Regulars
REAL ESTATE
When you want to buy a property,
first call your lawyer
by Alina Rosca
September 2004
Real estate observers are saying the market in Romania never looked so good. So many properties are available for sale and many others are built to high enough standards that there really is a rich pool from which to choose.
The question for incoming expats is whether to buy or to rent?
1. Renting a property
Whenever you choose to rent a property you need to ensure that the legal situation of the property is known, as are the terms and conditions of the rental contract. In both cases a lawyer can help. What does the ėlegal situation' of the property actually mean? While the property and its rental price might appear right, don't forget that the package can include pitfalls that at first may not be easily detected. For instance, a property offered for rent can be the subject of litigation - for various reasons. They might include situations in which:
a. the original owner is claiming back the property from the 'current' owner (the owner according to the Law 112/1995 - the law which allows former tenants to buy rented properties for a very low price). If you rent a property that had been nationalised under communism and is in the process of being recovered by the original owner you run the risk of ending up in a contract which is signed by a person who can lose, as a result of the recovery process, his right to rent that particular property. As a result you may have to leave the property and wait a long time in order to recover your deposit, and any costs of improvements made. A lawyer can clarify if the particular property you like is in the recovery process.
b. the property has more owners than is registered with the Land Registry and other owners are claiming their property rights in court. Whenever you rent such a property you might be in the situation in which instead of one landlord you will have several landlords who might not agree with the terms and conditions of the rental contract, concluded by you and the landlord at the time, and might not even agree with the fact that the property is rentable. Because the new owner in the picture has the same rights as the existing owner, you might be in the situation where you will have to renegotiate the initial terms and conditions or even to leave the property.
c. the owner of the property can be in litigation with the Tenant's Association. Usually a landlord is in litigation with the Tenant's Association because he did not pay maintenance expenses. You probably ask yourself how this issue can have any impact on your rental contract. During the litigation or even after the litigation (depending on the outcome) you could be left without hot water or heating. In order to obtain heating and hot or even cold water you might have to pay bills owed by the landlord (which in many cases are huge) and start your own court action to recover bills paid.
Once you consider that you did find the right location to rent as office or living space and you are satisfied that none of the above or any other problems will occur, make sure that:
a. you conclude a contract which is not a standard contract issued by some administrative body. This kind of contract will not cover you in any way if you have a future dispute with the landlord. Make sure you insert your terms and conditions which will put you in the right position in case of any dispute.
b. make sure that your contract is registered with the financial authorities and that the lump sum you pay to the landlord is declared. If you do not declare the whole lump sum you cannot deduct your expenses; furthermore you run a risk of becoming involved in a tax evasion case.
c. if the rental contract is concluded for more than three years make sure that you register this contract with the Land Registry.
d. be aware that if a sale purchase agreement of a property has to be notarised a rental contract does not have to be. Many notaries will make you notarise the contract which will mean a high fee paid by you for no reason whatsoever.
2. Buying a property
The real estate market is booming - prices have been consistently rising and this trend looks like continuing for the foreseeable future. Therefore if you intend to stay several years in Romania then the best choice is not to rent but to buy a property. Although there are many opportunities still on the market, do not expect to find the deals and the prices that were available several years ago. It is true that the prices of a property are still very attractive. A new apartment in a prime location costs between 1,000 to 1,200 euros a square metre (whereas a new apartment in a suburb of Paris will cost at least three times that much). Nevertheless, do not expect to buy a property for next to nothing because you simply cannot find such a bargain unless the property is beset with legal problems.
You must make a complete due diligence on the title of the property. Potential buyers need to heed the following:
a. if the property is in the process of being recovered by the original owner from the current owner (the owner according to Law 122/1995) then ensure that you buy the property from the original owner. If the original owner has all the property papers in order, he will have an extremely good chance of recovering the property. If the Romanian courts refuse to return it to him, then the court of Strasbourg most likely will do so. Buying the property from the current owner (the owner according to Law 122/1995) runs the very real risk of losing the property in favour of the initial owner. A lawyer will be able to verify whether the property is in the process of recovery. Even if you decide to buy the property from the original owner you should still ask your lawyer to perform a complete due diligence on the documents of the property. The lawyer should make sure that the property documents are complete and that the seller inherited the property based on a true and valid will.
b. if the property was bought by the current owner according to Law 112/1995 then you can buy it only if nobody has filed a recovery application with the City Hall or a court. A property which was bought according to Law 112/1995 might be acquired in relatively safe conditions if nobody has filed a recovery application for it. Be aware that there are many properties on the market which are actually in the process of being recovered by their rightful owners.
The question that you might ask yourself is this: if there is no current claim on the property, is there any chance that in the future somebody will knock at the door and inform you of their intention to recover the property? Generally speaking, there is a chance that any owner could find himself in this situation. The good news is that the person knocking on the door will have a slim chance of recovering the property due to progressive legislation passed since the end of communism.
Moreover, properties bought according to Law 112/1995 cannot be sold for ten years from the year the current owner concluded the sale contract with the state. Therefore, when you buy a property with a title based on Law 112/1995, you actually signed not so much a contract of sale but a pre-contract. The final sale contract will be concluded when the ten-year period expires. The pre-contract will not cover you completely, so make sure that your lawyer puts into place extra safeguards to avoid any financial losses.
c. a new category of properties that became available recently are properties sold by administrators of bankrupt companies. These properties will be attractively priced but come with plenty of legal pitfalls.
d. another possibility for the expat are old blocks of flats which are truly very beautiful and are on the market for a very good price. Do not forget that most of these apartment blocks are listed as buildings in danger of collapsing during an earthquake! Moreover, they cannot be insured and are not easily rented as the owner is obliged to inform the tenant about the danger of living in a flat which is effectively a coffin waiting to be filled. Again, a good lawyer should be able to find out whether or not the building is in this condition.
e. another 'bargain' are flats in apartment blocks where there is no heating, hot or even cold water because tenants failed to pay their bills for lengthy periods. Whatever discount you get when buying one of these apartments will be offset by the cost of installation of a new heating system; or worse, when you will be asked to pay a large sum for the people who did not pay their bills.
f. make sure that the contract has the right terms and conditions. Many buyers, eager to obtain a lower price pay very little or no attention to the terms and conditions imposed by the sellers. Once the contract is signed you will most probably encounter many problems which will not be solved easily. The wrong terms and conditions can offset any savings you made on the price or location.
After reading this article some prospective buyers will ask themselves whether or not to take the advantage of a bargain. The purpose of this article is not to discourage buyers, but to help them better understand the real estate market from a legal perspective. This way you will encounter no legal problems; or, at least, when you do you will be better prepared and aware that solution exist.
Alina Rosca is a lawyer in private practice.
