The main sources of real estate law in Romania are as follows:
The Romanian real estate market registered 40% growth in 2022, reaching a value of EUR1.25 billion, according to public sources. This record level – the highest since 2007 – confirms the country’s potential to become a much bigger regional player in Central and Eastern Europe. The largest transaction recorded in Romania over the last 12 months comes from the office sector with a portfolio valued at EUR377 million. Moreover, Romanian capital surpassed foreign capital for the first time on the real estate market.
The effects of the COVID-19 pandemic are still being experienced in the real estate market, this field reacting traditionally with a delay of almost six months to the rest of the economy. Although a significant number of employers have reconsidered returning to the office or at least hybrid working at the expense of teleworking, companies need to keep in mind the new methods of human interaction and to adapt their spaces accordingly.
Economically, rising inflation and increases in interest rates have led to serious implications for the real estate market, such as slowing expansion or tightening credit standards that limit (re)financing options.
Disruptive technologies have had an obvious impact on the real estate market in Romania, as in all other areas of practice. Some real estate agencies started to develop apps for marketing management and sales of residential property, facilitating the monitoring of the selling process. Another point of interest is “green” technology, with many developers trying to reduce any negative impact on the environment by looking to integrate smart home products, in both retail and commercial projects. To enhance clients’ experience, virtual reality and architectural renderings are also used more often.
Office buildings have sensor-based technology, video monitoring and security solutions all connected via Wi-Fi, technology that more and more retail consumers want in their homes as well. Moreover, large amounts of data on blockchain might help to reduce bureaucracy or make property ownership registries more transparent. Furthermore, many developers have had the chance to work with 3D modelling programmes and have been able to fine-tune any construction detail, leading to increased consumer profits from a much better product.
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 countrywide only after the completion of the cadastral works for each territorial administrative unit. Until then, the registration of the real estate rights ensures opposability towards third parties, and the Land Book provisions have an informative effect. The deadline for completing the countrywide cadastral works is 2023.
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:
The attributes of property rights are as follows:
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:
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, offices, retail or hotels 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:
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 effect 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.
During the lockdown imposed in response to the COVID-19 pandemic, authorities and institutions were available online. However, completing certain legal documents was not possible remotely (eg, authentication by a notary public), but, in justified situations, the legal measures imposed allowed meetings for this purpose. Moreover, court activity was allowed only in cases of “special urgency”, while other cases were suspended.
As a precautionary measure, before purchasing a property, buyers usually perform real estate due diligence covering fiscal, legal, technical and/or environmental matters. This practice did not change during 2020 as a result of the COVID-19 pandemic.
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 imposes on the seller the obligation 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 parties may agree to exclude or limit the seller’s liability. However, 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 absence of any litigation and restitution claims, compliance with any environmental regulatory requirements or compliance with urban planning and building permits. Therefore, even if the Romanian legislation does not provide for new representations and warranties driven by the COVID-19 pandemic, the parties can adapt the content of the contract so that any risk is diminished or eliminated.
If the seller does not observe its contractual obligations, the buyer is entitled to apply to the competent courts for:
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 a 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 the 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:
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. Also, there are no 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 0.3% 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 or 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.
The 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, provided that the court approves enforcement in time, the bailiff identifies the assets, and, if the debtor does not request/obtain a suspension of enforcement, the above-mentioned procedure shall last at least 60 days from the date of registration of the request for enforcement with the bailiff.
During the state of emergency, the decrees of the President of Romania provided for measures concerning the field of justice, including the rule of carrying out foreclosure activity only in cases where it was possible to comply with the rules of sanitary discipline established by the authorities with powers in the field, including by the decisions of the National Committee on Special Emergency Situations, in order to protect the rights to life and physical integrity of the participants in the foreclosure.
Moreover, a government emergency ordinance 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 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 the 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. Accordingly, the insolvency legal provisions stipulate that privileged 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 borrower 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 this amount.
In order to prevent the consequences, borrowers are encouraged to include certain terms in the agreements, which establish the use of Alternative Reference Rates (ARR) as replacement rates. Moreover, they must ensure the faithful observance of the initial agreement. Thus, the result will imply a predictable, transparent and correct rate.
The main regulations and plans applicable to strategic planning and zoning are:
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).
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.
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.
However, the legislation also provides for exceptions to the rule of mandatory building permits. These include:
The rules are stricter regarding historical monuments or lands and constructions located within the protection zones.
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:
The main legislation that applies to the development and designated use of individual parcels of real estate is:
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 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:
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.
Within 30 days of the issuance of the building permit or, as the case may be, the administrative decision being made available to the public, any interested person may request the issuing local public administration authority to revoke the act, in whole or in part, if it has not produced legal effects.
