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Legal Regime Regarding Real Estate

The Serbian legal regime recognises private ownership of real estate, including land and buildings. Serbia's 2006 Constitution[1], together with the Law on Basics of Property Relations[2] (1980, as amended) (the "Property Law"), the Law on Planning and Construction[3] (2009, as amended) (the "Planning Law") and other laws, uphold and protect the right to own private property. Publicly-owned property (property owned by the state, the autonomous province and municipalities) is subject to special regulation, the main source of law being the Law on Public Property[4] (2011, as amended).

Real Estate Registries

Data on real properties is maintained in the publicly available Cadastral Registry. The Cadastral Registry contains both "technical" and "legal" data on immovable properties.

Apart from real estate in the narrow sense (land and buildings), the Cadastral Registry also contains a cadastre of grids, which is supposed to contain data on waterworks, sewage and drainage, heating, electro-energy, telecom, oil and gas grids, respectively. The cadastre of grids is not yet fully operational, since not all of the relevant data on the existing grids has been registered in it.

Registration of Title

Ownership rights over land or buildings are generally obtained upon registration of the right in the relevant registry (the Cadastral Registry). Acquirers are deemed to be aware of all matters which are registered. In practice, it is considered acceptable to acquire a title from an unregistered owner and the registries will register such title, if there is sufficient evidence linking the acquirer with the currently registered owner as the previous transferor.

The ownership transfer document must be in written form, with signatures authenticated before the notary public. The document must contain explicit consent of the transferor that the acquirer may be registered as the owner (clausula intabulandi).

Rights of Foreigners to Acquire Real Estate

A foreign entity can purchase construction land and buildings in the Republic of Serbia necessary for its business operations, subject to reciprocity, or, as the case may be, in accordance with the terms set out in a treaty between Serbia and the country of the foreign entity. Foreigners are explicitly banned from acquiring ownership of agricultural land.

If a foreign entity establishes a subsidiary in the Republic of Serbia, such subsidiary is treated equally to any other local entity acquiring land and buildings, regardless of the origin of the founder or its controlling share. This means that foreign persons and entities may indirectly own real estate in the Republic of Serbia through their Serbian subsidiaries without any distinguishing limitations.

It can be expected that the regime of foreign ownership of real estate in Serbia will be further liberalized in the coming period. The Stabilization and Association Agreement between Serbia and the EU[5] (the "SAA"), which entered into force in September 2013, prescribes that within four years from the entry into force of the SAA Serbia shall progressively adjust its legislation concerning the acquisition of real estate in its territory by nationals of EU Member States, to ensure the same treatment as compared to its own nationals. This deadline expires in September 2017 and there have been indications that Serbia will try to negotiate an extension of this deadline.

Statutory Pre-Emption Rights

When land and buildings are privately owned by two or more individuals, the co-owner is obliged to offer its share of the land or building to the other co-owner(s) first under the same terms and conditions as offered to a third party acquirer. In case there are more co-owners, the co-owner with a larger share of the ownership has priority. Transfer agreements breaching this statutory pre-emption right are invalid and may be challenged within 2 years after execution. There are also special statutory pre-emption rights for agricultural land and forests.

Status of Construction Land

General

Serbian legislation allows private ownership of any type of construction land. The Planning Law distinguishes between developed and undeveloped construction land. Developed construction land is land on which permanent structures have been built in compliance with the law. Undeveloped construction land is land on which no buildings have been constructed, land on which illegal buildings have been built (erected without the necessary permits), and land on which only buildings that are by nature temporary have been developed. The distinction between developed and undeveloped construction land is relevant in several aspects, including the process of conversion of the right of use into the right of ownership.

The Planning Law further distinguishes between construction land with infrastructure and construction land without infrastructure. In case a lot is without infrastructure, it is also possible to prepare the lot for development upon request of the investor (at the investor's expense).

Conversion of Land Use Rights to Ownership Rights

One of the main objectives of the Planning Law was to eliminate to the largest extent possible outdated and country-specific land use rights, through conversion of land use rights to ownership rights.

The Serbian legislation differentiates between a conversion free of charge (regulated by the Planning Law) from a conversion with compensation (regulated by a special law, the Law on Conversion of the Right of Use to the Right of Ownership over Construction Land for a Fee[6] – the "Conversion Law").

Conversion of the right of use to the right of ownership (or, as the case may be, lease) is important because after 28 July 2016 the right of use is not anymore an adequate title for obtaining the construction permit and other permits related to construction (prior to this date, apart from ownership and lease, building permits could also be obtained based on the right of use on publicly owned land, in the situations where now conversion with compensation is possible).

