Search

Click on ‘Fast Search’ for highlighting. Click on ‘Advanced’ to get a list of chapters containing your search results.

Information

12 questions on real estate

Editors:
Version Information
 
Versions
Expand the list to see all available versions, then choose the version you need. To highlight changes to the previous version, mark the checkbox.

Chapters

 
Chapters
Click on the tabs to expand/collapse. You will be directed to the corresponding chapter.
Change Text Size      
Austria
1. Parties and Ownership – Who can own real estate and what types of ownership are there?
Parties
In principle, each natural or legal person can acquire real property. This includes public sector entities, charitable foundations under public law, foreign states as well as private law entities (limited liability companies, stock companies, partnerships, private trusts, funds, and foreign companies which have legal capacity within the European Union or are otherwise recognised in Austria).
As a general rule, foreigners (i.e. those who do not have Austrian citizenship), including legal persons with a foreign seat or legal persons who are directly or indirectly controlled by foreigners, require the approval of the land transfer authority for the acquisition of property rights (so-called “Ausländergrundverkehr”, or “transfer of properties to foreigners”). Such an approval will only be provided if the foreigner can demonstrate a specific social, economic or cultural interest. Foreigners that are citizens of a country within the European Union, or in the case of legal persons, have their seat in a country within the European Union, do not have to obtain an approval due to the free movement of capital.
Furthermore, as a general rule, the possession and ownership of property which is used for agriculture or for forestry is reserved for farmers and people engaged in forestry. This limitation applies both to nationals and to foreigners and serves to preserve agricultural space and land used for forestry, as well as the farming community.
Ownership – different types of rights
The most important rights in connection with property are the:
  • Right of ownership
  • Right to residential property/Condominium right
  • Right to build (“Baurecht”) and buildings on non-owned land (“Superädifikat”)
  • Usufruct and the right to use a flat
  • Other limited rights in rem
  • Right to rent and leasehold.

The right of ownership is the ultimate right to real estate. It is defined as the competence to change the substance and the use of a thing at will, and to exclude everybody else from this. There is no stronger right than the right of ownership.
The right to residential property is the material right to exclusive use of a condominium and to dispose of it exclusively (to rent or to sell it). It is comparable to the right of ownership, but is limited to a specific residential property. Condominiums are currently very widely used in Austria and are usually found in apartment blocks as well as mixed use buildings (apartments and business premises). Usually this does not apply to purely business premises (such as office buildings or industrial premises).
In principle, buildings and land share the same legal status – the owner of the land and ground is necessarily the owner of the buildings on that ground (superficies solo cedit). The right to build (“Baurecht”) is an important exception from that principle where the ownership of ground and the ownership of buildings are separated. Therefore, the building right is the right in rem to have a building on or below the land. The building right can be granted for a minimum of ten years and a maximum of 100 years (however, this can be extended upon agreement) and can only be prematurely terminated in exceptional circumstances. In the case of termination of a building right, the building normally transfers to the owner of the land who must pay a legally determined lump sum for the worth of the building (25%) to the previous person with the building right. Deviations from this amount can be mutually agreed (also in advance).
A further exception from the principle of superficies solo cedit is the so-called “Superädifikat”. Similar to the building right, the ownership of land and ownership of buildings are separated. However, the Superädifikat is not subject to the strict disclosure requirements of the building right and is thus afflicted with legal uncertainty. An essential characteristic of the Superädifikat is that the building is built with the intention that it should not exist forever. This intention must be reflected in the type of building or in a contract.
The right of usufruct is the personal right in rem to enjoy a foreign object whilst respecting its structure, but without any further limitations. The holder of this right can therefore exclude the owner from use of the building and also lease and make use of other benefits. He may not interfere with the structure of the building, e.g. tear down the building. This right expires in principle with the death of the right holder.
The right to use a flat is the personal right in rem to use a flat. This right is mostly used in connection with the law of succession and should not be confused with renting or leasing.
Moreover, there are many other limited rights in rem (servitudes, easements) such as right of way, duties to tolerate under or over ground pipes and realty charges which can be freely agreed between the parties.
Rent and leasehold. In contrast to the rights mentioned above, rent and leasing have no effects in rem; therefore, they are not property rights which can be enforced against everybody, but simply a creditor/debtor relationship which is only valid between tenant/lessee and landlord/lessor. Yet tenants and lessees have a position which is “quasi” in rem. In addition, under the Rent Act (“Mietrechtsgesetz”), the landlord can only terminate for important reasons explicitly set out in the Act. This termination protection applies both for the rental of housing and of business premises. Moreover, under the Rent Act paying or demanding key money for a rental object is unlawful if there is no consideration in return such as interior or the like that equals the amount of the key money. Paid unlawful key money can be claimed back.
All rights in rem must be registered in the land register in order to become effective (more on this under question 7). Although the right to rent or lease does not have to be registered in the land registry to become effective, as it is not a right in rem, this can be done voluntarily so that it is visible for all.
2. Interests – What types of interest in real estate are sold?
Normally, investors purchase either the ownership of the asset itself (asset deal) or the ownership of the company which holds the asset (share deal).
Investors rarely purchase leasehold rights in Austria in order for them to realise them in the form of sub-leasehold rights or to sell these as a whole. The taking-over of an entire contractual relationship requires the agreement of all parties. Almost invariably the rules of transfer of properties to foreigners (see above under question 1) applies also to acquiring lease rights.
However, more often a business operation is purchased with the benefit of leasehold rights. Here, the purchaser enters into the existing leasehold right in the place of the seller of the business by act of law.
3. Employees – What employment issues affect real estate acquisitions?
Pursuant to Council Directive 77/187/EEC on the approximation of the laws of the Member States relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of businesses, rights and duties of a transferor of a business resulting out of an employment contract are passed to the transferee of the business upon transfer.
The Austrian Employment Law Harmonisation Act (Arbeitsvertragsrechtsanpassungesetz) was passed in order to implement the Council Directive 77/187/EEC and applies when a transfer of a business or of parts of a business takes place.
The main elements of the Employment Law Harmonisation Act are that:
  • employment obligations pass to a purchaser as a matter of law
  • there is a one year cushion against making employment conditions less beneficial in certain cases
  • works agreements remain valid after the transfer of the business and
  • there is joint and several liability of the transferor and transferee for obligations under the employment contract, which is particularly important with respect to entitlements for pension and severance payments

The transfer of a part of the business as stated in Directive 77/187 and the case law of Austrian Courts depends upon:
  • the existence of a part of the business
  • the maintenance of the part of the business during the change of operator
  • the maintenance of the previous business activity in the part of the business or
  • the restart of the business after a short or conditional interruption

The concept of transfer relates to cases in which an economic entity – that is to say an organised group of persons and assets facilitating the exercise of an economic activity which pursues an objective specific to it – retains its identity following the transaction in question. This will not apply to all real estate transactions.
As a matter of general principle, a transfer of a business to another owner will not affect the employment relationship. The transferee takes over by operation of law the existing employment relationships together with all rights and obligations existing on the date of the transfer.
The previous employment conditions must remain the same, unless the provisions dealing with collective bargaining agreements, corporate pension promises or the validity of work agreements state differently.
4. Procedure – What are the steps in a sale and purchase transaction?
The process of a property transaction largely depends on whether there is a share or an asset purchase. Normally heads of terms or a memorandum of understanding or letter of interest is drafted, negotiated and agreed on larger transactions.
Either following this or even during this stage, due diligence will be undertaken on the part of the buyer (see below question 6.).
The heads of terms (or memorandum of understanding or letter of intent) set out the principal terms agreed between the parties and are generally expressed to be “subject to contract”. They form the basis of the documents to be drafted by the lawyers.
Once the heads of terms have been finalised, they are sent to the parties’ lawyers. The seller’s lawyers will usually collate all information relating to the property and send it to the buyer’s lawyers together with a draft sale and purchase agreement (contract). The form of the sale agreement will vary according to whether the property being sold is under construction or already built and the extent to which leases to tenants have already been granted.
The buyer’s lawyers consider and suggest amendments to the draft sale agreement to reflect the purchaser’s requirements and the results of due diligence investigations.
Once the sale agreement is in an agreed form, the parties sign the contract (signing).
Normally, conditions precedent are agreed in the purchase agreement (closing conditions), whose occurrence is dependent upon certain circumstances (e.g. the granting of an approval required by the land transfer authorities or the competition authorities, or the completion and handover of a building which has yet to be built). During this time between signing and closing, the purchase price will normally be controlled by a fiduciary who will pay this out to the seller upon the occurrence of the closing conditions. For large transactions, a meeting will be arranged for the closing (closing meeting).
Depending on the type of the deal, the lawyers are engaged before and after the closing to conclude the transaction. This includes bringing about the required approvals and entries for the register (e.g. approvals from the property regulation authorities, registrations in the companies’ register and land register, etc.).
5. Contract terms – What provisions does a real estate sale contract contain and what is implied by law?
An agreement for the sale and purchase of land is commonly in writing and contains or clearly refers to all main terms and conditions, and is usually in a form in which one copy of the contract is signed by both the seller and the buyer.
An important part of the contract is the warranty provisions of the seller with regard to the purchase object. These vary depending on the type of the deal and the type of the target object. Normally, freedom from defects in title regarding the ownership of the real estate to be purchased or to the shares in the company which holds the real estate is guaranteed (title guarantee). Similarly, it is usually guaranteed that the real estate is free from encumbrances apart from those listed in the land register. In terms of a share deal, an accounts warranty will also normally be granted.
A warranty as to freedom from physical defects is normally and occasionally strictly, limited. This can be anything from an entire exclusion of the warranty to the smallest limitation (limitations for each individual defect and/or a materiality level which must be exceeded) as well as the limitation of warranty periods. However, it is normal to receive the assurance of the seller that the building does not contain any illegal substances or substances which may be hazardous to health (e.g. asbestos).
The statutory law (which can be deviated from and often is deviated from) implies that the seller is liable to ensure that the object corresponds to the contract. Therefore, he is liable in particular for the fact that the object has the stipulated normally expected qualities that correspond to its description and that it can be used according to the nature of the business or the agreement reached.
The warranty period for immovable objects is three years, but can be extended as well as shortened.
With regard to the payment of the purchase price very often a fiduciary settlement with the help of a trustee (mostly notary public) is agreed in the context of the transfer contract. Various legal constructions and securities can be chosen in determining the trust conditions.
The trustee is subsequently responsible for ensuring that the trust payment in his possession is not made to those authorised until all prerequisites provided for and agreed on have been fulfilled. Appropriate evidence of this is to be submitted to the trustee.
After all the agreed prerequisites have been fulfilled, the trustee makes the payment to the authorised party.
Because the buyer has the opportunity of conducting full title investigation or due diligence before exchanging agreements, the buyer is usually prohibited from making any objection to any matter of title after the date of exchange.
Provisions relating to value added tax will be included where relevant to ensure the agreed tax position.
If the property being sold is in the course of construction, the contract for sale will incorporate provisions dealing with the obligations of the seller to construct in accordance with an agreed specification and to provide to the buyer separate deeds of warranty from the building contractor and persons such as the architect in order to safeguard the buyer against defective design or workmanship.
6. Due Diligence – What investigations does the buyer normally make?
Pre-exchange of agreements
The buyer is likely to commission a survey of the building and in appropriate cases, soil and geological investigations, plant and machinery tests, and environmental investigations. There are three limbs to the pre-exchange due diligence by the buyer and the buyer’s lawyers.
First, title to the property will be investigated. The buyer’s lawyers will consider the entries on the Land Register and relevant historic title documents. Where title to the property is not registered at the Land Registry, the buyer’s lawyer will consider the unregistered deeds to check that the seller has a sufficient title to the property.
Secondly, the buyer’s lawyers will review the position regarding municipal and zoning consents, environmental matters, utilities serving the property, financial encumbrances etc. Where the seller is a company, the buyer’s lawyers will also conduct searches of the seller at the companies register to ascertain whether the company is solvent and therefore able to dispose of its assets freely. Where the search result refers to security, the buyer’s lawyers will ask for confirmation that such matters do not encumber the property and that no third party consents are required for the transaction to proceed.
Thirdly, during the due diligence process the buyer may often arrange a survey of the property.

Finally, major contracts are to be examined.
Pre-completion
Requisitions deal with completion formalities such as the seller’s lawyers’ bank details. The buyer’s lawyers will also conduct pre-completion searches including a priority search of the Land Registry.
Reporting to the client
Before exchange of agreements the buyer’s lawyers usually report their due diligence findings to their client, raising any matter of particular importance or concern.
7. Registration and Notarisation of real estate – What are the basic requirements?
According to Austrian law, the ownership of real property and easements etc. is acquired only by the entry of the right into the Land Register.
It is therefore necessary to have at least the signatures of all agreements concerning such rights attested by a notary public, if attestation by a notary public is not otherwise compulsory.
Moreover, the agreement must contain a declaration (consent to the transfer) made by the seller in which he consents to the registration of the agreement in the Land Register. This declaration can also be made outside the contract. In this case, the signature of the person who makes the declaration has also to be attested by a notary public.
The entry into the Land Register is an essential element for the acquisition of the property right to real property, easements and other rights in rem regarding real property (e.g. mortgages) etc. According to Austrian civil law and the land register law, the original of the agreement is the basis for registration and original certificates specified by law (clearance certificate furnished by the tax office, proof of citizenship etc.) are to be submitted to the competent land register court. After positive examination of the certificates by the registrar at the land register court, entry is made into the Land Register. Thus, the acquisition of the property right takes effect.
8. Permits – What permits are required for the use and occupation of real estate and are they personal?
Any proposed development of property must always correspond to the planned use and the provisions of the land development plan.
If applicable, a notice of proposed building is made. In other cases, a building permit can be applied for. The building permits granted are invalid if the building operation has not started within a given period (four years in Vienna but variable according in each province) or the building is not finished within that period, after the start of construction.
After completion of the construction project, the building structure is inspected for compliance with the building permit. Thereupon, a licence for use is granted by the authority following submission of a statement of completion. Apart from the procedures required under the building regulations, the business or trade to operate from the building requires a relevant commercial licence to be obtained.
For the business location itself, a permit for the operating equipment (Betriebsanlagengenehmigung) may be necessary according to the Austrian Industrial Code (Gewerbeordnung).
In the course of the building operation, architectural conservation requirements and limitations have to be observed, particularly in urban centres and in protected zones contained in a land development plan. Compliance must also be made with the regulations concerning the respective interests of adjoining owners during the carrying out of building operations.
9. Insurance and Risk – What insurance will the parties effect and when does the insurance risk pass at the time of sale?
Before a sale is contemplated, insurance is generally the responsibility of the owner of the freehold interest in a property. The seller always bears the risk prior to the conclusion of the contract of sale. The transfer of risk from the seller to the purchaser is specified in the contract of sale. The purchaser bears the risk after the contractually agreed date.
The purchaser enters into existing insurance contracts instead of the seller by act of law. However, he has the right to terminate the insurance relationship within one month after purchasing the property.
The insuring party should have a fully comprehensive buildings insurance policy to protect the structure and fixtures and fittings of the property in the event of damage or destruction by any of a comprehensive list of insured risks, such as storm, lightning, fire and water damage. The policy may also cover additional special heads of cover such as subsidence, heave, earthquake and, if applicable, terrorism.
Insurance policies (the insurance contracts containing the contractual terms between the insurance company and the insured) may either comprise a single policy for one particular property or a block policy designed to cover a portfolio of properties. Larger institutional investors may self-insure.
Occupying owners generally have separate policies to cover the contents of the property, especially if the property includes costly plant and machinery.
10. Environmental – What are the common environmental issues?
The liability for pollution of real estate and its removal is regulated according to the principle of causal responsibility. The buyer as owner of the real property is secondarily liable for pollution.
Due diligence as part of the acquisition process may involve the appointment of environmental consultants to consider documentary information and to carry out a site visit (Phase I). If considered necessary, further more intrusive investigations (Phase II) may then be undertaken. It is important to identify potential problems early so that there can be negotiation on price, the need for and scope of any remediation and/or the need to put in place protection in respect of any existing contamination related losses that may arise in the future. Such protection may take a number of forms, including obligations to remediate any contamination discovered post-acquisition, indemnities in respect of third party claims, or environmental insurance to cover these risks.
Further, EU-legislation had an impact on architecture in order to be more sustainable. Buildings account for 40 % of total energy consumption in the Union. Therefore, the EU enacted several directives in order to reduce energy consumption and to use energy from renewable sources in the buildings sector. With regard to Austria this means that basically the regional building codes have been adapted. Thus, for new buildings and also for major reconstruction measures before construction starts, the technical, environmental and economic feasibility of high-efficiency alternative systems such as (i) decentralised energy supply systems based on energy from renewable sources, (ii) cogeneration, (iii) district or block heating or cooling, particularly where it is based entirely or partially on energy from renewable sources or (iv) heat pumps, if available, has to be considered and taken into account and has to be demonstrated to the authority. However, such alternative systems do not have to be considered if they are not cost-effective through the economic lifetime of the building.
11. Pricing/Valuation – What sets the price/valuation of real estate?
Pricing of real estate investments is a combination of the aggregate rent being paid by occupational tenants of the property and the value that investment buyers consider that a property of the specific type and location is worth at the time of valuation taking into account that income.
The rent for a particular property is likely to be assessed by multiplying the area of the property by the market rental value per square metre. The market rental value will take into account factors such as the location of the property, its type and condition, and the length of the lease term.
In the case of retail shops, it is common for the rent of the property to have differential values according to the positioning of the floor space – that nearest to the frontage is the most valuable. The rental values of the various areas will be added together to provide an overall rental value for the property.
The value of a piece of land is determined according to the property evaluation law (“Liegenschaftsbewertungsgesetz”) and the evaluation methods detailed in that law. Accordingly, if the law or the legal transaction do not stipulate otherwise, the market value of the property is to be determined. This is the price that can normally be achieved on a sale in a business transaction. Value ascertainment methods are used for the evaluation, such as the method of comparison, the gross rental method and the asset value method.
Investment properties are commonly referred to as being sold on a particular yield, meaning the investment return that will be gained from the capital sum which it is necessary to pay to buy the property. For example, where a property with an aggregate rent of EUR 10,000,00 is sold for EUR 200,000.00 it will have a yield of 5%. Conversely, the interest can be said to have been sold at a YP (years’ purchase) of 20.
12. Taxes and Costs – What are they and who pays them?
With regard to taxation, the transfer of property is subject to real property acquisition tax amounting to 3.5 % of the purchase price. The real property acquisition tax is normally not levied in case of a share deal. However, if 100% of the shares of a company, which ownes real property, are united in one hand, this tax falls due also in case of a share deal.
A further fee of 1.1% of the purchase price is charged for the entry of the right into the Land Register (only in case of asset deal).
Pursuant to the Turnover Tax Law (UStG), sales of property are fictitiously exempted from the turnover tax. However, a buyer has the option of treating the transaction as subject to the tax payment. This is to be recommended if input tax charges are to remain deductible or if a correction of input tax charges already asserted is to be avoided. However, it needs to be noted that the turnover tax (20%) added increases both the purchase price and the real property acquisition tax.
During the due diligence for the acquisition, the buyer will also pay the costs of conducting searches, including in particular of the local authority (which includes zoning matters, building regulations and general municipal consents, notices, etc), and, if relevant, companies providing utilities, the local waterways boards, the Environment Agency, railway operators, and coal authority. The buyer will also pay for any valuations and surveys of the physical state of the property and for any environmental audits or desktop studies.
Occasionally, the negotiated heads of terms for a transaction will provide for one or other party to pay the other’s costs. Generally, each party pays its own expenses. If the property is leasehold, the seller is usually responsible for paying the costs of obtaining any consent required from any landlord in order to sell.
Finally, the buyer will be responsible for the payment of the Land Registry fees associated with registration of the transfer to the buyer.
Since 2012 selling real property is also subject to income taxation in the private sphere. The income tax is basically 25% of the profit (selling price less acquisition cost) gained. As of 2016, the tax rate will be increased from 25% to 30%. An exemption is made for people who lived in the sold property for two years continuously before the sale or for five years continuously within the last ten years before the sale.
Belgium
1. Parties and Ownership – Who can own real estate and what types of ownership are there?
Parties
Any legal person can own real estate.
As to legal capacity, Belgian law distinguishes between individuals, legal entities and foundations.
Legal entities may either be private law entities (such as non-profit making associations, commercial companies or organisations of economic interest), or public law entities (such as the State, communities, regions, public establishments or public autonomous companies).
Foundations are patrimonies allocated to one or several individuals or legal entities. They can be of public or private use.
Owners of real estate therefore include private developers, insurance companies, banks and other financial institutions, private or public companies, government and local authorities, etc.
There is no restriction on real estate ownership based on the citizenship of the owner.
Ownership
Ownership is either private or public, depending upon whether the person with title to the property is a legal person under private law or a legal entity in public law (State, regions, communities, provinces, municipalities, etc.).
Private ownership can also be either individual or plural, according to whether the legal person with title is an individual or a group of individuals, e.g. co-ownership. Co-ownership describes the situation where two or more people each have a portion of legal ownership of the same thing. The co-owner can encumber its portion of the rights in rem (e.g. mortgage).
The Belgian law of 30 June 1994 governs the regime for mandatory co-ownership, in particular the mandatory co-ownership of buildings such as apartment blocks.
It is to be noted that Belgian law draws a distinction between ownership and possession. Possession is where a person behaves as owner regardless of the question of whether or not the possessor is the owner. Belgian law, in the field of real estate, offers protection to a person in possession, granting him possessory actions permitting him to defend himself quickly, at little cost, against each person interfering with his possession.
A person in possession for a certain period can, subject to compliance with certain conditions, become the owner. This mechanism is known as adverse possession. In this regard, article 2262 of the Civil Code stipulates that a real property is “adversely possessed” after 30 years, meaning that the ownership of a property will only be acquired by adverse possession after 30 years have elapsed.
2. Interests – What types of real estate are sold?
In Belgian law, patrimonial rights are divided into two categories: real rights (rights in rem) and personal rights (rights in personam).
In property law, rights in personam essentially originate from the relationship between landlord and tenant pursuant to a lease agreement.
There are four types of property lease under Belgian law: the standard (civil) lease, the retail lease (often misleadingly called “commercial lease”), the residential lease and the agricultural lease. Office leases are governed by the rules applicable to standard (civil) leases.
In contrast to rights in personam, there are a limited number of rights in rem. Under Belgian law, the following are considered real rights:
  • Ownership
  • Usufruct
  • Rights of usage
  • Rights of residence
  • Emphyteotic lease
  • Right of superficies (also referred to as building right)

The most absolute right in rem is the right of ownership.
Real estate ownership entails all the rights and privileges afforded to the owner, which includes the right to use the property, the right to receive all revenues flowing from the property and the right to abuse the property (including its destruction), subject to restrictions imposed by any applicable laws and regulations and subject to sanctions arising pursuant to the rules of civil liability when the owner is either causing damage to others through his/her fault or, through no fault, is causing abnormal damage to neighbouring properties.
Pursuant to the principle of accession, ownership of land automatically brings with it ownership of all that is erected on it. Accession is therefore a method of acquiring ownership whereby the owner of a principal asset becomes the owner of all that is incorporated therein.
According to this principle, the owner of a plot of land automatically becomes the owner of any construction erected on the land, regardless of the identity of the person who erected the building and/or the ownership of the building materials, unless otherwise agreed with that person. It is possible for the owner to waive its right of accession. Such waiver results in the builder becoming owner of the building and is generally construed as giving rise to a right of superficies or an emphyteotic right (long lease) which, by law, are limited to 50 years (superficies) or 99 years (emphyteotic).
Rights in rem (other than the right of ownership) over property are from time to time created to grant a right of use over property. Usufruct, emphyteotic lease and the right of superficies are all examples of this. For the “lessee” they usually offer more stability than a mere lease. For the “lessor” they usually guarantee income over a long period of time.
Moreover, in certain circumstances, the acquisition of rights in rem can be considered as an alternative to a purchase. Rights in rem are usually granted for a very long period (up to 99 years), and procure extensive rights for their holder.
Transactions having the effect of transferring title to a real estate property or of creating a right in rem encumbering such a property may be recorded at the Mortgage Registrar Office. Registration is required in order to have a title enforceable against all third parties, who may take precedence in the absence registration (see section 12).
3. Employees – What employment issues affect real estate acquisitions?
Employment issues are not common in relation to the acquisition of real estate. Those which may be relevant to real estate transactions typically concern the transfer of undertakings and redundancies.
Transfer of undertakings – TUPE
TUPE is likely to have significant consequences on employment issues. TUPE applies when there is a change of employer. There is no change of employer when the operation only consists in the change of shareholder. It may apply when there is the sale or transfer of a business or, for example, the outsourcing of the management of a property to a third party. This might occur in the sale of a shopping centre having its own management and security staff. The broad effects of TUPE are that:
  • the employment contracts are automatically transferred from the transferor to the transferee
  • the working conditions (seniority, salary, responsibilities, working time, etc.) and collective bargaining agreements (working hours, thirteenth month, salary, etc.) existing with the transferor have to be maintained, except in principle for the old-age, invalidity and pension benefits payable under schemes supplementing the official social security system
  • transferor and transferee are in principle jointly liable for the debts resulting from the employment contracts existing at the time of the transfer
  • dismissal for a reason connected to the transfer is automatically unlawful – unless for an “economic, technical or organisational reason entailing changes in the workforce” and
  • employees’ representatives must be informed and consulted about the transfer prior to the transfer (if there are no employees’ representatives, the employees concerned by the transfer have to be informed).

Although the legal effects of TUPE cannot be avoided, it is possible to apportion TUPE liabilities by agreement between the transferor and the transferee. Normally the transferor will agree to be responsible for all claims and liabilities relating to employees up to the date of transfer, and the transferee will take on all post-transfer employment liabilities. Such an agreement concluded between the transferor and transferee has no effect as against third parties.
Redundancies
Redundancies may arise on the closure of a business or part of a business or where there is a reduction in the number of employees required, for example on the merger of two businesses or a TUPE transfer. Care should be taken to ensure that the redundancies are carried out according to a strict procedure which entails information and consultation of the employees or their representatives, before any decision is taken.
4. Procedure – What are the steps in a sale and purchase transaction?
The direct acquisition of a property is made by the seller and the buyer entering into a contract of sale. The contract of sale is concluded when there is an agreement between them on the property being sold, on the price and on the essential elements of the contract.
The contract of sale is documented in writing. This written contract may be drafted privately, i.e. without the intervention of a public notary. It is then commonly called a compromis de vente/verkoopscompromis.
The compromis de vente/verkoopscompromis is only enforceable between the seller and the buyer.
For the purpose of making the transfer of title enforceable against third parties, the sale must be recorded on the land register called Mortgage Registrar. This formality is called the transcription/overschrijving.
For the purpose of recording the sale in the Mortgage Registrar, the seller and the buyer must normally sign a notarial deed with a public notary.
The public notary takes care of recording the deed on the Mortgage Registrar.
In practice, the compromis de vente/verkoopscompromis is signed in a first phase. The signature of the notarial deed takes place in a second phase, not exceeding four months. The transfer tax (see section 12) is due prior to recording the deed in the Mortgage Registrar and latest four months after the signature of the compromis de vente/verkoopscompromis.
The public notary must notify the tax authorities of the sale transaction at least 12 business days prior to the execution of the notarial deed. If taxes are due by the seller, they will be deducted by the notary public from the purchase price.
Certain formalities which may include an environmental survey and/or the delivery of information in relation to the energy performance of the building, must be carried out in order to validly complete the sale of the property.
5. Contract terms – What provisions does a real estate contract contain and what is implied by law?
Provisions of the contract
A contract of sale, as mentioned in section 4, is at the outset an agreement between the seller and the buyer, and is called a compromis de vente/verkoopscompromis.
This contract is made in writing and contains agreement on the property sold, on the price and on the essential elements of the contract.
By the signature of the compromis de vente/verkoopscompromis, the sale is perfected between the seller and the buyer. It is definitive. The seller is under the obligation to transfer the property to the buyer and the buyer must pay the price to the seller. The agreement must provide for the timing of the transfer of title. Normally, such transfer is deferred until the signing of the notary deed.
However, parties can postpone the definitive character of the compromis de vente/verkoopscompromis and defer its effects by way of conditions precedent.
A real estate sale agreement commonly contains, whatever the nature of the property sold, provisions concerning the identification of the parties, the property being sold and the state of the property. Since the buyer buys the property in its current condition at the moment of the transfer of title and such transfer is usually deferred until the signature of the notarial deed, if damage occurs between the compromis de vente/verkoopscompromis and the signature of the notarial deed, the seller will be responsible for the repair. The parties do, however, have the ability to provide for other arrangements.
Every easement on the property being sold and known by the seller or which appears on the title deeds of the property will be mentioned in the agreement.
As the price is an essential element of the contract of sale, it has to be established with certainty. In the majority of the cases, the price will be paid on the day of execution of the notarial deed. Usually, a deposit of 10% of the total sale price is paid upon the signature of the compromis de vente/verkoopscompromis.
The compromis de vente/verkoopscompromis and the notarial deed usually contain a clause discharging the seller of all its obligations due to any hidden flaws (but only those the seller was not aware at that time).
It is usual that the seller declares that the property is insured against fire and other connected risks until the notarial deed is signed. By law, this cover extends for a period of three months following the sale.
The agreement contains a discharge for the property concerning charges and mortgages and the notary will carry out the necessary steps to that effect.
The contract of sale will provide for some general clauses concerning the conformity of the property sold with the town planning legislation. Similarly, the contract of sale will also contain clauses dealing with compliance with environmental legislation, including soil pollution (see section 10).
Terms implied by law
The Civil Code provides for two guarantees: a guarantee in respect of hidden defects affecting the property and a guarantee in respect of the title to the property.
The guarantee in respect of hidden defects is generally waived by the buyer. Such waiver however does not cover defects of which the seller was aware at the time of the sale.
6. Due Diligence – What investigations does the buyer normally make?
Before signing the compromis de vente/verkoopscompromis]]>
The prudent buyer is likely to commission a survey of the building and in appropriate cases, soil and geological investigations, plant and machinery tests, and environmental investigations.
In the context of the pre-acquisition due diligence, the buyer’s lawyers will investigate the title to the property. The buyer’s lawyers will consider the entries in the Mortgage Registrar and all relevant historic title documents.
In practice, the buyer’s lawyers will order a mortgage certificate from the Mortgage Registrar. The certificate will confirm whether or not the title is registered. Additional details of all other registered interests of the seller need also to be obtained from the Mortgage Registrar.
Where the property is leasehold, or subject to leasehold or other occupational interests, the terms of the relevant occupational documents need to be considered carefully to ensure they are not contrary to the buyer’s intentions for the property. The buyer’s lawyers will also need to check whether these documents require the consent of any third party to the transaction.
The buyer’s lawyers will also conduct various searches to check the position regarding municipal and zoning consents, environmental matters, easements, works carried out, etc. Where the seller is a company and the sale bears on its business or activities, the buyer’s lawyers will also conduct searches regarding all properties owned or occupied by the company in relation to its business or activities. A search will also be done to ascertain whether the company is solvent and may dispose of its assets freely.
The buyer’s lawyers will then raise any particular matter of concern with the seller.
The seller generally gives representations, which may be actionable if wrong or misleading.
Reporting to the client
Before the execution of the agreement the buyer’s lawyers usually report their due diligence findings to their client, raising any matter of particular importance or concern. As the case may, this may lead to the negotiation of specific indemnity clauses.
Pre-completion
Before completion (which materialises in the execution of the notarial deed), the buyer’s lawyers will normally ask the seller to divulge any further information that has arisen since the signature of the compromis de vente/verkoopscompromis.
7. Registration and Notarisation of real estate – What are the basic requirements?
In Belgium, the land register is called the Mortgage Registrar (Bureau de la Conservation des Hypothèques/Kantoor van Bewaring der Hypotheken).
Belgium has a Mortgage Registrar for each judicial district.
Registration of title with the Mortgage Registrar is required in order to have enforceable title vis-à-vis third parties who are entitled to rely on the absence of public registration in the register. Only persons legally succeeding to the owner and persons acting mala fide are deemed to have knowledge relating to the title of the owner even if the transaction relating to the transfer of title has not been recorded with the Mortgage Registrar.
Transactions having the effect of transferring title to a property, or of creating a right in rem encumbering such a property, such as a right of superficies, may be recorded with the Mortgage Registrar but only if they occur pursuant to a contract between living persons. Transfer of title occurring following the death of a person or pursuant to the law (such as by way of accession) may not be recorded with the Mortgage Registrar.
Recording the relevant transactions must occur as soon as possible in order to render the transfer of title enforceable vis-à-vis third parties.
The costs of registration consist of the notarial fees and the fees of the Mortgage Registrar. These fees are fixed by royal decree and depend on the type of transaction and the amount involved. They are usually based on a scale or on a percentage of the amount involved in the transaction.
8. Permits – What permits are required for the use and occupation of real estate and are they personal?
Planning/Zoning permit
In general, a building permit will be required for the construction of a new property or for the re-building (i.e. refurbishment of an existing building or for the change of use of a building).
The Flemish, Brussels and Walloon Regions are mainly responsible for developing and setting up the town planning policy. In the Flemish and Walloon Regions, the municipal authorities (Collège des bourgmestres et échevins/College van Burgemeester en Schepenen or Council of the Mayor and his Aides) are competent to deliver building permits. In Brussels, the regional public servant (fonctionnaire-délégué/gemachtigd ambtenaar) is competent to deliver building permits that require an environmental impact assessment, or that impact on works that are considered of general interest (e.g. utilities, public buildings, …) or which are located in specific areas.
When deciding on the issue of a building permit, the relevant authorities will first examine whether the intended construction or re-construction complies with any applicable zoning plans that have been adopted at the regional and/or municipal levels. The relevant authorities will also consider the general interest of the public and the interest of the so-called good town planning.
Moreover, for most building projects, a prior evaluation of the building project’s effect on the environment is to be provided by the applicant at the time of application. For specific projects, a study of such impact must be performed by agreed bodies and will give rise to a public inquiry. Account must also be taken of the specific regional legislation implementing the Energy Performance of Buildings Directive.
If the building permit application requires derogation from an applicable zoning plan or if no zoning plan applies to the construction in question, the prior advice of the regional public servant is required. However, this advisory system does not exist in the Flemish Region (except for a few municipalities as a transitory measure).
After construction, the competent authority will verify whether the construction was made in accordance with the provisions of the permit granted.
A different type of specific permit is required for construction works relating to historically or architecturally important buildings or landscapes. The Flemish, Brussels and Walloon Regions have adopted Decrees which set up an inventory of protected monuments or landscapes. In the Brussels and Flemish Regions, the specific permit is integrated in the building permit, but in the of case construction works that would not otherwise require a building permit, the specific permit must be obtained separately.
Commercial establishment permit
Since 1 June 2014, permits for commercial establishments are regulated by the Regions and no longer by the Federal state.
In the Flemish Region, the Act of 13 August 2004 on permits for commercial establishments, the so-called “Ikea Act”, requires municipal authorities to issue a socio-economic permit for stores of a “net commercial area” exceeding 400 sqm. If the net commercial area exceeds 1,000 sqm, an advisory opinion of the regional Committee is required. Decisions taken by a relevant municipal authority can be challenged, in the first instance, before the Government and then before the Council of State and/or courts.
The delivery of the permit requires assessment of the following four criteria:
  • spatial location of the commercial site;
  • consumer protection;
  • compliance with social and employment law;
  • protection of the urban environment.

The Walloon Region has adopted a new Decree on permits for commercial establishments. A permit is required for stores having a “net commercial area” of between 400 sqm and 2,000 sqm. Such permits are issued by the municipal authorities.
If the net commercial area exceeds 2,000 sqm, the permit is issued by the Regional civil servant (Fonctionnaire des implantations commerciales). In assessing “the net commercial area”, different advisory opinions may be required. The decision taken by a relevant authority can be challenged, in the first instance, before the Government and then before the Council of State and/or courts.
The delivery of the permit requires assessment of the following four criteria:
  • spatial location of the commercial site;
  • consumer protection;
  • compliance with social and employment law;
  • protection of the urban environment.

In the Brussels Region, the commercial establishment permit is been included in the building permit (please see above).
Environmental permit
In relation to environmental issues, the municipal authorities are responsible for issuing low level environmental permits.
High level environmental permits have to be issued by the provincial authorities in the Flemish Region or, in the Brussels Region, by a special body: the Brussels Institute for Environmental Management (IBGE/BIM).
In the Flemish Region, environmental permits are governed by the Decree of 28 June 1985 regarding environmental permits (“Environmental Permit Decree”). The Environmental Permit Decree has introduced a comprehensive environmental consent system for listed facilities in this region. The Environmental Permit Decree was implemented by the Flemish governmental Decree of 6 February 1991 (commonly referred to as VLAREM I). The Environmental Permit Decree applies to so-called installations and/or activities, which are considered to be harmful to human beings or the environment. The Decree distinguishes between three classes of installations: Class 1 and 2 installations require a prior environmental permit whilst Class 3 installations only need to be notified to the municipal executive board. An application must be filed with the municipal executive board (Class 1 installations) or the provincial executive board (Class 2 installations). The holder of the permit granted under the Environmental Permit Decree must comply with any applicable environmental regulations, such as, but not limited to, those contained in the Flemish governmental Decree of 1 June 1995 (commonly referred to as VLAREM II).
In the Brussels Region, environmental permits are governed by the Regional Act of 5 June 1997 on environmental Permits (BRAEP). The BRAEP introduces a comprehensive environmental permitting system for listed facilities in the Brussels Region. The BRAEP applies to installations and/or activities that are deemed to be harmful to human beings or the environment. Listed installations are classified into four categories: class IA, class IB, class II and class III. Class IA and class IB installations require a prior environmental permit to be obtained from the Brussels Institute for Environmental Management (IBGE/BIM). Class II installations require a permit from the municipal executive board. Those permits require an assessment of the effects on the environment and a public inquiry. For class IA, this assessment has to be done by a licensed consultancy and engineering company. Class III installations need only to be notified to the municipal executive board. The holder of the permit granted under the BRAEP must comply with any applicable environmental regulations.
In the Walloon Region, environmental permits are governed by the Regional Act of 11 March 1999 on Environmental Permits (WRAEP). The WRAEP has introduced a comprehensive environmental permitting system for listed facilities in this region. The WRAEP was implemented by the Walloon governmental decrees of 4 July 2002. The WRAEP applies to so-called installations and/or activities that are considered to be harmful to human beings or the environment. The WRAEP distinguishes between three classes of installations: Class 1 and 2 installations require a prior environmental permit whilst Class 3 installations need only to be notified to the municipal executive board. An application must be filed with the municipal executive board (Class 1 and 2 installations). Those permits require an assessment of the effects on the environment and a public inquiry. For class 1, this assessment has to be done by a licensed consultancy and engineering company. The holder of the permit granted under the WRAEP must comply with any applicable environmental regulations.
Environmental permits related to risk activities are issued in compliance with the IPPC regulation, which from January 2014 is replaced by the directive 2010/75/EU of the European Parliament and of the Council of 24 November 2010 on industrial emissions.
In the Brussels and the Flemish Regions, the building permit will only become effective once an environmental permit has been obtained and vice versa.
The Walloon Region has merged the building and the environmental permit into one single authorization called “permis unique”.
9. Insurance and Risk – What insurance will the parties effect and when does the insurance risk pass at the time of sale?
The owner of a property will in most cases be responsible for the insurance of the property prior to a contemplated sale.
However, where the property is subject to a lease, the terms of the lease will determine which party has the responsibility to insure the property. Often, commercial or residential lease agreements provide that the tenant is held liable for insuring the contents of the leased property, whereas the lessor remains responsible for the outside of the building and for construction-related damage.
With regard to buildings which are under construction, it is important that parties arrange clearly for the changeover of the insurance responsibility from the constructor to the buyer. During the construction of the property, the contractor (unless the parties agree otherwise) remains liable for all risks related to and damage caused by or in the process of construction. As from the delivery of the buildings to the buyer (or tenant), the construction policy will no longer apply and the buyer (or tenant) will need to take out other insurance.
Insurance policies are contracts intuitu personae, implying that their conclusion and existence depend on the personal qualities or capacities of the contracting party. Insurance policies are therefore not transferable on the sale of a real estate property. In larger real estate transactions it is often contractually provided that the seller of the property undertakes, during a certain time after the closing of the sale, to maintain and hold the insurance policies applicable to the property. This allows the buyer some time to arrange for the required insurance transition.
10. Environmental – What are the common environmental issues?
Note: Besides soil contamination, the presence of all required and valid environmental permits/socio-economic permits (see section 14) is also an important issue in real estate transactions, as well as PEB regulations.
Soil contamination
Following the Flemish Soil Decree of 27 October 2006 (replacing an earlier decree), every owner of land located on Flemish territory must, prior to any transfer of land, request a soil certificate from the Flemish Waste Administration (OVAM) and inform the prospective acquirer of the land about the content of this certificate. The content of the soil certificate must also be copied into the private and notarial transfer deed.
“Transfer” is broadly defined in the Decree. It includes the transfer of ownership as such, the establishment of any rights in rem on land, mergers, etc. Share transactions do not, however, qualify as a transfer under the legislation. Transfers of properties that fall under the regime of co-ownership are also excluded under some circumstances.
Failure of the owner to comply with the obligation set out above carries fines. Moreover, the purchaser and/or OVAM may request the courts to nullify the transaction.
The soil certificate does not constitute a guarantee that there is no pollution on the transferred land. It only reflects the data available in OVAM’s registers of contaminated land as to the state of contamination of the land.
In addition to this general transferor’s duty, a strict procedure must be followed for land on which an installation/activity is or was established/performed, and which is listed as a risk installation/activity in the schedules to the VLAREM I Decree (see section 14). This list specifies activities and installations which require an environmental permit, normally industrial activities/installations involving dangerous and/or hazardous substances.
Land on which such risk activity or installation is or has been located can only be transferred after the owner complies with a specific procedure as provided by the Decree of 27 October 2006.
In the Brussels Region, a Decree on soil pollution was adopted on 5 March 2009 (replacing an earlier decree). The Decree came into force on 1 January 2010. The procedural rules provided by this Decree in respect of property transfers do not substantially differ from those of the Flemish Decree of 27 October 2006. The Decree provides for the creation of an inventory of contaminated soils and soils where there is a strong presumption of pollution. In this inventory, the name of the owner is recorded. This inventory is public and constitutes a source of information for a prospective buyer. To remove the site from the inventory, clean up may be required.
In the Walloon Region, a Decree on soil pollution was adopted on 5 December 2008 (also replacing an earlier decree). The Decree came into force on 16 June 2009, with the exception of its provisions on transfers of properties which will enter into force at a later date (to be determined by the government).
11. Pricing/Valuation – What sets the price/valuation of real estate?
The price must be certain, be it determined or determinable (specified by the square metre or according to expert opinion.) Furthermore, the price must be real, i.e. not simply nominal. It may be that a nominal price is an attempt to disguise a gift. A gift will be upheld at law.
The determination of the price cannot turn on the will of one of the parties or upon the conclusion of an agreement post-sale.
Pursuant to article 1591 of the Civil Code, the price is, in principle, fixed by the parties.
Article 1592, however, envisages that the price can be determined by a third party expert. The third party may play either an ancillary or a principal role. In the former case, the parties decide on the basic sum, and the exact price is calculated by an expert. The contract governs the actions of the expert. Alternatively, the determination of the price could be left to the discretion of the expert, through an express clause in the contract. In these circumstances, the sale will only complete and the property transferred once the expert has fixed the price.
12. Taxes and Costs – What are they and who pays them?
Generally, please refer to our CMS transaction costs guide as to the nature and amount of taxes and costs.
Transfer tax
The transfer or exchange of real estate located in Belgium is as a rule subject to a 12.5% or 10% (depending upon whether the property is located in Brussels/Wallonia or Flanders) transfer tax (droit d’enregistrement/registratierecht) calculated on the higher of the sale price and the market value of the property. The market value of a property is defined as the selling price that could be obtained in the open market from a potential purchaser fully aware of all the circumstances. The transfer tax is normally payable by the buyer unless otherwise agreed between the parties.
Reduced rates are applicable in some cases. For example, the transfer tax rate is reduced to 5% when the buyer is a property dealer whose business activities involve the buying and selling of properties, provided that the property is resold within ten years from the date of purchase. In order to benefit from the property dealer status, the buyer will have to provide a guarantee to the tax authorities. In order to maintain such status, the dealer must sell at least three properties within a period of five years following the acquisition of the status.
Where the selling price is proven to be lower than the market value, the tax authorities are empowered to impose a penalty on the purchaser and on the seller equal to the amount of the tax evaded. (see below)
Under certain conditions, the transfer tax can be partially recovered when a property is resold within two years of its acquisition.
VAT
The transfer of buildings is, under certain conditions, subject to value added tax (VAT) at a rate of 21%. In such a case, no transfer tax will be due.
The VAT regime applies to sales of buildings where (i) the seller is either a real estate contractor or has opted to sell the building with VAT and (ii) the building is “new” within the meaning of the VAT legislation. A building is considered new for VAT purposes until 31 December of the second year following the year in which the building was occupied for the first time.
Since 1 January 2011, the transfer of land (taking place together with a “new” building – see above) is, under certain conditions, subject to VAT and exempt from transfer tax.
If the acquisition is made under the VAT regime, the purchaser will be entitled to deduct in whole or in part the input VAT insofar as it uses the building for economic activities that are subject to VAT.
According to the Belgian VAT Code, the letting of immovable property is in principle a VAT-exempt transaction. If buildings that have been constructed or have been acquired with VAT are rented, the input VAT paid will not be recoverable.
If a real estate finance leasing agreement which meets the conditions of Royal Decree n°30 of 29 December 1992 is entered into for a newly constructed building, the rent payable by the lessee will be subject to VAT and therefore the input VAT on the buildings will be recoverable.
Income tax and annual property tax
For income tax purposes, a deemed income (the so-called revenu cadastral / kadastraal inkomst) is calculated for all properties located in Belgium. This income is determined by reference to the “normal” net annual rental income of the property, or of the equipment which is regarded as immovable property.
Based on this deemed income, the annual property tax (précompte immobilier /onroerende voorheffing) is levied each year by way of assessment against the owner, emphyteotic lessee or the holder of a right of usufruct. The rate varies depending on where the property is situated.
The annual property tax is always assessed in the hands of the person who owns the property, or of the holder of a right in rem thereon, on 1 January of the year in question. If the property is transferred after that date, the purchaser will not have to bear that charge for the first year, unless otherwise agreed between the parties.
The annual property tax is to be considered as a once-and-for-all tax, as it will not be refunded and cannot be credited against corporate tax. It is, however, deductible from a company’s taxable income as a business expense.
Corporate income tax
A real estate company is subject to normal corporate income tax at the current rate of 33.99%. The taxable income is determined on the basis of the company’s annual accounts subject to certain tax adjustments, such as the disallowance of certain expenses and the taxation of certain provisions for future charges or for bad debts.
The company’s net income will therefore be calculated by deducting from the gross income the expenses connected with the property, such as depreciation of buildings, repairs, maintenance, renovation and similar costs, interest on loans taken out to finance the acquisition of real estate, annual property tax, etc. Office buildings may be depreciated at the rate of 3%, industrial buildings at the rate of 5%. Depreciation of land is in principle not possible. The transfer tax or the non-recoverable part of input VAT on a property acquired can either be deducted in the year of acquisition or can be depreciated over the depreciation period of the building or over a shorter period of time (e.g. three or five years).
Foreign companies may be subject to a special withholding tax on the sale of Belgian properties. This withholding tax, which constitutes a pre-payment that may be offset against the final corporate tax bill, is collected by the civil law notary when the deed of sale is signed. This special withholding tax (33.99%) is calculated on the amount of the capital gain realised by the foreign company, without any deduction of losses carried forward.
Fees
All costs associated with the sale of a property are met by the purchaser on the date the notarial deed of sale is signed.
The main costs include the transfer tax, VAT, the Mortgage Registrar fees and the notary fees.
Bosnia and Herzegovina
1. Parties and Ownership – Who can own real estate and what types of ownership are there?
Parties
Any natural person or legal entity may own real estate. This will include individuals, companies, associations and other entities having legal standing, units of local and regional government and Bosnia and Herzegovina.
Foreign persons acquire right to ownership in the Federation under the condition of reciprocity, except when the ownership right is acquired by inheritance unless the law or international agreement specify otherwise, it is assumed that there is reciprocity.
Persons who do not have citizenship of Bosnia and Herzegovina are not considered as foreign persons under this law if they or their descendants were born in Bosnia and Herzegovina.
Ownership
There is only one type of ownership.
Ownership is the most comprehensive right a person / legal entity can hold in relation to property. The right of ownership is defined as a property right (right ) on a particular object, authorising the holder to use the object and any benefits arising from it as he sees fit, and to exclude any other person from it, unless that is contrary to such other person’s right or limitations imposed by the law. The owner`s rights include possession, use, utilisation and free and unlimited disposal.
Acquisition of ownership over real estate is subject to registration of ownership at the Land Registry.
Where more than one person has ownership over a single property, they will hold their interest as follows:
  • Co-ownership (“suvlasništvo”)– each of the owners has a defined or fixed share in the property. Each co-owner is entitled to dispose freely his co-ownership share.
  • Joint ownership (“zajedničko vlasništvo”) – the shares of the joint owners are not fixed. All owners can only dispose the property (being jointly owned) together.
  • Condominium (“etažno vlasništvo”)– this is a specific type of ownership used for apartments. Co-owners of a property may agree to limit their co-owner’s rights by connecting the ownership of a particular part of the property (apartment) to their co-ownership share of the co-owned real property.

Co-owners of one of the flats, business premises or independent facilities have pre-emption rights where a sale is intended by another co-owner.
A co-owner who sells his condominium is obliged to first offer to sell to the other co-owners.
2. Interests – What types of interest in real estate are sold?
The BiH law recognizes following types of property rights (rights ):
  • Right of ownership – such ownership extends to buildings / structures on or beneath the land, unless limitations are created.
  • Easements: personal and property.
  • Pledge / Mortgage / Land debt
  • Property Encumbrance (“stvarni teret”)
  • Construction Right – a right to build over somebody else’s property. The constructed building is legally from the land on which it is built. The owner of the building will be the holder of the Construction Right and may not necessarily be the same person as the owner of the land encumbered by the Construction Right.

Property rights have to be registered at the Land Registry in order to come into existence, except when acquisition occurs by virtue of the law. The acquisition of such rights therefore requires a legal basis (a valid and binding agreement concluded in the form of a notary deed) and registration at the Land Registry.
A lease does not create a property interest, but merely a contractual right to use the property. The period for which a lease can be entered into is not limited by law, and depends on the agreement of the parties. Lease agreements can also be registered at the Land Registry.
3. Employees – What employment issues affect real estate acquisitions?
Typical employment issues which may be relevant to real estate transactions include the transfer of undertaking or business or a part thereof to another employer.
Pursuant to the labour legislation, in the case when an undertaking, business or part thereof is transferred (possibly as the part of the real estate acquisitions) to another employer, but retains its economic integrity, all employment contracts of employees working in such undertaking, business or part thereof, shall be transferred to the new employer as well. For example, this might occur in the sale of a hotel or a shopping centre.
The broad effects of such a transfer are:
  • with effect from completion of the transfer, the purchaser assumes responsibility for employees working in the transferred undertaking, business or part.
  • accrued continuity of employment is preserved (the employees whose employment contracts have been transferred retain all rights arising from the employment acquired before the date of the transfer).
  • both employers are severally liable to the employees for obligations arising before completion of the transfer.
  • collective agreements applied to employees before the transfer continue to be applied until the conclusion of a new collective agreement, but for no longer than one year.
  • if employees elected their representatives prior to the transfer, such persons continue their activities, until the expiry of the term for which they were elected.
  • employees / employees’ elected representatives must be informed / consulted about the transfer.

The above cannot be avoided. The parties to the transfer may contractually agree on different apportionments of liabilities as between them, but this will not affect the employees’ rights.
4. Procedure – What are the steps in a sale and purchase transaction?
Use of heads of terms (memorandum of understanding / letter of intent) is customary for more complex projects.
The seller’s lawyers will usually collate all information relating to the property and send it to the buyer’s lawyers together with a draft sale and purchase agreement (contract). The form of the agreement will vary depending on whether the property is unbuilt land, under construction or already built, and the extent to which property rights have already been granted to third parties.
The buyer’s lawyers will undertake thorough due diligence of all legal documents relating to the property and will provide their own comments on the draft sale and purchase agreement. If the purchase is made with borrowed finance, the lender may instruct its own lawyers to carry out property due diligence.
If financing is not in place or there are identified issues with the property that the seller has to remedy before the transfer occurs, the parties may first enter into a pre-agreement, undertaking an obligation to enter into a final sale and purchase agreement once the identified issues have been cleared / financing has been approved. In such a case, it is usual for the buyer to provide a 5 – 10% deposit to the seller as a sign that the buyer is serious about the transaction and as “security” that the buyer will enter into the final sale and purchase agreement.
After all of the sale and purchase terms /conditions have been agreed and there are no further issues between the parties, the execution of the agreement can occur. A sale and purchase agreement with reference to real property has to be executed in writing – usually it is a single document signed by both parties. Additionally, the signature of the seller has to be certified before a Notary Public so that the agreement may be registered at the Land Registry.
Following the execution of the sale and purchase agreement, the buyer’s lawyers are required to register the transfer at the Land Registry. Real estate transfer tax needs to be paid.
The request for registration of title is to be filed immediately after the execution of the underlying sale and purchase agreement. In order to protect the buyer’s interest between the execution of the sale and purchase agreement and the registration of title, it is usual to use the services of an Escrow Agent. Alternatively, the buyer may decide to request first the pre-registration of title (conditional registration of title) – this allows the buyer to “
reserve
” a priority registration spot in the Land Registry and once the purchase price is paid and the request for registration filed, the registration takes place under the reserved spot.
Title is transferred to the buyer upon its registration in the Land Registry.
5. Contract terms – What provisions does a real estate contract contain and what is implied by law?
Provisions of the contract
An agreement for sale and purchase of a property must be in writing and must contain all main terms and conditions as specified by the law. The agreement must be signed by both the seller and the buyer – usually it is a single document. Additionally, the signature of the seller has to be certified before a Notary Public so that the agreement may be registered at the Land Registry (“Clausula intabulandi”)
Apart from the main terms of the sale and purchase agreement – definition of the property and price (including payment conditions), the agreement usually includes information about the following:
  • parties to the agreement (their full details),
  • all rights encumbering the property (mortgages, easements, pre-emptive rights, leases),
  • conditions for payment of the purchase price – possible payments in instalments,
  • the seller’s statement that it agrees with the registration of the buyer at the Land Registry (“clausula intabulandi” or “tabularna izjava”),
  • a date and conditions for the handover / takeover of possession of the property,
  • a provision indicating which of the parties will pay the real estate transfer tax (RETT),
  • additional warranties,
  • the conditions applicable to any termination rights,
  • if the property being sold is under construction or is an already constructed building, the agreement will also regulate the transfer of permits and rights against the design and construction team.

