Contributed by Jadek & Pensa.
1 Real Estate Ownership
1.1 Legal Framework
The right to private property is a constitutional right in Slovenia. The key source of law is the Property Code, adopted in 2002. This act is very stable and has so far been amended only twice. It is one of the core acts within the Slovenian legislative environment. Contractual relationships between the parties are regulated by the Code of Obligations, another highly important and stable act within the Slovenian legislative environment.
The Property Code recognizes five rights in rem, i.e., ownership right, lien, easement, right of encumbrance, and the right of superficies (the building right).
As regards specific restrictions for foreigners on the acquisition of RE, please see Section 2.1.
There are clear rules on expropriations in place. The Constitution of the Republic of Slovenia provides that ownership rights to real estate may be revoked or limited in the public interest with the provision of compensation in kind or monetary compensation under conditions established by law. The act regulating expropriations is the Spatial Planning Act which also determines the conditions thereof.
1.2 Registration of Ownership
The rights in rem are registered in the land register, managed by the Slovenian local courts. It is presumed, that the owner of immovable property is the person entered in the land register. The same applies to other rights in rem. One of the main principles of the Slovenian Law of Property Code is the principle of trust in the land register – whoever acts in a fair way during the course of legal transactions and relies on the data, which has been entered in the land register with regards to rights, shall not suffer any damaging consequences.
1.3 Publicity of Real Estate Register
The entries in the land register are public. The land register is accessible online.
1.4 Protection of Ownership
The entries in the register are binding. In accordance with the Slovenian Land Register Act any person who believes that their rights on the immovable property have been infringed by an entry in the land register may, within three years of the day the established land register begins to be used, request, by an action filed against the holder of a registered right, that the court:
- determines the existence of such person’s ownership rights, and decides that the registered right is to be deleted and that the right is to be registered for such person’s benefit, or
- determines that another right in rem exists on the immovable property for such person’s benefit, and decides that the right is to be registered for such person’s benefit, or
- determines that there is no other right in rem on the immovable property, on which the ownership rights are registered for such person’s benefit, and decides that the challenged right is to be deleted.
The filing of an action shall be noted in the land register.
Such an action is, however, not permissible against persons acting in good faith for whose benefit a right has been registered or preliminarily entered with effect before the moment at which the note in the land register has come into effect.
2 Real Estate Acquisition
2.1 Share Deal or Asset Deal?
RE can be disposed to investors via a share deal, i.e., buying a share in a company that owns the real estate, or as an asset deal, i.e., selling the real estate in question.
In a share deal, the buyer acquires shares in the target. With the acquisition of shareholding, the buyer becomes the owner of the target as a legal entity as a whole including all of the target’s assets, rights, claims, and liabilities. Also, all of the target’s contracts with third parties with all related rights and obligations as well as approvals, permits, and registrations are automatically acquired. The target’s business continues to be performed irrespective of the change of ownership except if there are any specific contractual or statutory provisions requiring obtaining consent in case of a change of ownership.
In an asset deal, the buyer acquires either all or individual assets such as for example real estate, production facilities, machinery, and licenses directly from the target. The business is therefore continued under a new, different legal entity (the buyer or one of its subsidiaries). This option allows the buyer to select the most attractive assets. The approvals, permits, and registrations are typically not transferred and must be reacquired by the buyer.
Share deal leads to the assumption of all the existing claims and liabilities of the target whether known or unknown to the buyer. In principle, by contrast, in an asset deal, there is no such automatic transfer of rights but only in the case of the purchase of individual assets or assets that do not form a business unit. However, if the buyer acquires assets forming a business unit, this also triggers under Slovenian civil law, statutory assumption of joint and several liability by the acquirer (together with the seller) for the obligations related to such transferred assets up to the amount (value) of the transferred assets. Contractual exclusion or limitation of this liability of the acquirer and/or the seller in such transaction is not effective.
As regards the existing contractual obligations, in a share deal, there is no change. Because the buyer only steps into the shoes of the seller, as the owner of the target, the business of the target continues uninterrupted and contracts remain in place (unless individual contractual agreements of the target give the counterparty the right to terminate; i.e., under a change of control clause). In an asset deal, any contracts/business relations among the target and its counterparties to be transferred (as part of the business/assets transfer) will require the consent of a counterparty to such contractual relationship. If the RE is leased to a tenant, the lease agreement is automatically transferred to the new owner of the RE. The seller remains jointly and severally liable together with the buyer for any obligations under such lease agreement (see below under Section 6.1).
