13th Edition - Association of Corporate Counsel

The International Comparative Legal Guide to:

A practical cross-border insight into real estate law

Published by Global Legal Group with contributions from:

Attorneys-at-Law Project Law Ltd BKA Attorneys at Law Brulc Gaberščik & Partners, Law Firm, Ltd. BSA Ahmad Bin Hezeem & Associates LLP Cordero & Cordero Abogados Cushman & Wakefield Gianni, Origoni, Grippo, Cappelli & Partners Greenberg Traurig Grzesiak sp.k Greenberg Traurig, LLP GSK Stockmann Gürlich & Co. Hogan Lovells Howard Kennedy Konečná & Zacha Kubes Passeyrer Attorneys at Law

Machado, Meyer, Sendacz e Opice Advogados Maples and Calder Meyerlustenberger Lachenal AG Nishimura & Asahi Norton Rose Fulbright South Africa Inc. Osler, Hoskin & Harcourt LLP PAV Law Offices Prieto Cabrera & Asociados SRL Ropes & Gray LLP Shepherd and Wedderburn LLP Simon Reid-Kay & Associates Tirard, Naudin Toronto CREW Tughans Ziv Lev & Co. Law Office

13th Edition

Real Estate 2018

ICLG

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The International Comparative Legal Guide to: Real Estate 2018

General Chapters:

Country Question and Answer Chapters:

1 Real Estate Joint Ventures: New Paradigm or Passing Fashion? – Iain Morpeth, Ropes & Gray LLP 1

2 Serviced Offices: The Changing Face of the Real Estate Market – Rebecca Davison & Nicky Stewart, Howard Kennedy 5

3 Toronto CREW and an Outlook on the Canadian Market for 2018 – Rosalyn Wallace, Toronto CREW & Stuart Barron, Cushman & Wakefield 9

4 Austria Kubes Passeyrer Attorneys at Law: Dr. David Kubes & Mag. Marko Marjanovic 12

5 Brazil Machado, Meyer, Sendacz e Opice Advogados: Maria Flavia Candido Seabra & Fatima Tadea Rombola Fonseca 20

6 Canada Osler, Hoskin & Harcourt LLP: Heather McKean & Stella Di Cresce 30

7 Costa Rica Cordero & Cordero Abogados: Hernán Cordero B. & Rolando Gonzalez C. 43

8 Czech Republic Gürlich & Co.: JUDr. Richard Gürlich, Ph.D. & Mgr. Kamila Janoušková 53

9 Dominican Republic Prieto Cabrera & Asociados SRL: Aimée Prieto 60

10 England & Wales Ropes & Gray International LLP: Carol Hopper & Partha Pal 70

11 Finland Attorneys-at-Law Project Law Ltd: Matias Forss & Sakari Lähteenmäki 81

12 France Tirard, Naudin: Maryse Naudin & Jean-Marc Tirard 89

13 Germany GSK Stockmann: Olaf Jacobsen & Sascha Zentis 99

14 Hong Kong Simon Reid-Kay & Associates: Simon Reid-Kay & Leslie Kaczmarek 109

15 India PAV Law Offices: Kiron Prabhakar & Navin B. Singh 119

16 Ireland Maples and Calder: Diarmuid Mawe & Craig Kenny 129

17 Israel Ziv Lev & Co. Law Office: Moshe Merdler & Ziv Lev 143

18 Italy Gianni, Origoni, Grippo, Cappelli & Partners: Davide Braghini 153

19 Japan Nishimura & Asahi: Hideaki Ozawa & Yujin Gen 163

20 Northern Ireland Tughans: David Jones & Luke Thompson 175

21 Poland Greenberg Traurig Grzesiak sp.k.: Agnieszka Stankiewicz & Barbara Pancer 183

22 Scotland Shepherd and Wedderburn LLP: David Mitchell & Scott Ritchie 192

23 Slovakia Konečná & Zacha: Mgr. Vladimír Kordoš, LL.M. 205

24 Slovenia Brulc Gaberščik & Partners, Law Firm, Ltd.: Damijan Brulc & Marjetka Kenda 216

25 South Africa Norton Rose Fulbright South Africa Inc.: Pieter Niehaus 224

26 Spain Hogan Lovells: Emilio Gómez Delgado 233

27 Switzerland Meyerlustenberger Lachenal AG: Wolfgang Müller & Christian Eichenberger 243

28 Turkey BKA Attorneys at Law: Göktuğ Can Burul & Onur Atakan 251

29 UAE BSA Ahmad Bin Hezeem & Associates LLP: John Peacock 258

30 USA Greenberg Traurig, LLP: Christina Braisted Rogers 268

Contributing EditorIain Morpeth, Ropes & Gray LLP

Sales DirectorFlorjan Osmani

Account DirectorOliver Smith

Sales Support ManagerToni Hayward

Senior EditorsCaroline Collingwood & Suzie Levy

Chief Operating OfficerDror Levy

Group Consulting EditorAlan Falach

PublisherRory Smith

Published byGlobal Legal Group Ltd.59 Tanner StreetLondon SE1 3PL, UKTel: +44 20 7367 0720Fax: +44 20 7407 5255Email: [email protected]: www.glgroup.co.uk

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Printed byAshford Colour Press LtdDecember 2017

Copyright © 2017Global Legal Group Ltd.All rights reservedNo photocopying

ISBN 978-1-911367-86-4ISSN 1749-4745

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Further copies of this book and others in the series can be ordered from the publisher. Please call +44 20 7367 0720

DisclaimerThis publication is for general information purposes only. It does not purport to provide comprehensive full legal or other advice.Global Legal Group Ltd. and the contributors accept no responsibility for losses that may arise from reliance upon information contained in this publication.This publication is intended to give an indication of legal issues upon which you may need advice. Full legal advice should be taken from a qualified professional when dealing with specific situations.

EDITORIAL

Welcome to the thirteenth edition of The International Comparative Legal Guide to: Real Estate.This guide provides corporate counsel and international practitioners with a comprehensive worldwide legal analysis of the laws and regulations of real estate.It is divided into two main sections:Three general chapters. These are designed to provide readers with a comprehensive overview of key issues affecting real estate, particularly from the perspective of a multi-jurisdictional transaction.Country question and answer chapters. These provide a broad overview of common issues in real estate laws and regulations in 27 jurisdictions.All chapters are written by leading real estate lawyers and industry specialists and we are extremely grateful for their excellent contributions.Special thanks are reserved for the contributing editor Iain Morpeth of Ropes & Gray LLP for his invaluable assistance.Global Legal Group hopes that you find this guide practical and interesting.The International Comparative Legal Guide series is also available online at www.iclg.com.

Alan Falach LL.M. Group Consulting Editor Global Legal Group [email protected]

PREFACE

It is a pleasure to have been asked to provide the preface to The International Comparative Legal Guide to: Real Estate for 2018, which is now in its thirteenth edition. The Guide has become a well-established benchmark for international real estate transactions and is one of the most comprehensive available. The 2018 edition now contains contributions covering 27 countries round the globe. With investment capital flowing round the world so much more freely than in the past, an understanding of the diverse ways in which transactions in the real estate market are dealt with in different jurisdictions has become an increasingly important requirement for the international investor.We hope you find the Guide a useful reference point when faced with a question concerning cross-border real estate transactions and we encourage you to contact us with suggestions to improve future editions.

Iain Morpeth Partner Ropes & Gray LLP Contributing Editor

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Chapter 1

Ropes & Gray LLP Iain Morpeth

Real Estate Joint Ventures: New Paradigm or Passing Fashion?

Some investors also carried out their own refurbishment or redevelopment of obsolete investment stock when occupational leases came to an end, particularly the larger quoted property companies that had development portfolios in addition to investment and trading portfolios. But most redevelopment activity was carried out by entrepreneurial developers with smaller balance sheets who bought up obsolete stock, obtained planning permission, pre-let, redeveloped and then sold, often back to the pension funds and assurance companies from whom they had bought in the first place.Investors predominantly held prime assets yielding core returns. The more risky process of redeveloping carried out by property companies enjoyed a higher, more opportunistic, but more volatile, level of return for the risk they were taking.Contrast that to the position today. In the first place there are multiple sources of capital across the whole risk spectrum from core, core plus through value added to opportunistic. Capital is international. Equity capital can come from private funds, specialist private equity real estate funds, pension funds, investment banks, assurance companies, endowments, family offices, sovereign wealth funds, private property companies, REITs or retail funds. Debt is available from credit and debt funds, as well as from banks and other financial institutions, and can be provided at any level in the capital structure. This has enabled capital to flow internationally and into a far wider group of asset types than traditional commercial real estate, including hotels, leisure, pubs, food and beverage, care homes and healthcare, and has resulted in a far wider spread of transaction types. Many deals are now done indirectly, many involve the creation of real estate operating businesses and many adopt different capital and funding structures.This has had an effect in the legal world, too. The increasingly international nature of transactions has started to drive a convergence of what documentation should contain in order to satisfy the debt funding market and to facilitate secondary market sales. Transactions can no longer be regarded as domestic.

3 Differing Types of Joint Venture

There are many reasons why a party may decide to execute a project in a joint venture rather than on its own. These include:■ sharing risk;■ the need to raise equity;■ leveraging expertise;■ combining skills and capital; and■ avoidance of competing bids.

1 Introduction

One of the notable developments in the international real estate market over the last 15 years has been an explosion in the use of joint ventures in property transactions. A piece of legal technology will often go through rapid periods of growth before falling out of fashion but, as investment flows become more international and the size of transactions in the real estate world grows, is this a structural shift or just a passing fashion? A joint venture can be regarded as an arrangement by which two or more parties together carry out a common transaction and we should not be restrictive about the form that the arrangement can take. The structure chosen for a transaction will often be influenced by the need to achieve tax transparency and avoid double taxation, as well as by the jurisdiction in which it is established, but common forms include limited partnerships, limited companies and, increasingly, fund structures because of their tax neutrality. Nevertheless, whatever legal form the arrangement takes, the same issues have to be addressed. This chapter considers:■ some changes in the real estate world;■ differing types of joint venture;■ UK joint venture structures;■ governance;■ funding and capital calls;■ exit and the need for a liquidity event;■ transfer restrictions; and ■ distributions and promote/carry structures.

2 Changes in the Real Estate World

Historically, the real estate market in most countries has been characterised by its domestic nature, the limited types of property invested in and the limited number of participants in it. In the UK, investors tended to be assurance companies, pension funds and a few listed property companies and the classic investment product was a freehold or long leasehold interest in the target property let to a tenant, or multi-let to several tenants, with a good covenant on an FRI (full repairing and insuring) lease for a term of 20 or more years with upwards only rent reviews. This resulted in much UK investment property having almost bond-like characteristics. The principal types of asset that investors held were office, retail, warehouse and light industrial.

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5 Governance

The first is how the venture is to be governed. Commercially, it is usually expected that the sponsor manages the joint venture on a day-to-day basis. The board (or its equivalent) will have the responsibility for managing the entity. Unlike the US, where it is common for Delaware LLCs to be used and for there to be a designated managing member, the typical form is for day-to-day management and the implementation of the business plan to be delegated by the joint venture entity to an asset manager, invariably an affiliate of the sponsor, under an asset management agreement. Decision-making will therefore be split between the asset manager, the board and shareholders and the key documents, the management agreement and the shareholders’ agreement, will have to work together. There will be matters reserved to the board or to shareholders, often called “reserved matters”, which will require the approval of both investors. These will include the adoption of a new business plan, major disposals, acquisitions, certain changes to the articles and the like. It should be remembered that, where the manager has delegated authority to implement the business plan, the power of initiating changes to the business plan lies with the manager. What happens if you disagree on a reserved matter, perhaps the new business plan for next year? On this sort of deadlock, if the parties cannot resolve it amicably after a short period, there needs to be a definitive resolution. Sometimes, the venture is required to continue under the old business plan, possibly with indexation uplifts to the spending schedules, and this can be a sensible proposal where the term of the venture is short. But the more common way of resolving a deadlock is to unwind the joint venture. There are a number of alternatives. There can be:■ a mandatory, orderly realisation of the properties over a six-

month period, which has the advantage of avoiding a party having to invest money to buy the other out;

■ a buy/sell arrangement, which is the most common method; or

■ a Texas shootout.Under a buy/sell, one party serves a buy/sell notice specifying a price for the assets and the other has the choice either of buying the shares of the first party for the price for its shares derived from that number, or of selling its shares to the first party for the price for them derived from that number. It will be apparent that the initiating party does not know whether it will be a buyer or a seller so, other things being equal, it ought to bid a reasonable market price. This “keep honest” dynamic breaks down where other things are not equal; for example, where the shareholding relationship is so different that the minority shareholder will be unable to afford to buy out the bigger shareholder. Under a Texas shootout, a procedure is set up with a third-party scrutineer under which each party bids a price and the highest bidder is required to buy out the other at that price.

6 Funding and Capital Calls

Most property joint ventures involve a single asset and so only require an initial funding of the equity required to purchase the property and to pay associated costs. On development or repositioning projects, however, there will be a need to fund ongoing costs. In this case, a subscription agreement with mutual commitments to fund the further equity required under the business plan will be entered into by both parties. These are obligatory capital calls.

A project may be too large for one investor either to fund the equity capital on its own or to take the risk of carrying out on its own. If the project is very large, there may need to be a consortium of investors participating in the project to raise the equity required to fund it. Another common reason for international investors to joint venture transactions is that they have capital but lack local knowledge and expertise in foreign markets. The solution is to partner up with a local operating partner who has both. The capital partner/operating partner model is a common form of joint venture. In this model, the equity capital is predominantly provided by the investor with the operating partner, or sponsor, providing a small amount of capital which the investor judges is sufficient to hurt the sponsor were the project to fail. The sponsor is then tasked to manage the project in accordance with the agreed business plan and receives a management fee. On exit, the sponsor receives a percentage of the surplus that is disproportionate to its equity entitlement, the difference being referred to as a “carry” or a “promote”.From a sponsor’s point of view, another attraction of the capital partner/operating partner model is that it can put less capital at risk and leverage its skills to obtain a carried interest/promote.Another popular form is the “platform” or “programmatic” joint venture. Here the investor commits to provide an equity line to a joint venture and the sponsor commits to originate transactions within the business plan parameters with a view to building up a large portfolio of assets. The exit is usually expected to be an IPO, a trade sale of the shares or a bulk asset sale. Again, the sponsor manages the portfolio as it is being assembled and is paid a promote on exit. The advantage for a sponsor is that it can have the confidence to bid for assets knowing that it already has the equity available.Of course, in deciding to joint venture a transaction, a party will have to accept that it is giving up control of the decision-making process to a large extent and that its joint venture partner will have to be kept comfortable throughout the project. The relationship between joint venture partners will differ depending on the equity percentage that each holds. A 50:50 joint venture between two large investors will look very different to a capital partner/operating partner model where the shareholdings are 95:5.

4 UK Joint Venture Structures

There are many different structures that can be used in the UK for a joint venture (and often more than one is used in combination). These include:■ partnerships;■ limited partnerships;■ co-ownerships;■ Jersey/Guernsey property unit trusts;■ limited companies;■ limited liability partnerships;■ equity sharing leases; and■ contractual arrangements. The choice will depend on a number of factors including the desired tax treatment and the likely exit. It will be apparent that there is a substantial difference between a horizontal structure, such as a limited partnership or a limited company, and a vertical structure, such as equity sharing leases, but whilst the documentation may take a materially different form, the same commercial issues will have to be dealt with. Whatever form the joint venture takes, what are the key issues to consider?

Ropes & Gray LLP Real Estate Joint Ventures

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■ no restrictions on pledging shares to secure debt financing for the project;

■ stapling of shares to any shareholder loans;■ restrictions on minimum holding by the investor where it

sells part; and ■ a right of first refusal over the sponsor’s shares when it is able

to sell.One of the principal exit mechanisms for an investor is a sale of all the shares in the joint venture entity. This is because the sum of the values of the two shareholders’ individual shareholdings may be less than the value of all the shares if offered for sale in one lot. The difference will usually be down to control and the residual promote payment liability. The investor is therefore given the right to require the sale of the sponsor’s shares, called a “drag” right, if it is selling its shares to a third-party buyer. The sponsor may want to remain in the project with the new investor or may want to exit as well and monetise its promote at that point. The agreement will also provide that if the investor does not exercise its drag right, the sponsor can require the investor to sell its shares, usually called a “tag” right, so that it exits at the same time. Where the shareholders’ relationship is more equal, investors should think carefully before agreeing to give a drag right to the other party. In a 50:50 JV, does an investor really want to be dragged into an exit it does not want?

9 Distributions and Promote Structures

The key provisions in a joint venture will be the economic ones and it is important to get these right in the documents. All receipts, whether revenue or capital, net of the sums required to settle liabilities, are mandatorily required to be paid to investors immediately after receipt – subject of course to the requirements of any credit agreement. This is driven by the internal rate of return (IRR) basis for the promote calculation. Receipts include rental or operating income, capital proceeds arising from a sale or part disposal and any refinancing surplus. Often, equity is put in by investors through a combination of subscription for shares and the making of shareholder loans in order to aid this commercial requirement and to avoid restrictions on making distributions on shares where there are legal impediments.Liabilities will include costs of sale, sums required to redeem loans on a disposal, current liabilities (such as other debts and taxes), budgeted expenditure and reserves for contingent liabilities. The net surplus will go through a waterfall in the shareholders’ agreement which will provide for the return of equity, the payment of any agreed hurdle before the promote and then payment of the balance in the pre-agreed proportions, which gives the sponsor its promote. There are different ways in which these can be written in heads of terms; is the investor prioritised and is there a catch up; are there multiple layers of promote; is there an equity multiple as well as an IRR threshold?However, a typical waterfall where the sponsor has invested 10% of the equity, for example, might provide for the following: ■ repayment of shareholder loans pro rata;■ payment of a sum equal to that subscribed for shares by

shareholders pro rata;■ payment to shareholders pro rata until the investor has

received an IRR of x% or an equity multiple of 1.5x if higher;■ payment to shareholders pro rata in the proportion 80/20

until the investor has received an IRR of y%; and■ thereafter payment to shareholders pro rata in the proportion

70/30.

In addition to these mandatory calls, it is often provided that capital calls for emergency purposes can be made and that a shareholder may, but is not obliged, to fund them.What happens if a party fails to fund a capital call? Failure to fund a mandatory call is a default so the default provisions will apply but the documents will also need to provide a mechanism to allow funds immediately to be made available to the joint venture entity to avoid insolvency. Typically, the arrangement is a right for the non-defaulting party to elect to put in the defaulting party’s share by way of a loan with an interest rate at equity levels of return. If the other party fails to repay that loan plus interest within a fixed period, the funding party can decide either to leave the loan in place rolling up interest at the default rate or to convert into equity on a penalty basis (e.g.: on a 2:1 basis). Optional funding will be treated in the same way but with a substantially lower interest rate and a 1:1 or a fair value conversion rate.

7 Exit and Liquidity Event

Investment into these structures is illiquid, like most private equity investments. So whilst the investor will not usually be restricted from selling its shares, it will want to know that it can rely on an exit mechanism if it is unable to sell. It is not just the investor who has an interest in this; the sponsor is also likely to want a mechanism by which it can monetise its promote.Usually the venture has a fixed life and will provide for an exit after the agreed period. The typical hold period is regarded as three to five years, with real estate debt being provided for a five-year term. In addition, the IRR hurdle in the promote encourages an early retirement of equity, whether through a refinancing or a sale.The principal exit mechanics, in addition to the investor’s drag right (see below) are a mandatory, orderly sale of the property or a buy/sell.

8 Transfer Restrictions

In a capital partner/operating partner joint venture, the sponsor is treated differently from the investor in relation to transfers. This is because of the need to preserve an alignment of interest throughout the life of the venture. An alignment of interest arises because the sponsor manages the project and is rewarded by its promote but puts money at risk via its invested capital which it will lose if the project is unsuccessful – so it stands to lose something as well as to gain something. Accordingly, the sponsor will usually be prevented from transferring its shares until exit by the investor or until the liquidity event occurs. In addition, the sponsor will be subject to a change of control clause so that it cannot avoid its transfer restrictions by selling the shares in any single purpose vehicles (SPVs) it has used to invest and manage. The investor, on the other hand, will usually want to be free to transfer its shares at any time, although it will sometimes agree a lock-in under certain circumstances such as a development project where parties are often locked in until practical completion. There is usually no change of control clause for the investor even though it may invest through an SPV. Typical transfer provisions include:■ no restrictions on investor transfers outside any lock in;■ no transfers of whole or part by the sponsor until exit or

liquidity event;■ no restrictions on either party’s transfers to affiliates;




Iain MorpethRopes & Gray International LLP 60 Ludgate HillLondon EC4M 7AWUnited Kingdom

Tel: +44 20 3201 1639Email: [email protected]: www.ropesgray.com

Iain Morpeth is a partner in Ropes & Gray LLP and is chair of its international private equity real estate practice. He advises private funds, investment banks, endowments, sovereign wealth funds and other investors, as well as sponsors and operating partners, on real estate related transactions. Iain has a wide experience of transaction types including real estate M&A, real estate private equity, joint ventures, co-investment, acquisitions and disposals of shares, debt and property assets, development projects, earn outs and PFI as well as preferred equity, mezzanine lending, restructurings, structured finance, work outs and outsourcing. He is an English solicitor and is located in the firm’s London office.

Ropes & Gray is a pre-eminent international law firm with offices in key financial centres around the world and has over 275 partners and 1,160 lawyers worldwide. It has market leading practices in fund formation, M&A, private equity, real estate, finance, capital markets, investment management, tax, government enforcement, litigation and IP.

The firm’s market-leading real estate practice advises private funds, investment banks, endowments, sovereign wealth funds and other investors as well as sponsors and operating partners on the full range of real estate transactions including real estate private equity, real estate M&A, co-investment, joint ventures, real estate finance, acquisitions and disposals of shares, debt and property assets, fund investment/divestment, development projects and earn outs as well as preferred equity, mezzanine lending, restructurings, structured finance, work outs and outsourcing. The practice handles transactions relating to both distressed and non-distressed real estate, at all points of the risk spectrum and across multiple geographies and involving all types of real estate including commercial, leisure, hotels, pubs, care homes, hospitals, student housing and government property as well as portfolios, mortgages and NPLs and construction and development projects.

The firm has over 90 legal professionals, including 50 lawyers specifically focused on real estate transactions, who routinely handle market-leading tax structuring and complex debt and equity financing structures and exit strategies. The firm’s clients include some of the most sophisticated investors in the property industry and regularly look to it for advice on their complex, high-value real estate investment and financing transactions. Last year, the firm’s international real estate practice handled matters with an aggregate transaction value in excess of $22 billion.

The difference in the last two payments between the 10% that the sponsor’s shareholding entitles it to and the specified proportions in the waterfall is the promote. There are some other issues that commonly arise. Does the promote get paid on final exit or on an interim basis when sufficient property sales have occurred that the promote goes positive? Should the sponsor keep its promote if the asset manager is terminated or if it is in default? These need to be agreed on a case-by-case basis.

10 Conclusion

Although this article has only been able to touch on some of the key issues that crop up in joint ventures, it will be apparent that there is endless flexibility in how these arrangements can be structured, what relationships can be established and what differing economic outcomes can be agreed. In part, this is what makes them so popular. In a world of international capital flowing across borders it is hard to see that the need to use joint ventures as a means of accessing new investment will diminish. Returning to the question with which we started, it looks more like a structural shift than a passing fashion.



Chapter 2

Howard Kennedy Nicky Stewart

Serviced Offices: The Changing Face of the Real Estate Market

very plausible option for the bigger corporates, such as finance firms and banks, which are looking to take serviced office space for designated departments such as IT, as a temporary solution in order to carry out designated projects. Serviced office space gives companies confidentiality and enables them to deal with the (often sudden) fluxes in levels of employees and staff.

Why Companies are Turning to Serviced Offices

Perhaps one of the most significant differences between taking a lease of office space and a licence of serviced offices is flexibility. Traditionally, tenants of office space have been expected to take leases for fixed terms, often for periods of say 10 to 15 years (although recent evidence suggests lease terms have lowered to approximately six years), subject to five-yearly upwards open market rent reviews, without any break options, or, if a break option is agreed, subject to strict conditions and penalties. The institutionally acceptable full repairing and insuring lease, upon which the UK investment market has relied for so many years, offers landlords and investors a guaranteed income stream for the term of the lease, with the original tenant remaining liable under the original tenant covenant or under an authorised guarantee agreement. However, modern-day businesses now require flexibility as enterprises struggle with their long-term strategic plans; for example, the concept of a five-year lease term does not fit with a one year (or less) business plan. The key for companies today is to be flexible; to have the ability to expand and contract, extending or terminating agreements as and when necessary to keep overheads down and respond to business needs. They do not want to be tied into long-term leases or locations, particularly given many European countries’ current political and economic instability.Other immediate benefits to businesses include the speed of entry into new premises, with simple user-friendly contracts that can be signed immediately without requiring legal advice or fees and fixed monthly overheads (inclusive of business rates, service charge and dilapidations). In addition, as competition between serviced office providers increases, the offering has become more specialised. Different providers have come to rest their reputations on their technological offerings, additional benefits and general fit out, with serviced offices increasingly being located in prestigious locations close to good transport connections. This allows businesses to impress clients and employees alike. Providers are also offering other types of services including co-working arrangements and virtual offerings such as postal addresses and telephone answering services.

Introduction

The face of the UK real estate investment market has changed in recent years, with the demand for serviced office space in 2017 showing no signs of slowing. Whilst nearly 40% of the global market is currently based in the UK, many of the European markets are now beginning to take hold. Countries such as the Netherlands, Germany and Ireland have all shown particular signs of growth as they begin to make ground and catch up with the UK and US markets, the traditional field leaders. News that nearly 50% of employees worldwide spend less than half of their time in the office each week,1 either working from home or at various locations, means that the serviced office sector, which once may not have been an attractive investment option or even warranted consideration for corporate occupiers, is now a serious contender as service providers offer an innovative approach to the use of space, cutting edge technology and, most importantly, increased flexibility to occupiers. In this chapter we consider:■ Who is using serviced offices?■ Why are companies turning to serviced offices?■ How is flexibility achieved for occupiers?■ Why invest in serviced offices and service office providers?■ Considerations to be made by investors.■ Key trends and market impressions – where does it go from

here?

Who is Using Serviced Offices?

With increased pressure on modern businesses to combine cost effectiveness with providing an inviting and attractive workspace to a new generation of discerning employees, the flexible work space has adapted and developed over recent years. In particular, small to medium enterprises (SMEs) and start ups appear to have thrived in the collegiate atmosphere that serviced offices and flexible working spaces have promoted. In providing leading technology and encouraging free thinking, flexibility and social working, the serviced office space provides something that the conventional office dynamic does not offer.2 With recent figures showing that the UK leads rankings on the number of new start-up companies, it is of no surprise that the take up in serviced office space has also shown double digit growth over the last few years.Although industries such as the technology and creative industries were the first to adopt the more flexible way of working provided by serviced offices, the serviced office sector has now become a

Rebecca Davison



of the term. Whilst a tenant under a full repairing and insuring lease can expect to find itself liable to the landlord for terminal dilapidations, which may not only include the cost to the landlord of making good the premises following the end of the term but also any losses, including loss of rental income, incurred by the landlord in doing so, the serviced office licence does not. At the end of the licence period, the occupier is expected to vacate the designated space simply making good any damage caused to the premises. A deposit is taken at the beginning of the licence period which, in the event the designated space is not returned in a suitable condition at the end of the licence period, may be used by the serviced office provider to remedy any defect.

Why Invest in Serviced Offices or Serviced Office Providers?

With an increased pressure on both corporate employers and landlords to provide enhanced workspaces for employees and tenants alike, the serviced office sector has been a trailblazer in innovative design of office space providing communal break out areas and leading IT investment. To date in 2017 serviced office and co-working providers are widely reported to have accounted for the largest share of space leased in Central London, with providers such as WeWork increasing its presence in two of the largest transactions of 2017. The sector is now attracting all forms of investors from global real estate funds to Asian institutional investors and family offices.Where funders have previously been nervous of the serviced office sector, viewing serviced office providers as a last resort tenant taking up vacant properties at cheaper rents in a downturn, property investors are now not only looking to act as landlord to existing and established serviced office providers but also investing in established operators, as evidenced by Blackstone’s acquisition of the Office Group, and even venturing into the market themselves; for example, British Land’s own offering, the Storey concept. Although some hesitation remains regarding the sector and its unpredictability, a number of funders are now more comfortable with providing corporate funding to operational businesses as opposed to traditional property companies.

Considerations to be Made by Investors

An increase in the number of serviced office providers and a boom in companies taking up serviced accommodation has meant that landlords not only need to consider how premises are held but also the tenant mix. Some key considerations for investors both when investing in premises with serviced office providers in occupation or on the grant of a new lease to a service provider are:■ Investment value – The investment value of a premises

with a serviced office provider is perhaps not as simple to ascertain as with a traditional lease. With a large amount of variables in place, the investment risk may be seen as greater. As yet, there is no universally agreed way of valuing service providers, despite a call for one. Therefore, until such time as this is agreed, a full assessment of the service provider’s financial standing and reputation in the market, as well as the standard investigations of title relating the property, is advised.

■ User – As a landlord or tenant wishing to underlet to a serviced office provider, consideration needs to be taken as to whether an occupational lease allows for multi-occupation. In the main, traditional office leases only permit group company sharing with a complete prohibition on the sharing of occupation or possession of the premises with third parties. Whilst leases can be varied to accommodate this, this may come at a premium.

How is Flexibility Achieved for Occupiers?

Lease or Licence?

Whilst co-working agreements are often dealt with by way of membership or similar arrangements not discussed in this chapter, serviced office accommodation is documented by way of a personal licence or short fixed term flexi lease giving both service provider and occupier some level of certainty, whilst also providing flexibility.The type of arrangement used will more often than not depend on the proposed length of occupation period but can largely be split into two categories: short term, i.e., those covering a licence period from one month up to 24 months; and long-term arrangement usually no more than three years. However, as the market continues to mature and the large corporates look to take on serviced office space, the maximum term is likely to extend to periods of up to five years. Unlike the traditional office lease in which an exclusive right to the possession of land is granted, a licence provides licensees with a contractual right or privilege to use the relevant serviced office space which, without that permission, would be an act of trespass. No further rights of security of tenure, which are created in a normal business tenancy by virtue of the UK Landlord and Tenant Act 1954, are granted and the licence remains personal between the service provider and occupier, meaning that the licence will terminate in the event the service provider, either as a tenant under a lease or owner of a freehold title, disposes of its interest in the premises. In a licence the service provider always retains the right to “substitute” the designated space for other offices. This is to ensure that the licensee does not enjoy exclusive possession or occupation of the office in question which is one of the key tests for establishing whether a tenancy exists. Whilst creating some uncertainty for the tenant, this is usually outweighed by the benefits of the licence (already discussed in this chapter).

Licence Fees

Serviced office licences tend to have one all-encompassing licence fee, covering not only the rental fee but also services such as:■ utilities; ■ communal facilities; ■ payment of business rates; ■ repair and maintenance; ■ buildings insurance;■ photocopying, mail handling and telephone answering

services; ■ internet; and ■ security.These services are available on a 24/7 basis.Whilst additional charges may be made for any further services provided over and above the basic inclusive services, the occupier is able to budget fairly accurately for annual outgoings relating to a serviced office, unlike leased premises where charges for items such as insurance, business and other rates, and service charges are more often than not defined as separate rents, which can be difficult to ascertain until a formal demand is received.

Dilapidations

Perhaps one of the most significant differences between the service office licence and a traditional lease is what happens after the end

Howard Kennedy Serviced Offices: The Changing Face of the Real Estate Market


The new lease accounting standards due to come into force on 1 January 20193 will require all companies reporting under the International Accounting Standards Board to include information in relation to leasing on their balance sheet inflating assets and liabilities. Currently viewed as off-balance sheet, from 2019 all rents and lease payments are required to be listed on the balance sheet, meaning companies will be seeking to reduce these liabilities where possible. Whilst companies could choose to buy the office space they occupy or even seek to agree a proportion of turnover rent in order potentially to bring rents down in line with profits, it seems more likely that they will seek to increase flexibility and be seen to be reducing unnecessary expenditure when having to account to shareholders. All of this combines to make the serviced offer sector increasingly attractive to corporates, either as a partial or complete solution to their needs (generally depending on the size of the corporate concerned). In short, one can expect this sector to continue to grow and to evolve in the types of offerings it presents.

Endnotes

1 Regus: The impact of remote working on commercial real estate.

2 Costar.com.3 IFRS 16, Leases (https://www.iasplus.com/en-ca/projects/

ifrs/completed-projects-2/leases).

■ Non-compete – The serviced office sector is fiercely competitive and, as more and more serviced office providers enter the market, investor landlords will increasingly need to consider whether to include non-compete clauses in their leases in order to provide comfort and satisfy provider requirements as the threat of competition from other serviced office providers in the same building or business centre will act as a deterrent to many. Whilst this may impact on rental value at rent review, it may be necessary to attract the larger and more well-established service providers.

■ Lender obligations – Whether a premises is owner occupied or forms part of an investment portfolio, if lending is in place it is more than likely that covenants will have been given to the lender not to let out, share space or allow anyone in it to occupy it without the consent of the bank in order to ensure that it is able to repossess in the event of default.

Key Trends and Market Impression – Where Does it go From Here?

With the workplace environment rapidly evolving and advances in technology increasingly affecting the way companies are run, both investors and employers alike are well advised to familiarise themselves with the serviced office market. The Brexit referendum, subsequent UK election and continued economic and political instability in many other EU countries is leading occupiers to seriously consider their options, with a drive for increased flexibility and the ability to make changes rapidly, as situations, markets and economies alter.




Rebecca DavisonHoward KennedyNo. 1 London BridgeLondon SE1 9BGUnited Kingdom

Tel: +44 20 3755 6000Email: [email protected]: www.howardkennedy.com

Howard Kennedy is a leading London law firm with over 55 partners and over 150 lawyers, offering a broad range of services and expertise across a wide range of sectors.

The firm comprises a vibrant and innovative team of lawyers, well versed at handling all types of property, corporate and commercial transactions for clients.

Accounting for nearly half of the firm, Real Estate forms a significant part of the practice. The teams are focused on achieving commercial results for their clients and offer a full range of services across the property life cycle.

They are considered to be a ‘real alternative’ to City firms and have undergone huge change over the last few years, encompassing two mergers and culminating in our move to stunning offices on the river at No.1 London Bridge.

Rebecca is a Senior Associate with Howard Kennedy specialising in a broad range of non-contentious commercial real estate matters including acquisitions and disposals, asset management (including portfolios) and landlord and tenant issues. Rebecca also advises corporate occupier clients on the acquisition, re-gearing and disposal of their occupational property interests.


Nicky StewartHoward KennedyNo. 1 London BridgeLondon SE1 9BGUnited Kingdom

Tel: +44 20 3755 6000Email: [email protected]: www.howardkennedy.com

Nicky is Partner in the Real Estate department and has over 25 years’ experience dealing with commercial property deals. She specialises in landlord and tenant, retail, business property acquisition and disposal, asset management portfolio work particularly in the serviced office market sector and general property investment work.


Chapter 3

Toronto CREW / Cushman & Wakefield

Rosalyn Wallace

Stuart Barron

Toronto CREW and an Outlook on the Canadian Market for 2018

Will Rising Interest Rates Stifle Growth?

Canada’s office and industrial real estate markets are at a point of inflection. Shifting economic fundamentals, particularly rising interest rates, threaten expansionary momentum in non-oil-producing markets. How do we gauge the impact of this change? Who will be most heavily affected? Will the fundamentals driving the hottest markets such as Vancouver, Toronto and Montreal, continue to drive growth in 2018 and beyond? It is critical for tenants, asset owners, and investors to answer these key questions to determine what space commitments make sense and how to shape their portfolios in tomorrow’s market.

Counterweights to Softening Growth

There are two key counterweights that will help buoy demand in tomorrow’s markets, even as growth across traditional sectors wanes:1. Expanding Tech Sector. Office markets, with an established

tech sector and related educational institutions that produce a growing talent pool, will help drive growth.

2. E-com Escalation. The ongoing metamorphosis of retail and related growth in online sales, driven by a more sophisticated omnichannel environment, will continue fuelling demand for logistics and distribution facilities in key industrial markets.

Low Oil Costs and Low Interest Rates Polarised Canadian Real Estate Markets

The oil price decline in mid-2014 had a polarising effect on Canadian office and industrial markets. Oil-producing markets experienced an unprecedented contraction of demand strength. Calgary, which got hit the hardest, saw 6.5 million square feet of office space return to market in the two years that followed the oil shock and now sits with a CBD office availability rate of 22.0% (all classes). Edmonton and St. John’s also felt the pain of weak oil prices, and now have availability rates of 15.3% and 21.9%, respectively. Back when the oil price ordeal began, the Bank of Canada lowered interest rates to record lows in response to plunging real GDP growth. With the rocket fuel of low interest rates, combined with low energy costs, a strong U.S. economy and weak domestic dollar, demand gained momentum across non-oil-producing Canadian office and industrial markets. Since then, we’ve seen unprecedented growth in Vancouver and Toronto, and to a lesser extent, in Montreal.

Toronto Commercial Real Estate Women

Toronto Commercial Real Estate Women (“Toronto CREW”) is dedicated to empowering women to excel, influence and lead throughout their commercial real estate careers. Toronto CREW members are key decision makers of some of the most influential corporations in Canada, representing almost all the disciplines in commercial real estate. Members have immediate connections to high-performance professionals across all disciplines of commercial real estate in Toronto.Committed to bringing more women into commercial real estate, Toronto CREW is focused on creating programs that educate young women about the career opportunities available to them. Toronto CREW hosts an annual event for young women in high school where they can interact with women from different backgrounds and fields currently working in the commercial real estate industry and learn about the industry itself. For those young women who enrol in post-secondary commercial real estate education programs at a university or college level, Toronto CREW continues its support for young women focused on careers in commercial real estate through its scholarship program. Once graduated and new to the commercial real estate industry, Toronto CREW assists these young women by facilitating a mentorship program that provides female mentors. Toronto CREW is not only focused on educating up and coming talent in the commercial real estate industry. Building effective leaders is key to advancing the commercial real estate industry. Toronto CREW dedicates resources to providing members with high-level leadership development training and opportunities to serve on global boards and committees to develop and hone leadership skills. Women looking to move into the C-Suite can participate in the Toronto CREW leadership certificate program or the board readiness program along with a number of other one-off sessions on specific leadership skills development. Facilitating business networking and deal making among our multi-disciplinary membership is the cornerstone of the Toronto CREW organisation. Each month, there are multiple opportunities for members to meet and network with each other. Strong relationships lead to smoother transactions and quick and efficient referrals. There is a saying in Toronto CREW that no call to a member is a cold call. Toronto CREW members view even the shortest of interactions as an opportunity to develop their network.Over the last 21 years, Toronto CREW has developed strong support for its mission through partnerships with and sponsorships from corporations in all commercial real estate fields in the industry. Cushman & Wakefield is one of the organisations that supports the Toronto CREW mission through sponsorship. Read below for an industry outlook prepared by Cushman & Wakefield.



So, What About Rising Interest Rates?

Canadian markets sit at an inflection point. While opinions differ, the consensus among economists is that the economy will slow over the next few years. Oxford Economics is projecting that real GDP will soften to 1.9% in 2018 from an estimated 3.0% in 2017, with long-run interest rates rising to 2.62% in 2018 from 1.81% in 2017. There are many conflicting views on where interest rates will go, with forecasts clearly dependent on the Bank of Canada’s policy. Clearly, any material slowdown in the economy would impact profitability and slow expansionary momentum across office and industrial markets; however, we remain optimistic that growth from tech and e-com will help counterbalance the impact of slowing demand in other sectors.

Solid Performance Ahead

There is no question that Canadian office and industrial markets will see a slowing of overall momentum as real GDP softens over 2018 and 2019. However, the counterbalancing factors in this report should buoy demand growth against a general moderation in demand strength. From an industrial perspective, Vancouver, Calgary, Toronto, and Montreal will likely perform well as we move through 2018 and 2019. Calgary is seeing its first signs of a strengthening industrial sector, and will benefit significantly from the continued evolution of ecommerce. Toronto is another key industrial market that will see continued growth as a result of this counterbalancing factor. Both markets are expected to experience continuing land scarcity, tight availability, and moderate growth, which will exert continued upward pressure on rental rates. It is astonishing to consider that Toronto, with its 773 msf of industrial inventory, now has an all-time low availability rate of 2.5%. From an office perspective, the non-oil-producing CBD markets are expected to see continued growth, also at a moderate pace. Markets with a deeper technology sector will see a greater offsetting impact from technology and stronger overall growth. Toronto is an example of such a market. Downtown Toronto has been a story of unparallelled growth. With an overall availability rate at a record low of 3.0%, this impressive market should see upward pressure on rental rates over the next few years, in advance of the next wave of new developments arriving at market, including the much anticipated 81 Bay Street. Across Canada, many markets have a substantial technology footprint, and its size and the ecosystem supporting continued growth of the technology sector will be a powerful offsetting influence as traditional sectors see moderate growth.

Industrial Market Revival

Industrial markets saw a huge acceleration in growth due to a variety of factors. The ongoing evolution of retail and related growth in logistics facilities were crucial drivers. In addition, low energy costs, strong demand from a robust U.S. economy, and a competitive Canadian dollar, propelled overall growth across industrial markets. Toronto’s industrial markets have seen expansionary momentum catapult by almost 200% since Q3 2014, averaging an impressive 2.1 million square feet (msf) of absorption per quarter. This translated into 27.1 msf of positive absorption since the oil price decline. Vancouver, relative to the size of its inventory, saw even faster growth than Toronto, with 11.3 msf of absorption over the same period. And while Montreal tends to lag on the recovery side, the momentum of growth over the past year has been dramatic, with over 8.2 msf of space absorbed since mid-2014.

Surging Downtown Office Markets

Interestingly, CBD office markets have parallelled the stellar growth of industrial markets, with Vancouver, Toronto, and Montreal leading the Canadian pack. While record new supply reshaped these markets between 2014 and 2017, space was rapidly absorbed in Toronto and Vancouver, and demand strength has driven availability to record lows in CBD markets. Central Vancouver has seen the strongest absorption levels in 25 years and now has an availability rate of 5.0%. Downtown Toronto, which has seen ferocious demand give rise to 10.5 msf of new buildings downtown since 2009, is now faced with a record-low vacancy rate of 3.0%. Montreal has also seen a significant strengthening of expansionary demand momentum. Like other gateway office markets around the world, key cities in Canada have seen traditional demand drivers ease as new growth leaders such as technology pick up steam. A 2017 Cushman & Wakefield study shows that the technology sector in downtown Toronto has a footprint of more than 10 msf. Though this ranks second behind banking and finance, the tech sector accounted for more than 22% of the growth in downtown Toronto across 2016. Technology isn’t just a downtown Vancouver and Toronto story. The impact of the sector is reverberating across Canada in other markets such as suburban Vancouver, suburban Ottawa, downtown Montreal, Kitchener-Waterloo, and suburban Toronto. Expect more transformation from this dynamic sector through 2018.

Toronto CREW / Cushman & Wakefield A Market Outlook


Rosalyn WallaceToronto CREWP. O. Box 350, Ernst & Young TowerToronto-Dominion CentreToronto, ON M5K 1N3Canada

Tel: +1 416 729 6071Email: [email protected]: https://torontocrew.org

Stuart BarronCushman & Wakefield161 Bay Street, Suite 1500Toronto, ON M5J 2S1Canada

Tel: +1 416 359 2652Email: [email protected]: www.cushmanwakefield.com

Rosalyn is the 2017 Toronto CREW President and Director of Real Estate and Transactional & Legal Services at Magna International Inc. (“Magna”). Magna is one of the largest global auto parts manufacturers. In terms of real estate, Magna’s portfolio consists of over 600 properties in 29 countries, where Magna is predominately in the role of tenant in industrial space. Rosalyn leads a global team that assists in the day-to-day management and operation of all of Magna’s facilities and with all acquisitions, disposition and leasing matters. In her role at Magna, Rosalyn is also part of the construction team that leads the site selection and RFP process and negotiation of construction contracts. Prior to joining Magna in 2015, Rosalyn was in private practice with a national Canadian law firm for 10 years where her practice focused on all aspects of commercial real estate, with a particular focus on leasing.

Toronto CREW

Toronto CREW is a chapter within the larger CREW Network which has over 11,000 members in 72 chapters across North America and the United Kingdom. The CREW Network is actively engaged in influencing the success of the commercial real estate industry by advancing the achievements of women. The CREW Network is the world’s leading researcher on women in commercial real estate. Research initiatives produce white papers annually and a benchmark study every five years, delivering data and action items to advance women in commercial real estate and positively impact the industry.

Cushman & Wakefield

Cushman & Wakefield is a leading global real estate services firm that helps clients transform the way people work, shop, and live. Our 45,000 employees in more than 70 countries help occupiers and investors optimise the value of their real estate by combining our global perspective and deep local knowledge with an impressive platform of real estate solutions. Cushman & Wakefield is among the largest commercial real estate services firms with revenue of $6 billion across core services of agency leasing, asset services, capital markets, facility services (C&W Services), global occupier services, investment & asset management (DTZ Investors), project & development services, tenant representation, and valuation & advisory. 2017 marks the 100-year anniversary of the Cushman & Wakefield brand. 100 years of taking our clients’ ideas and putting them into action. To learn more, visit www.cushwakecentennial.com, www.cushmanwakefield.com or follow @CushWake on Twitter.

Stuart Barron oversees the collection and dissemination of research information supporting the Canadian markets. Stuart is supported by a knowledgeable research team stretching from Vancouver on the west coast to Newfoundland & Labrador on the east coast. One of the key priorities of research is to drive out market intelligence across asset classes including office, industrial, retail, capital markets and multifamily. In support of intelligence output, Stuart interviews and engages with experts across the Canadian markets to gain perspective and identify unique observations about changing market conditions. Cushman & Wakefield prides itself on the depth of its market intelligence, as evidenced by Mr. Barron’s private and public speaking engagements, which connect the dots between changing economic fundamentals and the impact of anticipated change on the Canadian real estate markets.

Mr. Barron graduated from the University of Western Ontario with a Bachelor in Economics and has achieved the designation of Chartered Accountant.

Toronto CREW / Cushman & Wakefield A Market Outlook



Chapter 4

Kubes Passeyrer Attorneys at Law

Dr. David Kubes

Mag. Marko Marjanovic

Austria

2 Ownership

2.1 Are there legal restrictions on ownership of real estate by particular classes of persons (e.g. non-resident persons)?

Austria has a total of nine different Acts regulating Land Transfer to Foreign Nationals (Ausländergrundverkehrsgesetze). The various conditions that a non-Austrian or non-EU citizen must meet in order to be permitted to acquire real estate assets differ from Province to Province. If a person from a non-EU country buys real estate, the purchase contract must be signed subject to the condition of obtaining approval from the competent land transfer authority (Ausländergrundverkehrsbehörde). As a rule, such persons will be permitted to acquire real estate assets in Austria only if they furnish proof that the centre of their lives (i.e. their main place of residence) is in Austria and that by purchasing the real estate they will deliver a certain added value to the Austrian State. Therefore, pure investments in real estate on the part of non-EU citizens need to be supported by complex schemes involving one or more companies because there is very little chance of approval by the land transfer authorities in most cases.

3 Real Estate Rights

3.1 What are the types of rights over land recognised in your jurisdiction? Are any of them purely contractual between the parties?

Austria has a comprehensive nationwide land register where all landowners and all rights of third parties can be entered. Purely contractual rights in respect of real estate are not protected, because Austrian land registry law is based on the understanding that all material rights and obligations of owners of real estate are entered into the land registry. If a relevant right is not entered into the land registry, it will protect the contracting parties from misuse but any third party may acquire a real property in good faith (bona fide acquisition) because the principle of publicity of the Austrian land registry provides that only rights entered into the land registry are to be relied on. Therefore, rights that have not been entered into the land registry offer no protection against bona fide acquisition by third parties.

1 Real Estate Law

1.1 Please briefly describe the main laws that govern real estate in your jurisdiction. Laws relating to leases of business premises should be listed in response to question 10.1. Those relating to zoning and environmental should be listed in response to question 12.1. Those relating to tax should be listed in response to questions in Section 9.

In Austria, the following Acts concerning real estate law have to be borne in mind with every real estate transaction: ■ the Austrian Civil Code (Allgemeines Bürgerliches

Gesetzbuch, ABGB);■ the Land Registry Act (Grundbuchgesetz);■ the Condominium Ownership Act (Wohnungseigentumsgesetz);

and■ the Real Estate Developer Act (Bauträgervertragsgesetz).

1.2 What is the impact (if any) on real estate of local common law in your jurisdiction?

Local legislation plays a huge role in the context of real estate transactions. In Austria, all development regulations (Bebauungsbestimmungen) and possible solutions concerning the rehabilitation of real estate and the construction of new buildings are subject to the detailed descriptions and restrictions provided for in Regional Planning Acts (Raumordnungsgesetze) and Building Codes (Bauordnungen). The adoption of Zoning Plans (Flächenwidmungspläne), which stipulate the maximum height of real estate buildings, is monitored by the respective Provincial Government, whereas the individual cities and municipalities are in charge of the Building Codes.

1.3 Are international laws relevant to real estate in your jurisdiction? Please ignore EU legislation enacted locally in EU countries.

Apart from EU Directives, international laws are of very little relevance to real estate transactions in Austria.


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not) is acquired through a transaction constituting an obligation, which is usually a contract, and through a mode, which is usually the actual delivery of the purchased object (principle of “title and modus”). In case of real estate, the modus consists of the owner registering with the land registry. If the owner has not registered their right with the land registry, the owner may sell or otherwise dispose of the real property on account of the contractual agreement, but protection against third persons that may have rights in respect of the real property is not yet afforded. Under Austrian law, the right of ownership will take full effect only after the buyer named as such in the purchase contract has also been registered with the land registry. All other rights that can be entered into the land registry will also develop a protective effect against third parties upon entry of the right. Under Austrian law, every buyer of real estate is obligated to take a look into the land registry before signing the purchase contract. All rights, encumbrances or obligations entered into the land registry are deemed to be generally known and thus their bona fide acquisition is no longer possible. If rights are not entered into the land registry, they will apply exclusively inter partes; such restrictions or obligations will not be valid vis-à-vis third parties.

4.4 What rights in land are not required to be registered?

All rights relating to a real property must be registered in order to take full effect vis-à-vis third parties. Rental agreements are the only exception. These may be registered but there is no obligation to do so. In Austria, a rental agreement will usually only be annotated in the land registry if an entire building is rented for a very long time or if very high advance payments on the rent are made. Rental agreements are the only contracts that do not have to be entered into the land registry and whose entry does not provide any particular advantage.

4.5 Where there are both unregistered and registered land or rights is there a probationary period following first registration or are there perhaps different classes or qualities of title on first registration? Please give details. First registration means the occasion upon which unregistered land or rights are first registered in the registries.

As the registration of all rights is required in Austria, there is not a significant difference. All registered rights have priority. In case of non-registered rights, there is no protection against bona fide acquisition by third parties. Rental agreements are automatically transferred to a buyer since they are attached to the real estate and as a general principle under Austrian law, the sale of a real estate does not grant a reason to terminate a lease or rental contract.

4.6 On a land sale, when is title (or ownership) transferred to the buyer?

In Austria, the transfer of title takes place upon entry of the buyer into the land registry.

4.7 Please briefly describe how some rights obtain priority over other rights. Do earlier rights defeat later rights?

Austrian land registry law follows the principle of strict priority. Every entry is given a consecutive number, including the year. The earlier of two entries will always rank prior to a later one. In respect of the pledging of real estate, an advance in the ranking may be agreed among the secured creditors with the consent of all registered

3.2 Are there any scenarios where the right to a real estate diverges from the right to a building constructed thereon?

In Austria, there is the construct of a “Baurecht” (Leasehold). The real estate owner can grant a leasehold interest and then, in accordance with the law, a building can be erected on that leasehold. As a matter of principle, the leasehold must be annotated in the land registry. Another possibility to separate ownership of a building from ownership of the land is provided by the so-called “Superädifikat” (a legal term referring to non-permanent buildings on third-party land – superaedificates). All deeds relating to buildings erected as superaedificates are deposited with the land registry, but are not actually entered into the land registry. For this reason, erecting a superaedificate is possible, and permissible, only if the building erected on the piece of land is not meant to remain there permanently. Therefore, it must be pointed out in the respective agreement on the establishment of a superaedificate that removing the building again after the expiration of a certain period of time is very well possible, both physically and in terms of law, if both the building and the contracts and agreements have been designed accordingly. Superaedificates are not entered into the land registry and in most cases one is unable to see from the land registry extract (Grundbuchauszug) if the building on a piece of land is the landowner’s property or a superaedificate. To make sure that land and the buildings constructed on such land have the same owner, it is necessary to check the collection of deeds (Urkundensammlung) which is kept at the respective land registry but is not available online.

3.3 Is there a split between legal title and beneficial title in your jurisdiction and what are the registration consequences of any split?

In Austria, one has the possibility to split the legal title and the beneficial title. Only the legal owner can apply for the registration in the land register and has the power to dispose of the real estate. It is advisable that the legal and beneficial owners create an inter partes agreement and agree on their reciprocal rights and duties.

4 System of Registration

4.1 Is all land in your jurisdiction required to be registered? What land (or rights) are unregistered?

Austria has a comprehensive, nationwide land registry: every real property, every public road, every lake and every wood is recorded and registered in the land registry.

4.2 Is there a state guarantee of title? What does it guarantee?

Under Austrian law, entry into the land registry is regarded as the mode for the acquisition of title. The acquisition becomes final and absolute after the expiration of a four-week period following entry, at which point the registered ownership is deemed to be guaranteed.

4.3 What rights in land are compulsorily registrable? What (if any) is the consequence of non-registration?

Under Austrian law, the right of ownership must be entered into the land registry. Under Austrian law, title to a property (moveable or

Kubes Passeyrer Attorneys at Law Austria



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compensation, proceedings based on the Act on Public Liability (Amtshaftungsgesetz) must be instituted against the Republic of Austria.

5.5 Are there restrictions on public access to the register? Can a buyer obtain all the information he might reasonably need regarding encumbrances and other rights affecting real estate?

The Austrian land registry is a public register where all deposited deeds are openly accessible. It is possible to black certain parts of the contracts out if so agreed and if there is an important reason, but as a rule documents as such must be submitted completely and will all be publicly available for retrieval.

6 Real Estate Market

6.1 Which parties (in addition to the buyer and seller and the buyer’s finance provider) would normally be involved in a real estate transaction in your jurisdiction? Please briefly describe their roles and/or duties.

In general, the most important party to a real estate transaction is the escrow agent who manages the entire transaction for all parties involved. Normally, the financing of the seller – if any – is also paid back out of the purchase price and the escrow agent takes care of the entire handling of the pay-out of the purchase price, the set-off of any claims of the seller and the registration of a new pledge in favour of the buyer’s financing bank.

6.2 How and on what basis are these persons remunerated?

The remuneration of the escrow agent is 1.5% of the purchase price plus 20% VAT. In general these costs must be borne by the buyer.

6.3 Do you feel there is a noticeable increase in the availability of capital to finance real estate transactions in your jurisdiction, whether equity or debt? What are the main sources of capital you see active in your market?

Due to the low interest rates available today, 90% of all real estate transactions are financed through loans, and on average 70% of the market value of a real estate transaction is financed by a loan.

6.4 What is the appetite for investors and developers in your region to look beyond primary real estate markets and transact business in secondary or even tertiary markets? Please give examples of significant secondary or tertiary real estate transactions, if relevant.

In Austria, the primary real estate market has a yield of 1.5% to 2% and investors pay for prestige rather than a return on investment. Secondary or tertiary markets provide a yield up to 6% or 7%. Recently, logistic centres and shopping malls have been sold at a yield of 6.5%.

secured creditors. However, all registered creditors whose secured claims become subordinated must consent to such subordination in writing.

5 The Registry / Registries

5.1 How many land registries operate in your jurisdiction? If more than one please specify their differing rules and requirements.

In Austria only one land registry court is available online; it is managed district-wide by all local courts (Bezirksgerichte) established in Austria but it is a central register which is allocated to various judicial districts.

5.2 Does the land registry issue a physical title document to the owners of registered real estate?

In Austria the title document evidences possession of real estate. In addition, the land registry is available online and every notary or every attorney-at-law may access an extract from the land registry if needed. The extract from the land registry is regarded as official proof of the right of ownership.

5.3 Can any transaction relating to registered real estate be completed electronically? What documents need to be provided to the land registry for the registration of ownership right? Can information on ownership of registered real estate be accessed electronically?

The Austrian land registry is an electronic online register that is linked to all notaries’ offices and law firms. Only notaries and attorneys who are authorised to represent parties may submit electronic filings to the land registry. Regarding the entry of changes affecting the right of ownership, all documents by which rights or encumbrances are created require notarisation. The notary or attorney-at-law must scan the notarised documents and save them electronically to the central archive, the so-called “Archivium”. In a special program of the WEB-ERV service (a web-based system of paperless communication with courts), the corresponding registration certificates (Registerbescheinigungen) for the respective deeds are transmitted to the land registry which can retrieve the corresponding documents from the central register after identifying them by the codes. This procedure was established in Austria in order to avoid the sending of original documents and to make all important documents available directly online in a register. It did not involve, however, any change to the formal requirements to be met by the original documents.Purchase contracts, pledge agreements and all contracts that should be entered into the land registry (use and occupation agreements (Benutzungsvereinbarungen), contracts on third party rights (Servitutsverträge), toleration agreements (Duldungsvereinbarungen)) must bear the notarised signatures of all contracting parties in order to be valid. In Austria, the principle applies that an entry into in the land registry may be made only on the basis of a notarised signature.

5.4 Can compensation be claimed from the registry/registries if it/they make a mistake?

Compensation for mistakes committed by the land registry court is a matter of ordinary public liability in Austria; to claim such



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7.5 Does the seller warrant its ownership in any way? Please give details.

A seller who is registered in the land register and whose registration is legally valid and binding (more or less four weeks after his registration) is deemed to be the official owner and his ownership can no longer be disputed. Third parties claiming ownership have no right against a buyer who has bought from a registered owner. The registration itself is therefore the crucial fact in respect of ownership.

7.6 What (if any) are the liabilities of the buyer (in addition to paying the sale price)?

The liabilities of a buyer besides the payment of the purchase price are:1. the payment of the real estate transfer tax;2. the payment of the registration fee; and3. the payment of the escrow agent fee.Furthermore, under Austrian law, rental contracts are automatically transferred to a buyer and he must take on all rental contracts as they are.

8 Finance and Banking

8.1 Please briefly describe any regulations concerning the lending of money to finance real estate. Are the rules different as between resident and non-resident persons and/or between individual persons and corporate entities?

In general, a total of 70% of the market value of real estate can be financed through a loan with Austrian banks.Banks in general register a pledge in the land register in the amount of 130% of the amount borrowed.The registration fee is 1.2% of the registered amount.For bank financings there is no difference for residential or non-residential persons or corporate or individual persons. For all buyers the same KYC procedures exist and the ranking of the bank in order to determine the amount to be financed always depends on the credit worthiness of the buyer, irrespective of its residency.

8.2 What are the main methods by which a real estate lender seeks to protect itself from default by the borrower?

The most common protections are: ■ the registration of a pledge;■ the security assignment of a lease, if any;■ the security assignment of all building insurances; and■ additional collateral such as a life insurance. In addition, the following protections exist:■ signing of an enforceable notarial deed for the unconditional

and immediate payment of all outstanding loan or realisation of a mortgage;

■ an agreement on the free sale of the real estate in case of a default; or

■ a power of attorney for the sale of the real estate in favour of the lender.

6.5 Have you observed any trends in particular market sub sectors slowing down in your jurisdiction in terms of their attractiveness to investors/developers? Please give examples.

The only market that has slowed down in recent months is the renting of office space.

7 Liabilities of Buyers and Sellers in Real Estate Transactions

7.1 What (if any) are the minimum formalities for the sale and purchase of real estate?

The minimum formality for the sale and purchase of real estate is a written contract with legalised signatures containing the “essentialia negotii” of a contract, which are:1. the object; and2. the sales price.The Austrian civil law provides for subsidiary regulation for all relevant matters, such as allocating liability if there was no mutual agreement in the contract.

7.2 Is the seller under a duty of disclosure? What matters must be disclosed?

All information that is known to the seller and might influence the purchase decision of a “standard buyer” must be disclosed. However, requesting the following information from any seller before buying real estate is recommended:1. An excerpt of the land register.2. The lease and rent contracts of tenants.3. The last protocol of the general meeting of the owner

community.4. A statement of the property management company on

expected repair work of the building.5. The current balance of the repair fund of the building.Carrying out research regarding possible contamination is advisable, especially if the construction or renovation of a building is intended.

7.3 Can the seller be liable to the buyer for misrepresentation?

Yes, depending on the misrepresentation, a price reduction or even a cancellation of the contract is possible.

7.4 Do sellers usually give contractual warranties to the buyer? What would be the scope of these? What is the function of warranties (e.g. to apportion risk, to give information)? Are warranties a substitute for the buyer carrying out his own diligence?

Usually the contractual warranties give a potential buyer a scope of the costs he will face when developing the real estate, or confirm important issues that are crucial for a buyer to consider when deciding to purchase real estate.




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9.3 Are transfers of real estate by individuals subject to income tax?

In respect of the profit a person makes out of the sale of real estate, a “Real Estate Profit Tax” was introduced in Austria in 2012. As of 1.1.2016, a flat tax in the amount of 30% of the net profit of a real estate transaction is due for payment. If a real estate was purchased before 2002, the flat rate of tax is 4.2% of the purchase price.

9.4 Are transfers of real estate subject to VAT? How much? Who is liable? Are there any exemptions?

Real estate transfers are exempt from VAT. However, a seller may opt into a VAT sale if the real estate was subject to renovation and the seller has claimed back VAT out of the renovation of the building.If a real estate owner claims back VAT for renovation or construction work, such VAT has to be paid back on a pro rata basis calculated over 10 years if he does not opt into a VAT sale.VAT in Austria is 20%.

9.5 What other tax or taxes (if any) are payable by the seller on the disposal of a property?

There are no additional taxes other than those mentioned above.

9.6 Is taxation different if ownership of a company (or other entity) owning real estate is transferred?

Real estate owned by companies is not subject to the Real Estate Profit Tax. The profit of a real estate sale is standard profit of the company and, therefore, subject to standard corporation tax.

9.7 Are there any tax issues that a buyer of real estate should always take into consideration/conduct due diligence on?

The real estate buyer has to pay 3.5% real estate transfer tax and a 1.1% registration fee. For debt financings, a mortgage usually has to be registered in the land register where the register fee amounts to 1.2% of the amount registered. The purchase of real estate is exempt from VAT but the seller has the opportunity to opt into VAT.

