Contributed by Ostermann Ivancic.
1 Real Estate Ownership
1.1 Legal Framework
The Croatian Constitution places the inviolability of ownership in the category of the highest values of the constitutional order of the Republic of Croatia and one of the bases for its interpretation. It also provides that: (i) ownership is guaranteed under the Constitution but that it also obliges its holder to contribute to the common good, (ii) it is possible, as provided under the law, to limit or confiscate ownership in the interest of the Republic of Croatia, with market value compensation, (iii) the entrepreneurial freedom and ownership rights can be exceptionally restricted by law to protect the interests and security of the Republic of Croatia, nature, environment and people’s health, and (iv) that a foreign person can acquire ownership under the conditions prescribed by law.
A key piece of legislation regulating real estate ownership as one of the proprietary rights is the Act on Ownership and Other Proprietary Rights (Official Gazette No. 91/96, 68/98, 137/99, 22/00, 73/00, 129/00, 114/01, 79/06, 141/06, 146/08, 38/09, 153/09, 143/12, 152/14, 81/15, 94/17; Ownership Act). Said source of law defines the right of ownership as a proprietary right that entitles its holder to exercise its rights over the owned property and its benefits, as well as to exclude every other person from it if not contrary to other persons’ rights and mandatory restrictions. The owner has the right to possess, use, utilize, and dispose of his property. In comparison to other proprietary rights (i.e., pledge [hypothecation], easement [servitude] right, etc.), which provide less volume of powers over property, the ownership is the one with the widest scope of authorizations and the only one that is not considered under the law as limited. Ownership Act has experienced amendments over time, but its main principles and structure have been a stable part of Croatian legislation.
The Ownership Act also provides that there is only one type of ownership and that it obliges its holder (providing more details on the above-mentioned general rule from the Constitution to contribute to the common good) and that in general, when exercising his right, the owner is obliged to act with consideration towards the general and other interests that are not contrary to his right. In that sense, said act provides two categories of restrictions of ownership: (i) general (i.e. not to use the right for the purpose of causing damage to another person) and (ii) special restrictions (i.e. sequestration, expropriation). Such restrictions can only be imposed in volume and duration according to the rules set out in the respective applicable legislation.
The Ownership Act defines that individual real estate consists of land plot(s), including everything that is relatively permanently connected to the surface of it or underneath it. When several land plots are registered with the land register in the same land register file, these plots are legally united into one body (land register unit), which, as such is legally one real estate. A land registry unit is additionally defined by the land registry’s main piece of legislation, the Land Registry Act (OG 63/19, 128/22, 155/23, 127/24; ‘Land Registry Act’) which provides that the land register unit (i) is a legal unit whose composition can be changed only by a land register write-off of cadastral plots or their land register adding to said unit and (ii) that can consist of one or more cadastral plots located in the same cadastral municipality.
Buildings and other structures that are permanently attached to the land are not parts of the land if they are legally separated from it by a proprietary right that enables its holder to own such building or other structure on that land (for example, building right). The same applies to buildings and other structures that are legally separated from the land or from the common good by a legally established concession that authorizes its holder to own such a building or other structure.
Ownership can exist in individual form (one owner) or with other co-owners so with respect to co-ownership regimes, the Ownership Act provides a regime of co-ownership and in addition to that – a special regime of individual ownership over particular/individual parts of the real estate (etage ownership) by partitioning of a real estate (legal division to individually owned units with common areas jointly owned by all etage owners as the co-owners). Etage ownership is regulated as a separate regime but general principles of co-ownership apply to a certain extent, especially to the common parts that were not subject to etage partitioning. Etage ownership over a particular/individual part of a real estate derives from and is non-detachable from the co-ownership part over the entire real estate. Also, it entitles the co-owner to exercise all his owner’s powers and duties while managing the individual part of the real estate instead of all co-owners as if the individual part was under their sole ownership and to do with such part and benefits deriving from it as they see fit and to exclude anyone else from it.
This ownership regime may be established on a part of co-owned real estate which is an independent usage unit, suitable for the independent exercise of the co-owner authorities, such as an apartment or another independent space unit, where another independent unit includes independent business premises, garages, etc. Next to an apartment or another independent space unit, ownership of a particular part of real estate may extend to accessory parts, such as open balconies, terraces, gardens, cellars, attics, parking places, or another independent space unit. Any co-owner on whose co-ownership share(s) the ownership of a specific particular part of real estate has been established is entitled to all benefits derived from such part unless they belong to someone else based on another legal ground. On the other hand, each such co-owner is obliged to take care and maintain the apartment/etage or another independent space unit and its equipment (especially the one for utilities) so that other co-owners do not suffer any damages (for which the co-owner who caused the damage would be liable for damage compensation to other co-owners which suffered the damage). In this regime, any co-owner is authorized to solely and independently enter a residential lease contract or a business lease contract for such part, either in its entirety or partially (if possible), without having to request approval or consent from other co-owners, unless agreed otherwise and registered as such in the land register. The relationship between the co-owner as the lessor and the lessee is governed by the civil obligations legislation.
With respect to rules for foreigners to acquire real estate in Croatia, the Ownership Act provides that its provisions also apply to foreign natural persons and legal entities, unless otherwise stipulated by law or international agreement. It furthermore provides that foreign natural persons and legal persons can, under the principle of reciprocity, acquire ownership of real estate in the territory of the Republic of Croatia on the basis of (i) inheritance and (ii) the consent given by the minister responsible for judicial affairs of the Republic of Croatia (without said consent real estate sale and purchase agreement is null and void).
However, said rules do not apply to the citizens of the member states of the European Union and EU legal entities (having their registered seat in one of the EU member states) – they acquire ownership of the real estate under the same rules and legal requirements applicable to the ownership acquisition for Croatian citizens and legal entities with registered seat in Croatia.