In relation to the participation of employees’ obligations, in a share deal change of ownership in the target does not trigger rules that give the employees the right to block the transaction, but the employees/worker’s council has information/consultation rights. In an asset deal, transfer of business (assets) can require consultations with employees (worker’s council), who have the right to stay the execution of asset transfer and to initiate procedures for the settling of the dispute within eight days of receiving information about the anticipated asset deal, if: (i) the workers’ council was not acquainted in advance with the intention to transfer the assets, (ii) the information time limits were not complied or (iii) joint consultations on these issues were not requested.
As regards the FDI, the following conditions for FDI notification/clearance are applicable for foreign investors (i.e., a natural person with citizenship outside of the EU or entity with its seat outside the EU; notification obligation applies if there is an entity/person that is considered a foreign investor anywhere in the ownership chain); share deal would be caught by the definition of foreign investment, whereas pure asset deals (sale and transfer of assets) between Slovenian entities are not caught by a definition of foreign investment under Slovenian law, as the notification obligation is triggered with acquiring at least 10% equity or voting rights in a Slovenian company. However, greenfield investments are caught by the definition of foreign investment (e.g., establishing a Slovenian SPV in which a foreign investor shall directly or indirectly hold at least 10% equity or voting rights). In this case, the foreign investor should include the details of the asset deal in its FDI notification.
One of the reasons for acquiring the RE via a share deal is also the possibility of the tenant terminating the lease agreement in case of a change of RE ownership (while respecting the statutory termination deadlines) which would not apply in the case of a share deal. Further, RE in Slovenia by foreign physical persons or legal entities can only be acquired on condition of reciprocity (not applicable for EU physical persons or legal entities, OECD members, EFTA, persons with the status of a Slovene without Slovene citizenship, legal heirs and foreign testamentary heirs who would also be heirs by intestate succession when acquiring title to immovable property by inheritance and foreigners from the former republics of the SFRY who fulfilled all the conditions for registration before December 31, 1990). There are no such limitations in the case of a share deal.
In practice, share deals are more common than asset deals. A share purchase agreement regularly focuses on representations and warranties whereas an asset purchase agreement requires detailed identification of every single asset to be transferred.
2.2 Share Deal
In the relation between the parties, the share is transferred at the time of transfer as agreed between the parties. In the relation between the buyer and the target, under the law, the buyer can exercise its shareholders’ rights (vote as a shareholder in assembly, distribute profits, etc.) at the time the share transfer is registered in the court register. The transfer will be registered (retroactively) as of the time the application is filed, however only after the court issues a resolution (much like the process in the land register). The filing for share transfer can be made by the notary as instructed, usually at closing shortly after the transfer deed is signed. The court would normally issue a resolution on the share transfer in 3-7 business days, depending on the workload and time of year (holidays, etc.), but there is no statutory deadline. The resolution becomes final 30 days after it is issued if no party appeals. Waivers do not speed up this process because any entitled third party may appeal and the notary or court will confirm the finality only after the expiry of 30 days from the date of resolution. The buyer may already at closing appoint new managers, change the articles, etc. and the target shall file these changes with the court register together with the transfer of the share, pending the decision of the court on the share transfer.
The share purchase agreement for business shares in a limited liability company (SPA) must be entered into in the form of a notarial deed. The SPA has to be filed with the court register for the transfer of shares and is kept in the court’s public records. It is not available online, but in practice, anyone can receive a copy from the register in person. When parties desire to keep the whole SPA confidential the transaction can be structured in a way that a short-form transfer deed (also a notarial deed) is executed at closing to which the full long-form SPA is attached, but not filed with the court register.
Any notarial deed entered into with a foreign party may be executed in English or Slovenian. The document filed with the court must be translated into Slovenian.
The risks in the transaction documentation are usually addressed with warranties/indemnities.
There are no court fees connected to the share deal. For the costs of the notary, please see Section 2.4.
