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Country - Croatia
Commercial Leases
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A. SOURCES OF LEASE LAW
Applicable legislation
Leases are generally governed by the Law on Obligations with some supplemental statutory provisions, particularly in relation to leases of business premises (Law on the Lease of Business Premises) and to leases of land for the purpose of construction of buildings (Law on Ownership and Other Real Rights).
Additional rules apply to residential tenancies which are beyond the scope of this document.
Do any specific rules apply to commercial leases?
Generally the parties are free to contract as they wish.
Do different regimes apply to leases of commercial premises depending on the use of the premises by the lessee (offices, warehousing, industrial, retail)?
No, all commercial leases are regulated by the Law on Lease and Sale of Commercial Space which makes no distinction between different types of usage.
B. DURATION AND TERMINATION OF LEASES
Is there a minimum or maximum obligatory term?
There is no minimum or maximum. Very long leases are normally granted for land (building rights) in return for a one-off premium rather than at a market rent. For market rent leases, terms are much shorter (three to 15 years is common).
Does the lessee have a right to renew the lease upon expiry of the initial contractual period?
No.
Do lessees enjoy security of tenure (i.e. the right to remain in occupation after their lease expires)?
No.
Do leases involve a lengthy procedure for the effective recovery of possession?
Leases invariably contain a provision allowing the lessor to terminate on non-payment of rent or breach of covenant (in the case of market rent leases, the insolvency of the lessee is usually also a ground for termination). It is common to stipulate a direct enforcement clause when executing the lease in the form of a notarial deed. This enables the lessor to recover possession of the premises without filing a regular action with the court. While the lessor will still need to seek a court order to obtain possession this is quicker than a regular court action which can take several years.
Can government/local authorities require the compulsory termination of a lease?
The law does not provide any special regulations in relation to leases.
Is there a preferential right of acquisition?
The parties are free to contract as they wish but pre-emption rights are not particularly common.
C. RENT AND COSTS
Are variable rental agreements common?
Where leases are granted for several years, it is standard practice to provide for a rent review after the expiry of a specified period, and this will allow the rent to be adjusted to the market rent that would be payable for a new lease of the property on similar terms or, alternatively, for the rent to be index-linked.
Rents linked to turnover are also common (in case of retail rents).
Most common indexation
Where the parties do not wish to include an open market rent review in the lease, they usually agree to link the rent to a consumer price index (either Croatian or European) or, more rarely, provide for fixed increases.
Who usually pays the common expenses?
Except in the case of very simple developments, a service charge will normally be established. Each lessee will pay a proportion of the charge based on the size of the unit compared to the lettable space in the whole building. Normally, certain expenses will be excluded from the service charge, such as the initial cost developing the building.
The service charge may be capped particularly if the premises being let are not in a new building.
The lessor will also pass on the cost of insuring the building to the lessees, in the same proportions as the service charge.
Are there any other expenses connected with the lease?
There is no stamp duty. In the case of a lease in the form of a notarial deed, the notarial fee is calculated by reference to the amount of the rent.
Services such as electricity, water etc. are usually taken directly from the suppliers by the lessee although this may not be the case in a large development.
Which indirect taxes apply?
VAT at 22% is payable only if the lessor is a VAT payer.
D. OBLIGATIONS OF LESSOR AND LESSEE
Who is responsible for the different works on the premises?
In a multi-let development, the lessor will repair and maintain the common areas and the structure of the building. Each lessee will only be responsible for maintaining and repairing the interior of his individual unit.
Can the lessee alter or improve the premises?
Most leases limit the lessee's rights to alter or improve the premises. Structural alterations are frequently prohibited, particularly where the lessee only leases part of the building. Non-structural alterations usually require the lessor's consent, which may not be unreasonably withheld. On termination, the lessor may require any improvements to be removed in order to avoid having to pay the lessee compensation.
What restrictions are there on the lessee's right to use the premises?
Leases normally restrict the use of the premises to a particular use. Specific activities which may cause a nuisance are also prohibited.
Is there a right to transfer the lease?
The lease will usually state that any transfer requires the consent of the lessor.
Is there a right to sublet the premises?
The parties are free to contract as they wish; if the right to sublet is not expressly allowed in the lease the lessee is not entitled to sublet without the consent of the lessor.
What are the usual guarantees?
The parties are free to contract as they wish. The lessor may ask for a bank guarantee or a rent deposit usually for an amount equal to three months' rent.
E. PARTICULAR TYPES OF LEASE
Do office leases have any particular characteristics?
Office leases normally follow the general guidelines set out above.
Do retail leases have any particular characteristics?
Retail leases may include turnover rents where all or part of the rent is determined by the profits of the store.
They may have provisions enabling the lessor to maintain a suitable mix of retail lessees.
In addition, retail lessees may be subject to obligations which exist for the benefit of the shopping centre as a whole; for example, an obligation to keep open and trade during specified hours and to contribute towards the marketing of the centre.
Although the lessor will maintain the structure and exterior of the premises, a retail lessee may be given the right to maintain its own shop front in its usual trading style.
Do hotel leases have any particular characteristics?
Hotel leases are similar to office leases, except where they are located in shopping complexes where they may have more of the characteristics of a retail lease.
Hotel leases often contain detailed provisions relating to the management of the property, or alternatively, the management arrangements may be set out in a separate document with a dedicated hotel management company.
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