Category: Serbia

NKO Partners has advised the Dr. Max Group on another pharmacy chain acquisition in Serbia – that of Belgrade-based K-Pharma.

According to NKO, following the new acquisition, Dr. Max now has more than 190 pharmacies in Serbia.

The Dr. Max Group is a Prague-headquartered pharmacy chain operating in Central and Eastern Europe. The company has over 2,200 pharmacies in six countries, including the Czech Republic, Slovakia, Poland, Romania, Serbia, and Italy. K-Pharma is a Belgrade-based pharmacy chain.

NKO Partners previously advised the Dr. Max Group on its acquisition of the Janja pharmacy chain (as reported by CEE Legal Matters on March 28, 2022) and the Zlatni Lav pharmacies (as reported on January 5, 2022).

The NKO team was led by Partner Djordje Nikolic and Senior Associate Branko Jankovic.

Zivkovic Samardzic has advised Catalyst Romania and 3TS Capital Partners on the Serbian aspects of their investment in Hunch.

According to Zivkovic Samardzic, Hunch has raised EUR 4 million in the round “led by Catalyst Romania, backed by 3TS Capital Partners, alongside co-investors Euroventures, North Base Media, SeedBlink, and South Central Ventures.”

Catalyst Romania is a technology-focused venture capital firm. 3TS Capital Partners is a European technology-focused private equity and venture capital firm.

Hunch is an automated creative production and media buying platform. It was founded in 2016 in Serbia by Igor Simovic and Sinisa Rakovic.

“This round is the largest round led by Catalyst Fund II thus far and the first investment by the fund in the SEE region outside Romania,” the law firm informed. “Hunch will use this investment to triple its sales team and increase marketing investments, to support its expansion plans in Europe and into the US.”

The Zivkovic Samardzic team was led by Partner Igor Zivkovski and included Associate Danka Drasko.

Since 2009 the Republic of Serbia has undergone major legislative changes aiming to simplify the process for issuing construction permits and to establish private ownership over land as an exclusive property right, replacing the permanent use right and the long-term lease, which are relics of the communist regime. Depending on the circumstances pertinent to the holder of the title, the conversion of the permanent land use and long-term lease rights into private ownership may be performed either free of charge or for a fee.

Although there are still some legal bottlenecks to be dealt with, the reform has been very successful. It resulted in a substantial increase in real estate development projects in Serbia and the overall increase of foreign investments in the real estate industry.

Land in Serbia is generally divided into construction land and agricultural land. While construction land may be privately owned with no limitations – including private ownership by foreigners (subject to reciprocity) – agricultural land may exclusively be owned by Serbian nationals. To circumvent this obstacle, foreigners tend to establish local companies which then appear as the owners of agricultural land. Serbian legislation does not provide for another distinction by land type, therefore the same general rules apply to transfers over residential, industrial, office, retail, or other property.

Some of the major reforms included the electronic issuance of construction permits and the centralized database of the Cadastral Registry for all of Serbia, which offers the possibility to easily review the ownership status of any property in the country, via an online platform. On the other hand, construction permits are being issued in unified procedures, where the public administration exchanges documents internally, without citizens and investors having to collect them individually from different administrative units. These changes were aimed at creating conditions for an investment-friendly business environment. Consequently, real estate has become an attractive investment opportunity. This resulted in the Serbian real estate market’s continued growth, in the last six to seven years, with increased development activity in the industrial and logistics sector as well as in retail warehousing, shopping centers, residential, and public investments. The construction sector continues to expand, as is evidenced by a sharp uptick in the number of issued construction permits.

Currently, Belgrade has over 1 million square meters of office space and two major office projects under construction – the Skyline AFI Tower (approximately 40,000 square meters) and GTC X (approximately 17,000 square meters). In the retail sector, two new shopping malls were opened in 2021 and there are a few ongoing projects (NEST, IKEA, and Stop Shop), which is a positive indicator of further development in this market. Additionally, the industrial and logistics sector has remained very strong during the pandemic and there is increased demand for storage space, i.e., industrial and warehouse buildings. For example, CTP continues to invest in the Serbian market and is concurrently developing a few major projects in different parts of Serbia, some of them being recognized as projects of national interest. Also noteworthy is the ever-developing Belgrade Waterfront project, which is the largest residential and commercial real estate development in the Balkans, developed jointly by the Government of Serbia and Eagle Hills.

