burden linked to the necessity to satisfy housing needs. It is therefore unnecessary to place the entire burden on the single group of landlords. Consequently, the Constitutional Court considers that the restriction resulting from section 9(3) ... does not meet the criteria established by the principle of proportionality and goes beyond the tolerable extent of limitations on the right of property set out in Article 31 § 3 of the Constitution.

The Constitutional Court is not competent to fix minimum levels of rent... [However,] from the point of view of the protection of landlords’ rights, [it] stresses again the crucial importance of the correct determination of the costs of maintenance and upkeep of residential buildings. This constitutes the absolute minimum rate. ...

As regards the implementation of the constitutional rights of tenants, the Constitutional Court stresses that, although in the present judgment section 9(3) of the 2001 Act has been found unconstitutional, the Act still imposes significant restrictions on the freedom to increase rents. The most important of them is definitely section 28(2), which remains in force and which provides that ... up to 31 December 2004 inclusive the annual rent may not exceed 3% of the reconstruction value of the dwelling.”

On 12 May 2004 the Constitutional Court heard a constitutional complaint lodged by a certain J.-M. O., challenging the constitutionality of section 9(3) and section 28(3) of the 2001 Act (see paragraphs 85 and 86 above). He submitted that those provisions were incompatible with Article 64 § 1 (protection of property rights) of the Constitution read in conjunction with Article 31 § 3 (principle of proportionality).

In their written pleadings, the Prosecutor General and representatives of Parliament asked the court to discontinue the proceedings in so far as they concerned the constitutionality of section 9(3) since it had already been repealed by the judgment of 2 October 2002, and to hold that section 28(3) was compatible with the Constitution.

At the oral hearing, J.-M.O. stated that he intended to pursue his complaint only in so far as section 28(3) was concerned.

The Constitutional Court held that section 28(3) was compatible with the Constitution and found:

“As emerges from [the Constitutional Court’s judgments of 12 January 2000 and 2 October 2002], the question of maintaining the maximum ceiling on rent has already been examined by this Court and the measure was considered to have been necessary from the point of view of public order – at least in the transitional period. The need to protect tenants against unduly high rents is justified by the housing situation in Poland, which is the consequence of State management of housing and has resulted in a commonly experienced shortage of flats.

A limitation on levels of rent – such as the one introduced by the contested provision – does not impair the essence of the right of property because it does not deprive owners of essential elements of that right. It has to be stressed that the right to a lease is one of the pecuniary rights protected by Article 64 §§ 1 and 2 of the Constitution and that restrictions on the right of property are inherent in many pecuniary rights, including the right to a lease. The contested section has set a maximum ceiling on rents with a clear time-frame – up to the end of 2004 – and this also may have an impact on whether a temporary restriction on the right of property may be regarded as not impairing its essence.

It also has to be stressed that the setting of a clear time-frame in section 28(3) implies an obligation of the legislature towards landlords, which must be assessed from the point of view of the principle of citizens’ confidence in the State and the law made by it.”

Article 2 of the Constitution states:

“The Republic of Poland shall be a democratic State ruled by law and implementing the principles of social justice.”

Article 20 lays down the basic principles on which Poland’s economic system is founded. It reads:

“A social market economy, based on freedom of economic activity, private ownership, and solidarity, dialogue and cooperation between social partners, shall be the basis of the economic system of the Republic of Poland.”

Article 31 § 3 reads:

“Any limitation on the exercise of constitutional freedoms and rights may be imposed only by statute, and only when it is necessary in a democratic State for the protection of its security or public order, or for the protection of the natural environment, health or public morals, or the freedoms or rights of other persons. Such limitations shall not impair the essence of freedoms and rights.”

Article 64 protects the right of property in the following terms:

“1. Everyone shall have the right to ownership, other property rights and the right of succession.

Everyone, on an equal basis, shall receive legal protection regarding ownership, other property rights and the right of succession.

The right of ownership may be limited only by means of a statute and only to the extent that this does not impair the substance of such right.”

Article 75 refers to the protection of tenants. It reads as follows:

“1. The public authorities shall pursue policies conducive to satisfying the housing needs of citizens, in particular combating homelessness, promoting the development of low-income housing and supporting activities aimed at acquisition of a home by each citizen.

Protection of the rights of tenants shall be established by statute.”

Article 76 provides:

“The public authorities shall protect consumers, customers, hirers or lessees against activities threatening their health, privacy and safety, as well as against dishonest market practices. The scope of such protection shall be specified by statute.”

After 10 October 2002, as a result of the Constitutional Court’s judgment, it became possible for landlords to increase rent up to 3% of the reconstruction value of the dwelling. At the end of 2002 levels of rent generally increased. According to the Government, in the Warsaw District, where the previous rate was PLN 2.17 per square metre, the rent quadrupled, reaching around PLN 10.00 per square metre in 2004. According to reports published in the Polish press, in most other towns 3% of the reconstruction value of the dwelling corresponded to PLN 5.00-6.00 per square metre. Levels of freely determined contractual rent are still higher: sometimes, especially in large towns, the difference may even reach 200 to 300%.

