Corporate Real Estate: Slovakia

A Q&A guide to corporate real estate in Slovakia. This Q&A is part of the PLC multi-jurisdictional guide to corporate real estate. For a full list of jurisdictional Q&As visit www.practicallaw.com/realestatehandbook.

Daniel Futej, Radka Sláviková Geržová and Branislav Mikulay, Futej & Partners
Contents

The corporate real estate market

1. What have been the main trends in the real estate market in your jurisdiction over the last 12 months? What have been the most significant deals?

Over the last 12 months, the real estate market witnessed some stabilisation and development in the building industry, which is considered to have finally overcome the economic crisis. A certain recovery can be seen in relation to industrial parks, and the construction of several shopping centres shows certain stabilisation of the real estate market.

In the leasehold market, landlords had to act in a more market-oriented fashion by offering tenants additional benefits such as rent holidays, free parking, scaled turnover lease or other benefits.

The most significant projects include:

  • The progress with the D1 motorway and the R1 expressway. In the last year, the final section of the Sverepec-Vrtižer motorway was completed, connecting southern and northern Slovakia through a motorway network. A new section of R1 was also opened between Žarnovica and Šášov, offering a faster connection between Bratislava and central Slovakia.

  • The construction of the River Park in Bratislava, a multi-functional complex including a Kempinsky network hotel.

  • The construction of the Eurovea, a second multi-functional complex that followed the River Park project. The plan is to join the construction of the River Park and Eurovea and create a unique waterfront area on the Danube river.

 

Real estate investment

2. Please briefly outline the opportunities for investing in real estate in your jurisdiction. In particular, consider:
  • The structures commonly used (for example, property companies and partnerships).

  • Are real estate investment trusts (REITs) available? If so, are they commonly used?

  • Institutional investors.

  • Private investors.

Structures

Real estate is commonly acquired through setting up a special purpose company, usually in the form of a limited liability company that either:

  • Acquires the real estate property directly (asset sale).

  • Buys the shares of the company that owns the real estate (share sale).

REITs

Special real estate funds (that are, to a certain extent, Slovakian equivalent to REITs) were established by an amendment to the Act on Collective Investment (Act No. 594/2003 Coll.) effective from 1 May 2006. The new amendment to the Act on Collective Investment (effective from 1 May 2007) introduced major changes to the real estate fund regulation. There are no restrictions imposed on initial investments into special real estate fund and the initial requirement to invest a minimum of EUR 3,000 (as of 1 September 2010, US$1 was about EUR0.8) has been abolished. Real estate funds can be established as either open- or closed-ended funds and approval is required from the National Bank of Slovakia. The assets can be invested in real estate, including:

  • Equipment for the purposes of its administration and sale.

  • Capital participation in real estate companies.

  • Other assets, for example, securities and financial derivatives, which are closely related to the real estate market.

Special real estate funds can acquire real estate in countries outside Slovakia. However, the real estate must generate regular and long-lasting profit. The consent of the depository (that is, the bank) is required for each of the fund's acquisitions or sales of real estate. Two independent experts must calculate the price of the real estate property to be sold.

However, there are currently less than ten funds in the Slovak Republic (see Question 29).

Institutional investors

Banks are still reluctant to provide finance for real estate projects (see Question 27).

Private investors

Several structures can be used by private investors as a way of co-operation with the banks trying to restructure a distressed but still alive real estate projects. Very frequently the investor acquires by assignment the full loan from the bank on a discounted cash flow valuation. The investor is then in charge of foreclosing the assets. A hostile foreclosure may be a complicated process.

 

Real estate legislation

3. Please briefly set out the main real estate legislation that applies in your jurisdiction.

Real estate matters are regulated by a number of laws, the most important of which are the:

  • Civil Code (Act No. 40/1964 Coll. as amended), which provides the general framework for the creation of legal interests in real estate. It also sets out the terms and conditions for the lease of land, buildings and residential apartments.

  • Act on Ownership of Apartments and Non-residential Premises (Act No. 182/1993 Coll. as amended). This act specifies terms and conditions of ownership transfer in relation to apartments and non-residential premises in apartment houses, as well as rights and duties of the owners of such properties.

  • Cadastre Act (No. 162/1995 Coll. as amended) regulates registration of real estate.

  • Act on Lease and Sublease of Non-residential Premises (Act No. 116/1990 Coll. as amended), which sets out the specific obligations of landlord and tenant, as well as grounds for termination of leases. Under this law, non-residential premises are defined as rooms or a group of rooms designated by the building authority for purposes and uses other than housing.

  • Act on Municipality Property (Act No. 138/1991 Coll. as amended). This sets out specific obligations concerning the ownership of the municipality property. As of 1 July 2009, municipalities can transfer title to their property (including real estate) using only one of the following methods:

    • public tender in accordance with the provisions of the Commercial Code;

    • voluntary auction;

    • direct sale, provided the value of the transferred property is less than EUR40,000.

