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Real Estate Laws and Regulations in Albania

Real Estate Laws and Regulations in Albania

Real Estate Comparative Guide: 2021
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Contributed by Kalo & Associates.

1. Real estate ownership

1.1 Legal framework

In the Constitution of the Republic of Albania (Constitution), it is stipulated as one of its essential principles, that the right to private property (which includes the concept of real estate ownership) is guaranteed and protected by the Constitution. Furthermore, private real estate property is equally protected by law as state-owned property. The real estate property can be gained through donation, purchase, or any other means provided in the Civil Code and specific laws. The major means for gaining real estate property pursuant to the Albanian legislation are through contract, inheritance, adverse possession, connection, and a mixture of property, processing,

Moreover, the Constitution provides that real estate property can be expropriated or restricted only for public interests and against fair compensation. The process of expropriation for public interests is regulated by means of Law No. 8561 dated December 22, 1999, On expropriation and taking into temporary use of private property for public interests as amended, along with a set of secondary legislation which thoroughly regulates the expropriation process.

Pursuant to the Civil Code the property is the right to possess, enjoy and freely dispose of the property within the limits defined by law. Obviously, the Real Estate owners have broader rights in comparison with other categories of beneficiaries from real rights (e. lease, usufruct, etc.) which usually have the right to possess and enjoy the real estate property in accordance with the contract but do not have the right to dispose of the property.

The Albanian legislation has some restrictions in connection with the acquisition of lands from foreigners. More specifically, it is not allowed the purchase of agricultural lands, woodlands, meadows, and pastures from foreigners. However, the foreigners who acquire such lands through an Albanian commercial entity (existing or by establishing a new one), are able to purchase such land. Restrictions are applicable also for the purchase of lands within the city areas. The foreigners are able to acquire such lands in the case they lease the land with the purpose of investment and perform an investment which according to the construction permit, exceeds three times the value of the land determined by Council of Ministers Decisions. The same as with agricultural land, even in this scenario, foreigners may acquire land by establishing an Albanian commercial company.   

1.2 Registration of ownership

The ownership of real estate is duly registered in State Cadaster Agency which organizes, maintains the real estate registers for privately-/state-owned lands and in which are registered the real estate rights over such properties. The activity of the State Cadaster Agency is regulated through Law No. 111/2018 On the cadaster. The State Cadaster Agency and is under the direct supervision of the Prime Ministers’ Office.

All the private or state-owned properties should be registered in the State Cadaster Agency. With the entry into force of Law No. 111/2018 is supposed to be finalized the whole process of digitalization of the cadastral registers/maps and to be concluded the process of the initial registration of all the real estate properties. This means that while digitalizing all the existing real estate properties, the State Cadaster Agency scrutinizes the legality of the property registration and invites the owner to remedy any deficiencies that might be noted. This process decreases considerably the risk of having overlaps of properties and overlaps of cadastral maps.

Pursuant to the Civil Code, the following transactions must be registered in the State Cadaster Agency:

- contracts for the transfer of the ownership of the real estate and the acts for their voluntary separation;

- contracts through which are established, recognized, amended, or cease to produce effects real rights over the properties, such as usufructs, usage, emphyteusis, easements, and other real rights;

- legal acts by means of which are waived the above real rights;

- legal acts through which is established a commercial entity which has under ownership a real estate or enjoys other rights in rem over these properties; and

- court judgments related to real estate matters and the bailiff actions for the seizure or sale of real estate property in auction.

1.3 Publicity of real estate register

The information in the real estate registry is not publicly available. Such information may be accessed by the relevant state authorities, prosecutions, or courts based on a valid legal reason. Also, the public notaries have access to the real estate register however this information can be used and/or processed by them only for reasons of effectuating transactions with real estate properties.

1.4 Protection of ownership

Any transaction with a real estate property (at least the ones specifically provided in the law) should be registered in the State Cadaster Agency, however, such registration is not always a condition precedent for the validity of the transaction. The Law on Cadaster provides that any transaction or legal action which is necessary to be registered in the real estate registry, should be registered within 30 days from the execution of the agreement, otherwise a fine of approximately USD 30 per day is applied.

The Constitution provides that property rights are protected by law and real estate rights can be deprived only upon a due process of law. While the Civil Code specifically regulates the procedural means for the protection of real estate rights. More specifically such modalities are the claim for restitution of property, the claim for the cease of violation of property (actio negatoria), and the claim for the determination of the boundaries. Basically, these procedural means are the available modalities provided in the Albanian law for remedies against unauthorized disposal or use of the real estate.