Terms implied by law
Some of the most significant are as follows:
  • The buyer is required to inspect the property and satisfy itself in all respects as to the nature of the property being acquired.
  • The seller is liable for material and legal defects of the property – unless such defects were known or should have been known to the buyer. In case defects are ascertained, the buyer has a statutory right to seek remedy and damages. The right to seek remedy and damages is subject to specific deadlines. However, such liability can be contractually limited, unless the seller was familiar with a certain defect and did not disclose the relevant information to the buyer.
  • The acquisition of title requires registration of title for the benefit of the buyer at the Land Registry. The principle of trust in the Land Registry applies in relation to certain property in BiH. This means that it is deemed that the Land Registry reflects truthfully and completely the factual and legal position of the property, and that any person who in good faith relies on the information in the Land Registry, not knowing that what is entered in the Land Registry is not complete or is different from the situation outside of the Land Registry, enjoys protection regarding such acquisition in accordance with law. This is important in the case of unregistered interests.

6. Due Diligence – What investigations does the buyer normally make?
Pre-exchange of agreements
Buyers should conduct extensive due diligence of the property. Usually the buyer will perform legal and technical due diligence; and if the seller is a legal entity, also full corporate, commercial, tax and financial due diligence. The usual procedure is for the buyer’s lawyers to prepare a list of documents which they would like to review to the seller’s lawyers.
First, the buyer’s lawyers will conduct a thorough investigation of the ownership title of the property held by the seller. This will include an extensive investigation at the Land Registry, as well as, if necessary, historical documents and deeds that will provide more information regarding the property. This documentation will act as a confirmation of the seller’s registered ownership, and provide important information such as whether the property is subject to encumbrances, which can have a significant impact on the buyer’s final decision to purchase the property. This documentation will also reveal whether there are registered lease agreements, limited property rights established in favour of third parties, court rulings and complaints before the court in regard to the ownership.
Pre-emption rights need to be checked. If they exist, the seller has to offer the property to the holder of the pre-emption right prior to concluding a sale and purchase agreement with a third party.
Additionally, the Cadastre Registry records will be reviewed to confirm that there are no discrepancies between the two registries. (With the entry into force of the new legislation in Republika Srpska (“RS”) land registers and cadastre are now together under the jurisdiction of the Republican administration.)
If the property being sold is under construction or already constructed, the buyer’s lawyer will request from the seller relevant permits and planning and construction consents.
Where the seller is a company, the buyer’s lawyers will perform corporate due diligence, including corporate searches of the seller at the Companies Registry (in BiH referred to as Court Registry attached to relevant Courts) to ascertain whether or not the company is duly registered or solvent and therefore able to dispose of its assets freely. The seller will also be asked to disclose information on material agreements and disputes. Full financial and tax due diligence is usual.
Where the information and documentation provided is not complete or is inconclusive, the buyer’s lawyers will usually ask additional specific questions of the seller’s lawyers, including in relation to practical matters, which may affect the property. The seller generally gives replies, which may be actionable if wrong or misleading. Usually the answers, as well as the general information obligation of the seller, are subject to a negotiated liability limit in the sale and purchase agreement.
During the due diligence process the buyer will often arrange technical surveys of the property.
Reporting to the client
Before execution of the sale and purchase agreement, the buyer’s lawyers report their due diligence findings to their client, raising any matter of particular importance or concern. Their findings are often indirectly included in the sale and purchase agreement – either an issue has been identified that the seller has to remedy before payment of the purchase price, or the seller is asked to deal with specific items or accept / retain identified liabilities.
After the execution
The request for registration of title is filed immediately after the execution of the underlying sale and purchase agreement. In order to protect the buyer’s interest between the execution of the sale and purchase agreement and the registration of title, it is usual to use the services of an Escrow Agent. Alternatively, the buyer may request pre-registration of title (conditional registration of title) – this allows the buyer to “reserve” a priority registration spot at the Land Registry and once the purchase price is paid and the request for registration filed, the registration occurs under the reserved spot.
7. Registration and Notarisation of real estate – What are the basic requirements?
All property rights (rights) over real estate (and some obligations, e.g. pre-emption right, lease, concession) are registered at the Land Registry. The registration of property rights (rights ) is material.
The Land Registry is a public registry available for inspection. It includes information about the property, persons having rights over the property and any encumbrances. Maps detailing the location of the property are kept with a separate registry – the so called Cadastre registry. Despite its name, the Land Registry is not a single registry but a common reference to land registry departments of Municipality courts around BiH. The jurisdiction of a department is determined by the location of the real estate.
The registration procedure is initiated by means of a written request for registration. Together with the request, it is necessary to submit to the competent Land Registry the original documentation on the basis of which the request for registration is based (e.g. (i) public deed or (ii) private deed on which the signature of the transferor has been certified before a Notary Public; and under which documents the transferor explicitly consents to the transfer / registration of rights). If the request is complete, the registration occurs on the basis of a decree on registration, which is issued by the competent Land Registry.
Other forms of registration with the Land Registry are pre-registration (in order to have the same effect as registration, pre-registration has to be subsequently justified and remarked).
8. Permits – What permits are required for the use and occupation of real estate and are they personal?
In BiH, the construction of a building requires a location permit, a construction permit and a usage permit.
The location permit is actually a “planning permit confirming what the owner may build on its land. It is issued in accordance with spatial planning documents.
The construction permit is more of a technical permit confirming how the owner may construct the approved object. At the time this permit is issued, the petitioner has to prove its interest in the property (usually by providing a Land Registry excerpt as proof of registered ownership, but it also suffices to prove future acquisition of ownership by providing a binding preliminary agreement (”predugovor”) or agreement under certain condition precedents (“ugovor sklopljen pod “).
The issuing authority is subject to statutory time periods within which a decision must be made. There are various statutory rights in relation to appeals, which can be made if an application is refused or not determined.
Use of the building requires a separate use permit. The permit is issued after a technical inspection of the constructed building has been performed. It is a confirmation that the building has been constructed pursuant to the issued permits and applicable building and other regulations.
Additional consents for operation of the property will be required, depending on the nature of activities and operations to be performed. For example, sale of goods will require an additional consent by the Ministry of Commerce.
9. Insurance and Risk – What insurance will the parties effect and when does the insurance risk pass at the time of sale?
Before completing the sale of the property, insurance is generally the responsibility of the seller.
Insurance can be acquired for buildings and fixtures and fittings in the event of damage or destruction by any of a comprehensive list of insured risks, which will mostly depend on the requirements of the party seeking insurance and the insurance company.
Once the buyer has acquired the property it can acquire insurance over that property.
Under the terms of the law, risk passes to the buyer of the property. To avoid any issues with reference to this point, it is usual to contractually regulate handover / takeover of possession in detail.
10. Environmental – What are the common environmental issues?
Environmental Law has become very important over the last few years.
Traditionally, the primary environmental consideration has been potential soil and groundwater contamination as a result of current and former uses. In recent years, the consideration has been broadened to include air, nature life and mineral resources research.
There is a statutory obligation to remedy contamination and to undertake measures to prevent harm to occur to people and nature.
In principle, legal responsibility follows the “polluter pays” principle (i.e. the person who spilled, released or discharged the offending substance will normally be liable). In case the owner of a property fails to comply with this statutory obligation, the local or regional authorities may sequestrate the property in order to comply with the respective obligations.
In case the “polluter” is not known, the contamination may be remedied by using funds from the local, regional or state budget. Additionally, under certain conditions, the contamination remedy obligation may pass to the owners and occupiers of the affected property.
Due to the nature of the issue, environmental due diligence is usual. It is important to identify potential problems early on, so that there can be negotiation on terms and/or price and the need for and scope of any remediation.
Additionally, certain construction projects will require the owner and future investor to prepare an environmental impact study before they will be permitted to proceed with the planned development.
11. Pricing/Valuation – What sets the price/valuation of real estate?
BiH Law does not determine a fixed method of assessing the real estate price. The valuers use different standards to assess the value of the real estate – market value is the pre-dominant method.
In the market system the factors and their influences on the value of the real estate are assessed on the basis of the real estate market analysis. The subject system is based on three approaches:
  • cost approach in which the costs of construction of the same (reproduction value) or similar (replacement value) building taking account of physical deterioration, functional and economic superannuation;
  • income or cash flow approach in which the income and expenses of the operation of the real estate are assessed and the current value of the future cash flow is assessed;
  • comparative approach in which recent executed transactions are analysed and the results applied to the specific property.

12. Taxes and Costs – What are they and who pays them?
In case of sale and purchase of real estate, two taxes can apply: real estate transfer tax (RETT) and value added tax (VAT).
Current situation:
RETT at the rate of 5% is payable on the transfer of the land (including contributions). The taxpayer is the party acquiring the real estate. In case of an exchange of real estate between two parties, each party is considered a taxpayer, and in case of a gift of real estate, tax is paid by the beneficiary. The base position to assess RETT is the property’s market value at the time of execution of the underlying agreement. The tax authority is authorized to assess the market value of the property if the total price is lower than the market price at the time of acquisition / signing of the underlying sale and purchase agreement.
The application for taxation must be submitted to the competent tax authority (the tax authority where the real estate is situated) within 30 days as of execution of the underlying agreement. The payment of RETT is due within 15 days of receipt of the tax decree (assessment). Default in payment triggers statutory penalty interest.
The payment of RETT is independent of registration of title at the Land Registry.
VAT – currently at 17 % – is payable on the sale of “new” buildings (“newly constructed buildings
). Due to the prohibition of double taxation when VAT is paid, RETT is not payable.
In addition, in RS an annual property tax is payable at a rate of 0.05% to 0.5% of the estimated value of the property.
VAT is paid by the party acquiring the real estate simultaneously with the purchase price.
Generally each party pays its own expenses and costs. The buyer will usually be responsible for the payment of the Land Registry fees associated with registration of the transfer.
Bulgaria
1. Parties and Ownership – Who can own real estate and what types of ownership are there?
Parties
There are no specific limitations as regards ownership of property. Any legal person, individual, the Bulgarian State and the municipalities may own real estate.
Foreign nationals and companies can own buildings, but under the current law there are some limitations for owning land.
Foreign natural and legal persons may acquire the title to land under the terms of an international agreement which has been ratified, published and has come into force. Foreign individuals may also inherit titles to land.
After 1 January 2014, in compliance with the Treaty concerning the Accession of the Republic of Bulgaria to the European Union, there are no more restrictions in Bulgaria for the acquisition of title to land (including agricultural and forest land) with respect to citizens and legal entities from EU Member States or from Member States under the Agreement on the European Economic Area (“EEA”).
A foreign country or an inter-governmental organization may acquire title to land, buildings and limited real rights in Bulgaria pursuant to an international agreement, law or act of the Council of Ministers. A foreign country cannot acquire the right of ownership to real estate in Bulgaria by inheritance.
In order to avoid restrictions on direct ownership of real estate, it was common practice for foreign nationals and entities that are not from EU Member States or from Member States under the Agreement on the EEA, to acquire property through a Bulgarian company (normally limited liability companies or joint stock companies).
There are some additional restrictions with respect to ownership rights over agricultural land, as it is subject to special legislative protection. Foreign nationals who acquire rights of ownership over agricultural land by means of inheritance by law, but are not from EU Member States or from Member States under the Agreement on the EEA or the contrary is not explicitly provided for in a ratified, published and international agreement in force, are obliged, within a three year period to transfer the ownership to persons who have a right to acquire such estates. If the three year period is not complied with, the Bulgarian state has the right to buy-out the respective agricultural lands at prices determined by an Ordinance of the Council of Ministers. Further, foreign states do not have rights to acquire ownership of agricultural land in Bulgaria.
Under the Agricultural Land Ownership and Use Act three groups of legal entities are denied the right to acquire ownership of agricultural land.
Commercial companies, in which partners and shareholders (directly or indirectly) are companies registered in jurisdictions with preferential tax regimes (offshore zones). Any State or territory with whom the Republic of Bulgaria does not have an effective convention for the avoidance of double taxation and where income tax or corporate tax due is more than 60 per cent lower than the income tax or corporate tax on the income in the Republic of Bulgaria, is deemed to be a jurisdiction with a preferential tax regime.
Commercial companies, where partners and shareholders are foreign nationals who are not form EU Member States or from Member States under the Agreement on the EEA or from a country which is not a party to a ratified, published and international agreement in force permitting the acquisition of agricultural land in Bulgaria, as well as sole proprietor commercial companies, established by such foreign nationals.
Joint-stock companies that have emitted bearer shares.
All legal entities falling under the above three groups were obliged to transfer all agricultural land owned by them by 1 May 2015. If they do not comply with this provision, they will be subject to a monetary sanction in the amount of BGN 100 for each decare (1,000 sq. m.) of land owned in violation of the law. If the transgressor does not transfer the ownership over the agricultural lands within three months after the date of the first sanction, it will be subject to a fine amounting to three times the initial sanction. If the transgressor continues to hold the land in contravention of the provisions of the law, it is subject to a sanction in the amount of BGN 300 for each decare of land after each subsequent period of three months.
Amendments to the Agricultural Land Ownership and Use Act envisage that only natural persons and legal entities which have been resident or established in the Republic of Bulgaria for more than five years are eligible to acquire rights of ownership over agricultural land in Bulgaria, whereas companies registered under Bulgarian law for less than five years may acquire right of ownership over agricultural land, if the partners in the company, respectively the members of the association or the founders of the joint-stock company, would meet the requirements of more than five years of residency or establishment.
Ownership
Ownership of property in Bulgaria is either public or private. Only the Bulgarian State and the municipalities may own public property. Public State and Municipal property is not subject to disposal and may not be acquired by prescription. Private State and Municipal property may not be acquired by prescription until 31 December 2017. Natural and legal persons may own any private property.
Ownership can be acquired by legal transaction (a purchase, donation, legacy, etc.), restitution, legal prescription, construction or annexation of objects or inheritance.
The most common way to acquire property is by the execution of a sale and purchase agreement in the form of a notary deed. Ownership in Bulgaria can be transferred freely, except in case of co-ownership, where the co-owner has pre-emptive rights. Voluntary partition, executed between co-owners who wish to terminate their joint ownership, can also be used to acquire real estate.
People who had their land nationalised by the State during the political regime in Bulgaria prior to 1989 were able to make a restitution claim in to restore their title. To make a claim, an application had to be filed with the Municipal Office of Agriculture by August 1992. If the application was not filed within this time, claims could be brought before a court prior to August 2007, which required written evidence of the right to the land. The Municipal Office had the authority to restore titles to agricultural land with the grant of a fully valid title document. Where the title was restored to descendants of landowners, the Municipal Office would not determine or allot the inheritors’ shares of ownership. In certain cases, instead of restoring the land that had been nationalised, the Municipal Office could grant title to a different area of land which was equal in size and quality.
Acquisition of real estate by legal prescription can be either upon ten years continuous possession or upon five years possession in good faith.
Under Bulgarian law, a person will automatically acquire full legal title to a property if that person has possessed the property continuously (without interruptions) for at least ten years. It is irrelevant whether the possessor has been holding the property in good or bad faith if the possession has been continuous for a period of ten years.
Possession means the exercise of an actual power over a property that the person holds, personally or through a third party, as their own. If someone does not have a title document but state that they hold the property as their own (e.g. live there, pay the related tax, maintain the property, let it to a tenant, do not act on behalf of a third party owner), that person will be deemed to be in possession of the property. A loss of possession for more than six months is classified as an interruption; the period of possession should then be re-started. A successful court claim over a title has the same effect. During the court proceedings the prescription period is deemed to be suspended.
Title to a property may be acquired if a person has possession in good faith of the property for five years without interruption. In order to establish a good faith possession, the owner has to prove that they have valid legal grounds for their title (a notary deed of purchase; inheritance; donation, etc), they believed that the person that transferred the title to them was a legitimate owner and that these conditions have been present from at least the date of acquisition of title to the property. If the conditions are met, the owner gains the full legal title to the property.
Ownership can also be exclusive or joint. The title may belong jointly to two or more persons – the State, municipalities or other legal or natural persons. The shares of the co-owners will be deemed equal until proven otherwise. Each owner will participate in the benefits and burdens of the common property in proportion with their share. The common property will be used and managed in accordance with the majority decision of the co-owners. A co-owner may only sell their share of the property to a third party after presenting written evidence to a notary public that they have made an offer to the other joint owner(s) to purchase the share under the same conditions and declaring in writing that none of the joint owners have accepted the offer.
2. Interests – What types of interest in real estate are sold?
Under Bulgarian law interests in property include:
  • Ownership
  • Limited property rights (right of use, right to construct and easement rights)
  • Contractual rights of use (lease)

Ownership is an absolute title to the property, containing the right of possession, the right of use and the right of disposal. Private property is an inviolable right, protected by the Constitution of the Republic of Bulgaria.
A person with a right of use (a user) may use the property in accordance with its purpose. They have the right to the benefits of the property without causing any essential changes to it, but cannot transfer their right. The user must pay the relevant expenses (including taxes and other charges), maintain the property in the state in which it was received and return the property to the owner after termination of the right. If a term is not agreed, the right of use is terminated with the death of the user, the wind-up of the legal entity of the user, or upon the right not being exercised for five years.
A transfer of the right to construct a building, given to a third party by the land owner, makes the third party an owner of the building constructed on the basis of this right. The land owner may also transfer the ownership of an existing building separately from the land. Ownership of a building independently from the underlying land may also be created through voluntary partition. When the right to construct is created with a fixed time period, after the expiration of the period ownership of the building will pass to the owner of the land free of charge. If the building is destroyed, the person holding the right to construct may construct it again, unless the notary deed granting the right states differently. The landowner has pre-emptive rights in a transfer of the right to construct.
Easements can be established by law (e.g. under the Water Act for access to underground reservoirs or under the Energy Act for running of cables) or by a legal transaction.
Leases under Bulgarian law do not create a property interest, but merely create a contractual right to use property. A private lease can only be signed for a period of up to ten years. Commercial leases can be longer. The lessee is responsible for any repairs related to normal use. The lessor is responsible for all other repairs, unless they are the fault of the lessee. Unless the lease agreement expressly states to the contrary, the lessee may sub-let parts of the leased property without the consent of the lessor. However, the lessee remains liable under the lease agreement. If the use of the property continues after the expiration of the lease with the knowledge of the lessor and without objection, the agreement is deemed extended for an indefinite term.
There is a specific type of agreement relating to the leasing of agricultural land. This is the so-called “arrenda agreement” whereby a party (most commonly the owner) grants to the other party the right to use the agricultural land and to own the crops produced. Payment under those agreements may be in cash or in kind (by means of agricultural production). Arrenda agreements may be signed for a minimum term of five years. If the agreement is signed for an indefinite period or for a period exceeding ten years, arrenda agreements may only be terminated through court proceedings. Arrenda agreements must have notarial certification of the parties’ signatures. They are subject to registration with the Property Register and with a specific register kept by the Municipal Office of Agriculture. 
3. Employees – What employment issues affect real estate acquisitions?
Typical employment issues which may be relevant to real estate transactions arise in relation to the acquisition of real estate through a company asset sale or a share sale of a company.
The acquisition of real estate through the transfer of a business enterprise of the company that owns the real estate rarely happens in Bulgaria. However, in these cases, employment relationships with the employees of the business enterprise pass from the seller to the buyer.
In a transfer of shares of the company that owns real estate, the employer and employment relationships remain unchanged.
In both cases, Bulgarian labour legislation protects the employees and the employer cannot terminate employment contracts without justified reasons. Such reasons could be the downsizing of personnel, a reduction in the volume of work, or the employee not possessing the educational or professional qualification required for the work. In some cases the employer must obtain the prior approval of the Bulgarian Labour Inspectorate.
Transfers of stand-alone real estate which does not include a related business or other company assets do not have any employment implications.
4. Procedure – What are the steps in a sale and purchase transaction?
Normal steps in a sale and purchase transaction are:
  • Signing an agreement with a broker
  • Signing a preliminary sale and purchase agreement
  • Negotiations with a bank for financing the purchase
  • Execution of the real estate transaction before a notary public
  • Registration in the Real Estate Register

Most sellers and buyers in Bulgaria use the services of a real estate agency or a broker who can facilitate the transaction. Usually the buyer and the broker sign an agency agreement. Once the buyer has provided a small deposit for the chosen real estate, he can be granted an exclusivity period during which the broker will not offer the real estate to other potential buyers. This gives the buyer time to carry out due diligence on the property.
After the buyer has conducted satisfactory due diligence the preliminary sale and purchase agreement (a simple contract) is signed with the seller. In Bulgaria, the buyer usually pays 10% of the purchase price as a deposit upon signing of the preliminary agreement. If the purchase falls through due to the fault of the buyer, the seller keeps the deposit. If the purchase falls through due to the fault of the seller, the seller must pay the buyer double the amount of the deposit. Either party to a preliminary agreement may file a claim with the relevant court for execution of the final agreement; the agreement is deemed executed as of the date the court ruling comes into force.
In order to sign a bank credit agreement with the financing bank, copies of the preliminary sale and purchase agreement and the relevant title document must be provided to the bank.
The buyer and the seller then proceed to sign a sale and purchase agreement in the form of a notary deed before a notary public. If the buyer has a mortgage, a mortgage deed in favour of the bank also needs to be signed. Before signing the notary deed, the notary must review all title documents, the certificate for tax assessment of the real estate, the Cadastral plan of the real estate, and any declarations that there are no outstanding local taxes or fees, etc.
The notary deed must be registered on the Real Estate Register on the same day as the deed is signed. This is done by the notary public. After registration of the notary deed, the registered owner may argue his/her rights against any third party who has subsequently acquired a right over the same property.
Depending on the nature of the transaction not all of the above steps will be applicable. However, the last two steps – execution before a notary public and registration – are obligatory.
5. Contract terms – What provisions does a real estate contract contain and what is implied by law?
The preliminary contract must contain all material provisions of the final contract including a definition of the property, the purchase price, the method of payment, any conditions precedent and the timing of execution.
The final agreement in the form of a notary deed for sale and purchase of real estate contains the following obligatory provisions:
  • Date and place of issue of the deed
  • Personal details of the buyer and the seller
  • A detailed description of the property
  • All encumbrances burdening the property (mortgages, easements, etc.)
  • The purchase price
  • The method of payment
  • A list of any attached documents to the deed
  • Terms implied by law

Some of the most significant implied terms are as follows:
  • Title guarantee – in a transfer of property there are various statutory obligations on the part of the seller in relation to the parameters and the quality of the title and the property being sold. The seller is fully liable to the buyer if the property (entirely or partially) is owned by a third party (unless the buyer was aware of this circumstance). For example, if the property is not owned by the seller, the buyer may rescind the agreement in court proceedings and claim back the price, the costs for the execution of the sale and purchase agreement, the necessary and justified costs incurred in respect of the property and compensation for any other damages
  • Misrepresentation and defects – in the event of discrepancies in the area of the property specified in the notarial deed (except if the property is sold in enforcement proceedings), the following would apply:
    • If the price has been agreed by unit size (for example by square metre), it is subject to adjustment according to the actual size. The buyer may rescind the agreement if the discrepancy exceeds 10% of the size specified in the deed
    • If the price is specified as a total amount, and the area is smaller by 10% or more, the buyer may rescind the agreement or seek a reduction in the price; if it is larger by 10% or more, the seller may claim an increase in the price, but the buyer has the right to reject the claim and avoid the agreement
  • The seller is liable if there are any defects in the property which substantially reduce its price or its fitness for regular, or designated, use. In such circumstances, the buyer may either rescind the agreement and claim back the price and expenses of the sale or keep the property and claim a price reduction or remediation of the defects at the seller’s cost. In any event, the buyer has the right to claim compensation for all damages incurred.
  • Change of Landlord – on the sale of a property which is subject to a lease, the new owner will be bound by the lease agreement vis-à-vis the tenant if it has been registered with the Property Register (registration is possible for lease agreements of terms exceeding one year). If the lease agreement is not registered but has an authentic date (i.e. it has been certified by a notary public), it will be binding on the new owner for up to one year from the date of the sale. If the lease agreement is not registered or certified, the buyer may terminate the lease by giving one month’s notice. The seller is liable to the tenant if the latter is deprived of the right to use the leased property within the agreed term as a result of the sale.

6. Due Diligence – What investigations does the buyer normally make?
The buyer will first need to check whether the seller has a valid and unburdened title to the real estate. A title to a property in Bulgaria can only be verified through a chronological review of the rights over the property. Such a review should cover a period of ten years at least. The buyer will need to check all title documents including the title documents for the land from which the real estate in question has been formed. In addition, the buyer should review the encumbrance certificates issued by the Bulgarian Real Estate Register in order to confirm that there are no mortgages, third party claims or easement rights burdening the property.
Where the real estate is former agricultural land, the buyer must also review the planning and status procedures and, if the land is developed, the development procedure. The planning and construction authorisation process must be followed, the main steps being approvals of the construction site (relevant to the change of status of the land), of the territory development plans, of the change of the land status to non-agricultural and of the project design and obtaining the construction permit.
The due diligence must also cover the construction process, so that it is clear that the building works have been carried out and completed in accordance with the applicable legislation, the construction permit and the project design. The buyer will need to review all acts, protocols and permits, especially the final one – the permit for operation or certificate for setting into operation, issued at completion of the construction stage.
7. Registration and Notarisation of real estate – What are the basic requirements?
Bulgaria has a Cadastre and a Property Register, which are run by the regional district land registries. Both systems are linked. The Cadastre provides the basic property data (location, boundaries and size) to the Property Register. The Property Register provides data regarding the right of ownership and other property rights to the Cadastre.
The following must be registered in the Property Register:
  • Title deeds
  • Other documents whereby the right of ownership is attested to or transferred
  • Other real estate rights
  • The creation, amendment, transfer or termination of mortgages and foreclosures
  • Any other actions, circumstances and legal facts subject to registration as stipulated by law

Once registration is complete, the owner acquires a priority and may argue his/her right against any third parties who have subsequently acquired a right over the same property. If a property which has a lease in place is sold, the lease remains valid with respect to the transferee if it has been entered into the Property Register.
Registration in the Property Register is performed by the public notary ex officio or upon the request of the parties concerned. Where a transfer of property ownership occurs, the registration is normally conducted ex officio. For a partition, creation of a mortgage or a lease, the registration is performed by the notary upon the parties’ request.
The Property Register holds the definitive record of who owns the land and any rights or encumbrances established over the property. The Register may also contain special entries that restrict the registered owner’s ability to deal with its title without obtaining the consent of another person.
Under Bulgarian law, contracts for the transfer of ownership or the establishment of property rights (the creation of a mortgage in particular) must be executed through notary deeds. However, the notary public is not obliged to review the ownership title history. As a general rule the title of the current owner depends on the rights of the predecessor, while the right of the predecessor, in turn, depends on the title of their predecessor. If one of the previous owners did not have undisputable title, this may allow an entitled third party to make a claim against the current owner. The possibility of third party property claims is precluded by a prescribed period of possession (10 years maximum). It is therefore highly recommended that the buyer undertakes a full review of the current and historic titles before purchasing real estate.
8. Permits – What permits are required for the use and occupation of real estate and are they personal?
An effective detailed development plan (“DDP”) is the first stage of the project development process. The existence of a proper DDP is a prerequisite for drawing up the project design, changing the purpose of the land (where necessary), signing preliminary agreements with utility companies, executing the investment design, obtaining a construction permit and starting construction work. A DDP transforms the unregulated land into regulated land by fixing its borders and providing access (in the form of a road, street or other access). The DDP also determines the requirements for construction such as the general and specific designation of the land, and the building indices (e.g. density, intensity, green yard area and height of the buildings).
The completion and approval of a project design is a precondition for a construction permit to be issued. The completed project design is subject to evaluation by a licensed consultant or by the municipal council responsible for spatial development, depending on the type of construction.
The chief architect of the municipality where the real estate is located approves or rejects the project design within one month of submission of all required documents. For investors who have received an investment class certificate under the Bulgarian Investment Promotion Act, a decision should be issued within 14 days. In case the compliance evaluation is performed by a consultant, the approval period is 14 days (five days for investors with an investment class certificate). The investor may simultaneously apply for a construction permit when submitting the project design. The project design approval will expire within one year if the investor does not apply for a construction permit during this time. If the project design is rejected, an appeal can be made to the National Construction Supervision Directorate (“NCSD”) within 14 days after the decision.
To obtain a construction permit the investor must submit an application to the relevant authority, along with the following documents:
  • The ownership title/construction right documents
  • The visa (if applicable)
  • Preliminary agreements with utility companies
  • Three copies of the valuated project design
  • The environmental assessment (if necessary)
  • Approvals from the controlling authorities (if applicable)

Pursuant to the Territorial Development Act (“TDA”), the permit should be issued within seven days after the application is submitted. The permit expires if construction has not started within three years of permit being issued or if the core-and-shell construction has not been completed within five years. However, it can be re-validated within one year after its expiration by paying a fee (50 % of the cost of a new permit).
Buildings can only be used if the conditions stipulated by the TDA on the construction permit have been met. Permits for the use and occupation relate to the real estate and are not personal. Acceptance trials may also have to be successfully completed for the construction of manufacturing facilities or other buildings with specific uses to be deemed complete. For example, an energy project will be subject to operational tests for a minimum of 72 hours before starting operation.
Any projects of national, regional or local significance (such as motorways, municipal roads, etc) must have an operational permit issued by the NCSD to operate. A special committee is appointed by the Director of NCSD upon the investor requesting the permit. All costs related to the committee’s work are borne by the investor. The permit application must be accompanied by the:
  • Final report of the project supervisor
  • Major acts and protocols that have come into force during the construction
  • Certificate of registration from the Cadastral Agency
  • Signed contracts with the utility companies for connecting the completed facility to the infrastructure network

Once the construction has been inspected and the relevant documents reviewed, the committee follows Protocol 16 for accepting or rejecting the works (the so called “Act 16”). Based on their decision, the Director of the NCSD issues the permit for operation and/or occupancy. This procedure should take about 40 business days. The procedure for projects in lower categories (such as private roads or multi-purpose buildings) is simplified and involves a desktop review of the construction documents and registration to start operating. This review is performed by the chief architect of the municipality and is completed once all necessary documents have been submitted by the investor. Projects such as temporary structures erected for the purpose of construction and other minor works can be used without a permit or certificate for operation being issued.
9. Insurance and Risk – What insurance will the parties effect and when does the insurance risk pass at the time of sale?
Before a sale is contemplated, insurance is generally the responsibility of the property owner. However, where a property is the subject of a lease, the terms of the lease could prescribe which party has the responsibility for insuring it. A landlord commonly holds accident insurance against damage caused by force majeure on the leased property. A lessee could have a third party liability insurance policy, particularly if business/manufacturing activities are undertaken at the property.
Pursuant to the Bulgarian Insurance Code, when an insured property is transferred to a third party, the transferee will step into the rights stipulated in the insurance contract unless otherwise agreed. Either the transferor or transferee must inform the insurer about the transfer in writing within seven days. The transferee is also jointly liable for any unpaid part of the premium until subrogation. The insurer has the right to demand a premium from the transferor until the insurer is notified about the transfer. The insurer and the transferee may terminate the policy within 30 days of the date of notification by giving the advance notice specified in the policy to the other party.
Under Bulgarian construction law, the designer, lead structural technician, consultant, developer and construction supervisor must be insured against professional liability for any detriment inflicted on the other parties involved in the construction and/or third parties as a result of wrongful acts or omissions in the course of, or in connection with, the performance of their duties.
10. Environmental – What are the common environmental issues?
Under Bulgarian environmental law, environmental impact assessments are required for real estate projects which are presumed to affect the environment (such as chemical factories, oil refineries, thermal power plants, etc) and for those impacting protected areas (such as reserves or national parks) or existing/potential protected zones (Natura 2000).
Real estate may be contaminated as a result of current and/or former use. The “polluter pays” principle is one of the fundamental tenets underlying the Bulgarian environmental protection legislation and policy. Environmental legislation generally provides for administrative liability (fines in the amount of BGN 1,000– 20,000 with respect to legal entities) for violation of environmental protection legislation and ecological requirements. The individual/entity that has committed the violation (i.e. breaches the legislation/requirements) is liable for these fines. The legislation also provides for general civil law liability for damages by referring to the rules of tort.
Case law operates to the same effect. It holds that the actual polluter – individual or legal entity – is the one responsible for damage caused by contaminated real estate. The liability follows the polluter even if it undergoes corporate transformations. Actual polluters are also the ones held responsible in cases of environmental damage caused to agricultural land.
Legislation also envisages actions for the prevention and remedying of environmental damage to earth (soil) as well. The polluter, as a result of whose activity an imminent threat of environmental damage has occurred, is obliged to take immediate preventive measures at its own cost. A polluter who fails to take such measures without delay is liable for a fine of BGN 10,000 – 30,000. The remedial costs are not borne by the polluter where he can prove that the imminent threat of environmental damage or the environmental damage were caused either by a third party and occurred despite the fact that the polluter took all appropriate safety measures or as a result of compliance with a mandatory requirement issued by an executive authority other than a requirement issued as result of an emission or incident caused by the polluter’s own activities.
These principles of liability allocation do not release an owner of the property from his general fiduciary duties to act in a way that averts any further damage to the environment and/or third parties. The Bulgarian environmental protection legation does not seek to impose full liability on the current owner of a property who is not the actual wrongdoer (polluter), but has acquired land after its alleged contamination and holds and operates activities on this land in a manner that does not result in further pollution. However, there is an important exception to the “polluter pays” principle if the environmental damage is caused by private assets. In this case the liability follows the private assets, i.e. falls with their current owner.
Under Bulgarian tort regulations and settled case-law, the owner of a property is responsible for damages caused by it only to the extent that these damages result from objectively inherent characteristics, features or defects in the property. If the damages arise from atypical use of the property or from (past or current) use in breach of statutory requirements, then the liability lies with the actual wrongdoer (and not the owner of the property).
Due diligence for acquisition of a property may involve the appointment of environment consultants to consider documentary information and to carry out a site visit (Phase I). If necessary, further investigations (Phase II) may then be undertaken. It is important to identify potential problems at an early stage in order to include the scope of any remediation in the negotiation of terms and/or price of the property. Negotiation of terms may take many forms, including contractual allocation of risks, obligations to remediate (contamination discovered pre or post-acquisition), indemnities in respect of first party loss or third party claims, or purchasing specialist historic liabilities environment insurance to cover any of these risks. If any development is proposed, then planning permission may be made conditional upon the proper investigation and remediation, if necessary, of potential historic contamination.
11. Pricing/Valuation – What sets the price/valuation of real estate?
Generally, the market value of real estate will be determined by a number of factors including the market trends, the characteristics of the property (location and transportation accessibility), the size of the property and its facilities, the infrastructure, the level of yielded and comparable gross income from rents and the relative total value of the market (the general economic situation in the region in particular).
As a standard, the term “fair market value” is commonly applied, the definition of which is laid down according to the Standards for Business Valuation published in the Government Gazette: “The value interpreted as a money equivalent, for which a certain property would have exchanged hands, passing from the hands of a willing and well informed seller to a willing and well informed buyer in an arm’s-length transaction, in the open market, where the parties had each acted knowledgably, prudently, and were familiar with all relevant facts.”
The valuation might usually be calculated in one of the following ways:
  • Residual method – this is applicable when all construction parameters of the site are in place and there is an effective development plan. This method is a combination of the expense and profit approaches for determining the market value of real estate. This method can also be used for determining the market value of the right of construction on established terrain. It may give valuable information to a future investor who needs to estimate the efficiency of his investment
  • Comparative method – the valuation is based on a comparison with the realised prices of recent property sales with similar characteristics. This method looks at the characteristics and location of comparable properties and the sources of information for these sales

The valuation could also determine the liquidation value of the property, which represents the value of the property under accelerated sale conditions (based on the market value, but timing considerations are taken into account).
12. Taxes and Costs – What are they and who pays them?
The transfer of ownership and in rem rights over real estate is subject to a tax which varies from 0.1% to 3.0% depending on the location of the real estate (determined by the respective municipal council) based on the value of the real estate or the assessment, whichever is higher.
The tax is due by the buyer, but this can be changed by agreement between the buyer and seller (for example, both buyer and seller could agree to be jointly liable). If the parties agree that the seller will pay the transfer tax the buyer would be held to be guarantor.
The transfer of real estate must be registered with the Property Registry which is subject to a registration fee of 0.1% of the property’s price. Who pays this fee is subject to agreement between the parties.
Most property sales are subject to VAT. However, this is dependent on the current state and condition of the building or land. The transfer of “new” buildings (permit of use issued less than five years ago) are subject to VAT. For unregulated land, transfers of ownership, creation or transfer of in rem rights and leasing of the land is exempt from VAT. The seller of “old” land or buildings is entitled to opt in to VAT.
The transfer of real estate or the transfer/creation of an in rem right must be by a notary deed (notary fees apply). The liability for the notary fees could be on the seller, the buyer or both depending on the agreement between the parties.
The seller and/or buyer could also be liable for other fees such as consultancy and brokerage fees.
Regulated real estate is also subject to local taxes. These are paid by the legal owner of the real estate at a rate of 0.1% to 4.5% of the tax assessment of the property. The relevant municipality determines the tax rate. Properties that are classified as the main residence of a taxable person can obtain a reduction of 50% of the tax due.
Croatia
1. Parties and Ownership – Who can own real estate and what types of ownership are there?
Parties
Any natural person or legal entity may own real estate. This will include individuals, companies, associations and other entities having legal standing, units of local and regional government and the Republic of Croatia.

Foreign natural persons and legal entities may acquire ownership of real estate (i) by inheritance; or (ii) with special consent of the Ministry of Justice, under condition of reciprocity. These rules do not apply to natural persons and / or legal entities from the European Union member states, except in the case of agricultural land and protected natural areas.
Ownership
Ownership is the most comprehensive right a person / legal entity can hold in relation to property. The right of ownership is defined as a property right (right in rem) on a particular object, authorising the holder to use the object and any benefits arising from it as he sees fit, and to exclude any other person from it, unless that is contrary to such other person’s right or limitations imposed by the law. The owner`s rights include possession, use, utilisation and free and unlimited disposal.
Acquisition of ownership over real estate is subject to registration of ownership at the Land Registry.

Where more than one person has ownership over a single property, they will hold their interest as follows:
  • Co-ownership –each owner has a defined share over the property. Each co-owner is entitled to dispose freely his co-ownership share.
  • Joint ownership – the shares of the joint owners are not fixed. All owners can only dispose the property (being jointly owned) together.
  • Condominium (Croatian: “etažno vlasništvo”) – this is a specific type of ownership used for apartments. Co-owners of a property may agree to limit their co-owner’s rights by connecting the ownership of a particular part of the property (apartment) to their co-ownership share of the co-owned real property.

2. Interests – What types of interest in real estate are sold?
Croatian law recognizes following types of property rights (rights in rem):
  • Right of ownership – such ownership extends to buildings / structures on or beneath the land, unless limitations are created.
  • Easements: personal and property.
  • Pledge / Mortgage.
  • Property Encumbrance (Croatian: “stvarni teret”).
  • Construction Right – a right to build over somebody else’s property. The constructed building is legally “removed” from the property on which it was built. The owner of the building will be the holder of the Construction Right and may not necessarily be the same person as the owner of the land encumbered by the Construction Right.

Property rights have to be registered at the Land Registry in order to come into existence, except when acquisition occurs by virtue of the law. The acquisition of such rights therefore requires a legal basis (usually a valid and binding agreement) and the registration at the Land Registry.
A lease does not create a property interest, but merely a contractual right to use the property. The period for which a lease can be entered into is not limited by law, and depends on the agreement of the parties. Usually, a lease agreement is entered for a period of 15 – 20 years. Long-term leases (50 years plus) are a new development in the market. Lease agreements can also be registered at the Land Registry.
3. Employees – What employment issues affect real estate acquisitions?
Typical employment issues which may be relevant to real estate transactions include the transfer of undertaking or business or a part to another employer.
Pursuant to labour legislation, in the case when an undertaking, business or part is transferred (possibly as the part of the real estate transaction) to another employer, but that undertaking or business retains its economic integrity, all employment contracts of employees working in such undertaking, business or part, are transferred to the new employer. For example, this might occur in the sale of a hotel or a shopping centre.
The broad effects of such a transfer are:
  • with effect from completion of the transfer, the purchaser assumes responsibility for employees working in the transferred undertaking, business or part.
  • accrued continuity of employment is preserved (the employees whose employment contracts have been transferred retain all rights arising from the employment acquired before the date of the transfer).
  • both employers are severally liable to the employees for obligations arising before completion of the transfer.
  • collective agreements applied to employees before the transfer continue to be applied until the conclusion of a new collective agreement, but for no longer than one year.
  • if employees elected their representatives prior to the transfer, such persons continue their activities, until the expiry of the term for which they were elected.
  • employees / employees’ elected representatives must be informed / consulted about the transfer.

The above cannot be avoided. The parties to the transfer may contractually agree on different apportionments of liabilities as between them, but this will not affect the employees’ rights.
4. Procedure – What are the steps in a sale and purchase transaction?
Use of heads of terms (memorandum of understanding / letter of intent) is customary for more complex projects.
The seller’s lawyers will usually collate all information relating to the property and send it to the buyer’s lawyers together with a draft sale and purchase agreement (contract). The form of the agreement will vary depending on whether the property is unbuilt land under construction or already built and the extent to which property rights have already been granted to third parties.
The buyer’s lawyers will undertake thorough due diligence of all legal documents relating to the property and will provide their own comments on the draft sale and purchase agreement. If the purchase is made with borrowed finance, the lender may instruct its own lawyers to carry out property due diligence.
If financing is not in place or there are identified issues with the property that the seller has to remedy before the transfer occurs, the parties may first enter into a pre-agreement, undertaking an obligation to enter into a final sale and purchase agreement once the identified issues have been cleared / financing has been approved. In such a case, it is usual for the buyer to provide a 5% – 10% deposit to the seller as a sign that the buyer is serious about the transaction and as “security” that the buyer will enter into the final sale and purchase agreement.
After all of the sale and purchase terms /conditions have been agreed and there are no further issues between the parties, the execution of the agreement can occur. A sale and purchase agreement with reference to real property has to be executed in writing – usually it is a single document signed by both parties. Additionally, the signature of the seller has to be certified before a Notary Public so that the agreement may be registered at the Land Registry.
Following the execution of the sale and purchase agreement, the buyer’s lawyers are required to register the transfer at the Land Registry. Real estate transfer tax needs to be paid.
The request for registration of title is to be filed immediately after the execution of the underlying sale and purchase agreement. In order to protect the buyer’s interest between the execution of the sale and purchase agreement and the registration of title, it is usual to use the services of an Escrow Agent. Alternatively, the buyer may decide to request first the pre-registration of title (conditional registration of title) – this allows the buyer to “reserve” a priority registration spot in the Land Registry and once the purchase price is paid and the request for registration filed, the registration takes place under the reserved spot.
Title is transferred to the buyer upon its registration in the Land Registry.
5. Contract terms – What provisions does a real estate contract contain and what is implied by law?
Provisions of the contract
An agreement for sale and purchase of a property must be in writing and must contain all main terms and conditions as specified by the law. The agreement must be signed by both the seller and the buyer – usually it is a single document. Additionally, the signature of the seller has to be certified before a Notary Public so that the agreement may be registered at the Land Registry.
Apart from the main terms of the sale and purchase agreement – definition of the property and price (including payment conditions), the agreement usually includes information about the following:
  • parties to the agreement (their full details),
  • all rights encumbering the property (mortgages, easements, pre-emptive rights, leases),
  • conditions for payment of the purchase price – possible payments in instalments,
  • the seller’s statement that it agrees with the registration of the buyer at the Land Registry (Croatian “klauzula intabulandi”),
  • a date and conditions for the handover / takeover of possession of the property,
  • a provision indicating which of the parties will pay the real estate transfer tax (RETT),
  • additional warranties,
  • the conditions applicable to any termination rights,
  • if the property being sold is under construction or is an already constructed building, the agreement will also regulate the transfer of permits and rights against the design and construction team.

Terms implied by law
Some of the most significant are as follows:
  • The buyer is required to inspect the property and satisfy itself in all respects as to the nature of the property being acquired.
  • The seller is liable for material and legal defects of the property – unless such defects were known or should have been known to the buyer. In case defects are ascertained, the buyer has a statutory right to seek remedy and damages. The right to seek remedy and damages is subject to specific deadlines. However, such liability can be contractually limited, unless the seller was aware of a defect and did not disclose the relevant information to the buyer.
  • The acquisition of title requires registration of title for the benefit of the buyer at the Land Registry. The principle of trust in the Land Registry applies in relation to certain property in Croatia. This means that it is deemed that the Land Registry reflects truthfully and completely the factual and legal position of the property, and that any person who in good faith relies on the information in the Land Registry, not knowing that what is entered in the Land Registry is not complete or is different from the situation outside of the Land Registry, enjoys protection regarding such acquisition in accordance with law. This is important in the case of unregistered interests.

6. Due Diligence – What investigations does the buyer normally make?
Pre-exchange of agreements
Every careful buyer that has the intention of buying a property should conduct extensive due diligence over the property. Usually the buyer will perform legal and technical due diligence; and if the seller is a legal entity, also full corporate, commercial, tax and financial due diligence. The usual procedure is for the buyer’s lawyers to prepare a list of documents which they would like to review to the seller’s lawyers.
First the buyer’s lawyers will conduct a thorough investigation of the ownership title of the property held by the seller. This will include an extensive investigation at the Land Registry, as well as, if necessary, historical documents and deeds that will provide more information regarding the property. This documentation will act as a confirmation of the seller’s registered ownership, and provide important information such as whether the property is subject to encumbrances which can have a significant impact on the buyer’s final decision to purchase the property. This documentation will also reveal whether there are registered lease agreements, limited property rights established in favour of third parties, court rulings and complaints before the court in regard to the ownership. Pre-emption rights need to be checked. If they exist the seller has to offer the property to the holder of the pre-emption right prior to concluding a sale and purchase agreement with a third party. Additionally, the Cadastre Registry records will be reviewed to confirm that there are no discrepancies between the two registries.
If the property being sold is under construction or already constructed, the buyer’s lawyer will request from the seller relevant permits and planning and construction consents.
Where the seller is a company, the buyer’s lawyers will perform corporate due diligence, including corporate searches of the seller at the Companies Registry (in Croatia referred to as Court Registry attached to Commercial Courts) to ascertain whether or not the company is duly registered or solvent and therefore able to dispose of its assets freely. The seller will also be asked to disclose information on material agreements and disputes. Full financial and tax due diligence is usual.
Where the information and documentation provided is not complete or is inconclusive, the buyer’s lawyers will usually ask additional specific questions of the seller’s lawyers, including in relation to practical matters which may affect the property. The seller generally gives replies, which may be actionable if wrong or misleading. Usually the answers, as well as, the general information obligation of the seller, are subject to a negotiated liability in the sale and purchase agreement.
During the due diligence process the buyer will often arrange technical surveys of the property.
Reporting to the client
Before execution of the sale and purchase agreement, the buyer’s lawyers report their due diligence findings to their client, raising any matter of particular importance or concern. Their findings are often indirectly included in the sale and purchase agreement – either an issue has been identified that the seller has to remedy before payment of the purchase price, or the seller is asked to deal with specific items or accept/retain identified liabilities.
After the execution
The request for registration of title is filed immediately after the execution of the underlying sale and purchase agreement. In order to protect the buyer’s interest between the execution of the sale and purchase agreement and the registration of title, it is usual to use the services of an Escrow Agent. Alternatively, the buyer may request pre-registration of title (conditional registration of title) – this allows the buyer to “reserve” a priority registration spot at the Land Registry and once the purchase price is paid and the request for registration filed, the registration occurs under the reserved spot.
7. Registration and Notarisation of real estate – What are the basic requirements?
All property rights (rights in rem) over real estate (and some obligations, e.g. pre-emption right, lease, concession) are registered at the Land Registry. The registration of property rights (rights in rem) is material.
The Land Registry is a public registry available for inspection. It includes information about the property, persons having rights over the property and any encumbrances. Maps detailing the location of the property are kept with a separate registry – the Cadastre registry. Despite its name, the Land Registry is not a single registry but a common reference to land registry departments of Municipality courts around Croatia. The jurisdiction of a department is determined by the location of the real estate.
The registration procedure is initiated by means of a written request for registration. Together with the request, it is necessary to submit to the competent Land Registry original documentation on the basis of which the request for registration is based (e.g. (i) public deed or (ii) private deed on which the signature of the transferor has been certified before a Notary Public; and under which documents the transferor explicitly consents to the transfer / registration of rights). If the request is complete, the registration occurs on the basis of a decree on registration, which is issued by the competent Land Registry.
Other forms of registration with the Land Registry are pre-registration (Croatian “predbilježba”; in order to have the same effect as registration, pre-registration has to be subsequently justified and remarked (Croatian “zabilježba”;)).
8. Permits – What permits are required for the use and occupation of real estate and are they personal?
The construction of a building requires a construction permit. Only in several cases expressly stipulated by the law (such as mining, new military construction projects or in case the title of the future construction plot is not fully clear) it is necessary to obtain an additional location permit, prior to obtaining the construction permit.
The location permit is actually a “planning” permit confirming what the owner may build on its land. It is issued in accordance with spatial planning documents.
The construction permit is more of a technical permit confirming how the owner may construct the approved object. At the time this permit is issued, the petitioner has to prove its interest in the property (usually by providing a Land Registry excerpt as proof of registered ownership, but it also suffices to prove future acquisition of ownership by providing a binding preliminary agreement (Croatian “predugovor”) or agreement under certain condition precedents (Croatian “ugovor sklopljen pod uvjetom”)).
The issuing authority is subject to statutory time periods within which a decision must be made. There are various statutory rights in relation to appeals, which can be made if an application is refused or not determined.
Use of building requires a separate use permit. The permit is issued after a technical inspection of the constructed building has been performed. It is a confirmation that the building has been constructed pursuant to the issued permits and applicable building and other regulations.
Additional consents for operation of the property will be required, depending on the nature of activities and operations to be performed. For example, sale of goods will require an additional consent by the Ministry of Commerce.
9. Insurance and Risk – What insurance will the parties effect and when does the insurance risk pass at the time of sale?
Before completing the sale of the property, insurance is generally the responsibility of the seller.
Insurance can be acquired for buildings and fixtures and fittings in the event of damage or destruction by any of a comprehensive list of insured risks, which will mostly depend on the requirements of the party seeking insurance and the insurance company.
Once the buyer has acquired the property it can acquire insurance over that property.
Under the terms of the law, risk passes to the buyer of the property. To avoid any issues with reference to this point, it is usual to contractually regulate handover / takeover of possession in detail.
10. Environmental – What are the common environmental issues?
Environmental Law has become very important over the last few years.
Traditionally, the primary environmental consideration has been potential soil and groundwater contamination as a result of current and former uses. In recent years, the consideration has been broadened to include air, nature life and mineral resources research.
There is a statutory obligation to remedy contamination and to undertake measures to prevent harm to occur to people and nature.
In principle, legal responsibility follows the “polluter pays” principle (i.e. the person who spilled, released or discharged the offending substance will normally be liable). In case the owner of a property fails to comply with this statutory obligation, the local or regional authorities may sequestrate the property in order to comply with the respective obligations.
In case the “polluter” is not known, the contamination may be remedied by using funds from the local, regional or state budget. Additionally, under certain conditions, the contamination remedy obligation may pass to the owners and occupiers of the affected property.
Due to the nature of the issue, environmental due diligence is usual. It is important to identify potential problems early on, so that there can be negotiation on terms and/or price and the need for and scope of any remediation.
Additionally, certain construction projects will require the owner and future investor to prepare an environmental impact study before being permitted to proceed with the planned development.
11. Pricing/Valuation – What sets the price/valuation of real estate?
Croatian Law does not determine a fixed method of assessing the real estate price. The valuers use different standards to assess the value of the real estate – market value is the pre-dominant method.
In the market system the factors and their influences on the value of the real estate are assessed on the basis of the real estate market analysis. The subject system is based on three approaches:
  • cost approach in which the costs of construction of the same (reproduction value) or similar (replacement value) building taking account of physical deterioration, functional and economic superannuation;
  • income or cash flow approach in which the income and expenses of the operation of the real estate are assessed and the current value of the future cash flow is assessed;
  • comparative approach in which recent executed transactions are analysed and the results applied to the specific property.

