Changes in car registration regulations in Bulgaria

Bulgarian Ministry of Interior (MoI) in preparing changes in the regulation for vehicle registration in Bulgaria. When car owner is changed, it is mandatory the new owner to register the car in the Police department, where new owner's permanent address is. In order to avoid taxes and government fees, many new owners just pay for the car and drive it with a simple notarized power of attorney. The car documents stay on the name of the previous owner. This is common practice in Northern Bulgaria, where may Romanians buy cars from Bulgarian border cities  such as Dobrich, Varna etc. According to official Romanian and Bulgarian government data more than 3500 cars with Bulgarian license plates are actively driven on the roads in Romania.

So why the Bulgarian Ministry of Interior considers this as wrong? A spokesperson of MoI says it's because of the cheaper insurances and annual vehicle taxes. They consider this as draining of the national Insurance Guarantee Fund e.g. if an accident happens with such car the damages will be covered by the aforesaid Fund, instead of the insurer of the car. This is because there is no new insurer, since the new owner is not the actual legal owner of the car.

MoI will stop this "bad practice" by amending the regulation for registration of vehicles. The new owner has to register the car in his state. If doesn't do that within two weeks period, the old registration will become invalid and driving the car will be illegal.

How how Romanians can keep their cars and low vehicle taxes and insurances?

The answer is to register a local limited company and later transfer the car to it. the company will be dormant and will act only as a holder of the car, so the car owner can benefit the low insurance and state taxes. This will be a relatively low one time investment, but this way they can keep the Bulgarian car license plates.

Changes in car registration regulations in Bulgaria

Bulgarian Ministry of Interior (MoI) in preparing changes in the regulation for vehicle registration in Bulgaria. When car owner is changed, it is mandatory the new owner to register the car in the Police department, where new owner's permanent address is. In order to avoid taxes and government fees, many new owners just pay for the car and drive it with a simple notarized power of attorney. The car documents stay on the name of the previous owner. This is common practice in Northern Bulgaria, where may Romanians buy cars from Bulgarian border cities  such as Dobrich, Varna etc. According to official Romanian and Bulgarian government data more than 3500 cars with Bulgarian license plates are actively driven on the roads in Romania.

So why the Bulgarian Ministry of Interior considers this as wrong? A spokesperson of MoI says it's because of the cheaper insurances and annual vehicle taxes. They consider this as draining of the national Insurance Guarantee Fund e.g. if an accident happens with such car the damages will be covered by the aforesaid Fund, instead of the insurer of the car. This is because there is no new insurer, since the new owner is not the actual legal owner of the car.

MoI will stop this "bad practice" by amending the regulation for registration of vehicles. The new owner has to register the car in his state. If doesn't do that within two weeks period, the old registration will become invalid and driving the car will be illegal.

How how Romanians can keep their cars and low vehicle taxes and insurances?

The answer is to register a local limited company and later transfer the car to it. the company will be dormant and will act only as a holder of the car, so the car owner can benefit the low insurance and state taxes. This will be a relatively low one time investment, but this way they can keep the Bulgarian car license plates.

Check your contractor's diligence

A new service is offered by the Bulgarian Chamber Of Private Enforcement Agents. The Chamber maintains a register of debtors in Bulgaria. It contains names of all companies and persons who have been sued successfully and enforcement proceedings has been initiated against them. In short there is a public register of people and companies who don't pay their debts.

Access to the register has every law enforcement agent. They can provide information on particular company/person if you provide company number for companies and personal number for Bulgarian citizens. In order to check a foreign person, you need to provide just a name. The fee for this service is EUR 5  per person/company. More information can be found  here (in Bulgarian only)

Check your contractor's diligence

A new service is offered by the Bulgarian Chamber Of Private Enforcement Agents. The Chamber maintains a register of debtors in Bulgaria. It contains names of all companies and persons who have been sued successfully and enforcement proceedings has been initiated against them. In short there is a public register of people and companies who don't pay their debts.

Access to the register has every law enforcement agent. They can provide information on particular company/person if you provide company number for companies and personal number for Bulgarian citizens. In order to check a foreign person, you need to provide just a name. The fee for this service is EUR 5  per person/company. More information can be found  here (in Bulgarian only)

Benefits of joining a property Owners Association

First, I need to say some words about why Owners association is so important. If you read this you have probably bought at least one property in Bulgaria. May be 80% of you have communication problems and other legal difficulties with the seller of your property. Since the property bubble was quite huge, almost every "construction entrepreneur" in Bulgaria got greedy when they saw the cashflow. Construction quality got poor, client-seller relation got poor. The result is angry property owners constantly opposed by the developer.

