Category: Serbia

With a total stock of over 800,000 square meters of office space and several large-scale office projects underway, Belgrade aims to further strengthen its position as a top choice for headquarters of investors operating in Serbia and SEE.

The country is witnessing a booming retail market with the opening of new shopping centers in Belgrade and the continuous development of retail parks throughout the country, as well as the expansion of industrial and logistics facilities.

So-called triple net leases (“NNN Leases”), under which a tenant pays all the expenses related to the property – including property tax, insurance, and maintenance (all of which are normally paid by the landlord), in addition to rent and utilities – are commonly used when renting A-class office or retail space. However, it is very common for such complex NNN Leases to contain provisions that may be challenged from a Serbian law perspective. 

In some circumstances, parties choose to sign a simple one-page lease contract, in which case general legal provisions apply to all matters that are not explicitly governed by the contract. The problem is that the general rules that are traditionally applied are, in some circumstances, unclear or inappropriate. 

For example, if the lease is concluded for an indefinite period without defining a notice period, the statutory notice period applies. In Serbia, this statutory notice period is only eight days, which is hardly enough time for a tenant to relocate its business to a new office without incurring significant losses and damages. 

In fact, the legislation and practice of neighboring countries has addressed the need for special regulation of commercial leases. In Croatia, for instance, the statutory notice period for commercial leases concluded for an indefinite period is 30 days, although parties may stipulate a shorter notice period. 

In Slovenia, the statutory notice period for the lease of business premises cannot be less than 12 months. 

The Serbian Law on Obligations regulates the concept of lease in general (without making any distinction between leasing movables and immovable assets), instructing the legislator to enact a separate piece of legislation which will govern the lease of business premises in more detail. However, this task has not yet been addressed in a satisfactory manner.

Therefore, it is legitimate to consider whether we need special legal treatment for commercial leases. Some of the points that might be considered are: (i) written and enforceable forms of the lease agreement; (ii) the purpose of the use of the leased premises; (iii) regulation of common costs and service charges; (iv) regulation of fit-out works; (v) stipulation of a longer notice period if the contract is concluded for indefinite period; (vi) the right of sub-lease should be excluded unless the parties explicitly agree otherwise, etc.

We emphasize that most of these special rules should not be mandatory, and that the parties should be free to regulate their mutual relations in a different way, provided that it is not contrary to the mandatory provisions of applicable law. 

All of these topics, and many others, have been appropriately addressed in specific regulations governing the lease of business premises in most neighboring countries, as well as in many other countries throughout Europe.

In Serbia, we anticipate that a special regulation (either through amendments to the existing Law on Obligations, as in Montenegro, or through the enactment of a separate law, as in Croatia) should mainly serve three purposes: (1) to stipulate a minimum of essential and mandatory provisions for the lease of business premises which cannot be amended by contract, in order to protect tenants who are sometimes effectively unable to negotiate terms of complex NNN leases; (2) to envisage an efficient mechanism for protecting landlords from tenants who do not pay rent, allowing easier enforcement of rent collection and eviction penalties (e.g., explicitly stipulating a written, notarized, and enforceable form of the lease); and (3) where the parties have concluded a one-pager, to answer most questions and reduce legal uncertainty.

By Ivan Gazdic, Head of Projects & Infrastructure, and Igor Djordjevic, Associate, CMS Belgrade

This Article was originally published in Issue 6.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The main sources of Corporate Governance in the Republic of Serbia are the Law on Companies and the Law on Capital Market.

The Law on Companies recognizes four legal forms of companies: general partnership, limited partnership, limited liability company, and joint stock company. General partnerships and limited partnerships are colloquially called “personal companies,” as personal elements prevail. On the other hand, limited liability companies and joint stock companies are usually referred to as “capital companies,” as personal elements are less important (as in LLCs) or not important at all (as in JSCs – particularly public JSCs). This distinction is of great importance for corporate governance since corporate governance rules may be applied only to LLCs and JSCs (the rules are optional for LLCs and private JSCs and mandatory for public JSCs).

Corporate governance rules are usually collected and systematized in an instrument of self-regulation called a corporate governance code. Two such codes are particularly important in Serbia. The first is the Corporate Governance Code issued by the Belgrade Stock Exchange, which applies only to listed companies (public JSCs, in other words). The other is the Corporate Governance Code issued by the Chamber of Commerce and Industry of Serbia that is intended for all “capital companies,” (unlike the previous Corporate Governance Code from 2006, which contained rules applying only to public JSCs). The most important reason why these two codes stand out is the “comply or explain” rule which they contain, and which was institutionalized in Serbia in 2011 with the adoption of the Law on Companies. This very essence of the rule is reflected in these three words.

According to Article 368 of the Law on Companies, the statement of application of a corporate governance code is an integral part of each company’s annual report. This report shall be prepared by public JSCs and published in accordance with the Law on the Capital Market, and the statement of application shall include information regarding which corporate governance code the company is applying and an indication as to where it is publicly available. It must also contain all important information regarding the corporate governance practices exercised by the company, particularly those that are not expressly prescribed by the law, and identification about and explanation for all derogations from the rules of the corporate governance code which the company has selected, if any such derogations exist. More precisely, public JSCs shall provide a meaningful explanation as to why they have not complied with the rules contained in the code they chose to apply.