10 Leases of Business Premises

10.1 Please briefly describe the main laws that regulate leases of business premises.

Under Austrian law, part I of the general rent act is applicable for the leasing of business premises, in addition to the general provisions of the Civil Code.

10.2 What types of business lease exist?

Under Austrian law, limited and unlimited leases exist.

8.3 What are the common proceedings for realisation of mortgaged properties? Are there any options for a mortgagee to realise a mortgaged property without involving court proceedings or the contribution of the mortgagor?

In general, a mortgage must be realised through court proceedings and court auction. Any other way of realisation of a mortgage must be agreed in writing between the lender and the pledgee. In case of an enforceable notarial deed, court proceedings will not take place and the court will immediately start the auction of the real estate.

8.4 What minimum formalities are required for real estate lending?

The minimum requirements for real estate lending is the registration of a bank and an escrow agent that registers the pledge for and behalf of the financing bank.

8.5 How is a real estate lender protected from claims against the borrower or the real estate asset by other creditors?

The real estate lender is protected by the registration of a pledge in the land register. The land register provides for a ranking of all claims according to the date of registration. All registered pledges that rank prior to a pledge will be paid off in full first.

8.6 Under what circumstances can security taken by a lender be avoided or rendered unenforceable?

Once a security is registered in the land register, it can only be avoided or rendered unenforceable if the documentation of such security that was used for its registration was void or fake.

8.7 What actions, if any, can a borrower take to frustrate enforcement action by a lender?

Actually there are no actions to frustrate the enforcement action by the lender; the borrower just has the possibility to delay the enforcement if he claims an extension of the grace period for payment or a lack of formal prerequisites.

9 Tax

9.1 Are transfers of real estate subject to a transfer tax? How much? Who is liable?

When transferring real estate, 3.5% real estate transfer tax and 1.1% registration fee are due. In general, these taxes and fees are borne by the buyer; however, both parties of a sales contract are liable for the payment of the real estate transfer tax towards the tax authorities. The registration fee is payable by the buyer only.

9.2 When is the transfer tax paid?

The real estate transfer tax and the registration fee are normally paid to the escrow agent together with the purchase price and the escrow agent files all tax papers and pays the transfer tax and the registration fee upon registration of the buyer as the new owner.



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10.7 Green leases seek to impose obligations on landlords and tenants designed to promote greater sustainable use of buildings and in the reduction of the “environmental footprint” of a building. Please briefly describe any “green obligations” commonly found in leases stating whether these are clearly defined, enforceable legal obligations or something not amounting to enforceable legal obligations (for example aspirational objectives).

Green leases are not very common in Austria. However, real estate developers started to construct “green buildings” and try to reduce the consumption of energy.In order to contribute to green leases, the Austrian government introduced the requirement of each landlord to provide a technical report on the energy efficiency of each building (“Energieausweis”). This report is obligatory and the results (class of energy efficiency, heating demand and use of electricity) must be disclosed to each tenant.

11 Leases of Residential Premises

11.1 Please briefly describe the main laws that regulate leases of residential premises.

The main laws for the leasing of residential premises are the Austrian Civil Code (ABGB, Allgemeines Bürgerliches Gesetzbuch) and the Austrian Tenancy Act (MRG, Mietrechtsgesetz).

11.2 Do the laws differ if the premises are intended for multiple different residential occupiers?

No, there is no difference.

11.3 What would typical provisions for a lease of residential premises be in your jurisdiction regarding: (a) length of term; (b) rent increases/controls; (c) the tenant’s rights to remain in the premises at the end of the term; and (d) the tenant’s contribution/obligation to the property “costs” e.g. insurance and repair?

The Austrian Tenancy Act (MRG) is considered to be one of the most complicated and divided conglomerate of regulations that exists in Austria and for years has been subject to ongoing changes and attempts to straighten out past incongruences implemented by different governments. The Austrian Tenancy Act is not applicable in the following cases:■ for hotels or hosting rooms, forwarding rooms, student

residences or nursing homes;■ apartments or individual rooms of charitable institutions;■ official residences or apartments given in the context with an

employment relationship;■ secondary residences for the purpose of vacation;■ if the building has not more than two independent apartments

or business spaces; and■ if the lease encompasses a whole enterprise.There is also the possibility of the partial application of the Tenancy Act (namely of the most important provisions like cost control and protection against dismissal). This applies in the following cases:■ if the rented area is located in a building built with a building

permission after 30.6.1953 and without subventions;

10.3 What are the typical provisions for leases of business premises in your jurisdiction regarding: (a) length of term; (b) rent increases; (c) tenant’s right to sell or sub-lease; (d) insurance; (e) (i) change of control of the tenant; and (ii) transfer of lease as a result of a corporate restructuring (e.g. merger); and (f) repairs?

(a) Length of term The standard length of a business lease term is either

unlimited or 10 years.(b) Rent increases Rent is normally only indexed based on the consumer price

index.(c) Tenants right to sell or sublease Subleasing is normally not allowed in standard leases – only

upon prior written consent of the owner.(d) Insurance Insurance must be provided by the tenant.(e) (i) In case of a change of control of the tenant, the owner is

entitled to raise the rent up to the market value if the agreed rent is below market value.

(ii) Mergers are normally accepted if the beneficial owner does not change or the credit worthiness is not lowered after the merger.

(f) Repairs Maintenance must be provided by the tenant, repairs by the

owner.

10.4 What taxes are payable on rent either by the landlord or tenant of a business lease?

Lease agreements are subject to stamp tax. Stamp tax is due for payment after the lease has been signed. For (i) limited lease contracts, it is 1% of the aggregated lease amount (a cap of 17 years exist), or (ii) for unlimited lease contracts, 1% of the aggregated lease amount of the first three years.

10.5 In what circumstances are business leases usually terminated (e.g. at expiry, on default, by either party etc.)? Are there any special provisions allowing a tenant to extend or renew the lease or for either party to be compensated by the other for any reason on termination?

Business leases usually terminate at expiry or upon request of the tenant; extending and renewing leases is subject to a mutual agreement with the landlord. In case of an early termination, the landlord is entitled to compensation for the remaining rent period.

10.6 Does the landlord and/or the tenant of a business lease cease to be liable for their respective obligations under the lease once they have sold their interest? Can they be responsible after the sale in respect of pre-sale non-compliance?

All liability is limited to outstanding payments to the government and/or outstanding payments to the owner community in case of co-ownership. Additional liability has to be agreed upon between the parties.




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Waste Management Act (AWG, Abfallwirtschaftsgesetz) contains regulations regarding waste recycling, waste avoidance and different duties of waste owners; the conservation laws of the federal states regulate the protection of species and the flora and fauna.

12.2 Can the state force land owners to sell land to it? If so please briefly describe including price mechanism.

Yes, in case of necessity (e.g. for road or building construction) the state can force owners to sell land. In an administrative proceeding, an expert evaluates the price to be paid to the owner.

12.3 Which bodies control land/building use and/or occupation and environmental regulation? How do buyers obtain reliable information on these matters?

Primarily responsible for such regulations at community level is the mayor and the administrative authorities (Bezirksverwaltungsbehörden) at federal state level. Most authorities provide support and the possibility of an informal meeting where buyers obtain reliable information.

12.4 What main permits or licences are required for building works and/or the use of real estate?

Most building works require a building permit appropriate to the building regulations of the particular federal state where the building is located. After the finalisation of the building works, the owner needs the notification of completion. In case of a preservation order a permit from the Monument Protection Authority is required.

12.5 Are building/use permits and licences commonly obtained in your jurisdiction? Can implied permission be obtained in any way (e.g. by long use)?

By fulfilling all necessary prerequisites the owner has the enforceable legal right to a permit. Building works without a permit are illegal and an implied permission can’t be obtained by long use or any other way; in this case the authorities will order the demolition of the building works.

12.6 What is the appropriate cost of building/use permits and the time involved in obtaining them?

Commonly the duration of a proceeding takes about four months. If, for example, neighbours have different veto rights, the duration of proceedings can be significantly longer. The proceeding itself is not expensive but if expert opinions are required (e.g. to fight neighbourly vetos), the costs can extend to several thousand euros.

12.7 Are there any regulations on the protection of historic monuments in your jurisdiction? If any, when and how are they likely to affect the transfer of rights in real estate?

The Austrian Heritage Protection Act (DMSG, Denkmal-schutzgesetz) regulates the protection of historic monuments and affects the transfer of rights in real estate subordinately. The Primary Heritage Protection Act affects building works on historic monuments, so that the owner needs a permit of the responsible authority. Such authority can also attach conditions to its approval.

■ for rooftop extensions completed with a building permission after 31.12.2001; and

■ for apartments in a condominium as defined in the Austrian Condominium Act (WEG, Wohnungseigentumsgesetz) if the building permission was granted after 8.5.1945.

Buildings built before 1945 are considered “old buildings” and the maximum rent is governed by an index of EUR 7.50 per square metre plus a list of benefits that entitles the landlord to increase such rent (for example, if the building is in a good neighbourhood, has a beautiful view, is on a quiet street, has additional bathrooms, etc.). (a) According to the Austrian Tenancy Act (MRG) the rental

contract can provide an unlimited term but can also provide a temporary length of term. In case of a temporary term the law orders a rent reduction of 25%.

(b) The parties can mutually agree on the increase in the rent. The one-sided rent increase is only permitted in limited ways, for example if the rent can be linked to a reference index, usually the Consumer Price Index (VPI, Verbraucherpreisindex) or for the financing of certain maintenance works.

The arbitration board (Schlichtungsstelle) controls, upon the request of the tenant, if the rent is adequate.

(c) After expiry of the term, the tenant has no right to remain in the premises; only in case of a mutual agreement can he remain in the accommodation.

(d) The tenant has to pay the operating expenses, including, for example, water charges, fire insurance, liability insurance, costs of cleaning and chimney sweepers, sewage fees and waste collection charges.

11.4 Would there be rights for a landlord to terminate a residential lease and what steps would be needed to achieve vacant possession if the circumstances existed for the right to be exercised?

The Austrian Tenancy Act (MRG) protects tenants and only allows landlords to terminate a residential lease if there is an important enough reason. Such important reasons include, for example, default of payment, vandalism of the apartment or if the landlord urgently needs the apartment for himself or his relatives in order to avoid homelessness. In case of termination of a residential lease, the landlord has to file a claim with the competent court. In general, the protection of tenants under Austrian law is very high and courts do tend to render decisions in favour of tenants.

12 Public Law Permits and Obligations

12.1 What are the main laws which govern zoning/permitting and related matters concerning the use and occupation of land? Please briefly describe them and include environmental laws.

In Austria, every federal state has its own laws according to the use and occupation of land. The surface dedication plan divides the land into different categories, e.g. residential areas, industrial areas or grassland. The provincial jurisdiction also provides detailed regulations on construction law. Austria does not have a unique environmental law but a fragmentation of different environmental categories. The Austrian Climate Protection Act (KSG, Klimaschutzgesetz) regulates the maximum amount of greenhouse gas emissions; the Austrian



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Dr. David KubesKubes Passeyrer Attorneys at LawGutenberggasse 1/101070 ViennaAustria

Tel: +43 1 526 5000Fax: +43 1 526 5000 50Email: [email protected]: www.kpnet.at

Mag. Marko MarjanovicKubes Passeyrer Attorneys at LawGutenberggasse 1/101070 ViennaAustria

Tel: +43 1 526 5000Fax: +43 1 526 5000 50Email: [email protected]: www.kpnet.at

Dr. David Kubes started specialising in real estate matters in 2005, directly after the foundation of Kubes Passeyrer attorneys at law. As legal advisor to one of the major real estate developers in Austria, a wide range of projects were successfully closed over the past 10 years. In addition, lenders and foreign investors used Kubes Passeyrer attorneys at law for their real estate projects in Vienna. In 2008, Austria’s first Sharia-compliant real estate financing was led by Dr. Kubes in cooperation with a Swiss investment fund and Qatar National Bank.

Kubes Passeyrer Rechtsanwaelte PLC focuses on aviation law and real estate transactions as well as international tax law. Legal consultancy is offered in English, French, Spanish and Portuguese.

Due to this specialisation and more than 10 years of experience, we can guarantee the highest level of quality and relevance. Today’s economy is changing faster than ever and, therefore, being up to date and specialised in certain special areas is our basis for meeting our clients’ needs and expectations. Our ongoing national and international legal training and worldwide cooperation with experts in the same fields of specialisation are part of our philosophy. Our aim is to establish long-term client relationships and provide personal and individual solutions to our clients.

Mag. Marko Marjanovic is a law graduate of Vienna University. He worked several years in an office specialising in business law.

After he successfully completed the bar examination he joined Kubes Passeyrer Attorneys at Law and focused on real estate and business law. In addition he frequently advises clients in civil law and represents them in court trials.

Mag. Marko Marjanovic speaks German, English and Croatian.

13 Climate Change

13.1 Please briefly explain the nature and extent of any regulatory measures for reducing carbon dioxide emissions (including any mandatory emissions trading scheme).

There are no regulatory measures for reducing carbon dioxide emissions.

13.2 Are there any national greenhouse gas emissions reduction targets?

Currently there are no mandatory reduction targets.

13.3 Are there any other regulatory measures (not already mentioned) which aim to improve the sustainability of both newly constructed and existing buildings?

Local government provides for promotions and financial aid for owners who are willing to improve the energy performance of their buildings. Some of these costs are deductible from tax in order to give an incentive to landlords.

12.8 How can e.g. a potential buyer obtain reliable information on contamination and pollution of real estate? Is there a public register of contaminated land in your jurisdiction?

There is an environmental liabilities register in Austria. Such register contains information about the contamination of real estate with hazardous materials and substances.

12.9 In what circumstances (if any) is environmental clean-up ever mandatory?

In cases where contamination has occurred, a clean-up is obligatory. The primary polluter is responsible for the clean-up and has to bear its costs. If the polluter is not detectable the owner of the real estate is subsequently liable for the decontamination.

12.10 Please briefly outline any regulatory requirements for the assessment and management of the energy performance of buildings in your jurisdiction.

In Austria an energy performance certificate contains all essential information (e.g. thermal insulation, noise protection, energy requirement) regarding the energy performance of a building. This energy performance certificate is necessary to acquire building permission and during the sale of a property a seller must provide such certificate to the buyer.




Chapter 5

Machado, Meyer, Sendacz e Opice Advogados

Maria Flavia Candido Seabra

Fatima Tadea Rombola Fonseca

Brazil


This is not relevant as our legal system is based on civil law.


There are no international laws competent to real estate in Brazil.

2 Ownership


Brazilian law imposes restrictions on the acquisition, ownership and possession of rural land in Brazil by foreign investors. According to the legal opinion of the Federal General Counsel (“AGU”), the Brazilian Foreign Ownership Land Control Law, which governs the acquisition and use of rural lands by: (i) foreigners who have permanent residency in Brazil; and (ii) foreign legal entities authorised to operate in Brazil, shall also apply to Brazilian companies controlled by foreigners. Federal Act No. 5,709/1971 and its regulatory Decree No. 74,965/1974 provide some of the restrictions applicable to the acquisition of rural property by foreign legal entities authorised to operate in Brazil, as follows:(i) Foreign legal entities may only acquire rural property

allocated for the implementation of agricultural, livestock, industrial or colonisation projects related to their corporate purposes. Such projects must be approved by federal entities on a case by case basis.

(ii) The sum of rural areas belonging to foreign individuals or entities may not exceed 25% of the surface area of the Municipality where the areas are located, evidenced through a certificate from the Land Registry.

(iii) Entities or individuals with the same nationality may not own, in the same Municipality, more than 40% of the limit referred to in item (ii) above, representing 10% of the total area of each Municipality.

(iv) The acquisition of an area greater than 100 indefinite development modules (which may vary depending on the characteristics of each region in Brazil) requires prior approval of the National Congress.

(v) The acquisition shall necessarily be formalised by means of public deed.

1 Real Estate Law


Real estate in Brazil is primarily guided by the Brazilian Civil Code (Law No. 10,406/2002), which provides that the ownership of real estate property may be acquired by either acquisition, adverse possession, accession or succession rights. The Brazilian Civil Code also establishes other rights that are associated with real estate but not based on any personal relationship (“in rem rights”), which are available against third parties, such as surface rights, easements, usufruct, use, housing, among others.Moreover, other federal laws govern real estate in Brazil. They include the following:The Real Estate Development Law (Law No. 4,591/1964), which approaches two main subjects: (i) the development of real estate enterprises comprised by autonomous units; and (ii) building condominiums.The Land Statute (Law No. 4,504/1964) regulates the use, occupation and rural land relations in Brazil. The referred law provides the State’s responsibility and obligation of guaranteeing the right of access to rural land for those who live and work there.The City Statute (Law No. 10,257/2001) provides urban land policies in general, as well as other instruments that aim to help the implementation of urban development.The Parceling of Real Estate Property Law (Law No. 6,766/1979) concerns urban spaces that are destined for building and specifically targets the urbanisation of individual plots of land, by dividing or redeploying them into parcels intended for the exercise of elementary urbanistic functions and building. Public Registry Law (Law No. 6,015/1973) regulates any kind of public registry in Brazil, including the registration of real estate ownership by the Land Registry.It is worth noting that certain real estate matters are regulated by either state or municipal laws, rather than by federal laws, such as real estate taxes, real estate registry proceedings, and zoning and environmental regulations.


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Brazil does not have any state guarantee of title. In view of a real estate transaction, the potential buyer/acquirer of rights shall perform a proper and prior legal due diligence in order to verify material issues that may affect the intended transaction. Moreover, the corresponding title must be registered before the competent Land Registry in order to be effective against third parties.


The in rem rights over real estate, including ownership, must be registered before the competent Land Registry. In the event of lack of registration, the right shall take effect only between the contracting parties and, therefore, third parties will not be forced to comply with it. Moreover, according to Brazilian Lease Law, recording a lease agreement on the respective real estate title certificate grants to the lessee: (i) the right to maintain the lease in the event that the property is sold to a third party during the lease term, provided that the agreement expressly sets forth the effectiveness clause; and (ii) in case of a breach of the lessee’s right of first refusal, the right to retrieve the leased real estate transferred to a third party.


As a general rule, possession rights are not required to be registered.


There is no probationary period or a different class related to the first registration. The Land Registry shall analyse the documents submitted and carry out the registration or request pending requirements within 30 days.


The transfer of ownership occurs when the transfer title is duly registered before the competent Land Registry.


The date and order number given to the title by the Land Registry at the time of the filing for registration grants priority among different rights. In this sense, earlier rights, if duly registered, defeat later rights.

(vi) The acquisition of rural real estate located in the region close to the Brazilian border (the internal 150 kilometre-wide strip parallel to the border of the national territory) will depend on the fulfilment of additional requirements, such as prior consent from the Brazilian Defense Council.

The transfer of the possession of rural real estate property, by means of a rural lease, is also subject to the same restrictions listed above.Acquisition of rural land in violation of the restrictions contained in the Foreign Ownership Land Control Law is deemed to be null and void and the State Public Notaries (responsible for drafting the title), as well as the Land Registry, are liable for the non-observation of such restrictions.



Brazilian law recognises the owner’s rights over its own real estate (ownership and possession), rights over third parties’ real estate (surface, easement, use, possession, usufruct, among others) and collateral (mortgage and conditional sale).Possession is an exercise, complete or partially, of the powers inherent in ownership, which may arise from a purely contractual relationship between the parties (i.e. lease, free lease, use) or an in rem right (i.e. ownership, easement, surface).


Such scenarios exist in Brazil through surface and slab (“laje”) rights. The surface right grants a person the right to plant or build on a third party’s land for a determined period of time. After this period, the plantation and/or the building constructed on the real estate shall be incorporated and belong to the landowner (grantor), unless otherwise established by the parties. The Federal Law No. 13,465/2017 establishes a new in rem right in the Brazilian Civil Code: the slab right (“direito de laje”), which is an in rem and autonomous right to the upper or lower surface of a base-construction. It will be subject to a separate recording with the Land Registry and may be sold to third parties. It may even be subject to a security interest.


There is no formal split between legal title and beneficial title in Brazil. However, the Brazilian Civil Code provides the usufruct, which is an in rem right similar to the title split, by which the right holder is entitled to possess, administer and gather the fruits and benefits arising from the real estate owned by a third party.



Yes, it is. The Public Registry Law provides that each property must be recorded before the competent Land Registry.

Machado, Meyer, Sendacz e Opice Advogados Brazil



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Land Registry Office. Nevertheless, proper due diligence is recommended. Such due diligence includes the analysis of other documents, such as (i) court certificates, (ii) real estate tax clearance debt certificates, and (iii) permits applied to the building, among others.



It would depend on the complexity of the transaction. In general, a broker is involved, which will be the link between the parties. Moreover, it is usual to have a technical team responsible for performing due diligence related to the construction issues of the building and an environmental team in order to evaluate the existence of environmental damage and/or liabilities involved.


The commission of the broker is normally a percentage of the price, payable by the seller at the closing, unless otherwise agreed by the parties. With respect to the technical and environmental teams, the price of their services is normally agreed upon based on the size and complexity of work, as well as the characteristics of the real estate.


The Brazilian market has been stressed due to the economic instability and the uncertain political scenario. As a result, real estate transactions have been directly affected by high interest rates, the growth of inventories of repossessed properties and rescinded sales, diminishing governmental subsidies and the lack of credit. However, the devaluation of the Brazilian currency and the deterioration of the local market are making Brazil an attractive option to foreign investors.


The appetite of investors and developers is higher when related to the primary real estate market. Besides this, the governmental housing programme “Minha Casa, Minha Vida”, which was created in 2009 to decrease the Brazilian housing deficit, has strongly encouraged real estate transactions on secondary and tertiary markets. This programme aims to subsidise the construction and acquisition of affordable housing for people with low income and, therefore, involves tax benefits and credit with lower interest rates. The Government may further adjust this programme in order to increase the number of transactions.



In Brazil, each judiciary district (comarca) has at least one Land Registry Office, since each property must be recorded before the Land Registry Office responsible for the area where the real estate is located. In larger cities, the Land Registry is divided into several offices, as defined by the competent state law.Brazilian Registry Law regulates the general rules, but each State, through its internal affairs (corregedoria), may issue specific rules and requirements relating to the registration proceedings.


The competent Land Registry issues a title certificate (certidão de matrícula) with the data of the real estate’s current owner(s) and its title chain, boundary description, liens and encumbrances. Each title certificate is identified by a specific number.


Transactions relating to real estate cannot yet be completed electronically in Brazil. For the sale of real estate worth 30 minimum wage units and/or the transfer of in rem rights related to such real estate, it is necessary to enter into a public deed executed by a Notary Public.Usually, the documents that have to be submitted to the Land Registry are the ownership title, the personal documents of the parties involved/their representatives, and the evidence of payment of the real estate transfer tax.It is only possible to obtain information on ownership of registered real estate electronically in certain judiciary districts (i.e. Land Registry Offices of São Paulo State).


If there is any proven damage, compensation can be claimed. However, it is possible that the Land Registry corrects the mistake on its own initiative and authority.


There are no restrictions on public access to the register in Brazil. However, it is necessary to pay a fee in order to obtain the certificates issued by the Land Registry.Before entering into real estate transactions, the buyer is able to obtain the information related to the real estate upon the analysis of its title certificate (certidão de matrícula) issued by the competent



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The function of the warranties is to provide information to the parties and to apportion risks between them. However, since the representations and warranties provide a limited amount of information, they are not a substitute for the buyer’s due diligence. The due diligence of the buyer is important in order to attest its good faith in case the transaction is challenged by a third party in the future.


The seller warrants its ownership upon presentation of all of the required documents to the buyer to evidence that the chain of title of the real estate is legal and complete. It is important to note that the Brazilian Civil Code sets forth that in case the ownership of the buyer is affected due to the existence of a third party legitimate right over the transferred real estate, the seller is liable before the buyer for eviction, unless otherwise agreed by the parties.


In addition to paying the sale price and the real estate transfer tax (“ITBI”), the liabilities and obligations of the buyer can all be agreed upon by the parties in the acquisition title.



There are 2 (two) main current systems created by Brazilian law which govern the lending of money to finance real estate.The Housing Finance System (Sistema Financeiro de Habitação), or SFH, created by Law 4,380/64, as amended, is the older one and was designed to facilitate and promote the construction and acquisition of home ownership, focusing on the low-income population. The financing funds within the scope of the SFH originate primarily from the Employee’s Time-In-Service Guarantee Fund (Fundo de Garantia do Tempo de Serviço), or FGTS, and from savings account deposits.CMN Resolution No. 3,932/10, which deals with the channeling of funds raised through savings account deposits by member-entities of the Brazilian Savings and Loan System (Sistema Brasileiro de Poupança e Empréstimo), or SBPE, regulates the main conditions to be observed when channeling funds to real estate financing. The following apply to financing transactions within the scope of the SFH:■ the property being financed must be for the use of the

borrowers themselves;■ the unit value of each loan, covering principal and auxiliary

expenses, is limited to 80% of the value of the property;■ the maximum appraisal value of the property must be

R$1,500,000 (depending on the State where the real estate is located and the date of the financing transaction);

■ the effective maximum cost to the borrower, including charges such as interest, commissions and other financial charges, except the costs of taking out certain insurance policies and any monthly loan management fee charged, must not exceed 12.0% per annum;


The Brazilian real estate market has been affected by the economic crisis, as discussed in question 6.3 above. In the current scenario, it is possible to indicate that the sub sector most affected is the development of residential and some kinds of commercial buildings. There is a lack of credit for this sector, the buyers are more conservative and the number of repossessed properties and rescinded sales have been growing due to the indebtedness of the middle class.Moreover, it is possible to indicate that the lease market of corporate buildings and office spaces is also slowing down due to the low demand and the high cost of vacant properties.



The acquisition title must be recorded before the competent Land Registry, and for the sale of real estate worth 30 minimum wage units, the title must be a public deed executed by a Notary Public. Moreover, it is necessary to present the evidence of the collection of the real estate transfer tax, the updated title certificate of the real estate and the tax clearance certificate of the real estate and the seller (if the seller is a company). For rural real estate, additional documents are required, such as the Certificate of Rural Real Estate Registration (“CCIR”) and the evidence of georeferencing proceedings.


There is no specific legal provision in this regard. However, according to the good faith principle, which governs all negotiations in Brazil, the seller should fully disclose to the buyer all facts and/or acts that may affect the value, use and/or the ownership of the real estate. In general, the disclosures involve environmental damages, encumbrances and liens, claims involving the real estate, irregularities relating to the construction and the existence of third parties occupying the real estate.


The seller can be liable for misrepresentation if, as a result, the buyer suffers a loss.


Usually, sellers grant contractual warranties to the buyer relating to title, past use of the real estate, licensing status, the lack of third party rights over the real estate, tax and environmental issues.




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Please refer to the answers to questions 8.1 and 8.2. Apart from those formalities, real estate lending follows the legal requirements established for any lending transaction, such as the execution of a lending contract between a lender and a borrower.


Real estate lenders normally have more protection from claims against the borrower or the real estate asset by other creditors whenever the documents executed in the lending transaction comply with the law and regulations, including requirements for the validity of the documents, as capable parties, or for the perfection of securities over real estate property, including registration with the competent Land Registry, as mentioned below in question 8.6.


Both the mortgage and the fiduciary assignment of real estate property are perfected upon the registration of the relevant document with the relevant Land Registry Office. Generally, security taken by a lender can be avoided or rendered unenforceable when formality requirements are missing in the creation document or the security is not duly registered with the relevant Land Registry Office.


Under Brazilian law, the borrower can always undertake judicial measures to discuss or attempt to stop enforcement action by lender. Notwithstanding, jurisprudential understandings have been developed in courts in order to avoid merely postponing the acts of borrowers.

9 Tax


The transfer of real estate is subject to the Real Estate Transfer Tax (Imposto sobre Transmissão Inter Vivos de Bens Imóveis – “ITBI”), which is charged on the remunerated transfer, on any account and by any title, of a real estate or in rem rights related to a real estate, with the exception of collateral. The ITBI is a municipal tax, which is a percentage of the transaction or the appraised value of the property, usually from 2% to 5%, as defined by each Municipality. The ITBI shall be borne by the buyer, unless agreed otherwise by the parties.If transfer results from legal or testamentary inheritance and donations, the transaction is subject to the Inheritance and Donations Transfer Tax (“ITCMD”). ITCMD is a state tax and its rates usually vary from 1% to 8% of the assessed value of the transferred asset. The ITCMD shall be borne by the grantee of the right.In view of a real estate transaction, it is important to analyse the specific legislation of the place where the intended real estate is located in order to verify the rules that govern the collection of the referred real estate transfer taxes.

■ should there be any outstanding balance at the end of the negotiated term, it will be the borrower’s responsibility, and the payment term may be extended by half the originally agreed term; and

■ the borrower must provide one or more of the following securities: (1) a first mortgage on the property being financed; (2) the conditional sale of the property being financed; (3) a first mortgage or conditional sale of another property belonging to the owner or a third party; or (4) other guarantees at the discretion of the financing agent.

More recently, Law No. 9,514/97, as amended by Law No. 10,931/04, established the Real Estate Financing System (Sistema Financeiro Imobiliário), or SFI, providing for the granting, acquisition and securitisation of real estate loans. The primary objective of these rules was to foment the primary and secondary markets (loans and derivatives of real estate receivables, respectively) to finance real estate properties by creating more competitive capital-raising conditions and protecting creditors’ rights.The SFI includes real estate loan transactions carried out through government savings banks, commercial banks, investment banks, banks with real estate financing portfolios, real estate loan companies, savings and credit associations, mortgage companies and other entities authorised to operate by the Monetary National Council (Conselho Monetário Nacional), or CMN.Law 9,514 also introduced changes in the securitisations of real estate assets, rendering its structure more accessible and attractive. The securitisation of credits under the SFI is carried out through securitisation companies – in other words, non-financial incorporated institutions, with the purpose of acquiring and securitising real estate loans for later issuance and placement on the government bonds financial market, including certificates of real estate receivables (CRI).The SFI is more flexible as it is directed to every kind of real estate financing, not only to individuals housing as is the case with the SFH.Both systems are only available for residents.


Pursuant to CMN Resolution No. 4,271/13, which sets forth the general criteria for the extension of real estate financing, the financial institution must previously conduct the evaluation of the transaction risk, which includes ensuring the securities are sufficient (in general, mortgage or fiduciary assignment of real estate property), and the borrower’s capacity to pay the debt.


Accordingly to Brazilian law, the enforcement of mortgage (hipoteca) is always conducted in a court proceeding but does not depend on the contribution of the mortgagor. In such proceeding, the property will be sold at a public auction conducted by the judge.On the other hand, the creditor of a fiduciary assignment of real estate (alienação fiduciária de imóvel) enforces its security by means the promotion of up to two non-judicial auctions for the sale of the property, pursuant to the procedures defined in Law No. 9,514/97.



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8,245/1991, as well as by the general rules of the Brazilian Civil Code. Property leases may be executed either in writing or verbally.


There are either residential leases or commercial leases. With respect to commercial leases, the Brazilian Lease Law provides specific rules for leased properties constructed or refurbished by the lessor in accordance with the needs and specifications of the lessee (“Built to Suit Agreements”) and Shopping Centre leases.


(a) Length of term:Lease agreements may be entered into for definite or indefinite terms. (b) Rent increases:Although not mandatory by law, rents in Brazil are usually paid on a monthly basis. Moreover, rents in Brazil must be established in the Brazilian national currency (Reais) and the lessor is forbidden from requiring advance payments from the lessee (e.g., six months upfront payment). Lease agreements are usually readjusted on an annual basis, vis-à-vis the variation of an official consumer or a market price index. Regardless of any price adjustment mechanisms provided in the agreement, Brazilian Lease Law provides that, after three years into the agreement, the lessee and lessor may each judicially request the rent to be reviewed in order to reflect current market prices.(c) Tenant’s right to sell or sub-lease:As a rule, the assignment of the lease agreement and the sublease of the leased real estate depend on prior and written approval of the lessor.(d) Insurance:As a rule, the lessor must get insurance against fire and other damages for the leased property. It is, however, common to contractually establish that the payment of such insurance shall be made by the lessee during the term of the agreement.(e) Change of control of the tenant and transfer of the lease as a

result of a corporate restructuring (e.g. merger):Most Brazilian leases do not mention this matter. However, provisions regarding change of control and transfer of the lease are commonly negotiated by the parties according to their specific case.(f) Repairs:According to the Brazilian Lease Law, improvements performed in real estate may be classified as (i) necessary (when performed for safety purposes), (ii) useful (when performed to improve the use of the property), or (iii) decorative (when superficial or for decorative purposes).As a rule, (i) necessary improvements performed by the lessee shall be reimbursed by the lessor, even when performed without prior authorisation, (ii) useful improvements performed by the lessee are only reimbursed when previously authorised by the lessor, and (iii) decorative improvements performed by the lessee are not subject to reimbursement by the lessor, but may be removed by the lessee upon expiration of the agreement. Different conditions may be established by the parties in the lease agreement.


Usually, the ITBI must be paid before the drawing up of the public deed by the Notary Office and the ITCMD must be paid up to 30 days after the ratified decision that determines the payment, in a causa mortis transfer, or before the execution of the corresponding contract, in a donations transfer.For details about how each ITBI and ITCMD are paid, the analysis of each Municipality and state legislation is necessary.


If there is a difference between the asset’s sale price and its cost of acquisition, the seller is subject to income tax at a rate that varies from 15% to 22.5% of such difference. Moreover, in case of non-residents domiciled in low tax jurisdictions, the rate is 25%. It should be noted that Brazilian tax law provides specific exemptions and calculation basis reductions for capital gains.


No, they are not.


In addition to ITBI or ITCMD, if the seller is a Brazilian company, it will be subject to Corporate Income Tax (IRPJ) and Social Contribution on Net Profit (CSLL), generally charged at a joint rate of 34%. Additionally, depending on the activity of the company, the purpose of the asset and company’s tax regime, PIS/COFINS may also be charged.On the other hand, if the seller is an individual or a non-resident in Brazil, it will be subject to Income Tax.


There is an exception for ITBI if a property is transferred to the assets of a legal entity as paid-in capital, or rights resulting from a spin-off, merger, consolidation, or dissolution of a legal entity, except if, in such cases, the buyer develops a real estate activity as its main business (i.e. purchase and sale of real estate properties or rights, or, residential or commercial lease).


The tax arising from the ownership of urban real estate (“IPTU”) and rural real estate (“ITR”) should always be taken into consideration.



Real estate urban leases in Brazil are regulated by Federal Law No.




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new to the Brazilian real estate market, there are not yet any legal responsibilities provided in Brazilian legislation related to such “green obligations”. With that said, the “green obligations” are usually connected to international certificates of sustainability granted to the whole building and, therefore, to be enforced, must be provided in the building’s Condominium Bylaws, which must be observed by all lessees.



Leases of residential premises in Brazil are regulated by the same legislation as commercial leases.


No, they do not.


Length of term:There is no provision in the Brazilian legislation regarding a specific term for residential leases. However, it is important to mention that the Brazilian Lease Law grants the tenant certain protections in residential lease agreements executed for a minimum of a 30-month term.Tenant’s right to remain in the premises at the end of the term:For residential lease agreements executed for a minimum of 30 months, at the end of the agreed lease term, the lessor can recover the property without stating reasons and is not obligated to renew the contract. However, if the lessee remains in the property after such a term for more than 30 days without being given notice to leave by the lessor, the lease is automatically renewed, but with an undetermined period.The rules that govern the rent increases/controls: the tenant’s contribution/obligation to the property “costs” e.g. insurance and repair are the same as those applied to commercial leases, which are detailed in the answer to question 10.3.


The residential lease agreement with a term of less than 30 months can be terminated by the lessor for their own use, or their spouse, ascendant or descendant, that does not have its own residential real estate and if the uninterrupted term of the residential lease exceeds five years. The steps that would be needed to achieve vacant possession are: (i) send a 30-day prior notice to the lessee; and (ii) file an eviction lawsuit for their own use.

Please note that Built to Suit Agreements and lease of spaces in shopping centres, as indicated in the answer to question 10.2 above, are subject to specific rules.


The lessors are required to pay income tax on the profits of the lease. Lessees, on the other hand, do not pay any taxes. Legally, current owners are liable for real estate property tax, but lease agreements may establish that the lessee shall be responsible before the lessor for payment during the term of the lease.


Considering commercial leases executed for a specific period of time, the lessee has the right to early terminate the lease at any time, upon a 30-day prior notice period and the payment of a penalty proportional to the remainder of the term of the lease agreement. It is a general understanding of Brazilian courts that, as a rule, the value of such penalty must not exceed the sum of three monthly rents. On the other hand, the lessor, during the lease term, is not able to terminate it in advance without cause.Moreover, the lessee has the right to obtain, by means of a judicial procedure (filed within one year, at most, and six months, at least, prior to the expiration date of the respective lease agreement), the compulsory renewal of the lease agreement, if the following requirements are complied with: (i) the lease agreement was entered in writing and for a definite term; (ii) the minimum term of the lease agreement (or the sum of its consecutive terms) is of at least five years; and (iii) the lessee performs its activities in the same industry for at least three years without interruption.In case of commercial lease agreements entered into for indefinite terms, each party may terminate the agreement without any penalty by means of 30 days prior written notice.


In case of a sublease by the lessee to a third party, the lessee shall remain liable before the lessor for the obligations arising from the lease agreement.


Commercial buildings in Brazil have been adopting a more green and sustainable approach. However, since this concept is still



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Natural Parks, amongst others), the management of the conservation units must be consulted or – depending on the case – authorise the interference therein. At federal level, the Instituto Chico Mendes de Conservação da Biodiversidade (“ICMBio”) manages most of the federal conservation units.


Work Permit:The Brazilian public administration requires a licence to construct, which is obtained by each specific Municipality, according to its local laws and regulations. In order to obtain such licence, the developer shall make a formal request to the Municipality, presenting the documents related to the intended building, such as blueprints, construction projects, etc.Work Conclusion Certificate (“Habite-se”):The Work Conclusion Certificate is issued by the competent Municipality and (i) certifies the compliance of the building with the Work Permit that has authorised its construction and the good standing of the construction, and (ii) authorises the occupation of the building. The Fire Department Inspection Notice (“AVCB”):This Notice certifies the compliance of the building with firefighting requirements, pursuant to effective state rules.Installation and Operation License (“LIF”):This licence is issued by the competent Municipality, and it authorises the exercise of certain activities in certain locations.Regarding the environmental aspects, we may mention: (i) the environmental licences (preliminary licence, installation licence and operation licence), which are necessary for each phase of a potentially polluting enterprise; (ii) water grants, in case the use of water resources is necessary; (iii) special authorisations for the interference in Permanent Preservation Areas (Áreas de Preservação Permanente or “APPs”); (iv) authorisations for vegetation removal; (v) consent from the management body of conservation units, in certain cases; (vi) authorisations for the transportation of certain waste materials; (vii) authorisations for the handling of fauna; and (viii) authorisations to research and handle archaeological and historical/cultural heritage assets; amongst others.


Yes, building/use permits and licences are commonly obtained in Brazil. From an environmental law standpoint, depending on the activities performed on the site, proper environmental licences and permits must be issued (see question 12.4). The main document, as mentioned in question 12.1, is the environmental licence (preliminary licence, installation licence and operation licence). Each environmental licence is applicable to each phase of a potentially polluting project. Therefore, installation may only be commenced after the proper Installation License is issued and the operation may only be started after the issuance of an Operation License. The preliminary licence is issued in the initial stage of the project, by means of which the competent environmental agency (federal, state or municipal, depending on the case) validates the feasibility of the location proposed by the entrepreneur for the project.



In Brazil, zoning and related matters concerning the use and occupation of land are governed by the competent state laws, municipal zoning regulations and by local building codes. Each Municipality, therefore, has its own regulations and specifications.Regarding environmental laws, the Complementary Law No. 140/2011 and the Resolution No. 237/1997 may be deemed the main regulations at the federal level.According to the Complementary Law No. 140/2011, the jurisdiction of the Federal environmental agency, the Brazilian Institute of the Environment and Renewable Natural Resources (Instituto Brasileiro do Meio Ambiente e dos Recursos Naturais Renováveis or “IBAMA”), applies to the licensing of the activities with significant environmental impact on a regional or international level, or located in certain protected areas such as indigenous land and territorial waters, among others. The municipal environmental entities, on the other hand, are responsible for the licensing of undertakings, which have a local impact. The state environmental authorities have subsidiary jurisdiction to conduct the licensing process of activities the impact of which is restricted to their territory, as well as to impose the pertinent conditions, restrictions and control measures.


According to the Brazilian Federal Constitution the property must respect its social function. Therefore, if the social function of the real estate becomes of public or social interest, the state is allowed to expropriate it, subject to a corresponding indemnification to the owner of the land. The State is also allowed to use private property in case of imminent public danger. In this case, in the event of any damages, the owner will be subject to further indemnification.


In Brazil, land/building use and/or occupation and environmental regulations are governed by the Municipality where the property is located. The buyer must request the necessary permits and licences to build, remodel the building and/or operate before the competent Municipality according to the specific zoning rule. As per the environmental regulation, as described above, the Complementary Law No. 140/2011 established the main aspects of the environmental licensing jurisdiction. Therefore, the body that controls the environmental licensing (federal, state or municipal) will depend on the specifics of the project, including the activities that will be performed and the location thereof.Other environmental authorities, however, might have a say in some environmental themes. For example, in case an enterprise uses water resources (e.g. impounding and discharge of effluents in water bodies), agencies responsible for water use must be consulted and issue a proper water grant. At federal level, the water use agency is the Agência Nacional de Águas (“ANA”). Each state, on the other, has its own water use agencies. Similarly, in case an enterprise entails interference with a conservation unit (e.g. Biological Reserve,




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There are no regulatory requirements in Brazil for assessment and management of the energy performance of buildings.

13 Climate Change


In line with the policies outlined by the United Nations Framework Convention on Climate Change (“UNFCCC”), as well as according to the goals established when the Kyoto Protocol was put into force, Brazil has developed its own guidelines and objectives on the reduction of greenhouse gas emissions, mainly by means of the National Policy on Climate Change (Federal Law No. 12,187/2009). The legislation in force provides for specific guidelines on air emissions, as well as on emission standards. Pursuant to such legislation, the Brazilian government has committed to a voluntary target on the reduction of greenhouse gas emissions, which has been copied at State and Municipal levels. However, no emissions trading scheme has been implemented so far by the public authorities.Additionally, during the environmental licensing process, the competent authorities may require the adoption of control measures by the entrepreneurs, the improvement of existing equipment and the periodic monitoring of the emission of gases.


The National Policy on Climate Change sets as target the decreasing of projected greenhouse gas emissions from 36.1% to 38.9% by 2020.


Due to the drought faced in many Brazilian states in the past few years, state and local environmental agencies have been imposing and enforcing stringent requirements for water use. Therefore, water grants have been reviewed in order to adapt the allowed quantities to the new reality, conditions to establish more efficient water use systems are being imposed by environmental agencies in the environmental licences of potentially polluting enterprises, amongst others.

AcknowledgmentThe authors would like to acknowledge the assistance of their colleague Juliana Andrade Ribeiro in the preparation of this chapter.


The answer to such matter varies with each different state and Municipality, as well with the complexity of the intended enterprise.


There are restrictions related to the use and disposal of real estate properties that are considered as historical monuments or having cultural significance.


Certain states have public registries of contaminated areas. In the State of São Paulo, for example, the state environmental agency (Companhia Ambiental do Estado de São Paulo or “CETESB”) provides a list of contaminated areas that can be accessed online by the following link: http://cetesb.sp.gov.br/areas-contaminadas/relacao-de-areas-contaminadas/.


In case contamination is identified in an area, remediation is mandatory due to the Brazilian civil liability legal framework. Civil liability due to environmental issues is ruled by the Federal Law No. 6,938/1981 (“Brazilian Environment Policy Act”). Such law sets forth the civil strict liability relevant to environmental damages. Also, joint and several liability is applicable at the civil level. Therefore, in case more than one individual or legal entity is deemed responsible for redressing a damage, the public authorities may seek the full remediation from any one of them. The aggrieved party will have the right of recourse against the other joint and severally liable parties that were not prosecuted.We must also highlight that certain states have specific laws for addressing contamination issues. In the State of São Paulo, which might be deemed a pioneer in the subject matter, the State Law No. 13,577/2013 regulates the rehabilitation of contaminated areas. According to such local law, the following persons may be held jointly and severally liable for remediation measures due to an environmental contamination identified in a certain area/property: (i) the one that caused the contamination and its successors; (ii) the owner of the land; (iii) the person legally entitled to the use or fruition of the land; (iv) the one that effectively uses the land; and (v) those who directly or indirectly benefit from the land.Therefore, the liability for environmental damages in the civil sphere is joint and several, including for damages caused by former occupants due to water and land contamination. In sum, anyone who has contributed to the contamination, currently occupies (legally or in fact) or benefits or was benefited from a contaminated area can be held liable for its remediation.



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Maria Flavia Candido SeabraMachado, Meyer, Sendacz e Opice AdvogadosBrigadeiro Faria Lima Avenue, 3144 São PauloBrazil

Tel: +55 11 3150 7428Email: [email protected]: www.machadomeyer.com.br

Fatima Tadea Rombola FonsecaMachado, Meyer, Sendacz e Opice AdvogadosBrigadeiro Faria Lima Avenue, 3144São PauloBrazil

Tel: +55 11 3150 7490Email: [email protected]: www.machadomeyer.com.br

Partner and Head of the Real Estate practice. Maria is a specialist in real estate law, provides legal assistance in the structuring of several real estate businesses, such as property acquisition operations, leasings, built to suit, and investments in the real estate sector around the country, as well as in the structuring of real estate development, regularisation of properties, financing and guarantee in structured operations. Maria has extensive experience in registry matters and is a member of the Diversity Committee of Machado Meyer, leading the group’s initiatives in the office. Ranked, in the 2018 edition, as one of the best lawyers in Real Estate Law by the publication Chambers Latin America. According to the yearbook, Maria Flavia has demonstrable strengths in real estate development and registry matters. Sources describe her as “an extremely talented and knowledgeable lawyer” who “is consistently doing high-quality work”.

We have been building our history for 45 years, inspired by sound ethical principles, the technical skills of our professionals, and close relations with our clients. We are ranked as one of the major law firms in Brazil, with over 750 professionals.

We have chosen our focus: business.

It is in this segment that we use our legal potential, always looking for innovative solutions, capable of anticipating scenarios and making business possible.

An integrated service that combines expertise in various areas of law. Broad knowledge of legislation and a thorough understanding of business. And which go beyond simple problem-solving to create and preserve value for companies.

We work doggedly to offer intelligent legal solutions that contribute to the business growth of our clients and transform realities.

Fatima is a specialist in real estate transactions, mostly incorporations, condominium institutions, real estate developments, real estate partnerships, acquisitions, lease agreements, built to suit, construction contracts and work site management, and guarantee instruments, such as mortgages, chattel mortgages, and institution of rights of building. Her practice encompasses the structuring, terms review and implementation of pure real estate transactions. Fatima also supports the identification of the different models adopted in infrastructure, energy, mergers and acquisitions, and financial contracts projects, taking part in structured transactions, conducting and assessing the drafting of contracts that encompass, directly or indirectly, real estate. Fatima has previous experience in the areas of knowledge of logistics operators, constructors, developers, banks, investment vehicles, and technology companies.

Ranked, in the 2018 edition, as highly recommended as a leading lawyer in Real Estate Law by the publication Chambers Latin America.




Chapter 6

Osler, Hoskin & Harcourt LLP

Heather McKean

Stella Di Cresce

Canada

Ontario, Québec and British Columbia require foreign entities to obtain a licence to own and operate real estate. In 2017, in order to deal with rapidly rising housing prices, British Columbia enacted a 15% transfer tax on foreign persons purchasing residential property in Metro Vancouver. However, this year British Columbia exempted international residents with provincial work permits from the 15% transfer tax. Vancouver city council also passed a vacancy tax of 1% of the assessed value of vacant homes. Similarly, due to rapidly rising housing prices in the greater Toronto area, Ontario instituted a 15% non-resident speculation tax on foreign buyers of residential property in Toronto and surrounding areas. Permanent residents, as well as refugees and spouses of citizens or permanent residences that will occupy the premises as their principal residence are exempt from this tax. There are rebates available to foreign nationals that become a permanent resident of Canada within four years, those enrolled in full time studies for at least two years and foreign nationals legally working full-time in Ontario continuously for at least one year since the date of purchase. Other provinces have strict restrictions on land ownership by non-residents. For example, in Prince Edward Island, the Land Protection Act generally restricts, inter alia, the amount of land that a non-resident of Prince Edward Island may own to five acres. In Alberta, the Agricultural and Recreational Land Ownership Act restricts non-Canadians, including non-Canadian corporations and partnerships, from acquiring controlled land, which generally refers to large parcels of land outside of urban areas, such as farm land or rural recreational land. The provinces of Québec, Saskatchewan and Manitoba also restrict ownership of real estate by non-residents. Recently the federal government has expanded efforts to catalogue property information such as sale price and owner demographics to better understand the real estate markets.



In Canada, there are both freehold and leasehold rights. A leasehold right confers a right of exclusive possession on a tenant, which is enforceable against all, even the lessor. Both freehold and leasehold interests may be held on a co-ownership basis as a tenancy in common or joint tenancy.Licences are purely contractual rights between the parties. A licence given by the licensor to the licensee allows the licensee to use the land in a manner specified in the contract but does not create an

1 Real Estate Law


The main laws that govern real estate in Canada are the statutes of each provincial and territorial government. In each province, there are separate real estate laws, which, save for Québec, are based on common law. In Québec, property law is governed by the Civil Code of Québec (“CCQ”), which is based on civil law and derived from the Napoleonic Code. Federal laws including competition, criminal, and interest rate laws apply to real estate.


With the exception of Québec, property law throughout Canada has developed through the English common law process and is greatly reflected in jurisprudence throughout Canada. In Québec, the law is based on civil law.


International laws do not directly impact Canadian real estate laws. In certain circumstances, orders of foreign courts may be enforceable in Canada.

2 Ownership


There are both federal laws, such as the Investment Canada Act and Competition Act, and provincial laws, which vary by province, which may restrict the ownership of real estate by non-residents.Some provinces do not have any direct restrictions, but may impose licence, taxes, registration and reporting requirements. For example,


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Currently, most common law provinces and territories use the land titles system or are in the process of converting title from a registry system to a land titles system.


As indicated in question 4.1, there is a provincial guarantee of indefeasible title under the land titles systems but not under registry systems. This guarantee of title, subject only to fraud in acquiring the interest, is the fundamental difference between land titles systems and registry systems. Under provincial land titles systems, if a person has been wrongfully deprived of land or of some estate or interest in land through fraud or errors and omissions of the land registration system, such person can apply to a provincially administered assurance fund for limited compensation for the wrongful deprivation. However, the amount of recovery is quite limited. Title insurance is often used to insure against fraud.


Rights in land are not compulsorily registrable; however, pragmatically, most rights in land are always registered for several reasons, including establishing priority, providing notice to third parties (since a third party without notice is typically not bound by interests that are not registered) and ensuring eligibility for available provincial assurance funds in case of wrongful deprivation of land or an interest in land through fraud or errors and omissions of the land registration system.Notwithstanding the above, new Ontario corporations are required to maintain a register of their ownership interests in Ontario real property. This requirement will apply to all existing Ontario corporations by December 2018.


Pursuant to provincial land titles legislation, certain interests do not need to be registered in order to be effective against the owner of the land and third parties. In certain provinces, leases that do not exceed three years where there is actual occupation under the lease need not be registered. Similarly, there are also governmental, utility and railway rights that do not need to be registered against land, such as municipal taxes, certain easements, railway mortgages, expropriation rights and provisions of land planning and subdivision statutes.


There are different procedures in each province throughout Canada for first registration; the rules vary between the provinces. In Ontario, but not all other provinces, the title granted upon first registration (conversion) in the land titles system may be absolute, qualified or leasehold title, depending on the circumstances. In some provinces, a first registration may be later amended if there was fraud, a wrongful act or mistake. In Ontario, there is no probationary period following first registration in land titles. However, upon registering

interest in the land. Easements, restrictive covenants and servitudes are additional rights in land. An easement provides one party a right to use a specific portion or land for a specific purpose, such as a right of way. A restrictive covenant is a contract where one party agrees not to use its land for certain purposes or in a manner specified in the contract. A servitude is an interest in land where an owner’s possessory rights are burdened by another’s non-possessory rights. In Québec, usufruct, servitudes, superficies and emphyteusis are among the types of rights giving limited rights in land.


There are many exceptions where the right to real estate can indeed diverge from the right to a building constructed on the real estate. One method is by lease between contracting parties. This can provide the tenant with exclusive rights to the building, while the landlord retains ownership of the lands. Another increasingly common method of separating the real estate from the building in Canada is through strata title ownership, which is common with condominiums. In these instances, a condominium owner may own a portion of the building, its condominium unit, but the condominium corporation will own the real estate and retain the common elements of the building. Superficies is a similar concept used only in Québec, where a portion of the property either above or below ground is owned. In Québec, an emphyteusis is a dismemberment of the right of ownership for a specified period of time. The emphyteutic lessee enjoys all of the rights attaching to the status of an owner during emphyteusis but does not actually have the status of an owner.


In some provinces, there can be a split between the legal title and the beneficial title, wherein the legal title is held by the registered titleholder who holds the property in trust for the beneficial owner. As such, a search of title may not disclose the true owner of the property in the case where legal title and beneficial title are split. In Alberta, a beneficial owner can register a caveat on title indicating its beneficial ownership interest. Beneficial interest holders are not otherwise recorded, however, depending on whether land transfer tax on a transfer of a beneficial interest is payable in a particular jurisdiction, transfers of beneficial interests may have to be disclosed to the province and/or municipality where the real estate is located.



All land owned in Canada is registered in a public land registry through either a registry system, a land titles system or a combination of both in the applicable province. As indicated in question 3.3, beneficial ownership is not usually registered apart from legal ownership. The registry system is a public record of documents evidencing transactions affecting land where buyers and other inquirers must determine the quality of title themselves. In the land titles system, the applicable provincial government determines the quality of the title, and essentially guarantees (within certain important statutory limits) the title to, and interests in, the land. For such properties, the province has all original title documents.

Osler, Hoskin & Harcourt LLP Canada



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The rules regarding electronic registration of real estate documents vary across provinces, as each land registry, whether electronic or paper-based, is administered provincially. Canadian provinces are generally shifting towards electronic registration, which is permitted or mandatory in most provinces. To register an ownership right in the land registry, typically a deed or transfer must be provided to the land registry. Most jurisdictions have a prescribed form of deed or transfer that must be used. Information on ownership of registered real estate can be obtained electronically in most jurisdictions. However, under the registry system, any such ownership information can only be obtained by accessing the records at the land registry office.


As stated in questions 4.2 and 4.3, common law jurisdictions under the land titles system generally have a very limited assurance fund to compensate victims if the land registry or land registration system makes an omission or error (or there is a fraud) that wrongfully deprives a person of land or of an estate or interest in land.


There are no restrictions on public access to the information contained in a Canadian land register. A buyer or other interested party can retrieve most but not all information they will reasonably need regarding encumbrances and other rights affecting land. Some claims in respect of real property work orders, taxes or utilities can also constitute encumbrances despite not being registered on the title to the property. There may also be other claims by public authorities or unregistered rights that may affect the property. Such rights may only be discoverable upon inquiring with the various governmental authorities, which may require the consent of the owner, or upon an examination of additional documents such as a municipal planning report from a third party consultant, an up-to-date survey, environmental assessment or building condition assessment. In Ontario, the previous purchase price on a deed may not be revealed on the land register if the previous buyer paid land transfer taxes directly to the Ministry of Finance and City of Toronto. In such cases, a subsequent inquirer can only determine the previous purchase price by inquiring directly with the Ministry of Finance or City of Toronto.



a) Selling and purchasing agents (referred to as real estate brokers or agents)

Typically, a person who wishes to acquire or dispose of real estate will seek the assistance of a real estate broker. Real estate brokers are

individual instruments in Ontario and most other jurisdictions, there is a certification process which can result in an instrument being rejected after the fact.


On a land sale, ownership is generally transferred to the buyer when the deed or transfer is registered in the applicable land registry office, subject to the possibility of an instrument being rejected after the fact. This risk is often dealt with through title insurance.


Generally, priority of registration prevails. A right first registered will have priority over a subsequent registered right. However, there are some exceptions to this general principle, which may include the following: i) certain unregistered rights may have priority over registered rights, where the registered interest holder had knowledge of the unregistered right at the time of registration; ii) rights that arise by prescription may take precedence over registered rights (such as in the case of adverse possession); iii) legislation, such as bankruptcy legislation, or legislation pertaining to personal property, including security interests in fixtures, may provide for different priority rights; iv) construction liens; and v) parties may also contract to subordinate their interest to a subsequent registered right.



Each province and territory in Canada has its own land registry system, whether it is a land titles system, a registry system or a combination of both. Each system has its own rules, although the land titles systems in British Columbia, Alberta and Saskatchewan have similar rules and requirements. The registry system applies in Prince Edward Island and Newfoundland and Labrador, and a similar system applies in Québec. Ontario has largely converted from registry systems to a land titles system and Manitoba, Nova Scotia and New Brunswick are in various stages of the conversion process.


Typically, land registries throughout Canada do not issue a physical document to the owners of registered real estate. A transfer of ownership is actualised by registering, either physically or electronically (depending on the applicable land registry system), a deed or transfer with the applicable land registry office or land registrar, copies of which can be obtained from the relevant registry office, often electronically. Once registration is complete, a copy of the transfer (if in the land titles system) or deed (if in the registry system) or a copy of a certificate of title is issued to the owner to confirm the registration and status of title.



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With commercial real estate transactions at a record level in the first half of 2017, capital remains readily available to finance such transactions, particularly for assets in Ontario and British Columbia, both in private equity and debt. Large Canadian pension funds are expected to continue to increase their allocation of total investments to real estate in the next five years, consistently providing a large injection of equity into the market. There have been particularly high volumes of office transactions in Toronto and Vancouver, such as Dream Office REIT’s sale of its 50% interest in Scotia Plaza to a joint venture between AIMCo and Kingsett Capital and Cadillac Fairview’s sale of a 50% interest in 12 office towers and Pacific Centre shopping mall in Vancouver to the Ontario Pension Board and the Workplace Safety and Insurance Board. Although interest rates have risen in 2017, rates remain low and attractive to those purchasing real estate. Some Chinese investors have faced increased difficulty investing in Canada this year due to regulatory constraints in China and increased taxation in Canada.


Again in 2017, the appetite for large investors and developers to look beyond the primary real estate markets in Canada and transact in secondary or even tertiary markets is low. Many of the large real estate companies, investors and developers are looking to move out of these markets. However, the exit by these companies from these markets has proven attractive to local buyers, smaller to medium size public entities and private families. To illustrate, RioCan REIT is selling $2 billion of real estate in secondary markets to reallocate this capital to the country’s six largest cities. Dream Office REIT over the last two years has sold assets in such secondary markets and reduced its portfolio to focus on core assets located in downtown Toronto, downtown Montreal and downtown Calgary. Sears Canada Inc., one of the country’s largest retail department store chains, filed for creditor protection and is in the process of closing all of its stores, many of which are located in secondary markets. In Toronto, Vancouver, Montreal and Ottawa, office vacancy rates are much higher in suburban areas than downtown locations.


Interest in Alberta’s commercial real estate seems to be stabilising, albeit at a much lower level, after a period of market corrections due to continued low oil prices. In Calgary and Edmonton, while vacancy rates for offices properties remain very high, vacancy rates have stabilised or slightly decreased for both office and industrial space from a year ago. To the contrary, industrial rental rates are rising and vacancy rates are low throughout the country. Commercial real estate markets in Vancouver and downtown Toronto continue to gain strength and have set new record levels in excess of previous record levels set in 2016.

subject to special regulation in Canada. Each province has legislation regulating the trade in real estate, designed to protect consumers and instil confidence in the buying and selling of real estate. b) Lawyers Lawyers play a significant role in commercial real estate transactions. If title insurance is not being obtained, lawyers will examine title to the property and conduct off-title searches and inquiries in order to determine the status of the property and whether there are any issues or deficiencies. Lawyers can hold payment and closing documents in escrow until the transaction has been completed. In commercial transactions, lawyers are frequently involved in drafting and settling the terms of the purchase agreement and closing documents, and will attend to registration of the transfer of the property. Lawyers can also assist with negotiation of a title insurance policy and will conduct limited diligence on title and off-title matters as required by the title insurance company. c) Notaries Generally, notaries do not play a large role in real estate transactions in Canada other than in Québec. Notaries are commonly used in Québec, and must be retained for anything that requires a notarial act. A gift of immovable property or hypothec on immovable property (i.e. a mortgage) are two documents that require a notarial act to be valid. A contract of sale of immovable property does not require a notarial act; however, notaries are involved in the registration of the deed of sale.d) Surveyors In the event that an existing survey of the property does not exist or the survey is out of date, a surveyor may be retained to provide a new survey. Surveys are often required to obtain a mortgage or to determine whether the building is in compliance with applicable setback requirements and to confirm the size, shape, boundaries and location of the property, the building and other improvements thereon.e) Title insurers Title insurance is not mandatory but is frequently used in residential and commercial transactions. A title insurer provides an insurance policy in favour of an owner or a lender of real property. Such insurance can protect an owner from losses related to survey and municipal issues, encroachment issues, title fraud and intervening registrations between the time of closing and registration, if such gap exists. Similarly, it can protect a lender from losses associated with title.f) Third party consultants Third party consultants, such as environmental consultants, engineering consultants and planning consultants, are often used in commercial real estate transactions. Environmental consultants determine the environmental status of a property, engineering consultants determine that the building and improvements are in good condition or in the condition represented by the seller, and planning consultants ensure that the planned or existing development will comport with local laws and regulations.


Real estate brokers are typically remunerated on the basis of commission which is generally paid out of the purchase price that would otherwise go to the seller upon the transfer. Fees of lawyers are charged based on hours worked or, increasingly, through alternative fee arrangements. Surveyors are typically paid a flat fee. Title insurers are paid based on the value insured. Third party consultants are typically paid a flat fee.




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that the seller has disclosed outstanding work orders and disputes with tenants. Representations and warranties are important as they provide information to the buyer and allocate the risk as between buyer and seller; however, they usually provide a limited amount of information. Thus, representations and warranties are not a substitute for the buyer carrying out its own due diligence. A buyer’s due diligence should include searching title to identify any existing registered encumbrances and liens. In Québec, as noted in question 7.2, certain warranties are imposed unless excluded by contract.