As regards expropriation, the Ownership Act regulates that in the interest of the Republic of Croatia, the ownership can be fully expropriated, as provided under the law (complete expropriation) or limited by constituting rights in favor of a third party over the owner’s real estate (incomplete expropriation), in which case the owner is entitled to compensation according to the expropriation legislation. A key piece of legislation regulating the expropriation is the Act on Expropriation and Determination of Compensation (Official Gazette No. 74/14, 69/17, 98/19), which governs in detail the system of expropriation, the method of determining the interest of the Republic of Croatia in that system, authorities responsible for conducting the expropriation procedure, preparatory activities and the rules of procedure for expropriation, the method of determining compensation for expropriated real estate, as well as other issues related to expropriation.
The combination of different factors in the Croatian real estate market, such as high demand, inflation/higher real estate prices, and limited supply of available real estate have resulted in slowing down of the residential real estate market. A shortage of supply of available business premises is also present in the commercial/office market (especially in the capital city of Zagreb as the center of business activities) whilst the available volumes of retail/shopping malls and parks, as well as warehouse and logistic premises, have been stable in 2024.
1.2 Registration of Ownership
All proprietary (real estate) rights (ownership included) and other legally significant facts and relations are registered in the land register – specifically, the Ownership Act regulates that the ownership of the real estate is acquired by registration of the acquirer’s ownership in the land registry, as provided under applicable legislation, on the basis of the validly manifested will of the previous owner aimed at transferring its ownership to the acquirer. The same rules respectively apply to changes of ownership and its termination in legal transactions.
Ownership of the real estate that is not registered in the land register is acquired by court deposit of an appropriate certified document with capacity for registration in the land register, by which the previous owner allows the registration of the acquirer’s ownership, to which the rules on acquisition by registration respectively apply.
The main piece of legislation detailing and implementing said rules from the Ownership Act is the Land Registry Act which prescribes the organization, arrangement, management, and safekeeping of land registers, defines the subject and types of entries as well as conducting the land register procedures.
Land registries are maintained by the competent municipal courts as the first instance courts and are kept electronically, in the Land Registers and Cadastre Joint Information System – an information system in which all land register and cadastre data are stored, maintained, and managed. Within that system aligned land register and cadastre data are kept in the Land Information Database. Land registers are based on the data from the cadastral records, i.e., the cadastral survey.
Whilst all proprietary rights are registered with the land register, the cadastre is a separate public registry in which the possession is registered, along with a description of the plots and maps of the cadastral municipalities and the ownership right after it has been acquired and registered in the land register. Under Croatian law, possession is defined as factual control over an object (real estate included) and the person having such factual control over the respective object is its possessor (i.e., exercises factual usage). Unlike ownership which is a proprietary right that authorizes its holder (the owner) to do whatever he wants with the object (real estate included), to benefit from it, and to exclude everyone else from it (with the only limitation that this is not contrary to others’ rights and legal restrictions), the possession is not a proprietary right but a potentially legally relevant factual control by possessor over the real estate.
Under the Act on State Survey and Real Estate Cadastre (Official Gazette No. 112/18, 39/22, 152/24; Cadastre Act’) cadastral information on the real estates (i.e., their size/surface, number of the cadastral plot, usage, maps, etc.) are the basis for land registers maintained by the land register departments of municipal courts and these land registers are obliged to submit to the competent cadastre offices all of their decisions that affect the data in the cadastre immediately after the implementation of said decisions in the land register.
Although the cadastre data is the grounds for land registries (for example, if several plots are merging or de-merging, changing surface, etc. such changes can only be done through cadastre on the basis of the authorized surveyors’ survey report requested by the owner, the authorized person or by the competent authority), said data is not grounds for acquiring ownership of the property per se – legal title and grounds for ownership acquisition are either a legal transaction, decision of the court or other competent authority, inheritance or by virtue of law and it is fully acquired once the registration is executed in the land register which is exclusive authorities for ownership (and other proprietary rights) acquisition, all as explained above. In that sense, it is important to differentiate the information on the ownership in the cadastre and in the land registries, with the information on the ownership in the cadastre having just an informative nature – the documents issued by the cadastre on the property which include the information on the possessor contain note that cadastre documents are not proof of ownership (only the excerpt from the land register shows the factual and legal status of the real estate at the time of issuing the excerpt and it is the only valid proof of real estate ownership).
The cadastre should also be notified of the change of possessor in order for those cadastral records to be accurate – however, in practice, there have been discrepancies between the land register records and the cadastral records with respect to actual possessors. The reasons for those discrepancies are numerous and some go back historically – from the owners failing to in timely manner inform the cadastre of the changes that occurred in the land register (which before was not done by the land registries automatically as it is now but by the owners and possessors themselves) resulting in outdated data to for example, some places having issues with damaged or destroyed physical land register books that need reconstruction with the delicate process of their recovery and digitalization which has to be conducted thoroughly, etc. However, the situation is improving with the digitalization of the land register and cadastre records and with the obligation of the land registers to deliver to the cadastre all their decisions that need to be recorded in the cadastre. The process of overall digitalization of these public records conducted by the Ministry of Justice and Administration is not fully completed but it is ongoing and continuous.
1.3 Publicity of Real Estate Register
The land register is public and fully transparent, and anyone can request insight and issue of excerpts, copies, or printouts from the land register records. All such documents issued by the land register are legally considered public documents. It is also deemed that the land register truly and completely reflects the factual and legal status of the property. As explained in Section 1.2., all land register and cadastre data are electronically stored, maintained, and managed in the publicly available Land Registers and Cadastre Joint Information System with aligned land register and cadastre data being kept in the Land Information Database as part of that system.
