Blog Bucharest

The real estate market in Romania becomes increasingly attractive especially for foreign investors, such as investment funds, real estate developers, banking institutions, end-users and other entities looking for new business opportunities with increased economic efficiency.

In Romania, the dynamic agricultural market keeps providing better yields to the foreign investors than in other EU countries. Given their growing interest, the representatives of the real estate agencies estimate that the agricultural market will be extremely dynamic in 2016 and 2017 will be an equally dynamic in this market, which current average trading prices range between 2,000 euro / ha and 7,000 euro / ha (in the western part of Romania).

SHORT HISTORY ON LAND ACQUISITION BY FOREIGNERS IN ROMANIA

Before the amendment of the Romanian Constitution in October 2003, foreigners, either natural or legal persons, were not allowed to acquire ownership over real estate in Romania.

According to the same, solely individuals with Romanian citizenship and/ or Romanian companies were able to acquire the ownership right over any real estate (including agricultural). How did then foreigners acquire the control over the (agricultural real estate)? Practically, subject to the legal provisions in force, foreigners would incorporate a company in Romania, which they would control, company which would acquire the ownership right over the said (agricultural) real estate.

As of 2003 the revised Romania Constitution allows foreign and stateless citizens to acquire the ownership over (agricultural) real estate pursuant to the conditions imposed by the Romania’s accession to EU and to other international treaties to which Romania is a party based on reciprocity, in the conditions provided for by Romania’s legislation, as well as through legal inheritance.

Consequently, Romania’s accession to EU on 1st of January 2007 triggered the entering into force of Law no. 312/2005 regarding the acquisition of ownership right over real estate by foreign persons, whether natural or legal and persons without citizenship (Law 312). Law 312 represents Romania’s commitment to grant to its citizens and to the citizens of EU countries the same treatment, on a reciprocity basis.

Each real estate project has particularities and effects which sometimes exceed Romania’s borders. Therefore, each and every investor should seek independent professional advice before making any kind of investment.

We have summarised below the main aspects that any investor should consider before making an investment in Romania’s real estate market.

ACQUIRING OWNERSHIP OVER LANDS BY CITIZENS OF THE STATE’S MEMBERS OF THE EUROPEAN UNION/THE EUROPEAN ECONOMIC AREA AND BY LEGAL ENTITIES HAVING THE NATIONALITY OF SAID STATES, AS WELL AS BY THE STATELESS CITIZENS DOMICILED IN A MEMBER STATE OR IN ROMANIA

The citizen of a member state, the person with no citizenship having his/her domicile in a EU member state or in Romania, the legal entity established in accordance with the legislation of a member state, may acquire the ownership over real estate in the same conditions as those provided for Romanian citizens/legal entities according to the legal provisions in force.
The citizen of a member state, non-resident in Romania, the person with no citizenship, non-resident in Romania, having his/her domicile in a member state, the non-resident legal entity, incorporated in accordance with the legislation of a member state, may acquire ownership over lands for secondary residences (secondary corporate seat, respectively) following a five (5) years’ period after the date of Romania’s accession to EU – as of 1^st January 2012.
However, the said provisions do not apply to the farmers who carried out independent activities (i.e. any individual who carries out an agricultural or forest-related activity, in view of obtaining vegetal or animal agricultural products, as well as storing activities, activities of processing of the products obtained from their own activity, or who perform an activity in view of obtaining wooden or non-wooden products out of forest resources and attested by documents issued by the relevant authorities from the state of origin/ or by the Ministry of Agriculture, Forests and Rural Development for persons having their domicile in Romania) and who are either (i) citizens of EU member states or persons without citizenship having their domicile in a member state, who set up their residence in Romania, or (ii) persons without citizenship having their domicile in Romania.
The said persons shall obtain the right of ownership over agricultural lands, forests and forest lands in the conditions applicable to Romanian citizens, as of the date of Romania’s accession to EU.

ACQUIRING OWNERSHIP OVER REAL ESTATE BY FOREIGN CITIZENS, PERSONS WITHOUT CITIZENSHIP AND LEGAL ENTITIES BELONGING TO THE THIRD PARTY STATES / STATES THAT ARE NOT MEMBERS OF EU, NOR OF EUROPEAN ECONOMIC AREA

The foreign citizen, the persons without citizenship and the legal persons belonging to the third party states may acquire ownership over real estate, pursuant to the conditions provided by international treaties, on a mutual basis, but those conditions should not be more favourable than those applicable to the citizens of EU member states and to the legal entities established in accordance with the legislation of EU member states.

