Last Tuesday one of the most respected Bulgarian business newspapers Capital, published an article about the Bulgarian Dreams rip off. The articles is only in Bulgarian and you can find it here. A basic translation done by Google Translate can be read HERE

Edit: I now see that “The Sofia Echo” has translated the articles from Capital newspaper into proper English. You can read it here

Yesterday I found an article in the Independent newspaper talking about how Irish are blaming the property journalists for misleading the investors for investment locations like Bulgaria. Indeed, I’m sure that there were a lot of paid publications (Articles) which presented Bulgarian properties as quick and easy investment return. However I hink most of the negative influence was made by the UK and Irish estate agents. Pursuing quick middle-man fees, they have convinced thousands of  investors to put their money into something that was not quite right. On the other hand, very few investors, have made the mandatory due diligence of what they actually buy.

In my practice I see a lot of Irish and British property investors mislead by their UK/Irish estate agents. The investors we let to think that the investment return will be within couple of years, which is not right. But how come all that property investors made the same mistake again? Have they forgotten the Span property rush? This is a question each investor need to ask themselves. Also, most of the developers who lied to the investors are actually British and Irish. I’m sure that they left Span to do the same thing in Bulgaria, and mislead the same investors again.

As of 15  June 2010,  Varna will benefit from the legal services of solicitor Milen Hristov. The Varna office will be fully operational then. All English speaking clients who need  solicitor help regarding company registration,property purchase/sell, visa issues etc. See more details how to find the Varna solicitor office here

We are pleased to announce that as of June 2010, MHlegal will have an office in Varna, Bulgaria. This will ensure easier access to our legal services for the clients residing in Varna and the area around Varna. The contacts will be announced at the day of the official opening.

This is yet another developer which throws shade on all foreign investments in Bulgaria. The company Bulgaria BTL is a developer company which was supposed to build a nice closed house complex at the foot of mountain Vitosha, Sofia. The houses were sold off plan. The company started attracting buyers, by asking them for small initial  installment of ? 5000. The latter amount was supposed to be for opening a company in Bulgaria, and later that company was supposed to buy the land and the house.

However, the company just took the ? 5000 and seized the construction. This leads all investors to a dead end. The company website is now closed and the buyers consider themselves as a victims of fraud.

However not everything is lost. Our lawyers have performed a legal due diligence of Bulgaria BTL. Here is what we found:

Company name: Bulgaria Buy To Let LLC,

Company file No 131436790

Registered addres: Sofia, 36 Dragan Tzankov Blvd, Entr. B, floor 5, office 501

Manager: Simon Cristofer James Also

Shareholders: 1.Ingrid Grace Also and

2.Anil Kohli

Registered capital of the company: 5000 levs (about EUR 2500)

Since 2008 there are no activities in the commercial register company file, initiated by the manager. This should be a sign that the company is left. The Commercial register shows that Anil Kohli’s shares has been seized by the court. This seizure is initiated by a Bulgarian citizen. Our legal interpretation is that most probably Anil Kohli owes the Bulgarian person certain amount of money ( EUR 94600, to be specific) and therefore the court has issued a seizure order against Anil Kohli, consequently seizing his shares in the company.

The legal due diligence showed also that the company owes a factory for producing wooden materials for house construction. So far there are no liens over that property, so the quicker creditors get their claims filed in court, the better chance they have to get their ? 5000 back. The factory can be seized so, it will stay there for the plaintiffs, no matter how long the case lasts in court. After getting the positive court resolution, the creditors could put the factory on a public tender, sell it and get their money back. The latter should be done via law enforcement agent.

Happy new year to all readers of this blog. I will do my best to inform you of the latest trends and legal changes in the Bulgarian legislation. As a lawyer, I will try to give you best advice for your particular case.

If you are not satisfied with your current property management company, there is a way you can replace it with another, diligent one. The process is regulated by the newly adopted Condominium Ownership Management Act. First you need to know that if you are owner in closed apartment complex, the only valid form of the management agreement is written notarized agreement. Agreement which are simply signed are not legally valid. This agreement shall also be registered with the Land Registry. This is stipulated in Art. 2 of the act:

Article 2. (1) The management of common areas of buildings under condominium ownership arrangements in closed-type residential complexes shall be agreed by written contract with notarially certified signatures, concluded between the investor and the owners of individual units.

Pursuant to the new Condominium Act the condominium is managed by a body called General Assembly of the owners or association of owners. Basically it has the powers of a General Meeting in a company. One of the most important powers the General Assembly of the owners is stipulated in Art.11, para 1 point 11 :

Article 11. (1) The General Assembly:

……….

11. may adopt a decision to assign maintenance works on the common areas of the building to a legal entity or natural person in return for remuneration, also establishing the specific powers of the Managing Council (Manager), which can be assigned for implementation by these persons;

This means that the General Assembly can vote to replace the current property management company with  another one when certain requirements are not met or there is another important reason for that.

