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Eversheds Global Estate Management

Romania

Real Estate Guide

Principles of ownership

Principles of ownership

Freehold/Ownership - Romania recognises and guarantees ownership title to real estate, including rights to possession, use and disposition (usus, fructus and abusus), for an indeterminate length of time. Such attributes may be exercised by one person (full ownership right) or by different persons who shall exercise separate attributes of the dismembered ownership right.

Leasehold - not applicable.

Common hold/Usufruct - Romanian law recognises the usufruct as the right to possess and use a real estate (without the possibility to dispose of the concerned real estate). Perpetual usufruct is prohibited. Maximum duration of the usufruct is the beneficiary’s life (for natural persons) or 30 years (for legal persons).

Condominium ownership - under Romanian law, the ownership right over a condominium is not a distinct legal concept from the generic ownership right, but generally a form of compulsory co-ownership (see section "Joint/Co-ownership"). However, some specific additional regulations are in place with respect to lodgings.

Utilisation right - the utilisation right over a property can be procured either through a lease agreement (in most cases) or the creation of a right of use expressly qualified as an in rem right (rarely used). Such in rem right of use is a variety of usufruct which confers to its beneficiary less attributes.

Joint/Co-ownership - the ownership can be exclusive (one owner) or jointly exercised by two or more owners. The co-ownership can be created conventionally by parties’ agreement or compulsorily, due to the nature of the asset - e.g. the land under a building with more owners.

Registration – under the New Civil Code, the registration with relevant land book of the acquired real estate is contemplated as a validity condition for transferring such ownership right; nevertheless, the application of this provision is being postponed until the cadastral measurement system throughout Romania is being properly implemented and this might take several years. As such, currently the old provisions continue to be incident and the registration with the land book is carried out for enforceability reasons. As a principle, this applies to any other in rem rights (e.g. right of use, superficies right, usufruct, easements, encumbrances etc.), as well as to the lease agreements. As a principle, in practice the ownership title or any of its derivates cannot be disposed of unless it is registered with the Land Book. Currently the registration of title with the Land Book does not constitute a conveyance of title. The Land Book identifies the surface of the real estate, the owner thereof (name, successive conveyances of title, etc.) and any other real rights (superficies right, right of use, easements and encumbrances, etc.) or other relevant information pertaining to the concerned asset. Information registered with Land Book is publicly available.

 

Restrictions on foreign ownership

Restrictions on foreign ownership

Ownership rights over land – as of 1 January 2012, the five year term prohibiting the acquisition of land for secondary residences or offices by individuals and legal entities from EU member states who are not residents of Romania has lapsed and this restriction has now been lifted. Consequently, despite the convoluted legal framework and the inconsistent practice, currently most practitioners appear to agree that all citizens of the EU member states residing in Romania (or legal persons incorporated in accordance with the laws of EU member state), as well as all individuals who are not Romanian residents (or the legal persons who have not established a secondary office in Romania), are able to acquire lands in Romania.

There are however pending discussions as to whether the non residents at the time of Romania’s EU accession (1 January 2007) may currently own any land (except for the agricultural land covered by the seven year term) or only land for secondary residences or offices.

The seven year transition period (starting from the accession date) for the acquisition of land used for agricultural and forestry purposes by residents of the EU also lapsed and therefore such land can be acquired by residents of the EU.

Other foreign individuals or legal persons incorporated in accordance with the law of a non European Union state are only authorised to acquire land in Romania under the conditions established by the international treaties to which Romania is party and subject to reciprocity.

Nevertheless, it is a common practice for foreign individuals/legal entities to acquire land indirectly through corporate vehicles set up in Romania, even if their share capital is fully owned by a foreign individual or legal person (e.g. a sole shareholder Limited Liability Company).

Ownership rights over buildings - foreign individuals or legal persons may acquire the ownership of a building, regardless of the nature or the planned occupancy of such building.

 

Title to real estate

Title to real estate

Investigation of title is undertaken by legal counsel for the buyer and the Notary Public authenticating the transaction (in the case of property transfers). Legal counsel usually prepares detailed and in-depth due diligence reports concerning ownership right, chain of title, registration procedures, taxation, encumbrances and zoning provisions.

Transfer of title - can occur upon signing of the transfer deed or at a later moment, determined by the parties.

Registration - the ownership right is enforceable against third parties only after proper registration with the Land Book. As a principle, this applies to any other in rem rights (e.g. right of use, superficies right, usufruct, easements, encumbrances etc.), as well as to the lease agreements. As a principle, in practice the ownership title or any of its derivates cannot be disposed of unless it is registered with the Land Book. Currently the registration of title with the Land Book does not constitute a conveyance of title. The Land Book identifies the surface of the real estate, the owner thereof (name, successive conveyances of title, etc) and any other real rights (superficies right, right of use, easements and encumbrances, etc.) or other relevant information pertaining to the concerned asset. Information registered with Land Book is publicly available.

