Real Estate in Romania

08.30.2013 ZF English

ZF English presents, in partnership with Big 4 consultancy firm KPMG, Investment in Romania, a report that includes all the data needed by an investor looking to start a business in Romania.

According to the Romanian legal system, private property may belong to individuals, legal entities and the state (or local administrative units), while public property may belong exclusively to the state or the local administrative units (counties and municipalities). Public property may not be transferred to other legal entities or individuals and generally cannot be subject to any commercial transactions, but it may be granted for management purposes to state autonomous companies and public institutions under concession or it can be leased to legal entities or/and individuals, subject to the provisions of the Public Property Law (no.

213/1998, as amended), Government Emergency Ordinance no. 54/2006 on the legal status of public property and concession agreements and Government Emergency Ordinance no. 34/2006, as amended, on public procurement and concession agreements.

Publicly owned land may not be transacted, while private land belonging to the State or to local administrative units can be traded provided that relevant procedures are performed.

Transfer of real estate

Real estate in Romania may be freely transferred, subject to certain procedural formalities and legal restrictions.

On 1 October 2011, Law 287/2009 on the New Civil Code came into force. As of that date, a new rule became applicable in relation to the transfer of real estate in Romania. Thus, the right of property or to any immovable assets may be acquired via registration in the Land Book (with certain exceptions expressly stipulated under the law).

The registration should be based on (i) Notarized written agreements attesting transfer of ownership, (ii) Irrevocable court rulings, (iii) Inheritance certificate or (iv) Other documents issued by the administrative authorities.

However, under Law 71/2011 on the implementation of the New Civil Code, these provisions on ownership registration in the Land Book become applicable only after completion of cadastral measurements in each territorial unit and after the creation of land books for the immovable assets in question (which is expected to occur in minimum 2 years).

If real estate rights, other than a property right, are acquired, such as easements, usufruct, right of superficies etc, such rights may also be granted only under notarized documents and further to their registration in the Land Book.

Property rights may also be acquired: (i) By “accession” i.e. anything that is added by another party to a landowner’s property, for instance, planted in or built on the land in question, will be presumed to belong to that landowner (ii) By prescription, following the lapse of a certain period of time.

According to the Romanian Constitution, foreigners and legal entities are allowed to own land in Romania under the conditions set out following Romania’s EU accession or resulting from international treaties, on a reciprocity basis, under the terms and conditions set out by internal laws, as well as via legal inheritance.

Law no. 312/ 2005 provides that foreign individuals and legal entities from EU member states will be entitled to acquire and own farming land, forests and forest land in Romania seven years after Romania’s EU accession, i.e. from 1 January 2014.

As of 1 January 2012, the 5-year term prohibiting the acquisition of land for secondary residences or offices by individuals and legal entities from EU member states who are not residents of Romania has lapsed. Consequently, this restriction has now been lifted. There are however pending discussions and inconsistent practice as to whether the foreign entities mentioned above (i.e. non residents at the time of Romania’s EU accession) may currently own any land (except for the agricultural land covered by the 7-year term) or  only land for secondary residences or offices.

Nevertheless it is a common practice for foreign individuals/legal entities to acquire land indirectly through corporate vehicles set up in Romania.

However, there are no restrictions on the acquisition of buildings by foreign individuals and legal entities and consequently, they have a right of use of the land on which the building has been erected (under the New Civil Code the right to use the property may be granted for at most 99 years). In addition, foreigners may also benefit from a usufructuary right to land located in Romania.

Law no 247/2005, on property and justice reform sets out significant limitations on the transfer of ownership over built / un-built land subject to restitution claims/notifications and/or disputes pertaining to the legitimacy of the title.

Land registration

As mentioned above, under the New Civil Code provisions, ownership right over any immovable assets (with certain exceptions expressly stipulated under the law), is acquired via registration in the Land Book. Similarly, ownership right over an immovable asset is extinguished via de-registration from the Land Book.

However, until the rule above becomes applicable, registration with the Land Registry is made for enforceability purposes. Thus, registration of property titles in the Land Books kept by the local offices of the Agency for Cadastre and Land Registration makes the ownership right public and enforceable against third parties, i.e. registration is presumed to be accurate and complete until otherwise proven. Registration with the Land Registry does not guarantee a potential invalidation/nullity of a deed of transfer.

Another role played by the Land Registry is to keep a record of all mortgages and other real estate collaterals and liens covering a certain property. Under Law no 7/1996 on real estate publicity, any interested person is entitled to obtain a land book excerpt from the Land Registry for information purposes (“open door policy”). In order for sale purchase agreements to be notarised, authentication excerpts issued by the Land Registry must be obtained. This document, which is valid for only 10 days after it has been requested, typically provides such information as to who the owner is, the assets and surface owned, whether there are any mortgages, privileges, easements or encumbrances, etc. However, this excerpt is not an absolute proof of ownership. Therefore, the performance of a legal due diligence to validate title to the property to be acquired is strongly advisable.

Fiduciary agreements

As of 1 October (the date when the New Civil Code came into force), a new institution became applicable in Romania – Fiduciary Agreements.

Fiduciary agreements create the possibility for any person to transfer rights, property rights included, to one or several fiduciaries to exercise such rights for a predetermined purpose, for the benefit of one or several beneficiaries. In order to be validly concluded, the agreement must be signed in notarized form and must give details about the rights transferred, term of transfer, identity of the parties involved, as well as the purpose of the fiduciary agreement and the extent of the fiduciary’s powers of administration and disposition of property.

