24 November 2011

DEVELOPMENT OF REAL ESTATE PROJECTS. THE ISSUES AND SOME

POSSIBLE SOLUTIONS

1. WHAT IS THE CAUSE OF DIFFICULTIES IN DEVELOPING PROJECTS?

1.1. Legal risks related to the restitution process

1.2. Restrictive or unclear urbanism regulations

1.3. Slow reaction of authorities in relation with permitting of real estate developments

1.4. Issues related to the registration of real rights with the Land Book

1.5. Land is overpriced/Encumbrances burdening the asset

1.6. Financing banks’ behavior

1.1. Legal risks related to the restitution process

 Land Law – Law 18/1991

• overlapping titles were issued; • titles were issued to persons who later were proved as not being entitled to restitution

in the first place;• local commissions from two separate localities issued titles to different owners;• material errors were committed with respect to name and quality of claimants• interdiction to transfer the land the ownership of which has been constituted by the

Law 18/1991 for a period of 10 years as of the registration of the ownership right;

1.1. Legal risks related to the restitution process

 Law 10/2001

• restitution by equivalent of lands that were not actually available (were not in the civil circuit or were not in the ownership of the holder entity)

• majority of decisions issued under Law 10/2001 were challenged in Court• no cut-off date for actually settling the notifications/ pending notifications• until the settlement of administrative or judicial procedures regulated by Law

10/2001, any transfer, concession, joint venture, leasing, sublease, mortgage, change of destination, encumbering in any manner of the real estate assets – lands or constructions – forming the subject matter of a notification is prohibited, under the sanction of absolute nullity.

1.1. Legal risks related to the restitution process

Restitution claims under the Civil Code – virtually not time barred

• restitution claims under Civil Code have been viewed as a practical option for former owners who have failed to observe the deadlines provided by the Special Restitution Laws.

• Only Law no. 10/2001 was further amended so as to expressly forbid common restitution claims for those assets forming the subject matter of Law no. 10/2001.

1.1. Legal risks related to the restitution process

Law 15/1990

• No documents proving that the State held valid title over the relevant land• Failure to duly observe the procedure for issuance of the ownership certificates

1.1. Legal risks related to the restitution process

Impossibility to properly perform a comprehensive title due diligence

• no proper information on the complete “chain of title” • non reliable/incomplete information from public authorities further to the due

diligence investigations• no inventory of publicly owned real estate assets

1.2. Restrictive or unclear urbanism regulations

Changes brought by the Emergency Ordinance no. 7/2011 of the Romanian Government amending Law no. 350 of 2001 on land development and urbanism

• The initiative for drafting land development and urbanism documentation will pertain exclusively to the public administration authorities.

• The cases when the initiative for drafting land development and urbanism documentations may continue to belong to land owners, natural or legal persons – the flawed legal drafting technique may give rise to various interpretations of the newly introduced provisions.

• If the urbanism documentations are not updated until the elapse of their validity period, the issuance of Building Permits/demolition permits shall be suspended

1.3. Slow reaction of authorities in relation with permitting of real estate developments

The legal deadlines for reply to the applications for endorsements and permits are still not observed in practice

• The tacit approval is not applicable in relation with endorsements and permits for real estate development

• Uncertainty in relation to the possibility to issue a building permit while a litigation over the ownership right is pending

1.4. Issues related to the registration of real rights with the Land Book

Some gaps in the cadastral law provisions• Ex: Litigation over a small part of a real estate may block a de-merger or a merger of

the entire property

Non-correlation between different pieces of legislation• Ex: urbanism certificate for the purpose of the de-merger

Uncertainty in the interpretation and application of the New Civil Code• Under the New Civil Code, the registration with the Land Book is constitutive of

rights (applicable however only after the finalization of cadastral works for all administrative units)

• A certain blockage created by the interpretation and application of the New Civil Code in the activity of the cadastral offices.

1.5. Land is overpriced/Encumbrances burdening the asset

• The requested price is not the market fair price• The historical prices of the lands are maintained by the Sellers due to encumbrances

burdening the asset (land mortgages/sequesters) or due to psychological reasons

1.6. Financing banks’ behavior

The conditions precedent for obtaining the financing for a new development are cumbersome

• 70%-80% prelease• 60%-75% equity• burdensome guarantees

Some concerns raised by the interpretation and application of the New Civil Code

• Ex: Inalienability clauses are considered unwritten in a mortgage agreement, Hardship theory (impreviziune) expressly regulated under the NCC

2. POSSIBLE SOLUTIONS

2.1. From the state authorities:

• Set up of a cut-off date for forcing the settlement of all restitution claims within a precise deadline

• State being more active in the urbanism area• Correlation between relevant legal provisions• Correction of gaps in the cadastral and urbanism regulations

2. POSSIBLE SOLUTIONS

2.2. From the developers

• Sharing risks by JV development schemes• Starting projects on lands owned by JV Partners• More elaborated and complicated transaction structures/ professional real estate

developers

Thank you.

PeliFilip

Oana AlbotaPartner

Direct : +40 21 527 2010Fax : +40 21 527 2001Mobile: +40 733 551 015

oana.albota@pelifilip.com

24 November 2011

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