Transaction activity is also heightened. The total number of sales on Serbia’s real estate market in 2021 was 138,180, or 28.4% higher than in 2020. Total investments in Serbia’s real estate market in 2021 amounted to USD 6.7 billion, which is 47% more than in 2020. Most investments happened in Belgrade (around 51%), with the rest going to the Autonomous Province of Vojvodina (26%), Central and Western Serbia (16%), and Southern and Eastern Serbia (7%).

The major changes in legislation which have significantly facilitated the procedure of obtaining a construction permit (and other permits), as well as massive demand for space of all purposes (residential, office, industrial, and retail) in the last five years, have also resulted in the Republic of Serbia, led by Belgrade, being a hub of real estate investments and development in the Balkans. Having followed the market closely – and considering that the COVID-19 pandemic did not significantly affect demand, investment plans, or project development – we believe that the Serbian real estate market will remain attractive and exciting for domestic and foreign investors in the future.

By Djordje Nikolic, Partner and Head of Real Estate, NKO Partners

This Article was originally published in Issue 9.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Markovic Vukotic Jovkovic has advised IKEA on the construction and opening of a retail park in Belgrade, next to an existing IKEA store.

Ava Shopping Park is positioned right next to an existing IKEA store in the Bubanj Potok municipality. The project represents a EUR 50 million investment by IKEA, covering 19,000 square meters and housing over 35 domestic and international brands. According to IKEA General Project Manager Branko Mihajlov an additional 10,000 square meters will be developed soon.

Editor’s Note: After this article was published, MVJ informed CEE Legal Matters that their team working on the deal included Partners Nikola Vukotic, Uros Markovic, and Dusan Djordjevic and Senior Associates Lazar Todosijevic, Marija Grujeska, and Bojana Racanovic.

COVID-19 pandemic caused different market distortions that imposed economic entities to various challenges, both in terms of their relations with the clients, i.e., consumers, and their mutual relations.

In this context, provisions of the Law on Contracts and Torts (Official Gazette of SFRY no. 29/78, 39/85, 45/89 – decision of CCY and 57/89, Off. Gazette of FRY no. 31/93, Off. Gazette of SCG no. 1/2003 – Constitutional Charter and Official Gazette of RS no. 18/2020) (“the Law”) are of particular importance, as they regulate the issue of termination (or amendment) of agreements due to the hardship, as well as the judgment enacted in 2021 by the Commercial Court of Appeals in relation thereto.

Provisions of the Law

In accordance with Article 133 of the Law, should after conclusion of the contract circumstances emerge which hinder the performance of the obligation of one party, or if due to them the purpose of the contract cannot be achieved, in both cases to the extent that it becomes obvious that the contract no longer meets the expectations of the contracting parties, and that, in general, it would be unjust to maintain its validity as it stands – a party having difficulties in performing its obligation, i.e., being unable to achieve the purpose of contract because of such circumstances, may request the contract to be terminated.

Contract termination under the previously stated article of the Law cannot be requested in case the party referring to the hardship was obliged, at the time of conclusion of the contract, to take into account such circumstances, or if it could have avoided or surpassed them, nor can the party requesting the termination refer to the hardship upon the expiry of the deadline for fulfilment of its contractual obligations. Also, the contract will not be terminated provided that the other party offers or accepts a fair change of the relevant terms, while in case the court terminates the contract, it will, at the request of the other party, oblige the party requesting the termination to reimburse the other party a fair share of damage endured therefore.

The court will decide on contract termination, i.e., amendment, based on the principles of fair trade, particularly taking into account the purpose of contract, normal risk related to such type of contracts, general interest and interests of both parties thereto.