1.4 Protection of Ownership
When conducted as provided under the rules provided by applicable proprietary and land register legislation explained above, the entries in the land register are binding. The acquirer who acted in good faith with trust in the land register records is legally protected if he did not know or, given the circumstances, had no sufficient reason to suspect that the land register data was not complete or that it was different from the non-registered status of the real estate. A lack of good faith cannot be laid against anyone just because they did not investigate the non-registered status of the real estate. A person who in good faith registered the land register right, acting with trust in the completeness of the land register, acquired it free of encumbrances that were not registered at the time when the registration was requested nor was it evident from the land registers in the moment when registration was requested unless otherwise provided under the law. The exception is when that acquirer does not enjoy protection regarding those rights, encumbrances, and restrictions that exist on the basis of the law and are not entered in the land register such as legal liens/encumbrances established by virtue of law the fulfillment of the legal prerequisites provided for this purpose by special pieces of legislation. Such encumbrances on real estate shall be entered in the land register at the request of the creditor and if failed to do so said encumbrances still exist.
A person who has in good faith registered a land register right in the land register, acting with trust in the verity of the land register, enjoys the protection of that trust, especially since no one will be able to dispute the validity of such acquisition due to the invalidity of their predecessor’s registration after expiration of the deadlines for filing a lawsuit for cancellation (clearing) of the predecessor’s registration, as provided under land register legislation. It should be noted that these rules on protection do not apply if the property was stolen, i.e., if the predecessor’s acquisition was the result of a violation of the law.
With respect to protection of the owner claiming unauthorized use of the real estate proprietary legislation provides that the owner is entitled to demand protection of the property from violations through the court proceeding in which the owner must prove (i) their ownership and (ii) the violation/disturbance in exercising the ownership rights. If a third party claims entitlement to actions that disturb the ownership, such claim is subject to the burden of proof of such entitlement. In the event of damage, the owner is entitled to damage compensation according to the general rules on compensation for damage under civil obligations legislation.
2 Real Estate Acquisition
2.1 Share Deal or Asset Deal?
With respect to the form of the real estate being disposed to investors, the decision on acquisition either of the part or entirety of the business shares, i.e., the share deal model or the asset deal model depends on the individual circumstances of each transaction – the corporate structure of the target, its financial status and liabilities identified in the legal, technical and tax due diligence of the target, the industry in which the target company operates, i.e., in which the transaction is taking place and its specific characteristics and trends, type of the property, its legal status and tax treatment, as well as further business plans with the property (whether the asset in question is, for example, land with potential for construction and development or existing building/project with an existing established business model ready to be taken over and continued without interruption). With an asset deal, the purchaser acquires assets with a narrower scope of potential liabilities in comparison to a share deal where it acquires all liabilities of the target company’s business activities. Having in mind that potential risks associated with both types of transactions can be equally serious and damaging and that each transaction type is subject to different tax treatments, a proper business decision on the type of transaction and its structure must be substantiated by the results of the legal, technical (if necessary), and tax due diligence of the target company.
2.2 Share Deal
Limited liability companies represent a dominant type of corporate structure in Croatia and the vast majority of Croatian companies (over 90%) are incorporated as LLCs. The rules for share transfer in LLC are provided under the Companies Act (Official Gazette No. 111/93, 34/99, 121/99, 52/00, 118/03, 107/07, 146/08, 137/09, 125/11, 152/11, 111/12, 68/13, 110/15, 40/19, 34/22, 114/22, 18/23, 130/23, 136/24; Companies Act). That piece of legislation provides that an agreement for a share deal transaction must be concluded in the form of a notarial deed, or a private document certified by a notary public or a court decision that replaces such agreement and the same rule applies to undertaking of the obligation to share transfer. The share transfer does not require amendments to the articles of association of the target company. The target company’s articles of association can contain other conditions for the share transfer, especially if the target company’s consent to the transaction is required. Business shares to which the obligation to fulfill additional obligations is bound can be transferred only with the target company’s consent. If such consent is denied the acquirer who has fully paid for said share(s) is entitled to request from the court for such consent to be issued. The court will allow the transfer if no valid reasons for denying the consent exist, and if the transfer can be conducted without damage to the target company, its shareholders, and creditors.
A share transfer must also be recorded in the share ledger and the list of shareholders has to be submitted to the court register. Registration of the new shareholder with the de-registration of the previous shareholder (if the transaction results in the end of the shareholding status of the seller) has to be executed in the court register. Usual fees related to share transfer (after conducting respective due diligence procedures) are, like in the majority of jurisdictions, costs of legal, technical, and tax advisors (for due diligence processes and for the transaction), court fees, and notarial fees. The notary fees depend on the value of the transaction but have a prescribed maximum amount, all as provided by the secondary legislation, Regulation on the Temporary Notarial Fees’ Tariff (Official Gazette No. 8/94, 82/94, 52/95, 115/12, 120/15, 64/19, 17/23. Amounts of court fees are prescribed in the Ordinance on Court Fees’ Tariff (Official Gazette No. 53/19, 92/21, 37/23).
Particular rules for the joint stock companies are contained in a separate legislation piece, the Act on Takeover of the Joint Stock Companies (Official Gazette No. 109/07, 36/09, 108/12, 90/13, 99/13, 148/13) which provides general principles of takeover and detailed rules on conditions for the target company takeover bid, the takeover procedure, the rights and obligations of the participants in the takeover and the supervision of the procedure. By said Act Directive 2004/25/EC of April 21, 2004, on Takeover Bids was implemented into the Croatian legal system. It contains detailed procedural rules, conditions under which the takeover can be conducted, provisions on mandatory and voluntary takeover bids, and the rights and obligations of bidders and shareholders of the target company. The cost structure is more complex than in LLC share transfer and their final amount depends on the specifics of the individual transaction.