You can read the full Condominium Ownership Management Act HERE

If you read this you have probably had experience with signing a preliminary agreement with Bulgarian developer. This agreement usually binds the developer with the obligation to finish the property and provide you with the title deed by certain deadline. Well, this seems too good to be true.

The preliminary agreement is regulated in only 1 article in the Agreements and Obligations Act and nowhere else:

19. (1) A preliminary contract preceding the conclusion of a final contract for which a notarial deed or notarial certification is required shall be concluded in writing.

(2) A preliminary contract shall contain provisions concerning the material terms of the final contract.

(3) Either party to a preliminary contract may bring an action for conclusion of the final contract. In this case the contract shall be deemed concluded as of the moment of entry into force of the ruling of the court.

In short, this is just written promise that the final agreement will be signed (i.e. title deed). Of course, the preliminary agreement for construction of property is more complicated than just ordinary preliminary agreement. The preliminary construction agreement consists of two basic contracts:

• the ordinary preliminary agreement as per Art.19 of the Agreements and obligations act and
• agreement of manufacture . It is also regulated in the Agreements and Obligations Act (you can read the regulation of this type of contract below)

VIII. A CONTRACT OF MANUFACTURE

258. Under the contract of manufacture the contractor shall be liable at his own risk to manufacture something in accordance with the other party’s order, and the latter — to pay a compensation.

259. Unless otherwise agreed the contractor shall manufacture what is ordered with means of his own.

260. The contractor must immediately inform the other party if the provided designs or supplied materials are unfit for the correct performance of the work, and ask for the necessary changes in the designs or for the supply of appropriate materials. If the other party fails to do so the contractor may renounce the contract.

If the contractor fails to provide the above warning, he shall be liable before the other party for the damages caused.

261. The contractor must perform the work in such a manner that it becomes fit for the usual or stipulated in the contract purpose.

The contractor who is performing the work with his own materials is responsible for good quality.

Where several persons have assumed the obligation to perform together certain work, they shall be liable jointly and severally, unless otherwise agreed.

262. The person ordering the work may check the performance of the contract at any time, provided he does not disturb the contractor.

(Amended, SG No. 12/1993). If it becomes evident that the contractor will not be able to perform the work on time or that he will not perform it in the way agreed upon or as due, the person ordering the work may avoid the contract and claim damages under the general rules.

263. The risk of chance loss or damage of the materials shall be borne by the party providing them, if the other party is not in default.

264. The person ordering the work must accept delivery of the work done in accordance with the contract.

Upon accepting delivery he shall examine the work and shall state all the objections for improper performance, except for such defects which cannot be revealed through the usual manner of acceptance of delivery or for such which are revealed only later. The person ordering the work shall inform the contractor of such defects immediately after they are discovered. This shall not be necessary when the contractor was aware of them.

If no such objections are raised, the work shall be deemed accepted.

265. If during the performance of the work the contractor has deviated from the order or if the work done has deficiencies, the person ordering the work may claim:

repair of the work within a stipulated by him period without payment;

covering of the expenses needed for the repair or a respective reduction of the compensation.

If the deviation from the order or the deficiencies are so material that the work is deemed unfit for its contractual or ordinary purpose the person ordering the work may avoid the contract.

These rights shall be extinguished by limitation within six months, and in case of construction work — within five years.

266. The person ordering the work shall pay compensation for the accepted work. If the compensation is agreed upon on a unit price basis, its amount shall be determined upon acceptance of the work.

If in the course of the performance of the contract the duly determined prices of materials or labour change, the compensation shall be adjusted accordingly, even where it was agreed upon as a total sum.

(Paragraph 3, repealed, SG No. 12/1993).

267. If the performance of the work becomes impossible due to a reason neither party is liable for, the contractor has no right to compensation. If one part of the work was done and may be of use to the person ordering the work, the contractor is entitled to a respective part of the agreed compensation.

The contractor shall be entitled to compensation if the performance of the work has become entirely or partially impossible due to the unfitness of the materials or designs provided by the person ordering the work, and the contractor has duly notified him.

268. If there are reasonable grounds the person ordering the work may renounce the contract, regardless of the fact that the performance has begun, by paying the contractor for the costs incurred, the work done and the profit which he would have obtained from the performance of the work.

(Paragraph 2, repealed, SG No. 12/1993).

269. If the contractor dies or becomes unable to proceed with the work the contract shall be terminated, unless it was concluded with regard to the person of the contractor and his heirs agree to proceed with the work.

Upon the termination of the contract the person ordering the work shall pay for the work done and for the usefully invested materials in accordance with the contracted compensation.

So now you see that the essence of the preliminary agreement for buying offplan property is very complex. I will interpret the nature of the offplan property purchase agreement at a later stage.

On 10th August 2009 a new record appeared in the Commercial Register. “Interlink BG” Ltd – developer of  Windows to Paradise – has  1/3 of its shares seized by a creditor.

