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Decades of Ownership Loopholes Closed by the Croatian Act on Un-Appraised Building Land

Decades of Ownership Loopholes Closed by the Croatian Act on Un-Appraised Building Land

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The Constitution of the Republic of Croatia abolished “social ownership” in 1990 and introduced a universal type of ownership – private ownership. Legislation that followed the introduction of the Croatian Constitution specified how social companies were to be transformed into private companies. To establish private ownership over companies undergoing this transformation, the companies had to appraise the property used in their share capital. However, land that was used by said companies that was located in the zones for tourism-related purposes near the Adriatic coast (which we will refer to as the “tourist land”) was often not appraised in its entirety towards share capitals, as the intention was for it to become the property of the state for developing Croatian tourism strategies. Therefore, social companies performing tourism-related activities (e.g., hotels and camps) often appraised only buildings, while the land on which the activities were also performed was left un-appraised, yet continued to be used without compensating the real owner – the state.

In 2010, the Croatian Parliament enacted the Law on Tourist Land and Other Building Land Un-Appraised in the Procedure of Transformation and Privatization (which we will refer to as the “2010 Act”). The 2010 Act was designed to clarify the ownership regime of tourist land in camps, tourist land with hotels and resorts, and other un-appraised building land. All the land falling under the definitions provided in the 2010 Act that was un-appraised in the transformation procedure is consequently owned by the state or municipality, merely on the ground of the act’s entry into force (i.e., acquisition of ownership based on law), regardless of any registrations to the contrary in the land registry. Nevertheless, even after ten years of practice, the 2010 Act proved to be vague and unsuccessful, and a much-needed legislative update was made in 2020.

In May 2020, the new Act on Un-Appraised Building Land (the “2020 Act”) entered into force, introducing structure in the regulation of ownership and other relationship pertaining to tourism-dedicated land (for hotels, resorts, and camps) and other un-appraised building land. At the time of enactment, according to the Croatian Government, there were approximately 20 million square meters of un-appraised tourist and other land. The Government projected that, were titles finally resolved, it could generate millions of Croatian kunas in profit from future lease agreements or even sales of the land. The 2020 Act therefore aims to resolve any legal doubt and vagueness arising from the 2010 Act and provide clarity towards a final determination of the legal status of all tourist land.

The procedure for the resolution of the legal status of the land is specified in detail in the 2020 Act, which is designed to resolve all disputes within a few years. Companies are obliged to prepare all relevant geodetic surveys, obtain confirmations, and initiate and apply for administrative resolution of the property status.

The deadline for completing these surveys is 180 or 270 days, while the deadline for filing the applications is 12 or 24 months, depending on the land in question. If these timelines are not met, the state may initiate the resolution of the status by itself and impose the costs on the relevant companies. Even when the ownership status is resolved and registered in the land registry, the companies will not be precluded from using the land, but would be required to lease the land from the “new” owner, with back rent since 2011 being due and payable. If an agreement is not made, the companies run the risk of losing the property appraised in their share capital through the expropriation process. Therefore, companies failing to oblige with the obligations prescribed in the 2020 Act risk losing the land on which they are performing their long-term business activities.

Regardless of the short deadlines prescribed in the 2020 Act, the bylaw on rent calculation, which provides information about one of the most important questions for investors/owners of tourist land, has not yet been passed, even though its adoption was envisaged in July 2020.

The process of resolving ownership statuses of tourist land is slow but steady, and the loopholes existing ever since the enactment of the Croatian Constitution have yet to be fully addressed.

By Emir Bahtijarevic, Managing Partner, and Sanja Novoselic, Associate, Divjak, Topic, Bahtijarevic & Krka 

This Article was originally published in Issue 8.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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