Dissolution of co-ownership
When co-owners of a property cannot reach an understanding, the subject of formally dissolving the co-ownership comes up sooner or later. In theory it is a definitive solution: it ends the uncertainty and lets each co-owner regain control over their part of the asset. In practice, however, dissolving co-ownership — especially through the courts — is one of the most time-consuming and expensive proceedings an ordinary property owner can face. In this article we show what the procedure looks like step by step and what it can realistically cost.
Dissolution by agreement before a notary: the exception, not the rule
The fastest and cheapest way to end co-ownership is to dissolve it by agreement before a notary. The trouble is that in practice this happens rarely. For that route to be possible at all, every co-owner has to agree simultaneously on three things: on dissolving the co-ownership at all, on the manner of division (who gets what, or who pays whom) and on the amount of any buy-out payments or adjustments. It only takes one co-owner holding a different view on the valuation of the property, or objecting to the proposed division, for the notarial route to become impossible.
Even where such agreement is reached, dissolving co-ownership before a notary is not free, and the costs are borne by all the co-owners, usually in proportion to their shares. You have to reckon with:
- the notary’s fee, the amount of which depends on the value of the property (in line with the regulation on maximum notarial fee rates), plus 23% VAT,
- the cost of copies of the notarial deed, needed by each co-owner and for filing with the land and mortgage register court,
- the court fee for entering the new legal status in the land and mortgage register and, where the property is physically divided, also for opening new registers for the separated plots,
- the tax on civil law transactions at 2%, if the dissolution is accompanied by buy-out payments or adjustments to the other co-owners.
If the dissolution is to consist in the physical division of the property — dividing a plot into smaller, independent plots, say, or separating out individual units in a building — the cost of a surveying or architectural survey is added. A division map of a land property drawn up by a licensed surveyor, or a survey of a building and a plan for dividing it into separate units prepared by an architect, is an expense running into several thousand zloty, and this cost too is usually spread across all the co-owners.
Judicial dissolution of co-ownership: the longer and more expensive route
Where the co-owners cannot come to an understanding, the only way out is through the courts. The case is commenced by an application from one of the co-owners, filed with the district court for the location of the property. In ruling on the dissolution, the court has three ways of deciding: physical division of the property (where that is technically and legally possible), awarding the property to one co-owner with the others being bought out, or, where neither of the above is feasible, sale of the property under enforcement procedure and division of the sum obtained.
Before a ruling is given, however, the proceedings usually require several significant and costly steps.
The court fee. An application for dissolution of co-ownership carries a court fee of PLN 1,000. If the application contains an agreed division plan (which happens rarely, because if the parties genuinely agreed they would usually take the faster notarial route), the fee is lower, at PLN 300.
Lawyers’ fees. Cases for dissolution of co-ownership rarely proceed without an advocate or legal counsel, especially where there is a genuine dispute between the parties over the manner of division or the amount of the buy-out. In a case dragging on for many months, with successive pleadings, hearings and often appeals, a lawyer’s fee can be a noticeable cost for each side separately, because each co-owner usually instructs their own.
The expert’s fee. The court almost always appoints a court expert in property valuation, who prepares a valuation report determining the value of the property and, where physical division is at issue, the possible division options. The cost of such an opinion is borne by the co-owners, and if one of the parties challenges the valuation, the court may admit a further opinion or a supplement to it, which lengthens the proceedings further and raises the costs.
Duration. It is time that tends to be the most painful cost of such proceedings. Cases for dissolution of co-ownership, particularly where the parties actively dispute, challenge experts’ opinions and file appeals, can last several years. Throughout that time the property is in limbo: it is hard to sell, let or use sensibly, and relations between the co-owners usually only get worse.
When the court orders sale by auction
In many cases, especially where a property cannot be physically divided (typically a flat or a small detached house) and none of the co-owners wants to, or is able to, buy the others out, the court directs the property to be sold under the provisions on enforcement against property, that is by enforcement auction.
In simplified terms the procedure looks like this: the enforcement officer draws up a description and appraisal of the property on the basis of the expert’s report, publishes a notice of auction and then holds a public auction at which anyone may bid, the co-owners included. The opening price, that is the lowest amount at which bidding starts, cannot at the first attempt be lower than 3/4 of the appraised sum. If nobody buys the property at the first auction, a second date is set at which the opening price falls to just 2/3 of the appraised sum. In other words, in the worst case the property may be sold for an amount markedly below its actual market value.
From the sum obtained in this way the costs of the enforcement proceedings are still deducted: the enforcement officer’s fee (usually around 10% of the amount recovered, up to the statutory limit of PLN 50,000), the expert’s fee for the valuation report, the costs of advertisements and auction notices and other expenses connected with the proceedings. Only what is left after all these costs have been deducted goes to be divided among the co-owners, in proportion to their respective shares.
In practice this means that after several years of proceedings, having paid a lawyer, an expert and an enforcement officer, each co-owner may end up with markedly less in hand than they could have obtained by selling their share voluntarily at the very start of the dispute.
Is it worth getting into
Judicial dissolution of co-ownership is sometimes the only possible solution, but looking at the real costs and the duration of such proceedings, it is hard to call it a good investment. Years of uncertainty, mounting fees for lawyers and experts and, at the end, an auction at a depressed price — that is a scenario in which essentially all the co-owners lose, regardless of who formally “wins” the case in court.
Before a conflict between co-owners escalates to that stage, it is worth considering selling your share while the situation is still reversible. At Remedy we buy shares in co-owned property throughout Poland, including where a dispute between the co-owners is already under way or the case is pending in court. If you want to know what your share might realistically be worth and how quickly the matter could be closed, write to us and we will gladly discuss it with you, with no obligation.
This article is for general information and does not constitute legal advice. In an individual case it is worth consulting a lawyer, particularly on the choice of procedure for dissolving the co-ownership and on the valuation of the property.