The Law also prescribes that the parties to the contract can stipulate in advance that they will waive from referring to the hardship, unless this is in contravention to the principle of diligence and fairness, as well as that the party authorised to request contract termination due to the respective circumstances shall be obliged to notify the other party on its intention to request termination as soon as it learns of such event. Otherwise, it shall be liable for damage caused to the other party because the aforesaid request was not timely provided.

Judgment of the Commercial Court of Appeal

In relation to the previously mentioned provisions of the Law, on June 24, 2021, the Commercial Court of Appeal passed the judgement Pz 832/21, pursuant to which the distortion in business operations of the retail store, due to the market distortions caused by COVID-19 epidemic, represents grounds for termination of the business premises lease contract because of the hardship.

Namely, the rationale of this judgment reads that the first instance court has properly decided on overall termination of the contract on lease of business premises in a shopping centre, given that the decision of the Government of Republic of Serbia as of March 21, 2020, according to the previously imposed state of emergency, prohibited the work of shopping centres, including the one where the premises subject to lease and the claim were located, while the prevailing business activity of the plaintiff, registered in the Business Entities Register, was a wholesale (of certain products). In other words, since the proclamation of the state of emergency caused by COVID-19 pandemic resulted in market distortions, which caused – inter alia – a significant reduction of the plaintiff’s turnover, the first instance court has properly established that the new circumstances prevented the attainment of the purpose of the contract to such an extent that it no longer met the expectations of the parties, thus it would be unfair for it to remain in force as it is. This judgment also notes that, with respect to the termination or amendment to the contract due to the hardship, the only circumstances to be considered are those leading to a difficulty in realising one’s obligations, and not those leading to the lost profit (that might be collected); therefore the court established that the payment of the rent as envisaged and agreed by the parties would question the capacity of the plaintiff to perform its business activity.

Additionally, in accordance with the stated judgment, and pursuant to the Law, termination of the contract due to the hardship cannot be achieved by the sole expression of one’s will to the other party, but by a court’s decision whose validity actually introduces legal consequences of termination. Namely, claim for termination of the contract for the hardship is, by its legal nature, a constitutive claim, so the contract is in such case terminated by the respective decision, as it transforms certain legal relationship.

This article is to be considered as exclusively informative, with no intention to provide legal advice. If you should need additional information, please contact us directly.

By Lara Maksimovic, Senior Associate, PR Legal

Markovic Vukotic Jovkovic has advised the Fashion Company on its acquisition of Movem.

Financial details were not disclosed. 

The Fashion Company is a fashion retailer with over 100 retail outlets in Serbia, Montenegro, North Macedonia, Bosnia & Herzegovina, Croatia, and Romania. Movem is a Serbian fashion company and a franchisee retailer of the Boss and Hugo brands.

Markovic Vukotic Jovkovic did not respond to our inquiry on the matter.

Editor’s Note: After this article was published, CEE Legal Matters learned that Naumovic and Partners advised the sellers on selling a 60% stake in Movem. The firm’s team included Managing Partner Zoran Naumovic and Partner Jovana Zivkovski.

The MVJ team included Partner Marko Jovkovic and Senior Associates Stefan Jovicic and Marija Grujeska.

On 19 May 2022, the Government of the Republic of Serbia adopted the Regulation on the temporary measure of limiting the price of gas and compensating for the difference in the price of natural gas, procured from imports or produced in the Republic of Serbia, in case of disturbances on the natural gas market, which regulation was published in the Official gazette of the RS no. 59/2022.

The goal of this regulation is to protect the economy and citizens in times of energy turmoil by compensating the difference in the price of natural gas purchased from imports and the price of natural gas from imports that is used to calculate the price for resale to suppliers, public suppliers and final customers, in November 2021. The same goes for the price of natural gas production now and the price of production in November 2021.

