1 REAL ESTATE LAW
1.1 Please briefly describe the main laws that govern real estate in Croatia. Laws relating to leases of business premises should be listed in response to question 10.1. Those relating to zoning and environmental should be listed in response to question 11.1.
The principal laws governing real estate in Croatia are: the General Obligations Act (Official Gazette Narodne Novine 35/2005, 41/2008) (Zakon o obveznim odnosima); the Act on Ownership and Other Rights (Official Gazette Narodne Novine 91/1996, 68/1998, 137/1999, 22/2000, 73/2000, 114/2001, 79/2006, 141/2006, 146/2008, 38/2009, 153/2009) (Zakon o vlasnistvu i drugim stvarnim pravima); the Agricultural Land Act (Official Gazette Narodne Novine 152/2008, 25/2009, 153/2009, 21/2010, 39/2011, 63/2011) (Zakon o poljoprivrednom zemljistu); the Land Register Act (Official Gazette Narodne Novine 91/1996, 68/1998, 137/1999, 114/2001, 100/2004, 107/2007, 152/2008) (Zakon o zemljisnim knjigama); the Tenancy Act (Official Gazette Narodne Novine 91/1996) (Zakon o najmu stanova); the Zoning and Building Act (Official Gazette Narodne Novine 76/2007, 38/2009, 55/2011, 90/2011, 50/2012) (Zakon o prostornom uredenju i gradnji); and the Illegal Buildings Act (Official Gazette Narodne Novine 86/2012) (Zakon o pustupanju s nezakonito izgradenim zgradama).
1.2 What is the impact (if any) on real estate of local common law in Croatia?
Given that Croatia is a civil law country that follows a Roman law system, property law is governed exclusively by statute. However, consideration is given to case law by the Croatian courts, foremost the Supreme Court (Vrhovni sud), which is important for the interpretation of the statutory law.
1.3 Are international laws relevant to real estate in Croatia? Please ignore EU legislation enacted locally in EU countries.
The parties are free to choose the law governing the contract and the court that shall have jurisdiction over any disputes relating to the contract. However, for real estate located in Croatia, Croatian law is mandatory, and disputes concerning such real estate fall within the jurisdiction of the Croatian courts. International laws are therefore not relevant to real estate in Croatia. International treaties and conventions regarding real estate are, however, applicable if ratified by the Croatian Parliament.
2 OWNERSHIP
2.1 Are there legal restrictions on ownership of real estate by particular classes of persons (e.g. non-resident persons)?
Real estate may be acquired by individuals as well as by legal entities. Certain real estate (e.g., agricultural land and forests, protected areas of nature, protected cultural real estate) can never be acquired by foreign persons (individuals, legal entities), except where determined otherwise under international treaties. Save for these exceptions, citizens and legal entities from EU Member States can acquire the right to real property ownership in the Republic of Croatia under the same condition as domestic individuals and legal entities. Otherwise, foreign persons (individuals and legal entities) who are not citizens and legal persons of EU Member States can acquire real estate in Croatia only upon prior approval of the Croatian Ministry of Justice. This approval shall be denied in cases where no reciprocity exists between Croatia and the respective foreign country. No such approval is required when real estate in Croatia is acquired by inheritance, if reciprocity exists.
3 REAL ESTATE RIGHTS
3.1 What are the types of rights over land recognised in Croatia? Are any of them purely contractual between the parties?
The main types of rights over land in Croatia are: ownership (sole ownership, co-ownership, condominium ownership); building rights; easements; mortgages; restraints on disposal and encumbrances; leases; pre-emption rights; repurchase rights; and resale rights.
In general, rights in rem (e.g., ownership, mortgages, building rights, easements) over real estate must be registered with the competent Croatian land register in order to have effect towards third parties. Certain exceptions (e.g., state ownership over certain real estate) to this general rule are prescribed under the law.
Obligatory rights (e.g., leases, pre-emption rights) can, but are not required to, be registered with the land register. If obligatory rights are not registered with the land register, they have effect only between the contracting parties.
3.2 Are there any scenarios where the right to real estate diverges from the right to a building constructed thereon?
Yes, a right to real estate (land) can diverge from a right to a building constructed on the land by establishing a building right (pravo gradenja). A building right entitles its holder to construct and own a building on land owned by another person. The holder of a building right has, in respect to the subject building, the rights and obligations of an owner, whereas the constructed building is inseparable from the underlying building right. Unless otherwise stipulated under the building right contract, the holder of the building right can dispose (including by inheritance) and/or encumber the building right. Unless otherwise determined under the respective building right contract, the holder of the building right must pay to the owner of the land a monthly remuneration of the average rent payable for such land.