2. Real Estate acquistion

2.1 Share deal or asset deal?

In the Albanian jurisdiction, the most encountered modality of real estate disposal is the asset deal in which the owner sells to the investor the real estate property through Sale Purchase Agreement (SPA). In the case the real estate belongs to a commercial entity, the investor may purchase the company which is the owner of the real estate asset (share deal). However, the share deal is rarely used as a modality of transfer of real estate and is used in cases when the main interest of the investor is the company (owner of the real estate) and not the real estate asset itself.

From the perspective of Albanian law, the purchase of real estate through asset deals is more a straightforward process in comparison with the share deal. In these cases the buyer usually conducts a real estate due diligence on the ownership documents and if necessary technical measurements of the property and it is conducted the process of signing the SPA in front of the public notary, who performs afterwards the registration of the SPA in the State Cadaster Agency and obtains the ownership certificate in the name of the buyer.

While in the share deal, the investor should perform in addition to the real estate due diligence also a full legal and financial due diligence which is usually a time consuming and expensive process. The SPA for the share deal must cover in addition to the real estate matters also other important elements necessary for the purchase of the company.

2.2 Share deal

It has to be noted that in Albania, to the best of our knowledge are almost nonexistent the companies which have as their scope of activity the ownership of a real estate asset and the managing of such asset. For this reason, the share deal is very rarely used and practically it is encountered in the case the main interest of the investor is the acquisition of the company and not of the real estate.

As a matter of practice, a share deal process starts with full financial and legal due diligence which may be produced by the seller and/or the buyer as the case may be. Afterward, the parties negotiate the terms and conditions of the SPA by means of which is basically transferring the ownership of the shares from the seller to the buyer. The SPA is filed with the Business Registration Center and the shares are transferred to the buyer. In the share deal, if the name of the company is not changed, then no other bureaucratical procedures are performed with the State Cadaster Agency for the RE. In the case the name of the company is changed, then the SPA for the share deal is deposited to the real estate registry and another ownership certificate is issued with the new name of the company.

The main pieces of legislation used for this kind of transactions are the Civil Code, Law No.9901 dated April 14, 2008, On Commercial Entities and Entrepreneurs, and Law No.131/2015 On the National Business Center.

In the transaction document (SPA), the risk is transferred to the purchaser however usually the SPA contains the necessary representations and warranties in order to protect the purchaser's rights to the maximum extent possible.

2.3 Asset deal

As explained above, the asset deal is a rather more simple transaction in comparison with the share deal. The transaction is focused almost exclusively on the real estate and the buyer should thoroughly review the property documents. Depending on the value of the asset, a real estate due diligence would be highly recommended for the Albanian jurisdiction, which might significantly mitigate any potential risk related to the property documents.

The transaction document for the purchase of real estate (SPA) must be signed in front of a public notary (thus must be in notarial form) and the latter performs all the necessary procedures for the registration of the SPA with the State Cadaster Agency. Prior to the execution of the SPA, the public notary verifies electronically that the real estate is free of any liens, restrictions, pledges, and encumbrances and afterward collects the signatures of the buyer and seller in the SPA. The latter is filed with the State Cadaster Agency for registration only in the case the buyer, deposits in the escrow account held by the notary, the full sale price. After the Cadaster transfers the ownership of the real estate to the buyer and issues the Ownership Certificate (within a maximum of 30 days), the sale price is transferred to the seller’s bank account.

The public notaries fees are paid in accordance with a joint instruction of the Ministry of Justice and of Finance and are calculated as a percentage over the sale price.

The applicable legislation for the asset deal is the Civil Code, Law No. 110/2018 On the public notary, Law No. 111/2018 On the cadaster, and other important legislation and secondary legislation depending on the nature of the real estate.

2.4 Disposal process

According to the Civil Code, the SPA must be in written form and entered into in front of a public notary, who follows the procedure for the registration of the SPA with the State Cadaster Agency as explained in section 2.3. above.

There are no specific consents, approvals, or proceedings for real estate disposal, unless the real estate is mortgaged in favor of a financial institution, or is seized by the tax authorities or a bailiff. In this scenario, the transaction can be performed only in the case the tax obligation or the debt is duly paid and the seizure order is lifted.

2.5 Registration of change of ownership

Please refer to section 2.3.

2.6 Risks to be considered

As a matter of principle, there are no hidden, or pre-emptive, or first refusal rights to real estate. However, in the case the real estate is under co-ownership of two or more owners, and one of them would like to sell the property, the other co-owners have the pre-emption right for the purchase of a share of the property belonging to another co-owner who is selling the property.

