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Eversheds Global Estate Management

Slovenia

Real Estate Guide

Principles of ownership

Principles of ownership

Freehold/Ownership - Slovenian law does not distinguish between the concepts such as freehold or leasehold ownership in the common law system. Under the Constitution of the Republic of Slovenia and the Law of Property Code the ownership right is a single and pivotal right in rem. The ownership right is considered as an exclusive and absolute right in rem and entitles its holder to a dominion over things. It includes several entitlements, namely an entitlement to possess the property, to use it, to derive profit or benefits from it (usufruct) and to dispose of it. The owner may exercise these entitlements (eg may choose to occupy the property) or may transfer one or more entitlements or exercise thereof to another party without transfer of ownership (eg tenancy). The ownership right can be transferred subject to one or more tenancies. In such a case, the terms of the tenancies remain the same and the new owner assumes the previous owner’s rights and obligations. According to the Law of Property Code, the following types of ownership exist in the Republic of Slovenia: condominium ownership, co-ownership, joint ownership.

Leasehold - not applicable.

Common hold/Usufruct - usufruct is commercially the most important type of a personal easement (servitudes personales). Usufruct entitles its holder to use and enjoy another’s property (the latter meaning that the holder of the usufruct is entitled to natural or civil fruits (yields) of the things in usufruct). The owner is left only with so called ‘naked ownership right’, entitling him to dispose of the property, however the usufruct remains to be effective against the new owner. The holder of the usufruct bears the costs of regular maintenance including tax duties, the owner on the other hand is left to bear the cost exceeding regular maintenance. At expiration of the term of the usufruct, the holder must revert the property to the owner whereby the holder of the usufruct is not liable to compensate the owner for a deterioration of the property caused by a regular use or vis maior provided that the substance of the property remained unchanged.

Condominium ownership - under the laws of the Republic of Slovenia condominium ownership is an exemption to the rule that only things are subject of the ownership right.

Condominium ownership is as a special type of the ownership right establishing a dual legal relationship: an exclusive ownership of a single strata title unit (on particular part or on unit of the building, eg ownership right on an apartment) and co-ownership of the common areas of the building (eg elevators, staircases, hallways, etc.), corresponding to the size of the strata title unit in question. Each individual strata title unit in the building is entered in the Land Register as a separate property. Owners must conclude a contract determining their mutual relationship. If the building has more than eight strata title units and more than two condominium owners, a building manager must be appointed. Owners also have the obligation to participate in the mandatory reserve fund for maintenance and improvement costs. The owner may freely dispose of his ownership of the single strata title unit only together with the corresponding part of the common areas. However, when the building has less than five strata title units and two or more condominium owners, the other owners have the pre-emption right.

Utilisation right - not applicable.

Joint/Co-ownership - joint and co-ownership are two types of the ownership right held by more than one natural or legal person. Joint ownership is the first form of the ownership right held by more than one natural or legal person whereby the shares of the persons are not determined. In this case, the title to the property can only be transferred with the consent and participation of all of the title-owners (joint owners). The same applies to use and liability for obligations (namely joint and several use, joint and several debt). As it is the case under the co-ownership regime any of the joint owners may at any given moment, except at an inconvenient time, request partition of the undivided real estate.

Co-ownership is a form of the ownership right held by more than one natural or legal person whereby each of these persons holds an ideal share determined as a fraction of the entire property. Co-owners have the right to a joint administration of the property. Decisions concerning regular maintenance require the consent of owners who constitute more than half of the value of the property, while all other decisions require the consent of all co-owners. Co-owners have a pre-emption right. Any of the co-owners may at any given moment, except at an inconvenient time, request partition of the undivided real estate.

Registration - of the ownership right in the Land Register is required in order to obtain a right in rem with erga omnes legal effect (against third parties). There are no penalties prescribed for a failure to register, but there are some legal consequences of an entry in the register. There is, per example, a presumption that a person entered in the Land Register is the true holder of the right.

Furthermore, the law prescribes that no one should bear detrimental consequences of relying on information about the rights entered in the Land Register. Therefore, the consequences of not entering (or untimely entering) a right in the Land Register are borne by the person who did not take care for an entry of its own right in the Land Register.

