1. Legislative Framework and General Rules
1.1. Legislative framework
The major legislative acts governing the real estate and real estate transactions in Bulgaria are the Bulgarian Constitution, Property Act, State Property Act, Municipal Property Act, Privatization and Post-privatization Control Act, Agricultural Land Ownership and Use Act, Forestry Act, Civil Procedures Code, Encouragement of Investments Act, Territorial Development Act, Contracts and Obligations Act and Condominium Ownership Management Act.
1.2. Direct acquisition of real estate in Bulgaria by foreigners and foreign companies
In Bulgaria foreign citizens and foreign companies can directly acquire buildings, premises within a building and limited property rights (e.g. construction right, right of use). The foreign acquirer has to be registered in a special Register.
As a result of the accession of Bulgaria to the European Union (“EU”), specific rules related to acquisition of land were provided for EU citizens (“resident citizens”) and entities registered in the member states of the EU and the European Economic Area (“EU residents and entities”). Relevant changes were implemented in the Bulgarian Ownership Act, Forestry Act (implemented also in the new Forestry Act in force as of 9 April 2011) and Protected Areas Act and Agricultural Land Ownership and Use Act.
According to the effective legislation, EU residents and entities may acquire ownership title over land in Bulgaria in accordance with the requirements specified by law and in compliance with the provisions of the Accession Act of Bulgaria to the EU. The Accession Act provides that Bulgaria, upon its discretion, can keep the restrictions for acquisition of land by citizens and entities from the member states: (i) for five years starting from 1 January 2007 – for the land provided for second residence, and (ii) for seven years starting from 1 January 2007 – for agricultural land, forests and forest land.
The five year transitional period has expired on 31 December 2011 (save for the agricultural land, forests and forest land). Therefore, the EU residents and entities can acquire urban land in accordance with the requirements specified by law. The above restrictions are not applicable to the resident citizens, who are individually occupied farmers who wish to settle and reside permanently in the Republic of Bulgaria and who are registered in that capacity in the BULSTAT Register with the Bulgarian Registry Agency. They may acquire ownership title over agricultural and forestry lands for agricultural purposes as from 1st January 2007 - the date of the entry into force of the Accession Act of Bulgaria to the EU.
Citizens (“non resident citizens”) and entities of countries – not members of the EU and the EEA, may acquire ownership title over land under the terms of an international agreement, ratified under the terms provided for in the Constitution of the Republic of Bulgaria, which agreement has been promulgated and entered into force.
Foreigners (non-resident or resident citizens) may acquire ownership title over land in case of legal succession.
In case of inheritance through legal succession of agricultural land, forests or forest land, if the foreigners do not fulfill the conditions provided for in the Accession Act of Bulgaria to the EU, or when something else is not provided for in an international agreement, they shall be obliged, within three years following the revealing of the inheritance, to transfer the ownership to persons who have the right to acquire such estates.
1.3. Indirect acquisition of real estate in Bulgaria by foreign companies or foreigners
Indirectly, foreign companies and foreign citizens can acquire any type of real estate, including land, by registering a Bulgarian company to act as an acquirer. It is possible for such a company to be 100% owned by a foreign investor.
Another possibility for an indirect acquisition of a real estate in Bulgaria by a foreign company or a foreign citizen is to buy the shares in the capital of an already existing Bulgarian company, which then may act as an acquirer.
Foreign companies and foreign citizens, furthermore, can acquire the shares in the capital of a Bulgarian company, which already owns a real estate in Bulgaria.
1.4. The transaction
The general rule under Bulgarian law is that transactions involving real estate (e.g. a purchase, exchange, etc.) should be executed with a notary deed before a registered notary in the region where the real estate is located. The form of the notary deed is mandatory not only for transactions for transfer of ownership title over real estate properties, but also regarding establishment of limited property rights over real estate properties (e.g. construction right, right of use, etc.).
After execution of the deed the notary is obliged by law to register the transaction into the Property Registry in order to make the title of the acquirer defendable against third parties.
A notary deed is not required for disposal of state or municipal property or in privatization transactions where the simple written form is sufficient for a valid title transfer. There are also special rules and procedures governing the acquisition of a real estate arising from enforcement, insolvency and similar procedures, and for in-kind contributions of real estate.
