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Due Diligence for Land Acquisition

Romania is still an interesting place for foreign investors. Whether you are a trading company or an investor. There is continuing to be considerable interest in all types of real estate property from logistic parks, retail units, production as well as residential accommodation. Buyers especially for residential property have not been forced out of the market as they have been in some western (United Kingdom) markets.

Such transactions require suitable land or buildings. Most current investors are choosing to look at acquiring land to establish or extend retail parks, factories, warehouse facilities, or offices. Residential blocks and houses are again appearing on the horizon. Especially in Bucharest and Cluj.

From a legal perspective the land acquisition process needs to be carefully monitored and understood. Failure to have the necessary legal investigations and any lack of knowledge of Romanian regulations may result in a failed transaction and loss to the client and the investor. As a Romanian law firm, we are asked to assist in the purchase of real estate and carry out the necessary investigations and enquiries jointly with the buyer real estate agents.

Investors should have proper legal due diligence done by qualified Romanian lawyers experienced in real estate law and practise to clarify the legal and technical situation of the real estate before drafting a purchase contract. Relying on the notarial procedure in some cases is not enough. An environmental due-diligence to know the implications for careful handling of the property’s ecology is strongly recommended as well as research into the age of the building both from the environmental and historical perspective. An offer to the authorities maybe a condition precedent to completion.

In practice, concluding a purchase without a proper legal due diligence can incur the purchaser in further expenditure and jeopardise the whole transaction. A legal due diligence will go a long way to identifying the risks and to assessing the development of the land. The following are some aspects which must be investigated for any land acquisition.

This list is not exhaustive and will depend on the client’s requirements.
• The history of the land (deeds of purchase, survey documentation, land registry entries); if there is a building already on the land the question of its historical value needs to be considered as well as the possibility of its demolition;
• encumbrances;
• the possible restitution claims of third parties;
• access to the land from a public road;
• disputes in relation to the land;
• payment of all taxes on the land plot;
• status of the land plot from the perspective of land and construction regulations;
• legal situation of construction planning (have development plans for the area been approved?).

The legal due diligence should be carried out by the purchaser’s Romanian lawyers who must be able to explain the legal environment especially if the purchaser comes from a country with a different legal system. A technical due diligence (including environmental due diligence) must be carried out by technical specialists (architects, technical experts etc) and the results of their technical examinations will, if necessary, be included in the purchase contract.

Given the fact that a due diligence procedure is likely to last for a period of time the investor should consider protecting his position and the costs he will invest during the process with a mandatory preliminary purchase agreement.

This preliminary agreement should establish that the parties undertake to buy and sell the land plot at the price and conditions established, subject to the due diligence findings.
If the seller refuses to sell the land plot on the terms agreed, the investor has the right to request a court decision on compensation for the notarised purchase contract.
In order to have third-party effect (ie. enforceable against third parties), the preliminary purchase agreements must be registered with the land registry.
Purchase contract

To acquire land in Romania, a notarised purchase document is required. Before the sale purchase agreement is signed, the notary will obtain an ‘excerpt of the land register for authentication of the land plot, which will block the land register entry until the purchase contract has been signed. They will also carry out a check to ensure that there are no state financial claims on the land. No other transactions regarding the plot can be made until the process is concluded.

In practice, many mistakes can be made in real estate transactions. To avoid both financial and legal risks and lose we strongly recommended the obtaining of a proper due diligence report from all interested professional.