Unlike other countries of the former Yugoslavia, Serbia started the process of privatizing construction land quite late, and the first step towards this was taken in 2006 with the adoption of the Constitution, which abolished the previously existing system of state ownership, i.e., social property that existed on the building land. The next step towards the privatization of building land was the legal solutions related to the procedure of conversion of the right of use into the right of ownership (“Conversion“).
In the field of conversion, major changes in our legislation took place in 2014, when with the adoption of the Law on Amendments to the Law on Planning and Construction, which was published on 9 December 2014, and which entered into force on the 17 December 2014 (the “Law on Construction“), the provisions of the said law, which regulated the provisions on conversion with compensation, ceased to be valid. In this regard, the Law on Construction continues to regulate the conversion procedure without compensation, and since July 2015, the conversion procedure with compensation is regulated by a separate law, namely the Law on Transformation of Right of Use into Ownership Right on Building Land with Compensation (“Law on Conversion with Compensation“). Therefore, in our positive law, there are two laws that govern the matter of conversion, depending on whether the procedure is carried out with or without compensation.
The most important reasons why the Conversion procedure is carried out are:
- That the right of use is not a suitable right for issuing a building permit (construction).
- It is not allowed to transfer the right of use on the land without legally constructed buildings.
- Conversion with compensation
The Law on Construction stipulates that the right of use on building land will be converted into the right of ownership without compensation. In accordance with the Law on Construction, the registration of the said change is carried out ex officio by the authority competent for land surveying and cadastre, i.e. the Republic Geodetic Authority. However, even though the Law on Construction stipulates that the conversion without compensation is carried out ex officio, in practice it is necessary for the interested party to submit a request and pay the fee.
The right of ownership of cadastral parcel is registered in favor of the person that is registered as the owner of the facility, i.e., facilities located on such parcel, i.e., owned by the person registered as the holder of the right of use of the cadastral parcel on unbuilt building land, except for persons whose status is regulated by the law governing the conversion with compensation of the right to use into ownership right on building land.
Also, according to the provisions of the Law on Construction, owners of the facilities built on the building land in public ownership for which a lease contract has been concluded for construction purposes, for the duration of at least 50 years, have the right to conversion, and the same is provided for tenants on building land in public ownership who concluded a lease agreement without compensation. The procedure for registering property rights is carried out at the request of the person in whose favor this right is registered.
Regarding the rights and encumbrances that existed on the facility, after the completion of the procedure of Conversion on building land, the cadastral parcel of developed building land together with facilities built on it becomes a unified subject of the right of ownership (unity of real estate). As a result, all existing rights and encumbrances that existed on the facility, i.e., to a separate part of the facility, are also transferred to that cadastral parcel.
Reality tells us that the state attorney’s office often appeals after approving a request for conversion without compensation, which further prolongs the entire procedure and creates additional costs for the applicant.
- Conversion with compensation
While the provisions of the Law on Construction regulate the matter of conversion without compensation, the implementation of the conversion procedure with compensation is regulated by the provisions of the Law on Conversion with Compensation. This law stipulates that conversion can be carried out on construction land for persons, holders of the right of use on developed and undeveloped building land on which the Republic of Serbia, an autonomous province or a local self-government unit is registered as the title holder of the ownership right.
The Law on Conversion with a Compensation stipulates the circle of persons who have the obligation to pay the compensation for the conversion, and they are:
1) Persons who were or are companies and other legal persons that have been privatized according to the laws that govern privatization, bankruptcy and enforcement proceedings, as well as their legal successors in terms of the status.
1a) Persons who have acquired the right to use on the land after September 11, 2009, by purchasing a facility with the associated right of use, from persons who have been privatized pursuant to the laws governing privatization, bankruptcy and enforcement proceedings, which are not their legal successors in terms of status.
2) Persons – holders of the right of use on undeveloped building land owned by the state acquired for the purpose of building in accordance with the previously applicable laws that governed building land until 13 May 2003 or based on the decision passed by a competent authority.
3) Persons whose status is determined by the law governing sport, as well as associations.
4) Socially owned enterprises, holders of the right of use on the building land;
5) Persons subject to provisions of regulations of the Republic of Serbia and bilateral international agreements governing the implementation of Annex G of the Agreement on Matters of Succession.
This law stipulates that the compensation for conversion represents the market price of the building land at the time of submission of the application for conversion, whereby the amount of the compensation is determined by the authority of a local self-government unit in charge of property-legal relations, and where the amount of the compensation for conversion can be reduced:
- One of the cases of reduction of the compensation for conversion exists when the applicant submits a report by court expert witness whose profession is business or civil engineering that he or earlier users, i.e., his legal predecessors on that land, incurred the costs of acquiring the right of use on the cadastral parcel for which the conversion request was submitted. In the case of reduction, the amount of the conversion compensation shall be reduced by the revalued amount of land acquisition costs.
- The right to reduce the market price may also be used if the building land is located in the territory of a local self-government unit determined to be a not sufficiently developed local self-government unit, i.e., a local self-government unit with extremely low standard of living or high unemployment rate.
- In addition to these, the Law on Conversion with Compensation prescribes the right to reduce the market price of developed building land, where the amount of the compensation is determined by reducing the established market price by the amount of the market price of the land for regular use of the facility, and in the case when a lease agreement was concluded, the market price shall be reduced by the amount of installments paid of the total lease paid until the moment of termination of the lease contract.
- The possibility of reducing the market price is foreseen in the situation of conversion of the cadastral plot of construction land within the complex (industrial, residential complex).
In this conversion procedure, compensation may be paid in a single amount or in 60 equal monthly installments. In the case of payment in a single amount, the applicant is entitled to a reduction in the amount of 30% of the determined amount of the compensation, while in the case of payment of compensation in monthly installments, the applicant also submits a means of security instruments (Irrevocable bank guarantee, Mortgage, Non-possessory pledge on movable property).
However, the subject of conversion with compensation cannot be building land that is designated by a special law as land that cannot be alienated from public property, i.e. land on which, in accordance with the planning document, the construction of buildings, i.e. public areas, as well as public purpose buildings is foreseen in public property based on special laws (line infrastructure facilities, facilities for the needs of state bodies, bodies of territorial autonomy and local etc.).
Furthermore, the provisions of the Law on Conversion with Compensation will not apply, but the provisions of the Law on Construction in relation to:
- to the property purchased in the process of public announcement, under market conditions, which includes the ownership right on the facility with the belonging right of use on the developed building land in accordance with law, before the conclusion of the contract on the purchase of property, i.e. part of the property of a company or another legal person in accordance with the provisions of the law governing privatization, bankruptcy and enforcement proceedings
- the building land that has entered into the capital assessment of companies privatized in accordance with the regulations that used to govern privatization and ownership transformation, by transferring shares i.e., stocks in that company under market conditions, until the day of the entry into force of the Law on Construction;
- the property that has been acquired from the subject of privatization by means of a commercial legal transaction upon the finalized process of privatization, until the day of entry into force of the Law on Construction;
Finally, it is necessary to mention that the Ministry of Construction, Transport and Infrastructure has announced the possible repeal of the Law on Conversion with a compensation, and that only conversion without a compensation will be possible. However, as it is only about the announcements of the repeal of this law, a final formal epilogue should be expected in the following period.
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