    There are certain exceptions, for example, if the transfer is approved by a 60% majority of present members of a municipal parliament.

  • Act No. 50/1976 Coll. on Zoning and Building, as amended.

 

Title

4. Please briefly state what constitutes real estate in your jurisdiction. Is land and any buildings on it (owned by the same entity) registered together in the same title, or do they have separate titles set out in different registers?

The Civil Code defines real property as immovables, that is, land and structures connected to land by a solid foundation. Structures not connected to land by a solid foundation do not comprise real estate (for example, telephone masts, pylons and pipelines) and are not registered in the Real Estate Cadastre Registry.

Buildings are not an integral part of land and, therefore, they may be independently subject to ownership rights, irrespective of the ownership of the land on which they are built. Therefore, the owner of the building can be different from the owner of the land beneath the building. In these circumstances, both owners are registered with separate title in the Real Estate Cadastre Registry (see Question 5). There are no separate registries for land and buildings.

The premises inside the building may have the status of either residential or non-residential premises. This is particularly important in relation to leases, as different rules apply to each category. If a building is divided into individual units including flats or non-residential premises, each unit is considered a separate piece of real estate and must be registered in the Cadastral Registry.

 
5. How is title to real estate evidenced, for example by registration in a public register of title? Which authorities manage the public title register?

Real estate in the Slovak Republic must be registered in the Real Estate Cadastre Registry (Cadastre Act). The Geodesy, Cartography and Cadastre Authority of Slovak Republic (Real Estate Cadastre) is the central body of state administration for surveying, mapping and registering of real estate (see box, Real estate organisations). Rights to real estate are entered into the Real Estate Cadastre on registration.

 
6. Please briefly set out the information and documents registered in the public register of title, for example a description of the real estate, the owner, matters affecting the title and any relevant documents.

The Real Estate Cadastre comprises cadastral files organised by cadastral areas. The cadastral files consist of the:

  • Database of certain information, such as rights to real estate.

  • Geometrical plan, including maps showing the land borders.

  • Collection of deeds consisting of all relevant legal documents, such as agreements and court decisions.

  • Land registers setting out the information regarding land and owners.

An extract from the Real Estate Cadastre is also called an ownership deed. The ownership deed consists of three parts (A, B and C) and contains the following information:

  • Section A. Plot number and description of real estate, both land and any structures on the land.

  • Section B. Information about the owner(s) of the real estate, which includes:

    • identity of the owner(s);

    • size of each co-owner's share; and

    • the mode through which the real estate has been acquired (for example, by an agreement or by court or administrative body decision).

  • Section C. Any encumbrances or restrictions on ownership rights such as easements and pre-emptive rights.

In addition, the following acts must also be entered into the Real Estate Cadastre Registry:

  • Orders declaring bankruptcy of the real estate owner.

  • Commencement of enforcement proceedings by the sale of the real estate.

  • Commencement of expropriation proceedings.

  • Injunction prohibiting disposal of the real estate.

However, certain legal issues may not be apparent from the Cadastral Register extract, such as:

  • Leases (unless the lease exceeds or is expected to exceed five years).

  • Easements if those are not created by agreement.

  • Pre-emptive rights established by law.

 
7. Can confidential information or documents be protected from disclosure in the public register of title?

The cadastral files are open to the public. Therefore, information cannot be protected from disclosure. The only exception relates to deeds. Only owners and other persons with a qualified interest can fully access them.

 
8. Is there a state guarantee of title? Is title insurance available? If so, is it commonly used?

The data entered into the Real Estate Cadastre Registry, including ownership title, is deemed reliable unless the contrary is proved. However, the state or the registry does not guarantee the accuracy of the information. The current holder of the immovable property is considered the owner of the property if it can prove (Civil Code):

  • Continuous bona fide possession of the property for the previous ten years.

  • That he acted in good faith when acquiring the property.

Compensation for damages caused by a mistake of the Real Estate Cadastre can be claimed from the Real Estate Cadastre. Since the statute of limitation in relation to real estate is ten years, it is recommended, before buying the real estate, to verify the ownership title for the past ten years.

Generally, title insurance is not used unless the project is a large real estate project.

Following a substantial change in the Cadastral Act last year, the Real Estate Cadastre can examine facts in contracts submitted for registration. Previously, only the courts had this authority. The Real Estate Cadastre can examine, for example, whether the:

  • Submitted contract contains the main elements of a contract and is made in the prescribed form.

  • Transferor has the power to dispose of the real property.

  • Contract is not in conflict with law.

However, if the contract which is submitted for registration is drafted in the form of a notarial deed or authorised by a licensed lawyer, the registry does not examine the above issues. It only checks if the contract complies with the:

  • Land registry records (that is, whether information in the contract about the real property is consistent with information about the real property in the land registry).

  • Procedural requirements for registration approval.

 
9. How can real estate be held (that is, what types of tenure exist)?

In addition to ownership, a person may enjoy lease or possession of real estate.

