Building Permits and Licensing in Romania for Israeli Developers

An Israeli developer arriving at his or her first project in Romania tends to assume that the licensing process is similar in structure to the one familiar from Israel: a plan, municipal approval, a permit, construction. At the level of principle, that assumption is correct. The problem is in the details: who exactly approves what, in what order, and what happens when one party in the process is delayed while the rest of the business plan is already moving ahead around a timetable that was set in advance. That, and not the purchase stage itself, is where most Israeli projects run into problems that could have been avoided.

1What is a Certificat de Urbanism and why must you obtain it from the seller before the purchase?

At the land purchase stage, you must make sure to receive a Certificat de Urbanism from the seller. This is a document that corresponds to a large extent to the “information sheet” requested from a local authority in Israel, and it sets out the building rights on the plot: what may be built on it and to what extent.

The critical step is not only to receive the document, but to verify that what it states actually matches the valid local zoning plan (the relevant PUZ or PUD). A gap between what the document states and the actual planning situation is precisely where surprises emerge at later stages, after the land has already been purchased and planning has already advanced. What else is included in the legal review before signing is detailed in the guide to legal due diligence before signing in Romania on the firm's website.

2What happens after the plans are submitted: an existing PUZ or a new PUZ?

After the land is purchased and the construction plans are prepared, the process splits into two tracks, depending on the match between the plans and the existing PUZ.

This distinction is critical for planning. A developer who checks already at the land purchase stage, against the Certificat de Urbanism, whether his or her plan matches the existing PUZ knows from then which of the two tracks to expect, and can plan the budget and timetable accordingly, instead of discovering it only after the plans have been submitted.

3Who issues the approvals in Romania, and why is it not a single body?

In Israel, the habit is to think of the “local committee” as the central body that approves. In Romania, the stage of collecting approvals (avize) is spread among several separate bodies: utility companies for water, electricity and drainage, the fire service, and sometimes also environmental aspects, the aviation authority, archaeology and more, depending on the type of project, its location and its size.

Each of these bodies operates on its own timetable, and its response time can vary greatly from one location to another. A developer who relies on a single local party who promises “I will arrange everything” without knowing exactly which approvals are still missing and who is responsible for each of them usually finds out at a stage when it already costs money and time.

4Where do Israeli developers' projects actually get stuck?

Three mistakes repeat themselves:

1. Assuming that obtaining a permit is a one-time event, when in practice it is a staged process, and changes to the construction plan during the work may require additional approvals.
2. Planning the commercial timetable (sales, capital raising, start of construction) around a target date for obtaining the permit, instead of around a time range.
3. The absence of clear written documentation with the local body as to what exactly has already been approved, what is still being handled and what has not yet been submitted at all. When a developer reaches the sales stage without an accurate picture of the licensing status, he or she must choose between delaying the sale and selling with partial information, and both options are problematic.

5What happens when the plan changes midway?

A change to the plan after sales have begun may require a return to the approving body and a re-examination of some of the approvals already received. A scenario that is especially common among Israeli developers: after starting to sell, feedback is received from the market that justifies a change in the unit mix (more small apartments, fewer large ones) or a change in the designated use of part of the commercial area.

Such a change, even if it sounds cosmetic from a business standpoint, may require a return to the approving body. A developer who assumes that the plan can be changed freely as long as the general permit is already in hand risks further delay precisely at the stage when buyers are already paying according to a timetable that was presented to them. Material changes to the plan should be examined with the accompanying legal adviser before committing to them toward buyers, not after.

6Does a building permit allow you to start selling units in Romania?

Not necessarily. Having a building permit in hand does not mean that it is permitted to start selling units. Under the amendment to the law known as the “Nordis Law”, even when there is a valid building permit, an early sale (presale) of future units must not be carried out before they have been registered on a preliminary basis in the Romanian land book (Cartea Funciară). In other words, between obtaining the permit and starting a lawful sale there is a further procedural step that must be completed first.

A developer who begins recruiting buyers and signing with them on the basis of the permit alone, without this early registration having been carried out, is acting contrary to the law, even with entirely innocent intent and under business pressure to begin selling as early as possible. This is a point that connects directly to the sales mechanism toward Israeli buyers, and not every developer is fully aware of it.

7How does all this affect the timetable toward investors?

A properly built payment schedule is tied to proven construction stages and not to arbitrary dates. A delay in obtaining a particular approval should not surprise a buyer who was given in advance a realistic explanation of the structure of the process and of the possible time ranges at each stage. The gap between expectation and certainty is precisely where Israeli buyers lose confidence in a project, even when the delay is entirely routine by Romanian standards.

8When should licensing be checked: before the land purchase or after?

Before. The legal and planning check of the land should begin even before signing the purchase transaction. Receiving the Certificat de Urbanism from the seller and checking its match with the existing PUZ is the starting point, and not a step carried out in parallel with the start of the project.

The cost of the preliminary check is significantly lower than the cost of correcting afterwards, and sometimes it prevents from the outset the purchase of land that is unsuited to the plan the developer is planning, or reveals in advance that a new PUZ track is expected that will add about a year and a half to the timetable. A developer who incorporates this check as a fixed part of the purchase process, and not as an optional step, reaches the sales stage with an accurate picture, including exactly when he or she is permitted, under the Nordis Law, to begin selling at all.

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The information in this guide is general in nature and does not constitute legal or tax advice on any specific transaction. Every transaction is assessed on its own facts.