Real Estate 2024 Comparisons

The main sources of real estate law in Romania are as follows:

• the Romanian Constitution, as further amended, supplemented and republished;
• the Civil Code, which entered into force on 1 October 2011;
• Law No 71/2011 for the enforcement of the New Civil Code;
• Land Law No 18/1991, as further amended, supplemented and republished;
• Law No 50/1991 on authorisation of construction works, as further amended, supplemented and republished;
• Law No 10/1995 on quality in constructions, as further amended;
• Law No 112/1995 on the legal regime of dwellings transferred within the state property, as further amended;
• Law No 7/1996 on cadastral works and the real estate publicity system, as further amended, supplemented and republished;
• Law No 10/2001 on the legal regime of real estate abusively taken over between 6 March 1945 and 2 December 1989, as further amended, supplemented and republished;
• Law No 350/2001 on territorial planning and zoning, as further amended and supplemented;
• Law No 165/2013 on measures to complete the process of restitution in kind or by equivalent of properties abusively confiscated during the communist regime in Romania;
• Law No 17/2014 on several measures regulating the sale and purchase of agricultural lands located in extra-urban areas; and
• Law No 312/2005 regarding the acquisition of ownership rights over real estate by foreign citizens, stateless persons and foreign legal entities.

As anticipated, 2023 saw a dynamic energy sector, with a focus on sites for photovoltaic developments and wind projects reuniting both local developers and active foreign players. In the office segment, well-located and ESG-compliant buildings were highly sought after from a sustainability perspective, considering the prioritisation of aligning real estate investments with broader societal and environmental goals.

The most recent real estate deals have proved a sense of consolidation and economic stability despite tougher fiscal and political predictability, especially in the industrial and logistics market, where investors continue to show great interest in leasing activity due to Romania’s visible position as a regional distribution hub. The retail segment was the leader in commercial property transactions, followed by office, industrial and hotel properties, reflecting an attractive and vibrant market.

Even though the increase in financing costs has indeed impacted trading volume, the Romanian real estate market currently ensures a stable environment for investors, who remain positive and are looking to expand their portfolios with great confidence over the long term. While interest rates and rising inflation continue to be the primary concerns, a certain alleviation is anticipated during 2024, leading to reduced pressure on the construction sector.

The Romanian real estate market is expected to progressively embrace highly technological solutions to keep up with the digitalisation of the traditional investment landscape, especially in relation to the transfer of ownership through the tokenisation of land. As regards alternative sources of financing, both investors and developers are increasingly turning to real estate investment platforms, along with traditional bank financing.

The Civil Code stipulates that the ownership right over properties will only be considered as having been acquired after it is registered in the Land Book.

However, this provision is not yet in force; it will become applicable country-wide only after the completion of the cadastral works for each territorial administrative unit. Until then, the registration of real estate rights ensures opposability towards third parties, and the Land Book provisions have an informative effect.

Property rights include several attributes: possession, use and disposition. In addition to exclusive ownership, common ownership (two or more persons holding quotas over the property) is also possible, which can be either co-ownership, where the quotas are divided, or joint ownership, where the quotas are undivided.

The attributes of property rights are as follows:

• the usufruct right – using an asset owned by another person and benefiting from its products;
• the right of use – using an asset owned by another person and benefiting from its products only for family and own needs;
• the right of habitation – similar to the right of use, but applicable where the property is a dwelling;
• the easement right – owning a plot of land (the dominant tenement) and having certain rights in connection with another person’s plot of land (the servient tenement); and
• the superficies right – owning or constructing a building on another person's land and also using the relevant land.

In addition, assets that constitute the public or private property of the municipality or the Romanian state can be used on the basis of a concession right.

In addition to the main sources of real estate law, the following legal provisions should be taken into account regarding transfer of title:

• Law No 36/1995 regarding notaries public, as subsequently amended;
• Company Law No 31/1990, as subsequently amended; and
• the Romanian Fiscal Code.

Romanian law does not include specific laws for different types of real estate; the applicable laws will be the same, regardless of whether the transfer of title concerns a property in the residential, industrial, office, retail or hotel sector. Notwithstanding the general rule, certain specific conditions must be fulfilled in order for certain types of real estate to be validly transferred (agricultural land, patrimonial assets, etc), to be assessed on a case-by-case basis.

There are several ways to carry out a lawful and proper transfer of title:

• transfer agreement authenticated by a notary public;
• donation;
• inheritance;
• adverse possession;
• accession;
• public tender procedure; and
• court ruling.

After the completion of the cadastral works per administrative unit, the acquisition of the property right will be conditional upon the registration of the relevant transaction in the Land Book. Until then, the registration is only enforceable against third parties. This is especially important if, for example, there are two or more buyers of the same real estate, who have concluded different agreements with the same owner by which ownership exclusive rights have been transferred. The rule is that, if acting in good faith, the first to register the right in the Land Book has the preferred title.

In light of the laws that applied to real estate during the communist regime, investors could be exposed to certain risks, so some choose to protect their investments by concluding insurance policies. This practice is on the rise but is not yet common in Romania.

As a precautionary measure, buyers usually perform real estate due diligence before purchasing a property, covering fiscal, legal, technical and/or environmental matters. The purpose of the legal due diligence is to identify and anticipate any impediments. Buyers are interested in analysing the validity of the ownership chain, permitting aspects, environmental legal issues, corresponding corporate approvals, etc. The lawyer’s role is to recommend appropriate solutions to protect the title and, if necessary, to assist the parties in implementing them.

