Real Estate in BULGARIA
The major legislative acts governing real estate and real estate transactions in Bulgaria are the Bulgarian Constitution, the Ownership Act, the State Property Act, the Municipal Property Act, the Privatization and Postprivatization Control Act, the Civil Procedure Code, the Encouragement of Investment Act, the Territorial Development Act, the Obligations and Contracts Act, the Condominium Ownership Management Act and the Ordinances on its implementation, the Constructors Chamber Act.
Types of ownership over real estate
Ownership of real estate in Bulgaria may be public or private.
Public ownership includes properties of public interest and those designated for public use only and public functions, such as the coastal beach, national roads, forests and parks, streets, squares, museums and schools.
Public properties belong to the state and municipalities and are operated by the respective administrative department. They can be granted for operation to third parties through concession or lease upon satisfying conditions explicitly stated by law. In the latter case, the lease period for public state and municipal properties cannot exceed 10 years, as the granting of the lease in both cases is subject to public tender procedures.
Public properties cannot be disposed of (i.e. by sale purchase, donation, in-kind contribution, exchange) and cannot be acquired on the basis of possession and expired prescription period. However, limited property rights (e.g. construction right) may
be granted for municipal public properties and for state public properties (except for exclusively state owned properties and those related to national security), when provided by the law.
Private properties can belong to individuals, entities, the state and municipalities following the limitations provided for foreigners (see Section “Direct acquisition” below). Private properties can be subject to real estate transactions. The sale and purchase of state and municipal property is usually executed by public tender or as part of a public-private partnership (PPP) project. The exchange of ownership title or construction right over private state and municipal real estate property can be performed only in cases explicitly specified in the law. The lease period for state and municipal private property cannot exceed 10 years and the granting of a lease is subject to public tender procedures or PPP procedures.
When the property belongs to two or more persons, co-ownership is established. The co-owners decide operations by majority and each has a right of first refusal in case of disposal of the property. The co-owners can authorize one of themselves to represent their co-ownership before third parties.
Buildings can represent condominium ownership. In this case, floors or specific units of floors may be exclusively owned by separate persons while condominium ownership areas for all owners in the building are the façade, the roof, the construction and everything which is for common use. Condominium ownership is established when: (i) the building is completed, (ii) the floors in the building are two or more, and (iii) floors or specific units on the floors belong to different owners (see Section “Condominium ownership management” below).
Condominium ownership management
The Condominium Ownership Management Act (COMA) in force as of 1 May 2009 regulates the regime of buildings under condominium ownership, namely the management of common areas, the rights and obligations of the owners and occupants of individual dwelling units or parts thereof, as well as adjacent areas (see Section “Regulation and planning” below) and the technical certificate (see Section “Execution of construction works and entering into exploitation” below).
The COMA shall be applicable to the management of common areas of buildings under condominium ownership, i.e. in case floors or separate units (apartments, shops, restaurants, etc.) of buildings are owned by different owners.
There are two exceptions in which the COMA shall not apply, namely: (i) in case of buildings under condominium ownership with up to three individual units, belonging to more than one owner (in this case the general rules of the Ownership Act shall apply); and (ii) in case of buildings under condominium ownership in closed-type residential complexes, the management of the common areas shall be agreed by written contract with notarized signatures, concluded between the investor and the owners of the individual units.
As per the COMA, condominiums shall be managed by a general assembly of owners and/ or by an association of owners. Unlike the general assembly of owners, the association of owners is a legal entity, which shall be established in accordance with the procedures set out in the COMA. The general assembly of owners or the association of owners may decide to transfer the maintenance of the building by means of contract to a third party – individual or legal entity.
For the purposes of maintenance of the common parts of a building, a special Repairs and Renewal Fund should be created. The general assembly of owners/the association of owners adopts a plan for performance of repair works, reconstructions and reorganizations in the building.
By virtue of the COMA, the municipalities shall establish and maintain public registers of buildings or separate entrances under condominium ownership located on their territory.
