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Eversheds Global Estate Management

Bosnia and Herzegovina

Real Estate Guide

Principles of ownership

Principles of ownership

Freehold/Ownership - is unlimited in time. The owner may be the state, a public or private company, or an individual. The owner may choose to occupy the property or to grant a lease enabling someone else to occupy it. After the lease expires, the right to occupy will return to the owner. The owned land can be sold vacant or subject to one or more leases.

Leasehold - not applicable

Common hold/Usufruct - not applicable

Condominium ownership - refers to ownership of separate parts of the building by several persons (eg apartments, offices). Owners of the separate building parts (condominium owners) have indivisible joint ownership of the common parts of the building that serve their separate parts, and indivisible joint ownership or permanent use title of the land underneath the building and the land that serves for regular use of the building.

Utilisation right - during the communist period, the state gave utilisation rights to owners whose land had been nationalised. The holder of the utilisation right was entitled to construct a building on that land and to become the owner of the building, whereas the state retained ownership of the land.

After the war, holders of the utilisation right became owners of the land beyond the building, but not all of them were recorded in the Land Register.

Joint/Co-ownership - if a group of persons owns a property so that each one of them has a part of the ownership title, arithmetically stipulated as a proportion of the whole ownership of the property, they are all deemed as co-owners of the property and the parts of ownership are the co-owned parts. If there is any doubt, it is deemed that the co-owned parts are equal.

Joint ownership, according to the law, exists when a property belongs to one or more persons (joint owners) so that their parts are not determined in advance, although they can be determined.

Registration - the following titles are entered in the Land Register:

  • ownership, co-ownership and joint ownership
  • mortgage and land debt
  • court mortgage, higher-rank mortgage
  • long-term lease and rent, pre-emption and redemption right, material easement, usufruct, material charges, utilisation rights.

The right of possession of real estate is registered at the Land Registry.

 

Restrictions on foreign ownership

Restrictions on foreign ownership

Foreign physical persons may own land and buildings in the Federation of Bosnia and Herzegovina if they are acquired by inheritance (in the same way as nationals of Bosnia and Herzegovina and the Federation of Bosnia and Herzegovina), unless otherwise stipulated by an international agreement. In the Republic of Srpska, this right is subject to reciprocity.

Foreign physical and legal persons that perform business activities in the Federation of Bosnia and Herzegovina may own business buildings, offices, apartments and residential buildings as well as the development land where the buildings were, or will be, constructed.

In exceptional cases, the federal law or the law of the Republic of Srpska may provide that foreign physical and legal persons cannot own real estate in particular areas of the Federation of Bosnia and Herzegovina or the Republic of Srpska.

Foreign physical and legal persons with permanent residence in the Federation of Bosnia and Herzegovina may own apartments and residential buildings as well as the construction land where the buildings were, or will be, constructed; in the Republic of Srpska, this right is subject to reciprocity.

Foreign physical and legal persons can legally transfer ownership titles to national physical and legal persons as well as to other foreign physical and legal persons who are entitled to become owners.

Foreign entities (legal and physical) obtain ownership over real estate in Federation Bosnia and Herzegovina with the prerequisite of reciprocity, unless ownership is acquired by inheritance, unless otherwise stipulated by law or an international agreement. The existence of reciprocity is assumed. The list of countries with no reciprocity is announced by the Federal Ministry of Justice after obtaining a written opinion from the Bosnia and Herzegovina Ministry of Foreign Affairs.

 

Title to real estate

Title to real estate

Investigation of title - the buyer/tenant, directly or through a lawyer, may investigate title and search the public registers. The buyer/tenant can also pay extra fees to the notary to confirm ownership of the land.

Transfer of title - Beneficial and legal title only upon registration.

Registration - the following titles are entered in the Land Register:

  • ownership, co-ownership and joint ownership
  • mortgage and land debt
  • court mortgage, higher-rank mortgage
  • long-term lease and rent, pre-emption and redemption right, material easement, usufruct, material charges, utilisation rights.

The right of possession of real estate is registered at the Cadastre.

Information on the register - the Land Register is public and provides full evidence of title and a description of the land, that is the name of the land plot, the identity of the proprietor and any matters benefiting and burdening the land. The Law on Tax Administration of FBIH earlier on stipulated that tax administration must register its mortgage with competent court, but the tax administration was not obliged to do so. This fact caused uncertainty in the outcome of an enforcement proceeding, since this Legal Mortgage was considered, by the courts, as mortgage of a first rank, and the tax administration was first to be settled, before all mortgage creditors. However, the legal situation changed by the amendments to the said Law on Tax Administration of FBIH (published in the Official Gazette of FBIH, No. 27/12) which stipulate (in Article 8) that the mortgage is considered established by the moment of its registration in the Land Registry, meaning that the Legal Mortgage must be registered with competent Land Registry office in order to become legally valid.

The legal situation in Republic of Srpska is identical. In accordance with Article 68 of the Law on Tax Administration of RS, the Legal Mortgage arises from the day of the registration of the Legal Mortgage, meaning that the Legal Mortgage must be registered with competent Land Registry office in order to become legally valid.

