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Contributed by Avellum.

1 Real Estate Ownership

1.1 Legal Framework

The key principles of protection of property rights are provided in the Constitution of Ukraine. These include the inviolability of private property rights, ensuring owners cannot be arbitrarily deprived of their possessions. The Constitution further emphasizes the equality of all property rights subjects, guaranteeing all owners the same legal protections, and underscores the state’s role in protecting these rights, acting as a safeguard against unlawful interference. In essence, the Constitution guarantees the right to own, use, and dispose of real estate freely.

The Civil Code, Commercial Code, and Land Code of Ukraine all establish a framework for property rights protection. These codes emphasize the owner’s freedom to exercise their rights, with only specific, limited restrictions in place. The state generally refrains from interfering in the owner’s exercise of these rights. Furthermore, these codes reiterate the principle of equality, ensuring all owners receive the same legal protections.

The rights of real estate owners are generally equal in Ukraine, regardless of whether they are Ukrainian citizens or foreigners. However, there are specific regulations and restrictions that apply to foreign individuals and entities regarding the acquisition of certain types of real estate, particularly agricultural land. In Ukraine, foreigners are prohibited from owning agricultural land. However, they can purchase non-agricultural land, subject to certain legislative restrictions for both individuals and legal entities. Namely, they may purchase land plots within the boundaries of cities and towns for construction purposes. To purchase land outside the boundaries they must own real estate located on such land.

Ukraine has clear rules for the expropriation of ownership during martial law or a state of emergency. The government and local authorities may forcibly expropriate private or municipal property in exceptional circumstances such as natural disasters, epidemics, other emergencies, or due to public necessity.

Expropriation requires a formal act, and the property must be evaluated beforehand. Based on this evaluation, the government provides full compensation in advance. However, during martial law, the government may provide compensation after the expropriation.

It is important to note that the ongoing war has had a substantial impact on the real estate market. According to the updated joint Rapid Damage and Needs Assessment (RDNA3), as of December 3, 2023, over 2 million housing units were damaged, resulting in over USD 55.9 billion in damages. The housing reconstruction needs are estimated at USD 68.6 billion.

Approximately 6 million internally displaced people have moved from the eastern to central and western regions of Ukraine. Their migration has prompted Ukrainian developers to focus on constructing new housing complexes.

To support Ukrainian citizens, the government introduced the eOselya program, which provides affordable housing loans with the possibility of buying housing on a mortgage at 3-7% per year, depending on the category of participants (e.g., defenders of Ukraine, internally displaced persons). The program stipulates that the housing should be commissioned within at most 10 years, or three years in some instances, before the time of the loans. Additionally, a reform of housing policy is upcoming in the form of a new housing law, which should replace the outdated legislation and introduce concepts of affordable housing that align with EU regulations.

The relocation of enterprises to safer regions of Ukraine has also increased interest in various state-supported legal frameworks such as industrial parks and projects with significant investments. This creates a market for companies that can provide the necessary infrastructure for businesses. Private companies operating under such frameworks may enjoy various state incentives, such as exemption from CIT, VAT, and customs duties, as well as reduced land and real estate taxes.

Overall, the Ukrainian real estate market is facing a period of adjustment due to the war. However, there are also opportunities for growth in specific sectors, particularly those that cater to the needs of displaced people and relocated businesses.

1.2 Registration of Ownership

The rights to real estate are registered in the State Register of Property Rights to Real Estate (Real Estate Register), which is maintained by the Ministry of Justice. The registration of rights to real estate and encumbrances is carried out by a state registrar or a notary.

The key regulations on registration of rights to real estate are:

(i) Law of Ukraine “On State Registration of Property Rights to Real Estate and Their Encumbrances” No. 1952-IV dated July 1, 2004; and

(ii) “Procedure of State Registration of Property Rights to Real Estate and their Encumbrances”, approved by Resolution of the Cabinet of Ministers of Ukraine No. 1127 dated December 25, 2015.

The following rights to real estate must be registered in the Real Estate Register:

(i) the ownership rights to real estate, including land plots;

(ii) servitude, emphyteusis, superficies, lease rights to land plots and buildings if the lease term is at least three years, other special property rights; and

(iii) encumbrances of real estate such as mortgages.

1.3 Publicity of Real Estate Register

Entries in the Real Estate Register are publicly available, which means that every person can get information about real estate from the Real Estate Register in paper or electronic form.

1.4 Protection of Ownership

The entries in the Real Estate Register in Ukraine are considered binding.

The protection of real estate ownership in Ukraine has seen some improvements despite ongoing challenges. Judicial reforms since late 2017 have led to more unified approaches in applying legislation to property rights cases, which is a positive development.

The Civil Code of Ukraine provides several remedies available to an owner claiming protection of their property rights, including:

(a) Recognition of Ownership Rights

An owner can file a lawsuit to recognize their ownership rights if these rights are disputed or not properly registered. This recognition also obliges others to respect these rights and refrain from actions that could hinder the owner’s lawful exercise of their property rights.

(b) Return of Property from Illegal Possession

An owner can file a vindication claim to reclaim their property from someone who possesses it without legal grounds. This applies even if the possessor was a bona fide purchaser.

(c) Removal of Obstacles to the Exercise of Ownership and Disposal of Property

An owner can file a negatory claim to remove any obstacles or restrictions that prevent them from using or disposing of their real estate.

(d) Prohibition of Actions that Violate Property Rights or Taking Certain Actions to Prevent such Violations

Owners can seek court orders prohibiting any actions that violate their property rights, such as unauthorized construction or trespassing.

(e) Compensation

Owners may also seek compensation or damages for any losses incurred due to the unauthorized disposal or use of their real estate. This includes financial losses as well as damages for any harm caused to the property itself.

2 Real Estate Acquisition

2.1 Share Deal or Asset Deal?

Acquisitions through share deals are the more common way to invest in real estate. It is generally faster and usually allows the parties to choose foreign law and opt for arbitration in contractual disputes. Share deals are also more prevalent due to their tax advantages. Additionally, they allow the investors to continue the business as before without any need to re-enter into the agreements related to the real estate, etc.

However, if the investor identifies substantial risks related to the company itself or prefers not to continue business operations as before, selectively acquiring assets rather than purchasing shares in the owner company may be more advantageous. Asset deals provide greater control over the selection and transfer of individual assets, allowing for a strategic acquisition tailored to the investor’s objectives, and do not require as comprehensive due diligence as share deals.

The choice between purchasing real estate through a share deal or an asset deal typically depends on the investor’s objectives and the existence of any substantial risks identified during due diligence that may affect the decision.

2.2 Share Deal

Share purchases are a popular choice for real estate investment, especially for income-producing properties. Share deals can be faster and more flexible than asset deals, but they are also more complex.

First of all, share deals require more comprehensive due diligence compared to asset deals. During this stage, the parties usually enter into a non-binding agreement, such as a term sheet or letter of intent, to outline the planned transaction and key conditions for both parties (for example, the absence of substantial risks identified as a result of the due diligence).

Once negotiations and due diligence are complete, a binding legal contract like a share purchase agreement (SPA) is signed to formalize the deal. This comprehensive document addresses potential risks by incorporating various clauses, like warranties, conditions precedent, indemnities, etc. SPAs are often governed by foreign law for greater flexibility and to ensure a fair balance between buyer and seller interests. Arbitration clauses specifying dispute resolution outside Ukraine are also common.

If a foreign holding sells shares in a Ukrainian company, the gains are generally subject to a 15% withholding tax (WHT). However, there are exceptions to this rule, such as those provided by certain double-tax treaties with specific countries. Additionally, share deals are not subject to VAT.

2.3 Asset Deal

Asset deals are subject to mandatory terms of Ukrainian law and, thus, are more straightforward in execution than share deals. This fact ensures adherence to local legal norms and procedural requirements, promoting legal certainty and clarity in contractual obligations. It is important to note that due diligence and legal scrutiny are imperative for investors to mitigate different types of risks effectively.

At the same time, the investor should be mindful that Ukrainian law ostensibly grants parties freedom of contract permitting the inclusion of any provisions therein, yet not all provisions may ultimately be deemed lawful. For example, courts usually invalidate liquidated damages clauses, since they are not recognized under Ukrainian law. Typically, the principal remedies available to the buyer involve conditions precedent for mitigating remediable risks and imposing penalties for contractual breaches. There is also a very limited case law on warranties application in asset deals.

The buyer usually pays for the following: registration fees, pension fund duty, notarial fees, the costs of the due diligence investigation, and the buyer’s agent’s fees.

In an asset deal between legal entities, the seller is subject to an 18% corporate profit tax, while the buyer has to incur a 20% VAT (excluding the sale of residential premises, where only the first sale is subject to VAT) and a 1% pension fund duty.

2.4 Disposal Process

In share deals, notarization is not mandatory; a simple written form is sufficient for the SPA. However, a notary must authenticate signatures on the share transfer acts or similar documents, and changes of shareholders must be registered in the Unified State Register of Legal Entities, Individual Entrepreneurs, and Non-Governmental Organizations.

At the same time, contracts for the sale and purchase of real estate must be in written form and notarized. During the notarization process, the notary verifies not only the title documents and the authority of the individuals signing the contract but also ensures that the transaction complies with legal requirements and reflects the parties’ intentions. Typically, the notary fee, including property rights registration, ranges from 1-2% of the real estate’s assessed value.

Regarding approvals, it is important to note that consent may be necessary in certain cases. For instance, if the asset is mortgaged, the mortgagor’s consent is required for the transaction. The transfer of the title to the real estate must be registered in the Real Estate Register.

While the law does not specify a list of documents that must be transferred with the real estate, it is common practice to include the transfer of necessary technical documentation and copies of utility agreements in the relevant contracts.

2.5 Registration of Change of Ownership

A change of ownership rights is registered by a state registrar (usually a notary). In most cases, the change is done under notary-certified agreements, when the notary registers the changes a few moments after certifying the agreement. The notary also verifies all the submitted documents ensuring compliance with applicable laws.

The registration fee for registering a change varies from approximately USD 7 to approximately USD 370, depending on the registration timing (from five business days to two hours). If the registration is done by the notary, the latter also charges fees for its services. The notary fees are freely negotiated between the notary and the client.

2.6 Risks To Be Considered

Tenants, joint real estate owners, and holders of a subsoil use permit hold a right of first refusal to purchase the real estate. Real estate may also be subject to various encumbrances such as mortgages, liens, tax liens, restrictions on alienation, etc. Special regulatory regimes, such as protection zones or cultural heritage sites, impose additional limitations that must be considered.

Typically, a purchaser can only claim defects in acquired real estate if these defects were latent and could not have been discovered at the time of transfer. However, specific regulations governing this issue vary based on the terms of the contract that was concluded.

3 Real Estate Financing

3.1 Key Sources of Financing

Under current circumstances, most construction projects are financed by the developers themselves. However, large companies often secure funding from local banks or international financial institutions, such as EBRD, by using their assets as collateral through pledges or mortgages.

In the residential market, new constructions are typically financed by selling future real estate assets (e.g., apartments, parking spots, garages) to prospective owners. To protect the interests of buyers in such cases, a new law “On guaranteeing property rights to real estate to be constructed in the future” No. 2518-IX dated August 15, 2022, was adopted. This law introduced various mechanisms and guarantees, including the mandatory state registration of titles to future real estate assets and registration of a guaranteed share in the construction that must be financed by the developer’s own funds.

3.2 Protection of Creditors

Standard security measures typically involve mortgages and pledges. In more complex transactions, additional components may be incorporated such as condition precedents in project agreements, and pledges of bank accounts with provisions for automatic withdrawal. Besides, Ukrainian law allows the execution of shareholders agreements with third parties, which is sometimes used as a security.

4 Real Estate Taxes

4.1 Transfer Taxes

Please see to Sections 2.2. and 2.3. regarding taxation of real estate disposal.

4.2 Specific Real Estate Taxes

There are separate taxes on real estate property and land plots in Ukraine.

The land tax is determined by local authorities and, under the general rule, may not exceed 3% of the normative monetary value of the land plot. However, the exact rate depends on whether the normative monetary valuation was conducted, what is the designated use of the land plot, and what is the title to the land plot.

The real estate property tax is also determined by the local authorities. Its rate may not exceed 1.5% of the minimum wage (as of January 1 of the relevant calendar year) per square meter of real estate property. In 2024, this is UAH 35.5 (approximately USD 0.87) per square meter.

5 Condominiums

5.1 Legal Framework for Condominiums

In Ukraine, the common property of a multi-apartment building, including technical premises, attics, basements, and other shared areas, is jointly owned and managed by all owners of the apartments and non-residential premises.

Until recently, the joint ownership of common areas in condominiums was often not formally registered. However, since October 2022, co-owners no longer need to take steps to register ownership of common property, as it is automatically done following the acquisition of apartments or non-residential premises in the building.

The management of these shared spaces typically falls under the responsibility of a management company or condominium association. The land plot beneath the building and the adjacent territory is also considered the common property of the co-owners. If the building is located on a state or municipal land plot, the land may be transferred:

• to a management company or condominium association with the right of permanent use; or
• directly to the co-owners with the right of ownership (free of charge) or permanent use (currently unavailable due to the lack of secondary legislation governing such procedures).

If the land plot is privately owned by the developer, the terms of use are determined by mutual agreement with the co-owners. However, a co-owner’s rights to use the land plot cannot be restricted under any circumstances.

5.2 Rights and Duties of Co-Owners

Co-owners in a multi-apartment building can manage common property through either a management company or a condominium association. In a management company setup, co-owners generally have less direct involvement in decision-making, whereas, in a condominium association, they typically enjoy more rights to participate in managing common areas and facilities.

5.3 Liability of Co-Owners

Co-owners in a multi-apartment building may manage common property through either a management company or a condominium association. In a management company setup, co-owners generally have less direct involvement in decision-making. In contrast, within a condominium association, they typically enjoy more rights to participate in managing common areas and facilities.

5.4 Rights and Duties of Condominium Associations

Condominium associations in Ukraine handle the administration of common property, including maintaining payments to be made by the co-owners, managing expenses, contracting with facility management firms, overseeing repairs, leasing out common areas, and pursuing legal actions.

6 Commercial Leases

6.1 Form and Contents of a Lease Agreement

The real estate lease agreement (excluding land plots with separate regulations) must be in writing. If the lease term exceeds three years (or five years for state or municipal property), the agreement must be notarized, and the lease rights must be registered with the Real Estate Register.

If a lease agreement is concluded between two private individuals, it must specify the object of the lease, the rent, and the lease term. The parties are free to set other terms at their discretion.

If one of the parties is a legal entity, the lease agreement must include the following mandatory provisions: (a) the object of the lease (composition and value of the property, including its indexation), (b) the lease term, (c) the lease payment, including its indexation, (d) the procedure for applying depreciation deductions, and (e) the procedure for restoring the leased property and the terms of its return or purchase.

In response to the large-scale invasion of Ukraine by the Russian Federation and the associated risks of property damage or loss, lease agreements now frequently include detailed force majeure clauses, clearly defining how such events as war impact lease obligations and the conditions for suspension or termination.

Furthermore, there is an increased focus on comprehensive pre-termination procedures, specifying the conditions under which a lease can be ended early without penalty. Insurance requirements have also become more stringent, mandating coverage for war-related damages to ensure financial protection.

Additionally, mechanisms for adjusting rent in response to significant disruptions or changes in property conditions are becoming more common, allowing for rent reductions or suspensions when necessary.

6.2 Regulation of Leases

The legal rules governing leases vary based on the property’s ownership type. State and municipal property leases are subject to stricter regulations according to Law of Ukraine “On Lease of State and Municipal Property” No. 157-IX dated October 3, 2019. In these cases, lease agreements are primarily concluded through electronic auctions and must use a sample form approved by the relevant state or local authority. While this sample form serves as a recommended template, parties can mutually agree on amendments to its provisions.

6.3 Registration of Leases

If the lease term exceeds three years, the lease right must be registered with the Real Estate Register.

6.4 Termination of Leases and Renewals

The lease agreement is automatically terminated by law in the event of the death or liquidation of either party.

Under general rules, the parties to a lease agreement can mutually terminate the lease unless the agreement specifies otherwise. The Civil Code of Ukraine outlines specific grounds for terminating a lease agreement:

1) by the landlord if the tenant:

• fails to pay rent for three consecutive months.
• uses the property in violation of the lease agreement or its intended purpose,
• allows another person to use the property without the landlord’s consent,
• neglects the property in a way that poses a risk of damage, or
• fails to undertake required capital repairs when such repairs are the tenant’s responsibility.

2) by the tenant if the landlord:

• provides property that does not meet the quality standards specified in the agreement or its intended use, or
• fails to perform necessary capital repairs as required.

These grounds for termination apply whether or not they are explicitly stated in the lease agreement. Additionally, under the“freedom of contract” principle, the parties may include other grounds for terminating the lease agreement beyond those specified by law.

If either party breaches the lease agreement as outlined above, the affected party may request termination of the lease. Should the other party refuse, the affected party can pursue termination through the courts.

The lease agreement will be automatically renewed if the tenant continues to use the property for up to one month after the lease’s termination, provided the landlord does not object.

In addition, a tenant who complies with the lease agreement has a pre-emptive right to renew the lease. To exercise this right, the tenant must notify the landlord of their intention before the current lease expires. The landlord may, however, propose changes to the terms of the new lease.

6.5 Rent Regulations and Rent Reviews

The parties involved in the lease agreement determine the rent at their discretion. The lease agreement or applicable laws (specifically for leasing state and municipal property) may allow for periodic review and adjustment (indexation) of the rent.

If circumstances beyond the tenant’s control significantly reduce their ability to use the property, the tenant is entitled to request a reduction in rent. Additionally, the tenant may be exempt from paying rent for the period during which they could not use the property due to circumstances beyond their control. In both cases, the tenant is responsible for proving the impossibility of using the property.

6.6 Services To Be Provided Together With the Lease

In practice, landlords commonly handle utility payments (water supply, sewerage, electricity, gas supply) directly, subsequently invoicing tenants for reimbursement. In commercial leases, landlords frequently include supplementary services beyond rent and utilities, charging exploitation (operation) fees. These services typically encompass security, cleaning, maintenance of ventilation and air-conditioning systems, maintenance of common areas, etc.

6.7 Fit-Out Works and Their Regulation

The tenant may only make improvements to the leased property with the landlord’s consent. If the landlord grants consent, the tenant is entitled to reimbursement for necessary expenses or may offset these costs against the rent payments.

If the improvements are separable from the property without causing damage, the tenant has the right to remove them.

Should the improvements result in creating a new asset with the landlord’s consent, the tenant becomes a co-owner of this new asset. The tenant’s ownership share shall correspond to the investments made for improvements unless otherwise stipulated by the lease agreement or law.

If the leased property is used for the tenant’s business operations, expenses incurred for fitting out the property (including depreciation) can be deducted from taxable income, contingent upon meeting specific criteria.

6.8 Transfer of Leases and Leased Assets

Under the general rule, the new owner of the leased property automatically assumes the role of landlord. However, the parties to the lease agreement may determine that disposing of the property to another party can terminate the lease agreement.

7 Zoning and Planning

7.1 How Are Use, Planning, and Zoning Restrictions on Real Estate Regulated?

Town planning in Ukraine is regulated by the Law of Ukraine “On Regulation of Town-Planning Activity” No. 3038-VI dated February 17, 2011. The law sets the hierarchy of town planning documentation and regulates the application of each type.

The law requires that acquiring title to municipal or state land plots for construction, changing the land plot’s designated use, and obtaining initial data for construction should strictly comply with the town planning documentation covering the respective territory.

Town planning documentation is distinguished based on the territory coverage, namely state (general planning scheme), regional (planning schemes of the regions), and local. The state and regional ones are generally rather broad and do not directly influence the way in which a particular land plot or real estate is used.

There are the following types of local town planning documentation:

(i) a complex plan (covers a territorial community);

(ii) a general plan (covers a town or a village); and

(iii) a detailed plan (details a part of a complex or general plan). A detailed plan is usually developed to enable a particular construction project. It determines the planning, organization, and development of a part of a given territory. It also defines the spatial composition, parameters for construction, and landscape organization of a given territory.

7.2 Can a Planning/Zoning Decision Be Appealed?

Applicable town planning documentation can be challenged in court once its provisions or adoption procedure contradicts the law.