1. Conversion free of charge –conversion of the right of use into the right of ownership without compensation is the general rule. The right of use is converted into the right of ownership of the owner of the building(s) located on the cadastral parcel or, as the case may be, the holder of the right of use on the undeveloped lot.
   The Planning Law prescribes that this conversion is performed by virtue of the law and the Cadastral Registry is supposed to register this change ex officio. In practice, however, in order for the right of use to be registered in the registry as the right of ownership, the holder of the right of use needs to submit to the Cadastral Registry a request for the registration of the conversion into the right of ownership.
2. Conversion with compensation – the Conversion Law stipulates that "conversion with compensation" applies to the following holders of the right of use:
• Legal entities which were subject of privatization, based on the laws governing privatization, bankruptcy and enforcement, including their legal successors;
• Registered holders of land use rights on undeveloped construction land in state ownership, granted for the purpose of construction based on earlier legislation;
• Organizations the status of which is regulated by sport legislation, as well as associations;
• Companies in so-called "social ownership" which are holders of the right of use on construction land;
• Companies and other legal entities, to which provisions of Serbia's bilateral treaties and the agreement on succession of the former Yugoslavia apply, may apply for conversion with compensation following the procedure for the return of property.

 

Conversion with compensation is regulated in more detail in the Conversion Law. As a rule, the conversion fee represents the market value of the land at the moment of submitting the request for conversion. The fee can also be lowered, based on the conditions prescribed in the Conversion Law. Any lowering of the conversion fee also needs to be in line with the relevant state aid rules.

Prior to obtaining the right of ownership, the persons which may apply for conversion of the right of use to the right of ownership (listed above) can lease the individual cadastral parcel over which they have the right of use. The lease agreement is concluded for a period of 99 years, the annual lease amounting to the market value of the real property divided by 99. Apart from the right of ownership, such long-term lease is also a valid basis for obtaining the construction permit pursuant to the Planning Law.

Construction Process

Urban Planning

The issuance of building permits is conditional on the existence of a sufficiently detailed urban plan. Such plans are adopted by the relevant authorities for the state, regional or local level. In order to prevent the situation where the investor cannot obtain a building permit due to inaction of the state body which is supposed to adopt the required urban plan, it is under certain conditions possible to obtain the permit even without such urban plan, in accordance with the Planning Law.

The most notable recent developments in this area are that in 2016 the City of Belgrade adopted a new General Urban Plan and the Plan of General Regulation. In addition, Belgrade has also adopted detailed plans of regulation for certain parts of the city, with more such detailed plans on the way.

Building Permits

To commence construction works, the developer must obtain a construction permit from the relevant authorities.

In 2014, amendments to the Planning Law significantly changed the procedure of issuing building permits, simplifying it considerably. Now, most of the documents an investor needs to obtain from the relevant authorities are issued in a uniform procedure, with the objective of enabling the investor a one-stop-shop in this process. Another important novelty is the introduction of an electronic system of application for the necessary building permits – even though the system is relatively new, it has come into life and building permits are now being issued electronically.

The introduction of the new system has had very positive effects in practice – during the period March-December 2015, when the application of the new system started, the number of issued construction permits rose by a third compared to the same period in 2014. Further, 2015 saw a rise in the construction industry output of around 20%, which is significantly higher than the increase of Serbia's total GDP for that year (which was around 0.8%). This is a sign that the Serbian construction industry is in expansion and that the state is resolved to further foster this growth by cutting red tape surrounding the issuance of building permits.

In general, in order to obtain a construction permit, the developer must have a proper title to the land on which he intends to build (the right of lease or the right of ownership). After 28 July 2016, the right of use is no longer considered as the proper title for obtaining a construction permit – holders of such rights must first convert their rights of use to ownership (or enter a long-term lease) in order to obtain the necessary permits.

The competent authority needs to issue a construction permit within five working days from the date of application for such permit. A construction permit ceases to be valid if within two years as of its issuance the investor does not commence construction works. As a rule, a construction permit also ceases to be valid in cases where the investor does not complete the construction and does not obtain a usage permit for the new structure within five years from the issuance of the construction permit. An additional two year extension may be granted if the investor shows that a minimum of 80% has been constructed and/or that that the constructed building is in such state which allows the connection of the building to the external infrastructure network. If these deadlines are not observed, the investor is supposed to pay the property tax for the building in the entirety, as if the building was completed in accordance with the issued construction permit, until a new construction permit is issued for that location.

Once the building is completed, the competent technical commission is required to assess if the building has been completed in accordance with the technical designs, permits and consents. The technical commission is engaged by the investor. In case of a positive assessment by this commission, the investor can apply for a usage permit (necessary for use of the constructed building). If the competent body does not decide on the request within five working days of the application, the constructed building can be used even without such permit, provided that the assessment of the technical commission was positive.

Once the usage permit has been obtained, the authority which issued the permit ex officio registers the right of ownership in the Cadastral Registry.

Illegal Construction and Legalisation

It is a rather common situation in Serbia that structures were developed without requisite construction permits. The developers of these so called "illegal structures" were on several occasions given a chance by the legislator to "legalize" their objects by subsequently applying for the issuance of the required permits.

The newest attempt to bring the illegally built structures into the legal framework is the Law on Legalization of Buildings[7] (the "Legalization Law"), adopted in 2015. The objective of the law was to introduce a simplified and faster legalization procedure, proclaiming legalization as the public interest of the Republic of Serbia. Apart from illegally built buildings, the law also applies to the legalization of grids.