The constituted building right may in general be subject to certain stipulated conditions (e.g., terms and conditions).
The building right and the ownership over the land are inseparable, meaning that any acquirer of the land acquires it encumbered with the established building right.
If the building right ends, the building is legally joined with the ownership of the subject land, while the former holder of the building right is entitled to remuneration for any increase in the market value of the land.
4 SYSTEM OF REGISTRATION
4.1 Is all land in Croatia required to be registered? What land (or rights) are unregistered?
In general, all land in Croatia must be registered with the cadastral office and the land register. However, there is still some real estate (e.g., on islands) which is not registered with the competent authorities, as well as certain areas for which no land register exists.
In general (except as prescribed under Croatian law), all rights in rem (e.g., ownership, building rights, mortgages, easements) must be registered with the land register as to the manner of their acquisition (e.g., besides title, an agreement on acquisition), as well as to have effect towards third parties. Obligatory rights may, but are not required to, be registered. Unregistered rights (rights in rem, obligatory rights) have no effect towards third parties (see question 3.1).
4.2 Is there a state guarantee of title? What does it guarantee?
No formal state guarantee of title exists. However, pursuant to the good faith principle in land register data, the land register data is considered to be complete, true and accurate. A person who, in good faith, relies on land register data, is protected against third party claims, even if the registered data turns out to be inaccurate or incomplete.
Certain exceptions to the good faith principle in land register data are prescribed under the law (e.g., regarding former state (nationalised) ownership, or real estate for which no land register exists). Further, the previously registered holder of rights over real estate may, under certain conditions, object to the registration, even if done in good faith (see question 4.5).
4.3 What rights in land are compulsory registrable? What (if any) is the consequence of non-registration?
Pursuant to Croatian law, rights in rem are acquired by registration with the land register, based on the underlying acquisition title (e.g., agreement, court decision). However, registration with the land register is a right and not an obligation, with no prescribed penalties if not registered. Regarding registration with the land register as a condition for creating rights towards third parties, see questions 3.1 and 4.1.
4.4 What rights in land are not required to be registered?
Certain rights in rem prescribed under Croatian law (e.g., state ownership over certain real estate) are not required to be registered. Obligatory rights may be, but need not be, registered with the land register (see questions 3.1 and 4.1).
4.5 Where there are both unregistered and registered land or rights is there a probationary period following first registration or are there perhaps different classes or qualities of title on first registration? Please give details. First registration means the occasion upon which unregistered land or rights are first registered in the registries.
Croatian law does not provide for different classes or qualities of title on first registration.
However, pursuant to Croatian law, the (previously) registered holder of rights over real estate may, under certain conditions, object to the subsequent registration, even if done in good faith (e.g., based on incorrect land register data). In such case, the (previously) registered holder of rights may file a claim within a certain period to delete the subsequent registration from the land register.
4.6 On a land sale, when is title (or ownership) transferred to the buyer?
Ownership is transferred to the buyer upon registration of the buyer's ownership with the land register. If the buyer's ownership is not registered with the land register, then each contracting party has only a contractual claim for specific performances against another contracting party. (See questions 4.1 and 4.3.)
4.7 Please briefly describe how some rights obtain priority over other rights. Do earlier rights defeat later rights?
Under the general principle of priority, an application for land register registration of rights first filed with the competent land register has prior ranking before all later applications for the subject real estate. Under the general principle of priority, the time of submission of a land register application with the competent land register (if all conditions are met) is decisive for the acquisition of the subject right over real estate. Unregistered rights (rights in rem, obligatory rights) have a lower ranking than those registered with the land register.
5 THE REGISTRY / REGISTRIES
5.1 How many land registries operate in Croatia? If more than one please specify their differing rules and requirements.
In Croatia, there is one land register, operated by the Croatian municipal courts for real estate located in their respective area of competence. The unification of this land register into one electronically operated by the Croatian Ministry of Justice is ongoing. At the moment, most real estate in Croatia is registered with the land register, while (informal) electronic data on such real estate is publicly available. Some real estate is still not registered with the competent land register, and some areas of Croatia still have no land register.
estate in Croatia is also registered with the cadastre, operated by Croatian cadastral offices for real estate located within their area of competence. Informal cadastral data is publicly available electronically. Cadastral data in general reflects factual records regarding certain data (possession, area, dedication) and, as opposed to the land register, is not relevant for ownership and other rights in rem or for (registered) obligatory rights over real estate.