 

Restrictions on foreign ownership

Restrictions on foreign ownership

Pursuant to the Constitution of the Republic of Slovenia an ownership right on real estate cannot be obtained by foreign (legal or natural) persons, unless prescribed by law or international treaty. Due to international treaties, this restriction does not apply to persons from European Union (EU) member states. The law also prescribes a special regime for (legal and natural) persons from EU candidate states, namely that such persons can obtain an ownership right through legal transaction, inheritance or the decision of an administrative authority, if there is reciprocity. For persons from all countries not specifically exempt by law or international treaty, the restrictions apply. One possible way to work around the restriction is to use a corporate structure. There are no specific limitations that would prevent foreign citizens or entities from establishing a company with its seat in Slovenia (such as a limited liability company). A company established in Slovenia is considered a Slovenian entity and the restrictions on foreign ownership do not apply, regardless of the origin of the capital. The minimum capital required to establish a limited liability company in Slovenia is currently €7,500.

 

Title to real estate

Title to real estate

Investigation of title - not applicable.

Transfer of title - the title does not pass from the previous to the new owner until it is registered in the Land Register (principle of registration). For the registration of title in the Land Register on the basis of a legal transaction the following documents are usually required:

  • an agreement on the transfer of title in written form;
  • an express and unconditional authorisation of the previous owner that the new owner’s ownership right may be entered in the Land Register (so called intabulation clause) – such an authorisation may be part of the agreement on the transfer of the title or as a stand-alone document;
  • if the local community holds the pre-emption right on the property, one must obtain the municipality’s confirmation of waving this right, which is also subject to a payment of a special administrative fee;
  • pursuant to The Agricultural Land Act, sales of farmlands, farms and forests require authorisation from the administration unit where the property (or its prevailing part) is located. Also pre-emption right can be invoked by the beneficiaries in the following order: (1) co-owner, (2) owner of the property that borders with the property being sold, (3) lessee of the property being sold, (4) another farmer, (5) farming organisation or an individual farmer who would use the property for a farming and/or economic activity, (6) Agricultural and Forest Fund of the Republic of Slovenia;
  • proof that applicable tax (VAT or land transfer tax) was paid (the payment of tax is unusually certified on the contract);
  • the notarised signature of the previous owner – hereby usually a confirmation on eligible use of land is required (issued by the competent local authority and subject to a special administrative fee);
  • entry in the Land Register upon application for registration which is subject to a court fee.

Registration - the Land Register is a public record and provides absolute evidence of the title. It shows a description of the land (eg building land, meadow, forest), identity of the proprietor and any matters benefiting or burdening the land (eg easements and security interests) and the quality of the title. Each plot in the register is identified with a unique number, while additional factual information on the plot and its location can be obtained from the Register of the Surveying and Mapping Authority of the Republic of Slovenia. Principles governing the Land Register are:

Principle of public availability:

  • The Land Register is a public register accessible by the general public.
  • Principle of registration: Constitutive effect, erga omnes (third-party) effect.
  • Principle of trust: Everyone can rely on the entries in the Land Register being complete and correct in good faith. Bona fide acquirer enjoys protection.
  • Principle of rank or priority: Land Register applications will be dealt with in the order in which they are received.

Information on register - not applicable.

Commercial leases - are regulated by three statutes: the Code of Obligations, the Commercial Buildings and Business Premises Act and the Housing Act. The Obligation Code regulates the general terms of lease agreements, stipulating that the lessor is obliged to deliver the particular object, while the lessee is obliged to pay the rent. During the lease, the lessor is also responsible for maintenance and repair costs. The lessee must use the object according to the lease agreement.

The Housing Act regulates lease agreements for non-profit housing, profit housing, company-leased apartments and purpose oriented lease apartments. Lease agreements can be concluded for an indefinite or definite time period. Unless otherwise provided for in the rent agreement, the lessee may, without stating his reasons, terminate the lease pursuant to a 90-day notice. The lessor may terminate the lease for breach as specified by the law or reasons provided for in the rent agreement, but with no less than 90-days notice to the lessee. The Commercial Buildings and Business Premises Act contains provisions on the lease/rent of commercial buildings and business premises. The lessee may use the business premises only for the purposes determined in the agreement. A lease agreement concluded for an indefinite period terminates with the expiration of the termination notice, which cannot be shorter than one year. The lease agreement must be terminated through a court procedure. A lease agreement concluded for a definite time period cannot be terminated before the expiration of the contractual period.

