Incorporation or settlement of undivided common property
A new possibility for the termination of common ownership is the so-called “incorporation“. Although, the rules of the related Act LXXI of 2020 on the liquidation of undivided common ownership of land and on the settlement of data in the land register of the holders of immovable property constituting land (“Incorporation Act “) have been in force since January 2021, there is little experience with the functioning of the procedure. Below is a summary of the most important information on annexation.
Incorporation is when the dissolution of undivided joint ownership is achieved by a single owner acquiring the property.
The Incorporation Act aims to promote the development of competitively sized estates. The new property created by the division must be suitable for agricultural and forestry use. This will be determined by the size of the land for each type of cultivation:
– vineyard, garden, orchard, reeds cultivation type: 3,000 m2
– arable land, grassland, pasture, woodland and wooded land, cultivation type: 10,000 m2
– property zoned as garden: 1,500 m2
So, these are the minimum area sizes that must be created as result of the division.
In the case of real estate classified as forest, the additional provisions of Act XXXVII of 2009 on Forest, Forest Protection and Forest Management governing the division of forest shall also be taken into account. In the case of a property with mixed cultivation, the rate for the cultivation with the lower minimum area shall apply.
In principle, undivided common property can be divided by agreement between the co-owners. However, it may not be possible to create at least two parcels of land that meet the minimum size requirements. In such cases, the undivided common property can only be divided if the property is wholly owned by one owner. This will ensure the creation of estates of arable land of a suitable size.
The co-owner who initiates the acquisition must inform in writing all other co-owners who have a share in the property of their intention to acquire it. The content of the notification is laid down in Government Decree No. 647/2020 (XII. 23.) on the detailed rules for the liquidation of undivided common ownership of land. Accordingly, it must contain a declaration by the initiating co-owner that they are entitled to acquire ownership of the property, the value according to the valuation offer and the consideration offered by the initiating co-owner, and a warning that if the notified co-owner does not agree with the consideration offered, they may have a valuation opinion drawn up. The notice must also include that the notified co-owner must provide the initiating co-owner within 30 days with the terms and conditions for the payment of the consideration and, if the property contains an asset that is inseparable from the land and owned by the notified co-owner, the notified co-owner must make a statement regarding the transfer of ownership and compensation for its value or its continued use.
It is important to note that if the co-owner who is the largest user of the land initiates the annexation, they must declare that they are the largest user of the land and therefore no one else is entitled to incorporate the land.
The law also establishes an order of priority in the event if more than one owner claims ownership of a parcel of land. Order of priority is the following:
- The co-owner who uses the land to the greatest extent (also supporting the objective of land tenure policy that ownership of land should be acquired primarily by the person using it).
- The co-owner with the largest share of ownership.
- In case of equal ownership, the younger co-owner.
The notified co-owner may declare within 30 days that they accept the consideration set out in the notification or must prove that they have requested a valuation report. If the initiating co-owner is not the owner with the largest use of the land, the notified co-owner must also indicate that they are entitled to be included before the initiating co-owner in the order of priority, if they wish to exercise this right.
If ownership of the parcel cannot be obtained by the co-owner who initiated the acquisition, they must provide all documents (in particular, the certified notification of the other owners, the feedback from the other owners and, if prepared, the valuation report) to the “new” applicant.
The parties are free to determine the value of the property redeemed under the rules, based on the valuation offer as a minimum price. Even in the case of this method of division, it is possible to have a valuation report drawn up by a forensic expert if the parties disagree on the amount indicated in the valuation offer. If the new valuation report is drawn up, the cost of the new valuation report will be borne by the claimant if they have initiated the preparation of the new valuation report or if the amount of the new valuation report exceeds the amount of the valuation offer by at least 20%.
If the amount stated in the new valuation report exceeds the amount stated in the valuation offer, the initiating co-owner must pay at least the amount stated in the new valuation report as consideration. If the amount in the new valuation report is less than the amount in the valuation offer, the initiating co-owner shall pay at least the amount specified in the new valuation report as consideration.
One may legitimately ask what happens if one of the co-owners does not respond to the request or if the receipt for information is returned with a “not contacted”, “addressee unknown”, “delivery blocked” or “moved” notice. In this case, payment to the unavailable co-owner is made by court deposit. If this amount is not claimed by the beneficiary within 15 years, the State may use it to purchase land. If the State also owns a share of the land to be Incorporated, the National Land Centre is obligated to declare if, for example, a burial plot is located on the land. In this case, only the State is entitled to Incorporate the land in question.
Notification of the incorporation must be given to the holders of other rights and titles registered to the land and, if the transfer of ownership requires the consent of the holder or of a public authority, this must be obtained before the acquisition of ownership.
A contract signed by all the co-owners or, failing that, a unilateral declaration by the owner who has initiated the incorporation is required for the registration of the incorporation in the Land Register. The incorporation does not terminate the use of the land under the land-use contract existing at the time of incorporation, but the incorporating party must inform the third parties using the land according to the land use or forestry register of the change.