1. Overview
In 2024, the real estate market remained stable and balanced, with a marked interest in new residential construction, especially in the capital and large coastal cities. Modern, energy-efficient residential projects built with eco-friendly materials are preferred. The interest of investors in this type of real estate is determined by the still relatively low interest rates offered by banks in Bulgaria, the expectation of entering the Eurozone, as well as the trend established during the COVID crisis for the perception of housing as a place of work for professions that allow working from home.
There is also a steady development in the retail space market, with a tendency to increase the demand for space in retail parks. In general, an extremely high occupancy rate in shopping centres is reported. In the office sector, the preferences are for renting class A space, in respect of which rental prices remain at sustainable levels. There is also a movement in the industrial real estate market, whereby interest from foreign investors in this market is noticed, especially with regard to properties located in industrial zones.
2. What is the main legislation relating to real estate ownership?
The following laws represent the main legislation framework applying to real estate ownership: Ownership Act and Obligations and Contracts Act – with respect to private real estate properties; State Ownership Act and subordinated legislation – with respect to state-owned real estate properties; Municipal Ownership Act – with respect to municipality-owned real estate properties; Act on Ownership and Use of Agriculture Lands – with respect to agriculture lands; Territory Development Act and the related subordinated legislation, as well as Black Sea Territory Development Act – relevant for the zoning, development and construction regulations; Civil Procedural Code.
3. Have any significant new laws which materially impact real estate investors and lenders come into force since December 2023 or are there any major anticipated new laws which are expected to materially impact them in the near future?
2024 is being characterised by a high degree of political instability and a continuous cycle of parliamentary elections, which naturally led to not very productive legislative activity in the period, including in the real estate sector. Therefore, there can be no talk of significant, and even less cardinal changes in the legislation related to real estate.
In 2024, an amendment to the Agricultural Land Protection Act entered into force, which significantly simplified the procedure for changing the designation of agricultural land in case of need for the construction of sites for the production of energy from renewable sources to achieve the national goals for ensuring a minimum share of energy consumption produced from renewable energy sources. In order to respond to public attitudes, serious restrictions (prohibitions) were introduced in the Black Sea Territory Development Act, in connection with the construction of certain sea beaches for nature-friendly tourism.
4. How is ownership of real estate proved and are ownership records available for public inspection?
The ownership of private real estate properties is proven by respective title documents duly recorded with the Property Register - notary deed (if the real estate is acquired as a result of legal transaction between private parties), notarised voluntary partition agreement (if the ownership is acquired as a result of partition of co-owned real estate), written contracts (if the real estate is acquired from the state or from the municipality), court decision (in case of title dispute), heir certificate/testimony (if the real estate is acquired by inheritance), other title documents (various types of specific administrative acts envisaged in the restitution laws). The ownership records maintained in the Property Register are available for public inspection.
5. Are there any restrictions on who can own real estate, including ownership by any foreign entities?
Foreign entities may acquire ownership over buildings and limited rights in rem without limitation. Foreign entities registered in EU countries may also acquire ownership over land, and for the non-EU foreign investors remains the option to establish a local SPV and use it for acquisition of all type of real estate properties, including land.
However, certain restrictions apply with respect to the acquisition of agricultural land. Ineligible to acquire ownership over agricultural lands shall be: (i) companies being directly or indirectly controlled by offshore companies; (ii) companies where partners and shareholders are non-EU foreigners or non-EU legal entities; (iii) joint-stock companies that have issued bearer shares.
Eligible to acquire right of ownership over agricultural lands shall be natural or legal persons who have been resident or established in Bulgaria for more than 5 years. Legal persons with registrations under Bulgarian law of less than 5 years may acquire ownership right over agricultural lands if the shareholders in the company meet the above requirement for at least 5 years of residency in Bulgaria.
These restrictions, however, have been superseded by a decision of the Court of Justice of the European Union, but nevertheless the respective provisions of the Bulgarian Ownership and Use of Agriculture Lands Act still remain in force and effect.
6. What types of proprietary interests in real estate can be created?
Bulgarian law regulates the following types of proprietary interests in real estate:
• Right of ownership which includes full and absolute power to use, possess and dispose with the title over real estate;
• Right of use - which includes the right to use the real estate property in accordance with its purpose and the right to the benefits therefrom, without causing any essential changes to it; the right of use is established intuitu personae and is not transferable;
• Building right – includes the right to construct a building on third party’s land and to become owner of such building, as well as to use the adjacent land to the extent necessary for the use of the building;
• Easement rights (right of trespass, right to pass and maintenance of linear infrastructure, etc.).
7. Is ownership of real estate and the buildings on it separate?
Answered above.
8. What are common structures for ownership of commercial real estate?
Joint-stock company (AD) and Limited liability company (OOD) are the commonly used structures for ownership of commercial real estate. Both the limited liability company and the joint stock company could be owned by one single shareholder being individual or legal entity.