At the beginning of 2003 the government started to prepare a bill amending the 2001 Act. The bill was submitted to Parliament on 30 December 2003.

The explanatory memorandum on the bill stated that the aims of the proposed amendments were, among other things, “to specify the rights and obligations of the landlord and the tenant in order to strengthen the protection of the weaker party”; “to introduce new rules for the protection of tenants against excessive increases in rent and other charges for the use of dwellings”; and “to reduce the disproportion between the constitutionally guaranteed protection of tenants and the constitutional rights of landlords”.

The government proposed a number of changes to the existing provisions. The most important and controversial provision was the proposed section 28, pursuant to which (subsection (2)) the rent-control scheme, despite the fact that the end of its operation had been set by the legislature at 31 December 2004, was to be maintained until the end of 2008 in respect of all lease agreements in force before 10 July 2001 under which the tenants paid controlled rent. That in practice meant all leases originating in administrative decisions regarding privately owned buildings.

The provision was to be applied mostly to all individual landlords, its operation in relation to public-housing entities and housing cooperatives being of minimal effect. The explanatory memorandum stated that the repeal of the rent-control scheme in its entirety “could cause a dramatic increase in rent” after the end of 2004 and that the limitation “would allow a smooth transition from the levels of rent at the end of 2004 to levels fixed in accordance with general principles”.

The government therefore proposed that controlled rent be frozen at the maximum level of 3% of the reconstruction value of the dwelling up to 31 December 2004; 3.25% up to the end of 2005; 3.5% up to the end of 2006; 3.75% up to the end of 2007, and 4% up to the end of 2008.

The effects of the proposed rent freeze on the property rights of individual landlords have received considerable media attention and have given rise to heated public debate. The proposal was severely criticised by all organisations of landlords.

Eventually, on 5 October 2004, the government submitted to Parliament an amendment to their bill. They withdrew their original proposal to freeze levels of rent after 31 December 2004. They still maintained the proposal to limit the increase in rent for leases originating in previous administrative decisions.

On 22 June 2004 a group of deputies from the “Law and Justice” (“Prawo i Sprawiedliwość”) Party submitted a bill proposing amendments to the 2001 Act.

The general thrust of the proposed changes, as set out in the relevant explanatory memorandum, was:

“to secure the effective protection of the rights of tenants, as guaranteed by Article 75 § 1 and Article 76 of the Constitution, by:

(a) preventing the overuse by landlords of the right to terminate a lease agreement under section 11(5) of the 2001 Act;

(b) preventing the dysfunction resulting from non-fulfilment by landlords of the duties incumbent on them in leasing dwellings (even in cases where the landlords are unknown and the municipality does not manage the property).”

Parliament decided to work on both bills simultaneously. The first reading took place on 6 October 2004. The second reading, following the report of the Parliamentary Committee on Infrastructure, the Committee for Family and Social Policy and the Committee on Self-Government and Regional Policy and the adoption of amendments, was on 17 November 2004. After the third reading, which took place on 19 November 2004, the bills were adopted by the Sejm (the lower house of the Polish parliament) and transmitted to the Senate and the President of Poland on the same day.

On 6 December 2004 the Senate proposed several amendments, the most significant being the amendment to section 9 of the 2001 Act restricting the maximum increase in rent to a level of 10% per year in situations where the rent paid exceeded 3% of the reconstruction value of the dwelling.

On 17 December 2004 the Sejm accepted some of the Senate’s amendments, most notably the amendment to section 9. On the same day the Act of Parliament was transmitted for signature by the President of Poland. The President signed it on 23 December 2004.

On 22 December 2004, following, among other things, press reports stating that the new provision of section 9 of the 2001 Act did not exclude the possibility of a one-off increase in rent even where the rent was equal to, or less than, 3% of the reconstruction value of the dwelling, Parliament passed, in an accelerated procedure, another bill amending the 2001 Act. The bill was tabled by a group of deputies and contained only one proposal, namely to add another subsection to section 9 of the 2001 Act (see paragraph 132 below). On the same day the bill was transmitted to, and accepted by, the Senate. The President of Poland signed the Act of Parliament on 23 December 2004.

The Act of 17 December 2004 on amendments to the 2001 Act on the protection of the rights of tenants, housing resources of municipalities and on amendments to the Civil Code and amendments to certain statutes (Ustawa o zmianie ustawy o ochronie praw lokatorów, mieszkaniowym zasobie gminy i o zmianie Kodeksu cywilnego oraz o zmianie niektórych ustaw) (“the 17 December 2004 Amendment”) came into force on 1 January 2005.