Under a lease, the tenant enjoys the real estate in accordance with a lease contract and with the knowledge that he is using the property of another. Possession occurs where the holder is the person who disposes of the item as his own property without a contract. Possession may lead to acquisition of ownership (by prescription). If a person uses real estate and believes in good faith that it belongs to him, it will become the owner after ten years of uninterrupted use.

 

Sale and purchase of real estate

10. What are the main stages and documents in the sale and purchase of real estate? In particular:
  • How is real estate marketed, when does commercial negotiation occur and what pre-contractual arrangements are used?

  • When is the sale contract negotiated and executed?

  • When are the parties legally bound?

  • When is the change of title registered?

  • When does title transfer and what are the formal legal requirements to transfer real estate (for example, in writing and signed by the parties)? Is notarisation required?

Marketing

Marketing is usually carried out after the zoning permit is issued for a real estate project. Marketing is conducted by distributing specific information about the project in the form of brochures or through internet or any other media means. Marketing is sometimes outsourced to special marketing agencies.

Commercial negotiation

Commercial negotiation occurs after the buyer identifies the project. Foreign buyers usually arrange a meeting with professional consultants (for example, lawyers, tax experts and real estate brokers) before having a serious commercial negotiation of the terms and conditions of the deal.

Pre-contractual arrangements

Any real estate development project or financing deal, or any transaction involving substantial real estate acquisition is finalised by signing a letter of intent. A letter of intent is a non-binding document, summarising the parties' intent in relation to the main terms and conditions of the transaction.

In relation to residential property, the buyer usually executes a reservation contract under which the buyer reserves the right to buy the property for a certain agreed period in return for payment of a relatively small refundable deposit. In certain circumstances, the parties may sign an agreement on future agreement instead of a reservation contract. This is a binding agreement that usually commits both parties to execute the sale and purchase agreement.

Sale contract

A real estate sale and purchase agreement must be executed in writing. A verbal or implied agreement is invalid. The signatures of both parties must be in the same document. The seller's signature must be verified by a notary or authorised by a licensed lawyer if the sale contract is executed and authorised by this licensed lawyer.

The following information must be included:

  • The identity of the seller and the buyer.

  • A detailed description of the real estate.

  • Specification of the purchase price and payment conditions.

  • The date of the conclusion of the contract.

In addition, the contract must include a statement of contractual freedom, for example, a declaration by the parties that the contract expresses their true and free will.

When legally binding

The sale contract becomes valid on its execution by the parties, unless agreed otherwise.

Registration of title

The change in ownership is effective after the conveyance is registered in the land registry (not on concluding the sale contract).

When title transfers

A transfer of title becomes effective on registration of the transfer in the Real Estate Cadastre. The description of land and buildings in the transfer agreement must comply with the legal requirements; otherwise the transfer is rejected.

Title to real estate can be transferred by:

  • A written agreement.

  • Inheritance.

  • Operation of law.

  • A public authority's decision.

  • Other reasons set out under law.

Application for registration must be in writing and must be accompanied by the prescribed documents, particularly the executed agreement (the seller's signature on the real estate sale and purchase agreement must be notarised). The year, month, date, time and the ordinal number of the submission must be marked on the application for registration.

The binding decision of the registry regarding the title registration must be issued within 30 days for a fee of EUR66. The applicant (either the seller or the buyer) can request the Real Estate Cadastre to register the transfer in an expedited time of 15 days for a fee of EUR265.50. However, if the contract which is submitted for registration is authorised by a lawyer or is in the form of a notarial deed, the land registry decides about its registration within 20 days for the fee of EUR66.

Registration applications can be filed electronically provided that:

  • An annex must be provided with the parties' verified electronic signatures.

  • A time stamp must be provided where a notarised signature would otherwise be required.

Electronic applications are subject to lower fees (reduced from EUR66 to EUR33 and from EUR265.50 to EUR130).

 
11. Does a seller have any statutory or other liability to the buyer in a disposal of real estate, for example to disclose real estate information, or in relation to title?

The parties can freely agree their mutual rights and duties in a sale agreement. The law does not specify what issues the seller must disclose to the buyer. However, if the real estate has defects of which the seller is aware, the seller must inform the buyer. In addition, the seller must act in good faith and provide the buyer with all available information in relation to defects, encumbrances, and other limitations relating to real estate.

If the seller represents to the buyer that the property has certain qualities or that it has no defects and these representations later prove to be untrue, the buyer can:

  • Withdraw from the contract.

  • Claim a price reduction from the agreed purchase price.

  • Claim for the reimbursement of necessary expenses related to enforcement of claims regarding liability for defects.

  • Claim compensation for damages.

 
12. Please briefly outline the real estate due diligence that is typically carried out before an acquisition (including title investigation and searches of public authorities).

The due diligence process typically includes examination of the following issues:

  • Title and any co-ownership issues. Before acquiring real estate, the title of preceding owners must be verified and the current owner must be confirmed as the true owner. If a co-ownership interest is being transferred to a third party or another co-owner, the other co-owner has a statutory pre-emptive right to purchase that interest.