PRELIMINARY ASPECTS TO BE TAKEN INTO CONSIDERATION

Even if real estate representing private property, regardless of purpose is freely transferable pursuant to the provisions established by Romanian law, there are certain preliminary aspects which need to be checked before any transaction concerning the respective real estate is performed:

Checking the regime of the real estate (agricultural lands, forestry land, etc.).
A pre-emption right must be granted in certain cases.
The transfer of the ownership right over forestry land and/ or agricultural land/ and/ or plots of land where monuments are constructed, is subject to a pre-emption right, as provided by the Romanian legislation.
Certain limitations to the free acquisition of real estate are regulated by specific restitution laws (i.e. Law. 10/2001 on the legal status of real estate assets abusively taken by the State during 6 March 1945 – December 22, 1989 and Law 247/2005 on the reform of property and justice, as well as some additional measures.
Other aspects depend upon the real estate concerned and various particularities such as: the type of the real estate (agricultural or for construction purposes), the successive transfers of the ownership titles, encumbrances, pending or threatening litigations etc., registration with the land book registry.

CONCLUSIONS:

Currently, foreign citizens (whether citizens of EU countries or else) may acquire the ownership over real estate in Romania pursuant to the conditions established by the Romanian legislation and/ or by the treaties Romania is a party to.

Considering the legislative framework and the current business environment, Romania remains an attractive destination for foreign investments in real estate market.

Even if the investments in the Romanian real estate market may generate a good rate of return, it is advisable that prior to the development of a real estate project (including any acquisition of such kind), an in depth legal analysis is performed. In this case, the investor is aware of the risks which might generate the loss of profits or financial losses.

Earlier this year in Strasbourg, the European Union together with the United States of America (“USA”) established a new framework for transatlantic data flows referred as – “Privacy Shield”.

Privacy Shield implementation comes shortly after October 2015, when the European Court of Justice invalidated the mechanism that regulated the safe harbor in the last decade – the “Safe Harbour”.

The Court considered that the “Safe Harbour” needed to be revised, because under EU legislation does not ensure in practice a sufficient level of data protection in front of the intelligence agencies.

Basically the new mechanism will be aimed at protecting the fundamental rights of European citizens and guarantee their legal security by US companies, when their personal data are transferred to the US.

The personal data represent any information relating to an identified or identifiable natural person, such as name, address, date of birth, identity number, position, e-mail etc.

Patient’s health information collected for the development and research of new medical therapeutic progress and the information collected by smart applications that measure the number of steps traveled in a day or the number of calories consumed by one person represents also information of interest as part of transatlantic data stream, which will be able to be protected by Privacy Shield.

Privacy Shield as a new mechanism for protecting the privacy of Europeans will include the following:

strict requirements for US companies who process personal data of Europeans. US Department of Commerce and the FTC (Federal Trade Commission) will ensure that those US companies that manipulate data regarding human resources in Europe, will comply with the decisions of the European Data Protection Supervisor;
clear safeguards and transparency obligation on the US government access to personal data of Europeans. For the first time during the development of the mechanism of the Privacy Shield, the US has provided written guarantees to EU on limitations and conditionings of US public authorities access to European data. US will consult and cooperate with the European data protection authorities and will have to commit that the possibilities under US law on access to public authorities of personal data transferred under the new framework created by “Privacy Shield” – will be subject to restrictions, conditioning and well-defined controls;
effective protection of EU citizens’ rights, which have a variety of remedies. Any EU citizens whose personal data have been misused even under the Safe Harbour scheme will benefit several remedies available.

European Commission Vice President Andrus Ansip believes that “Privacy Shield” fully protects personal data of Europeans. Ansip also declared that this new mechanism contributes and has a very important role in strengthening the EU partnership with the US.

Also, Vera Jourova Justice Commissioner declared:

“The new EU-US Privacy Shield will protect the fundamental rights of Europeans when their personal data is transferred to U.S. companies. For the first time ever, the United States has given the EU binding assurances that the access of public authorities for national security purposes will be subject to clear limitations, safeguards and oversight mechanisms. Also for the first time, EU citizens will benefit from redress mechanisms in this area.[…] Remedies regarding security will be managed by an independent Ombudsman for US intelligence. It will be a new instrument specially provided for this arrangement. […] We have established an annual joint review in order to closely monitor the implementation of these commitments.[…]it will be a living mechanism that will constantly be reviewed to verify that it works well. […] The new arrangement amounts to the requirements of the European Court of Justice.”

