Contributed by Squire Patton Boggs.
1. REAL ESTATE OWNERSHIP
1.1 Legal framework
Titles to real estate in Slovakia are highly protected, mostly by the Slovak Constitution and the Civil Code. According to the Slovak Constitution, everyone has the right to own property and everyone's ownership right is equally protected. However, certain things, e.g. caves or rivers, are exclusively owned by the Slovak Republic. In addition, ownership right is not time-barred as a result of which title claims to real estate may be brought by third parties without time a limit.
Relevant legal norms pertaining to real estate ownership are not amended frequently and are in general deemed stable (with the exception of agricultural lands regulation).
In general, real estate may be acquired by foreign entities without limitation, with the exception of agricultural lands. In the past, acquiring agricultural lands by foreigners was almost entirely prohibited, but such regulations are currently not effective (however, there have been various attempts to adopt new regulations). Nowadays, acquiring agricultural lands in Slovakia by foreigners is only subject to the reciprocity principle – the foreigner's domicile state must simultaneously allow acquiring agricultural lands by Slovak residents.
Expropriation or forced restriction of ownership rights is possible only when certain conditions are met. An asset may be expropriated solely based on applicable legislation, in the public interest, only to the necessary extent, if the purpose of expropriation cannot be achieved by less invasive methods, and, at the same time, subject to adequate compensation.
The real estate market in Slovakia is generally booming, with the lack of residential living mostly in larger cities, a large presence of the automotive industry, and the pandemic era attracting mainly light production, warehouses, and logistics. On the contrary, due to the COVID-19 pandemic, the hospitality and commercial office sectors are affected by lockdowns and home-working. The most crucial impediments to the real estate market booming in Slovakia are lengthy construction permits processes and the difficult and lengthy amendments to zoning plans.
1.2 Registration of ownership
In Slovakia, there is a single public register (cadaster) for registration of certain real estate rights, regulated primarily by Act No. 162/1995 Coll., as amended (Cadastral Act) and its implementing legal norms. There are 72 cadasters in Slovakia, each maintained by the respective District Office (state).
The Cadastral Act enumerates the real estate assets and real estate rights, which are to be registered in the cadaster. All lands, buildings, apartments, and non-residential premises (including those under construction) are registered in the cadaster. Structures with roofs and perimeter walls, including structures under construction, firmly connected to the ground by a solid foundation, are registered in the Cadaster as well.
Ownership, co-ownership, and matrimonial rights to real estate and encumbrances are obligatorily registered with the Cadaster. Other rights, such as long-term leases (five+ year term) or statutory easements may be registered voluntarily. Therefore, if a particular right, which is not mandatorily registered in the cadaster, is not listed therein, it does not automatically mean that said right does not exist or is not valid.
1.3 Publicity of real estate register
The entries in the cadaster, relating to real estate are registered in the form of so-called Ownership Deeds (in Slovak: list vlastnictva), are publicly accessible, and the cadaster is available also online at www.katasterportal.sk/kapor (available also in English). Extracts from Ownership Deeds are available to the public, and they contain the description of respective real estate, its owners, and encumbrances which are registered in relation to said real estate.
Collection of Deeds, on the contrary, is a part of the cadaster that is accessible only to the parties of the real estate transfer and persons authorized by them. Collection of Deeds comprises deeds (e.g. agreements, contracts, court decisions, and other documents) which are bases of registered rights pertaining to respective real estate. Each transfer of real estate has a separate Collection of Deeds. Therefore, the fact that the Collection of Deeds is accessible only to the parties of a specific title transfer significantly limits the possibility of title due diligence of the historical chain of title transfers. It is common that the seller provides for a power of attorney to the buyer’s counsel to obtain title documents and real property surveyors are engaged to investigate the title chains given their specific authorizations of access to cadastral documents.
1.4 Protection of ownership
Entries in the cadaster are subject to a rebuttable presumption of correctness – they are deemed binding (reliable) unless proven otherwise. If the reliability of the particular entry is challenged (e.g. by litigation), the cadaster marks a “note,” to make such a challenge public. This means that the cadaster in Slovakia is the first step in determining the owner of the real estate but title due diligence is highly recommended given that the registration is rebuttable.