With respect to the risks potentially transferred to the purchaser and their addressing in transaction documents please see Section 2.1.
2.3 Asset Deal
For an asset deal (in the presumed scenario the real estate being the asset) to be facilitated under Croatian legislation, several legal conditions have to be met, i.e., the following steps taken:
(i) the agreement on the purchase of the real estate must be in written form and the signature of the seller must be certified by the notary public (the prescribed amount of fees for notarial services for such certification is symbolic),
(ii) the seller must provide written consent to registration of ownership title to the purchaser (either within a real estate transfer agreement or in a separate document, depending on the terms of payment of the purchase price, and in both cases for such consent to have a full effect the seller’s signature must be certified by the notary public),
(iii) complete application for registration containing all prescribed elements and information needs to be submitted to the land register electronically by a notary public or by an attorney, as mandatory users of electronic communication with the court through the Land Registers and Cadastre Joint Information System (if the application is not filed electronically, it will be dismissed by the land register) (prescribed amount of court fee for registration is symbolic),
(iv) documents substantiating the application must be provided to the notary public or an attorney in original (electronic documents in proper electronic form are being considered as the originals) or certified copy, and
(v) the competent land register department of the municipal court must pass the decision on allowing the purchaser’s ownership to be registered in the land register (the land register is obliged to issue a decision in the regular procedure within 15 working days from the day the proper and complete application has been filed to the land register).
Having in mind that the real estate purchase agreement although is a legal ground for ownership title, does not automatically result in ownership transfer and that transfer, the moment of filing a complete application to the land register is of the most importance for the procedure. This is because the rules on applications’ priority rank apply meaning that the applications for registration are resolved and decided on in accordance with their priority which is determined by the moment (day, hour, minute, second) when the application for registration was submitted to the land register.
In addition to essential elements of the real estate purchase agreement – real estate description and purchase price – that agreement usually contains provisions on dynamics of payment of the purchase price, seller’s warranties with respect to the legal status of the real estate, and other relevant circumstances, the moment of takeover, the moment of transfer of obligations on payment of the utilities and other costs, etc. It should be noted that Croatian legislation provides the possibility of entering into the real estate purchase pre-agreement by which the seller and the purchaser oblige to conclude the main real estate purchase agreement within the stipulated deadline and upon fulfilling of conditions agreed by the parties. The pre-agreement must have the same essential elements as the real estate purchase agreement (real estate description and purchase price) and it is usually entered into when certain activities must be conducted by the parties before entering into the main purchase agreement – so it usually contains provisions on the deadlines for securing financing of the purchase, procedure and deadlines on de-registration of certain land register entries over the real estate, registration of the pledge (hypothecation) in favor of the seller’s bank as the security for the loan repayment, etc.
With respect to the risk potentially transferred to the purchaser and their addressing in transaction documents please see Section 1.4.
2.4 Disposal Process
Please see Sections 1.2 and 2.3.
As mentioned in Section 1.1., proprietary legislation provides that when the purchaser-foreign person is required to obtain the consent of the minister competent for judicial affairs of the Republic of Croatia for the acquisition of the real estate ownership, the purchase agreement for that transaction is null and void without said consent. The minister decides on the granting of said consent based on the request of a foreign person who intends to either acquire or dispose of that real estate. A foreign person who has been denied consent is not entitled to repeat the request for issuing consent for the same real estate for five years from the date of submission of the rejected application.
2.5 Registration of Change of Ownership
Please see Sections 1.2 and 2.3.
2.6 Risks To Be Considered
For some categories of real estate, several pieces of legislation provide legal pre-emption rights (right of first refusal) in favor of the Republic of Croatia or local and regional government units. One of those cases is provided under the Act on Inland Navigation and Inland Ports (Official Gazette No. 144/21) which regulates that the Republic of Croatia has the pre-emption right on real estate within the public port area. Furthermore, the Islands Act (Official Gazette No. 116/18, 73/20, 70/21) provides that the Republic of Croatia has the pre-emption right on the real estate on small, occasionally inhabited and uninhabited islands, and the real estate owner who intends to sell such real estate must submit a written offer to the competent authority which is obliged to respond in three months from the day of the receipt of the offer. If upon expiration of the deadline the owner does not receive a written notification of acceptance of the offer, it will be considered that the offer has been rejected.
The Spatial Planning Act also provides the legal right of first refusal and it prescribes that the government, county assembly, the assembly of the City of Zagreb, the city council, and the municipal council pass the decision on determining the area in which said authorities have the right of first refusal on the real estate necessary for the construction of infrastructure or buildings with public and social purpose. The owner who intends to sell such real estate must, through a notary public or in some other appropriate manner, offer the property to the authority-holder of the pre-emption right and notify it of the purchase price and conditions of the sale. If the said authority does not respond with offer acceptance within 60 days from notification of the offer, the owner is entitled to sell the real estate to a third party but only under the same conditions or for a higher purchase price. Entering into the real estate purchase agreement contrary to these rules represents grounds for annulment of that agreement with a statute of limitation period for filing the lawsuit for annulment of three years from the day of concluding said agreement.
Another piece of legislation regulating the legal pre-emption right (right of first refusal) in favor of the city, municipality, county, City of Zagreb, and the Republic of Croatia (with city and municipality having priority in exercising the pre-emption rights over the county, the City of Zagreb and the Republic of Croatia) is the Act on Protection and Preservation of the Cultural Heritage (Official Gazette No.145/24). That act lists the pre-emption right as one of the restrictions on transactions involving cultural goods. The seller of the cultural property, as well as the intermediary in the transaction (if any), is obliged (i) to inform the buyer that the real estate is a cultural property protected under the provisions of said act, (ii) to present proof of ownership of the cultural property to the buyer, and (iii) to present to the buyer documents on the waiver of the pre-emption right from the competent authority after the procedure of offering the property to the competent authority and its refusal within the legal deadline of 30 days from the day of the receipt of the offer in which the offer must be refused if the authority in question does not intend to exercise its legal pre-emption right.