Besides the land register and the cadastre, there are other registries for special types of real estate (e.g., contaminated sites, cultural real estate, forests, certain agricultural land), most of which are not publicly available and/or still being formed. In general, no rights in rem and no obligatory rights are registered in these registries.
5.2 Does the land registry issue a physical title document to the owners of registered real estate?
The land registry does not issue a physical title document, but an official land register excerpt (reflecting all up-to-date registrations with the land register, such as inter alia ownership, encumbrances and pending registration applications) which serves as a general proof of rights over real estate and which may be obtained from the competent municipal court by any person. However, only persons who prove certain legal interests may request a review of documents (e.g., purchase agreements) on the basis of which a land registration has been effectuated. An electronically obtained land register excerpt is informal and may not be relied upon. Electronic submission of land register applications and/or review of underlying documents (e.g., agreements) is not yet possible in Croatia.
5.3 Can any transaction relating to registered real estate be completed electronically? What documents need to be provided to the land registry for the registration of ownership right? Can information on ownership of registered real estate be accessed electronically?
No, the electronic completion of real estate transactions is not yet possible under Croatian law (see questions 5.1 and 5.2).
In general, in order to register ownership rights with the competent land register, the following documents must be submitted to the competent land register: (i) application for registration, with the content and in the form prescribed under Croatian law, signed by the applicant (the seller or buyer may seek registration); (ii) adequate underlying documentation on the acquisition of ownership (e.g. an agreement) with a notarial certification of the signature of the seller; (iii) permission of the seller to the buyer to register ownership with the land register, with notarial certification of the signature of the seller, which may be part (a clause) of the agreement or issued as a separate document; and (iv) proof of payment of court fees (not depending on the real estate/transaction value). Depending on the circumstances (e.g., legal entities, foreign persons, buildings registered without a corresponding usage permit, submission of the application by a proxy/on the basis of a power of attorney, or the seller is not the registered owner), submission of further documents is required. Further, if, for example, the seller is not the registered owner, submission of all acquisition documents (e.g., purchase agreements, court decisions) proving ownership back to the last registered owner is required.
At this moment, only informal and unreliable land register information (including information on ownership) is available electronically (see question 5.2).
5.4 Can compensation be claimed from the registry/registries if it/they makes a mistake?
In general, the Republic of Croatia is liable for mistakes regarding entries in the registry, if attributable to actions by the registry officers, such as faulty computer programmes.
5.5 Are there restrictions on public access to the register? Can a buyer obtain all the information he might reasonably need regarding encumbrances and other rights affecting real estate?
Pursuant to Croatian law, data contained in the land register is publicly available. However, the possibility of review of underlying documents (e.g., purchase agreements and court decisions) is, in general, (exceptions exist depending on the practice of the municipal court) limited to persons with a legal interest (e.g., the owner, a party involved in a dispute concerning the subject real estate, or the authorities). Thus, in general, the buyer is not in a position to obtain all relevant information about rights and encumbrances affecting the real estate.
6 REAL ESTATE MARKET
6.1 Which parties (in addition to the buyer and seller and the buyer's finance provider) would normally be involved in a real estate transaction in Croatia? Please briefly describe their roles and/or duties.
- Real estate agents
A real estate agent may act on behalf of one or both parties. When acting for the seller, the agent usually collects information and documents related to the subject real estate, such as size, location, price, etc. When acting for the buyer, the agent usually looks for suitable real estate available on the market and assists the buyer in making contact with the seller. - Lawyers
Lawyers may assist a buyer or seller through the entire process of the sale, starting with the examination of the legal status of the subject real property and the risks. Further, they may draft and negotiate the sale and purchase agreement and assist with the filing of the application for registration with the competent land register. - Notaries
Due to formal requirements under Croatian law, the notary must witness the signing of the title deed (usually sale and purchase agreements) and certify the signature of the seller on the title deed, as well as on other documents. Notaries may also act as escrow agents. - Other parties
The buyer may choose to commission real estate evaluators, tax advisors, technical and environmental experts, geodesists, architects and/or building engineers to inspect the real estate.