Romanian legislation obliges the seller to provide warranty against eviction (meaning any loss of possession or ownership rights over the property, in whole or in part, due to a successful claim in court by a third party to a real right over the property) and against hidden defects (existing or caused before/at the time of handover, but which could not be discovered by a diligent buyer without specialised assistance).

The warranties against eviction and against hidden defects are not limited in time. The parties may agree to exclude or limit the seller's liability, but it is forbidden to exclude or limit liability if the damage is caused by an act committed intentionally or through gross negligence.

Moving forward, the parties may agree on additional representations and warranties, depending on the specifics of the deal and the conclusions of the due diligence report. For example, a commercial real estate transaction may include warranties relating to the absence of any litigation and restitution claims, compliance with any environmental regulatory requirements or compliance with urban planning and building permits.

If the seller does not observe its contractual obligations, the buyer is entitled to apply to the competent courts for the following:

• in case of eviction – termination of the contract, refund of the purchase price and payment of damages; or
• in case of hidden defects – their removal, asset replacement, corresponding reduction of the purchase price or termination of the contract.

The parties may agree that one party's failure to comply with certain obligations entitles the other party to terminate the contract by written notice. In this way, court intervention is not necessary.

Investors should first focus on the ownership title and chain, so the history of the real estate must be assessed in order to identify potential restitution claims or other aspects, such as related encumbrances or existing litigation.

In a sale by public tender of properties owned by the Romanian state or its administrative bodies, specific legal procedures must be performed and related conditions complied with.

The use, limits and conditions of construction are established by or depend on the city planning and construction regulations (zoning and general plans, urbanism certificates, building permits, etc), the environmental approvals and the rules applicable in order to protect historical monuments and archaeological sites.

Separately, the taxes and possibilities of financing the asset must be taken into consideration.

The “polluter pays” principle is applied in Romania, which means that the person who caused the pollution is liable for the damage it has caused. If the buyer of a real estate asset did not cause the pollution or contamination, they need to prove that it was generated before the title transfer, by the previous owner or tenant.

The urbanism certificate details the legal, economic and technical regime of the lands and constructions existing in a specific area at the date of the request. The zonal urban plan (PUZ) is the regulatory instrument through which the integrated urban development of certain areas is co-ordinated.

These documents establish the permitted use of a piece of real estate and the conditions and restrictions to be observed in order to build, and are the preliminary documents to a building permit, which, in turn, provides much more specific parameters to be observed while carrying out construction works.

Investors are able to enter into specific development agreements with relevant public authorities in order to facilitate a project, as Romanian legislation provides for the possibility of establishing public-private partnerships under specific public procurement conditions.       

Expropriation can only take place for works of public utility, and only in exceptional circumstances. Therefore, real estate can be transferred from private property to public property in exchange for direct and prior compensation paid by the state to the owner.

In any disagreement, the court decides on the expropriation and establishes the compensation amount. If there is disagreement over the compensation amount, the court will decide on it.

According to Romanian legislation, no stamp duty or transfer taxes are charged for direct transfers of real estate made by companies. The only fees to be paid are those for the notary public services (the amount varies depending on the value of transaction) and registration with the Land Book (0.5% of the purchase price for legal entities). These are usually paid by the buyer, but the parties are free to agree otherwise.

In an indirect transfer of real estate (shares deal), Trade Register fees must be paid.       

Individuals and companies from the EU or EEA that are resident in Romania have the right to buy land under the same conditions as Romanian citizens and companies. Non-EU or non-EEA resident persons and companies have the right to purchase land in Romania for the purpose of establishing a secondary residence or a registered office. EU or EEA citizens and companies can purchase agricultural land or forests that are in the Romanian territory. Other persons and companies, and stateless persons domiciled in a non-EU country, have the right to purchase agricultural land outside the city limits under conditions governed by international treaties, based on reciprocity.

In general, the main investors in the Romanian real estate market are large private companies. Following the trends of recent years, debt financing is the most popular form of financing.

In addition, the legislation provides a number of facilities that encourage development, including a tax exemption for reinvested profit. However, even if it is not reinvested, corporate tax has a fixed rate of 16%. Moreover, no fees (building tax or property tax) are charged for buildings and land that are part of industrial and technological parks.

Mortgage Over Real Estate

In order to be valid, a mortgage agreement should meet the following requirements:

• the amount for which it is constituted can be reasonably determined on the basis of the mortgage deed;
• it identifies the parties;
• it indicates the cause of secured obligations;
• it accurately describes the mortgaged property; and
• it is authenticated by a notary public.

To be enforceable against third parties, mortgages must be registered in the Land Book.

It is important to mention that an asset mortgage also includes any products, rents, constructions, improvements and movable assets naturally linked to the respective immovable asset. Separately, the financing party may be interested in movable mortgages, mortgages over the shares of the holding company, and mortgages over proceeds or bank accounts.

As a general rule, Romanian legislation does not provide restrictions on granting security over real estate to foreign lenders, nor are there any restrictions on repayments being made to a foreign lender under a security document or loan agreement.

Since the immovable mortgage agreement must be authenticated by a notary public, a notary fee is paid by the mortgagor, the amount of which depends on the value of the secured amount.

Another fee must be paid for registering the mortgage in the Land Book (RON100 for each asset plus 0.1% of the amount of the secured debt). The assignment contract regulating the transfer of a debt secured by a real estate mortgage must also be authenticated by the notary public in order to be valid. The fee for this service is calculated by applying 0.45% to the value of the assigned debt.