The most common grounds for challenging are procedural violations during public hearings or inconsistencies with the superior town planning documentation.

If the town planning documentation is declared invalid, depending on the project’s stage, this may result in:

(i) cancellation of the land plot’s transfer into the developer’s ownership/use or challenging the change of the land plot’s designated use; or

(ii) considering the construction which began on the land plot as a squatter development with subsequent cancellation of the construction permitting documents.

Contributed by Jadek & Pensa.

1 Real Estate Ownership

1.1 Legal Framework

The right to private property is a constitutional right in Slovenia. The key source of law is the Property Code, adopted in 2002. This act is very stable and has so far been amended only twice. It is one of the core acts within the Slovenian legislative environment. Contractual relationships between the parties are regulated by the Code of Obligations, another highly important and stable act within the Slovenian legislative environment.

The Property Code recognizes five rights in rem, i.e., ownership right, lien, easement, right of encumbrance, and the right of superficies (the building right).

As regards specific restrictions for foreigners on the acquisition of RE, please see Section 2.1.

There are clear rules on expropriations in place. The Constitution of the Republic of Slovenia provides that ownership rights to real estate may be revoked or limited in the public interest with the provision of compensation in kind or monetary compensation under conditions established by law. The act regulating expropriations is the Spatial Planning Act which also determines the conditions thereof.

1.2 Registration of Ownership

The rights in rem are registered in the land register, managed by the Slovenian local courts. It is presumed, that the owner of immovable property is the person entered in the land register. The same applies to other rights in rem. One of the main principles of the Slovenian Law of Property Code is the principle of trust in the land register – whoever acts in a fair way during the course of legal transactions and relies on the data, which has been entered in the land register with regards to rights, shall not suffer any damaging consequences.

1.3 Publicity of Real Estate Register

The entries in the land register are public. The land register is accessible online.

1.4 Protection of Ownership

The entries in the register are binding. In accordance with the Slovenian Land Register Act any person who believes that their rights on the immovable property have been infringed by an entry in the land register may, within three years of the day the established land register begins to be used, request, by an action filed against the holder of a registered right, that the court:

– determines the existence of such person’s ownership rights, and decides that the registered right is to be deleted and that the right is to be registered for such person’s benefit, or

– determines that another right in rem exists on the immovable property for such person’s benefit, and decides that the right is to be registered for such person’s benefit, or

– determines that there is no other right in rem on the immovable property, on which the ownership rights are registered for such person’s benefit, and decides that the challenged right is to be deleted.

The filing of an action shall be noted in the land register.

Such an action is, however, not permissible against persons acting in good faith for whose benefit a right has been registered or preliminarily entered with effect before the moment at which the note in the land register has come into effect.

2 Real Estate Acquisition

2.1 Share Deal or Asset Deal?

RE can be disposed to investors via a share deal, i.e., buying a share in a company that owns the real estate, or as an asset deal, i.e., selling the real estate in question.

In a share deal, the buyer acquires shares in the target. With the acquisition of shareholding, the buyer becomes the owner of the target as a legal entity as a whole including all of the target’s assets, rights, claims, and liabilities. Also, all of the target’s contracts with third parties with all related rights and obligations as well as approvals, permits, and registrations are automatically acquired. The target’s business continues to be performed irrespective of the change of ownership except if there are any specific contractual or statutory provisions requiring obtaining consent in case of a change of ownership.

In an asset deal, the buyer acquires either all or individual assets such as for example real estate, production facilities, machinery, and licenses directly from the target. The business is therefore continued under a new, different legal entity (the buyer or one of its subsidiaries). This option allows the buyer to select the most attractive assets. The approvals, permits, and registrations are typically not transferred and must be reacquired by the buyer.

Share deal leads to the assumption of all the existing claims and liabilities of the target whether known or unknown to the buyer. In principle, by contrast, in an asset deal, there is no such automatic transfer of rights but only in the case of the purchase of individual assets or assets that do not form a business unit. However, if the buyer acquires assets forming a business unit, this also triggers under Slovenian civil law, statutory assumption of joint and several liability by the acquirer (together with the seller) for the obligations related to such transferred assets up to the amount (value) of the transferred assets. Contractual exclusion or limitation of this liability of the acquirer and/or the seller in such transaction is not effective.

As regards the existing contractual obligations, in a share deal, there is no change. Because the buyer only steps into the shoes of the seller, as the owner of the target, the business of the target continues uninterrupted and contracts remain in place (unless individual contractual agreements of the target give the counterparty the right to terminate; i.e., under a change of control clause). In an asset deal, any contracts/business relations among the target and its counterparties to be transferred (as part of the business/assets transfer) will require the consent of a counterparty to such contractual relationship. If the RE is leased to a tenant, the lease agreement is automatically transferred to the new owner of the RE. The seller remains jointly and severally liable together with the buyer for any obligations under such lease agreement (see below under Section 6.1).

In relation to the participation of employees’ obligations, in a share deal change of ownership in the target does not trigger rules that give the employees the right to block the transaction, but the employees/worker’s council has information/consultation rights. In an asset deal, transfer of business (assets) can require consultations with employees (worker’s council), who have the right to stay the execution of asset transfer and to initiate procedures for the settling of the dispute within eight days of receiving information about the anticipated asset deal, if: (i) the workers’ council was not acquainted in advance with the intention to transfer the assets, (ii) the information time limits were not complied or (iii) joint consultations on these issues were not requested.

As regards the FDI, the following conditions for FDI notification/clearance are applicable for foreign investors (i.e., a natural person with citizenship outside of the EU or entity with its seat outside the EU; notification obligation applies if there is an entity/person that is considered a foreign investor anywhere in the ownership chain); share deal would be caught by the definition of foreign investment, whereas pure asset deals (sale and transfer of assets) between Slovenian entities are not caught by a definition of foreign investment under Slovenian law, as the notification obligation is triggered with acquiring at least 10% equity or voting rights in a Slovenian company. However, greenfield investments are caught by the definition of foreign investment (e.g., establishing a Slovenian SPV in which a foreign investor shall directly or indirectly hold at least 10% equity or voting rights). In this case, the foreign investor should include the details of the asset deal in its FDI notification.

One of the reasons for acquiring the RE via a share deal is also the possibility of the tenant terminating the lease agreement in case of a change of RE ownership (while respecting the statutory termination deadlines) which would not apply in the case of a share deal. Further, RE in Slovenia by foreign physical persons or legal entities can only be acquired on condition of reciprocity (not applicable for EU physical persons or legal entities, OECD members, EFTA, persons with the status of a Slovene without Slovene citizenship, legal heirs and foreign testamentary heirs who would also be heirs by intestate succession when acquiring title to immovable property by inheritance and foreigners from the former republics of the SFRY who fulfilled all the conditions for registration before December 31, 1990). There are no such limitations in the case of a share deal.

In practice, share deals are more common than asset deals. A share purchase agreement regularly focuses on representations and warranties whereas an asset purchase agreement requires detailed identification of every single asset to be transferred.

2.2 Share Deal

In the relation between the parties, the share is transferred at the time of transfer as agreed between the parties. In the relation between the buyer and the target, under the law, the buyer can exercise its shareholders’ rights (vote as a shareholder in assembly, distribute profits, etc.) at the time the share transfer is registered in the court register. The transfer will be registered (retroactively) as of the time the application is filed, however only after the court issues a resolution (much like the process in the land register). The filing for share transfer can be made by the notary as instructed, usually at closing shortly after the transfer deed is signed. The court would normally issue a resolution on the share transfer in 3-7 business days, depending on the workload and time of year (holidays, etc.), but there is no statutory deadline. The resolution becomes final 30 days after it is issued if no party appeals. Waivers do not speed up this process because any entitled third party may appeal and the notary or court will confirm the finality only after the expiry of 30 days from the date of resolution. The buyer may already at closing appoint new managers, change the articles, etc. and the target shall file these changes with the court register together with the transfer of the share, pending the decision of the court on the share transfer. 

The share purchase agreement for business shares in a limited liability company (SPA) must be entered into in the form of a notarial deed. The SPA has to be filed with the court register for the transfer of shares and is kept in the court’s public records. It is not available online, but in practice, anyone can receive a copy from the register in person. When parties desire to keep the whole SPA confidential the transaction can be structured in a way that a short-form transfer deed (also a notarial deed) is executed at closing to which the full long-form SPA is attached, but not filed with the court register.

Any notarial deed entered into with a foreign party may be executed in English or Slovenian. The document filed with the court must be translated into Slovenian.

The risks in the transaction documentation are usually addressed with warranties/indemnities. 

There are no court fees connected to the share deal. For the costs of the notary, please see Section 2.4.

2.3 Asset Deal

The asset deal is concluded in the form of a written agreement between the seller and the purchaser. Key factors to be considered by the investor are ownership of RE to be purchased, encumbrances of RE (including those not entered in the land register), access to public roads, potential illegality of buildings located on RE, potential contamination of the land, and similar. The risks transferred to the buyer depend on whether or not the liability of the seller is excluded (the “as-is” clause).

The court fees for entering the new owner in the land register depend on the value of the real estate concerned.

2.4 Disposal Process

With the share deal, the share purchase agreement for business shares in a limited liability company (SPA) must be entered into in the form of a notarial deed. The SPA has to be filed with the court register for the transfer of shares and is kept in the court’s public records.

With the asset deal, the contract needs to be in written form. It needs to include the so-called “intabulation clause,” allowing the purchaser to be entered into the land register as the owner of the real estate. The signature of the seller needs to be notarized by a notary public. The contract may also be concluded in the form of a notarial deed, but this is not mandatory. In case the property tax shall be paid, the seller needs to file an application with the tax authority within 15 days of the conclusion of the agreement. The application needs to be accompanied by the original sale and purchase agreement and proof of ownership if this is not evident from the land registry. If the land is vacant building land, it shall also be accompanied by the location information issued by the municipality and, in the case of the sale of agricultural land, by a final decision of the administrative unit approving the transaction or stating that no approval is required. If there are any pre-emptive rights of the RE to be transferred (e.g., the pre-emptive right of a co-owner of the RE) the application should be accompanied by a waiver of the pre-emptive right. Although not required by law, project documentation is usually handed over to the buyer.

A notary public shall be liable to a client for damages caused by a breach of the duties or powers provided for in the Notarial Act.

For the preparation of notarial deeds, private deeds, and for the payment of other notarial services where the value of the subject matter is known or can be determined, the fee shall be assessed on the value of the subject matter to which the service relates. The basis for the assessment of the fee shall be the turnover value of the object at the time of the conclusion of the transaction, without deduction of debts.

2.5 Registration of Change of Ownership

In a share deal, the filing for share transfer can be made by the notary as instructed, usually at closing shortly after the transfer deed is signed. The court would normally issue a resolution on the share transfer in 3-7 business days, depending on the workload and time of year (holidays, etc.), but there is no statutory deadline. The resolution becomes final 30 days after it is issued if no party appeals. Waivers do not speed up this process because any entitled third party may appeal and the notary or court will confirm the finality only after the expiry of 30 days from the date of resolution.

In an asset deal, the notary files an application for the change of RE ownership with the land register court. The court usually enters the new owner within one month, unless there are other notices of pending actions entered with the real estate that need to be resolved first.

2.6 Risks To Be Considered

Pre-emptive rights need to be considered both in a share and in an asset deal.

With a share deal, in case the shares are co-owned in a limited liability company, co-owners have a pre-emptive right. In an asset deal, co-owners of RE (including in some situations of RE in condominiums, see below under Section 5.1.) also have a pre-emptive right. Pursuant to the Slovenian Code of Obligations, the seller needs to notify the pre-emption beneficiary of the intended sale, i.e. of the buyer and the conditions of sale, and offer the pre-emption beneficiary to buy the share/RE under the same conditions. The pre-emption beneficiary must notify the seller in a reliable manner regarding a decision to exercise the right of pre-emption within thirty days of receiving notification of the intended sale. At the same time as declaring the purchase, the pre-emption beneficiary must pay the purchase money stipulated in the owner’s notification of the intended sale or deposit it with the court.

If the seller sells an asset and transfers ownership to a third person without notifying the pre-emption beneficiary and the beneficiary’s right of pre-emption was known or could not have remained unknown to the third person, the pre-emption beneficiary may within six months of learning of the sales agreement demand that the agreement be annulled and the asset be sold to the beneficiary under the same conditions. If the seller erroneously notifies the pre-emption beneficiary regarding the conditions of the sale to the third person and this was known or could not have remained unknown to the third person, the six-month deadline shall run from the day the pre-emption beneficiary learned of the true contractual conditions. The entitlement shall in any case terminate five years after the transfer of the property to the third person.

Pre-emptive right on RE may be determined by the municipality with a decree. Such pre-emptive right may be established on building land, in the settlement development area, in another regulatory area, on agricultural, forest, water, and other land for the construction of public utility infrastructure facilities and facilities used for protection against natural and other disasters and in the long-term settlement development area. Further, the state may determine an area of a pre-emptive right in the area of the state spatial plan (DPN), in the area of regulation on the most appropriate variant, and in the area of the national spatial development plan. The owner of a property in the pre-emption area shall first offer the property to the state or municipality as the holder of the pre-emption right for purchase before selling it. The offer and the conditions of sale contained in the offer are not negotiable between the owner of the property and the state or municipality. The state or the municipality shall declare its acceptance or rejection of the offer in writing within 15 days of receipt of the offer. The statement of rejection shall state the date of receipt of the offer and the price offered. If the state or municipality does not submit a declaration of acceptance of the offer within 15 days of receipt of the offer, the state or municipality shall be deemed not to have accepted the offer. In this case, the owner may sell the property to another person, provided that the price is not lower than that offered to the state or the municipality.

The state or the municipality can also have a pre-emptive right if the sale concerns a monument of national or local importance, respectively. The state further has a pre-emptive right on the land in protected nature conservation areas, on the land on which war graves are located, and on the water land, whereas the municipality is a pre-emption beneficiary on inland waters coastal land.   

The special regime further applies in relation to agricultural land and forests. For such transactions, the competent administrative unit needs to issue an approval. In addition, a special regime applies to water and coastal land.

Pre-emptive rights or special regimes related to RE do not apply in a share deal.

3 Real Estate Financing

3.1 Key Sources of Financing

A key source of financing is loans. The loan agreement is regulated by the Slovenian Code of Obligations. There is no special requirement that the loan agreement be in writing unless it is concluded with a customer (physical person). In such cases, it shall be in writing or on other durable media. Financing is also possible by issuing real estate bonds.

3.2 Protection of Creditors

Loans are usually secured with a mortgage. The buyer may also secure the repayment of the loan by pledging other assets or with a fiduciary assignment (assignments of claims as collateral).

4 Real Estate Taxes

4.1 Transfer Taxes

The main tax to be paid is the real estate transfer tax (RETT) which amounts to 2% of the value of the real estate.

VAT is charged on (a) the supply, before the first occupation of a building or parts of a building and of the land on which the building stands and (b) the supply of building land. The supply is subject to VAT at the standard rate (22%). However, a lower rate of VAT applies to the supply of apartments, dwellings, and other buildings intended for permanent habitation, and parts of buildings, where they form part of a social policy. In other cases, and under certain conditions the parties may also opt for VAT. If VAT is charged, the sale is exempt from paying the RETT.

In case the building land is transferred as a going concern, neither VAT nor RETT is payable.

Under certain conditions also capital gains tax shall be paid.   

4.2 Specific Real Estate Taxes

The tax to be paid in connection with the ownership of a RE right is the compensation for the use of building land (NUSZ).

5 Condominiums

5.1 Legal Framework for Condominiums

Condominiums exist in Slovenia. It is defined as the ownership of an individual unit of a building and the co-ownership of common parts. An individual unit of a building must represent an independent functional whole that is suitable for independent use, such as a flat, a business premise, or some other independent premises. Other individually apportioned spaces may also belong to individual units of a commonhold if they form part of an immovable property in the co-ownership of commonhold unit owners. Common parts of a building are other parts that are intended for common use by the commonhold unit owners and the land on which the building stands. Other immovable property can also be considered to be common parts.

Co-ownership by all commonhold unit owners over the common parts shall be inseparably linked to ownership over the individual units. Co-ownership over the common parts of a building cannot be waived.

None of the co-owners may request the division of the co-ownership over the common parts.

A commonhold may only be at the disposal as a whole.

If an immovable property is owned by two or more commonhold unit owners and does not have more than five individual units, the other commonhold unit owners shall have a pre-emption right with regard to the sale of an individual unit of the commonhold.

5.2 Rights and Duties of Co-Owners

Co-owners shall have the right to possess an asset and to use it together with the other co-owners in proportion to their undivided share, without thereby violating the rights of the other co-owners.

Co-owners shall have the right to jointly manage a co-owned asset.

If the subject of the co-ownership is an immovable property, the other co-owners shall have a pre-emption right to buy that property when it comes up for sale. If the pre-emption right is exercised simultaneously by two or more co-owners, they may exercise their pre-emption right in proportion to their respective undivided share.

5.3 Liability of Co-Owners

Please see above.

5.4 Rights and Duties of Condominium Associations

The commonhold unit owners shall conclude a contract on mutual relations. If an immovable property is owned by more than two commonhold unit owners and has more than eight individual units, the commonhold unit owners shall appoint a manager. The appointment of a manager shall be considered a regular management operation. Further, if a building has more than two commonhold unit owners and more than eight individual units, the commonhold unit owners shall set up a reserve fund to cover future regular management costs. The funds of the reserve fund shall be common property of the commonhold unit owners. The funds shall be managed by the manager separately in a special account.

The rights and obligations of commonhold unit owners with regard to the common parts shall be proportionate to their respective co-ownership shares unless otherwise provided by an act or a contract.

As regards the duties of commonhold unit owners, a commonhold unit owner shall ensure repairs to his or her individual unit of the commonhold if this is necessary in order to avert damage to other parts of the building. Further, a commonhold unit owner may carry out alterations to his or her individual unit of the commonhold without the consent of the other commonhold unit owners, provided that such alterations do not entail the deterioration of any other part of the immovable property. Whenever alterations to an individual unit of a commonhold represent a major intervention in the common parts, a commonhold unit owner may not start carrying out the work without the consent of the other commonhold unit owners who have co-ownership shares of the common parts amount that more than one-half.

6 Commercial Leases

6.1 Form and Contents of a Lease Agreement

Through a lease (rental) contract the lessor undertakes to deliver a specific asset (e.g., RE) to the lessee for use, and the lessee undertakes to pay a specific rent for this. It is regulated in the Slovenian Code of Obligations. In general, during the lease, the lessor needs to maintain the leased property and repair it as required. The lessor shall reimburse the lessee for the costs of maintaining the leased property paid thereby in place of the lessor. Costs for minor repairs caused by the customary use of the leased property and the costs of use itself shall be charged to the lessee. The lessee must notify the lessor regarding necessary repairs.

There is no requirement that the lease agreement is concluded in a written form, however, it is market standard in Slovenia that such agreements are concluded in writing.

The key contents of a RE lease agreement are a description of the leased property, rent (including the costs), term and termination, permitted use, handover and warranties, maintenance and repair, investments and improvements, return of the leased property at termination, liability, landlord’s right of access, insurance, and subletting.

Another important aspect of lease agreements is that in case of the sale of the real property subject to the lease, the buyer will step in the shoes of the previous owner and the new owner does not have a right to terminate the lease agreement. The lessee, however, has the right to terminate it, respecting the legal periods of notice of termination.

Furthermore, in case of the sale of the leased property, the transferor shall be jointly and severally liable as a surety for the obligations held by the acquirer deriving from the lease. If the leased property was sold prior to its handover to the lessee, the transferor shall be jointly and severally liable as a surety for the obligations held by the acquirer towards the lessee deriving from the lease.

In Slovenia commercial leases are usually concluded either for an indefinite period of time with a certain notice period for termination for convenience or for a definite, longer period of time (counting in years).

6.2 Regulation of Leases

The legal rules for leases do not differ according to the type of property. The provisions that cannot be excluded, are as follows:

(1) Contractual exclusion or limitation of liability: Liability for material defects in the leased property may be excluded or limited by contract. A contractual provision by which such liability is to be excluded or limited shall be null and void if the lessor knew of the defects and intentionally kept silent if the defect is such that it prevents the use of the leased property, or if the lessor exploited a dominant position and obtained the provision through duress;

(2) Termination: If the leased properties are a health hazard the lessee may terminate the contract without notice, even if this was known when the contract was concluded. The lessee may not waive this right.