6.2 How and on what basis are these persons remunerated?
Real estate agents charge a commission for their services, which may be a maximum of 6% of the purchase price. Lawyers' fees are regulated under the Croatian Attorney's Tariff, allowing the fees (hourly fees or lump sum) to be negotiated freely if certain conditions are met. Notary costs and fees are regulated under the Croatian Notary's Tariff and may in general not be freely negotiated. Commission/fees for other persons involved (e.g., tax advisors, technical experts) are subject to regulations/professional association rules for the respective profession.
6.3 How has the real estate market in Croatia recovered or reacted following the global credit crunch and worldwide recession in 2008/2010? What were the most important real estate transactions in Croatia in the past year? Please include both local and international investors in your answer.
Like in most other countries, the global credit crunch and worldwide recession in 2008/2010 disturbed the real estate market in Croatia. Local and foreign investments came to a standstill, some collapsing due to a lack of financing. The consequences are apparent in diminished market demand for real estate and decreased building activities, in turn resulting in the winding-up of a number of small and medium sized building companies and the restructuring of larger building companies and project development companies. Since the overall prognosis for Croatia's economical recovery is very reserved, the same prognosis applies also to the real estate market. Due to the ongoing economical crisis, unfortunately no significant real estate transactions were noted in Croatia in the past year.
6.4 Is there a trend in Croatia towards the investment in retirement homes / nursing homes due to the increased ageing of the population?
No, most of the retirement homes in Croatia are state-owned with only a small number of private retirement homes. Due to the still traditionally organised Croatian society, most of the elderly population are living with and being taken care of by their families in joint households. However, due to the ongoing modernisation of Croatian society and the work-related migration of the population, as well as the limited capacities of existing retirement homes, investment in retirement/nursing homes may become a trend in Croatia. This will depend on and follow the development of the overall economy and real estate market in Croatia.
7 LIABILITIES OF BUYERS AND SELLERS IN REAL ESTATE TRANSACTIONS
7.1 What (if any) are the minimum formalities for the sale and purchase of real estate?
A sale and purchase agreement between the seller and the buyer must: be in writing with notarial certification of the seller's signature; designate the parties, the real estate, the purchase price (amount and due date, payment); and contain the seller's permission to the buyer to register with the land register (clausula intabulandi). The permission to register may also be issued as a separate statement by the seller, with notarial certification of the seller's signature.
7.2 Is the seller under a duty of disclosure? What matters must be disclosed?
No explicit obligation of disclosure of the seller is prescribed under Croatian law. The scope of the seller's liability for certain defects (legal or material) is foremost subject to regulation in the purchase agreements (representations and warranties, etc.).
7.3 Can the seller be liable to the buyer for misrepresentation?
The seller can be liable for misinterpretation if any untrue statement of the seller towards the buyer induced the buyer to enter into the contract and, as a result, the buyer suffered losses. Further, the seller can be liable if the buyer is under an obvious misunderstanding regarding any attributes of the object of purchase or if the seller has caused the misunderstanding.
7.4 Do sellers usually give contractual warranties to the buyer? What would be the scope of these? What is the function of warranties (e.g. to apportion risk, to give information)? Are warranties a substitute for the buyer carrying out his own diligence?
Contracts frequently contain representations and warranties relating to possible statutory liabilities of the buyer and defective or faulty performance of the seller, including relating to: ownership, encumbrances and third party rights; the dedicated use of the real estate according to zoning ordinances and building regulations; environmental issues; administrative and corporate approvals; and taxes.
The seller usually warrants its ownership of the property and that there are no other encumbrances other than those registered in the land register or otherwise disclosed.
The buyer must notify the seller of defects or defective performance within the warranty period. If the seller does not accept liability for the defect, the buyer must sue to prevent the claim from becoming statutorily barred. A buyer can also claim damages for negligent or wilful breach of contract.
Generally, the seller is not liable for facts and circumstances which the buyer knew or should have known at the time of conclusion of the contract, such as the land register data for the real estate.
7.5 Does the seller warrant its ownership in any way? Please give details.
In the contracts, the seller usually warrants its sole and unencumbered ownership title to the real estate, as well as the nonexistence of any unregistered third party rights that exclude, diminish or limit the buyer's ownership rights over the real estate. The parties can limit or totally exclude the seller's liability for defects of title. A clause excluding the seller's liability is, however, null and void if the seller knew or ought to have known about the existence of a defect in ownership. A buyer must inform the seller about defects in title within the relevant warranty period after discovery of such third party right, otherwise the buyer forfeits its warranty rights.
7.6 What (if any) are the liabilities of the buyer (in addition to paying the sale price)?
Besides the purchase price, the buyer must pay the land transfer tax (see question 9.1). Further, it is usually agreed that the buyer will bear the notary and land registration costs.