The EU is currently working with the US in the preparation and establishment of a new framework, a new monitoring mechanism and a new Ombudsman.

The European Commission launched on 15 February a new platform that allows consumers and traders to solve online disputes over a purchase made online.

Basically, the disputes concerning purchases made on the Internet by a citizen from his own country and from abroad, will be submitted to the dispute settlement bodies registered on the Online Dispute Resolution platform (“ODR”), called alternative dispute resolution entity (“ADR”).

Alternative dispute resolution bodies will be established by each Member State, and they will need to meet certain quality requirements binding under EU law.

The access to these alternative methods will be provided regardless of the nature of the goods or services that were purchased whether online or offline, and regardless from where the purchase was made – of the Member State of the trader, or of the consumer or from another country.

The platform will be user-friendly and will be available online on all devices and will include a translation service, being multilingual.

The citizen who will choose the alternative dispute resolution will benefit from a more rapid and inexpensive way of solving disputes, because the duration of a dispute will last an average of 90 days.

This method of solving the disputes, does not exclude the classic procedure initiated in courts, which can often prove difficult, lengthy and expensive.

Věra Jourová, Commissioner for Justice, Consumers and Gender Equality said: “Most consumers experiencing problems when buying online don’t complain, as they believe the procedure is too long and that it won’t be solved. The Online Dispute Resolution platform is an innovative tool saving time and money for consumers and traders. It will improve consumer trust when shopping online and support businesses selling cross border, contributing to Europe’s Digital Single Market.”

It is intended that in the near future the platform will cover completely all Member States and economic sectors, at the moment more than 100 ADR entities are recorded in the Member States.

Earlier this week I had the pleasure of speaking on the same conference panel as an American attorney who also specialises in compliance and anti-corruption work. He told me that clients and potential clients had the impression that the UK’s Bribery Act 2010 was not actively enforced, and so that compliance with it is not a major issue for them….

According to the reports which I have seen, the case involved a British company which had a subsidiary in the Middle East. The subsidiary acted as consultants and managers on construction projects.

The subsidiary won a £1.6 million project management and cost consulting contract from a client in the Middle East for work on a luxury hotel development.

In turn, the subsidiary gave a sub-contract to a local company for “hospitality development services”, including “client liaison”. I understand that the value of the sub-contract was £680,000.

Unfortunately the local company which was given the sub-contract, was controlled by a local businessman who also sat on the investment board of the company which awarded the £1.6 million project management and cost consulting contract to the subsidiary.

The case is a very good example of differing perspectives of the same facts. The local businessman who sat on the board of the subsidiary’s customer and also who controlled the local sub-contractor apparently sent a representative to the court hearing of the case in the UK. According to press reports, that representative said that the local businessman strongly denied any wrongdoing and said that he intended to enforce the sub-contract against the subsidiary, since it was a legal and binding agreement under his local law.

The British judge however saw matters differently. He has been quoted as saying that the sub-contract was “so obviously a bribe”, a “fiction and a sham” and a “vehicle to provide a bung” so that the subsidiary would get the £1.6 million project management and cost consulting contract.

The UK parent company was charged with failing to prevent bribery under Section 7 of the Bribery Act 2010. It pleaded guilty and received the following penalties:

A fine of £1.4 million;
Confiscation of £851,152.23; and
Prosecution costs of £95,031.97.

I expect that the fine would have been greater if the UK parent company had denied the charge and been found guilty after a trial, or had not pleaded guilty as soon as it was able to do so.

Costs are not only measured in money. It has been reported that the UK parent company has now closed its operation in the Middle East, with 70 redundancies….

A number of lessons can be drawn from this sorry story:

It is clear that a parent company is liable in the UK for the actions of a subsidiary somewhere else.
The ignorance of the parent company of what was happening in the subsidiary company is no defence. The judge said:
“The whole point of section 7 is to impose a duty on those running such companies throughout the world properly to supervise them. Rogue elements can only operate in this way – and operate for so long – because of a failure properly to supervise what they are doing and the way they are doing it.”

As well as subsidiary companies, Section 7 of the Bribery Act 2010 also refers specifically to agents and employees. Do you know what your agents and employees are doing? Do you “properly supervise” what they are doing?

