COMPARATIVE GUIDE
24 June 2024

Real Estate Comparative Guide

Real Estate Comparative Guide for the jurisdiction of Croatia, check out our comparative guides section to compare across multiple countries
Croatia Real Estate and Construction
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1 Legal framework

1.1 What legislation governs real estate in your jurisdiction?

The following laws and common documents govern real estate market in Croatia:

1.2 What special regimes apply to different types of real estate?

Until recently, two special regimes were into force, as follows.

Restrictions on agricultural land: Agricultural land is classified as a good of special interest to the state and, as such, is categorised as protected property. Article 2, paragraph 2 of the Agricultural Land Act provides that foreign legal and natural persons cannot acquire a right of ownership on agricultural land.

As exceptions to this general rule, foreign legal and natural persons can acquire agricultural land:

  • through inheritance;
  • under international agreements; and
  • according to special regulations.

However, the restrictions that applied to foreign legal and natural persons from member states of the European Union and the European Economic Area (Iceland, Liechtenstein and Norway) were lifted as of 1 July 2023.

Restrictions on forests and forest land: One of the restrictions on the acquisition of real estate ownership relates to forests and forest lands. Article 56, paragraph 2 of the Forest Act stipulates that foreign legal and natural persons may not acquire ownership of forests and forest land, unless otherwise provided by an international agreement. This restriction applies only to foreign legal and natural persons that are not resident in an EU member state. Thus, foreign legal and natural persons from EU member states can acquire ownership of forests and forest land without restrictions.

2 Ownership

2.1 What types of ownership rights exist in your jurisdiction?

In general, there are private and public ownership rights over property.

2.2 What ownership structures are commonly used in your jurisdiction?

The most common ownership structure is private; but the share of publicly owned agricultural land is around 25%.

2.3 Are there any restrictions on real estate ownership in your jurisdiction?

The rule of reciprocity defines all ownership rights and restrictions. The rule of reciprocity refers to agreements with individual countries within the framework of which the conditions for the purchase and sale of real estate are regulated. There is thus no general rule on the treatment of foreigners, except in the case of EU citizens. The simple conclusion is that if there is no reciprocity agreement, the citizen of the relevant third country cannot take title to real estate in Croatia.

Information on the rule of reciprocity for the acquisition of real estate in Croatia can be found at https://odvjetnistvo-ljubic.com/reciprocity-in-the-acquisition-of-real-estate-ownership-rights-between-the-republic-of-croatia-and-other-countries.

2.4 Is ownership of land and buildings constructed thereon legally separable?

Yes, it is possible to detach the ownership of land from the buildings thereon through the legal instrument of the heritable building right. The heritable building right divides up property ownership by separating the parcel of land from the buildings thereon. The party that provides the heritable building right owns the land. In contrast, the recipient of the heritable building right owns the buildings, with prescribed compensation or some other form of agreed benefit for the landowner.

2.5 What security interests can attach to real estate? How are they prioritised?

The forms of security interest over the real estate are:

  • a common lien (mortgage); and
  • a fiduciary lien.

There is no prioritisation of these – it is up to the debtor and creditor to choose between them. In practice, in more than 90% of cases there is mutual agreement upon a mortgage as the lien.

3 Registration

3.1 What body administers the land register in your jurisdiction?

The land registry offices operate as separate units within each municipal court. A complete list of land registry offices can be found at https://oss.uredjenazemlja.hr/public-services/points-of-interest/lr-office-search.

3.2 Is registration of real estate rights, transactions and encumbrances mandatory? What are the consequences of failure to register?

The registration of all rights relating to real estate is mandatory. In legal transactions, only the person registered as such can be considered the real estate owner. If any right of ownership is not entered promptly in the competent register, the consequence can be unpleasant: the loss of any possibility to register it thereafter.

3.3 What are the formal and documentary requirements for registration?

A valid document is required, which is usually a purchase and sale agreement with the certified signatures of the seller and the buyer. In addition to a sale agreement, ordinary registration of the ownership takes place upon the issue of a court verdict document (ie, a court decision).

