Restitution of Land – the Never-ending Saga
It is well known that, after emerging as democracies in the 1990s, Central and Eastern European States passed restitution legislation that covered property abusively taken over by the communist regimes. Some states have been more successful than others and Romania is not exactly on the top of the list.
The Romanian restitution process started in 1991 with the enactment of legislation covering farming and forestry land and continued in 2001 with the long overdue urban dwellings restitution law. Both pieces of legislation incurred significant amendments over time. Due to a broad range of factors such as unclear legal provisions, lack of proper inventory and organization, bureaucracy, contradictory court rulings, the entire process has been and continues to be a real [estate] adventure.
One of the main hurdles has been the lack of updated maps and land movement inventories as well as and the inefficient collaboration between authorities. This led to the issuance of ownership certificates to different individuals over the land plot/area as well as the issuance of ownership certificates for lands which were included in the public property of the Romanian State or its territorial administrative units. There has even been a case where an ownership certificate has been granted for a small part of the Danube river!
In addition to the abovementioned overlaps, the confusion generated by the transition from one (if not the) most severe European communist regimes to a brand-new democracy brought to the market various transactions having as goal the transfer of lands pertaining to public property to private ownership. By way of example, we mention deals such as (i) swaps between lands included in the public property of territorial administrative units and lands of a “similar” nature owned by private individuals or entities or (ii) the acquisition of public property through enforcement or bankruptcy proceedings initiated in relation to state owned entities which managed lands included in the public property inventory.
“Mistakenly” Acquiring Public Property Produced Devastating Consequences
Under Romanian law, property is divided in two categories: (i) private property which can be owned by individuals, companies as well as pretty much any type of entities, including the State and its territorial administrative units and (ii) public property which can be owned only by the State or its territorial administrative units. Pursuant to the Romanian Constitution, public property cannot be acquired by regular swaps or by acquisition under enforcement/bankruptcy proceedings. Furthermore, public property cannot be acquired by private entities based on errors made by the authorities or as consequence of mid or long-term possession (usucapion).
Public property is of utmost importance in Romania and this has been learned the hard way.
In the recent years, many cases involving the revendication of lands included in the public property inventory have been on the table of the Romanian courts and nearly always the results have been unfavorable to the private entities which acquired public property by “mistake”.
In addition, where there was an indication that individuals/companies might have been aware of the incorrect public property status of the land, criminal prosecutions followed. Many prosecutions resulted in criminal convictions.
What is to be noticed is that criminal prosecutions and convictions, where the case, have been also related to subsequent acquisitions performed several years after the initial acquisition of public property. To give you an example, if A purchases a land from B and the said land is public property “mistakenly” acquired by B, A can face criminal charges if it is proven that he was aware of the public property status and he moved forward with the purchase nevertheless.
Investors and Professionals Alike Still Fail to See the Signs
Although the issue is getting more visible, many times people still struggle to understand the risks involving the acquisition of real estate pertaining to public property. This is due to various factors including the lack of extensive legal literature on this topic.
We have seen experienced professionals falling into traps such as: “subsequent acquisitions bear only the standard civil law risks of losing the ownership right”, “if it is done with the public authority approval, then the deal can go through” or “there are high chances of obtaining a favorable court ruling”. About subsequent acquisitions we have already discussed. In relation to the “blessing” of authorities, it is important to highlight that it brings no benefits unless it is based on express provisions of the law. Finally, the chances for the courts to rule that real estate belonging to the public property has somehow been transferred legally to the private sector are low.
There Are Solutions and a Path Forward
As a conclusion, when performing real estate due diligence, it is extremely important to assess whether there are signs of the real estate in questions pertaining to public property and, if so, carry out a thorough investigation. The results of such investigation may help the client either realize that the respective investment is a “no-go” or perform the necessary proceedings to exclude the risks. We emphasize that, when we deal with public property, we need to exclude, not mitigate, the risks.
Sometimes solutions can be found. Depending on the particularities of each situation, theoretical avenues provided by law may be or may be not successfully implemented.
By Alexandra Minca, Associate, Anca Mihailescu, Partner Ijdelea Mihailescu