Экзамен зачет учебный год 2023 / 26 Romania

THE

REAL ESTATE LAW REVIEW

EDITOR

DAVID WATERFIELD

LAW BUSINESS RESEARCH

The Real Estate Law Review

Reproduced with permission from Law Business Research Ltd.

This article was first published in The Real Estate Law Review, 1st edition (published in April 2012 – editor David Waterfield).

For further information please email Adam.Sargent@lbresearch.com

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Silvia Popa and Ionuţ Sava 1

I INTRODUCTION TO THE LEGAL FRAMEWORK

Romanian law recognises exclusive ownership, co-ownership and time-shared ownership. An exclusive owner will generally have full enjoyment of the property and bear all related obligations. In contrast, co-ownership means that each co-owner holds a share of the ownership right and may freely dispose of his share. The co-owners enjoy the benefits and bear the obligations related to the property pro rata with their ownership share. Each co-owner may act to preserve the asset, without requiring the consent of the others. On the other hand, use and management of the asset will generally require the consent of the other co-owners, while disposition acts affecting the entire asset require at all times

the consent of all co-owners.

Time-shared ownership is newly introduced by the Civil Code entering into force on 1 October 2011. It refers to exerting ownership over an asset, successively and repeatedly, at determined time intervals – equal or not, by different persons. Investors may be interested in this when deciding their business plan in respect of development of holiday residences.

The recommended choice for the investor for development of projects is to hold the exclusive ownership, granting it full control over the asset in question and over the development thereof.

From a different perspective, depending on the envisaged development, investors may be interested in acquiring or gaining title to public assets (i.e., assets owned by public (state) entities). Public assets are part of the public domain or the private domain, depending on the interest they are deemed to serve. Assets in the public domain cannot be sold, unless they are previously transferred to the private domain; however, investors may obtain concession rights to such assets, following a mandatory tender procedure.

1 Silvia Popa and Ionuţ Sava are attorneys at law at Schoenherr si Asociatii SCA.

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Assets in the private domain may be sold, leased or conceded but only by undergoing a public tender process.

Romania established a nationwide land registration system of real estate in 1996. Prior to this date, two systems of land registration were in force: the land register system (a property register system) valid in the regions that used to be part of the AustroHungarian Empire before the First World War2 and the inscriptions and registration system (a proprietorship register system), valid in the remaining regions of the country. Land Registers are currently being set up for all properties that have not previously been registered in land registers.

According to the general cadastre system established by Romanian law, all real property is identified by a cadastral number and registered in a land register.

In accordance with the provisions of the new Civil Code, real rights over properties are to be established between the parties and towards third parties only by way of registration in the land register. In other words, registration in the land register becomes a condition precedent for ownership or other real rights to be validly transferred (except as otherwise provided by the law). This provision will enter into force only after completion of the cadastral works for each administrative-territorial unit and to the legal acts and facts concluded or occurring after the entry into force of the new Civil Code. The constitutive effect of the registration or deletion of a real right the from land register is one of the major changes brought by the new Civil Code.

Possession, ownership and other real rights over property, including real warranties, are governed by the law of the state where the property in question is located. Consequently, even if the parties to a transaction are in principle free to choose the law applicable to contracts they enter into, insofar as they contract in respect of property located in Romania, the foregoing will be governed by Romanian law. In addition, in order for the parties to be allowed to choose a foreign law as applicable, the transaction must contain a foreign element (e.g., one of the parties is a foreign national).

II OVERVIEW OF REAL ESTATE ACTIVITY

As a general remark, the real estate investment market is not expected to drastically reinvigorate during 2012. Nevertheless, the real estate sector will develop as a component of projects that focus in other fields, such as energy, infrastructure or health care.

Investments (in particular private ones) are expected to continue for the development and construction of renewable energy parks. Further, it is expected that public investments in infrastructure will continue in 2012 and are likely to be an important aspect for the development of construction companies. In addition, 2012 may see private investments in the health-care sector as well.

2 Banat, Transylvania and Northern Moldova.

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IIIDEVELOPMENTS IN REAL ESTATE PRACTICE

iEntry into force of the new Civil Code

The most notable development in real estate law was the entry into force, on 1 October 2011, of the new Civil Code. The new Civil Code brings long-awaited changes, some in line with the case law and academic writings previously supplementing the gaps in the old code, some settling old disputes and some bringing innovations to the Romanian system as a whole.

