Bulgarian property lawyers can be extremely helpful when buying a property in Bulgaria mainly in several ways:
- Checking not only for encumbrances, but also for other potential, including future, problems that those connected with the seller or real estate agency have no interest in communicating to you.
- Checking the seller and the completeness of the documentation for off-plan purchases, where the risk of the property not being built or completed at all is the greatest
- Negotiating a preliminary contract which clauses ensure the maximum protection of your rights in connection with a substantial investment
This article is a step-by-step guide of the purchase-sale of a property in Bulgaria that should be taken until the final transfer of the property to a notary, as well as the possible legal and purely practical risks for the buyer at each stage.
The first step, of course, is finding a good property. This choice may be assisted by a real estate intermediary agency or may be made as a result of direct negotiations between buyer and seller, the latter case often being preferred in order to avoid the additional costs associated with paying a commission to a real estate agency. If you are working with a real estate agent, you should carefully review the brokerage contract that you are offered to sign, because the practice knows of cases in which commission is due even without a purchase and sale having taken place, or those in which commission in full is paid 2 times to 2 different brokers even though only 1 property has been purchased. After selecting a specific property, one can now proceed to the next stages of formalising and finalising the transaction.
The next step, if the buyer chooses a specific home or other real estate in Bulgaria that he wishes to purchase, is the payment of deposit. This is a relatively small amount compared to the price of the property, usually within a few thousand euro or leva, upon the payment of which by a potential buyer, 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 more than scarce – usually photographs and data on the location of the property and its price. And it may turn out, at a later stage, that the property e.g. is encumbered with encumbrances and that a transaction cannot be carried out or that it takes many months and efforts on the part of the seller and the buyer to finalise the same. The essential thing in this case is to pay attention to the document to be signed at the time of paying the deposit. Because it may state that the prospective buyer loses the paid amount even in seemingly absurd life situations such as the requirement to secure bank financing in unrealistic terms, etc. The best option, so that a would-be buyer who later gives up wonders how to get back the deposit in case of a failed deal, is to be careful what documents he signs and if he has already signed – to contact a Bulgarian real estate lawyer who can assess the chances and possibly assist in getting the deposit back. It is relatively common for the deposit to be given in cash, but strictly legally speaking, given the provisions of Bulgarian Law on Restriction of Cash Payments and the fact that the stop-payment is not a separate payment but part of the total purchase price of the real estate, the deposit should be transferred by bank transfer, otherwise (in case of cash payment) both parties are administratively liable.
One of the most important steps, even before a preliminary contract or deed is signed, is to carry out a comprehensive check-up of the property. This inspection includes the examination of many components that will ultimately help the buyer to make a decision to purchase or abandon this intention. In short, the verification that a competent Bulgarian lawyers will carry out includes: verification of the seller (especially if it is a legal entity), verification of the ownership of the specific property, verification of any encumbrances on the property, verification of the existence of third party rights on the property. In the following paragraphs, we will look in more detail at the checks listed here.
Bulgarian Property Register is the database which provides information on the status of immovable property, on the ownership of immovable property or on any other legal right in rem. The register not only records the acts by which the right of ownership or other property right over immovable property is recognised, transferred, amended or terminated, but also the repossessions of immovable property. The main purpose of registration is to ensure the security of transactions. It should also be remembered that registration protects the rights of purchasers against any other person who may have a claim to the property but has not registered his claim in the formal manner provided for or has registered it subsequently. The rule is that an unrecorded deed concerning a title or other right in rem may in no case be opposed to a duly recorded deed.
In this connection, the existence of a registered injunction on the property in Bulgaria may be established in the course of the preliminary examination. It is a type of encumbrance with which the property is burdened. The attachment is imposed as a preventive measure at the beginning of the enforcement proceedings or even already in the action proceedings and with one aim – to avoid a situation where the debtor has no assets in future debt recovery proceedings. It is entered in the Property Register by the competent registry judge in whose district the property is located. Even if the debtor undertakes acts of disposal of the attached property, the rights of the person in whose favour the attachment is established shall be preserved. And very often, upon the establishment of such an encumbrance, the would-be purchaser abandons the transaction and the property remains unsold.