2.3 Asset Deal
The asset deal is concluded in the form of a written agreement between the seller and the purchaser. Key factors to be considered by the investor are ownership of RE to be purchased, encumbrances of RE (including those not entered in the land register), access to public roads, potential illegality of buildings located on RE, potential contamination of the land, and similar. The risks transferred to the buyer depend on whether or not the liability of the seller is excluded (the “as-is” clause).
The court fees for entering the new owner in the land register depend on the value of the real estate concerned.
2.4 Disposal Process
With the share deal, the share purchase agreement for business shares in a limited liability company (SPA) must be entered into in the form of a notarial deed. The SPA has to be filed with the court register for the transfer of shares and is kept in the court’s public records.
With the asset deal, the contract needs to be in written form. It needs to include the so-called “intabulation clause,” allowing the purchaser to be entered into the land register as the owner of the real estate. The signature of the seller needs to be notarized by a notary public. The contract may also be concluded in the form of a notarial deed, but this is not mandatory. In case the property tax shall be paid, the seller needs to file an application with the tax authority within 15 days of the conclusion of the agreement. The application needs to be accompanied by the original sale and purchase agreement and proof of ownership if this is not evident from the land registry. If the land is vacant building land, it shall also be accompanied by the location information issued by the municipality and, in the case of the sale of agricultural land, by a final decision of the administrative unit approving the transaction or stating that no approval is required. If there are any pre-emptive rights of the RE to be transferred (e.g., the pre-emptive right of a co-owner of the RE) the application should be accompanied by a waiver of the pre-emptive right. Although not required by law, project documentation is usually handed over to the buyer.
A notary public shall be liable to a client for damages caused by a breach of the duties or powers provided for in the Notarial Act.
For the preparation of notarial deeds, private deeds, and for the payment of other notarial services where the value of the subject matter is known or can be determined, the fee shall be assessed on the value of the subject matter to which the service relates. The basis for the assessment of the fee shall be the turnover value of the object at the time of the conclusion of the transaction, without deduction of debts.
2.5 Registration of Change of Ownership
In a share deal, the filing for share transfer can be made by the notary as instructed, usually at closing shortly after the transfer deed is signed. The court would normally issue a resolution on the share transfer in 3-7 business days, depending on the workload and time of year (holidays, etc.), but there is no statutory deadline. The resolution becomes final 30 days after it is issued if no party appeals. Waivers do not speed up this process because any entitled third party may appeal and the notary or court will confirm the finality only after the expiry of 30 days from the date of resolution.
In an asset deal, the notary files an application for the change of RE ownership with the land register court. The court usually enters the new owner within one month, unless there are other notices of pending actions entered with the real estate that need to be resolved first.
2.6 Risks To Be Considered
Pre-emptive rights need to be considered both in a share and in an asset deal.
With a share deal, in case the shares are co-owned in a limited liability company, co-owners have a pre-emptive right. In an asset deal, co-owners of RE (including in some situations of RE in condominiums, see below under Section 5.1.) also have a pre-emptive right. Pursuant to the Slovenian Code of Obligations, the seller needs to notify the pre-emption beneficiary of the intended sale, i.e. of the buyer and the conditions of sale, and offer the pre-emption beneficiary to buy the share/RE under the same conditions. The pre-emption beneficiary must notify the seller in a reliable manner regarding a decision to exercise the right of pre-emption within thirty days of receiving notification of the intended sale. At the same time as declaring the purchase, the pre-emption beneficiary must pay the purchase money stipulated in the owner’s notification of the intended sale or deposit it with the court.
If the seller sells an asset and transfers ownership to a third person without notifying the pre-emption beneficiary and the beneficiary’s right of pre-emption was known or could not have remained unknown to the third person, the pre-emption beneficiary may within six months of learning of the sales agreement demand that the agreement be annulled and the asset be sold to the beneficiary under the same conditions. If the seller erroneously notifies the pre-emption beneficiary regarding the conditions of the sale to the third person and this was known or could not have remained unknown to the third person, the six-month deadline shall run from the day the pre-emption beneficiary learned of the true contractual conditions. The entitlement shall in any case terminate five years after the transfer of the property to the third person.