In order to foster good corporate governance, the most recent amendments to the Law on Companies included the introduction of Article 368a, which came into force on December 9, 2018, and which applies only to public JSCs. Under this article, JSCs are obliged to make the following accurate and up-to-date information about the members of a board of directors/supervisory board available on the company’s website: their profession and previous positions and information regarding current memberships they may hold in other boards and positions they may have in other companies.

However, even though Serbia does not lack corporate governance rules, as can be seen, corporate governance practice in the country seems to be very poor. The number of JSCs which have adopted their own corporate governance codes is quite modest and these companies are usually among the largest in Serbia (for example, Naftna Industra Srbije a.d. Novi Sad) and the majority of JSCs rely either on the Corporate Governance Code of the Belgrade Stock Exchange or the Corporate Governance Code issued by the Chamber of Commerce and Industry of Serbia. Also, despite its mandatory nature, there are still JSCs which have neither their own corporate governance codes nor a statement referring to others, and have not suffered any consequence as a result. This proves that Serbia is still far from reaching an acceptable level of corporate governance culture.

By Igor Zivkovski, Partner, Zivkovic Samardzic

This Article was originally published in Issue 6.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

An interview with the Belgrade-based Senior Counsel CEE at Philip Morris International

CEELM: Can you walk us through your career leading you up to your current role?

Misa: Right after law school I started as a legal trainee in a Law Firm Dragan Rasic in Belgrade. There I learned a lot about the fields of civil and commercial law. I worked at that small law firm for three years. After that I had my own law office for approximately two years, where I continued to build my expertise in the fields of civil and commercial law, but also worked a lot in the real estate sphere. 

In the following years I mainly worked in the banking sector, helping banks in their legal affairs as both in-house lawyer (with UniCredit Bank) and outside counsel (with the Roka & Partners law firm and CMS Belgrade).

Some 14 years ago I joined the legal team of Phillip Morris International as Counsel for Serbia and Montenegro. In less than a year I became the head of the legal department for those markets. In early 2016, I become Head of Legal SEE for PMI, covering six markets in the Balkans. 

CEELM: What are the most significant changes you’ve seen in Balkan legal markets over your more-than-20-year career?

Misa: When I started, back in 1997, there were no big law firms in Belgrade and Serbia. There were only offices with one lawyer, or at most just a few. Also, there was very little specialization around those days. Today we see more and more specialized lawyers, on the one hand, and much more sizable law firms, gathering different types of legal specialists on the other hand, in order to be able to respond to growing needs of their clients in different areas of laws, both in terms of the quantity and quality of legal work. 

CEELM: Tell us about your legal team at Philip Morris International in Serbia. How big is it, and how is it structured?

Misa: We cover six markets (Serbia, Montenegro, Kosovo, Macedonia, Bosnia & Hezegovina, and Albania). We have six lawyers on our team. The work is split predominantly per territory. All the lawyers are based in Serbia (in the cities of Belgrade and Nis). Some of them are specialized in laws of other countries – for example Macedonia or Montenegro. We have a pretty flat structure, which, I believe, fits small types of organizations like ours, so almost all the lawyers report directly to me. In each market we have law firms that support us, and the lawyers from our team that are responsible for those markets work directly with those outside counsels. Less often, and in some specific areas of law, we have developed in-house experts that support other business functions on functional principles, irrespective of the territory.   

CEELM: Are there changes you would like to see in Serbian law (or other legal regimes in SEE) that would make things easier for PMI?

Misa: All SEE markets adapt their regulations in line with their specific EU accession paces. We encourage all changes which are in line with EU practices and which take into account the specifics of different industries.

As in any other sphere, there are always things that can be improved. For example, the current Serbian Law on Conversion of Usage Right into Property on Construction Land with a Fee, especially in combination with the Law on Planning and Constructing, is unfavorable for those investors who bought Serbian companies under the Privatization Law. These companies cannot use their earlier entitlements and develop the land on which they have the right of use, as they cannot get the necessary construction permit. So, despite the significant amount they paid initially, and additional investments they’ve made since, these companies cannot fully exploit the rights they acquired, without paying additional and often very significant fees. This is not a best practice and does not help to promote further investments, as for all investors, especially the foreign ones, security of ownership rights is among the most important things to assess when deciding to invest. Things can definitely improve there.

On the other hand, I believe it is commendable that local legislation is more and more positive towards work from home and similar modern forms of work arrangements. That trend should be encouraged, as it can benefit both employees and employers.

CEELM: What is your typical day at work like?

Misa: The beauty of my job is that there are no typical days at work. Each day is a story of its own. The work is so dynamic so that it is very difficult to plan anything. I travel a lot. In SEE alone I have around ten locations that I need to visit several times during the year, including our own or our distributors’/partners’ offices or factories in Belgrade, Nis, Skopje, Prilep, Tirana, Pristina, Podgorica, Sarajevo, and Banja Luka, among other places. Also, I travel very often to our HQ in Lausanne, and several times during the year we have meetings in other places around Europe and the world. So, I may say that my office is very often in an airplane, hotel, or even train. I work a lot on my smartphone and talk a lot over the phone. This is today’s reality, especially in multinational companies. At times it is difficult, most of the time it’s just interesting and exciting! 