3.4 What is the process for registration?

Real estate registration is carried out in the competent land registry office according to the location of the real estate. The procedure is formal. This means that it is necessary to submit a registration request and attach relevant documents that are fundamental for registration. The registration procedures are quite straightforward if the documentation preconditions are met and valid.

3.5 Is registered information publicly accessible?

The data is publicly available, regardless of legal interest. The fastest (unofficial) way to check data regarding real estate is by consulting a special database, available at https://oss.uredjenazemlja.hr. The database facilitates searches for real estate by entering the exact plot number. This will yield information such as:

  • the area of each property;
  • current and past owners; and
  • any encumbrances that exist on the property.

Official verification is possible in person by visiting the competent land registry office at the place where the property is located.

4 Commercial leases

4.1 What types of commercial leases exist in your jurisdiction?

The types of commercial leases that exist in Croatia are:

  • normal leases; and
  • variations of net leases (single, double, triple).

4.2 Are the terms of a commercial lease regulated or freely negotiable? What do they typically cover (eg, duration; security deposit; rent; sub-letting; termination)?

The contracting parties (lessor and lessee) can freely agree on all lease terms, as long as these accord with the Lease and Sale of Business Premises Act. This implies that they can freely agree on issues such as:

  • the duration of the lease (fixed term or indefinite); and
  • the possibility for the tenant to sublet the property.

The basic rule is that, for all situations that are not covered by the agreement or the Lease and Sale of Business Premises Act, the Civil Obligations Act will apply.

4.3 What are the formal and documentary requirements for conclusion of a commercial lease?

The agreement must be concluded in writing with the certified signatures of the contracting parties.

If a notary has not signed the lease agreement or if the lease agreement has not been solemnised by a notary public, the lessor must submit a copy of the lease agreement to the competent tax administration department.

A contract for the lease of business premises must be drawn up in writing. Where the Croatian state concludes the contract as the lessor (ie, where the lessor is a unit of local or regional self-government), the contract must be solemnised by a notary public; otherwise, it is null and void.

4.4 What is the process for concluding a commercial lease?

The procedure involves the definition of the most important terms of the agreement (eg, duration, price, lease obligations, rent variations, method of payment) by the contracting parties, after which a written and formal contract is concluded.

4.5 What are the respective obligations and liabilities of landlord and tenant under a commercial lease, and what are the consequences of any breach?

The lessor is obliged to hand over the property to the lessee in the agreed condition. The property must accord with the contracted facilities (eg, hot water, high-speed internet, security systems).

The tenant/lessee must carefully maintain and use the property. The basic duty is to pay regular rent and all related obligations (eg, utility bills).

A violation of contractual obligations may lead to compensation for damages to the other party.

Where a tenant has subleased business premises or part of business premises owned by the Croatian state, the lease agreement is terminated by force of law.

4.6 How are rent variations typically effected throughout the term of the lease?

It is common to include a minimum notice period when introducing rent variations into a commercial lease agreement, which is around six months in practice.

4.7 What taxes are levied on rental income?

Income tax is levied on rental income for natural persons, at a rate of 12%; while corporate profit tax (12% or 18%) is levied on rental income for legal persons. The surtax was abandoned with the latest Income Tax Law, which entered into force on 1 January 2024.

4.8 Can a commercial lease be triple net?

As commercial leases are freely negotiable, it is possible to establish a triple net agreement in relation to a commercial lease.

4.9 How are landlord and tenant disputes typically resolved?

Disputes are usually resolved amicably to begin with. If this is not possible, the dispute must be resolved through the court. This mostly arises:

  • in situations involving the destruction of the property due to unforeseen circumstances; or
  • when rent payment requirements are not met.

Another common cause of dispute is when a lien is activated – in particular, where the lessee is forced to leave the property (the most common case being a mortgage). There are procedures to protect the legal rights of the lessee to avoid this happening; the most common measure in this regard is registration of the agreement with the land registry.

4.10 What types of guarantees are market practice and required by landlords to secure the tenant's obligations

The main measure is a requirement to pay several months' rent (usually between three and six months) in advance. Exceptionally, the business owner, as a natural person, can guarantee the rental obligations of his or her company.

