Real Estate Owned by the State: An Opportunity to be Further Explored
Adresa
Strada Gheorghe Polizu, Nr. 58-60
Cladirea Bucharest Corporate Center, Etaj 13
011062 Bucureşti, Sector 1
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+40-21-308.81.00
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+40-21-308.81.25
Website
www.wolftheiss.com
DRAGOS IACOB
Associate
SOCIETATEA CIVILĂ DE AVOCAŢI "WOLF THEISS ŞI ASOCIAŢII"
CIPRIAN GLODEANU
Senior Associate
SOCIETATEA CIVILĂ DE AVOCAŢI "WOLF THEISS ŞI ASOCIAŢII"
The lack of liquidity in the global markets created by the ongoing financial crisis has made it difficult for investors to obtain the financing necessary to acquire certain real estate properties. In such difficult times investors are expected to find new ways to finance acquisitions or to reconsider possibilities for the development of real estate projects at attractive pricing. Additionally, with buyers unable to obtain financing from traditional lending sources in order to complete developments on their own, real estate investors are increasingly turning to joint venture structures as a source of such capital.
As real estate acquisitions become more difficult, investors must seek not only to obtain ownership over certain real estate, but also to obtain other rights relating to the subject real estate in order to develop the planned project. Accordingly, in this article we will briefly describe some of the most common methods used to develop investment projects on real estate owned by the State, methods that may assist a real estate investor in navigating the troubled waters of today’s global financial crisis.
For a better understanding of the legal treatment of the State’s ownership under Romanian law, a brief summary of the main legal provisions regulating this filed is necessary. Hence, the Romanian Constitution provides the basic division of ownership: public property and private property, differentiated by their respective holders and applicable legal treatment. Thus, public property belongs to the State or to its administrative-territorial units (i.e., county, town, municipality and commune).
Further, public property is divided into public domain (assets which are exclusively owned by the State such as mineral resources of public interest, air space, water ways with hydroelectric potential, beaches, the territorial sea, the natural resources of the economic zone and the continental shelf etc.) and private domain (assets that are owned by the State as any other entity and which are not included in the public domain). The importance of this division is found in the legal treatment applicable to the assets of the aforementioned domains: on the one hand, the assets from the public domain cannot be alienated, there is no status of limitation and cannot be foreclosed, and on the other hand, the assets from the private domain can be alienated, acquired by long possession (usucapio) and encumbered as any asset owned by any regular entity.
Utilization of the public domain’s assets
The primary purpose for creating a public domain is to provide the State and its local collectivities with another instrument that is necessary to ensure that the public interest is served. Due to this fact, its creation is not an aim in itself. Rather, it represents a premise for promoting the assets which are considered to belong to this domain.
As mentioned above, the holder of the public property right is the State and its administrative-territorial units or collectivities. The public property right can be exercised through central public authorities (e.g. the Government, the ministries etc.) if the asset belongs to the national public domain or through the local public authorities (e.g. the county council, the local council) if assets belonging to the county or local public domains, but at the same time through private individuals/legal entities. The legal ground for granting such right to the aforementioned public authorities and to private individuals/legal entities are the Romanian Constitution and the Law on Local Public Administration no. 215/2001 (the “Local Public Administration Law”).
According to these legal principles, the assets belonging to the public domain:
- may by managed by state-owned companies or public institutions, or
- may be conceded, leased or transferred for management to the public utility institutions.
Thus, despite ostensibly strict protection under the law, grounded in the constitutional principle of non-alienation, the public domain may also be used by private individuals/legal entities in various legal ways.
Due to the fact that some of the methods for promoting the public domain’s assets are not applicable to private individuals/legal entities (e.g. the management right granted to the state’s companies and public institutions), we describe below only the most common methods used by private individuals/legal entities for obtaining the right to build on land belonging to the public domain. Nevertheless, we will refer only to those rights, according to Law 50/1991 on the authorization of construction works, which allow the potential investor to obtain a building permit (i.e. a concession right).
Concession of public assets
Legal Framework
One of the methods for exercising a public property right is by conceding public domain assets. Although this concession right is also referred to in Law 213/1998 on public property and its legal treatment (the “Public Property Law”), and Local Public Administration Law according to which the public and private domain assets can be conceded, the framework law on the concession of public assets is Emergency Governmental Ordinance no. 54/2006 on the legal treatment of concession contracts, with respect to public property assets (“EGO 54/2006”).
It is important to note that under Romanian law, in addition to the direct concession of public domain assets, concession of such assets together with the concession of public works or public services is also possible. According to EGO 54/2006, if a public works concession contract or a public services concession contract requires the use of a public domain asset, the right of use over the said asset shall be transferred in compliance with the enactment that regulates the award of public works concession contracts or public services concession contracts, Emergency Governmental Ordinance no. 34/2006 on the award of public procurement contracts, public works concession contracts and public services concession contracts (“EGO 34/2006”) respectively. Thus, only a single concession contract shall be executed.
It is also worth noting that if an opportunity study acknowledges that the use of the conceded asset implies the performance of certain works or services, the contracting authority shall be first obligated to establish the nature of the contract to be executed (i.e. either a public works concession contract or a public services concession contract) and, second, based on this classification it shall apply the relevant procedure.
The public works concession contract: content, main provisions and form
Irrespective of the awarding procedure, if all legal requirements are observed, such procedure shall be finalized through the conclusion of a public works concession contract between the contracting authority and the concessionaire. Under EGO 34/2006, such a contract is defined as a public procurement contract, having as its purpose the performance of construction works or the development of construction in which the consideration for the works performed by the concessionaire consists either:
- solely of the right to exploit, totally or partially, the works, or
- in that right together with the payment of a predetermined monetary amount granted by the contracting authority
At the same time, the concessionaire shall have the right to use and collect the earnings yielded by the concede asset in compliance with the nature of such asset and within the scope agreed by the parties.
Due to the fact that the concession contract is an administrative contract, it will contain two parts:
- the regulated part and
- the mutually agreed part.
