Issues with guaranteed rental income agreements

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Issues with guaranteed rental income agreements

Postby Admin » Fri Jan 10, 2014 11:06 am


There has been a common practice for the past several years on the local real estate market the sale of newly built apartments (or off-plan purchases) in the resorts to be concluded together with rental agreement (related usually to guaranteed annual rental income for the apartment owner). The sum calculated used to be a percentage of the purchase price, or agreed concrete & certain amount. Of course attractive promises for huge rental income have been made towards trustful investors, so if you considered buying an (off-plan) apartment in Bulgaria, you would have told yourself ”Oh, the promised 6% guaranteed rental income looks bigger profit than a deposit account, so I should invest”. Unfortunately in many cases the promised rental income has turned out to be a huge soap bubble only, for convincing the overseas buyers to invest their money in 1000 Euro sq. m. and more for off-plan developments, enabling in addition their contractors to rent their apartments out. Guaranteed rental income has been never paid to the new apartment owners (due to various reasons-busted developers, wrong management, illegal renting out of apartments, etc.). Many of the initially concluded rental contracts have never been fulfilled by the rental companies. So many people ended with apartments in the Bulgarian holiday resorts (which apartments they have never even seen, or seen only once) no rental income received, huge maintenance fees strictly charged on them on the other hand, and when the crisis came, real estate prices dropped down.
The important part is that nobody imagines that so many newly built holiday developments would have been constructed not to be managed at all – even after all apartments sold to various buyers. Many developers have built holiday complexes with the intention to maintain it (via collecting annual maintenance fees from the apartment owners) and to rent it out during holiday seasons (personally or via related rental company). This is a business world here, so it’s nothing wrong in pursuing profit. It is pure for all that when you sign preliminary contract together with rental contract, you don’t intend to use or visit the apartment you’re purchasing – therefore no burdens to be rented out. Where cash income has been acquired by rental companies via trade /rental/ services to tourists, a conclusion can be easily made. If these which owe rental income, operate with the complex or maintains the complex where your apartment situated, this increases the chances of the apartment owner (who often has invested trustfully his/her lifetime savings in the apartment purchase and was left with the impression that will benefit from the investment in Bulgaria) for pursuing receipt of the promised guaranteed rental income.
Secondly, the local Laws provide that rental agreements with fixed sums and dates of payment have 5 years expiration deadline for pursuing the promised amount – since the date on which the sum should be paid to the assignor. Many rental contracts have been signed together with the private purchase contracts in the period 2007-2010 so these are to expire now or in the near future - last call for apartment owners who wish to pursue receipt of their money and the 5 years deadlines since the date of agreed payment of the rental income, has not expired yet.
Taxes and fees related to court claims for pursuing rental income: The court tax of 4% makes it affordable to pursue refund. For example, if an assignor seeks 2000 Euro payment, 80 Euro court tax is not an issue. Legal fees are negotiable above the minimums set up in the local lawyer’s Tariff. Fortunately, due to the specific of these civil lawsuits, these are not lengthy, risky or costly compared to failed purchase claims. The rental income lawsuits look straight ones – usually there is a signed rental agreement, the term for payment has expired and there is lack payment (i.e. a group of facts and circumstances that cannot be attacked by the defender). This should increase the chances for positive decision in favor of the claimant.
In conclusion, people who have signed rental agreements should inform themselves how to protect their own rights – i.e. to get legal help by independent lawyer - in advance and in case of non-payment (especially in cases where been charged annually with maintenance fees on the other hand). If you have any additional questions or need help on the above matters, do not hesitate to contact us:

Bulgariandeals Team

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