12. Taxes and Costs – What are they and who pays them?
In case of sale and purchase of real estate, either real estate transfer tax (RETT), at the rate of 5% or value added tax (VAT), at the rate of 25% applies.
VAT
As of 1/1/2015, the transfer of construction land and transfer of buildings or their parts before the first occupation or use, or within two years from the date of its first occupation or use to the date of the next supply (including reconstructed buildings), will be subject to VAT.
Supplies of other buildings and agricultural land are VAT exempt (whereas respective input VAT needs to be collected). In case of VAT exempt supplies, there is however a right to opt for VAT, under condition that the buyer is a VAT payer with the full right to input VAT deduction. The right to opt must be exercised at the time of supply, i.e. the both parties need to notify the Tax Authority.
RETT

According to the new RETT rules, followed by the amendments to the VAT regulations, supply of real estate subject to VAT will not be considered a supply for RETT purposes. Therefore, RETT will be payable only:
  • when seller is not a VAT payer, irrespective of the type of the real estate,
  • when a VAT payer (seller) supplies used real estate and relating land after two years from the day of first usage (except if the VAT payer opts for VAT, when the VAT liability is with the buyer),
  • when a VAT payer (seller) supplies agricultural and other land (except construction land and except if the VAT payer (seller) opts for VAT, when the VAT liability is with the buyer).

The taxpayer is the party acquiring the real estate. In case of an exchange of real estate between two parties, each party is considered a taxpayer, and in case of a gift of real estate tax is paid by the beneficiary. The base position to assess RETT is the property’s market value at the time of execution of the underlying agreement and it is assessed based on such agreement if the total price is about the same as the prices achieved or could be achieved in the market. If the total price from such agreement is lower then the market price, and the seller is a Corporate Profit Tax payer, market value will be the fair value of the real estate, as presented in the Financial Statements of the seller if he applies the revalorisation method or will be assessed by the Tax Authority if the seller applies the cost method.
The application for taxation must be submitted to the competent tax authority (the Tax Authority where the real estate is situated) within 30 days of execution of the underlying agreement. Otherwise, the tax base will be the property’s market value at the time when the application for taxation is submitted, i.e. at the time when the Tax Authority where the real estate is situated becomes aware about execution of the underlying agreement, according to the real estate status at the time of execution of the underlying agreement.
RETT is due within 15 days of the receipt of the tax decree (assessment). Default in payment triggers statutory default interest.
The payment of RETT is independent of registration of title at the Land Registry.
Generally each party pays its own expenses and costs (other than taxes). The buyer will usually be responsible for the payment of the Land Registry fees associated with registration of the transfer.
Czech Republic
1. Parties and Ownership – Who can own real estate and what types of ownership are there?
Parties
Any legal “person” may own real estate in the Czech Republic. This includes individuals, companies, entities established by statute (e.g. associations of individuals and/or legal entities, associations accumulating property for a given purpose, units of local self-government/self-administration) and the Czech state.
Bodies which are not legal persons, such as unincorporated associations, cannot directly own real estate.
Owners of commercial real estate include private developers, insurance companies, banks and other financial institutions, private or public property companies, the Czech state and local authorities.
There are no restrictions preventing foreign nationals or companies from owning real estate in the Czech Republic.
Ownership
Under Czech law, ownership is the highest title a legal person can hold in relation to property. Ownership of real estate can be equated to the concept of a ‘freehold title’ in Anglo-American legal systems.
Most real estate in the Czech Republic (i.e. all plots of land and most developments) is subject to registration in the Czech Real Estate Registry.
Ownership of real estate is freely transferable. Agreements on the transfer of an ownership title must be registered in the Real Estate Registry. Ownership passes on the execution of a decision of the Real Estate Registry however the decision takes effect retrospectively from the date on which the application to register the transfer was filed.
Ownership may also be acquired by possession. To apply, the property must be in the possession of a “rightful possessor” who believes, in good faith, that the property has belonged to him for an uninterrupted period of ten years.
Under the New Civil Code, which came into force in the Czech Republic on 1 January 2014 (the “New Civil Code”), buildings form a part of plots of land, i.e. separate ownership of buildings and plots of land is no longer possible. It should be noted however that where the owner of a building was not the owner of the plot of land beneath the building on 1 January 2014 it is still possible for both the building and the land plot to be owned separately. Care must be taken to establish whether the ownership of a property has been split accordingly.
Czech law distinguishes between exclusive ownership and co-ownership of plots of land and buildings. A condominium style of ownership is permitted where, for example, a person may be the exclusive owner of a part (unit) of a building and a co-owner with other unit owners of the common areas, the structure and the plot of land on which the building resides. Alternatively, more than one person may own the whole of a building and/or plot of land. In each case, the co-owner is said to have an “ideal” share in such common parts or the whole of the building or plot of land.
Czech law also recognizes the joint ownership of spouses. This is an unapportioned form of co-ownership where (i) real estate is fully owned by each spouse; and (ii) both spouses are jointly and severally entitled and obliged for the respective real estate.
2. Interests – What types of interest in real estate are sold?
Czech law recognises several forms of interest in property. These include:
  • ownership;
  • possession; and
  • limited property rights – e.g. mortgages, easements, right to build, pledges and contractual rights, such as leases.

However, current practice dictates that only ownership interests are sold. The assignment of rights and/or the transfer of obligations under occupational leases is relatively rare, with subletting being the favoured option.
Most commercial property is sold by way of a share, rather than an asset sale. The real estate is owned by a special purpose vehicle and the shares in this are sold. In general, share sales are used to avoid real estate transfer tax (“RETT”) and the risk of tenants terminating occupational leases following a sale.
As in some other civil law jurisdictions, leases under Czech law do not create a property interest and instead create a contractual right to use the property. The period for which a lease can be entered into is not limited by law and depends on the agreement of the parties.
Rights created under leases are not registrable at the Real Estate Registry. However, the New Civil Code permits the registration of leases at the Real Estate Registry – either at the landlord’s request or the tenant’s request following the approval of the landlord.
The New Civil Code covers all types of leases (namely leases of property in general, leases of apartments and leases of business premises). This is a significant departure from past legislation where different types of lease agreements were governed by different statutes. The New Civil Code also gives the parties a great amount of contractual freedom and the terms and conditions agreed between the parties may differ significantly from the dispositive provisions of the New Civil Code.
It should be noted that the New Civil Code also applies to lease agreements concluded before 1 January 2014.
3. Employees – What employment issues affect real estate acquisitions?
Typical employment issues which may be relevant to real estate transactions include (i) the acquisition of real estate by a transfer of a business enterprise of a company which owns real estate; and (ii) by a transfer of the shares of a company vehicle which owns real estate.
If a company owning real estate transfers a business enterprise, rights and duties arising from the employment relationships with employees of the enterprise pass from the seller to the buyer. The change in the identity of the “employer” applies as a consequence of the transfer of the enterprise.
If a company owning real estate transfers its shares, the “employer” remains unchanged and all rights and duties of the “employees” remain unchanged.
In both cases above:
  • the continuity of employment for the employer is preserved;
  • the buyer is unable to unilaterally change the terms and conditions of employment agreements by reason of the transfer and may only agree changes with the employee; and
  • elected representatives of the employees must be informed and consulted on the transfer of a business enterprise.

In addition, in the case of a transfer of a business enterprise:
  • an employee may give notice as a result of the transfer of his/her employment to the new employer prior to the transfer of the business enterprise becoming effective. The employment relationship will terminate on the day before the transfer of the business enterprise is effective (i.e. the two months’ notice period does not apply);
  • an employee may give notice or conclude a mutual termination agreement within two months of a transfer of the business enterprise becoming effective due to a material worsening of the employee’s working conditions as a result of the transfer. The employee may subsequently file a lawsuit and claim severance pay in the same amount as that offered by the employer for redundancy.

Redundancies may arise where there is a reduction in the number of employees required. Care should be taken to ensure that the redundancies are carried out in a procedurally fair manner.
4. Procedure – What are the steps in a sale and purchase transaction?
Commercial real estate transactions usually commence when proposed heads of terms are drafted, negotiated and agreed between the seller and buyer. The heads of terms (or a letter of intent, a memorandum of understanding etc.) set out the principal terms agreed between the parties and are generally expressed to be “subject to formal contract” and not legally binding. These terms form the basis of the documents drafted by the lawyers.
Once the heads of terms have been finalised, they are sent to the parties’ lawyers. The seller’s lawyers will usually collate all information relating to the property and send it to the buyer’s lawyers together with a draft of an agreement to conclude a future transfer agreement. The form of the transfer agreement will be attached. A future agreement is not required if there are no conditions to the purchase, in which case the parties will immediately conclude the transfer agreement. The buyer’s lawyers undertake a thorough due diligence process of all legal documents relating to the property. If the purchase is made with the assistance of financing, the lender may instruct its own lawyers to carry out due diligence on its behalf and negotiate any loan and security documentation.
The seller arranges for the property to be valued by a court appointed valuer for tax purposes.
Once the form of the future agreement and the transfer agreement are agreed, the seller and buyer will sign the future agreement. Following the satisfaction of any conditions to the purchase, one party will invite the other to conclude the transfer agreement.
Before signing the future agreement and the transfer agreement, the buyer’s lawyers will conduct a search at the Real Estate Registry to ensure that the seller still owns the property and that there are no new encumbrances or pending proceedings affecting the property.
The signatures of the parties on the transfer agreement (but not on the future agreement) must be officially verified (usually by a notary). The future agreement and transfer agreement may be signed in English with a certified Czech translation of the transfer agreement prepared for registration purposes although in practice it is beneficial to also sign the Czech version of the transfer agreement.
Following the conclusion of the transfer agreement, (i) the lawyers need to register the transfer documents at the Real Estate Registry; and (ii) the seller needs to arrange for the payment of the RETT (i.e. the real estate transfer tax) which is assessed on the higher of the price paid and the valuation carried out by the court appointed valuer. The purchase price is commonly paid into an escrow account (i.e. a bank or a notary) and is partly released on the registration of the buyer as the exclusive owner of the property in the Real Estate Register free from encumbrances and partly (in an equal amount to the tax payable) following confirmation that the RETT has been paid by the seller or the buyer (the parties to a transaction may agree that RETT will be paid by the buyer).
5. Contract terms – What provisions does a real estate contract contain and what is implied by law?
Provisions of the contract
An agreement for the sale and purchase of a property must be (i) in writing; (ii) contain all the terms and conditions specified by law; and (iii) must be signed by both the seller and the buyer with both signatures of the parties having been officially verified.
Provisions relating to value added tax (“VAT”) will be included where relevant, to ensure that the agreed tax position is preserved. Alongside the essential terms of the sale and purchase agreement, such as an exact specification of the property and the price, the agreement should also mention the following, in particular:
  • the title document under which the seller acquired ownership;
  • all liabilities burdening the property (mortgages, easements, pre-emptive rights, leases);
  • the conditions for the payment of the purchase price;
  • the date of a handover/takeover of the property;
  • the provision which states which party will pay the RETT;
  • the provision which states which party will file a petition for the change of ownership;
  • the conditions to be satisfied which enable a party to withdraw from the agreement; and
  • the seller’s warranty that it is a sole and unrestricted owner of the property and that the real estate is, and will remain, in the (legal and actual) condition described in the agreements until the registration of the transfer of title in the Real Estate Register.

Terms implied by law
Some of the most significant issues are as follows:
  • the registration of ownership – to complete the process of a change of ownership, the transfer agreement must be filed with the Real Estate Registry. Ownership title passes on the execution of the decision of the Real Estate Registry. The decision of the Real Estate Registry has legal force as of the date the application was filed.
  • the ‘principle of reliability’ – the principle of reliability of the Real Estate Registry, which is explicitly stated in law, presumes that the information registered after 1 January 1993 is correct and can be relied upon by third parties, unless the third party had knowledge that the information registered was incorrect. Notwithstanding this, there remains a possibility that the information on the Real Estate Registry may be incorrect. There is a procedure for rectifying the records kept by Real Estate Registry. The New Civil Code further enhances the principle of reliability of the Real Estate Registry.
  • a change of landlord – the Civil Code explicitly states that, on a sale of a property which is subject to leases, whilst the new owner will adopt the position of a landlord vis-à-vis the tenants, a tenant is entitled to terminate its lease agreement. Unless the parties expressly agree, this provision does not apply to leases of non-residential premises under the Act on Leases and will not be applicable for all leases under the New Civil Code (as described above).

6. Due Diligence – What investigations does the buyer normally make?
Pre-exchange of agreements
A prudent buyer is likely to commission a survey of the building and plot of land and in appropriate cases, soil and geological investigations, plant and machinery tests and environmental investigations. There are three prongs to the due diligence of the buyer’s lawyers.
First, the title to the property will be investigated. The buyer’s lawyers will consider the entries on the Real Estate Register and, where relevant, historic title documents (usually ownership titles going back ten years plus one preceding title).
By submitting details of the property to the Real Estate Registry, the buyer’s lawyers will receive the relevant list of ownership interests for the seller and the property confirming whether the ownership right of the seller is registered. Additional details of the registered interests (e.g. easements, mortgages, pre-emptive rights) will need to be obtained from the Real Estate Registry. If the ownership list reveals a “P” (i.e. a “plomba”) in the relevant section, this means that there are pending proceedings against the property. More details on the pending proceedings can be found in the relevant Real Estate Registry.
Where the property is leased, or subject to other occupational interests, the terms of the relevant occupational documents (e.g. the administrative permits) need to be considered carefully to ensure that they do not conflict with the buyer’s intentions for the property. The buyer’s lawyers will also need to check whether the documents require the consent of any third party to the transaction.
Secondly, the buyer’s lawyers will carry out due diligence, which will include conducting various searches to check the position regarding the municipal land use plan and zoning plans, environmental matters, financial encumbrances etc. Where the seller is a company, the buyer’s lawyers will also conduct corporate searches of the seller at the Companies Register to ascertain whether or not the company is registered or declared insolvent and/or bankrupt and confirm that the company may dispose of its assets freely, the current name and registered office of the company and who is entitled to act on behalf of the company.
Thirdly, the buyer’s lawyers will raise additional enquiries of the seller’s lawyers to obtain information regarding a large number of practical matters which may affect the property and ask any relevant questions in relation to the title to the property.
Pre-completion

Shortly before completion, the buyer’s lawyers will also conduct searches at the Real Estate Registry to confirm that there are no pending proceedings regarding the property. Further searches will be carried out at the Companies Registry to confirm that the seller has not been declared insolvent and/or bankrupt. These searches should confirm that the information gained in the due diligence process remains unchanged immediately prior to the execution of the transfer agreement.
Reporting to the client

Before signing the agreements, the buyer’s lawyers usually report their due diligence findings to their client, raising any matter of particular importance or concern.
7. Registration and Notarisation of real estate – What are the basic requirements?
The Czech Republic’s central real estate register is the Real Estate Registry which is run through regional district Real Estate Registries responsible for specific areas of the country. The Real Estate Registry shows the legal status and details of the owners and other persons authorised in connection with the property. As the Real Estate Registry is accessible by the public, third parties are assumed to have knowledge of the contents of the records kept by the Real Estate Registry.
As mentioned above, the Real Estate Registry provides a record of who owns property, the registrable rights benefiting or burdening the property and the title under which the seller acquired the property. The record is contained on an ownership list, which shows all property owned by a particular legal entity in a certain cadastral area, in relation to which:
  • Part A gives details of the registered owner of the property;
  • Part B gives a description and location of the property by reference to plots of land and identification numbers for buildings together with any rights benefiting the property and a note on the protection of the property (for example national monument property). It should be noted that the street address of the property is not shown on the ownership list for the property. It is sometimes difficult for lawyers to identify property and additional advice is taken from a surveyor (“geodet”);
  • Part C gives a description of rights encumbering the property, such as a mortgage, easement or pre-emption rights;
  • Part D can contain various pieces of relevant information relating to the property;
  • Part E refers to agreements or documents on the basis of which the ownership right was created.

The Real Estate Registry may also contain, where appropriate, a special “P” note showing that there is either a pending procedure concerning the property or a restriction on the owner’s ability to deal with its ownership title without obtaining the consent of another party.
8. Permits – What permits are required for the use and occupation of real estate and are they personal?
Structures or facilities and alterations thereto may be placed and their impact on the use of the area may be changed only on the basis of:
  • Planning permit;
  • Planning consent;
  • Planning agreement between the applicant and construction authority; or
  • if the structures or facilities are contemplated to be placed in a built-up area, on the basis of a regulatory plan to the extent approved by regulatory plan, without a specific planning permit.

Applications to obtain a planning permit to develop a plot of land must be filed with the local construction authority which is responsible for controlling the use and development of plots of land in its area. Local construction authorities have statutory time periods within which a decision must be made as to whether a planning permit should be issued. There are various statutory rights in relation to appeals made if an application is refused. The applicant does not necessarily need to be the owner of a plot of land. As a result, any party can apply for a planning permit in respect of a plot of land, provided that the applicant received the approval of the owner of the plot of land on which the applicant intends to build. During the planning permit proceedings, the relevant authority considers each application in respect of (i) the application’s compliance with the zoning plan of the relevant territory (ii) ) the application’s protection of the environment and health and safety; and (iii) the standpoint of other participants in the planning proceedings. A planning permit will contain conditions regulating the impact of the development of the plot of land.
In certain cases, for example, where a structure does not require a building permit or a notification, the construction authority may issue a planning consent instead of a planning permit. A planning consent is issued within 30 days of the date of notification (if the authorities agree with the project).
The Construction Act states the types of structures, technical infrastructure, pylons, aerials, facilities, conservatories or sheds, landscaping work, maintenance and construction works or alterations which do not require a building permit or notification to the respective construction authority.
In some cases, only a notification to the construction authority is required e.g. for a residential house of up to 150sqm with one basement floor and a ground floor (assuming certain other conditions are met). If the notification is complete and complies with the requirements, the construction authority will approve the construction within 30 days of receiving the notification.
In all other cases, the construction cannot commence until a valid, effective building permit has been issued. The construction authority determines the binding conditions for the implementation and use of a development in the building permit. The conditions determined by the construction authority will ensure the protection of public interests during its construction and the use of the building, its integrity, compliance with general technical building requirements or other regulations and technical standards and its compliance with the requirements set by the state administrative authorities, in particular, the exclusion or restriction or negative impact of the building and its use on the environment. A building permit generally ceases to be valid if construction has not commenced within two years of the date on which the building permit became legally effective however a longer period may be (i) granted by the construction authority; or (ii) extended on request by the applicant.
Generally, a building permit will be required to construct a “new build” property, to undertake work to refurbish an existing building and to change an existing use (e.g. office space) to another separate use (e.g. retail premises).
The role of Authorised Inspectors has been created to certify plans for new constructions, in particular where a developer wishes to avoid traditional construction proceedings. Based on a contract with the developer, an Authorised Inspector is entitled to:
  • certify that the proposed construction project or modification of the construction project prior to its completion may be executed;
  • draw up an expert opinion (i.e. a certificate) for the purposes of issuing an occupancy permit; and
  • supervise the implementation of the construction project.

Building permits can, in some cases, be replaced by a construction agreement between an applicant and a construction authority.
If works are to be carried out to historically or architecturally important buildings, the investor must obtain a positive statement from the cultural heritage protection authority before a planning or building permit is issued.
During the consultation period the local construction authority is required to undertake, interested third parties may submit objections (or support). These comments should be considered by the authority before deciding whether a planning permit or building permit should be granted. In addition, even after a planning permit or building permit has been issued, there will be a 15 days period within which the participants to the proceedings (e.g. the owners of the neighbouring real estate) are entitled to challenge the validity of permits granted. This should be considered by lawyers and agents acting for a developer prior to commencing work on the development.
Once a building has been constructed or construction works have completed, an application must be made to the construction authority to issue an occupancy consent. The construction authority will examine whether the construction has been carried out in accordance with the planning and building permits and with the applicable building, health and safety and environmental legislation. The issuing of occupancy consent approves the use of a building for a particular purpose. In some cases, only a notification to the construction authority is required.
9. Insurance and Risk – What insurance will the parties effect and when does the insurance risk pass at the time of sale?
Before a sale is completed, insurance is generally the responsibility of the owner of the property. However, where such property is the subject of a lease, the terms of the lease can prescribe which party has the responsibility to insure.
The insuring party should purchase a fully comprehensive buildings insurance policy to protect the structure and fixtures and fittings of the property in the event of damage or destruction by any of a comprehensive list of insured risks, such as storm, lightning, fire and water damage. The policy may also cover additional special heads of cover such as subsidence, earthquake and, if available, terrorism.
In certain areas of the Czech Republic, the policy usually also covers flooding however premiums and excesses are quite high due to the number of claims made in recent years.
Insurance policies (i.e. the insurance contracts containing the contractual terms between the insurance company and the insured) may either comprise of a single policy for one particular property or a block policy designed to cover a portfolio of properties. Larger institutional investors may self-insure.
In recent years, it has been possible to take out insurance if there is some specified defect in the title to the property. For an additional premium, the benefit of such policies may usually be claimed by subsequent owners of the property and tenants.
Insurance policies (except title policies) are personal and not transferable on a sale. On a sale, timing of the transfer of risk is normally prescribed by the transfer agreement as being the date of filing the application to the Real Estate Registry to register the transfer.
10. Environmental – What are the common environmental issues?
Real estate may be contaminated as a result of current and former uses. Primary legal responsibility follows the “polluter pays” principle: the person who spilled, released or discharged a substance will normally be liable for any contamination it causes. However, environmental laws may also apply, imposing liability on future owners and occupiers for contamination present prior to the acquisition of the real estate. This can occur if:
  • the substance is causing, or there is still a potential for it to cause, actual harm to humans, real estate, personal property, protected ecosystems or pollution of groundwater or surface waters, as each owner is obliged to maintain its property in such a state so as to not cause any loss and damage to any third person or protected ecosystem or surface waters; or
  • either the new owner knows about the presence of the substance but fails to take adequate steps to limit the harm it causes, or no person directly responsible for causing or knowingly permitting the substance to be present at the property can be found (for example, because a directly responsible company has since been wound up).

If a development project is proposed, then a planning permit may be issued only following an environmental impact assessment of the project on the environment is submitted to the building authority. The planning permit may set conditions under which the development may be carried out to prevent potential contamination.
Acquisition due diligence may involve the appointment of environmental consultants to consider information and to carry out a site visit (Phase I). If considered necessary, further, intrusive investigations (Phase II) may then be undertaken. It is important to identify potential problems early so that there can be a negotiation on price, the need for and scope of any remediation and/or the need to put in place protection in respect of any existing contamination related losses that may arise in the future. Such protection may take a number of forms, including obligations to remediate any contamination discovered post-acquisition, indemnities in respect of first party loss or third party claims to cover any of these risks.
11. Pricing/Valuation – What sets the price/valuation of real estate?
Pricing of real estate investments is a combination of the aggregate rent paid by occupational tenants of the property and the value that investment buyers consider a property of a similar type and location is worth at the time of the valuation.
The rent for a particular property is likely to be assessed by multiplying the area of the property by the market rental value per square metre. The market rental value will take into account factors such as the location of the property, its type and condition and the length of the lease term. There is no fixed method of assessing the property and international developers and investors active in the market tend to adopt the practices of their home countries.
In the case of retail units, it is common for the rent of the property to have an element based on the turnover produced by the business occupying the unit. As before, there is no fixed methodology for assessing the value of the property for investment purposes and the international developers and investors tend to use the methodology used in their home countries. Exchange rate risk is taken into account in valuing leases, with leases, where the rent is quoted in Euro, even though the rent may be payable in Czech Crowns, attracting a higher valuation.
Investment properties are commonly referred to as being sold on a particular yield, meaning the investment return that will be gained from the capital sum which is necessary to pay to buy the property. For example, where a property with an aggregate rent of EUR 100,000 per year is sold for EUR 2,000,000, it will have a yield of 5%.
12. Taxes and Costs – What are they and who pays them?
The main tax applied in acquisitions is the RETT (i.e. the real estate transfer tax) at a flat rate of 4% of either (i) the purchase price; or (ii) the value of the property, depending on which value a court appointed expert determines is higher. RETT is payable by the seller by the end of the third month following the month the acquisition completed. The parties to a transaction however may agree that RETT will be payable by the buyer. The RETT calculation must be included in a RETT Tax Return which is submitted to the relevant tax office. Whilst the seller is primarily liable to pay the RETT, the buyer does guarantee to pay the tax if the seller fails to pay. An amount equal to the RETT is therefore typically placed in escrow and only released to the seller following evidence that the RETT has been paid. Failure to pay the RETT within the prescribed time incurs significant penalties and interest.
VAT on a transfer of a building is also applied (currently at a rate of 21%).
The transfer of the following buildings is exempt from paying VAT: (i) those buildings transferred five years after the first occupancy permit was issued; and (ii) those buildings transferred five years after the commencement of the first use of the respective building.
In general, a transfer of a plot of land is exempt from VAT, unless the plot of land is a “building plot of land” (i.e. the plot is an undeveloped plot of land for which a building permit has been obtained) in which case the applicable rate of VAT is 21%.
If real estate has been acquired by a share purchase, no VAT is payable on the transfer of the shares.
During the due diligence stage of an acquisition, the buyer will pay the costs of conducting searches on the real estate, valuations and surveys of the physical state of the property and any environmental audits or desktop studies. The seller will pay for the valuation by a court appointed expert.
It is not uncommon in commercial acquisitions for the seller and the buyer to each appoint its own broker to whom they will pay any commission due.
Each party typically pays its own expenses. The buyer will usually be responsible for the payment of the Real Estate Registry fees associated with registering the transfer to the buyer.
England & Wales
1. Parties and Ownership – Who can own real estate and what types of ownership are there?
Parties
Any legal “person” may own real estate. This will include individuals, companies, entities established by statute and certain charitable bodies.
Bodies which are not legal persons, such as unincorporated associations or partnerships cannot own real estate directly. However, legal persons acting as trustees can own real estate on behalf of such bodies; as a rule of law, a maximum of four trustees can own any particular interest in real estate at any one time.
Owners of commercial real estate include private developers, insurance companies, pension funds, banks and other financial institutions, private or public property companies, charities, trusts, the government and local authorities.
There are no restrictions preventing foreign nationals or companies from owning real estate.
Ownership
Legal ownership of property in England and Wales is classed as either freehold (including commonhold) or leasehold.
Normally title to either interest will be registered at the Land Registry which confers three different classes of title:
  • Title Absolute – this is the best quality ownership and can apply to freehold and leasehold interests
  • Good Leasehold title – this is granted where a lease is registered without the underlying freehold title being presented to the Land Registry
  • Possessory title – this occurs where there is no paper evidence of title, but the Land Registry recognise that a person by virtue of occupation for the relevant period prescribed by statute has the best claim of which they are aware

All land in the UK is ultimately owned by the Crown and passes back to the Crown if there is no owner. For example, where being a company is wound up without its land being transferred to a third party, the land will automatically pass to the Crown as “bona vacantia” (vacated property).
Land may also be held on trust by a legal owner for a beneficiary. Also, where more than one person has ownership they will hold their interests in one of two ways:
  • Tenants in common – where their respective interests are distinct without the right of survivorship enjoyed by joint tenants
  • Joint tenants – where if a person dies his interest will pass automatically to the survivors – this is known as the right of survivorship. Such trusts are generally used for domestic purposes where a dwelling is owned jointly

It is also possible to acquire rights over land (such as a right of way) by exercising the right for a relevant period, normally 20 years.
2. Interests – What types of interest in real estate are sold?
Property in England and Wales is classed as either freehold or leasehold. Freehold is the best class of title and is as near to absolute ownership as is possible at law. There are no restrictions in England and Wales on how long leases can be. Freehold or leasehold title will be acquired depending on the circumstances of the acquisition transaction.
Freehold is a real right (a right in rem). Technically, a leasehold is a personal right (right in personam) though in practice leasehold has many of the attributes of freehold. Legislation has enabled the creation of a derivative freehold estate known as commonhold, which will also create a real right, similar to the North American condominium interest. For commercial reasons it has not proved popular and is extremely rare. Title to freehold land and most leases must be registered at the Land Registry on completion of a purchase.
The most common lengths of institutionally acceptable leases tend to be 10, 15 or 25 year terms and provide for the payment of a market rent. They are called institutional leases, FRI leases or rack rent leases. Long leasehold interests tend to be for 99, 125, 150 or 999 year terms; such leases are normally granted on payment of a premium with only low or nominal rents payable.
Property interests which exist in England and Wales include:
  • Freehold interests – the best type of ownership and now expanded to incorporate commonhold
  • Leases
  • Licences – contractual arrangements not creating any estate in land
  • Options and pre-emptions – rights to buy or first refusal
  • Easements – such as rights of way or for the use of services
  • Wayleaves – contractual rights to use land for limited purposes such as to site telecommunications equipment

Unless the property is to be sold “as seen” the parties must make it clear whether the fixtures and fittings at the property are to be removed prior to the sale or are to form part of the purchase. If items are fixed to the property, the presumption is that they form part of it and belong to the freehold owner of the property.
Ownership extends to buildings on or beneath the land and the airspace above it, unless interests are described horizontally rather than vertically. Reference to “land” generally includes the buildings and structures on that land – similarly “property” includes both land and buildings unless limitations are created.
3. Employees – What employment issues affect real estate acquisitions?
Typical employment issues which may be relevant to real estate transactions include the transfer of undertakings, redundancies and changing terms and conditions of employment.
Transfer of undertakings – TUPE
The Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) are likely to be the most significant employment issue. TUPE applies when an undertaking or business (or part of one) is transferred from one party to another or where there is a service provision change (either an outsourcing, change of provider or in-sourcing). It may therefore apply when there is the sale or transfer of a business or lease of a property or the outsourcing of the management of a property to a third party. For example, this might occur in the sale of a shopping centre having its own management and security staff.
The broad effects of TUPE are that:
  • With effect from completion of the transfer, the buyer or new service provider assumes responsibility for employees working in the business or services transferred
  • Accrued continuity of employment is preserved
  • Dismissal for a reason connected to the transfer is automatically unfair – unless for an “economic, technical or organisational reason entailing changes in the workforce”
  • Employees transfer with their existing terms and conditions intact, except, at present, in relation to occupational pension scheme rights
  • If the buyer/ new provider changes terms and conditions by reason of the transfer, these changes generally are ineffective, even where the employee’s agreement is obtained
  • Employees’ elected representatives must be informed and, where appropriate, consulted about the transfer
  • If the seller recognises a trade union, the buyer will be bound to recognise that union until detailed de-recognition procedures are completed
  • Any attempt to circumvent the effect of TUPE is void

Although the legal effects of TUPE cannot be avoided, it is possible to apportion TUPE liabilities by agreement between the seller and the buyer (or outgoing and incoming service provider). Normally the seller (or outgoing service provider) will agree to be responsible for all claims and liabilities relating to employees up to the date of transfer, and the buyer (or incoming service provider) will take on all post-transfer employment liabilities.
Redundancies
Redundancies may arise on the closure of a business or part of a business or where there is a reduction in the number of employees required, for example on the merger of two businesses or a TUPE transfer. Care should be taken to ensure that the redundancies are carried out in a procedurally fair manner, with particular regard to any applicable collective consultation requirements.
Terms and conditions of employment
An employer may decide to change or harmonise terms and conditions of employment on the acquisition of a new business. This can be a difficult process, especially where there has been a TUPE transfer (see above).
4. Procedure – What are the steps in a sale and purchase transaction?
Transactions formally start when proposed heads of terms are drafted, negotiated and agreed by the brokers for the seller and the buyer. The heads of terms (or memorandum of understanding) set out the principal terms agreed between the parties and are generally expressed to be “subject to contract” and not legally binding. They form the basis of the documents to be drafted by the lawyers.
Once the heads of terms have been finalised, they are sent to the parties’ lawyers. The seller’s lawyers will usually collate all information relating to the property and send it to the buyer’s lawyers together with a draft sale and purchase agreement (contract). The form of the sale agreement will vary according to whether the property being sold is under construction or already built and the extent to which leases to tenants have already been granted.
The buyer’s lawyers consider and suggest amendments to the draft sale agreement and at the same time will undertake general due diligence investigations.
Once the sale agreement is in an agreed form, the seller’s and buyer’s lawyers will “exchange” agreements signed separately by the seller and the buyer. Normally exchange is carried out over the telephone by the respective lawyers for the seller and the buyer in accordance with the procedures set out by the Law Society.
After exchange of agreements, the buyer’s lawyers will raise “requisitions on title” of the seller’s lawyers to check that the previous replies given to any enquiries made of the seller’s lawyers are still correct and to agree procedures for legal completion (or closing).
The buyer’s lawyers will also conduct pre-completion searches, including a protective search at the Land Registry, and, in the case of unregistered land, a search of the register of companies (if the seller is a company) to ensure that there are no financial encumbrances affecting the property and a search of the Land Charges Registry.
If the seller is a foreign registered company, generally the buyer will require an opinion letter from an approved lawyer practising in the same jurisdiction confirming that the company is properly incorporated, has power to sell and has carried out appropriate authorisation procedures.
Legal completion of the sale and purchase transaction may occur in person at a completion meeting or by telephone between the parties’ lawyers. Completion may take place at the same time as exchange, depending on the acquisition timetable. Where the purchase is made with borrowed finance a charge over the property will be completed at the same time. The lender of the finance may instruct its own lawyers to carry out due diligence procedures on its behalf and negotiate security documentation.
Following completion, the buyer’s lawyers need to deal with registration of the transfer documents (and any charging documents) at the Land Registry and payment of stamp duty land tax (SDLT), which is assessed on the price paid for the property.
5. Contract terms – What provisions does a real estate contract contain and what is implied by law?
Provisions of the contract
An agreement for the sale and purchase of land must be in writing, must contain or clearly refer to all main terms and conditions, and must be in a form in which either one part is signed by both the seller and the buyer or, and this is the usual case, must be in two identical parts, each signed by one party and then exchanged.
It is common for the sale and purchase agreement to provide for a deposit of between 5-10% of the purchase price on exchange of agreements, where there is to be a gap between exchange and completion. The seller’s lawyers usually hold deposits, either as agents or stakeholders. If held as an agent, it means that the lawyers can deal with the monies on their client’s instructions alone, normally involving the deposit being sent to the client. If they hold it as stakeholder, they have to take concurring instructions from both the seller and the buyer before being able to deal with the money. It is therefore preferable for a buyer to require that the money is held by a stakeholder.
Because the buyer has the opportunity of conducting full title investigation or due diligence before exchanging agreements, the buyer is usually prohibited from making any objection to any matter of title after the date of exchange.
Where timing is crucial to the agreement, there may be a provision stating expressly that “time is of the essence”. This means that any breach of the time limits in the agreement will be deemed to be a repudiatory breach, subject to a claim for damages. Normally, time is not of the essence and may only be made so by one party to the agreement serving notice on the others to make time of the essence.
Where there are matters of title affecting the property, such as restrictive covenants, the seller may require reciprocal obligations from the buyer and an indemnity in respect of any liability the seller may still have following completion of the transaction.
Real estate contracts commonly incorporate standard terms published by the Law Society, in the case of commercial property usually being the current version of the Standard Commercial Property Conditions. Where incorporated, the conditions will apply unless the contract expressly provides otherwise.
Provisions relating to value added tax will be included where relevant to ensure that the agreed tax position is preserved between exchange and completion.
Contracts for sale of property subject to occupational interests such as leases will include clauses to cover ongoing management matters, and provide for apportionment of occupational income and outgoings on completion of the transfer of ownership in the property.
If the property being sold is in the course of construction, the contract for sale will incorporate provisions dealing with the obligations of the seller to construct in accordance with an agreed specification and to provide to the buyer separate deeds of warranty from the building contractor and persons such as the architect in order to safeguard the buyer against defective design or workmanship.
Terms implied by law
Some of the most significant are as follows:
  • Buyer Beware (“Caveat Emptor”) – the overriding point of principle under common law is “caveat emptor” – let the buyer beware. The buyer must satisfy itself in all respects as to the nature of the property it is acquiring. However, this does not absolve the seller from the obligation to provide truthful replies to enquiries raised by the buyer’s lawyers
  • Title guarantee – the use of certain specified words (for example “with full title guarantee”) in a transfer of property imports various statutory obligations on the part of the seller in relation to the quality of the title being sold. The seller is also under a general obligation to be truthful in relation to matters affecting his title to the property
  • Unregistered interests – where a registrable interest is not registered against a property’s title number at the Land Registry, a buyer will take the property without being subject to it
  • Misdescription and misrepresentation – there are both statutory and common law rules which protect against clear misrepresentations or misdescriptions of fact made by the seller to the buyer which have the effect of inducing the buyer to enter into a transfer of land. In such cases, damages may be payable to the buyer or the buyer may be entitled to withdraw from the transaction
  • Unfair terms – agreements for sale that include exemption clauses, which seek to allocate risk, are subject to the Unfair Contract Terms Act 1977. The Act operates to restrict or render void the effect of clauses that unreasonably attempt to exclude liability
  • Standard conditions – contracts for the sale and purchase of land invariably incorporate by reference Standard Conditions of Sale published by the Law Society, which cover a variety of largely technical matters and which are the subject of appropriate variation by the express wording of the contract

6. Due Diligence – What investigations does the buyer normally make?
Pre-exchange of agreements
The prudent buyer is likely to commission a survey of the building and in appropriate cases, soil and geological investigations, plant and machinery tests, and environmental investigations. There are three limbs to the pre-exchange due diligence by the buyer’s lawyers.
Firstly, title to the property will be investigated. The buyer’s lawyers will consider the entries on the Land Register and where relevant historic title documents. Where title to the property is not registered at the Land Registry, the buyer’s lawyer will consider the unregistered deeds to satisfy himself that the seller has a good and sufficient title to the property.
By submitting a plan of the property to the Land Registry, the buyer’s lawyers will receive confirmation of whether or not the title is registered. Additional details of the registered interests then need to be obtained from the Land Registry.
Where the property is leasehold, or subject to leasehold or other occupational interests, the terms of the relevant occupational documents need to be considered carefully to ensure they are not contrary to the buyer’s intentions for the property. The buyer’s lawyers will also need to check whether these documents require the consent of any third party to be given to the transaction.
Secondly, the buyer’s lawyers will commence their own due diligence, which will include the conducting of various searches to check the position regarding municipal and zoning consents, environmental matters, utilities serving the property, financial encumbrances etc. Where the seller is a company, the buyer’s lawyers will also conduct searches against the seller’s name at the Companies Registration Office to ascertain whether the company is solvent and therefore able to dispose of its assets freely. Where the search result refers to security, the buyer’s lawyers will ask for confirmation that such matters do not encumber the property and that no third party consents are required for the transaction to proceed.
Thirdly, the buyer’s lawyers will raise pre-contract enquiries (“preliminary enquiries”) of the seller’s lawyers to obtain information regarding a large number of practical mattes which may affect the property and ask any relevant questions in relation to the title to the property. Whilst a seller must not knowingly or negligently mislead a buyer the general rule is “caveat emptor” (buyer beware). The seller generally gives replies, which may be actionable if wrong or misleading. During the due diligence process the buyer may often arrange that a survey is carried out at the property.
Pre-completion
After exchange of agreements and before completion the buyer’s solicitors will raise requisitions. These ask the seller to confirm that replies to pre-exchange enquiries remain correct and to divulge any further information that has arisen since exchange. The requisitions also deal with completion formalities such as the seller’s lawyers’ bank details etc. The buyer’s lawyers will also conduct pre-completion searches including a priority search of the Land Registry or Land Charges Registry.
Reporting to the client
Before exchange of agreements the buyer’s lawyers usually report their due diligence findings to their client, raising any matter of particular importance or concern.
Occasionally, and normally only where the buyer is acquiring property as a result of the acquisition of a company, instead of due diligence being carried out by the buyer’s lawyers, the seller’s lawyers provide a certificate of title addressed to the buyer and any lender to the buyer. This may occur where the sale has been planned for some time and the parties wish the transaction to proceed quickly.
7. Registration and Notarisation of real estate – What are the basic requirements?
The United Kingdom has a central land register. The Land Registry is run through regional district land registries which are responsible for specific areas of the country. Registration of land is now compulsory throughout England and Wales and to the extent that land is unregistered, once freehold land is sold or charged it must be the subject of an application for first registration. Some areas of land still remain unregistered, although an application for voluntary registration may be made by an owner at any time. A lease granted for a term of more than seven years is registrable. Once a freehold or leasehold interest is registered, any transfer or charge of that interest has to be registered at the Land Registry.
When a party acquires a registrable interest in land, it must apply for registration of that interest at the appropriate district land registry. Only when the registration is complete can the party properly prove its right of ownership.
To protect a buyer pending registration, the buyer’s lawyers carry out a protective search of the Land Registry prior to completion. This search gives the buyer a short period (generally 60 days) of “priority” during which time the Land Registry will not make any other changes to the relevant title pending registration of the buyer’s interest.
The Land Registry has the benefit of a state backed guarantee of accuracy. It is the definitive record of who owns what land, the nature of the interest and any registrable matters affecting that land. The title register for a particular property comprises the following three parts, namely the:
  • Property register, which gives a description of the property together with any rights benefiting the property
  • Proprietorship register, which gives details of the registered owner of the property and the price paid for the property by the current owner
  • Charges register, which lists all registrable matters that encumber the property such as rights benefiting other property, covenants, financial charges, contracts and registrable leases

The Registers may also contain, where appropriate, special entries that restrict the registered owner’s ability to deal with its title without obtaining the consent of another person.
Where title to the property is unregistered, the buyer’s search at the Land Charges Registry will provide a priority period similar to that for a search of the title register at the Land Registry. Again, this will protect the buyer from having a third party register an interest against the property for a limited period of time.
There is no requirement for notarisation of title in England and Wales. Contracts for the disposal and acquisition of interests in real estate are simply signed by or on behalf of the parties. Instruments effecting the disposition of the interest itself have to comply with certain formalities relating to execution and are known as deeds.
8. Permits – What permits are required for the use and occupation of real estate and are they personal?
Applications to obtain planning permission to “develop” land must be made to the local government authority which has the responsibility for controlling the use and development of land in its area. Local government authorities have statutory time periods within which a decision must be made as to whether or not planning permission should be issued. There are various statutory rights in relation to appeals, which can be made if an application is refused or not determined, and rights of challenge regarding the validity of any permission granted. For developments that are likely to cause significant environmental impacts, an Environmental Statement will need to be submitted with the application for planning permission, explaining the likely environmental impacts of the development.
Generally, planning permission will be required for the construction of a “new build” property, work that is proposed for refurbishment of an existing building, and where an existing use (for example office space) is to be changed to another distinct use (for example retail or licensed premises). Planning permission, when granted, benefits the land (although there are occasions when it can be personal) and will contain conditions which will regulate the impact of the development, for instance controlling hours of opening for a licensed premises or requiring landscaping surrounding a car park. Under the Planning legislation the terms “develop” and “development” have a much wider meaning than the construction or replacing of buildings. Minor building works or simple changes of use may amount to “development” requiring planning permission.
A different type of permit (called a “listed building consent”) is required when it is proposed to do work to historically or architecturally important buildings. Normally, planning permission will also be required, but listed building consent may be required even where planning permission is not (for example where works are not “development” but still affect the importance of the building as a heritage asset.
Larger districts or areas of buildings (called “conservation areas”) that have architectural or historical importance may also be subject to a separate regime of control that requires conservation area consent to be obtained before work is carried out that would damage the character and appearance of the area that the local government authority wishes to preserve and enhance.
During the consultation period that the local government authority must undertake when considering a development, third party groups are able to put forward objections (or support) that should be considered by the authority before deciding whether or not a permission should be granted. In addition, even after a permission has been obtained, there will be a three month period within which a third party group is entitled to challenge the validity of granting the permit and this should be kept in mind by lawyers and agents acting for the developer, before any work undertaking the development begins.
In addition to a planning permission, the building must also have approvals confirming that construction has taken place in accordance with applicable building regulations and health and safety legislation. Certain types of building may also have other kinds of certificate issued by independent bodies in relation to building or construction matters generally, such as BREEAM or NHBC certification.
In relation to operations and activities on the property, various environment related permits may be required. This will depend upon the nature of such activities and operations. Most commercial activities will require a trade effluent consent or agreement with the local sewage undertaker. Where prescribed industrial or commercial activities are undertaken, environmental permits may be required from the Environment Agency or the local authority.
9. Insurance and Risk – What insurance will the parties effect and when does the insurance risk pass at the time of sale?
Before a sale is contemplated, insurance is generally the responsibility of the owner of the freehold interest in a property. However, where such property is the subject of a lease or the property is a leasehold interest, the terms of the lease will prescribe which party has responsibility to insure. It is common for owners of long leasehold interests to insure rather than the landlord/freehold owner. Whatever the length of the lease, the tenant will generally insure the contents of the property belonging to the tenant and in some cases certain parts of the property for which the tenant is contractually responsible, such a plate glass.
The insuring party should have a fully comprehensive buildings insurance policy to protect the structure and fixtures and fittings of the property in the event of damage or destruction by any of a comprehensive list of insured risks, such as storm, lightning, fire and water damage. The policy may also cover additional special heads of cover such as subsidence, heave, earthquake and, if available, terrorism.
Generally it is the buildings, and not the land, which are insured for the reinstatement cost rather than the reinstatement value.
Insurance policies (the insurance contracts containing the contractual terms between the insurance company and the insured) may either comprise a single policy for one particular property or a block policy designed to cover a portfolio of properties. Larger institutional investors may self-insure.
Occupying owners generally have separate policies to cover the contents of the property, especially if the property includes costly plant and machinery. They will ordinarily have public liability insurance to cover liability to third parties arising from the property. These public liability policies will exclude most pollution and contamination risks (except those caused by a sudden and accidental event). Whilst not common, it is possible to purchase specialist cover for pollution and contamination risks.
Where the property is subject to an old restrictive covenant and the property owner does not know whether it is still enforceable, a special restrictive covenant indemnity insurance policy may be taken out to insure against enforcement of the covenant by third parties. Similar policies can be taken out if there is some specified defect in the title to the property. The benefit of such insurances may usually be claimed by subsequent owners of the property and tenants.
Insurance policies (except restrictive covenant and title policies) are personal and not transferable on sale. Where a sale is taking place, timing of the transfer of risk is normally prescribed by the sale agreement. Agreements for sale of leasehold land will still be governed by the insurance terms of the lease. It is common market practice for the parties to agree that the seller will continue to insure occupied property until completion.
10. Environmental – What are the common environmental issues?
Considerable change is occurring. Environment related sustainability issues are rapidly rising up the agenda. Currently, the most prevalent of these is the extent of greenhouse gas emissions attributable to the use of buildings (estimated at c50% in the UK and c40 % in the EU) and the potential impact of climate change on buildings. Current law is widely seen as ineffective. Considerable new legislation, policy and voluntary commercial measures are being implemented. There is a consensus that these are likely to have potentially far reaching impacts on development and retrofit, although there is no consensus yet on whether there will be a significant impact on investment values of new and/or existing building stock. For example, letting of residential premises with very poor energy performance ratings will not be possible (unless certain exceptions apply) from 2018.
Traditionally, the prime environment consideration has been potential soil and groundwater contamination as a result of current and former uses. Applicable environment law is a mix of common law and statutory law. Strictly, it is not unlawful for land to be contaminated and there is no absolute obligation to remediate contamination. Generally, legal obligations will attach if the contamination is causing, or has the potential to cause, harm or damage at particular levels (and these differ depending upon the applicable law). In principle, legal responsibility follows the “polluter pays” principle (i.e. the person who spilled, released or discharged the offending substance will normally be liable) but there are important qualifications to this. Environment laws may operate to make future owners and occupiers liable for contamination already present at the real estate when they acquire it. For instance, this may occur if the new owner fails to remediate harmful contamination of which it is aware or should be aware, if the original polluter can no longer be found or, by statute or contract, the risk is transferred by one party to another.
Acquisition due diligence may involve the appointment of environment consultants to consider documentary information and to carry out a site visit (Phase I). If considered necessary, further, intrusive investigations (Phase II) may then be undertaken. It is important to identify potential problems early so that there can be negotiation on terms and/or price and the need for and scope of any remediation. Negotiation of terms may take many forms, including contractual allocation of risks, obligations to remediate (contamination discovered pre or post-acquisition), indemnities in respect of first party loss or third party claims, or purchasing specialist historic liabilities environment insurance to cover any of these risks. If development is proposed, then planning permission may be made conditional upon the proper investigation and remediation, if necessary, of potential historic contamination.
If planned development is of a type considered potentially detrimental to the environment, the application for planning permission may need to be supported by an assessment of the development’s likely future environmental impact.
The presence of nuisance weeds (such as Japanese Knotweed) or protected species (such as badgers or newts) are due diligence and potential planning issues. They may impede on-site activities, have cost implications and impact on the duration of development.
Those who have control of places of work have a duty to assess the risk of asbestos being present in the fabric of the building and to manage the human health risks posed by any asbestos found. Buildings built before 1999 are presumed to contain asbestos unless there is good evidence (such as building plans) to the contrary.
11. Pricing/Valuation – What sets the price/valuation of real estate?
Pricing of real estate investments is a combination of the aggregate rent being paid by occupational tenants of the property and the value that investment buyers consider that a property of the specific type and location is worth at the time of valuation taking that income into account.
The rent for a particular property is likely to be assessed by multiplying the area of the property by the market rental value per square metre (although in the UK square feet are still used as an alternative measurement). The market rental value will take into account factors such as the location of the property, its type and condition, and the length of the lease term. The area of the property will be calculated by reference to the RICS Code of Measuring Practice, which uses generally accepted methods of calculation by reference to several core definitions, the most common of which are Gross Internal Area (used, for example, in relation to warehouses and industrial buildings) and Net Internal Area (used, for example, in relation to offices and shops).
In the case of retail shops, it is common for the rent of the property to have differential values according to the positioning of the floor space – that nearest to the frontage is the most valuable and will be described as “Zone A”. The rental values of the various areas will be added together to provide an overall rental value for the property.
The value of the property for investment purposes will generally be assessed by reference to the methodology laid down in the RICS Appraisal and Valuation Standards manual, universally known as the “Red Book” as a result of the colour of its cover. This governs the way in which a valuer will calculate the value, on the basis of a list of accepted assumptions according to the statements of practice. These apply to the specific use for which the valuation is made and in the case of investment property the valuation will be of “Market Value” as defined.
Investment properties are commonly referred to as being sold on a particular yield, meaning the investment return that will be gained from the capital sum which it is necessary to pay to buy the property. For example, where a property with an aggregate rent of GBP 100,000 is sold for GBP 2m, it will have a yield of 5%. Conversely, the interest can be said to have been sold at a YP (years’ purchase) of 20.
12. Taxes and Costs – What are they and who pays them?
The main tax on acquisitions is stamp duty land tax (SDLT) at a top rate of 4% of the purchase price in the case of commercial properties and a sliding scale up to 12% in the case of residential properties. Special rules (and a much higher rate) have been introduced as an anti-avoidance measure to apply to residential properties acquired by companies and other non-natural persons. SDLT is calculated as a percentage of the acquisition price and must be paid by the buyer within 30 days of completion of the acquisition. Failure to pay within the prescribed time is subject to significant penalties and interest. SDLT must be paid before the Land Registry will process the buyer’s application for registration. If the interest being sold is the creation of a new lease, extra duty will be payable according to the amount of rent payable under the terms of the lease.
Value added tax (VAT) may also be payable, where the property is the subject of a valid option to tax. The buyer may exercise the option immediately prior to or upon completion. An advantage of opting to charge VAT on property is that the parties may be able to recover any VAT on professional fees associated with the transaction.
The exception to the rule that VAT is payable on the sale of an opted property is where the transaction constitutes a “transfer as a going concern”, where the property is let and operated as a business unit. Subject to satisfying certain conditions, this will usually mean that no VAT is paid on the sale of a property which is subject to leases granted to occupiers.
Stamp duty payable on the transfer of shares in a company is calculated at different, lower, rates than SDLT. In relevant instances it is possible to achieve a saving in transfer taxes by structuring a transaction as the sale of a company rather than as the sale of the real estate.
During the due diligence for the acquisition, the buyer will also pay the costs of conducting searches, including in particular of the local authority (which includes zoning matters, building regulations and general municipal consents, notices, etc), and, if relevant, companies providing utilities, the local waterways boards, the Environment Agency, railway operators, and coal authority. The buyer will also pay for any valuations and surveys of the physical state of the property and any environmental audits or desktop studies.
The seller will pay the commission of any land agent or broker employed to find a purchaser.
Occasionally, the negotiated heads of terms for a transaction will provide for one or other party to pay the other’s costs. Generally each party pays its own expenses. If the property is leasehold, the seller is usually responsible for paying the costs of obtaining any consent required from any landlord in order to sell.
Finally, the buyer will be responsible for the payment of the Land Registry fees associated with registration of the transfer to the buyer. As no notarisation is required, no notary fees are payable.
France
1. Parties and Ownership – Who can own real estate and what types of ownership are there?
Parties
In France any legal “person” may own real estate.
This includes individuals, companies, private legal entities such as companies, registered associations or associations classified as being of public interest and public legal entities such as state and local authorities and public corporations. Non-registered associations are not allowed to own real estate as although they exist in law they do not have legal capacity.
The main institutional investors include: real estate investment trusts (“Société Civile de Placement Immobilier SCPI”), property leasing companies, real estate development companies run on a lease-purchase basis (“Sociétés de Crédit-bail”) and real estate investment companies (“Société d’Investissement Immobilières Côtées SIIC”).
Foreign individual investors are permitted to directly own real estate. Foreign corporate investors may also directly own real estate provided that their legal personality is recognised in France.
Ownership
Different types of ownership are applicable in France, such as freehold ownership, (including joint-ownership), co-ownership and volume ownership.
  • Freehold ownership – includes anything above or below the property plus the buildings. A freehold owner is entitled to mortgage its property, to grant easements and leases on it and to sell it at any time. Ownership can be held by several people in joint ownership. This joint-ownership may be created for a maximum fixed period of five years which is either renewable or it may be terminated at any time
  • Co-ownership – is applicable for a building with at least two co-owners. The building is divided into private areas, on which each co-owner may enjoy full rights, and common areas such as land, structure and common parts of the building, on which each co-owner has a joint right. A property manager has to be appointed by the co-owners and his functions are determined in accordance with law
  • Volume ownership – the property is divided vertically as well as horizontally in three dimensional units. Different tranches of the land may be allocated to different owners, who have their own proprietary interest in their respective “volumes”. This type of ownership offers the owner of each volume the right to build within it

It should also be mentioned that according to French law, property rights may be either full property or bare property, which usually only gives rights and obligations in relation to the capital. Property rights may also be an usufruct, which gives rights and obligations in relation to the income.
2. Interests – What types of interest in real estate are sold?
An investor may not only purchase the land itself or a completed building, but other real property rights governed by French law. Because of that right, an investor may have a right to build while the ownership rights remain in the hands of the owner.
They usually take the form of long term leases, with a duration ranging from 18 up to 99 years like the “bail emphythéotique” and the “bail à construction”. Under such leases the tenant is obliged to erect buildings which finally revert to the landlord. They offer a genuine real property right, which can be mortgaged, sold or transferred.
Property interests currently sold may therefore be either the land and buildings, long term leases or shares of companies such as “sociétés d’attribution” representing a part of the underlying assets. Rights to build can be acquired through bulk and forward sales.
3. Employees – What employment issues affect real estate acquisitions?
Without prejudice of the nature of the contemplated transaction (purchase of real estate, purchase of the sole assets, transfer of a part of the activity, etc), the main issue consists in determining whether such a transaction would automatically entail the transfer of the employment contracts to the transferee or not (in this latter case, each employee’s consent would be required prior to the transaction).
Article L. 1224-1 of the French Labor Code which leads to the transfer of the employment contract to the purchaser does not always apply and must be examined on a case by case basis. For example it does not apply to the transfer of tangible assets dedicated to an activity if the activity in itself is not transferred or to the transfer of materials without the transfer of the business or the customers or to the sale of an asset without the actual transfer of the economic activity.
According to well-established case law, the provisions of Article L 1224-1 apply to any transfer of an autonomous economic entity where the operations are continued or resumed while its identity is maintained. An autonomous economic entity is defined as an organized group of persons and tangible or intangible assets allowing for the conduct of an economic activity pursuing its own objective.
Only if this condition is satisfied do the employment contracts of the employees become transferred automatically without any right for the employees concerned to oppose such a transfer.
Is should be noted that an authorization of the labor inspectorate is needed prior the transfer if any concerned protected employees (employee rep. union reps., etc) are affected by a partial transfer of activity.
If Article L. 1224-1 does apply, it will have an effect on the employment contract (transferred automatically without changes to the purchaser who takes over all the contractual employment obligations according to seniority and without any trial (probation) period) and it will also have consequences on the collective status of the transferred employees. The collective bargaining agreements, understandings and applicable practices are also transferred to the purchaser for a limited period of time and certain conditions will apply to mandatory profit-sharing schemes and incentive schemes. The employees’ representative body may also be transferred under specific conditions.
Subject to the particular terms of the contemplated project, in relation to the procedure, each member of each institution (the works council of the transferring company and the works council of the recipient company, if any) may need to be given written notice of a meeting and a meeting of the health and safety committee may also be required if the transfer implies a modification of the working and/or safety at work conditions. These meetings must be held prior to any transaction being completed.
It is also important, according to the type of transaction, to take into account the commitments provided by the articles 18 to 20 of the Law n° 2014-856 of July, 31st, 2014 relating to the prior information of the employees on the contemplated selling of the company.
4. Procedure – What are the steps in a sale and purchase transaction?
Transactions formally start with a pre-contractual period, allowing the parties to discuss the main conditions of the transaction.
In order to provide the buyer with complete information regarding the building, investigations are carried out including technical and legal due diligence in relation to the property. This information enables the buyer to determine the price and the nature of any obligations to be requested from the seller.
An offer is then proposed for the property. The offer may be proposed by the buyer, or the seller. That step may be quite dangerous for both parties because the judge may consider such an offer a real contract if it possesses all characteristics of a contract such as a determined price, an acceptance and the existence of both parties.
A preliminary contract is entered by both parties, in order to prepare the notarized deed of sale. It is either a unilateral promise to sell or a bilateral promise to sell:
  • Under a unilateral promise to sell the seller, referred to as promisor, undertakes to sell the property to the buyer, referred to as the beneficiary of the promise to sell, on the date when the buyer expresses the intention to buy the property. The beneficiary holds an option he may exercise for a certain period of time. The beneficiary pays a deposit which is 10% of the purchase price until completion takes place or the purchase is cancelled. When the beneficiary exercises this option to buy, the sale is completed. Failing that, the seller is released from his promise and he may sell the building to another party, when the beneficiary will have to pay the promisor compensation amounting to the deposit. The validity of the contract is subject to its registration with the tax administration within ten days after acceptance by the beneficiary
  • A bilateral sale agreement is a reciprocal undertaking to sell and to buy, binding the parties. The sale is completed once conditions precedent are fulfilled. It is always drawn up as a private agreement

The purchase deed may be drafted by a notary. In some cases, the seller and the buyer may directly sign the final notarised deed of sale without signing a preliminary contract.
Legal formalities with authorities and agencies such as the Land Registry have to be completed in order to enforce the sale against third parties. The published and registered deed may be overridden only by a judge.
5. Contract terms – What provisions does a real estate contract contain and what is implied by law?
Provisions of the contract
Both parties generally enter into a preliminary contract prior to the signature of the contract. Depending on the formula selected, both parties have more or less wide-ranging rights.
The purchaser often has an option right enabling him to acquire the building. The contract has to mention the deadline and the form in which the option must be exercised.
Generally, the contract contains an assignment clause under which the benefit of the contract may be transferred unless otherwise agreed. In practice, unilateral promises contain a substitution clause, whereby the beneficiary can be replaced by a third party who may be an individual or a legal entity.
A requirement for a deposit of between 5-10% of the purchase price on exchange of agreement is quite common for sale and purchase agreements. A contract usually provides that this deposit remains in a special account at the bank or the notary’s office.
If an option is exercised, the option fee has to be offset against the sale price of the building, whereas the fee accrues to the seller if the option is not taken up. This remunerates the seller for granting the purchaser a right of first refusal on the property.
A contract is valid only if all conditions precedent have been satisfied or if any condition exists for the benefit of one party, that party has agreed to waive it in the absence of satisfaction.
In the case of an off-plan purchase, the agreement incorporates provisions dealing with some seller’s obligations to build in accordance with an agreed specification and building permit, and provide separate collateral warranties in order to safeguard the buyer against defective design or workmanship
Terms implied by law
A sale and purchase agreement has to be in writing, drafted by a notary and be registered at the Land Registry in order to be effective against third parties.
Parties to a French property acquisition are able to vary most code provisions, which are otherwise written into the Contract.
Some things have to be stated for the purpose of registration. In addition to the provisions relating to the specific transaction, the deed has to contain various stipulations referring to:
  • The names of both parties, whose identities must be checked. The contract has to state the companies’ names as well as legal form, registered office and registration number
  • The property designation and the transferred rights, including a list of priority ranking of mortgages, contractual easements, town planning obligations, co-ownership regulations and rental status
  • The price at which the sale is to be or may be ascertained. The deed has to specify if the price is paid in front of a notary and the origin of the sums involved. If the property sold is held in joint ownership, the undertaking has to state the exact surface area of the plot of land sold, failing which it may be declared null and void
  • Any special conditions of sale and any charges attached to the building. Appendices are often required such as energy consumption diagnosis.