In a receivables assignment agreement, the registration fee for mortgages with the Land Book is fixed at RON100.

There are legal rules that must be complied with before an entity can give valid security over its real estate assets – financial assistance rules, corporate benefit rules, etc.

Romanian law does not allow a joint stock company to advance funds, make loans nor provide guarantees for the subscription or acquisition of its own shares by a third party. However, this provision does not apply to transactions concluded by credit institutions and other financial institutions in the normal course of their business, nor to transactions involving the purchase of shares by or for the company’s employees, provided that such transactions do not result in a decrease in net assets below the cumulative value of the issued share capital and of the reserves that cannot be distributed according to the law or the constitutive act.

The unilateral undertaking by a company of an obligation – granting a guarantee and creating security, especially in favour of a third party – that reduces its patrimony without obtaining a certain form of consideration in return is a violation of the principle according to which the main purpose of setting up a company is to generate profit. In this case, there is the risk that the security interest or guarantee may be challenged by a third-party creditor.

In addition, if the benefit received by the guarantor/security provider is not proportionate to the risk undertaken, there is a higher risk that the transaction will be void for corporate benefit grounds.

Corporate compliance rules are also relevant. For instance, certain transactions can only be carried out with the approval of an extraordinary general meeting of shareholders.

In order to start the foreclosure procedure, the creditor must have an enforceable title, and the debtor's obligation must be certain, payable and due.

The rank of the real estate mortgage is determined by the order of applications for registration in the Land Book. A recorded lender has priority over the interests of unsecured creditors and also over the interests of secured creditors whose mortgage ranks are subsequent.

Romanian legislation stipulates that the enforcement of a real estate mortgage is led by a bailiff. The procedure is supervised by the court and mentioned in the Land Book. Moreover, the enforcement of a real estate mortgage is subject to the rules of traditional enforcement. Ideally, the procedure shall last at least 60 days from the date of registration of the request for enforcement with the bailiff, provided that the court approves enforcement in time, the bailiff identifies the assets and the debtor does not request/obtain a suspension of enforcement.

Moreover, a government emergency ordinance has provided for measures to grant facilities for loans granted by credit institutions and non-bank financial institutions to certain categories of borrowers, the guarantee by the Romanian state through the Ministry of Finance of the payment of interest on mortgage loans contracted by individual borrowers, and the enforceability of the debt title identifying the payment obligations of individuals benefiting from the facility.

In recent years, loan restructurings/extensions and forbearance agreements have become more prevalent, reflecting lenders’ understanding of current market conditions, as well as their willingness to constructively negotiate with borrowers confronted with financial difficulties or circumstances beyond their control. However, lenders may end up exploring the foreclosure option as a last resort.

In certain circumstances, existing secured debts may become subordinated to newly created debt by operation of law (if a lower ranking creditor pays a superior creditor the amount of the debt, it succeeds to the rank of the superior creditor) or by agreement of the parties. In a debtor's insolvency, the order of creditor debt recovery is established by law – any subordination agreements are no longer taken into account.

With regard to pollution or environmental contamination, Romania adopts the “polluter pays” principle, which means that the person who caused the pollution is liable for the damage it has caused. Therefore, the lender will only be liable if it is proven that they caused the pollution.

According to the insolvency legislation, the security interests created by a borrower in favour of a lender will not become void if the borrower becomes insolvent. However, no interest, increase or penalty of whatever nature or accessory expense may be added to claims arising before the date of opening of the insolvency proceedings, except for privileged claims.

Where a reorganisation plan is confirmed, the interests, increases or penalties of whatever nature or accessory expenses for the obligations arising after the date of opening of the general proceeding shall be paid according to the documents they result from and to the payments schedule. Where the plan is unsuccessful, they shall continue to be due until the opening of bankruptcy. Accordingly, the insolvency legal provisions stipulate that secured claims are recorded in the final table of receivables up to the market value of the security, as established by the valuation report.

For claims preceding the date of the opening of the insolvency proceedings, the lender will lodge its receivable claim along with the proofs of debt within a term set in the decision concerning the opening of the proceedings, under the sanction of losing its right to recover the receivables.

General rules for interest deductibility rules are in place, so borrowing costs incurred in a fiscal period that exceed the deductible threshold of EUR1 million are deductible for CIT purposes up to the limit of 30% of the calculation base. The non-deductible exceeding borrowing costs can be carried forward indefinitely. The limitation also applies to any debt-related costs in connection with loans granted by financial institutions.

The main regulations and plans applicable to strategic planning and zoning are:

• Law No 350/2001 regarding urban planning;
• the general urban plan (PUG);
• the zoning urban plan (PUZ); and
• the detailed urban plan (PUD).

These plans are technical documents drawn up for the regulation and development of a locality (PUG), a determined area (PUZ) or a specific location (PUD).

General

The design, appearance and method of construction of new buildings and the refurbishment of existing buildings are regulated by Law No 50/1991 regarding construction works and Law No 10/1995 regarding quality in construction works.

Procedure

According to Law No 50/1991, as a general rule, construction works are allowed only on the basis of a building permit. In order to receive such permit, an urbanism certificate is required. This document contains the rules and parameters that have to be followed and complied with by the designer of the construction, and may not deviate from the requirements set forth by the urban planning documentation of the respective area.

