Category: Bosnia and Herzegovina

Bosnia & Herzegovina is experiencing a boom in the tourism sector, feeding the steady recovery of the Balkan country, and which spells out good things to come, according to Maric & Co Partner Ezmana Turkovic.

“The political situation is as complicated and complex as it has been so far,” Turkovic begins. “However, what has been underlined as particularly important are the recent visits of Angela Merkel and Ursula von der Leyen to countries in the Western Balkans.” She reports that these visits have stirred up hopes of the Western Balkan countries joining the European Union at long last.

Given the complexity and weight of political issues in the country, Turkovic reports that “no legislative changes and updates of note occurred, other than those that seek to curb the spread of COVID-19.” She says that these updates also aim to alleviate the negative economic side-effects of the pandemic.

Speaking more about the economy itself, Turkovic reports that it is in recovery. “COVID-19 hit us hard, but the economy is picking up speed,” she says. “Tourism is our most intensive sector right now, and it is contributing to the overall economic recovery – a lot.” Turkovic says that the tourism boom was caused by the “relatively low levels of restrictive measures concerning the entry into Bosnia & Herzegovina. This year, during the summer months, we’ve had a 200% uptick in the number of tourists compared to last year.” 

Finally, looking ahead, Turkovic gives us the outlook for Bosnia & Herzegovina: “I expect the biggest changes to take place in the energy sector, given that Bosnia & Herzegovina has undertaken a series of obligations to transfer to more renewable energy sources.” She also reports that investments are possible and necessary when it comes to constructing the assets required to produce renewable energy. “Of course, the appropriate accompanying infrastructure is sorely needed, but also – the software tools needed to manage them. Still, before anything can be done, a new legal framework regulating energy should be drafted and put into effect,” Turkovic concludes.

The Parliament of Federation of BiH adopted the amendments of the Company Law of Federation of BiH and the amendments have been published and entered into force on 23 September 2021. The amendments of the Law are aimed at achieving the goal set in the Reform Agenda of Federation of BiH related to simplification of the procedure for registration of business entities and setting up a one-stop-shop company registration system.

The Government of Federation of BiH prepared and referred to the parliamentary procedure, amendments of a set of laws governing the procedure of registration of business entities, primarily the amendments of the Law on Registration of Business Entities in Federation of BiH which are aimed at enabling the submission of company registration applications electronically and defining a legal framework for setting up a one-stop-shop for registration of business entities in Federation of BiH. With these substantive upcoming amendments of the law governing the company registration procedure in the Federation of BiH, the Parliament of Federation of BiH has adopted the amendments of the Law specifically related to the limited liability companies in order to enable a smoother transition to the envisaged future registration procedure model and to avoid any future collisions between the Law and the future amended Law on registration of business entities.

Main amendments of the Law are aimed at aligning the provisions of the Law with the announced amendments of the Law on registration of business entities and with the relevant regulations governing the areas of electronic documents and electronic signature in the Federation of BiH. These amendments primarily regulate and introduce the possibility of preparing the founding documents, articles of association, documents on the change of shareholders, the expulsion of shareholders as well as company documents related to election and registration of management bodies of companies, to be prepared in the form of an electronic document and signed by shareholders using their electronic signatures.

Other significant amendments are related to the introduction of the possibility of the shareholders of limited liability companies to submit a statement that confirms the compliance with minimal technical requirements for conducting specific business activities, during the registration procedure.

This amendment relieves the companies of the obligation to notify all relevant inspection and administrative bodies on fulfillment of minimal technical requirements after the completion of registration and enables the newly established companies to commence their business activity as soon as the registration procedure is completed, while the competent inspection and other administrative bodies are authorized to subsequently, check the validity of the submitted statement and compliance with prescribed minimal technical requirements during the regular inspection and administrative procedures.