Commercial leases - not applicable

 

Structure of a real estate transaction

Structure of a real estate transaction

Negotiation of terms/Agreement - Commercial terms are usually negotiated between the estate agents that represent the seller/landlord and the buyer/tenant.

Heads of terms – Heads of terms are not binding between the parties and may only serve to show intentions of the contractual parties without imposing enforceable obligations.

Investigation of title - The buyer/tenant, directly or through a lawyer, may investigate title and search the public registers. The buyer/tenant can also pay extra fees to the notary to confirm ownership of the land.

Purchase deed - not applicable

Contracts - sale contracts must be attested by the notary, but lease contracts do not require such legalisation. When the sale contract is signed, it is binding on all parties and is normally valid as of the day of signing. If a contract is executed under certain conditions, it becomes valid only after the conditions have been complied with. If the conditions are not met, the contract is deemed not to have been executed at all. As well as conditions, penalties can also be stipulated, to be paid in the event of non-compliance or default. A contract shall be deemed as performed when both parties carry out its liabilities, that is when the seller/landlord delivers the real estate into the possession of the buyer/tenant, and the buyer/tenant pays the seller/landlord the full sale/lease price.

Completion/closing - not applicable

Post completion - the buyer/tenant must notify the tax administration of the contract within 15 days. According to the law, the seller/landlord must pay all tax (real estate transfer tax/income tax). However, in practice, the buyer pays this tax. After payment of the real estate transfer tax, the buyer can be registered as owner in the Land Registry.

Leases:

  • (i) Lease of offices - this refers to a contract where the landlord undertakes, in writing and within legally provided terms, to give the tenant a certain office, and the tenant undertakes to pay the lease for that office. The contractual relationship ends after a certain period or by rescission by one of the parties.

  • (ii) Lease of apartments - apartment owners may freely lease their apartments. Lease contracts may be limited or unlimited in time. Since this is a case of apartment lease (ordinary lease) the Law on Obligations is to be applied instead of Law on Lease of Business Buildings and Premises which stipulates that the lease cannot be cancelled during the first year. Such a provision is not stipulated in Law on Obligations and according to the Law on Obligations cancellation period cannot be less than eight days.
  • (ii) Lease of agricultural land - a lease contract for agricultural land stipulates the purpose for which the land may be used. The contract provides for the possessor of the agricultural land (the lessor) to assign it to a physical person or agricultural organisation only up to the legal maximum and for the purpose of agricultural production. The duration of a lease can be for a limited or an unlimited time. A party wishing to cancel the lease contract must give eight days' notice, unless another notice period is agreed.

Transfer of ownership of leased property (alienation) - not applicable

Language requirement – A real estate sale contract has to be executed in one of the native languages (Bosnian, Serbian and Croatian) in order to be legally valid. Bilingual lease agreements are standard practice in cases where one party is a foreign legal or physical entity.

Governance of lease signature/administration – For a lease contract to be legally valid, it is necessary for it to be signed by a legal representative of the contractual party, in case of a legal entity, ie by the lessor/lessee, in case of a physical person. In both cases, the contract may be signed by a lawyer of a third party, based on a power of attorney.

 

Usual commercial lease terms

Usual commercial lease terms

Summary of available lease types - not available.

Alterations/modifications - the landlord cannot modify the property during the lease term without the tenant's consent if the modifications would obstruct the tenant's use of the property. If such changes would reduce, up to a certain point, the tenant's use and enjoyment of the property, the rent should be decreased proportionally.

If the leased property is transferred, the acquirer becomes the landlord and, after that, the rights and obligations are settled between the acquirer and the tenant. The acquirer may not request the landlord to deliver the property before the end of the lease term or, if the lease period is not stipulated by contract or by law, before the end of the notice period. The submitter, as joint and several guarantor is liable for the acquirer’s obligations under the lease.

When the property that is subject to the lease contract is delivered to the acquirer and not to the tenant, and if the acquirer was aware of the lease contract before the disposal, the acquirer becomes the landlord and undertakes its liabilities towards the tenant. If, however, the acquirer was not aware of the lease contract at the time it was executed, the acquirer does not have to deliver the property to the tenant and the tenant may only request damages from the landlord. The transferor, as joint and several guarantor, is liable for the acquirer’s obligations under the lease.

When the rights and liabilities of the landlord are transferred to the acquirer due to disposal of the leased property, the tenant may rescind the contract in any case, observing the legal notice periods.

Assignment and sub/under letting - not applicable

Destruction/reinstatement - the tenant must keep the leased property and return it undamaged at the end of the lease. The property must be returned to the same location at which it was initially delivered. The lessor is not liable for wear and tear that is due to regular use or for damage caused by ageing. If, during the lease, changes have been made to the property, it must be returned to the same condition as at the beginning of the lease. Tenants may remove anything they have added to the property if it can be removed without damaging the property. However, the landlord may keep such items if it compensates the tenant for their value at the time they are returned. Usually the tenant pays the costs of reinstatement, and is not entitled to compensation for this.