Exceptions

However, the legislation also provides for exceptions to the rule of mandatory building permits, including:

• repairs to fences, when their shape and the materials from which they are made do not change;
• repairs to roofs or terraces, when their shape does not change;
• repairs and replacements of interior carpentry;
• repairs and replacements of exterior carpentry, if the shape, dimensions of the gaps and the carpentry are kept, including in the situation when the materials from which the respective works are made are changed;
• plasters, paints and interior floors; and
• repairs to plasters, paints and plywood if the facade elements and the colours of the buildings are not modified.

The rules are stricter regarding historical monuments or lands and constructions located within protection zones.

Legal Obligations

According to Law No 10/1995, in order to obtain quality constructions, it is mandatory to achieve and maintain the following applicable fundamental requirements throughout the existence of the constructions:

• mechanical resistance and stability;
• fire safety;
• hygiene, health and environment protection;
• safety and accessibility;
• protection against noise;
• energy saving and thermal insulation; and
• sustainable use of natural resources.

The main legislation that applies to the development and designated use of individual parcels of real estate is:

• Law No 10/1995 regarding quality in construction works;
• Law No 50/1991 regarding construction works; and
• Law No 350/2001 regarding urban planning.

Depending on the circumstances of each case, the building permit can be issued by the presidents of the county councils, the mayors of municipalities, localities or communes, or the mayors of the sectors of Bucharest. The zonal urban plan and the detailed urban plan are approved by the local councils.

There are some situations when the consent of the neighbours is required – eg, for construction works that are necessary to change the designated use of existing buildings, or for the development of buildings with a use that differs from the neighbouring buildings. If the neighbours refuse to issue the consent, a court decision can take its place.

As a general rule, a building permit is required in order to develop any new project or complete any major refurbishment. The procedure to be followed in order to obtain the building permit is as follows:

• obtaining the urbanism certificate;
• obtaining the point of view of the competent authority for environmental protection for investments that do not require the performance of an environmental impact assessment procedure;
• notifying the competent public administration authority regarding the maintenance of the application for obtaining, as a final act, the building permit, for investments that require the performance of an environmental impact assessment procedure;
• obtaining the permits and approvals required in the urbanism certificate and also the environmental approval;
• preparing the technical documentation;
• submitting the documentation to the competent public administration authority; and
• obtaining the building permit (to be issued within 30 days of the filing of the application).

There may be additional requirements, on a case-by-case basis.

The public should be involved in all steps of the decision process related to the urban planning and designated use of the territory. The public has the right to object and, if the response is not favourable, to challenge the administrative act issued by the authorities.

The beneficiary, any interested person or interested social bodies may request the issuing local public administration authority to revoke the administrative act. If the authority’s response is unfavourable, any interested person may challenge the building permit or the rejection of the application, as the case may be, in court. An interested person may be a person whose application for a building permit was rejected, as well as any other person who may claim an interest.

Romanian legislation regarding public procurement, the provision of services and concessions allows the conclusion of development agreements with the public authorities.

Agreements with utility providers must be concluded during the construction works, as well as after the completion of the construction works.

The State Inspectorate of Construction and the local authorities supervise the construction works and sanction any violation of the rules established by law or by the building permit.

In addition, any interested person can notify the authorities of irregularities related to the construction works, and can challenge the administrative acts issued by the authorities.

Romanian companies are regulated mainly by Companies Law No 31/1990 and may be categorised according to several criteria, with the most important being nationality and legal form.

Companies that are incorporated and have their registered headquarters in Romania have Romanian nationality, regardless of the nationality or nature of their shareholders (ie, private individuals or legal entities, Romanian shareholders or other nationality shareholders).

When incorporating a company in Romania, its founders may choose between five types of companies:

• general partnership (Societate in nume colectiv – SNC);
• limited partnership (Societate in comandita simpla – SCS);
• partnership limited by shares (Societate in comandita pe actiuni – SCA);
• limited liability company (Societate cu raspundere limitata – SRL); or
• joint stock company (Societate pe actiuni – SA).

The SRL is the most common form of company incorporated in Romania, mainly due to the liability of shareholders being limited to the amount of share capital subscribed, and to its plain management rules and corporate structure.

Investments that entail the holding of real estate assets in Romania may also be carried out via alternative investment funds specialising in real estate. Addressing both retail and professional investors, their incorporation has to take the form of a joint stock company.

All Romanian companies (as well as certain individuals or other legal entities expressly provided by law) must register with the Romanian Trade Register prior to commencing trading operations, with the date of such registration being the date when the company is granted legal personality by virtue of law.

The capacity to establish a company is, nevertheless, conditional upon the fulfilment of certain legal requirements: individuals should not have been legally declared unfit, incapable or liable of criminal offences such as breach of trust, forgery, use of forgery, etc, and must have clean fiscal records, while legal entities should be legally registered and operating in the country where their main headquarters are located, with clean fiscal and criminal records.

An SRL may be established by one to 50 shareholders, while joint stock companies should have at least two shareholders, with no restriction on the maximum number of shareholders. Bearer shares are not permitted under Romanian law.

Generally, income from the transfer of real estate is taxed at the following tax rates applicable on the transaction value, depending on the period for which the property was owned/held:

• 3% for constructions of any kind and their related lands, as well as on lands of any kind without constructions, held for a period of up to three years inclusive; and
• 1% for such buildings that are held for a period longer than three years.