As a short initial summary (for those who doesn't like to read long texts), here are the benefits of having registered Owners Association:

  1. All state and local authorities take the owners seriously if represented by registered legal entity
  2. Everybody has good attitude towards Nonprofit organizations, which protect civil rights.
  3. The rights of the association members can be legally defended by OA's representatives. Regulation authorities which respect OA litigation actions are courts, Commission for Consumer protection etc.
  4. Joint actions against developer bad practices can be performed by OAs

Normally, in almost every investment property  project there are more than one premises, sold to different individuals. These individuals join informal associations, mainly in web forums and discussion boards. They share the bad experience they had with the seller/developer and talk about maintenance woes. Talking and sharing information is good, but action is better.

Bulgaria is a country where bureaucracy is blossoming. Every authority will ask you for some kind of identification, whether it is a document (signed and stamped of course!!) or some reference from other authority. Many state and local employees won't even talk to you until you introduce yourself as representative of something that is formally existing in their entity records. Even the developer/seller is not recognizing representatives of informal owners groups (or action groups, as often called)

In our solicitor practice in Bulgaria, we found that this authority behavior can be opposed by simply forming a NonProfit association. This is a formal legal entity, registered in the District court. It has company file number, registered address, management bodies etc. The management basically follows the rules of a company management, but the association is not a trading entity. It is used only to protect its members rights and not to gain profit.

As a case study on the benefits of having a legitimate Owners Association I can provide some examples from our practice. Our law office was helping owners of villas in one particular investment project. The developer has constant conflicts with the local cityhall and the only victims of this fight are the owners. They have addressed the issues to different authorities, but only as individuals, or in their capacity of  informal web formed association. No authority took the problems seriously. As their solicitors, we suggested that all owners formally register a legal entity in Sofia City Court. This would have made the association formal with all legal attributes.

The Owners association was formed successfully. It is managed by Management Committee and represented by the Chairman of the management. The representative addressed several letters regarding the problem to different authorities, such as the SofiaDistrict Governor, the National Construction Audit Directorate, Bulgaria Investment Agency etc. All of the said authorities have not only responded to the official correspondence, but even have agreed to meet the Owners association representative and discuss the problems of its members.

Another successful story is the formation of couple of Owners Associations of owners in Bansko apartment complexes. The developer is virtually "blackmailing" the foreign owners, but forging the common parts percentage and voting for his own company to be the maintenance company of the complexes. Of course no accountability whatsoever is provided by both the maintenance company and the developer. The owners association have been acting as intermediary between the developer and the owners in order to resolve the problems without any complications.

Benefits of joining a property Owners Association

First, I need to say some words about why Owners association is so important. If you read this you have probably bought at least one property in Bulgaria. May be 80% of you have communication problems and other legal difficulties with the seller of your property. Since the property bubble was quite huge, almost every "construction entrepreneur" in Bulgaria got greedy when they saw the cashflow. Construction quality got poor, client-seller relation got poor. The result is angry property owners constantly opposed by the developer.

As a short initial summary (for those who doesn't like to read long texts), here are the benefits of having registered Owners Association:

  1. All state and local authorities take the owners seriously if represented by registered legal entity
  2. Everybody has good attitude towards Nonprofit organizations, which protect civil rights.
  3. The rights of the association members can be legally defended by OA's representatives. Regulation authorities which respect OA litigation actions are courts, Commission for Consumer protection etc.
  4. Joint actions against developer bad practices can be performed by OAs

Normally, in almost every investment property  project there are more than one premises, sold to different individuals. These individuals join informal associations, mainly in web forums and discussion boards. They share the bad experience they had with the seller/developer and talk about maintenance woes. Talking and sharing information is good, but action is better.

Bulgaria is a country where bureaucracy is blossoming. Every authority will ask you for some kind of identification, whether it is a document (signed and stamped of course!!) or some reference from other authority. Many state and local employees won't even talk to you until you introduce yourself as representative of something that is formally existing in their entity records. Even the developer/seller is not recognizing representatives of informal owners groups (or action groups, as often called)

In our solicitor practice in Bulgaria, we found that this authority behavior can be opposed by simply forming a NonProfit association. This is a formal legal entity, registered in the District court. It has company file number, registered address, management bodies etc. The management basically follows the rules of a company management, but the association is not a trading entity. It is used only to protect its members rights and not to gain profit.

As a case study on the benefits of having a legitimate Owners Association I can provide some examples from our practice. Our law office was helping owners of villas in one particular investment project. The developer has constant conflicts with the local cityhall and the only victims of this fight are the owners. They have addressed the issues to different authorities, but only as individuals, or in their capacity of  informal web formed association. No authority took the problems seriously. As their solicitors, we suggested that all owners formally register a legal entity in Sofia City Court. This would have made the association formal with all legal attributes.

The Owners association was formed successfully. It is managed by Management Committee and represented by the Chairman of the management. The representative addressed several letters regarding the problem to different authorities, such as the SofiaDistrict Governor, the National Construction Audit Directorate, Bulgaria Investment Agency etc. All of the said authorities have not only responded to the official correspondence, but even have agreed to meet the Owners association representative and discuss the problems of its members.