Section 1(8) of the 17 December 2004 Amendment introduced a new section 8a into the 2001 Act. This new provision was drafted with a view to implementing both the Constitutional Court’s ruling of 2 October 2002 and the constitutional principle of the protection of tenants’ rights. It subjects the increase in rent to various restrictions.

Section 8a reads, in its relevant parts:

“(1) The landlord may increase rent or other charges for the use of the dwelling, giving [the tenant] notice of the rent increase, not later than by the end of a calendar month [and] in compliance with the terms for giving notice.

(2) The term for giving notice of an increase in rent or in other charges for the use of the dwelling shall be three months, unless the parties have stipulated a longer term in their contract;

(4) An increase whereby rent or other charges for the use of the dwelling would exceed 3% of the reconstruction value of the dwelling within one year may take place only in justified cases. At the tenant’s written request, the landlord shall, within seven days, give reasons for the increase and its calculation in writing.

(5) The tenant may, within two months following the notice of the increase, challenge the increase referred to in subsection (4) by bringing a court action to have the increase declared unjustified or justified but in a different amount[; he or she may also] refuse to accept the increase, with the effect of the contract being terminated by the end of the term of notice. The burden of proof in respect of the justification of the increase shall rest with the landlord.

(7) The provisions of subsections (1) to (6) shall not apply to increases

not exceeding 10% of the current rent or current charges for the use of the dwelling within a year;

concerning charges that do not depend on the landlord.”

Pursuant to section 1(9)(a) of the 17 December 2004 Amendment, section 9 of the 2001 Act was reworded in its subsections (1) and (2) as follows:

“(1) Increases in rent or other charges for the use of the dwelling, apart from charges that do not depend on the landlord [e.g. those for electricity, water, central heating, etc.] may not be made more often than every six months but, if the level of the annual rent or other charges for the use of the dwelling, apart from charges that do not depend on the landlord, exceeds 3% of the reconstruction value of the dwelling, a yearly increase cannot be higher than 10% of the current rent or current charges for the use of the dwelling[; such an increase] shall be calculated without charges that do not depend on the landlord.

(2) If charges that do not depend on the landlord have been increased, he or she shall give the tenant a written statement listing charges and reasons for their increase. The tenant shall be obliged to pay the increased charges only up to such a level that is necessary for the landlord to cover costs of supply of utilities referred to in section 2(8) [e.g. electricity, water, heating].”

Section 1(11)(a) of the 17 December 2004 Amendment introduced certain changes in respect of the termination of leases by individual landlords. However, the new section 11 of the 2001 Act differs only slightly from the previous provision on termination of leases (see paragraphs 87-88 above).

Section 11(1) now reads, in its relevant parts, as follows:

“If a tenant is entitled to use a dwelling for rent, the landlord may give notice only for reasons listed in subsections (2) to (5) ... Notice should, on pain of being null and void, be given in writing.

Subsections (2), (4) and (5) of section 11 remain unchanged. Subsection (3) now reads:

“The landlord of a dwelling for the lease of which the rent is lower than 3% of the reconstruction value of the dwelling in a given year may terminate the lease:

(1) with six months’ notice if the tenant has not lived in the flat for more than twelve months;

(2) with one month’s notice, expiring at the end of a calendar month, in respect of a person who has been entitled to another dwelling in the same or nearby locality and provided that dwelling meets the requirements for substitute accommodation.”

As regards cases where the landlord, his adult descendants or a person in respect of whom he is obliged to pay maintenance intend to dwell in the landlord’s flat (see also paragraph 89 above), the present section 11(7) provides that the notice to quit given to the tenant should, on pain of being invalid, indicate the person who is to dwell in the flat. The terms for giving notice (six months and three years respectively) remain unchanged.

Under section 11(12) the termination of a lease in respect of a tenant who on the date of giving notice is more than 75 years old and who, after the expiry of the applicable three years’ notice, will have no title to another dwelling and will have no persons obliged to maintain him or her will take effect upon his or her death.

The 17 December 2004 Amendment, in its section 5, introduced a new provision – section 6a – setting out a list of the landlord’s duties under the tenancy. In essence, it repeats the provision of section 9 of the 1994 Act (see paragraph 78 above).

Section 6b, introduced by the same section 5 of the 17 December 2004 Amendment, lays down the tenant’s duties. Its relevant part reads as follows:

“(1) The tenant shall be obliged to keep the dwelling in a proper technical, sanitary and hygienic state as prescribed by other separate provisions and to comply with the rules of good conduct in the building. He or she shall also be obliged to take care, and ensure protection against damage or devastation, of parts of the building designed for common use, such as lifts, staircases, corridors, chutes, other [similar] premises and the surroundings of the building.”

Subsection (2) sets out a detailed list of repairs and works involved in the upkeep of a flat.

