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Frequently Asked Questions
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Questions & Answers
Buying Property in Bulgaria
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| Q:What should I expect from my lawyer when buying property in Bulgaria? |
| A:* Common practice in Bulgaria when purchasing property is to reserve the property you wish to buy. It is essential to sign a reservation agreement with the seller and you should have to pay a reservation deposit. The usual amount is not very big (no more than 3000 Euro) but each seller has the right to decide what reservation fee would like to keep the property off the market.
* After you have reserved the property and have paid the deposit you would usually sign a preliminary sales agreement. According to Bulgarian law this contract precedes the conclusion of the final contract (notary deed) and shall incorporate all provisions concerning the material terms of the final contract.
* Before you sign the preliminary contract your lawyer will need approximately 15 days to gather the necessary information on the property and to ensure that everything with the ownership rights of the seller is clear and the property is free of any pending charges.
* If you are buying land it would be necessary to set up a Bulgarian limited liability company (LLC, which in Bulgaria corresponds to the suffix OOD).This would NOT be necessary if you are buying only apartments or “off plan” properties without land.
* Once the preliminary contract is signed by both parties it becomes a legally binding document. You should note that signing a preliminary sales agreement does not make you an owner of the property but it protects your rights as a buyer and we highly recommend you to sign a preliminary sales agreement for your purchase.
According to Bulgarian law to finalise the sale process both parties or authorised representatives should sign the final contract before the Notary from the region where the property is situated. The Notary is a public official and his duty is to identify the buyer and the seller and their will to conclude the contract for the transfer of the property ownership and also to ensure that all legal requirements are fulfilled.
If you are unable to be present and to sign the Notary deed your lawyer could do this on your behalf. It is common practice for Law Firms to have a valid power of attorney for clients at the beginning of all buying or selling operations.
After the Notary deed has been signed it should be registered at the Property Register. That usually took about one week. Once the Property Register has returned the Title Deeds it is your lawyers engagement to collect all of the documents concerning your purchase and to arrange the best time for you to collect them.
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| Q:What are Acts 14, 15 and 16 |
| A:Act 14 this protocol (minutes) is to be drafted by the builder when the construction works of the building reach the so called "rough construction" or shell construction.
Act 15 is actually a protocol (minutes) signed by the investor, the builder, the architect and the private audit construction company. This protocol is to certify that the building is finished (not suitable for living though) and all the construction works are actually conformed to the approved architectural plan. However Act 15 doesn't allow you to legally inhabit the premises. Act 15 is an act of formal delivery of the building by the builder to the investor. Developers usually try to sell premises at the stage of Act 15. You shouldn't agree on that. But if you do, prepare to have trouble obtaining Act 16 (Habitation certificate or "certificate for living suitability") i.e. collecting all the necessary documents.
Act 16 or "habitation certificate" is the formal certificate issued by the municipality audit commission. The latter checks if all the documents conform to the Bulgarian construction legislation as well as if the building is properly connected to the electricity, sewerage and water supplier. It checks if the premises are secure and suitable for living. You have to mind Act 16 when buying property in Bulgaria.
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Developers
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| Q:How do I find out the financial solvency of my developer? |
| A:The problem is if you go and ask the developer 'are you about to become bankrupt' then of course they are not going to say yes.
The office that holds the company accounts will have this information for a Bulgarian registered company.
First you need the BULSTAT number of your developer.
Bulgarian registered companies are required to comply with the Companies Directive to publish its number, place of incorporation and registered address on its web-site You should be able to find the BULSTAT number on the developers web site.
Once you have this number then you can look it up at the trade register http://www.brra.bg/ you can translate the page using Google. (look at the address bar at the top its in English)
you need to navigate through to .brra.bg/CheckUps/Verifications/ActiveCondition.ra
Hope this is of help
If you have the BULSTAT number and cant access the site let me know.
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Lawyers and Legal Matters
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| Q:What do I do if the Developer has a mortgage on the land? |
| A:Most mortgage problems in Bulgaria occur with properties in varying stages of construction, which have been mortgaged in favour of land banks. Therefore if a buyer is purchasing a property in Bulgaria and the property is already mortgaged by the seller in favour of a bank, the buyer should insist that seller repays the mortgage before transferring the ownership to the new buyer, otherwise the buyer could be responsible for repaying the seller’s loan if the seller default on the payments himself. Therefore, we always recommend prior to transferring the ownership before a notary public, a certificate from the land registry to be obtained to show whether the property is free of mortgages and third party interests. It is extremely important to note that when the land is owned by one owner and this owner has also constructed a building on his land, which may be mortgaged, the mortgage automatically spreads over the building and it is not possible to redeem the mortgage over the building without redeeming it over the land as well, which may have implications for the secondary purchaser.