Another successful story is the formation of couple of Owners Associations of owners in Bansko apartment complexes. The developer is virtually "blackmailing" the foreign owners, but forging the common parts percentage and voting for his own company to be the maintenance company of the complexes. Of course no accountability whatsoever is provided by both the maintenance company and the developer. The owners association have been acting as intermediary between the developer and the owners in order to resolve the problems without any complications.

Preliminary agreement for purchase of property

This type of contract has been singed by almost 80% of all Britons and Irish who have bought properties(mainly apartments) in Bulgaria. Many of them think that once they have signed such agreement, they own the property. This is a common misunderstanding among the foreign property investors in Bulgaria. The preliminary contract is regulated by only one article in the entire  Bulgarian legislation(Art 19 of Obligations and Contracts Act):

Art 19. 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.

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

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.

As you can see, and as the judicial theory defines, this type of contract is "just a promise to conclude a final contract". It binds the parties, but as every contract it can be breached i.e. one of the parties may decide not to fulfill its obligations. Applied to the property purchase, this means that the builder promises to transfer the ownership of the property to the buyer within a certain term. It doesn't mean that the ownership has been transfered upon signing the preliminary agreement. On the contrary, often there is nothing to be transfered at that point since the property doesn't exists at that time. Even if the purchase price has been paid in full, this doesn't mean the buyer is an owner. In the latter case, the buyer becomes a creditor and the seller becomes a debtor, until the full ownership has been transfered. i.e. the title deed for ownership transfer has been signed.

Many buyers of apartments and houses in Bulgaria are in dead-end position: they have paid all moneis, but haven't got the deeds transfered to them. In this case, it is very difficult to make the seller sign the deed willingly.  As lawyers, we advice those people to take advantage of para 3 of art 19 above i.e. to announce the preliminary agreement as final one. Applied to the case of buying a property, this is done by initiating a court procedure.

In order to get everything right, you should provide all relevant information to your solicitor, namely:

  1. Original of the preliminary purchase agreement, signed by both parties
  2. Evidence that the purchase price has been paid in full: this could be bank statements, receipts, signed by the seller etc.

In addition to the above, the judge will need to see all other documents,m which you otherwise need to show to the notary, namely:

  1. Tax evaluation certificate of the property. This can be obtained by tje local municipality, where the property is located
  2. Plan of the property or the so called "skitsa". This documents shows the plans of the property, the area, the neighbouring properties. Again this can be obtained by the local municipality
  3. Proof that you have paid the local tax. This is a special local tax, that is paid just once, upon buying a property. The rate varies between 1.5% and 3% of the purchase price and depends on the municipality.
  4. You need to be ready to pay the transfer fees i.e. the notary fees. Again, this should be calculated for you by your solicitor

When you get idea of all of the above, ask your solicitor to prepare the claim application and submit it to the court. Generally the timescale of the proceedings depend on the court. Different courts in Bulgaria have different workload. The typical term for closing the proceedings is 3-4 months.

The result of the court case proceedings is that you will have the ownership of the property transfered to your name i.e. the same as signing before a notary. This is a way to force the ownership transfer if the seller rejects your requests.

Preliminary agreement for purchase of property

This type of contract has been singed by almost 80% of all Britons and Irish who have bought properties(mainly apartments) in Bulgaria. Many of them think that once they have signed such agreement, they own the property. This is a common misunderstanding among the foreign property investors in Bulgaria. The preliminary contract is regulated by only one article in the entire  Bulgarian legislation(Art 19 of Obligations and Contracts Act):

Art 19. 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.

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

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.

As you can see, and as the judicial theory defines, this type of contract is "just a promise to conclude a final contract". It binds the parties, but as every contract it can be breached i.e. one of the parties may decide not to fulfill its obligations. Applied to the property purchase, this means that the builder promises to transfer the ownership of the property to the buyer within a certain term. It doesn't mean that the ownership has been transfered upon signing the preliminary agreement. On the contrary, often there is nothing to be transfered at that point since the property doesn't exists at that time. Even if the purchase price has been paid in full, this doesn't mean the buyer is an owner. In the latter case, the buyer becomes a creditor and the seller becomes a debtor, until the full ownership has been transfered. i.e. the title deed for ownership transfer has been signed.

Many buyers of apartments and houses in Bulgaria are in dead-end position: they have paid all moneis, but haven't got the deeds transfered to them. In this case, it is very difficult to make the seller sign the deed willingly.  As lawyers, we advice those people to take advantage of para 3 of art 19 above i.e. to announce the preliminary agreement as final one. Applied to the case of buying a property, this is done by initiating a court procedure.