The Civil Code provides that the unsatisfied Purchaser can claim remedy of defects in the case within 10 days from the moment of noticing such defects. In any case, such defects must be claimed within two years from the handing over moment. In the case the building is constructed agreement, such deadline can be extended up to 10 years from the handing over moment.

3. Real Estate financing

3.1 Key sources of financing

The classical and most encountered practice of sources of financing in Albania is the mortgage. This activity is conducted through commercial banks and is an activity regulated by Law No. 9662 dated December 18, 2006, On the Banks in the Republic of Albanian and closely supervised by the Bank of Albania (regulatory authority) which has adopted a significant number of regulations which are binding for the commercial banks. In addition, the mortgage is also specifically regulated in the Civil Code.

3.2 Protection of creditors

The mortgage is the main type of security in real estate financing. The Civil Code defines the mortgage as the real right which is placed over the debtor’s property in favor of the creditor in order to ensure the fulfillment of an obligation. Another modality for the protection of creditors which is frequently used in real estate financing is the guarantee which can be a personal guarantee and/or a corporate guarantee. In addition, there could be pledges or securing charges agreements placed over movable assets which could be used as securities in real estate financing. Usually, the pledges and securing charges are taken as additional guarantees to the mortgage in real estate financings.

4. Real estate taxes

4.1 Transfer taxes

Individuals are subject to a personal income tax at a rate of 15% applicable on the capital gain (e. difference between the registered value of the immovable property and the sale price). However, it should be emphasized, the sale price cannot be lower, for tax purposes, than the references issued by the state authorities.

Legal entities (in addition to the corporate income tax in the case the seller is a corporate/entrepreneur) are also subject to the local tax on the transfer of immovable properties. In the case of a sale of land, the applicable tax is at the rate of 2% of the sale price. In the case of a sale of a building, the tax is calculated based on the surface of the building and its location (the tax may vary from ALL 100 to ALL 2,000 per square meter).  

4.2 Specific real estate taxes

Ownership of immovable property is subject to the annual tax on immovable properties based on the below categories:

  • Buildings with residential purposes – 0,05% of the value;
  • Buildings with commercial purposes – 0,2% of the value;
  • Agricultural Land – from ALL 700 to All 5,600 per year, depending on the location; and
  • Construction Land – from ALL 0.14 to ALL 20 per square meter, depending on the location and purpose of use.

5. Condominiums

5.1 Legal framework for condominiums

Condominiums do exist in the Albanian jurisdiction and are regulated by Law No. 10112 On the administration of co-ownership in residential buildings. The law aims to regulate the legal relations in the field of administration of co-ownership in residential buildings with two or more owners, land and ancillary facilities, which are in compulsory co-ownership, determination of subjects, relations between them and with third parties, rights, and obligations of mutual, as well as the relevant sanctions, in the case of non-fulfillment of these obligations.

In units where there are two or more owners, the co-ownership relations between the owners are regulated in accordance with the provisions of the Civil Code, the law mentioned above, and the Council of Ministers Decision (CMD) No. 447, dated June 16, 2010, on Approval of the standard regulation for the administration of co-ownership in residential buildings, which establishes general rules on the administration and maintenance of condominiums in residential buildings.

Law No. 10 112 On the administration of co-ownership in residential buildings specifies that the deed of co-ownership shall be registered and it is done in the immovable property registration office, under whose jurisdiction the residential building is located, in accordance with the laws and rules of immovable property registration of the Civil Code. The co-ownership title is registered in the name of the creator.

5.2 Rights and duties of co-owners

The rights and obligations of the co-owners are focused on the maintenance of the condominium, informing the co-owners on the changes or damages that may occur, the monetary investment needed for the building as well as participating in decision-making on the administration of the condominium in co-ownership. according to Law No. 10 112 For the administration of co-ownership in residential buildings, the owner of the condominium has the right to:

  1. to request from the other co-owners, in the obligatory co-ownership where he belongs, or from the users of these special units not to infringe the use and enjoyment of indivisible objects, as well as to request compensation or correction of the damage, when the damage is caused by their actions;
  2. participate in decision-making;
  3. be informed by the assembly or the administrator/management company about the decisions taken in his absence;
  4. to be regularly informed by the administrator and by the assembly about the use of the administration fee;
  5. to be informed by the administrator/management company about the non-payment of the administration fee by other owners;
  6. to submit to the assembly proposals for the administration of the residential building.

