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Romanian Digest:

Basic notions on Romanian land use

de     Romanian Digest
Miercuri, 15 februarie 2006, 0:00


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.

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.

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.

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.

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.

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.

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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