8 FINANCE AND BANKING
8.1 Please briefly describe any regulations concerning the lending of money to finance real estate. Are the rules different as between resident and non-resident persons and/or between individual persons and corporate entities?
No specific laws regulate the financing of real estate in Croatia, nor does the law distinguish between individuals and legal entities in regards to real estate financing, except for consumer protection laws. In general, the Croatian foreign exchange regulations impose certain restrictions on some cross-border transactions and prescribe mandatory notification obligations to the Croatian National Bank. Further, certain restrictions may derive regarding the authorisation (certification) of the lender in view of business conduct regulations and the consequent required registrations and licences.
8.2 What are the main methods by which a real estate lender seeks to protect itself from default by the borrower?
As security for claims against the borrower, the lender will typically ask for a mortgage over real estate, pledge over company shares, pledge over movables, pledge over bank accounts or assignment of receivables.
8.3 What are the common proceedings for realisation of mortgaged properties? Are there any options for a mortgagee to realise a mortgaged property without involving court proceedings or the contribution of the mortgagor?
The common proceeding for realisation/enforcement of mortgages is the initiation of the prescribed legal proceedings before the competent Croatian court. Such a proceeding usually ends by selling the mortgaged real estate in a public auction and paying the enforced claim from the auction price. There is no possibility to enforce the mortgage without involving the court.
8.4 What minimum formalities are required for real estate lending?
Besides the general requirements for entering into contracts (capacity, etc.) and for a loan agreement (written form, determination of the parties, amount of the loan, interest and other costs, repayment conditions) there are no special requirements for real estate loans.
If the loan is secured by a mortgage or other encumbrance (e.g., pledge over shares or movables) subject to registration with a public registry, the security agreement (either as part of the loan agreement or as a separate agreement) must contain the borrower's permission to the lender to register such encumbrance with the registry. Further, the form requirements (notarial certification of signature(s), notarial deed) depend on the security being created.
8.5 How is a real estate lender protected from claims against the borrower or the real estate asset by other creditors?
To protect his claims against the borrower, the lender must register its security (e.g., mortgage, pledge) with the competent registry with first ranking, accompanied by a restriction of disposal or further encumbrance of the security object, if such restriction is permissible.
9 TAX
9.1 Are transfers of real estate subject to a transfer tax? How much? Who is liable?
Save for certain exemptions (e.g. buildings subject to VAT), transfer of real estate is subject to a land transfer tax of 5% of the market value. The buyer is liable for the payment of land transfer tax. The parties may agree that the seller is liable for payment of land transfer tax, in which case the seller and buyer are jointly and severally liable for the tax.
9.2 When is the transfer tax paid?
The obligation to pay the land transfer tax arises upon conclusion of the contract on acquisition of ownership (or upon a legally binding court decision). The tax authorities must be notified within 30 days of conclusion of the contract. The land transfer tax is payable within 15 days of receipt of the decision of the tax authority on the amount of the tax.
9.3 Are transfers of real estate by individuals subject to income tax?
Transfers of real estate by individuals are generally subject to income tax (12%, 25% or 40%, depending on the personal deduction basis). However, several exemptions were prescribed by law (e.g. a transfer is not subject to income tax if the respective real estate had been used by the tax obligor or the supported members of his family for residential purposes, in case the real estate was sold after three years after its acquisition, etc.).
9.4 Are transfers of real estate subject to VAT? How much? Who is liable? Are there any exemptions?
A real estate transfer, within the meaning of the VAT Act, is in principle exempt from VAT. VAT must only be paid when acquiring buildings, apartments or similar objects constructed after 1 January 1998. The VAT rate for the part of the purchase price concerning the added value of the real estate (e.g. construction costs) was changed by the Amendment to the VAT Act in 2012 and is currently 25%. Exemptions to the VAT obligation are prescribed under the law (e.g., regarding certain public entities, activities of public interest). The seller is liable for payment of VAT.
9.5 What other tax or taxes (if any) are payable by the seller on the disposal of a property?
Tax on income from capital gains at the rate of 25% must be paid by the seller. However, the capital gain is tax free if the real estate was used by an individual seller or members of its family for residential purposes and was sold more than three years after acquisition. If the seller is a legal entity, the capital gains increase its taxable income, while the capital gains tax is 20%.
