Immobilienrecht - Bulgarien (Englisch)

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REAL ESTATE AND PROPERTY LAW (Rechtsanwalt Tascheva)

General overview of the real estate and property situation

The transition to a new democratic system and a market economy in the years after the political turmoil in Bulgaria required legislation changes in the field of the property law. The new guidelines of the social and economic organization set forth by the Constitution of the Republic of Bulgaria of 1991, such as for example the recognition and protection of private property, freedom of commercial initiative, the creation and guarantees for equal legal conditions for the business activity of all legal entities, restriction on the forced expropriation of private property for state and municipal needs etc. – created a foundation for the necessary changes.

Based on the new Constitution, the legislation in the field of real estate and property law has been also thoroughly renewed. In addition to the classical legal institutions new ones have been adopted to match and serve the altered socio-economic system (for example, the institution of restitution, privatization, etc.). Bulgaria’s accession to the EU has brought on further changes in the legislation, mostly in the field of ownership rights of foreign persons to real property.

The concept of ownership

The Bulgarian legislation does not define the term “ownership”. Theoretically it is referred to as the most extensive, basically unrestricted right of command on property, which entitles the owner to possess this property, to use it and to dispose of it, as well as to exclude all other persons from any influence whatsoever.

The right to property has three main elements: the authority of possession, of use and of disposal by the owner. These three elements must not necessarily be there at the same time. It is within the discretion of the owner when, how or whether to use each particular right. Besides, although the owner’s use of many or even all rights might be restricted temporarily or continually, at the owner’s own will or by force, the owner nonetheless remains an owner.  When renting out property, for example, the owner doesn’t exercise the authority of use or the authority of possession, nevertheless, the owner’s right to property still exists and he can take measures to protect it.

Types of ownership

The ownership can be sorted into a number of types on the basis of various criteria. The Constitution of the Republic of Bulgaria specifies two types of ownership: a public and a private one.

Depending on the object of ownership a distinction is made between ownership of movable property and of immovable property. The immovable property according to the Property Law covers the following: land, factories, buildings and other structures as well as all other objects permanently attached to the land or to the buildings by man or nature. Movables are the objects that are not fixed. Energy (power) is deemed to belong to the movables. The meaning of this division is expressed in many directions:

a) Regarding the form of the deal: As a general rule the law sets forth stricter formal requirements for deals, connected to immovable property. The transfer of property, for example, and the establishment of a right to tenancy or right to build on immovable property have to be done in the form of a notary deed. The same applies to establishing a contractual mortgage. A written contract with notarial certification of the signatures has to be signed upon establishment of servitude, for example, or upon purchase of inherited property and sale of commercial company, which has immovable property in their inventory. A preliminary agreement for purchase of immovable property has to be concluded in writing without certification of the signatures by notary.

The deals with movables, on the other hand, do not have to be concluded in any given form, stipulated by law. In exceptional cases, only and upon alienation deals, such as for example, the transfer of motor vehicles, the law stipulates a specific form – i. e. a written contract with notarial certification of the signatures.

b) Regarding adverse possession: The right of ownership (title) over immovable property is acquired after expiry of a 5-year term in case of a bona-fide possession, respectively 10 years in case of a non-bona fide possession. The right of title over movables is acquired after a 5-year term.

The person, who acquires movable property, bona fide and in return for consideration (remuneration) even from a non-proprietor, becomes an owner of this property. The above is not allowed in case of immovable property.

c) Regarding the protection of property: The possession of immovable property is protected against all kinds of violation, whereas the possession of movables is protected only in case of extraction by force or covert means.

d) Regarding the physical collateral for the creditor:  Only immovable property can be mortgaged; on movables a right of pledge can be established.

e) Regarding the place of jurisdiction: The place of jurisdiction for claims on immovable property is determined according to the location of the latter. The same applies to the range of authority of the notary in case of deals that have to be concluded in the form of a notary deed.

f) Regarding the disposal of property in case of joint ownership: Upon disposal of a part of immovable property under joint ownership, the co-owner who wishes to dispose of it has to offer that part first to the other co-owners. That restriction does not apply to movables;

The right of title is most frequently acquired by a legal transaction. The transaction can be a contract or unilateral declaration of intent (for example a will). In case of deals for disposal (purchase, exchange, donation), the right of title is transferred to the acquirer as soon as the contract is concluded. The observance of the form, required by the law, is a necessary precondition. As mentioned above, deals with immovable property, as a rule, have to be concluded in the form of a notary deed. The same applies to deals with transfer of the right of title, as well as to all deals, the subject-matter of which are  limited property rights over immovable property (for example establishment of tenancy right or right to build).

