Bulgaria: Long-term solutions

Author: | Published: 1 Jul 2008
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Following the trends of the real estate market in Bulgaria in the last five years and the historical development of the real estate in Bulgaria over the last century, the real estate investor needs to be well-orientated. Real estate in Bulgaria, as set forth below, has specifics, which, if underestimated may result in significant cost and disappointment. Therefore, the pragmatic and professional approach demands careful accumulation of knowledge and further in-depth investigation for any single case.

Local complications

For the last 50 years the real estate title registration procedures and title history in Bulgaria have undergone significant changes, which were generally ill-administrated. Furthermore, following the changes in the political and economic regime in Bulgaria in 1989, restitution (reinstatement) of title of real estate, previously held as state/cooperatives' property, has been effected pursuant to various acts and procedures, which often resulted in long-lasting civil disputes about ownership or claims against the authorities assigned with the completion of the title restitution procedures.

In summary:

  1. In the period up to 1950s there was private title over land and real estate.
  2. In the period between the 1950s and the end of the 1980s there was collectivisation and nationalisation – that is, the title had been moved to quasi-legal entities controlled by the government (versus the individual historical title-holders) or directly by the state.
  3. In the nineties restitution of land title began, when title was returned to the heirs of the legacy, the individual title-holders (that is, those prior to the 1950s).
  4. After the nineties and today, commercial transactions with land involving restituted title-holders are common and represent business as usual.

Historically, in view of the legal approach to title over land, Bulgaria has been close to the ex-Soviet Union and it can be assumed that some of the developments above were probably not common to all ex-socialist countries, nowadays referred to as CEE.

The result of the radical change in title-holding is that a verification of legal risks concerning title requires investigation into the legacy transactions, not only at the level of 4. – that is, performed by and between private parties – but often back to the level of 1. – that is, checking on whom the initial title-holder had been conferred, and whether the restituted owner faces challenges to the title as a result of a break in inheritance line or default in the restitution process itself.

Legal disputes between heirs of the legacy title-holder (the one at the level of 1.) are also common. The restitution process (at the level of 3.) has itself been carried out by state bodies, which (as in all legal environments) are not without omissions in their performance; such omissions or technical mistakes are typically upheld by private parties to give a basis for disputes on restitution. This complex bundle of controversial rights and claims requires a professional approach and extensive research and analysis.

Very often even local persons interested in real estate find it difficult not to get confused about the situation, so it is not surprising that a foreign observer too might be unaware of all of the above. Unfortunately, it is typical for certain level local consultants to persuade investors that the title is evidenced by Notary Deeds and to argue that as long as the seller has these, the title is valid and irrevocable. Such representations are misleading to the extent that they are not complete: the Notary Deed does indeed represent validity of title, but such validity can be challenged and risks to title can materialise irrespective of the Notary Deed's existence.

Therefore, an important rule to be followed when stepping into a real estate transaction is to initiate a real estate due diligence going back to the generic title-holding: either to a party that is the restituted owner (at the level of 3. above, including the acts of the bodies involved in the restitution), or to a party that can claim irrevocable ownership due to expiry of the 10-year statutory prescribed period of limitation.

Public-private collaboration

In light of the difficulties of establishing the clean title of a private real estate owner, and having in mind the fact that the title on attractive real estate is still held by either the government or municipalities, a newly emerging trend in the real estate market should be reviewed, involving the government or municipalities – the public-private partnership (PPP). This is most relevant to big investors in real estate, which can explore the utmost limits of the local resources by entering into direct relationships with the government and/or municipalities.

Bulgaria's accession to the EU made even more necessary intense and effective collaboration between public authorities and private entrepreneurs with the aim of rendering high-quality public services and products to the population. The social and the political conditions in the country together with its steady economic growth favour long-term collaborations between public authorities and private business under the new and more sophisticated form of the PPP. The current Bulgarian legislation also provides for conditions that encourage, facilitate and expand such collaborations, irrespective of the fact that no specific PPP codification has been adopted yet.

