Real Estate Lawyer Bulgaria | Buying or Selling Property in Bulgaria Guide

 

Real Estate Lawyer Bulgaria

 

Are you planning to buy a property in Bulgaria? Have you found your dream holiday apartment by the sea coast, a modern Sofia investment property or a cheap rural house in the Bulgarian countryside? Or maybe you are an owner of a real estate property in Bulgaria and you are thinking of reselling it?

These are just some of the situations in which the assistance or at least advice by a real estate lawyer in Bulgaria is mandatory. Bulgarian property legislation differs significantly from Western European regulations and involves legal procedures, requirements and contractual obligations that are usually not familiar to foreigners. Therefore, consulting a Bulgarian real estate lawyer before signing any contract or transferring ownership can be essential to protect your interest and avoid potential disputes.

Whether you need a lawyer to buy property in Bulgaria, to sell a property, or to represent you in real estate matters, our property experts at Trifonov Law Offices can help you understand Bulgarian property law and the applicable legislation associated with owning, buying and selling real estate in Bulgaria. A property lawyer in Bulgaria can also help identify legal risks before a transaction is completed and provide assistance in protecting property ownership.

 

Buying Property in Bulgaria

 

Choosing Property

Foreigners interested in buying property in Bulgaria often look at three types of real estate: apartments in seaside and mountain resorts, rural houses in Bulgarian countryside and Sofia or Plovdiv investment properties.

The process of purchasing these properties can differ based on the type of property. Seaside and mountain resort apartments are often part of large developments where a management company takes care of the property and the common parts. This is applicable for some Sofia and Plovdiv investment properties as well. For rural properties the situation is different because they usually come with land.

The purchase process for real estate with land is more complex because non-EU citizens are not allowed to own land property in Bulgaria directly. They need to register a Bulgarian trading company and can buy land into the name of the company.

 

Costs

Is a Bulgarian property lawyer needed when buying a property and how can he be useful? Some buyers try to organise the property purchase personally or leave it to a real estate agency, with the idea to save additional costs such as the lawyer’s fees.

Paying a lawyer’s fee when buying a property in Bulgaria actually can save money as a lawyer’s fee usually includes services such as: drafting the title deed and the preliminary contract, performing the property checks, preparation of all the documents accompanying the deed. As a rule, the conveyance fee for representing the buyer in all stages of the real estate purchase process is lower than the commission of the real estate agent.

Bulgarian real estate lawyer can be of great help to any prospective buyer as they can block in advance any attempts at bad faith behaviour on the part of the seller, including by imposing the necessary penalties in the preliminary contract and the deed, as well as to detect possible future problems with the property.

 

Deposit

Once the buyer has chosen the property, the first step is the payment of deposit and signing a deposit agreement. This is a relatively small amount compared to the price of the property, usually within the range of a few thousand euro, upon the payment of which the seller or real estate agency stops offering the property to other potential buyers. The information available to the prospective buyer at this stage is usually scarce and it may turn out, at a later stage, that the property has burdens such as mortgages and encumbrances and the transaction cannot be carried.

The essential thing here is to sign a proper deposit agreement so that the prospective buyer does not lose the paid amount in case the purchase fails. It is relatively common for the deposit to be asked in cash, but according to the provisions of Bulgarian Law on Restriction of Cash Payments any deposit for a property purchase should be paid by bank transfer, otherwise (in case of cash payment) both parties are administratively liable.

 

Check-ups

One of the most important steps, before a preliminary contract or a deposit agreement is signed, is a comprehensive check-up of the property by a competent Bulgarian property lawyer. This inspection includes verification of the seller (especially if it is a legal entity), verification of the ownership of the specific property, identifying any burdens or third-parties right on the property.

Bulgarian Property Register is the official database which provides information on the status of real estate properties, their ownership or on any other legal rights on them. The register keeps track of all of property transactions in Bulgaria, registered claims against a property, mortgages, encumbrances, injunctions, and other burdens.

Property registry checks are absolutely mandatory for any buyer if they really want to protect their interests. For example, the purchase of property in Bulgaria with a mortgage is perfectly legal and the mortgage itself does not prevent the purchase of the real estate, but it puts the buyer’s ownership at risk because the mortgage lender is allowed take action against the property, for example put it to a public sale (without any consent from the buyer, as the new owner) in case the seller defaults on its obligations to the mortgage lender.