At variance with the general rule upon transfer of right of title over immovable property, the contract for said transfer of state’s or municipal property is concluded in writing without notary-certification, instead of in the form of a notary deed. The sale of immovable property in possession of the state is carried out upon a tender by ordinance, issued by the competent administrative local authority. The contract is concluded by virtue of this ordinance. Upon sale and exchange of state-owned immovable property, worth more than BGN 500 000,–, respectively BGN 1 000 000,–, the decision is taken by the Cabinet (the Council of Ministers). The disposal of municipal immovable property is carried out by virtue of a decision, taken by the municipal council. The sale of such immovable property takes place by an auction or tender. The mayor issues an ordinance based on the results of the auction or tender and signs the purchase agreement.

The preliminary contract for the sale of immovable property has likewise to be concluded in writing and to contain the essential conditions of a final contract. According to the Bulgarian legislation each party under a preliminary contract is entitled to file a claim with the court for a final contract to be signed. In this case the right of title is transferred, when the ruling of the court comes into force.

The deals with right of title or limited property rights over immovable property have to be entered into the Register of Land Property. 

Bulgarian citizens are accustomed to buying their dwellings – the rate of home ownership amounts to 92% (82% during years of socialist rule). The availability of mortgage loans, changes in the traditional family structures and rising number of population in Sofia and other large cities contribute to a steady growth.

The office space currently in the process of construction in Bulgaria is 450 000, — sq m, the greatest part of which will be completed in the period 2009 - 2011.



Register of Land Property

Notary deeds – legal aspects

The term “notary deed” was introduced in 1892 with passing of the Law on the Obligations and Agreements. The notarial form as a precondition for validity was brought on in 1878.

The registers of property in Bulgaria are not organized according to land property, but according to persons (the personal principle). The entries take place according to the respective owner, which is often connected to expenses in order to determine the legal status of the possession and eventual encumbrances. With the Law on the Cadastre and the Register of Land Property (in force as of the 1st of January 2001) Bulgaria started the rearrangement of the entry system on the principle of the plot of land, where each land plot is assigned a separate sheet in the Register of Land Property. So far that is currently in a period of transition. Until registers of land property have been implemented for the respective local court districts, the entries will be made on the personal principal as before.

The Registry Agency at the Ministry of Justice was established in 1994. Registry Offices have been opened as local structures within the local court districts.

The main purpose of the entry into the Register of Land Property is to make certain circumstances evident. The registered deeds can be held towards third parties. Thus a deal for disposal of immovable property, for example, is effective even without being entered into the Register of Land Property, provided the notarial form, stipulated by the law, has been observed.

However, there are certain types of deeds which, to be deemed valid, need to have been entered into the Register of Land Property, such as a mortgage, for example, which is invalid without an entry. The same applies to the unilateral declarations of intent whereby the right of title or other property rights are renounced.

The entry takes place on the same day upon filing the documents. In view of the above, the Register of Land Property is reliable. However, the entry needs certain technical time and therefore the certified copy with the annotation of the entry is obtained by the authorized proxy within 3 workdays. When planning to purchase land property, it is recommendable to make a check (verification) with the Register of Land Property on the very same day of the intended purchase.

The mortgage is an encumbrance of immovable property such that grants the beneficiary the right to satisfy their claims by preference from the utilization of the property. The mortgage secures a valid claim of the mortgage creditor towards the mortgage debtor or a third party.

A mortgage is established by virtue of the law or an agreement. The Bulgarian legislation provides for a number of cases of legal mortgage. Under the Law on Obligations and Agreements, for example, there exists the case of legal mortgage, established to the benefit of the seller of a land property and serving as a security for his claims that ensue from the sale agreement, as well as the case of legal mortgage, established to the benefit of the participant in a partition deal, whom a payment up to the value of his share is owed.