The notary deed for sale-purchase of real estate should specify the purchase price of the estate payable by the buyer. According to the Limitation of Cash Payments Act (“LCPA”), in force as of 25 February 2011, all payments in Bulgaria (including real estate transactions) of an amount equal to or exceeding BGN 15,000 (approximately EUR 7,600) should be executed only via a bank transfer or deposit to a payment account. The same rule shall be applied to cases where the payment is of an amount lower than BGN 15,000, but represents part of the purchase price, the total value of which is equal to or exceeding BGN 15,000.
1.5. Legitimacy of the buyer
1.5.1. Direct acquisition by foreign companies or foreigners
Where foreign companies or foreign citizens acquire directly buildings, premises or limited property rights they should ensure that at least the following documents are presented:
• Resolution of the competent corporate body approving the acquisition of the targeted real estate (applicable only in case of acquirer - company). The resolution has to be translated in Bulgaria by a certified translator
• Certificate of Good Standing of the foreign company (applicable only in case of acquirer - company) – duly legalized
• Declaration for citizenship and civil status signed before a notary and duly legalized (if the foreign acquirer is an individual)
• Declaration for the origin of money under the Measures against Money Laundering Act, and
• Power-of-attorney, signed before a notary and duly legalized, for the person who will represent the foreign acquirer before the Bulgarian notary (if the acquirer is not represented in person or by its legal representative).
1.5.2. Indirect acquisition by foreign companies or foreigners
Where foreign companies or foreign citizens indirectly acquire real estate in Bulgaria through a Bulgarian subsidiary company, they should ensure that at least the following documents are presented:
• Resolution of the competent corporate body of the Bulgarian subsidiary approving the acquisition of the targeted real estate
• Declaration for the origin of money under the Measures against Money Laundering Act, and
• Power-of-attorney signed by the legal representative(s) of the Bulgarian subsidiary before a notary for the person (if this is not the person referred to in the Certificate for Good Standing as the person representing and binding the Bulgarian subsidiary) who will represent the Bulgarian subsidiary before the Bulgarian notary executing the transaction. If the power of attorney is signed before a foreign notary, it should be duly legalized.
1.6. Statutory costs and expenses for execution of a notary deed
• Transfer tax – specified by the Municipal Council of the respective municipality, where the real estate is located. The transfer tax may vary between 0,1% and 3% over the higher of the two: (i) the purchase price agreed between the parties, and (ii) the tax valuation made by the tax office prior to the transaction. According to the law, the transfer tax is due by the acquirer. The parties may agree that the tax is split between the parties or is paid by the seller.
• Fee for registration in the Property Register – 0.1% over the higher of the two: (i) the purchase price agreed between the parties, and (ii) the tax valuation made by the tax office prior to the transaction. The fee may be shared between the parties or be borne by just one of them, and
• Notary fee – according to the statutory Notary Tariff, but not more than BGN 6,000 (approx. Euro 3,100) per transaction. The fee may be shared between the parties or be borne by just one of them.
2. Verification of the ownership title
2.1. Notary verification
According to the Bulgarian legislation, prior to the execution of the notary deed, the notary public is obliged to verify the title rights of the current owner (e.g. the seller), to review the corporate resolutions of the parties under the transactions, powers of attorney, etc. Following such verification, the notary public is entitled to execute the notary deed.
When the real estate transaction is related to an in-kind contribution and sale of the commercial enterprise containing real estate properties, the verification is executed by the Registry Agency.
2.2. Title review (Real estate legal due diligence)
The notary public is not obliged to review the ownership title history, i.e. to review the title rights of the predecessors of the current owner.
As a general legal rule, the ownership title of the current owner depends on the rights of his predecessor while the rights of the predecessor, in turn, depend on the ownership title of the predecessor of the predecessor. Thus, if one of the previous owners did not have a clean and undisputable ownership title, this will reflect on the current owners, i.e. a third rightful party can claim the property right against the current owner.
The possibility of third party property claims is precluded by the so called prescription period of possession. According to the effective legislation, after the expiration of the prescription period of possession, the current owner of the property is considered the rightful owner, regardless of the rights of the predecessors. The absolute (maximum) prescription period is 10 years.
