At the end of 2023, a piece of news was picked up by the media, stirring up a storm in social networks, regarding the “Epic Flip” – a new project by Rafał Zaorski, a well-known financial speculator.

“The Epic Flip” is about an offer to sell 20,000 shares of an apartment at 44 Złota Street in Warsaw. According to the Land and Mortgage Register No. WA4M/00482360/8 kept for apartment No. 504 (the Land and Mortgage Register number is published on the Internet) that is property of Rafał Zaorski. It is located on the 50th storey of the building (52nd, if counting the underground storeys) of a high-rise building, and its total area is 485.30 m2 (the apartment has an area of 480.3 m2 and the storage room of 5 m2). The apartment was purchased on 7 June 2022 under an agreement for the establishment of separate ownership of the premises and its sale. According to the media, the transaction price at the time was PLN 23,000,000. The apartment is encumbered by a contractual mortgage in the amount of PLN 20,000,000 and secures the loan dated 30 March 2023, contractual and default interest and any costs of pursuing the lender’s claims under the agreement in question. Malta-based Saliq Limited is disclosed as the mortgage creditor.

According to the originator of the idea, a share in the apartment can be purchased for: 777 units of $bigSB cryptocurrency, PLN 5,000 or by receiving 504 NFT AIRdrop. Each buyer is to be given full freedom to manage the property. Initially, the apartment was supposed to be accessible 24 hours a day (this information has now disappeared from the website of the venture), but according to current information, each co-owner will have the right to enter and stay in the apartment without limitation. 

The main stakeholder calls this initiative a “social experiment” and probably rightly so. At the time of writing this article, the counter on the “Epic Flip” website showed as many as 7,667 subscriptions for 56,942 shares (it is possible to buy more than 1 share, so in fact there may be far fewer buyers than the 20,000 people mentioned in other messages). This means that, in fact, just several days after Rafał Zaorski announced the venture in question, the interest in the shares in apartment No. 504 at 44 Złota Street already exceeds the announced 20,000 shares. As envisaged, the sales process was to be launched once the threshold of 10,000 shares had been reached, so the condition declared by the potential seller of the shares in the property had already been fulfilled.

On the website of the “Epic Flip” Rafał Zaorski declares that he will pay rent, amounting to PLN 20,000 per month, and utilities for three years ahead as part of the experiment. He also adds to the package the services of a law firm, which will mediate any issues with the homeowner association for one year free of charge, as well as will hire a security company and pay for its services for one year ahead. It is also important that the property is to be free of encumbrances on the date of the notarial deeds, so that at the time of the sale of the shares in the property the contractual mortgage will already have been removed.

On the website of the project in question, new proposals were introduced over the past few days. Rafał Zaorski has provided for the possibility of acquiring shares under the so-called ‘fast track’ procedure, which is to cover 5,000 shares in apartment No. 504 and is addressed exclusively to natural persons. Under this procedure, 1, 5 or 10 shares can be acquired. The ‘fast track’ procedure rules and model share reservation agreements have also been published on the website. The above-mentioned procedure provides for two options for the conclusion of a reservation agreement. The first option, the so-called prepayment option, is to guarantee a priority purchase of a selected number of shares. However, this is conditional on payment of the full price for the shares to be acquired within 14 days of signing the reservation agreement. The second option, the so-called identity confirmation and reservation option, does not guarantee the priority purchase of the shares, but only constitutes confirmation of the will to reserve the shares. Those who choose the second option will be able to purchase shares once the pool of people who have taken advantage of the prepayment option has been exhausted. In the case of the identity confirmation option, a payment of PLN 1 is required within 14 days of signing the reservation agreement. In the case of both options, payments are to be made directly to Rafał Zaorski’s bank account. However, the sale agreements are to be concluded by 31 March 2024. The rules of the ‘fast track’ procedure include a provision that the amount paid will be refunded by Rafał Zaorski if the share sale agreement is not concluded within the deadline indicated above. However, this provision is not included in the model reservation agreements. In addition, there are no provisions in these agreements that would guarantee potential buyers a reimbursement of the amounts paid.