The only safe standards for local subsidiaries to observe in foreign markets are those which apply in the UK. In this case the UK parent was liable for the actions of its subsidiary in the foreign market – even if the bribe was through what was described as a valid and binding contract under local law.
Do not ignore warning signs when they do exist. In this latest case concerns were apparently raised by auditors three years before the contracts were signed, which concerns the judge is reported to have said were wilfully ignored by the management. When you are in a hole, stop digging. In the latest case the judge commented that the corrupt payments had continued for 18 months.
When you know that you have a problem, consider carefully what to do and take appropriate advice. It may be appropriate to make a voluntary self-disclosure and to co-operate with the UK prosecution authorities in the hope of obtaining a deferred prosecution agreement and a reduced penalty (as happened in the previous case involving sister banks in London and in Africa).

Do not delay.

Telling the prosecution authorities about your problem a week before you hear that it will break in the press is not likely to be regarded as voluntary self-disclosure….

Take compliance seriously and make sure that your procedures to prevent what the UK regards as “bribery” meet the standards prescribed by the UK Ministry of Justice.

Make sure that you have contemporaneous evidence that you are taking your compliance programme seriously.

If you are wondering what kind of apparently-legitimate contract you can use to provide a legal title to make a payment so someone, stop and consider whether what you are doing is wise – or legal. The fact that the person who you want to pay will actually provide goods or services for the payment does not mean that it is necessarily legal. The same applies to corporate social responsibility (CSR) programmes and payments to charities.
When you are negotiating a commercial contract, make sure that you make an objective assessment of:
why you are doing business with the other party;
whether you have adequate evidence of who the other party is – and who owns or controls the other party;
whether the commercial terms of the contract are defensible; and

whether there is any risk that other aspects of the contract raise suspicions of bribery (e.g. conflict of interest).

Make contemporaneous notes of these points.

The larger the amount of money involved, the more careful and detailed your considerations and notes should be.

Finally, what should be welcome news for business. In a published speech on 29 March 2016, a senior official in the UK’s Serious Fraud Office said “Finally, good, ethical companies can be victims of corruption, and this brings me to my final point. If a law abiding company, whose ethos and compliance systems do not allow it to pay bribes, loses out on business to a bribe-paying company, we want to know about it.” So if your company is losing out because someone else is not playing by the rules, the UK prosecution authorities want to know who is cheating

2016 has started as 2015 finished, with more reports of the investigation of corruption in Romania and high-profile arrests. Bribery and corruption, of course, are always done by other people and it is widely believed that so long as people are not invlived in giving or receiving bribes, then they cannot be affected by them.

In fact the things are not like that – companies invlived with any kind of international business need to implement certain protection measures against corruption and be able to prove that they observed the specific requirements in the field. How can you ensure that your business is protected from the consequences of other people’s corruption?

Neil McGregor, Managing Partner at McGregor & Partners, offers, a series of useful advice in this regard to companies in Romania:

Don’t ignore the issue. Read and revise, as the case may be, your organisation’s pliicy and guidance on anti-corruption and business ethics. Do they cover everything which is relevant to your business? If your organisation does not have a formal pliicy and set of guidelines on anti-corruption and business ethics, this situation must be corrected as soon as possible. Make arrangements to draft and publish an accessible formal pliicy and set of guidelines and communicate them to your staff and business partners.
Check if there are any new employees (and, especially, managers and administrators), new business partners, as well as any changes in the management or ownership of any of your business partners, in the last year. Make sure (and get proof) that they are aware of do understand your pliicy and guidance on anti-corruption and business ethics.
If the contracts which your organisation uses include anti-corruption clauses, consider reviewing whether there are any signs or suspicions that there have been breaches of these clauses. If the there are no signs of problems, make a formal record of this.
Make regular checks of your register of hospitality and gifts, given and received. Is it up-to-date and complete? Is there anything in there which you may have trouble to explain? If so, find out more about the gift or hospitality concerned and record what you have done.
Make sure you have a formal risk assessment report on the risks of bribery in the countries and markets where you operate. Make periodical checks that it is still correct or whether it need to be updated (e.g. if you have started doing business in a new market or have new business activities?), if your employees have reported concerns and how can you prove that they understand that you wish to be notified, should such concerns arise.
If you are responsible for compliance issues in your organisation, it is more than likely that you will have a programme of e-learning, with online questionnaires on corruption and business ethics issues. Don’t be complacent that you are safe, even if e-learning with online questionnaires is the standard practice in your industry.
The UK’s first deferred prosecution for failing to prevent bribery (published in late November 2015) proved that “industry standard” online questionnaires were enough, particularly where staff did not take them seriously, did not take any refresher courses and did not recall their managers saying anything about corruption. Be aware that if you do business in the UK, directly or indirectly through one of your business associates, the UK authorities can prosecute you or the business associate for failing to prevent bribery somewhere else, such as in Romania. Be particularly cautious if the head office of your organisation uses the same format or content of its online questionnaires for all of the counties in which you operate: Romania is not Sweden. Please check (and get proof) if the online training is effective, if the staff who pass the online questionnaire have actually understood the message – and have taken it seriously.
Don’t assume that Romanians are the only – or the biggest – risk. No nation is immune to corruption and foreigners can also be a serious risk, particularly those who believe that they have arrived in the Wild East where “anything goes”, or who expect to have taken their bonuses and moved on to other expatriate postings long before the consequences of what they did in Romania start to damage you.
Don’t assume that because you comply, for example, with the USA’s Foreign Corrupt Practices Act, you do not need to worry about the UK’s Bribery Act. The British anti-corruption legislation is much tougher and wider in its application than the American legislation.
Consider getting qualified outside professional consultants to review the effectiveness of your anti-bribery and corruption procedures, for example by checking the understanding of your staff. Remember that lawyers have a duty of confidentiality to their clients and that communications between lawyers and their clients benefit from legal professional privilege.