5 Real estate transactions

5.1 What form do real estate transactions typically take in your jurisdiction?

A written contract is mandatory for real estate transactions. The legislation expressly stipulates that only written acts are valid in real estate transactions.

5.2 Which players are typically involved in a real estate transaction in your jurisdiction?

In addition to sellers and buyers, common participants include lawyers, notaries and independent experts (eg, finance and construction experts).

5.3 Is the seller bound by a duty to disclose? What representations and warranties will it typically make?

No.

5.4 What due diligence is typically conducted in a real estate transaction?

The main thing to check is the legal status of the real estate. It is also recommended to check the physical (real) condition of the property, as irregularities can be expected at the site itself (eg, due to changes to the property over the years or abuse of access roads), which is particularly common in Mediterranean countries.

5.5 What are the formal and documentary requirements for conclusion of a real estate transaction?

All contracts concerning real estate transactions must be in written form. Attached to such contracts are usually excerpts from the land registry office containing up-to-date data.

5.6 What is the process for concluding a real estate transaction? How long does this take? What costs are incurred?

The first stage is the negotiation process between the contracting parties in relation to the most important items, such as:

  • the price;
  • the method of payment; and
  • the consent of all sellers.

Thereafter, one party proposes a contract which, upon agreement, is concluded in writing with the prescribed legalisation. If the contracting parties agree on contract provisions, after its conclusion, everything can be effected very quickly in the competent records – usually within a few days.

The costs incurred are tax costs, administration costs and professional costs (eg, notary, attorneys), with the amount depending on the value of the transaction.

5.7 What are the respective obligations and liabilities of buyer and seller, and what are the consequences of any breach?

The main obligation of the seller is to ensure that the property can be validly registered by the buyer.

The main obligation of the buyer is to pay the agreed purchase price within the agreed timeframe.

The consequences of breach will depend on whether any are prescribed by the agreement. If not, the Civil Obligations Act will apply.

5.8 What taxes are payable on a real estate transaction?

In Croatia, the acquisition of real estate is subject to real estate transfer tax or value-added tax (VAT).

VAT is applicable at a rate of 25% where a real estate transaction:

  • is carried out by a person that is registered in the VAT system; and
  • involves the delivery, donation or transfer of construction land and buildings or parts thereof which have been inhabited or used for less than two years.

For all other transfers, real estate transfer tax is payable. The current real estate transfer tax rate is 3% (downgraded from 5% and 4% respectively).

The transfer of all agricultural and forest land is exempt from VAT; instead, the buyer must pay real estate transfer tax at a rate of 3%.

6 Real estate finance

6.1 Who are the most common providers of real estate finance in your jurisdiction? Do any restrictions apply in this regard?

Banks – mostly private banks – usually finance real estate transactions. There are also state-owned banks and local financial institutions that are mainly oriented towards the provision of financing for special activities – for example, for agricultural land, with the aim of strengthening this sector of the economy.

6.2 What forms of real estate finance are available in your jurisdiction?

For individuals and legal entities, classic real estate lending is common – that is, real estate financing which involves the creditor's registration of a mortgage as a guarantee. In practice, for legal entities, financing through leasing is also common. Most of the funds provided through financial leasing relate to business premises, making this type of lending very suitable for business entities. There is no comparative advantage for natural persons due to the imposition of VAT on lease instalments.

6.3 What formal, documentary and other requirements do lenders typically require of borrowers?

Borrowers must usually provide evidence of their creditworthiness. This mainly takes forms such as:

  • proof of regular income; and
  • land documents that can serve as a guarantee for the loan.

6.4 What type of security interests are typically required by lenders?

The registration of a mortgage on the property that is the subject of lending is usually requested as a guarantee. In addition to the mortgage, a financial guarantee from another person is often required from the party that is applying for the loan.

6.5 What is the process for obtaining real estate finance? What costs are payable?

The procedure begins with an initial application to the credit institution. If the person qualifies for financing, an agreement will be concluded in a matter of days.

