Romania: Fundamental Changes To The Romanian Real Estate Regime Pursuant To Reform Of The Civil Code

This article was originally published in the schoenherr roadmap`10 - if you would like to receive a complimentary copy of this publication, please visit: http://www.schoenherr.eu/roadmap.

On 24 July 2009, the new Romanian Civil Code (Cod Civil; RCC) was published in the Official Gazette. The reform, initiated more than a decade ago, marks the most extensive modification1 of the RCC since its first publication in 1864.

The legislator has, without stating an exact date, envisaged the entry into force of the new RCC for 2010. Apart from essential modifications to family and contract law, which are not a subject of this article, the over 1,500 amendments also concern essential parts of the real estate law.

The constitutive effect of entries in the land register: A Romanian novelty

According to the current legal regime in Romania, the transfer of real estate rights is, unlike in most other civil law countries, not linked to the registration of such rights in the land register. Such entries have a pure declaratory effect. Consequently, it is the parties' decision to select the moment when property is transferred, the legal presumption being that property rights are transferred upon signing the respective sale-purchase agreement.

After introduction of the new principle, real rights will not be transferred prior to their legal registration with the land register. The introduction of this principle, long awaited by practitioners, will undoubtedly contribute to more legal certainty and simplify real estate transactions in Romania.

Codification of the superficies right

Another essential part of the reform concerns the codification of the superficies right (drept de superficie), i.e. the right to construct on a third party's land and use the land beneath to the extent necessary for the reasonable use of the structure. Whereas in the past the Romanian legislator merely confirmed, by way of a decree, the existence of such right, the new RCC exhaustively regulates this institution, often contradicting long established principles.

While in the past it was, for instance, possible to establish such right by mere oral agreement and, more importantly, for an undetermined period of time, the new RCC requires a written deed and limits its time period to a maximum of 99 years2. Further regulated is the case when the beneficiary of such right significantly extends the structure without the prior consent of the landowner. While the establishment, implementation and termination3 of the right was previously subject to the consent of the parties, the landowner will now be legally entitled to request the re-establishment of the prior state, otherwise termination of the agreement may be requested.

For cases where the parties agreed on a non-gratuitous agreement regarding the granting of such right, without determining an exact amount, the new RCC provides a calculation method for the monthly rent. Considerable in this context is the fact that the RCC presumes a monthly payment, whereas, according to the Romanian practice, the remuneration usually consisted in a one-off payment. This ongoing payment has a disadvantage: transfer of the right of the monthly payment is restricted if the beneficiary sells the structure. In such case, the landowner may only enforce in personam rights towards the beneficiary regarding ongoing payments for the land lease. According to the relevant doctrine, a better alternative would have been for the law to presume a one-off payment representing a percentage of the value of the land.

New provisions in the tenancy law

A relevant amendment in this field refers to the limitation of the duration of lease terms to 30 years. This provision, based on the principle stated in the French Civil Codes that a lease term concluded "for eternity" (perpetuu), e.g. the lifetime of a person or building, is void. Despite the existence of this principle already in the old RCC, the conclusion of a lease terms of 99 years was considered valid. With the entry into force of the new RCC, lease terms exceeding 30 years will be ex lege reduced to a 30-year period. Unanswered, and currently subject to controversy, remains the question of whether this provision will also apply to ongoing lease agreements.

A further novelty is the legal presumption of lease terms for certain categories of lease agreements, if such agreements were intended to be concluded for a determined period without stating the exact duration (e.g. unfurnished apartment space or office space: one year). After expiry of the (presumed) term, the lease agreement can be unilaterally terminated by any of the parties4.

Arguably the alteration with the most practical relevance in this area is the facilitation of the recovery of lease objects upon termination of the lease period. If the lessee refuses to return the lease object upon termination, the lessor may use the expired lease agreement as an eviction title, if notarised and registered in the land book or with the tax authorities, without any involvement of the court being necessary. Such right will also be available for the lessor upon termination of the abovementioned presumptions.

Forecast

The new chaptering of the Civil Code, as well as the adaption of the original 19th century language to the necessities of modern social and economic life, are undoubtedly user friendly. Furthermore, the new RCC regulates many previously unknown institutions (e.g. the prenuptial agreement – the Romanian family law only knew the community of property) or institutions developed by the legal practice (e.g. superficies right, alimony contract). Moreover, a broad RCC will streamline the current clutter of exemption decrees and implementation orders (an issue heavily criticised by the European Commission in its progress report of July 2009) and thus contribute to increased legal certainty and a more stable jurisprudence.

Prior to its entry into force, most likely in 2010, the legislator will have an important assignment in amending or repealing various laws currently in force in order to harmonise the legal system5.

Conclusion

The new RCC is a step in the right direction, leading the Romanian civil law into the 21st century and strengthen its position in Europe. However, the near future will demonstrate how efficient is the implementation of the new provisions – many of them originating in some of the most progressive civil codifications in Europe6 – into the Romanian legal practice.

A broad Romanian Civil Code will streamline the current clutter of exemption decrees and implementation orders and thus contribute to increased legal certainty and a more stable jurisprudence.

This article was originally published in the schoenherr roadmap`10 - if you would like to receive a complimentary copy of this publication, please visit: http://www.schoenherr.eu/roadmap.

Footnotes

1 Romania is the sole former communist country in Europe that, apart from amendments to the family law, largely preserved its civil code during this period.

2 It is not yet clear if this provision will also concern such rights established in the past.

3 If the parties did not stipulate a duration, its existence is linked to the existence of the construction; in other words, the right ceases upon destruction of the structure.

4 If both parties continue to fulfil their obligations, the contract will be tacitly prolonged, within the limits of the 30 year term.

5 For instance, the Commercial Code, Law no. 7/1996 regarding the publicity of cadastres and Real Estate, Law no. 213/1998, Law no. 247/2005 Title X regarding the transfer of Real Estate, etc.

6 The new RCC mainly adopted provisions from the French Code Civil (after the 2006 amendment), the Swiss ZGB and the Italian Codice Civile.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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