However, natural persons who consistently obtain income from real estate transactions may be required to register as a PFA (persoana fizica autorizata), meaning that the natural person is authorised to perform economic activity. Under Romanian legislation, this is considered as income from independent activities and will be taxed as follows:

• 10% income tax;
• social insurance contribution (pension) of 25%; and
• health insurance contribution of 10%.

If the threshold of RON300,000 is exceeded, a VAT registration will also be required.

For SRL/joint stock companies, the applicable corporate tax rate is generally 16%. However, a Romanian legal entity can opt for the application of micro-company revenue tax in lieu of the standard CIT if it cumulatively meets the following conditions as of 31 December of the previous year:

• the revenues derived did not exceed the Romanian leu equivalent of EUR500,000;
• the share capital is owned by persons other than the state and administrative-territorial units;
• it is not under dissolution, followed by liquidation;
• at least 80% of its total revenues are generated from activities other than consulting and management activities, except tax consultancy;
• it has at least one employee, except tax consultancy; and
• it has associates/shareholders that hold more than 25% of the value/number of participation titles or voting rights and is the only legal entity established by the associates/shareholders to apply the provisions related to the micro-company.

REITs are not really available in Romania. There are real estate investment vehicles, but these do not rely on the institution of a trust. The following options are available locally:

• alternative investment funds, which are regulated entities and have a real estate-focused investment policy and may appeal to the general public for investments;
• closed SPVs, which are non-regulated, ad hoc Romanian companies generally attracting a limited number of investors, do not appeal to the general public, and may be organised as joint stock companies or limited liability companies;
• issuers, which are regulated – ie, companies admitted on a regulated market focusing purely on real estate development; and
• crowdfunding vehicles, which have to comply with crowdfunding rules.

The Romanian legal framework is as follows:

• Law No 243/2019 on the regulation of alternative investment funds and for amending and supplementing certain regulatory acts regulates alternative investment funds;
• Law No 24/2017 on issuers regulates the activity of issuers on a regulated market; and
• Law No 244/2022 on the establishment of measures implementing Regulation (EU) 2020/1.503 of the European Parliament and of the Council of 7 October 2020 on European crowdfunding service providers for business, and amending Regulation (EU) 2017/1.129 and Directive (EU) 2019/1.937, regulates the activity of funding through crowdfunding.

Foreign investors should also pay attention to FDI regulations, as certain investments in real estate may also trigger FDI review.

There is no minimum share capital for SRL, SNC and SCS. The minimum share capital for SA and SCA is RON90,000. The Romanian government may adjust the minimum level of the share capital, not more frequently than once every two years, according to the exchange rate, so that this amount is the equivalent of EUR25,000.

As a general rule, work/industry contributions from shareholders to the limited liability or joint stock companies’ share capital are not allowed.

The shareholders of a limited liability company are required to pay 30% of the amount of the subscribed share capital no later than three months after the date of incorporation, but before commencing operations in the name of the company, and the balance of the subscribed share capital will be paid within 12 months from the date of incorporation for the cash contribution, and no later than two years from the date of incorporation for the contribution in kind. On the other hand, general partnerships and limited partnerships are required to pay the subscribed registered capital in full upon incorporation.

The most frequent forms of business in Romania are joint stock companies and limited liability companies. The statutory bodies of a limited liability company are as follows:

• the general meeting of shareholders (for limited liability companies with more than one shareholder) or the sole shareholder, in which case the sole shareholder shall exercise the powers of a general meeting of shareholders;
• one or more directors; and
• the auditors/cenzors, as the case may be. For limited liability companies set up by one to 15 shareholders, the appointment of cenzors is not mandatory. If cenzors or auditors are not appointed, the control of the operations will be performed by the shareholders who are not already acting as company directors.

A limited liability company can be managed by a sole director, or by more directors acting independently or by joint signature. The directors of a limited liability company can be both individuals and/or legal entities, regardless of their citizenship or nationality, and may be either shareholders or persons outside the company.

Joint stock companies may choose between two management systems: the classic one (unitary system) and the dualist management system.

If the unitary system of management is chosen, joint stock companies are managed by one or several directors, always in uneven numbers, organised as a board of directors. Entities that are legally obliged to have their financial statements audited must have at least three directors.

Under the dualist system, the company is managed by a directorate and a supervisory council. The directorate is formed by one or several members and exclusively exercises the management of the company, performing useful and necessary deeds for the accomplishment of the object of activity, except those under the competence of the general shareholders' meeting and the supervisory council. Among other functions, the supervisory council exercises continuous control over the directorate’s management of the company.

Directors do not need to be Romanian citizens. Managers of a joint stock company under the unitary system, and members of the directorate under the dualist system, are individuals. A legal entity may be appointed as director or member of the supervisory council. If a board of directors runs a company, one of them must be appointed as Chair of the Board.

It is difficult to estimate the annual entity maintenance and accounting compliance costs, since the fees of the local accounting/tax compliance providers depend on the volume of activity of each relevant entity (eg, different fees apply depending on the number of invoices issued in a month).

The right to use a piece of real estate for a limited period of time without buying it can be acquired via:

• a free-use agreement for a property (contract de comodat);
• a concession agreement;
• a lease agreement;
• a lease of a dwelling; or
• a lease of agricultural land.

In Romania, there are three types of lease:

• a lease agreement;
• a lease of a dwelling; and
• a lease of agricultural land.

Rent is one of the terms of a lease agreement that can be freely negotiated between the parties.

