What is at the intersection of green energy and real estate?

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With the recent peak in interest in wind farms in Romania, what is often lost in the rush is that beneath every turbine and cable and transformer is land. Essentially, developers of wind farms need to keep in mind that merely because their project relates to energy does not eliminate its essential characteristic as a real estate transaction. Indeed, one of the trickier aspects of wind farm development is to secure all necessary air rights on nearby land over which turbines rotate.

Most property in Romania suffers from some sort of title defect. But this should not necessarily kill a deal. It is important to assess the quality and degree of risk and be cautious of certain seductive legal arguments. A few examples follow:

 1. The seller’s lawyers tell me that a good faith buyer is protected against restitution claims. So am I not protected by acting as a good-faith purchaser?

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The law is unclear as to the precise

level of due diligence required to support a defense of good faith, and indeed

good faith cannot be invoked in all

cases.

 2. Can buyers can rely on the fact that a notary authenticates the transfer deed?

Especially for investors from countries like France and Spain, where notaries play a more prominent and established role in transfers of real property, this idea rings true. But in Romania, authentication by a notary does not cure title defects or prove that none existed.

3. Our law firm has found a flaw in the title chain dating back many years, but the seller’s attorney insists that after three years of registration in the Land Registry, title defects are cured. That seems logical, but what is the law?

 Art. 36 of Law 7/1996 sets out the principle that certain title defects may be curable after three years of registration. But jurisprudence is inconclusive as to the circumstances where this rule would apply. While there may be certain situations where this theory could mitigate risk, there is currently no consensus.

Being fully informed about real property title early in a transaction is the best policy for ensuring a successful closing. Too often, we see matters falter at inopportune moments as a lender suddenly discovers a serious title flaw that had been downplayed or ignored in order to obtain a financing term sheet or get approval by an investor’s principals or shareholders.

 If title flaws are brought to light and honestly assessed, they can often be remedied or mitigated. Title insurance, which shifts some or most title risks to a third party insurer, can also keep closing on track if the insurer is brought in at an appropriate juncture.

Perhaps most important, however, is to engage competent, experienced legal counsel to assess and explain the title risks and advise on strategies to address those risks. 

Perry Zizzi is Partner at Clifford Chance Badea law firm.