Poland

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As an exception to the general rule, usufruct and lifetime habitation do not expire as a result of bankruptcy proceedings (CCP, art. 313, § 3) if they have priority over mortgages registered against the property or if the value of the immovable property is sufficient to cover the value of the usufruct and the lifetime habitation.

The above rules also apply if land subject to a hereditary land lease (hereditary usufruct) is sold during bankruptcy proceedings. However, limited real rights on the land created before it was burdened with a hereditary land lease do not expire (CCP, art. 1011). In theory, land belonging to a local authority may be sold upon the insolvency of that local authority. It is, however, a contentious issue whether local authorities can be declared bankrupt in Poland.

If A has created a prior mortgage over the property, the mortgage creditor has the right to satisfy his/her claim from the proceeds of a sale in execution or on bankruptcy (LOB, art. 336). Any surplus will be included in the sum divisible among the concurrent creditors. The mortgage creditor will therefore recover his/her money before any other creditors are entitled to the proceeds of the sale. From the above comments it is clear that in the case of a prior mortgage the mortgage creditor would have priority over the holders of rights established subsequently.

The question of priority here is solved according to the general rules of priority (CCP, art. 1026, § 1; Civil Code, art. 249 and the Law on Land Register and Mortgages, arts. 11 and 12). The order of priority of these rights follows general rules: unregistered rights enjoy priority according to the date of their establishment; registered rights have priority over non-registered rights and in the case of more than one registered right over the same property, priority is determined on the basis of the moment when a request for an entry in the Register was made (Civil Code, art. 249; Law on Land Register and Mortgages, arts. 11 and 12).

Portugal

Property subject to a lease in favour of B may be attached and sold in execution by the executing creditors of A. The lease is, however, not included in the attachment assets. If the lease contract was concluded before the attachment of the property, the general rule according to Civil Code, art. 1057 is that the purchaser will acquire all the rights and obligations of A with regard to the property. Thus, if the property is encumbered with a valid (registered or unregistered) lease, the purchaser will be bound to recognise it and to allow the tenant to exercise

the lease for the remainder thereof. Consequently, the tenant’s right prevails over the right of the purchaser, unless the lease was concluded after the executing creditor attached the property (Civil Code, art. 819). The same rules apply in the case of the insolvency of A.

Property burdened with a personal servitude in favour of B does not prevent the property from being attached (penhorados) and sold in execution by the executing creditors of A. If the personal servitude is embodied in a written deed, executed or certified by a notary and registered against the title deeds of the servient property, it is enforceable against third parties, according to its rank or priority.47 If A grants a usufruct to B and two years later his/her creditors attach the servient property, the sale on execution only encompasses the nude property. The acquirer in execution will acquire a burdened property.

Prior registration of B’s right provides publicity and enforceability against third parties. The sale in execution must therefore be conducted subject to the personal servitude in favour of B. Civil Code, art. 824, no. 2 states that if the property is sold in execution, a real right of use registered before the constitution of the mortgage or attachment of the property remains valid (Civil Code, art. 824, no. 2).48 The personal servitude is thus not included in the attachment assets.

If the property is attached and sold without mention of it being burdened with a personal servitude, the holder of the servitude may challenge the title of the purchaser in court. The purchaser cannot rely on the fact that he/she purchased the property bona Þde, but is allowed to rely on general defences based on mistake or fraud. It is important to note that the personal servitude must have been registered before the execution proceeding commenced (Law on Registration, art. 2(1)(a)). If the personal servitude is registered after registration of the attachment, it will not be enforceable against third parties such as creditors in execution (Civil Code, art. 819).

The insolvency assets only include property of the insolvent (Law on Insolvency, art. 46).49 The personal servitude is not considered an asset of the insolvent; rather, it is enforceable against the administrator in insolvency.

47The right registered first prevails over later registered rights over the same property according to the date of registration (Law on Registration, art. 6).

48See Court of Appeal Porto of 12.04.1998 [Process 9721249], available at www.dgsi.pt.

49Code of Insolvency and Reorginisation of Enterprises, approved by Decree Law 53/2004 of 18.03, as amended by Decree Law 200/2004 of 18.08, 76-A/2006 of 29.03, 282/2007 of 07.08 and 185/2009 of 12.08.

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If A, having burdened the land with a duly constituted and registered personal servitude in favor of B, becomes insolvent, the right of B is protected. Prior registration of B’s right provides publicity and enforceability also against creditors in insolvency. If the personal servitude was created without any consideration, and A’s creditors suspect that it was done to prejudice the insolvency assets, they can use the actio Pauliana (Civil Code, art. 610) to remedy the situation. It should be noted, however, that this action is available to all creditors and not only to creditors involved in an insolvency process.

If the owner has created a mortgage over the property and then becomes insolvent, the mortgage creditor has a ‘secured credit’ (Law on Insolvency, art. 47(4)(a)). According to the Law on Insolvency, art. 174, the mortgage creditor is paid after his/her claim and priority ranking have been confirmed by a court decision (art. 173).

The question whether a lease is enforceable against a mortgage creditor who has registered a prior mortgage on the property, has led to a strong debate in Portuguese case law and academic literature. Portuguese law does not prohibit the owner of mortgaged property to conclude an enforceable lease over the property. If A registers a mortgage in favour of C and then duly concludes a lease with B, it is contested whether the lease in favour of B will be enforceable against the mortgage creditor.50 Civil Code, art. 824, no. 2 states that on a sale in execution of the property, real rights of use (direitos reais de gozo) over the property will remain valid if they were registered before the registration of the mortgage or the attachment of the property. Consequently, it is clear that a right of usufruct registered after the registration of the mortgage will expire. However, since a lease is not one of the recognised real rights in Portuguese law, it does not necessarily follow that a lease concluded after the registration of a mortgage will likewise expire.51 However, doctrine and case law have disputed this conclusion by finding that Civil Code, art. 824, no. 2, which states that rights expire after a sale in execution, also refers to leases. The Supreme Court of Justice52 concluded that the fact that the lease is not a real right does not prevent its

50This question is very important owing to the fact that a lease is commonly considered as a strongly protected right which can only be terminated in very limited circumstances. The granting of a lease over property may greatly decrease the value of the property.

51Mesquita, Obrigacüo÷es Reais, p. 140; Reme´dio Marques, Curso, pp. 408 ff.; Vieira, ‘Arrendamento de Imo´vel’, vol. 4, p. 437.

52Decisions of the Supreme Court of Justice of 15.02.2005 [Process 04A4786]; of 05.02.2009 [Process 08B4081], available at www.dgsi.pt.