The Law on Banks makes provision for the legal mortgage, established to the benefit of the bank that has granted a loan for the purchase of land property. The consent of the mortgage debtor is not required upon entry of the legal mortgage.

On the other hand, in order to establish a mortgage, it is necessary to obtain the joint consent of the creditor and the owner of the immovable property and to have the mortgage agreement entered into the Register of Land Property. Only immovable property can be mortgaged such as: plots of land or buildings as one whole unit or ideal parts thereof, as well as limited property rights, such as, for example, the right to build. The exception is the public immovable property in possession of the state or a municipality.

The law stipulates a strict form, required for the validity of mortgage by contract. The mortgage agreement has to be concluded in the form of a notary deed before a notary, who is authorized to act within the respective area of competence, where the immovable property is located. There exist certain requirements as to the contents as well. Basically, these concern details on the creditor, the debtor and the owner of the property (in case that the mortgage is established as security for the debts of a third party), description of the property, details regarding the amount and the maturity date of the covered receivable, interests etc. Likewise, for the mortgage to be deemed valid it needs to be entered into the Register of Land Property. The mortgage has to be entered ex officio by the notary before whom the mortgage agreement has been signed. The entry also determines the rank of the mortgage.

The term of validity of the mortgage entry is 10 years. It can be extended prior to the expiry of the term. The mortgage covers the receivable, the interest, the costs for establishing the mortgage, as well as the court and enforcement expenses. The legal enforcement procedure on the mortgaged immovable property has to be carried out by public auction. The claims of the mortgage creditors are satisfied from the price of the property by preference according to the sequence of the entries of their mortgages. Upon sale of the property by public auction all mortgages thereon, as well as all property rights, which have been established after the first mortgage, expire. The mortgage can stay in effect in case that the mortgage creditor takes over the secured debt.

A mortgage is deleted by virtue of the prior consent of the mortgage creditor, which consent must be notary-certified, or on basis of a valid ruling of the court. Upon deleting the entry from the Register of Land Property, the mortgage expires. 

Can a foreign person acquire right of title

Foreign natural persons and legal entities are free to acquire buildings and limited property rights (including the right to build and the right of use) over land plots and buildings. 

Up to the accession of Bulgaria to the EU the Bulgarian constitution did not allow foreign natural persons and legal entities to acquire right of title on land property, except upon succession by law. Since the 1st of January 2007 an amendment of the Constitution is in force under which the above mentioned category of persons is allowed to acquire land property under the provisions of the EU Accession Agreement, respectively any other internationally recognized agreement, valid for Bulgaria, and also through succession by law. 

Based on the transitory provisions of the accession acts, the limitations under the Bulgarian law concerning the acquisition of property rights over land plots by citizens of EU/ EEC (European Economic Space) – member states and legal entities from EU/ EEC– member states shall continue to be in force after Bulgaria’s accession to the EU, in the following cases:
- For acquisition of second dwelling– 5 years after the EU-accession;
- For acquisition of agricultural and silvicultural (forestry) land and forests – 7 years after the EU-accession.

Foreign persons can acquire unlimited right of title on land plots indirectly through a Bulgarian commercial enterprise that is 100% owned by foreign natural persons or legal entities.

Pursuant to the Bulgarian Constitution, only certain objects such as waters, strands and energy sources remain exclusive state’s property. The state can grant concessions to other legal entities to operate those objects. The maximum duration of a concession agreement is 35 years.


Lease agreement

Through the lease agreement the lessor undertakes to grant the lessee the use of property for a fixed period of time. The mutual consent of the parties on the essential components of the agreement, namely the object of lease, the lease price and the duration of the lease is necessary in order to conclude the contract.

However, the Bulgarian legislation makes provision for certain exceptions from this principle. Property belonging to the state, a municipality or public bodies, to state-owned or municipal enterprises, that are not commercial companies, can be let solely through a tender or a public auction. In these cases it is necessary to issue a valid administrative act (resolution or an order for disposition by the competent administrative local authorities, the municipal council etc.) so that the agreement could be deemed legally effective. Another exception is privatization: commercial companies undergoing a privatization procedure may conclude lease agreements only with the prior consent of the Privatization Agency.