As the reservation agreement is to be concluded by sending a scan of the signed agreement or a document signed with an electronic/ePUAP signature, potential buyers (mainly those who have chosen to conclude the agreement in the prepayment option) will not be entitled to disclose their claims under this agreement in the land and mortgage register kept for apartment No. 504. This would, in principle, require a preliminary agreement in the form of a notarial deed. The procedure in question for purchasing shares, or rather reserving them, is therefore risky from the perspective of potential buyers. It seems that Rafał Zaorski is keen to receive the funds constituting the price for the announced shares in the apartment as soon as possible.

In legal terms, is the “Epic Flip” really as “epic” as the content of its website would imply?

Possibility of selling 20,000 shares in apartment No. 504 at 44 Złota Street

The law does not provide for a limit on the number of shares in the property nor on the number of co-owners. Therefore, in principle, there is no legal obstacle that would prevent dividing residential premises into 20,000 shares.

Nor are there any legal obstacles to the disposal of such interests in the property. The right of ownership actually does confer such powers. The sale of the property requires the form of a notarial deed, which means that all persons who are parties to the transaction, namely Rafał Zaorski and the potential buyers (or representatives appointed by the parties to the transaction), must appear at the notary’s office. This undoubtedly poses a major logistical challenge for Rafał Zaorski (or his representative), who will be a party to any such notarial deed, the notary public, and the land and mortgage register court, which will then register the new owners. However, despite the time-consuming and costly nature of this venture (as it will require covering notarial costs and the cost of entries in the land and mortgage register), it is feasible.

Does this mean that the remaining owners of the 290 or so apartments in the prestigious location at 44 Złota Street have no rights in relation to the planned sale of apartment No. 504 to up to 20,000 new co-owners? Is the right to property and the ability to administer it absolute? In his social media posts, Rafał Zaorski reported that he had already met with the first negative reactions from neighbours at 44 Złota Street. However, an action by the local community that would yield tangible legal effects at this stage may not be feasible.

The 44 Złota Street Homeowner Association has already spoken on the matter, issuing a statement that it has put to a vote a resolution to agree to bring an action against Rafał Zaorski for the forced auction of apartment No. 504. While it is true that a forced auction of premises is possible under the current law, the statutory requirements must be fulfilled first in order for it to take place. These requirements include the following grounds:

(1) prolonged arrears in the payment of charges due on the premises or

(2) gross or persistent violation of the prevailing domestic order or

(3) making the use of other apartments or common property a nuisance as a result of the person’s misbehaviour.

However, bringing an action for an enforcement sale of the apartment is a last resort when other, non-judicial methods of dealing with a landlord causing a nuisance have failed. It can be presumed that the 44 Złota Street Homeowner Association plans to base its potential claim on the last two grounds cited above. Nonetheless, it would rather be difficult to demonstrate at the current stage of Rafał Zaorski’s project that his behaviour has grossly inconvenienced other residents of the building or prevented them from using the common property. It is not even known whether this will be the case, as the system of using apartment No. 504 by the co-owners of the 20,000 shares has not been established so far. Blocking Rafał Zaorski’s right to dispose of his interest in the property owned by him through an auction sale (at a time when he himself wants to dispose of the property) is therefore unlikely. Under civil law, the mere intention to perform a legally permissible act is not sanctioned. Such a claim would only be possible once Rafał Zaorski’s intention to sell 20,000 shares in apartment No. 504 has been realised and the conditions indicated above have been met. However, the defendants in such a case would in principle be the new co-owners of the apartment and not Rafał Zaorski himself.

In my opinion, at the current stage, the owners of the apartments at 44 Złota Street are not entitled to assert a claim that they could effectively pursue in court, which means they have no way to effectively stop the implementation of Rafał Zaorski’s concept by way of legal proceedings. Rafał Zaorski has the right to sell the shares in the property he owns, and it is irrelevant in the legal context of such an action whether there are only a few or tens of thousands of such shares. In this respect, the law is on the side of Rafał Zaorski and cannot be restricted.

