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Country - Bulgaria
Sale and Purchase
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A. ACQUISITION OF REAL ESTATE
Applicable legislation
General sale and purchase regulation is to be found in the Obligations and Contracts Act and the Bulgarian Ownership Act, with certain special rules with respect to companies in the Commercial Act. Important regulation matter is also included in the Territorial Development Act.
Is the purchase of real estate assets by foreign investors subject to restrictions?
In general, foreign investors are entitled to acquire buildings and limited real rights over land such as right of use and construction rights, but are not entitled to acquire land. After the construction of the building the holder of the construction right is considered as an owner of the building by virtue of law. However, under the conditions of international treaties in force to which Bulgaria is a party, foreign individuals and foreign legal entities are entitled to acquire direct ownership rights over land in Bulgaria. The restriction does not apply when foreign individuals acquire the ownership title over land in their capacity of heirs by law of a previous owner - individual.
Bulgaria is in the process of implementing amendments in its legislation pursuant to which citizens of EU Member States permanently residing in Bulgaria and legal entities incorporated in accordance with the laws of EU Member States are entitled to acquire land under the conditions set forth in the Accession Treaty and under the requirements of the Bulgarian law. Under the Accession Treaty of the Republic of Bulgaria the following transitional periods were agreed with the EU:
- until 2012, there is a prohibition of acquisition of secondary residences by nationals of the Member States non-residents in Bulgaria and companies formed in accordance with the laws of a Member State; and
- until 2014 there is a prohibition on the acquisition of agricultural and forestry land by nationals of the Member States and legal entities incorporated in accordance with the laws of EU Member States. This restriction does not apply to self-employed farmers nationals of EU Member States intending to reside in Bulgaria.
Do different legal regimes apply to the transfer of title to different kinds of real estate (commercial, residential, manufacturing)?
No.
Do mandatory pre-emption rights apply to the sale of real estate assets?
The Bulgarian Ownership Act provides for a right of pre-emption/right of first refusal in the following cases:
- a co-owner of a real estate property is entitled ex lege to a pre-emption right over the ideal share of ownership title of the other co-owner(s). Therefore, upon the execution of a notary deed for sale-purchase of an ideal share of co-owned real estate property, the seller should present to the notary public written evidence that they have made an offer to the other co-owner(s) to purchase the ideal share subject to sale-purchase under the same conditions and declared in writing that none of the said co-owner(s) has accepted the offer; and
- the owner of a land plot where the ownership title to a building, situated thereon, is entitled ex lege to a pre-emption right over the said building. Therefore, the owner of the building may sell it to a third party, only after the seller has presented to the notary public written evidence that it has made an offer to the owner of the land plot to purchase the building under the same conditions and declared in writing that the offer has not been accepted.
Is expropriation (compulsory purchase) possible?
If so, under what conditions?
Expropriation of private property is possible for the purposes of state or municipal development needs which cannot be achieved in other ways. Expropriation is possible after equivalent compensation.
Depending on the purposes of state or municipal development needs, certain special rules apply for the particular administrative procedure for expropriation of private property.
Furthermore, the Bulgarian government envisages legislative changes that may enable the state to apply a procedure for expropriation of private properties not only in cases where they are needed for major public infrastructure projects but also in cases where they stand in the way of private infrastructure ventures.
Is real estate registered?
If so, is this official information made available to the public?
Yes, all real estate properties are registered in the Bulgarian Registry Agency. The Land Registry maintained by the Registry Agency is publicly available. A unified information system, connecting databases for real estate location and cadastral information with those for ownership and encumbrances is to be built in Bulgaria before end of 2009. The project will cost more than EUR 29 million, and is mainly financed by the World Bank. Remote access to real estate registry via internet is available in Sofia (subject to payment of a fee). This new possibility will facilitate instant checks prior or during real estate transactions, but information before 1998 will not be accessible for remote access and must be checked in the Registry Agency's archives.
Real estate registries are still based on the owner's identity, rather than the plot's identification.
Is transfer of title recorded?
Can other related deeds (for example, preliminary sale agreements) be recorded?
Yes, all purchases should be registered with the Registry Agency, as well as claims, mortgages, pledges, foreclosures and other securities; lease contracts exceeding one year; and sale-purchase of inheritance which includes real estate property.
Preliminary sale agreements cannot be recorded.
Non-registration of a deed subject to registration is not causing invalidity of the deal, but is not effective vis-à-vis third parties and any following deals may not be challenged on the basis of the respective unregistered deed.
Do buyers usually carry out due diligence?
If so, what due diligence is typically conducted and what is its timing (i.e. before or after contract execution)? Is there any protection for the buyer during the due diligence period (for example, an exclusive right to negotiate or buy)?
There is no unified legal due diligence procedure. However, before purchasing real estate it is recommendable that the buyer should perform a legal due diligence review of the ownership title and of the description of the targeted real estate, including the ownership title history. It should be verified that there is a clean, valid and marketable ownership title held by the seller. The seller has to be, and their predecessors should have been, the valid owner(s) of the targeted real estate in order to avoid any risk for rescinding or annulment of the transaction. Such title review covers the last 10 years since under Bulgarian law this is the maximum legal period for (i) a possessor of a real estate to convert uninterrupted possession into a valid title and (ii) a mortgage to remain opposable against third parties.
Is title insurance available?
Currently, title insurance is not a common practice.
How are deals typically structured?
