In Croatia, the following types of property can be acquired:
Real estate interests, other than exclusive ownership, are:
Real easements are rights allowing one landowner to use another's land. These are linked to the land and are binding on future owners of the property, whereas personal easements (usufructs) allow rights to be granted to specific individuals.
The right to reside is another personal right allowing the holder to live in a building owned by someone else.
The right to build allows the holder to erect and maintain their own building on someone else's land and is normally granted for a limited period of time agreed between the landowner and the builder.
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The purchase of real estate assets by foreign investors (individuals or legal entities) other than EU residents is subject to reciprocity (ie it is permitted as long as Croatian citizens may acquire real estate in the investor's home country) and to written consent from the Ministry of Justice.
This procedure can be rather slow and complex. The applicant must enter into a preliminary purchase contract or a conditional purchase contract with the seller, then file an application with the Ministry of Justice, including any relevant documents relating to the buyer, an excerpt from the land registry, and confirmation from the cadastral office that the real estate is not in a restricted class, such as agricultural land or forest, but is classified as land for development or land that has already been developed. If the Ministry of Justice agrees that there are no obstacles to the proposed transaction, it will issue its consent. This process normally takes around a year, or even longer in some cases. This can be avoided if a foreign investor establishes a Croatian company.
However, under the Stabilisation and Association Treaty concluded between Croatia and the EU, Croatia assumed an obligation to make the acquisition of real estate in Croatia easier for EU residents. Accordingly, since 1 February 2009, EU residents have been allowed to acquire real estate in Croatia (apart from agricultural land and designated environmentally sensitive areas) without having to obtain prior approval from the Ministry of Justice.
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Mandatory pre-emption rights apply in case of sale of a flat which is occupied by a 'protected' tenant (usually in old buildings) and in the case of a sale of real estate assets falling into the category of a “cultural monument”. In the first case the protected tenant has a mandatory pre-emption right and in the second case the relevant city and the state have such a right.
There are plans to allocate pre-emption rights to national government and local authorities in relation to certain Croatian islands, and where land is sold following an insolvency.
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The transfer of property is generally regulated by the Croatian Obligations Act (Zakon o obveznim odnosima, Official Gazette Nos. 35/05, 41/08, 125/11, 78/15).
Other relevant laws are:
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No. However, some real estate cannot be purchased by foreign investors, including agricultural land, forests and areas of natural beauty.
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Transfer of real estate must be based on title and the appropriate process. The sale contract must be concluded in writing, with the signature of the seller certified by a public notary, and the title must be registered in the land register.
For this purpose, the seller must consent to the transfer of the real estate to be registered by the competent court. Consent must also be given in writing and certified by a public notary (unless consent has already been included in the sale agreement).
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The land register contains data on property rights and is kept by the land register courts (municipal courts). It includes information on the legal status of all real estate such as title, mortgages, encumbrances, easements, sales and purchases, usage rights and any pending disputes.
Municipalities also keep real estate cadastres containing technical information about land plots, buildings and plants.
The public can follow a standard procedure to obtain relevant cadastral information.
Both the real estate cadastres and the land registers are accessible via the internet.
Title and other rights to real estate are registered with the land registry. Title to real estate is acquired upon registration.
Since the land registry records are not entirely up to date, due diligence should include an investigation of the cadastral registers.
Although title insurance is not yet available in the Croatian market, some foreign insurance companies are offering it to foreign investors. Title insurance is expected to be available in the Croatian market soon.
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In the case of a share deal the buyer acquires the shares in the company owning the property through a share purchase agreement (in the form of a notarial deed) and the entry of the share transfer in the company records (this is normally just a formality which will be completed on the same day).
In the case of an asset deal, the title to the property is acquired through registration with the land registry. This may take several days (and, in some very complex cases, several years).
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Whether due diligence should be conducted before purchase depends on the complexity of the real estate in question. The status of all real estate can be checked in the land register.
However, before the acquisition of larger, more complex properties (such as a shopping centre), investors should carry out due diligence covering building permits, leases and contracts. This is normally done before purchase, typically after signing an agreement ('letter of intent' or 'heads of terms') providing the buyer with an exclusivity period.
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Generally, special consents are not required by law unless these result from contractual obligations.
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Under the Croatian Obligation Code and the Croatian Ownership and other Real Rights Act the contract/deed of transfer must be made in writing. The signature of the seller must be authenticated by a public notary.
The content of the contract is negotiable. However, the essentials of a purchase agreement include: the identity of the real estate, the purchase price and a statement by the seller agreeing to the transfer of ownership.
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As many warranties as possible should be set out in the agreement. The law provides only a general provision on seller's liabilities in relation to material and legal defects. The liability period is two years.
The seller's liability can be excluded or limited by contractual agreement.
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In cases of misrepresentation by the seller a number of remedies are available. These depend on the kind of warranty and include:
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An investor should consider the zoning permits, construction permits and operation permits.
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The law provides general rules stipulating that a new owner assumes all risks relating to the property. This implies liability for soil pollution or contamination of a building even if this was not caused by the buyer.
A buyer must therefore protect himself from potential liability by making a contractual agreement with the seller, where the latter confirms that the soil is not polluted and that the building is free from contamination.
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Urban plans determine the structure and use of specific areas, and provide regulations for the protection and development of the country, counties, municipalities and cities. Urban planning documents include:
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It has recently become more common to enter into specific development agreements with public authorities to facilitate, for example, the provision of access roads, etc.
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The county authority for expropriation can order the expropriation of a real estate if it has been established that this is in the interests of the Republic of Croatia. In this case, all rights over the real estate, including ownership and leases, are terminated. Compensation is only paid for property rights, not for contractual rights such as leases.
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From 1 January 2015 any acquisition of a building and/or a development site from a VAT payer is subject to VAT at the rate of 25 percent. This rule applies to buildings, which are new, ie have not been in use since their construction and buildings in respect of which the time elapsed since their first use up to the sale is two years or less. Acquisitions of “old” (used) buildings, ie those which do not fall into the above categories, are subject to land transfer tax. Acquisitions of land which is not a development site are either subject to VAT (if the buyer is also a VAT payer and both the seller and the buyer agree to apply VAT) or land transfer tax.
The notary's fee for certification of the seller's signature is approximately HRK150 and the registration fee payable to the land registry is approximately HRK300. If the parties agree to use a notary public as escrow agent for the payment of the purchase price, the notarial costs will significantly increase since they depend on the value of the transaction. These costs are usually borne either by the buyer or shared between the parties.
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Fees include notarial and registration costs. The notarial fee is much higher than that for an asset deal and depends on the value of the deal. The transfer of shares is not subject to tax.
The registration fee payable to the court is around HRK1,300.
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What are the most important areas of public law for an investor to consider when purchasing real estate?
An investor should consider the zoning permits, construction permits and operation permits.
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