Some measures have been enacted to protect buyers who are not real estate professionals. The beneficiary of an undertaking to sell concluded by private agreement is allowed to withdraw his consent within a seven day period. If the undertaking is notarized, the draft deed only becomes firm and final at the end of this seven day period.
6. Due Diligence – What investigations does the buyer normally make?
Pre-exchange of agreements
Before the signature of a preliminary contract the buyer carries out due diligence investigations. These concern legal as well as technical matters relating to the property.
From a technical point of view, matters normally covered are:
  • The structure of the building
  • Soil and geological investigations
  • Compliance with any applicable regulations (such as labour regulation, public premises, asbestos, termites and environment)
  • Particular commitments in the employment contracts if some employment contracts are automatically transferred (see above), such a golden parachute, non-competition clause, etc.
  • An environmental audit

Many legal matters have to be checked, such as the following:
  • The title of property and origin of ownership over the last 30 years
  • Rights burdening or benefiting the property
  • Type of ownership and related documents
  • Administrative authorisations
  • Building and operating insurance policies
  • Rental situation
  • Any current legal disputes
  • Works and maintenance on the building

Most of the time, a town planning certificate is obtained at contract stage in order to provide the purchaser with information concerning any applicable planning restrictions and confirming the ability to build, rebuild or extend on the land and whether any particular zoning regulations apply to it.
7. Registration and Notarisation of real estate – What are the basic requirements?
Within the context of a property purchase, even if the sale may legally exist before the drafting of the notarised deed, the final deed has to be drafted by a notary in order to ensure that the transaction is carried out legally and accurately, in accordance with the proper procedures. The notary is responsible for ensuring the effectiveness of the contract. He also verifies real estate titles, informs both parties of any mortgages or liens and of any legal and tax consequences. It is advisable that such points be checked by a lawyer at the preliminary contract stage.
The notarised deed gives the purchaser full proof of ownership which may only be disputed by a legal action. All real estate transfers, mortgages and liens must be executed in the form of a notarised deed.
The purchase deed is only enforceable against third parties after its publication in the Land Registry. The sale is then protected against third party claims, including those made by persons not stated in the deed.
All recorded documents become part of a real estate file which indicates ownership and claims. Authenticated copies of all notarised deeds are kept at the Land Registry. Most of the time, any person may obtain an abstract of the real estate file for a particular piece of property.
8. Permits – What permits are required for the use and occupation of real estate and are they personal?
Urban planning permit authorises construction according to urban regulations (locality, use, aspect, arrangement of the building).
Application for such permit includes the applicant’s identity, location of land, type of works and intended use of the building. The file is filed with the town hall and has to contain, notably, a master plan of the land, an overall plan of construction and plans of the façade. The permit has to be posted on the site soon in order for it to be enforceable against third parties. It has to remain there for the entire period (ie two months) in which people are allowed to object to the permit. In addition, the permit has to be posted for the duration of the building work.
The urban planning permit is not personal and may be transferred to any new owner as part of any transfer of the land with prior authorization of the Mayor.
A permit to parcel out land is required for any division of land for building purposes resulting in the creation of more than two plots, or which may result in the creation of more than two plots over a period of up to ten years.
In situations where demolition is involved, a specific demolition permit has to be obtained (or may also be requested in the planning permission file).
A specific authorisation has to be requested in the urban planning permit file for the construction of supermarkets and shopping centres depending upon a number of factors including the size of the surface area.
Use of premises in cities having a population greater than 200,000 or in the Hauts-de-Seine, Seine Saint-Denis and Val-de-Marne departments, may not be changed from a residential use to another use without prior authorisation of the Mayor. This authorisation is personal and may not be assigned unless the change of the use was duly “compensated”.
For industrial buildings, a list of classified installations for environmental protection (ICPE) has been established to list activities which may interfere with or be dangerous to the surrounding areas, public health and safety, or the environment. This list distinguishes installations requiring authorisation from the “Préfet” from those only requiring a declaration or have to be registered.
9. Insurance and Risk – What insurance will the parties effect and when does the insurance risk pass at the time of sale?
When a lease has been granted, the terms of the lease stipulate which party has responsibility to insure and pay for the insurance.
The tenant will generally insure the contents of the property belonging to the landlord and in some cases certain parts of the property for which the tenant is contractually responsible. The tenant is often asked by the owner to present a certificate of insurance.
The owner normally insures the building but it is common for the tenant to pay the insurance premiums. Lease contracts often contain a reciprocal waiver of recourse clause.
Generally, buildings are insured for the reinstatement cost rather than the reinstatement value. Property owners may take out a single insurance policy for one particular property or a block policy covering a portfolio of properties. Insurance policies are transferred with the property unless both parties have agreed otherwise. Where a sale is taking place, the timing of the transfer of risk is normally prescribed by the sale agreement.
Specific insurances apply to the construction of buildings:
  • A first insurance (“assurance dommages-ouvrage”) must be taken out by the owner of the building, which covers repair works to be made in case of damage to the structure for a period of ten years. This insurance policy benefits subsequent owners of the structure
  • A second insurance (“assurance responsabilité civile”), which must be taken out by the builder, covers his ten year professional liability

10. Environmental – What are the common environmental issues?
Legislation governing installations classified for environmental protection (ICPE) enables the Prefecture to order operators to rehabilitate the contaminated site, and, in some cases, the owner may be requested to do such works.
The scope of this obligation depends upon the risk to the environment and public health. The seller has a duty of disclosure and has to provide the purchaser with all information concerning potential or actual contamination of the site. If the purchaser is not properly informed, he may obtain cancellation of the sale or ask for a reduction in the price.
Sellers and landlords have to informed purchasers and tenants of the existence of risks where property is located in areas covered by either a prevention of technological risk plan or of a prevention of foreseeable natural disasters plan.
Sellers or landlords have to provide a natural and technological risk report (“état des risques naturels et technologiques”) on the basis of information communicated by the administration in each department. If a seller or a landlord fails to provide such a report, the purchaser or the tenant may terminate the contract or ask for a reduction in price.
Carrying out of an environmental audit is recommended in order to analyse the risks relating to pollution and non-compliance issues.
Specific risks and diseases related to real estate have been identified by French Law in order to protect properties against termites, and their occupants against asbestos and lead poisoning. In the case of residential property, a seller has to provide specific reports related to lead poisoning or termites.
11. Pricing/Valuation – What sets the price/valuation of real estate?
The purpose of valuation is to determine the market value of a building: the average price that may be obtained for a property to be sold.
Experts are valuation professionals in the property field such as notaries and property experts, members of the French Institute for Property Valuation and chartered surveyors. Valuation fees are mainly based on the amount of time estimated to carry out the valuation.
Each valuation is performed after inspecting the property. The valuer takes several factors into consideration such as the location of the property, its type and condition, surface area, date of construction, legal and tax situation, applicable planning regulations, occupation of the property and comparison with similar transactions. A valuation report contains a description of the work done, the location and surroundings of the property, its legal status, its town-planning status, a description of the property, a general assessment, the market sector, comparison points used, an estimate and the conclusion.
The most common method of valuation in France is the comparison or analogy method. It consists of comparing transactions made in the same area in relation to buildings with similar characteristics.
12. Taxes and Costs – What are they and who pays them?
Acquisition of real estate is generally subject to registration fees calculated on the purchase price increased by additional costs and compensation paid to the seller. Registration duties are due on the date of sale and payable by the purchaser.
The purchase of a building which has been completed less than five years before the sale is subject to value added tax (VAT), which is paid by the purchaser.
French tax authorities may challenge the purchase price and substitute the price paid with the actual market value of the property sold, if it is higher.
In addition to the transfer duties, the land registrar’s fees and legal fees are applied.
Legal fees and registration taxes have to be paid. They may include costs which might have been incurred for establishing boundaries and preparing plans for the final deed. These fees are paid to the notary on the day of signature of the deed together with the balance of the purchase price. The fees of the notary have to be paid at the same time as the legal fees.
The seller pays the agent’s commission, unless the parties have agreed otherwise.
Germany
1. Parties and Ownership – Who can own real estate and what types of ownership are there?
Parties
Any “person” with legal capacity may own real estate. This includes legal persons under private law (e.g. stock corporations or limited liability companies) as well as legal persons under public law (e.g. local authorities). Associations with legal capacity or non-profit-organisations may also purchase real estate.
Unlike the above mentioned legal persons, a civil law partnership (Gesellschaft bürgerlichen Rechts (GbR)) and its partners are not recorded in a public register. Also a change of partners cannot be verified. Therefore, when buying real estate property as a GbR, all partners must be entered into the land register.
Commercial real estate is often owned by insurance companies, banks, investment companies or real estate holding companies.
There are no statutory restrictions on foreign persons or companies acquiring real estate in Germany, provided that they have legal capacity.
Ownership
German law differentiates between the following types of ownership:
  • Sole ownership (Alleineigentum) – the sole owner is the only person authorised to control and dispose of the land
  • Co-ownership (Miteigentum) – more than one person owns a share of the land. Each co-owner can dispose of its share (§ 747 German Civil Code (BGB))
  • Joint Ownership (Gesamthandseigentum) – land which forms part of jointly held assets, e.g. by a civil law partnership or an association without legal capacity. Each joint owner is entitled to a share of the joint property but is not entitled to dispose of its share independently
  • Rights which are similar to full ownership of real property – by analogy these rights are subject to the provisions on full ownership, provided that there are no special regulations. Heritable building rights (Erbbaurechte) are particularly important and are generally created for a period of up to 99 years. During that period, the holder of a heritable building right may build on the land and use it. Commonly, a recurrent charge or rent (Erbbauzins) is stipulated in the contract

Any transfer of title to land has to be entered into the land register (Grundbuch). Prior to this, real estate transfer tax and other financial duties relating to the property have to be paid. To assure these payments, the tax authorities responsible for the respective area have a right of appropriation. Only if the tax authorities waive this right can the transfer of title to land be executed.
A distinctive feature of German law is the annulation proceeding (§ 927 German Civil Code (BGB)). Under certain circumstances, the owner of a piece of land may lose its title to property. In particular, the land must have been in proprietary possession of another party for over 30 years and the real owner must be either missing or dead, or alternatively, not listed in the land register.
2. Interests – What types of interest in real estate are sold?
In Germany it is only possible to sell title to land or to create limited rights (beschränkte dingliche Rechte).
German law recognises several forms of interest in property. These are:
  • Ownership (including condominium ownership)
  • Limited rights in rem such as
    • heritable building right (Erbbaurecht)
    • easements (Dienstbarkeiten)
    • realty charge (Reallast)
    • mortgage (Hypothek)
    • land charge (Grundschuld)
    • annuity land charge (Rentenschuld)

Real estate may be held by means of sole ownership (Alleineigentum), joint ownership (Gesamthandseigentum) or co-ownership (Miteigentum).
In the case of real estate which is leasehold, only the land may be acquired. However, the buyer of leased real estate enters into the rights and obligations contained in the lease agreement in lieu of the lessor, i.e. as soon as the buyer is registered in the land register it automatically assumes the status of a lessor (§ 566 (1) German Civil Code (BGB)) if all conditions are met.
The buildings on the land and all other fixed components and items such as crops are regarded as essential parts of the land and cannot be separated from it. Consequently, a separate legal transfer of either land or building is neither necessary, nor possible. Unless the parties have agreed otherwise, the sale also includes the accessories (Zubehör), i.e. the movable items on the site that serve the commercial purpose of the land, such as construction materials or supplies of heating oil.
Condominium ownership is a special kind of right . It consists of individual ownership (Sondereigentum) of a flat/apartment in connection with joint ownership (Gemeinschaftseigentum) of all building parts, which are necessary for the existence and safety of the building (e.g. roof, stairwell) or facilities which are used from all owners together (e.g. heating plant or heating pipes). It is possible to sell the individual property in conjunction with a share of the jointly owned property. Any issue arising, which concerns the jointly owned property must be decided on jointly by majority or unanimous decision of all co-owners. The legal foundation of the aforesaid is the Condominium Ownership Code (Wohnungseigentumsgesetz).
Another special kind of right is the heritable building right (Erbbaurecht). This is a temporary right to have a building on another person’s land. A transfer of title to land is not necessary (see question 1).
3. Employees – What employment issues affect real estate acquisitions?
In terms of real estate acquisitions, the following two employment issues have to be taken into consideration:
Transfer of business
The transfer of a business or part of a business is subject to special provisions under German law (§ 613 a (1) German Civil Code (BGB)). Frequently, employment relationships between the seller and third parties are so closely linked to the property that the transaction constitutes a sale of a business or part of a business. This often applies to the employment of caretakers and cleaning staff. Under these circumstances, the buyer takes over all the rights and obligations of the employment contracts existing at the time of the transfer.
Where the transaction constitutes a transfer of a business as described above, the seller (the former employer) and buyer will be jointly and individually liable for obligations arising under the existing employment contracts. These employment contracts may not be terminated on the grounds of the transfer of business or changed to the disadvantage of the employee within one year after the transfer. In this connection it is important that the employees concerned are informed about the business transfer at an early stage. The employees can object to the transfer of their employment within one month after receipt of the notification. By doing so, they continue being employed by the seller but run the risk of being made redundant if the seller is unable to provide a similar employment.
Employer-owned accommodation
When the transaction concerns property which includes accommodation let to the employees in connection with their employment, the landlord can terminate the lease agreement at short notice and without stating reasons once the employment has been terminated. However, this doesn’t apply where the accommodation is furnished mainly by the employee or he lives there with his family or other persons, with whom he has a joint, permanent household (§ 576b (1) German Civil Code (BGB)). Agreements made on different terms are invalid as far as they are to the disadvantage of the tenant.
4. Procedure – What are the steps in a sale and purchase transaction?
A letter of intent or heads of terms are not required in every sale or purchase transaction. These non-binding declarations of intent are used with large transactions, such as the sale of a real estate portfolio with a bidding procedure.
It has become common practice for a seller or buyer to carry out a due 
diligence process. The due diligence identifies problematic issues relating to the property and points out remedies (see question 6).
Usually, one party sends the other party a draft contract tailored to the specific property. Since a contract for the sale of land must be notarised, it is also possible to have the contract drafted by the notary. Lawyers are normally engaged to advise the parties and to draft the contract.
Once the parties have reached an agreement on the specifics of the contract, it has to be notarised. It is important to note that associated agreements must also be notarised if they are of significance to the conclusion of the contract, e.g. if a construction or lease agreement is coupled with a real estate sale. Otherwise, the whole contract is void. A binding offer of one party also requires notarisation. An offer or a contract concerning real estate, not concluded in that form, only becomes entirely valid if the transfer of title to land has been declared by the parties and entered into the land register.
Two essential criteria are required to be fulfilled for transfer of title to land (§ 873 German Civil Code (BGB)):
  • Declaration of conveyance of the property (Auflassung) – this is the agreement between the buyer and the seller necessary for the transfer of ownership of a plot of land which has to be notarised in the presence of both parties. Commonly, it is already included in the contract for the sale of land and does therefore not require separate notarisation
  • Entry into the land register – the entry into the land register completes the legal purchase and has a constituent effect, i.e. the title is not transferred before the buyer’s status as owner is entered into the land register. Some time, usually several weeks or months, may pass between the date on which the contract is notarised and the completion of the legal purchase (entry into the land register)

5. Contract terms – What provisions does a real estate contract contain and what is implied by law?
Provisions of the contract
Contractual provisions normally govern:
  • Definition of the object of purchase (land description, appurtenances, fixtures and fittings, encumbrances, etc.)
  • Exclusion of liability (e.g. soil contamination, hidden defects)
  • Protection of the seller
    The parties instruct the notary not to file the application for the transfer of title to land until the seller or the bank has confirmed the receipt of the purchase price. As far as the payment of the purchase price is concerned, the buyer submits itself to immediate execution on its entire assets. This means that the seller is able to access the assets of the buyer, thereby avoiding length‚y legal proceedings. Alternatively, payment can be deposited into an escrow account which is administered by the notary as trustee. However, this generates additional costs.
  • Protection of the buyer
    A very important contractual term is the priority notice of conveyance (Auflassungsvormerkung). It protects the buyer’s claim to a correctly ranked entry in the land register. The purchase price usually does not become due until the priority notice has been entered in a correctly ranked order.Transfer of possessionAt the date on which possession is to be transferred, the risk of accidental loss, deterioration not caused by either party, ability to use, compliance with encumbrances, and all duties to ensure that the land or premises are safe for persons or vehicles, are passed on to the buyer. It is advisable for the contract to make a specific provision for the transfer of possession. There should be a clear distinction between the recurring public charges and the allocation of infrastructure development costs and other levies.
  • Authorisation regarding execution of the contract
    At the notary’s office, the parties give authority to the notary’s staff regarding all declarations that are necessary to enter the legal transactions listed in the contract into the land register. In general, this authorisation expires once the title has been entered into the land register.
  • Advice of the notary
    The notary must advise the parties on all contract-related issues that might imperil the execution of the contract. A special clause of the contract 
contains this advice.

Terms implied by law
The German Civil Code (BGB) comprehensively regulates the law of purchase. Strictly speaking, therefore, all the parties have to do is to specify the subject of the contract and to reach express agreement on aspects of the transaction which differ from those provided by statute. However, there are certain mandatory provisions which the parties may not exclude by contract. The most important are the following:
  • The seller may not exclude or limit its liability where it has guaranteed the condition of the property or fraudulently concealed the existence of a defect (§ 444 German Civil Code (BGB)). Consequently, where liability is completely excluded the seller must specify all circumstances which, according to usual business practice, constitute a defect of land or buildings. Failure to do this may render the liability exclusion clause invalid.
  • Liability for defects
    In so far as liability for defects has not been excluded, the buyer has the following rights (§ 437 German Civil Code (BGB)):
    • demand cure, (§ 439 German Civil Code (BGB)): As cure the buyer may, at his choice, demand that the defect is remedied or a thing free of defects is supplied. The seller must bear all expenses required for the purpose of cure, in particular transport, workmen’s travel, work and materials costs.
    • revoke the agreement (§§ 440, 323 and 326 (5) German Civil Code (BGB)) or reduce the purchase price (§ 441 German Civil Code), and
    • demand damages (§§ 440, 280, 281, 283 and 311a German Civil Code (BGB)), or demand reimbursement of wasted expenditure (§ 284 German Civil Code (BGB)).
  • Protection of confidence by acquisition in good faith
    For the benefit of the buyer, the content of the land register is deemed to be correct. For this reason, title to land can be acquired from a party registered as owner in the land register, even if this party is in fact not the legal owner. Likewise, land can be purchased unencumbered, even if the encumbrances have merely been cancelled inadvertently. However, the buyer cannot refer to good faith if it has positive knowledge of the fact that the land register is incorrect. This protection of good faith does not apply to rights which cannot be registered, such as the existence or non-existence of a lease agreement.
  • Automatic passage of non-registrable rights
    In most of the German federal states (Bundesländer) public easements (Baulasten) have to be recorded in a special register (Baulastenverzeichnis). The public easement is a formal obligation to be supervised by the building authorities, stating, for example, that the landowner will not build on a certain area of the land. This obligation then becomes an encumbrance which is not to be entered into the land register and which applies to any legal successor of the property.
  • General terms and conditions of business
    Limitations regarding the content of general terms and conditions of business are regulated by law (§§ 305 et seq. German Civil Code (BGB)). Land transactions generally include some standard clauses not specific to a particular transaction. A clause used as general business term or condition is deemed invalid if it causes a breach of good faith or unfairly discriminates a contracting party. Whether this is the case or not must be decided on the merits of the individual case.

6. Due Diligence – What investigations does the buyer normally make?
The common law principle of “caveat emptor” does not exist under German law, quite the contrary, the buyer has no obligation to check the object of purchase. If there are any defects, the buyer has the rights, which are stated under § 437 German Civil Code (see the answer to question 5; liability for defects).
Claims on the buyer’s part made on the grounds that the condition/quality is not as stated in the contract are excluded only if the buyer was aware of the defect when signing the contract. If the reason for its lack of awareness was due to gross negligence, he may only assert claims for defects if the seller fraudulently concealed them or had given a guaranty that the object would have a specified condition/quality. Gross negligence depends on whether the buyer was under an obligation to examine the property prior to and at the conclusion of the contract. The seller is always liable for defects he conceals fraudulently.
As far as real estate transactions are concerned, case law has acknowledged that it is common practice for a buyer to carry out a diligent inspection of the land and/or buildings. The buyer should at least examine the land and the buildings for any obvious defects (technical due diligence).
n practice, the scope of the inspection to be carried out by the buyer is based on the extent to which the seller excludes liability for defects. The greater the exclusion of liability, the more detailed the buyer’s inspection is likely to be.
When the buyer carries out a due diligence review, he uses a comprehensive checklist tailored to the requirements of the specific transaction (location of the property, condition of the development, use). In addition to an examination of the legal situation regarding planning and building permits, an inspection of the following should also be carried out: encumbrances entered into the land register, public easements, and the actual condition of the site (in particular inherited environmental liabilities and contamination of the building). Concerning the building, the buyer should examine the condition of the building (backlog of repairs) as well as the lease and other contracts regarding the use of the building.
7. Registration and Notarisation of real estate – What are the basic requirements?
The ownership status of real estate is recorded in the land register, which is an official register kept by the land registries at the local courts. The land register contains the reference list (Bestandsverzeichnis) and sections I, II and III. The reference list contains a detailed description of the real estate and should correspond with the data in the cadastral plan, i.e. plan indicating the location and size/area of the land which is kept by the real estate offices (Liegenschaftsämter). Section I lists the name of the owner. Section II includes any encumbrances and/or restrictions (servitudes, rights of usufruct), while section III refers to mortgages, land and annuity charges. Any person verifying a legitimate interest may inspect the land register. In principle, there is an irrefutable presumption that the content of the land register is correct, i.e. the facts entered are deemed to be correct.
The land registry procedure is based on a number of statutory principles, the most important being:
  • Applications – the land registry only acts on an application. Ex officio entries are comparatively rare
  • Approval – any land register entry concerning a change in the legal rights must have the approval of the respective party. Such a party is anyone in whose favour a right is entered in the land register and whose right is affected by the desired amendment
  • Prior entry – according to the principle of material priority the rights in land are ranked in the chronological sequence in which they were entered in the land register. The chronological sequence of the entries refers to the date of the corresponding application for entry

A priority notice may be entered into the land register to secure a certain ranking. This protects the claim to a legal position . There are separate land registers for heritable building rights (Erbbaugrundbuch) and condominium property (Wohnungsgrundbuch). The land register for condominium property records the proportion of co-ownership in the land and the individual ownership (Sondereigentum) separately for each co-owner.
Contracts for the sale of land must be notarised. Notarisation is also required for all collateral agreements which are so closely linked to the contract that neither can stand alone. Hence, collateral agreements, such as a purchase of movable objects, an obligation to construct a building, or lease agreements must be notarised in their entirety if the parties intend that the various agreements should be so closely interlinked that they “stand and fall” together.
8. Permits – What permits are required for the use and occupation of real estate and are they personal?
Which permits are required for the use or occupation of real estate depends upon whether or not the land is developed.
Undeveloped land
Whether and how a piece of land can be developed is governed by public planning law. All land can be classified into one of three development categories:
  • Designated development area (§ 30 German Federal Building Code – Baugesetzbuch (BauGB))
    If a piece of land falls within the scope of a local development plan, which contains a minimum of specifications on the type and extent of the development, on the areas which may be developed, and on the local public access areas, the construction project is permitted. This only applies if the project complies with these specifications and the development infrastructure is assured.
  • Developed areas without a local development plan (§ 34 BauGB)
    Development is permitted inside continuous built-up areas for which a local development plan does not exist. However, this only applies if the type and extent of the project, the construction method, and the area which is to be built upon fit into the surrounding area and development infrastructure. Where the character of the area falls within one defined by the Federal Land Utilisation Regulation (Baunutzungsverordnung (BauNVO)), the proposed development has to meet the criteria required. This regulation defines the typical categories of land and permits certain types of use in various categories (e.g. residential, commercial, mixed areas etc.).
  • Non-developed area (§ 35 BauGB)
    If the land is not located within a continuous built-up area and if there is no local development plan, a construction project is only permitted, provided that it does not conflict with public interests, that the development infrastructure is assured, and that the construction project is a privileged project within the meaning of § 35 BauGB. Privileged projects are certain types of building projects which generally should be located outside developed areas, such as agricultural plants, power plants, etc.

Given the approval of the responsible local authority, a commercial real estate project may be realised by way of a project-specific local development plan. The contracts dealing with large-scale projects in particular must ensure the possibility of realising the project according to all public law requirements and contain provisions to cover the possibility that the project cannot be realised as anticipated.
Once the plans for a project have been drawn up, a building permit (Baugenehmigung) is applied for. The requirements for a permit vary according to the Building Law of each German Federal State (Landesbauordnung). A building permit is necessary for the erection, demolition, or change in material or use of a building. In order to obtain a building permit, an application must first be submitted. It may be filed by the owner of the land or third parties if generally such agreement was reached with the owner beforehand.
f the construction project complies with the local development plans and if it does not infringe any public-law requirements, the local authority will issue the building permit, possibly attaching additional requirements (in particular relating to fire protection, building safety, etc.). The neighbours adjacent to the site will be notified of the construction project and given an opportunity to comment. The neighbours may file objections regarding the building permit and, under certain circumstances, hinder the progress of construction work by taking legal steps. However, this is only possible if the building permit infringes regulations specifically designed to protect the interests of neighbours, such as the distance between buildings and boundaries.
f the land is intended for commercial purposes, further permits may be necessary. Of particular practical importance is the permit under the Federal Emission Control Act (Bundesimmissionsschutzgesetz).
Certain projects, such as industrial buildings and shopping malls, additionally require an environmental impact assessment before the building permit can be issued.
German law distinguishes between rights attached to the land (Realkonzession) and rights attached to a specific individual. Where the right is attached to the land, it automatically applies to any new owner. Whether the permit is granted as a right attached to land depends on the specific type of permit. The building permit is issued for a specific piece of land and also applies to the new owner of the land. A new application is not necessary. In case the permit only applies to a specific individual, a new owner must re-apply for it.
Developed land
Regarding developed land, the buyer should ensure that the required permits have been obtained and, in particular, that any additional requirements have been observed. If certain conditions are met, existing buildings may enjoy legal protection (Bestandsschutz) even if the building permit is subsequently modified or withdrawn, and where this is the case the local authorities cannot force the owner to demolish the building.
Older buildings may be declared historical monuments by the Historical Monuments Preservation Authority (Denkmalschutzbehörde) according to the Monuments Preservation Code (Denkmalschutzgesetz). There are stringent requirements for intended alterations to the listed buildings. In urban areas, the local authorities may pass preservation and restoration regulations for certain designated areas. Construction work on such buildings is subject to a special permission.
9. Insurance and Risk – What insurance will the parties effect and when does the insurance risk pass at the time of sale?
There is no mandatory insurance for land and/or buildings. The owner bears the risk of deterioration or accidental loss of its property. In general, this risk is covered by a property insurance policy in the form of an all-risks insurance policy which covers the risk of loss and destruction. In addition, there is a third-party insurance policy for house and land owners and water pollution insurance including clean-up and demolition costs on a sliding-replacement costs basis. In the case of leased property, the insurance premium may be charged to the tenant provided there is a contractual clause to that effect.
If an insurance policy is concluded for a piece of land, the insurance along with the title to land passes to the new owner when the land is sold (§ 95 Insurance Policy Act – Versicherungsvertragsgesetz). The new owner is entitled to either continue the policy or to terminate it within one month after having been entered as the new owner into the land register. The insurer is also entitled to choose to terminate the policy within one month after having been informed by the seller or by the buyer. The insurer must be informed about the change in ownership without undue delay. Failure to do so may lead to loss of insurance cover.
If companies own more than one piece of land, they can insure the entire portfolio under one block policy. In this case, the insurance policies stipulate that if one piece of land is sold the insurance for that particular piece expires and the new owner has to be informed about the expiry. The new owner must take out a new insurance, to retain full coverage, ideally before the property is transferred.
As far as the transferability of insurance policies is concerned, a distinction is made between property and third-party insurance. Whilst in principle property insurance policies are transferred to the new owner (see above), third-party policies generally refer to one person i.e. a new policy has to be concluded.
10. Environmental – What are the common environmental issues?
Protection of the environment is a very important issue in Germany. According to the German Constitution (Grundgesetz (GG)), the state is responsible for the protection of the “natural basis of life” (Art. 20 a GG).
Low-energy construction methods
Every new building must comply with the current Energy Saving Act which became effective on 13 July 2013 (Energieeinsparungsgesetz) in conjunction with the current Energy Saving Regulation (Energieeinsparverordnung (EnEV)) which became effective on 1 May 2014. The EnEV 2014 stipulates specific standards concerning the conservation of energy through heat insulation and low water consumption which must be observed by property developers. Under certain circumstances, existing buildings must be upgraded. This concerns, in particular, buildings with old boilers and buildings which are refaced.
Since 1 October 2007 the Energy Pass (Energieausweis) is stipulated in the EnEV. The Energy Pass documents the energy needs of a building. It has to be shown to every buyer/tenant of an already existing residential building as guidance in advance of any contractual agreements. Since 1 July 2008 this applies to residential buildings constructed in 1965 or earlier, and since 1 January 2009 to all existing residential buildings. The Energy Pass is also required for non-residential buildings since 1 July 2009.
Waste law
Waste management is an integral part of environmental protection. The main aims are firstly to avoid waste and secondly to recycle materials or convert them into energy. These two alternatives have clear priority over disposal. Production plants must comply with the extensive waste prevention regulations.
Soil protection
The issue of “inherited environmental liabilities” arises in virtually all property sales.
Liability for inherited environmental obligations is mainly governed by the Federal Soil Conservation Act (Bundesbodenschutzgesetz). Not only must contamination be avoided but also precautionary measures must be taken. Soil which has been contaminated must be cleaned up. With property transactions, the clean-up issue is extremely sensitive since several responsible parties might exist where property has frequently changing owners. The principle whereby the party which caused the contamination is obliged to remedy the damage does not apply unreservedly in this case. The competent authority follows the principle of finding the most effective means to avert danger and may decide between a number of potential candidates (§ 4 BBodSchG). The responsible party may be:
  • the causing party (as far as it can be clearly identified) or its legal successor (e.g. the successor in title or a company which has come into existence as a result of a merger)
  • the owner of the land registered in the land register or the party having actual control (a tenant) even if the party has neither caused nor even been aware of the soil contamination
  • a party which is liable for a legal person for commercial or corporate reasons (e.g. liable partner/shareholder, under certain circumstances also a director or liquidator)
  • a former owner of the land if transfer of title took place after 1 March 1999 and he knew or ought to have known about the contamination. This liability has serious implications for the seller since it may still be held liable by local authorities many years after ‚‚the sale. Thus, as a rule, the seller will seek an indemnity from the buyer to protect itself against such liability

Where more than one party from the above groups is liable, the party against whom the local authority directs the claim does not always have to bear the costs of clean-up itself. Under § 24 (2) Federal Soil Conservation Act (Bundesbodenschutzgesetz), the party liable may seek recourse from the other parties. The extent of the duty to render such recourse depends upon the extent to which the danger or the loss was caused primarily by one party. Unless otherwise agreed in the contract, a passive offender will generally be able to demand full compensation from the party that caused the contamination. In a landmark decision, the Federal Constitutional Court (Bundesverfassungsgericht) has ruled that in individual cases the liability of the passive offender may also be restricted to the purchase price received for the land. This would be the case if the owner’s other assets were not related to the contaminated site.
Since there are a large number of inherited environmental liabilities in Germany such as abandoned or disused houses, industrial landfills, ammunition from the First and Second World Wars, unofficial dumps, former production sites with soil contamination, tank storage and waste water pipes, the risk of inherited environmental liabilities is frequently an important and sensitive issue in negotiations for property transactions. This risk makes a thorough due-diligence review an absolute necessity. Generally, an initial assessment of the risk can be made by researching the history of the site (past use of the site, existence of ammunition). If research suggests there may be inherited environmental liabilities, the next step is to make exploratory investigations by taking soil samples. Should they reveal a soil contamination, the parties must agree by way of contract on the obligations of remedying the contamination and bearing the costs. Similar problems arise with asbestos and PCB (polychlorinated biphenyls) contamination in older buildings. It may be necessary to ascertain the extent of the contamination by analysing the air in the buildings’ rooms.
Contracts for the sale of land generally contain detailed provisions on environmental liability. This allows the risk in the specific case in question to be assessed and to be allocated between the parties concerned.
Nature preservation
If the property provides a habitat for rare species of animals or plants it may be subject to nature preservation requirements. The property developer may, for example, be barred from building in certain areas or be required to create similar preservation areas at another location in substitution.
11. Pricing/Valuation – What sets the price/valuation of real estate?
The purchase price of real estate primarily depends on whether or not the 
property is leased, an undeveloped site or developed real property. There are 
different methods of valuing real estate depending on the use the property is 
designed for. The market value of real estate can be determined by professional property values. There are various valuation methods.
Leased property can be valued according to the “capitalised earnings value method” (Ertragswertverfahren). In Germany, this method is defined by statute (§§ 78 et seq. Evaluation Statute (Bewertungsgesetz)) and the revenue from rent is incorporated into the valuation method. However, more recently the international “discounted cash flow method” (Internationale Ertragswertmethode) has become more widespread. This method establishes the value of real estate by discounting the expected income and expenditure, which must be determined regularly. This covers necessary future repairs and maintenance work and the expected loan costs that must be taken into account. The purchase price for property with a long-term lease is commonly calculated by multiplying the net annual rent with a certain factor, usually between 11 and 17.
The market value of land the owner itself intends to use is generally determined by the “property value method” (Sachwertverfahren). The calculation is based on the usual building costs of all buildings on the land taking into account their remaining economic life, building defects and damages, as well as other circumstances affecting the value of the land itself. This calculation of market value can also be carried out by an expert committee of the local authority (Gutachterausschuss). The expert committee can also provide land values as a guide for evaluation of the site.
12. Taxes and Costs – What are they and who pays them?
The purchase of real estate generates land transfer taxes which currently vary in the range of 3.5 % – 6.5 % of the purchase price. Every Federal State in Germany has the right to state this specific tax rate. Legally, the buyer is obliged to pay the respective amount.
Federal StateTax rate in %
Bayern, Sachsen 3.5
Hamburg 4.5
Baden-Württemberg, Brandenburg, Bremen, Mecklenburg-Vorpommern, Niedersachsen, Rheinland-Pfalz, Sachsen-Anhalt, Thüringen 5.0
Berlin, Hessen 6.0
Nordrhein-Westfalen, Saarland, Schleswig-Holstein 6.5

Value Added Tax (VAT) is due only if the buyer is an entrepreneur and if the real estate is directly related to its company. However, the seller can waive its right to VAT exemption. The issue of VAT options becomes complex in the case of real estate which combines residential and commercial property. Residential areas are not covered by the VAT exemption. For the purpose of calculating the tax burden, the residential area must be calculated as a percentage of the whole. According to the current legal tax situation, the buyer must pay VAT (at present 19 %) to the tax authorities or it can offset using an input tax refund claim. In order to assert the input tax refund claim, the seller must issue an invoice to the buyer which complies with the VAT requirements. The real estate contract itself does not have to specify VAT.
If a real estate agent is involved in the property purchase, the instructing party must pay the agent’s fees. In exceptional circumstances the agent may charge both the buyer and the seller.
The notarisation costs of the transaction and the land-register entry costs are normally borne by the buyer. However, in the contract they can be stipulated differently. In practice, the seller is occasionally willing to assume the notarisation costs if it is allowed to select the notary.
Unless otherwise agreed, fees for lawyers, valuers and other consultants are borne by each party individually. The same applies to the costs associated with due diligence work such as inspecting official registers, copies and extracts from detailed local development plans, permit charges, etc.
Hungary
1. Parties and Ownership – Who can own real estate and what types of ownership are there?
Parties
Any legal “person” may own real estate. This will include individuals, companies, entities established by statute and certain charitable bodies.
There are certain restrictions preventing foreign nationals and foreign companies from owning real estate. Foreigners may acquire ownership title to real property which does not qualify as arable land with the permission of the head of the regional administrative office (except in the case of inheritance when such permission is not required). The head or regional office may reject an application if the acquisition is against the public interest or the interest of the local municipality. In case the applicant wishes to settle for pursuing business activity, the municipal interest should not be considered. The application may also be denied, if the country of the applicant does not have a treaty on this subject with Hungary or does not treat application for land acquisitions by Hungarians the same way.
No licence is required if a foreign individual or company establishes a Hungarian company, which it then uses to acquire property other than arable land. However not even Hungarian companies may acquire title to arable land.
Non-EU Members foreign legal and natural persons may not acquire ownership title to arable land. Hungarian citizens and citizens of a Member State may only acquire arable land if they are registered as farmers in the land registry (which is subject to having certain education in agriculture or pursuing income producing farming activity for more than three years) and the acquisition is approved by the authorities and the local farmers committee. The latter has a nearly discretionary right to approve or refuse a proposed acquisition.
Ownership
Legal ownership of property in Hungary is classed as freehold. Hungarian law does not acknowledge any other form of ownership in rem. All other rights will only incorporate parts of a freehold title and/or be personal rights. Some rights can be registered at the Land Registry, whilst others, such as leases, cannot be registered.
Leaseholds are typically for a definite period of time, usually for a short term. Indefinite leaseholds are usually concluded for municipality owned property and for residential properties. The lease agreement must always be in written form.
A person who has had possession of real estate continuously without title for 15 years acquires ownership (and freehold title) through adverse possession. If an adverse possessor fails to register his title in the Land Registry, he will not be entitled to claim acquisition of ownership against any person who acquires a freehold title to the property for payment of a consideration, relying upon the Land Registry.
Under the Civil Code, the types of interests in real estate which are registrable at the Land Registry include the following:
  • Ownership right (similar to the common law concept of freehold) – an absolute right which is transferable and which includes the right to possess the property, to use it and collect the proceeds from the property
  • Beneficial usage right (or usufruct right) – a limited right for a definite term to occupy and use a property owned by another and to collect the proceeds from the property. In respect of legal entities the maximum term of a usufruct right is 50 years. This right cannot be transferred by the beneficiary although another person may be permitted by the beneficiary to exercise this right
  • Right of use – a limited right to use a property owned by another which may be established for a definite period of time. It is similar to beneficiary usage but with certain greater restrictions
  • Land use right – the beneficiary of a land use right may construct a building on third party land and become the owner of the superstructure only. Under the new Civil Code the separation of the title to the land the superstructure is now possible for already existing building as well. In this case the current owner of the building has land use rights for the land beneath the building. The owner of the building is entitled to use the land beneath the building and collect the proceeds whilst the building stands and at the same time is obliged to bear the burdens of the land. If the ownership of the building is transferred, the new owner has the same right. This right cannot be established upon public roads, squares and parks, which can be a significant issue for the owners of underground car parks constructed on public land
  • Easement – a limited right to use another person’s real property by the possessor of another real property for a specific purpose including a right of passage or building a cellar etc. The regulations of the establishment of beneficial usage right apply to the grant of an easement and if based on a contract the easement should therefore be registered at the Land Registry

2. Interests – What types of interest in real estate are sold?
Property in Hungary is classified as either freehold or leasehold. Freehold is the best class of title and is as near to absolute ownership as is possible at law.
Freehold is a real right (a right in rem). Technically, leasehold is a personal right (right in personam) and does not have the attributes of freehold.
Property interests which are currently sold in Hungary include:
  • Freehold interests – title of ownership (the best type of ownership)
  • Leases – these are usually concluded for relatively short terms (three - five years) and are personal rights. Therefore it occurs only relatively rarely that the lease right is sold with the consent of the landlord (if the property is owned by the municipality, the relevant act and the municipality’s decree regulates the conditions upon which the municipality is to consent to the transfer of the lease right; therefore such transfers occur more often )
  • Options and pre-emption rights – rights to buy or first refusal (these rights cannot be transferred but where the beneficiary is a Hungarian legal entity, it may appoint a third party to exercise these rights)

The concept of root of title is not relevant in Hungarian law. Title to a property may, as a general rule, only be validly obtained from the current owner. All immovable properties (i.e. real estate such as land and buildings) and their respective owners are registered at the relevant Land Registry.
It should be noted that even if there is some defect in the chain of transfers of ownership in respect of a property (for example, if one of the previous sellers is discovered not to have been the owner of the property), such a defect may be cured by a lapse of time. Subject to certain conditions, a person who possesses a property continuously as his own for fifteen years becomes the owner of the property. If the property was conveyed with a contract that fails to comply with the formal requirements and thereby cannot be registered at the Land Registry, the acquirer who entered into possession and paid the consideration will acquire title with adverse possession after five years Therefore, if the defect occurred more than fifteen years ago, the present owner may claim that irrespective of the previous defective transfer, he has obtained title to the property by continuous adverse possession.
If a buyer obtains a property in good faith for value trusting the correctness of the Land Registry after three years from the date of registration of the seller’s title, the buyer’s title may not be deleted from the Land Registry even if it becomes apparent that the seller’s title had been registered on the basis of an invalid document.
Ownership extends to buildings on or beneath the land and the airspace above it up to the limit it could be utilised by the owner, but does not include “treasures of the earth” or natural resources. The owner may separate the title of the land and the building constructed on it or may grant a land use right to a third party to construct a building on the land. In this case the building and the title to the building will be registered in the Land Registry separately and the current building owner has land use right for the land beneath the building. The terms of contract establishing the land use right are binding on every future owner of the land and the building.
3. Employees – What employment issues affect real estate acquisitions?
The main employment issues which may arise in connection with the acquisition of real estate include the transfer of undertakings and redundancies, as well as variations to employment contracts due to a change to the conditions of employment.
Business transfer
Employees are entitled to special protection if an undertaking or business (or an independent unit of the material and non-material assets of an employer) is transferred from one party to another. If the property being transferred can be classified as a “core asset” to the business of the company, then the sale of that property may trigger business transfer rules. Business transfer rules may therefore be triggered as a result of the sale of an office building, mall or other type of real estate which has its own management and security or maintenance staff.
The main effects of the business transfer rules regarding the protection of employees are as follows:
  • The rights and obligations arising from an employment relationship automatically transfer from the transferor (or legal predecessor) to the transferee (or legal successor). The transferor and the transferee have joint and several liability in respect of those claims which are enforced within one year after the transfer of undertakings and which are in connection with debts and damages incurred prior to the date of the transfer
  • If an employee is dismissed (by redundancy based ordinary termination) by the transferee within one year of the date of the transfer, the transferor is liable as a surety for the employee‘s severance payments, if it has a majority control in the transferee
  • An employee‘s seniority is deemed to be continuous
  • The fact of the transfer of undertakings is not, by itself, an acceptable reason for the ordinary termination of an employment relationship
  • The representatives of the works council or the delegation of the employees must be informed in advance regarding the details of the transfer and consulted on other planned measures that may affect the employees covered by the transfer
  • The employee may terminate his employment agreement if his working conditions significantly worsen. In this case, the employee is entitled to a severance payment

Variation of contract
A business transfer does not necessitate the amendment of the affected employees‘ employment agreements. The employee‘s employment is deemed to be continuous with the same conditions. It is advisable to inform the employees in writing about the succession and specifying at least the following matters:
  • The person vested with employer’s rights after the succession
  • Clarification as to whether the place of work has changed and general information on work schedules and other modified elements, if any, which can be determined by the employer in its own discretion
  • The allowances of the employees
  • Confirmation that other conditions of the employment relationship remain unchanged