Pre-emptive right on RE may be determined by the municipality with a decree. Such pre-emptive right may be established on building land, in the settlement development area, in another regulatory area, on agricultural, forest, water, and other land for the construction of public utility infrastructure facilities and facilities used for protection against natural and other disasters and in the long-term settlement development area. Further, the state may determine an area of a pre-emptive right in the area of the state spatial plan (DPN), in the area of regulation on the most appropriate variant, and in the area of the national spatial development plan. The owner of a property in the pre-emption area shall first offer the property to the state or municipality as the holder of the pre-emption right for purchase before selling it. The offer and the conditions of sale contained in the offer are not negotiable between the owner of the property and the state or municipality. The state or the municipality shall declare its acceptance or rejection of the offer in writing within 15 days of receipt of the offer. The statement of rejection shall state the date of receipt of the offer and the price offered. If the state or municipality does not submit a declaration of acceptance of the offer within 15 days of receipt of the offer, the state or municipality shall be deemed not to have accepted the offer. In this case, the owner may sell the property to another person, provided that the price is not lower than that offered to the state or the municipality.
The state or the municipality can also have a pre-emptive right if the sale concerns a monument of national or local importance, respectively. The state further has a pre-emptive right on the land in protected nature conservation areas, on the land on which war graves are located, and on the water land, whereas the municipality is a pre-emption beneficiary on inland waters coastal land.
The special regime further applies in relation to agricultural land and forests. For such transactions, the competent administrative unit needs to issue an approval. In addition, a special regime applies to water and coastal land.
Pre-emptive rights or special regimes related to RE do not apply in a share deal.
3 Real Estate Financing
3.1 Key Sources of Financing
A key source of financing is loans. The loan agreement is regulated by the Slovenian Code of Obligations. There is no special requirement that the loan agreement be in writing unless it is concluded with a customer (physical person). In such cases, it shall be in writing or on other durable media. Financing is also possible by issuing real estate bonds.
3.2 Protection of Creditors
Loans are usually secured with a mortgage. The buyer may also secure the repayment of the loan by pledging other assets or with a fiduciary assignment (assignments of claims as collateral).
4 Real Estate Taxes
4.1 Transfer Taxes
The main tax to be paid is the real estate transfer tax (RETT) which amounts to 2% of the value of the real estate.
VAT is charged on (a) the supply, before the first occupation of a building or parts of a building and of the land on which the building stands and (b) the supply of building land. The supply is subject to VAT at the standard rate (22%). However, a lower rate of VAT applies to the supply of apartments, dwellings, and other buildings intended for permanent habitation, and parts of buildings, where they form part of a social policy. In other cases, and under certain conditions the parties may also opt for VAT. If VAT is charged, the sale is exempt from paying the RETT.
In case the building land is transferred as a going concern, neither VAT nor RETT is payable.
Under certain conditions also capital gains tax shall be paid.
4.2 Specific Real Estate Taxes
The tax to be paid in connection with the ownership of a RE right is the compensation for the use of building land (NUSZ).
5 Condominiums
5.1 Legal Framework for Condominiums
Condominiums exist in Slovenia. It is defined as the ownership of an individual unit of a building and the co-ownership of common parts. An individual unit of a building must represent an independent functional whole that is suitable for independent use, such as a flat, a business premise, or some other independent premises. Other individually apportioned spaces may also belong to individual units of a commonhold if they form part of an immovable property in the co-ownership of commonhold unit owners. Common parts of a building are other parts that are intended for common use by the commonhold unit owners and the land on which the building stands. Other immovable property can also be considered to be common parts.
Co-ownership by all commonhold unit owners over the common parts shall be inseparably linked to ownership over the individual units. Co-ownership over the common parts of a building cannot be waived.
None of the co-owners may request the division of the co-ownership over the common parts.
A commonhold may only be at the disposal as a whole.
If an immovable property is owned by two or more commonhold unit owners and does not have more than five individual units, the other commonhold unit owners shall have a pre-emption right with regard to the sale of an individual unit of the commonhold.
5.2 Rights and Duties of Co-Owners
Co-owners shall have the right to possess an asset and to use it together with the other co-owners in proportion to their undivided share, without thereby violating the rights of the other co-owners.
Co-owners shall have the right to jointly manage a co-owned asset.