The Act of 22 December 2004 on amendments to the 2001 Act on the protection of the rights of tenants, housing resources of municipalities and on amendments to the Civil Code (“the 22 December 2004 Amendment”) came into force on 1 January 2005. Its section 1 read:

“In section 9(1) [of the 2001 Act] the following subsection (1)(a) shall be included:

‘The provisions of subsection (1) shall also apply in the event of an increase in rent or other charges for the use of a dwelling, except for charges that do not depend on the landlord if, after the increase, the level of the annual rent or other charges for the use of the dwelling, except for the charges that do not depend on the landlord, is to exceed 3% of the reconstruction value of the dwelling.’ ”

On 4 January 2005 the Polish Union of Property Owners made an application to the Constitutional Court challenging the constitutionality of the 17 December and 22 December 2004 Amendments (“the December 2004 Amendments”). The Union alleged, in particular, that the provisions extending State control over increases in rent for dwellings owned by private individuals were incompatible with the constitutional principles of protection of lawfully acquired rights and citizens’ confidence in the State and the law made by it.

In that context, they stressed that the Polish authorities, in breach of their obligation to terminate the operation of the rent-control scheme by 31 December 2004 that they had taken upon themselves by virtue of two successive laws, namely the 1994 Act and the 2001 Act, had failed to abolish the impugned scheme and had simply replaced it by further restrictions on rent increases.

On 19 January 2005 the Prosecutor General made an application to the Constitutional Court challenging the constitutionality of the December 2004 Amendments. In particular, he contested the provisions restricting increases in rent to 10% and submitted, inter alia, that those restrictions constituted an unjustified interference with landlords’ property rights. He further alleged that Parliament was in breach of its duty to “legislate decently” (zasada “przyzwoitej legislacji”), especially the duty to formulate legal provisions in a correct and coherent manner.

The Constitutional Court invited the Speaker of the Sejm, acting on behalf of Parliament, the All-Polish Association of Property Owners and the Polish Association of Tenants to take part in the proceedings and submit their written observations. The Speaker of the Sejm and the All-Polish Association of Property Owners fully supported the Prosecutor General’s application. The association submitted detailed calculations of levels of rent that would be necessary to cover the maintenance costs of residential buildings. It maintained that in respect of most such buildings there was a “repair shortfall” (luka remontowa) amounting to 60% of the costs necessary for the reconstruction of the value of dwellings through major repairs and that, in order to secure sufficient means for such purposes, the levels of rent should reach 6% of the reconstruction value per year.

The Polish Association of Tenants considered that the current possibility of increasing rents set at the level of 3% of the reconstruction value by 10% per year already imposed an excessive burden on tenants. It submitted that the landlords’ association had given exaggerated figures in respect of the costs of necessary repairs. In the context of rent increases, it also stressed that the State’s financial assistance to tenants was practically non-existent.

The Constitutional Court heard the Prosecutor General’s application on 19 April 2005. It repealed section 1(9)(a) of the 17 December 2004 Amendment in so far as it made any increase in rent above 3% of the reconstruction value subject to a maximum yearly ceiling of 10% of the current rent and section 1 of the 22 December 2004 Amendment in its entirety.

In its judgment, it made an in-depth analysis of the housing laws as applicable from 1994 to 2004 and their historical and social background. It referred to its previous judgments repealing the successive defective legal provisions and to their implications.

The judgment contains extensive reasoning and a thorough assessment of the various social, political and economic circumstances affecting the current state of the Polish housing legislation. The gist of the Constitutional Court’s arguments is summarised in the following paragraphs.

The Constitutional Court first analysed the impugned provisions from the point of view of the principle of the rule of law as laid down in Article 2 of the Constitution (see paragraph 107 above):

“In the opinion of the [Court], the introduction of the contested legal provisions clearly violated the principle of proper legislation, which necessarily leads it to declare those provisions incompatible with the principle of the rule of law as expressed in Article 2 of the Constitution. The amendments, contrary to the intentions of the legislature itself – as is confirmed by the content of the Sejm’s written observations [filed in this case] – eliminated a market mechanism in a situation where the actual purpose of introducing restrictions on rent increases was to be the protection of tenants, that is to say, persons who in a given case do not accept the proposed increase. There is a distinct inconsistency between the provisions of the amendment in the initial bill and the provisions introduced following the parliamentary debate. In consequence, none of the declared aims of the [legislation] has been attained. Rents were not relaxed within rational limits encompassing the requirements of justice and of protection of landlords’ rights and nor were effective and precisely determined procedures introduced to protect the rights of tenants against abuse of [landlords’ right to] determine rent freely.