Generally, a seller will warrant that it is the owner of the land and that it has good and marketable title to the land free and clear of all liens and encumbrances, save for those specifically permitted by the agreement of purchase and sale. A warranty of ownership is implied in Québec unless specifically excluded.


In addition to paying the purchase price for the sale of real property, the buyer has additional financial and non-financial obligations. In terms of financial obligations, the buyer will be responsible for land transfer tax and registration fees. In terms of non-financial obligations, the buyer will assume and be bound to perform the covenants and obligations of which they have notice or that run with the land, including mortgages, leases, options and municipal agreements.



Some provinces require persons who lend money to be licensed. For example, in Ontario, the Mortgage Brokerages, Lenders and Administrators Act, 2006 requires a person carrying on the business of dealing or trading mortgages, or carrying on business as a mortgage lender, to obtain a licence issued by the Superintendent of Financial Services. Financial institutions are regulated federally by the Bank Act, Insurance Companies Act and through regulations imposed by the Office of the Superintendent of Financial Institutions (OSFI). Generally, there are no particular differences for individual persons and corporate entities. Some jurisdictions require that foreign corporations be registered under provincial legislation in order to hold a mortgage.OSFI recently enacted stricter mortgage lending regulations which come into effect as of January 1, 2018. These regulations make it more difficult for certain buyers to qualify for a mortgage, are designed to ensure that home owners are not over-leveraging their finances through a mortgage and are a response to high household indebtedness and record low housing affordability across Canada.


The primary protection to a lender from default by the borrower comes by registration of the mortgage in the applicable land registry



A transfer or deed of land must be accepted in written or electronic form by the applicable land registry office for the purchase and sale of real estate. An agreement of purchase and sale must be in writing to be enforceable. Québec has additional requirements, including, for some transactions, an endorsement from a notary.


The starting principle in common law jurisdictions is caveat emptor, meaning buyer beware; however, there are many exceptions to this principle which require certain disclosures to be made by a seller. First, the seller must disclose latent defects in the property that render the property dangerous, a health hazard or unfit for habitation. Latent defects are defects which cannot be discovered upon a reasonable inspection of the property. Second, environmental contamination must be disclosed by the seller. Third, caveat emptor does not apply to fraud, and if such fraud is found to exist, a court may impose remedies that do not exist in the contract. Additionally, there are increased disclosure requirements on developers of condominiums. The civil law regime in Québec imposes certain warranties which pertain to title, encumbrances and compliance with the law; however, these warranties may be excluded or limited by contract.


Sellers can be liable to buyers for misrepresentation unless representations merge on closing. The liability of the seller and remedies available to the buyer also depend on whether the misrepresentation was innocent, negligent or fraudulent. Remedies that may be available to the buyer include damages and rescission. In Canada there is a general principle (established by the Supreme Court of Canada) of good faith in contract law, requiring honest and reasonable performance of contractual duties, and a specific duty of honest performance with respect to all contracts in Canada, requiring that parties do not lie or knowingly mislead each other regarding matters directly linked to the performance of the contract.


Sellers sometimes provide contractual representations and warranties to buyers. In commercial transactions, sellers sometimes sell on an “as is” basis with limited or no representations and warranties. The scope of the warranties provided depends on numerous factors, mainly pertaining to market forces and the bargaining power between the buyer and the seller. They typically relate to the seller’s knowledge of the property, agreements related to the property and matters that cannot be easily discovered by the buyer on its own. For example, a seller will generally provide a representation that all leases, contracts and environmental reports have been provided and

CanadaOsler, Hoskin & Harcourt LLP


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possible ways include through obtaining a stay of proceedings through a restructuring filing under the Companies’ Creditors Arrangement Act (Canada) or the Bankruptcy and Insolvency Act (Canada). In Canada, a court overseeing insolvency proceedings can grant a charge on the assets of a debtor in priority to existing security interests to secure certain payments, such as interim or “DIP” financing, and there are also narrow instances where statutory claims or deemed trusts “prime” (take priority over) security. If a lender subsequently materially alters the terms of a loan, for example by advancing additional funds to a borrower, this may, in some instances, render a prior guarantee unenforceable if the guarantor was not notified of and did not consent to the additional advance and the terms of the guarantee did not waive the guarantors right to be notified of and consent to such material alterations.


In addition to the actions mentioned in question 8.6, before taking enforcement action on demand facilities, a lender must make a reasonable demand to its borrower for payment and give the borrower reasonable time to pay, even if the borrower waived such right; if not, the borrower can defend on these grounds. Lender enforcement actions may also be frustrated or even result in liability for damages if the lender breaches the statutory rules for seizing and selling secured assets, such as complying with notice requirements (including the 10-day notice requirement under the Bankruptcy and Insolvency Act (Canada)) or satisfying the duty to act in good faith and in a commercially reasonable manner.

9 Tax


Land transfer tax is payable on the transfer of real property in most jurisdictions throughout Canada, including upon the creation or assignment of a long-term lease. Land transfer tax is typically imposed at the provincial level; however, in certain jurisdictions it may also be imposed at the municipal level. There are some exemptions available for beneficial transfers of title that are not registered. Each jurisdiction has a different rate of land transfer tax. In Ontario, the land transfer tax will be approximately 2% of the total consideration, except that in the City of Toronto, located in the province of Ontario, imposes an additional land transfer tax. On commercial properties, the tax was increased in 2017 to approximately 1.5% of the total consideration up to $400,000 (Canadian) and 2% on the consideration greater than $400,000. Therefore, in the City of Toronto, where a provincial and municipal land transfer tax is imposed, the total rate of land transfer tax on a commercial property will likely be almost 4%. Ontario and Toronto have each recently increased the rebate of land transfer tax available to first time home buyers. As mentioned in question 2.1, there are additional 15% land transfer taxes on some foreign entities that purchase residential property in Toronto and surrounding areas and Greater Vancouver Regional District. Land in Alberta, Newfoundland and Labrador, and some municipalities in Nova Scotia is not subject to land transfer taxes. However, registration fees will typically apply in such jurisdictions. In most provinces, the buyer is liable to pay the land transfer tax.

office. Registration establishes the priority ranking of the lender’s interest in the land and makes the lender a secured creditor. A lender will often take additional security, generally in the form of an assignment of rents and a general security agreement, notice of which may be registered in the personal property registry system of the applicable province. A lender may also require that the loan be full recourse to the borrower and/or may require a guarantor.


Proceedings regarding the realisation of mortgaged properties vary significantly between the provinces. The following five remedies are common, but not consistent, in Canadian provinces: foreclosure; power of sale; judicial sale; action on covenant (suing the borrower); and possession. Power of sale is a contractual remedy by which, pursuant to legislated processes, the lender can sell the mortgaged property for fair market value to the public, without involving court proceedings or the cooperation of the mortgagor. Québec has separate remedies which are analogous to those listed above. Remedies in Québec include a sale by the secured creditor, sale by judicial authority, taking the property in payment of claim and possession for purposes of administration.


To ensure that a mortgage protects the lender’s interest in the land, a mortgage must be in writing, duly executed and registered against title to the land. In Québec, a mortgage is referred to as a deed of immovable hypothec, which must be executed in the presence of a notary.


A real estate lender is protected from claims made by other creditors by the registration of its mortgage. This renders the lender a secured creditor, and gives it priority over all unsecured creditors, subject to certain exceptions for debts payable to the government, fraud, some construction liens and certain other exceptions pursuant to legislation.The lender is protected from claims against the borrower through the remedies available to the lender in the mortgage and those prescribed by legislation. While remedies vary in each province throughout Canada, in all provinces, where the loan is payable on demand, the lender is obliged to provide reasonable notice before making demand for payment. Depending on the remedy being executed, in a demand or term loan, the lender may have to give notice under the federal bankruptcy legislation. The lender may also have the right to appoint a receiver either privately or by court appointment. Most provinces have legislation prescribing rights to one or more of the following remedies: foreclosure; power of sale; and judicial sale. In power of sale and judicial sale proceedings, the borrower will remain liable for any deficiency.


Provided that security is properly registered/perfected, there are limited ways to avoid a lender’s enforcement of security. Some




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occupation of the property. Ontario has recently amended a land transfer tax regulation that previously exempted transfers of partnership interests where a person acquired an interest in a partnership that did not give rise to an entitlement of more than 5% of the profits of the partnership. Québec recently revoked exemptions for transfers of real property between closely related entities. On a sale of shares, one-half of any capital gain realised on the sale of the shares will be subject to income tax.


A buyer of real estate should always diligence whether the owner of the real estate is a non-resident of Canada. If the owner of the real estate is a non-resident of Canada, it is necessary to obtain a clearance certificate under the Income Tax Act (Canada) prior to closing. If such a certificate is not obtained, the purchaser is jointly and severally liable for the vendor’s tax liability arising from the disposition of the real estate. The purchaser will be subject to a 25% withholding tax to the extent the purchase price relates to land and a 50% withholding tax to the extent the purchase price relates to the building. A buyer will need to know whether they need to be registered for GST/HST and whether the supply of the property to the buyer will be taxable for GST/HST purposes. Additionally, a buyer will always inquire with the applicable municipality to ensure that there are no outstanding realty taxes that form a prior lien on the property.



There are two main sources that make up the body of law surrounding commercial leases. First, there is the common law, which has evolved to provide a series of principles which set out the basic obligations of a landlord and tenant. Second, a number of provinces have enacted legislation to supplement the common law principles. In Ontario, the Commercial Tenancies Act defines the relationship between a landlord and tenant in relation to commercial properties and sets out some of the rights, responsibilities and remedies of each party to a lease. Similarly, in Québec, the Civil Code of Québec governs the relationship between a landlord and tenant in respect of commercial leases.


While every lease is different and should be tailored to the specific use, there are two main categories of leases: gross leases; and net leases. Generally, in a gross lease, the tenant agrees to pay a fixed amount of rent that includes all operating costs and real estate taxes. In a net lease, in addition to a basic rent, the tenant is responsible for certain expenses that are not personal to the landlord in respect of the operation and management of the building, including real estate taxes, insurance, repairs, maintenance and upkeep of the building and common areas. Although those are the two main categories of leases, the structure of a lease and the payments required under such lease can also vary depending on a number of factors, including the type of property, the tenant’s use of the property, the identity of the parties, and their relative bargaining power. In many retail leases a tenant will pay basic rent, additional rent and a portion of the tenant’s revenues (known as percentage rent).


The land transfer tax is typically paid when the transfer is registered with the land registry office, or in respect of a beneficial transfer, the land transfer tax may be paid within a specified time following such transfer if an exemption is not available. In Québec, land transfer tax is paid following the receipt of an invoice from the municipality issued after: (i) if the transfer is registered, the registration of the deed of transfer at the land registry office; or (ii) further to recent legislative amendments, if the transfer is not registered on title, when the municipality receives the mandatory notification and disclosure of the transfer of the real property with the required disclosure information.


Transfers of real estate by individuals are subject to income tax unless the property being sold is the individual’s principal residence. An exemption exists for the sale of a principal residence, which can reduce or eliminate the capital gains tax payable by the individual. Recently, the federal government enacted legislation to provide that the principal residence exemption is only available on one home per year and only to individuals who reside in the home being sold in the year the home is sold. In addition, recent changes have resulted in foreign investors who are not residents of Canada being required to pay capital gains tax on residential property.


Generally, transfers of commercial and new residential real estate throughout Canada are subject to a 5% Goods and Services Tax (“GST”). In some provinces, the federal GST has been harmonised with the provincial sales tax to form the Harmonized Sales Tax (“HST”). Québec has its own separate sales tax, which is applicable to transfers of commercial and new residential real estate, called the Québec Sales Tax (“QST”). In provinces where there is HST, the rate will be the 5% federal tax plus the provincial tax rate, which varies by province but in Ontario is 8% (for a total of 13% in Ontario). If the buyer is registered for GST/HST purposes, it may be permitted to self-assess the GST/HST. If not, the seller will remit the applicable taxes which are collected from the buyer. Used residential properties are generally exempt from these taxes. Subject to some exceptions, a commercial buyer can recover the GST/HST that was paid.


Gains on the disposal of real estate are subject to taxation. To the extent tax depreciation was claimed in respect of a building when that building is sold, the tax depreciation previously claimed will be included in the vendor’s income and subject to income tax. In addition, one-half of any capital gains realised on a sale of the land and building will be subject to income tax.


Land transfer tax is not generally paid on the sale of shares unless such a sale includes the right to the shareholder to exclusive



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the expense of the tenant. Often, the lease requires that the landlord undertake repairs of a structural nature or repairs required to the roof of the building which may be at the tenants’ expense in a net lease.


Since provinces and territories in Canada have their own tax regimes, the types of taxes payable, as well as the amount, will depend on where the property is situated. GST, HST and/or QST are all payable by tenants under commercial leases. If the tenant is a GST, HST and/or QST registrant, the tax will likely be recoverable by the tenant but the landlord is still responsible for collecting it on behalf of the tax authorities. The rent received by a landlord will be subject to income tax, after deductible expenses are subtracted. Some jurisdictions impose business taxes on leased premises in addition to real estate taxes.


Generally, commercial leases terminate at the end of their term, on default, or unilaterally on the exercise of a contractual termination right. Other circumstances that may result in the contractual termination of a lease include a landlord’s decision to withhold consent to an assignment or sublet, or major damage to the building. If the tenant has a termination right, often a termination payment is negotiated.


When a landlord assigns its interest in a lease on a sale of the property, the assignee landlord automatically becomes obligated to perform all covenants made by the original landlord and is entitled to all benefits from all covenants made by the tenant, that run with the land. When a tenant assigns its interest in a lease, the tenant is not typically released from its obligations under the lease unless the lease provides for such a release. Leases generally provide that the landlord is released upon sale of the property. Typically upon sale of the property, the assignee landlord will request an estoppel certificate from the tenant in order to flush out any issues that the tenant may have with the existing landlord. A buyer will also include an indemnity in the assignment agreement wherein the existing landlord will indemnify the buyer for any pre-existing claims that the tenant may have under the lease.


Examples of “green obligations” that are found in commercial leases include targets for electricity use, natural gas consumption, water


Though provisions in commercial leases vary significantly, some usual provisions include:(a) Length of term The length of a term of lease varies, depending on the tenant’s intended use. A common term of a lease between a landlord and tenant entering into a new relationship is five years, with the tenant having the right to renew or extend the lease for additional terms. Shorter and longer terms are not uncommon. In some provinces, land transfer tax is payable on long-term leases. (b) Rent increases The rent payable under a lease will often increase throughout the term, particularly in the case of longer term leases. The amount may be set in advance, but it is also common to see future rent set in accordance with “prevailing market rates”. This is often the case for renewal or extension terms. The determination of the increased amount of rent is not always simple, and leases may contain dispute resolution provisions to deal with situations where the landlord and tenant cannot agree on the new amount.(c) Assignment or sub-lease by tenant It is quite common for leases to require the landlord’s consent before a tenant can assign or sublet the premises. Common provisions in a lease include the procedure to follow to obtain the landlord’s consent, payment by the tenant of the landlord’s fees in connection with the proposed assignment or sublet, and the rights of the landlord following a tenant’s request for consent. The landlord may negotiate for the right to terminate the lease upon a request for assignment and sublet. Often the landlord will require that the original tenant remain liable under the lease despite the assignment.(d) Insurance Insurance provisions in a lease can be extensive and complex, setting out both the landlord’s and tenant’s obligations to maintain insurance. Landlords are usually responsible for insuring the building as a whole, and any liability with respect to the common areas. Tenants are usually responsible for maintaining liability insurance and property insurance to cover personal property and leasehold improvements, as well as business interruption insurance. The tenant is responsible for the cost of its own insurance and in a net lease, for its proportionate share of the cost of the landlord’s insurance.(e)(i) Change of control of the tenant The restrictions on a tenant’s right to transfer often restrict changes of control in addition to assignments and subleases, though there can be exceptions to the consent requirement for changes of control generally, inter-company re-organisations, or for publicly traded companies.(ii) Transfer of lease as a result of a corporate restructuring (e.g.

merger)It is common to negotiate an exception to requiring the landlord’s consent for a transfer of the lease as a result of a corporate restructuring, subject to the landlord receiving notice and certain assurances.(f) Repairs Leases will generally provide that it is the tenant’s obligation to repair the premises during the term of the lease, and to repair any damage before vacating the premises. If a tenant does not carry out repairs in accordance with the lease, the landlord may be able to do so at




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(c) In Ontario, subject to a landlord’s right to terminate for certain reasons set out in question 11.4, the tenant has the right to remain in the premises at the end of the lease on a month to month basis. In Alberta, residential tenancies can be either fixed term or periodic tenancies (no fixed end date). In Québec, the lease of a dwelling is generally renewed automatically and there are no obligations for an exchange of notices between a landlord and tenant.

(d) Leased residential premises must be kept by the landlord in a good state of repair and fit for habitation, with the landlord being responsible for complying with health, safety, housing and maintenance standards as well as providing vital services. Tenants are typically responsible for ordinary cleanliness and repairing undue damage caused by wilful or negligent conduct of the tenant or its invitees. Usually a tenant will insure its belongings and the landlord will insure the premises. Each will obtain their own liability coverage.

In Alberta, the landlord must ensure that the premises meet at least the minimum standards prescribed for housing premises. It is a prescribed part of that residential tenancy agreement that the tenant will not do or permit significant damage to the premises or the common areas. Outside of damages caused or permitted by the tenant, it would be up to the parties to determine who will pay for property costs such as insurance and everyday repairs. The Civil Code of Québec sets out the repair and maintenance obligations of each party. The landlord is bound to deliver a dwelling in good habitable condition and is bound to maintain it in that condition throughout the term of the lease. The tenant is bound to keep the dwelling in clean condition. The tenant will take out rental insurance as required and the parties will determine whether rent paid includes certain services from the landlord or utilities.


Under provincial laws, a landlord may have the right to terminate a periodic residential lease (subject to certain prescribed notice periods) if certain criteria are met. In Ontario, landlords have such rights upon the occurrence of certain events including the non-payment of rent, if a landlord or a relative (or a purchaser or its relative) intends to occupy the premises, the tenant has committed an illegal act, the tenant wilfully or negligently causes damage to the rental unit, upon extensive renovations or a demolition, conversion to a use other than for residential purposes or if the tenant substantially interferes with the reasonable enjoyment of other tenants or the landlord. In Alberta, landlords have such rights if a landlord or a relative (or a purchaser or its relative) intends to occupy the premises or for a demolition or major renovation of the premises, if there is an intention to use the premises for a non-residential purpose, and to convert the premises to a condominium. In Ontario, a landlord shall not recover possession of the unit unless the tenant has vacated or abandoned the unit or the landlord has an order of the Landlord and Tenant Board authorising recovery of possession. Obtaining vacant possession in Alberta may require an application to court or to the Residential Tenancy Dispute Resolution Service. Under Québec law, under the right to maintain occupancy, residential leases essentially do not have unrenewable terms. A landlord may terminate a lease by way of repossession and may also evict the tenant to subdivide the dwelling, enlarge it substantially or change its use. An owner can retake possession of the dwelling if they wish to live there themselves or have certain family members live there.

consumption, waste diversion and carbon dioxide levels. Whether green obligations are enforceable between the parties depends on how such obligations and the remedies relating to the same are described in the lease. For example, while failing to comply with “green obligations” could constitute an event of default under a lease, the obligations as set out in the lease may merely require a party to use commercially reasonable efforts to meet targets and consult with the other party on how to best achieve the objectives. The enforceability of such clauses will also depend on the bargaining power of the parties. A landlord with greater bargaining power will make the tenant’s obligations to comply with the landlord’s green obligations binding covenants whereas it may make its own objectives, for instance achieving a Leadership in Energy and Environmental Design (“LEED”) standard, aspirational. However, a tenant with greater bargaining power may hold the landlord to certain “green obligations” including achieving a LEED standard, and may negotiate for certain self-help remedies if they are not achieved.



Leases of residential premises are regulated provincially. In Ontario and Alberta, the Residential Tenancies Act, of the respective province, is the main law that regulates leases of residential premises. In Québec, the Civil Code of Québec, articles 1892 and following, regulate leases of residential premises.


Throughout Canada, there may be different laws for non-profit housing co-operatives, residential complexes owned by a government or government agency, care homes, developmental services homes and mobile homes. Generally, in most provinces, subject to different safety and maintenance standards for various types of buildings, the residential leasing laws are very similar for premises for single or multiple tenants. One variation in Ontario is that for premises with no more than three residential units, a landlord has greater termination rights.


(a) In Ontario and Alberta the length of the initial term is typically one year, with tenants typically electing month-to-month renewals or one year renewal terms thereafter. In Québec, the length of term is typically at least one year.

(b) In Ontario, caps on rent increases, which tie maximum increases to inflation and cap them at 2.5%, now apply to all private rental units. This new law has led to over 1,000 new construction units that were planned rental units being converted to condominiums, which can provide greater returns to developers. Alberta does not have any rent control legislation, provided a landlord cannot increase the rent payable under a residential tenancy agreement unless at least 365 days has passed since the last increase (if any). Rent increases in Québec are controlled, particularly for a continuing tenant.



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Land/building use is regulated primarily at the municipal level with oversight from the province, as set out in question 12.1. Environmental matters are subject to provincial and federal legislation, with such legislation administered by federal and provincial ministries (for example, the Ontario Ministry of the Environment and Climate Change) and, in some cases, local conservation authorities. Buyers can obtain reliable information from applicable government authorities concerning the permitted uses under applicable zoning regulations, existence of work orders and open building permits. Buyers should acquire information regarding environmental contamination independently, by retaining an environmental consultant to conduct environmental site assessments. Environmental liability can arise merely from the ownership of contaminated property, despite the contamination taking place before a party acquires ownership. Buyers may need to commission a municipal planning firm to ascertain if buildings comply with certain zoning requirements, such as setbacks, density, number of parking spaces and compliance with the building code and fire and health regulations. The buyer may also require an up-to-date survey. A property that is in a flood plain area may have restrictions on development.


The construction, renovation or demolition of a building requires a demolition and/or building permit. The specific permits required and additional licensing requirements depend on the type of construction, renovation or demolition project proposed.


Building permits are generally required before carrying out construction or renovation, and failure to obtain a permit can constitute an offence. Environmental permits and approvals are typically required prior to commencing certain commercial and industrial operations, and permits may be required if construction or renovation is to take place on or near environmentally-sensitive areas. Obtaining the required permits and licences can be a time-consuming process, and can involve coordination with the municipality, as well as specific local, provincial or federal agencies if, for example, there are environmental concerns. If the use of land or a building does not conform with the current laws, but the use was permitted before the enactment of such laws, and has continued uninterrupted, the owner may have a right to continue a non-conforming use.


The cost and time it takes to obtain a building permit and any additional approvals depends on a number of factors, including where the proposed construction is taking place, the type of building or structure being constructed, the area of the building or structure, the cost of the project, the complexity of the project, and which approvals are required. Municipalities may require payment of development charges and conveyances of part of the property (for

There are more complex rights and rules regarding repossession by a landlord if the tenant and/or landlord is over 70 years of age. The owner-landlord must send the tenant a written notice informing the lessee of his or her intention to retake possession of the dwelling by specific deadlines with required notice information.



Property zoning/permitting and related matters concerning the occupation and use of land are regulated primarily by municipalities with oversight from the province. Each province enacts statutes granting municipalities jurisdiction over land use planning and development within their boundaries in accordance with approved provincial and municipal planning policies. Municipalities typically control land development through such planning instruments as official plans, zoning by-laws, subdivision, severance and site development controls. Municipalities are also empowered to issue building and development permits, and to impose conditions on development, including the payment of development charges or levies. In some provinces, municipal planning decisions can be appealed to provincial tribunals, although there is a trend under existing and proposed provincial legislation (e.g. Ontario) to limit the scope of such appeals and to provide greater deference to municipalities.Construction of new projects is also subject to provincial and municipal legislation. In addition to regulating the maintenance of existing structures, building codes set specific standards for the construction of buildings. Before construction commences, most municipalities require that building permits and all regulatory approvals be acquired. Environmental legislation may be enacted federally or by the provinces. Environmental legislation, particularly provincial environmental legislation, governs land use and occupation through permitting and approval requirements for certain commercial and industrial activities and, in some cases, by restricting the ability to change land use to a more sensitive use (e.g., from industrial to residential) without a regulatory process. Local conservation authorities may also have the ability, through provincial legislation, to impose land-use and development restrictions where proposed developments are located near environmentally sensitive areas.


There is no constitutional protection of property rights in Canada. Federal, provincial and municipal governments, as well as public utilities, can force land owners to sell them their land, or interests therein, such as easements, through expropriation. This can generally occur for public purposes only. Generally, each expropriation must be approved by an approving authority, which in most statutes is the Minister responsible for administration of the act or the council of the municipality (if the municipality is executing its expropriation powers). Expropriation statutes also provide for compensation to land owners when their property interests are expropriated. Compensation is usually determined based on the market value of the land, any damages attributable to disturbance or for injurious affection and any special difficulties of the owner in relocation.




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of rules relating to environmental clean-up. Typically, provincial environmental Ministries have the power to order environmental clean-ups against current and former owners of contaminated property (or the source of contamination that has migrated off-property) and current and former occupiers of such property who have caused the contamination. For example, in Ontario, the Ministry of the Environment and Climate Change ensures compliance with environmental laws and standards, and under Ontario’s Environmental Protection Act, when there is damage or where damage to the environment, animal life or human health or safety is likely, the person responsible or the person in control of the property can be ordered to repair or prevent it.


A large part of the ongoing assessment and management of the energy performance of buildings is done through third party rating programs. These include Leadership in Energy and Environmental Design (“LEED”) and the “Go Green” program, administered by BOMA BESt® (Building Environmental Standards) which, among other things, evaluate and certify the energy performance of buildings. While there are no regulations pertaining to the energy performance of existing buildings, provinces, such as British Columbia are beginning to adopt standards that must be achieved in newly-constructed buildings. These standards arise pursuant to the National Energy Code of Canada for Buildings 2011, which is a set of federal standards for energy efficient buildings that must be adopted provincially to come into force in that specific province.

13 Climate Change


Canada has ratified the Paris Agreement, an international agreement to keep the global temperature increase below 2 degrees Celsius. Canada has also entered into an international agreement to phase down the use of hydrofluorocarbons, a potent greenhouse gas used in air-conditioning and refrigeration. The federal government currently has regulations in place which pertain to transportation, electricity and renewable fuels. Regulations to limit emissions from cars and light trucks are projected to reduce greenhouse gas emissions by 50% on such vehicles made in 2025, from those made in 2008. Gasoline in Canada is required to contain 5% renewable content and diesel fuel is required to contain 2% renewable content. The federal Reduction of Carbon Dioxide Emissions from Coal-fired Generation of Electricity Regulations sets the performance standard at 420 tonnes of carbon dioxide per gigawatt hour (CO2/GWh) for coal-fired electricity generation units. Further, in Ontario the Green Energy Act creates financial incentives for the development of renewable energy. In December 2016, the federal government announced that it is imposing a minimum price for carbon or equivalent emissions of $10 per tonne in 2018 and rising incrementally to $50 per tonne of carbon by 2022. All provinces will have to design their own carbon tax or cap and trade system that is stringent enough to meet or exceed the federal benchmark. If provinces do not have such a system in place, the federal government will implement a carbon price in that jurisdiction.

parkland or road-widening, for example) as a condition of approval. After an application is submitted, the review process can take a matter of days to many months, and once a permit is obtained there may be regular inspections during the construction.


Each level of government, federal, provincial and municipal, has a role to play in protecting heritage sites. For example, municipal by-laws can set requirements for the preservation of heritage sites and may limit the extent to which renovations can be carried out, or whether buildings or structures can be demolished. Regulations are usually enacted to conserve historic properties as opposed to preventing transfers from occurring. Generally, upon purchasing a historic property, the new owner will have to provide notification pursuant to provincial or municipal legislation of the area in which the property is situated. Some historical monuments, such as railway stations, grave sites and lighthouses, are protected by federal legislation. At the municipal level, the City of Toronto can designate individual properties to protect their heritage attributes, as well as culturally and/or historically significant neighbourhoods as Heritage Conservation Districts to maintain the character, history, cultural values and integrity of such districts. Property owners must obtain a permit before altering property that has been individually designated for heritage protection or that is located within a Heritage Conservation District. Cities such as Vancouver and Calgary have instituted policies to compensate owners of properties designated as heritage properties without the consent of such owners, either through tax breaks or density rights that can be sold and transferred to other developments. Similarly, the City of Toronto provides tax breaks for maintenance and conservation to properties that are within a Heritage Conservation District or designated under the Ontario Heritage Act.


As discussed in question 12.3, conducting independent investigations, often through environmental site assessments of the property in question by an environmental consultant, is the best way to determine if land is contaminated or polluted. To some extent, environmental risk can also be allocated in the contract through representations, disclosures, indemnities, releases or remedial work. One cannot contract out of liability for contamination but one may have remedies against the counterparty through the types of contractual provisions described above. Although there are provincial registries of properties with known contamination issues, and certain public and private databases of other environmental issues (for example, known spills), these registries and databases are not comprehensive and generally contain information provided by the property owner. Thus, referring to a registry can confirm contamination but cannot confirm a property is free from contamination, pollution or environmental issues.


Environmental regulation takes place at the federal and provincial level, and different jurisdictions within Canada have their own sets



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As mentioned in question 13.1, to fulfil international obligations and reach government goals with respect to climate change and greenhouse gas emissions reductions, the federal government has set a floor price of $10 per tonne of carbon by 2018 which will rise to $50 per tonne by 2022. Provinces can enact their own carbon tax or cap and trade policy but it must meet such federal minimum price or the federal government will impose a tax on such provinces to make up the difference, returning the funds to the province.


In Canada, there are numerous policies and programmes which aim to monitor and improve the sustainability of newly constructed and existing buildings. Most of the standards and certifications commonly advertised by new and existing buildings in Canada were market-driven initiatives as opposed to real property laws imposed by a level of government. The Building Owners and Managers Association created BOMA BESt® (Building Environmental Standards), a national, independently verified, four-level certification programme regarding energy and environmental performance of buildings. The Canada Green Building Council developed the LEED rating system to recognise sustainable site development, water savings, energy efficiency, materials selection and indoor environment quality in buildings. LEED has four levels of certification, to accommodate a variety of sustainable building strategies. All newly constructed federal office buildings are required to attain a LEED® Gold standard for environmental performance. At the provincial and municipal level, there are incentives for LEED-certified buildings. LEED Canada CS is a standard that a building owner can obtain that pertains only to the core and shell of the building, notwithstanding interior fit up standards, which a landlord of an office tower may not have control over. Other privately developed certifications, such as the WELL Building Standard®, which aims to improve the wellness of people in various types of buildings, are in an earlier stage of development. The City of Toronto has developed the Toronto Green Standard (TGS), which is a two-tier set of performance measures regarding sustainable site and building design. Tier 1 is mandatory for new construction and Tier 2 is voluntary and provides partial refunds of development charges. Achieving Tier 1 and Tier 2 performance provide LEED credits. Although there are widely used market-developed initiatives, there are also many government created policies and programmes aiming to improve the sustainability of new and existing buildings in Canada. The Energy Efficiency Act gives the federal government the authority to prescribe energy efficiency standards. The federal government of Canada has developed an “EnerGuide” mark to label appliances and heating and cooling equipment with a label to indicate its energy efficiency. Along with other federal programmes, EnerGuide was designed to promote energy efficiency in the Canadian marketplace. Although there are no building sustainability standards imposed nationwide, these and many other programmes, certifications and regulations constitute a quickly developing sustainability regime in Canada.

AcknowledgmentThe authors greatly appreciate the contribution of Matthew Ritchie, an Associate in the Real Estate Group at Osler, Hoskin & Harcourt LLP, to this chapter.

Other key federal commitments announced in the 2017 Pan-Canadian Framework on Clean Growth and Climate Change, include completely phasing out coal by 2030, developing increasingly stringent building codes starting in 2020, developing a clean fuel standard based on a full life-cycle analysis, implementing methane regulations with the goal of reducing methane emissions by 40 –45% by 2025, and reducing federal government greenhouse gas (GHG) emissions by 40% below 2005 levels by 2030 or sooner.The provinces of Québec and Ontario have a cap and trade system that is harmonised with California’s cap and trade system and implemented through the Western Climate Initiative. The cap and trade system is established through a legislative framework which requires emitters to quantify and report their GHG emissions and submit allowances and credits to match the reported emissions at the end of each compliance period. In Québec the cap and trade program was implemented in 2013 and the province is currently in its second compliance period, which culminates this year. In Ontario, the first compliance period began in 2017 and continues for three years. There are industries and classes of companies that must register and participate in the cap and trade system, including companies in Québec and Ontario that emit 25,000 metric tonnes or more of CO2 equivalent annually. In Ontario, fuel suppliers that sell more than 200 litres per year of fuel and importers of electricity are also required to participate in the programme. Companies that are subject to such regulations must track their emission allowances in a database called CITSS used by all Western Climate Initiative system participants. The CITSS system initially sets an emissions ceiling which is lowered each year by reducing the number of emission units in circulation each year. There are enforcement mechanisms for regulated participants whose emissions exceed their allowances or credits. In 2017, Alberta enacted the Climate Leadership Implementation Act, which implements a carbon levy on fuels. The carbon price was set at $20/tonne for 2017 and will rise to $30/tonne on January 1, 2018, followed by an increase in real terms, suggested to be inflation plus 2%, each year after that. The levy applies throughout the fuel supply chain. Alberta has also committed to phasing out coal-fired electricity generation and, beginning in 2018, coal-fired generators will pay a $30/tonne carbon price based on an industry-wide performance standard. The oil sands will also be subject to a legislated emissions limit of 100 mega tonnes (Mt) per year under the Oil Sands Emissions Limit Act. Today, the oil sands emit approximately 70 Mt per year. Other provincial jurisdictions have committed to a variety of initiatives to combat climate change. British Columbia has legislation targeting coal-based electricity generation facilities and liquefied natural gas facilities by stating a GHG emissions benchmark and requiring operators that exceed the benchmark to purchase offset credits. Manitoba initially announced plans to adopt a cap and trade program for large industrial emitters to be linked with Ontario and Québec’s cap and trade systems, but the Province has since back-tracked on this commitment and is, instead, considering the implementation of a carbon tax. Nova Scotia has also announced that it will be implementing a cap and trade system, beginning in 2018, across all sectors of its economy. Newfoundland & Labrador passed the Management of Greenhouse Gas Act in 2016, which requires facilities that emit 15,000 tonnes of CO2 equivalent per year to report their emissions to the government. The underlying purpose of the reporting requirement is for Newfoundland & Labrador to develop appropriate reduction targets to reduce the Province’s overall emissions.




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Heather McKeanOsler, Hoskin & Harcourt LLP100 King Street West1 First Canadian PlaceSuite 6200, P.O. Box 50Toronto, ON M5X 1B8Canada

Tel: +1 416 862 6612Email: [email protected]: https://www.osler.com/en/ team/heather-mckean

Stella Di CresceOsler, Hoskin & Harcourt LLP100 King Street West1 First Canadian Place Suite 6200, P.O. Box 50Toronto, ON M5X 1B8Canada

Tel: +1 416 862 5957Email: [email protected]: https://www.osler.com/en/ team/stella-di-cresce

Osler’s Real Estate Group has acted on some of the most significant real estate transactions in Canada in the last five years. Osler is counsel to Sears Canada Inc. et al in its insolvency proceedings, which includes complex commercial real estate issues. We advised Target stores on its entry into and exit from Canada and Fast Retailing Co. Ltd. and Uniqlo Canada Inc. on the expansion of Uniqlo into Canada, marking the brand’s first entry into the country. We recently advised Dream Office REIT in connection with the sale of its remaining 50% interest in Scotia Plaza (a 68-storey office and retail complex in the Toronto financial core) to KingSett and AIMCo, and the sale of a portfolio of 35 properties across Canada to KingSett. We were counsel to Dream Office REIT and H&R REIT on their original acquisition of Scotia Plaza from The Bank of Nova Scotia in 2012 and the sale of a 50% interest in Scotia Plaza to KingSett and AIMCo in 2016.

We regularly advise on commercial real estate portfolio acquisitions, divestitures, joint ventures and investments, as well as real estate financing arrangements and commercial leasing. Osler is a leading business law firm providing business-critical advice to Canadian, U.S. and international clients. Founded in 1862, Osler has over 450 lawyers working together from offices in Toronto, Calgary, Montréal, Ottawa, Vancouver and New York.

Heather is a Senior Partner and past National Chair of the Real Estate Practice Group at Osler, one of the top commercial real estate law firms in Canada. Her practice encompasses a wide range of top real estate transactions and debt financing transactions, in the mixed use, retail, office, manufacturing and hospitality sectors. Heather is keenly interested in the application of legal technologies, AI and automation in the area of commercial real estate, and led the development of Osler’s Automated Real Estate Purchase Transaction tool, a streamlined and technology-enabled process and package of services for business transactions.

Heather has served on the Board of Directors of the Toronto Commercial Real Estate Women (CREW) and as Canada’s delegate to the U.S.-based CREW Network, and continues to be a member. For three years, Heather served as Managing Partner of Osler, with responsibility for business strategy and client relationship management, and as a member of the Firm’s Executive Committee. She is the author of Purchasing Real Estate in Canada in the European Lawyer Reference Series. Heather is listed in Euromoney’s Expert Guides of The World’s Leading Women in Business Law and The World’s Leading Real Estate Lawyers; she is also ranked as a leading commercial real estate lawyer by Chambers Global, Chambers Canada and The Best Lawyers in Canada.

Stella’s practice involves all aspects of commercial property transactions, including the acquisition, disposition and financing of commercial real estate, joint ventures, property management and leasing of office, retail and industrial space. She has developed particular expertise in portfolio acquisitions and dispositions for real estate investment trusts (REITs), publicly-traded real estate companies and other institutional investors. Based in Toronto, Stella is lead real estate counsel to the Dream group of companies (formerly Dundee) including Dream Unlimited Corp., Dream Industrial Real Estate Investment Trust, Dream Global Real Estate Investment Trust, Dream Office Real Estate Investment Trust and Dream Hard Asset Alternatives Trust. Stella also advises on the real property aspects of insolvency and security enforcement transactions, as well as on real property matters as part of corporate acquisitions, reorganisations and insolvency restructurings.


Chapter 7

Cordero & Cordero Abogados

Hernán Cordero B.

Rolando Gonzalez C.

Costa Rica

is an individual right strongly protected by our Constitution. This same protection is also granted by the Constitution to non-resident persons and/or foreigners. The only exception to the general rule is with regards to shoreline property. The Maritime Zone Law specifically limits ownership of properties located within the first 200m adjacent to the shoreline for: i) foreigners that have not resided in the country for at least five years; ii) corporations with bearer shares; iii) corporations registered or established abroad; iv) corporations and/or entities constituted or established by foreigners; or v) corporations in which more than 50% of the stock capital is owned by foreigners.



In Costa Rica, the types of rights available are: a) ownership rights: those that have been formally registered before the Property Registry and are subject to transfer, mortgage and liens, guarantees and development possibilities such as subdivisions and condominium; b) possession rights: those acquired through an occupation of rights that can also be transferred following formalities, but which have no public effect in front of third parties. Such possession has to be proven as being public, pacific and without interruption for more than 10 years; and c) use rights: those which grant only the use and enjoyment of a property, such as i) “usufruct” in which the person that uses the property is not the owner but has a right to use and benefit during a certain defined timeframe, ii) “lease agreements” in which someone has right to use the property by means of a formal rental relationship with the owner, iii) transformation and disposition of the right, and iv) exclusion and defence rights. The usufruct and the lease right are both contractual between the parties.


Yes, there are several scenarios where the right to a real estate diverges from the right to a building constructed thereon. The first example is pursuant to the “Accession Right”. This right establishes that property does not limit itself to the land, as it also extends to whatever is located above or below it. It allows the owner or a third party to build whatever is legally authorised on the land and it shall belong to the land where it was built. If a third party builds

1 Real Estate Law

1.1 Please briefly describe the main laws that govern real estate in your jurisdiction. Laws relating to leases of business premises should be listed in response to question 10.1. Those relating to zoning and environmental should be listed in response to question 12.1. Those relating to tax should be listed in response to question in Section 9.

The main laws that govern real estate in Costa Rica are: a) the Civil Code; b) the Notarial Code; c) the National Registry Regulations; d) the National Cadastral Law; e) the Transfer Tax Law; f) the General Law of Urban and Sub-Urban Leases; g) the Adverse Possession Law; h) the Maritime Zone Law; i) the Regulatory Law of the Touristic Gulf of Papagayo; and j) the Income Tax Law.


The impact is low. Local custom is a non-written source of our legal system, which shall only be used to make interpretations, to limit and/or integrate the recognised written sources. Judicial precedence or “jurisprudence”, as it is commonly known in our system, is not a source of our private law legal system, which is primarily based on statutory law.


International laws are not directly relevant to real estate in our jurisdiction. However, international treaties duly approved by the Costa Rican Congress rank higher than local laws, thus they should be considered (if applicable). There are also international laws that may become relevant, especially those related to taxes.

2 Ownership


The general rule is that there are no legal restrictions on ownership of real estate by particular classes of persons. Real estate ownership



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on a rebuttable presumption that grants the registered rights over real estate the condition of valid rights.


In general, all rights in land are compulsorily registrable to have legal effect against third parties. Article 459 of the Civil Code establishes the following rights in land as compulsorily registrable: a) titles of dominion over property; b) all liens, encumbrances or rights that limit property, such as usufruct rights, easements and any other real estate rights or limitations that affect land; c) lease agreements (may be registered); d) condominium or co-property rights; and (e) mortgages. The most immediate and significant consequence for non-registration of these rights and/or limitations to land is that they may not be enforceable before third parties.


Possession rights are not required to be registered, unless they need to be enforced before third parties.


Yes, there is a probationary period following first registration, provided in Article 16 of the Adverse Possession Law, which is of three years, meaning that during this period any affected party can oppose and challenge such registration in front of the same Judge that handled such registration.


Our Civil Code establishes that ownership of land is transferred upon the execution of the purchase and sales deed granted by both seller and buyer before a Costa Rican Notary Public (in Costa Rica, Notaries Public must be registered attorneys-at-law and fulfil a much more complex function than what Notaries Public usually fulfil in common law countries. For example, only Notaries Public can execute the purchase and sales deed required to formally transfer the real estate property at the Property Registry). This purchase and sales deed shall be filed and registered before the National Registry in order for it to be valid, effective and enforceable against third parties. However, upon execution of the purchase and sales deed, the transfer of ownership is enforceable by both parties.


Pursuant to Title VII, Chapter I of our Civil Code, the Real Property Registry shall apply the general principle of “first in time, first in priority”. Upon registration of a document with the establishment of right (transfer or property, lien or limitation), the Real Property Registry shall provide “real time” publicity to these acts or contracts. Notwithstanding the above, acts which obtain a first priority over others (subsequent acts or contracts) may be challenged during an

something on such land, the construction belongs to the land on which it was built. Another example is pursuant to a registered “Usufruct Right” over a property where the real estate diverges from the right to a building constructed. Thus the owner of the absolute fee simple title over the land may grant a third party the usufruct right in order for this third party to use and enjoy the land and/or the construction thereon as his/hers, for a specific time period or for his undetermined lifetime.


Yes. In accordance with our legislation, there are two types of split between legal title and beneficial title.The first type is known as “usufruct” and “bare ownership”. Chapter III, Articles 287–289 and 335, of the Costa Rican Civil Code, regulate these types of title forms.Usufruct is the real right of use that someone has on the property/asset that belongs to another person for a certain period during their lifetime. Bare ownership is the right that the person has on a property/asset in which their relationship with it is only to be the owner. As an owner, he/she has a controlling ownership over the property/asset, but does not hold the possession or enjoyment as this has been assigned on behalf of a third person in the form of a usufruct. The bare owner will have the full property (title, possession and enjoyment) when the usufruct beneficiary dies or the timeframe lapses.The second type is “trust ownership”, which is regulated by means of the Commercial Code under Article 633 and others. In accordance with the trust ownership, one or more persons transfer a property/asset to another natural person or legal entity which will serve for a defined timeframe as a “Trustee”. This agent shall administer the property/asset for the benefit of the person or persons that transferred title, but shall retain an administration or guarantee on behalf of a third party called the beneficiary. A trust ownership shall have a limited term and shall be operated by means of conditions, responsibilities and obligations, with the prerogative that upon fulfilment of the conditions it shall be returned to the original owner or follow instructions on behalf of the beneficiary.



Title registration in Costa Rica is based on a Registry System. This system applies to the entire territory and therefore all properties must be registered in it. Notwithstanding the above, not all properties have been registered to this date. In order to be able to register this unregistered land, a Civil or Agricultural Adverse Possession Proceeding must be implemented.


There is no state guarantee of title per se. Our Registry System operates under the principle or notion of “good faith” and is based

Cordero & Cordero Abogados Costa Rica


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There are no restrictions on public access to the information in the National Registry. A buyer can in fact obtain all the information they might reasonably need regarding encumbrances and other rights affecting real estate.



Other parties involved in real estate transactions are: (a) Notaries Public (which are, as indicated above, registered attorneys-at-law): responsible to execute the purchase and sales deed which is registered before the National Registry; (b) attorneys-at-law: execute the due diligence process and provide legal advice on legal matters and make disclosures that may affect the transaction. Both Notaries Public and attorneys-at-law are usually the same person and/or work together; and (c) Real Estate Brokers: assist both the buyer or seller or both, to buy or sell a property. It is customary for Brokers to provide advice and/or services related to: fair market value; inspection of the property; follow-up on closing details, etc.


(a) Notaries Public are remunerated at closing. Their legal fees are established pursuant to a pre-established table and are approximately 1% of the real estate transaction amount; and

(b) Real Estate Brokers are also remunerated at closing, pursuant to a previously negotiated real estate commission. Although this real estate commission is not legally established, it is normally between 5% and 6% of the real estate transaction amount. It is also customary that the Real Estate Broker receives from the parties the equivalent to 13% sales tax for the real estate commission, which he collects and pays to the Government.


In general terms, the main sources for real estate financing are: (a) Public and Private Banks; (b) Private Lenders (not registered as banks or financial entities); and (c) Private Funds or Investors. Yes, we believe that in recent years there has been an increase in the availability of capital to finance real estate transactions in Costa Rica. This increase has been more noticeable through the availability of funds from Private Lenders, who offer loans to buyers or developers in order to acquire the land or finance part of the acquisition of real estate. These funds from Private Lenders are usually targeted to foreigners and/or informal buyers, who do not have access to capital – readily available – through the local banking system, due to the highly strict regulations applicable to Public and Private Banks.

established statutory period which will depend on the act or contract being granted and registered. In addition, there are certain liens that might have a priority interest over a previously registered right, such as liens imposed due to taxes and/or condominium fees in arrears.



As established in question 4.5 above, the official registration of real property is made through one centralised Registry System that is administered by the Real Property Registry of the Costa Rican National Registry. This system applies to the entire territory and therefore all properties must be registered in it.


Properties are identified before the Real Property Registry through a specific real estate number (“folio real” in Spanish). A certification (consultation document issued by the Real Property Registry) of the real estate number will provide all the information pertaining to the property, such as, but not limited to location, current owner, boundaries, registered area, cadastre plat number, as well as all rights and liens affecting the property. This real estate number certification and the information it contains is publicly available information and can be obtained physically at the National Registry and/or electronically.Based on the above, the Real Property Registry does not issue a physical title document to the owners of a registered real estate; however, upon request, it can issue a real estate number certification together with the above-indicated information, including the owner and relevant information.


Unfortunately, at this moment in time, transactions relating to the registration of real estate cannot be completed electronically. However, this is expected to become a reality soon. Some areas of the National Registry are exclusively working with electronic documents for consultation purposes only. In order to register ownership rights before the National Registry, a true first copy of the purchase and sales deed executed by and between the parties before a Notary Public should be filed, along with confirmation of payment of the applicable transfer tax and registration fees. Court rulings or resolutions which grant ownership to a specific party are documents that also have to be filed for real estate-related rights to be recorded. As indicated above, information on ownership of registered real estate can be obtained both physically and electronically.


Yes, compensation can be claimed from the National Registry if it makes a mistake. All compensation claims need to be filed through an Administrative Law Suit against the National Registry.




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The seller is not under a duty of disclosure. Notwithstanding the above, real estate transactions are based on a principle of “good faith” that applies to both parties of the transaction.


Yes, the seller can be liable to the buyer for misrepresentation.


Sellers do not usually give contractual warranties to the buyer. Based on our civil law legal system, warranties are usually found in the law. Nevertheless, these warranties are never a substitute for the buyer to carry out their own due diligence, which begins by retaining the services of a reputable real estate attorney before entering into an agreement.


The seller warrants their ownership by confirming they are the same person or entity registered in the Registry as an owner. The Notary Public must perform a verification of identity to make sure the seller is the actual owner of the real estate.


The buyer’s only responsibility is to come up with funds for the closing to pay for the sale price. The buyer must act based on the established principle of “good faith”.



The main regulation concerning lending money to third parties for real estate purposes is the Civil Code of Costa Rica. Additionally, other parties such as SUGEF (Regulatory Bureau for Financing Entities) and the Central Bank of Costa Rica (regulator of all exchange and interest rates in Costa Rica) may also apply. There is no legislation that regulates lending specifically to finance real estate. Basic lending guidelines and regulations that SUGEF applies to financial institutions are going to apply to any type of financing. In addition, there are no specific differences in these lending guidelines (between residents and foreigners) even though during the last few years, lending institutions have tightened their internal procedures to lend to foreigners as a result of the 2008 economic crisis and increasing compliance rules and regulations. This will also apply to individual and corporate entities.


Commercial and rental property has been more likely to sell due to a section of the population, jointly with an important foreign investment component, looking to expand their real estate portfolio abroad. The current economy encourages taking risks, turning markets like ours into a very appealing alternative. As well as Costa Rica having been known worldwide mainly for its stable democracy that abolished its army in 1948, the country has welcomed foreigners, is located three to five hours away from most major U.S. cities, has a low property tax compared to other countries, and has a very good quality of life.


Since the crisis of 2008, the real estate market in Costa Rica has been undergoing a slow but steady recovery process. In most market subsectors, we have seen important growth in the past few years. Nevertheless, due to significant development in the Greater Metropolitan Areas where the capital of San José is located (“GAM”), specifically in the housing, commercial, office and retail submarkets, some of these areas are experiencing excessive supply and as a result, some slowdown is being perceived. This is particularly true with regards to the commercial, office and retail submarkets. Nevertheless, there is still a mild appetite for these subsectors, but with a higher dose of caution. In areas outside of the GAM, such as the Central Pacific (“Puntarenas”) or North Pacific (“Guanacaste”), there has also been a slowdown in submarkets such as housing (second homes) and leisure (hotel and resort development). Nonetheless, this slowdown has not been due to excessive supply or lack of appetite but instead due to a lack of new products because of a lack of infrastructure such as roads, water and aqueduct systems. Thus, there is still an increase of investors from abroad looking for these products, both for investment purposes and for retirement purposes.



The minimum formalities for the sale and purchase of real estate are: both buyer and seller should have sufficient power of attorney to sell and buy, respectively; and they must execute a transfer deed before a Notary Public. The transfer deed needs to be executed in Spanish, and it shall include the following basic information: proper identification of the parties; description of the transaction; purchase price; and a complete description of the property’s information. This transfer deed shall represent both parties’ clear intent to sell and buy the property, respectively. Once the transfer deed is executed, the Notary Public shall file a copy before the National Registry. All transfer taxes and registration fees must be duly paid in order for the transfer to be recorded.



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agreement, the lender shall then execute each collateral or security according to the established procedure in the Collection Law (Ley de Cobro Judicial). This law establishes a summary proceeding for these types of securities in which the lender will not have the right to take direct or automatic possession over the assets given as collateral. Instead, they will have to request the execution of a public auction and shall obtain payment from the funds obtained at the auction(s). With regards to Guarantee Trusts, the trust agreement itself shall create the enforcement procedure in case a borrower breaches the terms of the loan agreement. For this purpose, the Guarantee Trust shall validly create an execution proceeding similar to that established in the Costa Rican Collection Law; however, it being executed directly by the same Trustee. This procedure shall take less time than the regular enforcement of a registered security. As mentioned above, there are recently approved legislations and guidelines that prevent all lending transactions from using Guarantee Trusts as a security. This would require a further analysis in order to verify who is the lender, who is the creditor and who is the borrower.


The minimum formalities to secure a real estate loan – if formally secured – shall be according to the Civil Code and Property Registry which requires signing and constitution, in favour of the lender, a Common Mortgage, a Mortgage Certificate imposing a lien on the property offered as a first degree guarantee, or transferring the property into a Guarantee Trust guarantee that will hold such real estate in “fiduciary ownership” during the length of the loan. Other formalities include that the owner of the property should have sufficient power of attorney to impose such lien on the property, and must execute a deed before a Notary Public as established above. The deed needs to be executed in Spanish, and it shall include the following basic information: loan amount; payment information; the lender’s information; and a complete description of the property’s information. Once the deed is executed, the Notary Public shall file a copy before the National Registry. All taxes and registration fees must be duly paid in order for the lien to be recorded.


The real estate lender is protected from claims based on the registration proceedings and recording in the Registry. Formalisms and proper documents – when the loan is granted – are mandatory and the guarantee deeds shall be registered in order to have legal effect before third parties. This means that if the lien (Common Mortgage, Mortgage Certificate) is duly registered, the lender shall have a priority interest over any other lender. Notwithstanding the above, there are certain legal liens, which might have priority interest over a secured loan, such as liens imposed due to taxes and/or condominium fees in arrears.


The main circumstances are those directly linked with mistakes of procedure or defect of form in which the correct process is not drafted, executed or followed correctly. In Costa Rica, all documents that need to be recorded for publicity purposes such as, but not limited, to mortgages, trust property or other warranties, shall follow formalities to comply in a form


There are several ways in which a lender can take securities or collateral in Costa Rica in order to guarantee a loan. Some of the most common securities or collaterals are described as follows: a) Common Mortgages: The borrower provides a property as a security for a specific loan. In the mortgage agreement, the lender and borrower agree on all terms such as: mortgage grade; lender’s name; borrower’s name; loan amount; term; advance payment penalty; interest; loan currency; place of payment; waiver of previous proceedings in case of an auction; and the characteristic contractual clauses that will govern the operation. The mortgage lien imposed over a registered property is also recorded before the National Registry in the Mortgage Section of the Real Property Registry. The mortgage will be recorded and it will appear on the property’s real estate number certification and the recording will last until it is either: a) cancelled by the lender due to full payment from the borrower; or b) adjudicated by a Judge due to a foreclosure process in which it is legally proven that the borrower has not paid or has violated any of the loan terms. b) Mortgage Certificates: A mortgage certificate has the same legal force as a Common Mortgage. The Real Property Registry issues the mortgage certificate that identifies the amount for which the certificate is issued and unlike the Common Mortgage where there is an established lender, these certificates may be transferred by mere endorsement. In such cases, the mortgage certificate will also appear as a lien on the property’s ownership entry. This type of guarantee is used mainly for bank transactions due to the fact that the “Certificates” can be exchanged as commodities, meaning that any person that holds such title when the loan term expires is entitled to collect the amount owed. It is important to note that mortgage certificates have a 10-year statute of limitations, which needs to be reviewed in time in order to avoid a non-payment from the borrower. There is no limit as to the amount on a Common Mortgage or a mortgage certificate. Before agreeing to this type of guarantee, the lender usually requests a formal appraisal on the property, in order to identify the approximate value of the property. Once the lender has this information, he will be able to determine in accordance with loan politics the amount that he should lend. In any of the above-indicated securities, the lender is not allowed to take automatic possession on the assets mortgaged or pledged if the borrower is at default. In such cases, the lender has to execute the guarantee through an established judicial process. c) Guarantee Trusts: According to the Costa Rican Commercial Code, all legal assets or rights that are subject to commerce may be placed in a trust. Under this structure, a third-party Trustee shall hold the title of the assets placed in trust and shall execute the Trust Agreement according to the instructions expressly indicated in such document. There are new legal guidelines that apply for Trust Guarantees, which will affect if these could be used as a guarantee on behalf of a Private Lender.


Once the lender has secured securities such as a Common Mortgage, a mortgage certificate, or a pledge over registered assets and the borrower breaches the terms and conditions established in the loan




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In Costa Rica, capital gains are not taxed except when the activity that generates the income is “habitual”, or the gain is generated as a result of the transfer of assets subject to depreciation for corporate income tax purposes.


The taxation is identical if ownership of a company (or other entity) owning real estate is transferred.


When executing a due diligence, buyers, depending on their nationality, should take several important considerations, such as, but not limited to:■ In the case of Nationals of Costa Rica, they shall consider if

they plan on renting (leasing) the property or not, developing it or remaining as raw land and any other possible use of the real estate. Additionally, it is important to determine if such property will be generate a “deductible” expense for the owner and its implications within time, such as possible capital gains or not, repayment of the investment, expenses to be deductible – if applicable – towards income tax.

■ In relation to foreigners, in addition to the above-mentioned – when applicable – it is important to understand each country’s requirements for filing tax information forms, pass through or check-the-box benefits – if applicable – topics such as repatriation of funds and capital gains, withholding taxes and dividend taxes when sending funds back to their home country.

Another topic that is important to take into account relating to taxes is a proper preparation of estate planning, as this will impact any acquisition and should be included as part of the due diligence.It is important for foreign investors to check with their local advisors and correspond with Costa Rican attorneys to make sure that the correct acquisition vehicle is used.



The main law that regulates lease of business premises is the General Law of Urban and Sub-Urban Leases. Our Civil Code is supplementary to this law. It is important to understand and to take into consideration that there are a vast number of rules in the General Law of Urban and Sub-Urban Leases that cannot be waived, even if the parties agree to do so. Moreover, all rights granted by this law in favour of the tenant cannot be relinquished.


The General Law of Urban and Sub-Urban Leases is applicable to commercial leases, industrial leases, etc.

of a public deed. If the deed is not drafted fulfilling the specific requirements that the law indicates, or if it does not comply with the correct formalities, including bad legal advice or lack of registration, these could cause the lender to proceed and claim defects, demurrer or exceptions of different kinds.Proper notification procedures may also cause delays or even extinguishment of the right to collect or claim such security. It is recommended when lending or granting securities to foreigners to have a valid notification domicile in Costa Rica.


The main actions would be those related to procedural deferments or delays that cause an impossibility to notify the defendant, ruled by the Judicial Notification Law “Ley de Notificaciones Judiciales Ley 8687”.Another action would be a defect or lack of formalities on the notification, causing the borrower to file for an invalidity or nullity of such notification, according to Article 9 of the Judicial Notification Law.The third type of actions are those such as exceptions regulated within Article 298 of the Costa Rican Civil Code, such as prescription, payment exception, expiration, and others. These can cause a delay in any foreclosure process.

9 Tax


In accordance with the Transfer Tax Law, transfers of real estate are in fact subject to a transfer tax equal to 1.5% levied on the highest of: a) the fiscal value of the property; and b) the established sales price. The seller and buyer are both liable in equal parts. However, payment of transfer tax is commonly part of the negotiation between the parties.


The transfer tax shall be paid within 15 business days of the date and time of the transfer deed (taxable event).


Transfers of real estate by individuals are not subject to income tax, unless the business activity of the individual is to buy and sell real estate habitually and/or that individual has taken advantage of depreciation as a deductible expense.


Transfers of real estate are not subject to VAT.


No other taxes are payable by the seller on the disposal of a property in our jurisdiction.



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Green provisions are not typically part of lease agreements in our jurisdiction. However, parties to a lease agreement could include them at will. Recently, these have been included on land subject to wind and solar projects in accordance with Energy Law No. 7200.



The main laws that regulate lease of residential premises are: a) the General Law of Urban and Sub-Urban Leases; b) the Civil Code; c) Law No. 9160; and d) the Code of Civil Procedure.


No, the laws do not differ in cases where the premises are intended for multiple different residential occupiers.


(a) Length of term: the General Law of Urban and Sub-Urban Leases contains a mandatory term of a minimum of three years. This term must be interpreted in favour of the tenant, who is allowed to terminate the contract prior to the expiration of this mandatory term with written notice given to the landlord three months in advance; and

(b) rent increases/controls: when the rent is in foreign currency, the rent must remain the same for the whole term of the contract. When the rent is in Colones, the rent will be revised at the end of each year of the contract, based on the rules contained in Article 67 of the General Law of Urban and Sub-Urban Leases. In general terms, if the accumulated inflation rate of the 12 months prior to the expiration of each year of the term of the contract is equal to 10% or less in that country, the landlord can increase the rent up to 10% per year. If the rate is above 10%, a Government office shall determine the increase but it cannot a) be less than 10%, or b) more than the inflation rate.


Yes, there would be rights for a landlord to terminate a residential lease. The main or principal right would be lack or non-payment of the rent. The necessary steps to achieve vacant possession if the


Typical provisions for lease of business premises are: (a) length of term: a minimum three-year term in favour of the lessee (able to terminate the lease with a three-month notice); (b) rent increases: to be determined by the parties. All types of increases are authorised, always with a reasonable limit to avoid abusive increases; (c) an express authorisation from the landlord is required for the tenant to sub-lease. However, it is possible for the tenant to transfer their lease rights if they sell the business through a “commercial establishment sale”, following all the formal legal requirements established by the Commercial Code; (d) insurance: parties to the contract are allowed to determine who shall be responsible for insurance; (e) if the tenant is an entity, chance of control of the entity shall not affect the lease agreement; for all legal effects, the entity remains the tenant. If the tenant is an individual, they will not be allowed to assign or sublet without the previous and express authorisation from the landlord, unless this possibility has been included as a provision in the lease agreement; and (f) repairs. The landlord has the legal duty to provide to the tenant a peaceful enjoyment of the premises and to keep it this way. All required repairs to keep this condition shall be performed by the landlord. These repairs are known as “required”. Parties to the contract are allowed to determine who shall be responsible for repairs that are required due to ordinary tear and wear but this obligation must be stated in the contract, otherwise it will become the landlord’s responsibility as well.


Income tax is to be paid on income generated by rent by the landlord of a business lease. The landlord must also pay property or real estate taxes.


Commercial leases are usually terminated upon expiration of the term and/or by either party. There are circumstances in which payment default forces early termination of a lease. Provisions related to extensions or renewals are typically included in the lease agreements.


Yes, the landlord and/or the tenant of a business lease cease to be liable for their respective obligations under the lease once they have sold their interest, if they have sold following the legal procedures established by law. Nevertheless, they will be liable for pre-sale non-compliance even after the sale.




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use and/or occupation. The National Institute of Housing and Urbanism is the entity that controls land/building use at national level. Environmental regulations are overseen by the National Environment Technical Secretariat (“SETENA”) and the Ministry of Environmental and Energy (“MINAE”).


