Slovenia: Real Estate

The Slovenian legal system is a civil law system. Ownership of real estate is transferred from seller to buyer through the registration in the Land Register, with the Land Register permission issued by the owner being a necessary prerequisite. Although the issue of Land Register permission is a legal transaction distinct from the contract of sale, an invalid contract renders the issue invalid.

Slovenian procedural law provides for interim measures such as interim injunctions. To obtain an interim injunction the party should demonstrate sufficient basis to bring legal action and the threat that imminent and irreparable or only marginally reparable harm will occur if an interim injunction is not granted. Some injunctions can be recorded in the Land Register and affect not only the parties to the dispute but also any third party. Generally, courts do not rule in equity. In cases where there is no provision in law that can be used to answer the questions raised in the proceedings, courts can rely on general principles of law. Parol evidence is generally admissible.

A contract of sale for transfer of real estate and Land Register permission must be in written form, therefore oral contracts are ineffective.

Real estate matters are regulated by the Law of Property Code, the Code of Obligations and the Land Register Act. These regulations lay down rules regarding the acquisition and transfer of property as well as formal requirements for the transaction itself, whereas some other restrictions, for example pre-emption rights of municipalities or administrative approvals of transfers, can be found throughout the legislation if the property that is the subject of transaction is located in certain areas.

In Slovenia, a system for registration is provided for through the electronic Land Register, being the main source through which the ownership of real estate is proved. The Land Register contains all legal information related to every individual property, including ownership, encumbrances (such as easements, mortgages, etc) and injunctions. All information is publicly accessible in electronic form free of charge. The content of the Land Register is presumed to be correct and anyone who relies on its contents acting bona fide should not suffer any detrimental effects, unless inaccuracy is known to such person.

The transfer of ownership as well as the establishment and transfer of encumbrances require registration in the Land Register. Registration is made on the basis of Land Register permission that requires the notary-verified signature of the person establishing or transferring the right. Since the Land Register permission is legally separate from the contract of sale – although it is usually included in the wording of such contract – failure of registration, if not agreed otherwise, does not make a transaction void or voidable. The consequence of such failure is that the buyer does not acquire ownership of the property until registration is made. Registration of ownership and other rights guarantee title and priority.

There are no legal restrictions for legal entities and natural persons from EU member states, while legal entities and natural persons from non-EU countries are allowed to acquire real estate only under the condition of reciprocity, i.e. if Slovenian legal entities and natural persons are allowed to acquire real estate in that country of origin.

Under Slovenian law there are different categories of legal ownership of real estate, while the concept of “proprietary interest” as known in common law is not applicable.

The most common category of legal ownership is the ownership of a plot of land. In accordance with the superficies solo cedit principle, the owner of the plot also owns everything that is permanently connected to the plot. Different categories of legal ownership also include a building right (the right to erect and own a building on or under a piece of land for a maximum of 99 years) and a condominium regime (whereby a building is divided into strata-title units that can be the subject of individual ownership).

Ownership may be limited by different rights in rem, the most limiting being the usufruct, a personal servitude status granting the right to use and enjoy a piece of real estate owned by someone else so that its substance is maintained – in this case the owner is left only with the ownership title to the real estate, but does not, however, have the right to use it (nuda proprietas). Real estate may also be encumbered by other types of easements (right of way, access, driving, etc) instituted in favour of the dominant piece of real estate or a land charge (whereby the owner of the encumbered real estate is obliged to perform certain periodical services or duties).

All rights in rem (including mortgages) can be instituted or transferred only by way of a written agreement and must be entered into the electronically held Land Register in order for the holder to be able to rely on them against third parties (the publicity of the Land Register principle). Should a right in rem not be entered into the Land Register, it shall be deemed non-existent as regards bona fide third parties that rely on the information entered into the Land Register.

As regards leaseholds, it must be noted that Slovenian law differs between ordinary leases, residential leases, leases of commercial premises and leases of agricultural land. Ordinary lease agreements are generally governed by the background provisions of the Code of Obligations; however, in the case of residential, commercial and agricultural leases, mandatory provisions of the Housing Act, Commercial Buildings and Commercial Premises Act and Agricultural Land Act must be observed respectively. The most notable restrictions of the above-mentioned statutes include the prohibition of subletting without the consent of the lessor, the fact that the lease agreement for commercial premises may only be terminated in a time-consuming court proceeding, and that the lease agreement for agricultural land may only be concluded for a minimum of 10 years and must be registered in the Land Register.