Duration of lease - the lease contract binds the landlord to deliver certain items to the tenant for use, and the landlord undertakes to pay a lease amount in exchange. The use includes the usufruct unless otherwise stipulated. These provisions do not apply to specially regulated leases. There are special types of lease, including for apartments, business premises or agricultural land.

Forfeiture/irritancy - not applicable

Insurance - is not mandatory for real estate and in practice is not usual, due to low standards. There are attempts to change this through marketing activities by insurance companies and banks, which give credit for insurance cover in real estate purchases. In the case of a lease, the landlord insures the building and pays all costs.

Rent deposit/bank guarantee - obligation to provide a bank guarantee is not regulated by law, but lately it is frequently used.

Rent review - Not applicable

Repair/decoration/furnishing - landlords are responsible for maintaining the property during the lease, and must carry out the necessary repairs. The landlord must compensate the tenant for all costs that the tenant incurs in carrying out maintenance for which the landlord is liable. The costs of small repairs due to regular use and the costs of use are paid by the tenant.

Service charge - general maintenance and repairs of the building are paid for by the landlord. The costs of central heating, elevators, lighting and cleaning of common areas can be recovered by the lessee. It is possible for the lease contract to provide that the landlord should pay all service charges. In this case, the lease provides a service charge regime under which certain costs can be recovered by the landlord from the tenant.

Tenant’s duties - not applicable

Termination/break clauses - termination of lease contracts is regulated by law. An indefinite lease/rental contract cannot be cancelled during the first 12 months; it can only be cancelled after one year; unless otherwise stipulated by the contract, the notice period is six months. An indefinite lease contract can also be terminated by the landlord if:

  • the tenant does not use the leased property in accordance with the contract or causes damage, using it without due care and attention
  • the tenant, in spite of notice from the landlord, does not pay the lease within two months of receipt of the notice.

An indefinite lease contract can also be terminated by the tenant if, in spite of serving notice on the landlord, the landlord does not maintain the leased property and leaves it in such a condition that the tenant cannot use it in accordance with the contract.

Notice to terminate a contract must be submitted to the other party in writing and must give a 30-day notice period. If the tenant does not leave the leased premises, despite receiving the landlord's notice of termination, the landlord is entitled to file a claim to the court. Unfortunately, the court procedure is slow and inefficient even though legal provisions determine that the court procedure in lease matters should be urgent. It can take up to one year to get a first instance decision. If the tenant appeals, it takes an additional year to get a second instance court decision. Once the final court judgment is obtained, it takes a further six to 12 months to repossess the leased property.

 

Increasing covenant strength

Increasing covenant strength

Lease deposit - not required by law, but it is possible to provide for them in the lease contract. This form of security usually involves a sum equal to the lease rental for a few months, or a specified amount.

Surety - not applicable

Warranty - it is possible to stipulate in the lease that a company or an individual shall guarantee fulfilment of the tenant's obligations in the event of a default. Rent deposit/bank guarantee - Not applicable, subject to lease deposit above.

Rent deposit/bank guarantee - Not applicable, subject to lease deposit above.

 

Security of tenure

Security of tenure

In the case of temporary leases, a Landlord has a basic statutory right to occupy the premises after the end of the lease. An open-ended lease contract of the business buildings and premises cannot be terminated during the first year of the lease, but after that it can be terminated at any time. The period for termination for leases of business buildings and premises is six months. For other leases, the termination period is eight days. The law provides that the lease agreement cannot be cancelled before this time.

 

Taxes

Taxes

On sale/acquisition of real estate - by law, real estate transfer tax is paid by the seller, but in practice it is paid by the buyer. The buyer cannot register as owner in the Land Register without paying real estate transfer tax. The tax amount is calculated according to the value of the property or the purchase price and it is determined by the Tax Commission.

If stated purchase price is in obvious discrepancy (demined) in relation to the objective value of the real estate, the commission of tax office would not accept it as a basis for tax payment, but it would instead make their own evaluation of concerned real estate and determine tax accordingly.

Real estate transfer tax is different not only in the Entities (Federation of BiH and Republic of Srpska) but also in each of Cantons territorially located in Federation (10 Cantons) whereupon each of Cantons as well as Municipalities on their territory have their own regulations regarding benefits which could be taken into consideration by defining the amount of the transfer as well as different regulations regarding to the cost of mentioned tax authority commission related to the valuation of real estate which is object of purchase.

Immovable property tax - not applicable

Income tax - landlords have to pay different types of tax depending on whether they are individuals or companies. Individuals must pay property tax and property income tax. Property tax is paid once, at the beginning of the year. Property income tax is paid each month and depends on the rent. Companies pay property income tax and value added tax (VAT).

Land tax - not applicable

Local tax - not applicable

Mortgage - not applicable

Other taxes - not applicable

Property lease tax - not applicable

Value added tax - not applicable, albeit companies pay it. Please see "income tax" above.