This content is from: Local Insights

Immovable properties as collateral

Dr Ilir MustafajEndrit Shijaku

A considerable number of loans that Albanian banks have made to their customers are secured with mortgages over immovable properties. Yet the extent to which immovable properties are being used as collateral for lending in Albania, is far from its full potential. Although an increase in the collateralisation of much of the immovable properties for borrowing money from the banks would provide additional fuel for the Albanian economy, the Albanian authorities have several challenges in addressing some major obstacles before they can win the confidence of the banks to accept more types of immovable properties as collateral, and thus issue more loans.

Some of the obstacles stem from the relatively new democratic regime in Albania. Throughout the duration of the communist regime (almost half a century) nearly all of Albania's land was state owned. Following the fall of communism in the early nineties, most Albanian land was privatised, largely pursuant to two (then newly passed) statutory acts. The first was the infamous law no 7501 (On Land) which was held up to be an agricultural reform and according to which all agricultural land was to be given to the ownership of the so called agricultural families. These agricultural families comprised of families that had lived in the villages (consequently presumed to have worked on cultivating the land). The second was for the restitution of property; it gave the former owners the right to acquire much of the land that was not designated as agricultural land.

In practice the implementation of both these acts proved to be problematic. There were instances of coastal land being designated as agricultural land and given to agricultural families, as well as cases of erroneous restitution which was primarily due to the vagueness of the topographical documentation showing ownership of land in the pre-communist era.

Two laws were subsequently passed allowing government agencies to review the manner in which land had been divided both under law no 7501 and under the restitution law. Any decision that such government agencies made following their review (open to challenge in the courts) took immediate effect and directly confirmed the ownership title over the land. Additionally, the land registrar was vested with the power, through a special law, to review the chain of conveyance of ownership and entirely erase ownership titles if it found that there were irregularities in that chain of ownership. This decision of the registrar would also take immediate effect.

Both the power of the land registrar to decide on the regularity of the chain of ownership transfer, and the power of the head of the restitution agency, were recently reviewed by the constitutional court. On both occasions the court found that these powers interfered in a disproportionate manner with the principle of legal certainty. Moreover, if either the land registrar or the restitution agency had made an erroneous decision, the ownership rights of the persons effected would be denied until a lengthy court process would have been completed.

It is argued that whilst the restitution agency is considered to be a quasi court, the manner in which it is elected does not provide sufficient independence for it to have the powers the later law sought to confer on it.

A law was passed in 1994, imposing a duty for all land in Albania to be registered into a new register that should contain detailed information. Nonetheless, the land registry has yet to build its own capacity to allow for the implementation of the new registration system and most of the land in the Republic of Albania remains registered only in the old registers (Regjistri Hipotekor) and not in the new land registers. Thus there are no exact coordinates, locations and dimensions in relation to most of the land that has not been registered in the new registry. The main difficulty with such unregistered land (ie in the new register) is that more often than not ownership over land overlaps when registered into the new register. This leads to more disputes and understandably leaves banks hesitant in offering to accept land registered only with the old register as collateral.

A further issue is that most of the apartments built after the fall of the communist regime, are not registered with the land registry at all (neither with the old nor new). Although, this represents a huge chunk in the property market, banks rightly do not accept such unregistered land as collateral.

A controversial recent court decision was passed which created more ambiguity in land law. It has been the practice, based on a clear provision of the Albanian Civil Code, that ownership over land as a right in rem passes only upon registration of the land with the land registry. Article 83 of the Civil Code provides: "the juridical act for the conveyance of land and real rights thereof must be concluded as a notarial deed and registered with the land registry." Despite the above, the recent Supreme Court decision argued and decided that the ownership over land passes at the moment that the contract to convey the property is concluded. This controversy is expected to generate disputes in courts as many newly built immovable properties stay unregistered for years.

Dr Ilir Mustafaj and Endrit Shijaku

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