ACQUISITION OF REAL ESTATE IN THE REPUBLIC OF CROATIA BASED ON LUCRATIVE LEGAL TRANSACTIONS

 In general, there are two basic possibilities for the sale and purchase of a real estate in Croatia:

• acquisition of the real estate from its owner based on the sale and purchase agreement (the „Asset Deal“); or
• acquisition of the shares of the operating company which is the owner of the real estate (the „Share Deal“).

Asset Deal

Through this way of the acquisition of the real estate the purchaser has the flexibility regarding the choice of the real estate he aims to acquire. Due to this fact, most purchasers prefer to acquire a real estate on the basis of an Asset Deal.

When talking about acquiring the real estate, it is of essence to underline that there are two conditions that have to be met:

• the legal basis for acquiring of real estate (titulus) – meaning the valid legal transaction
• adequate way of acquirement of the real estate, provided by law (modus) – registration of the ownership right with the land registry

A valid legal transaction implies the valid real estate purchase agreement executed in writing with the aim of transfer of the ownership right from the former owner of the real estate (the seller) to the acquirer, in a way provided by law.

In accordance with the Ownership and Other Proprietary Rights Act (Official Gazette of the Republic of Croatia no. 91/96, 68/98, 137/99, 22/00, 73/00, 114/01, 79/06, 141/06, 146/08, 38/09, 153/09, 90/10, 143/12, 152/14; the „Ownership Act“) the ownership is acquired by registration of the acquirer’s ownership with the land registry based on a valid statement of will of the former owner declaring his will to transfer his ownership right to the acquirer (clausula intabulandi).

To registrate the ownership right with the land registry the legal transaction (the agreement) has to be in a form required by the Land Registration Act. This means that the clausula intabulandi has to contain the signature of the former owner of the real estate notarized by a notary public, whether such statement is contained in the real estate purchase agreement or is given by a separate statement (in the form of registration statement).

In case that all legal preconditions for registration of the ownership right are not fulfilled at the time of submission of the proposal for registration of ownership right with the land registry, the conditioned ownership right will be registered under the condition of subsequent justification of ownership right (pre-registered ownership right). Note that the pre-registered ownership right will be registered only in case that the conditions stipulated by the Land Registration Act are met (meaning all the documentation has to be drawn up in accordance with law, the legal basis for the acquirement of the ownership is evident, the documentation is undoubtedly authentic). In the event that the pre-registered ownership right is later justified in accordance with the Land Registration Act, the ownership right is considered to have been acquired at the moment of filing the proposal for the registration of the ownership right with the land registry.

Share deal

In the event of purchase of the shares of a certain company all the assets of the company, as well as its real estates in its ownership are transferred to the acquirer. It is important to say that, in cases of such indirect acquirement of the company’s assets, it is necessary to conduct a legal due diligence of the target company in order to assess all the rights and obligations of the company and thereby the connected risks, affecting the price of shares. Please note that the share purchase agreements must be executed in a form of the solemnized private deed before a notary public.

Public registries in the Republic of Croatia

Land registries

As it is stated before, the ownership of the real estate in the Republic of Croatia is acquired by the registration of the same with the land registries. Land registries are public registries, available to anyone and governed by the Land Registry Departments of the Municipal Courts, containing all the relevant information concerning the ownership right and other rights regarding the real estate.

Each land registry consists of the main register and a collection of deeds, while the main register consists of the land registry excerpts. Each land registry excerpt contains information about the real estate and all the modification related to the real estate. Firstly, each land registry excerpt contains the number of the land plot, the description and surface of the real estate, information about the ownership of the real estate and encumbrances regarding the real estate (mortgages, servitudes, construction rights and various records) – active land registry excerpt. There is another type of the land registry excerpt – the historical land registry excerpt, containing information about all the previous land registry entries regarding the real estate entered after the formation of land registry books. Hence, based on this kind of land registry excerpt it is possible to examine all the modifications regarding a real estate starting from the moment of the formation of the land registry up to the moment of examination of the excerpt.

The cadastral registry

The cadastral registry is another public registry related to real estates in the Republic of Croatia. However, the cadastral registry does not contain any information about the ownership rights or encumbrances that are registered in land registries, but is used only to examine the location, shape and surface of real estate, as well as to examine the existence of buildings built on cadastral plots and special regimes (for example maritime domain).

Cadastral registry also contains information about the possessors of the real estate. Related to the previously stated, it is important to distinguish the term possessor (possession) from the term owner (ownership) of the real estate. Namely, only the person registered with the land registry is considered the owner of a real estate while the person holding the actual possession of the real estate (the person who uses the real estate directly or indirectly) is considered its possessor. Hence, the owner of the real estate does not have to be its possessor at the same time.

The information on cadastral plots entered in the cadastral registry can be changed only on the basis of geodetic survey and administrative decision passed by the competent cadastral office.

It should be emphasized that in general, land registry is the relevant registry for determination of the owner of the real estate, as it was previously stated; namely, in accordance with the applicable law natural or legal person registered with the land registry is considered to be the owner of the real estate. The exception of the above-mentioned rule is a situation in which someone else enjoys the protection under the applicable law.

Such an exception may appear in relation to the application of the fundamental principle of the Land Registration Act – confidence in the land registry, provided also with the Ownership Act. The land registry is deemed to reflect the factual and legal situation of a real estate, truthfully and completely. Therefore, the person who has acquired the real estate in good faith, relying on the information contained in the land registry and not knowing that such information may not be complete or may be different from the non-registered state of the real estate, enjoys the protection in accordance with law.

It is important to know that there are two aspects of the reliability of the land registry:

• reliability that the information contained in the land registry is authentic – meaning that the acquirer who has acquired, in good faith, the real estate from the person registered as the owner of the real estate, although he was not, will acquire the ownership of the real estate with the registration with the land registry; unless his registration is not removed for the reason of the invalidity.
• reliability that the information contained in the land registry is complete – meaning that the acquirer who has acquired, in good faith, the real estate as if it was not encumbered with any rights of third persons which were not registered at the moment of acquisition, neither was the proposal for their registration visible in the land registry, will acquire the real estate free of any such encumbrances that may exist. Please note that the afore-mentioned provision does not apply on the encumbrances or restrictions that may be based on the law that are not stipulated to be registered with the land registry.

In case that the land registry and cadastral status of the real estate are harmonized, the owners will be registered ex officio in the cadastral registry as possessors of the real estate on the basis of the decision of the Land Registry Department of the competent Municipal Court by which the registration of ownership right is approved.