6.3 Registration of Leases

There is no requirement to register a lease, however, information on lease transactions in buildings and parts of buildings or premises shall, i.e., be provided by tenants that are legal entities who, in accordance with the rules governing the tax procedure, are deemed to be liable to pay tax in the income tax withholding tax return on income from letting property – when renting from natural persons, landlords who are legal entities or sole entrepreneurs, landlords who are managers of buildings or parts of buildings owned by the Republic of Slovenia and managers of multi-apartment or commercial buildings for parts of buildings co-owned by the owners of parts of buildings in a multi-apartment or commercial building.

The data shall be reported to the Mapping and Surveying Authority of the Republic of Slovenia (GURS).

6.4 Termination of Leases and Renewals

A lease agreement concluded for a definite period of time shall expire with the expiration of the time for which it was concluded. The parties may nevertheless agree to prematurely terminate the lease agreement concluded for a definite period of time. If following the end of the period for which the lease contract was concluded the lessee continues to use the leased property and the lessor does not oppose such, a new lease agreement for an indefinite period shall be deemed to have been concluded with the same terms and conditions as the previous agreement.

A lease agreement concluded for an indefinite period of time terminates for convenience with the notice of termination, respecting the agreed-upon notice period. If no notice period is determined in the lease agreement or by law, the deadline shall be eight days, but the termination notice may not be given at an inappropriate time.

Termination for cause applies in case of breach of obligations arising from the lease agreement. If the breach is, e.g. such that it cannot be cured or in case of material breaches (determined in the lease agreement), the lease agreement can be terminated without a notice period. Otherwise, the breaching party needs to be given the possibility to cure the breach before the agreement is terminated.

Automatic lease renewals are possible and are usually regulated in a way that the lease shall be automatically renewed unless either of the parties notifies the other party of the termination within a certain period prior to the termination of the agreement.

6.5 Rent Regulations and Rent Reviews

N/A

6.6 Services To Be Provided Together With the Lease

The lessor may provide certain services to the lessee, which is usually regulated with a separate agreement. Such arrangements are not common in Slovenia but are not unheard of either.

6.7 Fit-Out Works and Their Regulation

Fit-out works are agreed-upon contractually and can be done either by the tenant (on the basis of the landlord’s consent) or by the landlord for the tenant. Usually, the tenant pays the fit-out works. At termination, the parties may agree that the tenant either restores the place to its original condition or leaves the leased property as it is. They can also agree that in the latter case, the landlord pays a certain remuneration for the improvements done to the leased property.

If at termination the tenant leaves the property as it is (i.e., the investments and improvements remain in the premises) and the landlord pays a remuneration, in case the tenant is an enterprise (a company or a sole entrepreneur), this shall be considered as a regular supply of goods. In the case of a natural person, there would be no tax implications.

6.8 Transfer of Leases and Leased Assets

As described above.

7 Zoning and Planning

7.1 How Are Use, Planning, and Zoning Restrictions on Real Estate Regulated?

The planning and zoning are regulated by the Spatial Planning Act. The municipal spatial plan determines the purpose of the use of the land (agricultural, building land – construction can only occur on building land), spatial implementation conditions, including any obligation to hold a design competition, settlement areas, areas for the long-term development of settlements, the areas for which the detailed spatial plan shall be adopted, the redevelopment areas, the public areas and the utilities and other public utility infrastructure and the service areas where connection to and use of each type of public utility infrastructure is or will be provided. With the municipal detailed spatial plan the following shall be determined: urban, architectural, and landscape solutions for spatial planning, a plan of the building plots, the phasing of the implementation of the development, if required, the public utility infrastructure to be provided for the planned spatial development, the conditions relating to its construction, the connection of buildings to it, etc.

The municipal spatial plan is adopted by the municipal council in the proceedings foreseen in the Spatial Planning Act.

7.2 Can a Planning/Zoning Decision Be Appealed?

Administrative disputes against spatial planning acts can be brought before the Administrative Court of the Republic of Slovenia.

An action in an administrative dispute may be brought by:

• a person bringing an action for the protection of their rights and legal interests, if the contested spatial planning implementing act establishes a legal basis for the determination of their rights or obligations and if the person establishes that the contested spatial planning implementing act has, in that part, substantial consequences for them;
• a non-governmental organization with active status in the public interest in the field of spatial planning, environmental protection, nature conservation, or the protection of cultural heritage, if it brings an action for breach of the law to the detriment of the public interest in its field of activity; or
• the Public Prosecution Service, at the request of the government, for the protection of the public interest.

The time limit for bringing an action in an administrative dispute shall be three months from the entry into force of the Spatial Planning Implementing Act.

Contributed by Ments.

1 Real Estate Ownership

1.1 Legal Framework

Ownership is one of the fundamental constitutional rights. Everyone has the right to own property (including real estate) and the property right of all owners has the same content and protection. The property right is an absolute right applying erga omnes, is imprescriptible (i.e., not subject to a statute of limitation, so its judicial enforceability is never lost), and is rarely amended.

Unless prohibited or otherwise limited by various special laws, the same applies to foreigners, who are entitled to acquire and own the real estate property in Slovakia. For example, a specific regime applies in terms of agricultural land, in which case, the non-residents are still nowadays restricted in the acquisition of real estate in certain ways. For illustration purposes, acquiring ownership of agricultural land is restricted to (i) citizens of states, (ii) companies residing in states, or (iii) states and their administrative units, which legal system does not allow Slovak citizens or legal entities to acquire agricultural lands in such state. This reciprocity restriction does not generally apply to EU Member States, the European Economic Area (EEA), and to natural persons with residence or legal persons with registered seats in such states. However, these persons may still acquire ownership by inheritance.

Further restrictions may apply to foreign investment from the perspective of the foreign direct investment (FDI) reviews, which may, under specific cases (in the case of investment into the so-called critical infrastructure) restrict investors from the acquisition of the companies or assets in Slovakia. Though the FDI screening in the case of non-critical infrastructure companies/assets is voluntary (while, for the avoidance of any doubts, the critical infrastructure corresponds to elements of critical infrastructure in the energy, pharmaceutical, metallurgical, or chemical sectors as per Act No. 45/2011 Coll. on Critical Infrastructure), the Slovak government reserves the right to initiate ex post-screening screening proceedings on any foreign investment within two years from completion of the foreign investment (in case of non-critical infrastructure and without time limit in case of critical infrastructure) if there is a reasonable belief that foreign investment had a negative impact when it was completed. FDI may result in significantly altering the transaction (for example allowing the purchase of a smaller portion of shares or a divestment obligation) or even prohibiting it completely.

Specific ownership regime applies to certain assets, such as mineral wealth, caves, underground water, natural medicinal resources, and watercourses, which may only be owned by the state.

Despite its constitutional grounds, ownership may be limited or taken away. There are four cumulative conditions to expropriate a property, which is a forced restriction of the ownership right. The expropriation must be carried out on a legal basis, to the necessary extent, only in the public interest and always for reasonable compensation. Otherwise, there would be a violation of the ownership right.

1.2 Registration of Ownership

In Slovakia, the Real Estate Cadastre (Cadastre) is used for the registration of real estate ownership. The Cadastre is a public register and information system containing the geometric determination and description of all real estate properties in Slovakia and rights to them (such as ownership, pre-emption, mortgages, easements, etc.) and operates under the terms and conditions prescribed under the Act No. 162/1995 Coll. on the Cadastre of Real Estate and on the Registration of Ownership and Other Rights to Real Estate (Cadastre Act).

A person may dispose of a real estate property only subject to registration of such disposal with the Cadastre. In other words, disposals of real estate properties in Slovakia become only effective upon the decision of the competent Cadastre office on the proposed disposal (transfer, encumbering, etc.). There are, however, certain types of rights/liens pertaining to the real estate properties, which are not registered with the Cadastre and are created or established by virtue of law or as a result of a decision of an authority (such as easements or leases).

1.3 Publicity of Real Estate Register

The Cadastre is a public register and the vast majority of the information registered therein is publicly accessible. Ownership deeds, where entries such as the nature of the property, its location, owner, or any third-party rights (easements, mortgages, and alike), are freely accessible online as well as easily traceable based on the cadastral area and the title deed number.

However, the availability of documents, such as agreements, contracts, and court decisions – i.e., the grounds for registration of the property rights, is limited and these documents are only accessible to the owners, parties to a real estate transaction, their authorized representatives or specially authorized persons, as cartographers, within the meaning of special legislation.

Entries in the Cadastre are reliable and binding unless and until proven otherwise. Entries, whose value has been validly questioned must be rectified.

1.4 Protection of Ownership

A person seeking ownership right protection is entitled to apply to the court. If interested in protecting the ownership right through the court, he/she may claim for determination of the ownership by the court. To succeed in such type of proceedings, the claimant must demonstrate a compelling legitimate interest for the protection of his/her ownership right.

The judicial protection of real estate ownership is not just about determining whether there is a right or not. There are also specific mechanisms to ensure the direct protection of the ownership. For example, in the case of unauthorized occupation of real estate, the owner may seek to have the real estate evicted by a court order.

Trials in Slovakia tend to be long-lasting, which justifies the frequent use of interim measures (in Slovak, neodkladne opatrenie). An interim measure may order a party to do, endure, or refrain from doing something. This legal instrument is used to quickly ensure the protection of real estate ownership if there is an imminent threat to the rights or interests of the owner(s).

If the owner suffers damages in connection with the unauthorized use, they are entitled to compensation to the extent of the actual damages and profit loss (if any). Court proceedings shall be preceded by an attempt to out-of-court settlement and only if failed, the damage shall bring its claim to the court.

As already mentioned in Section 1.1, despite its constitutional grounds, ownership may be limited or taken away. In case of expropriation of real estate by the state, the owner is entitled to adequate compensation to be adhered to by the court in proceedings to rule upon the expropriation itself and the compensation.

2 Real Estate Acquisition

2.1 Share Deal or Asset Deal?

Real estate acquisitions are made either through the transfer of shares in the company to own the real estate property (Share Deal) or through the transfer of assets of the company (Asset Deal), each of them having its own advantages, specifics, and limits.

In both types of deals, conducting due diligence is crucial to assess the risks associated with the acquisition. It usually includes financial, legal, tax, environmental, and operational aspects of the target company and its real estate assets. This process may uncover any potential liabilities or issues that need to be addressed and is necessary when purchasing either the shares or the real estate property.

2.2 Share Deal

The acquisition of real estate through a Share Deal, i.e., indirect real estate acquisition, involves purchasing shares of a company to own the property instead of transferring ownership of the property itself. Share Deals are primarily governed by corporate law principles, meaning the acquisition process must adhere to all legal requirements related to corporate governance, shareholder rights, and the transfer of shares as stipulated by Slovak laws.

Acquirers usually choose Share Deal when they aim to benefit from a going concern and want to continue with the business operation of the acquired company. By way of a Share Deal, the acquirer not only acquires indirectly the real estate, but it also acquires all rights and obligations pertaining to the real estate such as permits, maintenance agreements, or lease relationships. This approach provides the acquirer with the advantage of not only obtaining indirect ownership of the real estate but also “taking over” all related rights and obligations, such as permits, maintenance agreements, or lease relationships. However, when considering the Share Deal, change-of-control clauses, which are commonly used, must be observed.

A share deal is implemented by a purchase agreement, specifically a share purchase agreement, the subject of which is the transfer of shares in a company. In Slovakia, the vast majority of entrepreneurs do their business in the form of a limited liability company (in Slovak, spolocnost s rucenim obmedzenym) or a joint stock company (in Slovak akciova spolocnost). In the case of agricultural lands, the establishment of cooperatives (in Slovak, druzstva) is also common. Under a Share Deal, alongside the acquisition of the shares in question, the acquirer indirectly acquires also the rights and obligations relating to real estate owned by the company acquired.

In the case of a limited liability company, a shareholder may in general transfer their share to another shareholder or a third person by contract subject to the regulation under the founding documents of the company and subject to the company’s general meeting approval, if required. A written agreement with notarized signatures of all parties thereto is required for a transfer of an ownership interest in a limited liability company. The transfer needs to be registered in the Commercial Register.

Shares in a joint stock company can have the form of certificated registered shares (physical shares) or book-entered shares. A common form of shares used by the companies is the certificated registered shares. Book-entered shares are typical, particularly with respect to financial or regulated institutions, such as banks.

Shares in a joint stock company are in principle freely transferable, except if, according to the articles of association, their transferability has been limited (but not restricted) subject to the company’s approval, in which case, the articles of association must also state the grounds for disapproval by the company with the share transfer. The articles of association may also provide for further/other conditions for share transfer. Failure to meet the prescribed conditions leads to invalidity of the transfer. Also, the transferability of shares in a joint stock company depends on the type of the shares.

In order to transfer the certified registered shares, an endorsement and handover is required. The transfer itself is completed upon the endorsement and hand-over of shares and is not required to be registered in the Commercial Register, however a change in the shareholder’s structure requires to be registered in the Commercial Register, provided that the company has a sole shareholder.

The book-entered shares are transferred by an agreement and registration of the book-entered shares on the owner’s account maintained by the central depository of securities of the Slovak Republic. The transfer itself is not required to be registered in the Commercial Register, it is completed upon the registration with the central depository of securities of the Slovak Republic.

2.3 Asset Deal

Acquiring real estate through an Asset Deal involves the direct purchase of the property itself, rather than acquiring shares of a company that owns the property. This approach is mostly used when the acquirer does not intend to acquire the whole company owning the real estate but only wishes to directly purchase the immovable asset(s).

When compared to the Share Deal, due diligence in the case of an Asset Deal may be simpler, focusing only on the inspection of the property, i.e., verifying the title, assessing any existing liens or encumbrances – third-party rights, access to the property, environmental burden and alike, as well as the basic corporate entries and governance of the seller.

A purchase agreement shall include all detailed terms and conditions, with the seller’s notarized signature and with all the pages, including annexes, connected together to a single document.

Advantages of an Asset Deal when compared to a Share Deal lay in the acquirer’s possibility to pick up only those real estate properties, that the acquirer wishes to buy, which significantly lowers the risk of any hidden liabilities furthermore, the acquirer does not have to acquire the whole company. However, the due diligence still needs to be detailed, so as to avoid undisclosed encumbrances, potential disputes related to the property, or further customary identified flags when inspecting a real estate property.

Furthermore, a specific regime to commercial leases applies in cases, when ownership of a commercially leased real estate property change takes place (briefly, as a general rule, a tenant shall be entitled to terminate its lease agreement as a result of the change of the real estate owner). In addition, even due diligence may not retrieve undisclosed encumbrances or disputes related to the real estate property.

Last, yet importantly and irrespective of the form, in Slovakia, ownership of a real estate property is subject to local tax, payable yearly and the rate varies subject to the location of the real estate property. When speaking of taxes, though there is no asset transfer tax in Slovakia, any gain from the real estate property sale is subject to general income tax in Slovakia, unless the disposal qualifies for income tax exemption; this takes place should the seller own the real estate asset more than five years or if at least five years lapsed since the real estate property has been exempted from its commercial use, if used for commercial purposes by the entrepreneur.

2.4 Disposal Process

The purchase agreement must be executed in written form in order for it to be valid, the signature(s) of the seller(s) must be notarized.

If a sold property is subject to matrimonial community (joint co-ownership) of the property or if the property is subject to co-ownership of multiple co-owners, consent of spouse/other co-owner(s) is required in order to avoid future challenging by spouse/other co-owner(s) of the Asset Deal. In addition, the co-owners have statutory pre-emptive rights, and therefore a sold property (its party) must be at first offered for purchase to all the co-owners only unless the pre-emptive right of the co-owners is affected, the seller may proceed with the Asset Deal to the third-party acquirer.

The transfer of the ownership right to the real estate is effective at the moment of registration in the Cadastre. The application for entry into the Cadastre may be submitted to the relevant cadastral department according to the location of the property in writing or electronically. The standard time limit for registration is up to 30 days and is subject to payment of EUR 100 fee. The accelerated procedure, associated with a higher fee (EUR 300), shall guarantee registration in the Cadastre within 15 days.

2.5 Registration of Change of Ownership

The process of registration is described in Section 2.4.

2.6 Risks To Be Considered

As mentioned earlier, even in the case of an Asset Deal, due diligence shall still be detailed and shall focus on the following risks (a list of which is not exhausted), which are customary dealt with in the course of Asset Deals.

Encumbrances

Easements and liens are in most cases those entries, which are publicly accessible since they are registered with the Cadastre on particular deeds of title. Encumbrances may be created by contract, a public authority decision, or by operation of law. There is a difference between contractual easements and decision-made/statutory-made easements. While the contractual easement has to be registered with the Cadastre in order to become effective, decision-made/statutory-made easements do not have to be registered with the Cadastre. This is the reason why the due diligence shall be detailed in both forms of real estate property acquisitions in Slovakia.

Pre-Emptive Right

A pre-emptive right takes place if the property is co-owned by multiple co-owners. If any of them decides to transfer part of the property, first they must offer its part for transfer to the remaining co-owners. Only unless any of the co-owners exercises its pre-emptive right, the transferring co-owner may proceed with transfer to a third-party acquirer. This pre-emptive right is designed to give existing owners the opportunity to maintain their ownership structure and prevent unwanted third parties from acquiring any part of the property. The transferring co-owner must offer its part to the remaining co-owners under the same conditions, as expected under the transaction with the third-party acquirer. Unless the pre-emptive right is respected and the part of the property is sold to a third-party acquirer without giving the remaining co-owners the opportunity to purchase it at first, the remaining co-owners are entitled to challenge the transaction at a trial, seeking to have the transaction annulled and to exercise their pre-emptive right.

Acquisition of Ownership from a Non-Owner

When acquiring ownership of real estate, checking the acquisition title of the seller is essential. Under Slovak law, the real estate property cannot be acquired from a now-owner, i.e., if the seller is not a legal owner of the real estate (due to some defects in the original acquisition of the real estate by the seller), it cannot legally sell the real estate property. Therefore, it is necessary to analyze the acquisition titles backward for the period of 10 years plus one proceeding acquisition title (the length of the prescription period plus one more title) so it can be determined whether there are any risks to the ownership right of the seller would be challenged.

Spousal Consent

Please, refer to Section 2.4.

Commercial Leases

Please, refer to Sections 2.4 and 6.1.

Legal Compliance

Real estate properties are subject to various local, state, or national regulations including zone planning, environmental regulations, and building codes. Non-compliance with these regulations can result in legal liabilities, fines, or even restrictions on property use. Also, it is very important to look at the planned construction of utility networks and significant investments, in order to determine whether there is any risk of expropriation.

Restitution Claims

In the past (from 1945 to 1990), owners of the land have been forced to transfer their properties (in particular lands) to the state. Since 1990, the modern state has had the ambition to remedy these unlawful takeovers of the land and allowed former owners of the properties, or their heirs, to claim restitution of their properties to them. Time periods for submission of any restitution claims have already lapsed. However, certain restitution proceedings are still pending, resulting in potentially invalid transfers of the properties nowadays. Investigation of competent authorities is a customary part of real-estate due diligence in Slovakia.

3 Real Estate Financing

3.1 Key Sources of Financing

Real estate financing in Slovakia involves several key sources, each with its specific characteristics. Commercial banks offer various mortgage loans for individuals as well as leveraged financings to developers. It is the most common form of real estate financing. Most banks give a mortgage up to a maximum of 80% of the real estate value in the case of natural persons and customarily up to 60% when speaking of leveraged financings.

Many developers use also investments from smaller private investors by issuing securities and co-financing their investment activities with these funds (such as bonds, crowdfunding, out-of-the-bank financing, etc.). However, the cost of the funds from ordinary investors, compared to bank loans, is usually much higher.