In some cases, buyer and seller need to a sign a preliminary contract before the final title deed.  In those cases, the checks described above should be carried out once before the preliminary contract is signed and once more before the notarial deed is executed.

It is highly advisable that the checks are carried out by an expert Bulgarian property lawyer who is independent and not connected to the other parties, including the estate agency. It is well known that the main goal of any estate agent is to get their commission, which is due when a transaction is finalised by singing the title deeds, so real estate agents are willing to complete the deal at all cost.

 

Preliminary Contract

The next step, which is optional but usually recommended is signing a preliminary contract for the purchase of property in Bulgaria. The preliminary contract itself does not transfer the ownership of the property; it is only a promise of sale. Buying a property without a preliminary contract is perfectly legal, but many prefer to sign one for greater security especially if the contract provides for penalties in case of non-performance of the obligations of the parties.

The preliminary contract is highly recommendable in cases when the parties have agreed on the essential terms but cannot complete the transaction before notary immediately. For example, buying a property which is still under contraction, payment of the purchase price by instalments, need of mortgage finance for the purchase or need of more time by the seller to obtain all necessary legal documents. For example, a tax assessment, a cadastral scheme of the property, a certificate of encumbrances, etc., each of these documents being issued by a different authority and within different deadlines.

 

Title Deed

The title deed is the final notarised contract for the purchase-sale of property in Bulgaria and is subject to registration in the Property Register by the competent Registry Office. The title deed shall be witnessed by a notary officiating in the region where the property is located. If it is a purchase of a real estate in Sofia or Bansko, a notary in Plovdiv or Bourgas cannot take care of the notary completion.

 

Follow-up Registrations

Signing the title deed does not end the purchase process. The deed is subject to registration with the Registry Agency. This is carried out by a registry judge. Usually, this registration takes about 3-4 days for smaller towns and about 10 days for Sofia. Only after the deed has been duly registered, the buyer can receive it in original hard paper from the notary.

Upon receiving the deeds, the new owner has the obligation to register them with the relevant Cadastre Office. It is possible that in some localities there is no such office and this obligation may be waived. But this must be checked.

There is one additional requirement that affects foreign nationals. All foreign owners of real estate in Bulgaria must be registered with the BULSTAT Register. Accordingly, foreign sellers have a similar obligation, but vice versa – to de-register.

A real estate lawyer in Bulgaria can help with all steps listed above, starting from the preliminary checks, the deposit, the preliminary contract, the notarial deed and the required registrations. Independent legal advice is particularly important where the buyer wishes to protect the investment and avoid unexpected obligations after the transaction.

 

Property in Bulgaria (Costs & Taxes)

 

If you are considering buying a house, apartment or other real estate in Bulgaria for your holiday home or just as a second home you should be aware that the property purchase involves additional expenses and taxes which come on top of the advertised property purchase price.

 

Real Estate Agent Commission in Bulgaria

First of all, when viewing on properties advertised by real estate agents, you should have in mind that selling price can be quoted inclusive or exclusive of Bulgarian real estate agent commission (3% or similar amount). So, make sure you know in advance whether the real estate agent commission is included in the offered price and, if not, who will pay it.

Real estate agent commission in Bulgaria is usually around 3% of the purchase price, but sometimes agents take commission from both buyer and seller. That is why, it is always cheaper to buy directly from the vendor.

The real estate agent commission in Bulgaria (3%) is an expense that buyers should clarify before signing a brokerage contract. The Bulgarian real estate agent commission may be payable in addition to the advertised property price, depending on the agreement. Buyers should also check whether the real estate agent commission amounting to approx. 3 percent is payable by one party or by both parties to the transaction. The real estate agent commission should be clearly stated in the brokerage contract so that the buyer knows the total cost before proceeding.

 

Property Transfer Tax Rate

Property buyers need to know that municipal tax, state and notary fees are payable when you buy a property in Bulgaria. Most of these taxes and fees are calculated on the basis of the purchase price. That is why in some cases, people prefer to declare lower purchase price on the deeds which is absolutely not recommendable as this can have serious negative legal consequences, especially in case when you are faced with a situation to cancel the deal afterwards.