Ownership, including real estate ownership, enjoys the highest level of protection. If a person who is not registered as the owner in the cadaster claims its title, it may file an action with a competent court, initiating the court proceedings on determination of ownership. In said proceedings, the defendant (sued party) is the person currently registered in the cadaster as the owner of particular real estate.
In order to prevent the registered owner from the disposal of a real estate pending court judgment, the claimant may also apply with the court for an interim injunction. By the interim injunction, the court may effectively prohibit the owner from the disposal of real estate, and such an injunction is evidenced in the cadaster.
2. REAL ESTATE ACQUISTION
2.1 Share deal or asset deal?
Depending on the circumstances and the purpose of disposal, both share deals and asset deals are used when acquiring real estate in Slovakia. Each of them is used for a different purpose.
For the pros and cons of the respective deals, please see Sections 2.2. and 2.3. below.
2.2 Share deal
By a share deal, a purchaser usually acquires shareholding in a special purpose vehicle company owning the real estate. In the share deal, the purchaser acquires also all rights and obligations pertaining to the real estate such as rights to design, permits, maintenance agreements, utility supplies, and, most importantly, lease relationships in the case of shopping malls, warehouses, or office buildings. Therefore, the share deal is usually used when the purchaser desires to acquire a going concern – assets, services, IP rights, commercial leases, etc., typically in order to continue with the business operations. Due to its complexity, the whole process may take longer than an asset deal due to the wider scope of due diligence which should include corporate and financial matters as well as employment, data protection, and commercial review. The main legal framework regulating share deals in Slovakia consists primarily of Act No. 513/1991 Coll., as amended (Commercial Code) and Act No. 530/2003 Coll., as amended (Act on Commercial Register).
The transfer of business shares in a limited liability company (in Slovak: spolocnosť s rucením obmedzenym) (LLC) is generally allowed but may be subject to the approval of the general meeting of shareholders and according to the rules set out in the articles of association. A share-purchase agreement has to be in writing, and all signatures must be verified by a notary public. In case of majority stake transfer (at least 50 %), the transfer becomes effective upon its registration with the Commercial Register (Companies Register). In the case of a minority share, the transfer is effective upon delivery of the share-purchase agreement to the company.
Regarding a joint-stock company (in Slovak: akciova spolocnost) (JSC), the transferability of bearer shares (in Slovak: akcie na dorucitela) cannot be limited. The transferability of registered shares (in Slovak: akcie na meno) may be limited, but not entirely restricted, by the statutes. Bearer shares may be issued in the form of book-entered shares (in Slovak: zaknihovana akcia) solely, while registered shares may be issued in the form of book-entered stock or certificated share (in Slovak: listinna akcia).
Effects of a transfer occur depending on the particular form of the shares – while the transfer of certificated stock is effective towards the company upon enlisting the new shareholder into the list of shareholders, the transfer of book-entered stock becomes effective upon registration in the Central Depositary of Securities (a state institution). The share-purchase agreement by which registered certificated shares are transferred must be in writing. The share-purchase agreement on the transfer of book-entered shares must be in writing if at least one party demands so.
All corporate changes must be submitted electronically to the competent commercial register (the Commercial Register is available at www.orsr.sk/default.asp available also in English) via a prescribed form no later than 30 days after the respective change occurs. The Commercial Register should register the change in two business days upon the delivery of the said application. However, commercial registers usually do not meet this deadline. Registration of the changes is subject to a court fee, normally in the amount of EUR 33 per one form submitted, regardless of the amount of changes registered via such form.
Fees associated with the share deal consist mostly of obligatory notarial costs (i.e. verification of signatures) and fees related to the registration of changes with the commercial register.
Potential risks of a share deal are typically flagged during the due diligence process.
In order to protect the purchaser from risks, representations and warranties are commonly included in the transaction documentation. Additionally, representations and warranties are insurable.
2.3 Asset deal
When a purchaser does not desire to acquire the whole business (or its part) from the seller, an asset deal is a more suitable option. By the asset deal, the purchaser acquires only specific assets, such as particular lands or buildings. Therefore, the asset deal is typically a swifter process, with due diligence limited to the title, and rights and obligations directly associated with the asset.