The Agricultural Land Act (Official Gazette No. NN 20/18, 115/18, 98/19, 57/22, 152/24) regulates that the Republic of Croatia has the legal pre-emption right (at market value) (i) on agricultural land with a surface over 10 hectares for continental areas and over 1 hectare for coastal areas and (ii) after expiration of ten years period from the date of conclusion of the real estate purchase agreement, for agricultural land that was previously purchased from the Republic of Croatia. In both cases, the owner of agricultural land that meets the said requirement is obliged to offer the land for sale to the ministry competent for agriculture which then has 30 days deadline to respond to whether it the offer will be accepted. If the decision is for the offer not to be accepted and for said legal right of first refusal not to be exercised, the seller is entitled to sell the land to the third party but not at a lower price than the one offered to the ministry.
All above cases regulate legal pre-emption right (right of first refusal) which is established and exists (for an unlimited period) on the basis of applicable legislation. Croatian civil obligations legislation differentiates this type of pre-emption right from the contractual pre-emption right. Unlike the legal pre-emption right, a contractual one’s duration is limited to a period of five years. In both cases, the holders of the pre-emption right are entitled, under conditions provided under the law, to contest the real estate sale in court proceedings if it was carried out without the buyer/seller notifying them of the intended sale. The unsatisfied purchaser then, depending on the circumstances of the case, may seek damage compensation from the seller who was obliged to notify the holder of the pre-emption right.
Additionally, with respect to claiming remedy of defects of the acquired real estate please see Section 1.4.
3 Real Estate Financing
3.1 Key Sources of Financing
A significant number of real estate transactions (regardless of whether the transaction in question concerns the residential market or, for example, land for real estate development projects) in Croatia are financed by loans obtained from commercial banks. The main piece of legislation regulating the loan relationship between the bank and the real estate buyer (the borrower) is the Civil Obligations Act (Official Gazette No. 35/05, 41/08, 125/11, 78/15, 29/18, 126/21, 114/22, 156/22, 155/23) which provides general rules on loan agreements with the banks. It prescribes that the mandatory elements of the loan agreement are the amount and terms of granting the loan, the purpose of the loan, and its use and terms of repayment. Croatian banks do not practice loan pre-approval, so the standard procedure of loan approval includes the borrower (after evaluating and coordinating with the bank on its loan capacity) to provide executed the real estate purchase pre-agreement (if used in the structure of the transaction) and the main purchase agreement.
In addition to the general rules provided in the Civil Obligations Act, loan agreements contain elaborate provisions detailing the terms of individual loans. With respect to the form of the loan agreement, the Civil Obligations Act prescribes that it must be in the written form and the business practice in banking and finance in Croatia with respect to the form of the agreement is for it to be in a form of a private document with its content certified by the notary public (with the same legal effects as a loan agreement in a form of a notarial deed).
3.2 Protection of Creditors
The main type of security used in real estate transactions is a voluntary contractual pledge (hypothecation), one of the proprietary rights regulated by the Ownership Act (more on proprietary rights and their legal status please see Section 1.1. and as to the conditions and procedure [including the application of the priority rank principle] for its registration in the land register please see Sections 1.2. and 2.3).
A pledge over real estate can be registered in the land register on the grounds of (i) legal transaction (voluntary pledge), (ii) court decision (court pledge), and (iii) meeting the legal requirements provided under the applicable legislation (statutory pledge). The Ownership Act defines the voluntary contractual pledge (hypothecation) over the real estate as a voluntary contractual pledge established without handing over the possession of the real estate to the creditor (who is entitled to neither taking over nor maintaining the possession over the real estate), which is acquired by its registration in the land register. In cases where the real estate for some reason is not registered in the land register, that right is acquired by depositing the certified document by which the owner expressly stated consent allows the registration of hypothecation over the real estate.
In addition to the voluntary contractual pledge (hypothecation), Croatian legislation also regulates fiduciary ownership (transfer of ownership as a security) as another model of security for loan repayments. That type of security is present in the Croatian banking and finance market but to a lesser extent in comparison to hypothecation as a main type of security in the majority of real estate transactions. Hypothecation is established over the real estate on the basis of a hypothecation agreement which must be in written form, with prescribed content, and usually is in the form of a private document with its content certified by the notary public (with the same legal effect as a loan agreement in a form of notarial deed).
Depending on the structure of the loan and its purpose, it is possible for the borrower and the bank to agree on additional security to be provided in the form of a voluntary pledge over a third party’s real estate used as collateral. In that case, the owner of that real estate is a party to the hypothecation agreement and must provide (either in that agreement or in a separate certified document) expressly stated consent (i) for their real estate to be encumbered as a security instrument and (ii) for registration of hypothecation in the land register in favor of the bank/lender.
Unless otherwise agreed between the parties of the loan agreement and hypothecation agreement, Croatian legislation provides the possibility of disposal of the real estate on which a hypothecation has been registered with the land register, i.e., acquired by the bank/lender. Since the disposal of the real estate does not affect duly registered and acquired hypothecation, in that case, the purchaser of the real estate would acquire the real estate with that encumbrance (or could be remunerated from the amount of the purchase price in that transaction and then said encumbrance would be de-registered).
In addition to hypothecation as a dominant type of security in real estate financing transactions in Croatia, another commonly used type of security is the promissory note (debenture) with prescribed content and in the form of a private document with its content certified by the notary public. Promissory notes are widely used and accepted as a security for many different types of contractual relationships in Croatia.
