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PURCHASE OF REAL ESTATE

Making a decision on the purchase of real estate, whether it is land, building, special part of the building (apartments, business premises, garages and garage places) or any other facility, inevitably follows a series of questions to which answers could be found only in applicable legal provisions, so it is best to seek the help of an experienced attorney in this area at the very beginning. The following text will point out a few important issues that need special attention and that can serve you as initial point in this often a demanding process.

1. CADASTRAL SHEET

First of all, it is necessary to get acquainted with the data entered in the cadastral sheet for the object/ land you are buying, which you can easily do by entering the cadastral parcel number or address of the real estate in the online search of the real estate cadaster database. Of course, public access to this database does not provide all the data available to professional users of the “e-cadaster” service, but it will provide you with basic real estate data. The real estate you are buying must be entered in the cadastral register for the municipality where the real estate is located. On the other hand, when it comes to facility under construction, it can only be “pre-recorded” in the cadastral register, because the final registration of real estate can be done only after the issuance of a use permit. Namely, when there are no conditions for final registration, i.e. until the issuance of a use permit which is a prerequisite for final registration of the facility, the Law on Planning and Construction prescribes that the construction permit for each facility under construction should be submitted to the cadaster for registration of “pre-record”. Notwithstanding, the “pre-record” has been registered for certain of these facilities, which of course adversely affects the security of legal transactions of those facilities under construction for which the “pre-record” has not been registered.

The person from whom you buy the real estate must be registered as the owner on that real estate, because only the owner is authorized to transfer the right of ownership. The owner can transfer this right by authorizing another person, who concludes a sales agreement with the buyer in the name and on behalf of the owner.

In practice, it happens that a person who wants to sell real estate is not registered in the real estate cadaster as the owner, most often because the legal basis on which that person acquired real estate (sales agreement, gift agreement, etc.) is not submitted to the cadaster. Such situations are possible since the acquirer of real estate formerly had the obligation to submit complete documentation for the registration of property rights to the real estate cadaster, which less responsible acquirers did not do in a timely manner. Therefore, the absence of registration of ownership in favor of the person from whom you buy real estate does not always mean a potential problem and reason to worry, but you will certainly have to postpone your planned deadline for completion of the entire purchase process.

Another important thing to pay attention to in the cadastral sheet are encumbrances, since they limit the right of ownership on real estate and in the case of real estate transactions, the registered encumbrance passes to the buyer. Sometimes this fact influences the buyer’s decision to give up on planned purchase. As encumbrances on real estate may occur mortgages, servitudes, various types of records such as: record of prohibition of alienation and encumbrance of real estate, record of lifetime maintenance agreement, record of expropriation procedure, record of consolidation procedure, record of cultural property status, etc.

2. PURCHASE AGREEMENT

After all the necessary checks and adjustments between the buyer and the seller, the conclusion of the sales agreement follows. The form and content of sales agreement are regulated by the Law on Obligations and the Law on transfer of immovable property. The mentioned laws envisage the form of a notarized (solemnized) document for the sales agreement. The public notary in whose territory the real estate is located will be responsible for confirming the sales agreement. If the public notary, based on the checkup of the real estate register or in any other way, determines that the subject of the sales agreement is a building or a special part of a building for which no use permit has been issued or in respect of which the legalization procedure is underway, he is obliged to issue a warning in accordance with the rules governing notarial activity, and if the contracting parties object to the introduction of the warning, the public notary will refuse to confirm the agreement.

In each real estate sales agreement, the real estate must be precisely marked, in accordance with the data from the cadastral sheet, as well as the purchase price. According to the Foreign exchange management law, the purchase price can be expressed in euros, which is an exception to the rule that in the Republic of Serbia, payment, collection and transfer are made in dinars.

According to the Law on Prevention of Money Laundering and the Financing of Terrorism, cash payment are limited and it is prescribed that a person engaged in the sale of goods and real estate or services in the Republic of Serbia may not receive cash third party for their payment in the amount of 10,000 euros or more in dinars. The restriction also applies if the payment for goods and services is made in several interconnected cash transactions in the total amount of 10,000 euros or more in dinars.

To be able to register your ownership of the purchased real estate in the real estate cadaster on the basis of the concluded sales agreement, it is necessary that the agreement contains an “clausula intabulandi” which represents the seller’s unconditional consent that the buyer can register as the owner in the real estate cadaster. If the agreement does not contain this provision, the “clausula intabulandi” may be given in a separate document with the mandatory verification of the seller’s signature with the competent public notary. The registration of the buyer in the real estate cadaster represents a way real estate acquiring and in addition to the legal basis – the sales agreement, it is necessary for the final transfer of ownership to the buyer.

3. TAXES

When it comes to the obligations of the contracting parties after sales agreement conclusion, the relief for both parties compared to previous practice is that now public notary before which the agreement is concluded has the obligation to submit documentation for registration of ownership transfer to the real estate cadaster, as well as tax returns documentation.

If the real estate is an object that was already the subject of the transaction, the seller of such object will be obliged to pay sales tax on absolute rights at the rate of 2.5% of the agreed price at the time of tax liability if that price is not lower than the market (Property tax law). Although the Law appoints the seller as the person liable to pay this tax, in practice it is a customary to transfer this obligation to the buyer by a special clause in the sales agreement. In accordance with this practice, there is a legal possibility that the buyer of the first apartment, with the fulfillment of other conditions provided by law, will be exempt from this tax.

If the subject of the sales agreement is a newly built facility, which is purchased from the investor, there is an obligation to pay value added tax – VAT (Law on Value Added Tax). The rate of this tax depends on the type of real estate that is the subject of the sales agreement and can amount to 20% or 10% of the agreed price, which does not include VAT. Similar to the tax on the transfer of absolute rights, the buyer of the first apartment can get a VAT refund by submitting a request to the competent tax authority. The buyer of the first apartment is considered to be an adult citizen of the Republic, with residence in the territory of the Republic, who buys the first apartment.

All of the above is just a general overview of the real estate purchase process, with a few of the most important segments of that process. The complexity of such process and amount of time and money that contracting parties must invest will depend on each individual case.

Petra Ugrčić Attorney at Law

The information contained herein has been provided only for the purpose of general information and cannot be considered as a legal opinion or legal advice. Accordingly, the Law Firm Petrovic & Partners disclaims all responsibility and accept no liability in respect to actions taken or not taken based on any or all the contents contained herein.