The procedure for obtaining price compensation has also been prescribed. It is initiated by submission of a request to the Ministry of Economy, that must be accompanied by i) an accounting document on the basis of which it is possible to clearly and unambiguously determine the price at which natural gas was purchased from imports in November 2021 and the quantities purchased at that price, ii) an accounting document, which must contain the date and time of the realized purchase, on the basis of which it is possible to clearly and unambiguously determine the price at which natural gas was purchased from imports, iii) proof of purchase and sale of foreign currency correlated with the invoice and day of natural gas import, iv) customs documentation confirming the import of natural gas for which the payment of compensation for the difference in price is requested, v) protocols on gas handover concluded with suppliers and natural gas transmission system operators, vi) statement under full material and criminal responsibility of the legal representative of the applicant that the quantities of natural gas are procured, ie produced under the most favorable conditions, and vii) accounting document, which must contain the time and date of the realized purchase, on the basis of which it is possible to clearly and unambiguously determine the price at which the natural gas was sold to the supplier, public supplier or final customer.

The Government will establish a Commission for recording and approving funds to compensate for the difference in price, which commission may request from the applicant to submit additional evidence.

Finally, it should be noted that the rules prescribed by this regulation apply exclusively to the quantities of natural gas intended for consumption in the territory of the Republic of Serbia.

By Marko Mrdja, Senior Associate, JPM Jankovic Popovic Mitic

At Open Balkan Summit held in Tirana on December 21, 2021, several agreements were signed by Serbia, North Macedonia and Albania, including the Agreement on conditions for free access to the labour market in the Western Balkans, which was subsequently ratified by the National Assembly of the Republic of Serbia on December 29, 2021, and published in the Official Gazette of the Republic of Serbia – International Agreements no. 27/2021 from December 30, 2021 (“the Agreement”).

According to the information available on the website of the Serbian Chamber of Commerce, it is expected for provisions of the Agreement to be exercised in practice as of the end of May 2022.

Content of the Agreement

According to the Agreement, citizens of the parties to the agreement are entitled to the right to move, stay and work freely within the territories of other parties.

By the Agreement, the parties undertake to simplify the administrative procedures for entry, movement, stay and work of the citizens of other parties, and guarantee such citizens equal access to the labour market, in accordance with the Agreement and domestic legislation.

For exercising their right to free access to the labour market, citizens of the respective parties shall register their personal and other necessary data as required by the appropriate electronic service developed by each party, in accordance with domestic legislation and the Agreement on interconnection of schemes for electronic identification of the citizens of the Western Balkans, even before entry into the territory of the recipient state or after that, but no later than 90 days from the aforesaid date.

The registration referred to above shall be performed electronically, on the basis of previously determined unique ID number that the party issued to its citizens (in accordance with the above-mentioned Agreement on interconnection of schemes for electronic identification of the citizens of the Western Balkans), whereby the issued permit for free access to the labour market enables citizens of a party to stay in the territory of the recipient party up to two years (with possibility for re-registration after the expiry of this term, if the prescribed requirements have been met), as well as to exercise the right to employment without need to obtain the work permit in the recipient country (including the right to exemption from taxes prescribed by domestic legislation).

Implementation of the Agreement

Precondition for the establishment of single labour market, i.e., exercising the rights stipulated by the Agreement, is the establishment of single registration platform for all three signatory countries, where interested individuals would apply for the required permit.

Implementation of this platform in Serbia is currently conducted by the Office for Information Technologies and eGovernment, in cooperation with the Ministry of Interior and the Ministry of Labour, Employment, Veteran and Social Affairs.

This article is to be considered as exclusively informative, with no intention to provide legal advice. If you should need additional information, please contact us directly.

By Lara Maksimovic, Senior Associate, PR Legal

Cvjeticanin & Partners has advised the Korea Trade-Investment Promotion Agency on its implementation of Serbian labor law regarding collective and individual legal acts.

According to Cvjeticanin & Partners, “KOTRA has been established in Serbia as a diplomatic mission of the Republic of Korea since 2015. Its vision is to promote trade as well as investments between Serbia and South Korea and has been successful regarding both of these missions.”

The Cvjeticanin & Partners team included Senior associate Ivana Mijajlovic and Associate Marko Spajic.