In addition to encumbrances on a property, it is imperative to pay attention and specifically check whether there is a mortgage established on the real estate. The purchase of property in Bulgaria with a mortgage is perfectly legal and the mortgage in itself does not prevent the purchase-sale of the real estate, but it puts the buyer’s ownership at risk because the mortgage lender (the person in whose favour the mortgage was established) may (although not necessarily) take action against the real estate, e.g. take 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.
Property registry checks are absolutely mandatory for any buyer if he really wants to protect his interests. It is even highly recommended that, if the parties to the purchase contract conclude a preliminary contract, the checks described above are carried out once before the preliminary contract is signed and once more before the notarial deed is executed. This is because, in general, several months may elapse between the preliminary contract and the final contract, during which the seller may encumber the property or third parties may claim against it. It is important to note in this respect that it is highly advisable that the checks in question are carried out by an expert who is independent and unconnected with the other parties, including the estate agency. This is because, from a purely economic point of view, the interest of an estate agency lies in obtaining the commission due, which is usually due when a transaction is finalised by singing the title deeds. Unfortunately, there are cases where this is at the expense of neglecting potential future problems that the buyer may face and spend years trying to resolve, after the deal is consummated. Where the intermediary has already received its commission.
If the preliminary inspection has turned out to be positive and the buyer has decided to sign a contract with the seller regarding a specific property, an optional but recommended step can follow – signing a preliminary contract for the purchase-sale of property in Bulgaria. A preliminary contract for the purchase and sale of real estate is signed before the actual transaction is executed with a notary. The preliminary contract itself does not transfer the ownership of the property, it is only a promise of sale. Buying a property without a pre-contract is perfectly legal, but many prefer to sign one for greater security. In purely practical terms, it takes technological time to procure all the necessary documents (e.g. tax assessment, cadastral scheme, etc.) to notarize the transaction and during this time the seller can obtain a higher offer and eventually safely sell the property to a person other than the one with whom he has a verbal agreement. However, if the original prospective buyer has signed a preliminary contract with the owner, the latter is unlikely to sell the property to another person, especially if the preliminary contract provides for serious penalties for doing so. It is not uncommon for properties sold with a preliminary contract to have, e.g., a mortgage or other encumbrance, without usage permit (Act 16), in the completion phase, etc., in which cases the preliminary contracts agree on the lifting of the encumbrances, the completion of the finishing works or the time limit for obtaining Act 16, the deadlines for doing so and the penalties for non-compliance. All of these “private cases” have many subtleties that would not normally impress the average buyer, but an experienced Bulgarian property lawyer would be very helpful in order to identify such “pitfalls” in the preliminary contracts and to remove them by negotiating with the other party to the transaction and amending the relevant preliminary contract for the purchase of the property. Lastly, for the sake of completeness, it should be noted that a preliminary contract without notarisation is perfectly legal, and a common practice given that notarisation of the preliminary contract (which is perfectly valid without it) entails additional costs.
Between the preliminary and the final contract (notarial deed) there are additional requirements that must be implemented before the notary completion. One of them is related to the obtaining of documents necessary for the transaction itself. These are, for example, a tax assessment, a cadastral scheme of the property (depending on its purpose), a certificate of encumbrances, etc., which may differ according to the specifics of the transaction, each of these documents being issued by a different authority and within different deadlines.
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 Agency. The title deed shall be witnessed by a notary whose area of jurisdiction the specific property is located. If it is a purchase of real estate in Sofia or Bansko, by law a notary in Plovdiv or Bourgas can not take care of the notary completion. You have to check whether the seller is actually the legitimate owner of the property (it is possible e.g. that he acquired it by prescription) or if the property was co-owned by two, three or however many more persons, that the person selling his part offered his part for purchase to the other co-owners and they refused. Another private case appears to be the possibility to buy a property from spouses that is in community of property. In this hypothesis, the rules of the Family Code intervene, according to which “the disposal of community property shall be carried out jointly by both spouses”.