Evidence of title
The ownership title and limited property rights over real estate property in Bulgaria are evidenced by ownership title documents (usually in the form of a notary deed). In addition, the law requires that title documents are registered at the Land Registry. By virtue of this registration, the acquisition of the ownership title or limited property rights becomes defendable against third parties.
The register number of the property in the Land Registry is completed on the front page of the title document. The register number, the signature of the Registry official and the stamp of the Land Registry entered on the title document are sufficient to evidence the current owner of the real estate property or the limited property rights over it.
Acquisition of real estate
Direct acquisition
In Bulgaria, foreign citizens and foreign companies can directly acquire buildings, premises within a building and limited property rights (e.g. a construction right, right of use). There are restrictions to foreigners owning land in Bulgaria, except for the cases reflecting the provisions of the Act of Accession of Bulgaria to the EU into the national legislation, as described below.
The Accession Act provides for restrictions for acquisition of land by EU citizens and entities as follows: (i) for land provided for second residence and (ii) for agricultural land, forests and forest land. Since the five-year transition period for second residence expired on 31 December 2011, the EU residents and entities can acquire urban land in accordance with the requirements specified by national law. The Ownership Act, regulating the acquisition of land, does not specify whether the general legislative provisions shall apply to the acquisition of land by EU residents and entities or specific rules should be adopted for such acquisition.
In view of the principles of free movement of goods and services set out in the Treaty on the European Union, it might be assumed that the general provisions concerning transactions with real estate should apply to EU acquirers as well. However, some documents that should be provided by Bulgarian individuals and entities cannot be applied directly to EU acquirers. Therefore, the possibility for introducing specific rules to be applied to EU acquirers cannot be excluded. Considering the significance of the issue discussed, it is expected that the Property Register and the Chamber of the Notaries Public will adopt a unified practice. The above restrictions are not applicable to resident citizens, who are self-employed farmers who wish to settle and reside permanently in the Republic of Bulgaria and who are registered in that capacity in the BULSTAT Register with the Bulgarian Registry Agency. They may acquire ownership title over agricultural and forestry lands for agricultural purposes as from 1 January 2007 – the date of the entry into force of the Act of Accession of Bulgaria to the EU.
Citizens (non-resident citizens) and entities of countries which are not members of the EU and the EEA may acquire ownership title over land under the terms of an international agreement ratified under the terms provided for in the Constitution of the Republic of Bulgaria, which has entered into force.
Foreigners (non-resident or resident citizens) may acquire ownership title over land in case of legal succession. In case of inheritance of agricultural land, forests or forestry land, if the foreigners do not fulfill the conditions provided for in the Act of Accession of Bulgaria to the EU, or when something else is not provided for in an international agreement, they are obliged, within three years following the revealing of the inheritance, to transfer the ownership to persons who have the right to acquire such estates.
Indirect acquisition
The restrictions on the acquisition of land by foreigners do not apply to Bulgarian legal entities involving foreign participation. Therefore, foreign legal entities and individuals can effectively acquire ownership rights over land through the acquisition of shares or an interest in existing Bulgarian companies, or through the establishment of such companies under Bulgarian law. It is possible for such a company to be 100-percent owned by a foreign investor.
Another possibility for indirect acquisition of a real estate in Bulgaria for a foreign company or a foreign citizen is to buy shares in the capital of an already existing Bulgarian company, which then may act as acquirer.
Foreign companies and foreign citizens, furthermore, can acquire the shares in the capital of a Bulgarian company which already owns a real estate in Bulgaria.
Transaction documents
The general rule under Bulgarian law is that transactions involving real estate (e.g. a purchase, exchange, etc.) must be executed with a notary deed before a registered notary public in the region where the real estate is located.
The form of a notary deed is mandatory not only for transactions for transfer of ownership title over real estate properties, but also for establishment of limited property rights over real estate properties (e.g. construction right, right of use, etc.).
After execution of the deed, the notary public is obliged, by law, to register the transaction into the Land Registry in order to make the title of the acquirer defendable against third parties.
