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Construction Code – the New “Source Code” of Romanian Real Estate

Construction Code – the New “Source Code” of Romanian Real Estate

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The Romanian Government has recently adopted Government Decision no. 298/2021 („GD 298/2021”) for the approval of the initial proposals for a territorial planning, urban planning and constructions code (hereinafter referred to as the “Construction Code” or the “Code”).

These initial proposals for the Construction Code were drafted by a specialized commission formed of representatives of public institutions / professional entities with prerogatives in the constructions field and the Code itself will be drafted based on these proposals. According to Law no. 24/2000 on the legislative technical norms for the development of regulatory acts, the final draft shall be submitted to either the Parliament or the Government for the initiation of the legislative procedure (and will be adopted under an act at the level of the law). However, no official timeline for the adoption of the Code has been announced.

The initial proposals for the Construction Code represent, therefore, a first act in a complex legislative process, laying down the underlying principles of the Code, setting out its structure, as well as revealing the main purposes targeted by its implementation. The Construction Code shall put together under the umbrella of a single regulatory act numerous regulations in the field, currently dispersed in a plethora of distinct primary and secondary, general and special regulatory acts, including technical norms, with a view to eliminating discrepancies and inconsistencies in the application of the law, and to bringing more clarity to the relevant regulations.

Similar to other jurisdictions (such as, for example, the French urban planning code), the Code will include, inter alia, provisions on country planning and urban planning documentation (which will include rules applicable at a national level as well as rules applicable only to certain specially protected areas - “Danube Delta” Biosphere Reservation, Black Sea coast, Carpathian mountains, etc.), rules on the endorsement and adoption of territorial and urban planning documentation, authorization of construction works (building permit) and administrative disputes on territorial and urban planning matters.

In addition, the Construction Code aims to regulate / clarify certain practical issues to which the current set of scattered rules does not bring clear solutions, leaving enough space for a large specter of interpretations that undermine predictability and consistency in the application of the legal framework throughout the country.

The brief analysis below focuses on certain principles set out under GD 298/2021 through the prism of the current administrative and judicial practice versus desirable strategic objectives.

1. Certain regulatory guidelines

1.1 Administrative disputes on territorial and urban planning matters

According to GD 298/2021, one of the general principles proposed for the drafting of the Code is the principle of a coherent and adequate regulation, based on which the need for clear and dedicated regulations on administrative disputes specific to territorial planning and urban planning law is recognized. Such regulations will mainly cover: (i) the suspension of the challenged administrative acts, (ii) claims for the annulment of administrative acts, (iii) claims brought against unjustified refusal to process an application and (iv) specialized judge panels.

Currently, the issues listed at points (i) - (iii) above are mostly regulated under the general law on the challenging of administrative acts, which is Law no. 554/2004 on administrative disputes ("Law 554/2004"), but there are special legal texts in Law no. 50/1991 on the authorization of construction works (the "Constructions Law") or in Law no. 350/2001 on territorial planning and urban planning, whereas the aspect under point (iv) is not regulated. Sometimes (even often) these rules are not correlated and could be improved, as shown below.

Thus, for example, regarding the suspension of the application of challenged administrative acts, we note that, while Law 554/2004, which represents the general legal framework regulating the suspension of challenged administrative acts, grants the "injured party" (i.e., the person entitled to file the preliminary complaint or the action for the annulment of the administrative act, as the case may be) the right to request their suspension, the Constructions Law, a special law in the field, seems to be suggesting that only the prefect would be entitled to seek suspension and that the automatic suspension as an effect of the prefect exercising the right to file an action for annulment regulated under Law 554/2004 does not operate.

The above conclusions could be derived from the principle of interpretation specialia generalibus derogant, given that the Constructions Law contains specific provisions regarding the suspension of the building permit (which are special compared to the general framework represented by Law 554/2004). According to the Constructions Law, suspension may be granted upon request, an aspect mentioned in an article which regulates the annulment of the building permit at the prefect’s request.