The new version of section 9(1)(a) has also violated the principle of ... confidence in the State and the law made by it. Thus, as already mentioned, there is no doubt whatsoever that until the adoption of the 17 December 2004 Amendment the legislation of the last decade consistently assured society, and especially persons directly interested in the situation of landlords and tenants, that rents that were controlled and at the same time limited to the level of 3% of the reconstruction value of the dwelling exclusively in respect of a certain category of premises would apply for the transitional period, that is, up to 31 December 2004. This period ... was [set] to make it possible for the government and the legislature to develop a new, comprehensive and multi-faceted system governing the relations between landlords and tenants, fully taking into consideration the justified interests of the parties and also realistically allowing those same parties to prepare themselves for surviving the most difficult period and to accept fully the new state of affairs, so that mutual relations between the parties to a lease (or an analogous relationship) could be shaped in a rational manner and above all with due consideration for the concrete conditions determining rent. The date of 31 December 2004 as the deadline for the transition period was also confirmed in the 2001 Act, which further strengthened the conviction that after that date the mechanism for determining rent would be compatible with the principle of freedom of contract.

This societal conviction was further supported by the unambiguous case-law of the Constitutional Court, which on many occasions underlined the transitional character of the rent-control scheme. It thus follows that in the years 1994-2004 the unambiguous ‘rules of the game’ were established, whose period of validity was clearly indicated by the 1994 Act (section 56(2)) and then in some sense confirmed by section 28(2) of the 2001 Act. ...

In its case-law the Constitutional Court has frequently expressed the opinion that the legislature must not fail to meet deadlines for those ‘rules of the game’ that it set itself. This opinion was expressed, inter alia, in ... the reasoning of [its judgment of 12 January 2000]. In its judgment ..., the Constitutional Court expressed the opinion that setting aside the principle of controlled rent for a ten-year transitional period would be acceptable only under exceptional circumstances, for otherwise there would be a violation of the principle of legal certainty expressed in Article 2 of the Constitution.

These considerations lead to the conclusion that the adoption of the contested Act and its publication on 29 December 2004, with its entry into force on 1 January 2005, violated the ‘rules of the game’ which were laid down in the previous legislation and which were subject to an unambiguous time-limit[. This happened in a situation where] there were no exceptional circumstances or events that could justify or explain the extension of [those rules] for a longer period.

The breaking of what amounted to a promise laid down in a statute must be regarded as a particular kind of irresponsibility on the part of the public authorities, and hence an exceptionally jarring violation of the principle of confidence in the State and the law made by it, a principle constituting one of the foundations of the rule of law.”

The Constitutional Court next referred to the principle of the protection of property and the principle of proportionality:

“Article 64 §§ 1 and 2 of the Constitution guarantees the protection of ownership and other property rights on an equal basis for all. Among these ‘other property rights’ are the right to lease residential premises and other rights relating to premises serving to satisfy housing needs. Each of these rights, whether accruing to landlords or to tenants, enjoys constitutional protection, but in different ways. As a rule these rights collide but, as has been pointed out [in one of the Constitutional Court’s previous judgments], it would be a simplification to treat this conflict in linear terms, and to presume that providing a certain degree of protection to one of these rights must necessarily result in a weakening of the degree of protection afforded to the other.

Section 9(1) and (2) and section 9(1)(a) ... were based on the unjustified conviction that relations between landlords and tenants always have an antagonistic nature, which inevitably leads to the ‘zero-sum game’. In reality, however, this does not have to be the case; on the contrary, properly determined relations between the parties to a lease agreement are of service both to landlords and tenants, provided that neither of the parties abuses its rights, since everyone is obliged to respect the freedoms and rights of others (Article 31 § 2 of the Constitution).

The Constitutional Court is fully aware of how difficult it is to balance the legitimate interests of both landlords and tenants and to create the best possible ways of organising their relations. This is particularly true in the Polish situation, in which the rights of landlords were not respected for a long time and housing matters were subject to State management for entire decades[. This], combined with other systemic and economic factors, resulted in a degradation of housing supply unheard of in the countries of western Europe, and the consequences of which affected and still affect not only landlords but, ultimately, also tenants. Stepping back from this abyss will be difficult and will take many years, and the effective change of the present state of affairs will probably not be possible without committing public funds adapted to concrete situations (see the Constitutional Court judgment [of 12 January 2000]).

It is therefore the legislature’s duty to strive to form a harmonious legal situation for landlords and tenants, so that their relations can be seen as desirably complementary rather than characterised by inevitable antagonism. Charges for the use of the premises, including rent, are a special element of those relations. They should ensure that the landlord not only covers the costs of building maintenance and repair, but also obtains a return on invested capital (amortisation) and a decent profit because no legal provisions may extinguish one of the basic components of the right to property, namely the right to derive profit from property ... This was possible, as found by the Constitutional Court [in its earlier judgment], in the transitional period, during which it was considered reasonable to restrict profit [by fixing] such levels of rent as only covered the costs of maintenance and upkeep. Now complete regulations, fully and precisely determining the elements of rent, are required. The 2001 Act specified what are to be regarded as charges that do not depend on the landlord ... but it did not indicate ... the elements of rent as such. As a result, judicial control of reasons for rent increases is to a large extent illusory. ...