Legal due diligence provided in relation to the asset deal should be focused mostly on previous owners' acquisition of title, previous transfers of real estate, the existence of third party rights such as encumbrances (pledges, easements, pre-emptive right, etc.), and litigation. The potential risks are described in greater detail in Section 2.6.
A real estate purchase contract must be in writing, must include signatures of all sellers and buyers, and the seller's signature must be officially verified. All pages of the purchase contract, including its attachments, must be firmly connected in one document and the contract may not be signed per partes.
The transfer of a title to real estate based on a real estate purchase contract becomes effective as of registration with the cadaster. The application may be filed by either contracting party, in paper form or electronically. The cadaster has a 30-day period to decide on registration (15 days if the application for the accelerated proceedings is submitted, subject to a higher fee).
If all statutory requirements are met, the cadaster will register the ownership right.
In order to ensure that the whole transfer will occur properly, depositing monies into a notarial or bank escrow has become a market standard. The buyer deposits the purchase price into the escrow, and it is released to the seller once the ownership title is registered in favor of the buyer without any encumbrances or with the pre-agreed permitted encumbrances, and if any other documents agreed by the parties are submitted to the bank or the notary public.
Administrative fees in relation to the application for registration of the ownership rights are EUR 66 (EUR 266, in case of accelerated proceedings). In the case of an electronic application, the administrative fees will be halved. Costs are typically incurred with respect to notarial verification, and notarial escrow, if applicable. With regards to taxes pertaining to the transfer of real estate assets, please see Section 4.
The most common risks pertaining to asset deals when conveying real estate are invalid preceding transfers of real estate, claims of third parties, and hidden encumbrances. With regards to protection from the risks, it is common to perform a title due diligence at least 10 years in reverse and if potential defects are identified, these are addressed in the transfer documentation by way of setting financial and/or time limits of the seller’s liability and potentially also title insurance may be introduced.
2.4 Disposal process
Despite a relatively broad general contractual autonomy, Slovak law, as a typical continental legal system, demands a prescribed form and requirements to be met in real estate transactions. The disposal process is described in Section 2.2.
In case the real estate is co-owned by multiple co-owners, the non-selling owners have a statutory pre-emptive right. If a transferor of real estate is a married person and real estate belongs to a matrimonial estate (in Slovak: bezpodielove spoluvlastnictvo manzelov) the consent of the other spouse is required. The pre-emptive right may also be established by contract.
If the pre-emptive right is not respected or a spouse's consent is not granted, the transfer is voidable within three years of such a transfer by filing a claim with the court.
The seller is obliged to hand over to the seller the energy certificate pertaining to buildings.
2.5 Registration of change of ownership
Please see Section 2.3.
2.6 Risks to be considered
In general, encumbrances over a real property may be created by contract, a decision of a public authority, or by operation of a statute. Registration with the cadaster is required for the effective creation of a contractual encumbrance. Encumbrances created by a decision of a public authority or statute do not require registration and such registration in the cadaster is purely evidential. Such statutory encumbrances should be identified in the course of the legal and technical (mostly utility lines or various protection zones of utility lines, nature reserves, etc.) due diligence.
Under Slovak law, parties may agree on the pre-emptive right either as a contractual obligation or as an in rem obligation. Some pre-emptive rights may also be created by statute. In general, contractual pre-emptive right is only binding for the contracting parties, and breach thereof causes only contractual liability and does not void the title to real estate. If a pre-emptive right is agreed in rem, it is also binding on the successors of the buyer. In order to establish a pre-emptive right in rem, a contract has to be in writing and becomes effective upon its registration in the cadaster. If the seller has not purchased the property offered by the buyer, it retains the pre-emptive right. In case of violation of the pre-emptive right, the entitled party may either demand that the acquirer offer the property for sale, or the seller shall retain the pre-emptive right for the future. Under Slovak law, co-owners of real property have a pre-emptive right by law, as mentioned before[MOU1] . Additionally, there are several statutory pre-emptive rights comprised in various acts such as in the preservation of nature or significant investments acts. Such acts also provide for the consequences of a pre-emptive right breach. Statutory pre-emptive rights are not obligatory registered in the cadaster.