When purchasing real estate in Bulgaria there are notary expenses, including tax under the Bulgarian Local Taxes and Fees Act. There is also another tax under the Personal Income Tax Act. The tax payable varies between 0.1% and 3% and averages around 2 – 2.5% on the agreed price (3% for Sofia and Plovdiv). Tax under the VAT Act is paid either by the seller or the buyer of the real estate – according to the agreement between them. By law, if there is no other agreement between the parties, the costs of purchase and sale of real estate are paid by both parties to the transaction equally. In addition to the taxes, the execution of the notarial deed also incurs costs, including: notary fees, the fee for registration with the Registry Agency, the fee for issuing copies of the notarial deed and separately VAT.
Some buyers personally take on the organisation of the purchase of a property or leave it to a real estate agency, with the idea that they will save additional costs, such as a lawyer’s fee when buying a property. An example of the fact that paying a lawyer’s fee when buying a property in Bulgaria actually saves other costs is the fact that the lawyer’s fee usually includes the DRAFTING of the deed – which service is not free at all – it is completely separate from the notary’s fee for the DRAFTING of the deed and is usually in the range of a few hundred euros or even more for a large material interest. For the same price, a real estate lawyer from Bulgaria can not only prepare the deed, but also the preliminary contract, as well as perform the checks mentioned above in the article, the preparation and supply of all the documents accompanying the deed. And as a rule, the attorney’s fees for representing the buyer in absolutely all stages of the real estate purchase process are in an amount lower than a real estate agency commission. And the cost just to prepare a preliminary contract is even lower.
However, signing the title deed does not end the purchase process. The deed already signed between the parties is, as we said, 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 from the notary, where the transaction was confirmed and take the final steps related to the purchased property.
As the property now has a new owner, there are obligations related to it. One obligation is that within 2 months of the notary completion, the new owner must file a real estate tax return. This declaration shall record all the circumstances relating to the property and shall be the basis for determining the property tax due. Filing this declaration is free of charge, but it is not easy to file. Since the beginning of 2019, this obligation has generally been abolished and passed on to the notaries, who must submit information on the transaction on their own initiative. Unfortunately, however, there are still notaries who do not undertake this action and it is therefore advisable to do it by the buyer or his authorized person.
Another obligation of the new owner after the transaction has been notarised is to register as such with the relevant Cadaster Office. It is possible that in some localities there is no such office and this obligation may be waived. But this must be checked. Unlike the declaration, there is no time limit for this registration to be made and therefore no penalty for failure to do so. This can be done even before the current owner decides to sell the property sometime later.
There is one additional requirement that affects foreign nationals. It is related to the registration of the respective person as the owner of real estate in Bulgaria with the BULSTAT Register. Accordingly, foreign sellers have a similar obligation, but vice versa – to de-register.
Is a Bulgarian property lawyer needed when buying a property and how can he be useful? Such a lawyer can be of great help to any prospective buyer in order to 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 from the outset possible future problems with the property, in the presence of which the buyer would never have acquired it. In this regard, it should be emphasized that the costs for a lawyer to represent the buyer from the outset until the transaction is notarized are MUCH lower than the costs for a lawyer and all court and other fees that the buyer would have to pay subsequently if problems are found after the transaction is notarized.
Among the problems that may come to light after the real estate purchase in Bulgaria has been confirmed is that the real estate sold belongs entirely to a third party, in which case the buyer has the legal right to cancel the purchase. In such a case, the seller is obliged to reimburse the buyer for the price already paid and, in addition, to reimburse him for the costs incurred in connection with the conclusion of the contract. If it turns out that only a part of the property sold belongs to a third party, the buyer is then entitled to request that the sale be rescinded (cancelled) in accordance with the legal procedure and to receive compensation for the damages he has suffered. The seller shall be liable if the property sold has defects which, by their nature, substantially reduce its value. However, where the price has been calculated in total for the entire immovable property, if the area of the property is duly specified in the contract of sale and it turns out to be more than 10 % less than the actual area, the buyer is then entitled to claim termination of the transaction or a discount on the agreed price. In cases where it turns out to be more than 10 %, the seller, for his part, has the legally recognised right to claim a corresponding increase in the agreed price, but if he does so, the buyer may, in turn, lawfully withdraw from the contract. It is also possible that third parties have a right of ownership over the property. In such a case, the seller is liable unless the buyer was aware of the third party’s rights. There may be many more private cases and “pitfalls” in the process of buying and selling real estate and in order to avoid all possible risks it is advisable to use the services of a good real estate lawyer in Bulgaria when buying a property.