The below listed fees are payable on the completion of a sale and as rule they are covered by the buyer.

1. Local transfer tax: Similar to stamp duty in the UK, local transfer tax is paid to the local council. The amount differs in different municipalities, for some rural areas it is as low as 0,5 % of the purchase price, but in big cities such as Sofia, Plovdiv, Varna, Bourgas and in preferred mountain and sea resorts the transfer tax is usually mounting to 3 %.
2. Registry fee: this is a state fee for registration of the title deeds with the Registry Agency – Property Register and is amounting to 0.1% of the purchase price. The percentage is one and the same for the whole territory of Bulgaria.
3. Notary fees: Transfer of title is witnessed by a notary public. The notary will charge you for making the deed. The Notary fees are set by the government in a tariff and notary publics charge 20% VAT on top of these fees and they usually charge for making additional checks, for making copies of the deeds, for using their escrow bank account to ensure safe payment of purchase price, etc. so the final amount due will be higher than the amounts listed in the table above. If you have a lawyer to represent you in the property purchase process, solicitors usually offer to do some of notary’s public work such as making the property checks, drafting the title deed, offering his own escrow account, etc. and this is included in lawyer’s fees.

If you do not plan to be physically present at the notary completion, you will need to provide a power of attorney and some declarations to your lawyer in advance which will incur small additional expenses for notarisation, legalisation and translation of these documents into Bulgarian. Translator’s expenses are inevitable even if you decide to be present personally at notary’s office to sign the deeds because the notary public is obliged to appoint an official interpreter to ensure that you understand the legal consequences of the deed you are signing.

 

Annual Property Tax in Bulgaria

Last but not least, do not forget that after you become an owner of your dream home in Bulgaria, you are obliged to pay annual property tax to local council (municipal authorities). The tax rate is different in different regions of the country, very cheap in rural districts and a bit higher in bigger cities.

It is a common practice foreign property owner in Bulgaria to neglect paying those taxes. Delays in paying are not usually a big issue but if the owner fails to pay subsequently, the local council is entitled to place the property under interdiction and initiate legal proceeding against the property owner.

 

Buying Property in Bulgaria (Pitfalls)

 

The purchase of a real property in Bulgaria is probably one of the best ways to invest your money as it is a lifetime investment. But on the other hand, this might be risky since buying property in Bulgaria is associated with certain pitfalls. That is why you must be very careful and spend some time in investigating the property prior to entering a contract instead of trying to solve the problems afterwards. Or hire a trustworthy real estate lawyer in Bulgaria to do the job for you.

Here are some wide spread pitfalls when buying property in Bulgaria you should consider prior to making your investment.

1. The building has not been granted Act 15 or Act 16

According to current legislation, all buildings in Bulgaria have to be in line with the construction and earthquake-proof regulations and official plans. Therefore, the buyer should check whether the building has been built in line with those requirements. In other words, the purchaser should ask the vendor to provide the “Usage Permit” or “Habitation Certificate” (also known as Act 16) which is issued by the local municipal authorities or the National Construction Control Directorate.

Act 15 is the last step prior to Act 16 and a lot of developers sell properties which have only Act 15 with the promise that act 16 will follow very soon. But even if Act 15 is in place it is possible Act 16 never to be granted and without this certificate the property cannot be either used or rented legally and the owner cannot subscribe to the utility companies.

2. Cash payment is requested

According to Bulgarian Limitation of Cash Payments Act payment for any transaction equal to or exceeding €5,112.92 must be executed exclusively by bank. Splitting of one large payment into multiple smaller cash payments is also prohibited. Hence, cash payments are not applicable for property purchases, including for payment of deposits.

3. The seller refuses to sign a preliminary contract for sale-purchase of the property

If the vendor refuses or is reluctant to sign a preliminary contract, that could be a sign of a pitfall or there is something wrong. The lack of a preliminary contract is risky especially in cases when advance payment is agreed. In case an advance payment or a deposit is made without a preliminary contract, it will be hard to prove what the deposit or the advance payment has been paid for.

