Introduction |
Romania’s
real estate market continues its upward spiral fueled by foreign
investor interest coming from EU member states, the US, Israel, India
and the Middle East. Major new construction, the renovation of old
villas, and commercial or residential property developments of all
kinds, dot the landscape of virtually all of Romania’s major cities and
tourist locations. Prices for raw land have risen sharply, although
prices remain comparatively low even for the region, with Bucharest
still considered to be the cheapest major city in Europe. Improvements
to the nation’s infrastructure and a new and enhanced Tax Code have
aided investors, as have the assurances afforded by Romania’s accession
to NATO and its likely admission to the European Union in 2007 or 2008.
Most foreign investors are sophisticated enough to understand all of the
prerequisites involved in buying and developing land throughout the
world. Small and medium size investors, however, sometimes think that
Romania is like Deadwood, South Dakota when it was part of Indian
Territory – the “Wild West” where anything goes. Those investors think
that they can do pretty much anything they like on land they buy
anywhere in the country, and just bribe their way through any
difficulties. In some parts of Southeast Europe, that was actually once
true, although never in Romania. For example, greedy local developers
built high-rise apartment buildings on the parkland banks of a once
beautiful stream running through the heart of Tirana without even owning
the land, let alone possessing construction permits and other requisite
authorizations. But even in Albania, upon his election, Mayor Edi Rama
immediately ordered the demolition of those buildings – and they all
were pulverized into dust.
This article is a basic primer for small- and medium-size purchasers of
land in Romania to help them avoid the unpleasant consequences of
ignoring Romanian law. It highlights the stages from the preparation of
a purchase agreement through the construction of a structure and the
various zoning and environmental issues that one can expect to
encounter. |
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Land Acquisition |
Although non-Romanian citizens may not acquire land in Romania in their
own name, foreign investors who establish a Romanian legal entity may
avoid this impediment since a Romanian corporation - even with 100%
foreign ownership – is still Romanian and, as such, may own land in
Romania. Bear in mind that land acquisitions by Romanian entities must
meet the purposes for which the Romanian company was chartered. This is
usually not an issue since few non-Romanians are purchasing properties
for their personal use. Also note that the restriction on foreign land
ownership refers only to the acquisition of land. As far as buildings
and other structures on the land are concerned, foreign individuals and
legal entities may acquire title over them, as well as the right to use
the land on which they are situated for the duration of the structure’s
existence. Provisions in the Romanian Constitution on the right of
citizens of the European Union to acquire land in Romania will come into
force upon the country’s accession to the EU, thereby enabling foreign
citizens from EU member states to own land in Romania in their own
right.
The
most common method used in acquiring land is, of course, a sale purchase
agreement. Since only Romanian citizens and companies can own land at
the moment, a Romanian company will have to be formed in order to enter
into the purchase agreement.
While negotiating for the acquisition, and prior to concluding the
agreement, the buyer must have reviewed accurate information concerning
the parcel by examining the ownership title, the Land Book Excerpt, and
the documents attesting to the type of construction permitted on the
land as further described below.
In Romania, legal distinctions between the character of properties
create differing situations affecting land. Depending on their location,
the land may be classified as urban property (in Romanian “intravilan”)
and rural property (in Romanian “extravilan”). Urban property
represents land situated in the territorial-administrative area of an
urban community, while rural property refers to land located outside of
an urban community, not intended for commercial purposes, and
principally designated for agricultural use. No building may be erected
on an agricultural land area and, consequently, anyone who intends to
construct on this type of land must seek to re-zone the parcel so as to
change its legal status to render it suitable for construction.
The approval for changing the designation of the land is granted by the
Ministry of Agriculture, Forests and Rural Development based upon the
approval rendered by the county office of the National Agency of
Cadastre, which is the central authority keeping the evidence of
registrations in the Land Book at the country level. Briefly, the
following documents will have to be submitted to the National Agency of
Cadastre: the ownership title over the land, an excerpt of the Land
Book, the relevant cadastral documents, a certificate of urbanism (as
further explained below), applicable urbanism and territory plans (as
further explained below) issued by the local city hall, and an approval
from the National Administration of Land Improvements for the zoning
change. This procedure, from filing the application with the county
office of the National Agency of Cadastre up to the issuance of the
requested decision, may take 30 days or longer. |
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Construction-Related Requirements |
Any construction of whatsoever nature may only occur on the basis of a
building permit. Such permit is issued by the competent authority upon
request, if authorized, and represents the basis for the application of
the provisions of the law with regard to the location, design, execution
and/or function of the construction. The building permit is issued
according to the legal requirements related to the urbanism and the
territory plan and on the basis of an appropriate formally issued
certificate of urbanism.
Urbanism and the Territory Plans
Urban land use is regulated by the provisions of Law no. 350/2001,
regarding urban and rural land planning. It is a general law which is
implemented by local rules. Each of Romania’s counties, cities, and
villages adopts general, zoning and detailed plans in order to develop
standards which assure that the land is used properly. Local authorities
issue:
- a General Land Use Plan (in Romanian “Plan
de Urbanism General” hereinafter referred to as “PUG”) for their
entire territorial-administrative area. This PUG it is updated every
5-10 years and represents the basis for development in the region. Due
to the lack of funds, some local authorities cannot afford to create
appropriate PUGs;
- a Zoning Land Use Plan (in Romanian “Plan
de Urbanism Zonal”, hereinafter referred to as “PUZ”) referring to
specific parcels of land; and
- a Detailed Land Used Plan (in Romanian “Plan de Urbanism de
Detaliu” hereinafter referred to as “PUD”)which constitutes a
detailed clarification of planned projects in specific areas.
