Some legislative gaps have been filled and some controversial applications of the law have been interrupted through interpretive decisions of the Bulgarian Supreme Court of Cassation.
No title acquisition through adverse possession on private municipal or state property
Since 1 June 1996, the Bulgarian law made it legally possible to acquire private municipal or state property in Bulgaria through a 10-years adverse possession period. However, on 31 May 2006 the law was amended and the running of the adverse possession period was temporarily suspended. The suspension was extended several times, the last one in the beginning of 2018 and following this latest extension the suspension will be effective until 31 December 2022. The introduction of the suspension that was so close to the expiry date of the 10-years adverse possession period caused numerous property ownership disputes whether the 10-years adverse possession period which had started on 1 June 1996 expired on 31 May 2006 or was suspended before it expired. In the beginning of 2018 this issue has been resolved by the Supreme Court of Cassation with an interpretative decision where the court confirmed that the 10 years adverse possession period for title acquisition on private state or municipal property which has started on 1 June 1996 has not expired on 31 May 2006 and, therefore, has been suspended. In this decision, the court has taken the view that the 10 years adverse possession period which has started on 1 June 1996 should have expired on 1 June 2006 and was suspended on 31 May 2006 – one day prior to its expiration. As a result, acquisition on private state and municipal property through prescription (uninterrupted possession for a 10-year period) is not possible under Bulgarian law until at least 31 December 2022.
Mortgage extending on future buildings built on mortgaged land
According to recent case law of the Supreme Court of Cassation a mortgage established on a land plot may extend to building constructed on the land after the creation of the mortgage only if the building is sufficiently well described in the mortgage deed, preferably by reference to the approved designs for the buildings. Additionally, the building has to be constructed in accordance with the design specifications provided upon the creation of the mortgage on the land plot. This case law is relevant with regard to project financing as the mortgage will extend its validity over further real property and this way will lead to enhancement of the value of the security.
Priority of public sale buyer vs. lessee under registered lease
While in case of sale of leased property the registered leases remain valid and binding upon the new proprietor for the entire lease period, there was an inconsistent case law on the consequences for the lessee in case that the leased property is sold through public sale. This inconsistency has been overcome by a recent amendment in the Civil Procedure Code which provides that the rights of the lessee are secured only if the lease agreement was registered prior to establishment of the first ranking mortgage. In cases where the lease is registered after the establishment of the first mortgage over the property, the public sale buyer takes the possession of the leased property from the tenant, despite the registration of the lease agreement with the property register. This new provision sets clarification and is relevant not only for the public sale buyer but also for tenants and subtenants of mortgaged real property.
Valid real estate transactions despite absence of corporate authorization
Under Bulgarian law in the event of transaction for acquisition or sale of real estate by a limited liability company a resolution of the general meeting of the shareholders is required. In cases where no such resolution is given, there has been inconsistent and controversial court practice as to whether the transaction with the real estate is legally valid. The issue has been resolved by an interpretive decision of the Supreme Court of Cassation, according to which even when no corporate resolution is available the validity of the title transfer has been confirmed. In the view of the court the absence of corporate resolution may have legal consequences between the company and its manager but the transaction with the third party has to be considered valid and binding upon the company. The purpose of this legal practice is to preserve the interest of third parties, as the lack of corporate authorization should not have negative impact on the security and stability of commercial turnover.
Form of corporate resolution for real estate transactions
With an amendment of the Commercial Act a new requirement on the form of corporate resolution in a limited liability company for the acquisition or sale of real estate has been introduced. According to the new rule the protocol resolution for title transfer has to be with notary certified signatures and content. Though it is common practice in Bulgaria a notary certification of the content of a document is not prevalent in foreign jurisdictions. Thus, the fulfilment of this requirement may cause difficulties for foreign investors where the persons to sign such resolution are not residing in Bulgaria. There are several options to deal with this prerequisite. First, Bulgarian consulates and embassies abroad perform services as Bulgarian notaries and may certify the content of the protocol. Second, a proxy may be issued for a representative in Bulgaria to execute the protocol on behalf of the shareholders before a Bulgarian notary public. Third, the statutory requirement for notary certification may be explicitly excluded with the articles of association of the company.
Content of the power of attorney for real estate transactions
With a recent interpretive decision of the Supreme Court of Cassation, the requirements on the content of the power of attorney for real estate transactions have been specified. According to the court decision the power of attorney is considered valid and binding if it states that the proxy is entitled to dispose of the real estate on behalf of the authorizing person. There is no necessity to specify the price, the counterparty or other details of the transaction in the power of attorney as was the prevailing practice up to now. The advantage from this clarification regarding the content of the power of attorney is that it facilitates the preparation of the documents for a real estate transaction as the execution of the power of attorney will no longer depend on the finalization of the negotiations.