This amendment represents an important step in the process of transformation of the registration procedure and introduction and enabling the use of electronic documents and electronic signatures in the company registration and company management procedure. However, in order to enable full implementation of the adopted amendments and benefit from such amendments, we will need to wait for the adoption of the amendments of other relevant laws, such as the Law on registration of business entities in the Federation of BiH as well as the adoption of the Law on electronic signature in FBiH and amendments of the Law on electronic documents. After a stagnation of reform in this sector in the Federation of BiH, this newly adopted amendment represents a positive development and raises hope that long-expected changes are on the horizon.

The information in this document does not constitute legal advice on any particular matter and is provided for general informational purposes only.

By Amina Djugum, Senior Associate, and Nihad Sijercic, Partner, Independent Attorneys at Law in cooperation with Karanovic & Partners

Ibrahimovic & Co has advised Studen & Co Holding on an agreement with the Brcko District’s Government to build a free business zone in the district.

According to the firm, Studen & Co Holding is one of the largest foreign investors in Bosnia and Herzegovina. It further stated that the project – valued at BAM 500 million – will “enable the growth and development of the business environment in Brcko and the quality of life of the citizens of the district, but also the entire region.”

This is the first in a series of Studen & Co projects within the “Business Initiative for Comprehensive Improvement of Business Environment and Living Standards in the Brcko District of BiH,” according to Ibrahimovic & Co.

BiH’s Baros, Bicakcic & Partners announced an exclusive cooperation with the UAE-based firm BinSuwadian Advocates & Legal Consultants.

Baros, Bicakcic & Partners has offices in Banja Luka and Sarajevo. According to the BiH-based firm, BinSuwadian Advocates & Legal Consultants is a law firm founded in 1997 in the UAE and has offices in the UAE, Egypt, and Sudan.

“The cooperation established between these two law offices strengthens relations between the two countries,” said a Baros, Bicakcic & Partners press release.

A significant number of updates, changes, and amendments to the legal framework of Bosnia & Herzegovina spells out a very strong positive direction that the country is moving in, according to Saracevic & Gazibegovic Lawyers Partner Emina Saracevic.

“There are two main things that have ushered in an air of hope and sense of betterment, when it comes to the political situation in the country,” Saracevic begins. “The first is the recent amendments to the criminal code of BiH that has created a more strict framework regarding the denial, support, or downplaying of genocidal crimes, crimes against humanity, or war crimes.” The second, she says, is the arrival of the new High Commissioner, Christian Schmidt, that is poised to “work on strengthening of progressive streams in the country and the EU path it finds itself on.” 

These two events are key, Saracevic says, to “curbing regressive ideologies that are hampering social prosperity and are dragging down the socio-economic and business climate.” She hopes that this will encourage young professionals to stay in BiH and work on improving the status of the local economy.

Furthermore, Saracevic says that this recent political enthusiasm has also contributed to an improved tourism season. “Recent data indicates that June of this year saw an uptick of 231.7% when compared to the same period of last year. The tourism sector has benefited greatly from the proper usage of national parks, historical monuments – most of which are UNESCO protected – and cheaper prices than those in the EU.” 

Also, Saracevic says that, in addition to staple sectors such as the wood industry, there have been other positive movements of note. “The IT sector has seen a staggering growth when it comes to exports, increase in income and the number of workers, all the while being relatively low-maintenance in terms of investing and developing,” she says. 

“A new Bankruptcy Act has been ushered as well,” Saracevic says “which has introduced numerous changes seeking to improve the legal framework in this area.” According to her, restructuring has been introduced with these recent changes, and the “Financial Information Agency is authorized to commence it should a legal entity face over-indebtedness.”

Additionally, Saracevic says that a new Accounting and Auditing Act has passed. “The new act seeks to improve this area, improve the certification procedure for professionals, and further streamline the legal framework.” However, she says that the act has not dealt properly with the issue of outsourcing of accounting services outside of the country, “which has caused concerns among a number of subsidiaries of international corporations present on the market.”