In the context of the COVID-19 pandemic, the Romanian government adopted some measures to sustain the business sector, including the postponement of payment of rent and utilities for, but not limited to, small and medium enterprises. The measures were applied during the state of emergency, but could only be benefitted from when certain cumulative conditions were met. Under certain conditions, tenants who were economically affected during the state of emergency had the possibility to defer on request the payment of rent for the use of buildings registered as offices, workplaces or dwellings.

Rent payments were made by the competent territorial tax authority to the account of the landlords at the tenants’ request. Tenants who benefitted from deferment had to pay the deferred amounts, representing the amount of rent paid by the authorities to the landlord, to the competent territorial tax body by 31 December 2020.

Length of Lease Term

Romanian legislation provides for a maximum duration of a lease agreement (49 years), but no minimum. If the parties establish a longer duration, it will be automatically reduced. If the parties did not provide an expiry date but did not intend to conclude the agreement for an indefinite period, the duration may be determined on the basis of the provisions of the Civil Code.

Maintenance and Repairs

The costs of any major and necessary repairs are paid by the landlord. The expenses related to the day-to-day maintenance of the property are paid by the tenant. As an alternative, these may initially be borne by the landlord and then recharged to the tenant.

Rent Payment

Unless the parties agree otherwise, the rent is paid according to the common practice. If there is no common practice, the rent is paid as follows:

• in advance for the entire duration of the contract, if it does not exceed one month;
• monthly, if the duration of the lease is longer than one month but less than one year; or
• quarterly, if the duration of the lease is at least one year.

However, the parties may agree on a different payment schedule.

COVID-19

During the lockdown imposed in response to the pandemic, certain measures were implemented to help those tenants in need, mostly related to postponing rent payments; this is currently freely negotiated between parties. Therefore, the parties may agree on clauses depending on the area of interest (eg, rent abatements in the event of future pandemics, construction build-out/supply chain issues, force majeure definitions), in order to secure the agreement and prevent potential risks caused by the COVID-19 pandemic.

Unless the parties agree otherwise, the rent remains the same for the entire duration of the lease.

In Romania, the indexation of the rent is not mandatory, remaining at the choice of the parties. However, such clauses are common in long-term lease agreements.

It is important to mention that the courts may modify the parties' rights and obligations in light of exceptional and unforeseen events.

The parties may agree for a rent change to be carried out under certain conditions and on the basis of specific calculation methods. It is important to note that many leases provide for an annual indexation of the rent, whereby the amount is changed according to certain economic indicators.

The rental of real estate property located in Romania is generally VAT exempt without deduction rights. However, the right to opt for VAT (19% standard rate) may be exercised under certain conditions.

Although security deposits for rent are not required by law, they are common in practice. The same applies to fit-out works performed by the tenant.

In addition, in order to be enforceable against subsequent owners, the lease must be registered in the Land Book and the tenant has to bear the related fee. This is useful, but not mandatory. The tenant has to pay no further additional costs at the beginning of a lease.       

For the maintenance and repair of the common areas (eg, parking lots and gardens), each tenant pays an amount proportional to its leased area.

The payment of utilities and telecommunications costs can be freely negotiated by the parties.

If there are several tenants occupying a property, the general cost of utilities is usually paid by the landlord and re-invoiced to the tenants based on their consumption. As for telecommunications, each tenant normally concludes agreements directly with these suppliers.

The landlord usually concludes a building insurance policy and an insurance policy for natural disasters, with the latter being imposed by current legislation with regard to dwellings and residential units. The tenant usually concludes insurance policies relating to the assets and business within the leased premises (assets, activity, persons).

COVID-19

Some tenants have recovered some costs under their business interruption insurance policies, as per the strict provisions therein. However, many insurance companies have re-evaluated their policies in order to add exclusions in case of COVID-19-related loss of business, or to expressly provide limited coverage for certain business interruption related to COVID-19.

The tenant must use the leased property prudently and diligently, according to the purpose provided in the agreement or the use presumed on the basis of certain circumstances (eg, previous use of the property). Otherwise, the landlord may claim damage compensation and even, as the case may be, termination of the contract.

Under certain conditions, changing the leased property designation requires the approval of the neighbours.

If the tenant modifies the property or uses it in such a way as to cause damages, the landlord can claim compensation and, as the case may be, terminate the contract. The landlord has the right to keep the improvements to the property made without prior approval and cannot be obliged to compensate the tenant for such. It is the landlord’s choice to request the tenant to return the property to its original condition or the payment of compensation for any damage caused.

The rules established by the Civil Code apply to lease agreements, while the law provides for specific provisions for dwellings, most of which create additional protection for the tenant. Agreements for the use of agricultural land (contractul de arendă) also fall under certain specific legal provisions.

According to the insolvency legislation, any agreements in progress are considered to be maintained at the date of the opening of the insolvency procedure, while any contractual clauses terminating ongoing contracts, forfeiting the benefit of the term, modifying the contract to the detriment of the debtor or declaring early enforceability for the reason of the opening of proceedings shall be deemed unwritten.

However, in order to increase the value of the debtor’s patrimony, the judicial administrator/liquidator may terminate any agreement, unexpired leases or other long-term agreements within a limitation period of three months from the date of the opening of the insolvency procedure, as long as such agreements have not been fully or substantially performed by all parties involved. In this situation, the agreement is considered terminated as of the date of the notification sent by the judicial administrator of the debtor (tenant) to the landlord.