As already provided in the previous answer, generally the owner of the plot also owns everything that is permanently connected to the plot (such as building). Nevertheless, there are legal ownership categories which represent an exemption to the superficies solo cedit principle such as a building right and a condominium regime, both outlined in the previous answer.

Investment entities can take several different legal forms. Those forms are unlimited liability company (d.n.o.), limited partnership (k.d.), limited liability company (d.o.o.), public limited company (d.d.) or partnership limited by shares (k.d.d.). The best shield for ultimate owners is the limited liability company as a vehicle for real estate ownership. All entities are required to pay taxes and fees when acquiring real estate.

The most common form of entity used by foreign investors is the limited liability company (d.o.o.). Such an entity can be formed by only one shareholder, individual or legal entity, has a simple organisational structure that can be modified according to the investor’s needs and generally shields the shareholders from liability for actions of the company or its debts, while the minimum share capital is a mere €7,500.

Furthermore, there are no minimum capital requirements for unlimited liability companies and limited partnerships, while in the case of public limited company a minimum share capital is €25,000, the same as for the partnership limited by shares.

In Slovenia, a buyer typically commissions a law firm to conduct thorough due diligence regarding the property in question. This is done primarily by examining the electronically held and publicly accessible records (Land Register, Land Cadastre, Building Cadastre, etc) and, if necessary, by cooperating with other government bodies (eg, to verify that the real estate in question is not an object of restitution).

During a due diligence process, a lawyer customarily also reviews all ownership transfer, easement, mortgage, brokerage, service, loan, facility, property management, insurance, construction and lease agreements and any other type of agreements and permits (such as construction and fit-for-use permits) that might be necessary given the property in question. Also, due to the nationalisation of private property in the 20th century and the subsequent return of said property, a lawyer usually also examines the existence of any potential restitution claims and other circumstances that might jeopardise the buyer’s ownership title.

Given the fact that the Land Registry is held electronically and publicly accessible and that the person relying on the information contained in the Land Registry may not suffer negative consequences as a result of relying on such information, legal issues which could not be covered by usual due diligence seem unlikely to occur. Any potential defects or problems relating to the ownership of real property are usually eliminated in the due diligence process and additionally contractually regulated between the contracting parties themselves.

It is quite common in Slovenia, following the negotiations, to execute a preliminary contract that binds both parties to enter into the subsequent, main contract within the agreed deadline, given that a preliminary contract is recognised by the Slovenian Code of Obligations as binding and thus enforceable in court. Often, the obligations deriving from a preliminary contract shall be reinforced through earnest payment, typically amounting to 10 per cent of the purchase price (earnest payment is also proof of the contract’s being entered into, as well as a kind of liquidated damages in the case of non-fulfilment of the contract).

Ownership of real estate is transferred from the transferor to the transferee by way of registration in the electronically maintained Land Registry, with the Land Registry permission issued by the transferor being a necessary prerequisite for such registration. In order for a Land Registry permission to be registered with the Land Registry, the parties must first conclude an appropriate written contract and fulfil all of the administrative and tax-related requirements. All transfers, as well as the underlying contracts and Land Registry permissions, are recorded in the publicly accessible Land Registry.

Both transaction options are applicable in case of real estate transfer, while the choice between the two is contingent upon the aim of the transfer and the tax aspects.

The transfer of ownership of real estate does not however affect the pre-existing leases with all the associated rights, while each (new) acquirer of the ownership right enters into the legal status of the previous one, as this is the case both in commercial lease and in ordinary (residential) lease.

See answer number 5.

The split of legal and beneficial ownership of real estate are not recognised under Slovenian law, whereas the beneficial ownership is not known as such.

As the beneficial ownership is not known under Slovenian law, there is no such requirement. See answer number 14.