At the same time, the Constitutional Court considers it necessary to take into account the legitimate interests of tenants, and to establish effective mechanisms to protect them against abuse of their rights by landlords. It is also necessary to develop a set of instruments that would make it possible to support tenants finding themselves in difficult financial and living circumstances. This must not be done, as has been the case hitherto, mainly at the cost of landlords, but mostly through the deployment of special public resources. Thus, the duties inherent in social solidarity and the duty to help the underprivileged are incumbent on society as a whole. ...

Over the last dozen years or so, attempts have been made in Poland to protect the legal interests of ... tenants through the statutory determination of percentage rent increase indicators, or of rent ceilings, or through the introduction of certain stronger control measures after a certain limit was exceeded, but in fact this has always been done in isolation from the concrete circumstances of given landlords and given tenants. An exception in this respect is the duty to determine officially the so-called ‘conversion index’, which of course adjusts the calculation of rent, but only locally, and, furthermore, is highly formalised and mechanical in nature.

The end of the transitional period for controlled rents must mean a real break with the statutory automatism in respect of setting levels of rent, determining the rent ceilings or imposing restrictions on rent increases. One should expect the establishment of a system providing flexible solutions, adapted to the requirements of a modern housing market, which – stressing the parties’ freedom to determine rent levels – would also ensure effective control in order to prevent arbitrariness and abuse of that freedom.

The contested provisions allow the parties ... a very small margin of freedom, which does not take into consideration concrete circumstances, such as the technical condition of the premises and the building, the personal and financial situation of the tenants or local factors. The legislature believes that the elimination of irregularities in increasing rent, apart from rent being subject to an arithmetical ceiling, will be effected through a special procedure for judicial control laid down in section 8a combined with the mechanism restricting rent increases as laid down in section 9 of the 2001 Act, in particular section 9(1) and (1)(a).

The legislature, declaring that controlled rents would be abolished in the future, never promised that from 1 January 2005 the levels of rent determined by the parties would not be controlled at all. However, judicial control to this end would be effective if the law clearly determined elements of rent and formulated precise criteria for its evaluation. But this did not happen. The 2001 Act does not indicate at all how rent should be determined (because rent increases as such are a different matter), even in such a fragmentary way as section 20 of the 1994 Act did. It thereby deprived a court assessing an increase in rent of the possibility of objective verification, on the basis of concretely enumerated elements of rent and clear criteria for their evaluation, whether or not the increase was justified (section 8a(5) of the 2001 Act), and hence created a risk of divergence between judicial decisions. It should also be noted that in certain situations the limiting mechanism introduced by section 9(1) and (1)(a) either excludes judicial control of rent altogether, or makes it completely illusory ...

In consequence, ... both the contested amendments amounted to a breach of the principle of proportionality expressed in Article 31 § 3 of the Constitution, [notably] through defective formulation of the rules determining [rent], which do not give adequate protection either to landlords or to the rights of tenants.”

In the context of the principle of proportionality the Constitutional Court also referred to this Court’s Chamber judgment in the following terms:

“The Constitutional Court paid particular attention to the European Court of Human Rights’ judgment of 22 February 2005 in the case of Hutten-Czapska v. Poland. ...

Given the date of this judgment, [considerations] of the European Court were already based on the legal situation obtaining on 1 January 2005. Hence they encompassed both the December 2004 Amendments to the 2001 Act and the Prosecutor General’s application. In the Constitutional Court’s view, the opinion expressed by the European Court provides additional arguments in favour of finding that these amendments, in their parts contested in the application, violate the principle of maintaining confidence in the State and in the law made by it as laid down in Article 2 of the Polish Constitution and undermine in an inadmissible manner the standards of property protection common to the member States of the Council of Europe.”

It then went on to analyse the general situation:

“The Constitutional Court still holds the view (expressed in its judgment of 12 January 2000 ...) that

‘it is in conformity with the contemporary perception of a “social State” to demand some sacrifice from all members of society for the benefit of those who cannot provide subsistence for themselves and their families ... In the circumstances obtaining in Poland, under Article 31 § 3 [of the Constitution], it may be justified to maintain the provisions limiting landlords’ property rights and, more particularly, excluding unrestricted freedom in fixing rates of rent and other charges collected from tenants.’

The latter remark was particularly significant for the assessment of legislation during the transition period, but it cannot be seen as having fully lost its relevance with the end of that period.

Thus, States which, like Poland, are undergoing radical systemic and economic transformation must create legislative tools that make it possible for them to overcome the consequences of historical events (arbitrary and peremptory interference with private property by the State) and to ensure the transition to conditions appropriate for democratic, liberal States governed by the rule of law. This is a very difficult task, especially given the absence of well-tried models of proceeding in such cases. The scale of the phenomenon far surpasses the post-war experience of western European States. Changes in this area are being introduced by trial and error; they are slow and not effective enough – as has been pointed out by the Constitutional Court in the judgments cited above.