The insolvency legislation also entitles the other contracting party (landlord) to notify the judicial administrator/liquidator of the termination of the agreement. The judicial administrator/liquidator must respond within 30 days, under the sanction of the contract being considered terminated at the end of such term. Accordingly, the judicial administrator/liquidator will no longer be able to request the performance of the contract.

If the insolvency administrator/liquidator requests the performance of the contract, they shall state quarterly in the activity reports whether the debtor has the funds necessary to pay for the rent.

On a separate matter, for claims that are dated before the opening of the proceedings, the landlord will lodge its statement of receivable along with the proofs of debt within the term set out in the decision to open the proceedings.

The most common forms of rent security that protect the landlord against the failure of the tenant to fulfil its obligations are:

• rent deposits;
• bank guarantees; and
• parent company (corporate) guarantees.

As a general rule, the tenant does not have the right to continue to occupy the relevant real estate after the expiry or termination of a commercial lease. If the tenant continues to occupy the premises and fulfil its obligations after the expiry date, without any opposition from the landlord, the lease is automatically renewed for an indefinite period, under the same conditions, including those related to guarantees.

If it is not expressly prohibited by contract, the tenant may conclude a sublease or even assign the lease. These agreements may cover all or a portion of the leased premises.

Any prohibition on subleasing also includes a prohibition on assigning the lease, but a prohibition on assigning the lease does not include a prohibition on subleasing.        

If the duration is indefinite, any party may terminate the agreement by notifying the other party. The legislation stipulates the notice period that must be observed. When one of the parties to the lease does not perform its obligations arising from this agreement without justification, the other party has the right to terminate the lease, with compensation, if applicable, according to law.

If the property is completely destroyed or can no longer be used for its designated use, the agreement shall terminate ipso jure. If the impossibility of using the property is only partial, the tenant may claim either the termination of the lease or a proportional reduction of the rent, depending on the circumstances. If the defects of the real estate or the disturbance in law are so serious that the tenant would not have concluded the lease if they had known of them, the tenant may terminate the contract, in accordance with the law.

If the performance of necessary repairs impedes the tenant’s use of the leased premises, the tenant may terminate the agreement. If the tenant modifies the real estate (or its designated use) or uses it in such a way as to cause damages to the landlord, the latter can claim compensation and, as the case may be, terminate the contract.

There are also specific provisions regarding the lease of a dwelling and the lease of agricultural land.

However, the parties may also agree to other termination clauses.

Although Romanian legislation does not impose such an obligation, the lease must be registered in the Land Book in order to be enforceable against subsequent owners. As a general rule, the tenant covers the fee related to this service (RON75).

For agreements concluded after 1 January 2023, taxpayers who obtain income from the transfer of the use of their personal property, other than agricultural land rental income and income from the rental of rooms located in personally owned dwellings for tourism purposes, are required to register the agreement concluded between the parties, as well as any subsequent addenda, with the competent tax authority within 30 days of its conclusion/change. Such requirement is mandatory for natural persons, but optional for legal persons.

When the tenant fails to perform its obligations arising from this agreement without justification, the landlord has the right to terminate the lease and claim compensation, if applicable.

Upon prior written notification, and if the tenant refuses to leave the premises voluntarily, an eviction is carried out on the basis of a court decision. In addition, the tenant must pay the rent due until the date of the effective vacation of the premises.

There are certain circumstances that allow the public authorities to terminate a lease agreement by expropriation – for reasons of over-riding public interest at a local or national level. More specifically, any lease agreement shall terminate ipso jure in the course of expropriation procedures, on the final judgment date.

If the leased property is registered in the Land Book, the agreement must also be recorded with the Land Book in order to be enforceable against any subsequent owner; otherwise, the subsequent owner may terminate the lease. For properties that are not registered, the agreement must have a certified date prior to that of the transfer in order for the lease to be enforceable against any subsequent owner.

As mentioned in 6.16 Forms of Security to Protect Against a Failure of the Tenant to Meet Its Obligations, certain forms of security can be provided to a landlord to protect against a failure by the tenant to meet its obligations. In order to cover the damages, the security deposit will be retained in full or in part, depending on the case. If the damage exceeds the security deposit, the lessor can obtain compensation by a court decision.

In principle, the development agreement concluded between an investor and a contractor provides for the following three possible options to price a construction project.

• The estimated price, in which the costs of the project or the provided services are subject to an estimation, and as a consequence any increase of costs must be justified by the contractor. The beneficiary is not obliged to pay the increased price, unless this increase results from works or services that were not foreseen by the contractor at the conclusion of the contract.
• The price set depending on the level of works or services, in which case the contractor has a legal obligation to inform the beneficiary regarding the state of works, the services provided and the costs incurred.
• The standard price, in which the contract is concluded for a global price, where the costs are not subject to any kind of modification, regardless of the circumstances that may arise during the development of the project.

The investor/developer should also consider any additional costs, such as may be caused by obtaining all the necessary legal permits required to start construction (eg, building permit).

Under Romanian legislation, construction works are undertaken by a contractor, while the design project of a construction is prepared by an architect and the civil engineer. The responsibility is divided between the contractor, the architect and the engineer. The contractor is liable for the quality of the work (eg, hidden defects of the construction or any other faults in the construction that may arise from improper execution of the project), whilst the architect or engineer is liable for any defects that may arise from a faulty design in the construction project.

The Romanian Civil Code provisions are as follows.

