Amendments to the Law on Planning and Construction – Abolishment of Paid Conversion, Focus on Energy Efficiency and Green Construction

1. Amendments to the procedure of conversion of right to construction land

Conversion of the right to use into the ownership right over construction land was introduced into domestic legal system by the main text of the currently valid Law on Planning and Construction (Official Gazette no. 72/2009, in force since 11 September 2009). This instituted a departure from the multi-decade long practice where it was impossible to acquire the ownership right over a construction land (which remained in state ownership regime) but only certain minor rights (right to construction, right to use), and consequently a dual regime existed in relation to the land rights and the building rights on the same land.

Apart from ideological reasons and the reasons closely connected with the state organisation at that time, selection of this type of property relations relating to real estate did not have a solid foundation, nor was it sustainable from the aspect of legal theory. The user had and exercised all rights of an owner, except for the disposal right, hence the transaction of a land was conditioned by the approval of competent administration authority, while the owner i.e. state practically had nuda proprietas. It is clear that this form of property relations was not sustainable.

Abandoning this concept also implied the return to the principle of real estate unity, which dates back to the Roman Law and implies that a person i.e. persons have ownership right to a building and related land as a result of a specific unification which results from the construction activities on such land, which is necessarily reflected on the legal status of the two real estates.

Nevertheless, even 14 years later the effects of this ownership transition have not been fully achieved. Conversion without compensation, which was available to certain categories of holders of right to use, although set as a transaction performed by relevant cadastres ex officio and not upon client’s request by virtue of the Law on General Administrative Procedure, was only implemented in practice upon the request of right to use holders. It does not come as a surprise that even this “free” and certainly simpler version of conversion has not been fully implemented.

As a counterbalance to conversion without compensation, in 2008 conversion with compensation was introduced in an attempt to correct certain effects of privatisation post factum i.e. ownership transformation of former state-owned companies. Although the idea is not so complicated, there were many wanderings along the road, including, among other, several amendments to the law, changes of competences, adoption of special regulations of this matter (initially just the change of compensation amount and subsequently conversion with compensation in general), pronouncing the provisions of these regulations unconstitutional, non-resolution of the status of cases where the decisions of administrative authorities did not become final at the moment of changes, terminology changes (“conversion” became “transformation” in the meantime, but only within the wording of the law, as the term “conversion” continued to live in practice) etc.

In addition, some procedures of conversion with compensation were completed and the acquirers paid compensation fees to the competent authorities. That is why the most important amendment of the Law refers to the possibility for conversion of the right to use into the right of ownership of construction land without compensation in cases that used to be subject to compensation payment. Compared to the previously implemented conversion procedures, one can now reasonably consider the remark relating to possible discrimination of holders of the right to use according to the time of application for conversion and the validity of regulation (particularly having in mind recent statements of the line ministry that the conversion with compensation was a state’s omission). The legislator strived to resolve this matter through final provisions of the Law, albeit not sufficiently or constitutionally justified.

The obligation to pay conversion compensation has been abolished for a wider group of entities, namely:

• Entities who were or are companies privatised on basis of the law regulating privatisation, bankruptcy and enforcement procedure, as well as their statutory legal successors,
• Entities who acquired the right to use the land after 11 September 2009, by purchasing buildings with accompanying right to use the land, from entities privatised on basis of the law regulating privatisation, bankruptcy and enforcement procedure, and which are not their statutory legal successors,
• Entities – holders of the right to use the undeveloped building land in state ownership, which was acquired for the purpose of construction under the previous laws regulating construction land until 13 May 2003 or on the basis of decision of a competent authority, as entitieswhich, under this law, acquired the right to conversion of the right to use into the right of ownership of construction land, without compensation.

According to the Law, the holder of the right to use intending to convert such right into ownership right shall submit to the Agency for spatial planning and urbanism of the Republic of Serbia (“Agency”) a request for location information, whereas the Agency issues the information on location within eight days after the request had been filed along with a certificate which specifies the purpose of such cadastral lot/lots and possibility for registration of the right to use without compensation to the benefit of the applicant.

The Ministry of Construction, Transport and Infrastructure stated that, by the provisions of the amended Law i.e. by abolishing the special Law on Conversion of the Right to Use into the Right of Ownership of Construction Land with Compensation, nearly 5,000 construction locations will become available for construction i.e. around 15 million square meters, which may result in additional investments in the Republic of Serbia.

2. Other significant amendments to the Law

The Law proclaims the green construction principle and further elaborates the matters of energy efficiency and green construction, in the following manner:

• For the purpose of reducing the emission of greenhouse gases, the use of ecologically certified construction materials and equipment, reduced waste generation, use of renewable energy sources, for all new buildings exceeding 10,000 m² of gross surface developed construction area, green construction certificate needs to be obtained upon obtaining the use permit;
• The investor of building which has been granted green construction certificate shall be entitled to reduction of the accrued contribution for development of construction land in the amount of 10% of the total amount of contribution;
• Energy performance certificates for buildings shall be valid for ten years from the date of issuance through the Central register of energy passports (CREP) and they must be enclosed upon verification of a real estate purchase agreement or conclusion of alease agreement, making the integral part thereof;
• From the day of entry into force of the Law, all new buildings shall be designed, constructed and maintained in a manner which ensures that external units of heating and cooling devices are not visible and do not affect their immediate surroundings; in addition, transitional provisions stipulate the deadlines for adjustment of the existing buildings with these requirements;
• From the day of entry into force of the Law, all new buildings shall possess an energy performance certificate for the entire building or a special part thereof;
• Green infrastructure is a strategically planned network of functionally connected natural and semi-natural elements, whose design, construction, use and maintenance is performed so as to ensure ecological, economic and social benefits through natural, biodiversity-based solutions.

3. Final notes

The legislator regulated through individual articles of the Law a myriad of situations that may result from introduction of new procedures and bodies, and envisaged that the Agency for spatial planning and urbanism of the Republic of Serbia shall start to work no later than three months upon entry into force of the Law, while by-laws for implementation of the Law shall be adopted within sixty days upon entry into force of the Law.

The Law further clarifies the situation with procedures instituted before entry into force of the Law, and prescribes the following:

• Already instituted procedures for completion of request for issuance of approval for construction, location requirements, construction permit, use permit and other requests for acting upon individual rights and obligations filed until entry into force of the Law, shall be finalized according to the regulations under which they had been instituted.
• Procedures for conversion of the right to use into the right of ownership of construction land instituted under the provisions of the law regulating the conversion of the right to use into the ownership right with compensation shall be suspended on the day of entry into force of the Law.
• Holder of the right to use construction land who registered the right of ownership of construction land under the Law on Conversion of the Right to Use into the Right of Ownership of Construction Land with Compensation (“Official Gazette of RS”, no. 64/15 and 9/20), shall not be entitled to refund on this basis.

This article is to be considered as exclusively informative, with no intention to provide legal advice. If you should need additional information, please contact us directly.

By Ivana Ruzicic, Managing Partner and Sara Ostojic, Senior Associate, PR Legal