Leases of lands with more than a five-year term may be registered with the cadaster, but such registration has no impact on the validity or effectiveness of the lease. Therefore the existence of a lease relationship may not be encountered even in the legal due diligence.
After 1990, with the aim to remedy wrongdoings of the communist regime, several restitution laws were enacted. They provided for the restitution of land to its former owners. In the time period from 1948 to 1990 owners of land were forced to transfer their land to the State or to another legal entity. In accordance with the provisions of the restitution laws, former owners or their heirs could claim that their land is restituted to them. In certain cases, Slovak law also provided[MOU2] for the restitution of land confiscated in the time period from 1945-1948. All periods for raising said claims have already lapsed.
Unfortunately, many restitution proceedings are still pending nowadays, which results in a risk that some land transfers may have been invalid. Such risks may be significantly reduced by inspecting the respective competent authorities.
Article 59a of the Commercial Code
There is also a possibility that a company has not acquired a property in accordance with statutory requirements. Under Article 59a of the Commercial Code, if a company acquires property under an agreement entered into with its founder, member, or shareholder for consideration equal to more than 10% of its registered capital, the value of such property must be determined by an official appraiser. Such an agreement cannot become effective prior to its filing into the Collection of Deeds of the Commercial Register together with the appraisal. The agreement together with the appraisal must be filed into the Collection of Deeds prior to its registration with the Cadaster.
If a company enters into the agreement above within two years from the date of its incorporation, a prior approval thereof by the general meeting is required.
The same also applies to agreements which are entered into between a company and parties regarded as close parties of the founders, members, or shareholders thereof, or which have control or are controlled by the founders, members, or shareholders, always provided that the company acquires property for a consideration of more than 10% of their registered capital.
Nowadays, Article 59a applies only to JSCs, but until 2015, it applied to LLCs as well, therefore, past transfers which did not comply with Article 59a may be declared invalid as well.
An unsatisfied buyer has a right to claim remedies arising from liability for defects, whether statutory or contractual. The buyer’s rights vary depending on a particular defect – from remedying the defect (if applicable) to withdrawal from the contract. The right to claim defects expires upon the lapse of the respective period.
Claiming defects does not prevent the buyer to claim compensation for damages caused by the defects.
3. REAL ESTATE FINANCING
3.1 Key sources of financing
Developers borrow by way of real estate project financing loans from commercial banks under the Commercial Code and the Act on Banks. Loan agreements are often based on LMA standards. Banks usually require a certain percentage of equity and do not finance 100% of the value of a project. Recently, there were the first examples of green finance deals in the Slovak market.
3.2 Protection of creditors
The standard security package for corporate real estate finance (for the purchase of existing real estate) consists of:
- Notarial deed (execution title)
- Pledge over bank accounts
- Pledge over the receivables for rent
- Pledge over insurance policies
- Pledge over shares in the special purpose vehicle (SPV) that is to own financed real estate and the subordination agreement (if prior shareholder loans exist)
A mortgage is perfected once it is registered in the Cadastral Register. Pledges are perfected once they are registered in the Notarial Register of Pledges. Pledges over shares are perfected either upon registration in the Register of Pledges of the Central Securities Depository (for shares) or in the Commercial Register (ownership interest in an LLC).
4. REAL ESTATE TAXES
4.1 Transfer taxes
No real estate transfer tax applies in Slovakia.
Regarding value-added tax (VAT), the supply of a structure together with the lands underneath is exempt from VAT after the lapse of five years from the issuance of the occupancy permit allowing the use of the respective structure. However, if a VAT payer supplies a non-residential structure exempt from VAT, it may opt to apply VAT. The supply of a land plot other than a construction/development land plot is also exempt from VAT. The applicable VAT rate for supplies of real estate is 20%.
Regarding income tax, if real estate is transferred prior to the lapse of five years following its acquisition, the transferor is required to pay an income tax. If the transferor is a natural person, the income from the transaction is also subject to health and social insurance payments. The applicable income tax rate varies from 15% to 25% depending on the income and on whether the payer is a natural person or a legal entity.
