The interest in developing real estate projects on land on private property of the state or of the administrative-territorial units is not a novelty in Romania. However, real estate developers have certain reservations about carrying out such development on land that they do not own.
The possession of a real right regarding the area of land on which the construction works are to be carried out is one of the essential conditions that enable the beginning of the process of obtaining a building permit.
Thus, the way in which an investor or developer builds his plan for the realization of the project will have a significant impact on the resources that will have to be put up for grabs for its realization.
I. The main real rights that can lead to obtaining a building permit
According to the provisions of Law no. 50/1991 on the authorization of the execution of construction works (“Law 50/1991“), the building permit can be obtained on the basis of a property right, administration right, concession right, use, usufruct, superficies, easements.
Thus, there is a need to determine which legal regime applies to land private property of the state or administrative-territorial units in order to obtain the building permit.
II. The main real right applicable to land in the private property of the state or administrative-territorial units
According to the provisions of the Administrative Code of the 3rd of July 2019 (“Administrative Code“), the assets that are part of the private domain of the state or the administrative-territorial units are in the civil circuit and are subject to the rules provided by the Civil Code, unless otherwise provisioned by law. About these provisions, it could be interpreted that land in the private property of the state or of the administrative-territorial units may be subject to the establishment of any real rights provided for by the Civil Code, including the right of superficies.
However, the Administrative Code regulates and directly limits the modalities of exercising the right of private property of the state and administrative-territorial units over land, which can be (i) given in administration, (ii) concession, (iii) rented and (iv) put into use, free of charge. In this regard, the legal provisions on the administration, concession, and rental of public property of the state and of the administrative-territorial units shall apply accordingly.
Also, even in the content of Law 50/1991, it is expressly mentioned that the right over the land in the public or private property of the state or administrative-territorial units that gives the holder the possibility to obtain a building permit is based on a main real right, respectively ownership right, administration right or concession right.
Therefore, the real rights corresponding to the public and private property of the state and the administrative-territorial units are: (i) the right of administration, (ii) the right of concession, (iii) the right of rental, and (iv) the right of free use, according to art. 297 and art. 362 of the Administrative Code.
In practice, there are frequent situations in which superficies contracts are concluded for lands that are in the private property of the state and the administrative-territorial units.
However, the situation of those contracts, presents the risk of termination on the grounds of absolute nullity, since it infringes the provisions of Art. 362 of the Administrative Code and art. 13 para. (1) of Law 50/1991.
It is considered to be the fault of the authority that concluded such an act for the misclassification of the contract, respectively for the non-observance of the applicable legal procedure of concession (which involves going through the public tender procedure and exceptionally the direct award, in compliance with the related legal provisions). The consequence for the superficiary is the return to the previous factual situation, the restitution of the use of the land to the owner, the removal of the investments made up to that point on the land, with a proportional compensation from the owner of the land, the cessation of the activity, as well as the retention of the possibility of obtaining the expected profit at the time of the conclusion of the contract.
III. The concession contract
a. General aspects
The concession of public or private property of the state or the administrative-territorial units means that contract by which a public authority called the grantor, transmits the right and obligation to exploit an asset to a person, called the concessionaire, for a fixed period and in exchange for a fee, according to art. 303 of the Administrative Code.
The sphere of the assets that can be leased is greater or smaller depending on (i) the property domain to which the land belongs and (ii) the type of interest that the constructions on the land will satisfy.
Thus, the lands that are in the private property of the state or of the administrative-territorial units may be concessioned in compliance with the provisions on urbanism and spatial planning documentation, but the lands that are in the public property of the state or the administrative-territorial units can be concessioned only for the realization of constructions that are of public interest and/or public use, according to art. 13 of Law 50/1991 on the authorization of construction works.
b. Advantages of the concession:
A first advantage of such a contract is the fact that the price of the land is not paid at once by the developer, unlike the hypothesis of the acquisition of the land through a sale contract.
According to Law 50/1991, the minimum limit of the concession price is established, as the case may be, by the decision of the Local Council, the County Council, or the General Council of Bucharest Municipality to ensure the recovery in 25 years of the sale price of the land, under market conditions, to which is added the cost of the related infrastructure works.
Therefore, the fee does not apply in respect of the value of the investment or the size of the construction, but to the market value of the land.
ii. The legal status of the land
From the perspective of the analysis of the legal situation and the history of the ownership of the land, it is no longer necessary to go through the extended verification procedure. This has advantages both from a financial point of view and from the point of view of limiting the risk of possible disputes or claims.
c. Disadvantages of the concession:
i. Duration of the concession right
The duration of the land concession is established by the Local Councils, and the County Council, respectively by the General Council of Bucharest, by reference to the urbanism documentation and the nature of the investment/construction.
For some developers, the limited duration of the concession right is a disadvantage, especially if the targeted investment involves extremely high costs. Thus, the maximum duration of the right of concession is 49 years, without being able to be extended, after the expiry of that term.
ii. Completion of the public tendering procedure
The important mention is that the conclusion of a concession contract is a complex and long process in terms of duration.
Thus, to be able to conclude such a contract, the grantor (the state or the administrative-territorial unit) must take the initiative to conclude a concession contract or accept a proposal made by an interested person, according to Art. 308 of the Administrative Code.
The developer may make in writing a proposal for a concession which, among other things, it will include the firm and serious manifestation of the intention to conclude the concession contract, the object of the concession, the business plan, and its substantiation from an economic, financial, social and environmental point of view.
Further, once the grantor has taken the initiative or accepted a concession proposal, it will start a public tender procedure under which it will award the contract.
The successful tender shall be determined by the award criteria specified in the grantor’s tender documentation.
Against the tender procedure, there is a risk of an objection by any interested person (including a third party to the tender procedure, natural or legal person, but justifying an interest). Such an objection may be lodged up to the time of the award.
iii. Obligation to start the works within a fixed and limited time limit
The provisions of Law 50/1991 oblige the developer, within 1 year from the date of conclusion of the concession contract, (i) to obtain the building permit and (ii) to start the related construction works.
Such a deadline can discourage many developers, especially given the economic and financial situation in recent years.
Lands privately owned by the state or administrative-territorial units are of interest to many developers in terms of the possibility of building a project.
The most important aspect is to correctly secure the developer’s right to build on such land. In that regard, we consider that the conclusion of a concession contract shelters the developer from possible risks. The concession contract also entails certain advantages, such as the staggered payment of the fee (the cost of using the land) and the safety of the legal situation of the land.
Oana Sârbu, Partner DOMOKOS PARTNERS