Real estate and restitution claims

Salans associate Bogdan Papandopol and paralegal Alexandru Iavorschi pick apart the maze of laws on former owners of nationalized properties claiming back their ownership

     The real estate boom that took place in the last few years in Romania has made this country attractive to foreign investors.
Even though, according to domestic legislation, foreign citizens are still forbidden to purchase land in Romania, other methods have been used to acquire land and avoid such prohibition (eg., as shareholders in Romanian entities).
     Starting 2007, the Law no. 312/2005 on the regime of land acquisition in Romania by foreign citizens will bring some major changes to the Romanian real estate market. According to this enactment, the citizens of the European Union will be allowed to buy land in Romania after a certain period, ranging from five to seven years after Romania’s accession.
     Although the volume of real estate acquisitions increased significantly in the last five years, there are common concerns regarding the validity of the acquisition of land by original owners. The main issues refer to the breach of proceedings regarding the restitution of land to the former owners, infringement of legal requirements to prove the validity of ownership transfers or the existence of the restitution claims. All such issues are normally investigated by foreign investors during their due diligence exercise.
     Between 1990 and 1999 (i.e. when the new Land Registry system entered into force) the notary practices located in the northern outskirts of Bucharest became focused merely on the outcome of the transaction and not on the analysis of the title chain and validity of such ownership transfers. In the area in question, a significant number of plots of land were sold by the original owners in absence of ownership titles issued according to the Land Law 18/1991.Although such transfers were notarized and recorded in the Land Registry as valid, they can be challenged in court. As stated by a significant number of case law of the Supreme Court of Justice, in absence of titles issued based on the Land Law no. 18/1991, the ownership certificates and transcript of granting possession do not compare to valid ownership titles. Nowadays, the real estate investments are mainly directed towards this area, a fact that involves a consistent legal consultancy based both on real estate issues and litigation/restitution claims issues.
     In various cases, the real properties object to envisaged transactions are subject to restitution claims brought based on either Land Law no. 18/1991 and no. 1/2000 and Law no. 10/2001 relating to real property abusively taken away from the original owners between 1945 and 1989. Both the land laws and Law no. 10/2001 were significantly amended by Law no. 247/2005.
     Although Law no. 10/2001 states the restitution in integrum principle regarding the real estate abusively confiscated by the state, it includes various exceptions to this principle. Unfortunately, as the wording of such exceptions is subject to interpretation, in various cases, lawyers are not in the position to determine the level of exposure. For example, although Law no. 10/2001 provides that real properties which were transferred as consequence of the privatization process should not be restituted in kind, there were case law where this provision was interpreted as applying only in the cases where privatization was made by the sale of assets method and not by the acquisition of shares method.
      From a procedural perspective, the claims based on Law no. 10/2001 should have been filed by the cut-off date of February 14, 2002 and the supporting documentation by the date of resolution of the restitution claim, while the deadline for lodging of claims based on Land Laws 18/1991 and 1/2000 expired on November 30, 2005.
      According to Law no. 10/2001, where restitution in integrum is not possible, the owner is entitled to compensation payable by the state.
     In the case of real properties taken over by the state without a valid title the former owners are entitled to restitution in kind. If there are improvements located on such plots of land and the land would be restituted in kind, the former owners would theoretically be entitled to request the demolition of the part of the constructions occupying the land. However, the doctrine and the courts stated that in case the buildings were constructed on the land owned by another person, the owner would merely be entitled to compensation rather than to demolish the building, as demolition was considered an excessive solution.
     Given that Law no. 10/2001, as other specific restitution laws, could have a limited application in time and is already contested at the European level and taking into account that Civil Code restitution claims are not time-barred, we suppose that the availability in the future of the Civil Code restitution claims should not be ignored.