The most common forms of security created or entered into by an investor who is borrowing to acquire or develop real estate are:
A mortgage over real estate is created through a mortgage agreement, which must be executed in front of a notary public in order to be valid under Romanian law, and also specify the mortgaged asset, the parties and the cause of the secured obligations. It must also contain reasonably sufficient detail to determine the secured amount. Furthermore, in order to be enforceable against third parties and to rank in priority, mortgages must be registered in the Land Book. If more than one mortgage affects the same asset, their respective priority depends on when the application for registration was made.
Under the Romanian Civil Code, the assets affected by a mortgage agreement over an immovable asset consist not only of the immovable asset itself, but also:
However, if an ancillary movable asset was previously affected by a movable mortgage registered with the Romanian National Registry for Movable Security Publicity, the creditor holding that mortgage has priority. On the other hand, if a movable mortgage is registered on the same day as an immovable mortgage over the same asset, the immovable mortgage has priority.
A legal mortgage right over real property is created in favour of the lender. A legal mortgage is registered with the Land Book on the basis of the deed that mentions the receivable for which the creditor is granted with the legal mortgage.
In order to acquire a movable mortgage over the borrower's movable assets (eg all of its movable assets, receivables, insurance, etc.), a lender needs to enter into a movable mortgage agreement with the relevant borrower.
Unlike an immovable mortgage, a movable mortgage agreement does not need to be notarized in order to be valid, a private deed being sufficient. The mortgage may be granted over any type of movable asset belonging to the debtor in question, including future assets (save for future bank accounts), but the security will only become effective once the debtor has acquired rights over the assets in question, and the secured obligation is created. In order to be effective against third parties, a movable mortgage agreement must be registered in the Romanian National Registry for Movable Security Publicity.
Movable mortgages over business assets may be taken over all movable assets assigned to the activity of the enterprise, either tangible or intangible, . This covers the receivables resulting under any lease of the premises, fixed assets (such as machinery, equipment and tools), intellectual property rights, goodwill and the business name. In order to be enforceable against third parties, movable mortgages over business assets must be registered both with the Romanian National Registry for Movable Security Publicity and with the Commercial Registry.
Last modified 13 Mar 2025
An immovable mortgage can be created only over real rights (e.g. a right of ownership or a right of usage/superficies) over properties which include land, buildings and improvements to buildings or movable assets naturally linked to the relevant immovable asset. The mortgage may be created only by the owner of the real right.
While as a general rule, the owner of a plot of land is also the owner of the buildings located on it, the ownership of buildings can be held separately from the ownership of the underlying land. In such cases, the owner of the building must have a right to use the land on which the building is located. This superficies right can also be subject to an immovable mortgage.
Last modified 13 Mar 2025
The concept of trust or the split between legal ownership and beneficial ownership was introduced by the Civil Code which came into force on 1 October 2011.
A trust may only be created through a notarial deed. While anyone can be a settlor or a beneficiary of a trust, the trustee can only be one of the following:
In order to be binding on third parties, the trust must be registered in the Romanian National Registry for Movable Security Publicity. If the object of the trust includes immovable property, the corresponding real rights must be registered in the relevant land books. The maximum duration of a trust is 33 years, and when it comes to an end the trust property is transferred to the beneficiary.
Alternative approaches may also be used, such as joint venture agreements where only one of the associates holds the rights of ownership over the real estate, or the mandate without representation, where the agent acts in its own name and account but in the principal’s interest. A mandate without representation is not permitted if it is used for the purpose of avoiding legal imperative obligations.
Last modified 13 Mar 2025
Under Romanian law, the rights under a loan agreement can be transferred by way of assignment while the rights and obligations can be transferred by way of assignment only with the other party’s approval or by way of novation. Securitisation structures are also available under Romanian law.
The main difference between assignment and novation with respect to collateral security is that, in case of an assignment, the relevant collateral security remains effective and is transferred to the new lender automatically, as an effect of the law. Consequently, an assignment of rights under a loan agreement triggers the assignment of rights under the corresponding security agreements. Where there is a transfer of rights and obligations by way of novation, the collateral security for the obligation under the loan agreement that is being novated remains effective and is transferred to the new lender only if the novation agreement should contain a clause expressly stipulating that the relevant collateral security is not discharged and is transferred to the new lender. In addition, the mortgage should be amended to effect the changes resulting from the novation and the amendment should be registered in the relevant registry. A similar approach is also recommended in the case of a transfer by way of assignment.
In order to be enforceable against third parties the assignment of the loan must be registered in the Romanian National Registry for Movable Security Publicity.
In order to be enforceable against the debtor the assignment of the loan must be either be:
If the same rights are assigned to more than one party, then the assignee who first registers the transfer with the Romanian National Registry for Movable Security Publicity has priority, regardless of whether the debtor was notified or not.