3.2 Protection of Creditors

Irrespective of whether the funds come from the bank or private investors, any lender usually seeks for security to avoid losing its investment, should the borrower fail to repay the borrowed funds. The most used types of security in relation to real estate financing are:

a mortgage, establishing an in rem right over the real estate property, allowing the mortgagee to reimburse its investment to the project by means of selling the real estate property under the agreed terms, should the borrower fail to comply with the agreed terms of the financing; a mortgage is registered with the Cadastre and is considered to be one of the most secure security types used in the financing;

a pledge over receivables, which establishes an in rem right over the receivables of the debtor (as a specific rule, a pledge over receivable may be established only if a receivable is freely assignable, or subject to the consent of the third-party creditor with the establishment of a pledge;

a pledge over shares, which is widely used in real estate financing, and which implicitly forces the shareholders of the developer to be involved and to guarantee the repayment of the funds provided;

a pledge over bank accounts, which is a sub-group of a pledge over receivables, while it is important to note, that generally, bank accounts receivables are not freely transferable, and therefore this type of security is mainly used within banking financings;

a notarial deed, which represents a directly enforceable execution title over the debtors’ assets without the need to undergo a court trial beforehand.

As the most commonly used type of security, a pledge is established by a written pledge agreement between the pledgee and the pledgee’s creditor. Subsequently, the pledge over real estate is registered in the Cadastre and, if the debtor fails to fulfill his obligation, the creditor can enforce its pledge. In the first instance, the creditor should call on the debtor to fulfill the obligation and give him a reasonable period of time. If the debtor fails to fulfill the obligation even within the additional period, the creditor may proceed to enforcement of the pledge, which may include the voluntary sale of the pledge, auction, or other means agreed in the contract.

In case of the debtor’s failure to fulfill his obligation, the creditor always has the option to file a lawsuit with the court, which decision is binding and enforceable.

4 Real Estate Taxes

4.1 Transfer Taxes

There are no real estate transfer taxes applicable in Slovakia.

However, if the seller receives income from the sale of the real estate, that exceeds the costs of the seller for the acquisition of the real estate property by the seller in the past, such surplus may be subject to income tax in Slovakia, provided this income is not exempt from tax. Income from the sale of real estate is exempt from tax after a period of five years from the date of its acquisition or from the exclusion from assets used for business if the asset was used for business purposes. The income tax rate varies depending on whether the income is taxed by a natural person or a legal entity and it ranges from 15% to 25%.

The sale of real estate is subject to VAT only in the case that the seller sells real estate during an economic activity, i.e., the sale of real estate is the subject of his business activity. Also, the sale of real estate is subject to VAT if the seller has taken active steps prior to the sale such as those used by business entities – e.g., putting in utilities, using proven marketing steps, etc. The sale of private real estate by a private individual is not subject to VAT.

In this context, it should also be noted that, as of 1 January 2025, a new Act has come into force introducing a transaction tax. This tax would only be applicable if the payment is made cashless from the account of an individual entrepreneur/corporate entity. The tax rate is 0.4% for cashless payments made from a transaction account, regardless of whether the payment is directed to an account in Slovakia or abroad, with a maximum tax amount of EUR 40 per transaction.

4.2 Specific Real Estate Taxes

The real estate tax is the only tax directly related to real estate ownership, while Act No. 582/2004 Coll. on Local Taxes and Local Fee for Municipal Waste and Minor Construction Waste distinguishes between land tax, tax on buildings, and tax on flats and non-residential premises in a residential building. It is a local tax, which means that the administration of the real estate tax is carried out by the relevant municipality. The real estate tax is payable once a year and the owner is obliged to file a tax return by January 31 of the year following the year in which the property was acquired. The rate of tax depends on the type and size of the property and is determined by the municipality in which the real estate is situated. Real estate owned by the municipality, state, churches, public universities, public research institutions, the Slovak Red Cross, etc. are exempt from this form of tax.

5 Condominiums

5.1 Legal Framework for Condominiums

Condominiums (in Slovak, bytove domy) are regulated by Act No. 182/1993 Coll. on the ownership of flats and non-residential premises (Act). According to the Act, condominiums (apartment houses) mean buildings in which more than half of the floor area is intended for housing, the flats and non-residential premises are owned or co-owned by individual owners and there are common parts and common facilities in the proportionate co-ownership of these owners of flats and non-residential premises.

5.2 Rights and Duties of Co-Owners

According to the Act, the owner of a flat or non-residential premises in a condominium has a couple of duties, such as the owner is obliged to maintain its premises in a condition suitable for proper use, not to disturb or endanger others in the exercise of their rights, to remove defects and damage, to allow the entry on request of a representative of the community and alike.

On the other hand, the owner of premises shall be entitled to use its premises, to rent them to another person, the right to inspect documents related to the management of the building or the use of the operation, maintenance, and repair fund and lastly the right and at the same time obligation to participate in the management of the building and to vote as a co-owner.

5.3 Liability of Co-Owners

In addition to the general obligations of the premises’ owners described above, co-owners are specifically required to repair any defects or damage they or their tenants cause to the property. Secondly, co-owners must permit the correction of deficiencies found during safety inspections of the technical equipment. In case of obstructing these corrections, they are responsible for any resulting damage. Furthermore, to ensure compliance with obligations related to the management of the condominium, a lien can be placed on the co-owners unit in favor of the other co-owners. Co-owners are also obliged to pay payments to the fund for operation, maintenance, and repair, and reimbursement for performances. In order to secure claims arising from legal acts concerning the common parts of the house and claims arising from legal acts concerning the flat or non-residential premise made by the owner, a pledge in favor of the other owners is created by law on the flat or non-residential premise in the house.

5.4 Rights and Duties of Condominium Associations

According to the Act, condominium associations have the following rights and duties:

Managing and administering the common areas and facilities of the condominium and decision-making regarding maintenance, repair, and improvements; collecting contributions from co-owners for the costs associated with their responsibilities and creating and managing a fund for repair is another right of association; enforcement of the rules and regulations set out in the condominium’s bylaws and imposing penalties for violations. When it comes to legal matters or disputes involving the condominium, the association is the representative acting on its behalf.

The association comes with certain duties, such as maintaining and repairing the common areas and facilities, ensuring their safety and good condition. It also needs to act responsibly, when it comes to managing the condominium’s finances, keeping accurate financial records, and providing regular reports to the co-owners. Addressing any deficiencies identified during safety inspections promptly and ensuring compliance with all relevant laws and regulations related to safety, health, and building standards is another duty to be fulfilled. Regular meetings should be held for an association to communicate with the co-owners all the important decisions, upcoming maintenance work, and any changes to the rules. Furthermore, the association has a duty to resolve conflicts among co-owners and between co-owners and the association itself in a fair manner.

6 Commercial Leases

6.1 Form and Contents of a Lease Agreement

In Slovakia, real estate lease agreements are primarily governed by Act No. 40/1964 Coll., the Civil Code, as amended (Civil Code). Lease and sublease of non-residential premises are specifically regulated by Act. No. 116/1990 Coll. on the Lease and Sublease of Non-Residential Premises (Lease Act), as amended. The Lease Act applies to the lease and sublease of non-residential premises intended for business, commercial activities, administrative purposes, storage, provision of services, etc. Generally speaking, premises that are not used for living but for other purposes are governed by the Lease Act. Other leases of real estate are all governed by the Civil Code. When entering into a lease agreement, it is important to clearly specify the purpose of the lease and proceed according to the relevant regulations. There are some differences when it comes to the lease agreement according to the Civil Code and the Lease Act, for example, a lease agreement concluded under the Lease Act is much more formalistic. For the validity of a lease agreement concluded under the Civil Code, it is sufficient to specify the subject of the lease. For the validity of a lease agreement under the Lease Act, the subject, the purpose, the amount of rent, the due date, the method of rent payment, and the lease term must be specified, If the agreement does not include any of these essential elements, it is absolutely invalid. There are also further specific laws to govern lease of the forest and agricultural lands as well as real estates owned by state, authorities and municipalities.

While under the Civil Code, verbal agreements (including lease agreements) are generally legally valid, in the case of leases, written agreements are strongly recommended for clarity and legal enforceability. On the other hand, according to the Lease Act, the lease agreement must be concluded in writing. Key components of the lease agreement for real estate (irrespective of whether concluded pursuant to the Civil Code or the Lease Act) include identification of the parties, detailed description of the leased property including all relevant specifics, purpose of the lease, term of the lease, rent and payment terms, and rights and obligations of both parties. A lease agreement for a flat is also regulated by the Civil Code and in order for it to be legally valid, it must be concluded in written form. Other key components are similar to the ones listed above.

6.2 Regulation of Leases

Please, refer to Section 6.1.

6.3 Registration of Leases

Registration of a real estate lease is not required in Slovakia.

In cases of leases exceeding the five-year term, registration with the Cadastre is voluntary. Non-registration has no impact on the validity or effectiveness of the lease agreement or the lease itself. The advantages of registration lie in its publicity, which means any third party will be aware of the lease’s existence.

6.4 Termination of Leases and Renewals

Any lease agreement may be either terminated or renewed by the agreement of its parties. Generally, parties to the lease agreement are entitled to deviate from the prescribed means of a lease termination, and even more, they can provide for their own termination reasons.

In commercial leases, it is common to negotiate the prolongation options of the lease, either automatically upon notice from one party or by agreeing on a new amount of rent.

In terms of commercial leases, a lease for a definite time shall be terminated automatically by the lapse of the agreed lease term. The landlord shall be also entitled to terminate a lease for a definite time by notice with a three-month notice period in cases when the tenant uses the premises in breach of the lease agreement and when the tenant is in delay with payment of the rent of more than one month, tenant subleases the premises without the landlord’s consent and a couple of further reasons specified in the laws. On the other hand, the tenant shall be entitled to terminate the lease agreement by notice if the tenant is no longer entitled to perform the activities for the purpose for which the tenant had leased the property, the premises are no longer suitable for the lease for other reason than due to tenant’s fault or if the landlord flagrantly infringes its duties under the Lease Act.

Compared to the lease agreement concluded for an indefinite time, both the tenant and the landlord shall be entitled to terminate the lease agreement by notice for no cause, unless agreed otherwise between them. When terminating the lease by notice, a written notice must be served and delivered to the other party.

6.5 Rent Regulations and Rent Reviews

Parties have the freedom to set any rental amount they choose when it comes to private contracts. However, leases involving state-owned or municipal properties must adhere to what is known as “market rent.” Typically, lease agreements also feature clauses that adjust rent based on inflation indexes from Slovakia or the European Union on a year-to-year basis. Recently, there has been a trend to cap year-to-year changes in rent, however, due to the decreasing inflation, these caps are used less widely nowadays.

6.6 Services To Be Provided Together With the Lease

Real estate leases often include common services, although the specifics can vary based on the type of the property as well as the terms of the agreement. Typically, the common services include the provision of utilities such as water, electricity heating, waste management, etc. There are also service charges, which are usually billed monthly in the form of advance payments and are subject to annual reconciliation. These are standardly billed separately from the rent, as including them in the rent may invalidate the contract. Among other services, we may include maintenance, such as cleaning, and repair of common areas which is usually included in the rent.

The specific services and utilities included with the rent are clearly detailed in the lease agreement and both parties should agree on what is covered by the rent and what is billed separately.

6.7 Fit-Out Works and Their Regulation

If a tenant wishes to customize the leased premises (so-called fit-outs), a couple of legal and tax implications shall be considered.

Typically, any fit-out works will be subject to the landlord’s prior consent. Tenants will also have to ensure that the renovations comply with building regulations. Many lease agreements require tenants to return the premises to their original condition upon lease termination. A sanction for changing the property without the landlord’s approval is the duty to restore the property to its original state at the tenant’s expense.

Under Act no. 222/2004 Coll., on value added tax (VAT Act), if a tenant carries out fit-out works that enhance the value of the leased premises, such improvements are considered non-monetary income for the landlord, assuming the landlord has not reimbursed these costs and has agreed to the works. Provided that the conditions outlined in the VAT Act are met, this income may be subject to depreciation. Typically, parties agree in the lease agreement on the manner of depreciation of the fit-out works or any other improvements of the premises made either by the landlord (if so-agreed in the lease agreement) or by the tenant (subject to the terms and conditions in the lease agreement).

6.8 Transfer of Leases and Leased Assets

A transfer of the leased property has no effect on the validity of a lease agreement, however, if such transfer occurs, the tenant is usually entitled to terminate the agreement with notice. The termination in this situation is due to the change of the landlord.

Generally, the tenant cannot transfer the lease to another party without the landlord’s consent. If the landlord consents to the transfer of the lease to another party, the lease agreement remains valid and continues under the new tenant, subject to the agreement between the landlord and the new tenant.

7 Zoning and Planning

7.1 How Are Use, Planning, and Zoning Restrictions on Real Estate Regulated?

The use, planning, and zoning restrictions on real estate are regulated through a combination of national and local legislation. The primary legislation is Act No. 50/1976 Coll. on spatial planning and building regulations (Building Act) which regulates the procedures for obtaining building permits, the responsibilities of different authorities, and the requirements for construction projects.

A new Building Act has recently been approved and is set to take effect on 1 April 2025, replacing Building Act. The primary goal of this new law is to simplify and accelerate the construction process while reducing administrative burdens and enhancing transparency. One of its most significant changes is the elimination of the existing two-stage approval process (zoning decision and building permit). Instead, it introduces a single Building Plan Procedure, through which the building authority grants consent for construction activities. At the same time, the responsibility for building law matters continues to fall under the competence of municipalities.

Another important legislation is Act No. 200/2022 Coll. on spatial planning which stipulates that the Office for Spatial Planning and Construction of the Slovak Republic serves as the central state administration body for spatial planning, construction, and expropriation. However, the creation of zoning plans, which define the permitted use of land in different areas such as residential, commercial, industrial, agricultural, and green zones, remains an original competence of municipalities. Municipalities are responsible for developing and approving local zoning plans. These local zoning plans are adapted to local conditions and needs, and all construction work or significant renovation projects are subject to permission from the relevant building authority. The process of obtaining the permission consists of submitting detailed plans and ensuring compliance with the relevant zoning regulations. Then, the building authority specifies in its decision the conditions that must be met during construction.

Compliance with the zoning regulations is enforced through inspections and fines. The building authorities conduct inspections to ensure compliance with building permits and zoning regulations and non-compliance results in fines, mandatory modifications or even demolition of unauthorized buildings.

7.2 Can a Planning/Zoning Decision Be Appealed?

Planning/zoning decisions may be appealed through a process involving administrative review and potentially subsequent judicial review. The general rule applies to the appeal procedure, which means that there is a 15-day time limit for appealing and the appeal is lodged with the authority that issued the decision in question. However, the possibility of appeal is always specified in the decision, which must include a statement of the remedy.

Contributed by Bancila, Diaconu si Asociatii.

1 Real Estate Ownership

1.1 Legal Framework

This introductory section describes the general legislative framework and the principles governing private property in Romania.

Private ownership protection and its main principles are regulated by the Constitution (Article 44) and by the Civil Code (Article 555 and the following), together with Law No. 71/2011 on the implementation of the Civil Code. Other main sources of regulation on this matter are:

• Law No. 7/1996 on cadastral works and real estate publicity;
• Law No. 10/1995 on construction quality;
• Law No. 50/1991 on the permitting of construction works;
• Law No. 350/2001 on urban development and land use planning;
• Law No 18/1991 on land patrimony;
• Law No. 1/2000 on the reinstatement of ownership rights over agricultural and forest lands;
• Law No. 10/2001 on the regime of the real estate illegally seized between 6 March 1945 and 22 December 1989;
• Law No. 165/2013 on certain measures for finalizing the restitution process for the real estate illegally seized by the state during the communist regime;
• Law No. 247/2005 on property and justice reform;
• Law No. 312/2005 on the acquisition of private ownership rights over land by foreign citizens, stateless persons, and legal entities;
• Law No. 17/2014 on the sale of extra muros agricultural lands;
• Law No. 331/2024 regarding the Forestry Code etc.

The Constitution has the greatest degree of stability in the Romanian law system. Also, the current Civil Code, which entered into force on October 1, 2011, was subject to few amendments ever since, thus we may reasonably expect a high level of stability regarding private property regulations. The other abovementioned laws have been subject to frequent amendments.

Please note that for specific issues or situations which originated before October 2011 (the entering into force of the current Civil Code), the former Civil Code of 1864, and other laws in force at the given time apply (e.g., in the case of an acquisitive prescription).

Many of the Romanian laws governing real estate properties have been enacted as a result of the nationalization of private property during the communist regime and their main purpose is either to restore the properties to their rightful owners or to compensate them.

Before acquiring real estate properties in Romania, investors should first research if any claim based on the special restitution laws has been filed in relation thereof.

Types of Property

As per Romanian law, there are two forms of property, namely public and private property.

Public property is mostly regulated through separate legislation and is inalienable and imprescriptible, meaning that it cannot be freely bought, donated, or otherwise transmitted to third parties. Also, public property cannot be seized, and it can bear no securities.

Public property belongs to the state or to the territorial-administrative units, while private property may be owned by the state, the territorial-administrative units, as well as by any natural and legal persons.

The main attributes of the private ownership right are possession, usage, and disposal, which can be cumulated or dismembered between several persons (e.g., one having the usufruct, or the right of use and fructus, while the other having the bare ownership). If all the above-mentioned attributes belong to the same owner, we are in the presence of a full ownership right.

One of the most used dismemberments in Romania is the superficies right (the right which entitles its owner to build or to own construction on a third party’s land), which may be constituted for a period of a maximum of 99 years.

Restrictions for Foreigners in Acquiring Real Estate

According to the Constitution, private ownership protection is equal for all. Foreign citizens and stateless persons can acquire ownership rights over lands (i) according to the conditions resulting from Romania’s accession to the European Union and to other international treaties to which Romania is party, (ii) on the basis of reciprocity, or (iii) if the land is acquired by legal succession (as opposed to testamentary succession).

The general rule for citizens of the European Union and European Economic Area (Member States), for stateless persons domiciled in Member States, and for legal entities established according to the legislation of a Member State, stipulates that they can acquire ownership rights over real estate (including land) in the same conditions as Romanian citizens and Romanian legal entities, under the conditions provided for in Article 3 of the Law No. 312/2005.

As per Article 4 of Law No. 312/2005, starting from January 1, 2012, the above-mentioned persons, who are not residents of Romania, are allowed to directly purchase real estate properties (lands) in Romania for the purpose of establishing a secondary residence in case of natural persons or a secondary registered office for legal entities.

Starting January 1, 2014, such persons are also entitled to directly purchase agricultural lands, forests, and forest lands, as stipulated under Article 5 of Law No. 312/2005. Nonetheless, specific restrictions for such foreigners are provided by Romanian law in case of extra muros agricultural lands (i.e., agricultural lands located outside the city limits). Such lands can be acquired only by Romanian citizens or by foreign persons who resided for a certain amount of time in Romania.

Citizens of a non-Member State, stateless persons domiciled outside a Member State, and legal entities registered in a non-Member State can only acquire land in accordance with applicable international treaties and on the basis of reciprocity. However, the conditions for acquiring ownership rights for these categories cannot be more favorable than those applicable to Member States citizens and/or to legal persons established in a Member State.

Expropriation of Ownership

The expropriation of private property is regulated through the Romanian Constitution and subsequent legislation. However, expropriations may only be performed for public utility reasons established by the law, with the payment of a preliminary and fair compensation.

The compensation is computed to reflect both the effective value of the expropriated real estate and the damages caused to the owner by the expropriation (i.e., in case of a partial expropriation, the diminishing of the value of the remaining real estate should also be considered).

Even if the compensation should reflect the market value of the expropriated real estate, in practice, expropriators usually offer only the amount calculated according to the pricing studies performed for and adopted by the Chambers of Public Notaries (Notaries Price Chart), whereas it is to be noted that such studies contain only the minimum indicative values for real estate properties in a specific locality, not always reflecting the market price. Moreover, the initial main purpose of such studies was to combat tax evasion, irrespective of the price agreed in a sale purchase agreement (if lower than the minimum value provided for in the study adopted by the Chamber of Public Notaries in a city for a specific year), the notarial fees and Land Registry expenses are computed based on these minimum values.

The expropriating authority must first attempt to negotiate a settlement with the owner being expropriated. Should a settlement not be reached, or should there be a disagreement regarding the compensation, the dispute shall be resolved by the competent courts of law, whereas an independent expert may be appointed to evaluate the asset.

The basic legislation on expropriation was amended in August 2018 in respect of the categories of public utility works triggering the expropriation and of the deadline granted to owners for submitting the relevant documents for the fair compensation to be calculated.

Moreover, on November 15, 2021, the Supreme Court stated in a mandatory decision that the courts are bound to consider all the criteria established by the specific legislation when establishing the compensation due for expropriation.