It is therefore not possible, in respect of the rights of landlords, who were formerly deprived of the possibility of fully enjoying their property, simply to give this possibility back to them in the form of unrestricted market-related rent. Such a measure, in a situation where private houses, previously taken in connection with the so-called ‘public management of housing matters’, have depreciated and require very major investments in repairs and high running maintenance costs, would mean imposing on tenants an excessive burden undermining their existence. ...

It must be kept in mind that the fact that landlords’ rights were infringed over several decades did not result from any acts by tenants, but was first and foremost caused by defective legislation. Removing, after years of neglect, all those harmful consequences may not therefore be done at the expense of tenants, and certainly not at their expense alone, but must above all stimulate the public authorities themselves to take appropriate action.”

In its final considerations the Constitutional Court stressed that, given that its judgment was inherently limited by the scope of the Prosecutor General’s application, it could not resolve comprehensively and definitely the fundamental systemic issues arising from the operation of the rent-control scheme. In particular, it could not address the mechanism for balancing the interests of landlords and tenants, a mechanism which was still missing in the existing legal system.

Having regard to the fact that sections 8a and 9 of the 2001 Act (in so far as they were still in force following the repeal) did not provide for any satisfactory and consistent mechanism and no appropriate legislative initiative to that effect had been envisaged, the Constitutional Court decided to prepare recommendations (sygnalizacja) for Parliament, whose object would be to formulate clear demands to create a mechanism making it possible to formulate precise criteria for judicial control of rent and related charges.

On 29 June 2005 the Constitutional Court gave a decision (postanowienie) setting out the recommendations for Parliament (“the June 2005 Recommendations”) referred to in the judgment of 19 April 2005. In its relevant parts, the decision reads as follows:

“1. Starting-point

... Under the present legislation, as amended by the Constitutional Court’s judgment [of 19 April 2005], landlords may increase rents or other charges for the use of the dwelling not more often than every six months but an increase in rent or other charges, apart from those which do not depend on a landlord, whereby rent would exceed 3% of the reconstruction value of the dwelling within one year may take place only in justified cases. ... [T]he tenant may challenge the increase by bringing a court action to have the increase declared unjustified, or justified but in a different amount, or may refuse to accept the increase with the effect that the contract is terminated at the end of the term of notice.

However, judicial control of increases in rent and the procedure for such increases do not apply if an increase does not exceed 10% of the current rent or current charges.

Lack of statutory criteria for judicial control

[The 2001 Act] does not indicate, and this is its fundamental shortcoming, the criteria on the basis of which the courts are to control increases in rent or other charges for the use of the dwelling. This situation is detrimental to both landlords and tenants. Accordingly, judicial control, lacking statutory criteria, certainly becomes very difficult and unforeseeable, if not illusory. This may lead to quite arbitrary decisions. It is likely that in this legal situation the courts would be forced to create an ad hoc set of criteria for the future assessment [of increases] rather than to review legal grounds for increases. It should be stressed that removing from the judicial control increases in rent and charges that do not exceed 10% will, in many instances, deprive tenants of the necessary protection and will, within several years, lead to rents being hauled up to an objectively unjustified level.

The above considerations lead to the conclusion that the statutory system of fixing the maximum ceiling of rents and other charges and of controlling increases determined algorithmically, which was justified in the transitional period ..., can neither satisfactorily serve the interests of landlords nor protect the justified interests of tenants. It is therefore necessary to regulate in a complex manner those matters, maintaining at the same time flexible solutions. ....

Factors influencing the level of so-called ‘basic rent’ [czynsz początkowy]

The question of determining rents and charges for the use of the dwelling cannot be seen only from the perspective of the criteria and rules for their increase. First of all, it is necessary to set a statutory starting-point – in other words, elements of rent that would adequately take into account the rights of landlords.

At the same time, not losing sight of the necessarily complementary relationship between a landlord and a tenant, one should have regard to the fact that the essential duty of the tenant is to pay an economically justified level of rent, i.e. not too high but related to the justified economic interest of the landlord.

The point of departure for determining such ... rent should be an indication that its elements cannot be [fixed without relation to] running repairs and maintenance, an adequately determined depreciation and a decent profit. ...

The need to include the costs of repairs and maintenance does not require any further explanation – it is obvious. Likewise, a decent profit derived from the exercise of the right of property is an indispensable element of the genuine protection of property rights. Without profit, there are no investments or even modernisation works, which are dictated by technological progress and which are also beneficial for the interests of tenants. The future detailed legal solutions should, however, pay due regard to the fact that the aims pursued by the public authorities (the State Treasury, other State authorities and municipalities) are different from those pursued by private individuals and bodies (such as housing cooperatives) and that the expectations of [those two groups] in respect of a decent rent should be established at different levels. ...

