Today I was passing through Bansko and decided to take some pictures of the Orchard Development. This is to show to the public what they should expect out of their investment:

•   This is the mandatory sign for each construction work in progress. Circled in red, is the deadline for finishing the development:

• Building of the Orchard (probably only phase I). This is the scenery around the developments. Note that there is no suitable road. You can access the place only with off-road capable vehicle:

Click on the pictures to enlarge the image.

Recently I've been asked  about how can one obtain details on the financial status of a Bulgarian company. This is not an easy task to do because of the following:

• Companies don't give away details on their financial status willingly
• Banks don't reveal details neither if certain company possesses bank accounts, nor the status of these bank accounts. Bank secret can be revealed only by court order
• Police will present information on whether there are any vehicles registered to a company only upon presenting a court order for that
• Due to decentralization of the Land Registry in Bulgaria, if you want to check whether a company owns properties, you have to check in each local Land Registry office (more than 40 offices)

Of course you can check the annual financial statement of the company in the Commercial Register, but usually you will not find any details there, just numbers. Moreover, if the company has good accountant the annual financial report will be useless for you.

If you are reading this, you are probably one of the many English people who think that they've lost their life savings in off-plan properties, offered by "Bulgarian Dreams" in the UK. I guess it will be interesting for you to know some facts and tips about the "Bulgarian Dreams" saga in Bulgaria. I've acquired all that information during the preparation of several claims against Bulgarian developers.

Here are some legal remarks on Bulgarian Dreams' commercial strategy:

FIRST, you've got the "Bulgarian Dreams" office in the UK - a middle-man (a property agent) who sells off-plan properties in Bulgaria, mostly to English people. All payments (property installments) are being made through that middle-man. That is probably due to specific tax issues. Please pay attention to the fact that the actual name of the company is "Berkely Square Trading Ltd." and Bulgarian Dreams is just a "trading as" name.

If it ever happens that you have to pay property installments to Bulgarian Dreams, always keep your bank transfer excerpts. You may need them later. Make sure you've got them stamped by the bank too. I strongly recommend that you DON'T use cheques or cash. However if you do so, make sure you get a proper receipt (original signature by the manager of BD).

SECOND, always remember that you have in fact signed an agreement with a Bulgarian developer company and NOT with Bulgarian Dreams. This means that if you have to sue somebody, it will be the Bulgarian developer and NOT Bulgarian Dreams.

THIRD, always consult a lawyer. Don't sign any annexes or additional agreements with BD or the Bulgarian developer. Usually Bulgarian Dreams and the Bulgarian developer put a clause in the annex which guards their position of a defaulting party - they mislead you to sign a clause on which ground you agree not to have any future claims based on their construction delay. Read your annex or additional agreement EXTREMELY CAREFULLY.

FOURTH, Bulgarian Dreams works with many Bulgarian developers (about 4-5 companies) building in Kavarna, Bansko, Pamporovo, Sofia. Some of the delayed  developments are "Windows to Paradise", "the Orchard", "Cedar Heights", "Cedar Lodge" etc.

FIFTH, the preliminary purchase agreements are just "preliminary", which means that you don't have any actual rights over the property descried in the agreement. The only right you have is to claim your money back and to claim reimbursement (compensation, interest, penalty).

SIXTH, remember that the developer might have possibly misled you. I mean that most of my clients think that "apartment completion" means all furniture installed. This is TOTALLY WRONG UNDERSTANDING. If you read carefully your preliminary agreement, you will see that the furniture has to be provided by a different company (usually registered in the UK). Te ONLY obligation the developer has is TO BUILD YOUR APARTMENT.

SEVENTH, another misleading issue is the stage at which ownership has to be transferred to you. Bulgarian Dreams' sample preliminary agreements usually state that you are obliged to accept ownership transfer at the stage of Act 15. I bet  that 99% of you have not paid attention to that issue. You should consult a lawyer before signing under such a clause. I've got a great explanatory post about what exactly each number of the "construction Acts" means. You should know that you cannot live or reside in you apartment before the building has obtained Act 16 (habitation certificate / completion certificate). Once you've got the property transferred at stage Act 15, the developer has no reason to hurry and obtain Act 16 for you. That's why you may have troubles, getting a lawful status of your apartment.

EIGHT, most buyers are now growing suspicious because no adequate feedback is provided to them. The developers are hiding like rats. They refuse to talk, to provide construction documents (although they are obliged to do it), they cannot be found at their registered company address. It's a fact and nobody can dispute it! Lots of buyers are afraid that they might lose their life savings invested in the above said developments.

NINTH, think of filing a lawsuit as soon as possible. You never know how much money is left in the developer's bank accounts. Moreover, if you hire an experienced lawyer, who is aware of BD's scheme in details, you may be lucky to get all of your money back.

and TENTH don't let yourself be fooled about the judicial system of Bulgaria. Judges in Bulgaria don't defend fraudulent companies, that's for sure!