4 Real Estate Taxes
4.1 Transfer Taxes
Under the Real Estate Transfer Tax Act (OG 115/16, 106/18), the subject of taxation is a real estate transfer/transaction, i.e., acquisition of the real estate (taxable at the rate of 3% of the real estate market value of in the moment of taxation). The only exception to this rule (i.e., to the definition of the object of taxation) is a real estate acquisition that is subject to VAT (at the standard rate of 25%), i.e., when the transaction is subject to the payment of the VAT then no obligation to pay transfer tax exists. The real estate transfer taxpayer is the acquirer of the real estate, and these tax rules equally apply to domestic and foreign natural or legal persons who are legally deemed equal in terms of payment of real estate transaction tax, unless otherwise provided under international agreement. For all tax advice in Croatia, only authorized advisors must be consulted.
4.2 Specific Real Estate Taxes
The Local Taxes Act (OG 115/16, 101/17, 114/22, 114/23, 152/24) regulates that the local government units are obliged to impose real estate tax (till January 1, 2025, the option of previous vacation home tax existed). At the moment of preparing this overview, real estate tax under said piece of legislation amounts from EUR 0.60 to EUR 8 per square meter of usable area of the real estate, depending on the decision of the municipality or city where the real estate is located. The taxpayers of this type of local tax are domestic and foreign natural persons and legal entities – owners of real estate on 31 March of the year for which the tax obligation is being determined. The Local Taxes Act provides 9 exemptions to the application of this type of tax (i.e., RE for permanent residence, RE in long-term lease, RE of public purpose and for institutional residence, etc.).
5 Condominiums
5.1 Legal Framework for Condominiums
Condominiums do not exist in Croatian legislation as they do in foreign jurisdictions and no legal framework for such a legal regime exists. Since the ownership is legally unlimited in Croatia, it is not possible to fully implement ownership and management limitations characteristic for legal solutions for condominiums in other jurisdictions.
5.2 Rights and Duties of Co-Owners
N/A – see Section 5.1.
5.3 Liability of Co-Owners
N/A – see Section 5.1.
5.4 Rights and Duties of Condominium Associations
N/A – see Section 5.1.
6 Commercial Leases
6.1 Form and Contents of a Lease Agreement
The primary source of law for commercial leases is the Act on Lease and Sale of Business Premises (Official Gazette No. 125/11, 64/15, 112/18, 123/24) which provides that the lease agreement has to be in a written form and prescribes elements and provisions it should contain – in addition to information for identification of the parties (name, address/registered seat, personal identification number) and of the premises (land plot number, land register file number, surface, etage, position, layout as well as all other relevant data), the lease agreement must contain provisions on business activities to be carried out in the premises, use of common equipment and common areas, the deadline for the handover of the premises to the lessee (tenant), terms of the lease, amount of the monthly rent, conditions and manner of the rent increase/decrease and on the time and place of entering into the lease agreement. Said act provides that the lease agreement entered into contrary to these provisions is null and void.
In addition to these mandatory provisions provided in the Act on Lease and Leases of Business Premises, commercial lease agreements can contain additional elaborate provisions detailing the terms of the individual lease (which is usually the case for leases of prime office market premises). They can vary depending on the type of the leased property and its features and level of equipment and facilities used by the tenants, specific needs of the tenant, their needs and requirements depending on the business activities and industry it operates in, whether and to which extent the fit-out-works will be carried out or not, what type of services will be provided by the lessor, types of security instruments to be provided, etc. Many lease agreements, especially more sophisticated ones in terms of lease relationship and obligation of parties are entered into in the form of a private document with its content certified by a notary public, in that way granting the lessor a higher level of legal protection in case of default of the lessee.
With respect to the form of the lease agreement concluded by the Republic of Croatia or by the local and regional government unit, the Act on Lease and Sale of Business Premises provides for those lease agreements that their content must be certified by a notary public, otherwise, they are deemed to be null and void.
The content of the residential lease (rent) agreement (rental agreement) is regulated under a separate piece of legislation, the Apartments’ Rent Act (Official Gazette No. 91/96, 48/98, 66/98, 22/06, 68/18, 105/20) and was not analyzed within this overview as its focus is a commercial lease of business premises.
6.2 Regulation of Leases
Legal rules for certain leases vary depending on the type of property – for example, the Agricultural Land Act provides detailed rules on the lease of different legal categories of the property, including legal requirements for entering into lease agreements depending on the type of the leased property, its form, conditions, and the procedural rules to be followed in all cases. Another example is the Act on the Management of the Real Estate and Movable Assets Owned by the Republic of Croatia (Official Gazette No. 155/23) which provides detailed provisions on prerequisites for entering into a lease agreement, procedure of entering into a lease agreement, rules for sub-lease, conditions for execution depending on the purpose of the lease etc. for different types of properties owned by the Republic of Croatia – development construction land, apartments and business premises, building with land for the regular use of that building, hiking facilities, camps, non-evaluated construction land, residential facilities, real estate under special management regimes, and real estate of strategic importance for the Republic of Croatia, owned by the Republic of Croatia. Said act also provided that, exceptionally, the ministry competent for state assets is legally authorized also for the management of other real estate whose management is under special legislation entrusted to another authority if the spatial plan for such real estate (whether in a separate construction area and/or outside the boundaries of the construction area) provides construction of golf courses, hotels, hotel resorts, camps, sports facilities, and other similar commercial buildings.