Extract from article by www.nyd-law.com
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| Q:What are the implications of defaulting on Your Mortgage |
| A:*************Defaulting on Payments*************
On the same land or building or right to build, several creditors can register a charge against the value of the property or land. Should the loan not be repaid and the creditors want their money back, the property may be auctioned in compliance with the relevant legal provisions and from the price obtained for it all loans are repaid to the priority creditors, the first of which, is usually the mortgage lender known as the first charge. Repayments are made to each other charge or creditor in the order that they were registered. After the property is auctioned, all charges are automatically redeemed, but if the price obtained for the property is not enough to cover the repayments of all of the outstanding loans, the creditors who have registered their mortgages last will be unable to obtain their shares and will therefore have to seek damages under general law. Creditors can include other banks who have issues loans, credit card companies and other finance houses as well as members of the public or spouses who have made personal loans and registered a charge against the property or land.
************The Loan Term************
Every entry of a mortgage or debt in the land register is valid for 10 years only. Therefore if your creditor agrees that the mortgage or debt can be repaid over a longer period the entry into the land register must be renewed for it to be valid. The redemption of the mortgage is made after the creditor has submitted a written request for the recovery of the debt and a declaration of consent, both of which must be certified before a notary public. Evidence for the repayment of the loan must also be presented e.g. in the form of evidence of a default in payments of the loan. It is important to note that even if part of the loan is repaid the burden of the debt still remains outstanding and therefore must be repaid within the terms of the loan. If the sum of the mortgage covers more than one property, partial redemption of the mortgage is possible. In this case, if the debt is only partially repaid to the value of one of the properties, the mortgage over this property can be redeemed and can be considered debt free.
Extract From article by www.nyd-law.com
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| Q:What mistakes do people make with preliminary purchase agreements? |
| A:Not reading the preliminary purchase agreement at all.
Some people buy without reading the clauses of their preliminary agreements. There are traps set buy the property developer which entitles him either to delay without paying a penalty or to decrease your chance of terminating the agreement.
Signing without being sure want you are signing
If you have ANY doubts that the preliminary agreement clauses are vague or you don’t understand part of it, you should NOT sign it. Instead, find a lawyer who can clear the clauses for you.
Accepting a lawyer, recommended by the seller (Real Estate Agent or Developer)
That’s an absolute MISTAKE! A lawyer should act in your favour, therefore he/she should not be connected to the seller in any way. Always pick up a lawyer who is not connected to the seller. Then you will have a clear and independent legal advice.
Preliminary agreement makes me confident
You should not fool yourself that once you've signed a preliminary agreement, the property is almost yours. The preliminary agreement is a "promise" to conclude the final contract (the title deed). It is a regular contractual relation and does not create some special connection between you and the particular property. Usually a bank has mortgage set over the property, which entitles the bank with more rights over the property than you have (on the basis of the preliminary agreement).
Transferring the property at the stage of Act 15 (no electricity and water)
Usually the developer sets a clause, stating that the property ownership will be transferred at the stage 'rough construction' or 'shell construction'. This means that the building will be transferred without being accepted by the Municipality construction audit commission. Consequently you will have a property without (or at least not legally connected) electricity, sewerage and water supply. Therefore, again, my advise is NOT to sign without independent lawyer consultation.
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| Q:How do I find a lawyer in Bulgaria? |
| A:The only way really to find a good lawyer in Bulgaria is by recommendation.
You must research your lawyer very carefully. There are good lawyers in Bulgaria and there are lawyers who call themselves lawyers who have no legal qualification at all.
The British Embassy has a list of English speaking lawyers on their web site but NOTE these are NOT recommendations. The British Embassy does not make recommendations of lawyers.
If someone reccomends a lawyer to you ask them the following questions.
What has this lawyer achieved for you?
How long did it take?
How much did it cost.
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| Q:Is it possible to take class action against my developer or Real Estate Agent |
| A:Most likely yes. You will need a lot of money to get the process started and the support of most of the people in the development. |
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| Q:What must I know about lawyers in Bulgaria? |
| A:Things are different in Bulgaria !
In Bulgaria nothing has to be taken for granted. Just because someone introduces himself as a lawyer doesn’t mean that he’s indeed registered as one. I know from experience that there are people posing as lawyers who are not registered. What a private web site says is of no importance as no one controls the content of the web sites in this respect.