Last modified 13 Mar 2025
As a general rule, there are no restrictions on granting security to foreign lenders.
Parties may not choose any law other than Romanian law to govern mortgage agreements referring to assets located in Romania.
Last modified 13 Mar 2025
To create a valid mortgage over real estate, the agreement must be notarized. Notary fees are provided by the law in a progressive manner, depending on the value of the secured amounts. A fee is also payable for the registration of the mortgage in the Land Book. The fee is RON 100 plus 0.1% of the amount of the debt which the mortgage secures. If the mortgage is transferred by way of an assignment agreement, a fee of RON 100 is payable for the registration of the mortgage in the Land Book in the assignee's name.
To transfer a debt secured by an immovable mortgage, the assignment agreement must be notarized and the notary’s fee is calculated by applying a percentage of 0.45% to the value of the assigned debt.
Last modified 13 Mar 2025
In Romanian Law, the concepts of both financial assistance and corporate benefit are well known and are particularly applicable to joint stock companies.
Under Romanian Company Law, a joint stock company may not advance funds or make loans or provide security interests for the subscription or acquisition of its own shares by a third party. This rule does not apply to transactions entered into by credit institutions and other financial institutions in the normal course of their business, or to transactions involving the purchase of shares by or for the company’s employees, as long as the operations do not result in the net assets becoming worth less than the total value of the subscribed registered capital and the reserves that the law or the articles of association of the company prevents them being distributed.
Under Romanian law, companies are established for the purpose of obtaining profit. Consequently, it is not possible for a company to unilaterally assume obligations that reduce its patrimony (ie by granting a guarantee and creating security, especially in favour of a third party) without achieving a certain form of consideration in return. Otherwise, if the security interest or guarantee has been granted in lack of any corporate benefit for the respective company, there is the risk that the security interest or guarantee may be challenged by a third-party creditor.
Several methods are used on the market to mitigate this risk (ie including all security providers as borrowers under the facility, structuring the transaction so that the Romanian company receives a part of the proceeds of the loan or a fee for the provision of the guarantee/security). Nevertheless, where the benefit received by the guarantor/security provider is not proportionate to the risk undertaken, there is a higher risk that the transaction will be voided for corporate benefit grounds.
In the case of joint stock companies, the board of directors or, as the case may be, the managing board, may enter into transactions in the company’s name and account, by which the company acquires or disposes of leases, changes or creates charges over the company's assets, the value of which exceeds half of the book value of the company’s assets at the time the agreement is concluded, only with the approval of the shareholders in a general meeting. For listed companies these conditions refer to the total value of fixed assets, less receivables, and the threshold is set at 20%.
Last modified 13 Mar 2025
There are no restrictions on payments to foreign lenders under loan agreements or security documents.
Last modified 13 Mar 2025
Under Romanian law, the rank of a secured debt is determined by the timing of its registration with the relevant public registers. Based on the order established by registration, the creditor has the right to recover his debt with priority over the non-registered creditors and over the creditors whose claims were registered subsequently. Existing secured debt may become postponed to newly created debt in some circumstances either by way of agreement or by the operation of law.
A creditor can agree to subordinate its security interest to that of another creditor by means of a subordination agreement. The agreement will regulate the subordination of the debt as well as the security and will cover matters such as rights of enforcement.
In the event of bankruptcy, however, this type of agreement becomes ineffective because Romanian insolvency law lays down the order in which debts are to be discharged.
The Romanian Civil Code provides that if a lower ranking creditor pays a superior creditor the amount of the debt, it succeeds to the rank of the superior creditor. The lower ranking creditor may wish to do this where the superior creditor decides to sell the asset at a value that would not cover the amount of both debts. Consequently, an agreement between the parties can make it possible for existing debt to be postponed to newly created debt.
Last modified 13 Mar 2025
Security documents, such as mortgage agreements, which refer to assets located in Romania can be governed only by Romanian law. The courts will not recognise clauses which purport to make a foreign law apply.
Mortgages created by entities over their shares in Romanian companies, must be governed by Romanian law unless the shares belong to a listed company, in which case the law of the market on which the shares are being traded is applicable.
Last modified 13 Mar 2025
Under Romanian Legislation, in order to make its security enforceable against third parties, the holder must register its security in the relevant registers (eg the Land Book, the Romanian National Registry for Movable Security Publicity). Any unregistered security is not enforceable against third parties; the holder of the security is in the position of a regular unsecured creditor. In the case of movable mortgages, a perfected mortgage (meaning a mortgage which is effective and binding on third parties) always has priority over one which has not been perfected.
Last modified 13 Mar 2025
Environmental protection legislation is based on the 'polluter pays' principle (the person causing the pollution is liable). Where there are several polluters, they are jointly liable towards third parties and the authorities, but between them their liability is proportionate to their actual fault.