It is also necessary to include among the elements of rent a return on landlords’ investments in the construction or modernisation of the building in due time, it being understood as a basis for an adequately established depreciation level. ...

Additional instruments for monitoring the level of rent

An auxiliary instrument, enabling the courts to assess thoroughly the basis of the determination of, and increase in, rent could entail, among other things, the setting up by the authorities, in the process of a true social dialogue with organisations of landlords and tenants, a system for monitoring the levels of rent in all municipalities which would, for example, disseminate information on the average level of rent in a given region. Such systems are known in some European countries as a ‘rent mirror’. ...

Housing benefits

The justified ‘basic rent’, determined in the manner indicated above in respect of each residential building, might often be incompatible with the tenants’ financial situation. ... In such cases the poorer tenants should be included in a system of individual benefits, justified by their [individual] circumstances, from the public funds, which would genuinely help them to fulfil their duty to pay rent regularly up to a certain determined amount.

Instruments for the necessary support of landlords

In certain situations (especially in respect of buildings regarded as part of the national heritage) it may happen that [even] properly determined rent will still not be sufficient to cover all the costs required for the necessary expenses involved in normal maintenance, in particular the necessary repairs or modernisation. In such precisely determined cases the system of public finances should provide for forms of individual support for landlords obliged to cover the extra costs involved in the maintenance of the buildings. Such support may take various forms, from housing subsidies, through loans on preferential terms for specific investments and, finally, to tax exemptions. ...

Inconsistent regulation of the rights and obligations of parties to a lease agreement

The Constitutional Court considers it necessary to point to inconsistencies, as regards the setting out of a catalogue of landlords’ and tenants’ duties, between the new sections 6a to 6f of the 2001 Act and the provisions concerning the lease of a dwelling contained in ... the Civil Code. It is against the rules of proper legislation to include the provisions governing the lease of dwellings not in the Civil Code, which contains a full set of regulations on lease relations, but in a law whose object is to protect tenants generally, not to regulate the lease relationship.

[Final remarks]

The Constitutional Court’s present recommendations are concerned with shortcomings and lacunas to which it has pointed in recent years either in its judgments or documents providing information about its activities. ... Removing them in the near future is necessary also in view of the principle of the social market economy, which has particular importance in the present context. Now it is no longer possible to regulate these matters in a fragmentary or provisional manner. It should once more be stressed that they should be resolved through comprehensive solutions pursuing clearly defined aims which are compatible with the Constitution.”

On 24 August 2005 the Ombudsman made an application to the Constitutional Court for certain provisions of the 2001 Act to be declared unconstitutional. He asked, inter alia, that section 8a (4)-(5)-(7.1) of the 2001 Act (as amended in December 2004) be found to be incompatible with Article 64 §§ 1 and 2 of the Constitution (principle of the protection of property rights) read in conjunction with Article 31 § 3 (principle of proportionality) and Article 76 (principle of protection of consumers against dishonest market practices). He further asked that section 9(1) of the 2001 Act be found to be incompatible with Article 2 of the Constitution (principle of the rule of law).

The Ombudsman first referred to the Constitutional Court’s judgment of 19 April 2005, stating that this judgment left no doubt whatsoever that the legislature’s essential duty was to set up a legal mechanism balancing the constitutionally protected rights of landlords and tenants. Indeed, the attempts that had hitherto been made had proved to be unsuccessful mostly because of the authorities’ choice to give priority to current political interests rather than to the law, as demonstrated by many earlier judgments of the Constitutional Court.

As to the contested provisions of section 8a, the Ombudsman stressed first their internal inconsistency, submitting that, on the one hand, subsections (4) and (5) made increases in rent above 3% of the reconstruction value per year subject to “judicial control” and required them to be “justified” but that, on the other hand, the latter subsection read a contrario meant that any other increases did not need to be justified. He further referred to the Constitutional Court’s recommendations, pointing out that there were no statutory criteria for what was to be considered a “justified increase”. In fact, he maintained, from the point of view of the landlord every rent increase was justified as it either increased his profit or reduced the losses involved in proper maintenance, while from the point of view of the tenant every such raise was “unjustified” as it involved greater expense on his part.

As regards section 9(1), the Ombudsman submitted that it was unclear and incompatible with the principle of proper legislation ensuing from the rule of law in that, for instance, it did not specify when the six-month period – relevant for determining the point from which a given increase in rent had applied – was to start. In the Ombudsman’s view, this lack of clarity could not be removed simply by interpretation of that provision and created a possible source of conflicts between landlords and tenants.

On the date of the adoption of the Court’s judgment, the application was pending before the Constitutional Court. The case was listed for a hearing on 17 May 2006.