Along with these rights, the owner is obliged to:

  1. to respect the norms of ethics and coexistence, defined in the regulation of building administration;
  2. not to hinder other co-owners in the enjoyment of objects that are in compulsory co-ownership;
  3. to pay the administration fee even in the cases when he does not live or has rented the unit;
  4. to allow inspections and repairs of the common property within the unit owned by him.

The co-owners of the units, including the “creator of the co-ownership” as long as he owns one or more units, represent the Assembly. In the first meeting, the assembly elects the board, determines the mandate, and decides the amount of the administration fee.

5.3 Liability of co-owners

The co-owners will be liable to other co-owners, the associations, and/or third parties related (e.g. the occupants of the condominium) for any action they take on the building or damage caused to it that violates their rights over the condominium.

The CMD no. 447, dated June 16, 2010, on Approval of the standard regulation for the administration of co-ownership in residential buildings presents a more extensive relationship between the co-owners, mentioning the norms related to the maintenance of the building, the physical stability of the building, the safety of life and public health, ethical norms of coexistence which, of course, are mandatory to the co-owners. The maintenance of quietness, the rules of usage of common areas, restrictions on the usage of individual property, and the keeping of pets are the key points that the article consists of as an integral part of the specific regulation of each co-ownership, regardless of the specifics of co-ownership.

5.4 Rights and duties of condominium associations

The association of the condominium performs the tasks defined in the contract entered into between the co-owners or in the agreement with the board, depending on the chosen form of administration. According to Law No. 10 112 For the administration of co-ownership in residential buildings, there are two forms of condominium administration which consist in the administration through a condominium association or an administrator (physical person) who may be one of the co-owners or an outsourced person/entity. Whichever form is chosen for the condominium administration, shall be registered in the Administrators Book (Register) at the municipality, under which jurisdiction the individual/association exercises this activity.

Condominium associations, in addition to the administration service, can cover with their activity also maintenance services, if they have the necessary qualification for specific maintenance activities, such as maintenance of elevators, restoration or reconstruction of facades or interiors, and any other type of activity, which requires special qualification, in a certain field. As mentioned above in section 5.2., the assembly of co-owners approves the criteria and costs of administration, the administration fee, as well as the manner and time of its payment for each co-owner, which will finance the administration activity.

6. Commercial Leases

6.1 Form and contents of a lease agreement

The Civil Code provides that the lease agreements concluded for a period of more than one year must be in written form. In this case, the written form is mandatory only for probatory purposes (ad probationen), this means that the lease agreement is valid but it cannot be proved in the court through witnesses or any other means. According to Article 197 of the Civil Code, the lease agreements used for renting real estate for a period of over nine years must be mandatorily executed in front of a public notary and registered with the State Cadaster Agency.

The Albanian jurisdiction does not make major distinctions between the properties leased for commercial reasons and the ones leased for other purposes i.e. living purposes. Basically, the legislator leaves to the discretion of the parties to freely insert provisions in the lease agreement which might be necessary for the lease of commercial real estate.

The usual content of a lease agreement in Albania includes inter alia the description of the leased property, the term of validity, the lease reason, the modalities and purpose of exploitation of the real estate, the rights and obligations of the parties, termination clause, dispute resolution mechanism, etc.

6.2 Regulation of leases

As a matter of principle, the rules for lease do not substantially differ according to the type of property however there is a certain categorization in the Civil Code which makes a distinction between the real estate used for agricultural reasons and other real estates used for different reasons such as living purposes and/or commercial reasons.

On the other hand, there are no mandatory provisions in a commercial lease that cannot be contractually excluded.

6.3 Registration of leases

Pursuant to Article 197 of the Civil Code, all the lease agreements for real estate properties, entered into for a period of more than nine years must be registered in the State Cadaster Agency. The latter registers documents (in this case the Lease Agreement) only in notarial form, which means that it is mandatory to be executed in front of a public notary in Albania. This registration is performed in the relevant section of the real estate register, according to the provisions of Law no. 111/2018 On the Cadaster.

6.4 Termination of leases and renewals

The lease agreement may contain a specific term of validity or the parties may not stipulate any term at all. The lease agreement with a determined term, automatically terminates at the end of the expiration period, without the need that any of the parties notify in advance the counterparty of their intent for termination. On the other hand, the lease agreement which does not contain a validity term terminates either when one of the parties notifies the counterparty of the termination of the agreement or in the cases when expires 30 years from the entering into force of the lease agreement. While the lease agreements for living purposes have a validity period of a maximum of five years.