Redundancy
The business transfer is not, by itself, an acceptable reason for dismissing employees. In reality, this does not offer much protection to employees. Commentaries on the Labour Code suggest that dismissals associated with business transfers may be justified if they are for ‘operational reasons’. An operational reason is one that is related to an economic, technical or organisational issue with regard to an employer.
4. Procedure – What are the steps in a sale and purchase transaction?
Transactions formally start when proposed heads of terms are drafted, negotiated and agreed by brokers on behalf of the seller and the buyer or by the parties themselves. The heads of terms (or memorandum of understanding) set out the principal terms agreed between the parties and are generally expressed to be “subject to contract” and are not legally binding. They form the basis of the documents to be drafted by the lawyers. Due care needs to be used in signing such heads of terms or memoranda of understanding to avoid them being construed as a preliminary agreement enforceable as a binding commitment to enter into the final agreement.
Once the heads of terms have been finalised, they are sent to the parties’ lawyers. The seller’s lawyers will usually collate all information relating to the property and send it to the buyer’s lawyers together with a draft sale and purchase agreement (contract). The form of the sale and purchase agreement will vary according to whether the property being sold is under construction or already built and the extent to which leases to tenants have already been granted. The accompanying finance documents are also drafted at this time.
The buyer’s lawyers consider and suggest amendments to the draft sale agreement and at the same time will undertake general due diligence investigations (see section 6).
Once the sale agreement is in an agreed form, the parties will sign the agreement and the buyer’s lawyer will countersign it and it will then be regarded as legally completed.
If any of the parties is a foreign registered company, generally the other party will require a company extract from the foreign party confirming that the company is properly incorporated, has power to sell and has carried out appropriate authorisation procedures.
Completion may take place at the same time as signing, depending on the acquisition timetable. Where the purchase is made with borrowed finance, a charge over the property will be completed at the same time. The lender of the finance may instruct its own lawyers to carry out due diligence procedures on its behalf and negotiate security documentation.
Following completion, the buyer’s lawyers need to deal with registration of the transfer documents (and any charging documents) at the Land Registry and payment of stamp duty which is assessed on the price paid for the property.
5. Contract terms – What provisions does a real estate contract contain and what is implied by law?
Provisions of the contract
An agreement for the sale and purchase of land must be in writing, must contain or clearly refer to all main terms and conditions and must be in a form which both parties have signed and the buyer’s lawyer has countersigned.
It is common for the sale and purchase agreement to provide for a non- refundable deposit (in Hungarian “foglaló”) of around 10% of the purchase price on exchange of agreements, where there is to be a gap between exchange and completion. The seller’s or buyer’s lawyers usually hold the deposit as an escrow agent. In this case the parties enter into a separate escrow agreement in accordance with the terms and conditions set out in the sale and purchase agreement.
Because the buyer has the opportunity of conducting a full title investigation or due diligence before signing the agreement, the buyer is usually prohibited from subsequently making any objection to any matter of title that was disclosed in the due diligence documents.
Where timing is crucial to the agreement, there may be a provision expressly stating the date after which the parties will be in breach and the agreement will be terminated. This means that any breach of the time limits in the agreement will be deemed to be a repudiatory breach, subject to a claim for damages. Normally, time is not of the essence and may only be made so by one party to the agreement serving notice to make time of the essence.
Where there are matters of title affecting the property, such as the pending deletion of a prohibition on transfer and encumbrance, the buyer may require reciprocal obligations from the seller and an indemnity in respect of any liability the seller may still have following completion of the transaction.
Provisions relating to value added tax and transfer duty will usually be included to regulate the parties’ obligations.
Contracts for the sale of property subject to occupational interests, such as leases, will include clauses to cover ongoing management matters, and provide for the apportionment of occupational income and outgoings on completion of the transfer of ownership in the property. It is notable that under the new Civil Code the securities provided by tenants under the lease agreements terminate and should be returned to the tenant upon the transfer of the real estate unless this is excluded in the lease agreement. Another rule of the new Civil Code provides that the seller remains jointly and severally liable with the buyer to the tenants for the buyer complying with its obligations as landlord under the surviving lease agreements.
If the property being sold is in the course of construction, the contract for sale will incorporate provisions dealing with the obligations of the seller to construct in accordance with an agreed specification and to provide to the buyer separate deeds of warranty from the building contractor, and persons such as the architect, in order to safeguard the buyer against defective design or workmanship.
Where there are conditions to be met for the completion of the contract, such as building permits, communal services, transformation of a plot, or the deletion of a restriction against sale and purchase, the parties set out liabilities and timelines for the fulfilment of such conditions.
Terms implied by law
The Civil Code provides that the seller warrants that the property is free of claims, encumbrances and lawsuits and this is often repeated expressly in the sale and purchase agreement. If a third person has such a right over the property that restrains the buyer from the acquisition of freehold title, the buyer can rescind the agreement and claim damages. If the seller acted in good faith he only has to pay damages arising from concluding the agreement. The buyer cannot claim damages or rescind the sale and purchase agreement, if it has known or should have known that it cannot acquire free title.
The seller also warrants that the property complies with all attributes set out in the sale and purchase agreement and legal regulations at the time of contract. If the purchaser was aware of a defect in the property at the time of contract, the seller is not liable for such a defect. These warranty rights may be exercised by the purchaser within five years, however the lapse of time is suspended until the buyer is hindered in exercising its warranty right (e.g. it could not recognise the defect) and it may still exercise it warranty rights after the hindrance ceased for 12 months, even if the 5-year limitation period has elapsed.
If a pre-emption right (which must be in writing) has been granted then the owner of the property must ordinarily disclose any offer for the property to the owner of the pre-emption right. The pre-emption right can be established by contract or by law. If the owner of the pre-emption right accepts the offer, the agreement for sale becomes effective. If a general period of acceptance passes without any notification of acceptance or rejection from the owner of the pre-emption right, the owner of the property is free to sell the property under the same or better terms. If the pre-emption right is registered at the Land Registry, it takes effect against everybody who acquires any right to the property following the registration. Transfer of a pre-emption right is possible.
Rights of re-purchase can be included in the original sale and purchase agreement. The seller can exercise this right by declaring an intention to re-purchase. The parties may agree on the re-purchase price in the contract, failing that the re-purchase price is the market price prevailing at the time of exercising such right.
If the owner of real property grants a purchase option, then the beneficiary may purchase the property by his unilateral declaration. An option agreement is valid only if in writing and provided that it also specifies the object of the transaction and the selling price. Under the new Civil Code now selling option can also be established.
6. Due Diligence – What investigations does the buyer normally make?
The prudent buyer will carry out a survey of the building and, if required, soil and geological investigations, plant and machinery tests and environmental investigations. The buyer will also require appropriate information on the following related matters: charges, occupational tenants, lease agreements and licences, insurance, building contracts, disputes and claims, easements and/or covenants.
The buyer’s lawyers will consider the entries on the property sheets, the marginal notes and, where relevant, historic title documents. Where the property is leasehold, or subject to leasehold or other occupational interests, the terms of the relevant occupational documents need to be considered carefully to ensure that they are not contrary to the buyer’s intentions for the property.
The buyer’s lawyers will commence their own due diligence, which will include carrying out various searches to check the position on municipal and zoning consents, environmental matters, utilities serving the property, easements, boundaries of the property, financial encumbrances and valid site licences. Where the seller is a company, the buyer’s lawyers will also conduct searches against the seller’s name at the Court of Registration to ascertain whether the company is solvent and therefore able to dispose of its assets freely. Where the search result refers to security, the buyer’s lawyers will ask for confirmation that such matters do not encumber the property and that no third party consents are required for the transaction to proceed.
The buyer’s lawyers will raise pre-contract enquiries (“preliminary enquiries”) of the seller’s lawyers to obtain information regarding a large number of practical matters, which may affect the property and ask any relevant questions in relation to the title to the property. The seller is under the general obligation to inform the buyer about the material features of the property being sold (including but not limited to all rights and encumbrances) and to deliver all relevant documents. In most cases the parties agree that the properties are sold as is, with no expressed or implied guarantee of quality or condition. A seller must not knowingly or negligently mislead a buyer and the seller’s replies to the due diligence questionnaire may be actionable if wrong or misleading.
7. Registration and Notarisation of real estate – What are the basic requirements?
The Land Registries record the most important data and rights and encumbrances required to be registered relating to each property in Hungary. It is possible to get access to the Land Registry data for all properties in Hungary by an online system to which most of the law firms and public notaries have access.
Local Land Registries operate in every town being the centre of the relevant district (in Hungarian “járás”) (in Budapest there are two district Land Registries) and they cover the properties in the relevant district. County Land Registries operate in each of the nineteen counties of Hungary, and the Metropolitan Land Registry operates in Budapest. The local district registries deal with property issues at first instance and the county Land Registries deal with property matters at second instance.
It is in the interest of a property buyer to lodge the transfer documents with the relevant Land Registry as soon as possible after signature (but in any event within the thirty day mandatory deadline for filing). The filing with the relevant Land Registry results in a so-called marginal note being put on the register of the property within twenty-four hours of filing. This marginal note – the indication of a pending application by its reference file number – establishes a priority date for the application. Subsequent submissions, as a rule, cannot by-pass a previous submission (clearly indicated by a lower figure for its reference file number).
The property-related rights, and the holders of such, which may be recorded in real estate registers are:
  • Ownership rights, and, in respect of state-owned or municipality-owned real estate, asset management rights
  • Permanent rights of use for members of housing co-operatives
  • Land use on the basis of agreement or court decision
  • Usufruct and the right of use
  • Easement rights
  • Permanent geodetic markings, land survey pilot areas, rights of use for the placement of power supply equipment, cable rights, water and mining easement rights, and easement rights and utilisation rights in the public interest as prescribed by law
  • Rights of first refusal and rights of re-purchase and option
  • Rights of support and life annuity
  • Mortgages (independent liens)
  • Rights of execution

There is no requirement for notarisation of title in Hungary. Contracts for the disposal and acquisition of interests in real estate are signed by or on behalf of the parties and countersigned by a lawyer. If any of the contracting parties is a citizen of a foreign country and wishes to sign the contract outside Hungary, authentication of the document is required. Hungarian diplomatic or consular agents certify the authenticity of the signature, the capacity in which the person signing the document has acted and, where appropriate, the identity of the seal or stamp which is affixed to the document. Rules of authentication also apply to powers of attorney executed outside Hungary.
In accordance with the Hague Convention (5 October 1961), each signatory state is to exempt from authentication documents to which the Convention applies and which have to be produced (i.e. used) in its territory. The contracting states designate, by reference to their official function, the authorities who are authorised to issue the certificate, called an “Apostille”. The Apostille certificate can be issued at the request of the person who has signed the document or that of the bearer.
8. Permits – What permits are required for the use and occupation of real estate and are they personal?
There are no planning permissions under Hungarian law, but land and property is regulated by a zoning map and local building code, which are binding decrees of the local government. The national zoning requirements and building rules are regulated by national laws and governmental decrees.
If a developer plans to develop an area for a different use to the one regulated by the relevant decrees, then it can initiate negotiations with the local government for changing the status of the area. The results of the negotiations are then recorded in an urban development agreement. In such agreements, it is common for the developer to grant some benefits to the local government, such as the construction of roads or other necessary infrastructure in consideration of which the municipality undertakes to initiate the procedure for the change of the zoning regulation. However, the local municipality cannot enter into a binding obligation to change the content of the zoning as it would limit the legislative power of the general assembly of the municipality, which would be in breach of the constitution.
Regarding construction works, some require no permit and others require a permit of the building authority. Permits may be preliminary building permits or building permits. A preliminary building permit can be obtained in the first phase of the so called ‘combined building permitting procedure’ in order to clarify certain requirements in connection with cultural heritage or ecological protection, for example, but it does not give a right to actually construct.
The deadline for the issue of building permit is fifteen days for the obtaining of the last of the statements of the specific authorities involved in the procedure.
Developments that are likely to cause significant environmental impact require an environmental permit to be issued on the basis of an environmental impact study. The environmental permit is to be obtained before the application for a building permit or alternatively it is possible to apply for the environmental permit, the building permit and several other permits required to the construction and the start up at the same time of the facility in the combined establishing procedure (in Hungarian “összevont telepítési eljárás”).
Generally, a building permit will be required for the construction of a newly-built property. The refurbishment of an existing building requires notification if the roof or the load bearing structure of the building needs to be changed, whilst in other cases refurbishment usually has no administrative requirements. Stricter rules normally apply when the proposed work relates to historically or architecturally important (listed) buildings.
As for occupancy, the procedure is also divided: in relation to simpler works a notification is sufficient, whilst for others a permit is required. The deadline for the issue of an occupancy permit is later of (i) 15 days from the date of submission or (ii) ten days from the date of obtaining of the last of the statements of the specific authorities involved in the procedure.
The system is a one-stop shop system under which the client (constructor, developer, builder, etc.) is in contact with only one authority (the building authority) which handles all aspects of the procedure including consultation with other specialised authorities.
9. Insurance and Risk – What insurance will the parties effect and when does the insurance risk pass at the time of sale?
Only persons who are interested in protecting a property or those who conclude contracts on behalf of an interested person are entitled to conclude property insurance contracts.
Generally it is the building, and not the land, which is insured for the reinstatement cost.
The insuring party should have a fully comprehensive buildings insurance policy to protect the structure and fixtures and fittings of the building in the event of damage or destruction (by any of a comprehensive list of insured risks, such as storm, lightning, fire and water damage). The policy may also cover additional special heads of cover such as subsidence, heave, earthquake and, where available, terrorism.
Insurance policies may either comprise a single policy for one particular property or a block policy designed to cover a portfolio of properties.
Occupiers of a property (including tenants) usually have separate policies to cover the contents of the property belonging to them, especially if the property includes costly plant and machinery and, in some cases, certain parts of the property for which the occupier is contractually responsible. In case of leases the landlords being the owners of the property have property insurance in respect of the whole building.
Insurance policies are usually not transferred on sale but the buyer concludes a completely new insurance contract. Where a sale is taking place, timing of the transfer of risk is normally prescribed by the sale agreement and is generally linked to the transfer of possession.
10. Environmental – What are the common environmental issues?
Real estate may be contaminated as a result of current and/or former uses. Primary legal responsibility follows the “polluter pays” principle: the person who spilled, released or discharged a substance will normally be liable for any contamination it causes. Nevertheless, Hungarian law always presumes that the current owner and the user of the property are jointly liable for pollution unless the owner names the responsible polluter. If the company causing environmental damage ceases to exist, its executive officers and voting members are jointly and severally liable without limitation until evidenced that they did not take part in the decision making. If someone took over such responsibility for pollution, that person will be responsible. The same is true if the sale and purchase agreement provides that the property is purchased “as is” and there is no other warranty or valid exclusion of liability for environmental pollution.
During pre-purchase due diligence, the buyer’s lawyers will check the Land Registry as to whether permanent environmental damage is registered and will also check with the competent environmental authority for any ongoing environmental cases. On the basis of Hungarian law, any person acquiring the property affected by contamination is required to clean up the property.
If development is proposed, then planning permission may be made conditional upon the proper investigation and remediation, if necessary, of potential contamination. If the planned development is of a type considered potentially detrimental to the environment, the application for building permit may need to be supported by an assessment of the development’s likely future environmental impact.
The presence of protected species may impede development by increasing costs, particularly through delay.
Those who have control of places of work have a duty to assess the risk of asbestos being present in the fabric of the building and to manage the human health risks posed by any asbestos found.
Acquisition due diligence may involve the appointment of environmental consultants to consider documentary information and to carry out a site visit (Phase I). If considered necessary, further, intrusive investigations (Phase II) may then be undertaken. It is important to identify potential problems early so that there can be negotiation on price, the need for and scope of any remediation and/or the need to put in place protection in respect of any existing contamination related losses that may arise in the future. Such protection may take a number of forms, including obligations to remediate any contamination discovered post-acquisition, indemnities in respect of first party loss or third party claims, or specialist historic liabilities environment insurance to cover any of these risks.
11. Pricing/Valuation – What sets the price/valuation of real estate?
There is no legal requirement for an accurate appraisal of a property’s value or condition to be undertaken. However, extreme inaccuracies are covered by the Civil Code which prohibits contracts in which (i) at the time of signature, there is an “unreasonable and extensive difference” between the value of the thing sold and the consideration due, without either party having the intention of giving a gift or (ii) one contracting party has stipulated an unreasonably disproportionate advantage by exploiting the other party’s situation.
In the case of (i) above, the injured party is allowed to challenge the contract within one year of its signature.
In the case of (ii) above, the contract is deemed to constitute usury and is potentially null and void. Unless otherwise provided by law, anybody is entitled to apply for the contract to be annulled without a time limit and no special procedure is required.
Finally, the Hungarian tax authority has a right to challenge and reassess the value of a property, if the value set out in a sale and purchase agreement (on the basis of which tax and stamp duty is calculated) appears unreasonably high or low.
Both companies and individuals may only act as appraisers if they have a clean criminal record and have a certificate of professional expertise (for individuals) or they have at least one member/employee who has such a certificate (for companies). An individual may only carry out appraisals if they are entered in the Register of Estate Agents. The entry is automatic if the above two conditions are met.
Currently, three methods of appraisal are used to determine the value and condition of the property, being the cost method, the comparison method and the income method:
  • Cost Method – the cost required to replace or reproduce the property at the time of the appraisal, following the deduction of the amortisation costs plus the market value of the plot. This method is used only if there is no other alternative to appraise the property
  • Comparison Method – the figure established from data of other properties sold in the recent past. The comparison must always be performed with the property being appraised. This is the most commonly used method
  • Income Method – the main focus of this approach is the income-producing capability of the property. It provides an objective estimation of the price that a cautious investor would pay for the property on the basis of the net income producing capability. This method applies to a property which has a measurable income or a relatively high value

The State Supervising Authority of Financial Organisations (PSZÁF) also publishes certain appraisal methods which Hungarian banks in particular may request appraisers to follow.
12. Taxes and Costs – What are they and who pays them?
In Hungary, there are various taxes associated with real estate, including personal income tax (PIT), corporate income tax (CIT), value added tax (VAT), transfer duty, wealth tax and certain local taxes. Whether a tax liability arises depends on a number of factors including the legal standing of the purchaser, the location of the real estate and the nature of the real estate. The most important aspects of these taxes are briefly summarised below.
CIT is normally paid by companies and various other entities on any gains derived from the sale of real estate, at a rate of 10% up to 500 million HUF and 19% for the balance. As there is no specific capital gains tax in Hungary, gains from the sale of real estate are included in the general tax base of a company and are taxed as any other income. Foreign corporate shareholders deriving capital gains from a “real estate company” are subject to CIT, provided they are resident in a country for which the relevant double tax treaty allows Hungary to tax the capital gains (or with which Hungary has no treaty). So far, Hungary has concluded double tax treaties with 65 countries, of which approximately one third (e.g. those with Ireland, France) contain the so-called real estate clause allowing the taxation of capital gains from a “real estate company”. These are companies, the assets of which are predominantly comprised of real estate in Hungary. Note that the details of these rules contain a lot of pitfalls.
CIT is not only levied on domestic entities but also on permanent establishments of foreign entities. The utilisation of real estate located in Hungary does in itself constitute a permanent establishment. Furthermore, the possibility to tax foreign companies on any such income is usually also provided for in Hungary’s many treaties on the avoidance of double taxation. Consequently, any income derived from the utilisation of real estate located in Hungary is taxed at the normal rate of CIT (i.e. 19%) regardless of the seller’s residence.
f an individual transfers the ownership of his real estate then he has to pay PIT at a rate of 16% on the gains from the transfer of the property. When calculating the amount of such gains, certain costs and expenses may be deducted from the actual purchase price, most importantly all costs and expenses incurred in relation to the initial acquisition of the real estate. If the transfer of ownership takes place after the sixth year from acquisition, the amount of tax payable is gradually reduced so that no PIT is payable after the fifteenth year from acquisition. In the case of the sale of residential property, no PIT is payable after the fifth year from the date of purchase. Income derived by individuals from the utilisation or the sale of real estate located in Hungary is generally taxable in Hungary, regardless of the residence and/or the nationality of the seller. As for the CIT rules already described, foreign individuals may be obliged to pay PIT on the capital gains derived from the sale of a Hungarian “real estate company”, depending on the provisions of the relevant treaty.
Generally, the sale of property is VAT exempt. However, VAT is payable at 27% on the sale of building plots and of so-called “new buildings”. (Buildings qualify as “new” if their operating permit has not yet been issued or if less than two years have passed since the issue of such permit.) In the case of the sale or letting of all other immovable property it is possible to opt for taxation. Opting for taxation has the benefit that input VAT incurred in respect of otherwise exempt activities could be deductible.
In principle, the reverse charge mechanism is to be used whenever, in connection with the sale of immovable property, the option to tax has been exercised. Similarly, certain services connected to immovable property are listed as giving rise to domestic reverse charge.
Stamp duty (i.e. transfer tax) is payable by the buyer on the purchase of a property. A 4% stamp duty rate is applied up to a market value of HUF 1 billion, and 2% for the excess, with an overall cap of HUF 200 million per property (i.e. if the market value of the property exceeds HUF 9 billion, the excess value will not be subject to any further transfer tax), and certain exceptions and lower beneficial rates are available (for example, on the purchase of residential property, etc.).
The direct or indirect acquisition of at least 75% of the shares of a company – whether Hungarian or foreign resident – owning real estate located in Hungary will also be subject to transfer tax along the above lines (i.e. the transfer tax is still calculated on a per-property basis).
A two percent preferential rate of transfer duty is applicable to real estate traders, if the newly acquired property is being resold within two years. The two year re-sale period may, subject to certain conditions, be extended to four years upon request.
Local authorities are authorised to impose taxes on the owners of buildings and land located in their territories. Some municipalities have utilised this opportunity whilst others have not. The current regulation only provides a framework of rules for these property-related taxes, with the details to be governed by separate decrees of the local municipalities.
Pursuant to the local taxes act, building tax and land tax are based either on the area of the property or on the value of the property, depending on the decision of the local municipality. Currently, building tax is subject to a maximum of HUF 1,100/sqm or 3.6% of the “calculated value” of the property (such calculated value being equal to 50% of the market value of the property). The land tax is subject to a maximum of HUF 313/sqm or 3% of the calculated value of the property. The maximum amounts of the above taxes (if determined in amounts and not as percentage) are subject to a yearly increase based on past inflation statistics. The amount of the local taxes paid in relation to residential property in the relevant tax year is creditable against the wealth tax, if payable.
The value of the property sold would typically be regarded as part of the net sales revenue, therefore it forms part of local business tax base. Such tax base (i.e. the net sales revenue) may be decreased by the cost of materials, cost of goods sold and the value of intermediated services (including, to a limited extent, the value of subcontractor’s work). The rate of the local business tax is a maximum of 2% but is determined by each municipality.
The above mentioned local taxes are imposed by the local municipalities and are normally borne by the owner of the property in respect of which the taxes are levied.
Italy
1. Parties and Ownership – Who can own real estate and what types of ownership are there?
Parties
Any legal “person” may own real estate. This will include individuals, companies and other legal entities established by statute.
From 1997, unincorporated associations and charitable institutions can also freely own real estate (before that date real estate acquisitions by such entities were subject to government authorisation).
Owners of commercial real estate include private developers, insurance companies, pension funds, real estate funds, banks and other financial institutions, private or public property companies, charities, trusts, the government and local authorities.
There are no restrictions preventing EU nationals or companies from owning real estate. With regard to non-EU nationals, reciprocity conditions apply.
Ownership
In Italy there is no distinction between classes of titles. However, there are different forms of ownership that can be summarised as follows:
  • Proprietà (ownership) – the right to use and dispose of a property in a full and exclusive manner, within the limits and in compliance with the provisions of the law
  • Comunione (joint or co-ownership) – the division of the right of ownership between a number of people or entities, with each of them having rights and obligations in respect of the others. As a consequence, each co-owner must contribute to the costs of maintenance and use of the property and other necessary outgoings. Each participant can request an end to the joint ownership. However, the court can postpone the end of the joint ownership, by a maximum of five years, if the division would be detrimental to the interests of the other co-owners. Co-owners can contractually agree to maintain co-ownership, thus inhibiting actions aimed at ending the comunione, for a maximum of ten years: such agreements would be enforceable against subsequent transferees
  • Multiproprietà (time-sharing) – on interest, first formally recognised and introduced in Italy 1998 and now mainly regulated by the Italian Consumer Code, the object of which is the right to use and enjoy one or more properties for more than one period of occupation.

Although the possessor of a property enjoys a certain degree of protection pursuant to Italian law, possession does not constitute title to a property. However, continued and uninterrupted possession of a property for a given number of years (10, 15 or 20, depending on the type of property and other circumstances concerning the possession) would entitle the possessor to acquire ownership of such property. Although title will automatically follow from continued possession (if relevant conditions are satisfied), its acquisition will have to be declared by a court of law.
2. Interests – What types of interest in real estate are sold?
Property interests which are usually sold in Italy include:
  • Proprietà (full ownership) – the right to use and dispose of a property in a full and exclusive manner, within the limits and in compliance with the provisions of law. “Piena proprietà” is the term normally used to describe the title of the person who has full ownership
  • Nuda proprietà (residual ownership) – the right that remains to the owner of a property over which a right of usufruct has been created in favour of another person
  • Diritto di Superficie (also known as proprietà superficiaria) (right of superficies) – the right to construct and maintain a construction on land belonging to another person. If the right of superficies was created for a limited period of time, at the end of the term the owner of the land acquires title to the building

Other relevant rights in rem or contractual rights relating to property are as follows:
  • Lease – a contractual right to use a property for a certain period of time and for a specific purpose. Assignment of a lease by the tenant usually requires the consent of the landlord unless the transfer occurs as a result of a sale of business as going concern (in which case the landlord may have limited ability to oppose the assignment). Term of a lease cannot exceed 30 years. Residential and commercial leases are regulated by different sets of rules. The provisions of Italian law on commercial leases are particularly strict (and pro-tenant) and usually cannot be amended. However, that regime was partially amended at the end of 2014- only for so called “large leases” (annual rent in excess of 250,000 Euro) – so as to allow the parties substantial freedom to determine the terms of the lease and alter the otherwise mandatory provisions of commercial lease law.
  • Option and pre-emption – rights to buy or first refusal respectively. Unless they originate from statutes (e.g. pre-emption right of tenant of retail premises), they are not enforceable against third parties and do not entitle the holder of the relevant right to seek to revoke a disposal of property carried out in violation of the option or right of pre-emption
  • Servitù (easements) – rights in rem, which burden one piece of land and benefit another. They are not personal but attach to the land itself. They include rights of way, right to light, right to use or lay pipes and cables, right to run a telephone or electricity cable or construct telecoms equipment as well as restrictions concerning use of land or activities permitted on the land (e.g. an obligation not to build). These rights can be either registered or unregistered, depending on how they were created
  • Usufrutto (usufruct) – usufruct is a right in rem enabling a person to use another’s property and to draw from the same all the profit, utility and advantage which it may produce, without altering the substance or use of the property. The holder of a usufruct may allow use of the property by third parties but is not entitled to dispose of the property. Usufruct can be created for the entire life of the beneficiary but if the beneficiary is a legal entity a statutory 30 year limit applies
  • Right of use or habitation – the right of use and habitation is a limited form of usufruct where the beneficiary is allowed to use and exploit a property (e.g. agricultural land) or occupy a property (e.g. flat) to satisfy his own needs and those of his family

3. Employees – What employment issues affect real estate acquisitions?
According to the Italian rules on the transfer of business, when a business (or part of one) is transferred from one party to another, the work relationships of the employees pertaining to such business or part thereof continue with the new owner of the business.
The sale of a property may fall within the above rules if a property transaction qualifies as transfer of a business and in some cases relating to property, even if there is no business transfer. This may be the case with regard to employees dedicated to management of a building or staff working on the premises (e.g. security staff or maintenance personnel).
According to article 129 of the National Collective Bargaining Agreement for Employees of Owners of Buildings the “transfer of title to the building does not entail termination of the employment contract and the employee shall retain the rights and obligations under the individual employment contract in place.”
The application of the rules on transfer of a business would entail, amongst others, the following consequences, namely that:
  • the buyer assumes responsibility for employees working in the business transferred
  • the rights of employees transferred, deriving from both their individual and collective employment agreements, would be preserved (e.g. salary level, fringe benefits, notice periods)
  • fully accrued rights of the employees against the seller would be assumed by the buyer as a consequence of the transfer of a business
  • the seller and the buyer are jointly liable for all the financial obligations of the seller, existing at the time of the transfer, vis à vis the employees and
  • information and consultation with the unions prior to the transfer may be required, depending on the number of employees employed by the seller

The transfer of business does not in itself constitute a justified reason for dismissal; the termination of employment is legal only when justified by reasons totally independent and autonomous from the transfer of a business i.e. economic, technical or organisational reasons entailing changes in the workforce (so called “ETO reasons”).
4. Procedure – What are the steps in a sale and purchase transaction?
Steps in real estate transactions would typically differ for “commercial” transactions involving professional investors and operators and “private” sales and purchases concerning, for instance, residential properties.
A “private” transaction would normally involve the following steps:
  • submission of an irrevocable, binding purchase offer, often accompanied by payment of a small deposit and usually received by an agent on behalf of the seller;
  • execution of a preliminary agreement (contratto preliminare di vendita, often referred to, although improperly, as compromesso), which will not transfer title but will create enforceable obligations to respectively sell and purchase the property, usually accompanied by payment of a larger deposit (ranging from 10% to 30% of the agreed price). The preliminary agreement would typically allow a certain period of time before the parties are required to complete, for instance to allow the buyer to obtain a loan or finalise the sale of another property whose proceeds are to be used to finance the new purchase;
  • execution of a notarised deed of sale (atto pubblico di vendita) transferring title to the property and simultaneous payment of the price (or outstanding balance if a deposit has been paid). After its execution, the deed of sale will be filed at the tax office and recorded by the notary at the Land Registry, thus making the transfer fully enforceable against third parties.
  • Steps of commercial transactions or transactions involving professional investors and operators tend to be more complex and would typically involve the following:
  • non-binding offer or expression of interest issued by the prospective buyer, setting out the valuation given to the property (i.e. price offered) along with key terms of the transaction, including whether it would be subject to financing.
  • the parties would then usually enter into an exclusivity agreement to allow the prospective buyer sufficient time to carry out due diligence investigations on the property and confirm the initial valuation/price. The exclusivity provisions may also be included in other documents (heads of terms or memorandum of understanding) where the parties would require more detailed recording of other key terms of the proposed transaction (e.g. assumptions underlying the valuation, key warranties or other relevant provisions) before respectively undertaking or allowing full due diligence. Although usually those documents will expressly state that they are non-binding (except for provisions concerning exclusivity and confidentiality), they may still generate potential pre-contract liabilities (e.g. in case of subsequent refusal to proceed further with the transaction in the absence of justified reasons) or be held to be binding if a court establishes that, despite the language used, that was the true intention of the parties.
  • once exclusivity agreements (or heads of terms/memorandum of understanding) are in place, the purchaser will usually conduct due diligence over the property, normally with the assistance of third parties (lawyers, notary, architects or land surveyors, other technical advisors).
  • after completion of due diligence, the parties will negotiate, with the assistance of their legal advisors, a preliminary sale and purchase agreement recording in detail all terms and conditions of the transaction, including warranties, indemnities and, if appropriate, conditions precedents. The preliminary agreement would typically allow for a period of time before completion of the sale, either to satisfy any conditions precedent that may have been identified or simply to enable the parties to make the necessary final arrangements (e.g. setting up and funding of acquisition vehicle, liaising with banks holding charges over the property to arrange their cancellation upon completion, etc.).

    Payment of a deposit by the purchaser would be less usual in commercial transactions and, when envisaged, it would be typically lower, in relative terms, than deposits usually agreed in private transactions.

    Along with the actual preliminary agreement, the parties may also negotiate other ancillary documents or contracts, including, for instance escrow agreements, to regulate either payment and release of the deposit or settlement of the price payable on completion.
  • The transaction will complete with the execution of a notarised deed of sale, which will effect transfer of title from the seller to the buyer. 

In most cases the final deed of sale will largely replicate terms previously included in the preliminary agreement, including warranties and indemnities. However, in certain cases, confidentiality reasons and/or tax concerns (i.e. risk that certain provisions may, if included in a document submitted to the tax office for registration, attract further taxation) may lead the parties to either confirm the continuing validity of certain provisions of the preliminary agreement after execution of the deed of sale or enter into side agreements (typically concluded by exchange of commercial letters, to avoid an immediate obligation to submit the agreement to the tax office for registration) to supplement the terms of the deed of sale.
  • After execution of the deed of sale the notary will complete its filing and registration at the tax office and Land Registry, thus making the transfer of title public and enforceable against third parties. 

Where concerns exist that third parties may record charges or other encumbrances over the property pending registration of the sale at the Land Registry or however for larger transactions, funds for payment of the price (or of the balance if a deposit had been previously paid) may be transferred to an escrow agent prior to execution of the deed of sale and released to the seller only after confirmation that the transfer of title has been property recorded, free from third parties rights or other encumbrances (other than those previously known and accepted).

5. Contract terms – What provisions does a real estate contract contain and what is implied by law?
Provisions of the contract
A distinction should be made between the preliminary sale agreement and the deed of sale.
The preliminary sale agreement must be made in writing and notarisation is not required unless the parties intend to record it at the Land Registry.
The preliminary agreement typically contains detailed provisions relating, amongst others, to the obligations of the parties pending execution of the deed of sale, deadlines for satisfying conditions precedents, if any, and terms and methods of payment of the purchase price, including down-payment(s) made by the buyer and the consequences of one party refusing to execute the deed of sale.
The preliminary agreement also usually contains detailed representations and warranties in relation to the property and matters affecting it as well as indemnity provisions. Specific warranties will usually be given in relation to any lease under which the property is occupied (e.g. validity of the lease, due performance by the seller, timely payment of rent). Where the purchase is of a property in the course of construction, the terms for payment, details of bank or insurance guarantees in relation to the developer, the date by which the property must be constructed and details of any subcontractors must be set out.
The deed of sale must be made in writing and notarisation is required, though only for the purpose of complying with publicity requirements (registration at the Land Registry) and not for its validity.
Usually the representation and warranties made in the preliminary agreement will also be repeated and confirmed in the deed of sale along with any indemnities and the preliminary agreement will be superseded by the deed of sale.
However, where reasons of confidentiality or risks of attracting additional tax liabilities exist, the parties may agree that certain obligations under the preliminary agreement will survive the execution of the deed of sale and continue to apply afterwards. Alternatively side agreements (often concluded as exchange of commercial letters, not to trigger a duty to submit the agreement to the tax office) may be put in place to supplement terms of the deed of sale.
Only one original deed of sale is executed and the notary, who is required by law to keep the original in his/her records, is authorised to issue certified copies to the parties as well as to public offices to which the sale must be notified (e.g. Land Registry).
Like a preliminary agreement, the deed of sale must clearly identify the property, by indicating its boundaries and cadastral details, and set out the price agreed for the sale.
The deed of sale usually contains an acknowledgement of payment of the price (quietanza). Should such acknowledgement be missing, and specific waiver by the seller not included in the deed of sale, the Land Registry will automatically record a mortgage over the property as security in favour of the seller for payment of the price.
Over the years, several provisions have become mandatory for deeds of sale in addition to those that would be required, under the general rules of the Civil Code, for other contracts. Examples of such mandatory provisions or mandatory information that would need to be stated in a deed of sale include:
  • details of original planning permission issued for the construction of the property as well as details of subsequent instruments or authorisations, however called, issued for any works carried out at the property;
  • details of method of payment of purchase price (including for instance details of cheques or banker’s drafts delivered or of banks accounts used to transfer and receive the price);
  • confirmation that the property is duly recorded at the cadastral office and that cadastral records (including floor plans) are correct and up-to-date;
  • details of real estate agents or brokers who assisted in the sale, including their tax/VAT numbers, details of their license and the amount and method of payment of relevant fees;
  • information on energy performance of the property and obligation to provide a copy of the relevant energy performance certificate (previously known as ACE – Attestato di Certificazione Energetica, now being progressively replaced by the APE – Attestato di Prestazione Energetica. Actual requirements may vary according to regional legislation).

Failure to comply with the above requirements and/or to provide the relevant information would typically affect the validity of the deed of sale and, as a matter of fact, would prevent the completion of a sale whilst the provision of false or incomplete information would give rise to criminal liability.
Moreover, additional mandatory requirements apply in case of sale of newly built properties to individuals, including the obligation of the developer to deliver to the buyer an insurance policy, valid for ten years, relating to structural defects at the property.
Terms implied by law
The following provisions would normally be included in property transactions and would usually also apply if no reference to them is made in the deed of sale:
  • Warranty for Defects – regardless of the investigations and the inspections carried out by the buyer prior to the purchase, the seller may remain liable to the buyer for latent defects in the property that would render the property unfit for its intended use or which may negatively affect its value. Any agreement or provision excluding or limiting this warranty would have no effect if the seller acted in bad faith and concealed the defects. A claim for defects in the property must be notified to the seller within eight days of discovery (unless a longer period is agreed) and claims are subject to a period of limitation of one year from the delivery of the property to the buyer.
  • Warranty for Eviction (loss of title) – Italian law requires the seller to give a warranty on title. The warranty also covers rights of third parties that, though not affecting ownership of the property, may affect the ability of the buyer to use or occupy the property. If a third party successfully claims title to the property from the buyer, even if the parties have excluded the warranty on title the seller would be liable to return the price to the buyer and reimburse the costs incurred by the buyer to purchase the property. If the parties want to exclude completely statutory warranty for eviction, the agreement must state clearly that the sale was made “at buyer’s risk and peril” (which would be extremely unusual).
  • Price of property determined as a whole (a corpo) or with regard to size (a misura) – properties are usually sold a corpo (as a whole). This means that price is not determined on the basis of the actual size of the property, which however may still be indicated in the preliminary agreement or deed of sale. In that case price adjustments would be permitted only if the difference between the size stated and the actual size exceeds 5%. If, instead, the price of the property is determined having regard to its size (vendita a misura), any discrepancy would allow a price adjustment. Differences exceeding certain thresholds may also allow the parties to withdraw from the agreement.

6. Due Diligence – What investigations does the buyer normally make?
The buyer of an Italian property would normally instruct different professionals, depending on the type and size of deal, to carry out investigations on the property and, in case of share deals, on the target company.
Investigations are usually carried out before a binding offer to purchase a property is made, before execution of a preliminary agreement for sale or in any case before a substantial deposit is paid. However, in certain cases, the offer may be made or the preliminary agreement may be executed subject to a condition that the investigations to be carried out or completed will not reveal any material issue or defects. This is often the case where the buyer is already generally satisfied with the result of a preliminary due diligence and only a few aspects need to be investigated or finalised.
Usual investigations carried out for property transactions include:
  • inspection of title, carried out by reviewing the entries made at the Land Registry and relevant documents registered (deeds of sales and other acts or instruments, e.g. mortgage instruments). Records of the Land Registry are the ultimate evidence of title, subject only to limited exceptions (e.g. unregistered easements, prescriptive rights and adverse possession, unregistered leases). Title inspection may be carried out by lawyers or, more often, notaries. A notary’s report on title is always required by banks before granting a loan to be secured by a mortgage over the property (usually followed by an updated report on title, issued after the registration of the mortgage at the Land Registry and confirming its proper creation, as a condition for the drawdown)
  • review of building permits, for the purpose of ensuring that the necessary permits were obtained and that no unauthorised works were carried out on the property. This review is usually carried out with the support of land surveyors, qualified architects or similar professionals, due to the technical skills required. Notaries will also require copies or details of all relevant permits before the deed of sale is executed
  • site visits and inspection of the property, including inspection of systems and equipment as well as review of relevant certificates and maintenance records (e.g. certifications of compliance issued by initial supplier/contractor, log-books and other documents issued in connection with periodical inspections and tests);
  • review of cadastral registration of the property. The Cadastral Office, created for tax purposes, records details of ownership, rateable values, property categories and plans. The cadastral register is divided into two sections (land and buildings). Though cadastral records do not constitute proof of title, they affect, amongst other matters, taxes payable on the property as well as its transfer. In fact, the seller of a property is required to confirm, in the deed of sale, that cadastral records of the property (and floor plans filed at the cadastral office) are correct and up-to-date whilst improper or out of date cadastral records would prevent a valid transfer
  • where the property is occupied by tenants, leases are usually reviewed by lawyers appointed by the buyer to establish, amongst other matters, the prima facie validity of the leases and their terms, including break options and security for payment of the rent and other obligations of the tenant
  • review of documentation concerning existing financing arrangements and related security package, including not only mortgages but also other securities that may have to be lifted at closing (e.g. charges over rental payments or insurance policies) and
  • in the case of share deals, lawyers are usually instructed by the buyer to review the main corporate documents to ensure, amongst other matters, the transferability of the shares and any limits to their transfer. Review of the company’s accounts, accounting books and tax documents is usually also required in order to assess potential tax liabilities

7. Registration and Notarisation of real estate – What are the basic requirements?
Agreements or other instruments transferring title to a property or creating, modifying or transferring rights in rem concerning a property must be recorded for publicity purposes with the Italian Land Registry (now part of the Italian revenue agency, Agenzia delle Entrate). Usually there is a Land Registry office for each province although for larger provinces there are usually more offices, each having jurisdiction over a certain part of the territory of the province.
Registration of the above agreements and instruments is required to ensure that they are enforceable against third parties (as opposed to enforceability limited to the parties to the agreement or instrument).
Also, the creation of charges and encumbrances (e.g. mortgages, court orders concerning title to the property or other rights in rem created over the property) requires compliance with publicity requirements to ensure that such charges and encumbrances are enforceable against third parties. However, registration with the Land Registry is permitted only for those instruments and agreements that are specifically identified by Italian law (e.g. registration of an option for purchase of a property is not permitted).
It should be noted also that lease agreements may have to be recorded at the Land Registry, where their initial terms exceed nine years.
In general, notarisation (either in the form of certification of signatures by a notary or of a proper public deed, drawn up, signed and sealed by a notary) of contracts transferring title to a property or creating, modifying or transferring rights in rem concerning a property is not required for the validity of the contract itself but is required to allow the agreement to be recorded at the Land Registry.
However, notarisation is a validity requirement for certain types of transfers of title to or other interests in a property (e.g. a public deed is required for transfers by way of gift).
8. Permits – What permits are required for the use and occupation of real estate and are they personal?
Applications to obtain a planning permit to develop land must be filed with the municipal authority, which has the responsibility for controlling the use and development of land in the relevant territory.
The approval of an application for a building permit is subject to compliance of the proposed development with, amongst others, planning instruments and building regulations. Additional consents and approvals may also be required, either as a condition of applying for a planning permission or as part of that process, because of the nature of the proposed development or the area concerned, which may be subject to environmental, heritage or landscape restrictions. Construction fees and contributions towards costs of infrastructure are usually payable.
The decision on an application for a building permit should be issued within statutory time periods set by applicable legislation.
If an application for a building permit is rejected, the applicant is entitled to challenge the decision before the Regional Administrative Tribunal (TAR). Challenges before TARs are also available to third parties that may be affected by the development.
In addition to obtaining a building permit, at the end of the works it is necessary to notify to the competent authorities that the works were completed and to certify that the construction was carried out in accordance with, applicable building regulations as well as health and safety and sanitary regulations. A certificate of fitness for use (Certificato di Agibilità) must be obtained (also through tacit- approval procedures) from the competent local authorities, as confirmation that the property is suitable for use and occupation.
Works to be carried out on existing buildings require a prior approval by the municipal authority. However, in most cases the formal approval is replaced by a prior notification to municipal authorities, usually accompanied by a statement issued by a qualified professional (chartered surveyor, architect or civil engineer) describing the works in question and confirming that they comply with applicable planning instruments and other relevant rules and regulations.
Properties with artistic or historical value (listed buildings) may be subject to restrictions and works to be carried out on such properties will require a prior approval by the local agency of the Ministry of Cultural Heritage (Ministero per i Beni e le Attività Culturali – MIBAC).
In general, building permits are granted to the owner of the land or building or to a third party that, by virtue of a contract with the owner or of an interest held in the land/property, is authorised to carry out the works for which the permit is requested. The building permit can be transferred to successors, assigns or transferees only jointly with the land or property concerned (or such other underlying right that enabled the transferor to seek the permit in the first place).
9. Insurance and Risk – What insurance will the parties effect and when does the insurance risk pass at the time of sale?
The owner of a property usually takes out and maintains insurance covering both the property and its fixtures and fittings. Property insurance usually covers both damage to and destruction or loss of the property caused by a number of events including fire, explosion, lightning and road vehicles or, in some cases, aircraft collisions. Property insurance coverage would usually also protect the owner against claims for damage caused to equipment of third parties installed at the premises (e.g. equipment of utility companies) and may also cover loss of rent.
The owner of a property may – and normally would – also take out insurance against third party liabilities (e.g. damages suffered by third parties that occupy or have access to the property). Insurance for damage caused by water (e.g. pipe bursting), riots and terrorism, storms (including rain, hail or snow) or earthquakes may require additional special heads of cover.
Tenants are usually required by the lease to take out additional insurance cover for damage caused to the leased property or the entire building (e.g. by fire, water and explosion) or to third parties that have access to the leased property.
Risks relating to a property pass with title (though the seller may remain responsible for custody of the property until delivery of the property is effected). The seller would usually maintain insurance on the property until the execution of the deed of sale and it would be the buyer’s responsibility to take out new insurance for the property with effect from the date of transfer of title.
10. Environmental – What are the common environmental issues?
The main environmental issue arising in connection with a real estate transaction concerns potential soil and groundwater contamination resulting from current or past use.
Although the key principle regarding contamination of land is “polluter pays”, the buyer of a property, although not being the person directly responsible for contamination, would still be subject to certain reporting obligations, obligations to adopt protection measures (i.e. measures aimed at preventing an immediate threat or potential future damages to health or the environment) and may be exposed to potential liabilities for costs incurred for de-contamination of the site and such consequences usually attach to the site itself.
If a site is found to be contaminated, competent authorities will have a duty to try and identify the person responsible for the contamination and ensure that such person carries out the de-contamination activities required (or however that such activities are conducted at the polluter’s expense). If the person responsible for the contamination cannot be identified or however does not proceed with the required de-contamination (and no other interested party proceed with it), the ultimate responsibility for such de-contamination will lie with the local municipal authority or, failing it, with the regional government. Such authorities will be entitled to recover those costs from the polluter but if the polluter cannot be identified or the costs cannot be recovered the authority may seek to recover those costs from the then current owner of the property up to a limit equal to the value of the property.
If decontamination works are carried out by public authorities, a legal charge may be created on the site and such charge would result also from the Certificato di Destinazione Urbanistica, a certificate issued by the municipality showing the permitted use of the land. Such a charge will also imply that costs incurred for the de-contamination of the site would be given priority over the proceeds generated by the sale (including a forced sale) of the site.
In relation to buildings, asbestos is usually the main environmental concern, particularly if the building is to be used as place of work (offices, retail properties). Asbestos found in the building should be removed or properly contained.
When the characteristics of a property or the circumstances concerning its former use suggest that there might be potential environmental risks, environmental due diligence would normally be carried out. The main aspects and documents to be considered for a preliminary assessment of environmental risks and to establish whether further investigations should be carried out are:
  • the history of the site/property (e.g. previous owners)
  • maps, planning and zoning instruments
  • building permits and authorisations issued for the site/property
  • Certificato di Destinazione Urbanistica (certification of permitted use of the land)
  • the register of potentially contaminated sites and sited to be de-contaminated
  • Regional Plan for Decontamination
  • certificates issued after decontamination of the site
  • documentation concerning previous activities carried out on the site or in surrounding areas and
  • accounts of the seller/target company

In general, environmental risks are addressed by specific provisions in the contract. In addition to general provisions that are often included in preliminary agreements and sale agreements, specific provisions will be included if particular risks are identified, so as to ensure that costs for decontamination are either deducted from the price or secured by specific (bank) guarantees.
There remains growing attention to energy efficiency of properties and several regulations have been introduced (e.g. requiring energy performance certification of properties) aimed at increasing consciousness of energy consumption and therefore environmental impact of properties or introducing stricter requirements during construction or renovation of properties (e.g. heating and air conditioning systems). Besides legal requirements and new regulations on energy efficiency, there has been a growing interest of investors in energy efficient properties (and in the lower operating costs associated to it) which resulted in adoption of voluntary energy efficiency certifications and schemes (such as LEED and BREEAM) in connection with both new developments as well as renovation or refurbishment works.
11. Pricing/Valuation – What sets the price/valuation of real estate?
Prices of commercial properties are usually determined on the basis of the expected revenues that the property can generate (rent) as well as on the average market value of similar properties in the same area. Should a property be capable of being converted from residential to non-residential or vice-versa, the value (usually calculated per square metre) of non-residential properties (or residential, as the case may be) in the same location and area could be used as a reference, taking into account also likely conversion costs.
Whilst the expected revenues that a property is capable of generating are usually calculated on the net area capable of being leased, the value of the property (per square metre) is usually calculated on the so called “commercial size” of the property (total area of the property, including areas occupied by partitions and external walls). Certain areas of a property or a building (e.g. balconies, entrance hall, parking spaces, storage rooms) are usually taken into account only for a portion of their actual size.
When a building is acquired with a view to its demolition and reconstruction, the value of the land where the building is located and the planning provisions applicable to such land are considered, together with estimated construction costs and fees.
12. Taxes and Costs – What are they and who pays them?
Taxes payable in connection with a real estate transaction would greatly vary depending on a number of circumstances. In particular, the sale of a property may be subject to value added tax (VAT) or registration tax (stamp duty), depending, amongst other factors on the nature of the property sold (residential or commercial), whether or not the seller is VAT-registered (and in that case whether the seller opts to apply VAT), on the activity carried out by the seller and on the right of the buyer to deduct the VAT paid in whole or part.
Additional charges (known as imposte ipotecarie e catastali i.e. mortgage and cadastral charges) will also be payable, either based on the value of the property or in fixed amounts, for registration of the sale at the Land Registry and cadastral office.
In general:
  • in a typical commercial real estate transaction (i.e. commercial property sold by a VAT-registered seller to a VAT-registered buyer), although the sale would be VAT-exempt (and therefore subject to proportional registration tax, based on value of the property), the seller would normally opt for application of VAT at the then prevailing rate. In those cases, a so called “reverse charge” scheme would apply, with the practical implication that no VAT will actually be paid by the buyer to the seller on top of the price.
  • Moreover, a fixed registration tax as well as proportional mortgage and cadastral taxes (at a combined rate of a percentage of the value of the property) would also be payable. with regard to a “private” transaction (e.g. residential property sold by non-professional seller to a non-professional buyer) proportional registration tax will normally be due (usually charged at a percentage of the value) along with fixed mortgage and cadastral taxes. Lower rates would apply to the purchaser of a residential property to be used a main residence by the buyer (so called “prima casa” regime).

In theory, the seller and the buyer are both liable for payment of registration tax as well as cadastral and mortgage charges, unless they agree otherwise. As a matter of fact, standard practice is that all tax costs arising in connection with a real estate sale are borne by the buyer (although both parties will continue to remain jointly liable vis-à-vis the tax authorities).
Similarly, the buyer would usually appoint the notary for the execution of the deed of sale and will pay the notary’s fees and expenses. Notary’s fees used to be determined on the basis of an approved scale fees system, ranging from 2% to 0.15% of the value of the transaction, with limited room for negotiation. Due to recent changes in relevant legislation, there is now a greater flexibility and the notary’s fees may vary, sometimes also significantly, from one notary to the other.
The buyer will also pay the costs for conducting searches on title and on matters affecting the property as well as, in general, costs for the due diligence review of the property and any valuations or audits he may require.
Each party will bear the costs for its own consultants (e.g. lawyers).
According to Italian law agents and brokers (mediatori) would normally be entitled to seek commissions from both parties, even in the absence of a prior explicit mandate or instructions. For that reason, preliminary agreements and/or deeds of sale usually contain provisions not only regulating payments to agents and brokers (i.e. stating who will pay whom) but also providing for an obligation of each party to indemnify the other for claims that may be made against the latter by agents or brokers engaged or involved by the indemnifying party.
Luxembourg
1. Parties and Ownership – Who can own real estate and what types of ownership are there?
Parties
Any person can own real estate.
As to legal capacity, Luxembourg law distinguishes between individuals, legal entities and foundations.
Legal entities may either be private law entities (such as non-profit making associations, commercial companies or organisations of economic interest), or public law entities (such as the State, districts, public establishments).
Owners of real estate therefore include private developers, insurance companies, banks and other financial institutions, private or public companies, government and local authorities, etc.
There is no restriction on real estate ownership based on the citizenship of the owner.
Ownership
Ownership is either private or public, depending upon whether the person entitled to own is a legal person under private law or a legal entity in public law (State, districts, municipalities, etc.).
Private ownership can also be either individual or plural, according to whether the legal person with title is an individual or a group of individuals, e.g. co-ownership. Co-ownership is where two or more people each have a portion of legal ownership of the same thing. The co-owner can encumber its portion of the rights in rem (e.g. mortgage).
The Civil Code governs the regime for enforced co-ownersåhip, in particular the enforced co-ownership of buildings such as apartment blocks.
Luxembourg law draws a distinction between ownership and possession. Possession is where a person behaves as the owner of the thing regardless of the question of whether or not the possessor is the owner. The law offers protection to a person in possession, granting him possessory actions allowing him to defend himself quickly, at little cost, against each person interfering with his possession.
A person in possession for a certain period can, subject to compliance with certain conditions, become the owner. This mechanism is known as adverse possession. In this regard, article 2262 of the Civil Code stipulates that a real property is “adversely possessed” after 30 years, meaning that ownership will only be acquired by adverse possession after 30 years have elapsed.
2. Interests – What types of real estate are sold?
Luxembourg law distinguishes two categories of patrimonial rights: real rights (rights in rem) and personal rights (rights in personam).
In property law, rights in personam essentially have their origin in the relationship between landlord and tenant pursuant to a lease agreement.
There are four types of property lease agreements under Luxembourg law: the standard (civil) lease, the commercial lease, the residential lease and the agricultural lease.
In contrast to rights in personam, there are a limited number of rights in rem. Under Luxembourg. The following are considered as real rights:
  • Ownership
  • Usufruct
  • Rights of usage and residence
  • Emphyteotic lease
  • Easement
  • Right of superficies (also referred to as building right)

The most absolute right in rem is the right of ownership.
Real estate ownership entails all the rights and privileges afforded to the owner. This includes the right to use the property, the right to receive all revenues flowing from the property and the right to abuse the property (including its destruction), subject to restrictions imposed by any applicable laws and regulations and subject to sanctions arising from the rules of civil liability when the owner is either causing damage to others through his/her fault or, without fault, is causing abnormal damage to neighbouring properties.
In addition, ownership of land includes in principle ownership of the ground and of the subsoil, together with all the proceeds and income deriving from them.
Pursuant to the principle of accession, ownership of land automatically brings with it ownership of all that is built on it. Accession is therefore a method of acquiring ownership where the owner of a principal asset becomes the owner of all that is incorporated in it.
According to this principle, the owner of a plot of land automatically becomes the owner of any construction on the land, regardless of the identity of the person who built it and/or the ownership of the building materials, unless otherwise agreed with that person. It is possible for the owner to waive its right of accession. Such waiver results in the builder becoming owner of the building and generally creates a right of superficies or an emphyteotic right (long lease) both limited by law to 99 years.
Rights in rem (other than the right of ownership) over property are from time to time created to grant a right of use over property, being usufruct, emphyteotic lease and the right of superficies. For the “lessee” they usually offer more stability than a mere lease. For the “lessor” they usually guarantee an income over a longer period of time.
Moreover, in certain circumstances, the acquisition of rights in rem can be considered as an alternative to a purchase. Rights in rem are usually granted for a long period (up to 99 years), and carry extensive rights for their holder.
Transactions having the effect of transferring title to a real estate property or of creating a right in rem encumbering such a property have to be recorded at the Mortgage Registrar Office. Such registration is required in order to have a valid title against all third parties, who may take precedence in the absence of registration (see section 12).
3. Employees – What employment issues affect real estate acquisitions?
Employment issues are not common in relation to the acquisition of real estate. Those which may be relevant to real estate transactions typically concern the transfer of undertakings and redundancies.
Transfer of undertakings – TUPE
TUPE is likely to have significant consequences on employment issues. TUPE applies when the “acquisition” brings a change of employer. There is no change of employer when the operation only consists in the change of a shareholder. It may apply when a sale or transfer of a business or, for example, the outsourcing of the management of a property to a third party. This might occur in the sale of a shopping centre having its own management and security staff. The broad effects of TUPE are that:
  • the employment contracts are automatically transferred from the transferor to the transferee
  • the working conditions (seniority, salary, responsibilities, working time, etc.) and collective bargaining agreements (working hours, thirteenth month, salary, etc.) existing with the transferor have to be maintained, except in principle for the old-age, invalidity and pension benefits payable under schemes supplementing the official social security system
  • transferor and transferee are in principle jointly liable for the debts resulting from the employment contracts existing at the time of the transfer,
  • dismissal for a reason connected to the transfer is automatically unlawful – unless for an “economic, technical or organisational reason entailing changes in the workforce” and
  • employees’ representatives must be informed and consulted about the transfer in advance (if there are no employees representatives, the employees concerned by the transfer will have to be informed).