1.2 Registration of Ownership

In Romania, real estate properties are registered with the Land Register, which is a publicity system of all legal agreements and deeds regarding real estate and it is administered by the National Agency for Cadaster and Real Estate Publicity. The legal framework is the Civil Code and Law No. 7/1996, mentioned in Section 1.1.

The registrations are performed in separate land books, opened for each individual land plot. Each land book contains the cadastral number of the real estate, its postal address, a description of the real estate (land plot with or without buildings erected thereupon, dimensions of the real estate, its use categories, such as agricultural or constructible land), the name/s of the owner/s and other persons which have rights over the real estate, such as usufructuaries, as well as any encumbrances registered with the respective property (e.g., mortgage, rights-of-way, and/or any other third party rights, etc.). It also contains the number and date of the agreements or deeds based on which the registered rights were established.

Currently, not all real estate properties are registered in the Land Register or have cadaster documentation in place, this is the reason why the registration with the Land Register still has only an opposability effect. According to the Civil Code and its enforcement law, the registration with the Land Register shall have a constitutive effect once the cadastral works for a particular administrative-territorial unit are fully completed (i.e., all real estate properties belonging to an administrative-territorial unit are being measured, and their cadastral documentation are officially registered in the electronic integrated information system for cadastre and land register in Romania, e-terra). Whereas such cadastral works were finalized for an insignificant number of smaller localities (communes, but mostly villages), it remains uncertain when those works will be completed at the city or county level, not to mention nationwide.

Once the right over a real estate property is registered with the Land Register, any modification of its legal or material structure must also be registered with the Land Register, otherwise, such amendment is not opposable to third parties. For example, if a land plot is being partitioned, each new lot resulting from such partition will represent a new real estate, which is to be separately registered in its own (new) land book.

Several registrations with the Land Register are not mandatory but are required for the same opposability purpose in relation to third parties, such as:

• placing an individual under judicial interdiction, and the lifting of such measure;
• requests for declaring the death of an individual, the court decision on the death of an individual, and the annulment/modification thereof;
• lease agreements in respect of the real estate property;
• the so-called lex commissoria (unilateral termination clauses) inserted into an agreement, and the respective executed declaration of termination;
• conventional pre-emption rights;
• the court files relating to the registered real estate property.

This requirement is not absolute, meaning that one can prove that third parties had gained knowledge about such agreements and deeds by other means, except when the law states that such external knowledge is not sufficient to replace the registration.

Registration with the Land Register is not required when the real estate property is obtained by way of succession, natural accession (i.e., an addition to property by natural forces), seizure, expropriation, and in other cases provided by the law. However, land book registration is still necessary, should the owner wish to transfer the real estate, prior to such transfer.

1.3 Publicity of Real Estate Register

Any person can obtain a land book excerpt about a certain real estate (extras de carte funciara) from the National Agency for Cadaster and Real Estate Publicity, including online/electronically. The cost is RON 20 (approximately EUR 4) per excerpt, and it is not necessary to justify an interest for such a request, as one of the main purposes of the land book is to inform third parties about land book registrations.

Also, any person can request information from the integrated information system for the cadastre and land register and may consult the cadastral and legal regime of the documents registered therein.

1.4 Protection of Ownership

Currently, as mentioned in Section 1.2., the registration in the Land Register has an opposability effect and it only creates a presumption of ownership, not an absolute proof of ownership. Therefore, the registrations provided in the Land Register may be challenged by any interested party in a court of law.

However, the current Civil Code strengthens the position of subsequent buyers registered with the Land Register, and who acquired the real estate property in good faith by time barring the claims for rectification of the Land Register filed by any interested party. Thus, the Civil Code provides for a three-year term in case of onerous transfers, whereas in the case of real estate acquired by donation or testament the statute of limitation for filing such rectification claims is five years.

We note that no real estate may be sold without it first being integrated into the cadaster and Land Register. In case of unlawfully used or occupied property, the owner may initiate an eviction claim, following the procedure provided by law.

2 Real Estate Acquisition

2.1 Share Deal or Asset Deal?

Under Romanian law, a share deal involves the transfer of ownership over shares in a company (i.e., a special purpose vehicle (SPV) in which the physical real estate asset is held), which leads to the indirect transfer of ownership over the real estate belonging to such company, whereas an asset deal involves the transfer of ownership over one or more real estate assets owned by a company (or by a natural person).

Whereas a share deal is preferred by sellers, especially when the assets/portfolios are being held by one or several SPV/s, as it will allow the seller to avoid latent capital gains tax and transfer taxes, and thus command higher net proceeds, whilst extinguishing any ongoing involvement with the SPV owning the real estate assets, asset deals are straightforward and preferred by buyers as it will allow them to avoid buying a company with a long tax, financial and possibly also employment history, and to reset the tax base of the property for local tax purposes.

In the case of a share deal, the operational permits obtained in view of the company’s activity performed in relation to the real estate will maintain their validity (for example, in the case of a company operating a hotel, the certifications issued from the Ministry of Tourism remain available), while in case of an asset deal, such operating permits will have to be obtained again.

For the validity of a share deal, a document under private signature is sufficient, while an asset deal implies the conclusion of a notarized document and the payment of notarial expenses and fees for registration with the Land Register amounting to approximately 1.2% of the purchase price.

The asset deal structures are more predominant in daily transactions on the Romanian market (single assets transactions involving mostly housing units or residential assets, as well as land plots with no constructions). However, in the case of acquisitions of real estate portfolios and income-producing real estate assets, there is a clear preference for sellers to opt for share deals.

Market trends

Due to the approach of remote work triggered by the COVID-19 pandemic and currently still present in the market, the surface and configuration of the sold residential units are weighted heavily in most acquisition decisions.

Although many businesses are currently in the process of implementing return-to-office policies, the changes brought by the COVID-19 pandemic are still impacting the market.

The agribusiness sector was affected by the legislative uncertainty caused by Law No.175/2020, followed by the Government Emergency Ordinance No. 104/2022 (GEO no. 104) and Law 116/2024, which brought fundamental changes to Law No. 17/2014 on the sale and purchase of agricultural lands in Romania located outside the city limits (extra muros).

Currently, there is an obligation of the seller of agricultural lands to pay an 80% tax if the sale takes place within a term of eight years from the acquisition date. Such tax shall be applied to the positive difference between the value of the agricultural lands at the sale date and the value at the purchase date, determined according to (i) the indicative value established by the expert’s report drawn up by the Chamber of Notaries Public or (ii) the minimum value established by the market survey carried out by the Chambers of Notaries Public, as appropriate, from that period.

The 80% tax also applies in case of transferring (before the expiration of an eight-year period from the time when the land was acquired) of the controlling interest in a company that possesses ownership rights to one or more agricultural lands located outside the city limits, which consist of more than 25% of the company’s total real estate assets (including any land, buildings, or structures built on or incorporated into the land, recorded in accordance with the applicable accounting rules). 

In this case, the tax will be applied on the positive difference between the value of the lands at the sale date and the value at the time of the acquisitions of such lands, determined according to the indicative value established by (i) the expert’s report drawn up by the Chamber of Notaries Public or (ii) the minimum value established by the market survey carried out by the Chambers of Notaries Public, as the case may be, from such period, as appropriate, from that period.

If the legal entity owns multiple agricultural lands located outside the city limits, the 80% rate is applied to the total value calculated by summing the positive differences of the lands acquired no more than eight years before the alienation of the control package, without taking into account the negative differences.

The sale performed without paying the relevant 80% tax is prohibited and is sanctioned with relative nullity.

In practice, the calculation and collection of the abovementioned tax was not feasible due to the absence of detailed regulations in this respect. Currently, this situation was unblocked by two normative acts, which entered into force as of February 2, 2023, namely (i) Order no. 396/2022 issued by the Minister of Agriculture and Rural Development and (ii) Order no. 883/2023 issued by the Minister of Finances, approving the procedure for the calculation, collection, and payment of the 80% tax.

The above-mentioned procedure establishes, among others, the following:

• as a general rule, the tax is computed and charged by the notary public prior to the authentication of the sale deed;
• When transferring the controlling interest, the seller is required to report the income to the relevant central tax authority within a maximum of 10 days from the date of the transfer, using the supporting legal document as the basis for the declaration.
• no tax is levied on the direct sale of agricultural land located in the extra muros area, which was acquired by inheritance, partition, or any acquisition deed other than a sale-purchase agreement.
• for the situation of indirect sale, through the sale of the controlling interest of the company, it seems that the intention of the legislator is that the tax is applicable irrespective of how the company acquires the land in question;
• if the transfer of ownership of the land or of the controlling interest in the company is achieved through a court decision, the courts issuing the final court decision shall communicate the decision and the related documentation to the central tax office within 30 days of the date of the final decision and shall forward them to the competent central tax office. The latter will assess the tax and issue the tax decision within 60 days of receipt of the documentation;
• the procedure also provides that, if the transaction based on which the seller paid the tax due to the notary public is subsequently canceled, the reimbursement of the tax paid may be requested by the taxpayer under the common applicable procedure.

2.2 Share Deal

In Romania, the incorporation, activity, and organization of companies are mainly regulated by Companies Law No. 31/1990 and the provisions of the Romanian Civil Code.

Usually, share deals contain conditions precedent which are to be fulfilled by the sellers and are structured into two phases: signing and closing. After closing, the transfer of ownership over the shares of the target company is registered with the Romanian Commercial Registry.

In the case of share deals, the following key factors should be considered by a potential investor:

• the purchaser of shares in a company shall acquire all the historical obligations of the transferring business (including tax obligations), as well as the bad or good faith of the seller when he acquired the property;
• the due diligence process in the case of a share deal is a lengthier one, as along with a full scope legal and technical due diligence exercise, also a tax and a financial one are needed to properly assess the potential risks of the entire company, not only of the immovable assets;
• a share deal does not imply the conclusion of authentic deeds and no notarial fees and land registration expenses are to be paid;
• in the case of a share deal, most permits obtained by the target company remain valid (in some specific cases, a notification to the issuing authority might be needed in respect of the ownership transfer over the shares), as well as all the agreements entered into by the target company (except for the ones containing a change of control clauses);
• any environmental liability, if the case, should be clearly regulated between the parties of the share sale purchase agreement by means of warranties and specific indemnities.

It is customary for the parties to a share sale purchase contract to agree upon specific representations and warranties to customarily cover: (i) the valid ownership history of the company, (ii) compliance with applicable laws, (iii) completeness and accuracy of the disclosed information, (iv) protection against third-party claims, (v) lack of encumbrances, (vi) status of on-going contracts, especially of lease agreements, (vi) no tax liabilities, (vii) provisions related to the processing of personal data, etc.

2.3 Asset Deal

In Romania, an asset deal is commonly structured as a one-step transaction and requires the conclusion of an authenticated sale purchase agreement before a public notary. The registration with the relevant Land Register of the change of ownership over the sold real estate property is performed by the public notary following the conclusion/authentication of the sale purchase agreement and payment of the notarial expenses and land book registration fees.

When concluding an asset deal, an in-depth legal due diligence analysis over the full title chain over the property is to be performed in order to determine if the seller is the legal owner of the respective real estate and that no title flaws are to be found in the previous title deeds with respect to that property, i.e., that such title deeds comply with all legal provisions in force at the moment when the respective title deed has been issued/concluded. As part of the legal due diligence procedure, drafting and submitting customary inquiry letters to the public authorities related to the legal status of the real estate (including the existence of any potential restitution claims on the land), reviewing the answers, and performing checks in available public registers and of public information sources in relation to the land and the seller are usually performed.

At the same time, zoning/town planning certificates and various confirmations from the competent authorities are usually requested to acknowledge both the legal status of the real estate and its applicable zoning and construction regulations and parameters, especially when the investor intends to erect constructions on the respective land plot. Moreover, in the case of specific regulated real estate properties (depending on their location in the vicinity of the country border, near military sites or airports, to name just a few), specific endorsements from other public authorities may be required.

In the case of high-profile transactions, technical and environmental due diligence investigations are common.

Most of the risks associated with real estate properties in Romania arise as a result of the lack of private ownership during the communist regime, which rendered cadastral and land book operations unnecessary. Therefore, no cadastral measurements and land book registrations were performed in an institutionalized manner before 1990. These aspects, in conjunction with the inconsistent organization and implementation of the restitution process after 1990 for the real estate properties that had been abusively confiscated during the communist regime, generated most of the risks currently associated with real estate transactions in Romania.

As such, boundary conflicts are a common issue that mainly appeared due to the implementation mechanism of land ownership restoration, which implied that the ownership right was recognized through an ownership certificate that was used instead of the ownership title, which was issued afterward. Subsequently, the technical formalities for the identification, establishment of location, and effective land appropriation were not fulfilled. This mechanism resulted in several inconsistencies between the situations provided in the registries and the reality in the field, which led to the overlapping of the properties’ boundaries.

Other notable risks usually emerge from hidden defects, third-party claims against the ownership title of the current owner, potential mandatory legal provisions that were not followed in the previous processes of change of ownership, etc.

Generally, the parties agree on specific guarantees related to the ownership title, hidden defects, protection against third-party claims, encumbrances, the status of ongoing agreements, tax payments, as well as any defects existing when the sale takes place. It is possible and even customary in the case of high-profile transactions for the purchaser to obtain title insurance with respect to certain title flaws related to the real estate asset acquired which were identified during the legal due diligence exercise.

For information on the fees and taxes associated with an asset deal, please see Sections 2.5. and 4.1.

2.4 Disposal Process

In Romania, agreements having as an object the transfer of ownership over real estate must be concluded in writing and authenticated by a public notary in order to be valid. When executing the agreement, the parties should be present in person or should be represented by attorneys-in-fact who are empowered by means of authenticated powers of attorney. Should any of the parties be a legal person, the public notary is obliged to verify if its representative is entitled to sign the sale and purchase agreement having as object the real estate.

Moreover, the notarial expenses and the land book registration fees should be paid on the signing date. For more information on the fees and taxes associated with an asset deal, please see Sections 2.5 and 4.1.

In case the sold real estate property is comprised of land and buildings with a net area of more than 50 square meters, energy performance certificates must be obtained by the seller and presented to the notary when authenticating the sale purchase agreement, otherwise, the sanction of relative nullity of the sale purchase agreement applies. Law 372/2005 on the energy performance of buildings regulates some exemptions from this obligation, in case of (i) protected buildings and monuments that are either part of protected constructed areas, or have a special architectural or historical value; (ii) buildings used as places of worship or for other religious activities and which do not provide, according to their declared use, interior comfort conditions; (iii) temporary buildings intended to be used for periods of up to two years; (iv) residential buildings that are intended to be used for less than four months per year and other buildings which require low energy consumption or where indoor comfort needs to be ensured for less than four months per year and (v) independent buildings, with a net area of less than 50 square meters.

Also, it is customarily for the seller to hand over to the purchaser (in original counterparts or certified copies) the entire title chain documentation related to the sold property and the technical deeds related to the constructions (if applicable, such as building permits, commissioning protocols and land book registration proofs).  The tax certificate attesting the full payment of the local property taxes related to the immovable asset is preserved by the public notary in the notarial archive of the notarized deed, whereas the lack hereof or a tax certificate attesting outstanding taxes is sanctioned with the absolute nullity of the sale purchase agreement.

2.5 Registration of Change of Ownership

The public notary who authenticated a sale purchase agreement with respect to a real estate property shall by default request the registration of the change of ownership to the relevant Land Register office. Registrations in the relevant land books are performed by the competent cadaster and real estate publicity offices subordinated to the National Agency for Cadaster and Real Estate Publicity.

For the purpose of executing the agreement having as an object the constitution or the transfer of a real right onto a real estate property, a land book excerpt for notarial purposes is obtained by the respective public notary authenticating the respective deed. 

When signing a sale purchase agreement, the following fees are usually paid by the purchaser: (i) the land book registration tax, computed usually at the declared value of the transaction (or at the minimum indicative value of the real estate as indicated in the Notaries’ Price Chart, if the declared price is lower than such minimum value), which ranges between 0.15% and 0.5% of the immovable asset’s price, (ii) as well as the public notary’s fees amounting from approximately 0.6% (in case of real estate properties sold for a price higher than RON 600,001 – where the notary fee is computed from a fixed amount of RON 6.405 lei plus 0.6% applied to the amount exceeding RON 600,001) up to 2.2% of the immovable asset’s price (yet not less than RON 230 in case of real estate properties with a value of up to RON 20,000). VAT will also apply to the public notary fees if the notary is registered for VAT purposes.

The registration with the Land Register of the change of ownership over real property is to be finalized in approximately seven business days as of the execution of the sale purchase agreement. An expedited procedure that shortens the deadline up to two business days is possible if an emergency fee is paid amounting to four times the normal fee, yet not higher than RON 5,000, which is to be paid in addition to the normal fee.

2.6 Risks To Be Considered

The general principle under Romanian law is that privately owned real estate properties are freely transferrable. Some specific restrictions are expressly regulated in the law, such as the legal pre-emptive rights regulated for agricultural lands located outside the city limits (under Law No. 17/2014 there are no less than seven classes of pre-emptors), for properties classified as historical monuments (under Law No. 422/2001 the Romanian state, respectively the territorial-administrative units benefit from a legal pre-emption right), for forest lands (under the Forestry Code the co-owners and the neighbors enjoy a legal pre-emption right), but also for agricultural lands located within the city limits (the land leaseholder (arendas) holds such a legal pre-emption right under the Civil Code).

As mentioned, under Law 17/2014 the following seven pre-emptors’ classes are regulated: (i) first-rank pre-emptors: co-owners, spouses, relatives, and in-laws up to the third degree, included, in this order; (ii) second-rank pre-emptors: owners of agricultural investments for the plantations of trees, vines, hops, exclusively private irrigations located on the land offered for sale and/or agricultural tenants. If on the lands subject to sale there are located agricultural investments for plantations of trees, vines, hops, irrigations, the owners of such investments have priority for purchasing such land; (iii) third-rank pre-emptors: owners and/or tenants of agricultural land adjacent to the land subject to sale, pursuant to paragraphs (2) and (4); (iv) fourth-rank pre-emptors: young farmers; (v) fifth-rank pre-emptors: the Academy of Agriculture and Forestry Sciences Gheorghe Ionescu-Sisesti and the research-development units in the agricultural, forestry, and food sectors, regulated by Law No. 45/2009 on the organization and functioning of the Academy of Agriculture and Forestry Sciences Gheorghe Ionescu-Sisesti, and the research and development system in the agricultural, forestry and food sectors, and the education institutions with agricultural profile, for the purpose of purchasing agricultural lands located outside of built-up areas which have the destination strictly required for agricultural research and which are adjacent to the lands owned by them; (vi) sixth-rank pre-emptors: natural persons domiciled/residing in the territorial and administrative division where the land is located or in the bordering territorial and administrative division; and (vii) seventh-rank pre-emptors: the Romanian state, through the Agency of State Domains.

Through Decision No. 58/2022, the Romanian Supreme Court establishes that it is not necessary to comply with the preemption procedure provided for in Article 4 para. (1) of Law no. 17/2014 when concluding an agreement having as object the alienation of possession of agricultural lands located outside the built-up area.

Contractual pre-emptive rights are also possible and, if properly constituted and publicized, should be duly considered when concluding a sale-purchase agreement. However, a set of rules should be observed when constituting such contractual pre-emptive rights, as follows:

• contractual pre-emptive right must be registered with the relevant land book in order to be opposable to third parties;
• contractual pre-emptive rights may not be transferred to a third party, and such right may be exercised during an enforcement procedure;
• legal pre-emptive rights shall always prevail in case of conflict with a contractual pre-emptive right;
• contractual pre-emptive rights shall be terminated upon the death of the beneficiary if no term or such a right was expressly specified in the agreement; however, should the parties agree on a term longer than five years for the duration of a contractual pre-emptive right, such term shall be reduced to five years ope legis.

Potential Remedies in Case of Acquiring a Real Property with Defects:

In the case of a regular sale procedure, the seller transfers the ownership right over the immovable asset free of any encumbrances, defects, or legal claims.

Should the real property be affected by visible defects, the purchaser is supposed to indicate such defects when concluding the sale agreement, under the sanction of losing the right to claim any remedies following such moment.

On the contrary, should the real property be affected by hidden defects, the purchaser may request the seller to repair such defects at his/her expense, reduce the purchase price, or, in some cases, even terminate the agreement.

