Main legal enactments in the field of real estate in 2008
by Colliers International
Basic Forms of Title
With some exceptions, land may be owned, used and transferred freely in Romania, without any restriction as to the surface area of the land. To be valid, all transfers of land, irrespective of the legal nature of the agreement (e.g. sale and purchase agreement, donation, etc), must be notarised. Any interested person may request a court to declare an agreement null and void. Prior to notarisation, a notification must be sent to the fiscal land record and the land registry. The notary public will not notarise the transfer if any inconsistency comes to light concerning the land's status.
Other forms of property right less than full ownership are usufruct, use, surface right (somewhat more than a lease), servitude and habitation - all in rem rights. Notarisation is not required for agreements regarding these special rights. Long-term leases are common for commercial purposes, although a land lease is insufficient for the purposes of obtaining a building permit. In such cases, a surface right is granted. Restituted land may be subject to restrictions on transferability for a period of time, and certain limits exist on the amount of agricultural and forest land that may be owned by a person as a result of the restitution process.
Acquisition of real estate by foreigners
Following Romanian legislation in this area (Law 312/2005) as from January 1, 2007, EU nationals and legal entities, as well as EU-domiciled stateless persons with established residence in Romania, can purchase/acquire land on the same terms as Romanian citizens. With regard to agricultural or forest land, farmers acting independently, being EU nationals or stateless persons domiciled in Romania or stateless persons domiciled in EU with Romanian residence, can make acquisitions as from January 1 2007, on condition they do not change the land use.
Non-resident EU citizens and EU legal entities may acquire land after a five-year (5-year) transitional period and agricultural and forest lands after a seven-year (7-year) transitional period calculated from January 1 2007. Non-EU foreign persons and legal entities may acquire land in Romania in accordance with international treaties, based on reciprocity. All foreign persons, regardless of nationality or residence may directly fully own buildings, without owning the land underneath. In practice, in such cases a surface right is granted whereby the foreigner will benefit from the ownership title to the building and the right of use of the land.
EU citizens and other foreign persons may acquire land by way of inheritance. However, as foreigners are not allowed to own land in Romania, they are obliged to sell it and take the proceeds.
Nonetheless, notaries public in Romania are still reluctant to notarise the acquisition of land with foreign persons, regardless of the applicable legal provisions. Hence it is an accepted and common practice in the Romanian real estate market for foreign persons to own land indirectly through legal entities incorporated in Romania, even if such entities are wholly owned by a foreign entity or person.
All acquisitions of real property and other in rem rights must be registered in the real estate register (Land Registry) kept by the local office of the Agency for Cadastre and Real Property Publicity of the Ministry of Administration and the Interior. Registration of a change in ownership normally takes at least one week. However, it is expected that the introduction of computerized databases and Internet access will make the Land Registry far more efficient and reliable in the future.
Dispositions of real property may trigger the payment of (i) 16% profit tax if the seller is a company (other than those designated as microenterprises), charged on the capital gain computed on the fiscal value of the real property, (ii) transfer tax calculated at the transaction value if the seller is a natural person (the tax ranges between 1% and 3% depending on the transaction value and period of ownership). The notarisation of sale-purchase contracts involving real estate is free of stamp tax.
While certain standard requirements exist for residential lease contracts, landlords and tenants are largely free to negotiate most aspects of both residential and non-residential leases. Rent may be freely agreed by the parties. There are no rent control laws, although a few categories of persons still benefit from state-subsidized housing. Romanian law does not set a minimum or maximum term for leases but nevertheless sets forth some rules. For instance, hereditary leases are forbidden, and leases cannot be perpetual. Foreigners may directly lease property, but a lease that could be characterized as an effective sale (e.g. a 90-year lease) would certainly be invalid. Lease agreements exceeding three (3) years and concession agreements should be registered with the Land Registry.
Former owners whose property was nationalized under the communist regime were entitled to seek restitution under several laws, so long as they provided adequate supporting documentation and no compensation was made at the time of confiscation. Key but disputed provisions are contained in Law 10/2001, regarding real estate abusively taken over by the state between March 6, 1945, and December 22, 1989, which became the over- arching framework governing the restitution process and leaving very few cases to be settled in accordance with other legislation, in particular the Romanian Civil Code. The provisions completing the internal legal framework are meant to be applied to the extent international agreements and human rights treaties do not provide otherwise. Notwithstanding this general rule, Romanian case - law has frequently been inconsistent with the case- law of the European Court of Human Rights. Most types of claims should have been filed by the cut - off date of February 14, 2002, and supporting documentation by the date of resolution of the claims. Many of these restitution claims are still pending before competent authorities or the courts and are likely to take years to resolve conclusively.
Regardless of the special-purpose laws, such as Law 10/2001, some claimants have relied on the Civil Code and sometimes Romanian courts have appeared sympathetic to such claims. This situation has generated uncertainty and significant adverse consequences for citizens' rights as well as for investors' business interests.
However, the property situation in Romania is constantly improving, subject to a decisive process of clarification A recent appeal of the General Prosecutor's office may lead to clarification of the issue on whether Civil Code claims are acceptable for the courts.
Notaries and notarial fees
Mortgages, transfers of real property and granting of other in rem rights must be certified by a notary public. The fee charged for the service rendered by the notary public is negotiable depending on the transaction value, and in case of real property transfers, generally ranges from 0.5% to 2.5%.
As a general rule, documents may be executed in any language. However, documents involving real estate, including sale-purchase contracts, long-term leases and mortgages, are normally executed and notarised in Romanian. Filings with Romanian authorities, including enclosures, must be either executed as originals in Romanian or translated into Romanian by a translator duly authorised by the Ministry of Justice.