Although the legal effects of TUPE cannot be avoided, it is possible to allocate TUPE liabilities by agreement between the transferor and the transferee. Normally the transferor will agree to be responsible for all claims and liabilities relating to employees up to the date of transfer, and the transferee will take on all post-transfer employment liabilities. Such an agreement concluded between the transferor and transferee has no effect as against third parties.
Redundancies
Redundancies may arise on the closure of a business or part of a business or where there is a reduction in the number of employees required, for example on the merger of two businesses or a TUPE transfer. If the conditions of mass redundancies are met, care should be taken to ensure that the redundancies are carried out according to a strict procedure which entails information and consultation of the employees or their representatives, before any decision is taken.
4. Procedure – What are the steps in a sale and purchase transaction?
The direct acquisition of a property is made by the seller and the buyer entering into a contract of sale. Under Luxembourg law, there is a binding contract of sale (be it of movable or immovable objects such as real property) as soon as parties have reached an agreement on (i) the object and (ii) the price.
Consequently, if an offer with a determined purchase price is made for a well identified property, and this offer is unconditionally accepted by the seller, then a binding sale agreement immediately comes into force.
The contract of sale is documented in writing. This written contract may be drafted privately, i.e. without the intervention of a public notary. It is then commonly called a compromis de vente.
The compromis de vente is only enforceable between the seller and the buyer.
For the purpose of making the transfer of title enforceable against third parties, the sale must be registered in the Mortgage Registrar. This formality is called the transcription.
For the purpose of registering the sale in the Mortgage Registrar, the seller and the purchaser must sign a notarial deed before a public notary.
The public notary handles the register of the deed on the Mortgage Registrar.
The execution of a detailed private sale agreement (compromis de vente) or the execution of the notary deed of sale is not necessary to bind the parties. Indeed, although the ownership rights over the property will only effectively be transfered to the buyer upon the execution of the notary deed of sale, this is without prejudice to the fact that the parties are bound as soon as they have agreed the essential terms of the sale. In practice, however, parties usually sign a compromis de vente in a first phase. The signature of the notarial deed takes place in a second phase.
The transfer tax (see section 20) is due within three months after the registration of the deed relating to the transfer of property.
Any deed relating to a transfer of property must be registered within three months after the conclusion of the deed between the parties. Once registered in a notarial deed, the public notary presents the deed for registration in the Mortgage Registrar.
In addition, an energy performance certificate must be provided in order to validly complete the sale of the property (see section 10 below).
5. Contract terms – What provisions does a real estate contract contain and what is implied by law?
Provisions of the contract
As mentioned in section 4, above, before entering the sale contract before a notary, the seller and the buyer may sign a written compromis de vente.
As for the contract of sale, the compromis de vente must contain the parties’ agreement on the characteristics of the property sold and in what constitutes the consideration price.
By the signature of the compromis de vente, the sale becomes perfect and binding between the seller and the buyer, which means it is definitive. The seller is under the obligation to transfer the property to the buyer and the buyer must pay the price to the seller. The agreement must provide for the timing of the transfer of title. Such transfer is usually deferred until the signing of the notary deed.
However, parties can postpone the definitive character of the compromis de vente and defer its effects by way of conditions precedent.
A real estate sale agreement commonly contains, whatever the nature of the property sold, provisions concerning the identity of the parties, a description of the sold property, and the actual condition of the property. Since the buyer buys the property in its condition at the time of the transfer of title and such transfer is usually deferred until the signature of the notarial deed, if damage occurs between the compromis de vente and the signature of the notarial deed, the seller will have to make the necessary repairs. The parties do, however, have the contractual freedom to provide for other arrangements.
Every easement (e.g. right of way) on the sold property known by the seller or which appears on the title deed(s) of the property will be mentioned in the agreement.
As the price is an essential element of the contract of sale, it has to be established with a certain degree of certainty. In most cases, the price will be paid on the day of execution of the notarial deed. A deposit, normally around 10% of the total sale price, is usually paid upon the signature of the compromis de vente. The deposit is basically used as a kind of guarantee for the seller that the purchaser signs the notary deed of sale. If the purchaser fails to sign the notary deed within the agreed period, the deposit is then kept by the seller as compensation (notwithstanding the seller’s right to claim additional damages before the Courts if he deems his losses to be higher).
The compromis de vente and the notarial deed usually contain a clause discharging the seller of all its obligations due to any visible flaws and defects (but only those hidden defects of which the seller was not aware at the time of the sale).
It is usual that the seller declares that the property is insured against fire and other connected risks until the notarial deed is signed and that the purchaser subscribes for the necessary insurance as of that date.
When necessary, the agreement may contain a discharge for the property concerning charges and mortgages and the notary will carry out the necessary steps to that effect.
Terms implied by law
The Civil Code provides two guarantees: a guarantee in respect of hidden defects affecting the property and a guarantee in respect of the title to the property.
The guarantee in respect of hidden defects is generally waived by the buyer. Such waiver however does not cover defects of which the seller was aware at the time of the sale.
6. Due Diligence – What investigations does the buyer normally make?
Before signing the compromis de vente
The prudent buyer is likely to commission a (technical) survey of the building and if appropriate, soil and geological investigations, plant and machinery tests, and environmental investigations.
In the context of the pre-acquisition due diligence, the buyer’s lawyers will investigate the title of the property. The buyer’s lawyers will consider the entries in the Mortgage Registrar and the Land Registrar (cadastre) and all relevant historic title documents.
In practice, the buyer’s lawyers will order a mortgage certificate from the Mortgage Registrar and an excerpt from the Land Registrar. The certificate will confirm whether or not the title is registered in the name of the seller and if the property is encumbered (e.g. mortgage, easements, etc). Additional details of all other registered interests of the seller need also to be obtained from the Mortgage Registrar. The excerpt from the Land Registrar gives valuable information regarding the implantation and surface of the property as well as its neighbouring properties.
If the property is leasehold, or subject to leasehold or other occupational interests, the terms of the relevant occupational documents need to be considered carefully to ensure they are not contrary to the buyer’s intentions for the property. The buyer’s lawyers will also need to check whether these documents require the consent of any third party to be given to the transaction.
Furthermore, the buyer’s lawyers may enquire whether any pre-emption right may be applicable to the property.
The buyer’s lawyers will conduct various searches to check the position regarding municipal and zoning consents, environmental matters, easements, works carried out, etc. If the seller is a company and the sale bears on its business or activities, the buyer’s lawyers will also conduct searches regarding all properties owned or occupied by the company in relation to its business or activities. They will also ascertain whether the company is solvent and may dispose of its assets freely.
Reporting to the client
Before the execution of the sale agreement the buyer’s lawyers usually report their due diligence findings to their client, raising any matter of particular importance or concern.
Pre-completion
Before completion (which materialises in the execution of the notarial deed), the buyer’s lawyers will normally ask the seller to divulge any further information that has arisen since the signature of the compromis de vente.
7. Registration and Notarisation of real estate – What are the basic requirements?
In Luxembourg, the land register is called the Mortgage Registrar (Bureau de conservation des hypothèques).
Depending on the location of the property, there are three different offices in charge of the Mortgage Registrar.
Registration of title with the Mortgage Registrar is required in order to have enforceable title against third parties.
Transactions having the effect of transferring title of property, or of creating a right in rem encumbering such property, such as the right of superficies, may be registered with the Mortgage Registrar. Transfer of title occurring following the death of a person or pursuant to the law (such as by way of accession) may not be recorded with the Mortgage Registrar.
The register of the relevant transactions must occur as soon as possible in order to render the transfer of title enforceable against third parties.
The disposal of a real estate is subject to a proportional 6% Luxembourg registration duty (droit d’enregistrement) and 7.2% in case of an acquisition for the purpose of resale. There are also 1% of transcription tax and a communal surcharge of 3% or 3.6% may apply if the property is located in Luxembourg-City. These rates apply on the sale price including any VAT.
Notarial fees are determined by grand-ducal regulation and depend on the type of transaction and the amount involved. They are usually based on a scale or on a percentage of the amount involved in the transaction.
8. Permits – What permits/authorisations are required for the use and occupation of real estate and are they personal?
Planning/Zoning permit
In principle, a building permit will be required for the construction of a new property or for the re-building (i.e. refurbishment or amendment of an existing use) of an existing building or demolition.
Several planning tools coexist in Luxembourg. Luxembourg government is mainly responsible for developing and setting up the land use planning. Each municipality also has its own planning tools that must comply with the land use planning regulations established by the government. In each municipality (commune), the Mayor (bourgmestre) is competent to grant the building permits.
When deciding on the issue of a building permit, the municipal authorities will first examine whether the intended construction or re-construction complies with the applicable zoning plans, if any, which have been adopted at the regional and/or municipal levels.
Moreover, a prior evaluation of the building project’s impact on the environment may have to be provided by the applicant at the time of application (see below – authorisations to be requested for classified establishments). For specific projects, a study of such impact must be performed by agreed bodies and will give rise to a public inquiry.
Specific authorisation required for large retail areas
In addition to a building permit, the Law of 2 September 2011 regulating the access to the professions of craftsman, salesman, and industrial as well as to some liberal professions provides that a specific authorisation from the Ministry of Middle Classes is required in the event of creation of a retail space with a sales area greater than 400 sqm.
Authorisations to be requested for classified establishments
The law of 10 June 1999 on classified establishments, as amended and completed by several grand ducal regulations and lastly by the law of 9 May 2014 (the “Law”) requires that any industrial, commercial or craft facility, whether public or private, must obtain a prior authorisation whenever its activity may present danger or nuisance to:
  • security or health
  • health and safety of workers in the workplace
  • the human and natural environment.

The aim of the Law is to prevent and reduce pollution emanating from these establishments. As a consequence, building a classified establishment is possible only once an authorisation has been duly issued and the competent administration must be informed of any contemplated modification to the building.
The Law divides classified establishments in four different categories (1, 2, 3 and 4) and two sub-categories (3A and 3B), further defined in the grand-ducal regulation of 10 May 2012. Classification in one category or the other helps to establish the authority entitled to deliver the authorisation as well as the applicable procedure.
Depending on the classification of the establishment, the Law may apply in combination with the legislation on waste prevention and management or with legislation on water and imposes further authorisations or studies like risk assessment and safety analysis of the establishment. 
9. Insurance and Risk – What insurance will the parties effect and when does the insurance risk pass at the time of sale?
The owner of a property will most often be responsible for the insurance of the property prior to a contemplated sale.
However, where the property is subject to a lease, the terms of the lease will determine which party has the responsibility to insure the property. With regard to buildings which are under construction, it is important that parties arrange clearly for the changeover of the insurance responsibility from the constructor to the buyer. During the construction of the property, the contractor (unless the parties agree otherwise) remains liable for all risks related to and damages caused by or in the process of construction. As from the delivery of the buildings to the buyer (or tenant), the construction policy will no longer apply and the buyer (or tenant) will need to take out other insurance.
Insurance policies are contracts intuitu personae, implying that their conclusion and existence depend on the personal qualities or capacities of the contracting party. Insurance policies are therefore not transferable on the sale of real estate. In larger real estate transactions it is often contractually provided that the seller of the property undertakes, during a certain time after the closing of the sale, to maintain and hold the insurance policies applicable to the property. This allows the buyer some time to arrange for the required insurance transition.
10. Environmental – What are the common environmental issues?
Note: Besides energy performance certificate, the presence of all required and valid authorisations (see section 8) is also an important issue in real estate transactions.
For any non-residential and residential real estate transaction (extension, modification, substantial transformation or change of owner or tenant), it is mandatory to possess a valid energy performance certificate. This certificate must be based on measured energy consumption and must contain qualitative recommendations related to energy enhancement possibilities of the building. It is valid for a ten years period.
11. Pricing/Valuation – What sets the price/valuation of real estate?
The price must be certain, be it determined or determinable (it may be specified by an expert). Furthermore, the price must be real, i.e. not simply nominal.
The determination of the price cannot turn on the will of one of the parties or upon the conclusion of an agreement post-sale.
Pursuant to article 1591 of the Luxembourg Civil Code, the price is, in principle, fixed by the parties.
Article 1592 of the Luxembourg Civil Code, however, states that the price can be determined by a third party expert.
The choice of an expert can be agreed after the sale in some cases (see below). Should the parties be unable to reach agreement, the judge can only intervene to replace the expert where this is provided for in the contract. If the parties cannot agree on an expert, the sale will be void. If one of the parties refuses to choose the expert, the other party cannot force him to participate, the sale will be void, but damages can be claimed from the non-cooperative party.
When the parties decide that an expert will set the price but do not appoint an expert, for the price to be determinable, they must have agreed upon the criteria to be taken into consideration when making the valuation. If the expert has been appointed, this appointment is in itself sufficient to render the price determinable.
12. Taxes and Costs – What are they and who pays them?
Transfer taxes
The disposal of a property located in Luxembourg is as a rule subject to ad valorem transfer taxes at an aggregate rate ranging from 7% to 11.8% and calculated on the value of the land and the existing constructions at the time the sale agreement is entered into by the parties. When the value added tax (“VAT”) is applicable (see below), the basis for the computation of the transfer taxes includes the VAT charged upon the sale of the property. Transfer taxes are normally payable by the buyer unless otherwise agreed between the parties.
Transfer taxes are in principle composed of a 6% registration duty (droit d’enregistrement) which raises to 7.2% in case of acquisition for the purpose of resale), plus a 1% transcription duty (droit de transcription). In addition, a 3% (or 3.6%) municipal surcharge is applicable in case of transfer of a commercial property located in Luxembourg-city (i.e. 50% of the registration duty).
The sale of the property is subject to transfer taxes regardless of whether or not the sale is subject to VAT.
Transfer taxes also apply when the property is transferred indirectly through the transfer of interest in a partnership owning the property.
Reduced rates are applicable in some cases. The contribution of real estate assets to a company in exchange for shares is subject to a 0.61% (i.e. 0.5% + 2/10) registration duty as well as a 0.5% transcription tax (resulting in a total levy of 1.1%). However, the contribution of real estate assets paid for other than by shares are subject to a 6% registration duty as well as a 1% transcription tax (plus the 3% municipal surcharge if applicable). In addition, the transfer of real estate assets in the context of a corporate restructuring (such as the contribution of all assets and liabilities or one or more branches of activities) is exempt from transfer taxes. Such transfer must, however, be paid for mainly (i.e., for more than 50%) by the issue of shares in the share capital of the receiving company.
VAT
The supply of immovable property (including the transfer of rights in rem) as well as the leasing and the renting of immovable property are in principle exempt from VAT without right to deduct input VAT. However, the exemption does not apply, inter alia, to the supplies of property to the extent that the construction sold did not exist at the time the contract was concluded (vente d’immeubles à construire).
Taxable persons may however request a waiver of their exemption and elect to have their transactions subject to VAT at the rate of 17%, provided the following conditions are met:
  • The supply, transfer or letting of property is performed by a VAT taxable person to another VAT taxable person;
  • The property is used wholly or mainly for the purpose of activities for which the acquirer or lessee is entitled to a deduction for input VAT. The term “mainly used” is, in principle, considered by the VAT authorities as satisfied when the property is used for more than 50% by the lessee or the acquirer for activities allowing input VAT recovery. However, the VAT imposed on the sale or renting transaction can only be deducted by the acquirer or the lessee pro rata.
  • An official option form has been filled in.

The option to submit the sale to VAT must be requested to the tax administration via the filing of a special form called “déclaration d’option”. Submission of this form to the VAT authorities is mandatory and no deduction can be claimed before administrative approval.
The agreement from the tax administration must be obtained before the sale is executed. The form must, inter alia, inform about the identities of the buyer and the seller, their activities, addresses, the description of the property and in which proportion it will be assigned, i.e. leased for activities allowing to deduct input VAT or not.
The tax administration must in principle reply within one month after the filing of the déclaration d’option.
The tax administration is entitled to regularise the deduction right of the seller during a ten year period before the sale if his situation changes (e.g. its activity is no longer subject to VAT).
The taxable amount is the full amount, at market value, of the real estate received by the buyer. Such option does not prevent registration duties being levied (see above).
Income tax and real estate tax
Income tax
Net income attributable to a property located in Luxembourg is subject to income tax.
Rental income encompasses, inter alia:
  • income arising from the letting and leasing of movable property or real estate;
  • income arising from the granting of exploitation or extraction rights of mineral or fossil deposits existing under the ground or on the surface; and
  • the rental value of the residence and its dependences occupied by the owner. This deemed income is based on fictitious rental value derived from the unitary value of the house (generally 1% to 2% of the market value). The deemed income is equal to 4% of the unitary value not exceeding EUR 3,800 and to 6% of the unitary value above EUR 3,800.

Deductible expenses for rental income include the maintenance costs for the building, interest and charges linked to the financing of the property. Property is depreciable, with the exception of land.
The rental value of the occupier’s principal dwelling can only be reduced by interest paid on loan financing for the acquisition or the construction of an extension to the property. The interest deduction is capped at a certain amount depending on the year of occupation of the dwelling by the owner and its family circumstances. While construction is in progress, mortgage interest and other financing costs are fully deductible.
Capital gains realised on the disposal of real estate assets within a period not exceeding two years between the acquisition (or the constitution) and the realization are subject to income tax at normal rates. The gain is determined by the difference existing between the selling-price and the purchase or production cost plus the acquisition charges.
Capital gains, realized on the disposal, more than two years after purchase (or the constitution), of real estate assets which does not form part of the assets of a business or of the assets used within the scope of independent professional activities, are subject to income tax at a special rate equal to half the normal rates. For the purposes of the determination of the taxable gains, the purchase or production cost of real estate assets are re-valorised by the multiplication of a coefficient stipulated by law to take into account the devaluation of money.
The gain realized upon the sale of a property which is a principal residence is not subject to tax.
The disposal, against consideration, of shares in a tax transparent real-estate investment company (société civile immobilière) is regarded as the disposal of the underlying real estate assets.
Real estate tax
Real estate tax (impôt foncier) is levied by the municipalities on the unitary value of immovable property located within their territory. The unitary value and the applicable rates depend on criteria such as size, age, location and economic use of the property.
Corporate income tax
Real estate companies, incorporated under the form of companies limited by share capital (i.e. société anonyme, société à responsabilité limitée and société en commandite par actions) are subject to corporate income tax (impôt sur le revenu des collectivités – “CIT”) and municipal business tax (impôt commercial communal – “MBT”) at an aggregate rate of 29.22% on their net profit. The taxable basis for CIT/MBT purposes corresponds in principle to the accounting profits, unless a specific treatment is provided for by the Luxembourg Income Tax Law (loi modifiée du 4 décembre 1967 concernant l’impôt sur le revenu) or a double tax treaty. Taxable income of a company investing in a Luxembourg property comprises the total income realized on the property (i.e. rental income plus capital gains on disposal), less allocable expenses. Allocable expenses include property tax, depreciation, maintenance, repair costs and interest on loans to acquire the property.
Property is depreciable (with the exception of land) on a straight-line basis. The acquisition cost, including related expenses such as registration duties, the notary’s fees, etc. but excluding subsidies, forms the basis for depreciation. Depreciation rates are based on the useful life of the assets and vary between 2% and 4% for a new building, or even more for older buildings. Industrial buildings are generally depreciated at 4%. Separate depreciation at a higher rate may be applicable for certain components of the property (i.e. lifts or elevators, air-conditioning installations, etc.).
Real estate companies are also subject to an annual net wealth tax at the rate of 0.5%. This tax is assessed on their worldwide net wealth (assets minus liabilities, i.e. basically the equity of the company) as of 1 January each year (based on the assets held on 31 December of the preceding year).
Tax transparent real estate companies, such as sociétés civiles immobilières, are in principle not subject to income tax. Thus, the income derived from these entities is in principle only taxed at the level of their investors.
Fees
The main costs include the transfer tax, VAT (if applicable), the Mortgage Registrar fees and the notary fees.
Montenegro
1. Parties and Ownership – Who can own real estate and what types of ownership are there?
Parties
Any domestic physical or legal person may acquire ownership rights over real estate such as residential and business buildings, apartments, business premises, garages, parking spaces (within the building), land plots and other real estate except for natural resources which are in state ownership. In addition to that, the law prescribes that some resources in general use, such as state owned development land, forests and forest land may be subject to limited ownership rights defined by law.
Foreign natural persons and legal entities are also allowed to acquire title over real estate, however there are certain limitations provided by the law.
Foreign natural persons and legal entities cannot acquire (i) natural resources, (ii) goods in general use, (iii) agricultural land, (iv) forest and forest land, (v) cultural monuments of special importance, (vi) immovable property in land-border areas to a depth of one kilometre and islands and (vii) immovable property located in the area that is, for the purpose of protection of interests and safety of the country, proclaimed by the law. In practice, this means that foreign entrepreneurs and foreign legal persons either establish or acquire a Montenegrin legal entity to overcome these limitations. On the other hand, foreign persons are entitled to a long-term lease, concession and BOT on immovable property listed under points (i) to (vi) above.
Ownership
Ownership is the highest title a person or a legal entity can hold over real estate. The types of ownership are:
  • Exclusive ownership – the top quality of ownership as this type of ownership is only limited by the statutory limitations, i.e. by laws;
  • Co-ownership over real estate – ownership of two or more persons over an undivided real estate where the share of each owner is determined or a fixed proportion (the owners may have the right to jointly manage the use of the property). Each of the co-owners is entitled to freely dispose of its share; however, other co-owners have a statutory pre-emption right;
  • Joint ownership – ownership over undivided real estate where the shares of joint owners could be, but are not determined or fixed upfront;
  • Condominium ownership (ownership of a single real estate unit) – according to Montenegrin law a single apartment, office, garage or parking space may be an object of exclusive ownership rights and, therefore, each of these single real estate units is registered in the land registry separately. Contrary to that, each owner of a single real estate unit is at the same time a joint owner of the common parts and areas. The owners may freely dispose of their ownership over single units together with their corresponding shares of the common parts and areas.

2. Interests – What types of interest in real estate are sold?
Montenegrin law recognizes several forms of interests in real estate. These include:
  • ownership;
  • possession;
  • iura in re aliena i.e. limited property rights, such as pledges (i.e. mortgage), easements (which can be personal or real), lease, right to build, pre-emption right etc.

However, current practice dictates that commonly only ownership interests are sold. Assignment of rights and transfer of obligations under occupational leases are relatively rare with subletting being favoured.
Possession enjoys judicial protection and it can lead to acquisition of the property if a person who is at the same time a lawful and bona fide possessor possesses the property for a 10-year period, or if a person who is only a bona fide possessor possesses the property for a 20-year period. A “lawful possessor” is a possessor whose possession is based on a legal title that is required for the acquisition of ownership and who did not gain this possession by use of force, fraud or abuse of reliance. A “bona fide possessor” is a possessor who does not know or cannot know that the property which she/he possesses is not in her/his rightful ownership.
The most frequently used security instrument in Montenegro and the most secure one is mortgage. A mortgage is constituted by its registration in the competent land registry based on a contract, court settlement, mortgage statement, law or judicial decision.
Easements can be acquired by agreement, by a decision of a state authority or by virtue of adverse possession (usucapio). It may be applicable only for a specific period of time or a specific time of year.
The right to build is a subjective right which entitles its holder to put up a building on the land of another and to acquire title to the land for a specific period of time. During this period the holder of building right also has the right to use the land for construction work, as well as for occupation.
3. Employees – What employment issues affect real estate acquisitions?
Montenegrin employment regulations do not regulate so called “asset deal”. Therefore, from an employment law perspective the sale of real estate is not a deemed change of employer. If any employees need to be transferred it would be by termination of employment with current employer and new employment contracts with the new employer i.e. new owner of the property. It is also possible that the sale of property may result in redundancies.
In the event of a share deal the new shareholder takes over the internal regulations from the previous shareholder (meaning the employment rulebook or a collective agreement concluded between the employer and the representative trade union organised within the employer) and all valid employment contracts. In addition, there are some notification obligations of the old and/or new shareholder towards employees and/or representative trade union with respect to the share deal.
4. Procedure – What are the steps in a sale and purchase transaction?
The usual steps in a sale and purchase transaction of real estate, in general, are:
  • legal due diligence;
  • negotiations – settlement of the purchase price and other purchase conditions;
  • drafting and agreeing the contract;
  • obtaining permits for the purchase (e.g. in case of pre-emption rights);
  • notarizationof the signatures of the parties to the contract;
  • registration of the buyer in the competent land registry.

Buyers usually conduct extensive legal due diligence of all obtainable documentation and evidence concerning the property, as well as surveys of the building and, in appropriate cases, soil and geological investigations, plant and machinery tests, and environmental investigations. It is important to identify potential problems early, so that there can be negotiation on the terms and/or price.
In Montenegrin law negotiations are not binding and, therefore, each party may terminate negotiations whenever they want. However, the party causing damage to other party by negotiating without the intention to conclude a contract or by terminating the negotiations without any sound reason is responsible for damage caused to the other. For these reasons parties occasionally enter a preliminary contract, which is a contract containing essential elements of the main contract and by its conclusion the parties accept the obligation to later conclude the main contract. The formal requests envisaged for the main contract (a written form and notarization) also apply to the preliminary contract. Unless agreed otherwise each party bears its own costs.
A contract for the sale and purchase of real estate must be in writing. It is important to check for the authorisation for registration of the new owner in the land registry (clausula intabulandi), which may be either included in the contract or attached to it as a separate statement. The legal requirement regarding the form of the contract also applies to all future changes or amendments of the contract; however, future amendments regarding subsidiary matters or amendments which reduce obligations of the parties do not have to be concluded in writing if that is not contrary to the original purpose.
If the contract is conditional on obtaining permits for the purchase, e.g. pre-emption rights, the seller has to obtain these permits prior to concluding a sale and purchase agreement with a third party, e.g. the seller has to make an offer to the holder of the pre-emption right.
Notarizationof signatures of the parties to the contract is a legal requirement. However, if a contract (made in writing) without notarization has been partially or fully performed and if no pre-emption right or compulsory regulation has been violated, the court may acknowledge the legal effect of that contract.
Title to real estate is acquired through its registration in the land registry, i.e. title to real estate is not acquired by the real estate conveyance instrument, but rather by the registration of ownership in the competent land registry.
5. Contract terms – What provisions does a real estate contract contain and what is implied by law?
Provisions of the contract
Besides the essential terms of the real estate purchase agreement, such as details of the property and price, the provisions of the contract normally include:
  • details of the title document under which the seller acquired ownership;
  • all liabilities burdening the property (mortgages, easements, pre-emptive rights, leases);
  • conditions of payment of the purchase price;
  • handover/takeover date;
  • provisions indicating which of the parties will pay property transfer tax;
  • provisions indicating which of the parties will file the application for the change of ownership;
  • any termination provisions;
  • authorisation by the transferor for the registration of the transferee as the owner in the land registry, once the all conditions prescribed by the agreement are met (clausula intabulandi)
  • seller’s warranty that it is the sole unrestricted owner of the property and that the property is and will remain in the (legal and actual) condition described in the agreements until registration of the transferee’s title in the competent land registry.

Terms implied by law
The law implies that a real estate purchase agreement is to be concluded in writing and the signatures of the parties to the agreement have to be certified by the notary.
6. Due Diligence – What investigations does the buyer normally make?
Pre-exchange of agreements
Buyers usually conduct extensive legal due diligence of all obtainable documentation and evidence concerning the property, as well as surveys of the building and, in appropriate cases, soil and geological investigations, plant and machinery tests, and environmental investigations.
The buyer’s lawyers shall conduct a pre-exchange due diligence verifying the following facts:
  • Title to the property. This will include an extensive investigation of the land registry and the entries that can be found in it, as well as, if necessary, historical documents and deeds, that will provide more information regarding the real estate. Where title to the real estate is not entered in the land registry, the buyer’s lawyers will consider the unregistered deeds to check whether the seller holds good and sufficient title to the property.
  • In order to obtain this information, the buyer’s lawyers shall examine an extract from the land registry which contains information concerning ownership of the real estate, the property’s size, location and encumbrances and limitations (easements, mortgages, pre-emption rights), etc. This document will act as a confirmation of the seller’s registered ownership right, as well as provide important information which can have a significant impact on the Buyer’s intention to purchase the real estate. Before the conclusion of the transfer agreement the buyer’s lawyers will acquire an additional land registry extract or make an enquiry with the land registry in order to determine whether additional interests over the property in question have been added or whether procedures have been started for recognition of pending interests, which may prejudice the buyer’s intentions for the property.
  • The position regarding municipal and zoning permits, environmental matters, utilities serving the property, financial encumbrances, etc. The documentation regarding these issues needs to be carefully considered by buyer’s lawyers to ensure that they are not contrary to the buyer’s intentions for the property.
  • The legal status of the seller (if the seller is a company). The buyer’s lawyers will conduct corporate searches of the seller at the Companies Register in order to verify the name, registered office and who is entitled to act on behalf of the company, as well as to ascertain whether or not the company is registered and solvent and therefore able to dispose of its assets freely.
  • Additional enquiries. It is also advisable to obtain information regarding practical matters which may affect the property.

Pre-completion
Shortly before completion, the buyer’s lawyers shall also conduct searches for confirmation that there are no pending proceedings regarding the property and that the seller has not been declared insolvent and/or bankrupt. These searches should confirm that the information gained in the due diligence process remains unchanged just before the execution of the transfer agreement.
Reporting to the client
Before exchange of agreements, the buyer’s lawyers usually report their due diligence findings to their client, raising any matter of particular importance or concern.
7. Registration and Notarisation of real estate – What are the basic requirements?
In Montenegro, the title over real estate is acquired through its registration in the land registry. Hence, the title overreal estate is not acquired by the real estate conveyance instrument, but rather by the registration of property ownership in the competent land registry which has aconstitutive effect. Proper registration is generally taken as prima facie evidence of ownership over real estates.
In order to acquire title to property, it is necessary that the property which is the subject-matter of acquisition is itself registered in the relevant land registry. For buildings where occupancy permits have been issued, it may be assumed that the most important prerequisite for the registration of such property in the land registry is met. The holder of an occupancy permit is deemed to be the initial owner of the property. It is customary to rely on the existence of occupancy permits for the purpose of acquiring property. However, none of the permits may replace the excerpt from the land registry, which remains the only exhaustive proof of title to real estate.
Once the requirements for the registration of property (and its initial owner) in the land registry are met, subsequent buyers are registered on the basis of the real estate conveyance instrument and supplemental documents, i.e. a proof of full payment of the purchase price (as applicable) and an authorization by the transferor for the registration of the transferee as the property’s owner in the land registry (clausula intabulandi).
8. Permits – What permits are required for the use and occupation of real estate and are they personal?
In order to erect or use new buildings or to reconstruct or refurbish real estate, a permit is required, which includes obtaining the following:
  • Urban-technical conditions – this document is based on the “Planning documents” (spatial and urban plans) and it serves only as information on development possibilities and limitations of a specific land parcel, i.e. it contains general zoning parameters for development on the basis of applicable zoning ordinances. The urban-technical conditions are issued within 30 days of request by municipal authorities.
  • Construction (building) permit – issued on the basis of an approved design project for the building and other documents (i.e. evidence of ownership or other right over the real estate, documents regarding the regulation of communal fees etc.). This permit (along with the notification to competent authorities on commencement of works) allows construction works to commence and represents official confirmation that the designed project is in accordance with the zoning documents and the applicable building code.

The authority that issued the permit and the relevant municipal building inspector must be notified seven days prior to the commencement of works.

The permit ceases to be effective if the works do not commence within two years from the issue of the final decision granting the construction permit.
  • Occupancy (use) permit – issued upon completion of works allowing the use of a building if the competent authority determines that the building is suitable for use, i.e. if the building was built in accordance with the construction permit and technical documentation; if the evidence of quality of works performed, material used, installations and equipment was submitted, etc. The issue of an occupancy permit is also subject to a technical inspection performed by a commission for technical inspection.

The permit is issued by the authority which issued the construction permit within 30 days request.

In practice, real estate is often in use without any construction/occupancy permit. This risks a demolition order and is a commercial offence and could lead to penalties.

9. Insurance and Risk – What insurance will the parties effect and when does the insurance risk pass at the time of sale?
Real estate in Montenegro is often underinsured and only basic coverage (specified in following two points) is common:
  • insurance against fire and other hazards – covering damage to property caused by fire, explosion, storm or other natural disasters, nuclear power, landslides and subsidence; and
  • other property insurance – covering damage to property caused by machine breakdown, burglary, glass breakage, hail, frost or other perils.

Before the sale is complete, insurance is the responsibility of the property owner. Although the transfer of ownership is effective only on registration of ownership at the competent land registry, risk transfer depends on the sale and purchase agreement. The sale and purchase agreement will stipulate the time of property handover/takeover. The buyer will take the risk from the agreed date, including where it is in default or delays the sale.
The rights and obligations of the seller (policyholder) pass to the buyer by operation of law, unless otherwise agreed in the contract, but if only a part of the property is sold, which in terms of insurance does not represent a separate whole, the insurance contract ceases.
The insurer and the buyer can cancel the insurance contract within 30 days of the day on which they become aware of the sale, unless the insurance policy was issued to the bearer or by order.
10. Environmental – What are the common environmental issues?
The responsibility for environment pollution in Montenegro is imposed on the polluter based on two main principles:
  • Principle of responsibility of the polluter and his legal successor 
This principle provides that the polluter, be it a natural person or a legal entity causing environmental pollution is responsible under the law, as well as that the polluter or his legal successor is obliged to address the cause of pollution and the effects of direct and indirect pollution. Changes in ownership of a company or any other legal person must include an assessment of the state of the environment and a determination of liability for environmental damage, as well as an agreement on the liability of the previous owner for the pollution and/or environmental damage.
  • “polluter pays” principle 

According to this principle the polluter is liable to pay compensation for pollution if its activities cause or may cause environmental pollution. The polluter is obliged to cover the total costs of measures implemented to prevent and reduce pollution, which includes the costs of environmental risk and the cost of remedying the environmental damage once it has occurred.

Besides these basic principles regulating the responsibility of legal entities for environmental protection and courses of action in the case of environmental pollution, the Montenegrin legislator has focussed on the rules regulating development of real estate (i.e. plants, factories) which are intended for activities that have or could have an impact on the environment. Special conditions and procedures are set for obtaining an “integrated permit”, which is necessary for commencement of construction works, as well as for the use for which these structures are intended. The permit process consists of following steps:
  • submission of an application to the competent authority for the issue of the permit along with all necessary documentation;
  • notifying the authorities and organisations in the fields of agriculture, water, forestry, planning, construction, transport, energy, mining, protection of cultural heritage, environmental protection and others, local government bodies in the territory of the planned activity and concerned public of the application;
  • establishment of a technical committee (competent for the analysis of environmental impact assessment, application of the best available techniques, expected local and wider impacts of intended development on the environment, etc.) by the competent authority;
  • deciding on the application.

On any acquisition it is advisable to engage environment consultants to examine documentary information and to carry out a site visit. If considered necessary, further, intrusive investigations may then be undertaken. It is important to identify potential problems early, so that there can be negotiation on the terms and/or price.
11. Pricing/Valuation – What sets the price/valuation of real estate?
The law does not provide a fixed methodology for assessing the market value of real estate and, therefore, valuers and market participants tend to use different methodologies, the methodologies commonly used in EU countries being the starting point.
In practice, the factors and their influences on the market value of real estate are assessed based on an analysis of the real estate market. In the system of market price evaluation these three approaches are most commonly used:
  • Sales comparison approach – this approach is based on the “supply and demand” principle, i.e. on the comparison of the price of the property to be sold and retail selling prices of other properties of the same or similar characteristics, such as location, size, quality, type and condition.
  • Costs approach – in this approach the appraiser calculates all costs necessary for the construction of the same or a similar building, including cost of acquiring the land parcel, utility connection charges, etc.
  • Income approach – the value of the real estate is based on expected income and expenses. This approach is normally used in the appraisal of large business structures that are intended to be let as investments.

Besides this market system of real estate valuation, the “administrative” system is also used for the assessment of real estate values. This system is used by administrative authorities (e.g. tax administration) for purposes such as collection of taxes, compensation in return for expropriated property, etc. The results obtained by implementing this system often do not correspond to the market values of real estate.
12. Taxes and Costs – What are they and who pays them?
The main tax on acquisitions is absolute rights transfer tax at a rate of 3 % of the purchase price. If the tax authority deems the purchase price to be lower than the market price, the tax will be based on the market price determined by the tax authority.
The tax liability lies on the buyer of the property, and is incurred when the contract is concluded. It may be negotiated that the seller pays the tax.
Value added tax (VAT) may be payable for the transfer of buildings instead of absolute rights transfer tax on the first transfer of buildings i.e. the transfer of newly built buildings; a general rate of 19% is applied. If VAT is applied it is payable by the buyer.
It is not uncommon on commercial acquisitions for the seller and the buyer to each appointed its own broker, to whom they will pay commission. Generally each party pays its own expenses.
During due diligence on an acquisition, the buyer will usually pay the costs of conducting searches. The buyer shall also pay for any valuations and surveys of the physical state of the property and any environmental audits or desktop studies. The seller will pay for any valuation by the court appointed expert.
The buyer will usually be responsible for the payment of the land registry fees associated with registration of the conveyance to the buyer.
The Netherlands
1. Parties and Ownership – Who can own real estate and what types of ownership are there?
Parties
Any legal “person” may own real estate. This will include individuals, companies, entities established by statute and certain charitable bodies.
Partnerships (e.g. limited partnerships, public partnerships, undisclosed partnerships) cannot legally own real estate in their own name (only beneficially).
Owners of commercial real estate include private developers, insurance companies, pension funds, banks and other financial institutions, private or public property companies, charities, the government and local authorities.
There are no restrictions preventing foreign nationals or companies from owning real estate.
Ownership
Legal ownership of real estate in The Netherlands is classed as either freehold (including apartment rights) or leasehold.
Only title to freehold will be registered at the Land Registry (Kadaster) including any property interests.
All land in The Netherlands is ultimately owned by the State of the Netherlands and passes back to the State of the Netherlands if there is no owner.
Real estate property may also be held on trust by a legal owner for a beneficiary (e.g. in case of partnerships). Also, where more than one person has ownership, they classify as joint participants.
It is also possible to acquire rights over land (such as a right of way or even the real estate property itself) by way of acquisitive prescription by exercising the relevant right, after ten or twenty years depending on the relevant time of possession, normally twenty years and in case of good faith ten years.
Ownership extends to buildings, structures and trees and plants on or beneath the land and the airspace above it, unless restrictive rights are vested to the contrary. Reference to “land” generally includes the buildings and structures on that land – similarly “property” includes both land and buildings unless limitations are created.
2. Interests – What types of interest in real estate are sold?
There is only one type of unrestricted legal ownership in The Netherlands: absolute ownership. The other property interests are called restrictive rights. The restrictive rights are also transferable. Absolute ownership and the restrictive rights are rights in rem.
Property interests which exist in The Netherlands include:
  • absolute ownership (including apartment right)
  • right of usufruct
  • ground lease
  • easements
  • right of superficies

Absolute ownership (including co-ownership) is the equivalent of freehold title in England and Wales and a right in rem.
Right of usufruct is the next closest class of title to absolute ownership as is possible according to Dutch law and a right in rem. The owner of the right of usufruct has all the rights and obligations of the owner, except the right to sell the property. The right of usufruct perishes when the owner of it passes away, the company is dissolved or if the property itself ceases to exist. If the beneficiary is a legal entity the maximum period for which usufruct may be created is 30 years.
A ground lease is a right (in rem) to use and hold the land without owning it. There are no restrictions in The Netherlands on how long ground leases can be. The most common lengths of institutionally acceptable ground leases tend to be 10, 15 or 25 year terms and provide for the payment of a market rent. Long ground lease interests tend to be for 50 years or perpetual; such ground leases are normally granted on payment of a premium (yearly or as a lump sum) with only low or nominal rents payable.
An easement is a right (in rem) which burdens one piece of land and benefits another’s registered land.
The right of superficies is a right to own a property in, on top of or above another property. If items are fixed to the property, the presumption is that they form part of it and belong to the owner of the property. By the use of a right of superficies this rule can be circumvented. A right of superficies is a right in rem.
An apartment right divides a building into units giving entitlement to the exclusive use by the owner of an apartment right. One can own an apartment right, which is a right in rem. The ownership of the building is exercised by all the owners of the apartment rights together and an owner’s association (VvE) will always be one of the (co-)owners of the building in respect of the general spaces.
3. Employees – What employment issues affect real estate acquisitions?
Typical employment issues which may be relevant to real estate transactions include the transfer of undertakings, redundancies due to restructuring and changing terms and conditions of employment.
Transfer of undertakings
The transfer of undertakings (in Dutch: :overgang van onderneming”) are likely to be the most significant employment issue. Transfer of undertakings applies when an undertaking or business (or part of one) is transferred from one party to another or where there is a service provision change (either an outsourcing, change of provider or in-sourcing). It may therefore apply when there is the sale or transfer of a business or lease of a property or the outsourcing of the management of a property to a third party.  For example, this might occur in the sale of a shopping centre having its own management and security staff.

The broad effects of transfer of undertakings are that:

With effect from completion of the transfer, the buyer or new service provider assumes responsibility for employees working in the business or services transferred
  • Accrued continuity of employment is preserved
  • Dismissal for a reason connected to the transfer is not allowed- unless for an “economic, technical or organisational reason entailing changes in the workforce”
  • Employees transfer with their existing terms and conditions intact. Exceptions with regard to pension apply.
  • If the buyer/new provider changes terms and conditions by reason of the transfer, these changes are generally ineffective
  • The works council must be consulted for advice
  • If stated in the applicable collective bargaining agreement the trade unions should be informed

Although the legal effects of the transfer of undertakings cannot be avoided since the transfer will be effective by operation of law, it is possible to apportion the transfer of undertakings liabilities by agreement between the seller and the buyer (or outgoing and incoming service provider). Normally the seller (or outgoing service provider) will agree to be responsible for all claims and liabilities relating to employees up to the date of transfer, and the buyer (or incoming service provider) will take on all post-transfer employment liabilities.
Redundancies
Redundancies due to economic reasons may arise on the closure of a business or part of a business or where there is a reduction in the number of employees required.
Terms and conditions of employment
An employer may decide to change or harmonise terms and conditions of employment on the acquisition of a new business. This can be a difficult process, especially where there has been a transfer of undertakings (see above).
4. Procedure – What are the steps in a sale and purchase transaction?
Transactions formally start when proposed heads of terms are drafted, negotiated and agreed by the brokers or Dutch lawyers for the seller and the buyer. The heads of terms (or memorandum of understanding) set out the principal terms agreed between the parties and are generally expressed to be “subject to contract” and meant not to be legally binding. They form the basis of the documents to be drafted.

Once the heads of terms have been finalised and all information relating to the property is collected (through, for example, due diligence), a sale and purchase agreement (contract) is drafted by the seller’s lawyers and amended by the buyer’s lawyers. The form of the sale agreement will vary according to whether the property being sold is under construction or already built and the extent to which leases have already been granted to tenants. Once the contract is in agreed form, the property needs to be legally transferred.

Legal completion of the sale and purchase transaction (transfer of the property) must occur in person or by written authorisation at a civil law notary’s office. Completion (transfer) may take place at the same time as exchange, depending on the acquisition timetable. Where the purchase is made with borrowed finance a charge over the property will be completed at the same time. The lender of the finance may instruct its own lawyers to carry out due diligence procedures on its behalf and negotiate security documentation.

Following completion, the civil law notary needs to deal with registration of the transfer documents (and any charging documents) at the Land Registry and payment of tax, which is assessed on the price paid for the property.
5. Contract terms – What provisions does a real estate contract contain and what is implied by law?
Provisions of the contract
An agreement for the sale and purchase of land can be in writing or in any other form. An agreement with a private person to buy or sell a house must be in writing. It should contain or clearly refer to all applicable main terms and conditions. When the sale and purchase transaction is completed at a civil law notary’s office a written agreement is to be signed which must be registered at the Land Registry’s office.

Real estate contracts with private persons purchasing residential property commonly incorporate standard terms. Standardised contracts and conditions, issued by the Netherlands Association of Real Estate Brokers and Immovable Property Experts (NVM) are usually used.

It is common for the sale and purchase agreement to provide for a deposit of between 5–10% of the purchase price on exchange of agreements, where there is to be a gap between exchange and completion. The civil law notary usually holds deposits.

Where there are matters of title affecting the property, such as restrictive rights, the seller may require reciprocal obligations from the buyer and an indemnity in respect of any liability the seller may still have following completion of the transaction.

Real estate contracts with private persons commonly incorporate standard terms. Where incorporated, the conditions will apply unless the contract expressly provides otherwise. When a private person is the buyer of residential real property, that person has a right of annulment of the (written) agreement within three days after the agreement is signed by both the buyer and the seller (cooling-off period). The Dutch Supreme Court has ruled that the same right applies to the seller when he also is a private person.

Provisions relating to value added tax and/or transfer tax will be included where relevant to ensure that the agreed tax position is preserved between exchange and completion.

Contracts for sale of property subject to occupational interests such as leases will include clauses to cover ongoing management matters, and provide for apportionment of occupational income and outgoings on completion of the transfer of ownership in the property.

If the property being sold is in the course of construction, the contract for sale will incorporate provisions dealing with the obligations of the seller to construct in accordance with an agreed specification and to provide to the buyer separate deeds of warranty from the building contractor and persons such as the architect in order to safeguard the buyer against defective design or workmanship.
Terms implied by law

Some of the most significant are as follows:
  • Buyer Beware (“Caveat Emptor”) – the overriding point of principle under Dutch civil law is “caveat emptor” – let the buyer beware. The buyer must satisfy itself in all respects as to the nature of the property he is acquiring. However, this does not absolve the seller from the obligation to provide truthful replies to enquiries raised by the buyer(’s lawyers). It does not absolve the seller from giving information to the buyer (even without enquiry of the buyer) if the seller already knows or should know that this information is essential for the buyer in respect to the buyer’s stated intentions
  • Unregistered interests – where a registrable interest is not registered against a property’s title number at the Land Registry, a buyer will take the property without being subject to it. An exception to this rule is the presence of a right that is created by prescription, which will not be registered, but the buyer will be subject to it
  • Misdescription and misrepresentation – there are statutory rules which protect against clear misrepresentations or misdescriptions of fact made by the seller to the buyer which have the effect of inducing the buyer to enter into a transfer of land. In such cases, damages may be payable to the buyer or the buyer may be entitled to withdraw from the transaction
  • Unfair terms – sale and purchase agreements that include exemption clauses, which seek to allocate risk, are subject to evaluation in legal proceedings. Statutory provisions restrict or render void the effect of clauses that unreasonably attempt to exclude liability, taking all relevant matters into account including the capacity of the parties
  • Pre-contractual good faith – under Dutch law, it is an established principle that (also) in the pre-contractual stages of an agreement, parties are obliged to take account of each other’s justifiable interests. Therefore, the negotiation process is actually of an obligatory nature. A Dutch court will assess an agreement in light of the expectations that the involved parties may have had when entering into the agreement. In determining the scope of an existing written contract, a Dutch court may assess whether the pre-contractual good faith principle has been observed and may vary the written contract if it finds that the principle was breached by a party to the subsequent agreement. Another consequence of this pre-contractual approach is that the parties may not be at liberty to break off negotiations on a whim and may find themselves bound to continue them, particularly if the principle foundations of the agreement are deemed to be present
  • Overriding principles of reasonableness and fairness – an existing contract may be altered by a Dutch court on the basis of the overriding reasonableness and fairness principle. The parties to an agreement are not at liberty to disengage the effects of this overriding principle. A possible cause to alter the contract may be a change in circumstances. The judicial authority to change existing agreements is of a discretionary nature and any variations may be ordered to take effect retrospectively. A change may also include the (partial) rescission of an existing agreement. A contract may be altered if one of the parties can sufficiently demonstrate that the occurrence of certain conditions was unforeseeable and that as a result of such occurrences, the unimpaired subsistence of the agreement would lead to an unfair and/or unreasonable result. The effects of the change may be contrary to what the parties originally agreed in the contract. As a result, Dutch contracts can be shrouded in a blanket of uncertainty as they are capable of being altered by the Dutch courts at a future date

6. Due Diligence – What investigations does the buyer normally make?
Pre-exchange of agreements
The prudent buyer is likely to commission a survey of the building and in appropriate cases, ground water, soil and geological investigations, plant and machinery tests, and environmental investigations. There are three limbs to the pre-exchange due diligence by the buyer’s lawyers.

Firstly, title to the property will be investigated. The buyer’s lawyers will consider the entries on the Land Register and where relevant historic title documents. From the Land Registry, the buyer’s lawyers will receive confirmation of whether or not the title is registered. Additional details of the registered interests then also need to be retrieved from the Land Registry.

Where restrictive rights are established on the property, the terms of the relevant occupational documents need to be considered carefully to ensure they are not contrary to the buyer’s intentions for the property. The buyer’s lawyers will also need to check whether these documents require the consent of any third party to the transaction.

Secondly, the buyer’s lawyers conduct their due diligence, which will include various searches to check the position regarding municipal and zoning consents, environmental matters, utilities serving the property, financial encumbrances etc. Where the seller is a company, the buyer’s lawyers will also conduct searches against the seller’s name listed with the Chamber of Commerce to ascertain whether the company is solvent and therefore able to dispose of its assets freely. Where the search result refers to security, the buyer’s lawyers will ask for confirmation that such matters do not encumber the property and that no third party consents are required for the transaction to proceed.

The investigation of existing lease agreements has become increasingly important. The lawyers investigate how these agreements affect the purchase price, because this price is often based on the rental income.

Thirdly, the buyer’s lawyers will raise pre-contract enquiries of the seller’s lawyers to obtain information regarding a large number of practical matters which may affect the property and ask any relevant questions in relation to the title to the property. Whilst a seller must not knowingly or negligently mislead a buyer the general rule is “caveat emptor” (buyer beware). The seller generally gives replies, which may be actionable if wrong or misleading.
Pre-completion
After exchange of agreements and before completion the buyer’s lawyers will raise requisitions. These ask the seller to confirm that replies to pre-exchange enquiries remain correct and to divulge any further information that has arisen since exchange. The requisitions also deal with completion formalities such as the seller’s lawyers’ bank details etc. The buyer’s lawyers will also conduct pre-completion searches including a priority search of the Land Registry.
Reporting to the client
Before exchange of agreements the buyer’s lawyers usually report their due diligence findings to their client, raising any matter of particular importance or concern.
7. Registration and Notarisation of real estate – What are the basic requirements?
The Netherlands have a central Land Registry. The Land Registry is run through regional district land registries which are responsible for specific areas of the country. Registration of land is compulsory.

When a party acquires a registrable interest in land, it must apply for registration of that interest at the appropriate district land registry. Only when the registration is complete can the party properly prove its right in rem.

The title register for a particular property comprises:
  • a description of the property (location, address);
  • details of the registered owner of the property;
  • any registered interests (rights in rem) in respect to the property
  • any mortgages and registrable claims to the property
  • the title register may also contain, where appropriate, special entries that restrict the registered owner’s ability to deal with its title without obtaining the consent of another person

There is a requirement for notarisation of title in The Netherlands. Contracts for the disposal and acquisition of interests in real estate are signed by or on behalf of the parties at a notary’s office. Instruments affecting the sale of the interest itself have to comply with certain formalities relating to execution.
8. Permits – What permits are required for the use and occupation of real estate and are they personal?
Applications to obtain a ‘single environmental permit’ (In Dutch: ‘omgevingsvergunning’), including planning permission for the development of land, must be filed with the local government authority which has the responsibility for controlling the use and development of land in its area, usually the municipality. Local government authorities have statutory time periods within which a decision must be made as to whether or not the single environmental permit is being issued. There are various statutory rights in relation to appeals, which can be made if an application is refused, and rights of challenge regarding the validity of any permission granted. For developments that are likely to cause significant environmental impact, an environmental impact assessment (EIA) will need to be submitted with the application for the single environmental permit, explaining the likely environmental impact of the development.