• There is a general guarantee for hidden defects, whereby the contractor guarantees the beneficiary for any hidden defects over a period of three years starting from the receipt of the project, or starting from the date when the defect was revealed (provided that the defect is discovered within the initial three-year period). A hidden defect is defined as a defect that could not be discovered or foreseen by a prudent and diligent buyer.
• Based on the freedom of agreement principle established under the law, the parties may agree on conventional guarantee terms, so a limitation of liability is possible. It will, however, not operate for those defects that were or should have been known to the contractor.
• Guarantees for hidden defects are subject to special regulations.

Law No 10/1995 on quality in constructions states that a ten-year guarantee is provided with regard to the liability of the constructor and other participants in the construction process (eg, architect, authorised site manager, developer, designer). Such individuals can be held liable for hidden defects that arise from their fault, such as defects that may affect the structural elements of the construction (the ten-year term runs from the project’s receipt).

The buyer of a construction with hidden defects may file a liability complaint for hidden defects to court within three years from the receipt of the project or the date the defect was discovered.

The schedule of the construction project is usually subject to clear milestone and completion dates, which are agreed upon by the parties prior to the beginning of the construction. A common method used to sanction the constructor if the milestone or completion dates are not observed is delay penalties, usually backed by a guarantee. In this regard, the parties assess in advance, by means of a penalty clause, the extent of the damage suffered as a result of the delay in the execution of the obligation.

If the delays in the execution of the obligations are serious and substantially affect the works, the termination of the contract is also an option, although this is an undesirable outcome considering the implications that may arise from it.

Additional guarantee clauses for the proper execution of the works are as follows:

• successive deductions of 5% to 10% of the corresponding value of the invoices issued by the contractor, during the execution of the contract – the amounts charged as a guarantee will usually be refunded to the contractor after the final reception; and
• a letter of bank guarantee representing 5% to 10% of the total value of the works.

According to the Civil Code, the contractor benefits from a legal mortgage on the works, constituted and preserved in accordance with the law, in order to secure payment of the price due for the work. Without any formality, the mortgage extends to the construction and its accessories, even if they are subsequent to the constitution of the mortgage.

The receipt of the works represents the final procedure that must be fulfilled before the construction can be commissioned. This procedure is performed by the Reception Committee (eg, a representative of the Competent Public Authority, a representative of the investor, a representative of the State Inspectorate in Constructions and one to three specialists in the field of constructions), whose purpose, inter alia, is to verify compliance with the provisions of the building permit, the execution of the construction works in accordance with the contract and the completion of all the construction works.

The construction can be put into use only after the receipt of the works is completed and the reception report has been signed by all the Reception Committee members.

The sale and purchase of real estate property located in Romania is generally VAT exempt without a deduction right, except for new buildings and plots of land that can be built upon, which are generally subject to 19% VAT. Moreover, the right to opt for VAT (19% standard rate) for transactions that are generally VAT exempt may be exercised under certain conditions.

The supplies of real estate, if subject to VAT, fall under the reverse-charge mechanism if both the buyer and the seller are registered for VAT purposes in Romania. In such cases, neither the seller nor the buyer is obliged to pay VAT to the state budget. Furthermore, no VAT would be triggered if the real estate is transferred by way of a transfer of a going concern that is outside the scope of VAT.

As of 1 January 2024, the supply of buildings as part of the social policy, including the land on which they are built, is subject to the reduced rate of 9% (previously 5%). The delivery of housing as part of the social policy is understood to cover housing with a usable surface area of a maximum of 120 sq m, exclusive of household annexes, the value of which, including the land on which the housing unit is built, does not exceed RON600,000, exclusive of VAT. This reduced rate applies only to homes that, at the time of delivery, can be lived in as such (the definition of “housing that can be lived in as such at the time of delivery” has been also modified).

As a general rule, the mitigation of real estate property transfer tax occurs if a sale, merger or demerger of shares of an entity owning real estate is implemented, rather than a simple sale of real estate. In cross-border share transactions, the provisions of the double tax treaties concluded by Romania with other countries should be observed, since in certain cases the sale of shares of companies whose assets consist mainly of real estate located in Romania may shift the taxation of the sale of shares to Romania.

No municipal tax is paid on the occupation of business premises. However, subject to limited exceptions, real estate used for paid tourist accommodation attracts a special tax for tourism established by each city council, which is collected from the tourist.

Municipal taxes (property taxes – building tax or land tax) also apply to the ownership of real estate and certain other limited real rights (ie, lease, concession, administration or use of public or private property of the state or of the administrative-territorial units). There are certain exemptions from property tax, but they are generally limited to non-profit, religious organisations, educational institutions, hospitals, governmental institutions, persons with disabilities, etc.

Rental income or revenue from the sale of real estate paid to non-residents represents Romanian-source income and is subject to Romanian taxation, based on the same rules as apply for the following:

• Romanian companies – 16% profit tax applied to the difference between the rental income and the expenses incurred for realising this income, or 16% applied to the sale price minus (i) the expenses for acquiring, constructing or refurbishment, out of which the depreciation value is excluded, and (ii) the commissions, taxes and other amounts paid with respect to the sale; and/or
• individuals – 3% of the transaction value for buildings of any kind and land relating thereto, as well as on land of any kind without buildings, held for a period of up to and including three years, and 1% of the transaction value for such properties that are held for more than three years.

These rates are subject to the provisions of any applicable tax treaty. There is no withholding tax for the buyer.

As a general rule, if the owner of the property is a company subject to Romanian corporate income tax, depreciation is allowed (on a straight-line basis) on the acquisition value of the buildings. Plots of land are not eligible for tax depreciation.