Land Purchase in Romania
The return of part of land to the original owners and the aquisition and ownership of land in Romania still raises many issues twenty-seven years after the change in Government and political thinking.
As towns and cities continue to expand factories and offices are being built on the outskirts and on land that was originally not within the town boundaries. Recently steps have been taken to limit the uncontrolled spread of towns and villages by requiring consolidation into the town proper and not random plots away from towns and urban areas.
The major issue even now is that a large amount of land is still owned by the original owners to whom it was returned after 1990 or their heirs. As Romanians will try and capitalize on these assets then there is a continuous supply of such land coming on the market for sale.
What then should a buyer of such land do? The original certificate of ownership issued by the authority’s states that the land has been returned in accordance with the law. Sometimes the description of the land is vague and will only refer to the adjoining owners rather than to a map reference. Even if a map reference is given how accurate is this? When the land has been returned by the state then the owner should apply for the cadastral registration. This will be based on the ownership certificate referred to above. It should be remembered that a cadastral registration is not a guarantee of title but only confirms that the cadastral registration has been completed on documents produced and the registry has registered the ownership in accordance with this documentation.
It is a fact that currently, it is difficult to purchase plots of land of sufficient size for them to be economically viable either as a farm or for commercial usage. In these cases, it is necessary to consolidate smaller plots into one large plot. This itself can take time and prove difficult. However, it is not impossible and there are consultancy companies who specialize in such transactions.
The purchase of consolidated plots is not without risk and this needs to be minimized. We would advise that in all cases a proper legal due diligence is done on the land being purchased. This means not just looking at the ownership certificate referred to above but there should be research into the prior position. These ownership certificates are issued on the request of the former owners or their heirs. It is necessary to check that such an application and request made in accordance with the law. If it was not and we are aware of cases, then the Romanian State has objected to the initial transfer back. There is no statute of limitation for such applications by the Romanian State and they can object at any time.
The Romanian Civil Code does provide protection to subsequent purchasers from the original owners provided that they purchased in good faith and for value. This law allows the subsequent purchaser to retain the property and have a good title, even if the original application was defective.
What however is the position of the original owners? If the application for the return of the property was made in accordance with the law, observing all the legal provisions and was made in good faith by the applicant then their position is secure. Unfortunately, we have recently come across cases wherein the countryside for whatever reasons the procedures were not properly followed. This means that there are plots of land where the title is defective and the transaction can be annulled unless the land has been transferred to a third party for value.
If the courts hold that the original transfer back to the original owners was defective and the land has been subsequently sold to a third party for value as mentioned above then the original owner can be called upon to pay to the Romanian State by way of damages the current value of the land. As land prices have increased this can be a substantial amount. This potential risk will lie also with the heirs of a person who obtained the return of the land incorrectly.
Our advice, as a Romanian law Company to anyone who is purchasing land in Romania is not to rely only on the documents produced but to invest in a proper legal due diligence of the land title documents. This will reveal defects and issues which should deal with before the purchase documents are signed. Whilst the notary will check the documents produced they may not carry out detailed due diligence which will reveal the defects highlighted above. With both a proper due diligence report and the notary certification in the majority of cases the purchase of the land can be completed in a proper and normal way. Title insurance in some cases is also available.
As in all things Romanian, if care is taken risks can be minimized and a successful and profitable business can be undertaken.