The global events and current energy crisis have demonstrated once again the imperative of continuous development of the energy sector and its modernization, which is both time-consuming and financially burdensome, but inevitable for the sustainability of the economy and overall society. It has additionally pointed out the real need for the equal or quasi-equal level of development of the electricity, gas and oil sector and increased dynamic development of the renewables energy market and, the imperative of having a firm orientation to diversification and establishment of different routes and different sources of supply. There is  a necessity of having a long-term strategic determination to stability and security of supply and national strategic plan to achieve it.

When it comes to natural gas, the Republic of  Serbia is completely dependent on natural gas from the Russian Federation, whereby less than 10% of Serbia’s needs are satisfied by domestic natural gas production.

Aware of the fact and oriented towards achieving long-term stability and security of natural gas supply, the Republic of Serbia has since 2017 been oriented towards the implementation of several parallel projects,  such as – (i) construction of cc 402 km long interconnector (Serbian section of so-called “Turkish Stream”, also recognized as a “Balkans Stream”), aiming to ensure different route of natural gas supply (other than the one from Hungary which was the sole route of supply for decades) and future gradual access to potentially different sources of supply, which project has been completed in 2021, (ii) expansion of capacities of natural gas storage in the Republic of Serbia, still undergoing, (iii)  construction of new natural gas interconnector Serbia – Bulgaria (Niš – Dimitrovgrad pipeline) (also called „IBS interconnector“), financed from IPA funds and EIB loan, aimed to be completed by the end of 2023.

All these natural gas projects are aimed to ensure stability and security of natural gas supply, in terms of creating the additional routes of supply and expanded storage facilities which could mitigate the gas crisis caused by shortfalls in natural gas supply and ensure the operations of industry and households for some time, until the supply chain is restored. They also have a potential for diversification of sources of supply and, in the future, possible connections with TAP and TANAP gas pipelines (South gas corridor) and the access to natural gas from LNG terminals in Greece and Croatia.

On the other hand, the current production of electric energy is still not ensuring the expected level of security and it requires significant investments in the construction of new infrastructure, as well as in the modernization of existing premises and their homogenization. This should go hand in hand with the further development of the transmission and distribution system and their alignment with the production system.

In line with internationally undertaken obligations, the Republic of Serbia has significantly improved its legislative framework and enacted new legislation, mainly in the sector of renewable energy sources, all aimed to boost this relatively neglected sector. Despite the fact that the projects aimed to facilitate the production of the energy from renewable sources have commenced some time ago, at the beginning with the construction of small hydro-electric plants, and later with the construction of wind parks, solar parks, and premises based on the utilization of biomass, this is still not enough, both in terms of ensuring energy stability nor in the sense of ensuring the compliance with the undertaken international obligations. Green agenda, initiatives to switch to green economy and decrease the coal consumption, decarbonization, and use of less carbon-intensive fuels, in hand with the orientation towards the circular economy, depollution, protection of nature and biodiversity would be a driving engine of future development of the Republic of Serbia.

Serbia’s orientation to become more independent in respect to sources of energy supply and different routes of supply, with regard to energy, is hand in hand with the construction of new infrastructure, ensuring better connectivity and mobility – a key precondition for FDIs, as the Serbian economy is significantly dependent on FDIs,  whereby the key factor for deciding where to invest is driven by the price of investment (directly preconditioned, inter alia, by the price of energy consumed for the operations), good infrastructure connectivity and logistics. Therefore, the development of the energy sector is not an imperative per se but it is a long-term driver of the Serbian economy and society. 

At this point in time, it is very difficult to predict future developments. Like all the parties which are facing the same challenges, the Republic of Serbia is looking for alternatives and trying to bypass the pitfalls in a time-efficient and cost-benefit manner. The task has never been more complicated and challenging as the time is now for a long-term strategic orientation, whereby limited alternatives are currently at hand and the time is running. 

It seems that the urgency of making problem-solving choices shall temporarily put on hold some great initiatives that cannot produce enough energy, as needed at the time being and, should be focused on priorities that are often not green-friendly.

By Jelena Gazivoda, Senior Partner, JPM Jankovic Popovic Mitic