The obligation to register the fiduciary agreement with the relevant tax authorities to enable them to assess the amounts due to the state budget falls to the fiduciary.

In order to be opposable to third parties, fiduciary agreements must be registered with the Electronic Archive for Secured Transactions. Property rights forming the object of fiduciary agreements must also be registered in the Land Book.

Restitution of land

Following the enforcement of the restitution laws, currently around 90% of the agricultural land in Romania is privately owned and, according to some sources, the percentage is even higher for land located inside city limits.

The main legal provisions governing land restitution are Law no. 18/1991, Law no. 1/2000, Law no. 10/2001, and Law no. 247/2005, as subsequently amended.

As a general rule, former owners benefit from restitution in kind of their former properties, while restitution in cash equivalent is an exception. However, under the amendments made to Law 10/2001 in 2008, real estate sold under a sale-purchase agreement under Law no. 112/1995 is no longer returned to its former owners, who are entitled to receive only adequate compensation.

Even if claimants potentially entitled to file restitution claims under specific restitution laws (such as Law no. 10/2001) have not asserted such claims, under the Romanian Civil Code they are theoretically entitled to reclaim their former properties, without any statute of limitations being applicable. Nevertheless, a high burden of proof is required in such legal actions and according to general rules; such claims are not admitted if previous claims have been filed by the same individuals/their successors under specific restitution laws.

One of the solutions adopted by the Romanian Government for property restitution was the establishment, under Title VII of Law No. 247/2005 and Government Ordinance 1481/2005, of Fondul Proprietatea SA., to ensure the financial resources required for the indemnification of individuals whose property was expropriated by the communist regime. Indemnification is in the form of shares issued by Fondul Proprietatea SA, representing the updated value of a property that cannot be returned in kind to the entitled persons who thus become shareholders in Fondul Proprietatea SA. The market value of these shares was set after Fondul Proprietatea S.A. was listed on the stock exchange in January 2011.

Concession of Public Property

According to Government Emergency Ordinance no. 34/2006 and Government Emergency Ordinance no. 54/2006, public works, services and/or goods representing public property of the state or its administrative units can be subject to concession.

Such concession rights can be acquired under a public tender or by direct negotiation and can be granted for a period of up to 49 years, during which the concession beneficiary must make investments and develop the property under concession. A concession agreement may be extended for a maximum period equal to half of the initial concession term.

By way of exception and only for a limited period, public authorities may grant non-profit making legal entities or public services companies the right to use public property, free of charge, under certain conditions.

Financing Real Estate Investments - Law 190/1999 on mortgage loans, as amended

Aimed at encouraging real estate developers, this law lays down special rules on loans for real estate investments, derogating from the common rules. However, the provisions of the New Civil Code and the Civil Procedure Code remain applicable as a general regulatory framework governing credits and security interests.

Thus, mortgage loans are granted by institutions authorized to finance the construction, acquisition, renovation or extension of real estate with a residential, industrial or commercial purpose.

Loans must be secured by a mortgage set on the building which is being financed or on equivalent properties. Moreover, a mortgage may also be set over future real estate. This mortgage may be registered in the Land Book provided that the building permit and a protocol attesting partial handover of the building under construction have previously been registered in the Land Book.

The law also sets out specific protection rules for borrowers, such as the possibility of an advance repayment or negotiation of the interest rate.

To encourage capital investments in the real estate market, the law allows for the possibility of transferring mortgage receivables.

Developing Real Estate

Development of real estate projects is subject to specific legislation (mainly Law no. 50/1991 on the authorization of construction works and its Application Norms) under which certain authorizations must be obtained from public authorities. Thus, in the case of construction sites, developers must obtain an urban planning certificate and a building permit. The urban planning certificate must be obtained before the building permit. In general, the urban planning certificate contains the list of special permits and/or approvals to be obtained before starting the project, as well as information concerning the location, current landowners, rights in favour of public utilities, zoning conditions and general conditions concerning the constructions to be built (such as air rights etc). Among such requirements it is also stated that the builder should, as a general rule, perform an assessment of the environmental impact of the project (including organizing a public consultation). However, the law stipulates that this assessment is not required to obtain a demolition permit. 

Once the conditions provided under the urban planning certificate have been met, a building permit must be obtained. The permit is issued by the local authorities and lays down the specific conditions for the construction site in question.

In addition, depending on the activity to be carried out in the built area, specific authorizations may be required (for utilities etc).

Other legislation with potential impact on the real estate market

According to Law 372/2005 on the energy performance of buildings, which took effect on 1 January 2011, a sale/acquisition/lease of buildings can be made only provided that an energy performance certificate is obtained. However, as the law does not provide any sanction/penalty for the absence of such a certificate at the acquisition date (for instance, it may not render the agreement invalid), in practice this document is not requested. However, if the buyer/lessee requires an energy performance certificate, the seller must provide one.

In November 2008, Law 260 on the mandatory insurance of buildings was published in the Official Journal of Romania. Even though this law became applicable only in 2011, currently all owners of buildings (with certain exceptions, e.g. those who have concluded an optional insurance policy covering the same risks) are required to conclude these mandatory insurance agreements.

 

Source: KPMG - Investment in Romania report (May 2013)
For more information about investing in Romania, see the rest of the report.