Recent highly publicized case of real estate developer “Nordis” has created strong collective emotion in Romanian society, as well as over 2.2 million press views of the investigation in less than 2 weeks.
But why has this case had such a widespread impact in Romanian society? We believe that the answer has 2 main explanations: on the one hand, real estate developer’s projects benefited from aggressive marketing reaching a large part of Romanian society in the country and diaspora, being visible even to citizens who do not live and/or have no direct interest in target cities; on the other hand, reason lies in the insatiable attraction of Romanians to be owners, which places Romania in first place in E.U. with a percentage of about 95% according to Eurostat data for 2023, and in second place in the world after Laos and slightly ahead of Kazakhstan, according to information available online.
Looking at countries’ rankings of ownership percentage, there is no direct proportionality between ownership percentage and standard of citizens’ living, on the contrary, which reasonably should be at least a question mark, if not a major warning signal.
In addition to revealing a potentially criminal scheme that prosecutors and courts will review, after the excitement of this case has settled down, the 3 major parties involved in development of housing market in Romania (state authorities, citizens and real estate developers) should draw some conclusions.
Citizens should learn from this case that a house purchase, in general, and the acquisition of an off-plan dewlling in particular, is not equivalent to buying a loaf of bread in a shop, although both are part of the legal concept of sale. If citizens will not understand that for one of the most important deeds they will sign in their lives, such as a house purchase, it is advisable to consult a real estate lawyer, especially if they do not understand elementary legal terms, and on the other hand that the acquisition of an off-plan dewlling (i.e., in legal terms „future asset”) turns them into „investors”, that is to say, it comes with significantly more legal risks (risk of building permit suspension, its annulment, a contractual dispute between developer and constructor, a significant delay in project’s completion, the impossibility of concluding handover minutes, etc.). Citizens must also conclude from this situation that if they sign agreements that they either do not read, do not understand, or are driven by greed to get a discount for full (or a large proportion) advance payment price, they have a clear and significant responsibility of their own.
Law-knowledge is presumed to be a foundation on which the functioning of any society is based, and ignorance of law is not a ground for exempting citizens from legal liability.
Real estate developers need to learn to be reasonable in adding contractual clauses, since although „paper can bear anything”, it is unreasonable to impose penalties of tens of thousands of euros with potential price excess, it is unreasonable to limit legal liability as seller for defects in property sold and, in general, it is not permissible to include unfair terms that are manifestly contrary to the law, terms that are considered unwritten by Civil Code or that simply defy elementary legal logic.
We remind that according to one of first articles in Civil Code: “No right may be exercised in order to injure or harm another or in an excessive and unreasonable manner, contrary to good faith.”.
State authorities should not try to reinvent „hot water”, but it would be advisable to urgently adopt the following 3 legislative changes that have real and concrete potential to avoid such situations in the future:
(1) insertion under Law no. 35/1995 on Public Notaries for the obligation of public notary to proceed with its mandatory entry of Bilateral Pre-Sale Agreement (of a current or future asset) with land registry, regardless of any contrary provisions under the signed agreement, and any clause prohibiting this right of promissory buyer to be deemed by law null and void. Correlatively, insertion of notary’s obligation to obtain an excerpt from land registry on authentication day of Bilateral Pre-Sale Agreement as a mandatory annex to the deed concluded.
(2) inserting under Order no. 600/2023 for approving Regulation on reception and registration in cadastre and land book registry of a new provision stipulating that the consent of promissory-buyer is not required in case of de-mergerand/or any other operations for purpose of registering individual units, so that lack of consent of one promissory-buyer does not have the potential to block entire real estate project.
(3) prohibition of any down payments of more than 30% of final sales price, regardless any circumstances. In case real estate developer fully finances the project’s construction from down payments paid by promissory-buyers alone, without being able to obtain bank financing, this should raise serious questions about project’s economic viability.
The 2019 legislative proposal is an unclear, incomplete document, drafted without an average knowledge of existing legislative framework (with which it is contradictory in many respects) and which demonstrates a rudimentary understanding of modern real estate development mechanisms. Assuming this draft would have been adopted, it would not have prevented „Nordis” case. Moreover, maximum 10% downpayment is totally different in substance and enforcement from what is currently being publicly debated. As a result, such legislative proposal did not receive a favorable opinion neither from Romanian Government (both in 2019 and in 2020 when Prime Minister was the president of political party in question), nor from Economic and Social Council.
Neither recent proposal (from October 2024), whose explanatory memorandum and draft legislation itself seem to have been written in haste and without a thorough analysis of subject, which in its current form provides for a maximum downpayment of 10% to 40%, will prevent similar future cases. Furthermore, given notorious bankruptcies in insurance area, existence of insurance will not by itself and automatically guarantee the promissory-buyer’s return of deposit paid. We do not enter into details concerning legal difficulties of enforcement by promissory-buyers of an insurance policy taken out not by them but by the property developer. Moreover, extent to which insurance companies present on Romanian market issue such insurance policies and specific conditions under which they are issued are questions which the explanatory memorandum should have answered.