Regardless of the contractual or statutory provisions regarding the duration of the term, the lessor has a right to terminate the lease agreement due to reasons specified in the statute such as a non-payment of the rent in two months after being noticed of a delay, a use contrary to the purpose stipulated in the lease agreement, etc.

 

Structure of a real estate transaction

Structure of a real estate transaction

Negotiation of terms/Agreement - commercial terms are usually negotiated between the parties and/or estate agents representing the parties to the transaction (eg seller/landlord and buyer/tenant). When the terms are agreed, they are usually provided to the parties’ lawyers, who draft the contract. Preliminary agreement is an agreement of the parties to conclude the main agreement. Each of the parties may demand a conclusion of the main agreement within six months after the expiration of the deadline for the conclusion of the main agreement as stipulated in the preliminary agreement.

Heads of terms – not applicable.

Investigation of title - not applicable.

Purchase deed - not applicable.

Contracts - up to the point when the contract is concluded, either party can withdraw from the transaction without penalty, unless express arrangements have been made otherwise or if a party has negotiated without intent to conclude the contract or has abandoned such intent without a justified reason. For the contract transferring title on real estate, a written form is required and such contracts are often concluded before a notary public.

Completion/closing - takes place when the amount due has been paid and the transfer/lease has been executed. When a contract for the transfer of title is concluded, the copy of the contract, including the authorization for the registration of title in the Land Register on which the signature of the seller is notarized (the intabulation clause), is sometimes kept by an escrow agent (usually the notary) until the payment is made. Upon proof of payment, the contract is handed over to the buyer so that the title can be registered.

Post completion - after conclusion, all the taxes due must be paid and, in the case of a transfer of title, the new title must be registered at the Land Register.

Leases - not applicable.

Transfer of ownership of leased property (alienation) – as a general rule the Obligation Code prescribes that a transfer of ownership right does not have legal effect on the existence of the lease if the lessee has already started to use the leased property. Such a rule is also prescribed by the Housing Act. In addition it stipulates that each subsequent acquirer (new owner) assumes the rights and obligations of the previous owner. The same applies in case of the lease of the business premises and agricultural land.

The Housing Act explicitly prescribes a pre-emptive right (right of first refusal) of a lessee-previous holder of the housing right (a right to use an apartment for indefinite period of time existing before the privatization). Otherwise pre-emptive right exist only if established with an agreement and entered in the Land Register. If such contractual pre-emptive right is not entered in the Land Register it does not affect its existence however it does not have erga omnes effect (against third parties) and the lessee may only claim damages caused by the breach of the agreement.

The lessee of the agricultural land has a pre-emptive right (right of first refusal) ranking after (1) the co-owner and (2) the owner of the agricultural land bordering the leased agricultural land.

Language requirement – not applicable.

Governance of lease signature/administration – not applicable.

 

Usual commercial lease terms

Usual commercial lease terms

Summary of available lease types - in general there are three different types of leases: a housing lease, a commercial buildings and a business premises lease and an agricultural land lease. For details of housing lease and a commercial buildings and a business premises lease see above at Commercial leases. Agricultural land lease is regulated by a special Agricultural Land Act. A special procedure is prescribed for a lease of agricultural land. The lessor is obliged to provide an offer for a lease to the administrative body competent for the area where the agricultural land in question is located. The administrative body then publishes the offer (on information display and on a web site) and the interested lessee must deliver a statement of acceptance within 30 days after the offer has been published (if no one accepts the offer within 30 days the offer is deemed to be ineffective and the lessor must repeat the offer if still interested in the lease). A special priority right (similar to pre-emptive right) is given to the following persons (1) existing lessee, (2) a lessee of the agricultural land that borders with the agricultural land in question and (3) other farmer. A written form is prescribed as a condition for the validity of the lease agreement (forma ad valorem). The Agricultural Land Act also prescribes necessary elements of the lease agreement. A minimal lease period is prescribed ranging from ten – 25 years subject to the use of the leased agricultural land. The competent administrative body must give its consent to the content of the agreement. After the consent is given the agreement is entered in the Land Register (intabulation clause needed and the lessor’s signature must be notarized) and in the cadastral register.