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 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 regarding 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:
It should be noted, however, that 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 embrace 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 Registry 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.
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 obliged 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: (i) for the cash contribution, within 12 months from the date of incorporation, and (ii) for the contribution in kind, no later than two years from the date of incorporation. On the other hand, general partnerships and limited partnerships are obliged to fully pay the subscribed registered capital 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:
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. Inter alia, 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 Chairperson 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:
In Romania, there are three types of lease:
The 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 benefited 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 benefited 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 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.
Unless the parties agree otherwise, the rent is paid according to common practice. If there is no common practice, the rent is paid as follows:
However, the parties may agree on a different payment schedule.
During the lockdown imposed in response to the pandemic, there were certain measures aimed at helping those tenants in need, mostly related to postponing rent payments; currently this is 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 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 the 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 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 (for example, 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.
Usually, the landlord 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).
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, as the case may be, even 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 damage, 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 these 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, the agreements in progress are considered to be maintained at the date of the opening of the insolvency procedure, while any contrary provisions containing cancellation clauses are considered null and void. 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 three months of the opening of the insolvency procedure, as long as such agreements have not been fully or substantially executed by all parties involved. In this situation, the agreement is considered terminated as of the date of the notification sent to the contractor (tenant).
The insolvency legislation also entitles the contractor (tenant) 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 execute the contract.
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:
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.
The following events typically give a right to terminate.
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 the 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 bears the fee (RON75) related to this service.
As regards agreements concluded as from 1 January 2023, taxpayers that obtain income from the transfer of the use of their personal property, other than agricultural land rental income and income from the rental for tourism purposes of rooms located in personally owned dwellings, are required to register the agreement concluded between the parties, as well as any subsequent changes, with the competent tax authority within 30 days of its conclusion/change.
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 overriding 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 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.
In principle, the development agreement concluded between an investor and a contractor provides for three possible options to price a construction project:
It is worth mentioning that additional costs must be considered by the investor/developer, 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.
Law No 10/1995 on quality in constructions provides 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:
According to the Civil Code, in order to secure the payment of the price due for the work, the contractor benefits from a legal mortgage on the works, constituted and preserved in accordance with the law. 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 the 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 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 a case, neither the seller nor the buyer has the obligation 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. The supply of buildings as part of the social policy, including the land on which they are built, is subject to a reduced 5% VAT rate if certain conditions are met (mainly related to the value of the property and the usable space, the condition that the buyer is not a legal entity, etc).
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.
There is no municipal tax 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.
As a general rule, 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:
These rates are subject to the provisions of any applicable tax treaty. Moreover, 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.
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Romania’s real estate market has demonstrated a remarkable recovery in the aftermath of the COVID-19 pandemic, bolstered by steady economic growth over the past two years, even amidst global challenges triggered by the war in Ukraine. In 2022, Romania’s GDP increased by an estimated 4.5%, and the forecast by the European Commission anticipates GDP growth of 2.5% in 2023.
Compared to the EU’s average projected GDP growth of 0.8% for 2023, Romania’s economic forecast suggests strong and ongoing confidence from investors. The forecast also shows that inflation, having peaked at 13.8% in 2022, is expected to steadily decline to 9.7% in 2023 and 5.5% in 2024.
When it comes to the real estate market, Romania has long been a significant investment hub, attracting both domestic and international investors seeking substantial return on investment. The country’s robust competitiveness is in part attributed to the relatively low initial investment requirements, with labour and land costs remaining fairly low compared to Western or Central Europe.
In 2022, the Romanian real estate market reached a historic milestone, with the total investment volume surpassing the EUR1 billion mark for the first time, exceeding this threshold by more than EUR250 million. This underscores the high level of investor confidence, particularly given that the office sector, which experienced a downturn in 2020 due to COVID-19 restrictions, accounted for 62% of the total investment value.
Despite the pandemic’s impact, the market demonstrated the enduring demand for office spaces. The gradual lifting of pandemic restrictions saw employees returning to their workplaces, re-establishing the social aspects of office life. While evolving trends towards hybrid work environments necessitate modifications to workplaces, this does not mean that office buildings have lost their appeal as a profitable investment.
At the same time, the dramatic circumstances caused by Russia’s invasion of Ukraine led to a growing interest in logistics parks and renewable energy parks in 2022, particularly solar parks. This was a response to the need for quick access to resources and the steep rise in energy costs.
To further support investors, legislative efforts are underway to streamline and simplify permit procedures. Specifically, the permit procedures for renewable energy parks have been simplified, a new Administrative Code has been introduced, and a new Urbanism Code is expected to be adopted by October 2023.