3 Real Estate Financing

3.1 Key Sources of Financing

The general legal framework in relation to financing is the Civil Code and the regulations issued by the National Bank of Romania, which encloses norms for different types of mortgages, liens, and personal guarantees.

The main type of security used in real estate transactions is the mortgage over the real estate itself. It is not excluded that the buyer provides another security, be it a mortgage over another real estate or a lien over movable assets, such as accounts receivables, bank accounts, stock, intellectual property rights, or insurance policies.

According to the applicable law, a mortgage may also be established over the bare property, over the usufructs or superficies rights, or over a share of the real estate ownership right, in case of co-ownership. However, in some cases, banks might be reluctant to accept mortgages over such rights, because of the difficulty to enforce them.

Some banks do not accept a mortgage over any kind of real estate. For example, mortgages over industrial facilities such as warehouses, production halls, etc. are not always accepted.

Personal guarantees can also be an option, and the most common is called “fideiusiune”, where a third party guarantees with his/her own personal patrimony to pay the credit in case of a buyer’s default. The guarantor must prove that he owns sufficient assets or income to be able to pay and that he lives/resides in Romania. Also, the bank/creditor has the right to choose a specific guarantor, whereas the two above-mentioned conditions are no longer applicable in this particular case. Romanian law also provides some forms of credit enhancements, such as bank letters of guarantee or letters of comfort.

3.2 Protection of Creditors

The most utilized type of security is the mortgage over the real estate object of the acquisition or over other real estate owned by the buyer or by a third party/debtor if accepted by the bank.  The mortgage agreement is concluded and authenticated before a public notary and is registered in the Land Register. Other kinds of mortgages, the ones over movable assets (e.g., on receivables) must be registered in the Electronic Archive of Security Interests. The bank performs an analysis of the security, including an evaluation and due diligence about other securities over the asset and/or other securities provided by the buyer (e.g., on assets belonging to third parties).

A facility offered by law to creditors is that the mortgage agreement is an enforceable title (a writ of execution) if all its validity conditions are met, namely the contract must: (i) be authenticated by a public notary, (ii) mention the loaned amount, the identification information for the person who establishes the mortgage, and the creditor, (iii) show the cause of the obligation guaranteed with the mortgage (e.g. a loan/credit), and (iv) clearly describe the mortgaged property.

The guarantor (mortgagor) is forbidden to destroy, deteriorate the asset, or diminish its value in any way except for normal wear and tear or in case of necessity. The creditor can ask for damages from the guarantor in such a case.

4 Real Estate Taxes

4.1 Transfer Taxes

Under the applicable provisions of the Tax Code, an income tax is owed by the individual who obtains yield from the transfer of ownership rights (or of any dismemberments) over real property (i.e., land free of constructions/constructions of any kind and the relevant share quota of the affected land). Such income tax is computed and collected by the Notary Public authenticating the transfer deed, while the registration of the transfer deed with the Land Book is subject to the payment of the income tax.

Additionally, for the transfer of any ownership rights (including its dismemberments) over constructions of any kind and their related land plots by means of inter vivos deeds, as well as over lands (free of constructions) of any kind, individuals owe a tax of 3%, for properties owned over a period of less than three years and a tax of 1% for properties owned over a period of over three years, which shall be computed on the taxable income, calculated as per the above.

The abovementioned tax shall not be due in the following cases:

• when the ownership transfer over the lands and constructions of any kind was acquired through the restoration of the ownership right under the special restitution laws;
• when the ownership transfer was completed by way of donation between relatives and in-laws (up to and including the third degree), as well as between spouses;
• in case of annulment with a retroactive effect of the transfer deeds having as object real estate properties.

4.2 Specific Real Estate Taxes

Landowners are compelled to annually pay a land tax towards the local budget, computed considering the total surface of the land, its location, and use, as per the classification made by the local council.

Building owners have a legal duty to annually pay a building tax towards the local budget, which is computed based on certain percentages applied to a tax basis; both the percentages and the tax basis vary, mainly depending on the owner (individual or legal entity), use and location of the building. Exemptions may apply for both the tax related to the owned land and the tax related to the owned building.

The issuance of building permits is subject to a tax in the value of:

• 1% of the estimated value of the construction works, including the value of the relevant installations (except for residential construction works);
• 0.5% of the estimated value of residential construction works or annexed buildings construction works;
• 3% of the estimated value of individually authorized site organization works.

4.3 VAT General Provisions

As a rule, the income arising from lease agreements is exempted from VAT. However, landlords have the option to apply the VAT of 19% on rent.    

The following VAT rules apply to the sale of real estate:

• The standard VAT rate is 19%;
• The 9% reduced VAT rate applies for supplies of social housing under the threshold of RON 600,000, exclusive of VAT, with a maximum useful surface of 120 square meters;
• VAT exempt with an option to tax can be applied in case of old buildings or non-building land (potentially subject to VAT adjustments);
• Reverse charge mechanism, namely no VAT is charged by the seller, while the beneficiary accounts for 19% VAT under reverse charge mechanism, in case of taxable transactions of real estate between taxable persons which are registered for VAT purposes in Romania).

5 Condominiums

5.1 Legal Framework for Condominiums

Pursuant to the provisions of Law No. 196/2018 on the incorporation, organization, and operation of owners’ associations and the administration of condominiums, it is customary to incorporate an owners’ association for the administration of condominiums.  A condominium is defined as a real estate property comprised of a land plot with one or more constructions, housing at least three individual properties consisting of both residential units and/or residential units and spaces with another use, and of the share quotas of the common property.

The owners’ association is comprised of: (i) the general assembly, (ii) the executive committee, (iii) the president; and (iv) the censor or censors’ commission. The owners’ association is operating similarly to a company.

5.2 Rights and Duties of Co-Owners

The co-owners of real property have the following rights:

• to participate, to vote, and to candidate in the general assembly of the owners’ association;
• to be informed of all aspects regarding the activity of the owners’ association, and to receive copies of all related documentation;
• to receive input on their contribution to the owners’ association’s expenditures, and to challenge such contribution within 10 days of its publication;
• to submit a written complaint to the owners’ association, should any co-owner consider themselves aggrieved in relation to one of their rights;
• to address to the competent court of justice, should any co-owner consider themselves aggrieved by the non-fulfillment or inadequate fulfillment of the executive committee’s duties.

The co-owners of real property have the following duties:

• to use the common parts and the individual space as per their destination, without causing any hindrance to any other co-owner;
• to fully and duly pay their share to the owner’s association fund;
• to notify the president of the condominium association of any change in the structure and number of family members/lessees/free-lessees/any other lodgers;
• to maintain the individual space in good and habitable condition, at their own expense;
• to repair the damage or to bear the repair costs, should the co-owner damage the common parts or the individual property of another co-owner;
• to allow the president/another member of the executive committee/the administrator of the apartment building and a qualified person to enter the individual premises, with a five days prior written notice (or, in case of emergency, 24-hour written notice), should it be necessary to inspect, repair or replace elements of the common property, which can be accessed only from that individual property;
• to modernize and consolidate the condominium, the equipment, facilities, and endowments, if necessary;
• developers of residential real estate are obliged to inform the purchaser/s at the transfer of ownership of the obligation to incorporate an owners’ association; they must hand over the technical book of the relevant constructions to the condominium associations, and they should provide the purchaser with the use of utilities’ services.

5.3 Liability of Co-Owners

Should any co-owner be in default with respect to their duties established under the applicable law, they might be subject to civil and/or criminal liability (in exceptional situations) in order to cover all damages caused to the other affected owners.

5.4 Rights and Duties of Condominium Associations

As per the applicable law, the rights and duties of the owners’ association representatives are the following:

• to adopt a statute establishing the organization, general rules of operation, and attributions of the owners’ association, together with an internal building regulation;
• to manage all matters relating to the administration, operation, maintenance, repair, rehabilitation, and/or modernization of the common areas belonging to the building;
• to convene the general meeting of the owners’ association at least once a year;
• to annually draft a budget of income and expenses;
• to open a sole bank account through which all the amounts (from tenants and not only) will be collected;
• to raise money for the establishment of a working capital and a repair fund;
• as per the applicable GDPR regulation, the owners’ associations should display information on the notice board without disclosing the first and last names of the individuals, and also the individual should be informed about the data processing when surveillance cameras are installed.

6 Commercial Leases

6.1 Form and Contents of a Lease Agreement

The general legal framework for the lease agreement is the Civil Code, Art. 1.777-1.850. Commercial leases are regulated by Art. 1.777 – 1.824 and 1.828 – 1.831.

The maximum lease term provided by the Civil Code is 49 years. If the parties provisioned a longer period, the lease agreement will be automatically reduced to 49 years. Commercial leases are usually concluded for a period of five up to 10-15 years, depending on the asset type and the leased areas, yet for longer periods than residential leases, which are typically concluded for one or two years.

The law does not require a certain form for the lease agreement, but lease agreements are customarily concluded in writing. Nonetheless, lease agreements with respect to real estate assets belonging to either the public or the private domain of the Romanian state or of the territorial-administrative units must observe a special public tender procedure prior to their execution.

The main clauses in a lease agreement are about parties’ rights and obligations, rent, renewal, cases of termination, and penalties for default. It is also customary for tenants to pay a security deposit amounting to up to several months’ rent (depending on the type of property) or to grant the landlord a bank guarantee letter in the respective amount.

Landlord’s main obligations are:

• to hand over the leased premises in a good and proper condition for use;
• to maintain the leased property in a good condition for use according to its destination for the entire lease term, meaning that the landlord is bound to make all repairs necessary for keeping the destination envisaged by the parties when signing the lease (e.g., maintaining functional elevators, ventilation, etc. in an office building). On the other side, the tenant must usually carry on the so-called small/minor repairs, which result from the normal usage of the real estate;
• to provide for the undisturbed and effective use of the leased premises for the entire lease term;
• to guarantee the tenant against all defects of the leased premises which might hinder, or diminish its use by the tenant, even if the landlord did not know them when the agreement was concluded and irrespective of their existence prior to the execution of the lease or their occurrence afterward. An exception is regulated for visible defects, which the tenant did not claim when the handover of the leased premises took place. However, the landlord is still liable for damages caused to the tenant’s life, health, or corporal integrity, even if such damages rest upon visible defects that were not claimed by the tenant when taking over the leased premises;
• to protect the tenant against any third party claiming a right over the real estate.

Tenant’s main obligations are:

• to take over the leased premises;
• to timely pay the rent;
• to use the leased premises prudently and diligently, according to the destination established in the agreement and, if no destination was established, according to its nature and previous destination (i.e., it is presumed that an office building was rented for office activity, even if this was not provided in the contract). If the tenant changes the destination of the leased premises and thus causes damages to the landlord, the latter can ask for damages or even for the termination of the lease;
• to inform the landlord immediately about the leased premises’ need for important/urgent repairs;
• to execute the small/minor repairs;
• to allow the landlord to examine the leased premises at the agreed periods, or at a reasonable timeframe;
• to return the leased premises at the termination of the lease;
• to pay its share of expenses for the common areas.

As the latest trends in lease agreements in Romania, we can mention heavy negotiation by the parties with respect to the obligations related to obtaining and amending, if the case, the fire safety permit (especially when tenants are performing their own fit-out works).

Additionally, the Force Majeure clauses have gained unprecedented importance in lease agreements since the COVID-19 pandemic, and, additionally, the war in Ukraine, as both landlords and tenants realized the significant impact such clauses can have in their respective contractual relations.

Following the pandemic, most lease agreements were re-balanced through direct negotiation between the parties.  Solutions varied from a small number of landlords agreeing to reduce the rent (mostly in conjunction with a prolongation of the lease term), especially in a retail lease agreement, to suspending the lease agreements for a limited time, or providing alterations to the lease premises as to adapt to the new health and safety regulations, or – in some cases –diminishing the leased area.

Although the pandemic no longer has a major impact on lease agreements, its impact on specific contractual clauses can still be seen.

Moreover, due to high rates of vacancy in office premises (considering the work-from-home policies), tenants are obtaining more favorable leases than in the past years.

6.2 Regulation of Leases

The Civil Code regulates the generally applicable set of rules for all leases, irrespective of the type of property: retail, industrial, office, or residential. Nonetheless, specific legal provisions are to be found in the Civil Code for lease agreements related to residential units/dwellings, and for agricultural leasehold agreements (contracte de arendare) having as objects agricultural lands, vineyards, orchards, platforms, and spaces designed for agricultural production or occupied by farms, animals, constructions, machinery, and equipment intended for agricultural use/exploitation.

The general rules for commercial leases were outlined in the previous section. Most of them can be modified and/or excluded by the parties.

Some of the legal rules in commercial leases cannot be contractually excluded, such as the landlord’s liability for damages caused to the tenant’s life, health, or corporal integrity by unclaimed visible defects of the leased premises, and generally the main obligations of the parties as described in Section 6.1.

6.3 Registration of Leases

According to the Civil Code, it is not mandatory for lease agreements to be registered with the Land register. However, it is mandatory for landlords to pay taxes for the income represented by the rent. To this end, the lease agreement should be registered with the fiscal authorities. However, the registration of agricultural leasehold agreements with the local council is mandatory.

The Civil Code provides specific advantages for the owners who register their lease agreements with the fiscal authorities, as such registered contracts represent writs of execution allowing the landlords: (i) to evacuate the tenant at the expiry of the lease term without a court decision being necessary if the lease has a limited term; (ii) to forcefully execute the tenant for the rent. The above-mentioned advantages of an enforceable title are also conferred by law in the case of a lease agreement authenticated by a public notary.

6.4 Termination of Leases and Renewals

The most common causes of termination of lease agreements are the following:

• expiry of the agreed lease term, unless the lease agreement contains express automatic renewal clauses;
• termination as per the mutual agreement of the parties;
• termination for non-performance, in case one of the parties, does not fulfill its obligations assumed under the lease agreement;
• unilateral termination (without cause), if such right was expressly granted to any of the parties, applicable in case of lease agreements concluded for a specific period of time. Usually, such unilateral termination right is granted in favor of the tenant and consists of a break option that can be exercised by the tenant only once, after a specific period of the lease agreement has elapsed (several break options upon the anniversary of certain time periods may be expressly agreed by the parties, usually no more than two or three such break options in lease agreements concluded for more than 10-15 years);
• unilateral termination (without cause) by either party with prior notice given to the other party, in case of lease agreements concluded for an indefinite period of time;
• de jure termination if the leased premises are fully destroyed or may not be used according to their destination. In case of partial destruction, or a partial impediment in the proper use of the leased premises, the tenant may request either the termination of the lease agreement or a reduction of the rent;
• termination following the annulment or cancellation of the lessor’s title. As an exception, if the tenant acted in good faith (i.e., not knowing about the defect affecting the lessor’s title), the lease agreement will continue to produce effects for the term stipulated by the parties, but not longer than one year after the annulment or cancellation of the landlord’s title.

The Civil Code provides for a tacit renewal of lease agreements, if, after the expiry of the lease term, the tenant keeps using the leased premises, and continues to fulfill its obligations without any objection from the landlord. In such case, a new lease agreement is deemed to have been concluded in the same conditions as the initial lease agreement, except for its term, which shall be an indefinite one. Landlords are usually keen to expressly exclude the tacit renewal in the lease agreements, and regulate instead that, if the parties choose to prolong the lease agreement upon its expiry, new terms and conditions will be negotiated for the extended term.

Agricultural lease agreements are automatically renewed for the same period as the initial one if neither party informs the respective other party about its renewal refusal. Such refusal notice must be served within six months or one year (in the case of agricultural lands) prior to the expiry of the lease term. The notice periods are reduced to half in case the initial lease agreements were concluded for a lease term of one year or shorter.

At the same time, Romanian law stipulates a right of first refusal for the tenant, in case the lease agreement expires and the landlord wishes to rent again the leased premises, yet only if the tenant fulfilled their obligations under the initial lease agreement. Such right of first refusal can also be contractually excluded, and landlords tend to impose such exclusion in commercial leases.

6.5 Rent Regulations and Rent Reviews

The law does not provide for rent regulations or review clauses, as such clauses may be freely negotiated by the parties.

It is customary for commercial lease agreements to contain a yearly indexation clause, either with a specific percentage or based on objective indexes, such as the Harmonized Index of Consumer Prices.

Also, in the case of retail lease agreements, apart from the base rent, the tenant may also owe a turnover rent, which represents a percentage of the tenant’s net income generated in, or from the leased premises, and which shall be due by the tenant only if such turnover rent exceeds the monthly base rent.

6.6 Services To Be Provided Together With the Lease

In cases of commercial lease agreements having as object leased premises located in buildings with more tenants, where the common areas are being maintained and managed by the landlord, in addition to the rent, the tenant shall also pay a service charge covering the expenses incurred in relation to such common areas (e.g., utilities), as well as the cost of the services provided by the landlord to the benefit of all tenants (i.e., cleaning services, security, property taxes, insurance policies, etc.).

Usually, the service charge is either estimated in advance, proportionally to the share of the leased premises applied to the entire building and adjusted each year according to the open book system, or is established in a fixed amount (X EUR/square meters), which is indexed together with the rent.

The cost of the utilities used by the tenant in the leased premises is not included in the rent and is usually paid separately according to the effective consumption of the tenant. Utilities may be either contracted by the landlord and reinvoiced to the tenant based on effective consumption or may be directly negotiated and contracted by the tenant.

6.7 Fit-Out Works and Their Regulation

The initial fit-out works to be performed on the leased premises are divided between the landlord and the tenant. As a standard practice for commercial long-term leases, the landlord performs, on its costs, the initial fit-out works in order to hand over the premises to be used as per the tenant’s envisaged destination or it incurs a part of the cost of the fit-out works requested by the tenant.

The tenant’s fit-out works are additional arrangements carried out by each tenant/or by the landlord at the request of each tenant and at the tenant’s expense, considering the fit-out contribution granted by the landlord (if any).

If the tenant executes works related to the leased premises without the landlord’s prior agreement, the landlord can either keep the works without any indemnification towards the tenant or request the tenant to remove such works at its own expense. In both situations, the tenant could be liable for damages for altering the initial form of the leased premises.

From a building tax perspective if, because of the fit-out works, the value of the real estate rises or decreases by more than 25% of the initial value, the owner must fill out a new declaration with the fiscal authority and pay the building tax accordingly.

From a VAT perspective, if during the VAT adjustment period of 20 years the lease agreement ends, the tenant would be liable to perform VAT adjustment for the fit-out works performed at its own cost and handed over free of charge to the landlord together with the space. This would trigger additional VAT costs for the tenant.

6.8 Transfer of Leases and Leased Assets

As per Romanian law, unless otherwise provided by the lease agreement (i) the tenant may sublease or assign the lease agreement to third parties, and (ii) the landlord may assign its rights under the lease agreement.

In the event of non-payment of the rent due under the lease, the landlord may pursue the subtenant up to the amount of the rent due by the latter to the principal tenant. The anticipated payment of rent by the subtenant to the principal tenant cannot be opposed by the landlord.

If the sublease is forbidden under the lease agreement, this implies that the assignment of the lease agreement is also forbidden. However, the interdiction to assign the lease does not imply the interdiction to sublease.

The transfer of the leased real estate does not lead to the termination of the lease agreement unless the parties expressly agree thereupon.

In case the leased real estate property is being transferred (i.e., sold or otherwise disposed of), the lease agreement is opposable to the acquirer as follows:

• in case the leased real estate property is registered in the Land Register, if the lease agreement was also registered with the Land Register;
• in case the leased real estate property is not registered in the Land Register, only if the lease agreement cumulatively meets two conditions: it bears a certified date (which is granted either by the conclusion of the lease before a public notary or even before a lawyer, or by registration of the lease with the fiscal authorities), and such date is prior to the certified date of the transfer (in case of real estate transfers, the authentication date of the sale purchase agreement by the notary).

In the abovementioned situations, the acquirer shall subrogate all the rights and obligations of the landlord arising from the lease agreement, including in relation to the guarantees provided by the tenant, as per the applicable legal provisions.

7 Zoning and Planning

7.1 How Are Use, Planning, and Zoning Restrictions on Real Estate Regulated?

The general legal framework regarding urban planning is Law No. 350/2001 on urban development and land use planning, which establishes the main regulations and plans, as follows:

• the General Urban Plan (PUG)

The PUG is a comprehensive technical document created for the purpose of regulating and guiding the development of a locality. It establishes general guidelines that serve as the foundation for drafting the Zonal Urban Plan (PUZ) for various areas within that locality.