With this regard, it is recommended before purchasing real estate, the buyer to undertake title review of the targeted real estate, including the title’s history. The purpose of such a review is to verify that there is/are:
• A clean, valid and marketable ownership title held by the seller. The seller has to be, and his predecessors should have been the real owners of the targeted real estate in order to avoid any risk of termination or annulment of the transaction. Usually, this title review covers the last 10 years since the maximum acquisitive prescription term in Bulgaria is 10 years;
• No liens or encumbrances over the property. The buyer should be fully aware as to whether there are any registered liens and/or encumbrances over the targeted real estate, e.g. mortgages, interlocutory injunctions, going-concern pledges, limited property rights established in favor of third parties. A general principle in Bulgarian law is that liens and encumbrances “follow the property”, i.e. the registered liens and encumbrances can be enforced against the new owner;
• No other registered rights in favor of third parties – if there are registered rental or lease agreements over the targeted real estate then the buyer shall be bound by them until the expiration of their term;
• No court or restitution claims, and
• No public debts of the seller, which could lead to a forcible sale of the real estate by the state authorities.
3. Special cases
3.1. Acquisition of ownership title and limited property rights over marketable state owned real estate
The ownership title or limited property rights (e.g. construction right, right of use, etc.) over marketable state owned real estate can be acquired through:
• A sale-trade transaction
• Exchange with other real estate owned by the foreign investor or its Bulgarian subsidiary only in the cases explicitly provided in the law, or
• An in-kind contribution into the capital of a Bulgarian company.
The sale of marketable state owned real estate with tax valuation over BGN 10,000 (approx. Euro 5,200), shall be performed by the Privatization Agency under the rules of the Privatization and Post-privatization Control Act (“PPCA”). According to the PPCA, in case of sale of a marketable state owned real estate with a tax valuation over BGN 10,000 to Bulgarian individuals, to Bulgarian legal entities with up to 50% state and/or municipal owned share in the capital or to foreign persons, the procedures under the PPCA shall apply, except for explicitly specified cases (e.g. in case of a sale of state owned residential real estates, or a sale to investors who possess an investment class certificate, etc.).
As per the PPCA, the Privatization Agency shall adopt a decision for sale of state owned marketable real estate with a tax valuation over BGN 10,000 upon proposal by the competent director of the state administration, to which the management of the real estate was granted, or by the respective Regional Governor (in case the management of the real estate was not granted), after confirmation procedure with the Minister of Regional Development and the Minister of Finance. The method of sale (i.e. a public tender or an auction) shall be determined by the Privatization Agency in a resolution, which is promulgated in the State Gazette, and the sale shall be performed according to the rules provided in the Tenders and Auctions Ordinance. In case of a sale of state owned real estate with a tax valuation over BGN 500,000 (approx. Euro 256,000), instead of a confirmation procedure, a decision of the Council of Ministers is required, determining the privatization method and conditions, based on which the Privatization Agency shall perform the privatization procedure. The rights over the sold real estate are transferred by virtue of a written sale agreement (i.e. a notary deed is not required) and no fees are due for the registration of the agreement with the Property Register.
Regarding the sale of a marketable state owned real estate with a tax valuation up to BGN 10,000 and of state owned residential properties, garages, studios, etc., the State Property Act shall apply. In general, in this case the competent authority is the respective Regional Governor who shall perform the tender procedure and conclude the sale-trade contract. The contract has to be registered in the Property Register in order to make the ownership title (or the limited property right) of the acquirer defendable against third parties.
Special rules are provided for power plants, allowing construction right for their development to be established against remuneration, without performing a tender or an auction.
Another exception from the tender rule enables the legitimate acquirer of lawfully constructed building on the said real estate to acquire ownership title over the land without performance of a tender.
General principle provided for in the State Property Act is that an exchange of marketable state owned real estate or of the construction right over such real estate with other real estate owned by individuals or legal entities may not be performed, except for explicitly defined in the law cases (e.g. termination of co-ownership, fulfillment of international treaty, etc.).
An in-kind contribution of marketable state owned real estate is executed on the ground of proposal of the Minister with relevant sector competence and a decision of the Council of Ministers.
