Everything Investors Need to Know About Unvalued Tourist Land

Although, considering the time that has passed, at first glance it seems that the topic of the transformation of social ownership, which began in the Republic of Croatia in 1990 with the adoption of the Constitution that abolished social ownership and guaranteed private ownership as we know it today, is exhausted and outdated, and that there is nothing more to say about it, it is still very relevant today.

The fact that even today, more than thirty years after the independence of the Republic of Croatia and the abolition of social ownership, many court proceedings are still ongoing to determine ownership rights to that property, and that regulations are being enacted with the aim of finally resolving this issue, speaks in favor of its relevance. The latest in a series of such regulations is the Law on Unvalued Construction Land (NN 50/20), which came into force on May 2, 2020, and which has not yet been implemented in practice despite three years having passed since its adoption.

Exceptionally valuable, and often large properties intended for tourism, which frequently occupy attractive locations along the coast, are a good indicator of the course of the transformation and privatization of social ownership in the Republic of Croatia, all the problems that these processes have generated, as well as the changes in regulations aimed at their resolution.

Property of Former Companies

One of the series of regulations that implemented the transformation of social ownership is the Law on the Transformation of Social Enterprises. This law transformed former social enterprises into joint-stock companies or limited liability companies as we know them today. However, the application of this regulation in practice has undoubtedly left many open questions, illogicalities, and contradictions whose consequences we can still see today, and which are so significant that they are being attempted to be annulled at the legislative level by enacting new regulations that again address the issue of unvalued property.

The condition for acquiring ownership rights over real estate in the transformation process is the assessment of their value, and in practice, the biggest problem arises from cases of partial assessment of real estate in which only the buildings were assessed. This problem escalated in 1996 with the adoption of the Law on Privatization, which legally defined unvalued property and prescribed the rule for acquiring ownership of such property from the Croatian Privatization Fund.

Additionally, with the entry into force of the Law on Ownership and Other Real Rights in 1997, the principle of legal unity of real estate was established, according to which separate legal transactions of buildings and the land on which the buildings lie are not possible, which was a particular problem with partially assessed property.

Legal successors of former social enterprises often owned complete tourist complexes regardless of the fact that they were subject to partial assessment, and they disposed of them in legal transactions, which led to new physical or legal entities appearing as owners of unvalued or partially assessed property.

Because neither the entry into force of the Law on Privatization nor the Law on Ownership and Other Real Rights resolved the issue of unvalued, especially partially assessed property, a series of regulations was enacted after 1997 aimed at finally addressing this issue and finding a solution for much partially assessed property.

Exact Definition

The Law on Tourist and Other Construction Land Unvalued in the Transformation and Privatization Process came into force in 2010, and it defined unvalued tourist land as construction land that was not assessed in the value of the social capital of the social enterprise in the transformation process, i.e., that was not included in the share capital of the trading company in the privatization process, and for which, on the day of the entry into force of this law, spatial planning documents determined a hospitality-tourism purpose and land on which buildings of a hospitality-tourism purpose (camps, hotels, and tourist resorts) were constructed. Furthermore, this law stipulates that tourist land is a good of interest to the Republic of Croatia and enjoys its special protection.

According to the provisions of this law, unvalued tourist land on which a camp is located is acquired by the Republic of Croatia, while unvalued tourist land on which hotels and tourist resorts are located is acquired by local government units in the area where that land is located.

For the issue of partially assessed tourist land, this law provides for a model of establishing co-ownership between the trading company arising from the transformation and privatization process and the Republic of Croatia if it concerns a camp or local government units if it concerns other tourist land. The law established the ratio of co-ownership according to the key assessed – unvalued part.

However, the model of establishing co-ownership created further uncertainties and new problems. Namely, according to this model, the state or local government units became co-owners of the buildings that were assessed and in which they often significantly invested over time, and such co-ownership relations had to be further resolved in new lengthy court litigation. Additionally, the law stipulates that the shape and size of the land registry parcels of unvalued land are determined in a special administrative procedure by a decision made by the competent administrative body for spatial planning at the request of a person with a legal interest.

All of the above indicates that the new legislative solution for establishing co-ownership regarding unvalued or partially assessed land has resulted in new lengthy court and administrative proceedings, i.e., further uncertainty and legal insecurity regarding the issue of acquiring ownership rights to unvalued property.

The new Law on Unvalued Construction Land came into force on May 2, 2020, and redefines unvalued tourist land as unvalued construction land on which a hotel, tourist resort, and/or camp was or has been built and which forms a functional whole with that building.