6.3 Registration of Leases
Croatian legislation does not provide an obligation on registration of commercial leases in the land register. Since all entries in the land register are public, registration of the lease in the land register provides visibility of the lease existence to everyone resulting in legal protection for the tenant to a certain extent – for example, in the case of sale of the leased real estate (although such protection exists also in case when the lease is not registered (since in the case of sale of the leased property the purchaser enters into the legal position of the previous owner [lessor], i.e., becomes the new lessor) by registration, the existence of the lease is publicly known to everyone, including the purchaser). However, it does not provide protection in all cases – for example, in the case when the lease is registered after existing, already registered hypothecation over leased property. In that case, if the real estate is sold in the enforcement procedure executed due to the lessor’s default from its loan agreement, such lease (in addition to some other encumbrances), will be de-registered from the land register and the new owner will acquire the real estate free of such lease, unless otherwise agreed between the purchaser of the real estate in the enforcement procedure and the lessee, all as provided under applicable enforcement legislation (Enforcement Act). A similar situation is in the case of a bankruptcy of the lessor – the general rule under bankruptcy legislation is that the leases do not cease by opening the bankruptcy procedure, however, the bankruptcy administrator and the purchaser of the real estate in the bankruptcy procedure are entitled to terminate existing leases.
6.4 Termination of Leases and Renewals
Under the Act on Lease and Sale of Business Premises, each contracting party may terminate the lease agreement (both the fixed-term and the open-ended) at any time, if the other contracting party does not fulfill its obligations stipulated under the lease agreement or under the provisions of the said act.
The same act furthermore regulates that the lessor is entitled to terminate the lease agreement at any time, regardless of contractual or legal provisions on the term of the lease, in the following cases: (i) if the lessee (tenant), even after the lessor’s written notice (warning), uses the business premises contrary to the lease agreement or if it causes considerable damage to the premises by usage without due care, (ii) if the lessee does not pay the due rent within 15 days from the day on which was notified by the lessor on the due payments, and (iii) if the lessor, for the reasons not attributable to the lessor, cannot use their other business premises where the lessor’s business activities are conducted and therefore intends to use the premises occupied by the lessee. The lessor is entitled to termination of the lease agreement at any time, regardless of the contractual or legal provisions on the term of the lease, if the lessor does not hand over or maintain the premises in the condition as obliged to.
The Act on Lease and Sale of Business Premises provides that, if the lessor does not hand over the premises to the lessee in the condition stipulated under the lease agreement and under the provisions of the said act, the lessee is entitled to terminate the lease agreement, or to request a proportionate rent reduction. Additionally, the lessee is entitled to request from the lessor to conduct appropriate activities in order for the premises to be in agreed condition and if the lessor fails to do so by the appropriate deadline, the lessee is entitled to carry out all necessary works for that purpose, at the lessor’s expense. The tenant is also entitled to termination if the lessor does not provide the premises within the agreed deadline.
If, during the term of the lease, it becomes necessary to carry out repairs on the premises necessary for the premises to be maintained in the condition in which the lessor is obliged to and which repairs are the lessor’s responsibility and obligation to undertake, the lessee is obliged to notify the lessor in writing without delay and set an appropriate deadline for conducting the works. If the lessor carries out the work without notifying the lessor, the lessee is not entitled to compensation for such costs and is liable to the lessor for all damages caused by failing to notify, except if the works in question were of an urgent nature. If the lessor was appropriately notified but has failed to conduct the works to which were obliged to in said deadline, the lessee is entitled to carry out all necessary works for that purpose, at the lessor’s expense, or to terminate the lease agreement. In general, the parties to the lease agreement are free to agree on different terms of lease termination, unless otherwise expressly limited by law. In practice, many lease agreements, especially more complex and sophisticated ones, have a more exhaustive and elaborate list of reasons for termination.
For the lease agreements concluded with the City of Zagreb, the city or municipality as the lessors for the real estate located in certain streets, parts of streets, or on certain squares for which it has been decided by said lessor’s representative body that they can be used for carrying out only certain business activities (for example, certain traditional or scarce craft), the Act on Lease and Sale of Business premises regulates termination by virtue of law if the lessee unilaterally changes the intended purpose of the leased property.
With respect to the automatic (tacit) renewal of the lease, neither the Act on Lease and Sale of Business Premises nor the Civil Obligations Act (subordinate application of its general provisions on the lease agreement is provided for the business premises lease agreements not regulated under the Act on Lease and Sale of Business Premises) provide it. Such a renewal option must be agreed between the parties to the lease agreement.
Tacit renewal of the rental agreement is provided under the Apartments’ Rent Act and was not analyzed within this overview as its focus is a commercial lease of business premises.
6.5 Rent Regulations and Rent Reviews
The Act on Lease and Sale of Business Premises contains only basic provisions on the rent and usually lease agreements provide more detailed provisions on the rent formula, its indexation, payment securities, and rules for its enforcement.
In addition to the case of the tenant’s right to request proportionate rent reduction described in Section 6.4. of this review, the Act on Lease and Sale of Business Premises provides several other situations in which the full or proportionate rent reduction will be applied. For example, under the act, the lessee is not obliged to pay the rent during (i) repairs on the premises necessary for the premises to be maintained in the condition in which the lessor is obliged to and which the lessor is obliged to undertake and pay for, and (ii) works on public areas, the facade and the roof of the building, which resulted in preventing the lessee to use the premises. However, the lessee is not entitled to claim damage compensation for loss of profit in that case. Additionally, if the lessor was only partially prevented from using the premises, then will be entitled to a proportional rent decrease only.
Another similar situation provided under the same act is the one regulated under the provision stating that, in the term of the lease, the lessor is entitled to carry out the fit-out works in the premises or the works for the purpose of reducing energy and maintenance costs and is obliged, at least two months before the commencement of works, to provide written notice to the lessee informing on (i) the type and scope of works to be carried out, (ii) the duration of time for completion works, and (iii) the new amount of the rent.
Some pieces of legislation contain provisions on rent revaluation after a certain period (individually determined as per agreement of the parties, depending on the conditions of the lease agreement in question) – for example, the Agricultural Land Act regulates that said provision is a mandatory element of every lease agreement.