Given these developments, it is anticipated that 2023 will be the year of logistics and renewable energy parks, as opposed to 2022, which was mainly focused on the office and retail sectors.
However, a shared characteristic of these new large-scale construction projects is consideration for environmental, social and governance (ESG) factors. These have now become a prerequisite for developers, not only to ensure environmental sustainability but also to appeal to their client base. Tenants and buyers are increasingly favouring buildings with certifications like BREEAM, signifying adherence to ESG criteria, and are willing to pay premium prices.
Another noteworthy development for Romania in 2022 was the enactment of implementing measures for Regulation (EU) 2020/1503 on European crowdfunding service providers for businesses. This aligns Romania with several other EU Member States that have enacted crowdfunding regulations tailored to the needs and characteristics of their local markets and investors.
The residential sector remains one of the most vibrant aspects of the Romanian real estate market. Despite Romania boasting the highest home ownership rate in the EU, the sector’s dynamism is unlikely to wane in the near future. This is because the average transaction price on a new dwelling in Romania is among the lowest in the EU and home ownership is viewed as a very stable investment.
In recent years, this trend has drawn foreign investors attracted by the relatively high return on investment offered by the Romanian market (it would take about 16 years of rent payments to equal the cost of buying a flat in the middle price bracket in the capital and other large cities).
Despite a 4% annual decline in the number of units sold in 2022, this decrease followed a remarkable 48% annual surge in the number of units sold nationwide in 2021. Additionally, the Bucharest-Ilfov region reported an impressive 9% annual increase in unit sales in 2022, and investors are confident that this upward trend will carry into 2023.
While the residential market has demonstrated significant growth, several factors may temper its pace. First, the war in Ukraine has resulted in substantial inflation and considerably higher mortgage interest rates. In addition, supply chain disruptions and delays have contributed to the postponement of some projects. This uncertainty might prompt potential investors to bide their time, awaiting more stable interest rates
Another factor, specific to Bucharest (which accounts for about a third of all residential transactions) is the annulment of the zonal urbanism plans, which has lead to significant delays in the development of new residential units. Consequently, an overall decrease in the completion of new units in 2023 is expected. However, once the zonal urbanism issue is resolved, as is expected to happen in the near future, market activity is likely to return to, or even surpass, its previous levels due to pent-up demand. Therefore, we remain optimistic about the residential sector’s appeal to investors.
The state-backed “First House” programme (a governmental subsidies programme for acquisition of the first house) and the reduced 5% VAT quota, applied to new homes not exceeding 120 square metres and approximately EUR120,000 in value, will continue to be primary catalysts for the mass-market housing segment in 2023.
At the same time, middle- and upper-class buyers have shown increasing demand for sustainable, well-built homes, as well as attention to detail, which has prompted residential developers to prioritise ESG factors and the overall quality of life offered within their residential developments.
In 2022, the office segment formed the most substantial component of the entire real estate market, accounting for 62% of the total investment volume. Approximately 120,000 square metres of new office spaces were delivered in 2022 in Bucharest, the capital being the most important location for this market segment.
Recent years have seen a shift in the dynamics of the office space market, with a growing disparity between Class A and Class B buildings. At the same time, certified green buildings have taken a dominant position in Bucharest's real estate market, amounting to over 70% of all new buildings. Such buildings are critical as the companies investing in the construction field must comply with ESG regulations.
These trends were particularly evident in the modern office market of 2022. Investors are leaning towards a different style of work environment that promotes a healthy, sustainable lifestyle. The focus has been on marketing contemporary, eco-friendly spaces that enhance workplace comfort.
After the remote work trend during the pandemic, 2022 was a year of stabilisation through hybrid work models. The office real estate sector was compelled to modify office spaces to accommodate this new reality. Although the transformation is still ongoing, employers are exploring innovative ways to reconceptualise workspaces. In this regard, the concept of shared offices gained prominence in Romania’s office real estate market. Investors delivered to the market turnkey workspaces (fully furnished, complete with internet connectivity, meeting rooms and eco-friendly communal areas), which are rentable on an hourly, monthly, or yearly basis. These flexible arrangements offer a professional, sociable co-working environment, where workspaces are shared with other businesses. Despite the demand for office spaces in 2022 remaining relatively consistent with the previous year, the vacancy rate for office spaces showed a downward trend towards the end of 2022.
In 2022, the tech sector was by far the primary driver of demand for office space in Romania, with a significant trend towards leased and subleased areas in light of hybrid work models. This, in turn, contributed to an increase in rental rates in the office sector.
Furthermore, the geographical distribution of new office buildings has been shifting. Historically, Bucharest’s new developments were primarily located in the northern and western parts of the city. Now, office buildings are increasingly being constructed in residential areas, reflecting a strategic move to bring workplaces closer to home.