Saracevic attributes a lack of major transactions to the ongoing global pandemic of COVID-19. “Still, it is worth noting that the German retail chain Lidl has entered the market and that H&M has expanded its business as well,” she says. “Additionally, starting from October, Wizz Air Abu Dhabi will expand its air flight network to Sarajevo as well and Optima Group has asked for regulatory approval to enter the market.”

Finally, talking about infrastructural projects, Saracevic mentions Corridor 5C, the pan-European transport project that goes through BiH. “The EBRD has authorized an EUR 12.6 million grant for a portion of the project, at the beginning of August,” she says. “Also, it is very important to note that the Securities Commission has finally been changed and that the commission will finally resume its work. After two years, some 400 businesses waiting for important decisions on corporate matters, and hundreds of millions of BAM locked up in capital – the deadlock is set to end,” Saracevic says, adding that all it takes now is for the Parliament to make this decision final.

The Law on Medication and Medical Devices (Official Gazette no. 58/08) and the Rulebook on Manner of Marketing of Medicines and Medical Devices (Official Gazette no. 40/10) regulate the advertising of medicines and medical devices in Bosnia & Herzegovina.

Bosnian & Herzegovinian law defines advertising of medicines/medical devices as providing information about medicines/medical devices to the general and professional public in order to encourage their prescription, supply, sale, and/or consumption in written, pictorial, audio, oral, electronic, or any other form.

Advertising medicines/medical devices without a marketing authorization or asserting claims or conclusions about the effectiveness of medicines/medical devices that are subject of ongoing clinical trials is strictly prohibited.

The advertising must provide true and scientifically-proven information about the medicines/medical device, respecting ethical criteria, and with the aim of ensuring their proper and rational use, without misleading consumers. Directly addressing children in the advertising of medicines/medical devices is prohibited.

Advertising to the general public is only permitted for over-the-counter medicine/medical devices, and under the condition that the medicine/medical device has a marketing authorization issued by the state regulatory agency. Advertising a medicinal product to the general public by attributing properties to it that do not exist, exaggerating its positive effect, sensationally and inappropriately describing it, or misleading the user in any other way, is prohibited.

Advertising of medicines/medical devices to health care professionals may be done verbally or in written, pictorial, sound, electronic, or any other form. All information contained in promotional materials that are part of the advertising of the medicine/medical device must be accurate, current, verifiable, and sufficient to enable the healthcare professional to form his or her own opinion about the therapeutic value.

When marketing medicines/medical devices, marketing authorization holders are not allowed to encourage healthcare professionals to prescribe, issue, procure, recommend, or purchase medicines or medical devices by offering or providing cash remuneration, gifts, material benefits, or other benefits or rewards. Health care professionals are also prohibited from receiving such encouragements. The only gifts which may be given to health care professionals are gifts of symbolical value that are strictly related to the medical/pharmaceutical practice – e.g., pens, notepads, calendars, and other similar items of small value.

Promotional gatherings must be scientifically-based and educational, always be limited to the basic purpose of the meeting, and involve only the professional public. The contents of the mentioned meetings must not be for promotional purposes only.

It is worth mentioning that comparative advertising is not allowed – on the contrary, it is strictly forbidden, when advertising medicines/medical devices to the general public, to suggest that a particular medicine/medical device is undoubtedly better than other medicines/medical devices. Advertisers are also not allowed to indicate that the recommended medicine/medical device may be replaced by a different medicine/medical device.

Advertisements to healthcare professionals may not encourage the healthcare professionals that one medicine/medical device can be replaced with another from the same therapeutic group in the absence of clear medical indications. Furthermore, diminishing the therapeutic value of another medicine/ medical device that is authorized to be placed on the market or in any other way encouraging doubt in the value of another medicine/medical device is strictly prohibited.

