While local courts have been taking the stance that mortgage over the land does not extend to objects subsequently built on the mortgaged land, in one recent case, the Supreme Court of Republika Srpska (RS Supreme Court) took an entirely opposite one. Applicable laws support the stance of the RS Supreme Court. Clear treatment of this issue by the courts is important for both mortgage creditors and buyers of subsequently-built objects.
Bosnia and Herzegovina (BH) comprises two entities – Republika Srpska (RS) and Federation of BH (FBH) – and the Brcko District of Bosnia and Herzegovina (BD) special district. The property rights on immovables are regulated on the level of RS, FBH, and BD. The laws of RS, FBH, and BD incorporated the Roman law principle pursuant to which the legal status of objects and the land on which such objects are built should be the same. The consistent application of such a principle means that in the case land is mortgaged, the object built on such land will also be mortgaged. There are only a few exemptions to such a principle (e.g., in the case of granted concession and in the case of a construction right established over the respective land).
Court Practice Denying Mortgage Extension Rule
In 2019, the district court in Banjaluka (in RS) rendered a decision pursuant to which the mortgage established over the land does not, by virtue of law, extend to the objects built on such land after the establishment of the mortgage. The court argued that the mortgage agreement must explicitly specify that the mortgage will extend to the subsequently-built objects on that land, which was not the case. Consequently, the mortgage creditor could not settle its claim by selling subsequently-built objects in the enforcement proceeding.
In another case, the municipal court in Bugojno (in FBH) rejected to inscribe ownership over immovable property in land books in favor of the person who purchased such property in the enforcement proceeding. The immovable property was sold to the elected purchaser in the enforcement proceeding initiated for the settlement of the claim secured by a mortgage established on such property. After the establishment of the mortgage, two new floors were built on the mortgaged property. Pursuant to the court, these changes altered the property after the establishment of the mortgage and such alterations prevent the inscription of the purchaser as the new owner in the land books. The respective court decision was confirmed by the second-instance court.
The Approval of Mortgage Extension by the RS Supreme Court
In October 2023, the RS Supreme Court rendered a decision allowing enforcement over objects built after the establishment of a mortgage over the land on which the objects were built. The mortgage was established in 2013 over the land on which the building was under construction. In 2014, the plaintiff concluded an agreement to purchase the object in the respective building. At the time of the conclusion of the respective agreement, the object was not inscribed in land books and the plaintiff knew that the mortgage was inscribed over the land.
The court found that the rights from the land extend to the objects permanently attached to such land. Thus, the court concluded that the plaintiff purchased a mortgaged object.
Conclusion
The abovestated stance of the RS Supreme Court is in accordance with RS laws and should serve as a guide to the lower-instance courts in RS. We are not aware if the same stance has been adopted in the practice of FBH and BD courts. Since the laws in RS, FBH, and BD treat this matter equally, this issue should be treated the same, i.e., in line with the RS Supreme Court decision. We are not aware if the BH Constitutional Court (as a final court authority in BH) shares the views of the RS Supreme Court with respect to this matter. Therefore, it might be appropriate to explicitly state in mortgage agreements that the mortgage will extend to the objects built upon the establishment of the mortgage.
Having the above in mind, purchasers of objects under construction should carefully examine the legal status of the land prior to the conclusion of a purchase agreement. Unlike in certain EU jurisdictions, BH does not have adequate statutory rules on the protection of purchasers of objects under construction. Therefore, these purchasers could only acquire contractual guarantees for the protection of their rights if the seller is willing to provide some.
By Djordje Dimitrijevic, Head of Real Estate, Dimitrijevic & Partners
This article was originally published in Issue 11.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
