Bulgaria: Legal Regime Governing Immovable Property Rights

1. Introduction

The real estate regime in Bulgaria is governed by the Law on Ownership¹, the Law on State Ownership² and the Regulation on the implementation thereof, the Law on Municipal Ownership³ and the Regulation on the implementation thereof, the Law on Ownership and Use of Agricultural Land⁴ and the Regulation on the implementation thereof as well as by the Law on Cadastre and Real Estate Registry⁵ and the Ordinance on Entries⁶.

The Law on Obligations and Contracts provides for the legal framework in Bulgaria with regard to lease agreements⁷.

According to the Bulgarian applicable legislation one or more amongst the state, municipalities, natural persons and legal entities can acquire and hold title to real estates in Bulgaria as well as limited rights in rem thereto. Under Bulgarian law limited rights in rem are the usufruct, the superficies right (right to construct and keep a building on a third party's land) (infra) and the easement. Foreign natural persons and legal entities can acquire title to buildings as well as superficies right on the underlying land, but cannot own land in Bulgaria. Bulgarian law does recognize joint title to real estate, where more than one person is owner of the realty. The most important implication of this rule is that jointly owned property is managed by the majority owner(s), but title thereto can only be transferred with the consent and participation of all titleowners. Any of the coowners may at any time request partition of the undivided interest to the real estate and become sole owner of a portion thereof, provided such portion complies with the legal and technical requirements for existence as a separate object of title of ownership. Said requirements are established by the Law on Territorial Development8, which is the major legal act relating to development of territories and construction.

Real estate property of the state and municipalities is divided into two categories public property and private property, where title to public property cannot be acquired by any legal entities and/or individuals. Acquisition and disposal of title to real estate owned by the state and municipalities shows some variation as compared to acquisition and disposal of title to real estate owned by natural persons and legal entities relating mainly to the methods of disposal of title. Disposal of title to real estate assets and/or limited rights thereto owned by the state or municipalities is effectuated following an auction or tender procedure (unless otherwise provided for in any special legislative act) or swap of property. Another major difference is that the state and municipalities are entitled to transfer title to real estate and limited rights in rem thereto by virtue of a written contract, which does not require any certification by a Notary Public (infra).

Transfer of property rights, as well as the establishment of limited rights in rem in respect of a realty is effectuated by way of a formal agreement (generally referred to as a "Notary Deed"), which is executed by a duly qualified Notary Public authorised to act within the realty's region of location. Real estate transactions involving the state or a municipality on the side of the grantor, however, are effectuated by simple written agreements, i.e. participation of a Notary Public is not required. Still such agreements are subject to registration with the respective Real Estate Registry (infra). Another document capable of transferring title to real estate assets is the ruling of a Judge on Execution for assignment of title to real estate assets issued in the course of a public sale of a debtor's property. Such a ruling is a result of effectuation of a foreclosure procedure against a defaulting debtor leading to the public sale of latter's property to the benefit of his creditors. In such cases, following the public sale of property, the Foreclosure Judge conducting the procedure issues rulings transferring title to the publicly sold real estate. Such rulings are also subject to registration with the respective Real Estate Registry.

The registration regime in respect of transactions relating to real estate and rights thereto has the function to provide a purchaser of a real estate with the opportunity to check whether the transferor is the owner of the real estate and whether the title thereto is free and clear of any encumbrances, liens and third party rights. Visavis any third parties title to a real estate is deemed to be transferred to the purchaser as of the moment of registration of the title transfer agreement with the respective Real Estate Registry.

Under Bulgarian property law a "registration" is an act of a competent judicial body where certain circumstances are recorded in the respective Real Estate Registry and the documents evidencing such circumstances are filed in special books. Subject to registration are any deeds for transfer of title to real estate, including by way of sale, donation, exchange, transfer of title in lieu of payment etc., for creation of limited rights in rem in real estate, such as usufruct, right to construct etc., and for acknowledgement of all of the above rights, such as notary deeds of findings, deeds of state ownership, deeds of municipal ownership and other deeds expressly envisaged by law.

The regime of registration applies in respect of real estate transactions, establishment and transfer of limited rights in rem in respect of real estate, creation of liens (mortgages, attachments and court actions). The aim of the regime is that these facts and circumstances be brought to the attention of the public for protection of its interest.

1. Deeds of State (Municipal) Ownership

Due to the fact that until some ten years ago the vast majority of real estate assets in Bulgaria were property of the state, Deeds of State Ownership ("DSO") still play a substantial role in the commercial turnover on the real estate market. Despite its name, in case of a legal entity currently or previously owned by the state, a DSO is a document representing official evidence that the real estate assets listed in such DSO are owned by such legal entity. Although commonly DSO are issued in respect of real estate assets owned by the state, the Regulation on the Implementation of the Law on State Ownership provides for a possibility for issuing of DSOs for real estate, which have once been state property and have subsequently been contributed to the capital of corporation solely owned by the state.

Deeds of Municipal Ownership are issued in respect of real estate owned by the municipalities. The regime of issuing of Deeds of Municipal Ownership and the basic characteristics of such deeds are very similar to those of DSO.

2. Notary Deeds, Contracts in Writing and Court Rulings

Pursuant to the Law on Obligations and Contracts a lease agreement is executed when the parties agree that one of them will use realty or chattel belonging to the other for a certain period of time and against payment of consideration. According to the mandatory provisions of the Law on Obligations and Contracts, the lease agreement shall be executed for a period not exceeding ten (10) years with unlimited renewals possible. In case the agreement does not define a term for which it will be effective, it is deemed to have been executed for an indefinite period of time and may be terminated by either party with one month prior notice, unless otherwise stipulated. If the Tenant continues to use the property after the expiry date of the lease agreement and the Landlord does not object, the agreement is deemed renewed for an indefinite period of time. Lease agreements are nonformal as opposed to agreements for transfer of title to real estate. However, exceptions to this rule are provided for by the law, as described below.

A special form for execution of lease agreements in respect of real estate is provided for in the Law on Obligations and Contracts for protection of the tenant's interest. The latter can be endangered in case the landlord should transfer title to the rented property during the term of the lease agreement. In such cases Bulgarian law allows the new owner of the real estate to terminate the lease agreement with a onemonth prior notice, regardless of the fact that the term of the lease agreement has not expired. However, the new owner's right to terminate the lease contract may be restricted as follows:

1. In case the lease agreement is supplied with an authentic date (a date certified by a Notary Public) the new owner is obliged to honour the lease agreement until the earlier of the expiration of the term of the lease agreement, or the expiration of one (1) year from the date of acquisition by the new owner of the rented real estate; and
2. In case the lease agreement has been registered with the Real Estate Registry the new owner is obliged to honour it until the expiration of its term. Such registration can be performed only if the lease agreement is executed for a period longer than one year. In order for a lease agreement to be registered with the Real Estate Registry, the signatures of the contracting parties should be certified by a Notary Public. In such case the new owner shall be obliged to honour such contract until the expiration of its term.

Under Bulgarian law a tenant may subrent only part of the rented property without landlord's prior consent. The landlord's consent is mandatory for subrenting of the entire rented property.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.