Looking ahead, the demand for office spaces is projected to either slightly increase in 2023 or at least maintain last year’s trajectory. The vacancy rate for office spaces, especially for Class A premises, is expected to decrease in 2023 as the office market prepares for the physical return of employees. In this scenario, rental prices are expected to rise, particularly in the modern office sector.
After a two-year lull due to the pandemic, 2022 brought little development of new projects, adding only about 70,000 square metres of retail space. However, 2023 is expected to be a breakout year, with many new projects expected to deliver over 250,000 square metres, a nearly fourfold increase compared to the previous year.
Currently, Romania boasts a retail stock of about 4 million square metres, with shopping centers comprising more than half of this, and the remainder consisting of retail parks. In the next three years, retail development will be dominated by shopping centre projects, accounting for more than 60% of all new space slated for construction by 2025. Around 600,000 square metres of retail space are under various stages of construction, set for completion within the next two years. While the bulk of retail space is still concentrated in Romania’s largest cities, with the delivery of projects announced over the next two years, the gap between large and mid-sized cities will likely be bridged.
Interestingly, despite the increase in e-commerce during and after the pandemic, in many cases activity in shopping centres has also surpassed pre-pandemic levels. This indicates that e-commerce and physical retail can coexist harmoniously, and that shopping centres still have a strong future.
In terms of real estate investment, the best destinations for 2023 outside of Bucharest are Cluj-Napoca, Timișoara, and Iași, as the largest cities in Romania, followed by Brașov and Constanța, well-known holiday resorts and large urban centres. Other Romanian cities such as Oradea, Arad, Ploiești, Galați and Brăila have also become of interest lately. On the other hand, several investors are now focused on smaller cities with a population of less than 50,000 inhabitants, where smaller retail parks have opened.
Adding to the optimistic forecast for the retail sector in 2023 is the fact that numerous foreign retailers entered the Romanian market in 2022 or are expected to do so in 2023.
In conclusion, despite the global challenges that have strained the economy in recent years, Romania’s retail sector is experiencing robust growth and continues to attract investors.
Logistics (Industrial) Sector
The accelerated increase in the online purchases and the need for hubs that ensure fast deliveries across the country led to an increased demand for modern logistic parks.
The industrial and logistics stock continued to steadily grow, even through the pandemic years, and has doubled in size since 2017. The modern stock for industrial and logistics in Romania has now surpassed the 6 million square metre milestone, with a substantial proportion of this growth occurring in the past three years. In 2022 alone, approximately 900,000 square metres were added to the modern stock of industrial space, and current trends show no indications of a market slowdown in this respect.
Bucharest hosts half of the total supply of modern logistics space, while 40% of the remainder is located in the West/North West of Romania, along with the South and central regions of Romania. As such, a very underrepresented area is the East/North East, so we expect this to become an area of interest for developers. Specifically, the port city of Constanța has caught the attention of many, given its easy access to some of Europe’s most important transport corridors.
Even though Bucharest and the West/North West regions of Romania account for nearly 75% of the entire warehouse market, the nearly 95% occupancy rate of these spaces clearly suggests there is ample scope for further developments.
2023 is expected to see an addition of 500,000 square metres of logistics space, and developers are planning to use alternative modes of transportation, such as by air, railway and sea, for areas where the infrastructure is still underdeveloped.
Renewable Energy Sector
Given its vast hydrographic network and large areas of agricultural land constantly exposed to sunlight, Romania is a prime location for renewable energy projects.
Despite growing interest in renewable projects as early as 2015, investors were somewhat hesitant to make substantial commitments to invest in the local renewable energy market. This reluctance was primarily due to less favourable legislation and the general lack of access to adequate financing.
However, this landscape has undergone a radical transformation in recent months, driven by a confluence of factors, primarily linked to the general shortage of conventional energy resources on the global market. As a result, with the backing of EU financial support, Romanian authorities are now devising public policies to boost the attractiveness of this sector. To this end, more investor-friendly legislation has been introduced, aimed at simplifying the authorisation process and expanding the number of regions where such projects can be developed.
Furthermore, the National Recovery and Resilience Plan (NRRD) granting access to European funding is also a driving force behind market development.
However, despite a political consensus to promote this legislation reform, more steps are needed to better align and adapt it to market demands. Delays are predominantly due to a lack of coordination among the various authorities responsible for implementing the reform. Despite these challenges, the situation is continually improving, driven by market pressure, which ultimately serves as the driving force behind these changes.
In conclusion, while bureaucratic hurdles persist, improvements are expected in the medium term. The renewable energy sector in Romania is likely to become increasingly attractive to investors.
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