Vol. X No.7
July 2005


Righting the Wrongs of Communism: Restitution Law Modified

Righting the Wrongs of Communism: Restitution Law Modified
Four and a half years ago, Romania enacted Law No. 10/2001, ostensibly to rectify the theft by the prior communist regime of billions of dollars worth of real property belonging to its citizens – but ignoring the billions of dollars worth of other properties also abusively confiscated by Romania. But even this partial effort at restitution was merely a Şmecherie –Romanian for a ruse (as we described it in the March 2001 issue of The Romanian Digest™). As we stated, the Law “. . . is not much more than a series of declarative statements shrouded in insincere exceptions and procedures designed to thwart genuine restitution and prolong communist misappropriations.” Our description of the Law so aroused the then Prime Minister that he actually complained about our characterization. Nevertheless, time has proven that we were right. The vast majority of claims languish in administrative oblivion while justice for the victims remains elusive, and Romania continues to retain possession of most of the stolen properties. Hiding behind the fact that its confiscatory acts predate its international commitments to human rights, Romania overlooks the fact that its current acts are in themselves confiscatory and are a present violation of its international obligations.

Romania’s new government recently undertook some measures to cure a few of the inadequacies of Law 10/2001. Among other things, regulations were promulgated that eliminated the lengthy list of exemptions for restitution in kind of all buildings which are in the possession of the state – a list the extent of which we castigated in our March 2001 article as the “most unwarranted and sordid aspect” of the Law. All in all, the government’s revisions are quite positive – but it remains to be seen how fairly they will be implemented when put into practice.

Law No. 10/2001 outlines the legal steps that can be taken in relation to real estate appropriated abusively by the state during the communist regime (defined formally as the period between March 6, 1945 and December 22, 1989). It is the most comprehensive and broadly applicable act that seeks to right the wrongs associated with the Communist regime’s forced seizure of properties. But the problem of returning confiscated properties is a difficult task from a legal standpoint, contentious from a political standpoint, and sensitive from a human standpoint. The restoration of properties is impeded by a number of specific complexities. First, many properties simply no longer exist as they once were because the buildings were demolished. Second, both the conflicting interests of those who lost property and those who acquired it in good faith must be respected. Third, a careful balance must be struck between the rights of various interested parties, and the constitutional provisions regarding the right to property. Proper consideration must be given to the preservation of equality between those whose property rights have been restored and those who have simply received compensation. In addition to these legal difficulties, the government may also find itself in an economic bind if it should be forced to find financial resources when returning properties or giving monetary compensation.

With these various factors at play, the restitution of properties is a process that must be carried out under certain considerations. It must be noted that restitution is based on universally applicable legal principles, such as the protection of the right to property and the safeguarding against encroachments upon that right. Furthermore, the right to property constitutes a fundamental human right. It is so described in Protocol 1 of the European Convention on Human Rights. Thus, any infringement, postponement or neglect within the restitution process itself could be interpreted as a violation of human rights. Finally, the restitution of properties confiscated by the communist government has the added importance of acting as a condemnation of communist abuses and a material and moral atonement for these past wrongs.

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The History of Romania’s Property Law
Even when it was first enacted, the text of Law No.10/2001 (the “Law”) was the subject of ardent disputes between the former owners and the new holders of these properties, and was amended many times through legislative interventions, in the form of governmental ordinances and emergency ordinances (OUG 109/2001, OUG 145/2001, OUG 175/2001, OG 7/2001, OUG 184/2002, OUG 10/2003). For the purposes of uniform application, the government even issued Methodological Norms for the Implementation of Law No. 10/2001.

Despite the legislative dynamism in this field, the Law remained unchanged in its essence, and created numerous injustices and discriminations. The new center-right government, which formed after the election in December 2004, heralded the reform of property laws as a legislative priority in its “Program for Governance.” This document specified legislative amendments with regard to property restitution, and took responsibility for initiating legislative reforms to Parliament, in the areas of property and of justice.

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New Regulations
In June 2005, pursuant to Article 114 of the Romanian Constitution, the Government assumed responsibility for a package of modifications to Law 10/2001. These modifications will be adopted unless, pursuant to Article 113 of the Constitution, the Chamber of Deputies and the Senate pass a motion of censure, which is a joint session majority vote decision withdrawing confidence from the Government and killing the bill. The law will be fully promulgated after the President has signed it, and it has been published in Monitorul Oficial, the gazette where statutes are officially published. The president may request that the Constitutional Court, which pursuant to Article 146 of the Constitution has the power of judicial review, adjudicate the constitutionality of the law before its adoption, but at this time, we are not aware of any such development. As such, we foresee that these reforms will be implemented shortly.

The general principles of the new regulations regarding properties are: a) restitution in kind of all the buildings which are in the possession of the state; b) the allocation of just and equitable compensation; and, c) the protection of tenants by way of tenant-protection laws which will remain in effect so as not to infringe on tenants’ interests.

With regard to Law no. 10/2001, an important modification is embodied by the amendment to Article 1, which states that properties are returned in kind, as stipulated by the Law. The modified text of the law replaces the old wording returned, usually, in kind. In this way, the purported imperative of restitution in kind becomes the general rule, thus limiting arbitrary interpretations and putting a check on the possible conflicting interests of those called upon to apply the law.