  • Restitution and other claims over the real estate. The District Land Offices maintain a database of filed restitution claims. Court records are only made available to the parties to litigation. Based on law effective from 1 November 2004 until 1 November 2005 on measures to settle ownership of land, there may be restitution claims raised by churches or religious communities if certain legal conditions are met.

  • Verification of the current lease relationship. There can be more than one lease relationship attached to the transferred real estate and, therefore, all existing lease agreements including their termination must be verified. Under the law, the tenant can terminate the lease contract if there was a change in ownership of the building or non-residential premises. For example, within a multi-functional centre there may be a large number of non-residential premises under lease and on the sale of the multi-functional centre the tenants of these premises have the right to terminate their lease contracts.

  • Existence of any encumbrances, easements and pre-emptive rights (whether contractual or statutory). Under law, the state has a pre-emptive right in any sale of:

    • a building that has the status of a cultural monument;

    • land which is in a natural reservation with high level of protection such as National Mountain Parks.

  • Matrimonial rights. If a property is registered in the name of one spouse only, the other spouse may still have a right to it.

  • Regulatory risks including review of zoning and building permits and occupancy certificates, and other important relevant regulatory certificates related to the property. Due diligence should investigate whether the building has not been constructed illegally and does not suffer from any legal defects. If the property has been converted (for example, from an attic, a factory or a stable), due diligence must investigate whether this was done legally.

  • Environmental issues. The law does not expressly require that land be investigated for contamination. However, a buyer is advised to investigate contamination of land (for example, water and soil contamination).

  • Verification of utility connections, for example, gas and electricity. Utility connections related to real estate must be verified and their owners identified so that the use of utility connections can be arranged.

  • Access to the property. The existence of public access to the property must be verified. If real estate is accessible only through other private land, existence of easement access must be ascertained or arranged by agreement.

 
13. What real estate warranties are typically given by a seller to a buyer in the sale of corporate real estate and what areas do they cover?

The sale and purchase agreement often contains warranties. The warranties usually cover:

  • The factual status of the real estate, such as its suitability for a specific purpose.

  • The legal status of the real estate, including whether the seller has exclusive ownership, third party encumbrances and any other limitations, current and potential disputes over real estate and hidden liability.

  • Any other issues, for example, environmental issues and access to third party roads.

The buyer can only rely on a warranty if the defects were challenged without delay after the buyer had an opportunity to view the real estate. At the latest, those claims can be made within 24 months from the handover of the real estate. In addition, defects that can be identified through the Real Estate Cadastre, or apparent defects, can only be enforced if the seller provided express representations and warranties that the real estate is free of such defects.

In practice, it is recommended to conduct a legal due diligence instead of relying on the contractual representations and warranties since claiming damages may be complicated and time consuming.

 
14. Can an owner or occupier inherit liability for matters relating to the real estate even if they occurred before it bought or occupied it? For example, environmental liability, or liability under a lease.

If the seller knows about certain facts (for example, soil pollution or a certain liability under the lease) and withholds this information from the buyer, it means the buyer enters into the contract in error. This may invalidate the contract but the invalidity must be challenged by the buyer. The buyer can claim:

  • Compensation for any damage incurred.

  • Adequate reduction of the purchase price.

  • Withdrawal from the contract.

It is not possible to object to non-disclosure of any information publicly available in the Real Estate Cadastre.

 
15. Does a seller or occupier retain any liabilities relating to the real estate after it has disposed of it? For example, environmental liability, defects in the real estate, and contractual liability to the buyer.

The seller or occupier may be held liable to the buyer for misrepresentation. The legal consequences include, depending on the particular misrepresentation:

  • Withdrawal from the contract.

  • Adequate reduction of the purchase price.

  • Compensation for damages.

 
16. What costs are usually paid by the buyer? What costs are usually paid by the seller?

Buyer's and seller's costs

The buyer's costs vary depending on the involvement of various persons and experts in the real estate transaction. In practice, the seller and buyer generally agree to share the costs 50:50.

The costs can include the following:

  • Notary's fees.

  • Estate agent's fees.

  • Lawyer's fees.

  • Land surveyor and other expert fees. In transactions between affiliated entities the use of experts is mandatory.

  • Registration fee. See Question 10, When title transfers.

 

Real estate tax

17. Is value added tax (VAT) (or equivalent) payable on the sale or purchase of real estate? Who pays? What are the rates? Are there any exemptions?

VAT applies if the seller is a registered VAT payer and either:

  • Land is transferred separately from the building.

  • Building and land underneath the building are transferred within five years of:

    • the issue of the occupancy permit (after which in most cases a building can be occupied); or

    • the first use of the building if the occupancy permit is not required, such as for a golf course, unless the respective building authority decided that an occupancy permit is required also in this case.

