Country - Bosnia-Herzegovina
Sale and Purchase
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A. ACQUISITION OF REAL ESTATE
Applicable legislation
The transfer of property is generally governed by the Law on Transfer of Property (Official Gazette SRBIH 38/78, 4/89, 29/90, 22/91). The original text was accepted by both Federation of Bosnia and Herzegovina ("F BiH") and Republika Srpska ("RS") with further amendments in Official Gazettes F BiH nos. 21/92, 3/93, 17/93, 13/94, 18/94 and 33/94; i.e. for the territory of RS, Official Gazette RS no. 29/94.
The rights of foreign investors are set out in the Law on Foreign Direct Investment Policy in Bosnia and Herzegovina (Official Gazettes of FBiH 4/98, 17/98 and 13/03).
Other applicable laws regarding acquisition of real estate are as follows:
- the Law on Legal Property Relations of the FBiH (Official Gazettes of the FBiH no. 6/98, 29/03);
- the Law on the Basis of Legal Property Relations of RS (Official Gazettes of the RS no. 6/80, 36/90 and 38/03);
- the Law on Spatial Planning and Use of Land of the FBiH (Official Gazette of the FBiH no. 2/06 and 72/07);
- the Law on Spatial Planning of the RS (Official Gazette of the RS no. 84/02, 112/06 and 53/07);
- the Law on the Protection of Environment of the FBiH (Official Gazette of the FBiH no. 33/03);
- the Law on the Protection of Environment of RS (Official Gazette of RS no. 28/07 revised text);
- the Law on Expropriation applied in the FBiH (Official Gazette of the FBiH no. 70/07);
- the RS Law on Expropriation (Official Gazette of the RS no. 112/06, 37/07); and
- the Law on VAT of Bosnia and Herzegovina (Official Gazettes of BiH nos. 9/05 and 35/05).
Is the purchase of real estate assets by foreign investors subject to restrictions?
According to the FBiH's Law on Foreign Direct Investment Policy, foreign investors wishing to invest in real estate must either acquire all or part of an entity owning the real estate, or must establish a new company in the FBiH, through which the real estate can be acquired; however, according to the Law on Legal Property relations of the FBiH, in exceptional circumstances, the rights of a foreign individual or entity to acquire real estate may be limited in particular areas of the FBiH. Alternatively, their rights may be limited by a condition of reciprocity, in which case the Ministry of Foreign Trade and Economic Relations must issue written consent.
Do different legal regimes apply to the transfer of title to different kinds of real estate (commercial, residential, manufacturing)?
In general the civil law regime applies to the transfer of real estate.
According to the Law on Legal Property relations of the FBiH, a foreign individual or entity undertaking business activities in Bosnia and Herzegovina can hold title to business buildings, offices, apartments and residential buildings, or to the land on which these buildings have been, or will be, built.
Foreign individuals have the following rights in relation to real estate:
- they can freely inherit real estate;
- if they have approved permanent residence in the FBiH, they can acquire flats and other residential property, as well as ownership of the land upon which these are built; and
- in exceptional cases limits may be imposed on foreign individuals and legal entities acquiring real estate in particular areas of the FBiH, or their rights may be limited by a condition of reciprocity: in this case the Ministry of Foreign Trade and Economical Relations must issue written consent.
Do mandatory pre-emption rights apply to the sale of real estate assets?
Yes. Pre-emption rights can arise by law or from the contract.
According to the law on the transfer of property, if the real estate to be sold is co-owned by more than one person, the existing co-owners have a mandatory pre-emption right.
The owner of residential property must offer first refusal to a co-owner or to the holder of any tenancy.
The owner of a business building or premises must offer first refusal to a co-owner or a lessee who has leased the building for a period of over five years. This is an old law which is not always applied. There are no specific regulations about the pre-emption rights of multiple lessees.
A person who has pre-emption rights must advise the seller of their acceptance of the offer within 30 days, or the owner can sell the property to someone else, although he cannot agree with that other person better conditions or a lower price.
In addition, in the RS, a municipality also has pre-emption rights to purchase property located in the municipality.
The law on the transfer of property is an old law, dating from the previous socialist regime and, in practice, is rarely applied.
A new law on legal property relations is currently being drafted to replace the law on the transfer of property and also other laws relating to property ownership.
