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Collision of Rights in the Event of Restitution of Agricultural Land

September 2010 - Real Estate & Property. Legal Developments by Penkov, Markov & Partners.

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The process of restitution, although its functions gradually die away, still creates a certain insecurity regarding in the right of ownership of real estate, resulting from the possible collision between ownership rights stemming from restitution laws and ownership rights acquired as a result of a legal transaction or by prescription.

1. A starting point for solving possible collision of rights of ownership needs to be sought in the logic, on which the restitution under the Ownership and Use of Agricultural Land Act (OUAL Act) is based. In a number of rulings, the Constitutional Court emphasises that this Act "reinstates" in their entirety the rights of the owners over the corresponding agricultural land, i.e. whereas it is assumed that the entitled individuals have never lost their right of ownership - they were just deprived for a certain period of time of the possibility to exercise all powers included in this right. Consequently, under the OUAL Act the restituted owners do not acquire again a right of ownership - the Act only creates the conditions for the actual exercising of this right. To this effect, the restitution under the OUAL Act differs from other restitution legislation where the owner has lost the ownership at some point in the past as a result of compulsory purchase, confiscation or another type of expropriation by the state and now acquires it again ex lege or after the carrying out of an administrative procedure.

2. Precisely on the basis of this concept regarding the nature of the "reinstatement" of rights under the OUAL Act, which is continuously supported in the practice of the Constitutional Court, the rights of third parties, who have acquired (including in a bona fide manner) ownership of real estates from the corresponding organisations (co-operative farms, state farms, etc.), cannot challange the rights of the restituted owners. The main motive for this is that the owners of the land, included in co-operative farms and other similar organisations, have never lost their rights of ownership over this land. Consequently, transactions involving disposal of their land should not be held against them, regardless of whether the third parties - transferees have acted in a bona fide manner or not. Obviously, the legislator has granted priority protection to the right of the owners of agricultural land at the expense of the (natural or legal) persons, who as a result of a legal transactions have acquired ownership of such land in a bona fide manner. This legal principle, which is extrapolated in the practice, indisputably creates a necessity for careful assessment of the restitution risk in projects related to real estates.

3. A moratorium on acquisitive prescription was set as a continuation of the adopted principle and in order to protect the owners of agricultural land from possible rights of ownership of third parties, acquired as a result of acquisitive prescription,. By a legislative procedure, in practice the possibility of third parties to base their claim on acquisition prescription, which was effective during the period during which the owners of agricultural land were deprived of the opportunity to exercise factual powers over their property, is blocked. With a view to the above, third parties could successfully hold against the owners of agricultural land rights, which have been acquired on the basis of the expiry of a prescription term, only if the possession of this land was received after the end of the moratorium, i.e. after 1997, and has continued in an uninterrupted and undisturbed manner for 10 years (unless, depending on the circumstances, grounds for applying the shorter prescription term of 5 years exist).

4. Nevertheless, the Act allows exceptions to be made from the general principle in connection with the restitution of the rights of owners of agricultural land, included in the boundaries of settlements. Restitution in real boundaries to the benefit of the owners of agricultural land is not permitted where the land has been included in the boundaries of the settlement and buildings have been constructed on it legitimately, or the construction of a legitimately permitted building has started as of 1 March 1991 (Art. 10, Para. 7 of the OUAL Act). Another obstacle for the restitution of agricultural land is the carrying out of a public undertaking by the state (Art. 10b of the OUAL Act).

4.1. Pursuant to the constant judicial practice, when the court rules on a claim related to the ownership of agricultural property, where the legal dispute is between individuals with rights restituted in accordance with the procedure of the OUAL Act and third parties, which have acquired rights over the same property as a result of a legal transaction, the court shall judge through circumstantial judicial control whether conditions existed for the restitution of the land by virtue of the decision of the land commission for restitution of the property. The court shall examine whether the property was developed legitimately, including whether the corresponding town-planning procedures have been carried out, whether the required construction papers have been issued, whether there is a duly approved investment project and whether the corresponding building has been commissioned in accordance with the town-planning and construction standards applicable as at the time of its development. While judging whether the construction is legitimate the construction regime of the building is not of legal relevance - even buildings with a statute of temporary structures would be an obstacle for the restitution of the land in real boundaries in accordance with the OUAL Act, if they have been developed on legal grounds.

4.2. While the legitimacy of the construction carried out is of significant importance for the judgement on whether restitution of agricultural land is admissible, the requirement for legality of a public undertaking of the state is not specifically laid down. The concept of "undertakings carried out which do not allow for restitution of ownership", referred to in Article 10B, paragraph 1 of the OUAL Act, has no definition in law. As a result of this the court practice has adopted, generally speaking, flexible criteria for assessing the issue, whereas on a case by case basis it is preceded from the specific need satisfied by the undertaking. For example, the existence of developed underground infrastructure in some rulings of the Supreme Court of Cassation is not regarded as an obstacle disallowing ownership to be restituted. In other rulings, however, it is explicitly stated that in the event of carrying out a complex undertaking, the agricultural restitution of parts of the site, on which no buildings have been developed, is inadmissible, also due to the existence of developed underground engineering infrastructure, roads, etc.

The absence of complete technical documentation in connection with the legitimacy of the completed construction is irrelevant for the hypothesis of Art. 10b, Para. 1 of the OUAL Act (public undertaking of the state), since, as opposed to the hypotheses of Art. 10, Para. 7 of the OUAL Act, the legislator has not laid down such a requirement for the construction.

The restitution process, based on variable and constantly changing restitution laws as well as on an abundance of practice of the Constitutional Court and the courts in the country, is undoubtedly an exceptional challenge for representatives of the legal profession. Unfortunately, this process created considerable chaos and uncertainty in the field of real estate. Although this process is already in its final stage, the restitution risk is still a major one for real estate projects and is rather difficult to assess.

Milena Gaidarska

 


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