For other real estate transactions, such as in-kind contribution, the sale of a commercial enterprise containing real estate properties and a voluntary distribution agreement, notarization of the signatures is sufficient.
A notary deed is not required for the sale of state or municipal property or in privatization transactions where the simple written form is sufficient for a valid title transfer. There are also special rules and procedures governing the acquisition of real estate arising from enforcement, insolvency and similar procedures.
Project development
After the acquisition of the real estate, the owner can commence the project development, since Bulgarian legislation recognizes as an investor the owner of land or the holder of a construction right. However, certain exceptions are provided for the cables and pipelines of the common technical infrastructure, such as electricity cables, water and sewerage pipelines, telecommunication cables, etc.
Determining the feasibility of a real estate project is a complex process. It requires input and knowledge from different areas, such as urban planning; geodesy and geology; structure, installation engineering; etc. The process also considers the potential environmental impact of the project and examines the investor’s ability to financially support the project. Due to the many elements in the project development process and because each project is unique, the process may vary from project to project.
The main stages of development process can be divided into:
• regulation and planning stage
• environmental impact assessment
• permitting construction works and
• execution of the construction works and commencing use.
The major legislation governing the development process in Bulgaria is the Territorial Development Act (TDA), the Chamber of Constructors Act, the Chambers of Architects and Engineers in Investment Design Act, the Development of the Black Sea Coast Act and various sub-legislative acts.
Regulation and planning
The regulation and planning stage comprises approval of a Detailed Development Plan (DDP) or amendment of an existing DDP, applicable when the provisions of the current DDP are not sufficient for the investor. The effective DDP is the first precondition for commencing construction works.
The DDP can consist of a regulation part (plan for regulation) and/or a construction part (plan for construction). The plan for regulation transforms an unregulated land plot into a regulated land plot through determination of its borders (regulating lines) and provides access to the land plot from a street. In relation to the future construction, the construction part of the DDP specifies the construction parameters such as type and height of the building(s), the maximum density and intensity allowed, as well as the minimum green area.
Generally, the DDP is approved by the municipal authorities, but for construction projects of regional or national significance the DDP is approved by the Regional Governor or by the Minister of Regional Development and Public Works.
There are specific rules regarding buildings under condominium ownership introduced by the COMA and the TDA.
Specific requirements to the DDP can be stipulated for leisure and possible land-slide areas, archeological areas and other similar zones. For example, only limited construction activities can be provided in a newly regulated land plot located in an area of 100 meters from a coastal beach. The Cultural Heritage Act, in force as from 10 April 2009, provides for various measures for protection of the immovable cultural heritage, including special rules regarding the territorial planning and development of protected cultural zones.
By virtue of amendments of the TDA (SG, issue 82/26 October 2012) effective from 1 January 2016, new requirements regarding development of construction projects outside urban boundaries were established.
Environmental impact assessments
Environmental impact assessments are required for real estate projects in two cases:
• for projects which are presumed to impact the environment, such as chemical factories, oil refineries, thermal power plant, etc., and
• for projects impacting existing protected areas (reserves, national parks, etc.) or existing and potential protected zones (Natura 2000).
For certain projects, procedures for assessing the need for environmental impact assessment should be performed.
Protected areas are designated to conserve biological diversity in ecosystems and natural processes occurring in them, as well as typical or unusual non-living natural features and landscapes. Protected areas represent national parks, nature reserves, natural monuments, natural parks and protected sites.
Natura 2000 is an ecological system of protected zones in the European Union, namely zones for the conservation of wild birds and zones for the conservation of natural habitats. As an EU Member State, Bulgaria must comply with all relevant EU legislation and directives, including EU Directive 92/43 on the conservation of natural habitats and wild fauna and flora and EU Directive 2009/147 on the conservation of wild birds, which repealed Directive 79/409. The requirements of both directives were implemented in the Bulgarian Biodiversity Act.
Though the protected zones in Bulgaria are still not fully approved, the legislation requires assessment of projects impacting the potential protected zones to be completed.
