Flaws in the Bulgarian legal framework for the sale of public land
A legal analysis on the application of EU rules in the field of public land sale in Bulgaria. It aims to demonstrate significant legal flaws allowing for unjustified distortion of the land trade market and the competition in Bulgaria through granting of unlawful state-aid to private persons and companies. In addition, the alleged misuse of public property affects also the public interests of the tax-payers.
The analysis addresses two types of public land sale procedures whereby the sale prices evaluated by the so called "independent" evaluators turn out to be often far below the established real market values, especially in attractive urbanization areas where the real estate market is quite dynamic and subject to international business participation.
I. Recent case-law concerning the independent evaluations of public lands for sale
There is no specific case-law relevant to the application of Art. 43 (2) of State Property Act (SPA) (valuation of state-owned lands for sale), especially with respect to market value estimation issues. The reason therefore is that information about the deals and legal interest in such cases have exclusively the contracting parties what makes the public control nearly impossible.
With regard to the application of Art. 41 (2) of Municipal Property Act (MPA) (valuation of municipal lands for sale) the case-law (more than 100 cases ) indicates that both the court and the competent authorities (the District Governors and the municipalities) interpret the relevant legal provisions absolutely subjectively and contradictory. The reason therefore is that both Art. 43 (2) of SPA and Art. 41 (2) of MPA allow for too broad interpretation (and resp. application) of the relevant legal provisions concerning the administrative market price evaluation of public lands for sale. This flaw allows for underestimation of public property for sale and respectively for state aid to be generated.
For instance, in identical cases various courts take contradictory decisions with regard to the question whether the municipal lands for sale should be evaluated on the basis of real market indicators or on the basis of administrative regulations, or how the evaluation should be carried out.
II. Market price evaluations under expropriation procedures of private property
In order to further clarify the existence of state aid elements in sales of public lands as result of the inadequate evaluation procedures carried out by the national authorities, one can make indirect use of the huge case-law with regard to the expropriation procedures of private property.
Both the State Property Act (SPA) and the Municipal Property Act (MPA) foresee procedures for expropriation of private property for public purposes - Art. 32 (2) of the SPA and resp. Art. 22 (5) of the MPA. Opposite to the legal procedures concerning the sale of public property, in the expropriation procedures thousands of private owners have the legal interest to control directly the administrative market price evaluation procedures carried out by the national authorities. Being negatively affected by the legal flaws allowing for significant market price underestimations of their own property, hundreds have challenged in court those evaluations. The case-law generated thereby perfectly demonstrates that the administrative market price evaluations carried out by the national authorities do not reflect the real market conditions. For instance, in cases 9398/2006, 1490/2007, 10300/2007, 7225/2012, 231/2013 of the Supreme Administrative Court, the court admits that the law allows various evaluation methods, whereby not all methods can guarantee reflection of the real market situation and that the particular methods used by the public authority are not adequate.
Till 2008, the legal provisions concerning the administrative market price evaluation of both public lands for sale and expropriated private property were more or less similar. After 2008, however, the referred above huge case-law with regard to the expropriation procedures of private property triggered a series of legal amendments to SPA and MPA in order to better protect private interests and alleviate the courts' work. Through amendments to Art. 32 (2) of the SPA of 2006 and 2010 and Art. 22 (5) of the MPA of 2008 and 2011 , the legislator has introduced specific legal requirements so that the market price evaluations under the expropriation procedures should be based on and take full into account the market prices of plots with similar characteristics, plots situated in the vicinity of the referred plot, etc., narrowing the discretion. This precision in both laws was required by hundreds of private owners who proved in the court that the previous texts in Art. 32 of the SPA and Art. 22 of the MPA had allowed the independent evaluators of the national authorities too broad discretion to perform an independent evaluation, leading to underestimation of their property.
Unfortunately, due to various reasons (e.g. lack of political interest, corruption, etc.), such precision and detailed requirements are still not provided in the legal texts concerning the sale of public lands under Art. 43 (2) of SPA and Art. 41 (2) of MPA, as argued by us. We assume that integration of the legal requirements in Art. 32 of the SPA and Art. 22 of the MPA within Art. 43 (2) of SPA and resp. Art. 41 (2) of MPA will bring a step further the implementation of the EU free market rules so that less state aid elements are included in public land sale transactions.
III. Impact of tax frauds on the free market rules in the sphere of public land sales
Official statements of the National Revenue Agency prove that nearly half of the land sales in Bulgaria are declared in the Registry Agency not at the real sale price but at prices close to the tax value of the property (the tax values of plots are in general times lower than the market value) in order to reduce the notary and property taxes which one pays to the state by land sale transactions. These facts are supported also by recent case-law. As well independent evaluators as the court admit that the high share of registered sales transactions with falsely declared prices (prices close to the tax value of the plots) can reach up to 50 % of all transactions and this reflects the objectivity of the evaluation expertise. Despite those facts, in case 10816/2012 of SAC, the court argues that independent evaluators should take into account all declared transactions, incl. the transactions with falsely declared prices resulting from tax frauds. This means that even the national court encourages manipulations of the market price evaluations which lead to underestimation of the processed public or private plots. As a result, in the case of public land sales illegal state aid is generated uncontrollably, while in the case of expropriation procedures the state penalizes financially the private owners.