The lack of a written agreement relieves the vendor of any responsibility – for example the vendor could not be held responsible in the event of any burdening or mortgages on the property or in case the vendor delays transferring of title.

4. The seller insists on declaring a lower price on the title deed

This pitfall when buying property in Bulgaria almost certainly means that the seller is trying to evade taxes. At first glance, such an offer sounds tempting to buyers because notary fees and transfer tax are calculated as percentage of the price stated on the title deed. The lower the price stated on the deed, the lower the expenses for the buyer.

However, in case the contract is broken (for example due to encumbrances) the buyer shall give back the property to the seller but the seller shall give back the price as per title deed. If there is a difference between the price put on the deed and the actual price paid, the seller cannot be chased to give back the balance.

Last but not least, if a lower price is included in the deed and the vendee decides to resale the property shortly afterwards, there will be a large capital gains tax due.

5. The seller recommends a conveyance solicitor to handle the deal

This pitfall is a potentially dangerous situation. Unfortunately, it is quite possible the recommended solicitor, no matter how respectable looking he might be, to act against your best interest and to overlook some important information.

Therefore, an independent solicitor is always recommended in property deals.

6. There is a discrepancy in the papers presented to you but you are reassured that this is an insignificant typo that will not affect the deal

In some documents the change of a single digit or letter can be fatal and can lead to a number of problems afterwards. For example, all properties have identification numbers and one different digit may mean a different property, in other words, it may turn out that the buyer has purchased a totally different property of what he was thinking he was buying.

For example, suddenly you may find out that you have become the owner of the apartment next door to the one you have initially viewed, liked and paid a deposit for. Sometimes such mistakes are due to typos and negligence but there are cases when such frauds have been made deliberately by developers. In any case it is always recommended any discrepancies to be clarified before the transfer of title even though it may take a few days or even weeks.

7. The property is shown to the buyer only on photographs or plans but the image is actually of a different property

That is a very common property fraud. And it is only after the purchase that the buyer realizes that he has been misled and has bought something totally different of what he expected. But since the title deed has already been signed it will be almost impossible to cancel the deal.

Therefore, it is recommended either the property to be viewed in advance by the buyer himself or at least to be acknowledged that the documents describe exactly what the buyer has seen on the photographs.

8. The property has defects at the time of the transfer of ownership, and the seller promises to rectify them afterwards

In this case it is necessary to bind this agreement in writing; otherwise, the seller may simply take the money from the buyer and then leave him to deal with all defects at his own expense. The legal binding in writing is not enough; all stipulations should include effective mechanisms for the fulfilment of the obligations of the seller.

For example, in case there are no penalties stipulated or in case the expenses for the repairs exceed the amount of the penalties provided under the contract, it is very likely for the seller to choose deliberately not to fulfil his contractual obligations. In case of any outstanding defects in the property the best option will be part of the purchase price to be withheld and kept by a third party which will hand the amount to the seller only after the latter has fulfilled his obligations to rectify the defects.

9. The seller refuses to provide a certificate of encumbrances

In this case it is very likely that the property is mortgaged or burdened. Actually, it is always better and safer for the buyer to check independently if the property has any encumbrances as it is possible the seller to provide an invalid certificate of encumbrance. In case a burdened property has been sold, for example one mortgaged with a bank, the bank has the legal grounds to sell the property and to keep the money.

10. The seller presents fake documentation

A very common property fraud is the seller to use fake papers, most commonly fake powers of attorney which vitiate the sale purchase contract. The contract is proclaimed null and void and the buyer may find himself in a situation where he stands with no property and no money.

 

Selling Property in Bulgaria

 

If you are an owner and you consider selling your property in Bulgaria, there are a number of questions you should take into account prior to advertising your Bulgarian property for sale:

 

Sell Property in Bulgaria (Check List)

1. Who are the owners of the property as per Bulgarian Law? Whose name is on the title deed? Are there any joint owners?

Let’s say you bought an apartment five years ago with your only name stated on the title deed. However, if you were married at the time of buying the property, your spouse automatically became a joint owner, unless you had a special marriage agreement or separate matrimonial property regime in effect. If matrimonial regime of community of property is applied to spouses, which is the common case for most couples, your partner gets 50 % of the property even their name is not on the title deed.

