Commercial Legal And Institutional Reform (CLIR) - Economic Growth

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COMMERCIAL LEGAL AND INSTITUTIONAL REFORM Diagnostic Assessment Report for the Republic of Bulgaria March 2002 the World Bank and the EU. The system will change over time, with both systems operating in Bulgaria for some time to come. The registration legislation takes into account these two systems and does not fully embrace a title registration system. However, both systems appear to be capturing the transactions. The registration and cadaster law, which was passed in April 2000, represents years of negotiation and compromise. 4. Real Property Taxation. One consideration regarding real property taxation is that taxes are not paid on restituted land for five years after the issuing of the land commission decision to restitute land to former owners. Many of those interviewed stated that once they had to pay taxes on restituted land, they would sell the land. The introduction of taxes on restituted land will have an impact on the land market and on local governments that receive revenue from these taxes. 5. Zoning and Land. One area of concern in relation to zoning and land use is arable land within settlements or “regulation land.” Regulation land is designated for agricultural use; therefore, the prices are relatively low. All real estate agents interviewed reported an active land market for regulation land. The buyer takes the risk of not receiving permission to change the land’s use purpose after the purchase. The cost of requesting a change of use is fairly high, but regulation land is three to five times more expensive than other agricultural land. The procedure for conversion of agricultural land is complex. However, the procedure does not involve public debate or opportunity for citizen involvement in the change of use purpose process. The mayor appoints a committee with representatives from regional services (transportation, police, and sanitation). The committee decides whether the proposal can go forward and provides the Ministry of Agriculture with minutes from the committee meeting. Another commission from the Ministry of Agriculture and the Ministry of Public Works and Urban Development decide on whether to allow the change of use. A tax is paid on the land for conversion, depending on its quality. If the land plot is more than 30 hectares, the Council of Ministers must make a special decision. The decision of the commission returns to the regional committee. Upon approval, the land commission changes the cadastral maps. IMPLEMENTING INSTITUTIONS Real property registry raises several concerns. First, ownership does not require registration, but transfers of ownership must be registered. Much of the restituted rural land is registered with the local land commissions but is not registered with the district courts. Land data are kept by different agencies and with private surveying companies. Registration organization and procedures vary from district to district. Our field research found that only some registration offices are in communication with the land commissions. Some entry judges were following rules from the 1950s; others were following the more recent legislation of 1997 (before the April 2000 law was passed). Booz Allen Hamilton Page 76
COMMERCIAL LEGAL AND INSTITUTIONAL REFORM Diagnostic Assessment Report for the Republic of Bulgaria March 2002 In spite of these problems, lenders exhibit a surprising amount of confidence in the registration system. Lenders interviewed did not complain about unregistered or undiscovered encumbrances. Moreover, all lenders stated that the information required could be gathered quickly. Zoning and land use are areas requiring further research. In the past, the urban planning “courtyard regulation” could change property boundaries and transfer ownership by administrative acts, causing insecurity and litigation. Although recently abolished, this regime still causes ambiguity in boundaries and disputes. Cumbersome urban planning procedures, inadequate resources and staffing, and lack of uniform professional standards further complicate the issue. The court system is functioning but is overwhelmed by land disputes and restitution issues. Although the restitution process has been completed insofar as land division plans covering 99.13 percent of the agricultural land have been finalized, many claims for restitution are still pending. We were unable to quantify the claims during our fieldwork, but according to anecdotal reports, unresolved claims range from 2,000 to 3,000 in each region. Some claims are still pending in court, and others have resulted in decisions entitling claimants to land from municipal land funds or to compensation vouchers. Although virtually all agricultural land has been restituted, probably less than half of it is marketable as the heirs have not decided whether or how to divide the land. Until land transactions become more common and land value increases, the government cannot force heirs to make these decisions, although it might consider programs that provide incentives to heirs to make decisions. The government can also ensure that court cases among heirs are resolved equitably and as quickly as possible, and it may make sense to establish special judges to handle such cases. No arbitration court or mediation process is available for resolving contract disputes over real estate between legal entities (Article 9 of the Code of Civil Procedure). Information is lacking on mediation and arbitration as an alternative dispute resolution system. Interest is increasing in expedited systems for handling land restitution disputes and for foreclosures of both movable and immovable property. SUPPORTING INSTITUTIONS Perhaps the area most suited for donor assistance is in the support of institutions. Bulgaria has competent real estate brokers, lawyers, bankers, and farmers. However, these groups lack the resources and training to develop systems to assist the development of a land market. Lack of appropriate and abundant land market information is a serious handicap in the development of a land market in Bulgaria. Agricultural land information on prices for leasing and selling agricultural land is limited. Land valuations are not always related to land markets, and people are concerned about selling land without understanding the market and land value. Booz Allen Hamilton Page 77
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Commercial Legal And Institutional Reform (CLIR) - Economic Growth

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