In all other cases, the sale of real estate is exempt from VAT. However, the seller may decide to apply VAT to a sale of building and land underneath it even if it is exempt under the law. The VAT rate for a real estate transfer is 19%.

 
18. Is stamp duty/transfer tax (or equivalent) payable on the sale or purchase? Who pays? What are the rates? Are there any exemptions?

From 1 January 2005, real estate transfer tax is not charged on the transfer of real estate. Certain transfers of real estate are subject to VAT (see Question 17). If an entity acquires real estate, it must notify the local authority within 30 days. Remittance of VAT to the tax authorities is regulated by the Act No.222/2004 Coll on VAT as amended (VAT Act). A VAT payer must submit its VAT return and pay its VAT liability (in case the deductible input VAT is lower than output VAT) within 25 days after the end of the taxation period which is one or three months. Unless exempt, VAT from sale of real estate is included into other taxable transactions of the seller, who collects the VAT from the purchaser of real estate, and in case of the seller's VAT liability, it is remitted to the tax authorities.

 
19. Are any methods commonly used to mitigate real estate tax liability on acquisitions of large real estate portfolios?

In an asset deal, it is important to separate the sale price of the building and the respective plot of land. If the developer incurs a loss connected to the transfer of real property, the loss can be deducted from the tax base. However, this only applies to losses from the transfer of buildings, while losses from the transfer of land are excluded. By contrast, any eventual loss incurred on a share transfer cannot be deducted from the tax base of the company that sold the shares.

If the parties structure the transaction as a sale of a business or part of a business holding the real estate, the transaction does not trigger VAT liability. The business or part of it holding the real estate should not be an artificial device used to avoid VAT.

The prices in the transactions between related parties must comply with the arm's-length principle (that is, the prices must be prices which would have been agreed between unrelated parties in similar or same transactions).

Provided that both the seller and buyer are not Slovak tax residents (that is, do not have a seat or real place of management in Slovakia) and the seller does not have a permanent establishment in Slovakia, Slovak tax law will not apply to a share deal.

 

Holding business premises

20. Are there targets to reduce greenhouse gas emissions from buildings in your jurisdiction? Is there legislation requiring buildings to meet certain minimum energy efficiency criteria? If yes, please give brief details.

There are currently no targets to reduce greenhouse gas emissions from buildings. However, certain minimum energy efficiency criteria apply to (Act No. 555/2005 Coll. on Energy Performance of Buildings (EPB Act)):

  • Any new building.

  • An existing building that is being substantially renovated, provided it is technically, functionally and economically possible to meet these criteria.

In addition, energy certificates of buildings are required on (EPB Act):

  • Sale, lease and completion of a new building.

  • Renovation of an old building.

 
21. Is it common for companies to manage their real estate portfolios and their accommodation needs by using third parties, for example through outsourcing transactions? If yes, please give brief details.

Property management companies are commonly used, particularly for large real estate developments such as shopping centres or any other large real estate portfolios.

 
22. Are there restrictions on foreign ownership or occupation of real estate, or on foreign guarantees or security for ownership or occupation?

From 1 May 2004 (the date of the Slovak Republic's entry into the EU), all foreign persons can acquire real estate except for agricultural and forest land that can only be acquired under certain specific conditions outlined under law.

The acquisition of nationally strategic real estate, such as natural resources, caves or motorways, is restricted by several laws. These types of real estate can only be owned by the state or, in certain cases, by regional municipalities or communes.

 
23. Does change of control of a company affect its holdings of real estate?

Change of control of a company does not affect its holdings of real estate.

 
24. In what circumstances can local or state authorities purchase business premises compulsorily? Is the purchase price market value?

Section 20 of the Constitution and Part IV of the Building Act regulate expropriation of land in the public interest. The expropriation cannot go beyond the extent necessary to achieve its intended purpose and adequate compensation must be provided to the original landowner. The compensation amount is determined on the basis of an appraisal market report (section 111, Building Act).

 
25. Are municipal taxes paid on the occupation of business premises, for example business rates? Are there any exemptions?

Act No. 582/2004 Coll. as amended on Municipal Taxes and Fees regulates real estate tax, which includes land tax and tax on buildings and flats. The land tax varies depending on the category of the land (woodland, building plot and gardens). The land tax base corresponds to the value of the land per square metre multiplied by the total area of the land. Municipalities can determine the tax rate by a generally binding regulation with effect from 1 January of each taxable year. The owner of the land is liable for tax duty, except where the owner leased the land to natural persons or legal entities and where the tenant is then the taxpayer, provided that the lease arrangement lasts for more than five years and the lease is entered in the Real Estate Cadastre.

Municipal authorities can charge special fees on the occupation of business premises, for example, if the space of a restaurant is to be extended onto the street.

 

Real estate finance

26. How are acquisitions of large real estate portfolios or companies holding real estate generally financed?

The entire real estate market is still dominated by the banks' reluctance to finance new projects (see Question 1). Both banks and real estate companies have been forced to look for new financing solutions since the decline of capital values has caused default under loan agreements.