Admittedly, the social experiment in question and, in fact, the agreements concluded for the sale of shares in the property may be questioned as being contrary to the principles of social coexistence. However, this argumentation, too, can only be invoked after the disposal of the interest in the property. Such an action will therefore only be possible after the disposal announced by Rafał Zaorski of 20,000 shares in apartment No. 504 or at least part of those shares. The ground of being contrary to the principles of social coexistence is very difficult to demonstrate and, due to its evaluative nature, courts are reluctant to use it. Nevertheless, the attitude of the seller of the shares himself, Rafał Zaorski, who explicitly calls this venture a social experiment aimed at exploring where the boundaries of property rights lie, may prove helpful in this case. Therefore, it cannot be ruled out that a court would consider the finalised sale of the shares in apartment No. 504 a manifestation of an abuse of subjective rights and an exercise of the property right in a manner contrary to its socio-economic purpose, infringing the rights of the other owners. It is conceivable that, following the sale of part of the shares in apartment no. 504, the owners of the remaining apartment at 44 Złota Street could apply for injunction to prevent further resale of shares in the apartment by Rafał Zaorski by prohibiting him from continuing selling his shares in apartment no. 504.

Finally, in the event that the shares in apartment No. 504 were to be sold, the neighbours could attempt to challenge Rafał Zaorski’s actions by claiming infringement of possession and demonstrating the adverse effects (nuisance) they suffer as a result of the fragmentation of the ownership of apartment No. 504.

Use of apartment No. 504 and the common parts of the property by the new co-owners

The sale of 20,000 shares in apartment No. 504 raises questions about the logistics and practical aspects of managing access to the property. How, an actually to what extent, will the co-owners be able to use the apartment? Will any booking or rotation systems be introduced? “Epic Flip” will undoubtedly result in problems related to the issue of common property ownership, the exercise of management and possession.

Rafał Zaorski had already communicated that it would be impossible for all co-owners to stay in apartment No. 504 at 44 Złota Street at the same time – primarily for security reasons. Technical specification shows that the apartment has 2 escape routes that can accommodate 150 people each. Accordingly, it can accommodate a maximum of 300 people at any one time. 

The originator of the social experiment in question therefore came up with an initiative, used as a standard in cases where several co-owners need to manage a commonly owned property. Namely, he proposed the conclusion of a quoad usum agreement for the division of the co-owned property for the purposes of its use, which, in principle, sets out how the common property is to be managed. If such an agreement is concluded, each co-owner is still guaranteed the right to use his or her property, with the obligation to do so within the scope resulting from the quoad usum agreement. Such an agreement is to be concluded together with the share purchase agreement. Rafał Zaorski proposed the first draft of the quoad usum agreement on social network X, encouraging its joint, public drafting. Subsequently, a model for such an agreement was posted on the “Epic Flip” website. It is clear from this model that the management of apartment No. 504 will be carried out by an appointed board. The maximum number of members of this board (after Rafał Zaorski, who is to be the first board, ceases to hold office) will be 20 people, 11 of whom will be selected from among the co-owners holding at least 10 shares. This means that the actual use of apartment No. 504 will be decided by a narrow group of majority co-owners. Importantly, a number of activities relating to the use of apartment No. 504 is to be subject to the consent of this board, such as the co-owners staying at the apartment at night, renting or lending the flat in part or in whole, or bringing in and consuming alcohol there. At this point, the proposed provisions of the quoad usum agreement are general and relate to the standards that must be maintained concerning the use of the apartment. In the model agreement, each co-owner (including co-owners with just 1 share) is guaranteed full right of co-use and co-ownership of the apartment and the right to enter and stay in apartment No. 504 without limitation. The only reservation made in this respect concerns the aforementioned rules, namely the number of occupants on the floor must be in accordance with the law and the internal rules and regulations of the 44 Złota Street Homeowner Association in Warsaw. The quoad usum agreement therefore does not dispel any doubts as to how access to apartment No. 504 will actually be regulated. However, compliance in terms of its implementation is to be ensured not only by contractual provisions, but also apparently also by the security services provided for apartment No. 504 (the costs of which Rafał Zaorski has undertaken to cover for the duration of his function as the board) and the CCTV installed in the apartment. However, enforcing a quoad usum agreement by all co-owners of the property can prove challenging in this case.