9.6 Is taxation different if ownership of a company (or other entity) owning real estate is transferred?
Although the transfer of shares in a company owning real estate is not explicitly prescribed as subject to the land transfer tax, and has not been treated as such by tax authorities, the tax authorities have recently started to reassess this position.
10 LEASES OF BUSINESS PREMISES
10.1 Please briefly describe the main laws that regulate leases of business premises.
Lease of business premises in Croatia is primarily regulated under the Act on Lease and Sale and Purchase of Business Premises (Official Gazette Narodne Novine 125/2011) (Zakon o zakupu i kupoprodaji poslovnoga prostora) and the General Obligations Act (Official Gazette Narodne Novine 35/2005, 41/2008) (Zakon o obveznim odnosima). The Act on Lease and Sale and Purchase of Business Premises, which entirely replaced the former Act on Lease and Sale of Business Premises from 1996, entered into force only recently (7 November 2011) and applies to all ongoing court and execution proceedings.
If an issue is not regulated under the Act on Lease and Sale and Purchase of Business Premises, the General Obligations Act applies.
10.2 What types of business lease exist?
No such different types of business lease are defined under Croatian law.
10.3 What are the typical provisions for leases of business premises in Croatia regarding: (a) length of term; (b) rent increases; (c) tenant's right to sell or sub-lease; (d) insurance; (e) (i) change of control of the tenant; and (ii) transfer of lease as a result of a corporate restructuring (e.g. merger); and (f) repairs?
- Length of term
The length of a lease is defined in the contract between the landlord and the tenant for an indefinite or a fixed term. - Rent increases
Generally, the parties are free to agree upon the amount of rent payable. Typically, rent is adjusted from time to time (indexed), usually according to the consumer price index. - Tenant's right to sell or sub-lease
Unless explicitly foreseen under the lease contract, the tenant is not entitled to sublet the leased premises or any part of it. If the tenant illegally sublets the leased premises, the landlord can terminate the main lease (thus also cancelling the sublease). - Insurance
The landlord usually takes out adequate insurance for the building, maintains such insurance, and provides proof thereof upon request. The following risks are usually covered: building liability insurance, including a duty to ensure safety for persons and vehicles; and building insurance (e.g., fire, lightning/explosion, flooding, sewage, storm, hail, malicious damage, overvoltage, costs of clean-up, salvage and security). Insurance costs are part of the operating expenses and are generally charged to the tenant as operating costs. The tenant usually takes out adequate insurance for the tenant's fixtures in the leased premises. - (i) Change of control of the tenant
(ii) Transfer of lease as a result of a corporate restructuring (e.g. merger)
Under Croatian law, change of control (change of ownership) of a company does not affect the lease. The lease does not end if an individual tenant dies or if there is a change in the tenant's legal status (legal entity), unless otherwise stipulated in the lease contract. - Repair
Unless otherwise stipulated in the lease contract, the landlord is responsible for keeping the leased premises in good condition. Unless otherwise stipulated, the tenant is responsible for ordinary maintenance (cleaning, painting of walls, minor installation repairs, etc.) of the leased premises. Unless otherwise stipulated, the tenant bears the costs for use of joint/common installations and services of the building. If the tenant's use of the leased premises is limited or excluded due to, for example, improvement works carried out by the landlord or works on surrounding public areas, outside walls or the roof, the tenant need not pay rent for the time of these works and may seek damages (but not lost profit). Any changes by the tenant to the structure, area, dedication, space division or outer appearance of the leased premises require explicit written consent from the landlord.
10.4 What taxes are payable on rent either by the landlord or tenant of a business lease?
Generally, a business lease is subject to VAT (25%) if the landlord is part of the VAT system. If the landlord is an individual, the business lease is generally subject to income tax (12%, 25% or 40%, depending on the personal deduction basis). If the landlord is a legal entity, the business lease is generally subject to capital gains tax (20%).
10.5 In what circumstances are business leases usually terminated (e.g. at expiry, on default, by either party etc.)? Are there any special provisions allowing a tenant to extend or renew the lease or for either party to be compensated by the other for any reason on termination?
A lease concluded for a definite period of time (fixed time) expires at the end of the specified term. Unless otherwise provided in the lease contract, a fixed term lease can be terminated (termination with immediate effect) only in cases prescribed under the law (important breach of the lease, important reasons by the landlord, etc.).