Generally, a bank provides the funds only after the developer has already invested more than 30% of the overall required funds into the project. The funds provided by the banks are repaid from the cash flow generated by the project throughout the operation. The project finance loan is usually divided into two parts:

  • A short-term construction loan.

  • A long-term investment loan.

The construction loan is usually given to the developer at the initial stage and allows the borrower to pay only interest throughout its duration. This loan is usually provided after the developer has invested the initial 30%. A short-term construction loan secures development of the project until the project is put into operation and then is converted into an investment loan. The maturity date for an investment loan used to be eight to 15 years but is currently much shorter. The banks are also willing to negotiate repayment of the investment loan by a "balloon" payment amounting to as much as 50% (or more) of the principal amount.

 
27. How is real estate commonly used to raise finance?

Restructuring has been a major focus in the area of real estate during 2009 and 2010 and it continues to be an important area of work for banks, developers and other finance professionals. Raising finance is still difficult. Banks are reluctant to provide loans but there a number of private investors, private equity houses and funds that seek good investment opportunities. Property development companies that started new projects still experience difficulties in the completion of these projects. At the same time, already completed projects have difficulties in selling or leasing premises.

 
28. What are the most common forms of security granted over real estate to raise finance? How are they created and perfected (that is, made valid and enforceable)?

Banks prefer to take security in the form of a mortgage. Mortgages can be created over the existing real estate and also over future assets. A mortgage is created by a pledge contract concluded between the owner of the real property and the finance provider. For a mortgage to be created and exist, it must be registered in the Real Estate Cadastre Registry. Earlier registration enjoys priority. A mortgage contract does not require any specific formalities but must be made in writing. Under Slovak law the principle of step-in-right may not be enforceable.

The developer must normally arrange insurance over construction and designate the bank as a beneficiary under the insurance policy.

 
29. Is real estate securitisation common in your jurisdiction? If yes, please give brief details.

Special real estate funds exist in Slovakia (see Question 2).

Special real estate funds began to invest in real estate in Slovakia, with their investments particularly aimed at buildings, land and real estate construction.  Naturally, the global financial crisis has also affected the Slovak markets, and the real estate market has experienced a downward trend in investment activities. However, there has recently been a slight increase in investors' demand for investment in special real estate funds.

 

Real estate leases

30. Are contractual lease provisions regulated or freely negotiable?

Landlord and tenant law provides for only a few mandatory terms and therefore, contractual lease terms are largely negotiated by the parties. However, the law aims at protecting the tenants.

The lease and sub-lease of non-residential premises are also legally regulated. In addition, special note should be taken of trends in recent case law where leasing out non-residential premises in the project phase may be ruled an invalid legal act. Non-residential premises (as well as flats) become the subject matter of legal relationships only after the issue of a certificate of occupancy. Therefore, they can be leased out only after issue.

 
31. How are rent levels usually reviewed and are there restrictions on this? Is VAT (or equivalent) payable on rent?

There are no specific rules in relation to the level of rent and therefore, rent increases are commonly agreed by the parties. Most leases provide for annual rent reviews based on increases subject to the consumer price index.

Provided that the landlord is a VAT payer, the lease of the real estate is subject to VAT and the landlord charges VAT at 19%. Leasing the following types of real estate, or parts of it, is always subject to VAT:

  • Accommodation premises such as, for example, a hotel, motel, hostel, bungalow or a campsite.

  • Land for car parking.

  • Safety boxes.

  • Permanently installed devices and machines.

 
32. Is there a typical length of lease term and are there restrictions on it? Do tenants of business premises have security of occupation or rights to renew the lease at the end of the contractual lease term? If yes, please give details.

In general, all types of lease contracts can be concluded for either a definite or an indefinite period. Leases concluded for an indefinite period can only be terminated by giving a three-month notice, unless the parties agree otherwise.

The lease term is one of the essential elements of a lease contract for business premises. The absence of the provision relating to the lease term is grounds to consider the contract invalid.

Options to renew or extend the lease term are becoming increasingly common. A lease of land concluded for at least five years can be entered into the Real Estate Cadastre.

 
33. What provisions or restrictions typically apply to the disposal of the lease by the tenant (for example, can the tenant assign or sublet the lease with the landlord's consent)?

The tenant can sublease the whole of part of the premises only with the landlord's approval. The tenant is not allowed to sell the premises or real estate or the right to use them to a third party. The change of control of the tenant has no legal consequences for the lease contract, unless the lease provides otherwise.

 
34. Can tenants usually share their business premises with companies in the same corporate group? If yes, on what terms?

Tenants can usually share their business premises with companies in the same corporate group, provided that:

  • The landlord's approval has been obtained.

  • There is no dispute that the lease has been assigned.

 
35. Who is usually responsible for keeping the leased premises in good repair?

Generally, the landlord must keep the leased premises in a condition appropriate for the agreed or usual use. The tenant must notify the landlord, without undue delay, of any repairs to be performed and allow these repairs to be made (for example, providing access). Otherwise the tenant is liable for damages caused due to this breach of duty.