With regard to the charges due for apartment No. 504, Rafał Zaorski reported that the monthly rent including utilities would be approximately PLN 20,000. Who will therefore be liable to pay these charges when 20,000 shares in a property are sold? As far as the expenses and charges for the maintenance of the common property are concerned, they are charged to the owners of the apartments in relation to their shares. The same is true for utility charges. The amount of these fees will therefore depend on how many shares in Rafał Zaorski’s apartment are actually purchased by the entity in question. Undoubtedly, with the number of co-owners that would the shares of apartment No. 504, envisaged by the originator, it will be necessary to delegate a person (presumably someone from the board) who will be responsible for paying the bills and enforcing their payment against the co-owners – which may prove to be yet another challenge in this project.

While it is true that Rafał Zaorski has committed to pay the rent for three years ahead, this declaration relates to the rent, the amount of which is known to him at this point. However, it should be borne in mind that the charges associated with the use of the common property by the co-owners may increase significantly in this case. Apartment No. 504, which may become co-owned by a significant number of people, will undoubtedly generate greater costs than it currently does or greater inconvenience for the other residents of the building at 44 Złota Street. The legislation provides for the possibility for a homeowner association to adopt a resolution increasing the charges for a particular apartment if the manner of its use justifies it. Therefore, if such an apartment, in this case apartment No. 504, causes increased maintenance costs for the entire common property (e.g. increased cleaning expenses), the association is entitled to increase the service charge rates for such an apartment. Such a resolution could therefore also be a form of response by the 44 Złota Street homeowner association to Rafał Zaorski’s experiment. As far as property tax is concerned, however, all co-owners will be jointly and severally liable to pay it.

As in the case of ‘standard’ co-ownership of a dwelling, also in this case the co-owners will also have voting rights at homeowner association meetings. However, based on the assumption that there is one vote per apartment, the new co-owners will have to appoint a representative to vote in their name. Such a representative will be appointed by a majority of votes counted according to the size of the shares in the co-ownership of the apartment.

From the perspective of the new co-owners, the common parts of the property at 44 Złota Street may also appear very attractive and further encourage them to acquire a share in apartment No. 504. For example, the building at 44 Złota Street has access to a 25-metre swimming pool and a jacuzzi on the 8th-floor terrace open all-year round. Although, as a general rule, each co-owner of an apartment may use the common parts of the building in which the apartment is located, the use of common parts of the property such as the swimming pool, sauna, wellness and fitness areas is regulated by quoad usum agreements or internal rules and regulations of homeowner associations. Judging by information available on the “Epic Flip” website, it appears that the building at 44 Złota Street has such rules and regulations of the homeowner association established. It is, therefore, likely that the rules and regulations stipulate the possibility and the rules for the use of the common parts and that the co-owners of apartment No. 504 may, in practice, have difficulty accessing the attractive facilities and amenities located at 44 Złota Street. Moreover, the 44 Złota Street homeowner association may, as a result of the news concerning the “Epic Flip”, attempt to amend the rules and regulations for the use of the common parts of the property to accommodate the new challenges posed by the possible emergence of a large group of co-owners of apartment No. 504.

Rafał Zaorski’s “Epic Flip” opens up new horizons in terms of thinking about luxury real estate. Based on the originator’s concept, apartment No. 504 is to serve not only as a residential space, but above all as a place for establishing community and creating experiences. The commercial objective therefore overrides the residential objective in this case. It is also undoubtedly an innovative marketing strategy that attracts a lot of attention from the media, but also from potential stakeholders. This action may even inspire other investors or developers to look for new and creative ways to promote their properties. Ultimately, it may be the case that the “Epic Flip” will be mainly a test for marketing strategies and not just for property rights.