However, it does not seem quite reasonable to argue that the above interpretation would correspond to the lawmaker’s real intention and to the presumable purpose of the law, as it makes much more sense that the right to seek suspension should belong especially to the interested person (the holder of a private interest) in challenging the building permit. Also, the manner of derogating from the legal suspension of administrative acts is rather unfortunate, as it may raise divergences in its interpretation and application in practice. These aspects may be more coherently and clearly regulated under the future Construction Code.

The new Construction Code could represent an opportunity to introduce better legislative solutions for the actions against the administrative acts in the territorial and urban planning as well as constructions fields.

Thus, actions for the annulment of a building permit are subject to the prior request for revocation made by the issuer within 30 days from the “date when the building permit was brought to the public knowledge” to the extent the permit has not produced any legal effects.

Firstly, a legislative clarification would be useful regarding the accurate time when the term available for requesting revocation starts to lapse, given that, in most cases, the “date when the building permit was brought to the public knowledge ” may not be determined / proved with full certainty as the manner of publicity currently regulated consists in the publication of the building permit and its annexes on the issuer's website or displaying it at its headquarters, without any obligation to maintain such information available for a certain amount of time.

In order to avoid the continuation of difficulties in determining (or proving) the permit’s publication date, the new Code could also regulate a more constraining and formal publicity procedure (such as a well-organized and readily available public register etc.) to certify the publication date (by establishing an undeniable proof).

In addition, the regulation of a mandatory timeframe within which the issuing authority should bring the building permit (and its annexes) to public knowledge and of an objective moment in time from which the term for requesting the building permit revocation would start to lapse (in the event of late or no publication thereof) would be welcomed.

Secondly, the  pre-requisite of the prior request for the revocation of the act to the extent it has not produced legal effects may be clarified under the Construction Code, given that, currently, the wording is apt to raise various interpretations depending on the time when the building permit is considered to produce legal effects (e.g., from its communication to the beneficiary, from the notification regarding the inception of construction works, from the first construction act or the completion of works and the construction acceptance).

Last but not least, in order to avoid, as far as possible, divergent interpretations, a unitary regulation may be provided under the Code in respect of the express term set for challenging the building permit before the court of competent jurisdiction, according to the specific situation of the concerned party: (i) the party can no longer obtain the revocation of the permit because it has produced legal effects, (ii) the permit issuer has refused its revocation or (iii) the permit issuer has refused / failed to answer the request for revocation within the legal term. Point (i) above is not regulated under the current legislation, whereas points (ii) and (iii) are regulated only under the general law on challenging administrative acts (Law 554/2004).

In addition, the introduction of specialized judge panels for territorial planning, urban planning and construction related matters is an appropriate measure for the unification of jurisprudential solutions and the development of a coherent judicial practice with a high level of understanding of the field.

1.2 Consequences of the annulment of territorial / urban planning and building documentation

The initial proposals for the Code also address the consequences arising from the annulment / declaration of the illegality of territorial or urban planning documentation (i.e. PUG, PUZ, PUD) or building permits by the courts. This would be welcomed, considering the current incomplete regulation of the matter, which has given rise to different interpretations applied to similar situations.

Thus, as regards the annulment of a building permit or the declaration of its illegality by a court of law, although the current regulations provide that the court has the possibility to order the demolition of buildings erected under such a permit, the legal framework does not provide sufficient elements to ensure compliance with this harsh sanction. More precisely, while the demolition costs shall be borne by the beneficiary of the building permit (or the person who built without a building permit, as the case may be), the Constructions Law does not address the situation where the person obliged to demolish the building is unable to bear these costs (situation which is not at all theoretical), nor does it contain regulations to prevent this situation.

Perhaps it might be fair for the new Code to also regulate an obligation of the authority that has issued the illegal permit to bear the demolition costs, proportionate to the degree of its fault, for example by failing to request certain prior endorsements or perform proper checks.