Each administrative-territorial unit is required to update its General Urban Plan at most every 10 years, taking into account the foreseeable changes in social, geographical, economic, and cultural factors, as well as local needs.

• the Zoning Urban Plan (PUZ)

The PUZ represents a technical document drawn up for detailed regulation of the development of a determined area within an administrative unit.

The PUZ is a specific regulatory urban planning tool that coordinates the integrated urban development of certain areas within a locality, characterized by a high degree of complexity or by a pronounced urban dynamic, which ensures the correlation of the integrated urban development programs of the area with the PUG.

The PUZ establishes regulations regarding the building regime, the function of the area, the maximum allowed height, the land use coefficient (CUT), the land occupancy percentage (POT), the setback of buildings from the alignment, and the distances from the lateral and rear boundaries of the plot, as well as the architectural characteristics of the buildings and the permitted materials.

Thus, the PUZ sets forth the rules and conditions under which constructions may be built in a particular area and it can modify the general provisions provided by the PUG for the particular area.

• the Detailed Urban Plan (PUD)

The PUD is a technical document that details the PUG and/or the PUZ and is drawn up for a specific parcel. It represents a specific regulation for a parcel in relation to neighboring parcels.

The PUD may not modify higher-level plans, namely the PUG or the PUZ.

Moreover, the PUG and the PUZ are both accompanied by a local urban planning regulation, which further details their provisions. For example, the PUG identifies areas for which regulations may be laid down that cannot be amended by PUZ or PUD and from which no derogations may be granted. These regulations are clearly formulated in the local urban planning regulation accompanying the PUG.

7.2 Can a Planning/Zoning Decision Be Appealed?

As administrative acts, urban planning, and zoning decisions can be appealed in accordance with the provisions of Law No. 554/2004 on administrative litigation and Law No. 350/2001 on urban development and land use planning. The Supreme Court of Romania stated that the decision of the local council approving a PUZ is a normative administrative act as opposed to an individual administrative act, ending the controversial status of the plan. The distinction has important implications, especially pertaining to the persons or entities who can challenge the zoning decisions.

The above-mentioned decision also clarified the confusion regarding the time limit for challenging a planning/zoning decision, stating that such decisions can be challenged in court within five years of their approval, except for challenges introduced by interested social organizations, in which case the time limit is one year since its approval.

As per the provisions of Law no. 554/2004, the following entities may challenge a planning/zoning decision:

• an aggrieved party, namely any person that considers itself wronged in respect to a right or a legitimate interest (including interested social organizations, such as NGOs, associations, etc.);
• the People’s Advocate (Ombudsman);
• the Public Ministry;
• the authority that issued the decision, if the decision in question may not be revoked.

Taking into account the relevant jurisprudence, a planning/zoning decision can be successfully challenged on either procedural grounds (problems of competence or composition of the commission that adopted the act, failure to inform or consult with the citizens concerned) or on substantive law grounds (protection of private property rights, the adoption of the decision amounted to a de facto expropriation of a citizen, but without fair and prior compensation).

As a general rule, the annulment of the planning/zoning decision will only produce effects for the future, having no impact on the building permits already issued. As an exception, the building permit can only be annulled if the litigation concerning its nullity is pending before the court, at the date of the final decision to annul the PUZ.

Contributed by Law Office Lazarov.

1 Real Estate Ownership

1.1 Legal Framework

One of the fundamental values of the constitutional order of the Republic of North Macedonia guaranteed by the Constitution of the Republic of North Macedonia is the legal protection of property. As Lex specialis law for regulating the right of ownership over real estate (RE) is the Law on Ownership and Other Real Estate Rights (Official Gazette of the Republic of Macedonia, No.18/2001 and its subsequent amendments). Additional legal framework for regulating the right of ownership over real estate is in the following laws: Law on Construction Land (Official Gazette of the Republic of Macedonia, No.15/2015 and its subsequent amendments); Law on International Private Law (Official Gazette of the Republic of Macedonia, No.87/2007 and its subsequent amendments); Law on Real Estate Cadastre (Official Gazette of the Republic of Macedonia, No.55/2013); Law on the sale of state-owned agricultural land (Official Gazette of the Republic of Macedonia, No.87/2013 and its subsequent amendments); Expropriation law (Official Gazette of the Republic of Macedonia, No.95/2012 and its subsequent amendments); and Law on Obligations (Official Gazette of the Republic of Macedonia, No.18/2001 and its subsequent amendments).

In the Republic of North Macedonia, the right of ownership over RE can be acquired by all domestic and foreign natural and legal persons, including the state and local self-government units, under the conditions and in the manner provided in the Law on ownership and other real rights. When the RE is the subject of the right of ownership of several persons, this right arises as:

(i) Co-ownership (Co-ownership shall mean ownership by multiple persons who have the right to ownership of an undivided item for which the part of each of them is determined proportionally in accordance to the whole (ideal, co-ownership part)), (ii) Joint ownership (Joint ownership is the ownership by several persons of an undivided thing when their parts are determinable but not predetermined.) and (iii) Floor ownership (Apartments, business facilities, cellars, garages and other separate parts of housing and business building which have two or more apartments, or business facilities and other separate parts can be owned by different natural persons and legal entities).

The right to servitude, the right to pledge, the right to a real burden, and other real rights are limited real rights and may be based on RE to which there is a right of ownership.

Foreign natural persons and legal entities, residents of the member states of the European Union and OECD may acquire the right of ownership of an apartment and premises in the territory of the Republic of North Macedonia in the same manner as the citizens of the Republic of North Macedonia.

Foreign natural persons and legal entities, residents of the non-member states of the European Union and OECD may acquire the right of ownership of an apartment and premises in the territory of the Republic of North Macedonia in the same manner as the citizens of the Republic of North Macedonia, under the same conditions of reciprocity.

For land ownership, the law stipulates that foreign natural persons and legal entities, residents of the member states of the European Union and OECD may acquire the right of ownership and the right to a long-term lease of construction land in the territory of the Republic of North Macedonia in the same manner as domestic legal entities and natural persons, citizens of the Republic of North Macedonia.

Foreign natural persons and legal entities, residents of non-member states of the European Union and OECD may acquire the right of ownership and the right to a long-term lease of construction land in the territory of the Republic of North Macedonia under the conditions of reciprocity.

According to the law, foreign natural persons and legal entities cannot acquire the right of ownership of agricultural land in the territory of the Republic of North Macedonia. However, foreign natural persons and legal entities may, under the conditions of reciprocity, acquire the right to a long-term lease of agricultural land in the territory of the Republic of North Macedonia, based on the consent of the minister of justice, upon previously acquired opinion of the minister of agriculture, forestry, and water resource management, and the minister of finance.

The rules for the expropriation of ownership are provided in the Expropriation law, which determines the confiscation and limitation of the right of ownership and the property rights of real estate for the purpose of realization of public interest in the construction of facilities and the performance of works of importance for the Republic of Macedonia and the construction of facilities and the performance of works of local importance.

The RE market trends in North Macedonia are the construction of residential complexes, business premises, and malls, for the purpose of sale and leasing.

1.2 Registration of Ownership

In the public book kept by the Agency of Real Estate Cadaster of the Republic of North Macedonia are registered the right of ownership of the RE and other real rights of the real estate, the real estate data, owners’ data, owner’s other rights as well as of other relevant rights and facts whose registration is determined by law.

1.3 Publicity of Real Estate Register

The part of entries in the registry related to the property itself and the owner of the RE property are publicly available on the website of the Real Estate Cadaster Agency. For more detailed information regarding the RE, it is necessary to get a property list, which can be issued by a cadaster or a notary. This service is chargeable and such a list can be obtained by any third party. Information from the website is of informative character on ownership rights because the only valid proof of real estate ownership and other real rights is a property list issued by a cadastre or a competent notary.

The registry of RE has a registry in the Central Registry of North Macedonia, where this registry issues information of informative character on ownership rights, data on land parcels and objects on such parcels, as well as information on liens. However, in accordance with the Law on Personal Data Protection, property lists will not contain the owner’s unique personal identification number (UPIN) when issued to a third person.

1.4 Protection of Ownership

Property entries are binding. No person may be deprived or restricted of ownership and the rights deriving from it, except in the cases of public interest determined by law, and the owner has the right of judicial protection. The normative regulation of property lawsuits in the legal system of the Republic of North Macedonia is contained in several laws. Lawsuits for the protection of property according to the Law on Ownership and Other Real Rights are the following: ownership lawsuit for return the possession of the RE (rei vindication), a lawsuit by a presumed owner (actio publiciana), a lawsuit against disturbance of ownership (actio negatoria), a lawsuit for protection of co-ownership, i.e., joint ownership, a declaratory lawsuit, and an extraction lawsuit. Lawsuits for protection of the RE right are lawsuits for change, i.e., for the deletion of entries in the Cadaster.

2 Real Estate Acquisition

2.1 Share Deal or Asset Deal?

RE can be acquired either directly as an asset deal between the seller and buyer or by acquiring the shares of the legal entity that is the owner of the RE. The main difference between a share deal and an asset deal is that, within asset deal, there is an obligation to pay a property transfer tax.

2.2 Share Deal

The manner of acquisition of RE depends on the evaluation of the risks by the acquirer of the RE having in mind that the acquisition of the shares means the acquisition of the owner company with all its liabilities toward any third party. The costs for the acquisition of the RE with an asset deal are slightly higher compared to a share deal. Also, the acquisition of the RE as an asset deal will be subject to property transfer tax (from 2% to 4% of the value of the RE) and such tax is not applicable to a share deal. Usually, the procedure of acquisition of RE is subject to a prior due diligence process which should address all relevant risks and determine the appropriate way for acquisition of the RE.

2.3 Asset Deal

An asset deal is the purchase of a target’s underlying assets. The transaction involves transferring the ownership of assets from the seller to the purchaser. The purchaser only acquires the assets along with any liens. The ability to choose specific assets provides the purchaser with flexibility. The purchaser does not spend money on unwanted assets and there is less risk of the purchaser assuming unknown or undisclosed liabilities. However, this also makes asset acquisitions more complex because the purchaser has to spend time identifying the assets and liabilities it wishes to acquire and assume.

2.4 Disposal Process

A purchase agreement obliges the seller to hand over the item it sells to the purchaser so that the purchaser acquires ownership, and the purchaser undertakes to pay the seller the agreed price. A purchase agreement of real estate must be concluded in writing form. The signatures of the contracting parties in the contract for sale and purchase of real estate are notarized or the contract is solemnized by the notary public. The costs for notarization and solemnization depend on the value of the RE and the notary determines them in accordance with the appropriate notary tariff. There are no special approvals for the transfer of ownership, except in the case the RE is land that the seller acquired from the state in which case the seller needs to obtain prior approval from the State Attorney and to transfer all its obligations from the agreement with the state to the purchaser.

2.5 Registration of Change of Ownership

When the parties conclude a purchase agreement, they are obligated to submit it to the relevant municipality for clearance of the property transfer tax. Once the property transfer tax is paid. The purchase agreement is notarized by a notary public and the notary submits the application for registration of the change in the real estate cadaster after which the purchased will be registered as the owner of the RE and the transaction will be considered as closed.  When the value of the real estate is greater than EUR 10,000, the purchase agreement must be drawn up by a lawyer and contain a seal and signature by a lawyer.

2.6 Risks To Be Considered

In the case of the sale of a co-ownership part, the other co-owners shall have the pre-emptive right to purchase. The co-owner who intends to sell their co-ownership part shall be obliged, by means of a written proposal through a notary, to offer for sale its part to the other co-owners and to announce the price and the terms of sale. If the co-owners of the RE who are offered the co-ownership part do not declare that they accept the offer within 30 days of the announcement in the written proposal, the co-owner may sell their co-ownership part to another person. If several co-owners want to buy the ideal part of the thing under the same conditions, then it shall be given to the owner determined by the seller. In the case the co-owner who sells their co-ownership part does not submit an offer to all the co-owners, the co-owners who have not been given the offer may request the sale to be annulled in a court procedure. In the case the RE is agricultural land, the neighbors of the land also have a pre-emptive right to purchase the land. Also, any sale and purchase agreement of RE that the seller acquired in marriage should be subject to consent from the seller’s spouse.

3 Real Estate Financing

3.1 Key Sources of Financing

3.1.1 Debt Financing

3.1.1.1 Bank Loans: This is the most common method for financing real estate purchases. Banks and financial institutions provide loans to natural persons and legal entities. The terms, interest rates, and eligibility criteria vary based on the lender and the borrower’s financial situation. When approving the loan, banks do a detailed credit analysis of the client, where it should be emphasized that the most important factor for approving a loan is the client’s credit ability to repay the loan through the income earned from his regular work (regular income). Banks provide loans based on a loan approval agreement concluded between the bank and the borrower. With that agreement, the bank and the borrower arrange the conditions under which the borrower will return the loan, the duration of the loan, the interest rate that will be calculated to the borrower, the security that the borrower will give to the bank for the given credit, as well as other rights and obligations arising for the contracting parties. The interest rate for loans is determined by the bank and it can be a fixed interest rate or a variable interest rate, the interest rate for housing loans should be within the limits determined by the National Bank of the Republic of North Macedonia.

There are different conditions from the bank for the natural persons and the legal entities and every bank has its own conditions, there is no legal obligation for all the banks to have the same loan conditions, but they must be within the framework of fair competition and the conditions that are provided by the law.

Bank loans for legal entities are loans that in the Republic of North Macedonia are also known as investment loans, namely, unlike loans for natural persons where there are specific housing loans, for legal entities these loans belong to the category of investment loans because they are considered an investment of the legal entity, regardless of whether it builds, upgrades, buys or sells real estate.

3.1.1.2 Private Financing: Investors or private lenders may offer financing options for real estate purchases, especially for commercial properties or large developments. Terms and conditions for private financing can vary widely and may involve higher interest rates or different repayment terms.

3.1.2 Financing Through Own Funds

Many individuals use their personal savings or investments to finance real estate purchases. This could include savings accounts, fixed deposits, stocks, or other liquid assets that can be used as a down payment or to cover the entire purchase price.

The financing real estate methods are regulated by different laws in North Macedonia:

• Law on Obligations
• Banking Law
• Bylaws from the Banking Law
• Law of Agreed Pledge

3.2 Protection of Creditors

Real estate financing is always a secure claim of financiers. Securing claims is regulated in the legislation of the Republic of North Macedonia. The main types of security used in RE financing are the following:

3.2.1 Mortgage: One of the primary protections for creditors is the ability to register a mortgage on the real estate property being financed or other property of the creditor-beneficiary. The Law of Agreed Pledges governs the creation and registration of mortgages, which serve as a security interest in the property. In case the borrower defaults on the loan, the creditor (mortgagee) can initiate an enforcement procedure to recover the outstanding debt by selling the property.

The right to a mortgage is acquired by concluding the mortgage agreement and by recording the mortgage in a public book in the manner and under the conditions prescribed by law. By public book, is meant the book in which the right of ownership over real estate and other real rights over that real estate is recorded, as well as the book in which the right of ownership and other real rights over things are recorded equated with real estate.

The mortgage is regulated by the Law of Agreed Pledges.

3.2.2 Pledge of Movable Assets: As a security for financing real estates in North Macedonia is also acceptable to establish a pledge of movable assets’ property of a creditor. This way of securing is usually acceptable for the bank if the creditor is a legal entity. The pledge of movable assets should be registered in the Pledge Register at the Central Register of the Republic of North Macedonia.

The pledge creditor and the pledge debtor of the pledge agreement can give it the status of an enforceable document before or after the registration of the pledge in the Pledge Register.

A pledge agreement has the status of an enforceable document if it is certified or drawn up by a notary and if it contains a statement from the contracting parties that they agree that their pledge agreement has the status of an enforceable document. The pledge of movable property is regulated by the Law of Agreed Pledges.

3.2.3 Bill of Exchange: A bill of exchange is a negotiable instrument that functions as a written order by one party (the drawer) to another (the drawee) to pay a specified amount to a third party (the payee). In the context of real estate transactions, it can be used as an additional form of security for the lender (usually a bank) providing a mortgage loan. When a borrower (mortgagor) pledges real estate as collateral to obtain a mortgage loan, the lender may also require additional security to mitigate risks. A bill of exchange can serve this purpose by providing a secondary means of repayment if the borrower defaults on the mortgage. In the event of default by the borrower, the lender can enforce the bill of exchange to recover the outstanding debt. This may involve presenting the bill of exchange to the drawee (often the borrower or a guarantor) for payment according to its terms. The bill of exchange is regulated by the law of bill of exchange.

3.2.4 Bank Guarantee: A bank guarantee is a commitment issued by a bank on behalf of a customer (the applicant) to a beneficiary (the recipient of the guarantee) that payment or performance obligations will be met if the applicant fails to fulfill them. It assures the beneficiary that they will receive compensation up to a specified amount under the terms of the guarantee. In North Macedonia, bank guarantees can be used in real estate transactions as a form of security or assurance. For example, where a buyer may provide a bank guarantee to the seller as security for a down payment.

To obtain a bank guarantee, the applicant (often with the assistance of legal or financial advisors) submits a request to their bank, which assesses their creditworthiness and issues the guarantee if approved. The bank charges a fee or commission for issuing the guarantee, typically based on the guarantee amount and risk assessment.

If the applicant fails to fulfill their obligations under the guarantee, the beneficiary can present the guarantee to the bank for payment. The bank then pays the beneficiary up to the guaranteed amount and may seek reimbursement from the applicant.

Bank guarantees are regulated by the Law on Obligations and the Banking Law.

3.2.5 Guarantee: In North Macedonia, an agreement for guarantee can also be concluded as a security of financing real estate. With an agreement for guarantee, the guarantor commits to the creditor that he will fulfill the valid and due obligation of the debtor if the debtor does not do so. The guaranteed agreement binds the guarantor only if they made a guaranteed statement in writing. Only a person who has full business capacity can be bound by a contract of guarantee.

A guarantee can be given for any valid obligation, regardless of its content. It can be guaranteed for a contingent obligation as well as for a certain future obligation. A guarantee for a future obligation can be revoked before the obligation arises if the term in which it should arise is not foreseen.

The obligation of the guarantor cannot be greater than the obligation of the main debtor, and if it is agreed to be greater, it is reduced to the extent of the debtor’s obligation. The guarantor is responsible for the fulfillment of the entire obligation for which they have guaranteed if their liability is not limited to any part of it or is otherwise subject to lighter conditions.

The guarantor is obliged to compensate the necessary costs incurred by the creditor in order to collect the debt from the principal debtor. The guarantor is also responsible for any increase in the obligation that would occur due to the debtor’s delay or due to the debtor’s fault unless otherwise agreed. The guarantor is only liable for the agreed interest that has accrued after the conclusion of the guarantee agreement.

The guarantee is regulated by the Law on Obligations.

4 Real Estate Taxes

4.1 Transfer Taxes

4.1.1 Real Estate Transfer Tax: Real estate turnover tax is paid on real estate sales. The sale of real estate includes the transfer with or without compensation of the right to ownership, as well as another way of acquiring real estate with or without compensation between legal entities and individuals.

The person liable for the real estate sales tax is a legal and natural person – the seller of the real estate. As an exception according to the Law on Property Taxes, the oblige of the real estate turnover tax can be a legal entity and a natural person – the buyer of the real estate, if in the contract for the purchase and sale of the real estate, it is agreed that the tax will be paid by the buyer.

The basis of the real estate sales tax is the market value of the real estate at the time of the liability. Real estate sales tax rates are proportional and range from 2% to 4%.

The amount of real estate sales tax rates is determined by the decision of the council of the municipality where the real estate is located. The amount of real estate sales tax rates is determined by the decision of the council of municipalities in the city of Skopje and the Council of the city of Skopje in accordance with the Law on the City of Skopje, for real estate located in the territory of the City of Skopje.

The tax liability of the real estate turnover tax occurs on the day of the conclusion of the contract for the transfer of the right of ownership of the real estate, that is, of the replacement of the real estate.