The main permit required for building works would be a building permit. Requesting and obtaining a zoning authorisation from the Municipal Government is the way to start. A water availability letter from the Water Department is also indispensable. Special licences may be required if a commercial activity is to be developed on the real estate. The Health Department must issue a sanitary permit for the Municipal Government to issue a business licence, and liquor licences are required for sale of liquor.


Yes, building/use permits are commonly obtained in this jurisdiction and granted by the local Municipality, including zoning and final construction permits. Implied permission cannot be obtained in any way.


The building permit fee is 1% of the project value. The time involved in obtaining a building permit is generally within four weeks of the initial application. This timeframe extends considerably if the approval of SETENA is required.


Yes, there are regulations on the protection of historic monuments in this jurisdiction. The National Museum of Costa Rica through its Archaeology Department, the National Environment Technical Secretariat and the Ministry of Environmental and Energy regulate all matters concerned with historical monuments. This can affect the transfer of real estate or the development of such property. There is a by-law that establishes the process to request an inspection from the National Museum in order to verify if the historical monument can be saved or preserved. By law, all property that is affected by historical monuments is subject to a lien and prohibited from being developed unless authorised by such entity.


Information pertaining to contamination and pollution of real estate is not easy to obtain. Perhaps an Environmental Impact Assessment (“EIA”) process is the proper way to obtain this kind of information. The main objective of an EIA is to determine the environmental feasibility and impact of the project. There is no public register of contaminated land in our jurisdiction.

circumstances existed for the right to be exercised are outlined in Law No. 9160, which is a special law that contains the proceedings for small claims related to very specific matters related to leases. There are only two reasons that will allow a landlord to access this expedited process: a) expiration of the contract’s term; and b) lack of rent payment, utilities and/or Condominium Owners Association fees. Other rights must be exercised based on the Code of Civil Procedure. Article 6 of Law No. 9160 indicates that once the Court has admitted the claim, the eviction order shall be issued along with the preventive retention of the tenant’s assets if requested by the petitioner. Fifteen days will be granted to the defendant to present admissible, relevant and useful evidence. The tenant must continue to deposit the rent in the Court’s account. The defendant will only be authorised to object to the claim based on payment, statute of limitations and non-expiration of the contractual term. Within 15 days after the objection is filed, the Court must call for an oral hearing. This is considered as a very positive change versus the previous “paper” hearings.



The main laws which govern zoning, permitting and related matters concerning the use and occupation of land are: the Constitution; the Urban Planning Law; the Organic Environmental Law; the Expropriation Law; the Construction Law; the Condominium Law; the Architectural Heritage Law; and local regulatory plans. In Costa Rica, the administrative organisation in charge of urbanism is the Urbanism Directorate (part of the National Institute of Housing and Urbanism) and the Ministry of Planning. These two entities have the legal power to elaborate the National Plan for Urban Development. However, the implementation of national policies is in fact developed at Municipal level.


Yes, the Government can force landowners to sell their land. Nevertheless, Article 45 of the Constitution includes an essential guarantee to one of the most relevant rights there is: private property. This Article reads: “Property is inviolable; no one may be deprived of its property except for a legally proven public interest upon prior compensation in accordance with the law...”. The price set-up mechanism is established by law based on certain appraisals executed in accordance with the standardised price table issued by the Tax Administrator. The owner of a property, who is being expropriated by the Government, in accordance to the General Administrative Public Law and its by-law, can challenge such appraisal. Such law will also regulate the process and the way in which the landowner gets paid once the final resolution is issued. Due to the established Constitutional right, these processes normally take significant time.


For the most part, real estate and construction departments of the Municipal Governments are in charge of controlling land/building



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the National Geo-Environmental Information Center (“CENIGA”) of the Ministry of Environment and Energy, with the goal to promote an open data policy for all relevant climate information available for any citizen. The Paris Agreement, coming out of COP21, will be legally binding for Costa Rica starting in 2020. Under the aforesaid Agreement, our country will be part of, starting in 2016 and until 2020, a process of legal, institutional and organisational change. Costa Rica has internationally committed to have a National Adaptation Plan ready by 2018.


Yes, there are national reduction targets for greenhouse gas emissions. On September 30th, 2015, under the United Nations Convention framework for Climate Change, Costa Rica submitted its Intended Nationally Determined Contribution with an unconditional target to keep net greenhouse gas emissions below 9.37 MtCO2e emissions by 2030. Costa Rica reconfirmed its aspirations to become carbon neutral by 2021.


Yes, there is a new Code of Construction issued by the Engineering and Architectural Bureau which regulates and enforces new constructions based on their environmental impact, such as energy-saving measures, water consumption components, waste treatment plant requirements and the possibility to reuse water through recollection of rainwater procedures.


According to SETENA and MINAE, any party that affects the environment is subject to strong sanctions and fines. Clean-up requirements and procedures are issued and enforced by these two entities and it is mandatory to compensate for any pollution, economically or through the restitution of damaged areas.


The new Code of Construction issued by the Engineering and Architectural Bureau regulates and enforces new constructions based on their environmental impact, including energy-saving measures and security patterns. Additionally, there are new electric guidelines on interconnection to the grid based on the Distributed Energy by-law, which was recently introduced, allowing net metering though self-generation of solar and wind renewable energy.

13 Climate Change


Costa Rica has adopted an Open Government Policy. The National Environmental Information System (“SINIA”) was created under




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Hernán Cordero B.Cordero & Cordero AbogadosTerraforte Tower, 2nd FloorPO Box 5998-1000Escazu, San José Costa Rica

Tel: +506 2201 6640 / +506 2668 1717Email: [email protected]: www.corderoabogados.com

Rolando Gonzalez C.Cordero & Cordero AbogadosPlaza Futura, Office 8, 1st Floor Liberia, GuanacasteCosta Rica

Tel: +506 2668 1717Email: [email protected]: www.corderoabogados.com

Hernán joined Cordero & Cordero Abogados in 1994 and is currently the Managing Partner of the firm. His experience in directing transactions ranges from of-counsel legal work for international banking institutions to transactional work with foreign investors dealing with the tourism and real estate industry. Recently, he has been actively involved on renewable energy, joint ventures, free trade zone parks and general corporate law. He is an active member of the Energy Committee at AMCHAM. From 2000 to 2002, he was appointed by the President of the Republic as General Consul and Commercial Advisor to the Ambassador in Madrid, Spain.

Education: Instituto de Empresa, Madrid, Spain (Master’s Degree in E-business and Telecommunications Transactions); Universidad de Costa Rica (Attorney at Law, Notary Public and various courses on Business Administration); Seminars on Investment, Tax Law and Condominium Regimes, etc.

Professional Associations: Costa Rican Bar Association; American Bar Association and Costa Rica-American Chamber of Commerce.

Languages: Spanish and English.

Cordero & Cordero Abogados is a full-service law firm that specialises in Business and Financial Law in Costa Rica. Among our main areas of practice are: Banking & Finance; Corporate and Contract Law; Foreign Investment; Real Estate; Insurance & Reinsurance; Mergers & Acquisitions; Civil Litigation Practice; Intellectual Property; Labour & Immigration; Energy; and Information Technologies & Telecommunications. The firm, established in 1940, currently has offices in San José and Guanacaste, and has been ranked by international directories such as Chambers & Partners, ILFR and The Legal 500 and is currently referred to by the U.S. Commercial Service as well as other regional bar associations. Cordero & Cordero Abogados is a member of the prestigious International Lawyers Network (www.iln.com), an association of 91 high-quality, full-service law firms with over 5,000 lawyers worldwide.

Rolando joined Cordero & Cordero Abogados’ Guanacaste Office in 2005. He is one of the Senior Associates who has strengthened the Liberia Office Real Estate and Corporate Practices. Before joining the firm, Rolando had experience practising law as an attorney in Liberia, where he also worked as General Manager for an important Hotel and Tourism Group. He was also the Head In-house attorney for a hotel, tourism and agricultural entity in Guanacaste. He has been involved in several Guanacaste real estate and hospitality developments as well as: I.C.T. concession land; day-to-day legal advice to real estate and commercial developers; providing legal advice to U.S. companies doing business in Costa Rica; and conducting highly complex real estate transactions.

Education: Universidad de Costa Rica (Attorney at Law, Notary Public); Universidad de Costa Rica (Master’s in Business Administration Executive Program; focused courses on Business and Marketing).

Professional Associations: Costa Rica-American Chamber of Commerce; and the Costa Rican Bar Association.

Languages: English and Spanish.



Chapter 8

Gürlich & Co.

JUDr. Richard Gürlich, Ph.D.

Mgr. Kamila Janoušková

Czech Republic

possession rights (for example, lease and usufructuary lease); and rights in rem, e.g. rights for things of others (right of superficies, servitude, servitude of profit, pledge and right of first refusal). Purely contractual rights, for example reservation of resale, may also be established.Each of these should be entered into the Land Registry.


Yes, it is possible to establish the right of superficies. In this case, the ownership of the building diverges from ownership of the land as the beneficiary of this right is entitled to have a building on/under the land the beneficiary does not own. The Civil Code establishes the right of first refusal for both – the owner of the building and the owner of the land in case one of them decides to sell the property.


A split between legal title and beneficial title may occur if the real estate was sold but an application for the transfer of ownership wasn’t filed with the Land Registry. In such a case the new owner cannot use his property rights. This split is unfavourable.



In general, all buildings and land must be registered. However, there are exceptions, especially for minor buildings which do not have to be registered if the law does not require them to be. Rights having a contractual nature (for example, a lease) do not have to be registered; however, the registration depends on the agreement between parties. Rights in rem are also required to be registered.


Yes, there is a state guarantee since Article No. 11(1) of The Charter of Fundamental Rights and Basic Freedoms stipulates that everyone has the right to own property. Each owner’s property right shall have the same content and enjoy the same protection. Inheritance is also guaranteed.

1 Real Estate Law


The area of real estate is mainly governed by:■ Act No. 89/2012 Sb., the Civil Code (“Civil Code”); and■ Act No. 256/2013 Sb., on the Land Registry (“Act on Land

Registry”).


There is not any local common law in the Czech Republic.


Besides EU legislation, international law is not particularly relevant to real estate in the Czech Republic. However, bilateral treaties on protection of investments may apply.

2 Ownership


Nowadays, there are no restrictions on ownership of real estate by non-residents; transitional periods limiting ownership of non-resident persons no longer apply.



Rights over land recognised in the Czech Republic are: ownership;



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No; however, basic information about the registered real estate are announced on the website of the Land Registry (http://www.cuzk.cz/en) which is freely accessible to the public. The owner can request an official document confirming the title; it can be obtained via the website for a small fee.


In case the submitted documents are signed with a verified electronic signature, electronic access may be used; the Land Registry is fully accessible online to the public. A person has to provide a document proving the change of ownership with verified signatures of parties and a verified translation if the document is in a foreign language. Also, a proper application (form of the Land Registry) must be completed and submitted. Other documents may be required depending on the right being registered or the person submitting the application for the new entry.


Yes, compensation may be claimed against the state in case the Land Registry Offices issue an unlawful decision or in the case of maladministration.


There are no restrictions on public access to basic information about real estate. However, detailed information (for example, the name of the beneficiary from a pledge or servitude, on which basis the encumbrance was established and for how long) are provided for a small fee.



Usually, only the buyer (with the finance provider) and the seller are involved in the transaction; a real estate agency may mediate the contact between the parties or be party to the reservation contract (i.e. the contract ensuring the specified period of time during which the seller and the real estate agency are not entitled to offer the real estate to another prospective buyer). Supervision of lawyers is always advisable.

The last person listed in the Land Registry is considered to be the owner, without any regard to changes based only on an unregistered contract.In addition, the Civil Code states in Section 980 (2) that if a right is registered in a public register it is presumed that it was entered in accordance with real legal status (this has relevance in possible litigation).


Czech legislation orders compulsory registration of ownership of land and rights in rem (besides the right of first refusal which may remain purely contractual). The registration is necessary for the rights to be properly established.In addition, Section 37 (1) (d) of the Act on Land Registry states that owners are obliged to notify the Land Registry of any changes in the registered data concerning their real estate. If the owner fails to notify the Land Registry, he or she will be subject to a fine up to CZK 50,000 if he is a natural person or CZK 100,000 if the owner is a legal entity.


Contractual rights are not required to be registered in order to become properly established (for example, a lease or usufructuary lease).


No. With regard to the first registration, there is no probationary period nor are there any different classes or qualities of the registered title.


The title is officially transferred when the change of ownership is entered into the Land Registry, with effect as of the date that the application to execute the change was filed.


Generally speaking, the registered right obtains priority over unregistered rights and the earlier established right obtains priority over later established rights. Earlier established rights are usually stronger and can be exercised without any regard to the latter.



Only one Land Registry operates in the Czech Republic.

Gürlich & Co. Czech Republic


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Yes, liability for existing defects applies. If a defect occurs, the buyer must report it as soon as possible (exceptions apply) in order to derive the reparatory rights (especially the right to a discount). Contractual penalties can be claimed based on the provisions of the particular contract.


The seller usually guarantees ownership of the purchased object, as well as non-existence of any third party rights or incumbent debts related to the object. The function of warranties is to inform the buyer and also to accept liability for incorrect statements should the contract state accordingly. Provision of incorrect information may lead to a contractual penalty or liability for resulting damage. However, due diligence of the buyer is also expected.


Yes, the Purchase Contract usually includes the owner’s statement of ownership; the statement may be confirmed online in the Land Registry.


The buyer is obliged to take over the purchased object and check it for possible defects. The buyer is also obliged to pay the transfer tax for the acquisition of the real estate. The Purchase Contract usually sets up further liabilities relating to payment or the completion of the Land Registry application.



Money lending in relation to real estate is mainly regulated by:■ Act No. 190/2004 Coll., on Bonds;■ Act No. 89/2012 Coll., the Civil Code; ■ Act No. 21/1992 Coll., on Banks; and ■ Act No. 145/2010 Coll., on Loans Granted to Consumers,

which regulates the treatment of consumers applying for a loan; however, the Act does not regulate situations where the loan for accommodation purposes is secured by a pledge. Banks may also have internal requirements on disclosed documents which may differentiate between natural and legal persons and residents and non-residents.


Such parties are often remunerated on the basis of a commission or hourly fee.


Judging from the number of real estate transactions we have helped with during the past year, an increase in the availability of capital may be seen. In the Czech Republic’s real estate market, its source consists mainly of bank loans and a private capital of individual buyers.


We are of the view that the secondary real estate market is becoming more and more popular. Investors are usually interested in buildings which need to be renovated or otherwise adjusted and can be subsequently used for business or accommodation purposes. Prague and its close surroundings remain the most attractive locations for developers and investors since there is a significant demand for real estate for housing and business as well.


In our opinion, the attractiveness of the real estate market subsectors to investors/developers remains steady, possibly with a slight decrease in the construction sector. New projects are being discussed at government level in order to support affordable housing.



The Purchase Contract has to be made in writing and the signatures have to be included on the same document. The price, the parties and the purchased object should be sufficiently specified. A copy of the Purchase Contract with verified signatures of parties has to be entered into the Land Registry together with the application to execute the change of ownership.


The seller is obliged to inform the buyer of any defects (physical or legal) of the purchased object. Furthermore, the seller has to disclose all documents relating to the purchased object.




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9 Tax


Yes, transfer tax amounts to 4% of the value of the real estate. The buyer is liable to pay it to the authorised Tax Office.


The transfer tax has to be paid within three months following the month in which the change of ownership was entered into the Land Registry.


The transfers themselves are not subject to income tax but the income from such a transfer may be taxed (for example, when a recently bought real estate is being put up for sale again).


No, they are not subject to VAT, as long as transfers are not provided as a service.


The seller is not liable to pay any other taxes when selling his property. An owner is obliged to pay the property tax each year.


Czech legislation regarding changes of ownership does not distinguish between natural and legal entities; however, differences may apply when it comes to taxes. For example, natural persons may be exempt from paying the income tax.


A buyer of real estate who intends to rent this real estate must remember that rental income is subject to income tax.



Leases of business premises are mainly governed by Act No. 89/2012 Coll., the Civil Code.


The main methods by which a real estate lender seeks to protect itself from default by the borrower include pledges burdening the real estate or guarantees by third parties.


Mortgaged property is usually secured by a pledge in favour of the mortgagee. If the mortgagor does not perform his obligations towards the mortgagee, the mortgagee can sell the pledged property under conditions agreed in advance. If there is no such prior agreement, a mortgagee can sell the property at public auction or by means of judicial enforcement upon prior written notice. Similarly, if the debtor fails to perform, a guarantor may be asked to perform instead of him or her.


The Contract on Loan does not have to be executed in writing; however, the vast majority of them are written. The Contract should specify the terms of the loan, payments and interests. The loan is usually secured by a pledge and then the Contract on Pledge has to be made in writing and entered into the Land Registry.


The lender usually seeks the strongest position among the borrower’s creditors, which is provided by registering the pledge as the first beneficiary since the first registered right takes precedence over the later registered. Further guarantees or promissory notes may also be requested.


One of the rights in rem is the negative pledge (prohibition of alienation and encumbrance). Real estate with this right cannot be secured by a pledge. On the other hand, mortgage lenders often give a negative pledge to their terms and consequently may be a problem with mortgage refinancing or the sale of real estate.


The borrower may attempt to transfer the property to another person (relative, friend) or sell it. However, this transfer is void without the lender’s consent if the property is secured by a pledge (registered in the Land Registry).



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Czech legislation differentiates between leases of business premises, business leases of movables, leases of vehicles, leases of accommodation premises and usufructuary leases.


If the tenant continues to use the object of lease after the lease expires, the Lease Contract renews under similar conditions, for a maximum of one year, provided that the landlord does not object to such a procedure within a one-month period. The Lease Contract may include various modifications to this rule.With regards to rent increases, the Lease Contract may include provisions regarding changes to the rent (for example, depending on inflation), but generally speaking, the increase of the rent is limited by the law. Typical provisions of a sub-lease include agreement on compulsory or non-compulsory consent of the landlord with regards to subletting. Otherwise, the sub-lease is permitted without the consent, provided the tenant permanently dwells in the premises. The tenant is typically not entitled to sell the leased object.Provisions on insurance often concern insurance of damage caused by the tenant. When it comes to change of subjects or their control, the provisions usually deal with the question of whether or not the lease ceases to exist upon such changes. Small defects are often repaired by the tenant himself and the bigger repairs are carried out and paid for by the landlord.


The landlord is obliged to pay income tax and also property tax for the leased real estate. If the lease is provided as a service (for example, lease of vehicles), VAT may apply as well.


Business leases are usually terminated upon expiry, by agreement or by a notice of termination. Generally speaking, if the tenant uses the object of a lease after the lease expires, the Lease Contract renews under similar conditions, for a maximum of one year, provided that the landlord does not object to such a procedure within a period of one month (exceptions apply). Different agreements between parties may also apply.If the landlord of a business premises gives notice of termination to the tenant, the landlord or the tenants’ successor has to compensate the loss of tenants’ customers caused by the given notice. Again, the compensation provisions may be modified by the agreement of the parties.


Unless it has been agreed differently, the Civil Code states that if there is a change of ownership, all rights and duties (including those resulting from non-compliance) of the landlord are automatically vested in the new owner, except for provisions on landlords’ duties, which are not stipulated by law and which were not known by the new owner in advance.


Lease contracts do not usually include “green” provisions; nonetheless, there are no obstacles to parties agreeing otherwise.



Leases of residential premises are mainly governed by Act No. 89/2012 Coll., the Civil Code.


The landlord may enter into a Lease Contract with multiple tenants. This may be advantageous if a tenant does not pay the rent, the landlord can then enforce payment from any of the tenants. The tenants act together the agreement between one tenant and the landlord is valid for all tenants. The law does not distinguish between a tenant renting and joint tenants renting.


Please see our answer to question 10.3. There is no difference between business premises and residential premises in this context.


The landlord may only terminate the lease for statutory reasons, for example when he needs an apartment for his own needs (or for a relative) or when the tenant grossly violates his/her obligations. Termination must be given in writing to the tenant and must include



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Yes, permits and licences are commonly obtained. Implied permission can be obtained for exceptions listed in the Act No. 183/2006 Coll., on Urban Planning and Construction Regulations (for example, small buildings and distribution nets).


The cost of a permit and the time necessary for obtaining it depend on the particular building in question (the financial costs usually amount to CZK 5,000).


The protection is governed by Act No. 20/1987 Coll., on State Historic Monuments Care. The Act provides many duties for sellers and purchasers. For example, there is the right of first refusal of the state in case the monument is being sold; furthermore, the seller is obliged to inform the purchaser about the status of a historic monument.


Yes, there is the Integrated Pollution Registry of dangerous substances leakage; however, not everyone is obliged to fill in the necessary information. Such obligations usually apply to operators of potential dangerous services. It is highly advisable for the buyer to hire an expert for technical aspects of the real estate (including land pollution, if applicable in the area) to give his expert opinion and to hire a lawyer for analysis of legal threats and issues connected with the purchase.


Environmental clean-up is mandatory in certain circumstances stipulated by the applicable legislation; for example, after mining when the exploitation is finished.


An energy performance certificate is required. The certificate, issued by an expert, has to be submitted upon purchase or lease. Furthermore, in special cases (for example, construction of heating systems), further investigation of energy performance is necessary.

instructions so that the tenant may raise objections and seek review by the court. Such notice period is usually three months.



The issue of zoning and related matters concerning the use and occupation of land is mainly governed by:■ Act No. 89/2012 Coll., the Civil Code;■ Act No. 256/2013 Coll., on the Land Registry;■ Act No. 183/2006 Coll., on Urban Planning and Construction

Regulations;■ Act No. 184/2006 Coll., on Expropriation;■ Act No. 334/1992 Coll., on Protection of Agricultural Land

Resources;■ Act No. 44/1988 Coll., on Protection and Use of Mineral

Resources; and■ Act No. 114/1992 Coll., on Protection of Nature and

Landscape.


Yes, the state may appropriate land. According to Article No. 11 (4) of Charter of Fundamental Rights and Freedoms, expropriation or other mandatory limitation of property rights are permitted in the public interest, on the basis of law and so long as compensation is provided. The matter is closely governed by Act No. 184/2006 Coll., on Expropriation. The price mechanism is based on expert appraisal; the compensation is usually financial and should fully repair the sustained loss of ownership.


In the Czech Republic, municipalities serve as the bodies responsible for control of building development and fulfilling environmental standards. The Czech Environmental Inspectorate oversees such standards. The Ministry of Regional Development, Ministry of Agriculture and Ministry of Environment supervise their particular fields too. Credible information can be obtained from respective legislation when it comes to the matter in general or by request for information submitted to official bodies. Documents relating to urban planning and other useful information are also accessible to the public online.


It depends on the particular building and its size. Generally speaking, a new construction has to be notified to the Building Development Office (a particular municipality usually serves as a Building Development Office) or needs a permit issued by the Office. Alternatively, it may not require any of these. Depending on the kind of real estate, an occupancy permit may apply.



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According to obligations arising from European Union legislation, various obligatory requirements for newly-constructed buildings and renovations apply, as well as special constructional requirements (for example, with regards to mechanisms and quality of isolation materials).Furthermore, a certificate on the energy performance of a building has to be obtained.

13 Climate Change


Act No. 383/2012 Coll., on Conditions of Emissions Trading, governs the issue of emissions trading schemes; the system is based on the Kyoto trading system. National allocation plans determine how many emission allowances can be allocated and how many of them are allocated to the particular operator. Operators can trade the allowances between themselves.


Yes, the target is set by European Union legislation; it shall result in a 20% decrease by 2020.


JUDr. Richard Gürlich Ph.D.Gürlich & Co.Politických vězňů 19110 00, Prague 1Czech Republic

Tel: +420 222 101 591Email: [email protected] URL: www.akrg.cz

Mgr. Kamila JanouškováGürlich & Co.Politických vězňů 19110 00, Prague 1Czech Republic

Tel: +420 222 101 591Email: [email protected]: www.akrg.cz

GÜRLICH & Co. is a developed law firm with expertise in various branches of law. The firm’s main specialties include public procurement in the European Union, intellectual property, real estate, corporate and business law.

Our law firm also organises seminars and lectures on the issues of intellectual property, public procurement and on the Civil Code.

Our law firm is a member of the Association of European Lawyers (AEL) and as such we are part of an extensive network of independent law firms who work together on cross-border transactions and multi-jurisdictional casework.

We have been the winners of many prestigious awards in various areas of Law since 2010. As for the newer ones, in 2015 we were awarded “The Best Law Firm” of the year by LegalComprehensive Golden Global Awards and “Law and Real Estate Law Firm” of the year in 2016 by Corporate INTL Magazine. In 2014 we were awarded “The Best Law Firm” of the year by Intercontinental Finance Magazine and “World Wide Financial Advisor” in 2013 by DealMakers. Richard Gürlich was awarded “Best Lawyer” of the year by ACQ Law Awards and as a Leading Lawyer by Intercontinental Finance Magazine.

We provide legal services in both Czech and English.

Richard Gürlich is the managing partner and founder of Gürlich & Co. He is a graduate of the Law Faculty of Charles University in Prague and a member of the Czech Bar Association and The International Association for Contract & Commercial Management (IACCM).

Richard has extensive experience in public procurement in the European Union, corporate law and business transactions, and his expertise also includes legal matters relating to real estate (i.e. the arrangement of developer projects, property transfers, lease and sublease agreements, etc.) and labour law.

Richard Gürlich was awarded “Best Lawyer” of the year by ICFM Leading Lawyer 500 in 2016 and by LegalComprehensive in 2017.

Kamila Janoušková is an associate at Gürlich & Co. She graduated from the Law Faculty of Charles University in Prague. She is a member of the Czech Bar Association. Her expertise includes commercial law and business corporations, bankruptcy, civil law, civil procedure and real estate law.



Chapter 9

Prieto Cabrera & Asociados SRL Aimée Prieto

Dominican Republic

foreigners have the same rights as nationals and, therefore, can freely acquire land. However, to acquire land foreigners must register before the Dominican Tax Authorities and comply with all applicable tax obligations.



The Dominican Republic Constitution (Article 51) establishes that all persons have the right of enjoyment, use, and disposal of their properties. The law also provides for long-term lease contracts, as well as other rights that affect lands, such as easements and mortgages.Real property rights are divided into main real property rights, and accessory real property rights. Main real property rights are the right of ownership and its derivations (disposal, use, habitation, easements and long-term lease (enfiteusis) for which real property rights are recognised. Accessory real property rights include mortgages, pledges, liens and encumbrances, also real property security rights are recognised as accessory real property rights.1. Easement (Articles 637 and following of Dominican Civil

Code). It can be imposed by law, due to the situation of the properties or by agreement between the parties.

2. Usufructo (Disposal). (Articles 578-624 Dominican Civil Code). Can be given as guarantee or transferred. It can be imposed by law or by agreement between parties.

3. Use and room (Dominican Civil Code, Articles 625-636). Limited as its name implies. Cannot be transferred or assigned in any way. It is a contractual right.

4. Comodato (Loan for Use). (Articles 1875-1891, Dominican Civil Code). Contract where one of the parties delivers one thing to another for use, with the obligation to return it after having used it.

5. Enfiteusis (type of real estate leasing with its origins in France). This is an eminently personal right that lasts between 18 years and 99 years. It is only valid if it is recorded in the Title Registry. When registered, it can be offered as collateral and transferred.

6. Guarantees (mortgages, privileges, bond, pledge, anticresis, conditional sale of real estate, leasing real estate). Articles 9095; 2011; 2071-2072; 2073-2084; 2085-2091 of Dominican Civil Code.

1 Real Estate Law


In the Dominican Republic, the main laws governing real estate (property rights and title to land) are the Constitution, the Property Registry Law No. 108-05 (the “Property Registry Law”), as amended and its implementing regulations, and the Condominium Law 5038 of 1958, as amended.The Property Registry Law is complemented by regulations and rules, as follows:■ Dominican Civil Code (DCC).■ Resolutions issued by the Supreme Court of Justice and the

Judiciary Council.■ Supplemental laws including: Incorporation of Family Asset

Law No. 1024-1928, Conditional Sale of Real Estate Law No. 596-1941, Expropriation Law 344-1943, National Cadastral Law No. 317-1968, and Mortgage Market and Trust Law No. 189-11.


The Dominican Republic is a civil-law jurisdiction. Common law has no impact on real estate in this jurisdiction.


Real estate law in the Dominican Republic is territorial. Therefore, international laws are not relevant for real estate.

2 Ownership


According to the Dominican Republic Constitution and laws,


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In this regard, the Property Registry Law established a Guarantee Fund in order to ensure the payment of an indemnity to any owner that results prejudiced without fault, because of the application of the law. Therefore, pursuant to the Property Registry Law when registering new real estate properties or conveyances of real estate rights, the interested party must pay a contribution to the Guarantee Fund. However, to this date, this fund has not been enforced.


All conveyances of real property, all liens and encumbrances as well as other interests in real property (e.g. easements) must be recorded in the Title Registry in order to be enforceable against third parties.Pursuant to the Property Registry Law (Article 89) the rights in land that are compulsorily registrable are:■ Those which constitute, transmit, declare, modify or

extinguish real property rights.■ Those which impose encumbrances, liens and provisional

measures on the land.■ Those with administrative and legal limitations of a particular

nature, such as easements, declarations of cultural heritage and others that in any way limit or restrict the freedom of disposition of the property.

■ The rights of the condominiums on their exclusive unit, as well as the proportional part in the common areas.

Article 90 of the Property Registry Law indicates that registration is constitutive and valid of law, for liens or encumbrances registered, making them enforceable against third parties.


Most rights in land are required to be registered, including mortgages, encumbrances and easements. The registration of leases is not required by law; however, they can be registered.


There is no probationary period following first registration.Pursuant to Dominican Law, property rights are ranked according to the maxim “prior in tempore, potior in iure”, first in time, first in right. The priority corresponds to the first one to register. In the case of mortgages, it is possible to register as many ranks as mortgage creditors exist. The lender in first rank will collect before any other lender.


Ownership shall be deemed to be transferred as soon as the parties reach an agreement regarding the object and the price of the sale. However, it will only be enforceable against third parties upon registration of the transfer with the corresponding Title Registry and after the payment of taxes.Transfer of title is formalised in a public deed of sale and purchase before a notary public or a private purchase and sale agreement

6.1 Mortgages. The Dominican Civil Code provides for three types of mortgages: legal (Articles 2121-2122); judicial (Article 2123); and conventional (Articles 2124-2133). Among the legal mortgages, which provide a de facto right without the need of an agreement or judicial intervention, are: (i) the mortgage of the wife over all assets of her husband; (ii) the mortgage of minors over all the assets of their tutors; and (iii) the mortgage of the state, municipalities and other public establishments over the assets of collectors and administrators.

7. Improvements. Constructions made on land. Furthermore, principle V of Property Registry Law indicated that the law supersedes any private agreements.


Dominican law follows the principle of superficies solo cedit, where the owner of a land also owns the buildings and constructions thereon built by a third party (Civil Code, Articles 551-553). If the owner does not want the improvement constructed on his land he may request that it be demolished, at the expense of the builder. If, however, he decides to keep the building, he must pay for materials used and cost of labour (Civil Code, Article 554).


Under Dominican Law there is no split between legal title and beneficial title; there is only one title deed for the owner.However, the doctrine and jurisprudence (as indicated above) have incorporated to the Dominican legal order the French figure of enfiteusis which is a real property right (in rem – on the property) that implies the assignment of the useful domain of a property for a long period of time, in exchange for the payment of a fee, transferring to said third party the charges and the operating risks of the leased property. Consequently, the owner of the property maintains the legal title of the real property while the enfiteuta holds the beneficial title and can, therefore, dispose (modify the property, build improvements, grant and acquire easements, transfer the right, use as collateral, among others), during the duration of the agreement of the property.



According to the law, the Dominican State is the original proprietor of all lands of the national territory. All lands over which no person can prove to have ownership shall be registered in the name of the Dominican State.Therefore, in the Dominican Republic, all land must be registered in the corresponding Title Registry. Any documents or agreements that establish or modify a property right are subject to registration; without registration, they are not enforceable against third parties.


Dominican law establishes that any right registered in accordance with the law is irrevocable and enjoys the protection and absolute guarantee of the State.

Prieto Cabrera & Asociados SRL Dominican Republic



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The law establishes that the information contained in the Title Registry is publicly accessible to anyone interested in knowing the legal status of a property.The land jurisdiction has been in the process of being digitised since 2005. All new transactions are scanned. Each registry has consultation room units where the registry’s electronic database is available to the public. The Title Registry’s also issue a legal status certification at the request of an interested party.However, it is highly recommended to contract an attorney and a land surveyor for the due diligence and a more thorough investigation of the technical and legal aspects related to the real property.



The parties involved in real estate transactions in the Dominican Republic are the following:■ Lawyers, to conduct the corresponding due diligence, to draft

legal documents and to provide legal advice.■ A Notary Public is required to legalise the signature of the

parties in the purchase agreements and ancillary documents if applicable or to issue the public deed of transfer, as indicated before both instruments are valid.

■ Real estate agents may facilitate the transaction.■ Land surveyors are advisable to confirm the technical status

of the land, and to conduct land survey procedures or updates, if required.

■ Any parties that have rights over the real estate property.■ Title Guaranty Companies, to provide escrow services in need.


Each party is responsible for the costs of its own advisors. These remunerations are freely negotiated with the service providers and may be determined as a percentage of the purchase price or a fixed remuneration.


The main sources for real estate financing are: (a) Financial Institutions; (b) Private Lenders; and (c) Private Funds or Investors.“Foreign investment in the real estate sector grew about 35% during 2015, registering an amount of US$ 411.7 million. This sector accounted for 18.5% of total investments at the national level, as a result of the development of new projects and expansions” (Behaviour of Foreign Direct Investment in the Dominican Republic. CEI-RD 2015).

between parties (the private agreement must be notarised). After that, the purchaser shall pay the transfer taxes and then register the title with the corresponding Title Registry to protect the title against third parties.However, if there is a right of first refusal through an option-to-purchase agreement, the beneficiary can register the right of first refusal in the land registry prior to executing the sale. This registration protects his right to acquire the property against other potential purchasers.


Please see the answer to question 4.5.



The National Title Registry Directorate is in charge of coordinating, directing and regulating the functions of the Title Registry Offices, which are located throughout the country. Each office has limited jurisdiction over its land district, as assigned by the National Title Registry Directorate. As of August 2017, there are 27 Title Registry Offices in the Dominican Republic.The Land Jurisdiction forms part of the Judiciary of the Dominican Republic.


Yes, a physical title deed is issued to the owner of a registered real estate property.


Transactions relating to real estate property cannot be completed online. However, the status of the requests filed in the Title Registries, the requirements, forms and services fees can be accessed at http://ji.gov.do/index.php/servicios-en-linea. Information of ownership of registered real estate can only be obtained personally at the consultation room unit of the corresponding Title Registry where the registry’s electronic database is available to the public. However, this information will only be printed to the owner or an authorised representative.


The Property Registry Law (Article 39) establishes a Guarantee Fund to ensure the payment of an indemnity to any owner that results affected without fault, as a consequence of the application of the law.



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■ for legal entities, a corporate authorisation, which shall include: authorisation of the transaction, appointment of legal representative for the transaction, accurate description of the real property, duly certified by the corresponding mercantile registry;

■ evidence of payment of the price (for transactions over RD$1,000,000.00). The Anti-Money Laundering Law prohibits the payment in cash of any sale of real property over RD$1,000,000.00; and

■ other taxes and stamps.


The seller must act in good faith without concealing any information that, if known by the purchaser, would prevent the purchaser from completing the transaction. Articles 1116 and 2268 in the Dominican Civil Code establish that “good faith” is presumable and the jurisprudence from Dominican Republic Supreme Court of Justice sustains that the acquisition of a property that is supported by a deed free of liens and encumbrances is presumed as good faith.


Under the Dominican Republic Civil Code, the owner of the property must guarantee the purchaser or tenant against hidden defects (vicios ocultos) and against eviction. The seller may be liable for losses and damages arising in connection with a misrepresentation if the misrepresentation involves material information, which would have changed the purchaser’s consent if known prior to the transaction.Also, contractual warranties are normally binding on the seller as essential conditions which the purchaser has relied upon to consent to the agreement, and as a result if any of them are proven to be false, this would effectively provide cause for the purchaser to unilaterally terminate the agreement.


The parties may agree on any provision within the contract without prejudice to any public order matters. However, the sale agreement must necessarily include the price and the form of payment, a description of the property and of the parties.There are other customary provisions, such as representations and warranties, including those against hidden defects on the property; delivery of the property; and a “privilegio del vendedor no pagado”, which is a lien against the purchaser if the price was not paid in full to the seller but the title deed was effectively delivered to the purchaser at closing. Other representations and warranties clauses are: the seller has all legal rights with respect to the property and good title, and the property is free of any liens and encumbrances; the property has not been leased, given as put-option, nor is it in use or occupied, whether legally or not, by any third party; the seller is up to date in any and all payments of tax and for utility services in connection with the property; right of peaceful ownership, which stipulates that there are no claims of ownership by third parties regarding the real estate property; and there are no claims or litigation in progress that may affect the property.

In 2016, the real estate sector had a direct foreign investment of US$ 586.6 million, and during the first quarter of 2017 the investment was of US$ 145.2 million (statistics published by the Central Bank of the Dominican Republic on flow of funds from foreign direct investment 2010–2017).Also, with the Mortgage Market and Trust Law No. 189-11, created to improve the Dominican mortgage market and to cover more sectors of the population, the government has promoted policies and tax exemptions to facilitate the development of low-cost housing.


Capitals in credit portfolios have gone to various projects of construction of new structures, remodelling of existing ones and the acquisition of land for new tourism development initiatives.Moreover, the Central Bank was recently authorised to implement a mechanism to facilitate the financing of the massive construction of affordable housing by financial intermediation entities, both to support public-private trusts for the development of low-cost housing projects that are created under the provisions of the Mortgage Market and Trust Law No. 189-11, and to support other initiatives for the construction of such housing projects.


After the 2008–2009 economic crisis, the real estate market has been picking up and showing dynamic growth over the last few years. Government incentives in the tourism sector, policies that facilitate the development of housing, as well as a steady increase in tourists visiting the Dominican Republic and investors interested in new projects, have helped to diversify investment in the market.



The minimum formalities for the sale and purchase of real estate are the following:■ the purchase sale contract must be duly legalised by a notary

public or a public deed of purchase must be issued by a notary public;

■ an original deed certificate for the corresponding property;■ a receipt of payment of the real estate property transfer tax;■ an original certification from the Dominican Tax Authorities

indicating that the property is current with the applicable taxes or that applies for a tax exemption;

■ a copy of the identity card or passport of the parties or their representatives, or tax ID certification issued by the Tax Authorities and Certificate of Mercantile Registry if a party is a legal entity. (Registration in the Mercantile Registry and Tax Authorities is required for legal entities – local or foreign – with a commercial activity in the country);




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The common proceedings for both legal and conventional mortgages are either: (i) amicable sale of the property if the mortgagor agrees on the purchase price (decision of the court to validate the purchase price); or (ii) sale by auction (decision of the court to initiate and control the auction process).


There are no legal formalities or requirements for real estate lending by private parties. However, financial institutions require certain documents prior to the authorisation of a loan and execution of the corresponding loan and other ancillary agreements, such as:1. Identity document of the debtor, if a married spouse’s identity

document is required.2. Income documents (letters of employment, financial

statements, statements of accounts, etc.).3. Appraisal of the property by an authorised appraiser.4. Credit report or credit score.5. To have a savings account with the lending bank.6. Title Deed of the property which has to be land-surveyed.7. Certification of legal status of the property issued by the

corresponding title registry.8. Certification from the Dominican Tax Authorities indicating

that the property is current with the applicable taxes or that it applies for a tax exemption.

9. Receipt of payment of the real estate property transfer tax.10. For legal entities, a copy of the bylaws and other incorporation

documents, a current Mercantile Registry certificate, all duly certificated by the corresponding Mercantile Registry Department of the Chamber of Commerce, a Tax ID certification, corporate authorisation for the sale and purchase of the property, duly registered before the corresponding Mercantile Registry.

11. Life insurance policy, for personal loans.


See question 8.2 above. Mortgages grant a privilege to the registered creditor regarding unsecured creditors.


If the security is not recorded before the corresponding title registry, the security could not be enforceable against third parties with privilege and, consequently, would have to concur with all other creditors in case of execution of the real property.


The debtor may attempt different actions, such as incidental claims (with or without basis). Normally these claims tend to delay the process, and postpone the sale in public auction. Among these incidental claims are the following: the nullity of the bailiff act serving the notice of payment, repairs to the specifications of the sale of the property filed in court, etc. If they are unfounded, the court must reject them and become aware of the sale at public

Warranties are not a substitute for buyers carrying out their own due diligence, since any actions against a misrepresentation or warranty would have to be presented before a judge in order to obtain relief and the buyer would have to await a favourable sentence and then initiate the execution process in order to obtain execution of the judgment.


All purchasers require the title deed or certificate of title and a certification of status of liens and encumbrances on the property issued by the land registry where the property is located. The purchaser may require other evidence, such as surveys and tax certifications.


The purchaser is responsible for the payment of the purchase price and the applicable taxes, and must also proceed with the formalisation of the transfer of the property under his/her name in the corresponding title registry.



There are no governmental permissions, approvals or licences required for foreign or domestic persons or entities to make real estate loans secured by real property. For financial intermediation institutions restrictions may apply as provided by the Financial and Monetary Law No. 183-02, and its amendments.Additionally, the Anti-Money Laundering Law includes obligations regarding source of funds.


The customary real estate security instrument is the mortgage, which shall be registered before the corresponding Title Registry to be enforceable against third parties.


In respect to conventional mortgages only, there is an option for a mortgagee to realise a mortgaged property by direct attribution of such property without involving court proceedings under two conditions: (i) the attribution must be provided for in the deed of mortgage; and (ii) in case of attribution, an expert will assess the value of the property listed before the competent court (judicial expert).



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the Taxing Authority can prove that the sale has been implemented as a share deal, the only purpose of which was to avoid transfer tax.


The buyer, in his due diligence, must verify that the real estate property tax (IPI), consisting in a 1% of the value of the property, is up to date and/or settled by the seller at the time of purchase, or the Tax Authorities may transfer the tax obligation and debts, with charges and interest, to the buyer at the time of payment of the transfer tax of the property on his behalf.The buyer can request this information to the Taxing Authority by consent of the Seller.



The main legal instrument for leases is the Dominican Civil Code.


There are no specific provisions in Dominican law regarding business leases.


a) Length of termThere are no legal restrictions on a minimum or maximum term, however, a term must be included and shall be agreed on by the parties.b) Rent increaseLease agreements usually provide a yearly increase in the rent in a fixed percentage or with reference to the national annual inflation set forth by the Dominican Central Bank.c) Tenant’s right to sell or sub-leaseThe Civil Code allows tenants to assign the Lease Agreement or to sublease the property if it is not expressly forbidden in the agreement.d) InsuranceSecurity deposit provisions are customary. It is also standard practice to include a provision regarding tenants’ obligation to cover damages.The law does not require insurances for leases, although it may be agreed by contract to include it. e)(i) Change of control of the tenantChange of control provisions may be provided for in commercial leases. Unless a change of control provision is included in the lease, a change in the control of the shares of the tenant in and of itself does not cause the termination of the agreement.

auction. In some locations, the judge decides the incidental lawsuits and does not sell the property on the same day. When the judge issues a judgment, and does not sell on the same day, the debtor could appeal those decisions, and at the hearing of a sale, could request a dismissal, because those decisions of incidental lawsuits were appealed. There are judges who suspend the sale until all the incidents are decided, although it is not the rule. In practice, they accumulate the incidental claims to decide them on the day of the public sale. On the day of the sale they read the final judgment and on the same day, they sell in auction. The sale makes it difficult for the debtor to appeal or appeal in cassation. Incidental claims should not be appealed, although in practice it is a time-consuming tactic.

9 Tax


Transfer tax is 3% of the sale price or the value of the real estate property as appraised by the taxing authorities, whichever is highest.Transfer taxes are due by the purchaser, although parties may freely provide otherwise in the purchase agreement.


The 3% transfer tax must be paid within six months of having executed the document by which the transfer of the property operates, if not penalties will apply.


Other than the transfer tax, no additional tax is paid in connection to the transfer of real estate property. However, individuals may be liable to pay capital gains for the sale of real estate property (see further in question 9.5 below).


See question 9.3.


Capital gains arising from the sale or transfer of property are subject to a capital gains tax at a flat rate of 27%. The taxable gain is computed by deducting the acquisition cost as adjusted by inflation from the gross selling price or the market value.


In addition, capital gains realised on sales of shares are subject to a 1% withholding tax. This has to be analysed on a case-by-case basis. In principle, due to a recent reform, in cases where the object of the transfer is the shares of the company owning the property, the transfer is free of VAT and transfer tax if the underlying real property asset is connected to a business activity (e.g. lease activity), unless




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Unless otherwise provided for, landlord/tenants generally do not remain liable for their obligations, once they have conveyed their interest.


No green lease obligations as such are provided for in the Dominican Republic’s legislation.



The main laws that regulate leases of residential premises are the following:■ The Dominican Civil Code.■ 4807 Decree on Rental and Control of Eviction of May 16,

1959.■ Law No. 4314 dated October 22, 1955 that regulates the

provision and application of the securities in the tenancy, modified by Law No. 17-88 dated February 5, 1988.


No, the laws do not differ if the premises are intended for multiple residential occupiers.


Typical provisions for a lease of residential premises are:a) One year automatically renewable for the same time, in case

neither party notifies their interest in the termination, with a period of 60 days in advance usually.

b) An estimated annual increase of five to ten per cent (5–10%) in monthly payments.

c) The obligations of the tenant will persist until the real and effective delivery to the owner of the rented property and its keys, delivery that will be verified by written receipt of the owner.

(ii) Transfer of lease as a result of a corporate restructuring (e.g. merger)

If the sale of the property is not a cause of termination in the lease agreement, the purchaser is bound to the lease. The Dominican Republic Civil Code states that the purchaser has to serve notice to the tenant in order for the transfer to be executed in his favour and against third parties (Article 1690).f) RepairsAccording to the Dominican Civil Code the tenant is obligated, upon the termination of the Lease Agreement, to return the property in the same condition as it was originally received. As a result, the tenant must perform, at its own cost, the corresponding repairs, as needed.


a) Tax on rental incomeRental income is subject to an income tax of 27% for legal entities and a 10% retention tax for individuals, the tax must be retained and submitted to the Tax Authorities by the landlord.b) Valued added tax (VAT)Leases are subject to 18% VAT. The landlord must submit the tax retention to the Dominican Tax Authorities.c) Other taxes due by individual ownersOwners may be subject to an annual property tax of 1% of the amount of their taxable real estate holdings exceeding RD $7,019,383.00 (approx. US$150,000.00).Trusts are also subject to a 1% tax on the value of their taxable real estate holdings.


Leases are usually terminated in the following circumstances:■ term of the lease without renewal;■ default or failure to comply with payment obligations and

other breaches of contract expressly provided for;■ mutual consent;■ destruction of the leased property;■ unauthorised use of the property, in the event that such

situation negatively affects the landowner;■ if the tenant subleases the property in whole or part if

expressly prohibited; and■ if the tenant performs modifications to the property without

landowner consent.Notwithstanding the Civil Code provisions regarding tacit or automatic renewal of lease agreements, renewal or extension of the lease term, as well as compensation for termination, can be mutually agreed upon by the parties. However, if there is a lease in force and effect, and the landlord and tenant agreed that the sale of the property was a cause of termination, the tenant shall have to negotiate a new lease agreement with the new owner as landlord, but the tenant is entitled to claim damages from the seller under the rules provided by the Civil Code.



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Information can be obtained online, on-site at the corresponding institution or at the One-Stop-Shop for Investment (www.cei-rd.gob.do/en/investment/one-stop-shop/).


The main permits and licences for building works and the use of real estate are as follows:■ Certification of Non-objection of the use of Land issued by

the corresponding city or municipal hall.■ Construction Permit duly issued by the Ministry of Public

Works.■ Certificate of Non-objection of use of Land issued by the

Ministry of Environment and Natural Resource, if required.■ Certification of Non-objection of use of Land issued by the

Ministry of Tourism (if required).■ Certification of approval by the National Bureau of

Architectural Heritage (if required).■ Approved waterworks plans by the Santo Domingo Water

and Aqueduct Corporation or the National Institute of Potable Water and Sewers, as applicable, for residential developments of more than 10 housing units or in excess of 10,000 square metres (107,639.1 square feet).

■ In the event that construction is performed within 60 metres of the shoreline, a presidential authorisation is required.


Construction permits are commonly obtained in the Dominican Republic. Implied permission cannot be obtained in any way.


The time involved in obtaining the building and use permits ranges from two to five months. It can take longer depending on the number of permits and the complexity of the plans filed for approval.The cost of obtaining the necessary permits depends on the scale of the project.


The Dominican Republic Constitution (Article 64.4) provides that the cultural heritage of the Nation, material and immaterial, is under the protection of the State that will guarantee its protection, enrichment, conservation, restoration and value. The assets of the cultural heritage of the Nation, owned or acquired by the State, are inalienable and unencumbered, and such ownership, imprescriptible.Law No. 318-1978 for the Cultural Heritage of the Nation, provides that the State shall regulate all matters relating to the protection, conservation, enrichment and utilisation of the cultural heritage of the Nation. Furthermore, Law 492-1969 declares the Colonial Zone of Santo Domingo to be protected as cultural heritage.

d) The common services of electricity, water, garbage, cable, telephone and other taxes and/or general or municipal taxes, are usually paid by the tenant. On the other hand, the tenant is obliged to maintain the property in good condition; all the damages that occur during the term of the lease agreement shall be fixed and/or replaced at its only cost.


Pursuant to Decree 4807, a landlord can only terminate a residential lease and vacate the property under the following circumstances: ■ failure to pay due rent;■ use of the rented property for purposes different to what was

agreed, if it affects the owner, public order or good manners;■ total or partial sublease of the property if prohibited in the

agreement;■ modification of leased property;■ if the property will subject to reparation, remodelling or new

construction; and■ if the property will be occupied by the owner, his/her spouse

or relatives.



Law No. 975-44, of June 29, 1944, sets forth the main legal provisions pertaining to zoning and the use of land.In addition, Law No. 64-00, of July 25, 2000, sets forth provisions regarding zoning in specific regions of the national territory, and also includes a series of limitations with regards to the use of lands declared as national parks or protected areas.


The Dominican Constitution (Article 51) establishes eminent domain powers on behalf of the Dominican government. The compensation is determined by an agreement between the government and the landowner or by a ruling issued by the competent court.Property Registry Law provides that when real estate is expropriated by the government, the corresponding land registry will not proceed to register the transfer of any rights regarding such property until proof of compensation is provided.


All constructions must comply with building codes established by the Ministry of Public Works and, in tourist areas, by the Ministry of Tourism. Land use and zoning permits are issued by the municipalities, the Ministry of Environment, and the Ministry of Tourism (if the property is located in a tourist zone).




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13 Climate Change


The Dominican National Development Strategy 2030, signed into law in January 2012, contains a central theme that mandates national adaptation to climate change. The aforementioned Law 1-12 establishes a binding commitment to achieve a reduction in GHG emissions of 25% by 2030, compared to 2010 levels, and mandates a review of targets to reduce emissions every five years until 2030. Additionally, it states that GDP must increase by 140% over the period 2010–2030.Also, the National Council on Climate Change and Clean Development Mechanism (NCCCDM), chaired by the President of the Dominican Republic, is responsible to formulate policies to prevent and mitigate GHG emissions and promote the development of programs, projects, and strategies for climate action. Ultimately, the Council is responsible to ensure compliance with climate change commitments agreed with the United Nations.


The Dominican National Development Strategy 2030, signed into law in January 2012, sets the goal to reduce emissions by 2.8 tons per capita for 2030. Executive vice-president of the National Council for Climate Change and the Clean Development Mechanism (CNCCMDL), reported that in 2017 the Dominican Republic emitted 3.28 tons of CO2 per capita, according to the National Inventory of Greenhouse Gases carried out within the framework of the Third National Communication on Climate Change, which puts the Dominican Republic among the countries with the least gases emitted of Latin America.


We are not aware of any other regulatory measures to improve the sustainability of either newly constructed or existing buildings.


Private studies can be conducted to determine the level of contamination and/or pollution of a property. We are not aware of any public registry of contaminated land in the country.


Dominican Environmental Law requires that any person that causes damage to the environment or natural resources is held liable and must repair such damage at their own cost.


Currently there are no regulatory requirements in place for the assessment and management of energy performance of buildings in our jurisdiction. However, Law No. 57-07 on Incentives for Renewable Energy grants incentives for the use of renewable energy, depending on the renewable energy technology associated with each project; up to 75% of the cost of equipment is granted, such as a single income tax credit, to owners or tenants of family dwellings, commercial or industrial buildings that change or expand for renewable energy systems in the provision of their own private energy consumption, and whose projects have been approved by the competent government agencies.



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Aimée PrietoPrieto Cabrera & Asociados SRLC/Haim Lopez Penha No. 19, ParaisoSanto Domingo Dominican Republic

Tel: +1 809 541 1444Email: [email protected]: www.prietocabrera.com

Prieto Cabrera & Asociados, a leading firm in real estate transactions and asset recovery in the Dominican Republic.

Prieto Cabrera & Asociados has ample experience providing legal services on: (i) real estate transactions (including acquisitions, sales, leases, condominiums, fractional ownerships, liens, mortgages, loans, foreclosures, negotiations, closings, etc.); (ii) foreign investment in the Dominican Republic; (iii) asset recovery and investigation in the DR and abroad; (iv) litigation management and supervision; (v) business organisation and corporate transactions; (vi) intellectual property; (vii) contractual documents review, draft and advice; and (viii) technology, privacy and data protection.

Prieto Cabrera & Asociados is Dominican Republic’s only member of FraudNet, the fraud prevention network of the International Chamber of Commerce (ICC) Commercial Crime Services. FraudNet has been recognised by Chambers Global as the world’s leading asset recovery legal network.

Dr. Aimee Prieto is partner at Prieto Cabrera & Asociados, a leading firm in real estate transactions and asset recovery in the Dominican Republic.

Dr. Prieto is a Certified Fraud Examiner (CFE) and an attorney from the Dominican Republic with over 15 years of practice. She specialises in real estate transactions, asset recovery and investigations, and litigation management and supervision.

In addition to providing legal services to foreign investors to purchase real properties and businesses in the Dominican Republic, Dr. Prieto’s recent representation includes serving as local counsel to the recovery of real estate acquired through fraudulent acts committed in the United States of America, and invested in the Dominican Republic and other countries of Latin America.

Dr. Prieto is a listed arbitrator for the Centre for Alternative Dispute Resolution of the Chamber of Commerce and Production of Santo Domingo.

“Aimee Prieto is highly responsive and the safest pair of hands in the Dominican Republic.” Who’s Who Legal, 2016.




Chapter 10

Ropes & Gray International LLP

Carol Hopper

Partha Pal

England & Wales

bribery and corruption control, (b) merger control (especially where real estate interests are held in a joint venture or co-investment vehicle), (c) economic sanctions, and (d) data privacy laws.

2 Ownership


No, there are not.



A large number of rights are recognised over land. The first are the only estates (or interests of ownership) that can exist as legal estates being (a) freehold, and (b) leasehold. Secondly, there are a number of legal and equitable rights that can be created over land owned by a third party. The vast majority of these must be registered (either at the Land Registry or in the Local Land Charges Register) in order to bind any purchaser. These include legal mortgages and restrictive covenants.Some rights can be created in contract only. The most significant of these are: (a) licences to occupy; and (b) options/rights of pre-emption. There are also a very limited number of rights that can be created without the need for a contract or registration, the main one of these is proprietary rights of anyone in actual occupation but there are others, such as customary rights (being those enjoyed by long users in the local community but not the public at large) and public rights (such as in respect of fishing and navigation of water systems). These are considered to be rights that are capable of discovery either by inspection or enquiry.


No, there are not.

1 Real Estate Law


The main laws governing real estate in England and Wales are the Law of Property Act 1925 and the Land Registration Act 2002. The 1925 legislation simplified the system of legal and equitable interests in land such that from 1926 onwards only two types of legal estate exist: (a) fee simple absolute in possession (usually referred to as freehold); and (b) leases (or leasehold).The land registration system was fully established in England and Wales by the Land Registration Act of 1925 and the Land Charges Act of the same year. Since 1926 there remain only a small number of interests that do not require registration in order to bind a purchaser. These would usually be addressed by pre-transaction enquiries raised by the purchaser’s solicitors.The Land Registration Act of 1925 has been replaced by the Land Registration Act 2002. It requires compulsory registration of the transfer of any freehold interest and the creation or transfer of any leasehold interest where there is more than a seven-year term remaining, as well as on the creation of a legal mortgage. The Law of Property (Miscellaneous Provisions) Act 1989 is the statute governing the formalities for the creation of land contracts which must be in writing, must incorporate all the terms relevant to the purchase in one document and be signed by both seller and buyer (although this can be in identical counterparts).


Although a considerable amount of the legal framework for real estate is statutory, English law is a common law system, so its interpretation and application is subject to common law and equitable principles.


To a limited extent. In particular, those concerned with (a) anti-


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The main ones are proprietary rights protected by actual occupation, customary and public rights and other rights established by long users and leases for seven years or less. See the response to question 3.1.


In England and Wales there are four different classes of title. Title absolute is the best quality of title and establishes the owner as having an indefeasible right to the legal estate described in the register (whether freehold or leasehold). The majority of titles are registered with title absolute.Possessory title is usually only granted where the person applying is either in actual possession of the land (or in receipt of the rents and profits from it) but where the title is based on a possessory claim rather than any documentary evidence. For more detail on claims based on adverse possession, see below.Qualified title is very rare. It has a similar effect to title absolute save for the part of the title that has been “qualified”; where the identified defect effectively falls outside the registered estate.Good leasehold title occurs only in leasehold titles and when the Land Registry has not been able to approve the landlord’s title to grant the lease. Title based on adverse possession historically was established by proving at least 12 years’ adverse possession (that is, actual possession of the land in question or receipt of the rents and profits in respect of it and a clear indication of the claim to ownership, such as the erection and maintenance of boundary features). However, since 2002 a completely new system has been established for registered land. In the case of a registered estate, however long the period of adverse possession may be, the only right a “squatter” has to register any rights is a right to apply to be registered as proprietor after 10 years of adverse possession. If the registered proprietor objects then the application will be unsuccessful (save for very limited circumstances). Where a squatter’s application to be registered as proprietor of the property has been rejected, the registered proprietor must then evict the squatter (or legitimise their occupation by the grant of an appropriate interest) within two years, failing which the squatter may re-apply and, provided he has continued in adverse possession for those two years, his application will succeed.


In the case of an unconditional contract for sale (with a later date set for completion), the equitable (or beneficial) title passes at exchange of contracts.If there is a simultaneous exchange and completion, the equitable (or beneficial) title passes at completion.Legal title will only pass on completion of the registration of the transfer at the Land Registry.The main significance of this is that the property will be “on risk” for a purchaser from the date on which the beneficial title transfers.


Yes, the legal title and beneficial title are distinct. The registration system to date has only been concerned with recording the details of the legal title to real estate. In the near future the registration system will be amended such that the beneficial title to real estate will have to be registered where the legal title is held by a non-resident entity. This change has been consulted on and the results of the consultation and the draft legislation are awaited. The change is driven by the ever increasing desire for transparency in the global fight against corruption.It is supplemented by existing legislation that requires companies and partnerships in England and Wales to keep a register of those persons who have “significant control” over the entity concerned.However, on the transfer of a legal title, the beneficial title if divided from it, say because it is held on a trust, will be overreached. The beneficiaries (the owners of the beneficial title) will have rights in relation to the resulting proceeds from the sale but would not have rights to overturn the sale.



There is a compulsory registration system for land in England and Wales. This is triggered by any transaction involving the transfer or mortgaging of land (even if not already registered). The country-wide compulsory registration system came into effect in 1990 (and for some areas, pre-dated that date). Around 80% of land in England and Wales is registered and the remaining unregistered title is mainly in rural areas.


Yes, in effect for all registered titles, since the register can only be altered in certain limited circumstances, in order to correct a mistake, but any registered proprietor who suffers loss in consequence (assuming no fraud or lack of proper care) would be entitled to an indemnity from the Land Registry.


The transfer of any freehold interest and the creation or transfer of any leasehold interest where there is a term remaining of more than seven years, as well as on the creation of a legal mortgage, are all compulsorily registrable.The effect of non-registration is that:(a) for a freehold transfer of the legal estate, the transfer is void

and the legal estate reverts back to the seller who holds it on a bare trust for the buyer; and

(b) for the grant or transfer of a lease or the creation of a legal mortgage, the transaction has effect as a contract made for valuable consideration to grant the lease or mortgage.

For both, the effect is that the transaction takes effect in equity, but not law. The failure to register means that the transaction could lose priority as against a subsequent transaction and may not bind successors in title.

Ropes & Gray International LLP England & Wales



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the party registering applied for it to be so and the Land Registry accepted the reason for requesting that it remain confidential).A buyer will obtain a lot of key information from a search of the Land Register, but would need to carry out other searches and enquiries to obtain all the information he would reasonably want to ascertain regarding encumbrances and rights affecting any real estate.



Selling or letting agents who (depending on the type of transaction) market the land and negotiate the main commercial terms of the transaction with the buyer or the buyer’s agent. Agents usually operate on a commission or fixed fee basis (sometimes calculated by reference to the price) which is payable at completion.Lawyers who, for the buyer, carry out the title investigation (including raising the necessary searches and enquiries) and, for both parties, who negotiate the legal documentation to give effect to the transaction and attend to exchange and completion of that documentation and all post-completion matters. Lawyers are remunerated on a time or fixed fee basis payable at completion.Surveyors are usually engaged to carry out structural and condition surveys of the property and possibly detailed environmental or other technical due diligence matters. They will generally be paid a fixed fee on completion of their work. Accountants may be instructed to advise on structuring and tax mitigation matters (although often this will be dealt with by lawyers).Notaries are not required in any real estate transactions in England and Wales.


See the response to question 6.1 above.


Data from 2016 indicates that there was a further slowdown in overall real estate activity (although activity remained 12% above the 10-year average). The market has undoubtedly stabilised following the UK’s vote to leave Europe (Brexit) and whilst it has had some impact on certain markets, notably the London office market, its impact has been far less significant than first feared and London in particular, continues to benefit from significant capital flow, especially from Asia, led by Hong Kong, Chinese and Korean investors. As far as the availability of debt finance, it is clear that traditional providers of real estate finance have retrenched somewhat under the greater capital constraints imposed by increased regulation since the global financial crisis, but this has created an opportunity for other interested parties, particularly in the private equity field, and the number of debt funds generally (including in real estate) has increased significantly.