As a general rule, the State Property Act provides that, in case of establishment of construction right or right of use up to 10 years over marketable state owned real estate, the respective Regional Governor shall issue the order, perform the tender procedure and conclude the contract. In case of establishment of limited property rights over marketable state owned real estate with tax valuation over BGN 500,000 (approx. Euro 256,000), a decision of the Council of Ministers is required, based on which the Minister of Regional Development shall perform the tender procedure and conclude the sale-trade contract
Specific rules are provided in the Agricultural Land Ownership and Use Act for the conditions and the procedure for disposal of state owned agricultural lands. Regarding the disposal of state owned forestry territories (e.g. forestry lands and forests), there are special rules provided in the Forestry Act, effective as from 9 April 2011.
3.2. Acquisition of ownership title and limited property rights over marketable municipal real estate
The PPCA applies in case of a sale to Bulgarian individuals, to Bulgarian legal entities with up to 50% state and/or municipality owned share in the capital or to foreign persons, of the following marketable municipal real estates: (i) non-residential properties used for business purposes (e.g. shops, warehouses, workshops, etc.), which are not included in the possessions of municipal legal entities, and (ii) real estate projects under construction, which are not included in the possessions of municipal legal entities. In this case, the sale of municipal real estates shall be performed by the respective Municipal Council through a tender/auction according to the procedures provided in the Tenders and Auctions Ordinance.
Regarding transactions with marketable municipal real estates outside the scope of the PPCA (e.g. residential properties, properties with non-business purpose, etc.), the Municipal Property Act shall be applied. In this case, the Municipal Council of the respective municipality shall pass a resolution for the implementation of a tender/auction procedure, on which basis the Mayor shall conclude the sale-trade contract. The contract has to be registered in the Property Register in order to make the ownership title (or the limited property right) of the acquirer defendable against third parties.
The ownership title or limited property rights over marketable municipal real estate may be transferred without tender by the Mayor in the cases explicitly specified by the effective legislation within a procedure determined by an ordinance adopted by the Municipal Council where the property is located. The establishment of a construction right over a marketable municipal real estate for the development of power plants shall be executed without performing a tender or an auction.
General principle, provided for in the Municipal Property Act, is that an exchange of marketable real estate owned by a municipality or of the construction right over such real estate with other real estate or of the construction right thereof owned by individuals or legal entities may not be performed, except for explicitly defined in the law cases (e.g. termination of co-ownership, fulfillment of international treaty, etc.).
Specific rules are provided in the Agricultural Land Ownership and Use Act for the conditions and procedure for disposal of municipal agricultural lands, e.g. there are certain additional requirements related to disposal of municipal pastures and grasslands. The disposal of municipal forestry territories (e.g. forests and forestry lands) is regulated by the Municipal Property Act, in compliance with the new Forestry Act, in force as of 9 April 2011.
3.3. Sale of real estate without tender/auction under the Investment Promotion Act
The Investment Promotion Act envisages different incentive measures and privileges for local and foreign investors who undertake significant investments in certain economic activities within the territory of Bulgaria. The aim of these measures, financed by the state, is to promote large investments and to improve the business environment in the country.
Investors, who possess a certificate for class A or class B investment issued by the Minister of Economy, Energy and Tourism, are entitled without tender/auction to:
• purchase marketable real estate owned by the state or municipality, or
• acquire, against remuneration, limited property rights over marketable real estate owned by the state or municipality
Rights over the above real estate properties may be transferred or established at prices lower than the market ones, where the price cannot be lower than the tax evaluation of the real estate property, for priority investment projects, provided that all conditions for the implementation of the regional investment aid scheme under Regulation (EC) No 800/2008 have been fulfilled.
There are special rules for priority investment projects and for real estates managed by the Ministry of Defense.
The contracts must be registered in the Property Register in order to make the ownership title (or the limited property right) of the investor defendable against third parties.
Non-implementation of the investment project of the above investor within the implementation term and regarding the amount of the investment is included in the relevant contract as termination grounds. The contract shall be terminated, also, if the work on the implementation of the investment project has not started within two years as of the date of signing the respective contract.
The investor may not dispose of the real estate property (or of the limited property rights), acquired according the procedures under the Investment Promotion Act, prior to the expiry of a five-year term as from the date of implementation of the respective investment project, and in case of medium- and small-sized enterprises - within three-year term as from the date of the implementation of the respective investment project.