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Ownership under the Croatian Tourist Land Act

June 2011 - Corporate & Commercial. Legal Developments by Wolf Theiss.

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Background During the 1990's, companies in Croatia experienced a process of privatisation which saw socially-owned companies being sold to private investors.

During the time of social ownership, companies only had the right to use their assets rather than having full ownership over them. As a consequence, in the course of the privatisation process the companies involved were obligated to list the properties used by them and assess the value of such assets. Based on the list of properties included in such assessments, the companies acquired ownership over the assets previously used by them. The Croatian Privatisation Fund ("CPF") was overseeing the entire process and had to decide whether an assessment of a company's assets had been undertaken in compliance with the law, i.e. whether all correct assets had been included in the assessment or if certain assets to be included had been omitted from the assessment, for whatsoever reason. Assets excluded from the assessment, consequently, could not be acquired by the company. Sure enough, the most valuable part of any company's assets was the real property used by the companies involved.

At that time it was the opinion of the Ministry of Tourism and the Ministry for Environmental Protection, Spatial Planning and Housing Affairs that the very attractive real properties along the coastline, which were used by tourist companies, should be excluded from the value assessments of such companies and therefore fall under the ownership of the Republic of Croatia and/or local municipalities. This was part of a general strategy aimed at developing the tourism industry in Croatia and intended to make such valuable and highly attractive land available to tourist companies on a use concession basis rather than enabling said companies to acquire actual ownership of the land. The CPF took this strategy into consideration during the transition and privatisation process and refused to allow most of the tourist companies to acquire land along the coastline. However, at that time no legislation was in force for the Republic of Croatia or any local municipalities to register their ownership of said land properties. Therefore, the ownership status of such properties remained uncertain for many years after the privatisation process had already been completed.

New Ownership Regime

In order to finally establish the ownership status of such "non-assessed" land, the Croatian Parliament recently passed the "Act on the Tourist and Other Construction Land Not Assessed During the Transition and Privatisation Process", which became effective on 1 August 2010 (“Act”).

The Act provides different legal regimes for (i) camping sites, (ii) land on which buildings (hotels, apartments) had been constructed at the time the privatisation process was initiated, and (iii) other types of land subject to the Act.

Camping Sites

The Act provides that the Republic of Croatia is the owner of all camping sites that had been entirely excluded from the value assessment of companies involved in the privatisation process. In cases where only parts of camping sites have been included in the assessment of a company's value, the company becomes a co-owner of both, the included and the non-included land together with the Republic of Croatia. The ownership share of each co-owner corresponds to the ratio of the included land and the non-included land.

In the case of co-ownership, the company has the right to buy out the Republic of Croatia for the market price of its ownership share, provided that the company owns more than half of the land. Otherwise, the Republic of Croatia has said right.

If none of the co-owners exercises the buy-out right, the company has a priority right to be granted a concession over the portion of the land owned by the Republic of Croatia. However, the company must file an application for a concession before 1 August 2012 in order to exercise such right. The maximum term of the concession is fifty years. If the company decides not to apply for a concession or otherwise fails to meet the deadline for submitting its request, the priority right expires and the concession may be put to a public tender.

The conditions for obtaining a concession as well as its fees have yet to be determined by the Croatian government.

Hotel Land

In certain cases during the privatisation period, companies solely assessed buildings (mostly hotels and apartment blocks) as their assets along with the surrounding land, but not the entire land plot the building was situated on. Sometimes merely the buildings without the land they had been constructed on were assessed.

In such cases, the company may only acquire ownership over the part of the land plot assessed as its asset. In cases where only a building was assessed, the company may only be granted ownership over the land underneath the surface area of the building. The owners of the remaining "non-assessed" land are local municipalities.

In contrary to the above regarding camping sites, the law does not provide for co-ownership of the companies and the local municipalities. Therefore, the companies and the local municipalities may only acquire full ownership over the parts of the land plots that belong to them. For that purpose, by 1 February 2011 at the latest, either the company or local municipality has to request the competent administrative body to allow for the division of such land plot. The size and surface area of the newly formed land plots must correspond to the combined area of the included and the non-included portions of the previous land property. Once divided, each party has to request for registration of its ownership over the newly formed land plot by 1 August 2012. The Republic of Croatia becomes the owner of all newly formed land plots the registration of ownership has not been requested for in a timely manner.

The Act entitles the company to acquire a newly formed land plot from the local municipality, provided that the newly formed land plot has been used in connection with the ordinary use of a building (e.g. car-park). In order to exercise this right, the company may request from the local municipality to sell the newly formed land plot it had acquired. The municipality is obligated to comply with the company's request. For cases of such "technical unity" of a building and the land, no deadlines for exercising the purchase option are stipulated.

Furthermore, the company has an exclusive right to be granted a concession over the land surrounding its business premises acquired by a local municipality. In order to exercise this right, the company must file a concession request by 1 February 2011; as otherwise the concession right may be offered in a public tender.

Other Types of Land

There are also other types of land, besides tourist land, subject the Act which had not been acquired during the transition process by the companies using them.

In such cases, the Republic of Croatia became the sole owner of the land initially not included in the assessment. In case of a partial assessment, the Republic of Croatia is a co-owner together with the company involved. If only a building without land has been assessed as a company’s asset, the Act provides for the company to become the owner of the land underneath the surface area of the building.

The company involved has a right to purchase from the Republic of Croatia the land it had previously been using, provided that such land was not assessed, is not underneath the surface area of a building and has been used for the ordinary use of a building owned by the company. The Act states that the market price has to be paid for the land purchased from the Republic of Croatia, however, the mechanism for calculating the price has yet to be determined by the Croatian government.

We recommend thoroughly reviewing the status of any land property that may be subject to the provisions of the Act. Only on the basis of such review along with a cost/benefit analysis the most efficient strategy regarding the options as provided by the Act can be determined.

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