So what's the best way to go? You have two options:

1. You just wait and see how your money disappears into a suspicious Bulgarian construction developer and you do nothing about it.
2. You sue the developer and have the chance to get your money back.

During the past few years, construction development boosted the economy of Bulgaria. Many companies were registered and trading not only in Bulgaria but within the EU too. Factor financing began to make its niche in Bulgaria. Several banks opened their factoring subsidiary companies, and taking their share of this undeveloped marked. UniCredit Group (Italy) shows:

The factoring market in Central and Eastern Europe is growing in annual increments ranging between 20% to 40% from country to country and should maintain this pace over the next couple of years.

That numbers should ring the bell in most enterprising investment companies and funds. Usually Bulgaria is underestimated due to the small market. However, remember, that most of big Western European companies have subsidiaries, here, in Bulgaria. this means that the financial opportunity may not be as small as it looks at first glance.

Moreover, as now Bulgaria joined EU, invoices issued by Bulgarian companies, can be easily processed by western accountant offices. Consulting factor funding in Bulgaria, is one of our leading legal consulting areas. Having in mind the legal specifics of contractual and debt collection law, our lawyers are able to provide any foreign investor with the right answers to their questions.

As from my practice I see several common MISTAKES, made by property buyers:

Not reading your preliminary purchase agreement at all

That's absolute nonsense, but believe me, 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 sign

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 (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.

There are improvements in the Registry Agency at last. The company registration takes now up to one day! This is a huge improvement in the paper processing since the beginning of 2008. The Ministry of Justice seems to have understood that Bulgarian business needs faster Commercial Register.

Nevertheless, you have to submit the registration documents online, in order to benefit the shorter registration term. If you submit the company registration documents by hand to the office of the Commercial Register, it will take about several days to have your company set up and running. The delay is cause by the clerks who scan you papers and input them into the digital Commercial Register.

When buying second home in Bulgaria, be extremely careful when signing any preliminary agreements.  Be sure to check when the property ownership will be transferred, at what moment exactly. The builders usually prefer that they get rid of the apartment/house at the moment of obtaining Act 15.

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 suppler. It checks if the premises are secure and suitable for living. You have to mind Act 16 when buying property in Bulgaria.

If you happen to be a party in a lawsuit in Bulgaria, you should be aware of the following:

1. Don't be impatient. Bulgarian Civil Proceedings Code regulates certain terms that have to be taken into consideration
2. The weakest part in a lawsuit is the delivery of subpoenas. All the papers which have to be delivered to the parties, are carried by employees of the court called "призовкари" (subpoena carriers) . The delivery employees are not limited to delivery terms, as the law assumes that there may be troubles finding the parties. That's why a typical subpoena delivery may take about a month.
3. When a lawsuit is filed, there is one month period, which has to pass, before the judge sets a date for the first hearing. This is a period in which the defendant has to submit an answer to the claim. Please note that this period starts, as from the day the claim was delivered to the defendant.(See point 2 above)
4. The judge may "stretch" the lawsuit in several hearings, depending on how complicated is the case. Usually lawsuits have two or three hearings. The time between the hearings depends on the caseload of the particular judge. Usually its one or two months.
5. When the lawsuit is announced for resolving by the judge, there is a one month term during which the judge has to issue the court resolution.
6. If the resolution is not appealed, it enters into force and you may engage a law enforcement agent.

Of course the above is just a brief explanation of the lawsuit procedure in Bulgaria, but basically you don't have to push your lawyer,because not everything depends on him/her.

Why should you bother ordering a due diligence report? Let's say you want to buy a whole business (part of your M&A strategy to acquire a competitive company). You would not want to buy a business with debts, would you? The due diligence report is the legal service you need. It clears the "big picture" about what you are actually buying. The due diligence report, as you can see from it's name, is a detailed report about the good standing of the company, in terms of company status, contractual relations, lawsuit status etc.

The lawyer will review the whole documentation, which includes all types of contracts, agreements, licenses, trade marks, claim papers etc. All current and pending legal relations between the business and its partners/creditors/debtors/state institutions.

The final result will be a professional legal evaluation of what exactly you want to buy. Does it have any defaults in terms of bad contracts, expired licenses, problems with state authorities etc. You will get a professional advice whether it is a good investment, what can benefit you and what can cause future trouble.

The legal due diligence report is usually structured on chapters. You will see the good legal standing of the company. All the contracts that have been signed will be sorted according to the legal area. They will be summarized if they are similar, evaluation of their stability will be made. Each legal due diligence report differs, according to the particular business, which is being researched. The size of the due diligence report may vary according to the size of the company.

Finally, you will receive independent legal advice on each part of the researched matter. Then you will be able to get the evaluation of the particular business you always wanted.

The new amendments in the Commercial Register Act allow easy and less cumbersome re-registration of your company. Now, a Bulgarian lawyer, who is registered in a Bar Association, can sign the application for you. You only need to provide scanned copies of few documents. Your presence in Bulgaria is not required, everything can be done via email, no notary certifications needed. If you need easy re-registration contact me and I'll save you the hassle.