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How not to sink a project? Problems that arise with land under water law

The source of the problem 

In our practice, we often conduct due diligence on land for sites for projects, especially land envisaged as sites for construction of warehouse and logistics facilities. Such properties are usually located in undeveloped areas which in the past have predominantly been used for agricultural purposes. Therefore, a common issue with this type of land is issues arising under water law, which are of considerable importance for the timing of a given transaction, the subsequent implementation of the project, and selling it.

Where there is standing water on a property (i.e. water located in natural reservoirs), this generally means that the State Treasury has statutory right of pre-emption at the moment of sale of the property.

Flowing water ( rivers, watercourses, etc.), on the other hand, means that the part of the property that is under water cannot be included in the sale – such a transaction would not be valid. In such a case, the solution is to exclude the problematic part of the property from the transaction (if formally possible), which may mean that separation is needed in terms of geodetic records.

The real complications, however, arise when there is a discrepancy between the actual state of the property and that shown in the land records. 

The reasons for this can vary. Sometimes this is a consequence of a natural shift in the water’s edge , inaccuracy of hydrographic maps drawn many years ago, or simply a lack of interest on the part of the existing owners in making sure that their property is properly described in the land records.

Consequently, we may have to deal with a situation where there is flowing (or standing) water on the property, for which there is no trace in the documents – or vice versa. Moreover, in practice we have also encountered cases where water was only “potentially” on the property. Each of these situations has specific consequences, upon which we will elaborate in this publication.

Water only in land records

Where the existence of water on the property is indicated only in the land records, the situation is relatively simple. In such a case, it is best, even before the transaction, to update the land records in order to eliminate property designations that list land as “under water”, when in fact there is no such water on the property. This is because the notary drawing up the contract will primarily rely on the information in the land register. Skipping this step may lead a notary to refuse to effect the transaction – in the case of flowing water, since land on which there is flowing water can only be owned by the State Treasury. If land is designated as “Ws” in the register, one will have to consider the statutory right of pre-emption to such property. The above may not only affect the timing of the transaction; it might also create a risk that the competent entity will exercise its right of pre-emption to the property.

This leaves the “common sense” approach. Since the presence of water on the property is due only to outdated geodetic records – perhaps the relevant statements made by the parties in the sale contract will suffice in this regard? Provided that a notary can be found to effect such a transaction, in our opinion, in this case there is also a risk that the land and mortgage registry court will refuse to register the buyer in the land and mortgage register kept for the property.. In addition, such a contract may prove controversial at subsequent stages of a project (especially the financing and sale of the project).

Water only in reality

The situation is much more complicated when water is present on a property, but this is not reflected in the land records. In practice, we have encountered situations in which the Water Authority “suggested” the existence of water on a property, stating that: 

• on the surveyed land “there is a natural depression of the land in which water can periodically collect”,

• a natural watercourse “probably runs through one of the plots of land”,

• the property is not subject to restrictions under the Water Law, subsequently stating in a separate letter that flowing water is located on the plot.

In our experience, in such cases it is a good idea to obtain the opinion of a surveyor or hydrologist, on the basis of which the nature of the property will be determined in terms of water law. If it turns out that in fact there is no water on the property – the problem can be considered solved. However, if the opinion confirms the presence of water, the project may need to be re-evaluated for its feasibility and viability. Even a single plot of land where water is even potentially present, especially when the transaction envisages acquisition of a series of plots, can have a colossal impact on the fate of the transaction, as well as the entire project. After all, land on which there is flowing water must be excluded from the transaction, and this can have an adverse impact on the balancing of the project. Land on which there is standing water, on the other hand, may become less attractive due to the risks associated with the Treasury’s statutory right of pre-emption.

To sum up, at the stage of research into the legal status of a property, it is important to verify the status of the property based on several sources and to conduct a site inspection of the land in question. Only a comparison of the findings of activities of this kind will provide a true picture of the legal status of the property. Skipping this step and detecting risks at a later stage does not necessarily mean that the project will fail. Managing risks at that later stage, however, seems much more complicated and much more costly.