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May - 2005



Answers on the law of return

With the state overseeing the return of properties to their previous owners, how can buyers be sure they do not lose out to a restitution order

Foreign investors are flocking to Romania to realise the largely untapped development potential in lucrative areas such as shopping centers, warehouses, office buildings and residential complexes. Obviously the guarantee as to the title of the property is at the forefront of investors' concerns. Part of this is generated by stories of heirs of historical owners of property before 1945 returning to Romania to reclaim their rights and thus dispossessing current owners. So here is a brief guide to the local restitution regime and how to minimise these risks. It also puts into context the recent announcements by the Government regarding the acceleration of restitution.

Development of the laws

Following the collapse of the Communist regime, Romania enacted several laws to allow restitution of real property confiscated from private landowners. Law 19/1991 (the 'Land Law') was among the first and governed the restitution process for land plots (such as agricultural and forestry). According to the Land Law, unbuilt land plots located in the city limits (intravilan) and administered by local councils were to be returned to the former owners or their heirs.

Several years later, more specific legislation was enacted, such as Law 112/1995 ('Law 112') and Government Emergency Ordinances 83/1999 and 94/1999. Law 112 grants a tenant the right to buy the apartment where he has lived, as long as no restitution claims were filed within six months of the enactment. Government Emergency Ordinances 83/1999 and 94/1999 govern the restitution of properties belonging to national minorities and religious organisations.

The restitution process continued at a snail's pace and under pressure from an internal and external lobby so, in 2001, Parliament passed Law 10/2001 (“Law 10”), which became the overarching framework governing the restitution process and left very few cases to be settled in accordance with other special legislation. Under Law 10, any property that was confiscated by the communist regime without due compensation could be claimed either by the rightful owners or their legal heirs, or by the former shareholders or their legal successors (earlier restitution legislation covered only Romanian citizens), upon presentation of adequate supporting documentation and absent reimburse-ment made at the time of confiscation by virtue of international agreements.

Law 10 was often condemned as being confusing and placing too many procedural burdens on claimants, while the implementing norms did not appear until two years later. The entire process has caused a number of persons to take their cases to the European Court of Human Rights before finally regaining their property.

The important point to note is that claims under Law 10 should have been filed by the cut-off date of 14 February 2002, and supporting documentation for such claims by 1 July 2003. Many of these restitution claims are still pending before competent authorities and it will likely take years to resolve them all conclusively.

Risks to buyers

So if a foreign investor purchases a property now, is there is a risk that the investor can be later dispossessed by a disgruntled heir? Generally speaking, this is limited by the fact that under most laws, if the property in question was transferred to a private owner before the filing of the restitution claim, the successful claimant would only be entitled to monetary or in-kind compensation (such as property or shares in state enterprises to be privatised) from the Government and not restitution of the property itself. Restitution of the property is reserved for cases where the State is still the owner. However, any attempted transfer of title where a restitution claim is pending is void.

Unfortunately, there is no fail-safe method to check whether a particular property is not the subject of a pending claim, but the following two sources should be consulted. First, the courts generally should inform the Land Registry about pending claims and thus the existence of a claim would normally appear on the Land Registry extract (under new regulations, anyone can request an informational extract for any property). But the courts do not always register them and there are no deadlines or sanctions for not doing so. Second, and more importantly, each local mayor's or council's office should in principle be aware of any claims for return of property; thus they may be contacted. For instance, the Bucharest Mayor's Office has an online database of claims ( click on 'Legea 10').

Latest news

The new government has publicly stated that its priority is restitutio in integrum, the return the property if possible to its historical owner as quickly as possible. It is not intended that this process will disregard the general principle stated above that if the property is already in private hands (or serving the public interest), then restitution of the property should not be possible. Rather, it is to accelerate monetary or other compensation to outstanding claimants.

Restitution claims should continue to form part of any potential purchaser's due diligence on any property. But this information is for general information purposes only, and if there are any specific questions you have, I urge you to consult an attorney concerning your own situation.

Victor N. Constantinescu,

Associate, Salans