This article was originally published in the schoenherr roadmap`10 - if you would like to receive a complimentary copy of this publication, please visit: http://www.schoenherr.eu/roadmap.

The legal concept of the right of use of constructible land in Serbia came about as a consequence of the nationalisation of constructible land in the 1950s and 1960s. In Serbia, the state is the owner of constructible land, while other legal entities and natural persons only hold the right to use such land. However, nationalisation did allow former owners of undeveloped constructible land to retain the right of use until such time as it was seized for construction, with a right to transfer such right of use only to immediate relatives.

Legal overhaul

The new Law on Planning and Construction (the LPC), which entered into force on 11 September 2009, provides for conversion of a right of use into a right of ownership in order to completely remove this institution from the Republic of Serbia's legal system. A construction permit may not be issued under the LPC on the basis of the right of use, but only on the basis of ownership or lease rights. Consequently, the conversion procedure must be conducted prior to filing a request for a construction permit.

The conversion of a right of use into a right of ownership may occur with or without payment of a fee by the prospective owner of the land. If a fee is paid, it must be equal to the market value of the constructible land at the time of conversion minus the land's acquisition costs.

The conversion of rights with a fee payment

Of special significance is the LPC's treatment of the conversion of a right of use into a right of ownership with a fee payment for companies and other legal entities (and their legal successors) which were sold through privatisation, bankruptcy or enforcement proceedings.

The paramount reason for adopting this provision is that in many cases these companies were acquired purely for use of the land in their possession. As a counterbalance so as not to damage such companies wishing to build exclusively for the purposes of performing their business activities, the possibility to do so without the obligation of converting and paying a fee is provided. That is, those legal entities may, without conversion of the right of use, build new structures or modify existing structures for the purpose of performing their principal business activities, provided that a request for a construction permit is filed within 18 months from the effective date of the LPC.

The right of use of undeveloped property in state ownership acquired for construction in accordance with the laws that regulated this area before 2003 or on the basis of a decision by the competent authority may be converted into a right of ownership upon payment of the fee for conversion.

Entities who hold a right to use constructible land and whose legal status is defined by laws governing sport, citizens' associations or social enterprises remain the right holders until privatisation is complete. Only then can a right of use be converted (upon the payment of fee) into a right of ownership in favour of the privatised entity.

Free conversion of rights

The following persons can convert their right of use into a right of ownership without paying the fee for conversion, unless they belong to a category of persons who pay the fee for conversion:

  • persons with a registered right of use to developed state-owned constructible land;
  • owners of a separate physical part of a building with more than one apartment, business and businessresidential buildings developed on state-owned constructible land. The right of ownership to the land beneath and surrounding the building is registered in proportion to such separate parts;
  • owners of buildings and separate physical parts of buildings developed on constructible land for which a long-term lease agreement was concluded (50 years or longer). The right of ownership to the land beneath and surrounding the building is registered in proportion to such separate parts.

A right of use registered in the name of companies established by the Republic of Serbia, autonomous provinces or local-self governments, or a right of use registered in the name of the Republic of Serbia, autonomous provinces or local-self government becomes a right of public ownership of the Republic of Serbia, autonomous provinces or local self government.

It is important to point out that public ownership is another new solution introduced under the LPC. In that respect it is crucial that a new law governing public ownership be adopted.

Persons who retain the right of use

A person who acquired the right of use to undeveloped state-owned constructible land in accordance with previous regulations, but does not belong to one of the aforementioned categories of holders of a right of use, remains the holder of the right until enactment of the law governing denationalisation. As an exception, this person may be granted a construction permit on the basis of the right of use.

A construction permit may not be issued under the Law on Planning and Construction on the basis of the right to use, but only on the basis of ownership or lease rights. Consequently, the conversion procedure must be conducted prior to filing a request for a construction permit.

This article was originally published in the schoenherr roadmap`10 - if you would like to receive a complimentary copy of this publication, please visit: http://www.schoenherr.eu/roadmap.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.