Despite a wide scope of application of the Legalization Law, there are certain buildings which cannot be legalized even under this new law. For instance, legalization is not possible for buildings built on land unfavourable for construction (such as landslides or wetland), building built of material which does not enable the required durability and safety of the building, or buildings built on land intended for public use or in protected areas (such as in natural protection zones or protected zones around military complexes).

Legalization is subject to payment to a legalization fee, which is dependent on the area of the building and its purpose. The fees for legalization prescribed in the Legalization Law are significantly lower than the fees that were applicable under the previous legislation. There is no deadline for submitting the request for legalization under the Legalization Law.

Establishing Mortgages

There is a duality of legal regimes for mortgages in the Republic of Serbia. The law differentiates between court enforceable mortgages and the so called out-of court enforceable mortgages. An out-of-court mortgage was introduced in 2005 by the Mortgage Law[8] and provides for a more efficient enforcement procedure than is the case with mortgages created in court procedures – based on mortgages enforceable out of court, claimants are authorized, under certain conditions, to independently sell the mortgaged properties, while enforcement of mortgages created in court procedures involves a number of formalities.

Under the Mortgage Law, it is also possible to establish a mortgage over buildings undergoing construction. Such mortgages can be established and registered after obtaining a construction permit. This kind of mortgage is a security which is regularly used by the banks in financing construction projects. Once the structure is fully constructed and registered in the real estate registry, registration of the mortgage over such constructed structures is performed simultaneously (unless the secured obligations are settled in the meantime and the mortgage is deleted). Mortgages are registered on the basis of relevant documents (e.g. mortgage agreement) which, among other things, have to contain a clear statement of the pledgor allowing the establishment of a mortgage over certain property.

Expropriation

A property may be expropriated or ownership restricted if so required in the public interest, in accordance with the Law on Expropriation[9] (1995, as amended). The public interest for expropriation may be determined by the law or by a Government decree for specific development projects in the areas of: education, health care, social welfare, culture, water distribution, sports, traffic, energy and utility infrastructure, state, provincial and municipal institutions, defence, environment and disaster protection, mineral resources exploitation as well as public housing projects. In case of expropriation, market price compensation is payable to the person whose property is the subject of expropriation.

Restitution

In October 2011, the Republic of Serbia enacted the long expected Law on Returning of Seized Property and Indemnification[10] (the "Restitution Law"). The Restitution Law regulates the conditions, manner and procedures for returning of and compensation for property that was taken from individuals and certain legal entities after 9 March 1945 in the territory of the Republic of Serbia and then transferred to the national, state, social or cooperative property on the basis of agrarian reform, nationalization, sequestration and other regulations. The Restitution Law provisions apply to land, buildings and movable assets as well as to companies that were seized in the past.

The in-kind restitution is set as the main principle. Where it is not possible, the state is to provide compensation through the issuance of government bonds. The maximum amount that one may receive as compensation is limited to EUR 500,000. 10% of the compensation is payable in cash, once the decision on returning of the property becomes final.

Nationalized property which was in private ownership at the time of entry into force of the Restitution Law is not subject of restitution in kind (only compensation from the state is available). This includes property acquired in the privatization process.

The procedure for returning seized property and indemnification is conducted before the Restitution Agency (as the first instance body) and the Ministry for Finance (as the second instance body where decisions of the Restitution Agency are challenged). In February 2012, the Restitution Agency announced a public call for the submission of requests for restitution. The submission of restitution requests was possible during a 2-year period, which ended in March 2014. Almost 600,000 requests were submitted in this time frame.

The Restitution Agency has started deciding on restitution requests. According to the official web site of the Restitution Agency, by June 2016 the Restitution Agency has issued more than 5,000 decisions on returning of real properties (office space, buildings and apartments) to former owners.

[1] Official Gazette of the Republic of Serbia no. 98/2006.

[2] Official Herald of the SFRY nos. 6/80 and 36/90, Official Herald of the SRY no. 29/96 and Official Gazette of the Republic of Serbia no. 115/2005.

[3] Official Gazette of the Republic of Serbia nos. 72/2009, 81/2009, 64/2010, 24/2011, 121/2012, 42/2013, 50/2013, 98/2013, 132/2014 and 145/2014.

[4] Official Gazette of the Republic of Serbia, nos. 72/2011, 88/2013 and 105/2014).

[5] Official Gazette of the Republic of Serbia – International Treaties no. 83/2008.

[6] Official Gazette of the Republic of Serbia, no. 64/2015.

[7] Official Gazette of the Republic of Serbia, no. 96/2015.

[8] Official Gazette of the Republic of Serbia nos. 115/2005, 60/2015, 63/2015 and 83/2015.

[9] Official Gazette of the Republic of Serbia no. 9/1995, Official Herald of the Federal Republic of Yugoslavia no. 16/2001 and Official Gazette of the Republic of Serbia nos. 20/2009 and 55/2013.

[10] Official Gazette of the Republic of Serbia nos. 72/2011, 108/2013, 142/2014 and 88/2015.

 

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