Is expropriation (compulsory purchase) possible?
If so, under what conditions?
Expropriation can only be carried out where a relevant authority (such as a municipal assembly) decides that the property must be expropriated for reasons of public interest.
Expropriation is therefore possible, but only in exceptional cases, and according to the law on expropriation.
Is real estate registered?
If so, is this official information made available to the public?
Yes. Real estate, and rights to it, are registered in land books which are maintained by the municipal courts in the FBiH and by the basic courts in the RS.
According to the entity laws on land books, the following rights are subject to registration:
- ownership rights, fractional share ownership and joint ownership;
- mortgages;
- attachments and pledges;
- long-term leasehold, pre-emption and resale rights;
- easements;
- usufructs;
- land charges; and
- rights of use.
Land books are accessible to the public in the relevant courts and in the presence of an official employed by the land registry.
In addition to land books, municipalities within Bosnia and Herzegovina maintain cadastres, i.e. property registers, which are frequently more up to date than the land books.
Is the transfer of title recorded?
Can other related deeds (for example preliminary sale agreements) be recorded?
Yes, transfers of title to real estate are registered in the land books.
The land book entry contains three sections: a description of the real estate in section A; the registration of the owner in section B, together with any restrictions on the right of disposal by the owner and notes on ownership; and encumbrances and restrictions in section C.
The purchase agreement is recorded but not preliminary sale agreements.
Do buyers usually carry out due diligence?
If so, what due diligence is typically conducted and what is its timing (i.e. before or after contract execution)? Is there any protection for the buyer during the due diligence period (for example an exclusive right to negotiate or buy)?
Investors should carry out legal due diligence on title, building permits, leases and contracts relating to the property and technical due diligence on the status of the buildings.
Due diligence is conducted before the execution of the contract. It is possible for the buyer to agree with the seller an exclusive right to buy the property if he decides to do so after carrying out due diligence.
Is title insurance available?
Foreign insurance companies may insure property in the FBiH, but such insurance is not common.
How are deals typically structured?
In general, there are three different approaches to the acquisition of real estate in the FBiH: direct acquisition of the real estate (asset purchase); the purchase of all, or part, of an enterprise holding the real estate; or the acquisition of the company holding title to the property (share purchase).
Asset purchase means that the real estate in question is directly purchased from its owner. Ownership rights are transferred upon the registration of the transfer in the land books.
Real estate can also be acquired indirectly through the purchase of an enterprise (share purchase) by means of a contract for the transfer of the enterprise, concluded under the Law on Commercial Companies in the FBiH and the Law on Enterprises in the RS.
In this way the owner of the business interest acquires all the liabilities of the local company owning the real estate.
A share purchase is normally a better way of purchasing real estate, since the buyer does not pay tax on the transfer of ownership or VAT.
B. STRUCTURE OF THE CONTRACT
Are there formal requirements regarding the content and structure of the sale and purchase contract?
Yes. According to the law on the transfer of property and the law on obligations, the sale contract must be concluded in writing and the signatures of the parties must be verified by the relevant court. The purchase agreement must be submitted for registration in the cadastral register.
What is a typical contract like?
A typical contract for the purchase of real estate must be concluded in writing with the signatures of the parties verified by the notary. It should also contain the following essential elements:
- the identity of the buyer and seller;
- the identity of the real estate (including the relevant excerpt from the land books and the entry's identification number as proof of ownership);
- details of the purchase price and method of payment; and
- the date of the contract execution.
Please note that contracts for the purchase of real estate in the FBiH are normally shorter than those in Western Europe.
Are special consents required for certain transactions (for example consent by a spouse)?
No specific consents are normally required. However, if the seller is married, consent by the spouse is recommended if the property was acquired during the course of the marriage. In such cases real estate is considered to be jointly owned and, if a dispute arises about the transaction, the court may annul a contract which is not signed by the spouse.
What seller's warranties are provided under statute (for example the state of the building, asbestos, etc.)?
Can they be excluded or varied by contractual agreement? Is there a deadline for claims to be made?
Seller warranties are provided against physical and legal defects in the property. For example, the seller's basic warranties included in the sale contract are as follows: that the seller is the sole legal and beneficial owner of the property; that the property is free from any claims or other third party rights; that the seller holds all necessary use permits and consents for construction, etc.