The tenant must bear the costs associated with the ordinary operation of the premises.

 
36. Who is usually responsible for insuring the leased premises?

The law does not require insurance of the premises and therefore a tenant must only insure the premises if the lease so provides.

 
37. On what grounds can the landlord usually terminate the lease? Please briefly outline any restrictions or procedure that applies. Can the tenant terminate the lease in certain circumstances?

The lease contract must be terminated if the landlord who is a legal entity but not an individual is dissolved without a legal successor.

A lease of non-residential premises for a definite period terminates on the specified expiry date. In addition, both the landlord and tenant can terminate the lease by giving notice in writing on one of the grounds outlined in the Act on Lease and Sublease of the Non-Residential Premises. These grounds cannot be amended or omitted. However, the general view is that the parties can agree further grounds of termination.

A lease of non-residential premises for an indefinite period can be terminated on a three-month notice, by either party, without giving reasons. If the tenant still uses the leased premises after the termination of the lease and the landlord fails to bring a claim for eviction in 30 days following the termination of the lease, the lease is deemed to be renewed under the same terms and conditions as originally agreed.

The lease is also automatically terminated on the:

  • Subject of the lease ceasing to exist.

  • Death of the tenant, unless the heirs of the tenant notify the landlord, in 30 days after the tenant's death, of their intention to carry on with the lease.

  • Party to the lease (in the form of a legal entity) ceasing to exist.

The tenant can terminate the lease if:

  • It no longer possesses the qualifications that entitle it to carry out the activities for which the non-residential premises were leased (for example, a licence).

  • The non-residential premises become unfit for the agreed use through no fault of the tenant.

  • The landlord materially breaches its duty to:

    • hand over and maintain non-residential premises in a condition appropriate to the agreed or usual use; and

    • maintain it at his own expense in such condition.

  • The building has been transferred to a new owner.

Residential leases that are made for an indefinite period can be terminated only for the reasons set out in the Civil Code.

 
38. What is the effect of the tenant's insolvency (under general contract terms and insolvency legislation)?

Act No. 7/2005 Coll. on Bankruptcy and Reorganisation as amended provides that if either the landlord or tenant is declared bankrupt, the bankrupt trustee can unilaterally terminate the lease on two months' notice, unless there is a shorter notice period under the lease.

 

Planning law/zoning

39. What authorities regulate planning control and which legislation applies?

The Building and Environmental Offices are the state and municipal authorities that control the land and building uses, and occupation and environmental regulation. The main laws regulating zoning and related matters concerning the uses and occupation of land and buildings are the:

  • Act No. 50/1956 Coll. as amended on Territorial Planning and the Building Order.

  • Act No. 17/1992 Coll. on the Environment as amended.

  • Act No. 205/2004 Coll. on Environmental Information.

  • Act No. 245/2003 Coll. on Integrated Prevention and Control of Polluted Environment. Operators must apply for a permit by a certain date for listed activities as stated in the Act.

  • Act No. 223/2001 Coll. on Waste.

  • Act No. 543/2002 Coll. on the Protection of the Environment and the Country.

  • Act No. 220/2004 Coll. on Protection and Use of Farmland.

  • Act No. 525/2003 Coll. on State Administration Care of the Environment.

 
40. What planning consents (for example, planning permission or building permits) are required and for which types of development?

The completion of any building requires the following three permits:

  • A zoning permit (územné rozhodnutie).

  • A building permit (stavebné povolenie).

  • An occupancy permit (kolaudačné rozhodnutie).

The zoning permit is based on zoning planning documents and the building must comply with the binding section of these documents. The zoning permit specifies the purpose and shape of the planned building and is granted by reference to the requirements under the zoning plan.

After the zoning permit is issued, the constructor must apply for a building permit. The application for the building permit must be accompanied by detailed project documents. The building permit specifies the binding conditions for the construction and use of the building (environmental, technical and architectural).

After completion and before occupation, the Building Office grants the occupancy permit. A building can only be used after the issue of the occupancy permit.

 
41. In relation to planning consents:
  • Which body grants initial planning consents?

  • Do third parties have the right to object? If yes, please give brief details.

  • In what circumstances is there a public inquiry?

  • How long does an initial decision take after receipt of the application?

  • Is there a right of appeal against a planning decision? If yes, please give brief details.

Initial consents

Each structure to be constructed must comply with the relevant zoning plan (see Question 40). The municipalities, regional authorities and state authorities prepare the zoning plans.

Third party rights

Before the zoning permit is issued, the Building Office asks for opinions from a number of state authorities (such as the fire department, health and hygiene authorities, and preservation office, and telecommunication and energy suppliers). Any of these authorities can object to the construction.

Public inquiries

The Building Act provides for increased participation by the public. Once the applicant has filed the appropriate papers and documentation with the Building Office, an announcement is made regarding the start of the relevant procedure to the relevant public authorities (see above, Third party rights). If these authorities have queries about the application, they can suspend the proceedings until their queries have been addressed.