Asset deals concerning real estate are usually taxed by the 2% Real Property Transaction Act, payable by the seller, however, the parties may agree that such tax be borne by the buyer. If certain specific conditions are met, such transactions may also be taxed in accordance with the Value Added Tax Act (22%, however tax neutral if both parties are subject to value added tax). Obligations concerning taxation must be fulfilled prior to registration in the Land Registry. In the case of share deals, the buyer enters into the position of the owner of real estate which is why such transaction is not viewed as a real estate transfer, however, share deals may be subject to the payment of Corporate Income Tax, currently amounting to 19%. The contracting parties are free to agree on who bears the liabilities for taxes and duties in relation to the real estate.

Rents or lease terms are, in principle, freely negotiable, with the exception of limits mentioned in the following paragraph and some specific and untypical mandatory provisions that may not be derogated from.

Therefore, it must be pointed out that Slovenian law differs between ordinary leases, residential leases, leases of commercial premises and leases of agricultural land. Ordinary lease agreements are generally governed by the framework provisions of the Code of Obligations; however, in the case of residential, commercial and agricultural leases, mandatory provisions of the Housing Act, Commercial Buildings and Commercial Premises Act and Agricultural Land Act must be observed respectively. The most notable restrictions of the above-mentioned statutes include the prohibition of subletting without the consent of the lessor, the fact that the lease agreement for commercial premises may only be terminated in a time-consuming court proceeding, and that the lease agreement for agricultural land may only be concluded for a minimum of 10 years and must be registered in the Land Registry.

Development, construction, spatial planning and use of real estate are regulated by the state and local authorities through urban development plans of municipalities, which determine the use of specific plots. Construction is only allowed after acquiring a building permit. This permit can be granted only if construction is provided for in urban plans. Urban development plans determine which construction projects are allowed at certain locations, their size and type.

Control is exercised in the construction permit obtainment procedures, as the competent authorities are obliged to reject the request for the issue of a construction permit if the intended construction contravenes the provisions of the applicable spatial plan. Some existing structures are protected because of their cultural or historical importance and can be renewed, modified, reconstructed or replaced only with approval of the competent administrative authority and within the scope of their instructions.

Under the Environmental Protection Act, the polluter pays principle applies. This means that polluter is responsible for the elimination of any excessive pollutants and related consequences and is liable for all costs of measures taken in order to prevent or reduce pollution or environmental risk. Allocation of liability in respect of environmental clean-up is commonly regulated by the contract, as typically one of the representations and warranties of the seller is a declaration that the object of sale is free from any contaminants. Should such a declaration of the seller prove to be false and it is established that the object of sale is encumbered with a factual defect (contamination), the buyer is entitled to demand that the seller remedy the breach at its own expense, demand a proportionate reduction of the purchase price or withdraw from the contract.

Expropriation is only permitted if it is required for the public benefit (with the term ‘public benefit’ being defined by different statutes) and this benefit cannot be achieved without it. Furthermore, the public benefit has to be in the proportion with the intervention into the private ownership, while the expropriation is only permitted if subject to compensation or remuneration in kind.

A contractual mortgage (on the basis of a legal transaction), must be registered in the Land Registry, which is why such an agreement is usually concluded in the form of a notarial deed. The entry into the Land Registry shall be made on the basis of a document containing the land register permission. In Slovenian law a mortgage can also be established on the basis of a court decision with its entry in the Land Registry and in some exceptional cases also on the basis of the statute provisions itself when all the conditions prescribed by the law are fulfilled.

If the debtor fails to pay a claim within the deadline the creditor may demand in a suit that the pledged immovable be sold. On this point it is to be outlined that the contractual mortgage can also be created on the basis of a directly executable notarial protocol. In this case the creditor may demand that the notary establish that the claim has matured and sell the pledged immovable and repay the creditor or propose direct execution, where a lawsuit is not necessary.

A mortgage (of any kind) extinguishes by deletion from the land register while it expires ten years from the day on which the secured claim fell due.

The creation of a mortgage is under Notary Tariff subject to notary fee, which varies according to the form that has been chosen to create a mortgage. After the completion of transaction in which a mortgage is stipulated, it has to be registered in the Land Registry for which an additional registration fee applies.

No, under Slovenian law trust structures for mortgage security are not recognizable.