Generally the priority of rights is determined by the date of creation. If, however, a right must be registered and it is not, within the priority period of a Land Registry search, a later right will not be subject to it. In the context of legal and equitable rights, legal rights will generally take subject to rights in equity that have already been created therefor.There are exceptions to this. One of the main exceptions is that a later legal charge will rank ahead of an earlier equitable charge.



There is one registry for land ownership, known as the Land Registry, and formerly known as HM Land Registry.


No longer. The register is now electronically available to anyone wishing to search it.


The intention for the future is for there to be electronic signatures and full electronic conveyancing to be available but currently, no deeds can be completed electronically save for very limited exceptions, such as for the discharge of a registered charge. Rules are in place to allow this in the future for legal charges also.Applications to register any completed transaction can be submitted electronically and most are. A copy of the document of transfer (on the correct Land Registry form) would be included in the application together with appropriate statements from the solicitor submitting it as to possession of the original. The application must be submitted on the correct Land Registry form and must also include a certificate of payment of the stamp duty land tax triggered by the transaction.The registers at the Land Registry are fully accessible electronically.


Yes. See the response to question 4.2 above.


There are no restrictions on access to the register (although some information in some registered deeds may have been obscured if



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sale (either on its face or by identifying the document that contains the remaining terms). The contract must be signed by both seller and buyer (although this can be done in counterparts of the same document and usually is).A transfer (and some other land documents) must be by deed duly executed by the seller (and usually by the buyer, who normally provides indemnity covenants on title matters). Where registered land is involved, the form of documentation must follow that required by the Land Registry. To obtain a legal estate, the transfer must be registered at the Land Registry within the correct priority period post-completion.


There is no general duty of disclosure on a seller, but the buyer would usually raise enquiries of the seller and the seller would be under a duty not to give any misleading answers. The title covenants imposed on a transfer also mean that the seller will be under a duty to disclose encumbrances of which it is aware and any defects in title not apparent on an inspection.


Yes, if the untrue statement induced the buyer to purchase and the buyer suffers loss as a result.


On an asset purchase it would be unusual for the seller to give contractual warranties but there would be implied title covenants confirming the seller has the title that it purports to hold and has not encumbered it (save as disclosed) and the seller would reply to a usual comprehensive set of enquiries and be liable for any misrepresentation in replying (see the responses to questions 7.3 and 7.5).If the entity that owns the real estate is acquired (rather than the property itself) then it would be usual for contractual warranties to be given and these would cover title, ownership matters, disputes, notices, planning, and if the property is let, usual landlord and tenant matters. Warranties are designed to both allocate risk between the parties for some key elements but also to flush out information. They are not considered a substitute for doing buyer due diligence and a normal title investigation would also usually be carried out. This would still be the case where warranty and indemnity insurance is obtained in respect of the warranty protection provided (which is the norm in the commercial real estate market now).


Yes. In the implied title covenants on an asset sale. There are two forms of statutory warranty.Full title guarantee, where the seller warrants he has the title he purports to sell and it is free from charges, encumbrances and third party rights (other than those the seller does not know and could not reasonably be expected to know about).


Since the UK voted to leave Europe, there is less appetite for risk; however, secondary (and even tertiary) markets remain of interest as the scarcity of supply and continued high prices in prime markets means opportunities in prime areas are reduced. The search for product for many investors has focused on alternative sectors, as investors seek to diversify. Notable beneficiaries of this search include student accommodation, senior living accommodation and the private rented sector. Others that have delivered a higher than average return include industrial and logistics. Many investors profess a reticence to invest in retail, as the impact of e-commerce continues to influence that sector. Examples include the purchase by the development arm of Mace of a 2.5 acre site in central Sheffield with proposals to turn this into a 550-bedroom student accommodation scheme. In addition, it was reported early in September this year that Crosslane Student Developments has started work on a student accommodation development in a former car park, located to the north-west of Leeds city centre, after successfully completing another 437-bedroom development in Sheffield in that month. In the private rented sector, the Angel Gardens development, the flagship scheme of Moda Living – a partnership between Caddick Developments and Generate Land – in the centre of Manchester, received planning committee approval earlier this year.It will include 466 apartments and 20,000 sq. ft. of mixed-use commercial space across 35 floors.


In terms of slow down, the most significant areas would be London offices and retail, but even here there remains a reasonable amount of activity and the impact is more on volume of transactions than underlying value per se.Examples of activity in these sectors include:The London Fruit and Wool Exchange, being one of the largest developments in London, adjacent to Spitalfields Market in E1. The scheme will deliver 320,000 sq. ft. of new grade A space, including 260,000 sq. ft. of office and 40,000 sq. ft. of retail, restaurant, café, SME and community space, and is due for completion in Spring 2018. Other notable developments in the heart of the City include 22 Bishopsgate, 100 Bishopsgate and The Scalpel, all delivering multi-storied office and retail space, set for completion between the end of 2017 and 2019.



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where the asset is subject to a development or operating agreement). Occasionally, a lender will require a guarantee from the sponsor of the borrower or from a credit-worthy third party or will require a cash reserve to be created to cover a specifically identified risk.Financial Covenants: generally, a lender will require that there are financial covenants imposed on the borrower which relate to the financial performance of the asset which is being financed. The first type of covenant (known as an interest cover ratio or debt service cover ratio) compares the income generated by an asset to the cost of servicing the debt, in each case over prescribed periods. The second type of covenant (known as a loan-to-value ratio) compares the principal amount of the debt to the value of the asset being financed. A prudent lender will set both a default level test for the financial covenants (at which point a loan will default though there may still be sufficient cash flow/value for payment to be made in full) and a cash trap level test (at which point no surplus cash flow will be returned to the borrower but will be trapped in a cash reserve as additional security for the obligations in respect of the loan).


In the UK, enforcing security interests through court proceedings is the exception and not the rule. Both under the applicable law (the Law of Property Act, 1925) and under the contractual instruments that create the security interests, the lender will have the right to appoint a “receiver” following the occurrence of a default. The receiver has the power to dispose of the asset and realise value for the benefit of the lender. The receiver will have a similar power in respect of the ownership interests of the borrowing entity. No court proceedings are required to do this. While the receiver is the agent of the borrower, its primary duties are owed to the lender and it does not require input from the borrower or orders from the courts in order to exercise the rights it has.


There are no formalities. The grant of security interests have certain formalities that must be complied with such as security documents having to be executed by way of deed rather than under hand and having to be registered in accordance with applicable statutory requirements. As described above, the provisions of the Law of Property (Miscellaneous Provisions) Act have to be adhered to in undertaking any dealings in the context of real estate assets.


As indicated above, the first protection is ensuring that the borrower is prohibited from having creditors that are unconnected with the ownership, management and financing of the assets. The second protection is managing the cash flows generated by the assets that are being financed to ensure that liabilities that have arisen through the borrower owning, managing and financing the assets are paid off before any surplus cash flow is released to the borrower. The third protection is the security package. The security package prevents other creditors from making claims in respect of the assets (though not the borrower itself).

Limited title guarantee, where the seller warrants he has the title he purports to sell and that he has not encumbered, charged or created third party rights over it.Most sales would be with full title guarantee.On a sale of the entity owning the real estate asset it would be usual for the seller to warrant he is the legal and beneficial title holder free from encumbrances, charges and third party rights other than as disclosed or he could not be reasonably expected to be aware of.


It would be usual for a buyer to give indemnity covenants in relation to any ongoing liability that the seller has post-sale, such as in relation to landlord covenants.



The lending of money in the UK for the purposes of financing investment in commercial real estate is generally not subject to regulation. The exception to this is where the borrower is an individual. In these circumstances, the lending may be subject to the Consumer Credit Act, 2006, though there are a number of safe harbours that may apply to exempt such lending from regulation. In addition, lending institutions that are regulated by the Financial Conduct Authority, one of the UK’s financial regulators, will be subject to undertaking their business activities in accordance with the standards prescribed by it. For completeness, the lending of money to finance the purchase of residential real estate assets is a regulated activity.


This depends on the approach the lender takes to risk management (and different lenders adopt different approaches). However, the most common ways are as follows:Structure of the Transaction: lenders will generally require that the assets that they are financing are held by entities whose activities are limited to owning, managing and financing those assets. By imposing this limited purpose obligation on borrowing entities, lenders seek to minimise the risk that these entities will incur financial liabilities which are unrelated to the assets that they are financing.Security Package: there is a package of security interests that is generally required by lenders. The key elements of this are a charge by way of legal mortgage over the assets that are being financed (usually simply referred to as a “mortgage”) and a charge over all of the cash flow generated by the assets which must be collected into bank accounts which are controlled by the lender or the security agent appointed by it, thus minimising the possibility that there is cash flow leakage or misapplication. In addition, the security package will include a charge over the ownership interests in the borrowing entity and a charge over contractual rights (particularly



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Rate per band Consideration band

10% £925,001–£1,500,00012% £1,500,001+

In addition, a supplemental 3% SDLT charge applies to each rate band for purchases of second or additional residential properties.A higher rate of 15% applies to residential purchases over £500,000 by certain corporate vehicles though a number of exemptions and reliefs are available including, for example, for genuine property investors, developers and traders.In Scotland, SDLT has been replaced with the similar Land and Buildings Transaction Tax. In Wales, it has been announced that SDLT will be replaced with a new tax on land transactions from April 2018.


Payment of any SDLT due is required to be made within 30 days of the “effective date” of a transaction. The effective date of a transaction is the earlier of completion of the transaction or “substantial performance” of the contract (the point at which the buyer takes possession of the whole or substantially the whole of the subject matter of the transaction or where a substantial amount of any non-rental consideration is paid or the first payment of rent is made).


The transfer itself will not be subject to income tax, but if the transfer represents a sale in the course of a trading activity, then the individual is liable to pay tax on any profit made from the sale.


In general, supplies of commercial real estate are exempt from VAT. An election can be made to opt to tax commercial real estate which makes the property which is opted subject to VAT at the standard rate (currently 20%). Any sale of land which is subject to an option to tax is subject to VAT. It is common practice for owners of UK commercial real estate to opt to tax. Sales of incomplete commercial buildings, and sales of new freehold commercial buildings (being less than three years old) by persons who did not construct them, are automatically standard rated. Where VAT applies to a transaction, the consideration is usually expressed as exclusive of any VAT such that VAT is paid in addition to the consideration. The seller is required to account to the UK tax authority for the VAT.Where a sale is of a commercial property which is let, the sale can be treated as being outside the scope of VAT by virtue of being a transfer of a letting business as a going concern (commonly known as a “TOGC”) provided that the buyer continues the letting business, also opts to tax the property and notifies the UK tax authorities of such option.Transfers of residential real estate are exempt from VAT.


UK resident companies pay corporation tax at the rate of 19% (to be reduced to 17% in April 2020) on any capital gain which arises from


There are several theories on which this can happen. The first is where a specific transaction avoidance theory applies (a transaction avoidance theory is one which generally applies when a transaction is undertaken within a prescribed period of time before a borrower becomes subject to an insolvency process). The most common of these are (a) transactions at an undervalue, which could apply if the security granted is disproportionate to the debt owed, and (b) preferences, which would apply if the security has been granted in favour of one creditor to benefit it over others. A security interest can also be avoided where it contravenes the principle of pari passu distribution (which would happen if the security came into existence only on the advent of winding up); if the security interest was not registered in accordance with the applicable legislation; if the security was granted to defraud creditors; or if the security secures an extortionate credit bargain. Generally, lenders obtain comfort through the financial and legal due diligence processes that the circumstances which give rise to these situations will not apply.


In the UK, these are operational rather than legal in nature. The most common step that borrowers can take involves withholding information that a lender may require in order to take enforcement action. For example, if the lender requires an up-to-date rent roll in order to start a sales process, the borrower may not provide this. Another very common step that borrowers take is mismanaging the asset by not complying with maintenance obligations or obligations to collect rent or insure the asset. Finally, where the asset manager is an affiliate of the borrower, the asset manager may take prejudicial action in respect of tenants, such as granting concessions in terms of rent, just to make the asset less attractive to a subsequent buyer. It is thus important that a lender has the right to exercise effective operational control.A lender will usually take practical precautions to protect itself against these possibilities, including often having a third party asset manager with a duty of care owed to the lender.

9 Tax


Buyers of land are required to pay stamp duty land tax (“SDLT”). For leases, specific rules govern the calculation of SDLT by reference to the rent due. The current SDLT rates for non-rental consideration for commercial or mixed use properties are:


0% £0–£150,0002% £150,001–£250,0005% Over £250,000

For residential properties the rates of SDLT are:


0% £0–£125,0002% £125,001–£250,0005% £250,001–£925,000




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case there is no right to remain or a new lease at the end of the term of the lease, nor any right to compensation.The Landlord and Tenant (Covenants) Act 1995 applies to all leases (known as “new leases”) granted on or after 1 January 1996 (unless created pursuant to an agreement that pre-dates that date).It amends the previous “privity of contract” rule that made the original parties bound to the commitments entered into as landlord or as tenant for the duration of the lease term, even after they had sold their interest or those obligations had been varied.For so-called “new leases”, any tenant is automatically released from its obligations as tenant on a sale (provided, if landlord’s prior consent is required, it has been obtained) and a landlord would be released on a sale if it is reasonable in the circumstances and the correct release procedure is followed. Any outgoing tenant is likely to remain liable on the tenant covenants under a lease, however, until his purchaser sells (with the landlord’s consent if this is required), as it is market practice for the outgoing tenant to guarantee the obligations of its purchaser until that point.


Those with the benefit of security of tenure and those without. See the response to question 10.1 above. As to the form of lease, there is no “standard” and these are negotiated documents, although market practice has evolved such that there are “typical” or market standards. See the response to question 10.3 below.


“Typical” is very sector driven. It also reflects the age, type and condition of the property concerned. Length of term. Office leases are “typically” 10 years (sometimes longer but no more than 15 years usually; possibly with break rights at fixed points) and sometimes shorter; increasingly more tech-based tenants are looking for shorter terms, including co-working space on very short-term leases. Retail, logistics, warehousing, industrial and others also might have a 10- or possibly a 15-year term, but may negotiate break rights tied to rent reviews.Rent reviews. These would typically be every five years on an upwards-only basis to open market rent (but again, it is becoming increasingly common to have annual increases tied to an inflationary increase only). Fixed increases are also sometimes negotiated.Tenant’s right to sell. It would be very usual for a tenant to be able to sell the lease but for the landlord’s consent to be needed (not to be unreasonably withheld). It is also usual for other conditions to be imposed on a sale and for most of these to be pre-agreed and set out in the lease – such as the rent being fully paid. Rights to sublet are often dictated by the size of the space, although a right to sublet whole would be considered usual. The landlord’s consent would again be required (not to be unreasonably withheld). Again, pre-agreed conditions would be usual. The number of subleases is often controlled.Insurance. The normal position would be for the landlord to insure but then to recover the costs of doing so from the tenant(s). Occasionally, in a lease of whole, the tenant may insure but then will also take on commitments regarding re-instatement and have an unqualified obligation to repair.

the transfer of property held as an investment. If property is held as an item of trading stock, profits realised from its transfer will be subject to corporation tax on income at the same rate.Non-trading individuals who are liable to UK income tax at the top marginal rate and trustees pay capital gains tax at the rate of 28% subject to applicable reliefs and exemptions including private residence relief.Non-UK residents (companies or individuals) generally pay no tax on the disposal of a property where that property is held as an investment, although (i) disposals of high-value (over £500,000) residential properties by non-UK companies and other corporate vehicles may be subject to a type of capital gains tax (known as ATED-related CGT), currently at the rate of 28%, and (ii) from April 2015, non-resident CGT applies to all sales of residential properties by non-residents at the rate of 28% (20% for non-resident companies), in each case subject to various exemptions and relief and without double counting if ATED-related CGT is payable as that takes priority.


Yes. Stamp duty at a rate of 0.5% is charged on a sale of shares in a UK incorporated company. SDLT does not apply to indirect purchases of real estate (i.e. the purchase of shares in a corporate vehicle owning real estate as opposed to a purchase of the real estate itself). VAT is not payable on a share purchase. The taxation of any gain arising from a disposal of a company rather than a property may also be different to the taxation of a gain arising from a direct disposal of real estate.


A buyer of real estate should always consider:■ the VAT position of a commercial property and its seller;■ any capital allowances (the tax equivalent of depreciation for

capital expenditure) that may be available to reduce future tax on income; and

■ SDLT.



The Landlord and Tenant Act 1954 gives security of tenure to occupying tenants of business premises at the contractual end date of their lease. It allows an occupying tenant to remain in the business premises and to call for a new lease of them, unless the landlord can show a limited number of grounds for requiring the property back. The main ground for a landlord in claiming back a property is because it wishes to redevelop the whole or a substantial part of the property and needs vacant possession in order to do so. If the landlord successfully proves that he is entitled to take the property back, the occupying tenant has a right to compensation in most circumstances, but not where the reason for the landlord succeeding is due to the tenant’s default.It is possible to contract out of the security of tenure regime described above, provided certain procedures are followed, in which



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Green lease obligations are not normal in the UK market, although some institutional landlords did require some provisions when the environmental legislation regarding the CRC Energy Efficiency Scheme was first introduced.It may be that these provisions will increase, given that 2018 legislation is to come into effect that will restrict lettings of buildings with energy performance certificates with F or G ratings.Some leases do seek to add restrictions controlling alterations that are considered to have an adverse impact on the rating of the building for both its EPC certificate and compliance with the CRC regime.



The Rent Act 1977 (RA 1977), the Housing Act 1988 (HA 1988) and the Housing Act 1996 (HA 1996) are the primary statutes that regulate leases of residential premises. Until January 1989 most residential tenancies were regulated by the RA 1977 and a tenant under the RA 1977 is a regulated tenant. Assured tenancies were introduced by the HA 1988 (which came into force on 15 January 1989) and from that date, a tenancy was automatically an assured tenancy if the conditions set out in the HA 1988 were met, though a landlord could serve notice on the tenant stating that the tenancy would be an AST (assured shorthold tenancy, which is a type of assured tenancy). The HA 1996 reversed the default position so that an assured tenancy granted after 28 February 1997 (when the HA 1996 came into force) would automatically be an AST.


The Management of Houses in Multiple Occupation (England) Regulations 2006 apply in addition to properties that qualify as HMOs (House in Multiple Occupation), i.e. a house in which three or more unrelated tenants live as at least two separate households, and where the tenants share basic amenities such as a toilet, bathroom or kitchen facilities.


(a) A tenancy can either be for a fixed-term (running for a set period of time) or periodic (running on a week-by-week or month-by-month basis).

Change of control. It would be very unusual indeed for there to be any control or notice requirements on change of ownership of the tenant or merger activity.Repairs. The tenant is likely to be responsible for all repairs if the letting is of whole, or to be liable for the interior of its demise and to contribute its fair contribution to these costs for the exterior and structure, if it is a letting of part.


VAT will be payable on rent by a tenant of a commercial property where the landlord has elected to waive the VAT exemption (that would otherwise apply to all land transactions). The landlord will be required to account for such VAT to the UK tax authority. The tenant may be able to recover the VAT depending on its VAT recovery position.Rent will be seen as income in the landlord’s hands and subject to UK corporation tax or UK income tax (as applicable). The rent should be a deductible expense for the tenant.SDLT is payable by the tenant assessed against the overall rental sum due but with a discount for later rent payments.


Business leases can be terminated by a landlord on default by the tenant (subject to a general equitable right to make good the defect, and resurrect the lease as a consequence, where the defect is capable of remedy). These default rights are usually tied to non-payment of rent, material tenant breach or tenant insolvency.Tenants and (less often) landlords may negotiate a contractual right to break a lease at specific points during the term. Tenant’s rights may be subject to some conditions such as prior notice and rent being paid up to date.Otherwise, leases only terminate if a surrender is negotiated between the landlord and tenant (which is likely to involve a payment by the tenant) or at the end of the term. Rights to renew are addressed in the answer to question 10.1.


For an original landlord there is no automatic release, but for leases granted on or after 1 January 1996, there is a right to request a release and, if reasonable, the tenant would be obliged to agree; however, this may need court action to establish. For subsequent landlords, if the lease is granted before 1 January 1996 then liability remains only for the time that they are landlord. For leases granted on or after 1 January 1996, the position is the same as for an original landlord of such a lease. For a tenant, whilst there is an automatic release of the tenant’s obligations qua tenant, market practice is such that most leases will require the tenant to act as guarantor of the obligations of the buyer of the lease (until that buyer sells the lease with landlord’s consent to another if that consent is required).




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The Town and Country Planning Act 1990 and the Planning Act 2008 set out a framework for maintaining planning control in England & Wales. The Planning (Listed Buildings and Conservation Areas) Act 1990 imposes a stricter regime for the demolition of or alterations to buildings with historic or architectural significance. The Housing and Planning Act 2016 introduces various planning reforms which simplify the requirements for neighbourhood and local planning, thereby aiming to facilitate a quicker supply of housing, including introducing a concept of permission in principle. The Environmental Protection Act 1990 regulates the deposit, treatment and disposal of waste and imposes obligations in respect of contaminated land.


The Compulsory Purchase Act 1965 and the Acquisition of Land Act 1981 outline the conditions under which a statutory body or local authority may forcibly require land owners to sell their land. In order for a compulsory purchase order to be issued, the owner of the property must be fairly compensated and the acquisition of the land must be for the public benefit. Compensation is assessed based on the market value of the land, though additional compensation may be available for losses to a home or for costs incurred in relocating business premises.


Land use and occupation is primarily overseen by the local planning authority (LPA), i.e. the relevant district, city or borough council within which a property is located. In certain circumstances, the Secretary of State can ‘call in’ planning applications to make final decisions, but will likely only do so if the application conflicts materially with national policy or it relates to a nationally significant infrastructure project. Buyers can obtain information on planning matters by raising enquiries electronically or in person of the relevant LPA. The principal bodies responsible for the regulation, protection and general improvement of the environment include the Environment Agency (EA), the Natural Resources Wales (NRW), the Health and Safety Executive and local authorities. Buyers can obtain information on environmental matters by searching records held by the relevant local authority, but they may also choose to commission independent surveys with environmental specialists depending on any risks identified.


Planning permission is generally required for any “operational development” (that is building, engineering, mining or other operations in, on, over or under land, including demolition) or a

(b) The RA 1977 set up a system for registering “fair rents” for residential properties. Fair rents are assessed by a rent officer, who is an official with the Valuation Office Agency, and once a fair rent has been registered, it is the maximum rent that a landlord may charge for that property (even if a tenancy agreement provides for a higher rent at the date it is entered into). Either the landlord or tenant can apply to the rent officer for a rent to be registered or they can apply jointly. Once a fair rent has been registered, it will apply until either party applies for a reassessment. The landlord can apply one year and nine months after the effective date of the last registration but the new registered rent will not become effective until a two-year period has elapsed. An application can be made at any time if it is made jointly by the landlord and tenant or there has been a change of circumstances that means the old rent is no longer fair. A fair rent may be lower than the market rent as the rent officer will assume that there is no shortage of properties available to rent in the area.

During the fixed-term of an assured tenancy (including an AST), the amount of the rent will be governed by the terms of the lease. If the tenancy is periodic (either a contractual periodic tenancy or a statutory periodic tenancy), the landlord can propose an increased rent, except in the case of a non-statutory periodic tenancy if the agreement contains contractual provisions for increasing the rent. If the tenant disagrees with the proposed rent, the tenant may ask the Residential Property Tribunal in England (or a rent assessment committee in Wales) to assess the open market rent for the property.

(c) See the response to question 11.4 below.(d) Such costs will likely be borne by the tenant. Where a

building comprises several flats or residential premises, the responsibility for conducting repairs of common areas or procuring insurance for the block may indeed fall on the landlord, but the costs will likely be divided amongst the tenants and recovered by the landlord via a service charge or included within the “rent” figure.


At the end of the contractual term for a regulated tenancy, the tenancy will continue as a statutory tenancy. To recover possession, the landlord must obtain a court order for possession. The grounds for possession are set out in Schedule 15 to the RA 1977. Some of the grounds are discretionary, so the court can only order possession if the court considers it reasonable. The remaining grounds are mandatory, so the court must grant an order for possession if the landlord can prove the ground.At the end of a fixed-term assured tenancy, the tenant has the right to remain in the property, unless the landlord can establish one of the grounds for possession in Schedule 2 to the HA 1988. A court order would be required to recover possession.The landlord of an AST has the right to regain possession of the property at the end of the fixed term (or, if the fixed term is less than six months, six months after the tenancy began), as long as the landlord gives two months’ notice. If a tenant remains in occupation of a property after the fixed term of an AST expires, a statutory periodic tenancy will arise.



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considered of historical or architectural significance. Similarly the Ancient Monuments and Archaeological Areas Act 1979 prohibits the demolition, destruction, damage, removal, repair or alteration of nationally important monuments, though certain works affecting them may be permitted with the Secretary of State’s consent.Due to the limited ability to deal with listed buildings, historic monuments and properties in conservation areas, their commercial value will likely be affected, though the very nature of the real estate does not prevent it from being transferred.


Local authorities are required to make publicly available a register of identified contaminated land. Exclusion from the register is not by any means an assurance that the land is not contaminated though as it may be that land has simply not been inspected. Buyers can carry out desktop environmental searches, which will collate information from publicly available sources and list current and past uses of the property and neighbouring properties which might have led to contamination, thereby helping buyers to determine whether more detailed independent surveys, e.g. of soil or groundwater, might be required.


Upon identification of contaminated land, water pollution or environmental damage, the appropriate local authority will issue a remediation notice to the appropriate persons to enforce clean-up action. For the more serious infractions, the EA or NRW will usually enforce the clean-up action. It is a criminal offence not to comply with the terms of the notice once it has been served. A planning authority may also impose it as a condition of a planning permission that environmental clean-up is carried out before a development can proceed.


An Energy Performance Certificate (EPC) is required for any property that is constructed, altered, sold or let. These are issued by commercial energy assessors and provide information about the energy efficiency of the premises and detail where improvements can be made to increase the rating and improve the energy efficiency of the premises. It is mandatory for any building occupied by public authorities or institutions providing public services to show a Display Energy Certificate (DEC) giving details of the energy efficiency of the building.

13 Climate Change


The CRC (which stands for Carbon Reduction Commitment) Energy Efficiency Scheme (CRC) obliges private and public sector

material change of use of land. Building regulations approval may be required to certify that the relevant works comply with construction standards as provided for in the Building Act 1984. It is possible that both or neither, if the criteria for exemption are met, may be required. Some changes to the use of a building are permitted under a general statutory order without the need for express planning permission. A development consent order is required (rather than planning permission) for projects that are nationally significant infrastructure projects.Where activities could potentially cause pollution or adversely affect the environment, an environmental permit may also be required. These are most commonly issued by the EA and NRW, however, they may also be granted by a local authority depending on the activity and potential pollution risk.


It is usual for planning permissions and building regulation consents to be obtained in England & Wales. If they are not, the Planning and Compensation Act 1991 specifies the period of time within which planning control contraventions can be acted upon by a local authority. If no enforcement action is taken within these time limits (which vary depending on the breach), the building or activity will become immune from further enforcement action upon expiry of the relevant period. For planning permissions those periods are:■ four years for works carried out that constitute operational

development; ■ four years for a change of use to a single dwelling house; and■ 10 years for most other breaches, including breach of a

planning condition or a material change of use.


The cost varies depending on the scale, complexity and nature of the work to be carried out, though the method for calculating is provided for in the Town and Country Planning (Fees for Applications, Deemed Applications, Requests and Site Visits) (England) Regulations 2012. The LPA should make all decisions within the statutory time limits, specified in the Town and Country Planning (Development Management Procedure) (England) Order 2015, unless a longer period is agreed in writing with the applicant. The more complex applications will include more evidentiary support thereby increasing the response time. The statutory time limit is usually 13 weeks for applications for major development and eight weeks for all other types of development (unless the works are likely also to impact the environment, in which case a 16-week limit applies as the EA or NRW will also review the application). Where a planning application takes longer than the statutory period to decide and an extended period has not been agreed with the applicant, the government’s planning guarantee requires the decision to be made within 26 weeks at the most.


The Planning (Listed Buildings and Conservation Areas) Act 1990 protects against the destruction or alteration of buildings that are




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The Minimum Energy Efficiency Standards (MEES) Regulations came into force from 1 April 2016 and prohibit landlords from granting, extending or renewing any tenancy on or after April 2018 or continuing thereafter to let domestic and non-domestic private rented properties that do not comply with the regulations.

organisations, primarily on the basis of whose energy consumption qualifies as significant (amongst other inclusion criteria), to monitor and report carbon emissions and purchase carbon allowances for every ton emitted. Following a UK government announcement in 2016, the scheme will cease to operate by 2019. It is not yet clear whether or not there is going to be a replacement for CRC.Some UK organisations are subject to participation in the EU Emissions Trading System (EU ETS). There is a collective cap on the total amount of emissions allowed by all participants in the system – members can purchase additional allowances from other members or take steps to reduce their carbon emissions.


The Climate Change Act 2008 provides a target to reduce greenhouse gas emissions, when compared against 1990 baseline levels, by at least 80% by 2050.


Ropes & Gray is a pre-eminent international law firm with offices in key financial centres around the world and has over 275 partners and 1,160 lawyers worldwide. It has market leading practices in fund formation, M&A, private equity, real estate, finance, capital markets, investment management, tax, government enforcement, litigation and IP.

The firm’s market leading real estate practice advises private funds, investment banks, endowments, sovereign wealth funds and other investors as well as sponsors and operating partners on the full range of real estate transactions including real estate private equity, real estate M&A, co-investment, joint ventures, real estate finance, acquisitions and disposals of shares, debt and property assets, fund investment/divestment, development projects and earn outs as well as preferred equity, mezzanine lending, restructurings, structured finance, work outs and outsourcing. The practice handles transactions relating to both distressed and non-distressed real estate, at all points of the risk spectrum and across multiple geographies and involving all types of real estate including commercial, leisure, hotels, pubs, care homes, hospitals, student housing and government property as well as portfolios, mortgages and NPLs and construction and development projects.

The firm has over 90 legal professionals, including 50 lawyers specifically focused on real estate transactions, who routinely handle market-leading tax structuring and complex debt and equity financing structures and exit strategies. The firm’s clients include some of the most sophisticated investors in the property industry and regularly look to it for advice on their complex, high value real estate investment and financing transactions. Last year, the firm’s international real estate practice handled matters with an aggregate transaction value in excess of $22 billion.

Carol HopperRopes & Gray International LLP60 Ludgate Hill London EC4M 7AWUnited Kingdom


Partha PalRopes & Gray International LLP60 Ludgate HillLondon EC4M 7AWUnited Kingdom


Carol Hopper is a partner in Ropes & Gray’s Real Estate Investments and Transactions Group based in London. She advises funds, investors, bank and non-bank lenders and corporate clients on a wide variety of domestic and international real estate based transactions. She has a breadth of experience acting for investors at all levels of the capital stack across the full risk spectrum, within and outside Europe and in a wide range of sectors from office, industrial, logistics, residential, hotel, co-working, senior living and leisure to infrastructure and public/private finance transactions. Carol joined the firm in January 2015. She is a current member of the Commercial Real Estate Finance Council’s PRS/BTR Sub Committee.

Partha Pal is a partner in Ropes & Gray’s Real Estate Investments and Transactions Group. He specialises in banking and structured finance transactions, with a particular focus on commercial real estate assets. Mr Pal is highly experienced in complex cross-border transactions, having practised in London, New York and Singapore. He is also involved in the work of the Commercial Real Estate Finance Council having served as co-chair of its Hedging Sub Committee and as a current member of the PRS/BTR Sub Committee.


Chapter 11

Attorneys-at-Law Project Law Ltd

Matias Forss

Sakari Lähteenmäki

Finland



Rights over land can be separated to title, special rights that can be registered, easements and mortgages. Purely contractual rights are recognised, but not given preference over registered rights. A lease on land is considered a special right that can be registered. Other special rights include an agreement between the joint titleholders of a real estate on the possession of the real estate or the right to extract mineral resources.


It is possible to register a delimitation on the components of real estate, so that a building or other construction does not belong to the real estate, but has a separate owner. If the divergence in ownership is not registered, creditors have the right to assume that buildings belong to the real estate.A registered tenant is the owner of the buildings he has constructed.


This split is not recognised under Finnish law.



All land is required to be registered. All rights in land that bind third parties can be registered.


There is no state guarantee of title, but the law confers public faith in the land register. The state is liable for damages that have been caused by errors committed by officials in upholding land registries.

1 Real Estate Law


The Code of Real Estate (Fi: maakaari) regulates the acquisition and registration of real estate and liens on real estate. The Real Estate Formation Act (Fi: kiinteistönmuodostamislaki) regulates the formation of real estate units, the creation of easements and other cadastral procedures. The Real Estate Register Act (Fi: Kiinteistörekisterilaki) regulates the real estate register.The Housing Companies Act (Fi: asunto-osakeyhtiölaki) regulates residential housing companies, but can be partially applied to other real estate companies.The Act on Land Lease (Fi: maanvuokralaki) regulates the leasing of land areas.


Finnish real estate laws are codified and courts are under the duty to interpret the law. Some rights to natural resources (e.g. fishing) on government land have been recognised as local customary law.


There are no relevant international laws.

2 Ownership


There are no restrictions on ownership outside the province of Åland Islands, where ownership is restricted to residents of the province.



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There is no physical title document issued. Excerpts from the land register are used to prove ownership.


Electronic real estate transactions became possible in November 2013, and since then it has also been possible to execute real estate deeds electronically.Electronic real estate transactions are executed by filling in a form at an online service provided by the National Land Survey of Finland. Online transactions are verified by the parties of the transaction by using online bank user identification. The title to the property in question is transferred to the purchaser automatically and there is no need to file for the title.Electronic real estate transactions are, however, seldom used by real estate investors, construction companies and other professional operators.


There is a possibility of compensation for mistakes under certain strictly limited circumstances.


There are no restrictions in terms of access to the relevant registers. The buyer has an opportunity to obtain relevant information without the consent of the seller.



A real estate transaction must be verified by a notary. The notary’s duty is to verify the sale and purchase agreement, the ownership/title of the property in question and the identity and the authority to execute the signatory of each party.Typically, other parties involved in real estate transactions are the legal or other advisors of the seller and the buyer, and real estate agents brokering the transactions.


The notary verifying the real estate transaction is entitled to receive a small remuneration for their services.


A land lease right or other use rights pertaining to real estate properties are compulsorily registrable if (i) the right is transferable to a third party without the permission of the landlord, (ii) there are buildings belonging to the tenant on the leased property, and (iii) buildings may be built on the property by the tenant.


Rights such as easements, real estate liens (Fi: kiinnitys), joint possession (Fi: hallinnanjako) and joint arrangements (Fi: yhteisjärjestely) are not required to be registered; however, it is highly recommended that such rights are registered in order to solidify their status and enforce the right against third parties.


All land in Finland is registered.


The title is transferred to the buyer by a deed of sale. The transfer of ownership (and possession) is regularly agreed on in a deed of sale, and usually involves a clause stipulating that ownership and/or possession is transferred to the buyer simultaneously with the payment of the purchase price.


In general, it can be stated that earlier rights defeat later rights. In principle this also concerns registered rights, e.g. example easements, real estate liens, joint possession (Fi: hallinnanjako) and joint arrangements (Fi: yhteisjärjestely).Earlier mortgages pertaining to real estate properties have priority over mortgages registered later. However, the priority order of mortgage rights may be amended by an application which the mortgage holder has accepted. Unregistered earlier rights do not obtain priority unless those who invoke registered later rights have acted in bad faith.



It can be said that there are three land registries in Finland. One for the title to the property, one for encumbrances (e.g. mortgages) and one for easements, city plans and the origin and formation of the properties. All of these registries are operated by the National Land Survey of Finland (Fi: maanmittauslaitos).

Attorneys-at-Law Project Law Ltd Finland


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planning, building permits and restrictions on land use, liens and other restrictions on ownership are also specifically mentioned.


Misrepresentation results, in general, in the liability to return part of the sale price as a price reduction or the whole sale price if the sale is cancelled. The seller can also be liable for damages. The buyer is entitled to demand cancellation if the misrepresentation is essential in view of the entire sale. A price reduction is calculated according to the price that the object of sale should have had at the time of the sale.


Seller’s warranties in real estate transactions cover various areas, such as environmental issues, lease agreements and other agreements related to the property, easements and servitudes. The purpose of the warranties given by the seller is to give information to the buyer and to protect the buyer from risks that may transpire. Sale and purchase agreements often include a clause wherein the buyer states that they have concluded a due diligence and have been given information on the property.


The ownership of the seller is warranted by an excerpt from the land register which the notary verifying the deed shall verify in each transaction.


In a real estate transaction, the buyer is obligated to pay the transfer tax. To obtain registration of title, the buyer should apply for it after the transaction has been completed.



There are no regulations for real estate financing other than banking regulations.


A lien on the real estate is usually considered sufficient.

Legal advisors are often remunerated on an hourly basis. Real estate agents often act on a commission basis.


In the last few years the real estate market has revived itself and the influx of capital, domestic and foreign, has meant that transaction values and volumes have increased. This has seen new players, including domestic and foreign real estate funds, enter the market.


Real estate investments are mainly concentrated in the capital city area and a few other larger cities. Helsinki’s metropolitan area is considered a primary real estate market and the Tampere and Turku regions are following behind as secondary markets. There is considerable interest from investors in secondary and even tertiary markets, but such investments rarely include international parties.


Investors and developers can be considered to be attracted to all market subsectors.



The Code of Real Estate regulates the formalities for the sale and purchase of real estate. A sale of real estate shall be concluded in writing and the deed shall include the following mandatory information: (1) the intent to convey;(2) the real estate to be conveyed;(3) the seller and the buyer; and(4) the price or other consideration.In addition, each sale and purchase of a real estate is obligated to be verified by a notary.


In the Code of Real Estate, there is a general duty to disclose all matters that affect the sale price. Size and condition of buildings and structures are mentioned as examples. Information on land use




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10 years. The capital gain tax rate is 30–34%, so the seller can pay up to 20% of the purchase price as income tax.


Transfers of real estate are not subject to VAT.


There are no other taxes.


The transfer tax for the transfer of ownership of a company is 2% of the purchase price. Therefore, it may be tax-efficient to own properties within a company and then transfer the ownership to the company.


The owner of real estate must pay a yearly real estate tax that is based on the value of the land and buildings. The tax on buildings is based on the type of building, i.e. the current use of the building and its size and amenities. If buildings have been converted to other uses, e.g. industrial to office, the tax administration might not be informed of the conversion, which may have resulted in too little taxes being paid.



The Act on the Leasing of Business Premises (Fi: laki liikehuoneiston vuokrauksesta) comprehensively covers the basic requirements and regulates the tenancy even if the parties do not themselves deem that it is necessary to record every term of the tenancy in an agreement.


The Act on the Leasing of Business Premises covers all types of business leases, e.g. office spaces, business premises, restaurants and hotels. The legislation is flexible in terms of the variety of the type of premise leased.


(a) The length of the term of the lease is not regulated. The length of the term may be either fixed or in force until further notice.

(b) Rent increases are typically tied to the cost-of-living index of Finland. The rent is typically adjusted annually or bi-annually.


Common proceedings include the executive auction sale of real estate, but it is possible even after court proceedings to try to market the property as a regular object for purchase. Without the consent of the mortgagor, there are no options for enforcement other than court proceedings.


There is no specific regulation on real estate lending.


The priority order of mortgage liens protects lenders. In case of a default and a resulting executive auction sale of real estate, the creditors are satisfied in the priority order set out in the register for encumbrances.


Such circumstances are hardly imaginable. The borrower would have to claim fraud of the documents or similar circumstances.


It is possible to appeal to the district court against measures taken by the bailiff; for instance on the grounds that the auction price was considerably below market price. These kinds of appeals generally do not succeed, but have in some instances stalled enforcement for the duration of the process.

9 Tax


The transfer of real estate is subject to a transfer tax, which is 4% of the purchase price. According to the Code of Real Estate, the buyer shall be liable for the transfer-of-assets tax levied on the sale.


The transfer tax must be paid within six (6) months from the signing of the sale and purchase agreement.


The seller must pay an income tax for the profit, which is calculated either on the basis of the seller’s purchase price or on 60% of the purchase price for real estate that the seller has owned for more than



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Green lease policies are becoming more common to property owners and this is reflected in lease agreements. To accomplish the aspiration of sustainability, the terms and conditions of modern lease agreements regularly refer to the tenant’s obligation to ensure that all operations within the object of lease are carried out in compliance with environmental legislation and with other environmental recommendations and orders issued by the authorities that are binding upon the tenant.Eco-efficiency is promoted in lease agreements to ensure support for sustainable development. It is common practice to attach environmental programmes to lease agreements.The enforceability of environmental and green policies given by a landlord has not quite yet been tested in Finland.



The lease of residential premises is regulated by the Act on Residential Leases (Fi: laki asuinhuoneiston vuokrauksesta).


Persons living together as spouses are jointly responsible for the obligations of a lease agreement, even if the lease agreement has been made in the name of only one of the spouses.Otherwise, the law does not regulate multiple different residential occupiers. In general, this means that lease agreements are made jointly by the different occupiers. This can be accomplished by entering into an agreement wherein all of the occupiers are tenants or by entering into one main lease agreement, in which the main tenant then sub-leases to the other occupiers.


(a) The length of the term of the lease is not regulated. The length of the term may be either fixed or in force until further notice. However, if the lease is agreed for a fixed period of up to three months twice in a row with the same tenant, the lease is considered to be in force until further notice.

(b) Rent increases are typically tied to the cost-of-living index of Finland. If it has been agreed that the lessor may unilaterally determine the date or amount of the rent increase while the lease is in force, such stipulation shall be null and void unless the grounds on which the rent can be increased during the lease agreement’s validity have also been agreed. Before the

(c) A common clause in a lease agreement is that the tenant may not assign the lease, re-let or transfer the possession of the lease to a third party (sub-lease) without the landlord’s consent.

(d) Most often, the lease agreement obligates the tenant to take out insurance against loss or damage, liability insurance and loss of profits insurance, insuring the use of the object of the lease and the tenant’s property. The landlord shall have the property insured by conventional full value property insurance.

(e) (i) According to the legislation, the tenant, in case of a transfer of business, has the right to transfer the lease right; however, often the clause involving the restriction on the right to transfer the lease or the possession of the object of the lease includes a stipulation whereby this also applies to a transfer of business.

(ii) In a corporate merger, lease agreements are transferred by law to the recipient company.

(f) Repairs and maintenance of the object of lease are agreed on a case-by-case basis. Usually a lease agreement involves a maintenance rent which covers most of the maintenance of the object of the lease. Alternatively, the lease may be double net or triple net where the tenant shall assume some or even all of the maintenance costs. Typically, double or triple net leases are involved in properties with a single or a few tenants.


Rent is not generally subject to VAT. The parties can choose that the rent is subject to VAT in order to enable the landlord to deduct VAT on input costs, if the business in the rented premises is subject to VAT.


Business leases are usually terminated mutually by the parties or at the expiry of the lease term.In case the tenant is declared bankrupt and the bankruptcy estate has not underwritten the obligations of the tenant under the lease agreement, the landlord has the right to terminate the agreement. The bankruptcy estate is responsible for the obligations of the lease if they resume use of the leased premises.


The tenant shall not transfer his leasehold without consent expressed in the lease agreement or given separately by the landlord. Therefore, unless such consent exists, the tenant is liable for their obligations under the lease.The landlord has a right to transfer the leasehold to a third party.




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governs nature reserves and protected species. The Environmental Protection Act governs the permitting of activities that might result in environmental degradation. The Land Extraction Act governs the extraction of land for construction purposes.


Municipalities or the state have, according to the Land Use and Building Act, the right to expropriate land “when the general need so demands”. This right has been used, e.g., to acquire land for the purposes of planning industrial premises or residential buildings on the land. This kind of expropriation is mostly used in areas without a detailed plan, because then the expropriation price does not take into account the planned future use of the expropriated land. The expropriation price is determined according to Expropriation Act and is based on sale prices on similar properties. Municipalities have under the Land Use and Building Act various powers to expropriate land in order to enable the execution of a local detailed plan. The expropriation price is determined according to the local detailed plan in question.Separately, the Pre-emption Act gives municipalities the right to buy any property that can be developed for residential or recreational use at the same price at which the buyer is willing to buy.


Municipalities have building inspectors that control permits, use and occupation. Environmental regulation is controlled by environmental authorities either on the municipal or state level. The municipal building authority (Fi: rakennusvalvonta) is a reliable source of information on the current accepted use of buildings.


The main permit required for building works or other similar use of real estate is a local detailed plan or a granted right to deviate from it, or, absent a local detailed plan, a decision on the special preconditions for granting a building permit according to the Land Use and Building Act. Building works also require a building permit, which is of a technical nature and only limitedly open to appeal. To change the use of a building requires a building permit if the change is considered significant.


Building permits are obligatory and are also required to change the main use of a building. Implied permission can have been obtained in the first half of the 20th century before changes in legislation, but is not obtainable any more.


If a local detailed plan incurs significant value on real estate, the owner is obligated to pay a percentage of it as development compensation to the municipality. The development compensation

rent increase can take effect, the lessor shall notify the tenant in writing of the new rent and the date on which it will take effect.

(c) The removal date shall be the next working day following the lease’s date of termination. The tenant shall vacate half of the apartment for the lessor’s use on the removal date and shall surrender the entire apartment to the lessor on the following day. If a tenant with a non-fixed-term lease encounters substantial difficulty in obtaining another dwelling by the removal date, the court can, at the tenant’s request, defer the removal date by up to one year.

(d) At the commencement of the lease and throughout its duration, the apartment shall be in such condition as the tenant may reasonably require, taking the age of the apartment, the local housing stock and other local conditions into consideration, unless otherwise agreed regarding the condition of the apartment. It may also be agreed that the tenant shall be responsible for the upkeep of facilities and equipment available to him, her or it under the lease or for obligations associated with the property. The lessor and the tenant can agree on any repairs, alterations or upkeep measures to be performed in the apartment. The tenant shall not have the right to perform any repairs or alterations in the apartment without the lessor’s permission, except in order to remedy a deficiency.


The landlord shall have the right to rescind the lease agreement:(1) if the tenant neglects to pay the rent within the time prescribed

by law or agreed on;(2) if the leasehold is transferred or the apartment or part of it is

otherwise assigned for another person’s use, contrary to the provisions of this Act;

(3) if the apartment is used for any other purpose or in any other manner than that provided when the lease agreement was made;

(4) if the tenant creates a disturbance with his or her way of life or allows others to do so in the apartment;

(5) if the tenant fails to take good care of the apartment; or(6) if the tenant violates provisions or regulations for the

maintenance of public health and order in the apartment.The landlord shall not rescind the lease agreement on grounds referred to above, if he has not issued the tenant with a written caution.Should the tenant not move out of the leased premises once the agreement has been terminated appropriately, the landlord has to apply for a court order to evict the tenant.



The main law that governs zoning and permitting is the Land Use and Building Act, which governs the role of the state and municipalities in land use planning and regulates permits for buildings. The Water Act governs construction on water, use of ground or surface water and other use of water-covered areas. The Nature Conservation Act



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New residential or commercial buildings are under very strict requirements for energy efficiency. The energy efficiency of old buildings must be improved, if feasible, when carrying out repairs or conversion of the building. The requirements are monitored during the granting of building permits. The energy performance of a building is assessed via energy certificates, which are mandatory for almost all residential and commercial buildings.

13 Climate Change


The European Union Emissions Trading System is the primary measure. There is complementary regulation and incentive programmes on energy efficiency and the use of renewable materials or sources of energy.


A goal set out in the Climate Act is to reduce emissions by 80% as compared to 1990 levels by the year 2050.


There are no such measures.

is at maximum 60% of the added value. It is also possible to conclude a land use agreement between the real estate owner and the municipality on the details of the increase in building rights and the compensation due to the municipality. Changing a local detailed plan or obtaining a deviation from it takes at least a few months and involves significant planning costs. The costs of the permits are not significant in comparison.A building permit is typically obtained in a few weeks.


The Act on the Protection of Buildings (Fi: rakennussuojelulaki) regulates the protection of historic buildings and monuments. The legislation gives protection not only to buildings but also to their structures and facades. In addition, buildings and their protection extends to city planning, and therefore a property development project, for example, may encounter difficulties if the planned structures fail to fulfil the requirements of the protected building.


Environmental authorities have a public register on contaminated or potentially contaminated soil. Decisions and rapports by environmental authorities are also public and can be obtained by anyone.


According to the Environmental Protection Act, clean-up is required when there is danger to health or the environment. The responsibility is primarily on the polluter and secondarily on the occupant of the contaminated area.




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Matias ForssAttorneys-at-Law Project Law LtdMuseokatu 8 A 8FI-00100 HelsinkiFinland

Tel: +358 50 358 7010Email: [email protected]: www.projectlaw.fi

Sakari LähteenmäkiAttorneys-at-Law Project Law LtdMuseokatu 8 A 8FI-00100 HelsinkiFinland

Tel: +358 50 514 3656Email: [email protected]: www.projectlaw.fi

Matias has been an associate at Attorneys-at-Law Project Law since 2016. Prior to that, he was a doctoral candidate at the University of Helsinki, and an associate at a similar law firm. Matias advises clients in the field of land use planning, real estate law, environmental law and construction law.

Matias has significant experience in dispute resolution concerning real estate transactions, construction contracts and leases of business premises. His typical clients are real estate developers and construction companies.

Attorneys-at-Law Project Law serves comprehensively in situations calling for expertise in property law and in the various stages of the life cycle of properties. The firm’s proficiency extends from land use agreements, urban planning and the formation of a property to the planning agreements for construction projects and contract practices in the implementation phase of projects.

Project Law’s core areas of expertise are: Business Premise Lease Arrangements and Transactions; Land Use and Real Estate Development; Construction Agreements and Project Delivery; Dispute Resolution; Corporate Law; and Environmental Law.

Project Law also counsels on issues related to soil contamination, lease of completed business premises and legal advice on the conversion of intended use of historical buildings.

Project Law team has vast experience in the real estate market and the personnel have comprehensive knowledge of the procedures and practices, operators and interest groups of the core areas of expertise.

Sakari has been an associate at Attorneys-at-Law Project Law since 2014 and prior to that worked as a trainee at the firm. Sakari advises clients in the field of real estate transactions, and has an extensive real estate portfolio and has worked on many real estate fund projects. In addition, Sakari assists clients in general corporate and contract law. Sakari also has considerable experience in real estate development projects and provides counsel on different types of agreements related to land use.

Sakari has advised numerous Finnish and international corporations, real estate funds and other investors, as well as Finnish cities and municipalities on real estate transactions, questions arising from jurisprudence on land use, commercial lease agreements and corporate law.



Chapter 12

Tirard, Naudin

Maryse Naudin

Jean-Marc Tirard

France

2 Ownership


No legal restriction specifically applies to the ownership of real estate by particular classes of persons.



Several rights over land are recognised in France, some of which are purely contractual between parties.First of all, the full ownership (“pleine propriété”) of French real estate can be shared between usufruct (“usufruit”) and bare-ownership (“nue-propriété”). Several joint-owners may hold the usufruct, the bare-ownership and/or the full ownership of the same French real estate (“indivision”).On the other hand, mortgages (“hypothèques”) (legal or contractual), and lender’s pledges (“privilège du prêteur de deniers”) can be registered on a French property.Real estate rights are also given to the user of the property, whether it is used for free (“mise à disposition gratuite”) or rented out. Rights are, however, substantially different depending on the leasehold: “bail d’habitation” (housing lease); “bail commercial” (commercial lease); “bail professionnel” (professional lease); “bail rural” (rural lease) “bail à construction” (construction lease); “bail emphytéotique” (long-term lease); and “concession” (concession).Finally, easements (“servitudes”) granted by the law or ancestral customs may apply to French real estate.


There are some cases where the right to a real estate diverges from the right to a building constructed thereon, such as the “droit de superficie” (land tenure) and the “division de la propriété en volume” (division of the property into several units).

1 Real Estate Law


In France, real estate is governed by several laws and regulations which are codified differently depending on their aims and objectives:■ The “Code de l’urbanisme” (“Planning Code”) provides rules

harmonising the use of French territory which is considered as the common space of the Nation.

■ The “Code de la construction et de l’habitation” (“Construction and Housing Code”) consolidates construction, development and social housing rules.

■ The “Code civil” (Civil Code) contains rules, among others, relating to the definition of ownership, transfer of ownership for consideration, by gift or by death as well as rules governing the use and lease of real estate properties.

■ The “Code de commerce” (“Trade Code”) and the “Code rural” (“Rural Code”) include specific rules applying to real estate used for commercial and/or agricultural purposes.


Because France is a civil law country which does not recognise the concept of legal ownership versus beneficial ownership and has never ratified the Hague Convention on the recognition of trusts, a trust cannot directly own a real property located in France.Nevertheless, it does not mean that a trust cannot be used to hold indirectly a French real property.


Strictly speaking, international laws are not relevant in France in matters of real estate law (in particular in matters relating to planning, construction and housing rules).



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pledges) is also determined depending on the date of completion of the purchase agreement.



The “Cadastre de France” (land register) is a framework of maps and administrative files registering all real estate properties located in each French town. The register was created at the beginning of the 19th century. For historical reasons, the region of Alsace-Moselle benefits from special treatment.


The land registry does not issue a physical title document to real estate owners. The owners receive from the French “notaire” an original copy of the purchase agreement bearing a stamp with the registration number of the acquisition with the Cadastre.


The transfer of French real estate should be registered with the register either by a French notaire in the case of a private sale or by a French judge in the case of auction.The information on ownership of registered real estate cannot be accessed electronically.


No compensation can be claimed from the registry if a mistake has been made. However, in theory the notaire may be held responsible.


One may obtain information relating to the transfer of French real estate by gift, by death and by sale. The date and price of transfer, as well as the identity of each new owner is provided. All mortgages and liens put on the property are also detailed, including their amounts, dates, beneficiaries and the levees’ date.



Several parties may be involved in a real estate transaction in France. The real estate brokers are the first to appear on the scene.


As explained in the answer to question 1.2 above, there is no split between legal title and beneficial title in France. Consequently, a trust cannot be registered with the “registre cadastral” (land register) as the owner of a French property.



All lands, as well as all rights relating to French real estate (except lease agreements not exceeding 12 years) should be registered with the “Cadastre de France” (land register) in order to be enforceable against third parties.


Strictly speaking, there is no state guarantee of title.


All rights listed in the answer to question 3.1 above are compulsorily registrable, except lease agreements not exceeding 12 years.


Lease agreements which do not exceed 12 years are not required to be registered.


There is no probationary period.


Between parties, the ownership is transferred under the terms of the sale agreement. As a general rule, however, it is enforceable against third parties after the registration of the sale with the “Cadastre de France” (land register).


The first registered buyer prevails over the others. Assuming different purchasers register on the same day, the first signed agreement prevails. The rank of priority relating to liens on the property, such as “privilege du prêteur de deniers” (lender’s

Tirard, Naudin France


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Since the beginning of 2017, 33 transactions over €100 million were recorded in commercial real estate in France. The total amount was €6 billion. Among the most prominent deals, notably there was the acquisition of 50% of the towers “Duo” in Paris by Natixis Assurances for €600 million, and the acquisition of the building “In/out” by Primonial Reim in Boulogne-Billancourt for €445 million.Investors are particularly looking for new and restructured office properties in Paris and its western suburbs.


Retail property market declined 47% during the first three quarters of 2017. This can be explained by the scarcity of “prime assets” available in the market and by the sharp decline in the amounts invested in large deals. As explained in Section 9 below, the Finance Bill for 2018 provides for the abolition of the wealth tax and the implementation of a new tax based on the market value of real estate located in France for non-resident tax payers and located worldwide for French resident tax payers. As a consequence of this fundamental change in the tax treatment of real estate investments, one may expect either a lack of interest of investors in French real estate or a new opportunity for those who are confident that President Macron’s challenge will be successful.



As explained above, the French notaires’ monopoly means that parties rely on them to execute the minimum formalities for the sale and purchase of real estate.The notaire should verify that:■ the real estate property is duly owned by the seller. For

example, the apparent owner of the property could only own the usufruct and the bare-owners may not have been involved in the negotiation process;

■ the mortgages registered on the property being sold do not exceed the sale price of the property; and

■ all compulsory certificates relating to the absence of legionella, woodworm, lead poisoning and asbestos, as well as the conformity of gas and electrical fittings, etc., have been provided by the seller.

The notaire should also exercise all formalities relating to pre-emption rights that might apply as a result of the law to the town or other public authorities (e.g.: “droit de préemption urbain”, “droit de préemption de la SAFER”).

They allow potential purchasers and sellers to meet. They also provide all information on the property to the buyer. As opposed to the situation in the UK, no general survey on the property is, as a general rule, carried out in France. Is it the responsibility of the buyer to find out information regarding the property. Only a few compulsory survey certificates are issued before the acquisition.Avocats may be involved in the process of purchasing a property in France, as well as the purchase of shares of a company which owns, directly or indirectly, French real estate properties. They represent their own clients during the negotiation period and the preparation of the legal documentation.The French notaires are “officiers ministériels” (ministerial officers) who benefit from a monopoly of executing and registering (with the “cadastre”) all transfers of French properties. The sale of shares of companies (French or foreign) owning directly or indirectly French real estate having a market value exceeding that of their French movable assets, signed outside France, should also be reiterated with a French notaire. Other sales of shares are not in the scope of the notaires’ monopoly.Real estate technicians can be appointed by the potential purchaser in order to carry out the non-compulsory survey and due diligence work on the property.Finally, sales of properties by auction may be executed and registered to the “cadastre” by a French judge.


Fees of real estate brokers (between 1% and 5% depending on the nature and amount of the sale price) as well as those of avocats (depending on their diligence) are negotiable. Notaires receive compulsory fees determined by the law depending on the market value of the property sold. A degressive rate scale applies with a marginal rate of 0.825%. When two notaires are involved in the transaction, one representing the seller, the other representing the purchaser (this is our recommendation in order to avoid a conflict of interest), compulsory fees are shared between both notaires. Fees due to the notaires upon the reiteration of the sale of shares of a company owning a French real estate property signed abroad should, however, be negotiated.


A stagnation can be observed in terms of commercial real estate investment volumes in France. Although such investments have been high over the last two years (around €25 billion), an estimated €24 billion has been invested in 2016 (approximately the same volume as in 2015). With a 37% share of investment, insurers are the most active investors, followed by unlisted investment funds (29%). Approximately four out of five acquisitions are financed by equity capital. This proportion obviously varies depending on the size of the operation. Debt is involved in 25% of the transactions between €30 and €50 million, 15% between €100 and €200 million, and 40% over €200 million.




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As explained before, the seller warrants its ownership of the property. However, this affirmation is automatically verified by the notaire or the avocats in checking the “registre cadastral”. The same applies when the shares of the company owning French real estate are sold.


In the case of the purchase of French real estate, the buyer is only liable for expenses mentioned in the agreement. Assuming the shares of the company owning the French real estate are sold, the purchaser is liable for known and unknown debts of the company. In order to prevent or limit the liable risk of the buyer, a liability guarantee clause along with an escrow clause should be provided in the shares purchase agreement.



The Finance Bill of 2018 provides that loans granted by family members to finance a French real estate property would only be taken into consideration for real estate wealth tax (“IFI”) purposes (see Section 9 below) if the terms and conditions of the loan agreement are at arm’s length.This Finance Bill also provides that for tax payers having a real estate wealth exceeding €5 million, deductible loans for IFI purposes cannot exceed 60% of the value of the real estate. Only 50% of the amount exceeding this limit would be taken into consideration for the determination of the IFI taxable basis. Finally, loan agreements providing for a “bullet repayment” at maturity (“Balloon Loans”) should be amortised over the duration of the loan for IFI purposes. The principal of the loan which should have been theoretically amortised is not deductible for the purpose of determining the net value of the taxable properties.


The traditional methods by which real estate lenders seek to protect themselves are the inscription of the “privilège du prêteur de deniers” (lenders’ pledges), registration of the mortgage within the “registre cadastral” and by means of a pledge on the shares of the company owning the French real estate.


Conventional mortgages as well as “privilège du prêteur de deniers” (lenders’ pledges) should only be registered in the “registre

It may be appropriate to rely on the notaires for low value transactions relating to French real estate; however we recommend being assisted by a French avocat for larger scale transactions. The notaire does not represent either the seller or the buyer, one of his main tasks being to make sure that taxes are paid.Assuming the shares of the company owning the real estate are sold, due diligence should be performed by parties in order to verify the situation of the French real estate and the financial situation of the company sold. These verifications are performed in practice by French avocats.


The seller has, as a general rule, very few duties of disclosure, and the notaire will not necessarily protect the purchaser. As explained before, it is the responsibility of the purchaser to investigate the property to their satisfaction. This is always reiterated in the standard sales agreement proposed by the French notaires. This is why it is recommended for both the seller and the buyer to engage their own avocat to ensure that everything is carried out to their satisfaction.


In France it is rare that a seller is held liable for misrepresentation relating to the acquisition of real estate. The buyer would need to demonstrate that the essential reason he/she was interested in purchasing the property was misrepresented in order to invalidate the acquisition, according to the new article 1112-1 of the Civil Code. Assuming the agreement was valid, it is voidable by application of the new article 1187 of the Civil Code if at least one condition precedent provided in the agreement was not met before the completion date.It should be noted that in France, as a general rule, a private pre-purchase agreement is signed between parties, providing several conditions precedent which should be met prior to the signing of the purchase agreement before the notaire. After the signing of this agreement, it becomes very difficult to challenge the validity of the purchase, except in case of fraud.However, the seller’s liability is easier to challenge in cases of the sale of shares of a company owning French real estate when the share purchase agreement provides representations on the seller which have not been met. The share purchase agreement can either be null and not valid according to article 1112-1 of the Civil Code in case of misrepresentation, or voidable by application of article 1187 of the Civil Code (see above).


The contractual warranties appearing in the “standard” private pre-purchase agreement of French real estate are, as a general rule, very limited and should be checked before the signing of the agreement in front of the notaire. They may concern, for example, the nature of the building (land to build), the possibility of obtaining a construction permit or purchasing a vacant building when it is still occupied. It should also allow the new purchaser to substitute the seller in order to benefit from any building guarantees previously granted. However, warranties are never a substitute for the buyer carrying out his own due diligence.



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Transfer of real estate is subject to transfer duties at the rate of 5.81%, calculated on the purchase price of the property, and at the rate of 5% on the sale price of shares of an SPI.Traditionally, transfer duties are due by the purchaser even if it may be provided otherwise in the sale agreement. Both the seller and purchaser are liable for their payment vis-à-vis the FTA.


The notaire levies transfer duties at the time as the property sale agreement is signed. Transfer duties on sale of an SPI’s shares should be paid within 30 days of signing the sale agreement.