In connection with the territorial and urban planning documentation, the current regulations engender even more nuances or inconsistencies. Thus, starting from the qualification of the nature of such documentation (i.e., administrative acts of individual or regulatory nature), the consequences of annulling them or declaring their illegality are different.

If the territorial and urban planning documentation were considered as an individual administrative act, the effects of its annulment would be retroactive, and, in the light of certain applicable legal principles, the annulment would have a domino effect, triggering the invalidation of the subsequent individual administrative acts issued on its basis. The contrary qualification of these documents as regulatory acts would result in their annulment producing, in principle, effects only for the future and will not affect the subsequent acts already issued before annulment.

However, the High Court of Cassation and Justice established an exception to the above rule in connection with the consequences arising from the annulment of regulatory acts, in the sense that their annulment shall produce effects on subsequent acts which "at the date when the annulment decision is published, have already been challenged in pending cases before the courts". Despite this, the decision does not address the situation where, before the publication of the decision for the annulment of a certain territorial or urban planning documentation, a claim would have been filed against a building permit issued on its basis, but the statute of limitation for exercising the right to challenge the permit has lapsed.

The above aspects may be taken into consideration when drafting the new Code, in order to eliminate contradictory judicial practices and bring more clarity (and comfort) to those who interpret the law.

1.3 Diversification of building permits categories

The initial proposals for the Construction Code also include the diversification of "building permit categories depending on the type of possible intervention works (construction, improvement, demolition) and depending on the place or extent of the intervention (urban / rural / protected built areas) and / or the importance category”, together with the adoption of “new, simplified procedures for certain special or low-importance cases”, in order to simplify the authorization process and procedures.

Although the Constructions Law currently provides for certain categories of constructions which may be authorized through a simplified procedure (e.g. public spaces’ improvement works, organization of tent camps / caravans, temporary constructions, interior partition works, closing of balconies, etc., that is mostly temporary or dependent  constructions), it would be useful to have a regulation of general / transversal criteria for making a distinction between the construction projects following the standard procedure and the projects following the simplified procedure. This would allow for the extension of the simplified procedure to certain categories of constructions with a (more) permanent or autonomous character, reducing excessive bureaucracy (for example, for residential buildings compared to office buildings).

Also, the principle that a distinction should be made between building permits issued in rural versus urban areas (provided in the initial proposals for the Code) could have beneficial effects on industrial projects (energy projects, factories, etc.) suitable to be located in rural areas, as well as on the rural localities where such projects would be built, insofar as a more flexible authorization procedure for investors and a possible obligation imposed on them to contribute to the development of the local infrastructure and / or the local community will be regulated.

1.4 Overtaxation of illegal constructions

Among the principles that will serve as a foundation of the future Construction Code is the principle of using tax instruments to increase discipline (i.e., compliance) in the constructions sector. Specifically, one proposal refers to the inclusion in the Code of provisions setting forth the overtaxation of illegal constructions, in order to discourage such practices.

While penalizing tax instruments would be an efficient means to discourage the practice of building in violation of the building permit provisions, under an illegally issued building permit or in its total absence, such instruments must be fairly regulated and used so as to prevent disproportionate sanctions and allow, where possible, entry into legality, which should be provided as a means of remedy and regulated in more detail (but also under strict conditions) by the new Code.

Conclusion

The fact that the initial proposals for the Code are rather scarce in guidelines and details and no more than a sketch for the future regulation should not overshadow their added value.

By codifying the relevant legislation, the lawmaker has the opportunity to put an end to many contradictory discussions in practice, to ensure the unitary application of legal norms, to make the procedure for the approval of the territorial and urban planning documentation and authorizing construction works more flexible,  while providing extra comfort to those involved in these proceedings (civil servants, investors and, last but not least, courts) in connection with the correct interpretation and application of the law.

The initiative of developing a Construction Code is, therefore, commendable and represents a first small step in a complex process which, if successfully completed, would be a giant leap for the Romanian legal system.

By Cosmin Stavaru, Partner, and Matei Vilcov, Associate, Bondoc si Asociatii