Asset deals and share deals, preferably asset deals, with the exception of purchase of real estate by foreign investors.
According to the current status of Bulgarian law, the acquisition of land by foreign individuals and legal entities is performed indirectly by means of the acquisition of shares in the company which is the registered owner of a land plot.
According to the Bulgarian law the share deal is considered as indirect acquisition of real estate property, because subject to the transaction are the shares in the company, which is the owner of a real estate. Therefore, since it is not necessary to execute a notary deed, the share purchase agreement is not registered with the Registry Agency.
B. STRUCTURE OF THE CONTRACT
Are there formal requirements regarding the content and structure of the sale and purchase contract?
The sale-purchase contract should be in written form and should be concluded in the form of a notary deed registered with the Registry Agency. It should include a description of the seller(s), buyer(s), the property, the price and way of payment, list of documents provided to the notary public by the seller(s) and the buyer(s), evidencing legal capacity of the parties, the ownership title of the seller and special conditions, if any.
What is a typical contract like?
A typical contract will include the following:
- full identification of all parties and representatives, if any;
- full identification of the real estate property (land, buildings, easements, etc.);
- tax valuation of the property;
- the purchase price and the method of payment;
- conditions precedent, such as: payment after registration of title and issuance of certificate for lack of encumbrances;
- signature of the parties (representatives); and
- signature and stamp of the notary public.
Are special consents required for certain transactions (for example, consent by a spouse)?
In case the property was purchased during marriage or is the single real estate owned by the family, any disposal of the property or establishment of mortgage is subject to the explicit consent by the spouse.
Other occasions when a special consent or otherwise is required for disposal of a property is the event of third parties' pre-emption rights over the property.
What seller's warranties are provided under statute (for example the state of the building, asbestos, etc.)?
Bulgarian law does differentiate seller and builder warranties and obligations. With respect to statutory obligations, the seller should represent the valid title over the property and the conformity of the description of the property with its current status.
The builder, however, is responsible for the quality of the constructed building for a certain period of time:
- for main construction: 10 years;
- for hydro-, sound- and thermo isolation: 5/3 years (depending on environmental conditions); and
- for construction and finishing works (including flooring, wall mouldings, woodworks and internal installations): five years.
All terms start from acquiring a use permit for the construction issued by the competent authority.
Can they be excluded or varied by contractual agreement?
Is there a deadline for claims to be made?
The builder warranties may not be excluded, but may be extended contractually.
What are the buyer's remedies against misrepresentation by the seller?
In case of misrepresentation by the seller a number of remedies are available, including:
- rescission of the agreement;
- reduction of the purchase price; and
- claim for damages.
Are there any interests in real estate other than exclusive ownership?
If so, what are they?
Yes, such as:
- right of use (established by a notary deed; which is intuitu personae);
- right to construct;
- easements; (i.e. right of passing through a property); and
- securities (e.g. establishment of encumbrances).
C. PUBLIC LAW ASPECTS RELATED TO THE ACQUISITION OF REAL ESTATE
What are the most important areas of public law for an investor to consider when purchasing real estate?
- Zoning (compliance with the development plans).
- Construction issues (existence of construction permits, validly issued by the competent authorities; existence of certificates of operation/operational permits of construction).
- Environmental requirements (existence of environmental impact assessment of a planned construction when statutory required).
- Protection of monuments of culture (transfer of title of buildings recognised as monuments of culture is made only upon prior written consent of the National Institute for Monuments of Culture and Museums/ the municipality where the building is located).
- Tax issues.
Is the buyer of a real estate asset responsible for soil pollution or contamination of the building even if it is not caused by him?
Pursuant to the effective Bulgarian legislation the buyer assumes all risks regarding the real estate from the moment of acquiring the title including the liability for soil pollution or contamination of the building even if not caused by the buyer.
How can a buyer ascertain the possible uses of an area under the applicable zoning or planning laws?
The general and detailed development plans (zoning plans) together with the some technical rules give an overview of the possible use of specific areas.
Upon written request by an owner of a relevant plot of land, a local authority shall issue confirmation about the possible uses of the land.
Can uses be changed?
Yes, upon the existence of the statutory provided conditions.
Is it possible to enter into specific development agreements with relevant public authorities in order to facilitate a project?
The public authorities may enter into development agreements on the basis of a public procurement contract or participate in PPP models after execution of the necessary public procurement procedures.
Can public authorities make a charge for this?
Public authorities are entitled to charge on the basis of mutual agreement.
D. TAXES RELATED TO ACQUISITION OF REAL ESTATE
Are there transfer taxes or sales taxes?
Asset deal
Any transfer of real estate right against consideration is subject to a 2% local tax imposed on the higher amount between the property's tax valuation and the purchase price.
Under certain circumstances VAT (tax rate 20%) might be applicable on certain types of transactions.
Share deal
Unlike other jurisdictions, if 100% of an OOD holding real estate is transferred the real estate transfer tax is not imposed.
What are the normal transaction costs?
Acquisition of real estate incurs notary and registration costs.
- The notary fee is graded depending on the value of the property, the cap is BGN 3,000; (appr. EUR 1,500).
- The registration fee with the Land Registry amounts to 0.1% of the price of the property.
How are transaction costs shared by the buyer and seller?
The purchaser is obliged to pay the local tax unless otherwise agreed by the parties. The payment of the other costs is subject to agreement.
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