4.2 Specific real estate taxes
The only tax applicable with respect to real estate ownership is the real estate tax (in Slovak: dan z nehnutelnosti). The real estate tax comprises several tax categories and includes a tax on lands, tax on the structures, and flats and non-residential premises tax. Act No. 582/2004 Coll. On Local Taxes and Local Fees for Municipal Waste and Small Construction Waste, as amended sets out the default tax rate for each real estate tax category. At the same time, the act authorizes the respective municipality to change the applicable tax rate according to the municipality’s prevailing local conditions. Municipalities are required to adopt such changes via generally binding regulations, which are usually published either on the municipality’s website or on the municipality’s official board. In general, compared to Western Europe, the real estate tax is rather low, and political discussions arise from time to time to increase the real estate tax rates to align them with European trends.
5.1 Legal framework for condominiums
Condominiums (in Slovak: bytove domy) are governed by Act No. 182/1993 Coll. On the Ownership of Apartments and Non-Residential Premises, as amended (Condominiums Act). A condominium is defined as a building with no less than three apartments and more than half of the floor area intended for residential purposes. From a legal point of view, a condominium building is split into individual residential and non-residential units which are evidenced separately and individually transferable. The owners of the units in the condominium co-own the common parts and facilities in the building as well as the plot underneath and adjacent to the building (save for a few exceptions).
5.2 Rights and duties of co-owners
The apartment’s co-owners' rights and duties in condominiums are regulated in detail in the Condominiums Act. We outline below the most important ones. Apart from the right to enjoy ownership and the right to lease the apartment or non-residential premises, the rights and duties of the owners are as follows:
The duty to take care of the residential or non-residential units: The unit owner is obliged, at its own expense, to keep its unit in a condition suitable for proper use, especially to carry out maintenance and repairs in a timely manner.
The duty to enjoy ownership right in proper fashion: The unit owner is required to act in such a way that when using, maintaining, changing, renting, or otherwise disposing of its unit, the owner does not disturb or endanger others in exercising their ownership, co-ownership, and common use rights.
The right to file a motion ordering the sale of a unit: If the owner restricts or prevents the other owner's exercise of ownership rights by materially damaging the condominium, constantly disturbing the peaceful residence, endangering safety or morals in the condominium, or failing to fulfill the obligations imposed by a court decision, upon a motion, the court may order such owner to sell its unit.
The duty to allow for an entry of an authorized person: The unit owner is obliged to allow an authorized person's entry into its unit due to various reasons envisaged by the law. These reasons include the installation and maintenance of equipment for measuring heat and water consumption, reading of measured values, or inspecting that construction works do not threaten or adversely affect the condominium.
The duty and right to participate and vote: Each owner in a condominium has the duty and the right to participate and vote in all matters concerning the management of the condominium.
The duty to contribute financially to the condominium's administration: The unit owners in a condominium are obliged to pay financial contributions to the operation, maintenance, and repairs fund of the condominium.
5.3 Liability of co-owners
Apart from the generally applicable duty to prevent damage, co-owners also have an extended duty to prevent and remedy damages. A co-owner is obliged to remedy defects and damage caused to the condominium by the co-owner itself or persons who use its unit.
Co-owners are obliged to enable the elimination of deficiencies identified by safety inspection of the technical equipment. If the condominium co-owners do not allow for such elimination, they are liable for the ensuing damage.
Moreover, in order to secure obligations arising in connection with the condominium’s management, a lien may be established over its unit in favor of the other co-owners.
5.4 Rights and duties of condominium associations
When it comes to the management of a condominium, the co-owners have two options. They may opt to establish a condominium association or entrust the condominium’s management to a professional condominium facility manager (In Slovak: spravca bytoveho domu).
A condominium association (in Slovak: spolocenstvo vlastnikov) is a legal entity established to manage, maintain, and renovate the common parts and facilities of the condominium including its adjacent lands. A condominium association is established upon registration with the Register of Condominium Associations kept by the respective district office in the seat of the region (In Slovak: okresny urad v sidle kraja).
A condominium association may only act in ways envisaged by the Condominium Act. A condominium association manages co-owners’ payments and contributions in order to manage the condominium. To this extent, a condominium association may conclude contracts on behalf of the co-owners, for example, insurance, repair, reconstruction, lease, or credit agreements. Further, a condominium association is entitled to enforce payments and contributions to the condominium’s joint fund from the co-owners on its own behalf.