The Public Procurement Act also refers to private companies that operate on the grounds of special approval or license in the following fields:

- production, transport and distribution of petroleum, heating and electrical energy
- pipe water supply
- public transport
- postal services
- operation of ports and airports
- drilling for oil and natural gas

Commercial companies subjected to the provisions of the Law on Public Procurement are required to have their needs for rented areas and premises satisfied through public tenders. Important exceptions in that connection are the land rental deals, rentals of buildings or parts thereof, respectively.

The law does not set forth any requirements for the form of the lease agreement. In principle, a legally binding lease agreement can be concluded in verbal form, too. However, we should point out two groups of exceptions:

- cases in which the written form is prescribed by the law;
- cases in which the written form is not obligatory, but only advisable;

The written form is a pre-requisite for the legal validity of the lease agreement in the following cases:

- lease of  state’s or municipal objects, legal entities or enterprises ; 
- lease of buildings which are cultural relics;
- lease of agricultural land;
- agreements concluded on the basis of tender or auctions;

The written form is strongly recommendable for achieving legal security. Not only does the written agreement provide necessary detail, but also, in certain cases, it can play a decisive role.    
For instance, court proceedings are substantially facilitated through the submission of written proofs of evidence. The Bulgarian Civil Procedural Code establishes the so called summary procedure for a variety of legal proceedings, incl. lease-related-proceedings. Usually the advantages of such a procedure (short terms for all procedural steps, fast issuance of court ruling, and fewer formalities) are only made possible upon filing of a written agreement.  If, however, it is necessary to take evidence from witnesses, then the case will have to switch forms and proceed as ordinary proceedings.

The written form is also necessary for the issuance of administrative permissions. Under all approval or licensing procedures the applicant has to submit a lease agreement. Such is, for example, the police procedure for issuing a residence permit to a foreigner, the registration with the municipality of a production site or shops, registration of a chemist’s or hospital, permission for mounting advertising objects (e.g. billboards), etc.
The advantages of the written agreement are also revealed in the protection of the lessee when the proprietor sells the lease object within the validity term of the lease agreement. Written lease agreements with an authentic date of signature, notary-certified, are binding upon the acquirer of the title of the leased object. The new acquirer may, in this case, terminate the lease agreement not sooner than 1(one) year after the transfer of the title.

Further, the law provides that the agreement for lease of real estate may be entered into the Register of Land Property. To this end, it is necessary that there be a written form of the agreement with notarized signatures. The entry can be undertaken either by the lessee or by the lessor without the prior consent of the other party. In that case, the agreement constitutes a charge on property that binds the new proprietor of the lease object for the entire term of the lease.

In case the lessee falls in arrears with the payment of the lease price, the lessor can save on legal costs through the notarization of the written agreement. Further, he can have the writ of execution effected without having to initiate legal proceedings. It is sufficient to just submit the agreement and make a declaration that the lessee is in arrears with the payment. 

The subject-matter of the lease agreement can only be tangibles. The jurisprudence and legislation allow other lease objects as well, such as protected intellectual rights, software etc. The lease of parts of objects is permissible too.

The total loss of a leased object gives rise to immediate termination of the agreement. No notice of terminations is required.

The contracting parties shall abide by the general provisions of the civil legislation. There must be a real business activity and free declaration of intention. No restrictions are imposed on foreigners who are involved in rental relations. 
Fixed-term agreements

In principle, the duration of a lease-related-relation is restricted to 10 years. Contractual arrangements exceeding this term are deemed to have been concluded for a term of 10 years. The breach of this provision does not render the agreement invalid, but only alters the will of the contracting parties.

The restriction of the lease term does not refer to lease agreements which constitute commercial transactions (e.g. if one of the parties is a trader and concludes lease deals within the scope of his activity by occupation). Lease agreements of such kinds can be concluded for a term longer than 10 years.