In order to get everything right, you should provide all relevant information to your solicitor, namely:

  1. Original of the preliminary purchase agreement, signed by both parties
  2. Evidence that the purchase price has been paid in full: this could be bank statements, receipts, signed by the seller etc.

In addition to the above, the judge will need to see all other documents,m which you otherwise need to show to the notary, namely:

  1. Tax evaluation certificate of the property. This can be obtained by tje local municipality, where the property is located
  2. Plan of the property or the so called "skitsa". This documents shows the plans of the property, the area, the neighbouring properties. Again this can be obtained by the local municipality
  3. Proof that you have paid the local tax. This is a special local tax, that is paid just once, upon buying a property. The rate varies between 1.5% and 3% of the purchase price and depends on the municipality.
  4. You need to be ready to pay the transfer fees i.e. the notary fees. Again, this should be calculated for you by your solicitor

When you get idea of all of the above, ask your solicitor to prepare the claim application and submit it to the court. Generally the timescale of the proceedings depend on the court. Different courts in Bulgaria have different workload. The typical term for closing the proceedings is 3-4 months.

The result of the court case proceedings is that you will have the ownership of the property transfered to your name i.e. the same as signing before a notary. This is a way to force the ownership transfer if the seller rejects your requests.

Buying land in Bulgaria without registration of limited company

The Bulgarian legislation have set a restriction for buying land by foreigners directly. This was changed when Bulgaria was accepted as EU member state in 2007. However, the accession treaty allowed Bulgaria and Romania to extend the restriction for few more years. Naturally both states took advantage of this option.

The right for extending the restriction is set in Annex 6, part 3 (movement of capital), point 1 to the Treaty for Accession of Bulgaria and  Romania to the EU.  The annex to the treaty for accession provides the right to Bulgaria to keep up to 5 years the restriction for the right of foreigners to directly own land in Bulgaria:

Notwithstanding the obligations under the Treaties on which the European Union is founded, Bulgaria may maintain in force for five years from the date of accession the restrictions laid down in its legislation existing at the time of signature of this Protocol on the acquisition of ownership over land for secondary residences by nationals of the Member States or the States which are a party to the European Economic Area Agreement (EEAA) non-resident in Bulgaria and by legal persons formed in accordance with the laws of another Member State or of an EEAA State
Even longer -  7 years - term is set for owing agricultural land and forests:
Notwithstanding the obligations under the Treaties on which the European Union is founded, Bulgaria may maintain in force for seven years from the date of accession the restrictions laid down in its legislation existing at the time of signature of this Protocol on the acquisition of agricultural land, forests and forestry land by nationals of another Member State, by nationals of the States which are a party to the European Economic Area Agreement and by legal persons formed in accordance with the laws of another Member State or an EEAA State. In no instance may a national of a Member State be treated less favourably in respect of the acquisition of agricultural land, forests and forestry land than at the date of signature of the Accession Treaty or be treated in a more restrictive way than a national of a third country.

Luckily the 5 years period expires next year -01.01.2012, so the restriction should be removed. You can read the full text of the annex VI for further details.

Buying land in Bulgaria without registration of limited company

The Bulgarian legislation have set a restriction for buying land by foreigners directly. This was changed when Bulgaria was accepted as EU member state in 2007. However, the accession treaty allowed Bulgaria and Romania to extend the restriction for few more years. Naturally both states took advantage of this option.

The right for extending the restriction is set in Annex 6, part 3 (movement of capital), point 1 to the Treaty for Accession of Bulgaria and  Romania to the EU.  The annex to the treaty for accession provides the right to Bulgaria to keep up to 5 years the restriction for the right of foreigners to directly own land in Bulgaria:

Notwithstanding the obligations under the Treaties on which the European Union is founded, Bulgaria may maintain in force for five years from the date of accession the restrictions laid down in its legislation existing at the time of signature of this Protocol on the acquisition of ownership over land for secondary residences by nationals of the Member States or the States which are a party to the European Economic Area Agreement (EEAA) non-resident in Bulgaria and by legal persons formed in accordance with the laws of another Member State or of an EEAA State
Even longer -  7 years - term is set for owing agricultural land and forests:
Notwithstanding the obligations under the Treaties on which the European Union is founded, Bulgaria may maintain in force for seven years from the date of accession the restrictions laid down in its legislation existing at the time of signature of this Protocol on the acquisition of agricultural land, forests and forestry land by nationals of another Member State, by nationals of the States which are a party to the European Economic Area Agreement and by legal persons formed in accordance with the laws of another Member State or an EEAA State. In no instance may a national of a Member State be treated less favourably in respect of the acquisition of agricultural land, forests and forestry land than at the date of signature of the Accession Treaty or be treated in a more restrictive way than a national of a third country.

Luckily the 5 years period expires next year -01.01.2012, so the restriction should be removed. You can read the full text of the annex VI for further details.