Unless otherwise stipulated, a lease contract concluded for an indefinite period cannot be terminated for one year from its conclusion. A lease concluded for an indefinite period may be terminated unilaterally, either as an ordinary termination (observing a termination notice period as stipulated or as prescribed by law) or as an extraordinary termination (with immediate effect, due to breach of lease contract). Unless otherwise stipulated, extraordinary termination is allowed only in cases prescribed by law (important breach of the lease, important reasons by the landlord, etc.). Unless otherwise stipulated, the termination notice period (ordinary termination) is 30 days as of delivery of the termination notice to the other party; termination may only be on the 1st or the 15th of the month.
Unless stipulated, neither party has the right to unilaterally extend or renew an expired lease contract, nor is automatic extension or renewal possible.
In the event of a unilateral termination due to the above important reasons, the party at fault may be held liable for damages.
10.6 Does the landlord and/or the tenant of a business lease cease to be liable for their respective obligations under the lease once they have sold their interest? Can they be responsible after the sale in respect of pre-sale non compliance?
The buyer of a business premises generally replaces the landlord in the existing lease, assuming its rights and obligations under the lease. The former landlord may remain liable to the new landlord depending on the terms agreed in the sale agreement.
10.7 Green leases seek to impose obligations on landlords and tenants designed to promote greater sustainable use of buildings and in the reduction of the "environmental footprint" of a building. Please briefly describe any "green obligations" commonly found in leases stating whether these are clearly defined, enforceable legal obligations or something not amounting to enforceable legal obligations (for example aspirational objectives).
"Green construction" is still in its development phase in Croatia and "green obligations" are not common in lease contracts.
11 PUBLIC LAW PERMITS AND OBLIGATIONS
11.1 What are the main laws which govern zoning and related matters concerning the use and occupation of land? Please briefly describe them and include environmental laws.
The main laws governing zoning are the Zoning and Building Act (Official Gazette Narodne Novine 76/2007, 38/2009, 55/2011, 90/2011, 50/2012) (Zakon o prostornom uredenju i gradnji), and the Illegal Buildings Act (Official Gazette Narodne Novine 86/2012) (Zakon o pustupanju s nezakonito izgradenim zgradama). The Zoning and Building Act sets out rules and procedures for the development and construction of land and the passing of corresponding zoning plans (on regional and local levels), as well as the issuance of construction and related permits.
The main special laws regulating environmental issues are: Environment Protection Act (Official Gazette Narodne Novine 110/2007) (Zakon o zastiti okolisa); Act on the Fund for Environment Protection and Energy Efficiency (Official Gazette Narodne Novine 107/2003) (Zakon o Fondu za zastutu okolisa i energetsku ucinkovitost); Air Protection Act (Official Gazette Narodne Novine 130/2011) (Zakon o zastiti zraka); Nature Protection Act (Official Gazette Narodne Novine 70/2005, 139/2008, 57/2011) (Zakon o zastiti prirode); Waste Act (Official Gazette Narodne Novine 178/2004, 153/2005, 111/2006, 60/2008, 87/2009) (Zakon o otpadu); Act on Inflammable Fluids and Gases (Official Gazette Narodne Novine 108/1995, 56/2010) (Zakon o zapaljivim tekucinama i plinovima); and Act on Transport of Hazardous Substances (Official Gazette Narodne Novine 79/2007) (Zakon o prijevozu opasnih tvari).
11.2 Can the state force land owners to sell land to it? If so please briefly describe including price mechanism.
Under the Croatian Act on Expropriation, ownership over real estate may be deprived from its owner if it is in the interest of the Republic of Croatia and the owner is given appropriate compensation. Compensation must correspond to the market value of the expropriated real estate and be paid to the owner either as an adequate substitute to the real estate or as monetary compensation. Expropriation may be conducted in favour of a certain individual or legal entity.
11.3 Which bodies control land/building use and/or occupation and environmental regulation? How do buyers obtain reliable information on these matters?
Planning and construction permits are issued by competent Croatian authorities (regional, local), primarily depending on the type of construction. Control over construction of buildings and over constructed buildings (e.g. issuance of a usage permit) is usually within the competence of the authority that issued the construction permit. Competent authorities may, upon request by the holder of a permit (owner), issue a certificate stating that no annulment or similar procedure has been initiated against a legally binding permit. Due to the complicated and time consuming administrative procedures for obtaining relevant and reliable information on land/building use and the occupational and environmental status of real estate, buyers commonly commission experts (architects, geometers, technical/environmental experts) for this purpose.