When advertising a medicine/medical device that is dispensed without a prescription, the following message must be included: “Read the package leaflet carefully before use. For information on indications, precautions and adverse reactions to the medicine/medical device, consult a doctor or pharmacist.” In printed media, this warning has to be highlighted and take up at least 1/10th of the ad, and must be written in the appropriate font size so that it can be read without difficulty. In the case of television advertisements, this warning has to be visible on the screen for at least one quarter of the advertisement and be clearly readable. In the case of online advertising (on the Internet or social media), the warning has to be an integral part the main page of the ad, not its link.

Fines for non-compliance of between EUR 10,000 and EUR 25,000 for a legal entity, and EUR 1,500 to EUR 5,000 for its authorized representative, may be imposed.

By Anisa Tomic and Bojana Bosnjak-London, Partners, Maric & Co

This Article was originally published in Issue 8.5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The matter on labour assignment has recently become topical in the Federation of Bosnia and Herzegovina (FBiH), due to the increased need of business entities to hire staff who are not on their payrolls.

The dynamics of the business environment and the needs of business entities for a diverse workforce on the one hand, as well as the intention for reduced administration and ultimately reduced expenses on the other, often result in the need to hire people without establishing an employment relationship.

Some common examples of such engagement in practice are the conclusion of contracts for temporary and occasional work, contracts for vocational training without employment, and service contracts. However, each of these forms of engagement has its own characteristics and does not necessarily meet the needs/requirements of the business entity. For example, temporary and occasional work as such should be regulated by an internal act of the employer, it cannot represent jobs for which an employment contract is concluded, and their duration is limited to 60 days during a calendar year. A contract for vocational training without employment is an option for employers that hire a person who has completed their education, if a professional exam/work experience is a condition (regulated by a law/rulebook) for performing a certain occupation. On the other hand, a service contract, as an institute of the Obligations Act, is concluded for the performance of a certain, usually one-time job (e.g. making/repairing things, performing physical/intellectual work, etc.) which is not a regular activity of the employer for which the conclusion of an employment contract is required.

But if none of the above options are applicable due to their specifics, what are the available options for business entities? The answer would be:

• concluding an employment contract, or
• hiring labour through a third party, i.e. the application of the institute of labour assignment.

Since the institute of labour assignment is not regulated in the Labour Law (“Official Gazette of FBiH”, no. 26/16 and 89/18; “Law” or “Labour Law”), competent authorities were of an opinion that the assignment of employees is not  in in accordance with positive legal regulations. Specifically, the Ministry of Labour and Social Policy of FBiH (the “Ministry”) issued the Opinion number: 03-34/11-3210/19 on 12 December 2019 with the following interpretation: “(…) Accordingly, we are of the opinion that the form of work in which the employee, with whom they concluded an employment contract, would be assigned by the employer to another employer, would not be harmonized with the positive legal regulations, i.e. with the conceptual definition of the employer from the Labour Law. Considering that the employee would not be given jobs by the employer with whom they concluded an employment contract, but by another employer to whom the employee would be assigned, in this case it would be a form of work that is not regulated, i.e. harmonized with the Labour Law. (…)”.

The basis for this interpretation, according to the Ministry, is the Labour Law, namely Article 5 (which defines the employer as a natural or a legal person who gives the employee a job based on an employment contract) and Article 24 Paragraph (1) item f. of the Law (which regulates the obligation to conclude an employment contract in writing, with a mandatory element of job-related data and a brief job description).

Competent courts in the FBiH have applied similar interpretations, with a distinction that courts (e.g. Cantonal Court in Sarajevo, case number: 65 0 Pr 695781 18 PžP) were of a standpoint that the assignment of human resources is possible, but only for the purpose of performing auxiliary-technical activities, and not the activities which are main business activity of the legal entity to which the employees are assigned.