6.6 Services To Be Provided Together With the Lease
The Act on the Lease and Sale of the Business Premises regulates that the lessee is obliged to pay due costs of using common equipment and providing common services in the building where the leased premises are located unless agreed otherwise. It is considered that the compensation for said costs is not included in the rent unless otherwise agreed between the parties. In general, this rule is reflected and detailed in lease agreements, and in practice, the scope of services provided by the lessor depends on the type of building and the level of its quality and equipment, so they are individually agreed upon between the parties.
6.7 Fit-Out Works and Their Regulation
The Act on the Lease and Sale of Business Premises is silent on the matter of the fit-out works, so they are usually fully addressed in the lease agreement (from their scope, engagement of the parties in carrying out the works and their respective roles and responsibilities, value of the works and the potential compensation to ownership of the executed works and regulation of mutual rights and obligations after the termination of the lease).
On the most general and broad level regarding the tax implications of the fit-out works – the lessee could be entitled to claim deductible input tax with respect to the fit-out works as well as for them to be treated as tax-deductible expenses (since the fit-out-works are executed for business purposes [conducting tenant’s business in the leased premises] if all legal requirements from tax legislation for such tax treatment are met). For all tax advice in Croatia, authorized advisors only must be consulted.
6.8 Transfer of Leases and Leased Assets
With respect to the transfer of the leased assets please see Section 6.3.
7 Zoning and Planning
7.1 How Are Use, Planning, and Zoning Restrictions on Real Estate Regulated?
Spatial planning is regulated under the Spatial Planning Act (Official Gazette No. 153/13, 65/17, 114/18, 39/19, 98/19, 67/23; Spatial Planning Act) which provides rules on spatial planning system: objectives, principles, and subjects of spatial planning, monitoring of the spatial situation and the area of spatial planning, spatial planning conditions, adoption of the Spatial Development Strategy of the Republic of Croatia, spatial plans including their production and adoption procedure, implementation of spatial plans, construction (building) land development, proprietary rules for construction (building) land development, and supervision.
Spatial planning is conducted according to the spatial plans, public documents with powers and status of secondary legislation which regulate purposeful organization, use, and function of certain areas including prerequisites for planning, development, and protection of the state, county, and local areas in Croatia, all with the aim to achieve goals of the spatial planning according to the spatial planning principles. Construction and all other spatial interventions and activities must be carried out in accordance with the spatial plans.
Spatial plans have the legal force of by-laws and exist on three levels: (i) the state level (urban development plan at the state level adopted/passed by the Croatian Government and all other spatial plans are adopted by the Croatian Parliament), (ii) the county level (adopted by the county assemblies), and (iii) the local level (adopted by the city or municipal councils).
All spatial plans must be passed in accordance with the Spatial Planning Act and all spatial plans of all levels must also be mutually compliant and harmonized. All spatial plans of lower level must be harmonized with the spatial plans of higher level, spatial plans of a narrower area must be harmonized with the spatial plans of a wider area of the same level and the spatial plans of the same level must be mutually harmonized in the same manner as the spatial plans of different levels.
Spatial planning legislation comprehensively and in detail provides rules on their reach and scope. Spatial plans at the local level (city and municipality level) are the most detailed ones and are significant and valuable for construction as well as all other types of other spatial interventions. Local-level spatial plans are:
(i) Spatial development plan of the municipality/city – mandatory passed for the construction area of the municipal and city areas and the separate construction area outside the central settlement of a large city. It regulates a) the conditions of implementation of spatial interventions in the area within its scope for which no urban development plan is being passed and b) guidelines for producing the urban development plans whose scope is determined by the general urban development plan. This type of spatial plan also determines the area covered by the general urban development plans, the development urban plans, and the infrastructure corridors important to municipalities and cities.
(ii) General urban development plan – mandatory passed for urban construction outside the urban area of the large cities and remote construction areas. It regulates a) the conditions for all spatial interventions in the area within its scope for which the urban development plan is not being passed and b) the guidelines for planning the urban plan areas located within the area of this type of local spatial plan.
(iii) Urban development plan – mandatory spatial planning document for unconstructed areas and constructed areas intended for urban transformation and urban sanitation. It regulates the conditions for the implementation of all spatial interventions within its scope and, in addition to other mandatory parts, it must contain a) detailed plans of the division of its area to separate parts with respect to their purpose, b) display of plots intended for construction, and c) other conditions for use, planning, and construction in the area within its scope. The adoption of this type of local spatial plan is not mandatory for the area within its scope for which the spatial development plan of the municipality/city or the general urban development plan provides conditions for the implementation of spatial interventions in the area with the level of details prescribed for the urban development plan.
7.2 Can a Planning/Zoning Decision Be Appealed?
The general rule in procedures for the adoption/passing of all spatial plans is that a competent authority conducting the procedure must carry out the procedure which includes public discussion on the spatial plan proposal in which anyone can participate in a manner of providing opinions, proposals and remarks within the deadlines and the procedure as prescribed by the Spatial Planning Act. Once the decision on the implementation of an individual spatial plan is passed, an appeal can be filed on which the competent ministry (as the 2nd instance authority) decides, and an administrative dispute can be initiated against the 2nd instance decision. The same rules apply to the decision on the amendment, revoking, annulment, and/or extension of the decision on the implementation of individual spatial plans.
With respect to individual decisions for the purpose of construction passed within the legal framework of spatial planning legislation – location permit, the Spatial Planning Act also provides the possibility of appeal or possibility of initiation of administrative dispute (depending on the level of the authority which passed the decision) within the detailed procedure for its passing in all cases for which its passing is prescribed as a legal prerequisite for construction. Legal procedure rules for obtaining construction permits and operating permits are contained in detail in the construction legislation.