As a general rule, the new Civil Code applies to agreements concluded after 1 October 2011, whereas the agreements concluded before 1 October 2011 will still be governed by the law in force at that time. Certain distinctions or exceptions of interest for real estate law regard (liability for) hidden defects, status of sold assets, and disagreements between parties on the quality of the asset sold.

As mentioned in Section I, supra, one of the major changes brought by the new Civil Code refers to the constitutive effect of the registration of the real rights with the land register; however, this change will only be applicable at a later time (which has yet to be announced).

Real rights are better and uniformly regulated, the right of superficies being coherently regulated for the first time in Romanian law.

In respect of real guarantees, the new Civil Code brings in new contractual structures. It is provided that the mortgage or the rank of the mortgage may be assigned independently of the guaranteed receivable, when the amount for which the mortgage was established is precisely determined in the document establishing the mortgage. The assignment must be made in written form, between the assignor creditor to the assignee creditor, and the debtor must be notified accordingly.

In addition, recent changes to the Cadastre and Real Estate Publicity Act3 provide that the assignee of a receivable guaranteed with a mortgage may request the transfer of the mortgage registered with the land register on the basis of the assignment deed concluded in notarised form. If the receivable guaranteed with a mortgage was, in its turn, pledged, the debtor may raise against the beneficiary of the pledge the defences that it may have claimed against its creditor, if such defences were based on causes that occurred prior to the notification or consent to the pledge of the receivable.

In terms of real estate management, Romanian law recognises the regulation of trusts, a common-law concept increasingly used in civil law systems. Any person may grant the trust, while in order to avoid money-laundering and tax evasion the trustee must be a credit institution, a financial investment company, or a notary public or attorney at law.

Regulation of construction contracts has become more detailed in terms of the parties’ rights and obligations, as well as their responsibilities. In particular, there is stricter regulation on amendment of the price and the new provisions on the contractor’s obligations to inform the employer. These aim to ensure parties’ performance and to limit cases where fault for non-performance and risk allocation are difficult to determine.

3 Law No. 7/1996.

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ii Amendments to Law 350/2001 on planning and urbanism

Law 350/2001 has been amended with the aim of:

aclarifying the duties and responsibilities of the public administration;

breducing the practices of derogatory planning that have caused environmental issues and have triggered numerous litigations affecting the legal safety of the investments;

celiminating the practices of changing the existing planning documents in order to make compliant illegal buildings, those constructed without a valid building permit or those in breach of the issued building permit; and

dclarifying the modality of prolongation of the general town plan (PUG).

iii Government Decision No. 135/20114

Government Decision No. 135/2011 (‘GD135’) has been issued for the implementation of certain provisions of the Energy Act.5 Based on the Energy Act, the holders of permits for operation of renewable energy parks benefit from certain rights over neighbouring lands, for purpose of easier access to and maintenance of the equipment. GD135 establishes the terms and conditions under which the owner of the park may exercise these rights, in particular by concluding agreements with the owners of the affected lands. GD135 provides a template agreement as well as criteria for establishing appropriate compensation for the owner of the affected land, thus giving investors an effective instrument with which to establish and exercise their rights.

IV REAL ESTATE AND FOREIGN INVESTMENT

Nationals of Member States of the European Union or of the European Economic Area (‘Member States’) or stateless persons having their lawful residence in a Member State, but who do not reside in Romania, may acquire ownership over non-agricultural land in Romania under the same conditions as Romanian citizens and legal entities. On the other hand, these individuals may only acquire agricultural lands, forests and forestry lands after seven years from the date of Romania’s accession to EU (1 January 2007).

Other foreign citizens, stateless persons or legal persons registered in other countries may acquire ownership right over lands under the conditions established by international treaties, on a mutual basis; however, such parties may not acquire ownership to land in Romania under conditions more favourable than those available to the nationals of a Member State.

Nevertheless, companies having their registered seat within Romanian borders (thus having Romanian nationality) may freely acquire land, even if their share capital is entirely foreign. In addition, non-Romanian citizens and legal entities may freely acquire

4Government Decision No. 135/2011 for the approval of the procedural rules concerning the terms and conditions regarding the duration, content and limits for exerting the use and easement right over private properties affected by energetic capacities, of the framework convention, as well as of the procedural rules for establishing the amount of the price and of the damages and their payment.

5Law No. 13/2007.

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buildings and the right to use the land such buildings are located on (e.g., by obtaining a right of superficies over the land).