The Building Office can also order a public hearing on the application for a zoning permit. The public and the relevant authorities can put forward objections to the project. The Building Office can decide not to hold a public hearing if a decision on the application can be made on the basis of the documents submitted. Public participants must still be notified of the period within which they can comment on the proposal.

Initial decision

The Building Office considers and makes the decision on whether a particular structure, with generally defined elements, can be constructed in a particular area. The decisions by the Building Office to issue zoning permits are regulated by the Building Act and the general rules for administration proceedings. These proceedings can take several months.

Appeals

Decisions of the Building Office can be challenged. Respective appeals are dealt with by the supervising authorities. Conclusive and final decisions of the supervising authorities can also be challenged in the courts. Public prosecutor can request a Building Office to investigate whether any zoning regulations and zoning laws were breached by issuing a zoning decision.

 

Reform

42. Please summarise any proposals for reform and state whether they are likely to come into force and, if so, when.

From 1 January 2011, two major tax amendments should come into effect:

  • The basic VAT rate should increase from 19% to 20%. The increased rate should apply until the Slovak Republic's public deficit falls below 3%.

  • An exemption from personal income tax for natural persons on the sale of real estate if:

    • they own the real estate for five years before sale; or

    • the real estate is not used for business purposes for more than five years.

This amendment on taxation should apply to real estate acquired after 1 January 2011.

The sale of real estate is currently also exempted from personal income tax if the seller has permanent residence in the real estate for two calendar years immediately preceding the sale. This exemption will not be available after 1 January 2011.

To come into effect, the Parliament must approve both amendments.

 

Real estate organisations

Slovak Invest Agency

Main activities. This agency supports business and investment, with the objective of promoting investment opportunities in Slovakia.

W www.slovakinvestagency.sk

National Land Fund

Main activities. This agency is in charge of disposing of real estate owned by the state, and by unknown person(s).

W www.pozfond.sk

Geodesy, Cartography and Cadastre Authority of the Slovak Republic

Main activities. This is a central body of the state administration for surveying, map making, and cadastre of real estates. To fulfil entrusted tasks, the authority has established the Geodetic and Cartographic Institute in Bratislava, Cadastral Institute in Zilina and the Research Institute of Geodesy and Cartography in Bratislava. The authority directly controls the local authorities of national administration in the field of geodesy, cartography and cadastre of real estates:

  • Cadastral offices, which perform the national administration in the wards of regions.

  • Cadastral registries (72), which perform national administration in the wards of districts.

W www.katasterportal.sk



Contributor details

Daniel Futej

Futej & Partners

T +42 12 5263 3161
F +42 12 5263 3163
E futej@futej.sk
W www.futej.sk

Qualified. Slovak Republic

Areas of practice. Various corporate matters including mergers and acquisitions; project finance; private equity and banking (with many of the projects involving real estate matters).

Recent transactions

  • Representation of one of the top Slovak construction companies in the largest PPP project in Slovakia related to construction of D-1 highways.
  • Representation of Israeli private investors in the development and sale of the residential apartment complex worth several million euros.
  • Representation of English investors in the development and construction of the residential apartment complex valued at several millions of euros.

For more details of recent transactions, publications, and so on, see full PLC Which lawyer? profile here.

Radka Sláviková Geržová

Futej & Partners

T +42 12 5263 3161
F +42 12 5263 3163
E futej@futej.sk
W www.futej.sk

Qualified. Slovak Republic

Areas of practice. Corporate law; banking law; mergers and acquisitions; and real estate.

Recent transactions

  • Representation of one of the top Slovak construction companies in the largest PPP project in Slovakia related to construction of D-1 highways.
  • Representation of English investors in the development and construction of the residential apartment complex valued at several millions Euro.

Branislav Mikulay

Futej & Partners

T +42 12 5263 3161
F +42 12 5263 3163
E futej@futej.sk
W www.futej.sk

Qualified. Slovak Republic

Areas of practice. Mergers and acquisitions, particularly commercial law and financing law and real estate law.

Recent transactions

  • Representation of Israeli private investors in the development and sale of the residential apartment complex worth several million euros.
  • Representation of English investors in the development and construction of the residential apartment complex valued at several millions of euros.

{ "siteName" : "PLC", "objType" : "PLC_Doc_C", "objID" : "1247410557704", "objName" : "Corporate Real Estate Slovakia", "userID" : "2", "objUrl" : "http://us.practicallaw.com/cs/Satellite/us/resource/3-503-7285?source=relatedcontent", "pageType" : "Resource", "academicUserID" : "", "contentAccessed" : "true", "analyticsPermCookie" : "2-433e1016:148a1aecfdc:45de", "analyticsSessionCookie" : "2-433e1016:148a1aecfdc:45df", "statisticSensorPath" : "http://analytics.practicallaw.com/sensor/statistic" }