Apart from the duty to duly manage and administer the condominium, the condominium association’s general duties comprise an obligation to submit to the co-owners an annual report on its activities and funds’ management each year by May 31 and to distribute to individual co-owners the billing of the funds for services used. Condominium funds are strictly to be kept in a bank account owned by the condominium co-owners. Condominium associations are forbidden from engaging in third-party business activities.
The co-owners may also decide to employ a professional condominium facility manager. Compared to the condominium associations, the condominium facility manager has several additional obligations towards co-owners including convening a co-owners’ meeting at least once a year or instigating enforcement proceedings against defaulted co-owners. The condominium facility manager is liable to the co-owners for damages incurred to the condominium as a result of the manager’s breach of its duties.
Engaging a professional condominium manager over establishing a condominium association might be more expensive. However, it usually brings some advantages to the co-owners. One of the greatest benefits of having a professional condominium manager is that the co-owners shift the responsibility for the condominium to a third party with professional experience. Ultimately, it is up to the co-owners to choose the most suitable option.
6. COMMERCIAL LEASES
6.1 Form and contents of a lease agreement
There are two main acts governing a lease of real estate. The Civil Code is a general legal act, stipulating general provisions on leases and special provisions on a lease of an apartment. Act No. 116/1990 Coll. on Lease and Sublease of Non-residential Premises, as amended, is a special act that regulates the lease of non-residential premises. Building as a whole and lands are not deemed non-residential premises, therefore, the general regulation of leases will apply.
Notwithstanding the aforementioned, leases of forest lands and agricultural lands have a specific regulation as well. Special provisions also regulate leases of real estate owned by the state, public authorities, or municipalities.
General lease agreements must include the description of a lease subject; naturally, it is strongly advised to incorporate at least provisions stipulating rent, lease duration, rights and obligations of the landlord and tenant, and termination rights. A Civil Code lease agreement does not have to be concluded in writing, even though it is strongly advisable.
A lease agreement of non-residential premises (such as an office lease), on the other hand, is regulated by the special act very rigidly and must be concluded in writing. The agreement must include the subject and purpose of the lease, rent, as well as its due date and method of payment, and if the lease is not agreed for an indefinite period, the agreement must also include the lease term. If these requirements are not included in the agreement, it is void.
Similarly, a lease of an apartment as a protected form of lease in Slovakia must include multiple statutory provisions, and requires a written form, with an alternative being the notarial record of its content. The agreement must include a description of the apartment and the extent of its use. The rent must be included as well, including the number of payments for performances (services) related to use of the apartment. It might also comprise the description of the apartment's accessories and state.
If parties do not agree on the details, the statutory provisions of the respective regulation will apply to the relationship. That is the reason why it is common in commercial leasing, to agree on all rights and obligations, including maintenance, termination rights, right of extension, etc., in the lease agreement and exclude the automatic application of the statutory provisions.
6.2 Regulation of leases
For the basic differences between legal rules governing various lease types, please see Section 6.1.
The provisions governing the general regulation of lease under the Civil Code are deemed excludable. On the contrary, a lease of an apartment, despite being regulated by the Civil Code as well, is strictly governed, and provisions covering such a lease cannot be excluded. The same applies in relation to the regulation of non-residential premises.
Leases of state-owned and municipality-owned property are subject to additional approvals of competent authorities, and the legal regulation governing these leases cannot be excluded.
6.3 Registration of leases
Leases of real estate with the term of five years and more may be registered with the cadaster, but such a registration is only voluntary and has no impact on the validity or effectiveness of the lease. However, it is advisable to register such a lease with the cadaster to put third parties on notice of the existence of the lease relationship.
Lease agreements concluded with the state institutions or municipalities usually require their prior approval by various bodies such as a municipal assembly and must be published in order to become effective.
6.4 Termination of leases and renewals
All lease agreements may be terminated or renewed by the agreement of the parties. Under the Civil Code, parties may derogate from any termination reason pertaining to the general lease agreement, and even agree on their own termination reasons. Article 676 et seq. of the Civil Code envisages mainly following termination reasons:
- The lease shall expire upon the lapse of the agreed term;
- Unless the landlord and the tenant agree otherwise, the lease agreement concluded for an indefinite period of time may be terminated only by notice; and
- Unless otherwise provided by a special act, lease agreements for real estate may be terminated by a three-month notice.