9. What is the usual legal due diligence process that is undertaken when acquiring real estate?
Usually the real estate due diligence is carried out based on documents presented by the seller, as well as on information and documents collected through the publicly accessible sources of information. In some cases the buyer collects the required documents for the due diligence based on power-of-attorney issued by the seller.
The due diligence includes check of the legal history of the target property at least 10 years back in time, check for lack of third party’s restitution claims, lack of municipal or state ownership deeds issued with respect to the property, and lack of any type of encumbrances, limited rights in rem in favour of third party or title claims recorded with respect to the property. Subject to the due diligence exercise are also the urban status of the property (the allowed development parameters), and in case the target real estate is a building – lawfulness of its construction and commissioning.
10. What legal issues (if any) are outside the scope of the usual legal due diligence process on an acquisition of real estate?
Issues related to the technical condition of buildings, the actual correspondence between the available documentation for commissioning the building and the actual situation on the spot, issues related to the environmental status of the surveyed properties, the presence of underground infrastructure that could affect future development, the possible presence of archaeological monuments under the surface and others remain outside the scope of the legal due diligence on real estate.
11. What is the usual process for transfer of real estate, and when does liability pass to the buyer?
Depending on the grounds for the transfer of real estate, the following more common options are possible:
In case of transfer of ownership by legal transaction (sale, donation, exchange, datio in solutum, transfer of ownership in connection with the implementation of a detailed development plan that has entered into force), the ownership and liability pass to the acquirer with the fact of signing the contract for the transfer in the required form (notary deed – in transactions between private persons, respectively written contract – in case of transactions, where the state or municipality is a party to) and the subsequent entry in the Property Register (which is done on the very same day);
In case of transfer of ownership by means of an in-kind contribution of real estate to a company – acquirer, respectively in case of transfer as a result of transformation through spin off procedure – the ownership and liability are transferred to the acquiring company with the fact of the entry of the contribution, respectively of the transformation in the Commercial Register, followed by a secondary entry in the Property Register.
12. Is it common for real estate transfers to be effected by way of share transfer as well as asset transfer?
Both options for structuring real estate transactions are exercised. The choice of an asset transaction or a share transaction is based on the balance between taking less risk (in the case of an asset transaction) and cost optimisation (in the case of a share transaction).
13. On the sale of freehold interests in land does the benefit of any occupational leases and income derived from such lettings automatically transfer to the buyer?
Bulgarian law does not recognise the concept of freehold and leasehold. Generally, in case the leased real estate property is sold by the landlord to a third party during the term of the lease agreement and such third party is willing to continue the lease relation, the latter is automatically continued between the tenant and the acquirer under the same terms and conditions. However, the acquirer of the property is entitled to terminate unilaterally the lease by serving the tenant 1-month written notice. Such termination option shall not apply in case the lease agreement has been notarised and registered with the Property Register, whereby in this case the acquirer shall be bound by the terms of the lease agreement until the expiry of its term. Should the lease agreement bear a certified date (i.e. it is notarised) but be not registered, then the acquirer shall be bound by its terms for a period not longer than 1 year.
14. What common rights, interests and burdens can be created or attach over real estate and how are these protected?
Partially answered in point 6 with respect to the limited rights in rem which can be created over real estate properties (building right, right of use, servitudes). The following burdens can be attached to real estates: mortgage, special pledge over trade enterprise as a going concern, distraint (imposed as a security measure imposed by the court or within foreclosure procedure). All the rights and encumbrances listed above are subject to registration in the Property Register and burden the real estate concerned regardless of any change in ownership.
15. Are split of legal and beneficial ownership of real estate (i.e. trust structures) recognised?
Bulgarian law does not recognise the split of legal and beneficial ownership of real estate.
16. Is public disclosure of the ultimate beneficial owners of real estate required?
No, Bulgarian law does not require public disclosure of the ultimate beneficial owners of real estate. However, the Bulgarian Anti-money Laundering Law explicitly requires from notaries and attorneys-at-law, if providing services related to real estate transactions, to diligently perform in-advance KYC procedure, to collect extensive set of documents evidencing the ultimate beneficial owners of real estate (on the seller’s or the buyer’s side) and report suspicious cases to the National Security State Agency.
17. What are the main taxes associated with real estate ownership and transfer of real estate?
The following charges are due and payable in case of real estate transaction structured as an asset deal:
• 0.1% of the purchase price - recordation fee;
• 0.1%-3% of the purchase price (depending on the decision of the respective local Municipal Council at the location of the property) - local tax for acquisition of real estate property;
• notary fee as a percentage of the purchase price, capped at Euro 3,000.