Real estate turnover tax is not paid:

1) on the sale of real estate in the expropriation procedure;

2) when a foreign diplomatic or consular representation transfers the right of ownership of real estate, under the condition of reciprocity;

3) when the right of ownership is transferred for the purpose of settling obligations based on public revenues in the procedure for forced collection;

4) on the sale of real estate between state authorities, between state authorities and municipalities, and between municipalities;

5) the sale of real estate in the confiscation procedure;

6) on the sale of socially owned apartments, if the purchase agreement does not specify who is responsible for paying the tax;

7) when the right of ownership of real estate is transferred to state authorities for the purpose of collection of claims in bankruptcy and executive proceedings;

8) when the right of ownership of real estate is transferred to the provider of life support who, in relation to the recipient of the support, is in the first line of succession, and only for the part of the real estate that he would inherit according to the Law on Inheritance and without giving the support;

9) on the first turnover of residential buildings and apartments that will be carried out within a period of up to five years after construction, on which value-added tax has been calculated;

10) when investing real estate in the capital of trading companies;

11) of securities trading, in terms of the Law on Securities and

12) when the right of ownership of real estate is transferred to the banks as creditors, for the purpose of collecting a monetary claim, if they sell the acquired property within three years.

4.1.2 Value-Added Tax: The subject of taxation with value-added tax is the turnover of goods and services, which is carried out with compensation in the country by the taxpayer within the framework of his economic activity. Turnover of goods in the sense of the Law on Added Value represents the transfer of the right to dispose of movable or immovable property. The tax rate for measuring real estate according to the Law on Added Value in the Republic of North Macedonia is 18% for taxable turnover. VAT only applies to new residential properties or commercial properties sold by VAT-registered entities for the first sale of the property.

4.2 Specific Real Estate Taxes

Property tax: Property tax should be paid for immovable property, except for that property which is exempt from payment of tax according to the Law on Tax of Property. A property tax obligor is a legal entity and natural person who owns the property. If the property is owned by several persons, each of them is liable for the property tax in proportion to the ownership share.

The basis of the property tax is the market value of real estate. The determination of the market value of immovable property is performed by an appraiser who is employed in the local self-government unit, and at the request of the local self-government unit, it can also be performed by a person who is an authorized appraiser. The market value is determined according to the Methodology for assessing the market value of real estate.

The property tax rates for real estate are proportional and amount from 0.10% to 0.20% of the market property value. Property tax rates can be determined according to the type of property.

The tax liability for the property tax arises from the date of acquisition of the property, the issuance of approval for the use of the real estate by a competent authority, or from the day of commencement of the use of the property by the taxpayer.

The property taxpayer for a single or multi-apartment housing facility and yard (land) in which he lives has the right to a reduction of the calculated tax in the amount of 50%.

Property tax is not payable on:

1) state-owned immovable property used by state authorities, municipally owned immovable property used by municipal authorities, municipal authorities in the city of Skopje, and the authorities of the city of Skopje, except for immovable property used by physical or legal entities persons;

2) real estate of foreign diplomatic and consular missions and of missions of international organizations, if they are owned by them, under the condition of reciprocity;

3) immovable property owned by the National Bank of the Republic of North Macedonia;

4) religious facilities in which worship, prayer, and other manifestations of faith are performed, such as a temple, mosque, prayer house, synagogue, cemetery, and other premises of a church, religious community, and religious group;

5) individual buildings that have been declared cultural heritage by a protection act;

6) facilities for the protection of land, water, and air;

7) the facilities of enterprises for work training, professional rehabilitation, and employment of the disabled;

8) land used for surface and underground mining and geological research;

9) facilities intended for the primary processing of agricultural products, namely:

• facilities intended for breeding livestock and fish,
• facilities for housing equipment for monitoring the quality and safety of the primary livestock and agricultural products of an agricultural economy,
• facilities for accommodation and maintenance of agricultural machinery, auxiliary equipment, and other means of transport and equipment of an agricultural economy,
• facilities for storage, reception, storage, and packaging of primary agricultural and livestock products and feed for animals on an agricultural farm,
• facilities, collection centers for milk, mushrooms, and medicinal plants,
• water reservoirs related to activities in agricultural production of an agricultural economy and
• facilities for the treatment of waste from activities in agricultural production of an agricultural economy.

10) agricultural land used for agricultural production.

5 Condominiums

5.1 Legal Framework for Condominiums

The legal framework that regulates condominiums in our jurisdiction consists of the Law on ownership and other property rights and the Law on housing.

The Law on ownership and other property rights defines the condominium as the right of ownership over the separate parts of buildings.

Apartments, business premises, cellars, garages, and other special parts of residential and office buildings that have two or more apartments, i.e., business premises and other separate parts may be owned by different natural or legal persons (condominium).

There can be co-ownership over ideal parts of separate apartments and other separate parts of a building.

The parts of an apartment building that are in the function of the building as a whole or some of its parts are used as joint and indivisible ownership of all the owners of the separate parts or the owners and of the parts that are in their function.

The Law on housing, on the other hand, regulates the types of housing facilities, management of the residential buildings, the relations between the owners of the separate parts and third parties, and the community of owners.

It also contains provisions that regulate housing in collective housing facilities (multi-apartment buildings) defined as residential buildings with two or more apartments such as apartment blocks, multi-story buildings, and solitaire.

Each collective housing facility can establish either a community of owners, registered in the Central Registry of NMK or appoint a Facility Manager with the purpose of residential building management of the common parts of the facility, common structural building elements, and common installations.

Common parts of the facility are the stairs, entrance windshields, corridors, bicycle rooms, washers, dryers, common basements, shelters, attics, janitor’s workshops, janitor’s apartment, rooms for waste disposal, and other premises intended for the common use of the owners of the separate parts, the land on which the building lays and which serves for its use, in accordance with the regulations for urban planning.

Common building elements in residential buildings are foundations, load-bearing walls and structures, ceilings, the roof, facade, chimneys, ventilation pipes, light windows, elevator openings, and other similar structures.

Common installations, devices, and equipment in residential buildings and apartment facilities for special purposes are the connection and internal electrical, electronic-communication network and assets, water supply, gas supply, and hot water supply installation intended for residential connections, and are located in the common one’s rooms, elevators, supply, drainage, heating devices, telecommunications devices and cables, other associated antennas, lightning rods, firefighting devices, fire detection, and alarm devices, security lighting and all other utility and similar connections intended for the common use of the owners of the separate parts in the residential building.

5.2 Rights and Duties of Co-Owners

According to the Law on ownership and other property rights:

The owner of a separate part of a building has the right to use his part of the building according to their will and to dispose of it freely, as well as with the subsidiary parts of the building that serve his part of the building (cellar, garage, etc.).

The owners of the separate parts shall be entitled to use the common parts of a multi-apartment building which are part of the building as a whole (foundations, main walls, facade, stairs, halls, apartment for the concierge, elevators, electrical, sewage, plumbing and television networks, television antennas, wells, facilities for laundering and drying of clothes, roof, cellar, heating devices, skylights, chimneys, etc.).

The owners of the separate parts shall be entitled to use the common parts serving for the purpose of only some separate parts of the building (separate entrance, partition walls between two apartments or rooms, etc.).

If the separate part of the building is owned by two or more persons (ideal parts), the co-owner who wants to sell their part is obliged to offer it to the other co-owner, i.e., the other co-owners.

The owner is obliged to take care of the maintenance of his part of the building. If the owner caused damage while using his part of the building on other parts of the building that are owned by other persons or with it create other obstacles to the parts of the building that are in its function such as whole or of its parts that represent a separate whole, they are obliged to compensate for that damage, that is, remove other obstacles that are created.

The owner cannot make modifications on their part that could disrupt the architectural image of the building or reduce its reliability (stability), that is, the stability of some common part of the building or another owner, as well as cause damage to those parts.

The owner of a separate part is obliged to allow necessary interventions on their building part due to the removal of obstacles that disrupt the use of the right of ownership of another part of the building or parts of the building that are in function of the building as a whole.

When disposing of a garage that is part of the building or the building land that serves the building as a whole or only for some parts of the building, in the event that the alienation is carried out separately from the alienation of the apartment, the owners of the apartments primarily have the right to purchase separate parts of the building, and after them the tenants of the apartments in the same building.

In the case of paragraph 1 of this section, a garage sale cannot be carried out to a person who does not use an apartment in that building under conditions more favorable than those that are offered to apartment owners as separate parts of the building, that is, to the tenants of the apartments in that building.

The seller is obliged to submit the offer for sale through the house advice if there is advice, that is, to present it to the public inspection of the owners of the apartments.

The statement of acceptance of the offer is submitted directly to the seller.

According to the Law on housing:

The owner of a separate lot is obliged to regularly maintain the apartment and take care of the maintenance of their property in order not to cause damage or harmful effects, as well as to ensure uninterrupted use of premises by other owners.

The maintenance of residential buildings and apartments should ensure constant correctness, safety, and usability of all parts of the building as a whole, the aesthetically designed appearance, devices, installations, and equipment of the building, which serve all the owners of the separate parts, that is tenants of the building.

The maintenance of residential buildings and apartments includes the works of regular maintenance.

To carry out the measures and activities for regular maintenance of the residential building, the owners of the separate parts of the meeting of owners adopt a maintenance plan for a period of at least one year, and at most five years.

5.3 Liability of Co-Owners

Owners of separate units are responsible for paying all management costs and other costs arising from residential building management in accordance with the square footage of their units if the mutual relations agreement has not been determined otherwise.

All the owners of the separate parts are responsible for the costs incurred by undertaking activities based on decisions made in the manner prescribed by this law, regardless of whether they voted against the proposed decisions.

5.4 Rights and Duties of Condominium Associations

According to the Law on housing:

The owners of the separate lots can adopt a decision to establish a Community of Owners as a legal entity for the management of the residential building or to appoint a Facility Manager for the common parts of the facility. The decision can be made only with the consent of the majority of the owners of the separate parts.

With the decision to form a Community of Owners, the owners of the separate parts are obliged to adopt a statute of the Community of Owners.

For the purposes of collective housing management, the owners of the separate parts of the residential building enter into an agreement for mutual relations which defines:

1) methods, conditions, and order of using the common premises and devices of the building;

2) the amount and the method of payment of the costs for the regular maintenance (investment and ongoing maintenance) of the common parts of the building that is owned by condominiums;

3) house order of the building;

4) way of establishing the reserve fund;

5) purpose of secondary premises used by the owners of the separate lots;

6) usage of the secondary premises for special purposes;

7) special restrictions on the right to use the secondary premises;

8) participation of the owners of the separate lots as parties in the legal transactions;

9) special powers of the manager of a residential building;

10) method of insurance of common parts of residential buildings and distribution of amounts for payment of insurance premiums;

11) way of notifying the owners of the special parts for the operation of management;

12) special services that exceed the limits of functioning of residential building (such as protection, reception service, etc.) and

13) way of regulating relations in case of adaptation, reconstruction, conversion, extension, and upgrading of a part of the building or the building in its entirety;

Owners of separate lots are responsible for payment of all management costs and other costs arising from a residential building in accordance with its proprietary parts if with the mutual relations agreement, has not been determined otherwise.

Residential building management is defined as monitoring and enforcement of the decisions made by the community of the owners of the separate parts in the building, representation in legal transactions and proceedings before the authorities for the purpose of functioning, maintenance, and preservation of the common parts of the residential building.

If there are more than two separate owners in residential building sections and more than eight separate sections, the owners of the separate sections can make a decision to establish a Community of Owners as a legal entity.

The Community of Owners has the right to conclude contracts for works on the management of the residential building and cannot perform any other activity.

The Community of Owners is a non-profit organization.

The financial operation of the Community of Owners is carried out in accordance with the Law on accounting of non-profit organizations.

If there are more than two separate owners in residential building sections and more than eight separate sections, the owners of the separate sections can determine that the residential building will be managed by a manager.

The relations between the owners and the manager are governed by a contract for performing management services for a period not longer than two years.

Rights and obligations of the manager:

1) executes the adopted decisions by the owners of the separate lots;

2) regular maintenance and functioning of the common parts;

3) represents the owners of the separate parts in management matters and on behalf of individual owners submits a lawsuit for relief from the obligation for payment, that is, a suit for debt for payment of costs and the expenses of the owner of the separate part;

4) represents the owners of the separate parts before the administrative authorities in the works of issuing permits and consents and in the registration procedures of real estate and other administrative procedures, in connection with the residential building and the land, as well as for other matters related to management;

5) prepares a plan for maintaining the residential building, a plan with dynamics for implementing this plan and taking care of the implementation of the plan;

6) prepares a calculation of the costs of managing the residential building and distributes the costs among the owners of the separate parts;

(7) receives the payments of the owners of separate parts on the basis of

monthly calculation and pays the obligations from the contracts concluded with third parties;

8) informs the owners of the special parts about their work and submits monthly and annual calculations;

9) prepares an annual report on facility management;

10) manages the reserve fund in accordance with the provisions of this law;

11) enumerates and numbers the apartments and reports the registration of the data in the authority that keeps the public books of real estate; and

12) should know the standards and norms for accessibility of persons with

handicap in the residential building.

The manager is obliged to regularly take care repairs on a smaller scale (replacement of light bulbs, plugs, small painting works, replacement of spare parts, and the like) of the common parts of the residential building. The cost of these repairs shall be borne by the owners of the separate parts in proportion to the size of their separate parts.

6 Commercial Leases

6.1 Form and Contents of a Lease Agreement

A lease is a legally binding contract between a landlord and a tenant that covers the duties and obligations of all parties to the lease. It is a formal written agreement that can be concluded either by domestic or/and foreign natural and legal persons. Essential terms cover the validity period, specification of the subject of the agreement, consent of relevant institution for example bank in case there is an established pledge, and the price of the lease with other applicable fees included. Other important terms include but are not limited to the security deposit, extension of the agreement, termination of the agreement, disclaimers, applicable law and competent court as standard final provisions. The agreement should be notary-certified. In the recent few years, the notary who made the certification of the signatures of the parties, as well submits an application for evidence of such contract in the public books maintained by the Agency of the Real Estate Cadaster and this information it is shown in the Property Deed as public data. Before that, the parties were submitting the application by themselves. If the contracting parties wish to secure the fulfillment of the mutual obligations such as the regular payment of the lease amounts there is the possibility for implementation of an enforcement clause for force execution of the due owned amounts under the agreement. This clause requires a specific form of certification that is confirmation of a private document as public (solemnization) by the notary public. The enforcement clause is highly effective and preferable form by the parties.

6.2 Regulation of Leases

No there is no difference in the rules for the leases for diverse types of property. The essential clauses mentioned above cannot be excluded.

6.3 Registration of Leases

Yes, the commercial lease must be evidenced in the public books maintained by the Real Agency of Cadaster.

6.4 Termination of Leases and Renewals

The Lease can be terminated due to a breach of the material clauses by either party. The landlord is entitled to terminate the agreement due to a breach of the obligation for payment of the rent by the tenant, repeated wrong utilization of the real estate contrary to its purpose despite the given warning, and if the tenant has concluded an agreement for the sublease of the real estate without the agreed previous consent of the landlord as most common grounds. The tenant may terminate the agreement in the event the necessary repairs of the real estate hinder its use to a significant extent and for a longer period. As with any other contract, the lease agreement may be terminated without cause and the terms of such termination (notice period, penalties, etc.) are defined within the agreement.

The above reasons represent the most common grounds for termination of the agreement and are prescribed by the Law on obligational relations. Termination clauses are not mandatory and in case of their absence, the provisions of the Law on obligational relations shall be applicable.

Automatic lease renewals are applicable, it may be agreed with certain specifics in the agreement or if not agreed, the provisions of the Law on obligational relations shall apply. The Law on obligational relations prescribes that if the tenant continues to use the real estate after the expiry of the period and the landlord does not object it is considered that a new lease agreement is concluded on indefinite duration under the same conditions as the previous lease. The automatic renewal of the lease is not followed with automatic renewal of the evidence of the lease in the public books maintained by the Agency of the Real Estate Cadaster, the old agreement shall be evidenced until the application for new agreement is submitted.

6.5 Rent Regulations and Rent Reviews

Rent regulation is not established in the Republic of North Macedonia, the lease prices are freely established on the market.

6.6 Services To Be Provided Together With the Lease

No services within the lease are prescribed in the Law on obligational relations, however, the parties are free to agree on whether some services shall be provided during the rent.

6.7 Fit-Out Works and Their Regulation

The tenant is obliged at its own expense to make reparations that come with normal utilization of the real estate. Investments in real estate, if not previously agreed between the parties, do not have any specific treatment by the law, and in such a case the tenant is not entitled to any compensation with the exception to the investments necessary and urgent to prevent damage of the real estate or to prevent loss of some expected benefit. The necessary investments have legal treatment as works without a warrant and in such a situation the tenant is obliged immediately to notify the landlord about the commenced works and if possible, the landlord to undertake and complete such works. After completing the works, the tenant should notify the landlord about the completed works and hand over the completed works. In such situations, the work undertaken by the tenant should be appropriate to the situation and they are entitled to compensation for all necessary and useful expenses and compensation for damages if any. Investments do not have any specific tax regime because it can be agreed investments that are usually adaptation and modification of the space such as interior design or unpredicted necessary and urgent repairs.

6.8 Transfer of Leases and Leased Assets

In the case of transfer of ownership of the real estate that was previously leased, the new owner takes the place of the former landlord and acquires the same rights and obligations under the agreement. The new landlord does not have a right to terminate the lease agreement prior expiry of the term just because of the transfer of ownership. For the obligations of the lease to the tenant, the previous landlord is also liable as a joint guarantor.

When a lease agreement is concluded, and the real estate is in factual possession of the new owner, he steps in the place of the previous owner with all rights and obligations under the agreement provided that in the moment of conclusion of the agreement for the transfer of the ownership he was familiar with the lease agreement. Otherwise, if the new owner is not familiar with the lease is not obliged to hand over the leased real estate to the tenant and the latter may request compensation for damage from the previous owner.

The tenant is entitled at any time to terminate the agreement due to the transfer of ownership respecting the legal or the agreed notice periods.

7 Zoning and Planning

7.1 How Are Use, Planning, and Zoning Restrictions on Real Estate Regulated?

Depending on the scope of urban planning, as well as whether the subject of the planning is of national or local importance, the following urban plans are adopted:

1. General urban plan;

2. Detailed urban plan;

3. Urban plan for a village;

4. Urban plan for non-residential areas and

5. Urban plan for areas and buildings of state importance.

An urban plan for areas and buildings of state importance is a plan that is prepared in accordance with the Spatial Plan of the Republic of North Macedonia and serves for its implementation and development and is adopted for areas and buildings of state importance that are not covered and cannot be regulated by urban plans of local importance.

Areas and buildings of state importance are considered to be areas and buildings, infrastructures, and superstructures of international, republican, regional, and more municipal nature and of strategic importance for the state.

Only in the procedure for adopting the Urban plan for areas and buildings of state importance and for non-residential areas, feasibility study is a pre-condition and has a separate regime of planning.

The feasibility study is prepared before the urban plan for areas and buildings of state importance and the urban plan for non-residential areas for complex buildings of local importance that do not have a construction or urban planning history, as a rule for engineering buildings or other large and complex buildings from the groups of purpose classes G and E for which there are no previous planning or project data, that is, for spaces that are being arranged for the first time and for which there is a need for previous research and assessments.

A feasibility study is prepared to ensure objective and informed decision-making for starting the procedures for the adoption of an urban plan and urban project, from the aspect of the spatial, ecological, financial and economic justification of the construction project, the construction of which requires the urban plan.

7.2 Can a Planning/Zoning Decision Be Appealed?

According to the Law on Spatial and Urban Planning, there is an opportunity to submit comments on the urban plan, during the public presentation and the public survey.

For the conducted public presentation and public survey, a report is drawn up with a rationale for the accepted and unaccepted comments on the urban plan, by an expert commission formed by the mayor of the municipality. The report is an integral part of the plan, and the accepted comments from the public survey must be incorporated into the draft plan.

Besides the procedure regulated in the Law on Spatial and Urban Planning, there is a possibility for anyone to submit an initiative to start a procedure in front of the Constitutional Court for evaluating the constitutionality of a law and the constitutionality and legality of a regulation or a general act, by submitting an Initiative.  The petitioner of the initiative and the governing institution that adopted the contested act are participants in the proceedings in front of the Constitutional Court. The procedure concludes with an adoption of a decision by the Constitutional Court.

The decision for adoption of an urban plan can be the subject of an initiative for evaluating its constitutionality and the legality in front of the Constitutional court.