These dilemmas were finally resolved by the Constitutional Court of Bosnia and Herzegovina, by issuing a Decision in case no. AP 809/19, published in the “Official Gazette of BiH” no. 79/20 as of 8 December 2020 (“Decision”). Namely, in the explanation of the Decision, the Constitutional Court of BiH points out that:

• the assigned employees are paid by their employer, with whom they are registered for mandatory insurance (§ 41 of the Decision);
• the assigned employees perform jobs for their employer, i.e., they are needed by the company to which they are assigned, which pays compensation to the employer of the assigned employees (based on the contract on engaging the workforce); therefore, the employees work for the company to which they are assigned, but at the expense of their employer (§ 41 and 45 of the Decision);
• the Labour Law does not explicitly prohibit the engagement of workforce based on a contract on the labour assignment (§ 44 of the Decision);
• the applicable legislation does not prescribe the condition that the activity of assigning human resources cannot relate to the performance of the main activity (§ 44 of the Decision).

This answered a number of questions that arose in connection with the institute of labour assignment in the FBiH. It is important to point out the reminder of the Constitutional Court of BiH of the obligation to apply the conventions ratified by BiH, in this case specifically the Convention on Private Employment Agencies number 181 (“ILO Convention 181”). ILO Convention 181 provides a definition of a private employment agency and lists making employees available to a third party as one of its services, which means that the institute of assignment of employees exists in our applicable legislation.

However, it is important to keep in mind the following provisions of the Companies Act (“Official Gazette of the FBiH”, no. 81/15; “Companies Act”):

• a company may perform activities only within the activities registered in the companies register,
• a company may perform other activities, but with two important restrictions: (1) that these are activities that are usually performed in addition to the registered activities, to the extent and in the manner necessary for business operations; and (2) that they do not constitute the performance of business as a regular activity.

Therefore, in order for an entity to be allowed to engage in the assignment of labour as its regular activity, it is necessary to be registered for such an activity (which is classified under code 78.30 of the Classification of Economic Activities in BiH 2010: Other assignment of human resources).

Unlike many previous standpoints of the competent authorities, the Constitutional Court of BiH has taken the standpoint that it does not matter whether the workforce is assigned to perform main or auxiliary activities of the company, because the activities are not divided into main and auxiliary, nor is it regulated that activity 78.30 cannot relate to the performance of the main activities (§ 44 of the Decision).

In light of the above, it can be concluded that the labour assignment is possible and allowed in the FBiH, upon fulfilment of legal requirements, from which the main is that the company is registered for the activity of labour assignment. It is irrelevant whether the assigned employees will perform the main or auxiliary activities of the company to which they are assigned; in other words, the assigned employees may also perform the main activities of the company to which they are assigned, despite the practice in the FBiH were of a different view for a long time.

Furthermore, when it comes to companies that are not registered for the activity of assignment of employees, but in practice assign their employees, we draw attention to the provisions of Article 7 Paragraph (2) of the Companies Act and restrictions on performing activities that are not registered:

• the assignment of employees by their nature and purpose should fall under the tasks usually performed in addition to the registered activities, to the extent and in the manner necessary for the business; and
• the assignment of employees should not constitute the performance of those tasks as a regular activity.

The interpretation of the provisions of Article 7 of the Companies Act should be approached with due care, given that the law distinguishes the term “economic activity” from “tasks” (“task” is a much narrower term than “economic activity”). Therefore, the provision on the performance of “other tasks” should be interpreted restrictively and its application should be resorted to exceptionally, when circumstances require and justify it. For example, the activities that are usually performed in addition to the registered activities can be considered the transport of goods, if they are in the function of performing the regular activities of the company. It is unlikely that the assignment of employees could be classified as tasks that are usually performed with the registered activities, but for a definitive conclusion it is necessary to consider all circumstances of the specific case.

It is not without significance to mention that the labour assignment is an institute that is regulated by the European Union Directive No. 2008/104/EC. Bosnia and Herzegovina certainly needs to intensify its efforts in the field of harmonization of legislation with the acquis communautaire, to continue its path towards joining the European Union, as stated by the Constitutional Court of BiH in the explanation of the Decision (§ 48).