The local tax is due by the buyer, whereby the other fees shall be borne by the buyer or shared equally between the parties.
In case the transaction is structured as a share deal (acquisition of SPV owner of the target real estate) there shall be only notary fee due (capped at Euro 3,000 for limited liability company).
VAT is payable on the purchase of certain types of real estate – regulated plots of land and new buildings (i.e. buildings being commissioned not more than 5 years ago). The VAT rate is 20%. The VAT shall be paid by the buyer, whereby under certain conditions the buyer may be eligible to VAT tax return.
In case the subject of the transaction is non-regulated plots or old building no VAT shall be due.
18. What are common terms of commercial leases and are there regulatory controls on the terms of leases?
Commercial leases typically run for a period of between 5 and 10 years. Often extension options are agreed in favour of the tenant or in favour of both parties. There is no limitation of the term of commercial leases (only the civil leases are limited to 10 years).
In most cases, the landlord remains responsible for structural and major repairs, and the tenant carries out internal repairs and maintenance as well as repairs related to the interior decoration.
It is a common practice at the start of the commercial lease the tenant to be required to present to the landlord a security in the form of a cash deposit or bank guarantee covering amount equal to the rent and service charge for up to 3 months. In some cases and depending on the type of leased asset the tenant may be required to pay certain amount for fit-out works, tenant coordination, opening fee, marketing fee, etc.
Usually, the rent is adjusted annually by applying certain indexes (the EUROSTAT’s Harmonised Index of Consumer Prices or the Inflation index of the Bulgarian National Statistical Institute). In case of commercial lease of retail real estate assets it is common that the rent is agreed as a combination between minimum fixed rent and turnover rent. Sometimes the parties agree on step rent – the lease term is divided into periods and different rent rates are applicable for each separate period.
19. What remedies are commonly available for landlords in the event of a tenant breach of a commercial lease?
In case of breach by the tenant of its payment obligations the landlord shall be entitled to demand payment under the available security for the good performance of the tenant’s obligations being cash deposit or bank guarantee. Should the tenant refuse to vacate the leased premises, the landlord has to lodge a claim in the court and based on duly entered into force court decision and issued writ of execution to proceed with the foreclosure. The vacation of the tenant from the property and the delivery of the possession back to the landlord is done through the assistance of a bailiff (private or public) appointed by the landlord to execute the writ of execution.
20. How are use, planning and zoning restrictions on real estate regulated?
In Bulgaria, strategic planning and zoning are regulated by the Territory Development Act, some regional legislative acts as the Sofia Municipality Development Act, the Black Sea Territory Development Act, the master plans adopted for the respective municipalities, and the detailed development plans for the different territories.
21. Who can be liable for environmental contamination on real estate?
According to Bulgarian law, whoever culpably causes damage to another person from pollution or damage to the environment is obliged to provide compensation, i.e. the liability for environmental contamination on real estate lies with the person who committed/allowed the pollution. The injured persons, the state and the municipality, have the right to a civil claim against the offender for the cessation of the violation and for the elimination of the consequences of pollution. In addition, violators of environmental legislation are also subject to administrative liability – a fine or a property sanction in a significant amount.
22. Are buildings legally required to have their energy performance assessed and in what (if any) situations do minimum energy performance levels need to be met?
The energy characteristics of a new building are determined in a separate part "Energy efficiency of the investment project". The elaboration of such separate part of the investment project is mandatory if it is a matter of: (i) construction of new buildings; (ii) renovation of existing buildings, in which the construction and installation works cover more than 25 % of the area of the external enclosing elements of the building structure and its energy characteristics are changed; (iii) reconstruction, superstructure or extension of an existing building, in which the enclosing elements of the reconstructed, superstructure or extended part cover more than 25 % of the enclosing elements of the existing building.
23. Is expropriation of real estate possible?
Private property is fundamentally protected by the Bulgarian Constitution, whereby expropriation of real estate for state or municipal needs shall be possible solely if explicitly provided in the law, if these needs cannot otherwise be satisfied, and after payment of a fair market compensation.
24. Is it possible to create mortgages over real estate and how are these protected and enforced?
On the grounds of the mortgage the creditor may, without recourse to litigation, address the court with request for issuance of Order for Immediate Enforcement and Writ of Execution, and based thereon to instigate foreclosure procedure. The fee for obtaining writ of execution based on mortgage deed shall be in the amount of 2% of the amount of the secured debt.
25. Are there material registration costs associated with the creation of mortgages over real estate?
In case of establishment of mortgage over real estate property, the debtor has to pay a recordation fee in the amount of 0.1% over the secured debt and a notary fee which vary depending on the amount of the secured debt but capped at EUR 3,000.
26. Is it possible to create a trust structure for mortgage security over real estate?
Trust structure for mortgage security over real estate is not regulated under Bulgarian law.