V STRUCTURING THE REAL ESTATE INVESTMENT

When assessing the structures to be used for an investment project, the most common options available to an investor would be (1) to conclude the transaction as a share deal, meaning that the investor is buying into the share capital of the company, becoming a full or part owner of the target company or (2) to conclude the transaction as an asset deal, where the investor acquires all or some of the assets of the company rather than the shares. If the interested parties are natural persons, option (2) is the easiest way to proceed.

Where the potential seller is a company or a special-purpose vehicle, the most common type of company used is a limited liability company. This is mainly due to the rather flexible rules on corporate governance applicable to limited liability companies and the relatively uncomplicated incorporation procedure.

If the seller is a legal person, when assessing both options above, investors will look at structure specific risks, as well as tax-efficiency. As such, one of the risks of a share deal may be the unknown liabilities in the target company; in the case of a share deal, all these liabilities would ‘remain’ in the company (and, hence, would be taken over by the investor), whereas in the case of an asset deal these liabilities would remain with the selling company.

In addition, in cases where the purpose of the acquisition lies in the specific development envisaged, transferability of permits will be an important assessment factor. As such, in cases where some or all of the permits are not transferable, a share deal may be preferred to a more complex structure where the asset is transferred and permits are assigned or renewed.

While from the investor perspective, at first glance, there is no preference between an asset and a share deal in terms of taxation, the sellers may have a clear preference for a share deal. In this respect, the corporate tax applicable in case of an asset deal will generally be higher in value than the corporate gain tax, even though they are of the same percentage, given the difference in the taxable base. In addition, a share deal ensures that the sellers have immediate access to the purchase price, while in the case of an asset deal corporate rules on dividends and corporate profit would need to be observed, resulting in availability of the purchase price to the seller’s shareholders only at the end of the financial year.

Moreover, share deals avoid certain formalities and fees since they involve no transfer of title to real estate. In case of an asset deal, the transfer of real rights over real estate is subject to certain mandatory formalities (e.g., a notarised deed and, in the future, registration with the Land Register). In contrast, in the case of a share deal, transfer of shares is rarely made in notarised form, and there will be no (additional) registration with the land register. In general, where an asset deal is preferred, it is common practice for the purchaser to bear all notary fees and land registry taxes and VAT (if applicable).

Given the foregoing, in practice, each case should be considered separately by the investor, by assessing the following: (1) which party assumes the risks related to the transfer of the property, real estate contracts and permits; and (2) which structure will also be tax-friendly for the sellers (in order to avoid the sellers including any taxes they have to pay into the purchase price).

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VI REAL ESTATE OWNERSHIP

i Planning

Building is permitted only within built-up areas, on non-agricultural land and only with a valid building permit. Building on agricultural land (i.e., land that is part of the agricultural circuit) is in principle forbidden, with the exception of construction for agriculture, railways and important roads, high-voltage electricity lines, oil and natural gas exploitation works, main oil or gas pipelines, water management works and constructions intended for military use.

Land may be placed within a built-up area by the local authorities, upon request of the interested party. The latter will draft a zoning plan (‘PUZ’) and submit it for approval by the local authorities. Following the approval of the PUZ for the extension of the built-up area, the general plan is updated. When the land is in the agricultural circuit, the owner must proceed with an application to withdraw it from this circuit prior to requesting a building permit.

For the cases where the applicant requests a change of planning documents, the authority may:

areject the application;

bapprove the investment under the condition of the drafting and approval by the local authority of a PUZ;

capprove the investment under the condition of the drafting by the investor and approval by the local authority of a PUZ – for rather large investment projects (industrial parks, supermarkets, hypermarkets, transport infrastructure, etc.); 6

dapprove the investment under the condition of the drafting and approval of a detailed plan (PUD); or

eallow the drafting of the technical documentation, in cases where the neighbouring buildings have the same height, within a continuous already-built row of buildings.

ii Environment

Romanian law implements the ‘polluter-pays’ principle.

In accordance with the general regulations on environmental liability, any party7 shall bear the costs for the measures taken for the prevention and repair of environmental damages or the imminent threat of such damages, unless it can prove that

(1) the environmental damage or the imminent threat of such damage was caused by a third party and has occurred despite adequate measures having been taken, or (2) the environmental damage or the imminent threat of such damage was caused as the result of compliance with a mandatory instruction issued by a public authority.

6The investor may be the drafter of the PUZ only in cases where the proposed development will involve at least 10,000 square metres for residential properties or 5,000 square metres for commercial facilities.

7Any legal or natural person carrying out or controlling a professional activity or who has been granted economic powers over the technical functioning of such an activity or who is registered or notifies the performance of such an activity.