Generally, a single environmental permit will be required for the construction of a “new build” property, work that is proposed for refurbishment of an existing building, and where an existing use (for example office space) is to be transformed into another distinct use (for example retail or hotel). The single environmental permit, when granted, benefits the licensee (but is in general transferable to the new owner of the property) and will contain conditions which will regulate the impact of the development. Minor building works or simple changes of use may be exempted.

When it is proposed to do work with respect to historically or architecturally important buildings (mostly referred to as monumental buildings), the single environmental permit must also be obtained and will in that case contain at least two permissions: permission to perform the requested works regarding to that particular and in most cases protected monumental building and the building permission itself. Whilst some work to such buildings may not require a permit because it is exempted, the work could be seen as affecting the building’s importance, and consent would then still be required.

Larger districts or areas of buildings (called “beschermde stads- en dorpsgezichten”) that have architectural or historical importance may also be subject to a separate regime of control that requires consent to be obtained before work is carried out that would damage the character and appearance of the area that the local government authority wishes to conserve and enhance. During the consultation period that the local government authority must undertake when considering the development, third party groups are able to put forward objections that should be considered by the authority before deciding whether or not the permit should be granted. In addition, even after a permission has been obtained, there will in most cases be a certain period within which a third party group is entitled to challenge the validity of granting the permit, or request interim measures in court; this should be kept in mind by lawyers and agents acting for the developer, before any work on the permitted development actually begins.
9. Insurance and Risk – What insurance will the parties affect and when does the insurance risk pass at the time of sale?
Before a sale is contemplated, insurance of the property is generally the responsibility of the owner of the property and, in some cases, follows the property. However, where such property is the subject of a lease, the terms of the lease will prescribe which party has responsibility to insure. Whatever the length of the lease, the tenant will generally insure the contents of the property belonging to the tenant and in some cases certain parts of the property for which the tenant is contractually responsible, for example glazing.

The insuring party should have a fully comprehensive buildings insurance policy to protect the structure and fixtures and fittings of the property in the event of damage or destruction by any of a comprehensive list of insured risks, such as storm, lightning, fire and water damage. The policy may also cover additional special heads of cover such as subsidence, heave, earthquake and, if available, terrorism.

Generally, it is the buildings and not the land, which are insured for the reinstatement cost rather than the reinstatement value.

Insurance policies may either comprise a single policy for one particular property or a block policy designed to cover a portfolio of properties. Larger institutional investors may self-insure.

Occupying owners generally have separate policies to cover the contents of the property, especially if the property includes costly plant and machinery.

In some cases (e.g. policies insuring the seller’s interest to maintain the property), rights under the insurance policy will automatically transfer on sale. However, the policy will expire if the new owner does not confirm to the insurer that the policy should continue within two months after the transfer, while the insurer has a right to terminate. In other cases insurance policies are personal and will not automatically transfer on sale. It is important to check each policy carefully to ascertain the precise position.

Where a sale is taking place, timing of the transfer of risk is normally prescribed by the sale agreement. It is common market practice for the parties to agree that the seller will continue to insure occupied property until completion.

Third party liability risks (e.g. environmental or personal damage) are intrinsic to almost every property. It is important to have third party liability insurance which properly covers these risks.
10. Environmental – What are the common environmental issues?
Real estate may be contaminated as a result of current and former uses. Primary legal responsibility follows the “polluter pays” principle: the person who spilled, released or discharged a substance will normally be liable for any ill-effects it causes. However, environment laws may also operate to make future owners and/or occupiers liable for contamination already present in the real estate when it was acquired. This can only occur if:
  • the substance is causing, or there is still potential for it to cause, actual harm to humans, to real estate, to personal property, to protected ecosystems or pollution of groundwater or surface waters; and
  • either the new owner or occupier knows about the presence of the substance but fails to take adequate action to limit the harm it causes, or no person more directly responsible for causing or knowingly permitting the substance to be present in the real estate can be found (for example, because a more directly responsible company has since been wound up)

If development is proposed, then the single environmental permit may be made conditional upon the proper investigation and remediation, if necessary, of potential historic contamination. If the planned development is of a type considered potentially detrimental to the environment, the application for the single environmental permit may need to be supported by an assessment of the development’s likely future environmental impact.

Those who have control of places of work are obliged to assess the risk of asbestos being present in the fabric of the building and are obliged to manage the human health risks posed by any asbestos found.

Acquisition due diligence may involve the appointment of environment consultants to consider documentary information and to carry out a site visit (Phase I). If considered necessary, further, intrusive investigations (Phase II) may then be undertaken. It is important to identify potential problems early so that there can be negotiation on price, the need for and scope of any remediation and/or the need to put in place protective measures in respect of any existing contamination related losses that may arise in the future. Such measures may take a number of forms, including obligations to remediate any contamination discovered post-acquisition, indemnities in respect of first party loss or third party claims, or specialist historic liabilities environment insurance to cover any of these risks.
11. Pricing/Valuation – What sets the price/valuation of real estate?
Pricing of (commercial) real estate investments is a combination of the aggregate rent being paid by occupational tenants of the property and the yield that investment buyers consider that a property of the specific type and location is worth at the time of valuation taking that income into account.

The rent for a particular property is likely to be assessed by multiplying the area of the property by the market rental value per square metre (lettabble floor area). The market rental value will take into account factors such as the location of the property, its type and condition, the length of the lease term(s), the quality and stature of the tenants and market situation. And in case of retail shops, the rent of the property may have differential values according to the positioning of the floor space. The rental values of the various areas will in that case be added together to provide an overall rental value for such properties.
12. Taxes and Costs – What are they and who pays them?
The supply of immovable property situated in the Netherlands is exempted from 21% value added tax (VAT).

However, in the following three situations the supply of immovable property is subject to 21% VAT:
  • the supply of building land
  • the supply of buildings or parts of buildings, including the accompanying land, prior to, on, or two years after the moment the building has been taken into use (“newly constructed immovable property”)
  • the supply of a completely renovated building is a newly constructed immovable property for VAT purposes, or
  • where the property is the subject of a valid election to waive the statutory exemption from the VAT regime. The buyer may make its own election immediately prior to or upon completion, provided that he will use the property for at least 90% for VAT-taxable activities.

An advantage of opting for revision VAT or VAT on property is that the parties may be able to recover any VAT on professional fees associated with the transaction

The exception to the rule that VAT is payable on the sale of an (elected) property is where the transaction constitutes a “transfer of a going concern”, where the property is let and operated.

Transfer tax (6% over the purchase price, however 2% for residential real estate) is due where the purchaser acquires the legal ownership or the economic interest in an immovable property which is situated in the Netherlands. The acquisition of shares in a company is also subject to 6%/2% transfer tax if:
  • 50% or more of the assets of the company consists of immovable property (or right in rem) and at the same time 30% or more of the assets consist of immovable property situated in the Netherlands and
  • the company exploits the immovable property (for at least 30%) and
  • the purchaser acquires at least 33 1/3 % of all shares in the concerning company.

In principle, transfer tax will not be due in case of the – direct or indirect – supply of building land or a newly constructed immovable property (see above).
Poland
1. Parties and Ownership – Who can own real estate and what types of ownership are there?
Parties
There are no specific limitations as regards ownership of property. Natural persons, legal persons (corporations) and organisational units not having legal personality but which have been granted the legal capacity by virtue of statutory law may own real estate. Owners of real estate include: individuals, corporations (such as property funds, developers, insurance companies, banks and other financial institutions), the State Treasury and local governments.
There are no restrictions preventing companies and individuals from the European Economic Area (EEA) which includes EU members, Switzerland and Norway from acquiring real estate with the exception of agricultural land and forests. Companies incorporated in the EU controlled by companies and individuals from outside of the EEA are considered as EEA companies and are subject to the same rules. Obtaining an ownership title to forest and farmland (or the right of perpetual usufruct) requires the consent of the Minister of Internal Affairs. According to the EU Accession Treaty this limitation will not apply to EEA companies from 1 May 2016. A property sale agreement for agricultural land or forest executed without a required permit is invalid. Foreigners from EEA countries may acquire. without limitation, shares in Polish companies owning real estate in Poland, notwithstanding that it is farmland or forest. Foreigners from outside the EU must obtain a permit to purchase shares in companies owning any properties in Poland.
Ownership
Ownership is the broadest title a legal person can hold in relation to property under Polish law. Ownership can be equated with freehold title under Anglo-American legal systems.
There are two parallel types of title register in Poland: the Land and Mortgage Register (księga wieczysta) and the land register (ewidencja gruntów i budynków). The Land and Mortgage Register is maintained by the courts and is broken down into four sections:
  • Section I – physical description of the property and lists the rights benefiting the property
  • Section II – owner (and perpetual usufructee, where appropriate)
  • Section III – all encumbrances other than mortgages or restrictions in disposals
  • Section IV – mortgages

According to the “principle of public faith of mortgage registers”, everybody may rely on the contents of the mortgage register with respect to registered rights.
Land registers, in contrast to the mortgage register, have a technical function. Land registers are maintained by administrative authorities (powiat) and the main purpose of them is to describe the physical features and the designated use of the land and buildings.
Subject to limited restrictions, ownership is freely transferable. Agreements on transfer of ownership title and perpetual usufruct title must be entered in the Land and Mortgage Register.
The largest Polish landowners are the public bodies, i.e. the State Treasury and local authorities (mainly municipalities). The acquisition of real estate from public bodies (or granting perpetual usufruct on their land) is regulated by the same civil law regime as transactions between individuals. However, due to the public status of the land, it is additionally subject to some specific restrictions, e.g. an obligation to dispose of land via public tenders.
In certain cases, public bodies may have a statutory pre-emption right relating to properties put up for sale. If such a property is sold without observing this right, the sale is invalid. This involves first of all the municipality’s pre-emption right (almost always waived) applying mainly to the sale of undeveloped land previously acquired from the State Treasury or from the local authority or undeveloped land held in perpetual usufruct. In addition, under certain conditions, a pre-emptive right is vested in tenants of agricultural land. If there are no qualifying tenants, the pre-emptive right may be exercised by the Agricultural Properties Agency. A sale of agricultural land in violation of the Act or without notifying the entitled tenant or the Agency is null and void
2. Interests – What types of interest in real estate are sold?
Property interests which exist in Poland include:
  • Ownership (freehold) (własność) – the broadest right in property, enjoying full constitutional protection
  • Perpetual usufruct (użytkowanie wieczyste) – a strong and stable right in property, the closest relation to ownership of all property rights
  • Perpetual usufruct may only be created on land belonging to the State Treasury or local authorities. Currently it can be created by contract only. Perpetual usufruct title can be inherited, transferred to third parties and encumbered (with a mortgage, easements or usufruct). The perpetual usufructee holds freehold title to buildings and other constructions erected on the land. In comparison with the wide powers granted to the holder of the perpetual usufruct right, the owner of the land (the State Treasury or the local authority) is limited: it cannot encumber the property or sell it to an entity other than the holder of perpetual usufruct. Only the holder of the perpetual usufruct right is entitled to use and collect income from the land.One of the fundamental differences between perpetual usufruct and ownership is that perpetual usufruct is supposed to be created for a defined specific purpose (e.g. the development of a project or conducting a particular activity) as set out in a perpetual usufruct contract. If the holder of the title breaches the provisions of the contract or decision establishing perpetual usufruct concerning the purpose, it may lead to an increase of the annual fees, or even the termination of the contract.
Another fundamental difference is that perpetual usufruct is created for a specified term (40 to 99 years depending on the purpose of its creation). If the holder demands an extension within five years before the scheduled termination date, the owner must extend the term, unless there are material public reasons for not doing so. The perpetual usufructee may also demand an extension earlier if the depreciation period of developments which are planned on the land is much longer than the remaining term of this right. 
Upon the creation of a right of perpetual usufruct by virtue of contract, the perpetual usufructee is obliged to pay an ‘initial fee’ amounting from 15% to 25% of the value of the land. Thereafter, he pays annual fees of 3% of the land value of land with commercial purpose and 1% of the land zoned for residential purposes. The percentage of those fees may be lower in certain specific cases, for example in relation to some non-profit organisations and for historic monuments.
Upon termination of a perpetual usufruct contract, the perpetual usufructee loses the right, and the land (together with the buildings and other improvements) is taken over by the owner. The owner is, however, obliged to reimburse the perpetual usufructee for the current market value of the buildings and other improvements legally made on the land
  • Limited property rights:
  • Usufruct (użytkowanie) – the right to use and collect income from the property, it cannot be contractually transferred to a third party, there is no maximum time limit for which usufruct may be created
  • Easement (służebność) – land easements (established for the benefit of each owner (or perpetual usufructee)) and personal easements (established for the benefit of a specific individual, not companies; thus not very common) or transfer easements. Land easements are transferred together with the property and personal easements may not be transferred at all. Easements are mainly established for the purpose of locating access roads or media connections (pipes, cables etc.)
  • Cooperative ownership right to residential premises (spółdzielcze własnościowe prawo do lokalu mieszkalnego) – in almost all cases concerns residential premises
  • Mortgage – the debt security instrument which allows the creditor to demand disposal of the property at an auction
  • Contractual rights to use property: lease (najem), tenancy (dzierżawa) and leasing:

The basic contractual rights allowing the use of a property are a lease (najem) and a tenancy (dzierżawa). Both can be concluded for unspecified period of time or for a maximum fixed period of 30 years (10 years in the event of a lease concluded by natural persons outside of business activity). The lease grants the right to use the object for any lawful purpose including business activity, while the tenancy grants the right to use and to collect income from the object. After the lapse of their statutory maximum terms, both contracts transform into agreements for an unspecified period of time (and are thus subject to termination on notice)

Ownership and perpetual usufruct are the only rights that are freely transferable and can be mortgaged. The ownership of buildings and other structures is always vested in the owner (or perpetual usufructee) of the land but individual premises may constitute separate properties whereby the owner of the premises also holds a share in ownership (or perpetual usufruct) of the land. Other property rights are either accessory (road easements) or are not common because of legal restrictions (e.g. usufruct).
3. Employees – What employment issues affect real estate acquisitions?
Typical employment issues such as the transfer of undertakings, redundancies and changing terms and conditions of employment may be relevant where real estate is a component of a business enterprise being acquired, or where shares in a company which owns property are being acquired.
In the event of the transfer of property through the transfer of a business enterprise, the buyer becomes employer in all employment agreements binding on the day of transfer by operation of law. The previous and a new employer are jointly and severally responsible for all claims and liabilities arising from the employment relationship created before the transfer. The new employer is obliged to propose new terms and conditions of employment to all workers who work on a basis other than an employment agreement. The transfer of a business enterprise cannot be a reason for a termination of an employment agreement.
In the event of the transfer of shares of a company that owns property, the employer remains unchanged and consequently the company is still responsible for all claims and liabilities relating to employees and the terms and conditions of the employment agreements remain unchanged.
4. Procedure – What are the steps in a sale and purchase transaction?
A sale and purchase transaction usually starts when proposed heads of terms (or letters of intent) are drafted, negotiated and agreed by the seller and the buyer. The heads of terms (or similar documents) set out the principal terms agreed between the parties and are generally expressed to be “subject to contract” and not legally binding. They form the basis of the documents to be drafted by the lawyers.
Once the heads of terms have been finalised, they are sent to the parties’ lawyers. The seller’s lawyers will usually collate all information relating to the property and send it to the buyer’s lawyers together with a draft sale and purchase agreement (contract). The form of the sale agreement will vary according to whether the property being sold is under construction or already built and the extent to which leases to tenants have already been granted. Sometimes there is a need to enter into a preliminary agreement caused by the fact that Polish law does not allow for the conditional transfer of real estate. This limitation does not apply to share deals, but due to some practical reasons (difficulty in establishing whether all the conditions are fulfilled and when the title to the shares finally passes to the purchaser) two stage transactions are also recommended in this case. The preliminary agreement should also establish clear criteria as to the rights and obligations of the seller in respect of operating the asset/target company during the interim period between the execution of the preliminary sale agreement and the final agreement. The buyer’s lawyers consider and suggest amendments to the draft sale agreement and at the same time will undertake general due diligence investigations. Once the sale agreement is in an agreed form, the seller and the buyer sign the sale agreement.
Before signing the sale agreement the buyer’s lawyers will also conduct pre-completion searches, including a protective search at the Land and Mortgage Registry, to ensure that the seller is still the owner of the property and that there are no new encumbrances affecting the property.
The preliminary agreement, as with a final agreement, must be executed as a notarial deed (for the sale of real estate) or with the signatures of the parties certified by a notary (for the sale of shares).
Following completion, the notary before whom the sale agreement was signed deals with registration of the transfer document at the Land and Mortgage Registry and the notary needs to collect and arrange payment of transfer tax (tax on civil transactions), which is assessed on the price paid for the property, if applicable. In the case of VAT, it is paid directly by the buyer to the seller who then settles it with the tax office.
5. Contract terms – What provisions does a real estate contract contain and what is implied by law?
Provisions of the contract
An agreement for the sale and purchase of land must be in the form of a notarial deed (which means it must be read out aloud by the notary), must contain all main terms and conditions as required by the law, and must be signed by the seller, the buyer and the notary.
In addition to essential terms such as the exact description of the property and the parties a sale and purchase agreement will include the following:
  • A description of all encumbrances burdening and benefiting the property
  • Representations and warranties of the seller with respect to the property and to the seller’s status
  • Representations and warranties of the buyer with respect to its status
  • A specification of documents evidencing the seller’s title to the property
  • The purchase price and the method of payment of it
  • The date for delivery of the property to the buyer
  • The seller’s liability for breach of warranties
  • Transfer of contractor’s warranties (if a property is developed and the warranties are still in force)
  • Clauses to cover ongoing management matters if the property is subject to occupational interests such as leases
  • Tax provisions setting out whether the transfer of the property is subject to VAT or transfer tax (tax on civil transactions)
  • An application to the court to register the buyer as the new owner of the property, the application being filed by the notary

Terms implied by law
Some of the most significant are as follows:
  • Principle of public faith of mortgage registers (zasada rękojmi wiary publicznej ksiąg wieczystych) – according to this principle, everybody may rely on the contents of the mortgage register with respect to registered rights. A good faith purchaser of a registered right acquires this right as it is described in the mortgage register and from the person registered as the holder of the right (even if such person did not actually hold it). The buyer is in bad faith if the buyer knows that the Land and Mortgage Register entries are incorrect or if the buyer can easily (i.e. without any detailed searches) find out that the Land and Mortgage Register is incorrect. It should also be noted that there is a legal presumption of good faith in the Polish Civil law i.e. the burden of proof is on the party questioning good faith. Mortgage registers are publicly available for review.
  • Warranty for defects (rękojmia za wady fizyczne i prawne) – statutory law protects the buyer against physical and legal defects of the property sold. The seller is responsible to the buyer if the property sold has defects which, for example, reduce its value or utility with regard to the purpose stipulated in the sale agreement. The seller is also responsible to the buyer if there are third party claims on the title or if it is encumbered with a right of a third party. There is no seller’s liability for defects if the buyer knew about the defect when the sale agreement was concluded. The parties may extend, limit or exclude the liability unless the buyer is a consumer. Exclusion of statutory liability is common in sale agreements between institutional investors. The seller has strict liability, so the seller is liable to the buyer for legal and technical defects even if the seller did not know about the defects. If the property sold has defects, the buyer may withdraw from the sale agreement or demand a reduction in the price. In order to enforce this claim, the buyer has to notify the seller immediately after discovering the defect
  • Registration of perpetual usufruct – agreements on transfer of ownership title and perpetual usufruct title must be entered in the Land and Mortgage Register. Ownership title passes upon execution of the property transfer agreement and perpetual usufruct title passes upon execution of the decision of the Land and Mortgage Registry Court, but the decision takes effect retrospectively from the date on which the application to register the transfer was filed
  • Change of landlord – if the property leased is sold during the period of the lease the buyer replaces the seller in the leasehold relationship. This rule is applicable to both residential and non-residential premises. The buyer of any property other than residential apartments may terminate the lease while observing the statutory time limits for notice, unless the lease agreement was concluded for a definite period of time in writing, with a certified date and the premises were delivered to the tenant

6. Due Diligence – What investigations does the buyer normally make?
Pre-completion
Before the acquisition of the property it is recommended that comprehensive legal, technical and limited tax due diligence of the property is carried out and in the case of acquisition through a share deal also due diligence of the property holding company (including full tax due diligence). Legal due diligence is typically carried out by specialised legal advisors. A prudent buyer is likely to commission also technical due diligence, including a survey of the building and in appropriate cases soil and geological investigations, plant and machinery tests, and environmental investigations. Tax due diligence is carried out in particular to check whether the sale is subject to VAT (23%) or transaction tax (2% non-recoverable but cost deductible or amortisable).
Title to the property will be investigated first. The buyer’s lawyers will consider the entries on the Land and Mortgage Register and in most cases documents on previous title transfers. At this stage also additional details of the interest registered at the Land and Mortgage Registry are investigated, such as mortgages, easements, pre-emption rights and other rights. It is recommended that a special check is also carried out in respect of any potential restitution claims of former owners. This concerns Warsaw in particular, which had a special nationalisation regime after the Second World War that allowed former owners to reclaim title for a certain period of time following nationalisation.
If the property is subject to leasehold or other occupational interests, the terms of the relevant occupational documents need to be considered carefully to ensure they are not contrary to the buyer’s intentions for the property and that there are no limitations on property transfers. Leases are transferred to the buyer by operation of law and the tenant does not have a termination right unless such a right is granted in the lease.
The buyer’s lawyers will review the permitting process for a developed property to check the position regarding zoning consents, environmental permits, building permits and occupation permits.
If the seller is a company, the buyer’s lawyers will also conduct searches against the seller’s name in the companies register to ascertain whether the company is solvent and therefore able to dispose of its assets freely. Where the search result refers to security, the buyer’s lawyers will ask for confirmation that such matters do not encumber the property and that no third party consents are required for the transaction to proceed.
Remaining due diligence includes environmental matters, utilities serving the property, financial encumbrances, pending proceedings which may affect the property and insurance policies etc.
Reporting to the client
The buyer’s lawyers will report their due diligence findings to their client, raising any matter of particular importance or concern during the due diligence process.
7. Registration and Notarisation of real estate – What are the basic requirements?
Poland has a central title register, the Land and Mortgage Register. The Land and Mortgage Register is run through regional district courts which are responsible for specific areas of the country.
An excerpt from the Land and Mortgage Register for a particular property provides the following information:
  • Section I-O “Description of the property” – the location, address, area and number of the land plot(s) comprising the property
  • Section I-Sp “List of rights relating to ownership” – the rights benefiting the property
  • Section II “Ownership” – the name of the owner and/or perpetual usufructee or names of all co-owners or perpetual co-usufructees
  • Section III “Rights, claims and encumbrances” – all rights claims and encumbrances (except for a mortgage) affecting the property (e.g. leases and pre-emption rights)
  • Section IV “Mortgage” – all mortgages encumbering the property, including the kind of mortgage, the beneficiary and the amount secured

Agreements transferring ownership and perpetual usufruct title to property must be executed before a notary. The transfer of the property as a share deal requires notarisation of signatures of the parties to the share transfer agreement.
8. Permits – What permits are required for the use and occupation of real estate and are they personal?
In general, development of land requires a building permit and in many cases it also requires a planning permit and an environmental permit. The use of the completed building requires notification to the relevant authority or an occupancy permit.
If the site is not covered by a master plan, a planning permit must be obtained before submitting the application for the building permit. The law makes a distinction between planning permits for public developments and those for private schemes. “Private” planning permits are much more difficult to obtain. Obtaining a “private” planning permit requires a number of conditions to be fulfilled, including securing media connections (at least signing contracts with grid operators) and ensuring architectural compliance with neighbouring developments. The local authority architecture department has to prepare a “zoning analysis” in order to verify whether those conditions are met, and if not, whether they can be waived. The planning permit procedure may be suspended (at the city’s discretion) for up to nine months. If a master plan for a given development or territory is “obligatory”, the planning permit procedure is suspended until the adoption of the master plan.
The current form of the planning permit makes it possible for the authorities to approve only those developments which they in their discretion consider appropriate. Obtaining a planning permit may also turn out to be risky to the developer, as it has to satisfy the claims related to the restriction of use or loss of value of neighbouring plots caused by this decision. Planning permits may be obtained by any interested party, irrespective of whether such party holds a legal title to the site. They are also transferable into third parties. A planning permit specifies its validity period (usually two – three years). It expires if another entity obtains a building permit for the site, or if a master plan is adopted and the planning permit does not comply with the new plan (unless a final building permit has already been granted).
Building permits may be obtained if the project complies with the master plan and technical requirements. If there is no master plan then a building permit may be obtained if it complies with the planning permit and technical requirements. In this latter case, the building permit application must be submitted within the validity period of the planning permit. A building permit is usually composed of two basic elements: approval of the designs and permission to start the works. If the project is phased, the developer may request permission to start the works for the initial phase(s) only. In this case, the building authority must approve the “site development plan” (forming part of the building documentation) and detailed architectural designs for the initial phase. In order to obtain a building permit, the developer needs to hold a legal title to the site (not necessarily freehold – it may be even a simple lease).
The building permit documentation must be approved in advance by various authorities, including (as applicable): the sanitary inspector, environmental protection, cultural and heritage inspector, road management authority, work safety administration, fire marshal etc. A large part of the land in Poland is considered “agricultural” (the formal criterion is the relevant entry in the land register). In such a case, prior to issuing a building permit, the site should be excluded from agricultural use. This involves payments from the owner, in ten annual instalments, depending on the category of the land. In most cases, building permits are issued by the starosta (head of mid-level administrative unit called the powiat). In bigger cities, the functions of the starosta are exercised by the mayor. As with a planning permit, a building permit may be transferred to a third party, provided that it holds a title to the site and accepts conditions provided in these decisions.
An additional building permit issued by the monument restorer is required when it is proposed to do work to historically or architecturally important buildings.
Certain construction works do not require a building permit, but simply a notification to the building authority. The works may be started if the building authority does not raise any objections within 30 days from the notification. These works include among others: parking lots with no more than 10 spaces, certain temporary objects, fencing, certain advertising billboards, reconstruction and modernisation of roads, power and gas connections, irrespectively of whether such works are related to the construction of the building or work performed on an undeveloped land, except for works regarding structures entered into the register of historical monuments.
The provisions of the law on environmental information and environmental impact assessment expand considerably the scope of application of the “environmental decisions”. The law divides the investments between those which (i) may always significantly influence the environment and (ii) may potentially significantly influence the environment. For both an environmental decision will be required. Certain investments require preparation of an environmental impact assessment report due to their potential impact on the environment. The developments concerned include: most industrial facilities, parking lots or garages with usable area of 0.5 ha, shopping centres with usable area of more than 2 ha and many others. For others such requirement may be imposed by the authorities after an application for an “environmental decision” is submitted.
The developer has to obtain a “decision on environmental conditions” prior to obtaining a planning permit or filing for a building permit (and without the need to secure the title to the site). The decision on environmental conditions is valid for four years and will be binding on the building authority while granting the building permit. The four year term may be extended if the conditions specified in the decision on environmental conditions do not change and the project is developed in phases.
The use of the completed building or structure may be commenced upon notifying the relevant authority. The investor may take occupancy if the authority has not reported any objections within 21 days of the delivery of the notification. In some specified cases the notification is not sufficient and an occupancy permit is also required.
The use of building structures without notifying the relevant authorities or without the required occupancy permit is illegal. Apart from the administrative consequences of illegal use, such as a fine which may be imposed by the relevant authorities, the lack of notification or a occupancy permit causes fundamental problems concerning leasing or insuring the building.
9. Insurance and Risk – What insurance will the parties effect and when does the insurance risk pass at the time of sale?
Before a sale, insurance is generally the responsibility of the owner or perpetual usufructee of the property. However, where property is the subject of a lease or the property is a leasehold interest, the terms of the lease will prescribe which party has responsibility to insure.
As a rule, the landlord insures the building and the common areas and the tenant insures its premises fit-out. The premium paid by the landlord is usually recovered in the service charge. It is important to structure the various policies so that the scope of the insurances does not overlap. Otherwise, there may be problems with payment in the event of a claim, as there may be a dispute between the insurers as to which of them is actually bound and in what proportion.
Tenants are also usually required to insure their civil liability for any possible damage to individuals or assets which they, their employees or agents etc. may cause in their operations. Sometimes, they also take out “business interruption” insurance or participate in “loss of rent” insurance. Landlords’ policies are often assigned (at least conditionally) to lenders. Tenants’ policies may sometimes be assigned to the landlord and then further to the banks. In the event of fit-out works by the tenant, the tenant has to take out a liability insurance policy covering construction risks.
Insurance policies may either comprise a single policy for one particular property or an umbrella policy designed to cover a portfolio of properties. Insurance policies are transferable on sale with the consent of the insurer. However, usually the buyer takes out a new policy after completion.
In transactions concerning real estate, there are additional specific types of insurance. Gap insurance is concluded for the purpose of insuring against a court refusal to register the mortgage or until the beneficiary’s rights until a mortgage are registered in the Land and Mortgage Register. Title insurance may also be taken out in situations where legal due diligence leaves uncertainty whether the legal title can be challenged by third parties and only an opinion of a court could settle the matter.
10. Environmental – What are the common environmental issues?
Regardless of the kind of development, before the acquisition of the property the buyer must take certain environmental issues into account. The development of land in many cases requires an environmental impact assessment. As some environmental issues can play a crucial role in the development and investment process, it is advisable to undertake environmental due diligence. Acquisition due diligence may involve the appointment of environment consultants to consider documentary information and to carry out a site visit. It is important to identify potential problems early on so that there can be negotiation on price, the need for and scope of any remediation and/or the need to put in place protection in respect of any losses relating to existing contamination that may arise in the future.
Real estate may be contaminated as a result of current and former uses. Primary Polish Environmental Law, as in other European jurisdictions, contains a general rule of “polluter pays” as regards counteracting and removing pollution. This principle concerns pollution of all major areas of the environment, i.e. air, water, soil, protection from noise, electromagnetic fields, protection of animals and plants and protection of extracted minerals.
In respect of land where industrial activity has been conducted, there may be a potential risk of residual pollution of the soil. In this context, a duty to keep the land free from pollution rests with the holder of the property and is further transferred to subsequent holders. There is a statutory assumption that the holder is liable for any pollution of the soil. The current holder of real estate may be exempted from this liability if it proves that the previous holder of the real estate caused the pollution in question. If some land turns out to be polluted, the holder may be obliged to re-cultivate it at its own cost. If the current holder is successfully exempted from liability, the obligation to take appropriate steps to re-cultivate the soil will revert back to the previous holder.
11. Pricing/Valuation – What sets the price/valuation of real estate?
Polish law requires that the price, or at least a price fixing mechanism, be agreed in the sale agreement. When the price for shares is considered, apart from the value of the asset, the parties should agree to the adjustment of the price to reflect the receivables and liabilities of the target company (i.e. net asset value). Such an adjustment is often made on the basis of the balance sheet of the company as at the date of executing the final agreement. The price established in the transfer agreement may also be adjusted to reflect progress in leasing the scheme after transferring shares or an asset. Such post-closing adjustments create certain tax and bookkeeping consequences that should be considered beforehand.
Pricing of real estate investments is a combination of the aggregate rent being paid by occupational tenants of the property and the value that investment buyers consider that a property of the specific type and location is worth at the time of valuation taking that income into account. The rent for a particular property is likely to be assessed by multiplying the area of the property by the market rental value per square metre. The market rental value will take into account factors such as the location of the property, its type and condition, and the length of the lease term. Investment properties are commonly referred to as being sold on a particular yield, meaning the investment return that will be gained from the capital sum which it is necessary to pay to buy the property. For example, where a property with an aggregate annual rent of EUR 100,000 is sold for EUR 2m, it will have a yield of 5%.
12. Taxes and Costs – What are they and who pays them?
The notary and registration fees depend on various factors: in particular, on the value (price) of the property, but also on the parties (e.g. private or public bodies) and the category of the property (e.g. agricultural or commercial). They are subject to statutory tariffs and are calculated based on degressive rates with caps.
Notary fees are the fees for preparing the notarial deed. VAT is added to notarial fees at a rate of 23%. The maximum net fee for one deed is approx. PLN 16,500 (approx. EUR 4100) but can be negotiated.
Registration fees are fixed fees of between PLN 100 and 200 (approx. EUR 30 and EUR 60) levied at the time of registration.
The transfer of real estate may be subject to either VAT or transfer tax (tax on civil transactions). VAT will apply if a business entity makes the sale, unless the property fulfils certain conditions (the building is considered “used”, or the land is not developed or zoned for development). Sales made by individuals not conducting business activities are not subject to VAT. The base rate of Polish VAT is 23% but an 8% rate applies in certain cases (e.g. sale of apartments). If the sale of real property is not subject to VAT, it is subject to a transfer tax at the rate of 2% (asset deal) or 1% (share deal). The notary is responsible for the collection of the transfer tax and registration fees as regards the sale of the property while the buyer of shares pays the transfer tax directly to the tax office. VAT is paid directly by the seller to the buyer who then settles it with the tax office.
Land buildings and structures are subject to land tax. The tax is payable by owners, perpetual usufructees, and lessees of public (state or municipality-owned properties). The tax is based on surface area in the case of land, and on the useable area in the case of buildings. The rate of the tax is defined by the city council but there is a statutory cap. Polish governments have been working on a new common property tax based on the value of the property since 1994. The introduction of the tax requires the valuation of all real estate. The process of valuation is still far from complete and there are no credible estimates regarding the date of introduction of such a tax.
Holders of a perpetual usufruct right are obliged to pay the annual perpetual usufruct fee by 31 March of each year. The annual fee is calculated on the basis of a rate applicable to the land and the value of the land (excluding the value of the buildings or other structures). The rate is 3%, if the land is designed for commercial purposes and 1% if it is designed for residential purposes. The city council may increase the fee by re-evaluating the land.
In addition, owners must participate in the costs of public infrastructure developed by local authorities. The public infrastructure fee is calculated on the basis of the increase in the value of a property due to the development of infrastructure and a percentage rate adopted by the city council (not to exceed 50%). The payment of the fee may be imposed by the city council within three years following the development of the infrastructure.
The market value of land may increase or decrease as a result of the adoption or modification of a master plan, or as result of subdivision of land. If the market value of land decreases (but the owner may still use the land in the same manner as before the master plan), then the owner (or holder of the perpetual usufruct) may demand that the local authority (the city) pay compensation equal to the decrease in the value of the land calculated as at the date of sale. Such a claim may be raised only if the owner sells or otherwise transfers the title to the land, but not later than five years from the adoption or modification of the master plan. More frequently, the value of land increases as a result of adoption or modification of a master plan, e.g. green-field is re-zoned to land on which a shopping centre may be built. In such a case, if the owner sells or otherwise transfers the title to the land within five years from the adoption or modification of the master plan, the city will charge a re-zoning fee. The re-zoning fee may not exceed 30% of the increase in the value of the land calculated as at the date of sale. The percentage for calculation of the re-zoning fee must be provided for in the master plan.
If, as a result of the subdivision of land made at the request of the owner of the land, the value of the land increases, the municipality may charge a subdivision fee within three years from the subdivision. The amount of the fee may not exceed 30% of the increase in the value. The increase in value is calculated as at the date of the city’s decision charging a subdivision fee.
Under the Act on Public Roads, owners (perpetual usufructees) of real estate must participate in the cost of construction and modernisation of public roads that serve their properties, in proportion to the traffic they generate. The construction or modernisation of the road is usually regulated in the agreement with the public manager of the road.
Properties legally recognised as farmland and forest can only be turned into non-agricultural (or non-forest) use if special conditions are met. The investor will also be obliged to pay an initial fee, and then ten consecutive annual fees (equal to 10% of the initial fee), the amount of which depends on the class of the land (or forest) and the surface of the site. The initial fee is decreased by the market value of the property, which in most cases means that it is not due at all. If the property is sold, the obligation to pay the annual fees passes to the purchaser. If the property is designated as agricultural land in the master plan, amendment of this plan (and the underlying zoning study) will be necessary to change this designation.
Portugal
1. Parties and Ownership – Who can own real estate and what types of ownership are there?
Parties
In Portugal any “legal person” may acquire and own real estate property. This includes both individuals and any corporations and other legal entities.
There are no restrictions preventing foreign nationals or companies from owning real estate – nevertheless, among other mandatory obligations, non-resident persons must obtain a Portuguese tax number. Investments are subject to normal rules concerning the import of capital for combating money laundering and terrorist financing.
Ownership
The right of property is the broadest and strongest title over real estate in Portugal – grants the titleholder full and exclusive rights to use, take profits and income and dispose of real estate – and may be held individually, or on a co-ownership basis.
The rights over land recognised in Portugal and itemised in the law are the following: (i) right of property; (ii) right of usufruct; (iii) right of use and habitation; (iv) right of surface; and (vi) easements.
All of the above rights have statutory regulation in law, the parties being able to negotiate within their respective legal frameworks.
Right of usufruct is the right of temporary enjoyment of the property of another, and to draw from the same all the profit, utility and advantage which it may produce, provided it be without altering the substance of the thing.
Right of use (and habitation) is the right to use property and generate and retain income and profits. If the right is related with a home resident, it is called a right of habitation.
Surface Right under Portuguese law is the right to erect and maintain a building on land which is owned by a third party.
Easements, is the obligation (or use) imposed over the property of one owner, in favour of another property of another owner, most frequently between owners of adjoining parcels of land (the most common being rights of way and rights to passage of water).
2. Interests – What types of interest in real estate are sold?
In Portugal different property interests are commonly held, namely:
  • Full ownership (property right) – the right to use and dispose of a real estate property in a full and exclusive manner.
  • Residual ownership – the remaining right of the owner of a property over which a right of usufruct has been created in favour a third party.
  • Right of superficies – the right to construct and maintain a construction on land belonging to a third party.

Horizontal Property ownership results from the legal division of a property or building into several units subject to separate ownership – confers its titleholder the right to exclusive ownership of one of the units and the right to co-ownership over the common areas of the building – the owner of the individual unit is not allowed to sell his property separately from the common areas, meaning that the individual units are linked with the common areas of the building.
Horizontal Property division is created by formal deed and must be registered at the Land Registry, and can only be executed when the autonomous units, besides constituting independents units, are distinct and isolated from each other, each one with its own exit to a common area of the building or on to a public road.
Other relevant rights relating to property are as follows:
  • Lease – a contractual right to use a property for a certain period of time and for a specific purpose, with a corresponding payment payable to the owner.
  • Option and Pre-Emption – rights to buy or first refusal respectively. Unless they originate from statutes (e.g. pre-emption right of a tenant), these are not enforceable against third parties and do not entitle the holder of the relevant right to seek revocation of disposals of the property in breach of the option or right of pre‑emption.

3. Employees – What employment issues affect real estate acquisitions?
According to the Portuguese Law on the transfer of business, when a business (or part of one or establishment) is transferred from one party to another, the work relationships of the employees pertaining to such business or part are also transferred in whole to the new owner of the business.
Thus, the sale of a property may entail the enforcement of the transfer of business’ legal framework if the property transaction is or may be qualified as transfer of a business.
The application of the rules on transfer of a business would entail, among others, the following consequences:
  • the buyer takes the position of the former Employer (Seller), assuming responsibility for all employees working in the business transferred, as well as for the payment of any labour related claims/debt already existent at the time of such transfer of business;
  • the rights of employees transferred, arising from both their individual and collective employment agreements, would be preserved (e.g. salary level, fringe benefits, notice periods);
  • fully accrued rights of the employees towards the seller would be undertaken by the buyer as a consequence of the transfer of a business;
  • the seller and the buyer are jointly liable for all the financial obligations of the seller, existing at the time of the transfer, vis à vis the employees, up to the period of one year as of the date of the business transfer and
  • information and consultation with unions and/or employee’s committees prior to the transfer may be required, depending on the existence of any employees’ collective representation structure within the company, otherwise consultation must be carried out with the employees themselves;

The transfer of business does not in itself constitute a justified reason for dismissal; the termination of employment is only considered lawful if the reasons are unconnected with the transfer of a business i.e. economic, technical or organisational reasons entailing changes in the workforce.
4. Procedure – What are the steps in a sale and purchase transaction?
For a foreign buyer of property in Portugal it is mandatory to have a Portuguese fiscal number – is a simple procedure under which the tax number will be issued immediately.
The seller must verify if any preference rights (legal or contractual) are applicable to the subject property, and if so, must provide to any person or entities with legal preference of buying.
Where the legal preference right is in favour of administrative entities (namely city council) it is possible to publish the details of the proposed deal in a web site called CasaPronta, and so fulfilling the legal duties of the promissory seller, with a deadline of ten days to exercise the pre-emption rights.
Before a promissory contract, subsequently mentioned, a letter of intention can be signed between the Parties (not mandatory).
After these procedures are complete, a promissory contract is signed between the owner and the buyer. At this point the buyer usually pays part of the global price (deposit) and agrees on a date to complete the purchase. Other conditions may also be specified in the promissory contract, such as completion of any building work or conditions such as building permits to construct, etc. If the buyer fails to complete the purchase it risks losing the deposit, and if the owner fails to complete the sale it must repay twice the amount of the deposit. The parties may also agree to subject the promissory contract to “specific performance” in the event of a default (i.e. obtaining a legal ruling in lieu of the defaulting party’s. The promissory sale and purchase agreement can be registered at the Land and Property Registry Office, publicizing, with the mentioned registration, which is sufficient notice of the promissory contract to third parties.
Completion of Sale (Public Deed) – to complete the sale, the buyer (or the owner) must make an appointment with the Notary (presently it is also possible that the public deed is dealt with by a lawyer or a solicitor) in accordance with the terms of the promissory contract – the buyer must pay any purchase tax (IMT) and stamp duty and must prove such payment prior to the execution of the Public Deed.
All parties involved in the purchase/sale must attend, unless any of the parties grants someone power of attorney to act on its behalf.
Once the public deed is executed, the (new) owners must register the acquisition (definitively, if the promissory contract was signed and registered before) at the Land and Property Registry Office, to ensure the transfer of the ownership and the legal proof of said ownership.
To develop commercial buildings or carry out large construction projects, usually a protocol of agreement between the Town Hall and the developer is required. It is advisable to request a previous confirmation from the Town Hall, in order to ensure the successful implementation of the project.
It is also possible to acquire property indirectly through an equity stake in an investment vehicle owning such property – often done to mitigate tax-consequences.
5. Contract terms – What provisions does a real estate contract contain and what is implied by law?
In Portugal, the acquisition or creation of property rights begins, as general rule, with a promissory contract which must include recognition of the parties in the form of their signatures and certification of the existence of the use or construction licence.
The promissory contract must contain the main following clauses:
  • Property Description and a statement that it is free from any onerous restrictions, covenants or encumbrances, or if there are any a description of them;
  • Price and conditions of payment: it is common for there to be a deposit, which, besides being an advance on the price, also acts as a guarantee of performance by the buyer and as compensation for the seller in the event of a breach of contract;
  • The deadline for completion (closing) of the sale and purchase or other contract: the deadline usually is dependent upon satisfaction of any specific conditions prior to completion (e.g. obtaining finance, any licences, etc.);
  • Depending on the amount of the price paid in advance, it can be agreed that the possession of property (or other real estate right) is transferred in favour to the promissory buyer;
  • Rights of first refusal: depending on the location or historic relevance, properties may be subject to rights to first refusal, among others, by the municipal council where the property is located – in these situations, prior to the transaction seller must give notice of the terms and conditions of the deal; in some circumstances in a lease contract the tenant also has a right of first refusal;
  • Declarations and Guarantees: usually the parties include in this contract certain declarations and guarantees such as the state of the property, as to the absence of legal actions or debts, the other in the event of breach. The party at fault must compensate the other in the event of breach;
  • Breach: any breach is normally subject to specific performance meaning the non-defaulting party may obtain a court order to put into effect the legally agreed intention of the parties; or alternatively, breach may give rise to rights to terminate the contract and claim compensation based on the amount of the deposit (in any case, the parties may agree additional penalties);
  • Miscellaneous provisions: it is common to include various provisions to protect the parties such as conditions precedent and conditions subsequent, retentions, etc.;
  • The Closing: the promissory contract is followed by the signing of the public deed – the definitive contract. This is the moment at which ownership of the property is transferred – must then be registered in favour of the buyer.

6. Due Diligence – What investigations does the buyer normally make?
The due diligence review is usually carried out before an offer to purchase a property is made or before execution of a preliminary agreement for sale. However, in certain cases, the offer may be made or the preliminary agreement may be executed subject to a condition that such investigations will not reveal any material issue or defects. This is often the case where the buyer is already generally satisfied with the result of a preliminary due diligence and only a few aspects need to be investigated or finalised.
As regards the legal due diligence (the buyer may also carry out technical due diligence), among other issues, Land Registry searches are undertaken to check for any mortgages, charges or encumbrances on the property, tax authorities searches are carried out to confirm that there are not outstanding municipal property taxes on the property, and the existence of municipal use permit for the property is checked (the existence of such permit is a requirement for the use of the property and for the direct transfer or real estate property through an asset deal) – and that any impediments are extinguished before or after the sale (e.g. preference rights or mortgages).
It is very important that, at least, the following documents are checked/obtained before the public deed:
  • Use License, if the property was constructed after 1951, a certificate attesting such fact shall be obtained if the property was built prior to 1951;
  • Land Registry Certificate (“Certidão de Teor Predial”), issued by the Land Registry Office;
  • Tax Registry Certificate (“Certidão de Teor Matricial”) issued by the Tax Office;
  • Technical Habitation Certificate (“Ficha Técnica de Habitação”), which is a mandatory document regarding properties intended for residential purposes and completed after March 2004;
  • Energy certificate, which certifies the performance and energy use characteristics of a building and is mandatory.

