Contracts for Building Rights in Bulgaria | BSLC

The right to build is an independently limited property right, which enables a person to build a building on someone else's land and to acquire the right of ownership of that building, even though the land remains the property of another person, according to Art. 63, para. 1 of the Bulgarian Property Law. In the international context, this law is known as right to buildor building rightin English-language systems and as building lawor Superficiationin the Russian-speaking and continental legal tradition. It is this legal construction that underlies the contract for the establishment of a building right and makes it a key instrument in investment construction, compensation of owners through future objects or the implementation of projects where the goal is not to transfer ownership of the land, but a clear and secure separation of ownership of the building.

The contract for the establishment of a building right has real legal effect, since it creates a new right in rem over immovable property, therefore the law requires it to be concluded in a notarial form, the absence of such a form leads to invalidity, according to Art. 18 of the Bulgarian Law on Obligations and Contracts in conjunction with Art. 63 of the Bulgarian Property Law. Through this contract, the parties agree in advance and in detail all the essential parameters of the future construction - the type and purpose of the building, its storeys and volume, the term for realization of the construction, as well as whether the right to construction is gratuitous or gratuitous, and these agreements have a direct and irreversible impact on who will be the owner of the future building.

In order to understand the real meaning of the right to build, it is necessary to clearly explain the concept of “usufruct”. Appropriation is a fundamental principle of property law, according to which the owner of the land is the owner of everything permanently attached to it, including buildings and plantations, unless otherwise established by law or by legal transaction, pursuant to Article 92 of the Bulgarian Property Law. In English legal terminology, this principle is close to Doctrine of Accession, and in the Russian-language - to the rule of belonging of the construction to the land (nature, belonging to real estate). The practical significance of this principle is enormous, since in the absence of an established right to build, any building built on a given piece of land, as a rule, becomes the property of the owner of the land, regardless of who financed or physically carried out the construction.

It is here that the key importance of the right to build as a legal and contractual exception to the attribution is manifested. Through the establishment of a building right, the ownership of the future building is “detached” from the ownership of the land from the moment the right arises, and not after the construction of the building, according to Art. 63, para. 1 of the Bulgarian Property Law. As a result, the building or the corresponding independent objects in it belong to the holder of the right to build, and not to the owner of the land property, which makes the contract for the establishment of the right to build a basic protection mechanism for investors, builders and persons who build on someone else's property.

The practical significance of the contract is also enhanced by the fact that the right to construction is not unconditional and is repaid in favor of the owner of the land if it is not exercised for five years, according to Art. 67 of the Bulgarian Property Law. This means that in the absence of a real start and realization of the construction within the stipulated time, the right to construction ceases, and the possibility of accrual is activated again in favor of the owner of the land. Clearly worded clauses on design and construction deadlines, stages of implementation and consequences of default are therefore crucial for any secure investment.

In practice, it is at the stage of establishing and negotiating the right to build that the most significant legal and investment risks arise, which is why the BSLC Construction and Property Law team assists clients in a number of specific situations, including:

• when structuring and drawing up a contract for the establishment of a building right between a landowner and an investor, including in the case of compensation through future stand-alone objects;
• when distinguishing between the application of the right of construction and usufruct, when construction has already been carried out or is to be carried out on someone else's property without clearly regulated property rights;
• in the case of legal verification of the land plot and identification of risks associated with co-ownership, registered encumbrances, restrictions on the development plans or contradictions with the construction regime;
• when negotiating deadlines for the exercise of the right to construction and protection against repayment of the right due to default or delay;
• in investment projects with phased construction, the emergence of condominium ownership and subsequent transfer of objects to third parties;
• in disputes between the owner of the land and the holder of the right to build concerning the scope of the right, the method of construction or the ownership of the built;
• when restructuring contracts already concluded that do not provide sufficient protection against extortion or contain vague and risky clauses;
• in complex projects with the participation of several investors, the establishment of mortgages on the right to build or combine property and bond relations.

What exactly can be the subject of the contract for the establishment of a building right

The subject-matter of the contract for the establishment of a building right should be regarded not simply as a “right to build”, but as legal means of acquiring the right of ownership of a future building or certain future objects in it, which at the time of the conclusion of the contract do not yet exist in the material world. It is this orientation towards the creation of a new object that distinguishes the right of construction from other limited immovable rights and determines the increased requirements for the definiteness of the object.

In the first instance, the subject of the contract is partial or complete transfer of building authority, included, as a rule, in the content of the right of ownership of the land plot. In this sense, through the contract, the landowner carries out a constitutional succession, deriving from his property right a more limited right — the right to build — and establishing it for the benefit of another person. The volume of the instituted building right may not exceed the volume of the building power available to the owner, since the latter cannot transfer more rights than he himself owns.

At the second level, the subject-matter of the contract covers the specific volume of permitted construction, which is not freely determined by the parties, but is outlined in advance by a detailed development plan that has entered into force or by a valid design visa, according to Art. 180 of the Bulgarian Law on Spatial Planning. This means that the subject of the contract is inevitably linked to the public law regime of the territory, and the absence of such a structural act leads to an impossible subject and nullity of the contract due to a contradiction with Article 26, paragraph 2 of the Bulgarian Law on Obligations and Contracts.