Alterations/modifications - as a general rule alterations must be permitted with the landlord’s (lessor’s) consent if such alterations would impede the use. In case of a housing lease the lessee may not make alterations or improvements without a written consent of the lessor. The Housing Act prescribes specifically when a consent may not be refused by the lessor. In case of moving or eviction the lessee has a right to be reimbursed unamortized share of improvements which were useful (advantageous) and necessary to the apartment provided that the improvements were made in agreement with the lessor if not otherwise agreed by the lease agreement. In case of a commercial buildings and a business premises lease the lessee is not entitled to make alterations. Compensation for improvements is subject to an agreement between the lessor and the lessee.

According to the Agricultural Land Act (in case of a agricultural land lease) the lessee may not make alterations or improvements without a consent of the lessor. After the termination of the lease permanent plantations and built object and devices pertain to the lessor, however the lessee has a right to be reimbursed its unamortized value, if not otherwise provided by the lease agreement. The lessor is not obliged to reimburse the lessee if permanent plantations object or devices were built without his consent, however the lessee is entitled to remove them if removal is possible without causing any damage.

Assignment and sub/under letting - as a general rule sub letting is permitted provided that no damage is caused to the lessor. A statute or an agreement may stipulate that the lessor’s consent is needed for sub letting. The Housing Act prescribes that the lessee may sub let the leased apartment if the lessor consents. In case of a commercial buildings and a business premises lease the Commercial Buildings and Business Premises Act prescribes that the lessee may not sub let the leased business premise without the lessor’s consent if not otherwise prescribed by the lease agreement. In case of agricultural land lease The Agricultural Land Act does not explicitly regulate sub letting – it is a subject of the lease agreement.

Destruction/reinstatement - as a general rule the lessee is responsible for reinstatement at the end of the lease term and to return the premises in good condition. The tenant is usually reimbursed for improvements to which the landlord consented (see above at Alterations/modifications).

Duration of lease - the typical length of a commercial lease term would be one to five years for most real estate. The terms, however, largely depend on the type of business activity. It is common for shops in shopping malls to have a lease term of approximately one year (with the possibility of renewal), while office space/business premises usually have lease terms of up to three or more years (with the possibility of renewal). On the other hand, for a lease of any kind of production facilities, considerably longer terms are usual (ten years or longer).

Forfeiture/irritancy - not applicable.

Insurance - it is usually the landlord’s (lessor’s) responsibility to insure the building against fire, storm, earthquake and other natural forces (eg water). It is, however, usually up the tenant to insure its own equipment and moveable possession.

Rent review - rent is commonly reviewed annually by applying the inflation index or some other agreed valorisation index. Additionally, rent is usually reviewed at the end of the lease term, when the parties negotiate the renewal of the lease.

Repair/decoration/furnishing - tenants are usually responsible for regular maintenance, to keep the leased property in good condition. In addition, tenants are usually responsible for all urgent repair work, unless such work would include structural repairs or alterations. Landlords are usually responsible for maintenance of all the supporting static parts, roof and installations, and for repair and decoration of the common parts.

Service Charges - not applicable.

Tenant’s duties - not applicable.

Termination/break clauses - it is possible to negotiate early termination rights. However, it should be noted that, if there is a dispute, such termination rights can be exercised only through judicial termination of the lease contract. Additionally, as a rule, commercial lease contracts concluded for a fixed lease term cannot be terminated before the expiry of such a term, except in specific exceptional cases provided for by the applicable law as grounds for termination.

 

Increasing covenant strength

Increasing covenant strength

Lease deposit - the most common form of security involves placing a sum equal to three (or more) months’ rent in the landlord’s account, which can be withdrawn by the landlord if the tenant defaults. The funds are usually released when the tenant satisfies a financial test, when the tenancy is terminated or if the tenant offers some other type of security.

Surety - if the tenant is a smaller or single-shareholder limited liability company, the owners of the business (or another company or individual) are usually required to guarantee the tenant’s performance. The guarantor is sometimes required to offer proof of assets that can cover at least three (or more) months’ rent.

Warranty - not applicable.