In theory the Supreme Bar Council has the power to punish those who pose as lawyers, however it seems that nobody has ever been punished. So the control is left to you!
You could ask the person to show you his official certificate (the one with his photo!) and thus to check not only if he or she has one, but if it’s stamped for the current year.
You could check if his name appears on the list of the registered lawyers in Bulgaria, the latter is published on the net by the State Gazette as this is the newspaper that every year publishes the list of all lawyers in Republic of Bulgaria.
Under Article 50 of the Bar association act lawyers in Bulgaria are insured against errors that resulted in injury to their clients. Thus the insurer pays the buyer for the lawyer's errors. You have no protection if you are represented by somebody that’s posing as a lawyer but actually is not registered as one.
And one more thing, under Bulgarian legislation there's no distinction between solicitors and barristers so these 2 words are not appropriate for the local attorneys at law because there are neither solicitors nor barristers. The law calls the local lawyers “advocates” |
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Management, Maintenance and Rent
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| Q:What do I need to know |
| A:In the recent years Bulgaria became a very desirable destination for investing in real estate. The most popular areas foreign investors purchase properties are the ski and Black Sea resorts, the capital etc. Some foreign investors are purchasing properties that they hope to be able to rent out and thus receive a percentage annual return on their investment and they plan this as a long term investment. Other investors are simply purchasing the properties so they can sell them in a few years and receive a greater profit from the capital growth of the value of the property. Owning a property in another country does however have its pitfuls and could sometimes be a daunting experience if buyers do not have appropriate advice and professional assistance. In relation to renting the properties, the necessity for constant attendance and marketing of the properties, it was proved to be most convenient this tasks to be entrusted to Management companies with which the owners would sign management and rental agreements and they will rent out and manage the properties for them. It is in fact, the current practice is a Management and Rental agreement to be signed either when Preliminary Purchase contract is signed or when the ownership of the property is transferred to the buyer with signing the Notary Deed. All foreign owners of properties in Bulgaria should be aware that they are liable to pay taxes on their gains from renting the properties and an annual tax return should be submitted. Non compliance with this legal requirement can lead to the state sanctioning the foreign owners for a tax offence. Therefore it is important, when a Management and Rental agreement is signed, the buyer to specifically clarify whether the Management company will be responsible for paying the taxes on behalf of the buyer and to fill in and submit a tax return on the buyer’s behalf. One important point that we feel we should draw the buyer’s attention to is that very often in the Preliminary purchase contracts the apartment complex is referred to as a “hotel” or “hotel style” complex. Special attention should be paid here as there could be a breach of the Tourism Act according to which, in order to function as a hotel or a hotel style apartment complex, one building must be categorized by the State Agency of Tourism after it is established the it complies with the legal requirements. If the building is not categorized by the State Agency of Tourism according to the law and is not given license to operate hotel style accommodation, the apartments can only be rent privately by the owners themselves. Therefore the buyers signing Management and Rental agreements should make sure that the contract contains a provision specifying that the Management company is responsible for obtaining all necessary licenses and categorizing the apartment building. Otherwise the owners of a property in the building could find themselves in a position of being sanctioned for non compliance with legal requirements and fined. Typically, two types of Management and Rental contracts are used. Under one of them the Management company rents the property from the owner and then sub-rents it to third persons. Then the owners normally receive an agreed guaranteed rental income from the Management company and are not concerned whether or not and for how many days a year the property has been sub-rented. The rental arrangements between the Management company and the third persons to which the company is renting the property to are subject to separate agreement and should not be included in this contract. Under the second option, the Management company is commissioned to rent the property on behalf of the buyer. In this case the buyer will receive whatever income has been obtained from renting the property after the expenses of the Management company have been deducted. One other point that we would like to draw the buyer’s attention to is the financial obligations in relation to the maintenance of the apartment. Under the Bulgarian law, when a property is rented, the person renting the property is responsible for all outgoings and utilities. Nevertheless under the Management contracts that are most commonly used, the buyers are required to pay one fee for maintenance of the building and the apartment and a separate fee for the rental management service. In our opinion there should be only one fee payable which includes the necessary expenses and the remuneration of the Management company for its services. |
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Real Estate Agents
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| Q:Can I sue my Real Estate Agent for misreprentation? |
| A:In Bulgaria you cannot sue a company for misrepresentaton. It may be possible to take criminal action against the person who sold you the proeprty if you think they have lied to you and if you have proof of this. |
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Taxes and VAT
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| Q:What are the relevant Taxes and Fees When Buying a Property in Bulgaria- |
| A:Buying and owning a property in Bulgaria is associated with paying relevant taxes just like when buying a property in the UK or any other country. When buying a property in Bulgaria, buyers needs to be aware that they are obliged to pay taxes in relation to both the acquisition of the property (property transfer tax) and the continual ownership of the property (annual property tax, rubbish tax) as well as tax on any income derived from this property (income tax).