Transfers of real estate are subject to income tax at a flat rate of 19% and social security contributions at the rate of 15.50% for 2017 (which will be increased to 17.20% as of 1st January 2018, as provided by the Finance Bill for 2018). An additional tax at progressive rates varying from 2% to 6% also applies on capital gains exceeding €50,000. Finally, the exceptional contribution on high income may also apply at a rate of 3% or 4% depending on the annual income and capital gains received by a tax payer during a said year. The marginal rate of taxation for 2018 would reach 46.2%.Exemptions apply depending on the duration of the ownership of the property, under which a total exemption of income tax (at the rate of 19%), an exceptional contribution on capital gains (at progressive rates from 2% to 6%) and an exceptional contribution on high income (at the rate of 3% or 4%) is granted after 22 years of ownership. A total exemption from the social contribution (at the rate of 15.5% for 2017 and 17.2% for 2018) also applies after 30 years of ownership.The same regime applies for residents and non-residents of France.


VAT may only apply (at a rate of 20%) on transfers of land to be built upon, on buildings under completion, and on new buildings completed in the previous five years. All other sales of real estate and SPI shares are subject to transfer duties, as explained in the answer to question 9.1.


Assuming the seller of the real estate is a company subject to French corporate tax, capital gains are subject to French corporation tax at a rate of 33.33%. The Finance Bill for 2018 provides for a progressive decrease of the corporation tax rate from 28% on the first €500,000 profits for 2018 to 25% on all profits for 2022. A 30% flat tax would apply from 1st January 2018 on the distribution of dividends to French resident individuals. Except when a tax treaty provides a lower rate, a 12.80% withholding tax would apply on distribution of dividends benefiting non-French resident individuals.Assuming the seller is a foreign company subject to corporate tax, a 33.33% withholding tax applies (for 2017) on capital gains realised upon the sale of French real estate. One may expect that this withholding tax rate would decrease (as from 2019) at the same pace as the decrease of the corporation tax rate.

cadastral” (see above) by French notaires. There is no need to involve court proceedings.One should also be aware that the French tax authorities are allowed to put a legal mortgage on French real estate properties if they have reason to believe that their owners would not be able to pay their taxes.


As already explained, the registration of a conventional mortgage should be executed by a French notaire. It is the same for the registration of “privilège du prêteur de deniers” (lenders’ pledges). Pledges over shares should only be registered with the “registre du commerce et des sociétés” (Companies and Trade Registry). The cost associated with this is very limited in comparison to the fee for the registration of the mortgage.


The real estate lender is protected against claims against the borrower or the real estate asset by other creditors by registering a “privilège du prêteur de deniers” (lenders’ pledges) and/or a mortgage of first rank which will allow him to be paid before any other creditors, including the French tax authorities.


The only circumstance where a security taken by a lender can be avoided or rendered unenforceable is in case of fraud when the lender helped the owner to organise his/her insolvency.


There is no action a borrower can take except, of course, to demonstrate that the debts owed have been duly refunded to the lender.

9 Tax


As a general remark, the “Code general des impôts” (“French tax code”) provides specialist treatment which is applied to real estate located in France and companies owning such real estate which is very different from the tax regime applicable to other assets or companies. The concept of “Société à preponderance immobilière” (SPI) (a real estate company) has been introduced for French tax purposes only, which allows France to apply a specific regime on qualified companies. The concept of SPI has a different meaning depending on each tax involved. However, the common characteristic of the different definitions (either those of the internal law or tax treaties) is that in order to be considered as an SPI, the company (French or foreign) which owns, directly or indirectly, French real estate must have a market value which exceeds that of their movable assets.




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As explained above, two main types of business lease exist:■ The “bail professionnel”, which applies to professionals

running a civil activity (e.g.: lawyers, doctors…). The professional lease is concluded for a minimum period of six years. It can be renewed for a six-year duration. Each party can refuse the renewal of the agreement by notifying the other party six months before its termination date and the tenant can terminate the lease with six months’ notice.

■ The “bail commercial” which applies to business activities creating a “fonds de commerce” is described below.


As explained in the answer to question 10.2, only the aspects relating to the “baux commerciaux” will be discussed in these answers. It applies to real estate where the “fonds de commerce” is run. The “fonds de commerce” is characterised by the existence of a real and independent clientele owned by the tenant. The business activity should be run by a tenant registered within the “registre du commerce et des sociétés” (business registry).(a) TermThe term of the “bail commercial” should be concluded for at least nine years. However, the tenant can terminate the agreement at the end of each three-year period with a minimum of six months’ notice.(b) Rent increasesThe rental fees are freely determined between both parties upon the signature of the original “bail commercial”. As a general rule, rental fees can be indexed but no increases may apply before a period of at least three years following the date of first use or of the renewal of the lease agreement. In addition, the increase is limited in order to protect the tenant.(c) Tenant’s right to sell or sub-leaseWhen business premises are let with a lease to operate a certain type of business, the tenant has the right to sell his right to the lease (“droit au bail”). Depending on the provision of the “bail commercial” the landlord should either agree or participate in the sale of the “droit au bail”. The sub-lease should be provided by the “bail commercial” and the landlord should either authorise or participate in the sub-lease agreement’s signature.(d) InsuranceReal estate is, as a general rule, insured by the landlord against damage to the building and insured by the tenant again damage to the premises and equipment.(e)(i) Change of control of the tenantAs a general rule the change of control of the tenant does not interfere with the “bail commercial”, except of course if it specifically stipulates otherwise. (ii) Transfer of lease as a result of a corporate restructuringThe “droit de bail” owned by a merged tenant is automatically transferred to the absorber. (f) RepairsImportant renovation work, such as structural and internal work is the responsibility of the landlord, while other repairs are the responsibility of the tenant.


Transfers of shares of an SPI, when considered fiscally transparent by an individual (resident or non-resident of France) are subject to the same regime as described in the answer to question 9.3. However, the taxable capital gain is obtained by finding the difference between the sale price and the purchase price of the sold SPI shares. The same exemptions for the duration of the ownership also apply (see the answer to question 9.3). Transfers of shares of an SPI subject to corporation tax by an individual resident of France are subject in 2017 to progressive income tax scale rates (with a marginal rate of 45%) and social contributions at a flat rate of 15.5%. Some reductions amounting to 50% or 65% may apply, depending on the duration of ownership. The 2018 Finance Bill provides for a flat rate of tax of 30% which applies to the sale by French resident individuals of shares of an SPI subject to corporate tax. However, allowances based on the duration of ownership will no longer be allowed. Non-French residents would still be subject to the same regime as those applicable in cases of sale of shares of an SPI considered as fiscally transparent. Finally, the special tax on real estate capital gains (ranging from 2% to 6%; see the answer to question 9.3) also applies in all cases.The transfer of shares of an SPI (regardless their fiscal statute) by a company (French or foreign) subject to corporate tax is taxed at a rate of 33.33%. As explained above, the Finance Bill provides for a progressive reduction of corporate tax to 25% in 2022. Foreign companies selling SPI shares are subject to a 33.33% withholding tax levied upon the sale which can be imputed on the corporation tax due.


As explained above, the transfer of real estate is secured in France. However, it is important in our opinion to execute survey diligence before purchasing even if it is, not yet, a common practice. Assuming the purchase of an SPI’s shares is contemplated, it is important to conduct due diligence not only on the real estate but also on the tax and financial situation of the SPI.



The statute of “baux commerciaux” (leases of business) provided by articles L145-1 to R145-37 of the “Code de Commerce” (trade code), is deemed to protect the tenant’s rights. It provides a minimum duration and allows the tenant the right to renew the agreement at its term. It also makes it possible to limit the increase in rental fees when the agreement is renewed. The statute of “bail professionnel” (professional lease) provided by article 57A of the law 86-1290 on 23rd December 1987 and article 1713 of the Civil Code is applicable to professional activities other than businesses. As a consequence, professional premises cannot be used by a tenant running business activities.



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unrelated persons. The same regime applies when assets are owned through a trust.(e) Reporting obligationsIn order to allow France to levy its taxes and duties, French or foreign companies, as well as by trustees of trusts owning French assets, including real estate located in France, have a duty to report changes in ownership. The identity of the ultimate owners of French or foreign companies, regardless of their activities, registered within the French company and commerce registry should be disclosed.An annual 3% tax is due by French or foreign companies owning directly or indirectly real estate properties located in France. Companies disclosing the identity of their owners benefit as a general rule from an exemption.An 80% penalty is due on eluded income tax, wealth tax, IFI tax, and gift and inheritance tax when the trustees of a trust indirectly owning assets subject to those taxes fail to report the identity of the settlors and beneficiaries as well as all events affecting the trust.


As explained above, business leases are usually terminated by the tenant at the end of a three-year period (see question 10.2 and 10.3). The landlord could also terminate a business lease at the end of a six-year period (“bail professionnel”) or of the nine-year period (“bail commercial”). The parties may always decide to extend and renew the lease. The landlord should compensate the tenant if he terminates the lease before or at its expiry.


Landlords are no longer liable for their obligations once they have sold their real estate. However, the tenants remain responsible if they have sold their interest or sub-leased the real estate.


The French Construction Code provides for numerous environmental requirements (“green obligations”) relating to leases, such as the requirement to include an energy diagnosis performance with all lease agreements, with the exception of agricultural and seasonal lease agreements (Article L.1343-1).As of 1st January 2011, all rental (and sale) adverts must also contain the energy performance grade (from A to G) of the building (article R.134-5-1). Since 14th July 2013, leases relating to offices or commercial buildings with a surface area larger than 2,000 m² must contain a


(a) Taxation of rental incomeWhen the landlord is an individual, French income tax is due on rental income on a cash basis. The determination of the tax basis is different if the building is rented out as furnished or unfurnished. Residents and non-residents are subject to income tax at progressive rates with a marginal rate of 45%. Non-residents are, however, subject to a minimum taxation amounting to 20%. Social contributions are also due at a rate of 15.5% for 2017. They are set to increase to 17.2% from 1st January 2018. Finally, the contribution on high income amounting to 3% or 4% may also apply.Companies are subject to corporation tax on accrued rental income. The determination of the tax basis is the same as for operational companies. The depreciation of the building is deductible. The standard rate for 2017 of corporate tax is 33.33%. It will progressively decrease from 2018 to reach 25% in 2022, according to the 2018 Finance Bill.(b) VATVAT is due when industrial and/or commercial buildings are rented out as furnished. The landlord of an industrial and/or commercial building rented out as unfurnished may elect for VAT under certain circumstances. This election allows the VAT to be deducted on construction cost, expenses relating to renting out the property and avoiding the “taxe sur les salaires” (tax on wages). VAT is never due on residential buildings rented out unfurnished.(c) French wealth tax and the new IFISince 1981, wealth tax has been due every year by resident taxpayers on their worldwide assets (movable and immovable). Non-resident taxpayers are only taxable on their French assets including real estate properties owned directly or indirectly through French or foreign companies and/or trusts. Wealth tax is due when the net market value of taxable assets exceeds €1,300,000 for 2017. It is subject to progressive tax rates from 0.50% to 1.50% for 2017. The 2018 Finance Bill will replace the wealth tax with a new wealth tax only due on real estate properties called “Impôt sur la Fortune Immobilière” (“IFI”). IFI would be due by resident taxpayers on the worldwide real estate properties owned directly or indirectly, and by non-resident taxpayers only on their real estate properties located in France, owned directly or indirectly through French or foreign companies or trusts. The rules governing IFI would be largely inspired by the wealth tax regime with new amendments deemed to avoid what the FTA considered as tax avoidance. Among a few other exemptions, participation in a French or foreign operating company owning real estate which does not exceed 10% would be exempted from IFI. As already explained, some limitation of deduction of debts is also provided.(d) French gift and inheritance taxFrench gift tax and inheritance tax are due on worldwide assets by resident tax payers and only on French assets by non-resident tax payers. Shares of French or foreign companies qualifying as a “société à prépondérance immobilière” (see question 9.1) and French real estate owned directly or indirectly by a French or foreign company (or a trust) more than 50% of which is owned by the same family are, among others, considered French assets.The rate at which French gift tax and inheritance tax are due depends on the relationship between the donor (deceased) and the donees (heirs). A full exemption of inheritance tax applies between spouses. A similar progressive rates scale applies (from 0 to 45%) to donations between spouses and to donations and successions between parents and descendants. A flat tax of 60% applies between




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(f) RepairsImportant renovation work, such as structural and internal work, is the responsibility of the landlord, while other repairs are the responsibility by the tenant.


The protection of the tenants is a very serious issue in France, and therefore strictly regulated. A landlord wishing to terminate a residential lease should indemnify the tenants.



As already explained, the “Code de l’urbanisme” (“Planning Code”) provides rules harmonising the use of the French territory. It governs the location, size and main characteristics of buildings. It also provides zoning rules.The “Code de la Construction et de l’habitation” (“Construction and Housing Code”) gathers together construction, development and social housing rules. It provides compulsory specifications and proper use of buildings.The “Code de l’environnement” (“Commercial Code”) provides, among others, rules prohibitions, and requirements for buildings contractors and owners.


The local authorities, and under certain circumstances the State, may exercise their pre-emptive rights upon the sale of real estate properties as already mentioned above. They can also force land owners to sell their land. The expropriation procedure is provided by an ordinance dated 4th November 2004. It should, however, only be applied for public utility purposes. Evicted land owners receive full compensation, determined either by a contractual agreement or settled by the judge.


Lands and building use are under the control of local administrative authorities. The “Maire” (Mayor) ensures the town planning and grants the “permis de construire” (“prior construction permits”). The “préfet de région” (“regional prefect”) may also be involved in specific circumstances. Other administrative authorities may also be included in the process, for example, for historical monuments or for environment concerns.


Various permits granted by the administrative authorities are required in France for building works as well as for the use of real estate.

“green appendix” (“Annexe environnementale”, article L.125-9 of the French Environmental Code). This green appendix contains comprehensive information in respect of the energy equipment of the building (e.g. waste treatment, heating and lighting system, water consumption).



Land use regulation in France is complex. As explained in question 1.1, the current frame of the regulation is set out in the Construction Code, the Urban Planning Code, and the Environmental Code.On 20th September 2017, The French Minister of territories’ cohesion set forth a “housing strategy” (“Stratégie du logement”) which provides for numerous propositions aiming at promoting and simplifying real estate development. It notably includes a commitment not to create any new “technical standards” in building legislation and to create a better management of improper claims against construction permits.


The laws do not differ if the premises are intended for multiple different residential occupiers. Some rules are, however, organised for multiple different residential occupiers which should be agreed to and followed by new occupiers (i.e. “Règlement de co-propriété”). They should be attached to all purchase and lease agreements in the form of an appendix.


(a) TermThe term of the “bail d’habitation” should be at least six years. However, the tenant can terminate the agreement at the end of each three-year period with a minimum of six months’ notice.(b) Rent increasesThe rental fees are freely determined between both parties upon the signature of the original “bail d’habitation”. As a general rule, rental fees can be indexed but no increases may apply before a period of at least three years following the date of first use or of the renewal of the lease agreement. In addition, the increase is limited in order to protect the tenant.(c) Tenant’s right to sell or sub-leaseAs a general rule, the tenant cannot sell its rights. The sub-lease should be provided by the “bail d’habitation” and the landlord should authorise signature of the sub-lease agreement.(d) InsuranceAs a general rule, the landlord insures the property against damage to the building and the tenant insures against damage to the premises and equipment. (e) Change of control of the landlordAs a general rule a change of control of the landlord does not interfere in the “bail d’habitation”.



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Environmental clean-up is mandatory in case of risk to human health, security and the environment. Public authorities can automatically proceed with the clean-up if a formal demand was unsuccessful. The person responsible for such pollution must bear the cost.


A diagnosis of energy performance (so-called “DPE”) must be attached to the deed transferring the real estate ownership or to the lease agreement (either residential or commercial).

13 Climate Change


France transposed the European Directive 2003/87/EC of 13th October 2003 establishing a scheme for greenhouse gas emission allowance trading. The French environmental code therefore provides for a mandatory emissions trading scheme applicable to energy production activities, civil aviation activities, production of paper and carbon, the mineral industry and the production and processing of ferrous metals.


Law n° 2009-967 of 3rd August 2009 (the “Grenelle 1” Act) aims at reducing greenhouse gas emissions to a quarter of current levels by 2050.


The “Grenelle 1” Act encourages the construction of “low energy consumption” buildings (i.e. less than 50 KWh/m²/year) and requires a reduction of energy consumption by 38% by 2020 in the existing building stock. By 2020, all new buildings should produce more energy than they use. Law n° 2010-788 of 12th July 2010 (the “Grenelle 2” Act) completed and implemented the “Grenelle I” Act, notably by introducing specific requirements such as the completion of an energy performance diagnosis as of 1st January 2017 for buildings which have heating or cooling systems, and the requirement to carry out works to increase the energy efficiency of buildings for commercial use before 1st January 2020.

Prior construction permits as well as specific authorisations should be obtained for constructions exceeding 20 m2. Any modification of the use of buildings should also be authorised.


Compulsory regulations which should be complied with in order to obtain building/use permits are, as a general rule, well-known by architects. As a consequence, preparing the request for a building permit is not particularly difficult. Nevertheless, any obtained administrative permit can be challenged by third parties if they are effected by the contemplated project. As a consequence, it can take time to obtain a favourable decision, which is finally given by an administrative judge.


As any administrative authorisations for building/use permits are free of charge, the cost of their request is, as a general rule, included in the architect’s fees. When the building permit is challenged before the administrative court, its cost may become more substantial depending on the importance of the project.As a general rule, the time necessary to obtain the building permits is relatively short. A two-month period is required for ordinary building permits, three months for construction-development permits and six months for high-rise or public access buildings. They can be challenged by third parties within two months following their display on the building site.


As already mentioned, several regulations apply allowing for the protection of historic monuments. However, they only apply on renovation work of the building which is considered either as historic or located in an historic area. However, there is no regulation limiting the transfer of the ownership of such buildings.


Careful investors must exercise due diligence and request a pollution diagnosis from the vendor based on environmental documents. Investors can also ask the “DREAL” (a French public body) for the relevant documentation, or consult databases such as “BASOL” and “BASIAS” which notably identify sites and soils which are polluted or may potentially be polluted.




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Maryse NaudinTirard, Naudin9, rue Boissy d’AnglasParis 75008France

Tel: +33 1 53 57 36 00Email: [email protected]: www.tirard-naudin.com

Jean-Marc TirardTirard, Naudin9, rue Boissy d’AnglasParis 75008France

Tel: +33 1 53 57 36 00Email: [email protected]: www.tirard-naudin.com

Maryse Naudin is a member of the Paris Bar and the co-founder, in 1989, of Tirard, Naudin. She now has more than 30 years’ experience in advising and defending a varied clientele, from multinational corporations to high-net-worth individuals, in relation to cross-border tax and estate planning issues. She has a particular expertise in negotiating real estate transactions. She has advised many foreign corporate or private investors acquiring French real estate property, as well as French clients with foreign interests. Maryse Naudin is also very experienced in setting up and structuring multinational large and medium sized groups establishing in Europe and has a proven expertise in comparative corporate taxation of trading and holding companies within the EU. She is a member of the International Academy of Estate and Trust Law, the co-founder and former secretary of the French branch of STEP, and a former chairman of the “International Estate Planning” commission of the Union Internationale des Avocats.

Co-founded in 1989 by Jean-Marc Tirard and Maryse Naudin, Tirard, Naudin is a boutique law firm which specialises in international taxation. The founding partners are assisted by Ouri Belmin, who is in charge of the team in Paris. Tirard, Naudin is regularly involved in structuring acquisitions of French assets (especially real estate) on behalf of foreign investors. The firm also has proven experience in procedural and tax litigation with a particular emphasis on international tax issues, especially in respect of the major European freedoms and fundamental principles. Finally, Tirard, Naudin has particular expertise in issues related to the use of tools and concepts of Common Law in the context of Civil Law (particularly trusts). Clients of the firm include large companies and foreign institutional investors, as well as a prestigious private clientele. The firm also works as an expert on behalf of French and foreign colleagues.

Jean-Marc Tirard is a member of the Paris Bar and the co-founder, in 1989, of Tirard, Naudin. He is recognised as an authority in French and international tax law and has considerable experience in tax and estate planning for French and foreign high-net-worth individuals. For more than 40 years, Jean-Marc Tirard has advised on numerous high-profile corporate transactions. Notably, he has a long experience in advising private and institutional investors in structuring their investments in French real property.

Mr. Tirard is a member of the International Academy of Estate and Trust Law, a Fellow of the American College of Trust and Estate Counsel and the co-founder of the French branch of STEP. He is rated as one of the leading tax and private client French lawyers in various surveys and was named Outstanding European Individual of the Year by the Citywealth Magic Circle Awards 2009.



Chapter 13

GSK Stockmann

Olaf Jacobsen

Sascha Zentis

Germany

2 Ownership


In Germany there are no specific legal restrictions on ownership. Every natural or legal person is generally entitled to acquire and own real estate.



Regarding full ownership (Volleigentum) of real estate, German law differentiates between several titles of real estate. The most important kinds of such titles are co-ownership (Miteigentum), hereditary building rights (Erbbaurechte) and condominium owenership (Wohnungs-/Teileigentum). Besides these kinds of titles, German law recognises different rights in rem regarding real estate. The most important rights in rem are limited personal easements (beschränkte persönliche Dienstbarkeit), ground easements (Grunddienstbarkeiten), usufruct rights (Nießbrauchsrecht), registered leases (Dauernutzungsrecht), pre-emptive rights (Vorkaufsrecht), land charges (Reallasten), mortgages (Grundschulden), accessory mortgages (Hypothek) and annuity land charges (Rentenschulden). Generally, it is also possible to solely agree on contractual rights regarding a real estate; however in this case the rights do not provide an in rem effect.


Under German law, ownership of land and ownership of buildings constructed thereon generally coincide. However, current German law recognises two scenarios in which the ownership of land and the ownership of the building constructed on the land differentiate: the first scenario is a hereditary building right in terms of the Hereditary Building Rights Act. In case of a hereditary building right, the beneficiary of the hereditary building right is the owner of

1 Real Estate Law


The German real estate law is mainly governed by the Civil Code (Bürgerliches Gesetzbuch), the Hereditary Building Rights Act (Gesetz über das Erbbaurecht) and the Condominium Act (Gesetz über das Wohnungseigentum und das Dauerwohnrecht). The formal part is, inter alia, governed by the Notarisation Act (Beurkundungsgesetz) and the Land Registration Act (Grundbuchordnung). For certain kinds of regulated investors (such as investment management companies or insurance companies), special legal provisions, e.g. the Capital Investment Act (Kapitalanl-agegesetzbuch) or Insurance Supervisory Act (Gesetz über die Beaufsichtigung der Versicherungsunternehmen) apply for their investments in real estate.


In Germany, an extensive codified legal system exists. Therefore, common law does not have a significant impact on the German real estate law. However, judgments of the higher regional courts (Oberlandesgerichte) and of the federal court (Bundesgerichtshof) are regularly taken into account regarding the interpretation of legal provisions.


In general, international laws are not applicable to German real estate law. However, in case that one of the parties to a real estate transaction is governed by foreign law, this may have an impact on certain formalities.



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The legal title is transferred to the buyer upon proper registration of the transfer of title in the land register. In general, the parties to a purchase agreement contractually agree that the application for the respective registration of ownership is not transmitted to the land register before payment of the purchase price. The maturity of the purchase price is regularly subject to a couple of conditions precedent, e.g. the registration of a priority notice of conveyance (Auflassungsvormerkung) in favour of the buyer or a waiver of the municipal pre-emption right (Negativatest zum gemeindlichen Vorkaufsrecht). Following the payment of the purchase price, the transfer of possession, benefits and burdens/risks (Übergang von Besitz, Nutzungen und Lasten) takes place and the notary files the application for transfer of title with the competent land register. The registration process itself could take a couple of weeks or even months.


The priority of registered rights is generally determined by the order and time of the registration. The priority of rights registered in each division of the land register depends on the timely order of registration whereby the rights are registered in order of the filing of the respective application for registration. However, by contractual agreement it is also possible to register different rights with the same rank. Moreover, the beneficiary of a right may also agree to step back in rank in favour of another right.



In Germany, no central land register exists. The land registers are an organisational part of the lower courts (Amtsgerichte). Each land register is responsible to keep the register for the properties located within its district. However, the rules applying for the different land registers are identical throughout Germany as they are codified in the Land Registration Act which is a federal law.


No. The land register does not issue a physical title document. However, it is possible to obtain an excerpt from the land register.For certain kinds of mortgages and accessory mortgages, so-called mortgage/accessory mortgage certificates (Grundschuldbrief/Hypothekenbrief) are issued; this does not apply to the more usual book-entry mortgages and accessory mortgages.


No. This is currently not possible. The registration in the land register in Germany is still a paper-based procedure. However, in certain districts there are pilot projects for an electronic land register.

the building, but the land is owned by the grantor of the hereditary building right; and the second scenario is a building that has only been constructed for temporary use by a person exercising a right over that land. This structure is often found in connection with wind power plants which are erected for a certain time on the basis of an easement.


German law does not have a split between legal and beneficial title.



Generally, all land is registered. However, the law stipulates certain exceptions, e.g. for land belonging to public entities and churches, and for streets, waterways and railroad tracks.


In Germany, no state guarantee of title exists. However, the land register is deemed to be correct and complete (“public faith in the land register”) so that any person can generally rely on the correctness and completeness of the land register unless the person knows about the incorrectness or incompleteness or an objection has been registered against an entry. Public faith does not apply to the description of the property; especially not to its size.


All titles and all rights in rem have to be registered. In case of a non-registration, the right does either not come into effect or does not have any in rem effect.


Sole contractual rights (such as lease agreements) are neither required to be registered nor can be registered. Moreover, certain statutory rights and restrictions under civil or public law do not have to be registered (e.g. pre-emptive rights under the public building law).


Probationary periods as well as different classes or qualities of registration do not exist.

GSK Stockmann Germany


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Legal and tax advisors will also be entrusted by the parties. If the seller decides to sell the asset by way of a structured bidding process, it is more and more common that the legal advisors of the seller prepare a legal fact book to facilitate the bidding process. Usually, also the sale and purchase agreement is drafted by the seller’s advisors. Real estate brokers and investment banks are also a common part of such a sale process.


Notaries are remunerated according to the statutory provisions of the Code on Court and Notary Costs (Gerichts- und Notarkostengesetz). Even if legal and tax advisors are usually remunerated by hourly fees, it is more and more common that the parties agree on lump sum fees or caps. Real estate brokers and investment banks usually agree on a lump sum calculated as a percentage of the deal volume.


Capital flows into real estate in Germany remain very strong: in 2017, acquisition levels have already matched the already very high levels of 2016 and 2015. Activity on the buyer-side continues to be dominated by open-ended real estate funds/special funds. Approximately 50% of capital is invested by foreign investors, especially foreign private equity funds or sovereign wealth funds. We have also seen a large number of high-net-worth individuals and family offices providing equity or mezzanine capital.


The trend for investment in development projects is likely to continue, underpinned by robust economic growth, increasing take-up, declining vacancy and market conditions largely in favour of landlords. Very low yields show no sign of softening. Former B-Cities as, for example, Nuremberg seem very attractive.


Even if some argue we could now be at the peak of the cycle, we see no slowing down of activity. With investors still looking to maintain or increase their allocation to property, we believe this will keep yields at their current low levels in the year ahead.



Any sale and purchase agreement for real estate needs to be

In order to be registered as new owner of a property, at least the following documents are required:■ notarised conveyance of ownership (Auflassung);■ declaration by the competent public authorities that either a

statutory pre-emptive right does not exist or is not exercised; and

■ clearance notice by the relevant tax authority regarding the payment of the real estate transfer tax.

In certain cases, further documents may be required (e.g. approvals of certain authorities if the property is located within certain urban areas; approval of the depositary or the trustee if the property is held by an investment fund or an insurance company).In nearly all cases it is possible to have electronic access to the land register extracts; however, there is no electronic access to the land register files (Grundakten).


In case of mistakes made by the land register, compensations can only be claimed on the basis of the so-called government authority liability (Amtshaftung). Generally, claims on the basis of the government authority liability are difficult to enforce as the legal requirements for such claims are strict.


The land register is generally not publicly accessible. The inspection of the land register is only permitted for the owner of a property, for those persons who either have been granted a power of attorney by the owner of the property and for persons who have a legitimate interest for the inspection of the land register. The legitimate interest has to be based on objective reasons and has to be proved towards the land register or towards the notary who shall grant access to the land register. The access for persons who claim a legitimate interest can and has to be limited to such information which is relevant in view of the claimed interest. Generally, the interest in acquiring a property is not a sufficient legitimate interest for an access to the land register. In real estate transactions it is usual that either the seller provides an up-to-date extract from the land register or that the seller grants to the buyer a power of attorney to inspect the land register.



If the transaction is concluded as an asset deal or a share deal involving a German GmbH (Limited Liability Company), notarisation of the sale and purchase agreement is mandatory. In Germany, notarisation takes place before a notary public. The notary also supervises the satisfaction of conditions precedent to the validity of the agreement and the maturity of the purchase price and will file the necessary declarations with the public register for the transaction to become effective.




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land register. The notary is under an obligation to check the land register shortly before the notarisation so that the buyer would be aware if the seller is not registered or if there has been an objection made against the ownership of the seller. In case the seller is not yet registered as the owner at the time of the sale, the seller would usually warrant ownership in the purchase agreement. Also, in case of a share deal it is common that the seller warrants to be the owner of the shares.


Besides the obligation to pay the purchase price, the buyer usually has to pay the transaction-related costs of the notary and the land register (other than those arising in connection with the deletion of existing mortgages) as well as the real estate transfer tax. Moreover, the buyer may have the obligation to initiate or to support the merger control procedure if the transaction is subject to merger control.



The German Civil Code contains the main regulations regarding real estate law, loan contracts and the respective security. The Banking Act (Kreditwesengesetz) contains regulatory rules regarding lending business and bank supervision. There are no different rules for resident and non-resident persons, but there are substantial differences for loans granted from corporate entities to consumers (“consumer loans”).


The typical security package for a real estate lender comprises land charge(s), rental assignments, assignments of insurance claims and often account pledges, share pledges and assignments of third party guarantees. In case of real estate project financings, the security package usually also contains assignments of claims against contractors and the agreement of step-in rights to main project contracts.


The lender is entitled to realise the mortgage by way of enforced administration (collecting the rents) and/or enforced sale (sale by way of public auction). The lender typically obtains the enforcement title (vollstreckbarer Titel) as part of the mortgage deed so that no additional court proceedings are required in this respect. The enforced administration and enforced sale are conducted by the court in accordance with the Compulsory Auction of Immovable Property Act (Zwangsversteigerungsgesetz).

notarised. The sale and purchase agreement has to contain all agreements between the parties regarding the sale of the property; side agreements may lead to an invalidity of the sale and purchase agreement. The declaration of transfer has to be made in front of a notary; this declaration is usually included in the sale and purchase agreement; however, it could also be declared in a separate notarial deed. In addition, the transfer of the property has to be registered in the land register.


The Civil Code does not explicitly provide any duties of disclosure. However, based on the principle of good faith, which under German law is a generally applying provision, the German courts have deduced a duty of disclosure for sellers. Generally, the seller is obliged to disclose all information which is of significance for the reasonable buyer’s decision to acquire the property and which the buyer may expect to be disclosed by a seller under the usual commercial practice (e.g. disclosure of hidden defects, known environmental contaminations, missing building permits, disputes regarding the property).


Yes, the seller can be liable for misrepresentation. This applies especially in case of wilful or gross negligent misrepresentations, but also for cases of simple negligence. Especially in a market situation in which the demand exceeds the offer, sellers often try to limit the liability for simple misrepresentation; however, this is generally not accepted by buyers.


The scope of warranties depends on various factors such as the market situation, the location and situation of the property and the quality of the documents and information provided by the seller in the due diligence. Generally, sellers try to exclude contractual warranties as far as possible; however, it is common that the seller accepts certain warranties. This applies especially to tax-related issues and to the non-transfer of employees. Warranties relating to the non-existence of encumbrances and lease agreements and to public law matters and environmental issues, are typical. Most purchase agreements contain limitations of liability. Warranties are a means to apportion the risks.Warranties do not substitute a proper due diligence, as it is unlikely that the buyer can reach far-reaching warranties in the purchase agreement. Moreover, most purchase agreements exclude warranty claims of the buyer if the buyer could have been aware of the underlying risks by performing a due diligence.


In Germany, it is generally not necessary to grant a warranty regarding ownership, as the buyer can rely on the correctness of the



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9 Tax


The transfer of real estate situated in Germany is subject to real estate transfer tax (RETT; “Grunderwerbsteuer”) pursuant to the real estate transfer tax act (RETT Act; “Grunderwerbsteuergesetz”). RETT has to be paid for the transfer of real estate, for the transfer of at least 95% of the interests in a partnership within five years (if the partnership holds real estate) and for transactions of the interests of companies (if the company holds real estate). The tax rate depends on the federal state where the real estate is located. The tax rate currently varies from 3.5% (Bavaria and Saxony) to 6.5% (Brandenburg, North Rhine-Westphalia, Saarland and Schleswig-Holstein). The tax is to be calculated according to the value of the consideration. In case of an asset deal, the consideration is the purchase price. Normally, the purchaser and the seller are liable for the payment of RETT; however, the parties are able to contractually stipulate that RETT shall be borne only by one of the parties (usually by the purchaser). In case of a change of the partnership of a real estate holding partnership, the partnership itself is liable for the payment of RETT. In case of transactions of the interests of real estate holding companies, the legal entity which holds the economic exposure is liable for the payment of RETT.


A transfer of real estate has to be notified to the local tax office. The obligation applies to the purchaser, the seller, the courts, the authorities and the notary. After notification, the local tax office will issue a tax assessment notice. The purchaser will not be registered in the land register until the tax office has issued that RETT was paid. RETT becomes due one month after announcement of the tax assessment notice. Generally, RETT arises upon conclusion of the sale and purchase agreement (i.e. payment of the purchase price is not necessary). If the transfer of real estate is subject to the occurrence of a condition precedent, RETT arises upon fulfilment of the condition. In case of the transfer of at least 95% of the interests in a real estate holding partnership, RETT arises upon the transfer of partnership interests. In case of RETT-able transactions of the interests of companies, RETT arises upon fulfilment of the statutory articles.


If an individual holds the real estate as part of his private assets for a period of 10 years or less, income from the sale of the real estate is subject to income tax and the solidarity surcharge (“Solidaritätszuschlag”). The tax rate depends on the individual tax rate of the seller (maximum 47.475%). If an individual holds the real estate as part of his private assets for a period of more than 10 years, the sale of the real estate is income tax-free. The transfer of real estate could be subject to trade tax (TT; “Gewerbesteuer”), if three or more properties are sold within a period of five years. The tax rate depends on the municipality and currently varies from 7% to 18%. If an individual holds the real estate as part of his business assets, income from the sale of the real estate is subject to income tax (tax rate maximum 47.475%). Additionally, the sale is subject to trade tax. There will be no trade tax if the taxpayer is able to fulfil the prerequisites of the extended trade tax deduction. A non-resident is not subject to TT if he does not have a permanent establishment in Germany.


In general, there are no special formalities for loans; however, land charges need to be notarised and registered in the land register. Furthermore, consumer loans need to be in writing and contain special revocation rights.


The lender as the land charge beneficiary is granted preferential treatment vis-à-vis the unsecured creditors even in cases of pending insolvency proceedings. Proceeds from the realisation of the land charge are disbursed to the land charge beneficiaries in the order of the ranking of the land charges or mortgages registered in the land register.


The acts of any person including the creation and enforcement of security as well as the creation and enforcement of other creditors’ rights and remedies are subject to the legal principles and limitations generally applying to finance and other agreements and their enforcement under German and foreign law. Any agreement or creditor’s rights arising therefrom may, therefore, be invalid, voidable or unenforceable (in whole or in part) under the applicable bankruptcy, insolvency, moratorium, liquidation, fraudulent conveyance, creditor protection or other legislation of general application, in particular the German Act of Avoiding Transactions (Anfechtungsgesetz) or the German Insolvency Code (Insolvenzordnung/InsO). Enforcement of security interest will not necessarily be enforced in all circumstances in accordance with the terms of security documents, in particular under the applicable insolvency laws, e.g.:■ Under Section 166 (2) of the Insolvency Code, the security

agent (Sicherheitennehmer) may be barred from enforcing the receivables assigned to it and the insolvency administrator has the right to realise receivables assigned by way of security on behalf of the security agent.

■ In the case of realisation of such receivables by the insolvency administrator, the insolvency administrator may deduct his costs of determination and realisation from the proceeds of enforcement.

Where the insolvency administrator waives such right of realisation in favour of the security agent, the security agent is nevertheless obliged to transfer to the estate out of the enforcement proceeds an amount equal to the costs of determination as well as the amount of any value added tax, if applicable (Section 171 (2) of the Insolvency Code).


The borrower may delay the process by disputing court valuations in the course of the enforced sale or commence insolvency proceedings to increase enforcement costs (see details above).




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(“Abgabenordnung”). The purchaser could be liable for so-called operational taxes (“betriebliche Steuerschulden”) and withholding amounts (“Steuerabzugsbeträge”) due from the seller. The purchaser can also be held liable for land taxes in respect of the property. Therefore, the purchase agreement should contain indemnities in favour of the purchaser. Real estate could contain some operating facilities. These operating facilities should be identified. Otherwise, the non-identification poses the risk of excessive RETT and VAT. Additionally the lease of operating facilities could jeopardise the extended trade tax deduction.



The Civil Code provides for the authoritative regulations regarding leases of any kind, also including special statutory provisions with respect to the law of General Terms and Conditions (Recht der Allgemeine Geschäftsbedingungen). Further special statutory provisions besides the Civil Code exist, such as the regulation of operating expenses (Betriebskostenverordnung) or the regulation on price clauses (Preisklauselgesetz), the latter stipulating the legitimacy of indexation clauses.


Any kind of business premises can be subject to a lease pursuant to the Civil Code including commercial interim leases with respect to residential leases. This also includes usufructuary leases (Pachtverträge) where the tenant is also entitled to enjoy the fruits of the lease object as income under the rules of proper management.


(a) Term: Business leases in general provide for a fixed term together with the tenant’s right to prolong the lease by a fixed term as stipulated in the lease agreement. The maximum term of a lease is limited by the Civil Code to 30 years. A lease agreement has to comply with the requirements of written form (Schriftform) pursuant to Sec. 550 Civil Code if its fixed term exceeds one year.

(b) Rent increases: In general, business leases provide for an indexation of the rent linked to the development of the consumer price index. Such indexation is only valid if the lease is binding for the landlord for at least 10 years (it is sufficient if the fixed term and tenant’s potential prolongation options together exceed a term of 10 years) and if increases and decreases of the rent are covered equally. Alternatively, stepped rents are also – but more rarely – common business practice.

(c) Tenant’s right to sell or sub-lease: Statutorily the tenant is not entitled to sub-lease without landlord’s prior consent. Such consent must not be withheld without good reason. Otherwise the tenant might be entitled to extraordinarily terminate the lease. The tenant’s obligation to request the landlord’s prior consent can be contractually waived. The tenant’s right to terminate the lease can only be waived by way of a particular contractual regulation (Individualvertraglich) and not by way of general terms and conditions.


If the transfer of real estate is qualified as transfer of a business as a whole, it is not subject to VAT. In the case that the transfer of real estate is qualified as supply of real estate, it is VAT-exempt. However, the seller usually may opt for the application of VAT and waive the VAT-exemption for the part of the real estate which is used for sales which do not exclude input tax deduction. The tax rate is 19%. Due to the reverse charge procedure, the purchaser is liable for VAT. However, the purchaser is able to deduct input tax. Therefore, VAT is a pass-through item.


If the seller of the real estate is an individual, there should be no taxes other than income tax (plus the solidarity surcharge and church tax) and RETT. The tax rate depends on the individual tax rate of the seller.If the seller is a partnership, the transfer of real estate should be subject to income tax (plus the solidarity surcharge) and trade tax (if the partnership is not able to fulfil the prerequisites of the extended trade tax deduction.If the seller is a corporation, the transfer of real estate should be subject to corporate income tax (CIT; “Körperschaftsteuer”) plus the solidarity surcharge. The total tax rate is 15.83%. Furthermore, the seller is subject to TT.


In case of transfers of real estate by the transfer of shares of a real estate holding company, RETT become due if 95% or more of partnership interests in a real estate holding partnership are directly or indirectly transferred to new partners within a period of five years (Section 1 Para. 2a RETT Act). If only 94.9% of the partnership interests in a partnership are transferred to new partners within a period of five years, RETT will not be triggered in the case at hand. After the five-year period, the outstanding 5.1% of the partnership interests could be transferred; nevertheless, RETT will be due on this 5.1%, but the transfers of 94.9% of the interests are RETT-free.Furthermore, in case of transfers of real estate by the transfer of shares of a real estate holding company, RETT becomes due if 95% or more of (corporation) shares or (partnership) interests in a real estate holding company are directly or indirectly transferred (Section 1 Para. 3, 3a RETT Act).


If the transfer of real estate is qualified as transfer of a business as a whole, the purchaser will continue the legal position of the seller for VAT purposes. Therefore, the purchaser assumes existing periods that are relevant for the adjustment of input VAT claimed by the seller. The purchaser needs a necessary documentation within the meaning of Sections 15a Para. 10, 22 Para. 4 Value Added Tax act (VAT-Act, “Umsatzsteuergesetz”). Furthermore, if the transfer of real estate qualifies as transfer of a business as a whole, there is a high probability that the transfer will also qualify as a transfer of a business within the meaning of Sec. 75 general tax code



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such obligations assumed by the buyer/new landlord. The former landlord also remains liable regarding pre-sale non-compliance. The same applies for the tenant.The old landlord can gain release from its “post-sale liability” if it informs the tenant of the transfer of ownership after the registration of such change in the land register. The liability is released in such case if the tenant does not terminate the respective lease at the earliest possible opportunity.Such release does not encompass the old landlord’s liability regarding rent securities assumed by the buyer.


The market has not yet developed a “green lease” standard. However, the Civil Code and a number of lease agreements cover “green” issues. The Civil Code, for example, provides for regulations according to which the landlord is entitled to conduct modernisation measures with respect to energetic modernisation, to reduce the use of non-renewable energies or to reduce consumption of other resources, etc.



The Civil Code provides for the authoritative regulations regarding residential leases. Further special statutory provisions besides the Civil Code exist, such as the regulation of operating expenses (Betriebskostenverordnung).


No such statutory regulations exist.


(a) Residential leases in general provide for an unlimited term. Limited terms are only permissible within the scope of statutorily defined reasons (Zeitmietvertrag).

(b) An adjustment of the rent is only permissible within the scope defined according to the Civil Code; e.g. indexation according to the consumer price index, a stepped rent or an increase in rent up to the reference rent customary in the locality.

(c) In general, there are no specific provisions in a lease agreement stipulating a right of the tenant to remain in the premises at the end of the lease term.

(d) Operating expenses can contractually be transferred to the tenant. This is regularly done by referring to the regulation of operating expenses (Betriebskostenverordnung).

(d) Insurance: Generally business leases stipulate the landlord’s obligation to provide for property insurance (Sachversicherung) and building liability insurance (Gebäudehaftpflicht). Tenants regularly have to provide for public liability insurance with respect to the conducted business (Betriebshaftpflicht).

(e) (i) Change of control of the tenant: regulations with respect to a potential change of control on tenant’s side are rather unusual; and (ii) Transfer of lease as a result of a corporate restructuring: leases are statutorily transferred in such cases. Additional regulations are accordingly scarce.

(f) Repairs: Statutorily the landlord is obliged to provide maintenance of the lease object on his own expenses. The parties are entitled to deviate from this principle within the framework of legal admissibility. Regarding the majority of business leases, the obligation to maintain the lease object – exclusively used by the tenant – (including minor repairs) is generally transferred to the tenant at its own cost. Maintenance and repair of the roof and structure generally remains with the landlord.


The rent of real estate is generally exempt from VAT. However, the landlord might waive the tax-exemption and opt to pay VAT if and insofar the tenant is an entrepreneur for VAT purposes who uses (or intends to use) the real estate to generate turnover which does not exclude the deductibility of input tax. Please note that the landlord might be obliged to correct claimed input taxes if and insofar as he leases real estate which was leased with a waiver of the tax-exemption in the past, without such a waiver in the future.


The parties are entitled to terminate a business lease within the statutory termination periods if the lease has been conducted for an indefinite term or if – in case of a potential fixed term – the lease agreement does not comply with the written form (see question 10.3 (a)). A lease agreement with a fixed term can only be terminated in case of default as provided by statutory regulations (e.g. Civil Code). In case a party is in default regarding a lease agreement, it might also be obliged to compensate the other party in case of any damages relating to or following the default. A statutory prolongation right of the tenant does not exist. Anyhow, contractual prolongation options in favour of the tenant are common business practice.


A lease agreement is statutorily transferred to the buyer as per registration of the buyer as a new owner in the land register. The buyer/new landlord assumes the rights and obligations arising under the lease agreement for the time of its ownership. The former landlord remains liable – like a guarantor (Bürge) – regarding




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In case a construction measure complies with the relevant planning and building law, a permit must be granted. This permit is granted irrespective of neighbouring rights determined under civil law.


The costs related to a permission procedure are governed by state law (e.g. Baugebührenordnung Berlin). The absolute costs depend on the extent of the construction measure. In principle, the time to obtain a building permit also depends on the extent of the construction measures which shall be realised.


Each state has governed the law of monumental protection within the Monument Protection Acts (Denkmalschutzgesetze). Besides requiring a mandatory permit to change or remove a protected monument under the applicable Monument Protection Act, construction measures in the neighbourhood of a protected monument may also require a permit under the applicable Monument Protection Act.


The state laws provide a public register of contaminated land. During the standard legal and environmental due diligence procedure, an excerpt from this register is applied for to gain reliable information on (potential) contamination issues.


It depends on the individual case whether an environmental clean-up is mandatory. In principle, the competent authority may, inter alia, obligate the polluter and the current legal owner of a property to remediate if, with a sufficient degree of probability in an unhindered course of events, the current situation will result in damage.


Based on the Energy Saving Ordnance (Energieeinsparverordnung), energy certificates assess the energy performance of a building. These certificates include information on the energy performance compared to other buildings and on the energy source used for heating. In principle, energy certificates are mandatory within the transfer of a property.


The landlord’s rights to terminate a residential lease are statutorily restricted. To achieve vacant possession – if the lease has been validly terminated – the landlord has to legally enforce an eviction order by the competent court.



Public planning law is determined by federal law and mainly governed within the Federal Building Code (“Baugesetzbuch”) and the Federal Ordinance on Land Use (“Baunutzungsverordnung”). These laws determine the zoning and planning requirements a construction project must comply with. Besides, the relevant building law is governed within federal state law, mainly within the Building Ordinances (“Landesbauordnungen”). These regulations refer to requirements concerning the actual construction. The relevant environmental law is governed within federal and state laws. On the one hand, the Federal Soil Protection Act (“Bundesbodenschutzgesetz”) aims to protect and restore the soil’s function. On the other hand, this federal law is supplemented by state laws.


In principle, expropriation measures (“Enteignung”) can be permissible under certain, strict requirements. As a consequence of the right of property, which is governed in Art. 14 GG, such expropriation must be determined by statutory law. According to Art. 14 GG an expropriation may only be justified if the public interest overrides the interest of those affected. If this prerequisite is met, the legal owner must be indemnified by the state via remuneration payments.


As a consequence of the federal state system, the competent bodies to control the land/building use and/or occupation and environmental regulation are in general the local/municipal building or environmental authority.


The required permits are in general determined by state law. In principle, any construction measures, change of use or removal measures require a building permit. For certain measures which are determined by statutory state law, the state laws also govern exceptions from this principle, e.g. for minor changes. Nevertheless, this exception does not release the builder from his duty to comply with the relevant planning and building law.



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Germany aims to cut greenhouse gas emissions by 40% by 2020, 55% by 2030, 70% by 2040 and 95% reduction by 2050, compared to 1990 levels. In addition, the share of renewables in gross final energy consumption is to rise to 60% by 2050. Renewables are to make up a minimum of 80% of the country’s gross power consumption by the middle of the century.


For example, there are various energy efficiency requirements imposed by the Energy Saving Ordinance. The objective of these requirements is to save energy consumption in buildings that are both newly constructed and already existing. The Ordinance contains provisions on building energy performance certificates. The certificates provide guidance to tenants and buyers informing them of the energy-related data of the building.

13 Climate Change


Germany assumed the obligation to reduce greenhouse gas emissions as a contractual party to the Paris Agreement. There are various national regulations and incentive programmes to achieve the reduction of greenhouse gas emissions, e.g. the Renewable Energies Act (Erneuerbare-Energien-Gesetz) and the National Climate Protection Initiative. Germany’s electricity supply is becoming “greener” every year as the contribution made by renewable sources is constantly growing. In 2016, renewable energy already covered roughly 29% of gross electricity generation (total volume of electricity generated in Germany).




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Olaf JacobsenGSK StockmannTaunusanlage 2160325 FrankfurtGermany

Tel: +49 69 710003-0Email: [email protected]: www.gsk.de

Sascha ZentisGSK StockmannTaunusanlage 2160325 FrankfurtGermany

Tel: +49 69 710003-0Email: [email protected]: www.gsk.de

Olaf Jacobsen is a Local Partner in GSK Stockmann’s Frankfurt office and a member of the Real Estate Practice Group. With 12 years’ experience as a transaction counsel, his practice focuses on the representation of real estate investors encompassing all aspects of German and cross-border real estate transactions (share and asset deals, portfolio transactions). His practice also involves the set-up of transaction structures and processes as well as corporate real estate matters. Before joining GSK he spent several years with two international law firms.

Olaf Jacobsen specialises in real estate transactions with a focus on advising German investment companies (Kapitalverwaltung-sgesellschaften) and open-ended funds, including regulatory and investment law matters regarding real estate transactions in Germany. A further focus of his practice is the consultancy of clients regarding asset management.

GSK Stockmann is a leading independent law firm in Germany and Luxembourg, focusing on real estate, corporate, banking/finance and projects & public sector. Today, more than 160 lawyers and tax advisers work at our offices in Berlin, Frankfurt, Hamburg, Heidelberg, Munich and Luxembourg and regularly advise on national as well as cross-border transactions.

GSK Stockmann has one of the largest real estate teams, comprising more than 80 lawyers to advise international and domestic clients on the great diversity of real estate issues like real estate transaction and financing, project development, private and public construction, investments funds and tax-driven investment structures, asset management, joint ventures as well as crisis management, real estate restructuring and notarial services.

Our clients range from open-ended and closed-end funds, to banks, insurance companies, pension funds, project developers and construction companies, public sector and international asset managers as well as providers of private equity and opportunity funds. GSK Stockmann focuses on sectors like infrastructure and energy, hotel and leisure, healthcare and student housing as well as on real estate capital markets and investment funds.

For cross-border transactions and international projects, GSK works closely with a select group of highly respected partner law firms abroad. www.gsk.de

Sascha Zentis is an Equity Partner in GSK Stockmann’s Frankfurt office and member of the Real Estate and Banking Practice Groups. With 14 years’ experience as a lawyer and four years as a notary, his practice focuses on the representation of professional real estate investors and on advising regulated investment companies as well on real estate as investment law matters.

Sascha Zentis specialises on advising German investment management companies (Kapitalverwaltungsgesellschaften) in terms of the German Capital Investment Act and open-ended funds.



Chapter 14

Simon Reid-Kay & Associates

Simon Reid-Kay

Leslie Kaczmarek

Hong Kong

2 Ownership


No, there are no legal restrictions on ownership of real estate by any particular class of person.



Almost all Hong Kong land is Government-owned. There is no privately owned freehold land in Hong Kong (with the exception of the St. John’s Cathedral). Individuals or corporations in Hong Kong are typically granted leasehold interests in the land.Most land is leased by the Hong Kong Government and “ownership” of land is governed by a Government Lease or a Government Grant (which is an agreement for lease).The principal legal interests in land are:(a) legal charge/mortgage; and(b) easement.


No. The CPO defines land as including:(a) Land covered by water.(b) Any estate, right, interest or easement in or over any land. (c) The whole or part of an undivided share in land and any

estate, right, interest or easement in or over the whole or part of an undivided share in land.

(d) Things attached to land or permanently fastened to anything attached to land.

An owner of land also owns the airspace above the land and everything beneath the surface, subject to a few exceptions such as minerals or treasure troves.

1 Real Estate Law


Conveyancing and Property Ordinance (Chapter 219) (CPO) – governs the ownership of, and rights in, property including land and buildings. It makes provisions relating to: conveyancing and the law of property; agreements and deeds relating to land and other agreements; and the acquisition and holding of land and other property; providing standard agreements and deeds relating to land; implying certain covenants and other provisions in agreements and deeds relating to land; revising and consolidating certain miscellaneous provisions relating to land and other matters; and connected purposes.New Territories Ordinance (Chapter 97) – consolidated the laws relating to administration and regulation of the New Territories, where the continued force of Chinese customary law was recognised.Land Registration Ordinance (Chapter 128) – provides for registration of instruments affecting real or immovable property, the keeping of Land Registry records, and for other matters relating to land registration.


As Hong Kong law is a common law system, common law plays an important role in the interpretation and application of statutory law.


No, international laws are not relevant to real estate in this jurisdiction.



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Simon Reid-Kay & Associates Hong Kong

Accordingly, land and buildings owned by the same entity are included in the same title.


There is a split between legal and beneficial titles in Hong Kong. Such split does not give rise to any registration consequences. However, unwritten interests (which is sometimes the case in beneficial title) are not registrable.



All land which has been granted by the Government was a land grant registered in Hong Kong.


There is no state guarantee of title in Hong Kong.


No rights are compulsorily registrable as the Land Register only registers deeds to protect priority and not to create title. The consequence of non-registration of a registrable instrument would be loss of priority as against a registered interest, even if the registered interest is subsequently created.


(a) Unwritten interests (e.g. equitable interests arising under a resulting or constructive trust); and

(b) leases for terms which do not exceed three years are not required to be registered.


There is no probationary period or different classes or qualities of title on first registration.


On a land title, title is transferred to the buyer upon proper execution of an Assignment of the seller’s interest in the relevant Government lease under which the property is held.


Generally earlier rights have priority, except where registration is required and the owner of the earlier right has failed to register.



There is one Land Registry. Note that although it is called the Land Registry it is really a registry of documents affecting land from which the relevant parties derive their title to the real estate.


No, the Land Registry does not issue physical title documents to the owners of registered real estate.


(a) Electronic conveyancing is not available.(b) The original instrument to be registered has to be provided to

the Land Registry for registration. It is to be accompanied by a memorial form, which is verified, usually by a solicitor.

Information on ownership of registered real estate is managed by the Land Registry, which can be accessed online at https://www2.iris.gov.hk/eservices/common/selectuser.jsp.


No, compensation cannot be claimed from the Land Registry where they make a mistake.


No, there are no restrictions on public access to the register. A buyer can obtain all the information he might reasonably need regarding all encumbrances and other rights affecting real estate, provided that the same is registered.


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(a) Real Estate agents market the real estate and broker deals. They are usually involved in negotiation of the main commercial terms of the transaction.

(b) Lawyers. Usually both parties will engage their respective lawyer. The seller’s lawyer will draft the contract of sale with both parties’ lawyers settling it. The purchaser’s lawyer will perform investigation of title and carry out due diligence. Both parties’ lawyers will then negotiate and draft transaction documentation. They will assist in completion and follow up with post-completion matters.

(c) Surveyors. They may be involved in carrying out a survey of the physical condition of the real estate and/or the building which the real estate forms parts of on behalf of the purchaser.

(d) Accountants. They may be involved for financial due diligence, especially when the transaction concerns sale and purchase of share(s) in a property holding company or sale and purchase of property through a single asset company.


Real Estate agents are generally operated on a commission basis (typically calculated by reference to a specified percentage of the sale price) payable on completion of the transaction.Lawyers charge on a time costs basis or fixed fee basis, though other fee arrangements can be made by agreement.Surveyors will generally be paid a fixed fee agreed at the outset of the transaction. Accountants will generally be either paid a fixed fee agreed at the outset of the transaction or on a time costs basis.


There has been a noticeable increase in the availability of equity in Hong Kong during the past decade. Investors are getting strong returns from the real estate compared to the equity market or cash deposit market. Mainland China has recently been the source of capital being invested in Hong Kong real estate.


The appetite for investors and developers in Hong Kong to look beyond primary real estate markets and transact business in secondary or even territory markets (in both location and asset classes) within Hong Kong is strong. They strive to circumvent the scarcity of supply and the continued high prices in the prime markets (e.g. Central offices).


We have not observed any particular market sub-sectors slowing down in terms of their attractiveness to investors/developers. The retail sector had been affected but seems now to be on the rise again.



An agreement for sale and purchase of real estate must incorporate all the terms that have been agreed between the parties, and be signed by both parties. Such agreement has to be in writing, since an interest in land purported to be created orally does not create any legal estate in land. It creates only an interest at will that may be revoked at any time.Most land transactions must also be completed by a particular type of document known as a “deed”. Additional formalities are required to be adhered to when entering into a deed.


The seller does not generally have a duty of disclosure to the buyer, and the principle of “caveat emptor” (let the buyer beware) applies.While the seller is not under a duty to disclose patent defects, he has to disclose any latent defect (i.e. encumbrances and any other adverse interests which a prospective buyer cannot discover for himself by a reasonable inspection).


Yes, the seller is liable to the buyer when he makes an untrue statement of fact, which the buyer relies upon to enter into the sale and purchase and suffers a loss as a result.


(a) Sellers in commercial transactions usually give contractual warranties to buyers.

(b) The scope of these warranties will typically include (but is not limited to): ■ That the seller has not received any notices adverse to the

seller’s interest in the property.■ No third party has any right or interest whatsoever,

whether legal or equitable, in the property.■ The property is not adversely affected by any

encumbrances of which the seller is aware or which the seller could have ascertained on reasonable inquiry, other than those:■ disclosed in the agreement; or



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■ which the buyer is aware of or could have ascertained on reasonable inspection of the property.

■ Tenancies.■ That the property is not subject to any litigation.■ Corporate matters.■ Seller’s capacity.■ Other matters arising out of the due diligence enquiries

Whether or not the seller gives the warranties will depend on the bargaining power of the parties and the commercial imperatives behind the deal.

Warranties can be limited by:■ Disclosure of specific matters.■ Time limits.

(c) Warranties mainly work to apportion risk between the seller and buyer, and to ensure that the seller has disclosed to the buyer all information that might affect the value of the real estate. They do not work as a substitute for the buyer carrying out his own due diligence.


The seller does not warrant its ownership per se. However, usually the seller must give and prove good title to the real estate in accordance with sections 13 and 13A of the CPO.


In addition to paying the sale price, it is customary for the parties to agree in the contract that the buyer is liable to pay all of the Stamp Duty on the transaction, and registration fees associated with the transfer of title of the real estate.Please see the response to question 9.1 below.



(a) Money Lenders Ordinance (Chapter 163) – provides for the control and regulation of money lenders and money-lending transactions.

(b) Banking Ordinance (Chapter 155) – regulates banking business and the business of taking deposits.

The rules are the same as between resident and non- resident persons and/or between individual persons and corporate entities.


(a) Provision of security/guarantee. The security required to be given may include:■ Legal Charge/Mortgage over the real estate (incorporating

a charge over bank accounts into which the proceeds/income are paid).

■ Assignment of Sales Proceeds and Rental Income.

■ Assignment of Insurances.■ Debenture (incorporating a floating charge over all the

assets of the borrower).■ Share Charge (over the entire issued shares of the Borrower,

and where applicable, its holding company(ies)).■ Subordination Deed (incorporating an assignment of

loans and advances).(b) Guarantee given by the individual or corporate shareholder(s)

(direct and/or indirect).(c) Valuation and LTV covenants. Borrowers may be required

to obtain regular valuations of the real estate and could be required to provide additional collateral to maintain the agreed Loan-to-Value ratio.

(d) Insurance requiring the borrower/mortgagor to take out insurances over the real estate.


The main remedies for lenders in relation to a legal charge or equitable mortgage by deed are:■ Receivership. Section 50 of the CPO implies, in all legal

charges or equitable mortgages by deed, a power for the lender to appoint a receiver of the real estate and the income derived from it when the money becomes due.

■ Sale. The CPO implies, in all legal charges or equitable mortgages by deed, a power of sale subject to the provisions of the CPO, unless it has been varied or excluded. The title to the property can be assigned to a bona fide purchaser free of the mortgage. If the proceeds of sale are not sufficient to cover the debts owed, the borrower is still under an obligation to repay the deficit.

■ Possession. The receiver will take physical possession of the property so that vacant possession can be delivered to the buyer if the property is sold. If the borrower refuses to deliver vacant possession to the receiver, the receiver will have to apply to the court for a possession order.


(a) For a mortgage/charge over the real estate to pass legal title, it must be made by deed.

(b) Registration in the Companies Registry. Security over land and buildings made by companies incorporated in Hong Kong, and companies incorporated outside Hong Kong but registered as a non-Hong Kong company under Part 16 of the CO, must be registered at the Companies Registry within one month of the date the security is created, or the security is void against a liquidator and any creditor of the company.

(c) Registration in the Land Registry. The security creating an interest over land must be registered at the Hong Kong Land Registry within one month of the security being created or the priority of the security may be affected.


(a) Registration of security documents safeguards the mortgagee/lender’s priority as against other creditors in respect of the charged assets.


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(b) Notices and confirmations of assignment should be given to the counterparty to the contract, and confirmation/acknowledgment of the creation of the security from such counterparty is desirable.

(c) The borrower can give a negative pledge in the loan agreement not to create any other security interest over the charged assets.


(a) Breach of director’s fiduciary duties in creating the security. If the creation of the security does not provide a “benefit” (whether direct or indirect) for the company, and the director, in making the company provide the security has breached his fiduciary duties (e.g. when the provision of the security is for the director’s own interest at the company’s cost), the security may be rendered unenforceable.

(b) Insolvency in the security provider. Generally, security which has been properly structured and created should be recognised in insolvency, subject to risk periods known as “hardening periods”. Security is granted subject to the risk of the security being invalid or being attacked by a liquidator appointed to the security provider and rendered unenforceable if it is granted in risk periods on or before insolvency or winding-up. The length of the risk period varies according to the circumstances.


The borrower may refuse to deliver vacant possession of the real estate, or refuse to assist the lender in coordinating his tenant’s delivery of vacant possession. This may hinder the enforcement action, as the lender has to incur additional time and costs in, for example, obtaining writ of possession and fieri facias combined in court and engaging bailiffs to recover possession.