At present, the Council of Ministers has adopted decisions for approval of 336 protected zones under Natura 2000.
The announcement of other protected Natura 2000 zones is still in process. Interested parties may appeal the draft orders within a one-month term of their publication.
More information on Natura 2000 zones in Bulgaria, including detailed lists and maps, is available on the internet at: http://www.moew.government.bg/ and http://www.natura2000bg.org/.
Permission of construction works
Construction works are permitted on the basis of an effective DDP.
Chronologically, the process starts with the investor’s assignment of a project for execution of an investment design. After that, preliminary contracts between the investor and the utility companies must be concluded and a valuation of the investment design must be obtained. In some cases, coordination with special controlling authorities (e.g. environmental inspection, fire safety department) is required.
The investment design is subject to approval by the respective administrative bodies and it serves as a ground for the issuance of a construction permit.
The investor may apply for the construction permit simultaneously with the submission of the design for approval. If the construction permit is requested separately from the investment design approval, the permit must be issued within seven days of the request.
The construction permit may be issued for the entire project or, predominately for complex infrastructure projects – for different stages of the project which can be executed and used separately.
In general, the investment design is approved and the construction permit is issued by the chief architect of the municipality.
The construction permit issued by the chief architect of the municipality must be announced to interested third parties who are entitled to appeal the construction permit together with the approved investment design before the local department of the National Construction Supervision Directorate (NCSD), where the construction project will be situated. In addition, the NCSD is entitled to perform an ex-officio inspection and to repeal the construction permit within seven calendar days after the NCSD has been notified of the construction permit issued in cases where the construction permit does not comply with the legislative requirements. The NCSD decision is subject to court appeal. After issuance of the court resolution, the construction permit can be deemed valid and the investor can proceed with the preparatory stage of the construction process.
Execution of construction works and entering into exploitation
The next development stage is the execution of the construction works. There is no mandatory term for their completion – it is a matter of agreement between the investor and the contractor.
During the construction works, a number of standard-form acts and protocols have to be compiled. The acts and protocols serve as evidence for the items that are recorded in them and they concern the commencement, execution and completion of the construction works. The participants in the development process who sign these acts and protocols are jointly responsible for the authenticity of the facts included in them.
The completion of the construction works is certified by the execution of a provisional Taking Over Certificate (the so-called Act, sample 15). With it, the participants certify that the works have been executed in compliance with the DDP, the approved design, the legal requirements to the construction works and the terms of the construction contract. Based on the provisional Taking Over Certificate, the construction project enters into exploitation and the construction becomes feasible for use.
In general, before entering into exploitation, a technical passport of the construction works shall be prepared by the respective consultant/technical controller. Depending on the significance of the construction project, its complexity and the associated operational risks, it can enter into exploitation through a:
• permit for exploitation, issued by the director of the National Construction Supervision Directorate if it is a significant construction project, or
• certificate for exploitation, issued by the chief architect of the municipality if it is not a significant construction project.
A permit for exploitation is based on a complex procedure, which includes a protocol signed by a special committee (the so-called Act, sample 16) and a report issued by the construction supervisor. A certificate for exploitation is issued under a simplified procedure, which involves only a desktop review of the documents for the construction project.
Participants in the development process
During the various stages of the development process, the investor enters into relations with other participants, namely: the designer, the contractor, the consultant, the structural engineer, the technical controller and the utility companies. The relations between the participants in the development process must be settled by written contracts.
The designer of the construction works can be an individual with designer capacity, or an entity employing such individuals. Designers are responsible for the preparation of the investment design. They also exercise control to ensure that the construction works comply with the design (the so-called author’s supervision) and are authorized to issue mandatory instructions to the contractor.
According to the Chambers of Architects and Engineers in Investment Design Act, effective from 8 February 2008, foreigners and nationals of EU Member States, the other states of the European Economic Area and Switzerland, whose professional qualification has been recognized according to the Recognition of Professional Qualifications Act, have the right to practice as architects, landscape architects, urban planners or engineers in the field of urban planning and development design in the Republic of Bulgaria.
