This publication construes the applicability of general regulations upon the acquisition of a real estate property in Romania. One should bear in mind that every situation in particular is different and this article should be taken as a general guide providing information in this regard. For more information feel free to contact us.
What are the usual steps to buy real estate property in Romania?
In order to buy a real estate property in Romania, the buyer must be a person having the right to conclude and enter into civil contracts (usually, in the case of an individual, the main rule is that he has to be over 18 years old). If the buyer is a non-EU Member State citizen, then this aspect needs to be checked in particular for every sale. When the buyer has identified the seller and the real estate that he wants to buy and they have reached an agreement, they have to go to a Public Notary and conclude the sale contract. If the buyer has all the money to pay the price of the real estate, then they can directly conclude the sale contract. If the buyer does not have all of the money, then the parties can conclude a pre-contract in which the buyer will pay an advance of the price and the seller obliges himself to sell to the buyer the real estate property at a later date. When the buyer has all of the money, then they will need to go to the Public Notary to conclude the sale contract.
When the sale contract is concluded, the buyer has to pay the price and the seller has to hand over the keys to the property and all of the documents in relation to it. After this, the buyer has to register his purchase to the Land Registry in order to validate the sale.
What legal checks should be done before buying a property?
It is recommended that the buyer should seek professional legal assistance from a lawyer to carry out the due diligence that will the determine the particularities of the property and the process of the sale in itself.
In this due diligence, the lawyer will check that:
- The property meets the legal requirements in order for it to be validly sold;
- The seller is the actual owner of the property and is registered in the Land Registry;
- The property meets the cadastral requirements for the registration in the Land Registry;
- The property is not burdensome;
- The property complies with the urban planning regulations of the area.
Buying through a company.
Using a Company as the buyer in a sale transaction needs to be viewed from a fiscal and financial law point of view, as this is the aspect that has the most significance. Firstly, if the Company is a VAT payer and the sale of the real estate property implies VAT, then the Company can recover the amount of the VAT paid. Secondly, if the property is bought by a Company then the value of the property will be included in the depreciation expenses, thus reducing the Company’s profit tax.
However, a disadvantage is the fact that the building tax is significantly higher than the amount that an individual would owe. Also, upon resale of the property by the Company, it would owe a profit tax for the resale and also a dividend tax when the respective sum will be distributed between its shareholders.
In compliance with the Romanian Law for Preventing and Combating Money Laundering and Terrorist Financing, lawyers, estate agents, banks and notaries dealing with a real estate transaction are obliged to investigate the origin of funds to be invested in the purchase of the property. Failure to do so when money laundering is involved exposes these professionals to very serious penalties, both criminal and economic.
Most law firms follow a protocol which involves providing documentary evidence of the clients’ address, proof of funds in bank account, tax declarations etc. Should the lawyer detect there is money laundering involved, he shall stop advising the client and report the case to the competent authorities.
What are the purchase costs and taxes?
Purchase costs and taxes incurred in the purchase of a property are usually paid in the following way.
The buyer pays the followings:
- Notary fees: they are composed of a stable sum and a percentual sum, depending on the price of the property and the legal contracts signed for the completion of the sale.
- Land Registry Fees: 0.15% of the purchase price for individuals and 0,5% for Companies.
- Lawyers’ Fees: there are no specific fees set by the Bar Association. It depends on the amount of the transaction and the degree of work undertaken, plus VAT.
The vendor pays the following taxes and fees:
- If it is the case, Agent fees for introducing the buyer.
- If the value of the property exceeds 450.000 RON, then there will be a 3% tax upon the price of the sale.
What documentation must the buyer have in place before buying a property?
- Identity card or passport.
- Foreigners must also have a NIF number (Număr de Înregistrare Fiscală), which is the equivalent of an identification number in Romania for everyone who is not a Romanian citizen.
For entities (companies, associations, etc):
- Extract from the Trade Registry of the country the Company has its headquarters.
- Certificate of fiscal certification for Romanian Companies, or an Authentic Notarial Statement regarding the financial status of the foreign Company.
- For Romanian Companies, it’s registration certificate.
A bank account will also be necessary. Banks follow their own protocols to accept a client. At the very least they will ask for copy of the passports, NIF number, proof of address etc.
What precautions have to be taken regarding off-plan purchases?
Buying a property off-plan means that the property will be bought before it is built. It is convenient to do the following checks:
- Verify the developer is the registered owner of the land where the building will be built.
- Ask for copy of the urban certificate of the land, the construction permit of the building and its annexes.
- Verify that the construction permit corresponds to the project under which the building will be built.
- Make sure payments to the developer are done via bank transfer to a special account opened by the developer for this purpose which is controlled by the bank.
- Verify the developer gives the buyer a bank guarantee assuring the refund of the money as purchase price. Such a guarantee can be executed in the event the building works don’t start or are not completed on the date promised by the developer.
- The pre-contract to the sale contract should clearly state a date for the handover of the property, the amount paid in advance by the buyer, the date for the conclusion of the sale contract, the actual price that will be paid and the conditions of refund if the developer does not fulfill its contractual obligations.
- Assure the statutes of the future community of owners don’t impose any unreasonable limitation of ownership.
Tips for clients looking to build their own property.
Upon making the decision to start building one’s own property, certain documents must be obtained beforehand. Firstly, a request for a construction permit will need to be registered at the local Town Hall, along with a detailed plan of the building to be constructed. Secondly, one can use the services of a reputable builder through a services contract concluded in this respect.
After the building is completed, the local Town Hall will send its representatives to check the compliance of the newly constructed building with the provisions of the construction permit and the respective applicable regulation. If the check is deemed good, then a Minute at the completion of the works will be issued and thus the building needs only to be registered at the Land Registry.
Annual running costs.
Regarding the annual costs of a property owner in Romania, the Building Tax will be applied. It depends on whether the building is used as a living space (with the lowest tax), a commercial space or a mixed space.
If the property is owned by a Company, then it will be necessary to make proof to the Town Hall of certain contracts concluded by the Company (waste management contract, electricity contract etc.)
What minimum legal checks should be done when selling a property?
The vendor must assure he can deliver the property in the conditions agreed in the sale contract. If nothing is specified, the law prescribes that the property shall be sold in good conditions of habitability and with no hidden defect. In case of such a hidden defect showing up after completion (if the buyer was not aware of it at the time of the conclusion of the contract) the buyer can claim damages, the reduction of the price of the sale and, in case of serious defects, the termination of the contract. Also, the seller must hand over to the buyer all of the documents in relation to the sold property.
The price must be paid in full at completion. This is usually done with a payment order that the buyer hands over the vendor simultaneously with the signing of the sale contract in front of the public notary. In the case of a different type of payment, such terms must be mentioned in the sale contract in order to ensure enforceability of the buyer’s obligation to pay the full price of the sale.
Selling costs and taxes.
As it was described at point no. 5, the buyer usually has the burden of payment of the costs in relation to the conclusion of the sale contract at the Notary Public. The seller may have to pay Real Estate Agent fees if he contracted in this way.
There is also the registration tax at the Land Registry and the building tax by the new owner of the property.