Hence: You cannot sell property in Bulgaria without an explicit written consent given by your spouse. Both of you will inevitably be involved in the resale procedure.

Let’s say you bought the apartment with a friend of yours and you see only two names on the deed. Now imagine that both of you were married at the time of the acquisition of the apartment. That makes four people involved in the resale and each of them will have to prepare a certain set of documents (declarations or power of attorney, if necessary).

2. Do you have a BULSTAT number?

Since 2005 any foreigner owing a property in Bulgaria must be registered with the BULSTAT Register at the Registry Agency within seven days from obtaining their title deed.

Generally, you will be fined, if you have failed to complete your BULSTAT registration in time.

If you purchased your property after the date specified above and you still don’t have a BULSTAT number, you cannot sell your property in Bulgaria. The reason is the following: The BULSTAT number is a precondition for the tax declaring of the property and payment of annual taxes. So here comes the next question.

3. Have you paid your local property taxes?

Each property owner has an obligation to pay annual property and garbage taxes to the local municipality. You cannot sell a Bulgarian property unless all your property and garbage taxes have been duly paid up to date.

4. Have you paid maintenance fees and utility bills for the apartment?

This is not a compulsory precondition as per legislation but as per our practice it is an essential one and may be curtail for the success or failure of a resale.

If you have any liabilities to a maintenance company or to the electricity or water companies, you don’t transfer your liabilities to the buyer by transferring title of the property. The liability stays yours and the relevant companies are entitled to chase you for those liabilities.

On the other hand, buyers are very suspicious nowadays and, in most cases, they make a thorough survey of the property and of all liabilities related to it before buying it. Buyers avoid involving in deals where there are outstanding maintenance fees and utility bills.

5. Have you been registered as a property owner with the Cadastre Agency?

A further condition for the sale of property in Bulgaria is for the seller to be registered as a property owner with the Cadastre Agency and to have his property duly registered in the cadastral map. The resale procedure starts from obtaining an up-to-date layout of the property from the Cadastre Agency.

6. Who will pay notary fees and transfer tax?

Property owners know that transferring of title is connected with further expenses – notary fees, land registry fee, local tax (transfer tax). These expenses are relatively high (approx. 3% – 3,5% of the purchase price) and may amount to a couple of thousand euro depending on the sale price.

They are generally covered by buyers but it is very often that sellers offer splitting of notary expenses to make their offers more competitive and attractive. In any case, it is recommended that this item is discussed between buyer and seller before the actual transfer of ownership and should be taken into consideration while determining the sale purchase price.

 

Sell Property in Bulgaria (Lawyer)

Many sellers rely on the public notary who is handling the transaction to protect their interests. However, the notary does not have such a role, the notary is responsible for carrying out the notarial procedure and verifying that the legal requirements for the transfer of title are met. The notary does not secure that you will safely get the sale price into your bank account.

You need an independent real estate lawyer in Bulgaria to review preliminary contract and to negotiate terms of payment that protect your best interest. A good Bulgarian property lawyer will ensure that the property is not transferred before you receive the full sale price.

There are different options that can be negotiated by your lawyer, for example direct bank transfer to the seller’s bank account before transfer of title, using notary’s escrow bank account where the price is deposited into a special account into the name of the notary and released to the seller once the deed is ready or an escrow lawyer’s account where your lawyer holds the funds and releases them after the agreed conditions have been fulfilled.

In any case, our recommendation is never relying on a bank transfer screenshot or a payment order presented by the buyer. Always verify that the money has actually reached your bank account or the bank account of the appointed escrow intermediary – lawyer or notary.

Last but nor lest, an important question is what tax consequences may arise from the sale of your property in Bulgaria and if personal income tax on the sale of property is due. Under the Bulgarian Personal Income Tax Act, the sale of one residential property is exempt from tax if more than three years have passed between its acquisition and sale.

The sale of up to two real estate properties is exempt if more than five years have passed between their acquisition and sale. If the sale does not qualify for an exemption as described above, the seller must pay 10% personal income tax on the taxable gain, i.e. the difference between the sale price and purchase price.