Information on the register - not applicable.

Commercial leases - are generally governed by the parties’ agreement, by the civil law and by the commercial legislation as the case may be. Notarisation is not required; therefore most of the agreements are concluded under private signature.

 

Structure of a real estate transaction

Structure of a real estate transaction

Negotiation of terms/Agreement - as a principle, commercial terms of a real estate transaction are negotiated by the parties directly and/or with the assistance of legal counsel and real estate agents. Preliminary agreements (Letter of intent, Heads of Terms, pre-agreements) are used quite often.

Heads of terms – although frequently used in practice, there is no express correspondent in Romanian law. However, the heads of terms may not be normally assimilated with a binding contract but is more like a temporary arrangement in the pre-contractual phase (“agreement to agree”); nevertheless, the parties should be very cautious when drafting the clauses of such head of terms because the head of terms may become legally binding, including, depending on the drafting, the main elements contained therein and the parties’ intention. In this respect, in order to avoid any doubt, the parties may insert a clause expressly stating that the concerned heads of terms are not binding, they evidence only serious intent of further negotiations and they only refer to a pre-contractual understanding. However, usually the provisions relating to confidentiality and costs are binding on the parties.

Investigation of title - is undertaken by legal counsel for the buyer and the Notary Public authenticating the transaction (in the case of property transfers). Legal counsel usually prepares detailed an in-depth due diligence reports concerning ownership right, chain of title, registration procedures, taxation, encumbrances and zoning provisions.

Purchase deed - the law requires the transfer deed to be notarised in respect of the transfer of all lands and buildings.

Contracts - normally, the contracts are proposed by the buyer (in the property transfers) and the landlord (in lease agreements). The public notaries also offer draft contracts, which are not compulsory and are generally used in less complex transactions.

Completion/closing - signing date and completion date may occur simultaneously or can be separated as to allow compliance with relevant conditions precedent or subsequent.

Post completion - upon conclusion of the deed, the parties have to pay the notary fees and the income tax owned by the seller (if such is a natural person). The notarized ownership titles are automatically sent by the public notary to the Land Book for registration of the new owner. The new owner also has to register its ownership right to the local authorities (city hall) for taxation purposes. There may be post-completion undertakings in relation to each specific transaction (e.g. deterred payment of purchase price).

Leases - conclusion of the commercial lease agreements is generally preceded by brief investigation of title and conclusion of Heads of Terms. Measurement of spaces is also made, BOMA standard being used in the vast majority of cases (80%).

Transfer of ownership of leased property (alienation) - as a principle, transfer of ownership does not impede upon continuation of the lease, unless the lease agreement provides to the contrary; in this respect, the registration with the land book is highly recommended in order to render the lease agreement enforceable against all further acquirers. The tenant has a legal right of first refusal when the landlord intends to further lease the property, but usually the Tenant waives such right by express contractual provisions.

The Romanian language is not a mandatory requirement for the validity of the agreement (whether a transfer agreement or a lease agreement). However, if the contract is to be used in legal proceedings or presented in front of the notary public for notarisation or in front of a public authority (i.e. the Tax Administration), then a certified Romanian language translation is required; the parties do not need to agree on the translation, as the translation is usually done by a certified translator.

Governance of lease signature/administration – the lease agreements are usually signed by the person/s duly representing the company as per the relevant article of incorporation (i.e. directors/s) or by attorneys-in-fact granted with proxies issued by the general meeting of the shareholders or by the concerned director/s. Additional requirements may involve registration with the fiscal authorities (for evidence of the relevant income and payments), with the relevant trade registry (for registering the subsidiaries, the working points of the company etc.), with the land book office (for enforceability reasons).

 

Usual commercial lease terms

Usual commercial lease terms

Summary of available lease types - the content of the lease agreements vary significantly depending on their object: land, industrial building, office building, residential building. Certain types of contracts (e.g. for lodgings and agricultural land) might have particular clauses imposed by the law.

Alterations/modifications - alteration of fixed features of the premises is normally subject to the landlord's prior approval. Alteration of removable decorations and light fit-out works is usually permitted without any landlord's prior approval.

Assignment and sub/under letting - subletting is allowed by default, if no provision to the contrary was inserted in this respect. However, both subleases and assignments of lease agreements are usually subject to the landlord’s prior approval. Transfer by the landlord of the leased property will be subject to the rights of the existing tenant if the lease agreement has been registered with the Land Book.