I warned several times that such thing can happen. The creditor is Raiffeisen Bank and they have seized Ivan Stanchev’s (one of the shareholders) shares in the company. Obviously, the reason for the share seizure is that Interlink BG hasn’t paid the mortgage loan (EUR 4 000 000) to Raiffeisen Bank. Therefore the bank sued Interlink BG and won the case.  Studying the court documents, it’s clear that Ivan Stanchev acted as second debtor (a guarantor), since he guaranteed for the loan with his own property.

Now, after the lawsuit is over, Interlink BG has secured the whole loan except EUR 63,818. Consequently the bank sued Ivan Stanchev for that amount as he is the second debtor. He hasn’t paid them right away, so the bank used an enforcement agent to seize Ivan Stanchev’s shares in Interlink BG Ltd.

The documents are not so clear if Interlink has repaid the loan in cash, or the banks took the ownership over some of the apartments in Windows to PAradies. This requires further legal research.

This article is aimed to be a short FAQ, explaining the “nuts-and-bolts” of the Bulgarian court proceedings. I’ve been asked these questions thousand times, so I decided to write a brief description of the claim process in Bulgaria.

Q: What are the court expenses?

A: The court expenses are separated in several subcategories:

1. Court fee/State fee - the court fee in Bulgaria is fixed. It is calculated on the basis of the amount you claim. The usual fee is 4% of the claim amount. In rare cases,explicitly stated in the law, the court fee is 2% of the claimed amount. The court fee has to be paid prior filing the claim.

2. Attorney fee – the attorney fee can be negotiated with the particular lawyer who represents in in court. There is no fixed amount for the attorney fee.

3. Experts fees - expert fees can occur only if special expert opinion is needed during the case proceedings. For example, if you need to calculate your interest over the money you are owed by the defendant. Expert opinion may be needed if the court needs to establish the authenticiy of a signature or needs to estimate if the construction plans match the actual building status.

4. Travel costs – if the lawsuit is heard in another city, the clients should cover the lawyer travels expenses e.g. petrol costs, hotels costs etc.

Q: How long a lawsuit will take?

A: It depends where the court proceedings will take place.  If your case is to be heard in Sofia and you claim EUR 15,000 or more, your case will be heard in Sofia City Court.  In this case it’s likely that your “court battle” will last 1-2 years. If the defendant you sue is registered in a city other than Sofia, it’s likely you will get a court resolution wihtin a year.

Q: Can I speed up the court process?

A: A kind of. If you claim part of your money (upto 25,000 levs or about EUR 12,500) you can file a partial claim in the Regional Court (lower court). The advantage is that the Regional Court is working quicker and you will get a court resolution sooner than the Sofia City Court. The disadvantage is that if you get a positive court resolution it will be for the part of your money. The good thing is that you can enclose the old court resolution and file another claim for the rest of teh money.

Q:  How likely is that I get a positive court resolution for my case?

A: Each particular case needs to be reviewed separately. There is no common estimation of that matter.

Q: Will I get my money back?

A: It depends on the debtor. There are several sources you can get your money from. You should seach for property, bank accounts, vehicles, subsidiary companies of the debtor.  If the properties are mortgaged by third party, you cannot benefit from that property.

Q: How about the company managers and partners?  Can I get my money from them?

A: No, you cannot! The legal entity of the Limited Liability Company (LLC) prevents creditors pursuing company managers and owenrs. There are few cases in which the owners are liable for their company’s debts, but I will not get in details here.

Q: Can I do something to prevent the debtor from selling their assets while my case is being heard in court?

A: Yes, you can. You can ask your lawyer to initialte a security procedure. You should ask the court to issue a lien order. This order can be used to “freeze” debtor assest while your case is heard in court. You will be able to benefit those assets after yo uget a positive court resolution.

The lien is not mandatory. It has to be asked for. The judge is not obliget to issue a lien order. The judge estimates the case and decides at its own discretion. If a lien orer is issued, you sill be asked b ythe court to transfer a deposit to the court bank account. This eposit is usually about 5% of the claimed amount. It is used to secure the defendant if  the latter proves damages caused by the lien (and you lose the case).

Additional information

The court process can be described as follows:

1. Filing the claim

2. Sending a copy of the claim to the defendant

3. The defendant sends an answer to the claim

4. Additional documents exchange

5. The judge sets a date for the first court hearing

6. Firts court hearing: collecting evidence (interrogating witneses, presenting documents, requiring documents from state authorities)

7. Second hearing: presenting the paries’ pleads.

8. Depending of the judge, additional hearings can be set.

9. Setting the case for resolution. The judge is obliged to resolve the case within one month after the last court hearing.

The problem points are 2,3 and 4. These are the points that delay the case. The summons are extremely slow to be delivered, as the delivery men don’t do their job dilligently. Moreover, the defendant usually hides and this slows down the process too.