7. Registration and Notarisation of real estate – What are the basic requirements?
Acquisition of real estate in Portugal is executed by means of (i) a public deed, which is the most common, or (ii) a private document certified by a Notary, lawyer or solicitor. The transfer of the real estate rights must be registered at the Land Registry within 60 days of the transaction Registration is mandatory.
The purpose of the Land Registry is to provide information on a property’s legal status, guaranteeing the lawfulness of the property transaction and confirming the presumption of the existence of a right to the property. Based on these principles, the regulations currently in force in Portugal require any facts determining the constitution, recognition, purchase or changes of rights over property to be filed with the Land Registry, including a lease granted for a term of more than six years.
Portugal has a central land register managed by the State. The Land Registry is run through regional district Land Registries which are responsible for specific areas of the country. However, territorial competence of the Land Registry is no longer applicable, meaning that one can obtain information on and register any property, irrespective of its location, in any Land Registry. Some areas of land still remain unregistered, although an application for voluntary registration may be made by an owner at any time.
Facts requiring an entry in the register, even if not registered, may be cited between the parties or their heirs, with the exception of the establishment of a mortgage. The effectiveness of a mortgage depends on an entry being registered.
To protect a promissory buyer, it is possible to (i) submit a provisional registration of the property or (ii) register the promissory purchase agreement, meaning in both cases that the property is provisionally registered in favour of the promissory buyer. This registration will retain priority after their conversion into a definitive record of entry. Pursuant to the principle of the priority of registration, the first recorded right is effective vis-à-vis third parties and takes precedence over the other incompatible rights of third parties even if such rights have been established prior to the date of registration. The title register for a particular property comprises (i) the property register, which gives a description of the property, its area and composition, (ii) the proprietorship register, which gives details of the registered owner of the property and (iii) charges register, which lists all registrable matters that encumber the property, such as easements, mortgages or registrable leases.
In addition to paper copies of certificates, one can obtain information and copies of registers on any property online.
In Portugal two online services are available in relation to the land registers: Predial Online and Casa Pronta.
On Predial Online, by means of an electronic certificate, one can access up-to-date information on the legal position of a property and on pending applications for registration. Access is based on a half-yearly subscription plan and costs EUR 15. The application must be made on the basis of the property’s description number or its tax number. Following payment, a certification code provides access to the information. On this site, privately owned authenticated documents evidencing legal acts and mortgage cancellation documents may be uploaded. Notices about the transfer of properties to entities with a legal right of preference (revealing their intention to exercise such rights or not) are also accepted. It is also possible to check notifications published in respect of buildings under special procedures for justification and correction.
The Casa Pronta service provides an one-stop service, making it possible to carry out all the necessary formalities relating to the purchase and sale, donation, exchange, dation in payment (“dação pagamento”), of urban, mixed or rural buildings, with or without a bank credit, to the transfer of a home purchase bank loan from one bank to another or to the taking out of a loan against the mortgage on a house. It is also possible to use the Casa Pronta service to establish an autonomous fraction regime (“propriedade horizontal”). The first step of the procedures are with the Land Registry or a bank which has secure access to the website. The website offers any individual the opportunity to give notice of the transfer of a building, so that entities with legal rights of preference can announce their intention to exercise these.
8. Permits – What permits are required for the use and occupation of real estate and are they personal?
The municipalities are responsible for the preliminary control of urban planning projects, including construction and use of buildings, and allotment of land. This does not preclude the need for the involvement of other entities whose opinion may, in many cases, be binding in terms of project licensing. Municipalities are competent to approve municipal urban planning and building regulations, in addition to regulations on the payment of taxes/charges on the performance of urban operations.
The execution of urban planning operations must generally be examined in advance and may require (i) licensing (“licenciamento”), (ii) advance notice (“comunicação prévia”) or (iii) use permits (“autorização de utilização”).
Urban planning operations for which advance notice must be provided are usually either less relevant in urban planning terms than those which require licensing or are performed in areas covered by an allotment operation or by a detailed plan (“plano de pormenor”). Advance notice procedures are simpler and faster than licensing procedures.
Licences (“licenças”) or acceptances of advance notice generally expire if implementation has not been secured within the period established by law.
An interested party may submit a request for advance information (“pedido de informação prévia” – “PIP”) on the feasibility of a specific urban project as well as to any legal or regulatory constraints. This highly relevant mechanism is widely used in the field of property transactions. An interested party may request the municipality to provide advance information on diverse aspects of a specific urban project it is interested in performing, such as volumetric, eaves height, number of apartments or an estimate of urban planning costs/charges. The municipality has a fixed time limit within which to consider the request and give its decision. The decision is binding on competent entities in respect of the licensing or the advance notice decision to which it refers. The effects of such information are valid for a period of one year.
Subsequently, after the building has been completed, a property use permit (“autorização de utilização”) for the buildings or condominium units must be obtained. The purpose of this authorization is to verify the urban project’s completion and conformity with approved plans and licensing or advance notice conditions. The property use permit certifies the permitted use of the building or condominium units and is a mandatory requisite for the occupation and use of real estate built after 1951. For residential properties where the use permit has been requested after August 2004, a habitation certificate (“ficha técnica de habitação”), issued by the competent municipality, is also required.
Specific properties, such as commercial retail establishments (“estabelecimentos comerciais”) and commercial complexes (“conjuntos comerciais”), or tourist resorts may be subject to special licensing regulations.
Finally, operations which are less relevant and have less of an impact in terms of urban planning are exempt from licensing or advance notice requirements.
All the above licenses and permits, when granted, benefit the property and are not personal, which means that they remain in force regardless of any change of ownership.
Property use permit and habitation certificates are valid as long as no modification is made in the building and as long as the activity authorised in that building is operated under the conditions stated in the licence.
9. Insurance and Risk – What insurance will the parties effect and when does the insurance risk pass at the time of sale?
Before a sale is contemplated, insurance is generally the responsibility of the owner of the freehold interest in a property. However, where such property is the subject of a lease or if a mortgage or lease is registered, the terms of the mortgage or lease will prescribe which party has responsibility to insure.
Whatever the length of the lease, the tenant will generally insure the contents of the property belonging to the tenant, in this context, tenants may contract, and frequently owners compel them to buy through, multi-risks building insurance schemes. Buildings and structural insurance is normally held by the owner.
Should a mortgage be registered over a property, the mortgagee (usually a financial institution) often requires the owner to have comprehensive buildings insurance in which the beneficiary is the mortgagee. This kind of policy usually covers additional special heads of cover such as subsidence, heave, earthquake and, if available, terrorism, i.e., any contingencies which may decrease the value of the property, or which may reduce the mortgagee’s guarantee for the repayment of the loan. To reinforce the mortgage, borrowers may be required to take out life insurances.
Insurance policies may comprise a single policy for each property or a block policy for a portfolio of properties.
Occupiers generally have separate policies to cover the contents of the property, especially if the property includes costly plant and machinery.
Insurance against fire is the only cover required by law and must extend not only to each apartment but also the common areas of the building.
Insurance policies are personal and not transferable on sale. Where a sale is taking place, the risk, except if otherwise agreed by the parties, is normally transferred with the execution of the sale agreement. It is common market practice for the parties to agree that the seller will continue to insure occupied property until completion or, in some cases, such insurance is paid by the seller and reimbursed by the buyer in a pro rata temporis basis.
10. Environmental – What are the common environmental issues?
Environmental Permits and/or Assessments
Permits are required for numerous activities, including but not limited to those which involve noise pollution, water usage, air pollution, greenhouse gas emissions, and waste management.
For industrial facilities, legislation requires operators of particular activities (e.g. energy, chemical, metal, mineral industrial facilities) to obtain an Environmental Permit to ensure the prevention and integrated control of the pollution. Operators can only explore the facilities after the issue of the Environmental Permit. 
For some projects – likely to produce significant effects on the environment – an Environmental Assessment can be required prior to the construction of the facility or infrastructure. Assessments are required for urban allotment operations and commercial centres or establishments with an area comprising over 10ha (or 500 residential units) or over 1.5ha.
Environmental Assessments are also required for urban allotment operations and commercial centres or establishments with an area comprising over 2ha and 0,50ha respectively, if located in sensitive areas (e.g. National Agricultural Reserve).
Environmental Liability
The Portuguese law foresees three different environmental liabilities: civil, administrative and criminal liability.
The primarily legal responsibility follows the “polluter pays” principle (the person or operator who spilled, released or discharged a substance will be liable for the effects). However, the liability can also be applicable to future owners of the facilities if the substance is causing or will cause actual harm to humans, to property (including personal property), to protected ecosystems or groundwater or surface waters and the new owner fails to make reports to public entities or take appropriate steps to limit the harm.
Environmental Insurance
There is a legal obligation on operators to provide a financial guarantee in respect of the environmental responsibility. The financial guarantees may be obtained through insurance policies, bank guarantees and participation in environmental funds.  
Energy compliance
Directives of the European Parliament and Council, concerning the energy performance of the buildings have been translated into Portuguese law under which the owners of new buildings must obtain an energy certificate.
Environmental Due Diligence:
Acquisition due diligence usually includes an environmental assessment. Due to potential environmental liability, it is important to identify potential problems so they can be considered in the negotiations.  
11. Pricing/Valuation – What sets the price/valuation of real estate?
The purpose of the valuation is to determine market value of the relevant property. The market value is the average price that can be obtained for a property to be sold, at the date of the valuation.
The parties which have an interest in the transaction usually hire the services of an expert evaluator (“perito avaliador”). Apart from real estate funds, hiring a valuation expert is not compulsory under Portuguese law and the parties may appoint an independent third party who is not so qualified.
Each valuation is performed after inspecting the property. When pricing a property, the professional will take into consideration several factors , such as the construction area, adjacent (not constructed) area, the value per square metre including land, location, type, quality and comfort levels of the property, characteristics of surrounding areas, municipal zoning regulation, and a comparison with similar properties. A valuation report will contain a description of any works carried out, the location and surroundings of the property, its legal and town-planning status, the market sector, comparison points used, an estimate and conclusions.
The property expert may use several methods to carry out a property valuation, such as the comparison or analogy method or the revenue method or a mixture of them.
However, for real estate investment funds, the valuation must be carried out by expert evaluators duly registered at the Portuguese Securities & Exchange Commission (“CMVM”).
Expert evaluators must use at least two of the following methods of valuation: (i) the comparative method, (ii) the yield method and/or (iii) the cost method. Completed real estate properties must be valued in the interval between their acquisition cost and the arithmetic mean of the valuations of them made by the respective expert evaluators. The evaluation report to be issued by an expert evaluator must, in these cases, specify various elements of the valuation, which are legally foreseen.
12. Taxes and Costs – What are they and who pays them?
The purchase of a real estate is subject to the following costs:
IMT (“Imposto sobre as Transmissões Onerosas de Imóveis”), which is due on the transfer of ownership of property located in Portugal. In general terms, the transfer of real estate located in Portugal is subject to IMT, which is applied to the higher of the purchase price or the official tax registration value, appraised under the annual local property tax (IMI) rules. This tax is borne by the buyer, whether resident or non-resident.
IMT is charged on the transfer of ownership of property at the rate of 6% for the acquisition of residential property above EUR 550,836. However, for dwellings acquired for own residential purposes, the 6% rate only applies for dwellings above EUR 574,323. The IMT is assessed at a variable reduced rate, depending on the purchase price or the official tax registration, in case these values are lower than the referred amounts.
The IMT rate is 5% for rural land and 6.5% for other urban properties (commercial or services) and other onerous acquisitions. When an entity acquiring a property located in Portugal is tax-resident or domiciled in a tax haven, the IMT rate is 10%, except for individuals.
In addition to IMT, Stamp Duty (“Imposto do Selo”) is levied on the transfer of property ownership at 0.8%, being its taxable basis calculated on the same terms as the IMT. However, if the transfer of property is subject to VAT, by means of waiving the VAT exemption, it is not subject to Stamp Duty.
In accordance with the Portuguese VAT code, operations subject to IMT are VAT exempt. Therefore, the transfer of property subject to IMT is, as a general rule, exempt from VAT (as in the case of a lease). Nevertheless, in order to mitigate the effects arising from this exemption, the relevant legal provisions allow a VAT exemption waiver, with the VAT at the current rate of 23%. According to the VAT exemption waiver regime on real estate transactions, there are several strict conditions that need to be fulfilled, regarding the property, the nature of the transaction or the status of the parties.
The VAT exemption waiver is requested on a transaction basis, in respect of each property sold or leased (in case of a building comprising several autonomous fractions, a certificate per autonomous fraction must be obtained), through a request made by the seller/landlord to the Portuguese VAT administration on its internet website. This must be obtained prior to the execution of the sale or lease agreement.
In the event of an acquisition of property, in principle, the VAT will be self-assessed by the acquirer, meaning that VAT will be charged and deducted, if and when possible by the acquirer of the property.
Finally, the buyer will be responsible for the payment of the Notarisation and Land Registry fees associated with registration of the transfer to the buyer.
The ownership of real estate is subject to the payment of the municipal tax IMI (“Imposto Municipal sobre Imóveis”). This tax is due by the owner of the property on 31 December of each year.
IMI is charged on the tax registration value of the property (land or building) located within each municipality. IMI rates are: (i) Rural property – 0.8%, (ii) Urban property appraised before the IMI rules – 0.5% to 0.8% and (iii) Urban property appraised under the IMI rules – 0.3% to 0.5%. The applicable rate is fixed annually by the competent municipality.
When the annual provision of IMI is less than EUR 250.00, it must be paid in full during the month of April. Should the tax payable range from EUR 250.00 to EUR 500.00, it must be paid in two installments during the months of April and November. If the value exceeds EUR 500.00, the owner may pay the IMI in three installments during the months of April, July and November.
In addition to IMI, ownership, use or surface rights of residential urban properties with an official taxable registration value equal to or greater than EUR 1m are subject to Stamp Duty, calculated at the rate of 1%
Romania
1. Parties and ownership – Who can own real estate and what types of ownership are there?
Parties
Any “person” can own real estate. This will include individuals, companies, entities established by statute and certain charitable bodies.
The New Civil Code which came into force on 1 October 2011 introduces the concept of fiducia, a mechanism similar to some extent to the English common law concept of trust.
Owners of commercial real estate include private developers, private or public companies, charities, the central bodies of government and the local authorities. Property owned by the government and local authorities is either in their public or private domain.
Starting with Romania’s accession to the European Union on 1 January 2007, European Union citizens and companies, who receive Romanian residency status, are allowed to acquire ownership rights over land similar to those of Romanian citizens and companies.
Since 1 January 2012 it has been possible for European Union non-resident citizens and companies can own land in Romania for secondary residences or branch offices purposes. The acquisition of agricultural and forestry land by such entities has only been permissible from 1 January 2014. Also, foreign nationals may inherit land in certain circumstances. Furthermore, foreign nationals can acquire land by creating a 100% held company incorporated in Romania.
Natural and legal persons, whether Romanian or foreign, may rent property in Romania.
Ownership
Ownership of property in Romania is either public or private.
Public ownership belongs to the state and the administrative-territorial units (communes, towns, municipalities and counties). Public property cannot be sold, seized or acquired by virtue of occupation. It may, however, be occupied under concession or leased, typically following a public tender procedure.
Public property includes property for public use (such as parks, squares, streets, which are accessible to any person) or of public interest (such as schools, theatres, museums, which although being of limited access are allocated to activities of a social nature).
Romanian law distinguishes between exclusive ownership and co-ownership of land and buildings. This means that a condominium style ownership is permitted where, for example, a person may be exclusive owner of a part (unit) of a building and co-owner with other unit owners of the common areas, the structure and the land on which the building stands. Alternatively, more than one person may own the whole of a building and / or plot of land. In each case, the co-owner is said to have an „ideal“ share (percent) in the common parts or the whole of the building or land plot.
In Romania, like other countries, where a natural person owning land dies without heirs, or where a company is wound up without its land (and any other properties) being transferred to a third party, the land will automatically pass to the State as “res derelictae”.
Aside from ownership rights, another important right in real property is the usufruct, which provides the right to possess and use a property and receive any income from the property, but without conferring the right to sell it. Usufruct rights are not common in Romania.
Long term leases (maximum 49 years) giving the tenant rights of occupation and use are also available.
After 1990, a large number of claims for restitution were made against the Romanian State and the public authorities by former owners (or their successors) of property confiscated by the communist regime. Subsequently, a number of laws instituting administrative restitution procedures came into force, all of which purported to establish a time frame beyond which no further claims could be admitted. Although many of these were prolonged, it is now becoming more firmly established that none remain open and it appears that new restitution claims may no longer be filed based on special restitution laws. However, restitution claims could be still filed based on the Civil Code, in certain circumstances.
As the number of applications was high and the process of their analysis is slow, the title to a large number of apparently public properties still remains unclear. In many cases, there is little possibility of checking whether restitution claims over certain types of property remain pending, although public authorities sometimes make information public about restitution claims. Where the restitution laws enabled a person legally to acquire a property, then the title acquired is granted some protection. However, each case needs to be reviewed on its own merits.
2. Interests – What types of interest in real estate are sold?
Romanian law does not operate a classification of property as either freehold or leasehold.
Freehold would be similar to the Romanian concept of ownership, i.e. a perpetual real right (a right in rem) that gives to its holder the power to possess, use and dispose of a property.
Leasehold would include leases, although in practice leasehold could also be regarded as including usufructs, superficies rights (i.e. the right to build and own a construction on a plot of land owned by a different entity) or concessions, which are limited in time (usufructs enjoyed by companies – 30 years, superficies rights – 99 years, with renewal option at the expiry of the initial term and concessions – 49 years, with one renewal option for no more than half of the initial term).
There is exclusive and common ownership. Common ownership can be temporary or perpetual, the latter being similar to a condominium interest.
Other property interests that are recognised under Romanian law include:
  • Options and pre-emption rights – rights to buy or first refusal
  • Easements – such as rights of way or for the use of services which are contractual or legal rights to use land for limited purposes such as to site telecommunications equipment (easements are deemed to be servitudes, i.e. real rights over property owned by a another person)

Currently, all real estate rights and leases must be registered in the Land Book.
3. Employees – What employment issues affect real estate acquisitions?
Transfer of undertakings (“TUPE”) is likely to be the most significant employment issue under Romanian law.
TUPE applies when an undertaking or business (or part of one) is transferred from one party to another.
The broad effects of TUPE are that:
  • With effect from completion of the transfer, the buyer assumes responsibility for employees working in the business transferred
  • Accrued continuity of employment is preserved
  • Dismissal for a reason connected to the transfer is automatically unfair
  • If the buyer changes terms and conditions by reason of the transfer, these changes generally are ineffective, even where the employee‘s agreement is obtained
  • Employees‘ elected representatives must be informed and consulted about the transfer
  • Any attempt to circumvent the effect of TUPE is void

Although the legal effects of TUPE cannot be avoided, it is possible to apportion TUPE liabilities by agreement between the seller and the buyer. For instance, the seller could agree to be responsible for all claims and liabilities relating to employees up to the date of transfer, and the buyer could take on all post-transfer employment liabilities.
Redundancies
Redundancies may become necessary on the closure of a business or part of a business or where there is a reduction in the number of employees required, for example, on the merger of two businesses or a TUPE transfer. As mentioned above, dismissal for a reason connected to the transfer is automatically unfair; care should therefore be taken to ensure that the redundancies are carried out in a procedurally fair manner, with particular regard to any applicable collective consultation requirements.
Terms and conditions of employment
An employer may decide to change or harmonise terms and conditions of employment on the acquisition of a new business. Such change may be implemented only with the employee’s prior consent and on terms and conditions equivalent or better for the employee. This can be a difficult process, especially where there has been a TUPE transfer (see above).
4. Procedure – What are the steps in a sale and purchase transaction?
Real estate business transactions formally start when proposed heads of terms are drafted, negotiated and agreed by the brokers for the seller and the buyer. The heads of terms (or memorandum of understanding) set out the principal terms agreed between the parties and are generally expressed to be “subject to contract” and not legally binding. They might be accompanied by a (legally binding) exclusivity and confidentiality agreement.
The seller’s lawyers will usually collate all information relating to the property and send it to the buyer’s lawyers. The buyer’s lawyers will undertake general due diligence investigations. The buyer’s lawyers usually prepare the form of the sale agreement. The scope of the due diligence and the draft of the sale agreement will vary according to whether the property being sold is under construction or already built and the extent to which leases to tenants have already been granted, as well as whether the transaction will be structured as a property deal or a share deal.
If a property has not been registered in the Land Book, its sale will trigger an obligation to complete the cadastral registration, meaning (amongst other things) that certified surveyors must produce detailed and definitive plans to be approved by the territorial Cadastral and Real Estate Publicity Office and subsequently submitted to the relevant Land Book. There is a resulting time and cost implication for transactions of this type, which (depending upon the nature and use of the land concerned) may prove to be significant.
The notary authenticating the transfer agreement is bound to verify the power of the corporate bodies and their signatories and that there are no impediments to the sale. Updated Land Book excerpts and certificates issued by the fiscal authorities (stating that there are no outstanding debts) also need to be presented to the notary on authentication. The real estate publicity fee and notary fees (see below) need to be settled in full. Following this, the notary is able to register the buyer’s interest in the contract against the property in the Land Book.
Legal completion of the sale and purchase transaction may occur at the same time as the authentication or subsequently, depending on the acquisition timetable. Where the purchase is made with borrowed finance, a mortgage over the property (and other security interests) will generally be instituted at the same time as the authentication.
Following completion, the notary needs to complete final registration of the transfer in the Land Book, in case the transfer of title has not already occurred and been registered upon authentication. Registration of other documents (e.g. security documents) in other relevant registries (e.g. the Electronic Archive for Secured Transactions) may also be necessary. Where financing is involved, the disbursement of the price will generally be made only after the security interests have been appropriately recorded, in order to protect the financier’s ranking.
5. Contract terms – What provisions does a real estate contract contain and what is implied by law?
Provisions of the contract
An agreement for the sale and purchase of property must be in writing and, if it involves land and / or buildings must be authenticated by a Romanian public notary, contain or clearly refer to all main terms and conditions (e.g. the purchase price) and be signed by both seller and buyer.
It is common for the sale and purchase agreement to provide for a deposit of between 5-10% of the purchase price payable on exchange of agreements. The deposit can be placed in an escrow account opened with a Romanian bank.
Contracts for sale of property subject to occupational interests such as leases will include clauses to cover ongoing management matters, and provide for apportionment of occupational income and outgoings on completion of the transfer of ownership in the property.
Terms implied by law
Two of the most significant are as follows:
  • Title guarantee – in a transfer of property there are various statutory obligations on the part of the seller in relation to the quality of the title being sold. The seller is under an obligation to guarantee to the purchaser that he will not be evicted by any third parties and may be called into court proceedings as a respondent if the title of the purchaser is challenged by such third parties
  • Misdescription and misrepresentation – in cases of misrepresentation or misdescription of facts made by the seller to the buyer which have the effect of inducing the buyer to enter into a transfer of land, damages may be payable to the buyer or the buyer may be entitled to rescind the transaction

6. Due Diligence – What investigations does the buyer normally make?
Pre-exchange of agreements
The prudent buyer is likely to commission a survey of the building and in appropriate cases, soil and geological investigations, plant and machinery tests, and environmental investigations. There are two limbs to the pre-exchange due diligence by the buyer’s lawyers.
Firstly, title to the property and existence of any encumbrances or restrictions will be investigated. The buyer’s lawyers will consider the entries in the Land Book, the cadastral documentation and historic title documents. Where title to the property is not registered in the Land Book, the buyer’s lawyers will advise the buyer to enter into a pre-sale or an option agreement pending completion of the cadastral documents and Land Book registration, as no sale is permitted in cases where the property is not registered. The buyer’s lawyers will also make enquiries of the local authorities where the land is located or other institutions involved to obtain information regarding any restitution claims affecting the property and their current status. In cases where any claim was rejected by such authorities or institutions, the search will also be pursued with the courts of law having relevant jurisdiction in order to assess the status, impact and / or potential outcome of court proceedings. Where the property is leased, or is subject to other occupational interests (such as usufructs, superficies or concessions), the terms of the relevant occupational documents need to be considered carefully to ensure they are not contrary to the buyer’s intentions for the property. The buyer’s lawyers will also need to check whether these documents reveal that consent for the transaction is required from any third party.
The buyer’s lawyers will undertake general due diligence, which will include conducting various searches to check the position regarding municipal and zoning consents, environmental matters, utilities serving the property, financial encumbrances etc. Where the seller is a company, the buyer’s lawyers will also conduct searches against the seller’s name at the Trade Registry to ascertain whether the company is solvent and therefore able to dispose of its assets freely. A search referring to moveable security will be undertaken on-line by the buyer’s lawyers with the Electronic Archive in Security Interests to obtain confirmation that there are no moveable security interests in any way affecting the envisaged transaction.
Reporting to the client
Before completion of any agreement the buyer’s lawyers usually report their due diligence findings to their client, raising any matter of particular importance or concern.
7. Registration and Notarisation of real estate – What are the basic requirements?
Romania is in the process of implementing a unified cadastral and land book system. The system is run by cadastral and real estate publicity offices, one for each county of Romania. Registration of land is compulsory throughout Romania and to the extent that land is unregistered, it must be the subject of an application for first registration before it can be sold.
Land Books are created at municipality level and also for every immovable asset which is identified by an individual number. Therefore, a new land book entry will be created each time a new property is required to be registered.
The system of cadastral and real property publicity is designed to make public through registration all of the real rights that are transferred, created, modified, terminated or erased pursuant to juridical acts and facts or events related to immovable assets, and certain other items of information relating to immovable assets.
Registration gives constructive notice to third parties (making certain registrations binding on them).
Once the cadastral registrations for each administrative-territorial unit are finalized (this process is currently incomplete) and all the Land Books for immovable assets are open, registration in the Land Book is required for the valid transfer of the relevant right, both as between the parties to the transaction and against third parties. This means that the Land Book registration will constitute a solid proof of ownership and sellers will be protected against nullity of title or eviction, being considered a “buyer in good faith”.
There are three types of registration in the Land Book:
  • Registration of a real property right (this is the primary registration)
  • Provisional registration of a real property right on condition that it will be confirmed at a later date
  • Notification of other juridical relationships, including status, capacity and incapacity, certain personal rights, claims and appeals, and measures taken for making an immovable asset in the Land Book unavailable for further encumbrances

The registration of a real property right establishes the rights obtained through a property title transfer, a final judicial ruling, a heir certificate or the decision of an administrative authority.
Provisional registration operates for those rights granted subject to conditions, or for a determinable period. This type of registration may be useful for investors / financial institutions that are financing a transaction or the erection of buildings and are interested in making their rights binding upon third parties pending completion (i.e. the moment when the registration becomes definitive).
The title registration for a particular property all over Romania comprises the:
  • Property register, which gives a description of the property
  • Proprietorship register, which gives details of the registered owner of the property, the ownership title over the real estate, easements and other registrations related to the ownership rights
  • Charges register, which lists all recordable matters that encumber the property such as rights benefiting other property, covenants, financial charges, contracts, leases and, where appropriate, special entries that restrict the registered owner’s ability to deal with its title without obtaining the consent of another person

There is a validity requirement for notarisation of any deed for acquisition / disposal of ownership of land and/or buildings, as well as for granting real rights (e.g. superficies, usufruct) over such land or building. The same validity requirement applies to mortgage deeds.
8. Permits – What permits are required for the use and occupation of real estate and are they personal?
Before performing operations involving real estate (especially regarding construction), it is recommended and in certain cases compulsory to obtain a planning certificate from the local government authority responsible for controlling the use and development of land in its area (county councils and city halls). This planning certificate provides information regarding legal, economic and technical issues with respect to the land or construction. This certificate is issued upon request to any interested person, and within the legal time limit of 30 days.
The planning certificate (certificat de urbanism) generally also indicates a number of other authorizations and endorsements (e.g. environmental permits, public safety and health permits, permits from the fire prevention service and public utilities providers) required in order to subsequently undertake building or construction works. Subject to fulfilment of the required conditions, a building permit (autorizaţie de construire) will be issued by the local government authorities (usually from the city hall) within 30 days from the date of application (such application should include the complete underlying documentation).
Generally, a building permit will be required for the construction of a “new build” property, work that is proposed for refurbishment of an existing building, and where an existing use (for example office space) is to be changed to another distinct use (for example retail premises). Under the planning legislation the terms “develop” and “development” have a much wider meaning than the construction or replacement of buildings; minor building works or simple changes of use may amount to “development” requiring planning permission and a building permit.
Special approvals from the competent Ministry are required when it is proposed to do work to historically or architecturally important buildings.
In addition to a building permit, at the end of construction, the building must obtain approvals confirming that construction has taken place in accordance with plans and applicable regulations.
The Government, through the Ministry of Regional Development and Public Administration, coordinates the activity of territory arrangement and urbanism at a national level. Locally, the county councils or local councils draw up urbanism plans to supplement national activities and policies.
There are three different kinds of urbanism plans: (i) General Urbanism Plan (“PUG”), one for each administrative-territorial unit (ii) Local Urbanism Plan (“PUZ”), providing detailed regulations for a specific area (e.g. districts of Bucharest) and (iii) Detailed Urbanism Plan (“PUD”), required only in certain cases and referring to one plot in relation to the neighbouring plots. In relation to the application of the relevant regulations on territorial arrangement and urbanism, urbanism plans are issued by county councils and city halls.
Planning permissions and building permits benefit the land. In the case of a transfer of a development project, the building permit and all underlying documentation and approvals are transferred automatically together with the transfer of ownership of the land.
9. Insurance and Risk – What insurance will the parties effect and when does the insurance risk pass at the time of sale?
Before a sale is contemplated, insurance is generally the responsibility of the owner of the property. However, where the property is subject to a lease, the terms of the lease will determine which party has responsibility to insure. It is common for owners of long leases in commercial properties to insure rather than the landlord. Whatever the length of the lease, the tenant will generally insure the contents of the property belonging to the tenant and in some cases certain parts of the property for which the tenant is contractually responsible.
The insuring party should have a fully comprehensive buildings insurance policy to protect the structure and fixtures and fittings of the property in the event of damage or destruction by any of a comprehensive list of insured risks, such as storm, lightning, fire, earthquake and water damage. The policy may also cover additional special heads of cover such as subsidence, heave and, if available, terrorism.
Generally it is the buildings, and not the land, which are insured for the reinstatement cost rather than the reinstatement value.
Insurance policies may either comprise a single policy for one particular property or a block policy designed to cover a portfolio of properties.
Owner-occupiers generally have separate policies to cover the contents of the property, especially if the property includes costly plant and machinery.
Policies for defects in title to property are also available on the Romanian market. Certain foreign title insurance companies offer policies on a case-by-case basis, particularly for properties of significant size or value.
Insurance policies are generally personal and not transferable on sale.
Romanian legislation is currently imposing on the owners of residential buildings, situated either in the urban or the rural zone, a duty to take out insurance policies against natural disasters such as earthquakes or floods, for certain specified amounts according to the type of construction materials used in the dwelling.
The insured risk is any form of deterioration arising directly or indirectly from the occurrence of a natural disaster.
10. Environmental – What are the common environmental issues?
Real estate may be contaminated as a result of current and former uses. Primary legal responsibility follows the “polluter pays” principle: the person who spilled, released or discharged a substance will normally be liable for any ill-effects it causes.
All activities with a potential adverse impact on the environment should be carried out only on the basis of authorizations or permits issued by the relevant authorities.
For certain specified activities (present or future) which have a significant impact on the environment and are identified by an order of the Ministry of Environment and Climate Changes, it is necessary to obtain an environmental authorization (autorizatie de mediu).
Upon the sale of a majority stake in a company, of a disposal of an undertaking or unit, or in case of a merger or spin-off, or of a new development, owners or investors in real estate that perform activities with a significant impact on the environment must obtain an environmental approval (aviz de mediu), based on an environmental survey report (bilant de mediu).
The responsibilities of the acquirer or the developer are laid down in an environmental conformity plan (program de conformare), the terms of which are negotiated between the acquirer/developer and the environmental authority. These may refer to both reduction and rehabilitation measures.
11. Pricing/Valuation – What sets the price/valuation of real estate?
Pricing of real estate investments is a combination of the aggregate rent being paid by occupational tenants of the property and the value that investment buyers consider that a property of the specific type and location is worth at the time of valuation, taking into account that income.
The rent for a particular property is likely to be assessed by multiplying the area of the property by the market rental value per square metre. The market rental value will take into account factors such as the location of the property, its type and condition, and the length of the lease term. The area of the property will be calculated by reference to Gross Internal Area (used, for example, in relation to warehouses and industrial buildings) and Net Internal Area (used, for example, in relation to offices and shops).
In the case of retail shops, it is common for the rent of the property to have differential values according to the positioning of the floor space – that nearest to the frontage is the most valuable and will be described as “Zone A”. The rental values of the various areas will be added together to provide an overall rental value for the property.
Investment properties are commonly referred to as being sold on a particular yield, meaning the investment return that will be gained from the capital sum which it is necessary to pay to buy the property. For example, where a property with an aggregate rent of RON 1m is sold for RON 2m, it will have a yield of 5%. Conversely, the interest can be said to have been sold at a YP (years’ purchase) of 20.
12. Taxes and Costs – What are they and who pays them?
Revenues obtained from the sale by individuals of real estate properties are taxed as a percentage of the sale price. For properties sold less than three years from their acquisition, the tax is 3% if the purchase price is less or equal to RON 200,000 or RON 6,000 plus 2% of what exceeds RON 200,000. For properties sold after three years from their acquisition, the tax is 2% if the purchase price is less or equal to RON 200,000 or RON 4,000 plus 1% of what exceeds RON 200,000.
Some exemptions to the tax apply, for example in the case of property donated by close relatives, as defined in the Fiscal Code.
A company’s income from direct and indirect sales of properties (the sale of shares in a property holding company) will be taken into consideration in the calculation of a general profit tax of 16%.
The ownership transfer publicity fee (replacing the formerly so-called “stamp duty”) is payable at the rate of 0.15% of the value of the transaction for individuals and 0.5% of the value for legal entities.
The publicity fee is collected by the notary and paid to the cadastral authority on the date of the authentication of the sale and purchase agreement.
Notary fees are due on the authentication of the deed of transfer of the ownership over real estate by a public notary.
The following taxes are additionally due:
  • Tax for issuing planning certificates: RON 14 + RON 0.01 for each sqm exceeding 1,000 sqm (for urban areas). This is reduced to half for rural areas
  • Tax for issuing the construction authorization: 1% of the authorised value of the works (without VAT). For buildings intended to be used for living, the tax is 0.5% of the authorized value of the works. The authorized value of works does not include VAT
  • Public utility permissions: these permissions should generally be listed in the planning certificate. Also generally the taxes for such permissions are low (fixed nominal values), but public utility providers might request feasibility studies and the issue of the permission is in practice conditional upon paying the fees for such studies. Costs associated with the preparation of a PUZ/PUD (urbanisation plans) may also need to be considered
  • Tax to be paid to the state construction inspection (ISC) by investors or owners: 0.7% of the authorised value of the works
  • Tax for state control over the construction works (also to be paid to the ISC on communication by the investor of the commencement of the authorized works): 0.1% of the authorised value of the works
  • Order of Architects tax of 0.05% of the authorised value of the works

The sale of shares owned by a natural person in a property holding company is subject to an income tax of 16%. Value added tax may also be payable, except (broadly) where the property is sold by an individual or a non VAT-paying company.
The VAT quota for the transfer of ownership over certain so-called “social policy dwellings”, including the ownership over the appurtenant land, has been reduced to 5%. This category includes residential properties having a maximum 120sqm usable area excluding any annexes, which are built on a plot of land (in case of houses) or where the corresponding co-ownership quota over the land (in case of a apartments located into a condominium) does not exceed 250sqm and their value, including the value of the land on which they are built, does not exceed RON 380,000.00 (approx. EUR 90,000). The purchasers of such dwellings can benefit from the reduced VAT quota, if individually or as a family, they have not previously acquired another dwelling subject to the reduced VAT quota.
During the due diligence for the acquisition, the buyer will also pay the costs of conducting searches, including in particular at the local authority (which includes zoning matters, building regulations and general municipal consents, notices etc) and, if relevant, companies providing utilities etc. The buyer will also pay for any valuations and surveys of the physical state of the property and any environmental audits or desktop studies.
The seller will generally pay the commission of any land agent or broker employed to find a purchaser, but in many cases commissions are charged to both seller and purchaser.
Occasionally, the negotiated heads of terms for a transaction will provide for one or other party to pay the other’s costs. Generally each party pays its own expenses.
The purchaser will be responsible for the payment of the Land Book fees associated with registration of the transfer to the purchaser.
For property transactions concluded in a notarised form, a notary fee is payable. These fees may vary between 0.5% and 2% of the transaction value, depending on several mandatory thresholds applied by the notary to ownership transfers. Such criteria are provided by an official notary fees grid which is approved by the Ministry of Justice, which is subject to periodic reviews. The percentage decreases as the value of the transaction increases.
Depending on the size of the transaction, other fees may be triggered, such as fees of valuers, legal counsel and other professionals. There are no rules regarding who pays what, but generally notary fees are paid by the buyer and each party pays its own incurred fees.
Scotland
1. Parties and Ownership – Who can own real estate and what types of ownership are there?
Parties
In Scotland, any legal “person” may own real estate. This will include individuals, companies, entities established by statute and certain charitable bodies.
Entities which are not legal persons, such as unincorporated associations or partnerships, cannot own real estate directly. However, legal persons acting as trustees can own real estate on behalf of such entities.
Owners of commercial real estate include developers, insurance companies, pension funds, banks and other financial institutions, private or public property companies, charities, trusts, the government and local authorities.
There are no restrictions preventing foreign nationals or companies from owning real estate.
Ownership
Legal ownership of property in Scotland is classed as either heritable or leasehold.
Heritable title (always) and Leasehold title (if the lease is for 20 years or more) will be registered at the Land Register of Scotland (the “Land Register”).
Land Registration was introduced in Scotland in 1979 and was updated in 2014. A Land Register Title Sheet is created for each “Plot” of land, being an area or areas of land which are owned by one person or one set of persons.
All land in the UK is ultimately owned by the Crown and passes back to the Crown if there is no owner. For example, where being a company is wound up without its land being transferred to a third party, the land will automatically pass to the Crown as “bona vacantia” (vacated property). Land may also be held on trust by a legal owner for a beneficiary.
Where more than one person or entity (or group of persons) has ownership in the same land they will hold their interests in one of three ways:
  • Common Property – where property is owned by more than one person, with these persons holding a “pro indiviso” share in the common property. For example, where a husband and wife jointly own a property, it is common to see what is called a survivorship destination clause, where the one half pro indiviso share of the deceased transfers to the survivor on death.
  • Joint Property – similar to common property (above) but pertaining to a right in property by virtue of membership to a particular group. If a person dies his interest will pass automatically to the survivors within the group. The group exists independently of the property and the property rights held by each member are only acquired through that membership.
  • Common Interest – this arises where different properties are owned separately by two (or several) different people, and the properties exist so closely together that what one person does in his property can affect the other person in his property. This largely related to tenement (multi-occupancy) dwellings. For example what the owner des with the roof of a multi-occupancy tenement building affects the other owners in the tenement. Accordingly, all owners have a common interest in the roof. The ownership and rights in a tenement is now regulated (supported) by legislation where the title itself does not deal with such common interest and the rights to, and regulation of, the common areas.

It is also possible to acquire rights over land (such as a right of way) by exercising the right without challenge or interruption for a relevant period, normally twenty years.
2. Interests – What types of interest in real estate are sold?
Property in Scotland is classed as either heritable or leasehold. Heritable is akin to absolute ownership. Heritable or leasehold title will be acquired depending on the circumstances of the acquisition transaction.
Title to heritable land and leases (over 20 years) must be registered at the Land Register of Scotland on completion. They have their own Land Register Title Sheet. The maximum duration for a commercial lease in Scotland is 175 years. Any then-existing ultra long lease (i.e. over 175 years) can be converted into ownership, where the remaining unexpired period of the lease is over 100 years for a residential property, and over 175 years for all other leases. It is not possible to grant a lease a lease of a residential property in Scotland for more than 20 years.
Property interests which exist in Scotland include:
  • Heritable title.
  • Leases.
  • Licences – contractual arrangements not creating any estate in land.
  • Options and pre-emptions – rights to buy or first refusal.
  • Servitudes – such as rights of way or for the use of services.
  • Wayleaves – contractual rights to use land for limited purposes such as to site telecommunications equipment.

Unless the property is to be sold “as seen” the parties must make it clear whether the fixtures and fittings at the property are to be removed prior to the sale or are to form part of the purchase. If items are fixed to the property, the presumption is that they form part of it and belong to the heritable owner of the property.
Ownership extends to buildings on or beneath the land and the airspace above it, unless interests are described horizontally rather than vertically. (It is not uncommon for the minerals and mining rights within land to be reserved to another person). Reference to “land” generally includes the buildings and structures on that land – similarly “property” includes both land and buildings unless limitations are created.
3. Employees – What employment issues affect real estate acquisitions?
As in England and Wales, typical employment issues which may be relevant to real estate transactions include the transfer of undertakings, redundancies and changing terms and conditions of employment. The employment related issues which affect real estate acquisitions remain the same in Scotland as they do in England and Wales.
Transfer of undertakings – TUPE
The Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) are likely to be the most significant employment issue. TUPE applies when an undertaking or business (or part of one) is transferred from one party to another or where there is a service provision change (either an outsourcing, change of provider or in-sourcing). It may therefore apply when there is the sale or transfer of a business or lease of a property, or when the management of a property is outsourced to a third party. For example, this might occur in the sale of a shopping centre having its own management and security staff.
The broad effects of TUPE are that:
  • With effect from completion of the transfer, the buyer or new service provider assumes responsibility for employees working in the business, or the employees who are assigned to the services, that have transferred;
  • Accrued continuity of employment is preserved;
  • If the sole or principal reason for a dismissal is the transfer itself, such a dismissal will be automatically unfair. If the dismissal takes place for an “economic, technical or organisational reason entailing changes in the workforce (‘ETO reason’)” it may be fair;
  • Employees transfer with their existing terms and conditions intact, except, in relation to certain occupational pension scheme rights;
  • Generally speaking, if the buyer/new provider makes changes to employees’ terms and conditions following a transfer, such a variation will be void if the transfer is the sole or principal reason for the variation. Changes to terms and conditions are, however, permitted if (i) the sole or principal reason for the change(s) is an ETO reason and an employee agrees to the change(s), or (ii) an employee’s existing contract permits the buyer/new provider to make the particular change(s) in question. In addition, if an employee’s contractual terms are derived from a collective agreement, such terms may be amended one year after a transfer – provided that an employee’s terms will be no less favourable overall than they were prior to the transfer;
  • If a trade union is recognised by the seller/outgoing provider, trade union representatives must be informed and, where appropriate, consulted about the transfer. If there is no recognised trade union, information and consultation should take place with elected employee representatives;
  • If the seller/outgoing provider recognises a trade union, the buyer/new provider may be bound to recognise that union until detailed de-recognition procedures are completed; and
  • Any attempt to circumvent the effect of TUPE is void.

Although the legal effects of TUPE cannot be avoided, it is possible to apportion TUPE liabilities by agreement between the seller and the buyer (or outgoing and incoming service provider). Normally the seller (or outgoing service provider) will agree to be responsible for all claims and liabilities relating to employees up to the date of transfer, and the buyer (or incoming service provider) will take on all post-transfer employment liabilities.
Redundancies
Redundancies may arise on the closure of a business or part of a business, or where there is a reduction in the number of employees required – for example on the merger of two businesses involving a TUPE transfer. Care should be taken to ensure that the redundancies are carried out in a procedurally fair manner, with particular regard to any applicable collective consultation requirements (which apply when 20 or more redundancies are proposed within 90 days). If the seller and the buyer (or outgoing and incoming service provider) are willing to work together, it is possible for collective consultation to take place before the TUPE transfer thus allowing redundancies to be effect more quickly after the transfer .
Terms and conditions of employment
An employer may decide to change or harmonise terms and conditions of employment on the acquisition of a new business. This can be a difficult process, especially where there has been a TUPE transfer (see above).
4. Procedure – What are the steps in a sale and purchase transaction?
The transaction process begins when a buyer identifies a property that the buyer is interested in.
For residential property, it is the responsibility of the seller to obtain a Home Report from an independent qualified valuer. The buyer instructs his solicitors to “note interest” with the seller’s property agents or solicitors – this is taken to mean that the seller will not sell the property without first giving the interested party the opportunity to bid. The seller’s property agents or solicitors will set a closing date for accepting offers; the buyer’s solicitors in turn will submit an offer on the buyer’s behalf.
For commercial properties the seller and the buyer (or usually property agents on their behalf) will negotiate and agree the principal terms of the sale and purchase and these will be documented in a “Heads of Terms” document or “Letter of Intent”.
If the seller is a foreign registered company, generally the buyer will require an opinion letter from an approved lawyer practising in the same jurisdiction confirming that the company is properly incorporated, has power to sell and has carried out appropriate authorisation procedures.
Following settlement (completion), the buyer’s lawyers need to deal with registration of the transfer documents (and any charging documents) at the Land Register and payment of land and building transaction tax (LBTT), which is assessed on the price paid for the property.
5. Contract terms – What provisions does a real estate contract contain and what is implied by law?
Provisions of the contract
An agreement for the sale and purchase of land must conform to the Requirements of Writing (Scotland) Act 1995. This means the contract must be sufficiently clear, and executed according to the rules laid out in the Act.
The buyer has the opportunity of conducting a full title investigation or due diligence before exchanging agreements so is usually prohibited from making any objection to any matter of title after the date of exchange.
Provisions relating to value added tax will be included where relevant to ensure that the agreed tax position is preserved between exchange and completion.
Contracts for sale of property subject to occupational interests such as leases will include clauses to cover ongoing management matters, and provide for apportionment of occupational income and outgoings on completion of the transfer of ownership in the property.
If the property being sold is in the course of construction, the contract for sale and purchase will incorporate provisions dealing with the obligations of the seller to construct in accordance with an agreed specification and to provide to the buyer separate deeds of warranty from the building contractor and persons such as the architect in order to safeguard the buyer against defective design or workmanship.
Terms implied by law
Some of the most significant are as follows:
  • Buyer Beware (“Caveat Emptor”) – the overriding point of principle under common law is “caveat emptor” – let the buyer beware. The buyer must satisfy itself in all respects as to the nature of the property it is acquiring. However, this does not absolve the seller from the obligation to provide truthful replies to enquiries raised by the buyer’s lawyers.
  • Warrandice – this can be express or implied, and is a guarantee of a good and unencumbered title. There are three levels of warrandice – simple, fact and deed and absolute. Absolute warrandice is the highest level, and guarantees the buyer against defects and limitations in the title, whether caused by the seller or not. However it can be invoked only once the owner is evicted or removed from the property (or part) in respect of which the Seller has granted absolute warrandice.
  • Misdescription and misrepresentation – there are both statutory and common law rules which protect against clear misrepresentations or misdescriptions of fact made by the seller to the buyer which have the effect of inducing the buyer to enter into a transfer of land. In such cases, damages may be payable to the buyer or the buyer may be entitled to withdraw from the transaction.
  • Unfair terms – agreements for sale that include exemption clauses, which seek to allocate risk, are subject to the Unfair Contract Terms Act 1977. The Act operates to restrict or render void the effect of clauses that unreasonably attempt to exclude liability.

6. Due Diligence – What investigations does the buyer normally make?
Pre-exchange of agreements
The onus is on the seller to show that he has the right to sell the property, and that there are no legal inhibitions to exercising that right to sell. Various Searches are carried out which confirm the physical extent of title and, if necessary, “map” it to the Ordinance Survey map. The seller’s solicitor will also instruct a Property Enquiry Certificate, which discloses planning applications, building warrants and statutory notices.
From the purchaser’s perspective, title to the property will be examined and investigated. The buyer’s lawyers will consider the entries on the Land Register or, if necessary, investigate the unlying title deeds.
Where the property is leasehold, or subject to lease or other occupational interests, as well as examining the owner or landlords’ heritable title, the terms of the relevant occupational documents need to be considered carefully to ensure they are not contrary to the buyer’s intentions for the property. The buyer’s lawyers will also need to check whether these documents require the consent of any third party to be given to the transaction.
The buyer’s lawyers will raise pre-contract enquiries (“preliminary enquiries”) of the seller’s lawyers to obtain information regarding a large number of practical mattes which may affect the property and ask any relevant questions in relation to the title to the property. Whilst a seller must not knowingly or negligently mislead a buyer the general rule of “caveat emptor” (buyer beware) will always apply. The seller generally gives replies, which may be actionable if wrong or misleading. During the due diligence process the buyer may often arrange that a survey is carried out at the property.
Pre-completion
After exchange of agreements and before completion the seller’s solicitor will update the property search report. This search will show that there is no adverse entry on the title register for the property which prevents the seller being able to transfer good title at completion.
Reporting to the client
Before exchange of agreements the buyer’s lawyers usually report their due diligence findings to their client, raising any matter of particular concern.
7. Registration and Notarisation of real estate – What are the basic requirements?
The Land Register of Scotland was created in 1979 (and updated in 2014). It did not cover all of Scotland immediately. It was an incremental process which was completed over ten years ago. Any property that has been sold, or a long lease is granted, will trigger ‘First Registration’ in the Land Register. A lease granted for a term of more than 20 years is registrable. Once a heritable or leasehold interest is registered, any transfer or charge of that registered title itself has to be registered at the Land Register. Only when the registration is complete can the party properly prove its right of ownership.
The Land Register has the benefit of a warranty of accuracy by the Keeper in most cases. It is the definitive record of who owns what land, the nature of the interest and any registrable matters affecting that land. The title register for a particular plot comprises the following four parts, namely:
  • Property – which gives a description of the property together with any rights benefiting the property
  • Proprietorship -which gives details of the registered owner of the property and the price paid for the property by the current owner
  • Securities – which lists all registrable matters that encumber the property such as rights benefiting other property, covenants, financial charges, contracts and registrable leases
  • Burdens Section – which sets out burdens or conditions of title which affect the property.

The Registers may also contain, where appropriate, special entries that restrict the registered owner’s ability to deal with its title without obtaining the consent of another person.
Prior to registration the seller will lodge an “Advance Notice” in respect of the Disposition (conveyance) of the property or Standard Security (mortgage) or other deed being registered following completion. The Advance Notice will give the beneficiary of that deed a protected priority period against the same type of deed registered in advance of theirs.
8. Permits – What permits are required for the use and occupation of real estate and are they personal?
Applications to obtain planning permission to “develop” land must be made to the public (local government) authority which has the responsibility for controlling the use and development of land in its area. Public authorities have statutory time periods within which a decision must be made as to whether or not planning permission should be issued. There are various statutory rights in relation to appeals, which can be made if an application is refused or not determined, and rights of challenge regarding the validity of any permission granted. For developments that are likely to cause significant environmental impacts, an Environmental Statement will need to be submitted with the application for planning permission, explaining the likely environmental impacts of the development.
Generally, planning permission will be required for the construction of a “new build” property, alteration to or refurbishment of an existing building, and where an existing use (for example office space) is to be changed to another distinct use (for example retail or licensed premises). Planning permission, when granted, benefits the land (although there are occasions when it can be personal) and will contain conditions which will regulate the impact of the development, for instance controlling hours of opening for a licensed premises or requiring landscaping surrounding a car park. Under the Planning legislation the terms “develop” and “development” have a much wider meaning than the construction or replacing of buildings. Minor building works or simple changes of use may amount to “development” requiring planning permission.
A different type of permit (called a “listed building consent”) is required when it is proposed to do work to historically or architecturally important buildings. Normally, planning permission will also be required, but listed building consent may be required even where planning permission is not (for example where works are not “development” but still affect the importance of the building as a heritage asset).
Larger districts or areas (called “conservation areas”) that have architectural or historical importance may also be subject to a separate regime of control that requires conservation area consent to be obtained before work is carried out that would damage the character and appearance of the area that the local public authority wishes to preserve and enhance.
During the consultation period that the local government authority must undertake when considering a development, third party groups are able to put forward objections (or support) that should be considered by the authority before deciding whether or not permission should be granted. In addition, even after a permission has been obtained, there will be a three month period within which a third party group is entitled to challenge (“judicially review”) the validity of granting the permit and this should be borne in mind before any work undertaking the development begins.
In addition to a planning permission, the building must also have approvals confirming that construction has taken place in accordance with applicable building regulations and health and safety legislation. Certain types of building may also have other kinds of certificate issued by independent bodies in relation to building or construction matters generally, such as BREEAM. Any property which is to be sold or leased must have a current Energy Performance Certificate (EPC) which rates the energy performance of a building (and makes recommendations for its improvement).
In relation to operations and activities on or within the property, various environment related permits may be required. This will depend upon the nature of such activities and operations. Most commercial activities will require a trade effluent consent or agreement with the local sewage undertaker. Where prescribed industrial or commercial activities are undertaken, environmental permits may be required from the Environment Agency or the local authority.
9. Insurance and Risk – What insurance will the parties effect and when does the insurance risk pass at the time of sale?
Before a sale is contemplated, insurance is generally the responsibility of the owner of the heritable interest in a property. However, where such property is the subject of a long lease or the property is a leasehold interest, the terms of the lease will prescribe which party has responsibility to insure. It is common for owners of long leasehold interests to insure rather than the landlord/heritable owner. Whatever the length of the lease, the tenant will generally insure the contents of the property belonging to the tenant and in some cases certain parts of the property for which the tenant is contractually responsible, such a plate glass.
The insuring party should have a fully comprehensive buildings insurance policy to protect the structure and fixtures and fittings of the property in the event of damage or destruction by any of a comprehensive list of insured risks, such as storm, lightning, fire and water damage. The policy may also cover additional special heads of cover such as subsidence, heave, earthquake and, if available, terrorism.
Generally it is the buildings, and not the land, which are insured for the reinstatement cost rather than the reinstatement value.
Insurance policies (the insurance contracts containing the contractual terms between the insurance company and the insured) may either comprise a single policy for one particular property or a block policy designed to cover a portfolio of properties.
Occupying owners generally have separate policies to cover the contents of the property, especially if the property includes costly plant and machinery. They will also be public liability insurance to cover liability to third parties arising from the property. These public liability policies will exclude most pollution and contamination risks (except those caused by a sudden and accidental event). Whilst not common, it is possible to purchase specialist cover for pollution and contamination risks.
On occasions where the seller has little or no knowledge of the property, such as an insolvency practitioner, or a particular issue is discovered, it might be possible to insure against any challenge to the title. This is called title indemnity insurance.
Insurance policies (except title indemnity policies) are personal and not transferable on sale. Where a sale is taking place, timing of the transfer of risk is normally prescribed by the sale agreement. Agreements for sale of leasehold land will still be governed by the insurance terms of the lease. It is common market practice for the parties to agree that the seller will continue to insure occupied property until completion.
10. Environmental – What are the common environmental issues?
Environment related sustainability issues are becoming more important. Currently, the most prevalent of these is the extent of greenhouse gas emissions attributable to the use of buildings and the potential impact of climate change on buildings. Considerable new legislation, policy, and voluntary commercial measures are being implemented. These are likely to have potentially far reaching impacts on development and refurbishment, although there is no consensus yet on whether there will be a significant impact on investment values of new and/or existing building stock.
Traditionally, the prime environment consideration has been potential soil and groundwater contamination as a result of current and former uses. Applicable environment law is a mix of common law and statutory law. Strictly, it is not unlawful for land to be contaminated and there is no absolute obligation to remediate contamination. Generally, legal obligations will attach if the contamination is causing, or has the potential to cause, harm or damage at particular levels (and these differ depending upon the applicable law). In principle, legal responsibility follows the “polluter pays” principle (i.e. the person who spilled, released or discharged the offending substance will normally be liable) but there are important qualifications to this. Environment laws may operate to make future owners and occupiers liable for contamination already present at the real estate when they acquire it. For instance, this may occur if the new owner fails to remediate harmful contamination of which it is aware or should be aware, if the original polluter can no longer be found or, by statute or contract, the risk is transferred by one party to another.
Acquisition due diligence may involve the appointment of environment consultants to consider documentary information and to carry out a site visit. If considered necessary, further, intrusive investigations may then be undertaken. It is important to identify potential problems early so that there can be negotiation on terms and/or price and the need for and scope of any remediation. This can include contractual allocation of risks, obligations to remediate (contamination discovered pre or post-acquisition), indemnities in respect of first party loss or third party claims, or purchasing specialist historic liabilities environment insurance to cover any of these risks. If development is proposed, then planning permission may be made conditional upon the proper investigation and remediation, if necessary, of potential historic contamination.
If planned development is of a type considered potentially detrimental to the environment, the application for planning permission may need to be supported by an assessment of the development’s likely future environmental impact.
The presence of nuisance weeds (such as Japanese Knotweed) or protected species (such as badgers or newts) are due diligence and potential planning issues. They may impede on-site activities; have cost implications and impact on the duration of development.
Those who have control of places of work have a duty to assess the risk of asbestos being present in the fabric of the building and to manage the human health risks posed by any asbestos found. Buildings built before 1999 are presumed to contain asbestos unless there is good evidence (such as building plans or asbestos survey) to the contrary.
11. Pricing/Valuation – What sets the price/valuation of real estate?
Pricing of real estate investments is a combination of the aggregate rent being paid by occupational tenants of the property and the value that investment buyers consider that a property of the specific type and location is worth at the time of valuation taking that income into account.
The rent for a particular property is likely to be assessed by multiplying the area of the property by the market rental value per square metre (although in the UK square feet are still used as an alternative measurement). The market rental value will take into account factors such as the location of the property, its type and condition, rents payable for similar properties in the same area, and the length of the lease term. The area of the property will be calculated by reference to the UK recognised Code of Measuring Practice, which uses generally accepted methods of calculation by reference to several core definitions, the most common of which are Gross Internal Area (used, for example, in relation to warehouses and industrial buildings) and Net Internal Area (used, for example, in relation to offices and shops).
In the case of retail shops, it is common for the rent of the property to have differential values according to the positioning of the floor space – that nearest to the frontage is the most valuable and will be described as “Zone A”. The rental values of the various areas will be added together to provide an overall rental value for the property.
The value of the property for investment purposes will generally be assessed by reference to the methodology laid down in the UK recognised Appraisal and Valuation Standards Manual, universally known as the “Red Book”. This governs the way in which a valuer will calculate the value, on the basis of a list of accepted assumptions according to the statements of practice. These apply to the specific use for which the valuation is made and in the case of investment property the valuation will be of “Market Value” as defined.
Investment properties are commonly referred to as being sold on a particular yield, meaning the investment return that will be gained from the capital sum which it is necessary to pay to buy the property. For example, where a property with an aggregate rent of GBP 100,000 is sold for GBP 2m, it will have a yield of 5%.
In short, the open market will decide the price of a property; whereas a fixed methodology – which will look at existing pricing – will set the valuation.
12. Taxes and Costs – What are they and who pays them?
The main tax on acquisitions of property is Land and Buildings Transaction Tax (LBTT). LBTT is a tax applied to residential and commercial land and buldings transactions (including commercial purchases and commercial leases). LBTT is designed so that the charge is proportionate to the actual price of the property. The percentage rate for each band in LBTT is applied only to the part of the price over the relevant threshold and up to the next threshold. The rates and bands for LBTT are as follows:

Residential Commercial
Purchase Price LBTT Rate Purchase Price LBTT Rate
Up to GBP 145,000 0% Up to GBP 150,000 0%
Above GBP 145,000 to GBP 250,000 2% Above GBP 150,000 to GBP 350,000 3%
Above GBP 250,000 to GBP 325,000 5% Above GBP 350,000 4.5%
Above GBP 325,000 to GBP 750,000 10%
Over GBP 750,000 12%

LBTT must be paid by the buyer within 30 days of completion of the acquisition. Failure to pay within the prescribed time is subject to significant penalties and interest. LBTT must be paid before the Land Register will process the buyer’s application for registration. If the interest being sold is the creation of a new lease, extra duty will be payable according to the amount of rent payable under the terms of the lease.
Value added tax (VAT) may also be payable, where the property is either “new” (less than three years old) or is the subject of a valid option to tax.
The exception to the rule that VAT is payable on the sale of an opted property is where the transaction constitutes a “transfer as a going concern”, where the property is let and operated as a business unit. Subject to satisfying certain conditions, this will usually mean that no VAT is paid on the sale of a property which is subject to leases granted to occupiers.
During the due diligence for the acquisition, the seller will also pay the costs of conducting searches, including in particular of the local authority (which includes zoning matters, building regulations and general municipal consents, notices, etc), and, if relevant, companies providing utilities, the Environment Agency and coal authority. The buyer will pay for any additional valuations and surveys of the physical state of the property which are required.
The seller and the buyer will pay the fees (or commission) of any land agent or broker employed by them.
Occasionally, the negotiated heads of terms for a transaction will provide for one or other party to pay the other’s costs. Generally each party pays its own expenses. If the property is leasehold, the tenant is usually responsible for paying the costs of obtaining any consent required from any landlord in order to sell.
Finally, the buyer will be responsible for the payment of the Land Register fees associated with registration of the transfer to the buyer. As no notarisation is required, no notary fees are payable.
Serbia
1. Parties and Ownership – Who can own real estate and what types of ownership are there?
Parties
Any domestic physical or legal person may acquire ownership rights over real estate such as residential and business buildings, apartments, business premises, garages, parking spaces (within the building), land plots and other real estate except for natural resources which are in state ownership. In addition to that, the law prescribes that some resources in general use such as state owned development land, forests and forest land may be subject to limited ownership rights defined by law.