Depending on how the object is determined, the right to build can be full or partial. With the full building right, the holder acquires the opportunity to build the entire planned building and become its exclusive owner, whereas in the case of the partial construction right, only future independent objects are specifically defined as the subject of the contract. In the latter hypothesis, the owner of the land retains for himself the remaining volume of the power to build, for these parts the ownership arises by virtue of the title.

A special place in practice is also occupied by the hypothesis in which the subject of the contract is an ideal part of building lawrather than specifically individualized future objects. This model is most often used in investment intentions, when there is no approved architectural project yet, and it is not possible to accurately determine future stand-alone objects. In such cases, the superintendent acquires a limited right in rem with a certain share, and only after the construction of the building, co-ownership of it arises between him and the landowner, in a proportion corresponding to the volume of the established building right.

Last but not least, the subject matter of the contract should be worded in such a way that it clearly outlines the limits of the permissible impact on the property, necessary for the exercise of the right to construction. Although the administrative legal requirements for the authorization and control of construction are of a serviceable nature and do not affect the very occurrence of the right in rem, their non-compliance can lead to the removal of the constructed building without thereby changing the question of ownership. It is for this reason that the subject of the contract must take into account the parallel existence of substantive and administrative relations and create maximum predictability for the parties.

From a practical point of view, the correct determination of the subject of the contract for the establishment of a building right is fundamental, since it predetermines not only what can be built, but also who and on what basis will become the owner of the built, as well as whether the principle of the adjective will be excluded in its full or only in its partial volume.

How the scope and boundaries of the right to build are determined in the contract

The scope and limits of a building right do not arise automatically from the very fact of its establishment, but are determined by the totality of contractual clauses that specify the exercise of the delegated power to build. It is here that the contract for the establishment of a building right fulfills its key function — to transform an abstract limited property right into a practically applicable and foreseeable instrument for the realization of construction.

First of all, the boundaries of the right to build are determined by Spatial scope of construction, and the contract should clearly state whether the right relates to the whole land or only to a certain part of it. Although the right to build is established over the entire property as a legal object, in practice the parties may limit its actual exercise to a specific area, including by reference to situational sketches, design visas or other graphic applications. The lack of such concretization often leads to disputes about the permissible placement of the building and the degree of involvement of the rest of the property.

Next, the scope of the right to build is determined by the volume of the permissible impact on the groundrequired for the construction of the building. This includes not only the construction itself, but also all accompanying activities - construction of underground levels, temporary construction facilities, access to the construction site, laying temporary and permanent deviations from the technical infrastructure. Although these actions have an administrative legal framework, their admissibility in substantive terms should be clearly agreed in order to avoid a claim of going beyond the established building right.

An essential element of defining the boundaries of the right to build is the time range of its exercise. The contract should take into account that the right to build is subject to the five-year period for exercise provided for in Art. 67 of the Bulgarian Property Law, while the parties may specify the starting point from which the exercise becomes objectively possible. This is especially important in the case of partial construction rights or in phased construction, when the construction of certain objects is functionally dependent on previous construction stages carried out by the landowner or by another investor.

From a practical point of view, the treaty should clearly outline and the boundary between the right to build and the subsequent right of ownership of the building. Although, upon reaching rough construction, a right of ownership of what has been built arises, the right to construction does not automatically disappear, but passes into a latent state, fulfilling its function of excluding the action of appropriation. Therefore, contractual clauses concerning the disposal of the building, the establishment of mortgages or the transfer of independent objects should be consistent with this dual substantive regime.

Particular attention should also be paid to the limits of disposal of the right to build in so far as it is, in principle, transferable and hereditary, unless it is established in view of the personality of the acquirer. The contract may provide for a prohibition or restriction on transfer to a certain stage of construction, as well as obligations to notify or consent of the landowner, as long as these arrangements do not contradict imperative legal norms and do not render meaningless the right itself.

In practice, it is precisely the unclear or incomplete definition of the scope and limits of the right to construction that leads to conflicts between the parties, in which the landowner claims an excess of the established right and the superintendent - unjustified obstruction of construction. The contract for the establishment of a building right should therefore be drawn up in such a way that, at the time of its signature, it gives a clear answer to the question what exactly, where, in what volume and under what conditions can be built.

What are the legal consequences of unclear or incomplete subject and scope of the contract

The unclear or incompletely defined subject and scope of the contract for the establishment of a building right leads to some of the most severe legal and economic consequences in construction and investment practice, since it affects the very origin, content and opposability of the limited right in rem. Unlike bond contracts, where ambiguities can often be overcome by interpretation or supplementation, in tangible transactions the lack of certainty affects the very existence of the right.