Termination by withdrawal by the tenant is applicable when the subject of the lease becomes unfit for the agreed use, or health imperiling. Termination by withdrawal by the landlord, on the other hand, is available in cases of unauthorized use of the subject by the tenant, unauthorized subleasing, or if the tenant is in delay with payments of rent, and, at the same time, other statutory requirements have been fulfilled.
The act on non-residential premises (office leases) is very rigid and it is not possible to exclude the termination reasons it stipulates. The leases for a definite term may not be terminated for no cause. They expire upon the lapse of the agreed term. The landlord may terminate should the tenant use the premises contrary to the lease agreement or be in delay with payment of rent or services for at least a month. Additional reasons relate to the tenant's behavior, unauthorized subleasing of the premises, and other specific situations. The tenant may terminate the agreement mostly when the leased premises are not maintained in the agreed condition, or the premises cease to be suitable for the agreed use. Given that the parties cannot deviate from the reasons for termination by notice, parties usually agree on additional reasons in the lease agreement which shall represent a breach of contract and will give rise to a right to withdraw the agreement.
If the agreement is concluded for an indefinite period, both parties may terminate it without cause, if not agreed otherwise. The statutory termination notice period is three months, but it may be modified by parties.
Automatic renewal of lease applies for general lease (lands and buildings). If the tenant continues to use the property after the expiry of the term of the lease and the landlord fails to file a petition (action) for vacation of the property with the relevant court within thirty days, the lease agreement shall be renewed under the same terms under which it was originally agreed. A lease agreed for a term longer than one year shall always be renewed for another year.
A lease of an apartment is especially protected. The landlord may terminate it by notice only for strictly given statutory reasons, mostly pertaining to the tenant's behavior and termination of the agreement by withdrawal is forbidden.
Automatic renewal of a lease of an apartment is excluded.
6.5 Rent regulations and rent reviews
In private contractual relationships, the parties may agree on basically any rent. However, a lease of state-owned or municipal property requires the agreement on so-called “market rent.”
It is usual that lease agreements include provisions on rent indexation fixed to the Slovak or EU inflation indexes.
6.6 Services to be provided together with the lease
Generally, services provided together with the lease depend on the agreement between parties, and, simultaneously, the landlord is obliged to keep leased real estate in a suitable condition for agreed or typical use.
Regarding non-residential premises, the landlord should also ensure the provision of services pertaining to the use of the premises (e.g. utilities).
Regarding apartments, a lease agreement must include the identification and amount of payments for performances relating to the leased apartment.
6.7 Fit-out works and their regulation
The parties may agree on any fit-out works. In addition to such an agreement, regarding the lease of an apartment, the tenant must not perform any construction work or any other material changes to the apartment without the landlord's consent.
Regarding the general lease and lease of non-residential premises, the tenant may perform changes to the property only with the landlord's consent, and it may demand reimbursement of the costs if the landlord undertook to do so. If the landlord granted its consent to the change but did not undertake to reimburse the costs, after the termination of the lease, the tenant may demand consideration for the increase in the value of the property.
However, if the tenant makes any changes to the property without the landlord's consent, it is obliged to restore the property to its original state at its expense after the termination of the lease. If the landlord faces incurring considerable damage due to the changes made to the property, he is entitled to withdraw from the agreement.
According to the VAT Act, fit-out works that increased the value of the leased property, provided by the tenant, are deemed the non-monetary income of the landlord, provided that the landlord has not reimbursed such costs and agreed with said fit-out works. Upon fulfillment of the conditions prescribed by the VAT Act, such income may be depreciated.
6.8 Transfer of leases and leased assets
Generally, a transfer of a leased property has no effects on the lease agreement which remains valid and binds the new owner. On the other hand, the tenant may subsequently terminate the lease agreement by notice (even if the lease agreement is concluded for a definite period). In such a case, the termination reason is deemed to be the change of the landlord. The new owner/landlord does not have a right to terminate the lease.
The above effects of change of ownership to the leased property are the reason for which the acquisitions of shopping malls, office buildings, or warehouses with existing lease relationships are mostly done as share deals so that the leases are preserved.