On 28 July 2015 the newly enacted “Law on Conversion” (the “Law”) which sets out the procedure for converting the right of use into ownership rights over construction land for a fee (the “Conversion”), will come in force.

The Law outlines the rules for the Conversion procedure and specifies the particular list of entities that are eligible to file for the Conversion. Specifically, these entities (the “Obligors”) are: (i) privatised legal entities and their legal successors; (ii) entities - use right title holders of undeveloped construction land acquired pursuant to the construction land laws that were applicable before 13 May of 2003; (iii) sporting and other associations; (iv) public enterprises (društvena preduzeća in Serbian); and (v) persons to which bilateral international treaties on succession are applicable.

Conversion fees should be equal to the market price of the land at the moment of submission of the conversion request and are determined by the competent municipality authority by applying existing property tax valuation criteria. Once determined, the market price of the land can be reduced if the land is located in an undeveloped or underdeveloped municipality, or if the land is already developed. In addition, if the conversion fee is paid in a one-time payment, it can be reduced by up to 30%.

Conversion requests filed before 28 July by Obligors should be filed again in accordance with the Conversion procedure prescribed by the Law.

As an alternative to the Conversion procedure, Obligors may also opt to enter into a long term lease (i.e. 99 years) for the construction land over which they have a right of use. Furthermore, the Law provides that such leasing rights may be converted into ownership rights pursuant to the terms of the Law (i.e. once the building is constructed on such land).

Lastly, the Law provides that following the expiry of a 12 month sunset period (starting from the date of adoption of the Law), construction permits may not be issued to Obligors which have the use right title. Notably, it seems that Obligors interested in construction development will face two choices in the future, i.e. either to undergo the Construction procedure or to lease the construction land over which they have a right of use.