9 Tax


Under the Stamp Duties Ordinance (Cap.117) (SDO) the seller and/or the buyer may be liable for the payment of ad valorem duty (AVD), buyer’s stamp duty (BSD) and special stamp duty (SSD) for acquisition and disposition of residential property. Payments of AVD, BSD and SSD are not mutually exclusive. If stamp duty is paid on the agreement for sale and purchase, HK$100 stamp duty is payable on the assignment.(a) AVD For purchases on or after 5 November 2016, AVD at a flat rate

of 15% of the purchase price, irrespective of the amount or value of consideration, would be applicable to all residential property transactions. The seller and the buyer are both liable. However, the buyer usually contracts to pay the AVD.

Key Exemptions: (i) a Hong Kong permanent resident (HKPR) who is acting on his/her own behalf, and does not own any other residential property in Hong Kong at the time of acquisition will be subject to lower rates (AVD at Scale 2 rates); and (ii) intragroup transfers of property between associated companies may be exempt from AVD.

(b) BSD For purchases on or after 27 October 2012, BSD at a flat

rate of 15% of the purchase price would be applicable to all residential property transactions. The buyer is liable to pay the BSD.

Key Exemptions: (i) a Hong Kong permanent resident (HKPR) who is acting on his/her own behalf, and does not own any other residential property in Hong Kong; (ii) joint acquisition by a HKPR with one or more non-HKPR close relative(s) (i.e. spouse, parents, children, brothers and sisters) each acting on his/her own behalf; (iii) transfer between close relatives, whether or not they are HKPRs, each of them acting on his/her own behalf; and (iv) intragroup transfers of property between associated companies may be exempt from BSD.

(c) SSD While AVD and BSD catch acquisition of residential property,

SSD targets disposition. Residential property acquired on or after 27 October 2012

and resold within 36 months will be subject to SSD. The applicable SSD rate depends on the date of acquisition and the holding period of the property by the seller. Below is a table of the SSD rates:

Holding Period

The property was acquired on or after 20 November 2010 and before 27 October 2012

The property was acquired on or after 27 October 2012

Six months or less 15% 20%

More than six months but for 12 months or less

10% 15%

More than 12 months but for 24 months or less

5% 10%

More than 24 months but for 36 months or less

- 10%


Payments of AVD, BSD and SSD should normally be made within 30 days after the date of execution of the instrument.


No, transfers of real estate by individuals are not subject to income tax.


No, transfers of real estate are not subject to VAT.


Please see SSD in the response to question 9.1 above.


Yes, neither AVD, BSD nor SSD apply to the purchase of shares in a corporate vehicle owning an asset.



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Rather, stamp duty is payable on each bought note and sold note for a transfer of shares in a Hong Kong company at the rate of 0.1% of the purchase price or the net asset value of the shares, whichever is higher. HK$5.00 is also payable on the instrument of transfer.Under the SDO, the seller and the buyer are both liable for the payment of such stamp duty. However, under the preliminary agreement the buyer usually agrees to pay the stamp duty.Key Exemptions: Intragroup transfers of Hong Kong shares between associated companies may be exempt from stamp duty.


The Hong Kong tax system is simple. Nonetheless, when the buyer/seller is/are foreign company(ies), it is advisable to engage tax advisors to advise on the structuring of the acquisition in a tax efficient manner.



The principal legislation which regulates leases of premises in Hong Kong, whether business or residential, is the Landlord and Tenant (Consolidation) Ordinance (Chapter 7) of the laws of Hong Kong.Other relevant legislation is to be found in the Conveyancing and Property Ordinance (Chapter 219) and the Land Registration Ordinance (Chapter 128).


The typical business lease will provide for a base rent and the tenant will also be required to pay management fees/service charges, air conditioning charges and also government rates. The tenant will also be required to take out certain insurances.Where retail premises are concerned, sometimes a turnover-based rent will be payable in addition to the base rent.


In general, a tenant can expect to encounter the following terms:(a) Typically three years but shorter or longer terms can be

negotiated.(b) Rent is generally fixed for the first three years of any term.

Where the term is in excess of three years, the lease would normally provide for the rent to be reviewed to the open market rent at the start of the fourth year.

(c) The tenant is generally prohibited from either assigning the lease or subletting without the landlord’s prior written consent, which is entirely within the landlord’s discretion unless the lease provides otherwise.

(d) Typically, the tenant will be required to insure in respect of: ■ the tenant’s obligations of indemnity under the lease; ■ third party liability;

■ water and fire damage to the tenant’s fixtures, fittings and stock; and

■ glass in the premises.(e) (i) Often this is expressly deemed to be a breach of the

restriction on alienation. (ii) Hong Kong leases do not typically make any provision

for such a transfer.(f) The tenant will generally be obliged to keep and maintain

the interior of the premises and the fixtures and fittings. The repairing covenant may be qualified by, for example, the exception from the covenant of fair wear and tear and/or inherent/structural defects. The landlord may expressly covenant to keep the structure in good repair and condition but often the lease is silent on the matter.


Property tax is payable by the landlord in respect of income received from the leasing of real property. However, a corporate landlord may, and usually will, apply for exemption from property tax on the basis that the income will be assessed to profits tax instead.No taxes are payable by the tenant in consequence of entering into the lease.


Other than termination by expiry, business leases usually provide for termination only where: ■ the tenant is in default;■ the premises or the building are destroyed, damaged, rendered

inaccessible, condemned as dangerous or otherwise closed by Government act and not repaired, rendered accessible or reopened within an agreed period; or

■ the landlord has a right of early termination by notice where it is selling, redeveloping or refurbishing the premises or the building.

There are no statutory provisions allowing a tenant to extend or renew its lease or providing for compensation by one party to the other on termination. Options to renew or to terminate can be agreed but options to terminate, other than by the landlord under a sale and redevelopment clause, are highly unusual.


The original contracting parties to the lease each remain liable for the performance of their obligations under the lease even after the lease has been assigned by a party.The covenants which touch and concern land will bind successors to the original parties to the contract.


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It is not yet common to see “green obligations” in Hong Kong business leases.



Please refer to question 10.1 as the applicable statutes are the same.


No. In Hong Kong there is no equivalent concept to the HMO (houses in multiple occupation) as exists in the UK.


(a) Length of term: two years.(b) Rent increases/controls: there are no statutory provisions and

contractual terms would be unusual.(c) Tenant’s rights to remain in the premises at the end of the

term: none.(d) Tenant’s contribution/obligation to the property “costs” e.g.

insurance and repair: generally none but as with business premises the tenant is typically responsible to keep and maintain in repair the interior of the premises and the fixtures and fittings with fair wear and tear generally being excepted.


The landlord’s rights to terminate a residential lease are essentially the same as those noted in respect of business leases in question 10.5. There are no special procedural steps required to be taken by the landlord simply because the premises are residential. Residential tenants have no special statutory protection.



(a) Statutory Outline Zoning Plans set out the designated uses of land.

(b) Town Planning Ordinance (Chapter 131) (TPO) and the Town Planning Regulations make provision for the systematic preparation and approval of plans for the layout of areas of Hong Kong as well as for the types of building suitable for erection therein and for the preparation and approval of plans for areas within which permission is required for development.

(c) Town Planning (Appeals) Regulations.(d) Town Planning (Taking Possession and Disposal of Property)

Regulations.(e) Controls under the Buildings Ordinance (Chapter

123) provides for the planning, design and construction of buildings and associated works, and controlling the safety of buildings.

(f) Controls included in the government leases/grants.


(a) The Land Resumption Ordinance (Chapter 124) (LRO) grants the government power to acquire land compulsorily, by resumption for public purposes such as the development of new towns or infrastructure.

(b) Compensation is payable to the former owner and any person having an interest in the land immediately before reversion under an instrument registered in the Land Registry. Subject to other provisions in the LRO, the compensation payable will usually be the market value of the land.


(a) Land use: ■ The Survey and Mapping Office of the Lands Department

is the official land survey and mapping agency for Hong Kong. It maintains the geodetic survey control network and the satellite positioning reference station network, carries out land boundary surveys and aerial surveys, and produces maps in both paper and digital forms.■ A buyer can order the planning documents from the

Lands Department office.■ The Lands Administration Office of the Lands Department

takes charge of land disposal and acquisition, valuation of land and properties for various purposes, lease enforcement, land and squatter control, urban renewal and maintenance of man-made slopes on unallocated and unleased government land.■ A buyer can obtain the above information from

government gazettes.



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There are statutory fees for application of building/use permits, which are updated from time to time. In general, the fees will be dependent on the type of permission sought, and the scale and complexity of the involved development.The length of time required to obtain the building/use permits also varies depending on the type of permission sought, and the scale and complexity of the involved development. Developer can refer to the performance pledge of the relevant department for information:The Lands Department: http://www.landsd.gov.hk/en/about/pledge.htm.The Buildings Department: http://www.bd.gov.hk/english/organisation/index_pledge.html.


Antiquities and Monuments Ordinance (Chapter 53) provides for the preservation of objects of historical, archaeological and palaeontological interest and for matters ancillary thereto or connected therewith. In theory a declaration of monument will not affect the transfer of rights in real estate; in practice, such declaration may affect the marketability of the real estate, as the Antiquities and Monuments Office must be consulted before the commencement of any work that may affect declared historic monuments.


There is no public register of contaminated land in Hong Kong, although there is a Guidance Note for Contaminated Land Assessment and Remediation which: (a) sets out the requirements for proper assessment and management of potentially contaminated sites; (b) provides guidelines on how site assessments should be conducted; and (c) suggests practical remedial measures that can be adopted for the clean-up of a contaminated site.


Environmental clean-up is not mandatory in Hong Kong.


Building Energy Code-Developers, owners or occupiers must ensure that the building services installation (air-conditioning, electrical, lift and escalator, and lighting installations) complies with the minimum energy efficiency standards set out in therein.Further under the Building Energy Code, owners of commercial buildings/portions of a composite building that are used for commercial use must carry out energy audits once every 10 years.

(b) Building use/Occupation:■ The Legal Advisory and Conveyancing Office of the

Lands Department provides in-house legal advisory services administers the Lands Department Consent Scheme by giving consent to sale of units in uncompleted developments and approves Deeds of Mutual Covenant.■ A buyer can obtain relevant information from the

Lands Department office.■ The Buildings Department sets and enforces safety, health

and environmental standards for private buildings.■ As regards existing buildings: reducing risks and

nuisances caused by unauthorised building works and advertisement signboards; promoting the importance of proper repairs and maintenance of old buildings, drainage and slopes; considering and approving alteration and addition works; processing submissions under the simplified requirements and the household minor works validation scheme of the minor works control system; improving fire safety measures in buildings and advising on the suitability of premises for the issue of licences for specified commercial uses.

■ As regards new buildings: scrutinising and approving building plans; carrying out audit checks on construction works and site safety; and issuing occupation permits upon completion of new buildings.

■ A buyer can obtain relevant information from the Buildings Department office.

(c) Environmental regulation■ The Environmental Protection Department:

■ formulates policies and plans on environmental protection, energy conservation and the promotion of sustainable development, to implement environmental protection and energy-related legislation and plans; and

■ administers robust environmental impact assessment in the planning of new development and major projects.


Approval for the building plan: Building works must not commence before the same has been obtained from the Building Authority.Consent for the commencement of building works: Building works must not commence before the same has been obtained from the Building Authority.Occupation permit: A new building must not be occupied (except by no more than two caretakers) before the same has been obtained from the Building Authority.Some uses need the permission of the Town Planning Board before building works can commence.


Building/use permits and licences (see the response to question 12.4 above) are commonly obtained in Hong Kong. Implied permission cannot be obtained, although long use may indicate that the real risk of enforcement against non-permitted use is slim.



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(c) Air Pollution Control Ordinance (Chapter 311) makes provision for abating, prohibiting and controlling pollution of the atmosphere and for matters connected therewith.

(d) Motor Vehicle Idling (Fixed Penalty) Ordinance (Chapter 611) prohibits the idling of motor vehicles; provides exemptions from the prohibition; imposes a fixed penalty for contravention of the prohibition; provides for recovery of the fixed penalty; and provides for incidental and related matters


By 2020, Hong Kong aims to reduce carbon intensity to 50% to 60% of the level in 2005.


Please see the response to question 12.10 above.

13 Climate Change


(a) Ozone Layer Protection Ordinance (Chapter 403) gives effect to Hong Kong’s international obligations under the 1985 Vienna Convention for the Protection of the Ozone Layer and the 1987 Montreal Protocol on Substances that Deplete the Ozone Layer; to provide for the prohibition of the manufacture of, and to control the importation and exportation of, and to conserve the resources of, substances that deplete the ozone layer and of products containing or made with those substances; and to provide for related matters.

(b) Buildings Energy Efficiency Ordinance (Chapter 610) requires compliance with codes of practice concerning the energy efficiency of air-conditioning installations, electrical installations, lift and escalator installations and lighting installations and energy audits in respect of several types of buildings and to provide for related matters.




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Simon Reid-KaySimon Reid-Kay & Associates 8th Floor, 100 Queen’s Road CentralHong Kong

Tel: +852 3470 9068Email: simon.reid-kay@ srkandassociates.comURL: www.srkandassociates.com

Leslie Kaczmarek Simon Reid-Kay & Associates 8th Floor, 100 Queen’s Road CentralHong Kong

Tel: +852 3470 9011Email: leslie.kaczmarek@ srkandassociates.comURL: www.srkandassociates.com

Simon leads Simon Reid-Kay & Associates and has practised and been resident in Hong Kong since 1985. He deals with all types of real estate transactions and regularly advises on the real estate aspects of IPOs, funds (including REITs), securitisations, sale and leaseback and portfolio management for substantial Hong Kong-based international investment banks and conglomerates. He regularly advises private funds and investment banks on their own and their clients’ real estate requirements including investments, financing and property management.

As well as handling purchases, sales and leases, Simon has advised owners, developers and lenders on the planning and construction aspects of many major developments and infrastructure projects in Hong Kong and the region. He also has extensive experience in government land administration and heavyweight commercial leasing work.

Simon is ranked in Chambers Asia-Pacific 2017.

Simon Reid-Kay & Associates (SRKA) is a highly specialised and growing Hong Kong law firm, with expertise in real estate law. SRKA was founded in 2012 by its current principal, Simon Reid-Kay. The team at SRKA are down-to-earth, straightforward and pragmatic; focused on getting results; and keep things simple and understandable. These values are at the core of what makes SRKA a top-tier firm. There are few law firms in Hong Kong that understand the real estate market as well as Simon Reid-Kay & Associates. The team has decades of experience in all aspects of real estate law and covers the full spectrum of real estate legal services, including mortgage-backed lending, conveyancing, acquisitions and disposals, construction, joint ventures, planning and environment, REITs, real estate structuring and organisation, private or commercial leasing, and more.

Leslie has practised in Hong Kong since 1985. His core practice throughout has been acting for tenants in commercial and residential leasing negotiations, mortgagees in the creation and subsequent realisation of security and general clients in the purchase and sale of real property including many sales by tender or auction. He also advises private equity clients in their purchase and sale of real estate and on the real estate aspects of corporate acquisitions.



Chapter 15

PAV Law Offices

Kiron Prabhakar

Navin B. Singh

India


Most of the laws in relation to real estate in India are codified and one of the latest examples of that is the enactment of the Real Estate (Regulation and Development) Act, 2016. However, it is also essential to understand that common law is one of the major sources for the judiciary and the statutory authorities to settle matters. Accordingly, it can be said that both civil and common law have an effective impact on real estate in India.


International laws have no implication on the real estate sector in India. Real estate in India is basically regulated by codified laws enacted in India and common laws relevant to the provincial jurisdiction in question.

2 Ownership


Yes, there are legal restrictions on ownership of immovable properties for different classes of persons, i.e. resident, non-resident, persons of Indian origin, and these are as follows: Non-resident: Foreign nationals of non-Indian origin resident outside India are not permitted to acquire any immovable property in India unless such property is acquired by way of inheritance from a person who was resident in India. Foreign Nationals of non-Indian origin who have acquired immovable property in India by way of inheritance with the specific approval of the RBI cannot transfer such property without prior permission of the RBI.Non-resident Indian and Persons of Indian Origin: FEMA, along with the Foreign Exchange Management Regulations, permits a NRI or a PIO to acquire immovable property in India other than agricultural land, plantation property or a farm house.Foreign companies: Foreign companies who have been permitted to open a branch or project office in India are also allowed to acquire any immovable property in India which is necessary for, or incidental to, carrying on such activity. However, if the foreign company has established a liaison office in India, it cannot acquire immovable property.

1 Real Estate Law


The main laws that govern real estate in India are as follows:(i) Real Estate (Regulation and Development) Act, 2016: This Act has been enacted to provide a uniform regulatory environment for the regulation and promotion of real estate projects and to ensure the sale of plots, apartments, buildings and real estate projects in a transparent and legally compliant manner. The core objective of this Act is to protect the interest of consumers in the real estate sector.(ii) Transfer of Property Act, 1882 (“TPA”):TPA validates the voluntary transfer of property by an act of parties. It covers the transfer of property by way of sale, gift exchange, lease and mortgage.(iii) Registration Act, 1908:The object of this Act, amongst others, is to provide a method of registration of documents in order to educate the general public about the legal rights and obligations arising or affecting a particular property. As per this Act, an instrument relating to immovable property needs to be compulsorily registered in most cases. (iv) Indian Stamp Act, 1899:The basic purpose of this Act is to raise revenue for State Governments. This Act prescribes the rate of stamp duty to be affixed on different kinds of documents including the documents related to real estate transactions. Post stamping such documents is given evidentiary value when produced in Court.(v) Indian Contract Act, 1872: This Act prescribes the law relating to contracts in India and governs the contractual rights and obligations of the parties.(vi) Foreign Exchange Management Act (FEMA) and FDI Policy:There are restrictions on non-residents acquiring property in India but no restrictions on non-resident Indians (NRIs) and persons of Indian origin (PIOs) buying residential and commercial immovable property in India. However, prior Reserve Bank of India (RBI) approval is required if they want to buy agricultural land or a farm house.



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Not all land rights are required to be registered. The land rights which must be registered are mainly set out in terms of Section 17 of the Registration Act, 1908. They include: (i) gifts of immovable property; (ii) any instrument which operates to create, declare, assign, limit or extinguish any right, title or interest of value of INR 100 or more related to the immovable property; and (iii) leases of immovable property from year to year or for any term exceeding one year or reserving yearly rent.Section 18 of the aforesaid Act provides for documents where registration is not compulsory, but optional. Some of these documents include instruments which acknowledge receipts/payments of consideration on account of the creation, declaration, assignment, limitation or extinction of any such right, title or interest, leases of immovable property not exceeding one year and Wills, etc.


No, in India the state does not guarantee title. The doctrine of caveat emptor (let the buyer aware) is followed in India. The onus of verification of the title is on the buyer. However, the buyer’s onus to verify the title does not affect the warranties of the seller and the contractually agreed terms between both parties.


In terms of Section 17 of the Registration Act, 1908, the following rights are compulsorily registrable: (i) instruments of gifts of immovable property; (ii) any instrument which operates to create, declare, assign, limit or extinguish any right, title or interest with a value of INR 100 and upwards related to immovable property; and (iii) leases of immovable property from year to year or for any term exceeding one year or reserving yearly rent.If a document for which registration is compulsory is not registered, the immovable property concerned will not be affected. However, the said document cannot be relied upon as evidence in a court of law in any transaction which affects or confers power related to such property.


As mentioned in question 4.1 above, registration is not compulsory, but optional, primarily in cases of instruments acknowledging the receipt or payment of any consideration on account of the creation, declaration, assignment, limitation or extinction of any such right, title or interest in immovable property, Leases of immovable property not exceeding one year and Wills, etc.


There is really no concept of registered or unregistered land in India.

Restriction on citizens of certain countries: Citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Macau or Hong Kong cannot acquire or transfer immovable property in India (other than on lease for a period not exceeding five years), without the prior permission of the Reserve Bank of India.



Rights over land are linked to a person’s capacity to own, use and possess the land. Real estate laws prescribe different kinds of rights over the land, which primarily include: (i) Ownership rights: It is the absolute right in the title and

interest of a particular property acquired by virtue of transfer of that property.

(ii) Leasehold rights: A lease is a limited right to use and possess a particular property for a certain period.

(iii) Licensed rights: A licence is also a limited right to use and occupy a particular property for certain period. In a licence the legal possession is not transferred.

(iv) Mortgage/charges on property: A mortgage or charge creates an interest on behalf of the lender on an immovable property. This is used to secure the payment of a loan or money advanced to a borrower.

(v) Easement rights: Such rights are enjoyed by the owner of a particular property over an adjacent property (which he/she/it does not own), i.e., right of way, right to get light, etc.

(vi) Benefits/rights arising out of land: An immovable property also consists of benefits arising from the land i.e., standing crops, trees, etc. Any beneficial rights arising from the land can be enforced in India subject to a contractual understanding between parties.


Yes, the following are some scenarios wherein the right to a real estate diverges from the right to a building constructed thereon:a. when a tenant constructs a building on land that he does not

own; andb. when the tenant sub-leases its leasehold rights further to a

sub-lessee.


Yes, in some cases there may be a split between legal title and beneficial title of an immovable property. For example, in case of a co-operative housing society where such a society is the legal owner of the property, but the owners are allotted the shares of the society associated with the particular property and hence are the beneficial owners as they have the right to use and occupy that property. There are registration requirements which must be met by the beneficial owners.

PAV Law Offices India


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title document after making it a part of its records. It is noteworthy that upon registration such an instrument becomes a public document for anyone to verify and, if required, obtain a certified true copy.


To date, registration of real estate transactions in the NCR cannot be completed electronically. For registration of a document a party has to physically appear before the registering authority where photographs and finger print impressions are submitted. Further, certain documents in a physical form must also be provided: (i) ownership documents in original form for verification, along with a photocopy; (ii) Permanent Account Number and Aadhaar Card / photo identity proof of the parties to the transaction; and (iii) in case of a company, an Aadhaar Card / photo identity proof of authorised signatories in original form and corresponding photocopies. A copy of any relevant board resolution and the company seal are additional requirements.The information relating to registered real estate transactions can be accessed electronically dating back to the time these documents were first digitised in the various jurisdictions.


There are no specific legal provisions on which compensation claims relating to the registry/registries can rely. However, mistakes can be rectified upon filing the requisite applications with the concerned registries.


On registration, instruments become public documents and anyone on filing an application and payment of the requisite fees can verify and get a certified true copy of the document from the concerned Sub-Registrar’s office. Therefore information relating to registered real estate can be accessed electronically.In respect of real estate and other rights affecting real estate, details can be obtained from the office of the Sub-Registrar, provided there are restraining orders from the Hon’ble Court and these orders have been brought to the notice of the concerned Sub-Registrar. Other than the Sub-Registrar’s office, court records and public notices are other avenues through which the aforesaid details can be obtained.



Apart from the seller, the buyer and the buyer’s financier, the following persons are usually involved in a real estate transaction: (i) witnesses: who witness the execution of the sale deed; (ii) real estate

If a document is compulsorily registered and is not registered, such a document does not affect the immovable property comprised in that document. However, such a document cannot be received as evidence in a court of law in a transaction affecting or conferring power with regard to such a property. Thus, on registration, a compulsorily registrable document gets evidentiary value.The concept of a probationary period following the first registration is not envisaged under Indian law.


On a sale of land, title is transferred from the seller to the buyer upon execution of the sale deed, i.e. from the date of execution of the sale deed. Such sale deed can be submitted for registration within four months of the date of execution. However, on registration such document gets evidentiary value and can be produced as evidence in a court of law in a transaction affecting such property.


The ownership right may be transferred from the seller to the buyer through lease deeds/conveyance deeds/sale deeds, etc. Such deeds are required to be registered under the Registration Act, 1908 once stamp duty and registration fees have been paid. Once registered, such documents can be used as evidence in a court of law. Unregistered documents are also used for the transfer of property. Typically rights created by registered documents will prevail over rights created through unregistered documents. In some cases statutory rights may prevail over contractual rights set out in agreements. Further, earlier rights created by means of non-registered agreements will prevail over rights created by subsequent non-registered agreements.



Each state government has appointed Sub-Registrars of Assurances who act in the jurisdiction conferred on them. Every document pertaining to immovable property which requires registration needs to be registered in the office of the Sub-Registrar of Assurances in whose jurisdiction the concerned property is situated. In the National Capital Region primarily there are Sub-Registrar offices appointed by the governments of Delhi, Uttar Pradesh and Haryana for the Delhi, Noida, Ghaziabad and Haryana jurisdictions. Each Sub-Registrar’s office follows the rules and regulations specified by the individual state government.


On submission of a document for registration, the Office of Sub-Registrar of Assurances endorses the document and returns the document to the owner with the registration number along with the book number and page number of the statutory book of records in which the document has been included and copied accordingly. Hence the land registry, in a manner of speaking, issues the physical




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The minimum formalities for the sale and purchase of real estate are that the seller should have the absolute and marketable title to sell and the buyer should have capacity to buy. Further, the agreement should be executed in this regard and registered within the period of four months of execution of the aforesaid agreement.


The seller is under the obligation to disclose all facts about the property in question, including each and every defect and liability of the property of which the seller should be aware. Further, the buyer is obliged to follow the Latin rule ‘Caveat Emptor’ which means ‘let the buyer beware’ and consequently the buyer should conduct due diligence with regard to the property.


Yes, the seller can be held liable to the buyer for misrepresentation.


Yes, usually sellers give contractual warranties to buyers which include: (i) the seller is the absolute owner of the said property and has a good and marketable title and no third party has any interest, share, right and title thereof; (ii) there is no legal impediment on the seller to sell, transfer and convey the absolute title in the property in favour of the buyer; and (iii) the property is free from all kinds of encumbrances and there are no outstanding government dues. There are also covenants from sellers which support these warranties, stating that: (i) they convey, sell, transfer and assign all of their rights, title and interests in the said property to the buyer and they have been left with no right, title or interest of any nature whatsoever in the said property; and (ii) the property has become the exclusive property of the buyer, absolutely and forever, with the right to transfer the same by way of sale without any objection from the sellers. If the seller breaches any of their warranties, a buyer can claim damages. These warranties help in providing information. Additionally, if these warranties are found to be misrepresentations then it is easier to establish a case of prima facie default against the seller in a court of law. Warranties from the sellers should not be considered as a substitute for buyers to conduct their own due diligence on the said property for reasons of “let the buyer beware”, etc.


Yes, as mentioned in question 7.4, a seller warrants its ownership of

broker/agent: who introduces the buyer and seller to each other and assists in carrying out the transaction; (iii) lawyers: professionals from both sides who have advised and negotiated the transaction on behalf of their respective clients; and (iv) any other person who has any vested interest in the property, i.e. legal heirs, collaborators, holders of any charge on the property, etc.


The aforementioned persons get compensated by the parties depending on their interest and involvement in the transaction. However, the witnesses typically are known to the concerned parties and therefore are generally not paid/compensated by the transacting parties.


Yes, there is a noticeable increase in the availability of capital to finance real estate transactions. The main sources of finance for real estate transactions are debt. Domestic finance can be availed: (i) from the proposed sale of the immoveable property to buyers before the property is constructed; however, this source of finance is subject to restrictions imposed under the Real Estate Regulation and Development Act, 2016, in terms of receiving and utilisation of money; (ii) from nationalised and other banks; (iii) from non-banking financial institutions; and (iv) by issuing secured debentures by a corporate developer. Foreign finance can be raised from: (i) domestic or foreign private equity funds; (ii) foreign portfolio investors; and (iii) external commercial borrowings (ECB), etc.


With the increase in availability of finance for real estate transactions, there is an increase in projects in the real estate sector in the NCR region. Shortage of land in Delhi and the availability of land at reasonable prices has triggered the growth of the real estate sector in suburban areas of NCR and Tier II and Tier III cities i.e. Alwar, Bhiwadi, Neemrana, Mathura, Agra, Dehradun, Haridwar, Jaipur, Meerut, Karnal and Panipat, Mohali, etc. Further, the existing Government has launched a project for the development of smart cities across India which has also caused some traction in the real estate sector.


As a whole, there is a bit of a slowdown in the real estate sector with regard to projects located in the NCR. One of the underlying reasons could be that the investors/developers are awaiting the full implementation of the provisions of the newly-introduced real estate laws, i.e. the Real Estate (Regulation & Development) Act, 2016 (RERA) by the concerned State Governments.



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borrower for the outstanding amounts or file a summary suit, as provided for under Order 37 of the Code of Civil Procedure 1908. Alternatively, the lender may apply for foreclosure of the mortgage where the borrower had provided security by way of a mortgage. Both of these options are time-consuming. In order to get a speedy remedy, the bank/financial institution can give notice to the defaulting borrower/guarantors under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”) to pay the entire outstanding amount within the prescribed period. If the borrower fails to pay the outstanding amount within the prescribed period, then the lender can initiate proceedings for recovery without intervention of the court under SARFAESI Act.


Usually the formalities required for real estate lending are as follows:(i) A due diligence exercise on the part of the lender must be

conducted to verify the title.(ii) A valuation report from a certified valuer must be obtained to

ascertain the value of the property.(iii) Execution and proper stamping of the loan agreement,

guarantee agreement, mortgage deed, hypothecation deed, share pledge agreement, documents for issuance of secured debenture and its filing, etc. must be completed.

(iv) Registration of the mortgage deed, if applicable.


By obtaining the senior security rank: The first charge created on the property shall have priority over the subsequent one and first charge holder may enforce its security interests without any consent from the other lenders. Hence, the lender should try and obtain the first charge over the property, so that its security has the status of the first charge.


Under the following circumstances security taken by a lender may be avoided or rendered unenforceable:(i) If title of the property, which was rendered as security,

is conferred on any third party prior to the creation of the security interest by the lender in such property.

(ii) If the lender has a second or subsequent charge on the security rendered and the property fails to generate a surplus over the claim of the first charge holder, the first charge holder may enforce its security interests without any consent from the other lender/s.


As such no specific right is available to the borrower to frustrate the enforcement action of a lender. However a borrower may take the following steps to frustrate the enforcement action of a lender: (i) submit an application for granting more time to the lender to pay the outstanding amount; (ii) initiate a law suit to grant a stay on the enforcement action initiated by lender; or (iii) pay off the total outstanding amount to redeem the property.

the property. A seller usually warrants that he is the absolute owner of the land and is sufficiently entitled to transfer the property to the buyer.


Some of the main liabilities which affect the buyer are that he/she must: (i) pay the sale consideration through proper banking channels; (ii) ensure the accuracy of the identity details he/she provides; and (iii) deposit the tax deducted at source with the concerned authorities and provide the statutory receipt to the seller.



There is no specific regulation concerning the lending of money to finance the real estate sector. The main source of finance for real estate transactions is debt funding. Domestic sources of finance consist of: (i) the proposed sale of the immoveable property to buyers before the property is constructed – this source of finance is primarily regulated by the Real Estate Regulation and Development Act, 2016, which poses restrictions in terms of utilisation and receiving of the money from the customer; (ii) nationalised and other banks; and (iii) non-banking financial institutions (NBFC). Finance from banks and NBFCs are governed by their respective regulations and internal circulars issued in this regard. Funding can also be provided by secured debenture by a corporate developer. This is governed by the Companies Act, 2013. Foreign finance can be sourced from: (i) foreign private equity funds; (ii) foreign portfolio investors; and (iii) external commercial borrowing (ECB). The foreign source of finance is essentially governed by FDI Policy and FEMA, read along with the Foreign Exchange Management Regulations.


Real estate lenders usually secure their loan by creating a charge on the property through any type of a mortgage, as provided in the TPA. Most of these charge-related documents require compulsory registration. Mortgage by depositing the title deeds is the most common type of mortgage. Further, apart from the contractual obligations imposed on the buyer, other methods commonly relied upon are: (i) taking guarantees/corporate guarantees from a third party; (ii) issuing secured debenture by a corporate developer; (iii) pledging of shares of the borrowing company; and (iv) issuing post-dated cheques.


In case of defaults in the payment of a secured debt the lender may file an ordinary money suit for recovery against the defaulting




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For the purpose of GST, the property value does not include stamp duty and registration charges. The buyer is liable to pay GST.


On disposal of the property, the seller shall be liable to pay capital gains tax in accordance with the provisions of the Income Tax Act, 1961. Capital gains tax is required to be paid in the relevant assessment year corresponding to the financial year in which the immovable property was disposed of.


The ownership of a company owning immovable property can be transferred by way of the transfer of shares of that company. For the purchase of shares of the company a share transfer deed/form must be duly executed both by the transferor and the transferee. From a stamp duty perspective: A share transfer deed should be duly stamped with the share transfer stamp at the prescribed rate on the value of shares. This share transfer stamp in Delhi, for example, is currently much lower, i.e. 0.25% of the share value, than the stamp duty levied on documents pertaining to the transfer of immovable property. A share transfer deed does not require registration.From the perspective of capital gains: The sale of shares of the company will attract capital gains tax as the sale of shares of the company will also amount to the transfer of capital assets. Hence, the transfer of shares of the company would be subject to capital gains tax as mentioned in question 9.1 above, except for the fact that short-term capital gains and long-term capital gains tax will be decided on the basis of a holding period of 12 months instead of 36 months.


Whether or not a property has a completion/occupation certificate, the buyer should always ensure that property tax if any payable on such a property is duly paid. For that purpose property tax receipts should obtained. A visit to the tax authorities is also advisable in order to confirm if there are any arrears of tax to be paid by the seller. On the other hand, for properties which are under construction, it is important to ascertain the status of the payment of GST.



Transfer of the Property Act, 1882, the Registration Act 1908, the Indian Stamp Act, 1899 and the Contract Act, 1872 are the main acts that regulate leases of business premises.


Lease deed(s) and the leave and licence agreement(s) are the two main types of business lease.

9 Tax


The transfer of immovable property may be subject to following taxes: (i) Capital gains tax: The transfer of immovable property is

subject to capital gains tax in accordance with the provisions of the Income Tax Act, 1961. The transferor is liable to bear the capital gains tax. Capital gains are further classified as short-term and long-term capital gains, depending upon the period of holding the proceeds of such sale by the seller. Short-term capital gains are taxed at normal rates whereas long-term capital gains are taxed at subsidised rates of 20%. There are also indexation benefits which can be relied upon in the calculations of long-term capital gains tax. Such indexation can help in reducing the amount of capital gain tax as it takes into account the inflated cost of acquisition of the capital assets pertinent at the time of sale of the concerned property.

(ii) Stamp duty: On every instrument pertaining to transfer of immovable property the prescribed stamp duty is required to be affixed. The rate of stamp duty varies from state to state. In the absence of any agreement to the contrary, the purchaser/transferee has to pay the stamp duty.

(iii) Registration charges: Every instrument pertaining to transfers of immovable property are compulsorily registrable and the registration charges must be paid accordingly. In the absence of any agreement to the contrary, the buyer has to pay the registration charges. The registration charges also vary from state to state.


(i) Capital gains tax must be paid in the relevant assessment year corresponding to the financial year in which the immovable property was transferred.

(ii) Stamp duty is required to be paid prior to the execution of the document for the transfer of immovable property.

(iii) The registration fee is required to be paid at the time of registration of the document.


Yes, every transfer of immovable property shall be subject to capital gains tax in accordance with the provisions of the Income Tax Act, 1961. Such tax must be paid by the seller.


The Goods and Services Tax Act, 2017 (GST), a single uniform indirect tax, has replaced all central and state indirect taxes like service tax, excise, customs, VAT, etc. Relevant provisions of the GST are as follows:Transfer of land and transfer of a building after issuance of a completion certificate or after the building has been occupied will not attract GST. However, transfer of a building before its first occupant or prior to issuance of a completion certificate will be subject to GST. The rate of GST applicable to properties under construction is 12% of the property value.



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accordingly. The landlord is also made responsible in most leases by including an clause which states that lessee will attorn as a lessee to the new owner and it is the duty of the landlord to protect the interest of the lessee vis-à-vis the new owner by providing the required documentation in this regard.


To date, the concept of ‘green leases’ is not very common in India. However, in 2001, the Indian Green Building Council was formed which is a part of the Confederation of Indian Industry. Its goal is “to enable a sustainable built environment for all and facilitate India to be one of the global leaders in the sustainable built environment by 2025”. In order to promote the green building concepts the aforementioned council works closely with the State Governments, Central Government, World Green Building Council and bilateral multi-lateral agencies. In addition to this, the Leadership in Energy and Environmental Design is the well-known green building rating system known worldwide and is also followed for some projects in India. In keeping with the above requirement, various clauses in relation to “green obligations” are found in leases and some such clauses are related to light pollution, air pollution, diesel storage, etc. which are clearly defined and are enforceable legal obligations as per the contract between the parties.



Leases of residential premises are regulated by the enactments i.e., the Transfer of Property Act, 1882, the Indian Contract Act, 1872, the Indian Registration Act, 1908, the Indian Stamp Act, 1899 and the local Rent Control Act.


To some extent, yes. It depends on the provisions of a particular State’s Apartment Ownership Act.


(a) Length of term – this is at the discretion of the transacting parties, however, it is pertinent to mention that if a lease is for longer than 12 years then the lessee may be considered as the deemed owner for tax purposes.

(b) Rent increases – as contractually agreed between the parties. (c) Tenant’s right to remain in the premises at the end of the term

– the tenant has no right to remain in the rented premises after


(a) Length of term – this is at the discretion of the transacting parties, however, it is pertinent to mention that if a lease is for a period of longer than 12 years then the lessee may be considered as the deemed owner for tax purposes.

(b) Rent increases – this is contractually agreed between the parties.

(c) Tenant’s right to sell or sub-lease – only if provided in the lease contract, however, as per the TPA, the lessee has the right to sub-lease the property, if agreed between the parties.

(d) Insurance – generally the lessor is responsible for the insurance for the demised premises and the lessee is responsible for the insurance of lessee’s fixtures, fittings and personal belongings in the demised premises.

(e) (i) Change of control of the tenant – as per the contractual agreement between the parties; (ii) in the case of a transfer of lease as a result of a unless specifically excluded.

(f) Repairs – the lessor takes care of the major repairs; however, the minor repairs in the demised premises are to be carried out as per the agreement between the parties.


Taxes which are payable on rent either by the landlord or tenant of a business lease are stamp duty, registration charges and the applicable GST. Also there is a tax deduction at source by the lessee.


Leases are either terminated at the expiry of the lease tenure or upon a default by the parties. There can be special provisions for renewal or extension which are typically subject to an escalation in the rent. Yes, there can also be terms wherein either party can be compensated. For example, the landlord often agrees to pay for any expenses incurred by the tenant on fixtures and fittings in the premises upon the termination of the lease. Conversely, the landlord can also be compensated if there is an abrupt termination of the lease by including a lock-in period of the lease, where the rent for the balance of the lock-in period is paid by the tenant when the lease is terminated.


No, the landlord and/or the tenant of a business lease are not liable for their respective obligations under the lease once they have sold their interest. However, if a lease specifically states that, in spite of the sub-lease or outright transfer of the lease, the tenant will continue to be liable, then such a tenant will be held liable




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private land for public use, provided the public nature of the usage can be demonstrated unequivocally. Land acquisition in India is governed by the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (LARR). The Government is permitted to use the process of compulsory acquisition only for Government projects and public sector undertaking projects involving a public purpose.The calculation of the amount of compensation is specified in Schedule I, Schedule II and Section 26, Section 27, Section 28, Section 29 and Section 30 of the LARR.


The Ministry of Environment and Forests regulate the environmental regulations.The local municipal corporation of each state regulates the usage of land/building and/or occupation in their jurisdiction.Buyers can obtain reliable information on these matters through various regulations passed by the state and the central government. The buyers can also check these regulations in the offices of the local municipal corporation.


In accordance with RERA, a builder’s project must be registered with the Real Estate Regulatory Authority. Some of the important permits required by a developer for building works are as follows:(a) Sanctioned Building/Floor Plans.(b) Fire NOC from the Local Fire Office.(c) NOC from the Airports Authority of India, if applicable.(d) Certificate of the Pollution Control Board of the State.(e) Ministry of Environment and Forest Clearance Certificate/

State Environment Clearance Certificate, if applicable, etc.


Yes, building/use permits and licences are commonly obtained by filing an application in the appropriate office from which the permit is required. Each state government has its own zoning regulation, development plan and policy or grant of licence and change of land use. Each application for change of land use will be considered in conformity with the land use proposals of the development plans and in accordance with the zoning regulations of the respective state. Land use permission must be expressly obtained from the competent authority. No, implied permission cannot be obtained for building/use permits and licences.


The cost of building/use permits and the time involved in obtaining such permits depends on the nature of the permits/approvals sought and several other factors including the size and location of the project. The same also depends upon the usage, i.e. commercial or residential usage of the property to be constructed.

the lease has expired. However a tenant, by mutual agreement with the landlord, may renew the lease for a further period of time.

(d) The tenant’s contribution/obligation to the property “costs” e.g. insurance and repair – the cost of the insurance and repair of the rented premises’ structure is usually the responsibility of the landlord.


A landlord may terminate a residential lease during the lease tenure with cause when a tenant is not paying rent or when a tenant violates the clauses of a lease or without cause subject to mutual agreement between the parties. For termination with cause, the landlord typically has to issue a notice to the tenant as per the agreed notice period stated in the lease specifying the reasons for termination of the lease. On the other hand, for termination without cause, a notice has to be served to the tenant as per the agreed notice period. If the tenant refuses to vacate the premises after the notice period is over, then a case for eviction by the landlord would have to be filed in the court having the applicable jurisdiction.



There are specific laws which govern the zoning/permitting and related matters concerning the use and occupation of land. The National Capital Region Planning Board Act, 1985, is enacted for the constitution of a planning board for the preparation of a plan for the development of the national capital region and for developing harmonised policies for the control of land use and the development of infrastructure in the national capital region to avoid any haphazard development of that region. Further, to the aforementioned act the National Capital Region Planning Board Rules, 1985 and the National Capital Region Planning Board Regulations, 1986, have been enacted to clarify the purpose of said Act. There is also the Master Plan of Delhi, 2021 which governs the zoning and related issues of this region.The Central environmental legislations in India include the following:a) The Water (Prevention and control of Pollution) Act, 1974.b) The Air (Prevention and control of Pollution) Act, 1981.c) The Environment Protection Act, 1986.d) The Indian Forest Act, 1927.e) The Forest Conservation Act, 1980.f) The National Conservation Strategy and Policy Statement on

Environment and Development, 1992.


The power to take property from the individual is based on the premise of eminent domain. The doctrine of eminent domain states that the sovereign state can take all steps which relate to public interest. The doctrine empowers the sovereign state to acquire



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The Energy Audit Methodology is used by the Bureau of Energy Efficiency, Ministry of Power and Government of India and this has laid down the regulatory requirements for the assessment and management of the energy performance of buildings.

13 Climate Change


The provisions of the Environment (Protection) Act, 1986 provides for the protection and improvement of environment. No person operating any industry, business or procedure is allowed to discharge or emit any environmental pollutant in excess of prescribed standards. The Government is empowered to take measures for laying down standards for the emission or discharge of environmental pollutants. As per the mandatory Emissions Trading Scheme which is a market-based approach to control pollution by providing economic incentives to achieve reduction in emissions, India has pilot projects in the State of Tamil Nadu, Maharashtra and Gujarat which cover more than 1,000 industries.


India filed a climate action plan with the United Nations Climate Secretariat on 2nd October, 2016. This plan proposed to lower the emissions intensity of its GDP by 33%–35% below 2005 levels by 2030. Further, it pledged to achieve 40% of its installed power capacity from non-fossil-based fuel sources. India also pledged to create an additional carbon sink (a carbon sink is anything such as forest, ocean and/or any natural environment which soaks up more carbon than it discharges as carbon dioxide) of 2.5 to 3 billion tonnes by 2030.


Apart from the above-mentioned regulatory measures, no other specific regulatory measures are required to improve the sustainability of both newly constructed and existing buildings. However, some other regulatory measures/approval/licences may need to be taken depending upon the facilities/amenities available in the building as well as other factors such as the location of the building/project, i.e., a diesel storage licence, lift fitness licence, Clearance from the Delhi Metro Rail Corporation and Indian Railways, etc.


Some of the main acts in this regard are: ■ the Ancient Monument Preservation Act, 1904;■ the Constitution of India, Article 49, Entry 67 of Union List,

Entry 12 State List and Entry 40 of Concurrent List; ■ the Ancient Monuments and Archaeological Sites and

Remains Act, 1958; and■ the Ancient Monuments and Archaeological Sites and

Remains (Amendment & Validation) Act, 2010, and Rules framed thereunder. As per this Act persons having buildings or houses in the prohibited area (100 metres from protected monuments) of any centrally protected monument may only undertake repairs and renovation and in case of a regulated area (200 metres further beyond the prohibited area) the persons may undertake construction, reconstruction, repairs and renovation. In both cases activity is only only after obtaining permission from the Competent Authority and on the recommendation of National Monuments Authority.

The regulations for protection of historic monuments do not affect the transfer of rights in real estate.


There is no specific public register of contamination and pollution of real estate. However, the Environment Protection Act, 1986 read with Section 5 (3) of the Hazardous Wastes (Management and Handling) Rules, 1989 provides that every occupier generating hazardous wastes and having a facility for collection, reception, treatment, transport storage and disposal of such wastes shall make an application to the State Pollution Control Board for the grant of authorisation for any of the said activities. Further, the orders and the judgments of the courts ascertain if there is any pending litigation against the developer for contamination and pollution. A potential buyer has to conduct its own research in order to obtain reliable information regarding contamination and pollution of real estate.


There is no specific statutory provision which provides for mandatory clean up of the environment. However, where an industry is held liable for contamination and pollution, and when an order, judgment or direction is passed by the National Green Tribunal, any other courts/tribunals and regulatory body set-up under the provision of the various Environmental Laws implemented in India, the environmental clean-up becomes mandatory.




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Kiron PrabhakarPAV Law OfficesF-1/11 (Lower Ground Floor)Hauz Khas EnclaveNew Delhi -110016India

Tel: +91 11 2651 8507Email: [email protected]

Navin B. SinghPAV Law OfficesF-1/11 (Lower Ground Floor)Hauz Khas EnclaveNew Delhi -110016India

Tel: +91 11 2651 8505Email: [email protected]

Ms. Kiron Prabhakar, with over 29 years of experience, is the Founder Partner of PAV Law Offices. She holds a Bachelor’s Degree in Law from the University of Delhi and a Bachelor’s Degree in Arts – English (Honours) from Lady Shriram College, University of Delhi. Subsequently, she completed her LL.M. in IT and Telecom Laws from the University of Strathclyde, Glasgow. She has a Diploma in Cyber Laws from Indian Law Institute, New Delhi.

Her areas of practice also include property development, leases and licences, conveyances, construction contracts, taxation related to land and property, the setting up of trusts, providing legal support for complying with regulatory requirements related to land and property and transfer of property under the Indian laws of inheritance. She has handled litigation related to real estate matters and has successfully completed several major land and property transfers.

PAV Law Offices (“PAVLO”) is a dynamic firm set up in 2008 with the aim of providing expert legal services. We believe in a result-oriented approach. We focus on addressing client requirements in a holistic manner to facilitate achieving their business objectives. PAVLO is a full service law firm representing major national and global corporations, Fortune 500 Companies, Government of India and high-net-worth individuals. Our practice areas include: • Real Estate & Infrastructure Projects • Information Technology, Media and Entertainment • Employment Laws • Corporate Commercial, Mergers & Acquisitions • Compliances • Environment Laws • Direct and Indirect Taxation • Litigation and Arbitration.

PAVLO has competent lawyers and is equipped with the latest infrastructure and networking facilities to remain connected with clients as well as maintain confidentiality. Our reach and depth of services is enhanced through our alliances with specialist law firms in major cities across India.

Mr. Navin B. Singh holds a Bachelor’s Degree in Law from the University of Delhi and a Bachelor’s Degree in Chemistry (Honours) from BBA University, Muzaffarpur. He successfully completed the CA intermediate level and CA final (first group) examination. Navin is a member of Bar Council of Delhi.

He has been associated with the firm for over eight years and has nearly 10 years of in-depth experience in all aspects of real estate laws and corporate laws including opinion, transactional & regulatory matters and is highly regarded for his ability to comprehensively address client concerns and provide them with practical advice keeping long-term business interests in mind.

With the backup of CA qualification and NCFM certification, he also has thorough knowledge of taxation laws, security market regulating laws.



Chapter 16

Maples and Calder

Diarmuid Mawe

Craig Kenny

Ireland

2 Ownership


There are no legal restrictions on the ownership of real estate by non-resident persons in this jurisdiction. However, anti-money laundering legislation requires that a number of checks be carried out on a potential buyer, and the identity of the buyer, the source of funds and the ability to fund the acquisition of real estate will need to be verified.



Irish property can be held under freehold title which confers absolute ownership, or a leasehold title which confers ownership for the period of years granted by the relevant lease and held from the owner of the freehold or the owner of the superior leasehold title in the relevant property. A leasehold interest is based on a contractual relationship between the lessor/landlord and the lessee/tenant.The quality of the title to land generally falls into four categories, namely:■ Absolute title.■ Possessory title.■ Qualified title.■ Good Leasehold title.


Real estate in Ireland comprises all immovable property. This includes land and any buildings or fixtures on the land. No distinction is made between title to land and title to buildings where they are in the same ownership. Typically, the owner of land is also the owner of any buildings erected on the land. However, there is no impediment to having different owners.

1 Real Estate Law


Irish law was historically based on old legislation which predates the establishment of the Irish State in 1922, such as the Conveyancing Acts, 1881–1911 (the “Conveyancing Acts”) and the Settled Land Acts, 1882–1890. The Land and Conveyancing Law Reform Act, 2009 (the “2009 Act”) replaced much of the old law, including the pre-1922 statute law, and modernised the law and conveyancing practice. There is modern legislation governing registration of title (Registration of Title Act, 1964 which was modified by the Registration of Deeds and Title Act, 2006) to facilitate the increasing computerisation of the property registration system in this jurisdiction and succession law (Succession Act, 1965).There is extensive statutory protection afforded to family property in particular, which affects conveyancing practice (e.g. the Family Home Protection Act, 1976). This is partly due to the fact that Ireland has a written Constitution enshrining certain fundamental rights which override any other law, including legislation. Thus it is not uncommon to find legislation declared by the domestic courts to be unconstitutional and, therefore, null and void.


Irish property law is essentially based on both legislation and common law.


There are no international laws of direct relevance to real estate in this jurisdiction. However, as Ireland is a common law jurisdiction, court decisions made in other common law jurisdictions (such as the UK) are often accepted as having persuasive authority by the Irish judiciary.



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A title registered in the Land Registry is guaranteed by the state. The Land Registry indemnifies any person who suffers loss through a mistake made by the Land Registry. A buyer, therefore, can accept the folio as evidence of title without having to read the relevant deeds. However, the State does not guarantee the conclusiveness of boundaries or the area of the relevant property as identified on the Land Registry maps.It should be noted that the Registry of Deeds does not guarantee the effectiveness of a deed nor does it interpret a deed, but only records the existence of the deed. The registration of a deed in the Registry of Deeds governs priorities.


Any unregistered property (Registry of Deeds) purchased in the State after 1 June 2011 is subject to compulsory first registration in the Land Registry.Registration is also compulsory where land is bought under the Land Purchase Acts or where land is acquired after 1 January 1967 by a statutory authority.


Except as set out in question 4.3, there is no requirement that documents or titles be registered, but it is good conveyancing practice that deeds be registered in either the Registry of Deeds or the Land Registry in order to preserve the priority of the deed.In the case of registered land, there are certain rights which must be registered in the Land Registry to gain protection; otherwise these rights will not be protected against a bona fide buyer for value without notice (e.g. rights of residence, restrictive covenants, leases for a term exceeding 21 years). Section 35 of the 2009 Act provides that an easement shall be acquired at law by prescription only on registration of a court order under section 35. Section 35(4) of the 2009 Act provides that the order shall then be registered in the Registry of Deeds or Land Registry as appropriate.Section 37 Civil Law (Miscellaneous Provisions) Act 2011 amended the 2009 Act and the Registration of Title Act 1964 to enable the PRA to register easements without a court order where there is no disagreement between the parties concerning entitlement to an easement or profit.There are also a number of burdens which affect registered land without registration, such as public rights and occupational tenancies for terms not exceeding 21 years.


There is no probationary period following first registration.As noted at question 3.1, the quality of the title to registered land generally falls into four categories, namely:■ Absolute title: This is the best type of title to land that can be

acquired in Ireland.


There is a split between legal title and beneficial ownership of property in Ireland. The 2009 Act provides that the entire beneficial interest in property passes to the buyer on the making of an enforceable contract for the sale or other disposition of land. The beneficial interest in property can also be held through a traditional “off-title” trust. In respect of registered land, the Land Registry does not recognise a split between legal title and beneficial ownership and only the legal owner of property will be recorded in part 2 (the ownership section) of the folio. A beneficial owner may, however, protect his or her interest in the property by registering a caution or an inhibition against the folio in question. The purpose of a caution is to obtain notice of dealings by the registered owner so that the cautioner has an opportunity to assert his or her unregistered right(s). An inhibition, on the other hand, operates as a restriction on registration that prevents all registrations except those made in compliance with the terms thereof. In addition, a priority entry may be made by an intended purchaser, lessee, or chargee of property affording them priority over other registrations in respect of the folio for a period of 44 days from the date of registration of the priority entry.



The Property Registration Authority (the “PRA”) is the State body responsible for the registration of property transactions in Ireland and the system of registration of title (ownership) to land in Ireland. The PRA is a statutory body established on 4 November 2006 under the provisions of the Registration of Deeds and Title Act 2006 (the “2006 Act”). The main functions of the PRA are to manage and control the Land Registry and the Registry of Deeds and to promote and extend the registration of ownership of land.The Land Registry was established in 1892. When ownership is registered in the Land Registry, the deeds are filed with the Land Registry and all relevant particulars concerning the property and its ownership are entered on folios which form the registers maintained in the Land Registry. In conjunction with folios, the Land Registry also maintains maps (referred to as filed plans). Both folios and maps are maintained in electronic form.The Registry of Deeds was established in 1707 to provide a system of voluntary registration for deeds affecting land and to give priority to registered deeds over unregistered but registrable deeds. There is no statutory requirement to register a document in the Registry of Deeds, but failure to do so may result in a loss of priority. The effect of registration is generally to govern priorities between documents dealing with the same piece of land. The primary function of the Registry of Deeds is to provide a system of recording the existence of deeds affecting unregistered property. When a deed is lodged in the Registry of Deeds it must be accompanied by the relevant application form (in a prescribed form) which is a summary of the essential information of the relevant deed.

Maples and Calder Ireland


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Transactions cannot be completed between parties electronically. Once completed, all transactions relating to registered real estate can be submitted to the Land Registry for registration electronically. Once the application has been submitted electronically, the Land Registry will issue a dealing number. However, the actual documents must be physically lodged in the Land Registry in order to effect the completion of the registration.The documents that typically need to be provided to the Land Registry to effect registration of an ownership right are as follows:■ the Land Registry application form; ■ the transfer deed; and■ the appropriate fees. The Land Registry maintains an electronic database which can be accessed electronically.The concept of electronic conveyancing, or e-conveyancing, was first proposed by the Law Reform Commission in Ireland in 2006 and, since then, both the Irish Government and the Law Society of Ireland have engaged in consultations and established a Task Force in order to ascertain how e-conveyancing can be regulated and implemented in the future.


Compensation can be claimed from the Land Registry but not from the Registry of Deeds. Please refer to question 4.2 above.


Any member of the public is entitled to search the Registry of Deeds index on payment of the prescribed fee. In the Land Registry, members of the public can inspect the index of names, the index of lands and the folios (including maps) on payment of the prescribed fees. Applications pending registration can only be inspected by the lodging party or the registered owner of the property or by a prescribed category of persons.A buyer, through his/her lawyer carrying out pre-contract diligence, can obtain all the information they might reasonably require regarding encumbrances and rights affecting land from the seller’s lawyer.



The relevant property is usually marketed on behalf of the seller by an agent who advertises the property and advises on the market value of the property. In commercial real estate transactions, the parties

■ Possessory title: This category of title is granted where an applicant does not have paper title to land but is in occupation of the land and/or in receipt of the rents and profits issuing from the land.

■ Qualified title: This category of title is granted where an applicant can only establish title for a limited period and/or where the title is subject to reservations.

■ Good Leasehold title: This category of title applies where the Land Registry has not investigated the title of the lessor to grant the lease to the applicant. Note that if the superior title is already registered, then the lessee will be registered with an absolute title.


The legal title usually passes when the purchase price is paid to the seller and the buyer takes delivery of the transfer deed. To complete the effective transfer of ownership of registered land, it is necessary to register the transfer in the Land Registry.The 2009 Act provides that the entire beneficial interest in property passes to the buyer on the making of an enforceable contract for the sale or other disposition of land.


Where interests are registered, priority will depend on the date of registration. A registered interest will have priority over an unregistered interest, even if the registered interest had been created after the earlier unregistered interest. Priority between unregistered interests will be determined by their date of creation. In order to benefit from the Doctrine of Priority:■ the buyer must be bona fide, since negligence or fraud will

deprive the buyer of his priority;■ the buyer must pay consideration, since a voluntary

conveyance will deprive the buyer of his priority;■ the buyer must have acquired a legal interest in order to gain

priority over an equitable interest; and■ the buyer of the legal interest must have purchased without

notice of the earlier equitable interest.



Please refer to question 4.1 above.


The Land Registry records all relevant particulars concerning the property and its ownership on folios which form the registers maintained in the Land Registry. In conjunction with folios, the Land Registry also maintains Land Registry maps. Both folios and maps are maintained in electronic form.The Registry of Deeds does not issue a physical title document; rather it records the date of registration and the Registry of Deeds serial number on the face of the actual deed submitted for registration. The original deed is then returned to the lodging party.




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A number of interesting investment opportunities in Cork have come to the market in recent months. The Lynx portfolio includes the Elysian building (approximately 206 apartments and commercial space) in Cork city and 165 apartments and retail space at Ballincollig, Cork which is guiding €105 million and the Debenham’s building on Patrick Street, Cork city which is guiding more than €70 million. Recent investment sales have included the sale of the Capitol building on Patrick Street, Cork for a reported €45.6 million and the Leeside student accommodation scheme, Cork for €8.42 million.


The recent hike in stamp duty for commercial property in Budget 2018 from 2% to 6% will have an immediate impact on commercial property valuations. The rate increase does not apply to land for residential development. Going forward, this may lead to residential developers having lower transaction costs and increasing the rate of residential construction and sale. Another Budget measure that may change the trajectory of the property investment market somewhat is the relaxation of Capital Gains Tax relief rules first introduced in 2011. As a result, real estate assets bought between 2011 and 2014 can now be sold after a four-year hold period without incurring Capital Gains Tax (as opposed to what was originally a seven-year hold period). This may lead to property coming to market more quickly.There is significant retail investor demand for property as an asset class. It will be unsurprising if the next year brings the launch of additional REITs and listed entities on the Irish Stock Exchange. This may provide investors who entered the market prior to 2015 with an exit route through capital markets.



To ensure consistency in drafting and avoiding protracted negotiations, the Law Society of Ireland produces a pro forma contract for sale for use in real estate transactions, which is designed to give a fair balance of rights between buyers and sellers. The contract for sale:■ Contains a memorandum of the agreed terms of the sale

(parties, price, description of property, and completion date).■ Lists the documentation and searches to be provided by the

seller.■ Incorporates the Law Society of Ireland General Conditions

of Sale (the “General Conditions”). The General Conditions make a number of assumptions about the property and place certain disclosure obligations on a seller, which the seller can only exclude by inserting special conditions. This way,

often appoint agents to act on their behalf and the commercial terms are negotiated between the parties and their respective agents. Once the commercial terms are agreed, they are reduced to a non-binding heads of terms document.Between heads of terms being agreed and a binding contract being signed, the parties may put in place exclusivity agreements and confidentiality agreements (which is becoming more widespread in the sale of commercial real estate). A seller’s lawyer is responsible for drafting contracts, dealing with pre-contract enquiries raised by the buyer’s lawyers, replying to requisitions on title, redeeming mortgages/charges and distributing the balance of sale proceeds to the seller. A buyer’s lawyer investigates the title, raises requisitions on the title, drafts the purchase deed, conducts closing searches, attends the closing appointment and stamps and registers the title. Surveyors and/or architects may be engaged before the buyer signs contracts to carry out a structural survey of the relevant property. Depending on the nature of the transaction, an environmental expert may also be engaged to provide an environmental report in respect of the property.In the sale of commercial real estate asset portfolios, the commercial and legal due diligence is usually facilitated by providing interested parties with access to information contained in an online data-room. Before access is granted, the interested parties will typically be required to execute a non-disclosure agreement.


Selling Agents – normally charge a percentage of the sale price. The Property Services (Regulation) Act 2011 seeks to regulate property services provided by auctioneers, estate agents and management agents. The agent must issue a letter of engagement which among other things must set out the amount or the rate of any commission or any other fee payable by the client under the agreement.Lawyers – no standard/fixed price. Fees are normally commensurate with the value of the property/work involved. Irish lawyers are obliged to set out the basis of their charges under section 68 of the Solicitors Amendment Act 1994. Surveyors – no standard/fixed price. Fees are normally commensurate with the value of the property/work involved.Environmental Experts – no standard/fixed price. Fees are normally commensurate with the value of the property/work involved.


Investor appetite for Irish real estate has continued unabated in 2017 with existing investors and a steady flow of new entrants continuing to seek opportunities across a range of sectors. These include some alternatives to the traditionally active sectors that are now gaining momentum such as the private rented sector, hotel investment, nursing homes and student accommodation as well as more traditional sectors. Non-bank lenders continue to be very active in the Irish market.Ireland’s strong economic backdrop, levels of occupational activity and the potential for further rental growth make Irish real estate an attractive investment opportunity.



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to compensation for any loss suffered by the buyer in respect of the sale as a result of an error which includes any omission, non-disclosure, misstatement or misrepresentation made in the contract. However, as outlined above, a seller may attempt to exclude/vary this condition by inserting a special condition in the contract for sale stating that the buyer shall not rely on any representations made. Statutory protection from fraud is provided by the 2009 Act, which makes it an offence for a seller to fraudulently conceal or falsify material information relating to the title.


Please refer to questions 7.2 and 7.3.


There are implied covenants as to ownership contained in a purchase deed. However, a buyer’s lawyer will investigate the seller’s title to the relevant property to ensure a buyer will acquire a good marketable title. The buyer’s lawyer also carries out a number of searches against both the seller and the property. The seller must explain and/or discharge any adverse matters resulting from the searches which affect the seller and/or the relevant property before the completion of the sale can occur.


The buyer is also responsible for discharging the following costs:■ Stamp duty.■ Surveyors’/Architects’ fees.■ Legal fees.■ VAT (if applicable).■ Registration fees.■ Commissioner for Oaths’ fees.■ Search fees.■ Local Property Tax.