With signing the Notary deed – the title deed for ownership of the property - the buyer becomes the full owner of the property and assumes all related rights and obligations. By signing of the Preliminary contract the buyer has only the right to receive the ownership over the property when all the installments have been transferred to the seller, but the seller remain the owner of the property till signing of the Notary deed for transferring the ownership.
I. Upon signing this ownership document the buyer is obliged to pay property transfer tax to the amount of 2 % to 4% of the value of the property to be purchased depending on the policy of each municipality (usually the tax rate is 2,5 %). For example, if the purchase price of the property is EUR 100 000 EUR and the tax rate is 2,5 % of EUR 100 000, the property transfer tax will amount to EUR 2500. Upon signing the Notary deed the buyer is also obliged to pay Notary fee according to the prescriptions of the Notary and the Notary Activity Act (NNAA). The exact amount of the notary taxes is defined in Notary Taxes Tariff as follows: Certified material interest in BGN Notary fee in BGN
Under 100.000 - 15.000 BGN
From 100. 001 to 1,000.000 15.000 plus 1.5 % for the amount over 100.000
From 1,000. 001 to 10,000 28.5 plus 1 % for the amount over 1, 000
From 10,000. 001 to 50,000 118.5 plus 0.5 % for the amount over 10, 000
From 50,000. 001 to 100,000 318.5 plus 0.2 % for the amount over 50, 000
Over 100,000 418.5 plus 0.1 % for the amount over 100,000 but less than 3,000
The VAT due is 20 % after the paid taxes and fees for the transfer have been discounted.
There is no VAT on land transfer deals. Upon signing the Notary deed the buyer pays Land registry fee of 0.1% of the price of the property the total amount for which is roughly 1% of the price of the property. Thus the total transfer expenses related to the purchase of a property are approximately 3% of the price of the property and include the property transfer tax, the Notary fee and the Land registry gee.
All above stated fees could be divided between the seller and the buyer if it is stipulated in the Preliminary contract or in an appendix, which shall be non separated part of the preliminary contract.
In relation to their ownership of property in Bulgaria, foreign nationals and foreign legal entities who acquire real estate in Bulgaria are obliged to register at the Registry Agency under the registration system BULSTAT for issuance of an identification number within seven days as of acquiring of the property. The application for registration is to be submitted at the Registry Office in the region where the real estate is located. In addition to that they need to register the property in the Local Municipality and the Local Tax office.
For your convenience, we are mentioning all necessary documents for the notary procedure:
1.Draft notarial deed for transfer of property
2.Documents identifying the participants in the proceedings
3.Letter of authorization if agent represent one of the parties
4.Documents certifying the property right
5.Declarations by the parties certifying their civil, marital and property status
6.Declaration by the person who acquire the property certifying the origin of the funds, in case the value of the estate is over 15000 euros
7.Declaration by the interpreter that his translations are reliable
8.Certificate for tax assessment and paid taxes
9. Receipt for paid local tax for acquisition of real estate
II. After the buyer is already the owner of the property by signing of the Notary deed for the title, every year the owner is obliged to pay annual property tax, including council tax and tax for the rubbish. The size of these annual taxes is determined by the tax experts each year and depends on the size and the location of the property as well as on other factors.III. If an owner is renting their property and deriving income from it, they are obliged to pay income tax in Bulgaria which will be different depending for instance on how the property is owned – whether by a physical person or by a company.If the buyer rent the property as physical person, they will be paying a tax calculated on a scale as per the new Law on the Income of the Physical persons, after a legal allowance of 20% of the profit is deducted. Thus the owner is paying tax according to the mentioned formula on 80% of the profit.If the property is owned trough a company, a corporate tax of 10% will be paid. If a buyer wishes to purchase more than two properties and develop investment business in Bulgaria, we normally advise them to buy the properties trough a company as it is more tax effective to do so and they will need an active company for their business purposes. If a buyer decides to sell their property, provided they sell one property in one tax year, they will pay no capital gains tax. After 5 years of the acquisition of the property, they may sell two or more properties without paying capital gains tax.
Article by www.nyd-law.com |
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