Quite apart from the increased activities of the Romanian authorities to investigate and prosecute cases of corruption, the UK authorities are getting very serious about investigating and prosecuting foreign bribery. Don’t think that all this is only about the developing world and that because Romania is in the EU, what happens in Romania will not be of interest to the UK prosecutors. Business in Hungary, Pliand and Lithuania has already been announced as being under investigation by the UK’s prosecutors! warns Neil McGregor.

McGregor & Partners, working with the British-Romanian Chamber of Commerce and other business associations, are continuing a campaign of informing businesses in Romania about how they can be affected by the UK’s new foreign corruption legislation. The first event of 2016 was the Romanian Chamber of Commerce & Industry’s “Business without corruption” and more events will be held throughout the country.

Bucharest, 18 January 2016 At the end of last year, the Constitutional Court decided that the interdiction to dismiss the employees in eligible positions in a trade union body breaches the constitutional provisions. This is an important amendment in this field, taking into consideration that during the last 13 years as of the enactment of the Labour Code, the trade union leaders could not be dismissed.

The previous provisions of the labour code absolutely prevented the dismissal of employees in eligible positions in a trade union body, during the exercising of their mandate, regardless of the fact that there was a connection between the trade union activity carried out and the reasons for dismissal or not. These provisions created a double inequity in the relationship between the trade union leaders and the rest of the employees on one hand, and the relationships between the respective leaders and the employer on the other hand, whose activity was affected by this interdiction., explains Anca Stroiu, senior lawyer at McGregor & Partners.

By the enactment of decision 814/2015, published in the Official Gazette no. 950/22.12.2015, the Constitutional Court excluded a legal privilege regulated in favour of the trade union leaders, to the disadvantage of the other employees who do not have any position in a trade union body. Therefore, all employees shall benefit of an equal treatment in identical legal circumstances. Consequently, the trade union leaders can make the object of a dismissal decision due to reasons related to the employee (e.g. preventive arrest, physical or psychical incapacity, professional inadequacy) or due to reasons that do not relate to the employee (e.g. the liquidation of working position).

However, the dismissal of trade union leaders continues to be unenforceable for reasons regarding the observance of the mandate they received from the trade union members. The reason this interdiction is being maintained is that the removal of trade union representation capacities of the leaders or the holding them responsible for the facts committed during their trade union mandate, shall be performed exclusively by the trade union having appointed them, without the involvement of the employer, in the same conditions as the appointment was made.

By the decision of the Constitutional Court it is clearly differentiated the principle of equality of treatment of employees in identical situations from the protective measures of employees with representative responsibilities. Therefore they can fulfil in good conditions the mandate that they have been empowered with and which should operate exclusively in relation to the trade union activity actually carried out.

In the labour law projects we have been involved, we encountered cases in which the trade union leaders benefitted of the most favourable legal provisions and they have been excluded from the collective dismissal plan, due to the provisions regarding the interdiction of dismissal of the respective leaders during the exercising of their mandate. However we noted in the legal practice prior to the amendments brought by the Constitutional Court decision, even at the level of appeal courts, that there were court decisions given in favour of dismissing the trade union leaders due to reasons not pertaining to the person of the employee, and therefore anticipating and confirming some of the arguments of the Constitutional Court regarding this matter. Thus, it shall devolve on the courts invested to analyse the legality of a decision to dismiss a trade union leader, to examine if there is connection between the reason of dismissal invoked by the employer in the dismissal decision and the method of fulfilment of the mandate by the respective leader., added the lawyer Anca Stroiu.