Romania is currently facing a rising tendency regarding foreign investments, especially in the retail, logistics and production sector.
Obviously, all these investments require suitable property. Most investors choose to acquire land to establish or extend retail parks, factories, warehouse facilities, or offices.
From a legal point of view, land acquisition demands a high degree of attention. Neglect of the necessary investigations and any lack of knowledge of Romanian regulations in the real estate sector may result in a significant economic disadvantage for the investors.
Future investors must have due diligence audits done to clarify the legal and technical situation of the real estate before drafting a purchase contract. An environmental due-diligence to know the implications for careful handling of the property’s ecology is strongly recommended.
In practice, concluding a purchase without due diligence carries significant financial risks, up to and including the loss of the property.
Due diligence helps to identify the risks of the target acquisition, and to assess the potential for planned construction on the land.
The following issues must be investigated for any land acquisition:
• the history of the land plot (deeds of purchase, survey documentation, land registry entries);
• possible restitution claims of third parties;
• direct access from the land plot to a public road;
• disputes in which the land plot may be involved;
• payment of all taxes on the land plot;
• status of the land plot from the perspective of land and construction regulations;
• legal situation of construction planning (have development plans for the area been approved?).
Legal due diligence will be carried out by the purchaser’s lawyers. Technical due diligence (including environmental due diligence) must be carried out by technical specialists (architects, technical experts etc). Results of their technical examinations will, if necessary, be included in the purchase contract.
Preliminary purchase agreement during the due diligence process
Given the fact that a due diligence procedure is likely to last up to two months or longer, the investor should protect the land plot during the process with a mandatory preliminary purchase agreement (Rom. antecontract de vânzare-cumpărare).
This preliminary agreement states that the parties undertake irrevocably to buy and sell the land plot at the price and conditions established, subject to due diligence findings.
If the seller refuses to sell the land plot on the terms agreed, the investor has the right to request a court decision on compensation for the notarised purchase contract.
In order to have third-party effect (ie. enforceable against third parties), the preliminary purchase agreements must be registered with the land registry.
To acquire land in Romania, a notarised purchase contract is required. Before the contract is signed, the public notary will demand an ‘excerpt of the land register for authentication’ for the land plot, which will block the land register entry until the purchase contract has been signed. No other transactions regarding the plot can be made until the process is concluded.
In practice, a great many mistakes can be made in real estate transactions which can lead to severe legal and financial risks for the investor. For this reason, it is strongly recommended to commission legal and technical examinations before drafting property acquisition contracts. During the due diligence process, the investor should protect the land plot by concluding a mandatory preliminary agreement.