11.4 What main permits or licences are required for building works and/or the use of real estate?
Generally, a location permit, a permit for construction (depending on the object to be constructed) and a usage permit are required for construction and use of buildings. If a building is used for business purposes, an operational permit (i.e., minimal technical requirements) must also be obtained.
11.5 Are building/use permits and licences commonly obtained in Croatia? Can implied permission be obtained in any way (e.g. by long use)?
Due to various former legal systems in Croatia that regulated the construction of buildings differently, as well as a lack of control by Croatian authorities, there are many illegally (i.e. no construction permit) built buildings in Croatia, and an even larger number for which no use permit was obtained. Generally, there is no implied permission from long use; however, under certain conditions, all buildings built before 15 February 1968 are considered legally built even if no permits have been obtained. The 2011 strict legislation on the legalisation of buildings built without permits was amended in 2012 - in order to enlarge the number of legalisation requests and to simplify, economise and speed up the legalisation of estimated 90% of all buildings in Croatia. The conditions and the procedure for legalisation of buildings by obtaining a permit are regulated by the Illegal Buildings Act. As a result of the Croatian government's determination to bring discipline to the construction of objects and improve Croatia's landscape, as well as to ensure discipline in paying communal and related fees, after 30 June 2013 (when the deadline for the submission of legalisation requests expires) all buildings without adequate permits will be removed.
11.6 What is the appropriate cost of building/use permits and the time involved in obtaining them?
Administrative costs include fees payable to the competent authority for issuance of the permit. To obtain a construction permit, a water and communal fee (based on property parameters) must be paid. Although the time prescribed under the law for the issuance of a permit is relatively short (30-60 days for a location permit from the submission of a complete application and obtaining required consents), the actual time for obtaining construction permits (location permit, permit for construction) is usually between 6 and 12 months, depending on the project, the competent authority, etc. The prescribed time involved for obtaining a usage permit is 30 days as of the technical examination of the constructed building, if no significant deficiencies are found.
11.7 Are there any regulations on the protection of historic monuments in Croatia? If any, when and how are they likely to affect the transfer of rights in real estate?
Yes. Generally, historical monuments cannot be acquired by foreign persons (individuals, legal entities). This is controlled by the competent land registry when an application for registration of transfer of ownership is filed. A request to the competent authority (regional or local, depending on the real estate) for information about whether a building is a historical monument may be filed.
11.8 How can e.g. a potential buyer obtain reliable information on contamination and pollution of real estate? Is there a public register of contaminated land in Croatia?
Since no reliable and complete public register of contaminated land exists in Croatia, the buyer usually commissions an environmental expert to conduct an environmental study. The environmental study may include physical contamination tests if appropriate.
11.9 In what circumstances (if any) is environmental clean up ever mandatory?
Pursuant to Croatian environmental laws, a polluter causing environmental pollution by its actions or non-actions must immediately undertake all necessary measures to eliminate, or at least reduce, damage to the environment, and to eliminate further risks and hazards to the environment.
11.10 Please briefly outline any regulatory requirements for the assessment and management of the energy performance of buildings in Croatia.
The Croatian Zoning and Building Act prescribes energy efficiency of buildings as a significant condition for buildings to be constructed. Pursuant to the amendments to the Zoning and Construction Act in 2011, a certificate on the energy efficiency of buildings must be obtained before a usage permit or other usage document is issued, i.e., prior to the transfer of ownership or lease of a building, or a part thereof.
12 CLIMATE CHANGE
12.1 Please briefly explain the nature and extent of any regulatory measures for reducing carbon dioxide emissions (including any mandatory emissions trading scheme).
Please see question 12.2.
12.2 Are there any national greenhouse gas emissions reduction targets?
In 2007, Croatia formally adopted the Kyoto Protocol 1997 and committed to reduce its greenhouse gas emissions by 5% by 2012. Further, during the climate summit in Cancun in 2010, Croatia promised to reduce its greenhouse gas emissions by 5% between 2013 and 2020. This, however, represents a preliminary goal only since, with the planned EU accession, Croatia will take on the obligations of the EU.
In November 2011, Croatia passed the Air Protection Act adopting the EU directives and decision aimed at reducing greenhouse gas emissions.
12.3 Are there any other regulatory measures (not already mentioned) which aim to improve the sustainability of both newly constructed and existing buildings?
For regulatory measures about environmental sustainability of newly constructed and existing buildings, please see question 11.10.
This article appeared in the 2013 edition of The International Comparative Legal Guide to: Real Estate; published by Global Legal Group Ltd, London. www.iclg.co.uk.
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.