At a glance

The PPP represents a long-term contractual engagement between a public authority (ministry, agency or public company) and a private company for offering a service or a product designed for public use. The main idea of establishing a PPP is to provide more efficient and quality certified products and services for satisfying long-term public needs, using the methods, the experience and the management skills of the private business.

The contractual relation might be established in the form of a joint venture, concession agreement, or a company (incorporated and owned jointly by public and private parties) or any other relevant contractual instrument. The share of the risk between the parties in a PPP is symmetric to the profit gained.

PPP structures

Start-up capital is necessary for the acquisition of the respective assets for the establishment of the PPP and for supporting the early stages of its activity. The assets (real estates, buildings, equipment) comprise all material means, necessary for the activity of the PPP. Floating capital is necessary for financing various operations of the economic activity of the PPP (salaries, investments for equipment). The main scope of PPP is related to rendering a certain service or elaboration of a certain product. Income is received for the service of the product used.


In the case of a Design-construction-finance-management (DCFM) PPP, a public authority contracts a private company for the design, construction, financing and management of an asset that will be used for the rendering of a certain public service. The type of service to be rendered is defined by the public authority and the private company designs and constructs a certain asset dedicated to the performance of the respective service. Consequently, the private company finances and manages the asset and provides the service as agreed with the public authority. Thus, a private company is involved in the whole process of rendering a service – it creates the asset necessary for rendering the service and then renders the service itself.

  • Construction and management: a public authority finances a certain project and assigns a private company to design, construct and manage it for a definite period of time.
  • Adjoining construction: a private company finances the adjoining construction of an already existing public asset and manages it for a period sufficient to recover its investment and gain profit.
  • Purchase (/lease)-development manage-ment: a private company purchases (leases) a public asset and renovates and manages it for a certain period of time.
  • Construction-transfer management – a public authority assigns a private company for financing and constructing an asset. After the asset is constructed the private company transfers the ownership title to the public authority and is granted the right-of-use of the asset for a period sufficient to recover its investments and gain profit.
  • Construction-ownership management: a private company constructs and finances an asset and renders the respective service for the contractual term or up to the statutory term provided by law, whereas the public authority has a regulatory function in the process of rendering a service.

Management PPP

In the case of the Management PPP, a public authority transfers the right-of-use of a certain public asset or the right to perform a certain public service to a private company. The private company, on its behalf, has the obligation to manage the assets, and perform the respective services.

PPP areas of business in Bulgaria:

  • Construction and management of infrastructural objects – highways; airports; river and sea ports, city and municipal road networks; water supply and sewage.
  • Development of telecommunication technologies.
  • Management of power resources.
  • Extraction of earth minerals.
  • Construction and management of sport, medical and recreation facilities.

Though one of the first assets ever occupied by man, real estate remains a complicated and challenging business. The real estate investor needs to be aware of potential pitfalls when considering real estate as an area of interest.

Author biographies

Ivan V Vulchev

PI Partners

Ivan V Vulchev is a managing associate in the Sofia office of PI Partners. He graduated from Sofia University St Kliment Ohridski, and earned his Master of Law degree from the same university in 1998. He has participated in complex negotiations on various matters (intellectual property licensing, information technology supplies, consultancy services agreements, chattels deliveries, real estate transactions and letting, shares and equity acquisition, labour disputes, distribution arrangements and financing transactions) and has led teams in due diligence reviews.

Ivan has an information technology and intellectual property law practice. He has substantial experience in the protection and exploitation of intellectual property rights in many industries, including music, publishing and film. Ivan's experience in M&A comprises full-scope advisory services on local entrepreneurs' transactions and work on big multinational transactions. Real estate is another area of particular interest. He has worked extensively with both local business and large international investors. Before joining the firm in 2007, he worked for IBM in the Middle East, Africa, and Central and Eastern Europe, and with a number of Bulgarian film and music licensees from top movie and music firms, as their outside counsel.

Mladen Mladenov

PI Partners

Mladen Mladenov's main areas of practice as part of PI Partners are real estate, contract law, company and commercial law and intellectual property law. Before joining the firm, Mladen received an LLM in European Law from Julius-Maximilian's University in Wurzburg, Germany. He received his Master's degree in law from Plovdiv University Paisii Hilendarski in 2005.