Eliminating the dilemmas related to the labour assignment is one of the important steps towards harmonizing the labour legislation of FBiH with European regulations, which will certainly result in more frequent application of this institute in practice and thus facilitate the operations of many businesses.

For the sake of note, in 2019, the Association of Employers of FBiH prepared the Proposal of the Law on Assignment of Labour Force, which was discussed at the session of the Economic and Social Council. Given the stormy reactions that the law provoked among union representatives, the discussion concluded with the commissioning of the relevant ministry to organize meetings of the government and social partners in order to improve the text of the law. The past 2020 and the activities of competent ministries, but also other administrative bodies, were marked by the COVID-19 pandemic, but it is expected that in the future more active work will be done on the preparation of the text of the law that will be acceptable to social partners.

Disclaimer

The purpose of the materials and information provided herein is to provide general information on a topic or topics. These materials do not represent an exhaustive elaboration of these topics. Accordingly, the information in the material does not constitute legal advice.

This information is not intended as the sole basis for decisions that may affect you or your business. Before making any decision or taking any action, be sure to seek the advice from a qualified professional.

By Aida Hamur, Attorney at Law, Legal Partners

Bosnia & Herzegovina is finally seeing the breaking of a two-year-old deadlock that paralyzed its securities commission and halted business, says BH Legal Partner Jasmina Suljovic, underlining the most important recent development in the country.

“The first thing that has caught the attention of the legal market in Bosnia & Herzegovina is the unblocking of the Securities Commission of the Federation of Bosnia and Herzegovina (Komisija za vrijednosne papire),” Suljovic begins. “Ever since 2019, when one of the five members of the Commission retired, the regulatory body has been unable to reach a quorum, convene, and, essentially, work.” The Commission is the ruling body when it comes to registering changes for stock companies – everything from changes to base capital all the way to registering the supervisory boards. “This has been a major problem,” Suljovic says “because it paralyzed a lot of companies in doing their business, changing their governing bodies, or just getting on the market!”

Now, two years in, the President of the Federation of Bosnia & Herzegovina has announced that new members of the Commission are to be appointed, pending a parliamentary confirmation. “Finally, it appears that this stalemate will end,” Suljovic says. The issue has reached as high up as the IMF, which, at one point, stated that the unblocking of the Securities Commission is a precondition for further credit financing to Bosnia & Herzegovina.  

Furthermore, Suljovic says that an informal philanthropic forum is set to kick off in the country. “This is a major advancement for philanthropy and humanitarian aid in Bosnia & Herzegovina,” Suljovic reports. “The forum is initiated by the most prominent civil society organizations in the country and the region: Fondacija Mozaik, Fondacija Hastor, Pomozi.ba, Mreza za izgradnju mira, Fondacija Trag, and Catalyst Balkans with the financial support of USAID. This Forum is an informal venue for corporations, foundations, and people who contribute to a better society, allowing the philanthropic community to have more confidence in the giving process and improving the quality of life for philanthropic recipients.” This philanthropic network will help the current situation in the country by “finally giving a push for legislative change that can stimulate more philanthropic behavior,” Suljovic says. 

According to her, the corporate sector in Bosnia & Herzegovina is already quite helpful and giving, both in monetary terms and in kind, but is facing a lot of hurdles due to the fact that an appropriate tax regime for donations is lacking. “Tax deductions for philanthropic aid are capped at 3% – which does not incentivize giving,” Suljovic reports. “Also, if a company wants to donate food, it has to pay VAT on it! This is sorely in need of an overhaul, which is what I think will happen now.” Finally, Suljovic says that she hopes this will stimulate others to help as well and will aid in growing philanthropic endeavors in the country.

BDK Advokati, working with lead counsel Allen & Overy, has advised the joint lead managers, including Societe Generale, on Republika Srpska’s global EUR 300 million Eurobond offering on the London Stock Exchange.

