This content is from: Local Insights

Concession of state private-domain assets for construction purposes

Dragos Iacob

The lack of liquidity in the global markets created by the financial crisis has made it difficult for investors to obtain the financing necessary to acquire freehold title to real estate properties. However, for certain projects, such as wind farms, acquisition may not be the best option to consider.

Specifically, it may be more advantageous for investors to obtain other land use rights in order to finance and develop a particular project. In Romania, one of the most common methods used to develop investment projects is the concession by the Romanian State of its private-domain real-estate assets.

According to Romanian law, public property is divided into public-domain assets (exclusively owned by the State, such as mineral resources of public interest, air space, water ways with hydroelectric potential, beaches, the territorial sea, and so on) and private-domain assets (owned by the State in the same way as any other individual/private entity and which are not included in the public domain).

The importance of this distinction is found in the legal treatment applicable to these assets. On one hand, those assets from the public domain may not be transferred or otherwise alienated and cannot be foreclosed upon. On the other hand, those assets from the private domain of the State can be alienated, acquired for long term possession (usucapio) and encumbered in order to secure project financing, as any asset owned by a private party.

The Romanian State and/or its administrative units (counties, towns and communes) exercise their ownership right over private-domain assets through entitled public authorities, namely the government, county councils and local councils which are responsible for the management of such assets. In their capacity as owners, these public authorities are entitled to decide whether to sell, give concessions for, or lease their private-domain real estate assets.

Unlike the legal framework for the concession of public-domain assets, which generally is regulated by a single enactment (the Government Emergency Ordinance 54/2006 on the legal treatment of concession contracts – GEO 54/2006), the legal framework for the concession of private-domain assets consists of special enactments for specific categories of assets.

Thus, the legal treatment for the concession of private-domain assets for the construction purposes is regulated by Law 50/1991 on the authorisation of construction work (Law 50/1991).

Under this enactment, concessions may be given for real estate assets falling within the private domain of the State or of its administrative-territorial units by means of a public tender organised "in compliance with the law" and observing the urbanism and land planning documentation.

Since the Concession Law 219/1998 was repealed in 2006, and GEO 54/2006 now regulates the legal regime for the concession regarding only public-domain assets, a legitimate question would be: Which law regulates the concession of the State's private domain assets? In practice, and to address this gap in the legislation, public tenders for the concession of the State's private-domain assets have been organised in compliance with the tender rules set out in GEO 54/2006.

It is important to note that Law 50/1991 provides for certain cases where the concession right may be granted without a public tender, namely in cases involving: (i) development of charitable or public utility objectives; (ii) development of dwellings by the National Agency for Dwellings; (iii) development of dwellings for people under 35 years old; (iv) relocation of dwellings affected by natural disasters; (v) expansion of construction over neighbouring real estate at the owner's request or with their consent; and (vi) works necessary for the protection of historical monuments.

Under Law 50/1991, the minimum concession fee has to be established by the local or county council in such a way that, over a 25-year period, the market selling price for the land plus infrastructure expenses related thereto will be recovered.

The law also provides for the maximum areas for which concessions may be given for the construction of dwellings. It is noteworthy that for the construction of a building with more than six apartments, the area for which concessions are necessary will be determined based upon the urbanism documentation and, therefore, the decision is left in the hands of the public authorities. As for the term of the concession, the law only provides that such term is to be established by the local or county councils based on the urbanism documentation and the nature of the construction.

Special attention should be paid to the conditions for legal termination of a concession contract, provided for in Law 50/1991.

Those individuals/legal entities which are beneficiaries of a concession contract granted according to its provisions must request the issuance of the building permit and commence construction works within one year from the signing of the concession contract. If they do not do so, the concession becomes invalid.

Although gaps do exist in the Romanian legislation that governs the concession of the State's private-domain assets, in our view project investors and financiers should seriously consider the great potential that these State-owned assets present for project development.

Dragos Iacob

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