In addition to the Civil Code’s chapter which specifically regulates the Lease Agreement, the general termination provisions which apply to all the contracts are also applicable to the lease agreement. More specifically, in these general provisions is stipulated that when one of the contracting parties fails to fulfill its contractual obligations, the other contracting party, may either request the fulfillment of the obligation, or the termination of the contract, in addition to the claims for compensation. The contracting party may notify in writing the other party that has failed to fulfill the obligation, asking for its fulfillment within an appropriate period, stating that, if after this period the breach is not remedied, the lease agreement will be considered as terminated.

As for the renewal of the lease agreement, its renewal is done automatically in the case after its term has expired, the lessee is allowed to use the leased property without any claims from the lessor. The automatically renewed lease agreement is regulated under the same conditions as the previous one, but its duration is set as for fixed-term leases.

6.5 Rent regulations and rent reviews

The Civil Code, in the framework of rent regulations and reviews, focuses on the object of the lease, its handing over to the lessee and vice versa at the end of the lease agreement, maintenance, and the behavior of the parties regarding their rights and obligations in connection with the leased property.

Pursuant to such principles the lessor must:

  1. deliver the item to the lessee on time and in a position to allow the usage for which the parties have agreed in the contract;
  2. maintain and keep the leased property in the same condition;
  3. guarantee peaceful enjoyment during the rental period;

While the lessee has the following rights and obligations:

  1. receive and use the leased property for the purpose provided in the contract and in the case, this is not specifically regulated, use it in accordance with the nature of the leased property;
  2. effectuate the lease the payment on time;
  3. is liable for the loss and damage of the leased property which might occur during the lease term of the lease;
  4. hand over the leased property to the lessor in the same condition that was handed over to him/her and in accordance with the description made by the parties in the lease agreement, except for damages deriving from wear and tear.

6.6 Services to be provided together with the lease

In our jurisdiction, there is no specific regulation on the services rendered together with the lease. On the other hand, the legislator leaves it to the discretion of the parties to insert any provisions in the lease agreement as they deem fit and/or necessary for the regulation of their commercial relationship.

6.7 Fit-out works and their regulation

The Civil Code regulates the relationship between the lessee and the lessor in the cases when the leased property needs fit-out works in order to adapt it to the requirements of the lessee or there is a need for maintenance during the lease term.

When the leased property needs repairs which could be classified as usual maintenance, such expenses must be covered by the lessee. While in the cases when the repairs are substantial, the lessee is obliged to notify the lessor.

In the cases of urgent repairs, the lessee can perform the investment directly and such costs are borne by the lessor, the latter is immediately notified. On the other hand, the lessee should collaborate with the lessor in the cases of necessary urgent repairs. If the leased property is not repaired within a reasonable time by the lessor, the lessee is entitled to a proportional reduction of the rent.

Further, Article 816 of the Civil Code stipulates that the lessee should not be compensated for the improvement (fit-out works) of the leased property unless this is specifically performed with the consent of the lessor. In this scenario, the lessor is obliged to compensate the lessee with whichever is less, the investment value or the value of the useful result (e. in the case such investment can be exploited by the lessor), at the handing over moment.

The lessee who has made additions to the leased property has the right to remove them at the end of the lease, when this is possible without damaging the leased property, except when the lessor agrees to keep the additions himself. In this case, he must pay the lessee a compensation equal to the minimum amount between the costs and the value of the surcharges at the handing over time.

Regarding the tax implications of investments made by the lessee, there are no specific provisions that regulate this matter, however, such expenses are usually recognized as deductible expenses by the tax authorities.

6.8 Transfer of leases and leased assets

The transfer of leases and leased assets is allowed in Albanian jurisdiction through a sublease agreement or when the ownership of the leased property is transferred to a third party.

Except otherwise agreed in the lease agreement, the lessee has the right to sublease the property, but cannot assign the contract to a third party without obtaining first the written consent of the lessor.

In the case of assignment of the lease agreement the lessor, is entitled to initiate legal action claiming the payment of the rent from the lessee also from the sublessee and to oblige the sublessee to fulfill any pending other obligations arising from the sublease agreement.

The contractual provisions regulating the annulment of the lease agreement or its termination, apply also to the sublessee, and the decision was taken between the lessor and the lessee also applies to him.

When the leased asset is acquired by a third party, the lease agreement continues to be in force and the buyer has the obligation to observe its provisions in the case the lease agreement is entered into before the sale of the property.

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Guide Contributors For Albania

Oltjon Dano

Partner

o.dano@kalo-attorneys.com

+355 4 2233 532