If the subject of the co-ownership is an immovable property, the other co-owners shall have a pre-emption right to buy that property when it comes up for sale. If the pre-emption right is exercised simultaneously by two or more co-owners, they may exercise their pre-emption right in proportion to their respective undivided share.
5.3 Liability of Co-Owners
Please see above.
5.4 Rights and Duties of Condominium Associations
The commonhold unit owners shall conclude a contract on mutual relations. If an immovable property is owned by more than two commonhold unit owners and has more than eight individual units, the commonhold unit owners shall appoint a manager. The appointment of a manager shall be considered a regular management operation. Further, if a building has more than two commonhold unit owners and more than eight individual units, the commonhold unit owners shall set up a reserve fund to cover future regular management costs. The funds of the reserve fund shall be common property of the commonhold unit owners. The funds shall be managed by the manager separately in a special account.
The rights and obligations of commonhold unit owners with regard to the common parts shall be proportionate to their respective co-ownership shares unless otherwise provided by an act or a contract.
As regards the duties of commonhold unit owners, a commonhold unit owner shall ensure repairs to his or her individual unit of the commonhold if this is necessary in order to avert damage to other parts of the building. Further, a commonhold unit owner may carry out alterations to his or her individual unit of the commonhold without the consent of the other commonhold unit owners, provided that such alterations do not entail the deterioration of any other part of the immovable property. Whenever alterations to an individual unit of a commonhold represent a major intervention in the common parts, a commonhold unit owner may not start carrying out the work without the consent of the other commonhold unit owners who have co-ownership shares of the common parts amount that more than one-half.
6 Commercial Leases
6.1 Form and Contents of a Lease Agreement
Through a lease (rental) contract the lessor undertakes to deliver a specific asset (e.g., RE) to the lessee for use, and the lessee undertakes to pay a specific rent for this. It is regulated in the Slovenian Code of Obligations. In general, during the lease, the lessor needs to maintain the leased property and repair it as required. The lessor shall reimburse the lessee for the costs of maintaining the leased property paid thereby in place of the lessor. Costs for minor repairs caused by the customary use of the leased property and the costs of use itself shall be charged to the lessee. The lessee must notify the lessor regarding necessary repairs.
There is no requirement that the lease agreement is concluded in a written form, however, it is market standard in Slovenia that such agreements are concluded in writing.
The key contents of a RE lease agreement are a description of the leased property, rent (including the costs), term and termination, permitted use, handover and warranties, maintenance and repair, investments and improvements, return of the leased property at termination, liability, landlord’s right of access, insurance, and subletting.
Another important aspect of lease agreements is that in case of the sale of the real property subject to the lease, the buyer will step in the shoes of the previous owner and the new owner does not have a right to terminate the lease agreement. The lessee, however, has the right to terminate it, respecting the legal periods of notice of termination.
Furthermore, in case of the sale of the leased property, the transferor shall be jointly and severally liable as a surety for the obligations held by the acquirer deriving from the lease. If the leased property was sold prior to its handover to the lessee, the transferor shall be jointly and severally liable as a surety for the obligations held by the acquirer towards the lessee deriving from the lease.
In Slovenia commercial leases are usually concluded either for an indefinite period of time with a certain notice period for termination for convenience or for a definite, longer period of time (counting in years).
6.2 Regulation of Leases
The legal rules for leases do not differ according to the type of property. The provisions that cannot be excluded, are as follows:
(1) Contractual exclusion or limitation of liability: Liability for material defects in the leased property may be excluded or limited by contract. A contractual provision by which such liability is to be excluded or limited shall be null and void if the lessor knew of the defects and intentionally kept silent if the defect is such that it prevents the use of the leased property, or if the lessor exploited a dominant position and obtained the provision through duress;
(2) Termination: If the leased properties are a health hazard the lessee may terminate the contract without notice, even if this was known when the contract was concluded. The lessee may not waive this right.
6.3 Registration of Leases
There is no requirement to register a lease, however, information on lease transactions in buildings and parts of buildings or premises shall, i.e., be provided by tenants that are legal entities who, in accordance with the rules governing the tax procedure, are deemed to be liable to pay tax in the income tax withholding tax return on income from letting property – when renting from natural persons, landlords who are legal entities or sole entrepreneurs, landlords who are managers of buildings or parts of buildings owned by the Republic of Slovenia and managers of multi-apartment or commercial buildings for parts of buildings co-owned by the owners of parts of buildings in a multi-apartment or commercial building.