Closely related to this change is the extremely important modification of Article 16. In the old wording of this article, former owners were only awarded an equivalent form of restitution in the case of properties that were used for public or social interest. Falling under this category were those properties occupied by budgetary units from the Departments of Education and of Health, socio-cultural establishments or public institutions, the headquarters of legally-registered political parties and of diplomatic missions and residences, consular offices, representative offices of international intergovernmental organizations accredited in Romania, and buildings used by diplomatic personnel.

The modification of Article 16 stipulates that even in cases where seized properties now have these public uses, restitution will also be effectuated in kind, with an added duty to the owner of maintaining that use for a period of 3 or 5 years, depending on the situation. During this period, the occupant must pay maintenance costs of the property. In any case, the owners will regain possession of the property after a term of 5 years at most. This is an important provision because many properties seized by the Communist government now have these kinds of public uses, and the duty to provide state institutions with adequate headquarters in which to carry out their activities belongs to the state and not to its citizens. On the other hand, it is ironic that some of the nations that support the restitution of properties confiscated abusively by the prior Romanian Communist government are also those that have embassy and consular headquarters on these properties and actually resist efforts of newly restituted owners to take possession of them.

One problem unresolved by the Law in its initial version was the lack of sanctions for non-compliance that could be held out against those state institutions that are responsible for responding to restitution applications. Although the Law set a 60-day term in which the applications had to be answered, this term was interpreted in many cases as being arbitrary, and as such, institutions not respecting it were never sanctioned. This has meant that even today, four years after the enactment of the Law, tens of thousands of applications are still unanswered. This situation is partially remedied by the amended Law, which provides for civil and criminal sanctions against persons responsible for the application of the Law who do not conform to the terms established by it.

In order to alleviate the difficulty of proving one’s right to restitution, the new rules have created a presumption in favor of former owners. In other words, in the absence of evidence to the contrary, the person whose property was abusively seized is the person who holds the title to the property. This provision lightens the burden of proof for former owners, and shifts it to the state, which now has the duty to prove that the person in question was not the owner. Practically speaking, this means that former owners no longer have to search through archives for all kinds of documents to prove their rights, documents that are very difficult to find, may even have been destroyed. Indeed, the injustice of the former burden of proof was a matter for which we first provided evidence for the US Helsinki Commission when our colleague, Mark Meyer, testified before the US Commission on Security and Cooperation in Europe in July 2002 in the Congress of the United States.

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Continuing Problems in Restitution
The sluggishness in the process of responding to applications for restitution -- after 4 years, only 15% of seized properties have been restituted -- has led to the creation of a semi-clandestine market of litigious rights in Romania. Data about persons who have registered requests is sold by town hall employees for prices that vary according to the phase of the case but which, on average, are one-third of the value of the property. Subsequently, these properties are sold for a profit of 200-300% by persons familiar with the methods needed to “grease” the wheels of Romanian justice. This gray market has developed in an attempt to escape from an inefficient bureaucracy, a corrupt judiciary, and a general governmental unwillingness
to apply the law.

One problem that has remained unsolved even by the new legislative modifications is that of the sales contracts concluded by the former tenants of nationalized properties which represent, according to some estimates, 85% of seized properties. In its initial version, the Law stipulated a one-year term - from its adoption - for a judicial challenge to these contracts. The present regulation no longer establishes this kind of term, thereby creating a situation in which properties purchased by tenants can no longer be returned to their former owners. This conundrum is one of the greatest sources of discontent for former owners, particularly because many of these sales were carried out by less-than legal means. The government, however, considers that the reopening of thousands of legal actions would not be beneficial for the judicial stability that Romania requires.

Where compensation in kind is no longer possible, the Law provides for the possibility of financial compensation through grants of shares of stock in state-owned companies. For this purpose, a Property Fund has been set up containing shares in major Romanian companies in which the state holds stock such as Transelectrica, Loteria Romana, Transgaz, Romtelecom, Posta Romana, and Petrom. Former owners can now apply for compensation through the National Authority for Property Restitution, which will assess the value of the properties that are the subject of restitution demands, and which will issue damages titles that will be turned into shares in the Property Fund. The drafters of this provision decided that this is a “21st Century” method of compensation and the optimal solution from a transparency point of view, since the shares will be listed on the Bucharest Stock Exchange. Of course, whether the valuations of the properties and the methodology to be used to make such determinations will be fair remains an open question.

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Although there have been numerous modifications and new measures adopted with the objective of rectifying the abuses of the former communist government, it remains to be seen if Romania’s restitution law, in its latest incarnation, will finally fulfill its promise. For certain persons whose properties were wrongfully seized, the Law, although sometimes difficult to employ due to obstacles rooted in bureaucracy and corruption, has soothed some of the bitterness of the past. However, there are many more claimants who have had to suffer doubly, once before December 1989, and then under the inaction and bad will of the post-revolution governments. For these owners, receiving abstract stocks in lieu of concrete buildings constitutes an unacceptable exchange - one as abusive as the original expropriation.

Nevertheless, there is progress, whatever the pace. It is now certainly clearer and easier for owners whose properties have not yet been destroyed or sold to get them back. In this way, perhaps some day, another nail, of the many still missing, may be put in Communism’s coffin.

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Editors Note: It is our policy not to mention our clients by name in The Romanian Digest™ or discuss their business unless it is a matter of public record and our clients approve. The information herein is correct to the best of our knowledge and belief at press time. Specific advice should be sought from us, however, before investment or other decisions are made.

Copyright 2005 Rubin Meyer Doru & Trandafir, societate civila de avocati. All rights reserved. No part of The Romanian Digest™ may be reproduced, reused or redistributed in any form without prior written permission from the publisher.

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