Monia Dobrescu, partner at Muşat & Asociaţii, discusses real estate transactions in Romania.
What are the key regulatory frameworks governing real estate transactions in Romania?
The real estate transactions are mainly regulated by the following legislation:
- The Civil Code, which entered into force on 1 October 2011;
- Land Law No 18/1991, as further amended, supplemented and republished;
- Law No 50/1991 on authorisation of construction works, as further amended, supplemented and republished;
- Law No 10/1995 on quality in constructions, as further amended;
- Law No 7/1996 on cadastral works and the real estate publicity system, as further amended, supplemented and republished;
- Law No 10/2001 on the legal regime of real estate abusively taken over between 6 March 1945 and 2 December 1989, as further amended, supplemented and republished;
- Law No 350/2001 on territorial planning and zoning, as further amended and supplemented;
- Law No 17/2014 on several measures regulating the sale and purchase of agricultural lands located in the extra urban areas; and
- Law No 312/2005 regarding the acquisition of ownership rights over real estate by foreign citizens, stateless persons and foreign legal entities.
How does Romanian real estate law handle property ownership rights and title transfers?
According to Romanian law, there are two forms of property, namely public and private property. Public property is vested in either the State or territorial-administrative units, whereas private property may be held by the State, territorial-administrative units, or any natural person and legal entity.
Property rights include several attributes: possession, use and disposition, which can be cumulated or dismembered between several persons. Besides exclusive ownership, common ownership, where two or more entities hold interest in a property, is also feasible and manifested as either co-ownership, characterised by divided quotas, or joint ownership, where quotas remain undivided.
With respect to title transfers, the valid and lawful transfer of a real estate title may generally be accomplished by:
- transfer agreement authenticated by a notary public;
- donation;
- adverse possession;
- accession;
- public tender procedure; and
- court ruling.
Following the completion of the cadastral scheme for every local unit, property rights over real estate will be transferred only following registration of the transaction in the relevant Land Book. Until then, the registration is only enforceable against third parties.
What are the common legal pitfalls encountered in real estate transactions in Romania, and how can they be mitigated?
Frequent legal challenges in Romanian real estate transactions involve unclear property titles, zoning and land use issues, undisclosed encumbrances, discrepancies in property documentation, and environmental liabilities. Such risks may be addressed through meticulous due diligence, including thorough title searches, verification of zoning regulations, examination of encumbrances, and scrutiny of all relevant documentation. Establishing transparent contractual terms and seeking early resolution of any potential issues can help prevent escalation into costly disputes.
How does Romanian law regulate leases and tenancy agreements for commercial and residential properties?
The general legal framework for the lease agreement is the Civil Code which does not differentiate, in principle, between residential and commercial lease agreements, although residential tenants enjoy enhanced protection reflected for example in the right of pre-emption applicable to the sale of the premises in which they live. Nevertheless, agricultural leasehold agreements fall under specific legal provisions.
Romanian legislation provides a maximum duration of a lease agreement of 49 years, with no stipulated minimum. Should the parties agree to a longer duration, it will be automatically reduced to comply with the legal term. Moreover, the law does not require a certain form for the lease agreement. However, they are typically executed in writing as a matter of customary practice.
What are the legal considerations for foreign investors looking to purchase real estate in Romania?
Residents of the EU or EEA, whether individuals or companies residing in Romania, are entitled to acquire land under the same terms as Romanian citizens and companies. Non-EU or non-EEA residents, however, can only purchase land in Romania for the purpose of establishing a secondary residence or a registered office.
EU or EEA citizens and companies can purchase agricultural land or forests that are in the Romanian territory. Other persons and companies, and stateless persons domiciled in a non-EU country, have the right to purchase agricultural land outside the city limits under conditions governed by international treaties, based on reciprocity.
However, it is a customary approach for foreign investors to indirectly acquire and maintain real estate holdings through special vehicles in the form of legal entities under Romanian company law.
Can you outline the process for due diligence in a real estate transaction under Romanian law?
As a precautionary measure, before purchasing a property, buyers usually carry out real estate due diligence exercises covering legal, tax, technical and/or environmental matters in order to anticipate and reduce the risks associated with the transfer of the real estate. Buyers are mostly interested in analysing: (i) previous real estate documents, (ii) easements or liens, (iii) zoning certificates and building permits, (iv) financing and mortgage agreements, (v) tax certificates, (vi) property insurance, and (vii) energy performance certificates.
The lawyer’s responsibility involves suggesting suitable strategies to safeguard the real estate title and, when required, assisting the parties in implementing them.
What environmental regulations are pertinent to real estate development and transactions in Romania?
The ‘polluter pays’ principle governs the environmental liability in Romania, which means that the person responsible for the pollution is liable for the damage it has caused. If the buyer of a real estate asset did not cause the pollution or contamination, they need to prove that it was generated prior to the transfer of title, by the previous owner or tenant.
How does Romanian law address zoning and land use regulations, particularly concerning development projects?
Under Romanian law, projects may be developed provided that parameters established under the applicable territory planning and urbanism documentations are observed. The urbanism certificate details the legal, economic and technical regime of the lands and constructions existing in a specific area at the date of the request. Meanwhile, the zonal urban plan (PUZ) serves as the regulatory tool through which the integrated urban development of certain areas is coordinated. These documents define the permissible use of a piece of real estate, along with the conditions and constraints for construction, and serve as preliminary requisites for obtaining a building permit. Additionally, investors can engage in specific development agreements with relevant public authorities in order to facilitate a project, as Romanian law allows for the establishment of public-private partnerships under specific public procurement conditions.