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iii Tax

A transfer tax for the conveyance of ownership (or components of the ownership right) over real estate is only applicable to sellers that are natural persons and will vary depending on the duration of ownership previous to the transaction. If the seller has owned the sold property for three years or less, the tax will be of 3 per cent of the purchase price, where such price is below 200,000 lei or of 6,000 lei + 2 per cent of the amount exceeding the 200,000 lei threshold, where the purchase price exceeds this amount. If the seller has owned the sold property for more than three years, the tax will be of 2 per cent of the purchase price, where such price is below 200,000 lei or 4,000 lei + 1 per cent of the amount exceeding the 200,000 threshold, where the price exceeds this amount.

VAT amounts to 24 per cent of the purchase price and is applicable to real estate transactions executed by natural persons when such natural persons act independently, conveying the ownership with the purpose of obtaining gains, and perform such activities on a permanent basis.

In respect of the transactions concluded by legal persons, as a rule, such operations are VAT-exempt; however, VAT must be paid for the delivery of new buildings, parts of new buildings, etc.

iv Finance and security

The most common form of security is the mortgage. Typically, the mortgage grants the holder (the mortgagee) the right to pursue the mortgaged property and to be preferred against other (non-secured) creditors in the event of foreclosure. The owner of the mortgaged property (the mortgagor), however, does not lose ownership or possession to the mortgaged property unless the mortgage is foreclosed.

The mortgage becomes effective by registration with the land register. A mortgage may be established over a future building, but will be subject to temporary registration in the land register until the building is finalised.

VII LEASES OF BUSINESS PREMISES

The lease of commercial premises is regulated by the general provisions on lease agreements. The parties may generally derogate from these provisions by way of contract.

Lease agreements may generally be concluded for a maximum term of 49 years. If no term is provided in the agreement, the lease is presumed to be concluded for one year for unfurnished premises, and for the time increment for which the rent was calculated, for furnished premises.

The rent and its indexation are freely negotiated by the parties. There are no legal provisions on the indexation of rent.

The lessor or landlord must hand over the asset, maintain the asset during the lease period by performing all necessary repairs (except for small repairs concerning the daily maintenance of the leased asset) and ensure ‘peaceful enjoyment’ of the leased asset.

The tenant must take over the asset, pay the rent, use the asset with due care and diligence and return the asset upon termination of the lease. The leased asset should be used in accordance with the purpose established in the agreement or, in lack thereof, in accordance with its nature or its previous use. If the lessee performs changes on the asset,

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changes the use of the asset, or uses the asset in such a manner that it causes damage to the landlord, the latter may claim damages from the tenant and, if appropriate, terminate the agreement.

The lessee must notify the lessor or landlord in respect of any required repairs, under the penalty of paying damages.

Sub-letting and assignment is allowed unless the parties agree differently. The prevention of sub-letting the asset includes assigning the agreement to a third party.

The lease agreement is usually terminated by the expiry of its term, without any notice requirement. If the tenant continues to use the asset without any opposition from the landlord, the agreement is considered renewed under the same conditions (including the guarantees), for an indefinite period of time (unless otherwise provided in the agreement). The parties may provide that the agreement is terminated in the case of the sale of the leased asset.

If the lease agreement was concluded for an indefinite period of time, the lease agreement may be terminated by either party by written notice. The notice is effective only after the expiry of the notice period.

Lease agreements concluded in notarised form or lease agreements registered with the fiscal authorities are directly enforceable in respect of the payment of the rent at the terms and modalities established in the agreement, and return of the leased asset, if the lease agreement has been concluded for a determined period.

VIII OUTLOOK AND CONCLUSIONS

The provisions of the new Civil Code will very likely influence all contractual structures in 2012 used for the real estate projects (acquisitions, lease, construction). Nevertheless, it will be interesting to observe the courts’ interpretation of the new provisions and institutions of the Civil Code.

The authorities have stated that during 2012 an integrated system for cadastre and land registry will be set up (currently at feasibility study stage), whereas in the first part of 2012 the works for the national cadastre will be started on the basis of a public– private partnership. Another public initiative refers to introducing an electronic registry for each notary public office.

Other aspects to be considered refer to the expiry of the five-year transitional arrangement (provided in the Treaty concerning the accession of the Republic of Bulgaria and Romania to the European Union).

Consequently, as of 1 January 2012, nationals of the EU and EEA Member States non-resident in Romania and companies formed in accordance with the laws of another EU or EEA Member State and being neither established nor having a branch or a representative agency in Romania may freely acquire ownership over land for secondary residences and secondary corporate seats, respectively.

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