A lender's liability per se is not expressly regulated by the law. Nonetheless, environmental risks that might affect the value of a property charged with a mortgage in favour of the lender need to be taken into consideration.
Last modified 13 Mar 2025
The enforcement of an immovable mortgage is a judicial procedure governed by the Romanian Code of Civil Procedure. It may only be conducted by a bailiff and under the supervision of a court of law. The commencement of enforcement proceedings against real property must be registered in the Land Book.
In order to be enforceable, a mortgage must comply with the following requirements:
The assets subject to the security can be disposed of by public auction or, if the price resulting from a valuation of the asset will be obtained and the parties agree, by direct sale.
Last modified 13 Mar 2025
If financial difficulties arise, the debtor may make private arrangements with its creditors in order to reschedule its debt.
Other alternatives are the ad-hoc mandate (in which the debtor will ask a court to appoint a person to conduct its business) or the preventive concordatum (where the debtor losses its right to conduct its business and a person is appointed by a court to try and reach an agreement with the creditors).
Last modified 13 Mar 2025
As a rule, at the commencement of insolvency proceedings against a debtor, all court and out-of-court actions in respect of claims against the relevant debtor and its assets are suspended by operation of law. Nonetheless, a secured creditor has the right to request the insolvency judge, summoning the creditors' committee, the special administrator and the judicial administrator, the overturn of the suspension of claims with regard to its debts if the following conditions are met:
a. if the value of the secured asset, determined by an evaluator according to international valuation standards, covers the value of the secured obligation or parts of the secured obligations, provided that:
b. if there is no adequate protection of the secured claim against the corresponding secured asset due to:
Should the insolvency judge accept the application for overturning the suspension, the creditor’s security may be enforced pursuant to the general enforcement rules.
There are nonetheless several agreements which, if executed by the debtor within a certain (legally determined) period of time prior to the opening of insolvency proceedings – known as the 'grey period' – are treated as being to the detriment of the debtor’s creditors and thus may be challenged by an insolvency official (ie the judicial administrator or liquidator). By way of example, these agreements include:
The insolvency official may apply for these transactions to be annulled, and this in turn may trigger the annulment of related security agreements as well. Such an application may be filed within one year from the expiry of the period laid down for drafting the report detailing the causes of the insolvency, but no later than 16 months from the opening of the insolvency proceedings.
Last modified 13 Mar 2025
Secured creditors are entitled to preferential treatment when the amounts received from the sale of the secured assets in liquidation proceedings are distributed. The order of distribution is as follows:
a. expenses related to the insolvency proceedings and the sale of assets. In this respect, there might be a risk that the remaining amount may not cover the entire value of the secured claim. Thus, the portion of the claim that has not been settled following liquidation proceedings becomes unsecured and will be paid, following the regular order;
b. the secured creditor’s claim; and
c. rest of the creditors according to the general rules.
If the secured creditors have been paid or the debtor’s assets are not secured or mortgaged, Romanian insolvency law provides that the following payment order be applied:
a. the receivables of shareholders holding at least 10% of the share capital;
b. benefits undistributed to shareholders; and
c. receivables arising from gratuitous acts, eg donations.
Creditors in any one of the above categories, receive payment pro rata, and those from the lower ranking categories are paid only once liabilities to preferred secured creditors are fully paid off.
Last modified 13 Mar 2025
Is secured debt traded between lenders? If so, how is a transfer of the debt to another lender effected?
Under Romanian law, the rights under a loan agreement can be transferred by way of assignment while the rights and obligations can be transferred by way of assignment only with the other party’s approval or by way of novation. Securitisation structures are also available under Romanian law.
The main difference between assignment and novation with respect to collateral security is that, in case of an assignment, the relevant collateral security remains effective and is transferred to the new lender automatically, as an effect of the law. Consequently, an assignment of rights under a loan agreement triggers the assignment of rights under the corresponding security agreements. Where there is a transfer of rights and obligations by way of novation, the collateral security for the obligation under the loan agreement that is being novated remains effective and is transferred to the new lender only if the novation agreement should contain a clause expressly stipulating that the relevant collateral security is not discharged and is transferred to the new lender. In addition, the mortgage should be amended to effect the changes resulting from the novation and the amendment should be registered in the relevant registry. A similar approach is also recommended in the case of a transfer by way of assignment.
In order to be enforceable against third parties the assignment of the loan must be registered in the Romanian National Registry for Movable Security Publicity.
In order to be enforceable against the debtor the assignment of the loan must be either be:
If the same rights are assigned to more than one party, then the assignee who first registers the transfer with the Romanian National Registry for Movable Security Publicity has priority, regardless of whether the debtor was notified or not.
Last modified 13 Mar 2025