First of all, when the subject of the contract is not in accordance with a valid detailed development plan or with a valid design visa, the contract for establishing the right to build is void due to an impossible subject, according to Art. 26, para. 2 of the Bulgarian Law on Obligations and Contracts in conjunction with Art. 180 of the Bulgarian Law on Spatial Planning. In these cases, the parties formally signed a notarial deed, but real right does not arise, and all subsequent actions on construction are carried out without a legal basis, which creates the prerequisites for the application of the principle of usufruct in favor of the owner of the land.

Secondly, in the case of an insufficiently specified volume of the building right, disputes arise as to whether the superintendent acted within the framework of the established law or went beyond its limits. When more than the agreed amount has been built, has been upgraded above the permissible floor space or objects that do not fall within the scope of the established right are covered, ownership of these parts arises by virtue of the usufruct in favor of the owner of the land, according to art. 92 of the Bulgarian Property Law. This leads to so-called “mixed ownership” of the same building, which is extremely unfavorable and difficult to manage from a legal point of view.

Particularly risky is the scenario in which the contract contains a general wording of a “right to build a building”, without it being clear whether a full or partial right to build is established. In these cases, when a dispute arises, the court will interpret the contract narrowly, assuming that the superintendent has acquired only those rights that can be clearly deduced from the content of the act, and to everything outside of them the principle of attribution will apply. Practically, this means that the investor can end up owning only part of the building, despite having financed all the construction.

Ambiguities in the contract also lead to problems in disposing of the right to construction or ownership of the constructed objects. Bank financing, the establishment of mortgages and the subsequent sale of objects require indisputable clarity about the volume of the right in rem. When the contract for the establishment of a building right does not allow to clearly define what belongs to the superintendent, creditors refuse financing, and registered mortgages can be attacked as being established on a non-existent or disputed right.

A separate problem arises with vaguely defined deadlines for the exercise of the right to construction. If the contract does not take into account the moment from which the exercise of the right becomes objectively possible, there is a risk that the right will be extinguished under Art. 67 of the Bulgarian Property Law, without the parties having foreseen this. In these cases, the superintendent loses his right not because of non-performance of contractual obligations, but because of objectively occurring repayment, which again leads to the restoration of the full effect of the attachment.

From a practical point of view, all these consequences indicate that an unclear or incomplete contract for the establishment of a right to construction does not just create inconvenience, but can completely nullify the investment and transfer ownership of what was built in the patrimony to a person who did not finance the construction. Precisely for this reason, the precise definition of the subject, scope and boundaries of the right to build is not a formality, but a key element for the legal certainty of any construction transaction.

I am a land owner and I want to establish a right to build in favor of a builder against compensation — what should I provide in the contract?

When the owner of a land plot establishes a right to build in favor of a builder against compensation, the contract should be structured in such a way as to clearly protect the interest of the owner and exclude any risk of unwanted encroachment, loss of objects or blocking of the property.

The contract must necessarily provide for and precisely formulate the following elements:

• Clear determination of whether a full or partial right to a building is established, whereas in the case of compensation through objects, it is customary to establish a partial right to construction for specifically defined future independent objects, and the remaining volume of the power to build is reserved for the owner of the land, with a view to applying Article 92 of the Property Act;
• Accurate individualization of the objects that will serve as compensation, including their purpose, floor, area and layout, and it is advisable that these objects be described by architectural design or schemes attached to the contract;
• Explicit stipulation that the owner of the land will acquire ownership of the agreed objects by virtue of the assignment rather than through subsequent transfer transactions, in order to avoid additional notarial deeds, costs and tax consequences;
• Time limits for the exercise of the right to build, in accordance with the five-year period under Art. 67 of the Property Act, determining the moment from which the builder can actually start construction in order to avoid repayment of the right due to non-exercise;
• Stages of construction and binding of the rights of the builder to their implementation, for example, limiting the possibility of disposing of the right to build or future objects until a certain stage of construction is reached;
• Prohibition or restriction on the transfer of the right of construction to third parties without the express written consent of the landowner, insofar as this does not contradict imperative norms and aims to protect against the intrusion of unwanted investors;
• Clear allocation of costs, including for design, building permit, construction of technical infrastructure and commissioning, in order not to incur unexpected financial claims to the landowner;
• Performance guarantees, such as contractual penalties, advances or other security mechanisms to protect the owner in the event of delay, poor construction or abandonment of the project;
• Arrangements on the consequences of failure to fulfil obligations, including the possibility of termination of the contract and deletion of the established right to construction in the event of a material breach, in accordance with the rules of the Law on Obligations and Contracts;
• Reconciliation of the contract with the structural provisions, confirming that the right to build is established in accordance with a detailed development plan or a valid design visa that has entered into force, pursuant to Art. 180 of the Spatial Planning Act;
• Explicit settlement of the land use regime after construction of the building, including access, parking and adjacent parts, insofar as this is permissible under art. 64 of the Property Act.

From a practical point of view, a contract for the establishment of a building right for compensation should not be seen as a formal notarial deed, but as a strategic instrument that determines the future ownership, economic outcome and legal certainty of the landowner for decades to come.