Another exception from the described regulation is the lease agreement for agricultural property. In contrast to the ordinary lease agreements what is prescribed here is not a maximum but a minimum term – 4 fiscal years. Besides, the parties to such kind of agreements can freely decide on the lease term. The fiscal year commences on 01.10. and lasts till 30.09. of the following calendar year. For tax purposes the fiscal year in Bulgaria coincides with the calendar year – from 01.01. to 31.12.

The Law on State Ownership sets forth some other restrictions. The term of lease of objects which are public property of the Bulgarian State can not be longer than 5 years.

The fixed lease term is important in terms of the protection upon termination. The notice of termination for the termless lease agreement is 1 month. If the lease is agreed per day (day by day), the notice term of termination is 1 day. Either party is entitled to terminate the agreement.

For the fixed-term lease agreements the premature termination is excluded, unless this is provided for in a termination clause.

Lease price

Upon leasing of objects by individuals or merchants the lease price is freely agreed between the parties.

The state and the municipality are obliged, upon tender or auction, to specify the minimum amount of the lease price.  The latter is based on the instructions and evaluations by different experts.

The lease price for municipal dwellings is specified by the municipality.

The rent for state dwellings is specified by the competent authorities and on the basis of a prescribed methodology.

The rent price can be fixed in foreign currency as well.

Tax aspects:

The tax regulations in Bulgaria govern unambiguously the taxation of the rent income of foreign persons. Such income is deemed to have originated in Bulgaria and is subject to 10%-withholding tax. In case that the lessor is a foreign private individual the withholding tax shall be paid after deduction of costs to the amount of 10% from the lease price which are recognized for tax purposes. Prior to the transfer of the lease price, the payer of the amounts (the lessee) must deduct the tax from the relevant amount and pay it. All Treaties for Avoidance of Double Taxation between Bulgaria and the countries from the German speaking community stipulate that that kind of income is tax-exempt.

It is recommendable to attempt to ensure that the relevant treaty be applied even prior to signing the lease agreement. As tax-exemption is associated with an affirmative statement by the tax authorities, that procedure is extremely time-consuming.    

Service Charges    

In principle, all costs related to the operation/use of the lease object shall be borne by the lessee. However, the contracting parties may agree otherwise.

The repair and renovation-related costs, the taxes due, as well as the waste disposal charges, do not pertain to the operation of the lease objects. As a rule, those costs are at the expense of the lessor.

Prior to signing the lease agreement it is essential to check whether the lease object is provided with measuring devices that are registered. The general terms and conditions of the utility companies and the administrative regulations on the distribution of electricity and water supply put a substantial burden on the consumer, in case he is not equipped with said devices, and more specifically, in the event the objects are in condominium ownership.

Signing a direct contract between the utility company and the lessee is a problematic task because of the bureaucracy involved, and such practice is not typical of private deals.

Repair. Reimbursement of expenses.

As the two topics are tightly associated, they are treated together.

The law does not regulate in detail the relations between the lessee and the lessor. As a rule the lessee bears the costs of minor repairs for damages, resulting from operation in accordance with the agreement. Such damages, for example, result from the corrosion of water taps and door locks, chimney plugging etc. They are not listed explicitly in the law, and in case of a lawsuit, the court resolves concretely on the issue.

Anything and everything that is no obligation of the lessee is deemed a lessor’s obligation to perform repairs. Hence, it is necessary that the agreements should explicitly provide for repairs so as to avoid any disputes in the future.


Reimbursement of expenses
Given the above, it becomes clear that the lessor bears responsibility for the eventual improvements of higher value, e.g. the lessee is entitled to reimbursement of expenses, if he has paid expenses for works which are a lessor’s obligation. 

As regards the lessor’s obligation to reimburse the lessee for any lessee’s investments in the lease object, it is necessary to distinguish between two hypotheses:

- management without express assignment;
- unreasonable enrichment
Management without express assignment is available, if the investments in the lease object have been made with a view to averting a risk of damage to the lease objects. 

The key question in this case is whether the lessor has approved the management or not. If he has, then the management is valid as duly performed, and the lessor has to reimburse not only the expenses, bur also to pay a reasonable remuneration to the lessee, who has acted as manager. If the lessor has not approved the management, the lessee, who is simultaneously acting as manager is entitled to claim against the lessor unreasonable enrichment.

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