Regardless of Payment Deadlines, One Should Seek a Pre-registration on the Purchased Property

If there is no information in the land registry that a contract has been concluded, it is almost certain that some new buyer will have priority, even if the contract was concluded subsequently

Written by: Prof. Dr. Hrvoje Kačer

In a recent case, a company finally received a final court decision after years of litigation (more than 10 years) declaring it the owner of a certain attractive piece of land. In an enforcement attempt, it was established that the defendant sold the land and that the new owner was duly registered, as was the bank that provided him with a loan for the purchase, its pledge or mortgage. Unfortunately, the plaintiff did not ensure the so-called seal in the land registry from which everyone would be informed about the existence of the dispute. Had there been a registration, the judgment would have been executed without difficulty. In another case, an entrepreneur who fell into business difficulties and could not repay the loan properly (the bank that provided the loan registered itself as a fiduciary owner) found a buyer for a highly valuable property on a Dalmatian island, and from the sale price, the bank would be settled, and the seller would still have a lot left. Of course, both the buyer and his bank wanted security, which means they needed to be registered in the land registry. The first-instance court rejected them with the claim that one who has given the property in fiduciary cannot dispose of it. After an appeal, it was definitively decided that such a position is not correct, is not lawful, but that a pre-registration is allowed as a conditional entry that will become unconditional upon payment by the bank that registered its fiduciary. Had there been no appeal, the entire transaction, valued in millions, with multiplying effects for the local and broader community perhaps even priceless, would have failed. Therefore, to protect their rights, everyone must know that in Croatian law there are three types of land registry entries – registration, pre-registration, and notation, all governed by the same regulation – the Law on Land Registries.

The decisive moment is literally a second

Registration is what is most often thought of when speaking about entry in the land registry, and it is an unconditional entry of a certain land registry right. Land registry rights are those that can be registered in the land registry, and the legislator lists them exhaustively (by name) not allowing anyone (except the legislator himself) to expand that list. This includes real rights, most often ownership rights, then easements, real burdens, the right to build, concessions, and four mandatory rights – lease, rental, pre-emption, and repurchase. Pre-registration is a conditional entry that must be subsequently justified, while notation is the entry of a legal fact, for example, the conduct of court proceedings, deprivation of legal capacity, etc., which thereby achieves publicity to everyone, and no one can reasonably claim that they were unaware of what was recorded. Why is registration important at all, and what should everyone do in a given situation if they want to protect their rights?

It is fundamental that in Croatian law, real rights to real estate are acquired only by registration in the land registry, which means that registration is the modus or method of acquisition, and registration is considered executed at the moment when the proposal for registration reaches the land registry court. Therefore, in land registry law, the rule of receipt applies to registration issues, not sending, even if it is by registered mail, provided, of course, that the proposal is founded, i.e., substantiated. When a decision on registration will be made and when the registration will be executed is not important (it can be after several years), these are all just declarations of the state that exists at the moment when the proposal reaches the land registry court. Precisely for this reason, this time is marked very precisely, not only by day but also by hour and minute, and in the event of a dispute, even a single second would be decisive – this is a consistent application of the principle Prior tempore potior iure (earlier in time, stronger in law).

Security ‘seal’

This means that everyone, as soon as they conclude a legal transaction (or achieve some court or other decision that authorizes registration), should, protecting their rights, submit a proposal to the court in the most appropriate, and thus the fastest way, thereby ensuring the so-called order of priority. To clearly establish the order of priority, each proposal in a land registry court is given a serial number consisting of the letter Z (meaning land registry procedure), then a serial number in a given year (e.g., the first proposal in the year carries the number 1) and the year in question (e.g., 2008), so that it is a designation (the so-called seal) such as Z-1/2008. The proponent who has seal number 1/2008 does not need to fear all other proposals that arrive that year or thereafter, under only two conditions: the first and fundamental is that the proposal is founded, i.e., contains the data that the Law specifies as necessary for registration, the second is that the proponent is diligent or honest in the sense that they did not know that at the moment they concluded the transaction, the property had already been validly disposed of (this is the so-called multiple alienation which is not so rare). From this, it is completely clear that it is the elementary interest of anyone who concludes any document to propose registration to the court as soon as possible. This is clear by the nature of things if, for example, the sales contract is such that no additional conditions for registration remain, and this is almost always the case in practice only if the payment has been made in full.

Problems with subsequent payments

Problems and quite a bit of ‘wandering’ in practice follow if it concerns contracts where, for example, only a deposit has been paid, the remainder of the price will be paid later, and only after the total payment will a permit for registration be issued (the so-called clausula inabulandi). Often in these cases, the buyer does not submit any proposal to the court and does not secure their order of priority, and major problems arise if the seller is a fraudster who is satisfied with the deposit and seeks the next victim, as well as when relations among the contracting parties are disturbed, where it does not have to be clear who is at fault to what extent. If there is no information in the land registry that a contract has been concluded, it is almost certain that a new buyer (who submits their proposal to the court and secures their order of priority) will be considered honest and will have every advantage, even if they concluded the contract subsequently. In practice, sellers avoid mentioning pre-registration in the contract at all, so as not to find themselves in a situation of long-term litigation if the buyer does not pay the price, and there is no mutual agreement. This kind of silence is not the best solution, as this silence does not prevent the buyer from still requesting pre-registration. If it is agreed that there is no pre-registration, and the buyer still requests it, then they will violate the contractual provision and may find themselves in a situation where they are liable for damages.