Top 5 things you may uncover by performing farmland due diligence in Romania

It is not uncommon for investors to perform a legal due diligence analysis prior to acquiring agricultural land in Romania. This enables them to discover potential legal risks related to the target farmland.

While the notary public does not usually verify deeds preceding those of the last owner, a specialized real-estate lawyer may assess the chain of ownership titles as of the date when the initial ownership title was issued (post- 1989), or even beyond that date – if she or he deems necessary.

However, as per the Romanian law, there are some common issues that might be unraveled during the legal due diligence process, that might affect the ownership title over agricultural land.

1. Non-observance of the pre-emption right provided by the New Land Law (Law no. 17/2014)

The New Land Law provides strict rules regarding the sale of agricultural land located extra-muros. In essence, a sale offer must be submitted by the seller to the local city hall.

Within a 30-day timeframe as of the date of such offer, the pre-emptors (co-owners, lesees, owners of neighbouring plots, as well as the Romanian state) have the right to purchase the land, at the same price and commercial conditions.

The sale of the agricultural land at a lower price or for better commercial conditions than the ones in the offer leads to the absolute nullity of the sale operation. Failure to undertake the procedure might lead to relative nulity. A nullity claim might trigger the annulment of the subsequent sale-purchase operations.

The example below emphasizes the case in which the investor wishes to acquire a piece of land owned by Seller A, the land being acquired from Seller B, which, at its turn, had previously acquired it from Seller C. In this case, the Investor risks the annulment of the sale purchase agreement based on which the agricultural land was acquired from Seller A, since Seller C has a challengeable title.

2. Pending or past litigation

Pending litigations in which the seller is involved should always be researched prior to the acquisition of agricultural land. This is important since Romania does not have centralised databases, and therefore litigations are rarely registered within the plot’s land book. The investor should always seek to obtain the seller's warranty that there are no threatened litigations.

Past litigations are also relevant in some cases – for example when a company that has become insolvent is one of the owners from the chain of titles. In such cases, there is a theoretical risk of annulment of the sale-purchase operation, in certain situations provided by the law.

Other common example is that of litigation that has not been definitively settled or that does not fall under the res judicata rule - if all avenues have not been exhausted the same person could challenge the ownership title again.

3. Donation agreements

When a donation agreement exists within the title chain of agricultural land, additional investigations might be necessary as to assess potential risks affecting its validity. This is because under the Romanian law, there are two cases in which the donations may be unilaterally revoked by the donor:

• when the donation beneficiary fails to fulfil the conditions based on which the donation has been granted;
• for ingratitude of the donation beneficiary (e.g. murder attempt from the beneficiary side against the donor, criminal offences of the beneficiary against the donor etc.).

Another revocation case provided by the former Romanian civil code (therefore, only relevant for donations concluded before 2011) is the case of offspring of the donor that are born after the donation is concluded. This case is only applicable for the first child of the donor and provided that the donor had no children at the date of the donation.

4. Historical monuments

Romania is full of ancient monuments that exist on agricultural land plots - from burial mounds to fortified positions to roman settlements. Usually, the existence of potential monuments could be discovered based on a query sent to the Ministry of Culture – mandatory when it comes to agricultural land plots legal due diligence.

The existence of such monuments on the land plots targeted by the acquisition or on neighbouring plots could trigger supplementary legal obligations for the seller and for the buyer, including the pre-emption right of the Romanian State – to be exercised in certain conditions.

5. Constitution of ownership rights

There is a special category of land plots that have not been restituted to their previous owners after the communist regime had fallen, but instead awarded as property to certain natural persons that had met certain criteria provided by the law (mostly agriculture professionals). With respect to such land, the law provided a 10 years sale interdiction. However, within the legal due diligence, this interdiction should be checked only by reference to sales that occurred prior to 2011, when the said transfer interdiction was abolished.

Without having exhausted all the issues that might arise when performing a legal due diligence on agricultural land, the common issues mentioned above might give a diligent investor a better image regarding the complexity of the Romanian law in this area of practice.

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