Certificate of Urbanism
The Certificate of Urbanism is an official informative document by which
the competent authorities inform the applicant of details concerning the
legal, economical and technical status of a specific construction and/or
building-site available at the moment of construction. It sets forth
urban requirements in accordance with the site's specificity and
itemizes the relevant notifications, authorizations and other legal
permits required to be obtained for the issuance of the relevant
building permit. It also establishes the maximum allowed percentage of
occupancy of future construction permitted on the parcel (in Romanian,
POT), the height restrictions on any construction, the type of materials
that must be used, other special technical conditions for construction,
as well as the permits and acknowledgements needed. Since Romania is
prone to earthquakes, the authorities have implemented stringent
requirements for new construction so as to avoid disaster.
The importance of obtaining the Certificate of Urbanism cannot be
understated; buying land without knowing that zoning limitations can
prevent the construction of your project, and leave the purchaser as the
fee simple owner of a potentially useless piece of property. Other
issues should also not be overlooked such as the property’s proximity to
an airport that might prevent construction of a radio tower, the use of
tower cranes or the crossing on the property of gas or water pressurized
line. The Certificate of Urbanism must mention the purpose for its
issuance but it does not confer the right to commence construction, any
arrangements or landscaping of any kind – only a Building Permit allows
for the start of construction. Indeed, the issuance of the Certificate
of Urbanism may also require the assent of different authorities as a
prerequisite to obtaining a Building Permit, such as the Ministry of
Agriculture, the Ministry of Defense or other applicable authorities. |
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Permits and Acknowledgements |
Permits and acknowledgements are issued by utility companies (water,
gas, sewage and electricity) and by relevant authorities for
environmental, public health, fire, historic preservation and protected
areas, to name a few. Some Local Councils have developed the
“Sole-Central Permit” meaning that the investor has the possibility to
easily and quickly obtain all of the requisite permits and
acknowledgements from one location. |
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The Building Permit |
The
Certificate of Urbanism does not, under any circumstances, grant the
holder the right to begin construction. Such right may only be granted
by way of a building permit that is issued subsequently and on the basis
of a valid Certificate of Urbanism. The Building Permit represents a
document issued by the local public administration which guarantees
compliance with the technical and legal regime regarding the location,
design, execution and function of a structure. Such a permit is
mandatory. Building without one can result in penalties or the actual
demolition of the building.
The Building Permit is issued for a specific period on a case by case
basis depending on the project. In case the construction is not
finalized in time, the Building Permit can be extended for a one time
period of 12 months.
The Building Permit is issued in a maximum of 30 days from the
submission of the applicable documents, as follows: the Certificate of
Urbanism; the deed title; the plan for the authorization of the
construction; and any other permits and acknowledgements provided in the
Certificate of Urbanism. However, the 30 day term may be extended by
additional periods in case of incomplete documentation and, in practice,
it is rather common that the authorities request additional
documentation. |
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Environmental Issues |
Anyone engaged in public or private construction projects must obtain an
environmental authorization. This environmental permit is a document
issued for a certain project or for some repairs which need to be made
to an existing structure. It contains the conditions for implementation
of a project. Through this authorization the authorities seek to prevent
the discharge of hazardous materials as well as other damage to the
environment. Failure to observe environmental regulations may lead to
civil or criminal liability as well as civil fines levied by the
competent authorities.
Obtaining the full bouquet of documents to commence construction should
not last more than 10 months, depending on the size of the project,
bearing in mind that it is impossible to go through this process without
the help of an architect and, in most cases, an attorney. |
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Conclusion |
The
entire procedure for the acquisition of property and construction on the
site described above can be discouraging for some due to long waiting
periods, not inconsequential costs and formalities, but this legal
procedure is based upon Romanian realities, and those realities are
formed from legislation that complies fully with EU legislation for the
upcoming accession of the country. As a consequence, new construction
must provide a minimum of comfort and hygiene, feature esthetic aspects
and fit with the locality’s architecture. Much of this legislation is
the result of experiences in the 1990’s when developers built structures
in the heart of the historic districts that were destructive to the
character of the area.
The relatively long wait for the conclusion of the procedure need not be
a dead period for the real estate investor, as he should actively
perform the other tasks required for execution of the project with the
help of the architect, and be ready to commence work upon receipt of the
requisite permits and authorizations.
The immense infrastructure requirements of an emerging Romania lure an
ever increasing number of foreign investors into the country seeking
opportunities through the construction of new residential units,
commercial office and retail space, hotels, shopping malls, and modern
factories throughout the country. Foreign real property investors have
reaped significant profits from their projects, and continued to
reinvest in larger and more significant ventures further demonstrating
the viability of continued growth of the Romanian the market. Some have
likened today’s opportunities to those which were once available in the
Czech Republic and Hungary. Obviously, such opportunities cannot last
much longer. As EU accession looms ever closer and new highways are
paved providing greater access to Western Europeans, the potential for
the significant returns on investment that currently exists will clearly
subside and diminish. For those who missed out on investment in the
Czech Republic and Hungary and don't wish to miss out again, the time is
now in Romania. |
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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 2006 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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