Destruction/reinstatement - as per Romanian law, complete destruction of the premises generally leads to termination of the lease. However, certain contracts provide tenant’s obligation to wait for reinstatement of the premises in order to continue the existing lease agreement or enter into a new one.

Disposal/return of the premises – in the absence of specific agreement between the parties, the tenant is liable to return the premises in the same condition as received from the landlord, wear and tear excepted.

Duration of lease - the duration of lease agreements is determined freely by the parties and usually ranges between three to ten years for office spaces and may extend to longer periods for retail spaces. For enforceability purposes, all leases should be registered with the relevant Land Book of the property.

Forfeiture/irritancy - not applicable.

Insurance - the landlord normally insures the building as a whole against risks of damage and total loss, and recovers the insurance costs through services charges. Tenants are normally asked to take out insurance for the premises and personal property within the premises.

Rent review - commercial leases usually provide for annual indexation by reference to inflation, more commonly to the Consumer Price Index in the Euro Zone or in the EU state members.

Repair/decoration/furnishing - maintenance, decoration and repair obligations of common areas, structural features and building installation are normally undertaken by the landlord. Maintenance and repair of the space in the tenant’s exclusive possession are the tenant’s duty. Costs of maintenance by the landlord are usually recovered through services charges.

Service charge - are customary and cover landlord’s costs with maintenance and repair, insurance, janitorial services, supply of utilities for common areas, local taxes etc.

Tenant’s duties - the main duties of the tenant refer to: payment of the rent, service charges and utilities; general maintenance of the premises (except for any common structures or installations); fit-out works (although part of these might be realised by the owner); observance of the Internal Regulation.

Termination/break clauses - early termination is usually agreed for material breaches of the lease agreement or total loss of the premises. The local financing environment usually requires that commercial leases do not contain break clauses allowing termination other than for material breach.

 

Increasing covenant strength

Increasing covenant strength

Lease deposit - not applicable.

Surety - not applicable.

Warranty - not applicable.

Rent deposit/bank guarantee - tenants are usually required to deposit an amount (usually three to six monthly rents) securing compliance with the lease agreement. Alternatively, a bank letter of guarantee is accepted. Absent rent deposit or bank guarantee, parent company guarantees may be acceptable, but are less common.

 

Security of tenure

Security of tenure

Absent specific provisions in the lease agreement, if, on expiry of the term, the tenant continues to pay rent and landlord accepts payment, the lease is deemed renewed for an indeterminate period of time and subsequent termination is subject to reasonable prior notice under the general law. In practice, tacit renewal is pre-empted by the terms of the lease agreement.

 

Taxes

Taxes

On sale/acquisition of real estate - sale-purchase of a real estate property is subject to a notary fee up to 2.2 per cent (the percent is decreasing as the value increases) applied to the tax base. The tax base is constituted of the “transfer value” stated by the parties in the contract pertaining to the transfer of real estate or its dismemberments relating to the real estate assets (land and/or constructions). If this stated value is less than the value annually established by the chamber of the public notaries, the latter will be taken into consideration for the computing of the tax.

Immovable property tax - not applicable.

Income tax - the kind of tax payable for real estate transactions depends on whether the seller is a natural or legal person. Income tax must be paid by any natural person who obtains income from transferring an ownership right and/or dismemberments thereof over a real estate. The amount of income tax payable is based on the time elapsed between the date of the acquisition and the date of the transfer, as well as on the value of the income, and is consequently varying between 1 and 3 per cent of the price received. Profit tax must be paid by any legal person that acts as a seller in real estate transactions during a fiscal year. The amount of profit tax payable is 16 per cent of the legal person’s annual profit.

Land tax - an annual property tax must be paid by any person who owns land or buildings, in favour of the local council in whose area the property is located. This annual tax is payable in two instalments and is calculated on the value of the real estate, as a percent varying according to the rank of the locality, location within the locality and other criteria as age and quality of the property. For natural persons, the value of the real estate is prescribed by law, while for the legal persons such value is the book value of the real estate.

Lease tax - income from lease is subject to either income tax or profit tax, generally calculated at 16 per cent of the net income or profit, as case may be. For natural persons leasing no more than 5 properties, the net income is defined as 75 per cent of the gross income.

Local tax - not applicable.

Mortgage - creation of a mortgage is subject to a notary fee up to 0.65 per cent (the percentage decreases as the value increases) applied to the value of the secured receivable. Land Book registration fees are also applicable.

Other taxes - not applicable.

Property lease tax - not applicable.

Value added tax - Romanian legal persons acting as buyers in a real estate transaction must pay value added tax (VAT) at 24 per cent of the transaction price. This is usually recoverable by the buyer.