Property restitution: what went wrong in Romania?

• Author: Dobre, Suzana
• Position: Report

Property restitution laws have always been presented by their initiators--mainly the left wing post-Communist party, in power in 1991, 1995 and 2001 when these measures have been adopted--as instruments designed to clarify and accelerate the Communist abuse restoration process. Without such normative acts, the alternative for former previous owners would have been to address the court directly.

In order to simplify (in principle) the process for those claiming their houses and lands, and to cover the diversity of local situations, the legislative introduced local committees as mediators every time. In theory, the committee would deal with the claims in an acceptable way in order to avoid trials.

However, the big problem was that this procedure proved unrealistic in practice, as shown by subsequent developments in the early 90's. The national legislative managed to create strong institutional counter-stimuli to the effective return of properties: honestly, why would mayors and local counselors be interested in giving up profitable economic assets, solely for the moral argument that former owners were unjustly treated years ago? The laws were passed one after the other in Parliament, over the period of a decade, and not all at once as in other Central and Eastern European countries. This represented another source of confusion.

1. The restitution process in Central and Eastern Europe

   Measures taken to restore property abuses in the Communist period in Central and Eastern Europe followed two distinct models (1): the restitution model and the compensation model. The restitution model is based on the actual return of confiscated property, in exceptional cases where restitution is not possible, the government offers compensation. This model was applied in its purest form in Czechoslovakia and in a modified version--both elements of restitution and compensation--in East Germany.

   The compensation model includes the physical return of property only in a limited number of cases and for the other cases, former owners receive a form of compensation for their property loss. This can take the form of cash, bonds, stocks or vouchers. The compensation model is well observed in the case of Hungary.

   Both models recognize the property rights of former owners and their right for compensation for the injustice suffered in the Communist period; however the impacts are different for both former owners and the state's resources. The method chosen is just one variable, as there are other key aspects that differentiate the restitution process in former Communist states:

   * The value of the compensation. While some countries preferred to correlate compensations with the initial value of the confiscated properties, others preferred to keep costs under control by adopting ceilings--either on the dimensions of the restituted plots or on the compensation.

   * The eligibility of the solicitors: directly limited or not on basis of citizenship or residence; or indirectly by defining in a broader or limited way the historical period when the properties were nationalized, that are subject to restitution.

   * The protection of tenants in houses that had to be returned, by limiting the rights of owners to use the property for a certain period after restitution. The extreme method of tenants' protection was applied in Russia where property rights were transferred to tenants, increasing the benefits offered to the nomenklatura in the former regime. In the Czech Republic, where the break from Communism was radical, this was not compatible with the general anti-Communist feeling after 1989. (2)

   * The restitution process was institutionally decentralized or not.

   In the Czech Republic and Slovakia, that at the beginning of the transition period were still one state, the purest restitution model was applied. Property restitution was decided immediately after Communism collapsed and was not just a method to repair property abuses dating from the Communist period, but a form of transferring the state's property in private ownership. Thus, in 1990 and 1991, the restitution process was regulated, but the government also allocated another 750 million dollars as compensation. Any other compensation exceeding this ceiling was made in bonds. While the approach was radical, the process covered only those properties confiscated after 1938, thus excluding those confiscated by the Nazi from Jewish people, as well as properties of the Southern Germans confiscated by the Czechoslovakian government.

   In East Germany, a whole chapter in the 1990 Unification Treaty was devoted to the restitution issue. The restitution program was probably the biggest in the region, covering some 5 million people (about 20% of the population) and 90% of urban buildings (3). Former owners or their heirs could request the restitution of properties seized by either the Communist or Nazi governments. However, they could not claim those properties confiscated during the Soviet occupation (after Germany's Constitutional Court decision). Unlike other countries in the region, Germany did not condition the eligibility of requests on citizenship or residence. Even if the restitution process led to delays in planning, development or investment dynamics in some cases, the majority of requests were solved quickly in the early 1990''. The fact that Germany maintained clear evidence on the history of properties and had a solid judicial system, ensured the success of the process.

   Bulgaria was among the first from the region to legislate on property restitution. The Parliament approved a law on agricultural property restitution in 1991 and in 1992, it approved the restitution of the properties nationalized during Communism. The eligibility of the solicitors was generous in that both private and judicial persons were allowed to make requests, be they Bulgarian citizens and foreigners. Also, people who received a symbolic compensation during nationalization, former owners of agricultural land and workers in agricultural cooperative societies, were allowed to apply.

   Property rights for buildings were temporarily limited in certain situations. For example, tenants living in a nationalized house could use it for another three years. The same regulations applied to buildings where schools, hospitals etc., functioned. When it comes to urban property, the number of requests was quite small while the surface of agricultural land requested exceeded available land by 40%. The implementation of the restitution process in Bulgaria was confronted with a series of administrative problems. For example: the lack of clear data on property delimitation, incomplete evidences and the reticence of local authorities to return property. These aspects had discretionary power in the implementation process (4).

   Hungary, just like most states in the region, regulated the property issue in the early 1990s, by returning nationalized houses to both non-residents and foreigners. On the other hand, however, Hungary imposed a short period of time to submit requests (6 months deadline after the approval of the law) and managed to process the requests in two years' time. The government offered compensation in vouchers instead of actual restitution. The compensation office, an institution created especially for the program, decided on the land restitution requests, offered coupons or compensation vouchers and managed all public tenders where these vouchers were used. Unlike other countries in the region where the compensation level was proportionate with the value of the property, Hungary introduced a ceiling of $21.000. In Hungary, total restitution costs were estimated at around 2-4 billion dollars. (5)

   Poland is currently the only country in the region (besides Romania) that did not find a solution to the property restitution problem, despite the fact that Poland's seized property was considerably less than in neighboring countries. In Poland, industry was nationalized rather than houses and agricultural nationalization was abandoned in 1956 and never exceeded 10% of the total agricultural surface. Some 89,000 properties were confiscated during the war and afterwards, with a total market value of 40 billion dollars. However, along the years, there were some legislative proposals but none of these managed to get the necessary political support. The only way former owners recovered their properties was by normal court trials. (6)

2. Romania in a regional context

   Romania was among the few former Communist countries to postpone a decision on the restitution issue. Thus, Law 18/1991 on agricultural land restitution was only followed after a decade by the law on confiscated property restitution. During the 1990s, the tendency to protect tenants prevailed over the principle of restoration of Communist abuses, in the same line as Russia.

   After tenants living in state-owned buildings gained rapidly quite cheap property rights over the apartments, in 1990-1991, those living in nationalized houses also pressed for this right invoking non-discrimination, even if those houses were nationalized and not built by the popular power regime (7). In 1995, Law 112 allowed tenants to buy their houses at an advantageous price--a bill that benefited even those who voted the law: many of the political leaders had protocol homes in such buildings at the time (8).

   In this period, the only restitution method was the judicial one. Even so, politicians attempted to block restitutions ruled by Courts, arguing that if a special law does not exist, judges cannot decide on the matter. It was the exclusive role of the Parliament to pass such laws and the role of the judges was to simply apply the law. In this case, the incumbent President at that time, Ion Iliescu, took a public stand on the issue and opposed Court restitutions. He urged for the non-application of the courts' decisions, adding that these breach the law in favor of former owners (9).

   The Supreme...