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Cessation of the Right of use of the Construction Land
Recently we talked about what and which kinds of structures have to be constructed in order to transfer the right to the structure under construction. Purchase of a company or simulation of mortgage enforcement enable the desired transaction and/or acquisition of the structure under construction. It is not exactly what the investors like witnessing, but at least it does not prevent them from accomplishing their goal.
This time we are going to talk about something that can literally drive the investors away from acquiring any rights related to the use of the city construction land, whether the construction on it has started or not. That ’’dealbreaker“ to which this text is devoted is Article 86 of the Law on Planning and Construction which prescribes that the the persons to which right of use of the construction land were granted prior to this law coming into force shall lose it unless they have completed the structure construction (read: received occupancy permit) within the determined time limit. Time limits are different depending on when the land was given use of, in other words if the construction has started or not, whereas the longest time limit is three years from the date of the law coming into force. Since the Law became effective in May 2006, it is apparent that the right of use ceased (according to the Law) for anyone who:(i) got the use of land prior to the law coming into force, and (ii) did not get the occupancy permit for the built-up structure.The fact that Rulings on cessation of the right of use have not been enacted so far in the majority of cases does not make any difference as these rulings (at least in our opinion) have declarative rather than any constitutive character (hence, the right of use is neither established or ceased by them, however, it only determines the fact based upon the Law, that the right of use has ceased). Therefore, pursuant to Article 86, the right ceases based upon the Law itself and not on the grounds of the Ruling. Legal SolutionsHence, The Law is pretty clear with regards to cessation of the right of use of the land where the construction has not been completed. It does not foresee any exceptions, it does not say anything about the influence of the deadlines necessary for obtaining the permits, registrations and alike on the realization of the works within the time limits foreseen by the Law.
Such legal provision results in practical impossibility to transfer the right of the construction land given use of prior to law coming into force (whether the construction on that land has commenced or not), since no careful investor wants to invest their money in the development of the land where the right of use has expired according to the Law itself.We need to emphasize that we are not going to argue in this article the legal status in situations when the right of land utilization was acquired after coming into force of the Law whose Article 171 envisages that solving of the requests on individual rights and liabilities (such is e.g. the right of land utilization), submitted prior to the day the Law became effective, will be continued according to the regulations valid until the day of the new Law coming into force. In other words, we are not going to argue here the status of the right of utilization of those beneficiaries who acquired the legally binding and valid reason for registration of the right of use in the public registers after the Law came into force (and accordingly entered their right of utilization in the land book register and cadastral registry after the Law becoming effective) and if those persons are actually excepted from the effects of Article 86. This issue deserves special attention and it can be separate topic. Neither the Law nor the practice provide any answers to the question of the consequences of the cessation of the right. In fact, it is unknown what stand the state authorities will adopt in regard of the requests for return of the money invested in land development (it is quite possible to imagine the situation where the land is taken away from the beneficiary who reached the final construction phase).
Possible Practical SolutionsIn case the land is taken away (that is, Rulings on cessation of the right of use are issued), the former beneficiaries shall, most probably, have to accomplish their requests in the proceedings before the competent court. This further means that only via the court verdict shall be determined if the persons whose right of use of the construction land is no longer valid have the right of any compensation and, if they do, to what extent (whether they only have the right of return of the money paid as a the land development fee or of the investment value made on the grounds of the works performed according to the building permit).It is possible to imagine a situation in which the right of use has ceased for the investor who was in the finishing construction phase, but it is impossible to predict what will really happen if that actually occurs. In fact, perhaps a number of different situations might be predicted, which exceeds the space at disposal for this article (e.g. maybe the investor is left without any compensation regardless of the fact that he waited without any fault of his own for the building permit issuance, he may get compensation only for the amount spent on land development but not for the funds spent on construction, it is possible to deprive the former beneficiary of any sum which was to be paid to him in the amount necessary for demolition and removal of the built-up structure, etc.).
Possible scenariosOne is absolutely certain – as long as ex lege the right of use has ceased, the serious and conservative investor shall avoid any investments in the real estate classified under the category falling under Article 86 of the Law, and the current beneficiaries shall have to face the insecurity reflected in the fact that it is neither known if their property will be taken away or not, nor if and up to what amount they will be compensated for what they invested, whilst all those who expect increase of investments and development in spite of the present economic crisis will be disappointed.
Due to all this we hope that someone will seriously deal with this issue and eliminate any uncertainties that may be fatal for further development. At the same time we apologize to all those who expected this article to give answers and not to raise questions.
Written by Nenad Stankovic