The time limit for claims to be made is within one year of the date the buyer notified the seller of a physical defect, or, in the case of a legal defect, within one year of the date the buyer discovered the third party rights.
What are the buyer's remedies against misrepresentation by the seller?
A buyer must notify the seller of any defects within eight days of the date he noticed them. In such cases the buyer has the following rights:
- to request the seller to rectify the defect or to provide an alternative item which is free of defects;
- to reduce the purchase price; or
- to terminate the contract.
If the seller is found not to own the property in question, the contract will be terminated and the buyer has a right to damages and compensation.
Are there any interests in real estate other than exclusive ownership?
If so, what are they?
Yes. In addition to ownership rights there can also be the following: leases; rights of pledge; mining rights; easements; and concessions.
Please note that in the FBiH, a right to use and a right to dispose of real estate exists as a result of the previous regime, when state ownership prevented individuals or legal entities from owning real estate which they used. According to current regulations, such rights to use and to dispose of real estate can be converted into ownership, although this can be a slow process.
C. PUBLIC LAW ASPECTS RELATED TO THE ACQUISITION OF REAL ESTATE
What are the most important areas of public law for an investor to consider when purchasing real estate?
When purchasing real estate in the FBiH, a potential investor should consider the following:
- Zoning and planning issues: the zoning plan should be checked to ensure construction is permitted and if any specific rules or regulations apply.
- Construction issues: the investor should ensure that all necessary building, construction and use permits were obtained, and that all stages of construction were approved and carried out in accordance with the permissions and authorisations issued.
- Safety issues: the technical status of the building should be verified to ensure that it can be properly used. This includes compliance with rules on fire prevention, health and safety, etc.
- State (formerly social) ownership: if land is state owned then additional approvals are required.
Certain easements may apply to the property and these can also be imposed by law (for example, where a civil protection facility is located on a plot of land). Special obligations may also apply if land is located in certain areas, such as close to rivers or dams or in areas where nature protection rules apply, etc.
Is the buyer of a real estate asset responsible for soil pollution or contamination of the building even if it is not caused by him?
The person who caused the damage to the environment is normally held to be responsible for it.
In addition, according to the law on obligations, a builder is responsible for any defects in construction and in the land where a property has been built, for a period of 10 years from the date of completion.
How can a buyer ascertain the possible uses of an area under the applicable zoning or planning laws?
Can uses be changed?
When planning a construction project, the builder must submit a request to the relevant municipal department to obtain an urban planning consent and a construction permit. The municipal bodies will issue permits only when the proposed construction project is in accordance with the laws on spatial planning and the decisions on zoning.
Uses can be changed by an amendment to the zoning plan but this can only be done by law or by a decision of the relevant municipal body.
Is it possible to enter into specific development agreements with relevant public authorities in order to facilitate a project?
Can public authorities make a charge for this?
Yes. Public private partnerships have recently been introduced in the FBiH, allowing potential investors to enter into specific development agreements with the relevant authorities to facilitate development projects.
D. TAXES RELATED TO ACQUISITION OF REAL ESTATE
Are there transfer taxes or sales taxes?
Real estate in the FBiH is taxed through an acquisition fee payable on transfer.
There is a tax on the transfer of property and, in some cases, VAT is payable.
In the FBiH each canton has its own tax law relating to the transfer of property and therefore rates vary (for example, under the law of the Sarajevo Canton, the tax rate is 5% of the market value of the property).
In the RS the tax rate for the transfer of property is 3% of the market value of the property.
A VAT rate of 17% applies only to the first transfer of ownership rights, or rights to dispose of newly constructed buildings.
What are the normal transaction costs?
Acquisition of real estate in the FBiH involves the following costs:
- fees for legal advice;
- minimal fees for the verification of the signatures on the contract;
- minimal administrative fees for the registration of the transfer in the Land Books Register;
- agency fees; and
- possible fees for the identification of plots, procurement and the verification of geometric plans, etc. (these may be included in the legal or agency fees).
How are transaction costs shared by the buyer and seller?
Transaction costs are paid by the buyer, who also pays tax on the transfer of the property and the cost of the registration of ownership in the land books.
The buyer also usually pays the notary's fee and the agency fees, but this is subject to agreement between the parties.
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