As for costs, almost all institutions have stopped charging for loan processing, so the borrower will only incur the costs of hiring the necessary professionals (usually lawyers and personal finance advisers).

6.6 How is security enforced in case of any breach?

If the debtor violates its financial obligations, the creditor can collect its claim through several instruments. In the most common case of a mortgage, this will involve the filing of a lawsuit, which eventually leads to an enforcement decision. Thereafter, the property will be sold through a special court procedure, which has the nature of a public auction. In other situations, such as where a solemnised contract exists, immediate foreclosure is possible (private mortgage contract).

7 Real estate investment

7.1 Who are the most common investors in real estate in your jurisdiction? Do any restrictions apply in this regard?

In recent decades, most real estate investments in Croatia have been effected by natural persons rather than legal persons. One common reason for this is tradition, as most families prefer to live in residential buildings that they own. In the case of more sophisticated real estate investments (eg, hotel facilities, resorts, shopping centres), investors are mostly business entities with foreign ownership/co-ownership capital.

7.2 What investment vehicles are typically used in your jurisdiction? What are the benefits and drawbacks of each?

For investment purposes, bank loans are still the most common financing instrument (ie, a mortgage on real estate). In addition, real estate investment funds (REITs) have played an increasingly prominent role in the real estate sector since the adoption of:

  • the Act on Investment Funds in 2005; and
  • later, the Act on Open-Ended Investment Funds with a Public Offering (after Croatia joined the European Union and aligned its regime with EU directives, the initial Act on Investment Funds was repealed).

7.3 How are these vehicles established and administered in your jurisdiction?

The two basic categories of REITs are equity funds and mortgage funds:

  • Equity REITs pool investors' capital with the aim of acquiring, owning and managing real estate that generate income; and
  • Mortgage REITs provide financing through placement mortgage loans or mortgage backed securities), with the aim of realising the yield from interest on these placements.

8 Planning and zoning

8.1 How is land use regulated in your jurisdiction?

There are numerous regulations in relation to land use. The most important of these is the Spatial Planning Act, which regulates:

  • the spatial planning system and construction;
  • the competencies of state, local and regional authority units in administrative and other procedures; and
  • administrative and inspection supervision.

Spatial planning seeks to improve the economic, social, natural, cultural and ecological bases for sustainable development in Croatia as a particularly valuable and limited national asset, based on the principle of an integrated approach.

8.2 What is the process for obtaining planning permission? How long does this take? What costs are incurred?

The procedure for obtaining a construction permit begins with the submission of an application by the investor to the competent administrative body within each municipality. The computer system allows building permits to be issued electronically in accordance with unique procedures throughout Croatia. This means that applicants can electronically submit all necessary data, attach documentation and check at any time what stage their application has reached.

A decision must be issued within 60 days of submitting the application, as per the General Administrative Procedure Act. The costs vary from municipality to municipality.

8.3 Can a planning decision be appealed?

Yes. As with any decision of an administrative body, it is possible to appeal a decision in a building permit matter to a second-instance administrative body. If that body issues a negative decision, court proceedings can be initiated.

8.4 What are the consequences of failure to obtain planning permission or to comply with a planning condition?

The most common consequence is payment of a fine; while the most serious consequence is demolition of an illegal building.

8.5 Is expropriation of land possible in your jurisdiction?

Yes, expropriation is possible and is governed by the Act on Expropriation and Determination of Compensation. The act stipulates that expropriation can be carried out only where an interest of the Croatian state exists. In practice, this usually happens in relation to the construction of road infrastructure or health, sports or cultural facilities.

In case of expropriation, the landowner has the right to financial compensation which is equal to the market value of the real estate or even compensation in the form of some other real estate of an appropriate market value (usually in this case, the compensated real estate has a higher value). Administrative bodies conduct the expropriation procedure and the municipal/county courts provide legal protection to all participants.

8.6 Is confiscation of land possible in your jurisdiction?

Confiscation of land is not possible in Croatia. Domestic laws and international conventions protect ownership, so the only action possible is to limit or expropriate land with prescribed compensation in cases where there is a public interest.