The data shall be reported to the Mapping and Surveying Authority of the Republic of Slovenia (GURS).
6.4 Termination of Leases and Renewals
A lease agreement concluded for a definite period of time shall expire with the expiration of the time for which it was concluded. The parties may nevertheless agree to prematurely terminate the lease agreement concluded for a definite period of time. If following the end of the period for which the lease contract was concluded the lessee continues to use the leased property and the lessor does not oppose such, a new lease agreement for an indefinite period shall be deemed to have been concluded with the same terms and conditions as the previous agreement.
A lease agreement concluded for an indefinite period of time terminates for convenience with the notice of termination, respecting the agreed-upon notice period. If no notice period is determined in the lease agreement or by law, the deadline shall be eight days, but the termination notice may not be given at an inappropriate time.
Termination for cause applies in case of breach of obligations arising from the lease agreement. If the breach is, e.g. such that it cannot be cured or in case of material breaches (determined in the lease agreement), the lease agreement can be terminated without a notice period. Otherwise, the breaching party needs to be given the possibility to cure the breach before the agreement is terminated.
Automatic lease renewals are possible and are usually regulated in a way that the lease shall be automatically renewed unless either of the parties notifies the other party of the termination within a certain period prior to the termination of the agreement.
6.5 Rent Regulations and Rent Reviews
N/A
6.6 Services To Be Provided Together With the Lease
The lessor may provide certain services to the lessee, which is usually regulated with a separate agreement. Such arrangements are not common in Slovenia but are not unheard of either.
6.7 Fit-Out Works and Their Regulation
Fit-out works are agreed-upon contractually and can be done either by the tenant (on the basis of the landlord’s consent) or by the landlord for the tenant. Usually, the tenant pays the fit-out works. At termination, the parties may agree that the tenant either restores the place to its original condition or leaves the leased property as it is. They can also agree that in the latter case, the landlord pays a certain remuneration for the improvements done to the leased property.
If at termination the tenant leaves the property as it is (i.e., the investments and improvements remain in the premises) and the landlord pays a remuneration, in case the tenant is an enterprise (a company or a sole entrepreneur), this shall be considered as a regular supply of goods. In the case of a natural person, there would be no tax implications.
6.8 Transfer of Leases and Leased Assets
As described above.
7 Zoning and Planning
7.1 How Are Use, Planning, and Zoning Restrictions on Real Estate Regulated?
The planning and zoning are regulated by the Spatial Planning Act. The municipal spatial plan determines the purpose of the use of the land (agricultural, building land – construction can only occur on building land), spatial implementation conditions, including any obligation to hold a design competition, settlement areas, areas for the long-term development of settlements, the areas for which the detailed spatial plan shall be adopted, the redevelopment areas, the public areas and the utilities and other public utility infrastructure and the service areas where connection to and use of each type of public utility infrastructure is or will be provided. With the municipal detailed spatial plan the following shall be determined: urban, architectural, and landscape solutions for spatial planning, a plan of the building plots, the phasing of the implementation of the development, if required, the public utility infrastructure to be provided for the planned spatial development, the conditions relating to its construction, the connection of buildings to it, etc.
The municipal spatial plan is adopted by the municipal council in the proceedings foreseen in the Spatial Planning Act.
7.2 Can a Planning/Zoning Decision Be Appealed?
Administrative disputes against spatial planning acts can be brought before the Administrative Court of the Republic of Slovenia.
An action in an administrative dispute may be brought by:
- a person bringing an action for the protection of their rights and legal interests, if the contested spatial planning implementing act establishes a legal basis for the determination of their rights or obligations and if the person establishes that the contested spatial planning implementing act has, in that part, substantial consequences for them;
- a non-governmental organization with active status in the public interest in the field of spatial planning, environmental protection, nature conservation, or the protection of cultural heritage, if it brings an action for breach of the law to the detriment of the public interest in its field of activity; or
- the Public Prosecution Service, at the request of the government, for the protection of the public interest.
The time limit for bringing an action in an administrative dispute shall be three months from the entry into force of the Spatial Planning Implementing Act.