Recent Legislative Regulation

The aim of this law is to maximize the facilitation and acceleration of procedures for determining ownership rights to unvalued tourist land, and in this sense, it abandons lengthy court and administrative procedures so that the issue of determining the area and shape of unvalued tourist land as well as the authorized persons acquiring ownership rights to unvalued property is now placed under the exclusive responsibility of the Ministry of Spatial Planning, Construction, and State Property.

Additionally, decisions on these issues are now made in an administrative procedure and by administrative act. It should be emphasized that in order to maximize the acceleration and facilitation of these procedures, the legislator opted for a solution that is questionable from a constitutional law standpoint, according to which there is no possibility of appeal against the administrative act issued by the Ministry of Spatial Planning, Construction, and State Property, but only the initiation of an administrative dispute.

Moreover, such an administrative act is executed ex officio in the land registry regardless of existing entries in the land registry, and any registered persons are obliged to endure this and have no right to appeal regarding the decision of the land registry court on the implementation of the administrative act.

The new law completely abandons the model of co-ownership regarding partially assessed property. Namely, when in the transformation process the assessed value of the building was determined without the land, the trading company is the owner of the building and the land with the footprint area beneath the building.

Additionally, in cases where the assessed value of the building and part of the cadastral parcel on which the building was constructed was determined in the transformation process, and a special cadastral parcel of assessed land was not formed in the transformation process, the trading company is the owner of the building, the land with the footprint area beneath the building, and the assessed land that is added to the land with the footprint area beneath the building.

In this regard, the position of the assessed land is determined so that it forms a technological and functional whole with the building and the land with the footprint area beneath the building. Tourist land on which hotels and tourist resorts have been built, which has not been assessed and included in the share capital of the trading company, and which, along with the land with the footprint area beneath the building and the assessed land, serves for the regular use of those buildings, is owned by the local government unit, while the remaining tourist land is owned by the Republic of Croatia.

In this context, the land necessary for the regular use of the hotel constitutes the land on which buildings functioning as hotels have been constructed or on which permanent facilities that complement the offer or serve the needs of hotel guests are located or designed, while the land necessary for the regular use of the tourist resort constitutes the land on which all components of the tourist resort as a complex building have been constructed, including the land on which permanent facilities that complement the offer or serve the needs of tourist resort guests have been constructed and/or are located.

Who Are the Real Owners

It should be emphasized that the shape and area of the land necessary for regular use is defined as a building plot determined by a decision of the administrative body responsible for spatial planning based on the law governing spatial planning issues, and according to the proposal of the building plot prepared based on the geodetic situation of the actual state of the terrain in positional and height terms on which the shape and size of the building plot is determined. Thus, even according to the new legislative regulation, a preliminary procedure must be conducted to determine the shape of unvalued land, which includes the preparation and implementation of geodetic elaborates that will form new parcels for the assessed and unvalued parts of the property.

Regarding camps, the new law stipulates that the trading company becomes the owner of the buildings and land in the camp that were assessed in the value of the social capital in the transformation process and the land with the footprint area beneath the buildings to which assessed land is added, while the Republic of Croatia becomes the owner of the land and buildings in the camp that were not assessed in the value of the social capital in the transformation process. The scope of the camp, the assessed and unvalued parts of the camp, and the owners in the camp are also determined in an administrative procedure before the Ministry of Spatial Planning, Construction, and State Property by a decision as an administrative act.

The decision determines the cadastral parcels that have been formed on the assessed parts of the camp as the subject of ownership rights of the trading company, the cadastral parcels that have been formed on the unvalued parts of the camp as the subject of ownership rights of the Republic of Croatia, confirms that the trading company and the Republic of Croatia are the real owners of those cadastral parcels, and orders the municipal court competent for land registry matters to implement the decision in the land registry, again regardless of who is registered as the owner in the land registry.

In conclusion, the new law establishes a lease relationship for the use of the unvalued part of the land ex lege so that on the day of the entry into force of the law, the trading company using unvalued tourist land has the legal status of a tenant, whereby the state and local government units are obliged to invite the trading company to conclude a lease agreement, which is concluded for a period of fifty years, and whose essential provisions are prescribed by the Law.

The amount of rent is also prescribed, in such a way that the unit amount and method of payment of the rent are determined by the representative bodies of local government units within the range of the rent amount set by the Government of the Republic of Croatia by special regulation, and the unit amount of rent is adjusted every three years with changes in prices in the market of construction land for tourism purposes.