Republika Srpska is a sub-sovereign entity within Bosnia and Herzegovina. This is the first foreign currency bond offering by Republika Srpska on the London Stock Exchange and its second in international markets, following the 2018 Eurobond listing on the Vienna Stock Exchange (as reported by CEE Legal Matters on July 3, 2018). The bonds have a 5-year tenor and the coupon rate is 4.75%.

BDK Advokati’s team included Senior Partner Tijana Kojovic and Attorney-at-Law Dijana Pejic Sinik.

Up until the adoption of the Laws on Property Rights in Republika Srpska (in 2008) and in the Federation of Bosnia & Herzegovina (in 2013), the only legal basis to obtain a construction permit and erect a lawful building was to first acquire ownership over the land on which the building is to be constructed, usually through a purchase agreement, as, according to the provisions of the applicable Laws of Physical Planning, as well as the general legal framework of Bosnia and Herzegovina, an investor must obtain construction rights over real property to obtain a construction permit for that property.

However, a number of new legal solutions and institutions have been introduced by the two Laws on Property Rights, including the institution of construction rights. As a relatively new legal institution, it is rarely found in local practices. These new construction rights should not be confused with the construction rights formerly granted by public authorities under the socialist legal regime, which are currently being phased out. 

According to the provisions of Article 286 of the Law on Property Rights of Republika Srpska and Article 298 of the Law on Property Rights of the Federation of Bosnia & Herzegovina, “construction rights are limited property rights on someone’s land, granting its holder the right to own his own building on the surface of such land, or beneath it, which fact the land owner is obliged to tolerate,” whereby “construction rights are legally equal to the building itself.” From a legal standpoint, constructions rights on plots of land exist separately from the land itself, which results in separate registration of the two. This principle is further detailed by the provisions which proscribe a system of double registration, so that construction rights are simultaneously registered in the land registry sheet of the subject land, as a burden, and in a newly formed land registry sheet as a property right of its holder. Once a building is constructed, it shall be registered in the land registry sheet as separate real estate, legally independent from the land on which it has been constructed. This system allows for the construction rights, and buildings constructed based on such rights, to be sold, mortgaged, or otherwise disposed of, completely independently from the land beneath such buildings. This also allows for separate ownership over the land and the buildings constructed on that land, as an exception to the principle of real estate singularity between land and buildings.

The holder of construction rights is the owner of the building constructed on land burdened by the construction rights, but is also the beneficiary of a usufruct on the burdened land itself, and as such, according to the Law on Property Rights, “is obliged to pay to the land owner a monthly consideration for the land, in an amount equal to the average rent for such land, if not otherwise agreed.” Construction rights may be acquired either by a court decision or by mutual agreement, executed in the form of a notarial deed, processed by a local Notary Public, in local language. Construction rights enjoy the same legal protection as predial servitudes, in relation to the burdened land, and as ownership, in relation to the construction rights themselves and buildings constructed in such a manner.

Construction rights may end through the perishing of the burdened land, or consensually, or by holder’s waiver, or by the expiry of an agreed term of duration, or finally by the fulfilment of an agreed termination condition. Furthermore, if a building is not constructed based on construction rights within ten years of the establishment of those rights, the burdened land owner may request that they be terminated. Also, construction rights shall be terminated where a building constructed based on them is demolished such that its proper use is impossible and the building is not reconstructed within six years of its destruction.

Upon the end of construction rights, the constructed building is legally re-attached to the land beneath it, whereby the owner of formerly burdened land now becomes the owner of the building as well. The landowner is obliged to compensate the former holder of construction rights for an amount equal to the increase in market value of the land arising as a result of the building now existing on such land.

As a new legal institution, construction rights should allow for a new, innovative way of approaching building construction, in all cases where a simple land purchase is not an option. This is of particular importance in times that require innovation, such as the ones we are living through.

By Slaven Dizdar, Head of Real Estate, Maric & Co.

This Article was originally published in Issue 8.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.