The constructor is responsible for execution of the works in compliance with the approved design and permits, and the legal requirements applicable to such construction works.
Construction works can be executed only by a constructor that: (i) is a trader duly registered under the Bulgarian legislation or under the legislation in the country of origin, and (ii) is registered in the Central Professional Register at the Bulgarian Construction Chamber. As per amendments to the Constructors Chamber Act, effective from 23 February 2010, the registration of a constructor in a relevant register in a Member State or in part of the European Economic Area, shall be treated as a registration in the Bulgarian Central Professional Constructors Register.
Based on the above amendments, on 9 February 2012 the Bulgarian Construction Chamber adopted a simplified procedure for registration with the Constructors Register of European constructors that execute one-off specific construction projects in Bulgaria.
Exempted from registration are (i) those contractors deemed not to work on significant construction projects, such as villas, residences and mixed buildings with a height of no more than 10 meters, etc., and (ii) foreign contractors which execute construction projects in Bulgaria according to NATO’s program for investment in security.
The consultant is a trader who carries out valuations to ensure that the investment design complies with the regulatory and technical requirements and exercises supervision over construction works.
As construction supervisor, the consultant is responsible for the lawful commencement and execution of the construction works, the assessment of their energy efficiency, as well as for the fitness of the completed works to enter into exploitation. This person is also authorized by law to certify some acts and protocols during the construction works and to issue instructions and orders, which are mandatory for other participants in the development process.
Pursuant to amendments of the TDA, effective from 26 November 2012, the license regime applicable to consultants was revoked and replaced with a registration of consultants at a special register with the NCSD.
On 11 December 2012, a new Ordinance No. RD-02-20-25 for the procedure and terms for issuance of registration certificates to consultants to carry out compliance evaluations of investment designs and/or to exercise construction supervision was promulgated in the State Gazette. The new ordinance provides that, upon registration at the register with the NCSD, the consultant is granted a registration certificate with a five-year term of validity.
Consultants who have been licensed by the Minister of Regional Development and Public Works can conduct their activity until the expiration of their licenses. The certificate for registration should be issued by the head of the NCSD.
No registration is required in case a consultant executes pre-investment researches, preparation for the design process and coordination of the construction process until entering into exploitation of the project.
Activities as a consultant can be rendered by persons having a document, issued by respective competent authority in a Member State or in a state that is part of the European Economic Area , certifying the right to render such activity. In this case, a subsequent certificate issued by the head of the NCSD is required.
Persons who are eligible to carry out compliance evaluations of investment designs and/ or exercise construction supervision in a Member State, but for which the legislation of the Member State provides for no equivalent regime, are temporarily entitled to act as consultants in regard to a one-off specific construction project after issuance of a certificate by the head of the NCSD.
The structural engineer is an individual possessing the special skills to exercise mandatory technical control over the structural parts of the investment design. The structural engineer should be included in a promulgation in the State Gazette list, prepared and updated annually by the Chamber of Engineers in Investment Design. As of 23 February 2010, the activities of the structural engineer can be performed by individuals entered in a relevant list or register kept by a respective competent authority in a Member State or in the European Economic Area.
The technical controller is a civil engineer who manages the execution of the construction works on behalf of the contractor. If the construction works are executed by the investor themselves, the investor is obliged to appoint a technical controller.
The utility companies are the suppliers of electricity, water, sewerage, etc. Prior to issuance of the construction permit, the investor signs preliminary contracts for supply with the utility companies, followed by final contracts. When a construction project requires external connections to the technical infrastructure to be built, the utility companies become involved in the investment design.
Designers, consultants, contractors and structural engineers are obliged to insure their own professional liability for damages that may be caused as a result of unlawful acts or omissions in the course of the fulfillment of their obligations. As the mandatory insurance covers only the minimum liability of the insured under any construction project, the investor may require additional insurance. Extended insurance coverage (e.g. contractor’s-all-risks, employer’s liability, etc.), if required by the investor, has to be agreed contractually, as it is not mandatory under the law.