Rent deposit/bank guarantee - the most common form of security involves placing a sum equal to three (or more) months’ rent in the landlord’s account, which can be withdrawn by the landlord if the tenant defaults. The funds are usually released when the tenant satisfies a financial test, when the tenancy is terminated or if the tenant offers some other type of security.

 

Security of tenure

Security of tenure

As a general rule, a lease agreement concluded for a fixed period of time is terminated with expiry of the lease period. If the lessee remains to use the leased property and the lessor does not oppose, it is deemed that a new lease agreement has been concluded for indefinite period of time. In such case the lease agreement may be terminated (at any time, however not at inconvenient time) by a termination notice being effective after expiration of a termination period which is, if not otherwise prescribed by an agreement, eight days after the delivery of the termination notice. In case of a housing lease, the owner may terminate the lease agreement without any reason by a termination notice being effective after expiration of a termination period, whereby this period may not be shorter as 90 days. The Housing Act prescribes specific at-fault reasons for a termination of the lease agreement. In case of business premises lease, if the tenancy contract is for a fixed term, the tenant is not entitled to remain in occupation beyond the lease term and must vacate the premises immediately after the term expires. If the landlord wishes to terminate the tenancy before the fixed lease term expires, a mere unilateral statement is not sufficient. The landlord would have to file a law suit for termination of the contract with the court, which would then terminate the contract by issuing a court order if there is a ground for termination (see also above at Commercial leases).

 

Taxes

Taxes

On sale/acquisition of real estate - a real estate transfer tax is levied upon the transfer of real property in Slovenia. The financial lease of a real property is considered as a transfer of real property for transfer tax purposes. No transfer tax is due in the situation that the transfer of real property is subject to VAT. The taxes applicable to the acquisition of real estate depend on whether the real estate was a new construction project or not and on whether the real estate in question is an office space or a private apartment. New construction projects are taxed only by value added tax (VAT) payable by the buyer to the seller, who passes it to the tax authority. The applicable VAT rate is 8.5% for private apartments and 20% for office spaces and all other types of real estate not falling into the private apartment category. The rate of 8.5% will change to 20% after the end of the transitional period granted by the EU. All other real estate not falling into the new construction project category is subject to real estate sales tax at the rate of 2% of the sale price of the real estate and is paid by the seller. The transaction must be reported to the tax authority by the seller in 15 days after conclusion and the payment of the real estate sales tax is a prerequisite for the registration of title in the Land Register. A person liable for this tax is obliged to pay the tax within 30 days from the day of the tax levy. The sale of real estate not considered a new construction project may also be subject to capital gains tax, payable by the seller, at up to 20% of the difference between the purchase and sale price.

Immovable property tax - until 2011 no immovable property tax is imposed. However the government is preparing a new real estate tax to replace the currently used compensation duty currently imposed on the owners or users (renters, etc.) of plots of land and buildings. The duty is deductible for corporate income tax purposes.

Income tax - an individual's income is taxable in 2011, at a progressive rate of 16% - 41%.

Land tax - not applicable.

Lease tax - not applicable.

Local tax - not applicable.

Mortgage - not applicable.

Other taxes - not applicable.

Property lease tax - taxation of rental income differs subject to the differentiation of the lessor and lessee being natural or legal person. Broadly speaking the following applies: 1. Lessor and lessee are both natural persons: in this case the lessor is obliged to report the taxable base of the rental income to the tax authority. Taxable base is rental income decreased by either a standard deduction of 40% of gross rent or by actually incurred expenses, such as maintenance and repair costs, management fees (supporting documents must be presented). Tax rate is 25%; 2. Lessor is a natural person and lessee is a legal person (company or entrepreneur - sole trader): in this case the lessee is obliged to report the taxable base. Taxable base is rental income decreased by either a standard deduction of 40% of gross rent or by actually incurred expenses, such as maintenance and repair costs, management fees (supporting documents must be presented). Tax rate is 25%. The lessee is obliged also to levy a 25% withholding tax; 3. Lessor is a company and lessee is either a company or a natural person: in this case the rental income is a taxable income subject to corporate income tax at the rate 20% (in 2011). Provided that the lessor and lessee are both entitled to a full deduction of VAT, both of the parties may choose the rent to be subject of VAT at the rate 20%, provided that they both give appropriate statement to the tax authority prior to the commencement of the lease relationship.

Value added tax - not applicable.