CEELM: Was it always your plan to go (and stay) in-house? 

Misa: It was actually never my plan to go in-house – and then, when it happened, it was not my plan to stay. When I was a kid in primary school my dream was to become a lawyer and to have my own law firm. I was not dreaming of a big law firm because, as I explained above, big law firms did not exist at the time in Serbia. Over the years I worked towards making that dream come true, which at a later stage became my goal. I formally fulfilled my dream probably too early (in my late 20s). It was not easy to sustain the office on my own, and I first joined a bigger law firm, then, soon after, I received a call from a bank. The financial offer was good and the salary was stable, so I accepted. After a while, I told myself that the in-house position was not for me and I joined a big law firm again. 

After a while, although I had a great time being a member of a big law firm, I received an offer from PMI. I decided to accept the in-house challenge once again. I felt this time it could be different, and better. But this time I was more cautious. I even kept my status as an outside counsel alive for two more years (the maximum possible at the time). Now, after 14 years at PMI, I feel all my decisions were right. It is OK to try things in earlier stages of your career and to change more often in order to understand what suits you and to accumulate different types of experience. Today, I see the value of being both external and in-house, so I would recommend that each lawyer try both sides. Having experience on one side gives you a more complete view when you are on the other side, and vice versa. 

Still, I am keeping my dream alive. (Smiles) 

CEELM: What was your biggest single success or greatest achievement with PMI in terms of particular projects or challenges? What one thing are you proudest of? 

Misa: Well, things that you are the proudest of and your biggest achievements are normally the things, at least in our profession, that you should not speak openly about, because they are very confidential. But, nevertheless, I decided to open myself to your readers more than normal (smiles). So, for this occasion, I would pick our deal in Macedonia. We have a joint venture with a state-owned factory there. We have a Master Joint Venture Agreement and almost a dozen underlying agreements under its umbrella. Hundreds of pages of legal documents, as you may imagine. Cross-referencing all around – in and out! I dedicated almost a year to finalizing the deal (while continuing to manage all the other aspects of my job). It was challenging from various sides: in terms of internal and external relationships but also legally because the deal itself was very complex. The thing I am proudest of is that in most of the negotiating sessions I was the only one from my company representing both the legal and the business side – which was not the case on the other side of the table. It was difficult, but the deal is still on and is paying dividends for both sides. Recently, we celebrated five years of the JV, and I felt the drinks I had at the party were among the most-deserved in my entire PMI career.   

CEELM: What one person would you identify as being most important in mentoring you in your career – and what in particular did you learn from that person?

Misa: Definitely Dragan Rasic, my first principal in the law firm where I served as a legal trainee. That man was a walking encyclopedia of law. His expertise was so strong that other (good and experienced) lawyers used to call him to ask for help with strategy in their own cases. He taught me how to approach each legal issue. I simply learned that being lawyer is an art and a craft at the same time. He also taught me about life – how to drive a car for example. I had a great and caring father from whom I learned a lot of important things, but for those three years of my traineeship I felt like I had a second father.   

CEELM: On the lighter side, what is your favorite book or movie about lawyers or lawyering?

Misa: The Devil’s Advocate. Vanity is truly one of the features of lawyers, especially those that are often in the court. The movie pushed me to look at my profession from the other side – more modest, honest, and down-to-earth. This is especially important in-house, when you are not a big star. The only star in companies is the business itself (in our case commercial roles), so most of the time your role is to contribute and do your best despite not being in the spotlight. There is not much room for vanity there.

This Article was originally published in Issue 6.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

CMS Belgrade has advised BMTS Technology on the opening of a manufacturing plant in Serbia.

BMTS manufactures exhaust turbochargers for the automotive industry. The construction of the new plant, which is located in Serbia’s second largest city, Novi Sad, and spans approximately 24,000 square meters, started in the second half of last year. Production is planned to start in summer 2020 with a capacity of around two million exhaust gas turbochargers. The investment into the project is estimated at nearly EUR 50 million. 

CMS Belgrade’s team was headed by Managing Partner Radivoje Petrikic and included Senior Attorney Dragana Jandric, Partner Maja Stepanovic, Attorney Jelena Dorđevic, and Senior Tax Lawyer Ivana Blagojevic.

CMS has advised Turkey’s DenizBank and Ziraat Bank on a loan of approximately EUR 220 million to the Ministry of Construction, Transport, and Infrastructure of the Republic of Serbia for the design, construction, and/or reconstruction of the Novi Pazar-Tutin, Sremska Raca-Kuzmin, and Pozega-Kotroman sections of the motorway and a bridge over the River Sava. 

CMS’s team included Serbian Managing Partner Radivoje Petrikic, Partner Milica Popovic, and Senior Attorney Ksenija Boreta, Turkish Managing Partner Done Yalcin and Senior Attorney Alaz Eker Undar, and Romanian Partner Ana Radnev.