9 Environmental

9.1 What main environmental legal provisions apply to the development, use and occupation of real estate?

The main statute in this regard is the Environmental Protection Act. Among other things, it regulates liability for damage caused by environmental pollution. In addition, Croatia introduced the Declaration on Environmental Protection back in 1992, which:

  • seeks to ensure a balance between ecological and economic development; and
  • establishes norms of responsibility for the destruction of the environment.

9.2 Who can be held liable for environmental contamination and how are clean-ups effected?

The investor and the landowner (in the case of the construction of residential or commercial buildings) are considered responsible for any pollution. As a rule, the company and its directors will be held equally responsible. The worst environmental pollution arises from construction near the coastal (sea or river) belt, so administrative and inspection supervision is intensified during the construction of such facilities.

9.3 What environmental provisions and considerations should be factored into real estate transactions?

Potential real estate acquisitions should take environmental provisions and considerations into account, as otherwise the future owner (buyer) could find itself paralysed by an inability to build or renovate in a certain area.

Article 89 of the Act on Environment Protection provides that a decision confirming the acceptability of a proposed intervention to the ecosystem must be attached to the conceptual project plan for a new building, which is an integral part of the application process for the issue of a location permit. This decision constitutes official permission and is issued by the Ministry of Economy and Sustainable Development.

Also, where an investor is considering potential real estate acquisitions, building prohibitions in areas close to protected areas such as national parks or cultural heritage sites should be investigated prior to concluding any deal, as those are accompanied by environmental peculiarities which in most cases are insurmountable.

9.4 What initiatives are in place to promote green buildings and energy efficiency in your jurisdiction?

Several initiatives are underway in Croatia within the framework of various acts of the European Commission.

The most popular is the State Aid Award Programme for Promoting Energy Efficiency and Renewable Energy Sources. This aims to:

  • eliminate market deficiencies relating to negative external effects in the energy market by establishing incentives to increase the share of renewable energy sources in total energy production; and
  • enable the fulfilment of Croatia's obligations under the National Energy and Climate Plan by reducing greenhouse gas emissions and increasing the use of renewable energy sources by 2030.

9.5 What types of environmental certifications apply in your jurisdiction?

The owner of a building must ensure that an energy audit of the building is conducted and obtain an energy certification, as prescribed by law.

An energy certificate is a document that sets out the energy characteristics of a building and is prepared by authorised persons (energy certifiers).

The document is valid for 10 years from the date of issue. Among other things, it contains general information about:

  • the building;
  • the energy class of the building;
  • the validity period of the document;
  • the drafters of the document; and
  • the referenced label.

10 Trends and predictions

10.1 How would you describe the current real estate market and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

The real estate market in Croatia is currently very dynamic. Croatia is one of the most stable countries in the European Union, with a high level of life security. As a result, it is attractive to foreign citizens and there is significant demand for real estate (especially apartments and small family houses). Compared to highly developed European countries, prices are still relatively affordable, so current demand exceeds supply (which will eventually result in higher sale prices over time). In many cities and municipalities, the biggest problem is legal irregularities in many properties, which deters potential buyers and investors. The market is thus crying out for regular properties.

There is also still a significant problem with properties that are state owned and that lack a clear management structure. To remedy this, at the end of 2021, Croatia launched a programme to improve the management of state-owned real estate, which is supported by the European Bank for Reconstruction and Development and the European Union. The goal is to implement legislative reforms and improve the management of state assets to attract interested investors.

11 Tips and traps

11.1 What are your top tips for the smooth conclusion of a real estate transaction and what potential sticking points would you highlight?

As with any legal endeavour, one should anticipate unpredictable events and hidden issues arising in a real estate transaction. If the aim is to buy real estate, the first step is to thoroughly examine all publicly available information (eg, real estate registers, ownership information). Thereafter, legal assistance should be sought from a lawyer or other expert who deals with international real estate transactions, to avoid any misunderstandings in terms.

Particular attention should be paid to the legislation of the local administration (ie, the municipalities) and the urban/zoning plans that they adopt and update from time to time. There can be significant differences between municipalities in terms of urban planning conditions, so it is necessary to keep up to date on these.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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