There are extensive differences between financing real estate as a corporate entity and as an individual, most notably from a practical and legal perspective. Real estate lenders have little regard as to the residential status of an individual, as long as the real estate is situated in Ireland.The principal Acts, Regulations and Central Bank Codes of Conduct concerning the financing of real estate are:■ Asset Covered Securities Act, 2001.■ Agricultural Credit Act, 1978.■ Bills of Sale (Ireland) Act, 1879.

the buyer is on notice of any deviations from the standard contract. The General Conditions were updated in 2017 for use in respect of transactions commencing on or after 3 January 2017.

The General Conditions deal with formalities such as: ■ The seller’s title.■ The identity and condition of property.■ Possession.■ The disclosure of notices.■ Planning and development.■ Completion of the sale, completion notices and interest due if

completion is delayed.■ Rescission of the contract.■ Forfeiture of deposit and resale.■ Risk.■ Boilerplate issues such as apportionment, time limits, notices

and arbitration. The special conditions of sale are typically negotiated between the parties and reflect the nature of the transaction. For commercial real estate transactions, it is normal for the seller to seek to limit the warranties being provided. Where the seller’s knowledge of the property is limited, for example, a sale by a receiver, liquidator or mortgagee, it is usual to exclude or limit many of the warranties contained in the General Conditions. Another formality that will need to be adhered to is the Conveyancing Conflict of Interest Regulation which prohibits the same firm acting for both the seller and buyer in real estate transactions, with certain very limited and defined exceptions.


The underlying principle is one of caveat emptor (buyer beware). The buyer must be satisfied from its own due diligence that good marketable title to the relevant property is being offered by the seller. The principle of caveat emptor is diluted somewhat by the General Conditions which place a number of warranties and disclosure requirements on the seller. For instance, the General Conditions include numerous warranties relating to matters such as notices, planning compliance, boundaries, easements and identity and the existence of any other interest in the relevant property. These warranties can be excluded or amended by agreement between the buyer and the seller. In addition to any specific disclosures, sellers often limit the warranty provided in respect of planning compliance by reference to documentation and opinions/certificates of compliance in the seller’s possession and produced to the buyer. Where the property is being sold in an enforcement scenario (by a receiver, liquidator or mortgagee), it is usual that many of the warranties contained in the General Conditions are excluded or limited by reference to the limited knowledge of the receiver, liquidator or mortgagee regarding the property. The warranties received a radical overhaul in the General Conditions 2017 edition prompted by the view that vendors were routinely excluding the relevant condition in its entirety or varying it to such a degree that, in effect, no warranty was being given. The new wording provides that a vendor warrants compliance with planning in respect only of his or her period of ownership.


Yes, a seller can be liable for misrepresentation. General Condition 33 of the General Conditions provides that a buyer shall be entitled




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December 2009, which compel a lender to go to court to seek an order for possession and an order for sale. These provisions can be and are usually expressly contracted out of for security taken over commercial real estate but they cannot be contracted out of in respect of residential housing loans. Therefore, in the case of housing loans and security taken over residential real estate on or after 1 December 2009, a mortgagee does have to go to court to get an order for sale and possession. A court appearance can be avoided if the borrower gives written consent to the sale not more than seven days before the power of sale is exercised.The implementation of the 2009 Act repealed certain of the old statutory provisions that had applied prior to 1 December 2009 (most notably parts of the Conveyancing Acts and the Registration of Title Act, 1964). The belief was that the rights and powers conferred on the existing mortgagees by these statutory provisions had already been “acquired, accrued or incurred” by mortgagees by virtue of the provisions of the Interpretation Act, 2005 and therefore the existing mortgagees could continue to rely upon those provisions. A number of high-profile decisions by the Irish courts resulted in a concern in the market that, in essence, the statutory rights which were appealed could not have been “acquired” by existing mortgagees. The Land and Conveyancing Law Reform Act, 2013 was implemented to fill this lacuna by confirming that certain provisions of the Conveyancing Acts and the Registration of Title Act, 1964 will continue to apply to mortgages which predate the enactment of the 2009 Act and therefore remove the uncertainty in the market.Certain provisions of the 2009 Act enable a mortgagee, where it has reasonable grounds for believing a mortgagor has abandoned a mortgaged property and urgent action is required to prevent deterioration, to apply to court for an order authorising the mortgagee to enter into possession of the mortgaged property.


If a company has created a charge over real estate, to perfect the security, a relevant filing must be lodged with the Irish Companies Registration Office (“CRO”) within 21 days of the creation of the security. This typically takes the form of a Form C1. If not registered within this time frame, the security will generally be void against any liquidator or third party creditor.The Companies Act, 2014 (the “2014 Act”) introduced changes to the procedure in relation to the registration of charges: the one-stage procedure; and the two-stage procedure. The one-stage procedure is similar to the previous regime under the Companies Act, 1963 (the “1963 Act”), while the two-stage procedure involves filing an initial notice of a company’s intention to register a charge, followed by a second filing within 21 days of receipt of the first by the CRO, confirming the creation of the charge. The purpose of the latter procedure is to remove the “blind spot” which exists for 21 days after a charge has been created, during which it may not appear on CRO searches. Under the 2014 Act, priority of registration speaks from the date of registration at the CRO and not the date of creation of the charge itself, as was previously the case under the 1963 Act.In addition, it is generally accepted that registration is the appropriate perfection mechanism in respect of security interests over real estate in Ireland. The specific formalities in relation to real estate in Ireland depend on whether the land is registered or unregistered (refer to section 4 above). There are no specific time limits in respect of the registration of security in the Registry of Deeds or at the Land Registry, albeit a delay or failure to register may impact on priority.

■ Central Bank Acts 1942, 1971, 1988, Central Bank Reform Act, 2010 and the further Financial Services of Ireland Acts, 2003 and 2004.

■ Central Bank Act, 2014.■ Central Bank (Supervision and Enforcement) Act, 2013.■ The Central Bank and Credit Institutions (Resolution) Act,

2011.■ Companies Acts, 1963–2014.■ Consumer Credit Act, 1995.■ Conveyancing Acts, 1881–1911, the Land and Conveyancing

Law Reform Acts, 2009 and 2013.■ Credit Union Act, 1997.■ Credit Union and Co-operation with Overseas Regulators

Act, 2012.■ Credit Institutions (Stabilisation) Act, 2010.■ Criminal Justice (Money Laundering) Act, 2010.■ Central Bank Consumer Protection Code 2012.■ Code of Conduct on Mortgage Arrears 2013. ■ European Communities (Unfair Terms in Consumer

Contracts) Regulations 1995.■ Mortgage Credit Directive (Directive on credit agreements

for consumers relating to residential immovable property).


A real estate lender will typically seek to protect itself from default by the borrower by obtaining a contractual suite of covenants, undertakings and representations and warranties from the borrower, the breach of which would lead to an event of default.A real estate lender will provide finance that is secured over the relevant property. The real estate lender will then require that the security is registered as first ranking in the appropriate property register, thereby securing priority of the security for the benefit of the real estate lender.Where a lender is providing finance for development purposes, it would be normal for the lender to receive collateral warranties from the members of the professional team such as architects, designers and engineers. The lender will also typically appoint its own project monitor (at the cost of the Borrower).


The powers of mortgagees under mortgages are derived from a combination of the terms of the mortgage itself and the law (including certain relevant statutory provisions). Generally, the same principles apply in relation to enforcement against companies as apply to individuals. Various methods of enforcing security over real property are available and the ability to avail of these will depend on the circumstances of each case. In respect of security granted prior to 1 December 2009, there is no requirement on a mortgagee to go to court to exercise the remedies available to it, provided the borrower does not challenge the enforcement of the security. However, the 2009 Act contains certain provisions in relation to security granted on or after 1



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focused on ensuring fairness and transparency to the mortgagor. The following provisions should be considered in determining the enforceability of any residential security:1. European Communities (Unfair Terms in Consumer

Contracts) Regulations 1995 and 2000If a term of the relevant security is heavily weighted against the mortgagor, it will be considered “unfair” and in violation of the Unfair Terms in Consumer Contracts Regulations. This will affect the value of all or part of the lender’s security. 2. European Communities (Distance Marketing of

Consumer Financial Services) Regulations 2004 (as amended)

If the security is entered into without the lender and the mortgagor being simultaneously present it may be regarded as a distance contract and come within the scope of the Distance Marketing Regulations, if the mortgagor is a consumer. Under these regulations the security may be rendered unenforceable if the lender failed to give certain information to the mortgagor before a binding contract was entered into, such as, details of certain contractual terms and conditions and the total fee to be paid by the mortgagor.3. Protection of the Family HomeAs noted in question 1.1, extensive statutory protection is afforded to family property in Ireland which renders the enforcement of security over family homes more difficult for lenders. In Irish law, a family home is a dwelling in which a married couple ordinarily resides. Under the Family Home Protection Act 1976 (as amended) a spouse who does not own the family home must give prior written consent to any disposal of an interest in the family home, including by way of mortgage. If this consent has not been given or was ineffective, any transaction disposing of the family home is at risk of being set aside at the instance of the non-owning spouse within certain time limits.


Case law shows that borrowers have employed a large variety of arguments in seeking to frustrate enforcement action by a lender. These include:(a) Demonstrating that the instrument appointing a receiver has

not been executed in accordance with the security deed.(b) Where the party enforcing the security has purchased the

secured debt from an original lender, challenging the title of that person.

(c) Proving that the lender has not complied with the procedural requirements of the MARP process (see below).

(d) On appeal, establishing that the lower court did not engage with an Unfair Contract Terms analysis of the underlying loan/security documentation.

The Code of Conduct on Mortgage Arrears 2013 (“CCMA”) is particularly relevant when it comes to the enforcement of residential security. Under this statutory code, lenders must operate a four-stage Mortgage Arrears Resolution Process (“MARP”) when dealing with customers in arrears or pre-arrears. The four steps are: 1) communication; 2) financial information; 3) assessment; and 4) resolution. Mortgagors must be afforded considerable support from the lender as regards the repayment of their security and offered a variety of alternative repayment options. Lenders’ compliance with the CCMA will be taken into consideration by the court in determining whether to grant a request to repossess. This code requires a high standard of behaviour from lenders and may frustrate attempts to enforce their security.


If there are other lenders, the parties will typically structure the priority of debts in the following ways:1. Contractual subordinationContractual subordination is common in Ireland. It occurs where the senior lender and the subordinated lender enter into an agreement as a result of which the subordinated lender agrees that the senior debt will be paid out in full before the subordinated lender receives the payment of the subordinated debt. The subordinated lender is contractually subordinated to the senior lender. 2. Structural subordinationStructural subordination is also possible depending on the particular terms of a transaction. Structural subordination arises where one lender (the senior lender) lends to a company in a group of companies which is lower in the group structure than another lender (the subordinated lender). 3. Inter-creditor arrangementsInter-creditor arrangements are common in Ireland, depending on the nature of the particular transaction. Typical parties include a senior lender, a junior lender, an inter-group lender and a borrower. Typical terms in an inter-creditor agreement include provisions as to priorities, standstill, representations and warranties and covenants. As outlined at question 8.4 above, a real estate lender must register the charge/mortgage with the Irish Companies Registration Office in order to perfect the creation of the security.


The answer depends on whether the security is created by a company or by an individual or partnership.A charge created by a company over its assets (save for certain types of financial asset such as bank accounts, financial instruments and claims and rights derivative thereof) must be registered with the CRO within 21 days of its creation in accordance with the procedures set out in the 2014 Act.The 2014 Act also sets out the circumstances in which a charge created by a company which is in, or is on the brink of, insolvency, may be set aside. A charge created by a company in the onset of insolvency may be set aside where it constitutes an improper transfer of its assets to the detriment of its creditors or a liquidator of its assets. A floating charge created by a company when it is insolvent may be set aside to the extent that no consideration is provided for it. In this regard certain hardening periods apply depending on whether the floating chargee is connected with the company (e.g. a director or person connected to a director etc.).A charge created by an individual or partnership may be set aside if it constitutes a fraud on its creditors and in this regard the test is the same as applies to corporate security – namely whether the transaction is an improper transfer of assets to the deprivation of creditors. Where an individual or partnership creates non-possessory security over chattels, this must be registered in accordance with the Bills of Sale legislation – the requirements of which are problematic.There are numerous protections afforded to residential mortgagors under Irish law and onerous obligations are placed on lenders in terms of enforcing their security. Much of the regulation is




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the previous five years (“new” property) will be subject to VAT. The sale of “old” property which falls outside these rules is exempt from VAT. In certain cases, where a sale would otherwise be exempt, the buyer and seller can agree that the sale will be subject to VAT in order to avoid a clawback of VAT previously recovered in respect of the relevant property by the seller. The first sale of residential property by the person who developed the property is always subject to VAT.The rate of VAT on transfers of real estate is 13.5% (a VAT rate of 23% applies to VATable lettings).


The sale of Irish real estate, or of unquoted shares in companies deriving the greater part of their value from Irish real estate, will be subject to Irish capital gains tax. The gain is calculated on the proceeds of sale less acquisition and enhancement costs, and less the incidental costs of acquisition and the incidental costs of disposal.Irish capital gains tax is subject to a withholding procedure applicable to the seller’s capital gains tax liability. The procedure requires the buyer to withhold 15% of the consideration and pay this amount to Revenue unless the seller provides a clearance certificate from Revenue. A capital gains clearance certificate is automatically available on application to Revenue if the seller is resident in Ireland for tax purposes. A non-resident seller will need to agree and discharge its capital gains tax liability in order to obtain a clearance certificate. This withholding procedure only applies to a buyer where the consideration payable to the seller exceeds the relevant threshold current at the date of the transfer agreement (currently €500,000 or €1,000,000 if the asset disposed of is a house).The standard rate of capital gains tax is 33% for disposals made on or after 5 December 2012. In 2011, a capital gains tax exemption was introduced which applied to disposals of land acquired between 7 December 2011 and 31 December 2014 (inclusive), provided the land was held for seven years. Changes introduced in Finance Bill 2017 have shortened the holding period to four years. The relief applies to residential and non-residential real estate located within any EEA state acquired by an Irish resident during the period set out above.


Yes. Currently, stamp duty on the transfer of Irish shares deriving their value from real estate is charged at 1% of their value. Disposals by non-Irish residents of shares and securities which derive their value from Irish real estate are subject to capital gains tax. Disposals of shares or securities which were quoted on a stock exchange were exempt from this charging provision. Changes introduced in Finance Bill 2017 restrict this exemption to cases where the shares and securities are actively and substantially traded on such stock exchange.


A buyer of Irish real estate will request completion of standard Law Society Pre-Contract VAT Enquiries by the seller. These are intended to provide the buyer with a history of the VAT treatment of the relevant property. Buyers should also satisfy themselves that any previous transfers of the property have been duly stamped.

9 Tax


Ireland imposes stamp duty on transfers of Irish real estate and certain other property. The stamp duty is charged on the consideration payable for the property, or the market value in certain instances. Stamp duty is generally payable by the purchaser, although in certain transactions, such as voluntary transfers, both parties to a contract can be technically liable. There are provisions which apply to contracts to acquire land, as opposed to actual transfer documents, in cases where there is a “resting on contract” position.The rate of stamp duty on transfers of residential property is 1% on consideration up to €1,000,000 and 2% on consideration over this threshold. Budget 2018 increased the stamp duty rate on transfers of non-residential (commercial) property from 2% to 6%. The 6% rate is applicable to transfers or long leases of commercial property taking place after 10 October 2017. Where a binding contract existed on 10 October 2017, then provided the stampable instrument of transfer is executed prior to 1 January 2018 and contains a statement, in a form to be specified by the Revenue Commissioners, the 2% rate remains applicable. A stamp duty refund scheme is expected to be introduced where land (stampable at the increased rate of 6%) is purchased for the purpose of development of residential housing.


Where an instrument is liable to stamp duty, a stamp duty return must be filed online via Revenue’s e-stamping system. The full amount of the stamp duty must be paid within 30 days of the date of execution of the instrument of transfer (typically the deed of transfer). In practice, Irish Revenue allow a further period of 14 days in which to file an e-stamping return and pay the stamp duty. Failure to file and pay within this 44-day period will result in late filing and interest charges.


The sale of real estate by an individual should not be subject to income tax unless that individual is carrying on the business of trading in properties. However, the gains or profits on the disposal of Irish real estate by an individual may be subject to Irish capital gains tax at a current rate of 33%. An exemption from capital gains tax is available for individuals on the sale of the individual’s principal private residence, subject to certain conditions.


The sale of Irish real estate may be subject to Value Added Tax (“VAT”). As there are many variations and exemptions under the current Irish VAT regime, the matter of VAT applying to the transfer of Irish real estate should be addressed by the appropriate professional advisors pre-contract with the final agreed position reflected in the contract. Broadly, the sale of land which has been developed in the previous 20 years or buildings which have been developed or redeveloped in



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Usually the provisions of a business lease place restrictions on a tenant’s contractual right to assign or sub-let without the landlord’s prior written consent. Under Section 66 of the Landlord and Tenant (Amendment) Act, 1980, a landlord cannot unreasonably withhold consent which will override the contractual terms of any business lease.Sharing a business premises with companies in the same corporate group is generally a matter for negotiation between the landlord and tenant but it is commonplace for leases to have such a provision permitting such sharing of occupation, subject usually to a requirement to notify the landlord and provided that the sharing is by way of licence only.It is less common to see provisions in a lease relating to reorganisation or change of control of the tenant. Again, these are matters for negotiation. While landlords will generally agree on request to provisions allowing sub-letting to or sharing space with a group company without consent, it is rare that a landlord will permit assignment to a group company without consent. Normally, there are no restrictions on the change of control of a tenant company included in a lease.


It is worth noting that Ireland offers a range of tax-efficient regulated investment vehicles and structures to international investors for acquiring and holding real estate. Provided certain criteria are met, the investment vehicle will not be subject to Irish tax on income such as rent. Please refer to question 6.5 for an overview of the recent tax reforms which have impacted such structures and vehicles.Typically, rent paid in respect of Irish real estate will be subject to Irish taxation on account of it having an Irish source, regardless of the identity or location of the landlord. An Irish resident company, or a foreign company that holds real property as part of or on account of a trade carried on in Ireland, will be subject to Irish corporation tax on the rental profits. Income tax is applied to rent received by individuals. In the case of a commercial/business lease, a landlord can elect to apply VAT, in which case VAT applies to the rent at the relevant rate (currently 23%).Stamp Duty is incurred by the tenant on business leases. Stamp Duty is currently levied at 1% of the average annual rent (for commercial/business leases not exceeding a term of 35 years) with an additional fixed charge of €12.50 if the commercial/business lease contains a rent review clause. There is an additional Stamp Duty charge of €12.50 for each counterpart of the business/commercial lease.


Usually, a business lease is terminated by the expiry of the term or the exercise of a break/termination option or by agreement between the landlord and the tenant, i.e. by surrender.It is standard practice for a business lease to contain a re-entry clause, entitling a landlord to forfeit the lease for breach of obligation by the tenant. The procedure in the case of the non-payment of rent (and other payments for this reason usually reserved as rent, e.g. service charges and insurance premiums) is straightforward, but rather more complicated (including service of notice on the tenant) in the case of



Historically, Ireland has had special legislation governing the relationship between landlords and tenants, e.g., the Landlord and Tenant Law Amendment Act, 1860 (commonly referred to as Deasy’s Act).Since the establishment of the Irish State, a comprehensive and very wide-ranging code of landlord and tenant legislation has been enacted.Commercial business leases are freely negotiated subject only to statutory provisions.The introduction of the Commercial Leases Register now requires the particulars and terms of all leases and related documentation to be disclosed on a public register.In 2011, the draft Landlord and Tenant Law Reform Bill was published. While not yet enacted, the Bill is worthy of note as the objective is to consolidate and modernise much of the general law of landlord and tenant under one act going forward, including landlord and tenant obligations and their enforcement, statutory rights and termination.


Typically, a business lease falls into two categories: a lease on a short-term basis for a term of up to five years; or a lease on a medium- to long-term basis, which would generally be considered a term from 10 years to 25 years.


The term of a lease of business premises has traditionally ranged from short-term up to 35 years, but recent legislative changes and market forces are resulting in shorter term leases, with the maximum term now being 15–20 years (typically including break options exercisable during the term). The structure of a typical medium- to long-term (10–25 years) commercial lease usually follows the same traditional format which, in addition to securing rent payments to the landlord, also passes the cost of maintaining, insuring and occupying the relevant property from the landlord to the tenant. This allows the landlord to enjoy the rent without deduction. In most cases, tenants will seek to negotiate an option to break or terminate the term of the lease, i.e. after five or 10 years of the term. Any business lease granted for a term in excess of five years would typically have a provision for the periodic review of rent to the current open market rents. Most business leases in Ireland are of a full repairing and insuring nature, whereby the tenant will be subject to extensive repairing obligations. These will be imposed directly by a repairing covenant entered into by the tenant or, in the case of a multi-let development like an office block, shopping centre or business park, indirectly through a service charge regime which will include reimbursing the landlord for repair works carried out to the structure and common areas of the relevant development.




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for Rented Houses) Regulations 2008 and the Housing (Standards for Rented Houses) (Amendment) Regulations 2009 as regards the conditions thereof and the facilities available.


No, the RTA applies.


(a) Length of TermIn Ireland, a typical residential tenancy agreement would be for a contractual term of 12 months. (b) Rent Increases/ControlsA fundamental provision of the original RTA 2004 is that a landlord may not set rent at an amount greater than the market rent for the tenancy in question at the time. “Market Rent” is defined as the rent which a willing tenant not already in occupation would give and a willing landlord would take for the dwelling on the basis of vacant possession and having regard to: (i) the other terms of the tenancy; and (ii) the letting values of dwellings of a similar size, type and character to the dwelling and situated in a comparable area. In late December 2016, rent predictability measures were enacted under the Planning and Development (Housing) and Residential Tenancies Act 2016 for an initial period of three years in an effort to control the rise in rents in the parts of the country (mainly urban areas such as Dublin and Cork) where rents are highest and rising and where households have greatest difficulties in finding accommodation they can afford. In these areas, known as “Rent Pressure Zones”, rents will only be able to rise according to a prescribed formula by a maximum of 4% annually, subject to certain limited exclusions. The new measures regarding Rent Pressure Zones are at all times subject to the aforementioned overriding principle that rents may not be set at a level higher than the prevailing market rate.(c) Tenant’s Rights to Remain in the Premises at the End of

the Term Part 4 of the RTA 2004 gave tenants the right to stay in rented accommodation for up to four years in total, following an initial six-month period. The term of tenure has recently been increased to a total of six years in respect of tenancies created from 24 December 2016. These security of tenure provisions are commonly known as “Part 4 tenancies”. After the first Part 4 tenancy has passed, a new Part 4 tenancy begins entitling the tenant to remain in the dwelling for a further six-year term. Where a tenant is in occupation under a fixed term contractual tenancy, the tenant can notify the landlord that it is availing of the security of tenure provisions and is claiming a Part 4 tenancy prior to the expiry of the contractual term.(d) Tenant’s Contribution/Obligation to the Property “Costs”Under the RTA, it is generally the landlord’s responsibility to effect and maintain insurance in respect of the structure of the dwelling. The tenant is not obliged to contribute to insurance costs under the RTA, save where the premium payable under such policy of insurance has been increased as a result of any act of the tenant or any act of another occupier or visitor to the dwelling which the tenant has permitted, in which case the tenant is obliged to pay the landlord an amount equal to the amount of the increase in premium.

breach of the other covenants in the lease. Re-entry can, however, be effected without a court order, if done peaceably; forcible re-entry is, on the other hand, a criminal offence. If the tenant is still in occupation and resists re-entry, the landlord must seek an ejectment order from the court. The tenant, any sub-tenants and third parties like mortgagees can apply to the court for relief against forfeiture, which will only be granted on terms designed to correct the default inducing the forfeiture and to protect the landlord’s interest in the future.A commercial tenant who has been in continuous occupation for a minimum period of five years has a statutory right to a new tenancy (known as the business equity), and, in certain circumstances, to compensation for improvements made or for disturbance. Contracting-out of the business equity is permitted and landlords typically require a tenant to renounce their entitlement to claim a new tenancy prior to signing a new commercial/business lease. However, it may be the case that market conditions will, at times, enable a tenant to resist pressure to provide such a renunciation.


On the assignment of a lease with the landlord’s consent, the assignor has no further responsibility for complying with the lease and its liability ceases completely. In contrast with the UK, there is no practice in Ireland requiring an assignor to enter into an authorised guarantee agreement guaranteeing the performance of the new tenant under the lease.


There are currently no specific “green obligations” commonly found in leases in Ireland.The European Union (Energy Performance of Buildings) Regulations 2006–2012 and Statutory Instrument No. 243 of 2012 introduced the requirement that all buildings being sold or let must have a Building Energy Rating (“BER”) Certificate with certain limited exceptions. The aim of the rating is to inform prospective buyers and tenants of the energy performance of the building. The Building Energy Rating Certificate is accompanied by an Advisory Report which contains recommendations for improving the energy performance of the relevant building.



The Residential Tenancies Acts 2004–2016 (the “RTA”) is the primary legislation governing leases of residential premises in Ireland (not exceeding a term of 35 years). Rented properties must also meet the standard prescribed under the Housing (Standards



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regulate the zoning of areas through a variety of development, sustainability, landscape conservation and special amenity plans. Most of the functions reserved by the Planning Acts are exercised by the local authority in the area where the relevant property is situated. There are currently 31 local authorities in Ireland, each a planning authority for the purposes of the Planning Acts, responsible for monitoring and enforcing compliance with planning laws in relation to property in its area and responsible for making decisions regarding applications for planning permission. Where suitable grounds for appeal exist, the decision of the planning authority, including conditions imposed, may be appealed by the applicant to An Bord Pleanála (the Planning Appeals Board).The main laws which govern zoning and related matters are as follows:■ Planning and Development Acts 2010–2017.■ The Housing Acts 1966–2014.The main laws which govern environmental matters are as follows:■ The Environment (Miscellaneous Provisions) Act 2015.■ The Environmental Protection Agency Acts 1992–2011.■ The Waste Management Acts 1996–2011.■ European Union (Environmental Impact Assessment)

Regulations.■ The Water Services Acts 2007–2015.■ The Air Pollution Acts 1987 and 2011.■ The Building Control Acts 1990–2007.■ The Building Regulations 1997–2014.■ The Building Control Regulations 1997–2015.■ The Wildlife Acts 1976–2012.■ Petroleum (Exploration and Extraction) Safety Act 2010.■ The Finance (Local Property Tax) (Amendment) Act 2015.■ The Climate Action and Low Carbon Development Act 2015.


Local authorities can compulsorily acquire lands in limited circumstances such as (1) where a site is derelict and poses a danger in the community, (2) for the purpose of developing infrastructure, and (3) for conservation/preservation purposes. Where property is compulsorily acquired by a local authority, compensation is payable to all persons with an interest in the lands. The assessment of compensation generally falls under a number of headings of claim to include the value of the land acquired, compensation for disturbance and any diminution in value of any retained lands. Section 158 of the National Asset Management Agency Act, 2009 (the “NAMA Act”) outlines NAMA’s powers to acquire land compulsorily in certain circumstances where the compulsory acquisition is necessary to allow NAMA to deal with the property charged to NAMA. Section 16 Industrial Development Act, 1986 (the “IDA Act”) enables the Industrial Development Agency (the “IDA”) to acquire lands either compulsorily or by agreement for the purpose of industrial development. A large part of the IDA’s role, under legislation, is acquiring land for development and, as a result, the IDA’s power to compulsorily acquire land was considered broad. However, in a recent decision of the Supreme Court delivered in November 2015, this view was somewhat curtailed. The IDA sought to compulsorily acquire land for which it had no immediate use so that if and when a particular undertaking should seek to develop the land, it would be immediately available at such time. The court, considering the constitutional protection given to property rights and applying the

The cost of repairs is also generally the landlord’s responsibility under the RTA, save where the tenant has caused deterioration to the dwelling that is beyond normal wear and tear. In these instances the tenant is obliged to make good such damage at his or her own cost.


Where the tenant is in occupation under a contractual tenancy or lease, the tenancy can only be terminated where the tenant is in breach of the terms of the tenancy. Where the tenant has exercised the security of tenure under Part 4 of the RTA and claimed a Part 4 tenancy, termination by the landlord will then only be permissible in the following circumstances:(a) the tenant has failed to comply with any of his or her

obligations in relation to the tenancy;(b) the dwelling is no longer suitable to the accommodation

needs of the tenant and of any persons residing with him or her, having regard to the number of bed spaces contained in the dwelling and the size and composition of the occupying household;

(c) the landlord intends, within three months after the termination of the tenancy, to enter into an enforceable agreement for the transfer to another, for full consideration, of the whole of his or her interest in the dwelling or the property containing the dwelling;

(d) the landlord requires the dwelling or the property containing the dwelling for his or her own occupation or for occupation by a member of his or her family;

(e) the landlord intends to substantially refurbish or renovate the dwelling or the property containing the dwelling in a way which requires the dwelling to be vacated for that purpose; or

(f) the landlord intends to change the use of the dwelling or the property containing the dwelling to some other use.

If termination of the tenancy by the landlord is permissible under the RTA, a valid notice of termination must be served on the tenant in order for the landlord to achieve vacant possession. The minimum notice period required will depend on the duration of the tenant’s occupation. In order to be valid, the notice must comply with the following requirements:■ be in writing;■ be signed by the landlord or his or her authorised agent;■ specify the date of service of the notice;■ state the reason for the termination (where the tenancy has

lasted for more than six months or is a fixed-term tenancy);■ specify the termination date and also that the tenant has the

whole of the 24 hours of this date to vacate possession of the dwelling; and

■ state that any issue as to the validity of the notice or the right of the landlord to serve it must be referred to the residential tenancies board within 28 days from the receipt of the notice.



The Planning and Development Acts 2010–2017 (the “Planning Acts”) govern planning and zoning matters. The Planning Acts




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Where development occurs without planning permission having been obtained, a party can make an application for retention permission save for developments within the scope of the environmental impact assessment regime. If unauthorised development has taken place and the Planning Authority has not issued enforcement proceedings within seven years, it is prevented from doing so at a later date. Exceptions to this are contained in sections 47 and 48 of the Planning and Development (Amendment) Act 2010 in respect of developments involving quarries and peat extraction.


Each local authority sets a fee for a planning application which is dependent on the class of development proposed and the type of permission being sought.The minimum period for determination of an application for planning permission is five weeks beginning on the date of receipt of the application. However, decisions are rarely issued on the expiration of this five-week period.Generally, a valid and complete application for planning permission is dealt with within eight weeks from the date of receipt of the application. However, this period can vary, particularly if the local authority seeks further information from the applicant. Within four weeks of a planning decision being issued, any party who made a written submission or observation in relation to the application can appeal the decision to An Bord Pleanála. There are certain limited circumstances in which a third party can appeal even where they did not make any submissions or observations in relation to the application. An Bord Pleanála has a statutory objective to determine appeals within 18 weeks of receipt of an appeal.Public inquiries are not very common. However, public oral hearings are sometimes held, particularly in relation to large/strategic infrastructure projects. If the planning authority consents to the application for permission it will issue a decision to grant planning permission, which is not a full permission. Once the planning authority notifies the relevant parties of its decision, the applicant and any third party who made a submission or observation in relation to the application have four weeks within which to appeal this decision or any conditions attached to it. If there is no appeal, then the planning authority will issue a formal grant of planning permission at the end of the appeal period.Recent planning legislation has offered a new fast-track planning process for large-scale housing developments called “strategic housing developments” for a limited period of time – up to 31 December 2019. Strategic housing developments will consist of 100 or more houses or 200 or more student bed-spaces on land zoned residential or mixed residential and other uses (provided housing constitutes at least 75% of total gross floor area of the development). Under this initiative applicants will undergo a detailed statutory nine-week pre-application planning process, including consultation with the relevant local planning authority and prescribed bodies, prior to the lodgement of a planning application with a new Strategic Housing Division of An Bord Pleanála. Upon lodgement, the local planning authority must send its opinions on the proposed development to An Bord Pleanála with a recommendation as to whether permission should be granted or refused or, propose amendments to the scheme. An Bord Pleanála is subject to a strict 16-week period in the determination of the application and if it fails to abide by this timeline, it must pay a penalty to the applicant. Under the aforementioned recent legislation, an extension of duration of planning permission and the granting of a further extension of duration of permission by five years has been

appropriate principles of construction, held that the IDA Act does not confer any power on the IDA to acquire lands not required for immediate use, but which might be utilised at some future time.


Land/building use and/or occupation: As per question 11.1 above, the relevant local authority is the entity responsible for controlling land/building use and occupation. An independent third party appeals board, An Bord Pleanála, is responsible for the determination of planning appeals. Environmental regulation: The Environmental Protection Agency (the “EPA”), the Office of Environmental Enforcement and local authorities are responsible for environmental regulation.


Generally, planning permission is required for any development of land or property, unless the development is specifically exempted from this requirement. The term “development” includes the carrying out of works (building, demolition, alteration) on land or buildings and the making of a material change of use of land or buildings.Planning permission may not be required for certain non-structural works to the interior of a building or for works which do not materially affect the external appearance of the structure. However, in accordance with Building Control Regulations, an application to the local authority for a Fire Safety Certificate may be required.Generally the Building Control Regulations require a commencement notice to be lodged with the local authority prior to commencing works, together with plans and specifications, a preliminary inspection plan and various certificates and notices. It is an offence not to submit a Commencement Notice and failure to submit a Commencement Notice cannot be regularised at a later date. A Certificate of Compliance on Completion must be submitted to and registered by the local authority before the building or works may be opened, occupied or used.In addition, certain licences may be required depending on the specific type of property and the type of development proposed. These include licences issued under the Environmental Protection Agency Acts 1992 to 2011 (the “EPA Acts”), the Water Services Acts 2007 to 2015 (the “Water Services Act”), the Air Pollution Acts 1987 and 2011 and the Waste Management Acts 1996 to 2011 (the “WMA”).Furthermore, health and safety legislation must be considered where individuals are engaged to carry out works at a property. The Safety, Health and Welfare at Work Acts 2005 and 2010 must be complied with for all building works.


Planning permission is generally required for any development. However, a limited number of exemptions exist, e.g. public works, certain internal works, works to improve a private road and other specific exemptions. In addition, where a local authority fails to make a decision on a planning application within a specific time limit, default planning permission is deemed to have been granted pursuant to section 23 of the Planning and Development (Amendment) Act 2010.



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Since 1 July 2008, a BER certificate and advisory report must be supplied by all sellers/landlords to a prospective buyer/tenant when a building is constructed, sold or rented. A BER certificate is an energy label for buildings which rates the building from A1 (most efficient) to G (least efficient). Since 9 January 2013, BER information must also be provided in advertisements for the sale or rental of property. The Regulations provide for exemptions for certain categories of buildings.

13 Climate Change


The EU Emissions Trading Scheme (“ETS”) came into operation on 1 January 2005. The scheme operates on a “cap and trade” basis. EU Member State governments were required to set an emissions cap for each installation in the scheme. The number of allowances allocated to each installation must be set down in the National Allocation Plan for the period in question, which must be approved by the European Commission.The European Communities (Greenhouse Gas Emissions Trading) Amendment Regulations 2010 provided for the revised operation of the EU-wide ETS since 2013. While the European Communities (Greenhouse Gas Emissions Trading) (Aviation) Regulations 2010 established a procedural framework for aircraft operators in Ireland to participate in the EU ETS. The EPA is the designated body for the purposes of the ETS in Ireland.


Ireland ratified the Kyoto Protocol on 31 May 2002, along with the EU and all other Member States. Ireland has adopted two National Climate Strategies in order to meet its commitments under the Kyoto Protocol to reduce its greenhouse gas emissions. These strategies seek to reduce emissions through a variety of measures. Under the Kyoto Protocol, the EU agreed to reduce greenhouse gas emissions to 8% below 1990 levels. Ireland committed to limit the growth in annual greenhouse gas emissions to 13% above 1990 levels by the period 2008 to 2012 and to at least 20% of 1990 levels by 2020 as part of its contribution to the overall EU target.


There is a requirement under the Recast Energy Performance of Buildings Directive that all EU Member States, including Ireland, must ensure that all new buildings will be nearly zero energy buildings (that is, have high energy performance, with energy requirements to a significant extent being met from renewable sources) by 31 December 2020.

introduced for a limited period of time (again up to 31 December 2019) in circumstances where the local planning authority is satisfied that the ‘relevant development’ (20 or more houses) has not been completed due to circumstances beyond the control of the applicant. This avoids the cost and time of undertaking a repeat of the initial planning permission process.


Currently, local authorities maintain a Record of Protected Structures (the “RPS”). Inclusion of these structures in the RPS means that they are legally protected from harm and all future changes to the structure are controlled and managed through the local development control process. Structures which are listed on the RPS are subject to more restrictive development conditions; therefore, types of work, which in another building would be considered exempted development, may not be exempted where the building is a protected structure. The local authority may issue a declaration under the Planning Acts determining the proposed works would be considered exempt from the requirement to obtain planning permission. However, a declaration cannot exempt any works which would otherwise require planning permission.A search of the RPS will reveal if a structure is protected. If the structure is protected, this will limit or restrict the development potential of the structure.


Certain statutory bodies are required to publish periodic reports which identify specific properties which are hazardous or which do not comply with certain environmental requirements. However, Ireland has no dedicated register of contaminated land. A potential buyer would always be advised to carry out its own due diligence where non-compliance with environmental law is a concern.


Environmental clean-up is mandatory where a party breaches the provisions of the Environment (Miscellaneous Provisions) Act 2015 and the EPA Acts, the WMA and the Water Services Act. Sections 55 to 58 of the WMA may require that a person who is holding, recovering or disposing of waste be liable for the costs of clean-up and any costs incurred by the relevant regulatory authority in investigating an incident. A person found guilty of an offence under the WMA, the EPA Acts or the Water Services Act may face criminal prosecution.




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Diarmuid MaweMaples and Calder 75 St. Stephens Green Dublin 2Ireland

Tel: +353 1 619 2050Email: [email protected]: www.maplesandcalder.com

Craig KennyMaples and Calder 75 St. Stephens Green Dublin 2Ireland

Tel: +353 1 619 2765Email: [email protected]: www.maplesandcalder.com

Diarmuid is head of the Commercial Property group in Maples and advises on all types of commercial property transactions.

He has extensive experience advising financial institutions, private equity investors and insolvency practitioners on all property law aspects involved in the acquisition, management and disposal of distressed assets and loan portfolios.

Diarmuid also specialises in commercial landlord and tenant law, advising some of the country’s largest landlords and tenants on their commercial property portfolios.

Diarmuid also has many years of experience advising leading private equity and institutional clients on their respective property portfolios from a commercial property law viewpoint.

Diarmuid is recommended in independent legal directories including The Legal 500 where he is described as having “attention to detail in completing due diligence, his business acumen and his industry knowledge are second to none”.

Diarmuid joined Maples in 2012 having previously worked for a large domestic Irish law firm.

Prior to that, he qualified as an accountant in 1997 and spent several years working for one of Ireland’s leading multinationals before qualifying as a solicitor in 2004.

Diarmuid is a graduate of University College Cork (B.Comm. 1994 and B.C.L. 1999). He is an associate of the Chartered Institute of Management Accountants and a member of the Irish Society of Insolvency Practitioners.

Maples and Calder is a leading international law firm advising financial, institutional, business and private clients around the world on the laws of Ireland, the Cayman Islands and the British Virgin Islands. With a reputation as an innovative, entrepreneurial firm, Maples and Calder is known worldwide as a market leader with highly qualified lawyers who are specialists in their respective areas.

Our full-service Irish practice advises on all aspects of Irish corporate, finance, funds, litigation, tax and commercial property law, as well as related specialist areas.

We combine extensive knowledge and experience of Irish law with a global perspective to deliver best-in-class service.

The Maples group comprises over 1,500 lawyers and industry professionals worldwide.

Craig specialises in all aspects of commercial property work including the acquisition and disposal of investment property, commercial landlord and tenant, property finance, the property aspects of liquidations, receiverships and examinerships and the property aspects of corporate transactions. He has also acted on loan portfolio transactions, where the loans are secured over commercial property.

Craig has advised financial institutions, private equity investors, insolvency practitioners and landlord and tenant clients.

Craig joined Maples and Calder in 2012 having previously worked for a large domestic Irish law firm. Craig has also worked in the legal department of an Irish bank.

Craig is recommended in independent legal directories including The Legal 500 where he is described as “very pragmatic”.



Chapter 17

Ziv Lev & Co. Law Office

Moshe Merdler

Ziv Lev

Israel

prevent landlords from raising rents and/or evicting tenants onto the streets. This Act has a diminishing influence, due especially to an amendment which provides that under particular circumstances, businesses are to pay market-standard rent. Finally, it is also worthwhile mentioning the Pledges Law, which regulates, amongst other matters, encumbrances of contractual rights.


Israel’s legal system is based on common law derived from the British Mandate period and the Precedents set by the Supreme Court. The latter is binding on all lower courts.


According to the prevailing legislation to date, international laws are not relevant to real estate in Israel. Even in the case of inheritance, local courts are required to give effect to foreign wills and/or probate orders.

2 Ownership


Legal restrictions only apply to state-owned land, where long-term leases require specific approval of Israel Land’s Authority (hereinafter: “RMI”).



As noted, rights over land are defined under the provisions of the Land Law and they include ownership, leasehold, mortgage, easement and pre-emption. Ownership is the best and most exclusive right, allowing possession and usage which are only subject to restrictions under law and/or

1 Real Estate Law


The Israeli legislative framework consists of “Regular” laws or acts and “Fundamental” or “Basic” laws, which are essentially constitutional in character and effect (although Israel has no constitution). “Regular” laws are interpreted according to the provisions of “Basic” laws. There are two “Basic” laws which have an overall effect on real estate matters – Human Dignity and Liberty and Israel Lands. The latter was approved on 25 July 1960, and prohibits the transfer of ownership of state land (including land owned by state entities such as the Jewish National Fund, which altogether consists of more than 90% of Israel’s territory), whereas the former, approved on 17 March 1992, stipulates that basic human rights in Israel are founded on the recognition of human dignity and aims to protect human life, a human’s body, property, personal liberty, the right of a person to leave and enter the country, privacy and confidentiality. As such, it defines the right to have a title on one’s property as a constitutional right. It should be noted that the Israel Lands Basic Law has led to the practice that state-owned land (both residential and commercial) is usually leased for long periods (usually 49 years with an additional 49-year option).The Land Law is the primary legal instrument used to define rights in real estate property, and the manner in which real estate transactions should be executed and registered, whereas the Real Estate Taxation Law regulates the manner in which real estate transactions are taxed. The Rental and Borrowing Act regulates the rental of real estate (as well as of chattels) and the Sale Act (Apartments) and the Sale Act (Apartments) (Assuring the Investments of Apartments’ Buyers) regulate transactions in newly built apartments (those both built and under construction) with a view to assuring down-payments of purchasers via bank guarantees provided by the constructor, as well as of the building quality, by imposing long-term guarantee periods during which the constructor is responsible for repairing any faults or defects in the building and/or apartments. A reminder of the past can be found in the Tenant Protection Act, which regulates the rights of tenants described as “Protected Tenants” in both residential and business premises. Such tenants acquired their status between 1940 and 1960, when there were many poor people, resulting in a need to



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are merely contractual rights rather than proprietary ones and might lead to conflicts regarding the question of ownership.


As noted, there is no compulsion to register any right. Nevertheless, some rights require registration in order to prove proprietary rights, such as easements gained through a consecutive use of 30 years or more.


There is no probationary period following first registration; however, its conclusion is subject to a notice in the Official Gazette. This is becoming quite rare as unregistered land has become only a fraction of the land in Israel.


Title is transferred once actual registration takes place at the Land Registry. In order to execute the registration, one needs to submit the sale and purchase deeds and tax certificates (both from the tax authorities and from the local council). It should be noted that, considering the fact that the majority of lands in Israel are state-owned lands, they could also be transferred once registration takes place at RMI, in case the lease is not registered at the Land Registry.


In principle, an earlier transaction has priority over a later one, unless the buyer in the later transaction relied on good faith on the registration at the Land Registry and completed the registration before the earlier transaction.



There are altogether nine regional offices of the Land Registry and two additional branches which operate on a part-time basis. The rules which govern their operation are the same and they only differ in their geographical responsibility.


The Land Registry issues certified copies of the extracts. It also provides stamped excerpts of the deeds submitted in each transaction.

agreements. Leasehold provides the right to hold and use, albeit for a limited period of time. Under Israeli law, there are various types of leasehold which are defined by the length of the lease. A lease which is 25 years or longer is regarded as a sub-right subject, amongst others, to taxation. A mortgage is a security interest (pledge) over land and an easement is the right to use land in a particular manner without possession. Pre-emption is a right of first offer.


In practice, this scenario does not exist in Israel. Theoretically, this might be possible only in the case of an agreement which divides the rights in the described manner, or in a case where the rights diverge due to practical reasons, e.g. in case a tunnel passes under a plot of land. This scenario is only possible in practice in the case of state (RMI)/municipal-owned land which is leased to a third party.


One can split between a legal title and a right to benefit from land. In order to secure the beneficiary’s rights one can either register a notice over the legal title and/or a mortgage. Title to beneficiary can only be registered via a lease agreement, signed between the holder of the legal title and the beneficiary.



Israel has a regulated land registry office, which provides computerised services and encompasses the majority of the land in Israel. Under the existing system, there are two categories of land; firstly Regulated Property, which is land that has been subject to a public verification procedure (including boundaries and related rights) and is therefore registered under the Title Registration. Regulated Property is identified by parcel and block numbers. The second category of land is Unregulated Property, which has not been subject to said verification procedure. Accordingly, the registration is in the Deeds Registration book and is identified by page numbers.


There is no state guarantee of a title. Title Registration provides conclusive evidence of the registered right, whereas the Deeds Registration book constitutes only a prima facie evidence thereof. In Israeli law, the principle of good faith has a prevailing effect and, therefore, a buyer of a right in regulated land, who relied on the registration in good faith and paid consideration, has a prevailing right.


There is no obligation to register any rights. However, non-registration of a right results in an exposure to one’s rights which

Ziv Lev & Co. Law Office Israel


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Since the introduction of the reform of the Israeli financial markets, whereby the government ceased to issue subsidised government bonds to institutional investors, these same institutional investors have acted not only as investors but also as lenders, creating finance packages for real estate transactions in Israel and resulting in a noticeable increase in the availability of capital to finance real estate transactions. Furthermore, an additional form of finance is bonds issued and traded on the Tel Aviv Stock Exchange. The bonds can be issued without collateral and with limited covenants.


Considering Israel’s real estate market’s (small) size, investors and developers are always looking beyond primary real estate markets. However, opportunities are closely connected with infrastructure development. Accordingly, Afula, a small northern town that hosts a hospital, has seen a substantial increase in opportunities since connecting transport infrastructure has been constructed.


Israel’s Parliament has been fighting the high residential prices and their permanent rise, amongst others, by annulling tax benefits and imposing higher stamp duty and other related taxes on residential investors, thus rendering this form of investment less appealing. On the other hand, the government has been encouraging the development of the residential market in order to increase the availability of residential projects with the view of further lowering the prices of flats. Accordingly, developers of residential real estate projects, especially those aimed at first time buyers and non-luxurious projects, are currently enjoying favourable terms and opportunities.



The Land Law provides that the sale and purchase of real estate requires a written document which should include all of the essential details such as price, terms of payment and a description of the property.


One of Israel’s most substantial principles is the obligation to act in good faith. Accordingly, any party is under a duty to act in good


Transactions cannot be completed electronically; however, as previously noted, information can be accessed electronically via the internet. The documents generally required in order to complete a transaction are sale and purchase deeds or transfer of lease deeds, tax certificates (both from the tax authorities and local authority) and, in the case of a corporation, a protocol of the board of directors/governors affirming the sale and a lawyer’s confirmation that the company is operating and in good standing order.


Under Israeli Tort Law, the state may be held liable for damages. The state is not liable in cases where it acts within its lawful boundaries and in cases where it has reasonable belief that it acted within its lawful authorisation.


The Land Registry is open to the public and any person (not only the buyer) may obtain extracts, which include details about the title holders’ identity (name and ID, both of present and past holders), any notices (such as of a transaction that has been signed regarding the property and/or easements and/or any formal order), and/or information concerning a third party’s rights, such as in the case of a mortgage. In order to access the deeds, a buyer needs a power of attorney from the seller or a court warrant.



As is common in other parts of the world, real estate transactions involve one or more of the following: real estate agents and lawyers. Additional parties are, inter alia, constructors, architects, appraisers and surveyors, with the latter also acting on behalf of the buyer’s finance provider.


Real estate agents are normally paid anything between 1% and 2% of the sale price, depending on the nature of the deal and its complexity, as well as the question of whether they received exclusivity or not. This also determines whether only one or both parties pay conveyance fees. Lawyers’ fees are either based on a fixed percentage of the sale price (such as 1%–2%), an hourly rate, or a combination of both. The remuneration of other professionals is also based on either an hourly rate or on a certain percentage, depending on the deal, the work involved, etc.




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Real estate loans are regulated by the Bank of Israel, with special emphasis on the allowed loan-to-value ratio, terms of repayment, guarantees, information to borrowers and more. In general, lending legislation applies equally to both individuals (whether residents or foreigners) and corporations. It is worthwhile mentioning that, during the last couple of years, the Bank of Israel has made borrowing more difficult, lowering the allowed loan-to-value ratio.It is also worthwhile mentioning that there are legislative provisions which determine the entitlement of residential premises to subsidiaries.


First degree mortgages, registered on the borrowers’ rights in favour of the lenders, are the most common method used by real estate lenders. Due to the fact that in many cases the borrower is not the registered owner of the asset at the date the finance is required, the mortgage is often registered on the seller’s rights but subject to the lender’s guarantee to erase the mortgage in case the deal is cancelled and it receives the loan back from the seller, or in case the consideration is fully paid – a non-recourse clause. Other methods of guaranteeing the lender’s rights when registration of a mortgage is impossible (for example, due to non-completion of the registration of a communal house, differentiating each flat as a separate registry) is to register a notice on the seller’s title (at the Land Registry) and a pledge is registered over the contractual rights of the borrower. Purchasers of residential premises are often required to provide personal guarantees, as well as to obtain life insurance and structure insurance naming the lender (the Bank) as the beneficiary.


Proceedings for the realisation of a mortgaged property are either conducted via the execution office or via court proceedings. In both cases, the lender submits a request to appoint a receiver. The difference is concerned with the limited authority the head of the execution office has, and therefore more complicated cases are submitted to court.


No formalities regarding real estate lending exist, but, in the case of a company obtaining a mortgage, registration must be carried out both with the Land Registry and with the Companies Registry in order to bind liquidators and creditors.

faith when in the course of a contractual relationship, commencing at the negotiation phase through to the actual signing of the contract and its execution. The extent of disclosure is always a matter of circumstances, and depends, amongst other matters, on the text of the contract, especially on the buyer representations and warranties, and the relationship between the parties. Without derogating from the aforesaid, especially considering the fact that Israeli courts tend to interpret the good faith principle in a very broad manner, the disclosure duty usually includes all the essential facts of the transactions.


As noted, especially considering the duty to act in good faith, a seller may be found liable for misrepresentation even in a case where he does not provide contractual representations and warranties. It should be noted in this respect that the good faith principle operates in both directions, so a buyer who did not rely on a representation and/or was aware of a problem in a property but decided to contract nevertheless, cannot use non-disclosure or misrepresentation as a cause of action.


The answer to this question is a matter of circumstance, but it is quite common that sellers provide representations on essential matters relating to the transaction. Warranties are normally aimed at providing the seller with information at the pre-contractual phase, but do not replace a due diligence inspection by the buyer. Accordingly, and in order to reduce the seller’s exposure, most contracts containing representations and/or warranties also contain a declaration on behalf of the buyer, stating that he has conducted his own due diligence inspection. In addition, special provisions exist with regard to newly built premises in the Sale Act (Apartments), extending the duty of representation with regard to the specification of the premises.


Despite the fact that a warrant regarding the ownership is a common clause in sale contracts, this is usually buttressed by an extract from the Land Register and/or a confirmation letter from the RMI.


As noted, the principle of acting in good faith extends to the buyer as well. It is customary that a buyer registers a notice regarding the sale and purchase agreement, thus allowing the release of the first instalment, which is normally deposited in an escrow account. In addition, a buyer is subject to a purchase tax. Non-registration of the said notice within a defined period of time (normally a few days) will result in the release of the deposit.



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The answer to this question depends on whether the individual is a sole trader and if he deals in buying and selling real estate properties; in such a case, he is obliged to pay income tax rather than capital gains tax (which is referred to in Israel as land appreciation tax; hereinafter: “land appreciation tax”).


The liability of paying VAT is primarily related to the question whether a “dealer” (as defined under the VAT legislation) is involved in the transaction. In general, the sale of residential properties between private individuals is exempt from VAT, and all other transactions involving dealers and/or organisations and/or financial institutions are subject to VAT unless the buyer purchases the property for his personal use. The current rate of VAT in Israel is 17%.


The seller is subject to land appreciation tax, which is set at various rates depending on the period during which the owner has owned the property. Following the new tax reform, the obligation of paying the appreciation tax has been shifted to the buyer, who is obliged to pay a down-payment once 40% of the consideration is due. The sum of the down-payment is determined according to the date the property was acquired by the seller – for purchases on or before 7 November 2001, the sum is equal to 15% of the consideration; if the property was purchased after 7 November 2001, the sum is equal to 7.5% of the consideration. Furthermore, the calculation of the tax varies when applied to different periods of ownership. It is also worthwhile mentioning that recent changes in legislation, aimed at reducing the prices of flats, has led to the abolition of different exemptions applied to the sale of flats, e.g. the exemption from land appreciation tax if a flat is sold four years or more after the date it was purchased.


A sale of shares in a company which owns real estate does not trigger tax liability unless the company is regarded as a “real estate entity”; namely a corporation all or most of whose activities are concentrated in the holding of real estate.


The main tax issues which a buyer has to take into account are concerned with ensuring that the consideration is used to pay the taxes of the seller. Otherwise, the buyer might find himself in a position whereby he is unable to register the rights in the property in his name. Accordingly, the sale and purchase agreement should include specific provisions for payment of taxes and where necessary – the creation of an escrow account into which the consideration is paid and from which taxes are paid. As to due diligence, the buyer has to assess the tax liability of the seller so that the relevant provisions include


In a case where a mortgage of first degree is registered with the Land Registry on the borrower’s rights in the property, the lender is regarded as a secured creditor and, therefore, has a prevailing right over other creditors’ claims regarding the mortgaged property and the sale proceeds thereof.


There are several causes, which can lead to such a result. First, there are rules regarding the enforceability of mortgages against debtors, requiring a lender to comply with a list of terms and conditions prior to execution, inter alia those imposed by the Bank of Israel regulatory bodies. Other cases, which might lead to the frustration of a security are when a lender has misrepresented the terms and conditions of the loan or when the pledged property does not belong to the debtor/borrower and he did not have the right to register a mortgage. Without derogating from the aforesaid, such cases are not common as lenders usually use all necessary measures, including during due diligence, to avoid such occurrences.


A borrower/debtor can turn to court and/or to the execution bureau and seek an injunction/declaratory judgment against the lender. It should be noted in this respect that in Israel, as opposed to other jurisdictions, measures are legal rather operational in nature. Accordingly, a borrower cannot withhold information that a lender may require in order to take enforcement action, as it would be, in itself, a breach of the loan agreement and give rise to enforcement actions.

9 Tax


Transfers of real estate in Israel are subject to a transfer tax, also referred to as purchase tax, which is imposed on the buyer. The rate is determined according to the type of property sold. Purchasers of non-residential real estate, namely commercial properties or land, are normally subject to a flat rate of 6% of the value of the property, and purchasers of flats are subject to three-tiered rates ranging from 0% to 10% depending on whether the purchasers own more than one flat, and on the price of the flat. It should be noted that rates have been recently increased via a legislative change aimed at discouraging the purchase of more than one flat.


It is obligatory to submit a tax calculation within 30 days from the date on which the sale and purchase agreement has been signed (recently shortened from 40 days). Up to 20 days thereafter, the tax authorities are obliged to provide the purchaser with payment slips, and payment becomes due.




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e) (i) Change of control of the tenant (ii) Transfer of lease as a result of a corporate

restructuring (e.g. merger)It is common that lease agreements prohibit changes in the control of a tenant without the landlord’s previous acknowledgment and consent.f) RepairsTenants often bear the liability of maintaining the premises, except for wear and tear.


Rent received by a landlord for a business lease is subject to income tax and VAT. Furthermore, business premises are subject to municipal taxation, the tariffs of which are determined according to the type of business (banks, insurance companies, retail shops, offices, etc.). Usually the tenant bears the responsibility of paying the municipal taxation.


In most cases, business leases are terminated upon the term’s expiry. There are no special provisions under law allowing the tenant to extend and/or renew the lease. In a case where the lease is tacitly prolonged, each party can terminate at any time, subject to a notice. The Borrowing and Rent Act provides that termination shall be within a period of three months or less.


In essence, the answer to this question is negative; namely that rights and liabilities are transferred and vested in the new tenant/landlord, although they obviously bear responsibility for the period that precedes the transfer of rights.


Green leases are not a common phenomenon in Israel. “Green” requirements are becoming part of building permits; however, there are no conclusive or encompassing rules thereof and it is very much at the discretion of the local planning authority to determine these requirements.

adequate sums to cover the potential tax liability. It should be noted that this is not only concerned with land taxation but also with regard to municipal taxation and payments to RMI (where applicable) – as registration of rights in land are subject to the local council’s/RMI consent. It goes without saying that a buyer also has to assess his own personal tax liability, especially in case finance is required.



Generally speaking, leases are regulated by legislation which governs contractual relationships such as the Contracts (General Part) Law. Specific matters of lease agreements are regulated under the provisions of the Rental and Borrowing Act, the Land Law and, to a limited extent, the Tenant Protection Act. The operation of most businesses requires a licence and, therefore, each business is also regulated by the relevant by-laws in each municipality.


Essentially there are no restrictions under law as to the types of leases (however, there are specific provisions relating to a business lease of protected tenants) and these are freely negotiated between property owners and lessors. It is common that under business leases in malls and/or commercial centres the tenant pays maintenance/management fees and municipal taxes.


a) Length of termOpen to negotiation and usually does not exceed 25 years as, in such a case, the transaction is subject to tax.b) Rent increaseRent increases usually depend on several matters, one of which is the currency in which the rent is charged. Previously it was popular to charge the rent in US dollars and to link it to the US dollar with a button rate of 4 NIS to 1 US Dollar. Today most leases are charged in NIS and linked to the Consumer Price Index. Rent is periodically increased as frequently as annually up to a five-yearly increase.c) Tenant’s right to sell or subleaseUnder the provisions of the Rental and Borrowing Act, a landlord cannot unreasonably object to an assignment of rights and/or a sublease and, according to the prevailing precedent, this cannot be waived and/or made obsolete in an agreement. Having said that, there is nevertheless a possibility to limit the tenant’s said rights by setting clear criteria for the assignee and requiring undertakings and guarantees which may render this exercise unpractical.d) InsuranceLandlords typically maintain property insurance but lease agreements provide that they are reimbursed by the tenants, who are also often required to maintain contents, third party and loss of income insurance, as well as employer’s liability and all-risk insurance. This is especially relevant when a tenant carries out construction (adaptation) works.



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which enables him to issue a separate demand regarding the lawsuit without having to apply for a permission to split the claims.



Zoning and related matters are governed by the provisions of the Planning and Building Law and the regulations enacted under its provisions. It aims at governing the manner in which land is used and it has a special emphasis on the manner in which zoning, as well as national plans, are adopted and implemented. Businesses are also regulated under the Licensing of Businesses Law, which sets conditions regarding the operation of certain businesses in relation to their premises. Planning and Building Regulations (Environmental Impact Assessments) incorporate environmental considerations in the early stages of the zoning process, and the Protection of the Coastal Environment Law is aimed at protecting and preserving the coastal environment and natural resources. In addition, there are several other laws dealing with specific subject matters which require an environmental permit. For example, the 1993 Hazardous Substances Law requires any premises selling hazardous substances and any business dealing with poisons to obtain a permit.


The state can force land owners to sell land to it in cases where it is used for a public purpose. The process is actually expropriation and it exists in various laws, such as the Planning and Building Law, the Land Ordinance, the Water Act, the Law of Building and Evacuation of Development Areas, the Antiquities Act and more. Usually a particular percentage of land can be expropriated without any compensation, ranging from 25% to 40%. A compensation mechanism is plainly set via an appraiser, who determines the value of the land expropriated.


Buyers can obtain reliable information from the local council, via the engineering and local planning and building committee, which controls and supervises land and building use. The local planning and building committee issues permits and licences and all the information is contained in the engineering department’s archives, which are open to the public. In addition, the Ministry of Environment operates an information centre which is open to the public.


Building works require a building permit, which comprises not only a building plan but a rather long list of plans related thereto (environmental, transport, sheltered areas, etc.). Once the construction works have finished, additional permits and approvals are required both from the local authority and from other authorities,



The main law that regulates leases of residential premises is the 1971 Lease and Borrowing Act which was recently amended to include more favourable provisions to protect tenants. An additional, historical law, is the 1972 Protection of Tennant Act, which regulates the rights of protected tenants who benefit from secured rent rates.


There are no special provisions in cases where premises are intended for multiple different residential occupiers.


a) Length of term: typically, it would be a 12-month option followed by an option for an additional 12-month period.

b) Rent increase: commercially negotiable and not limited under law. Normally it would be around a 5% increase.

c) Right to remain: unless the tenant has a specific right to prolong the rent period, they have no right to remain in the premises. The landlord is, however, obliged under law to notify the tenant in advance if he wishes to prolong the rent period or not.

d) Tenant’s contribution: tenant is required to repair any damage resulting from using the flat in an unreasonable manner. The landlord is responsible for repairing any other damage in the infrastructure of the premises, such as damage to the pipework, electricity, etc., no later than 30 days after it has occurred. In cases where the damage prevents the usage of the premises, the repair must be carried out no later than three days after it occurred. In addition, the tenant is responsible for paying any tax and or expense related to the usage of the premises such as council tax, water, electricity, gas and management fees. Tenants are not obliged to bear any insurance costs related to the construction/infrastructure of the premises nor any conveyancing costs, in case the agent acted on behalf of the landlord.


The landlord has the right to terminate the residential lease in case of a breach or in case such a right is explicitly provided in the rent agreement. It should be noted in this respect that the 1971 Lease and Borrowing Act has declared such clauses null and void in case the right to terminate was not granted both to the landlord and the tenant and provided it was subject to a minimal notice term – the landlord not less than 90 days in advance and the tenant not less than 60 days in advance. In case a landlord activates his right to terminate and the tenant fails to vacate the premises, the landlord can use a special procedure, explicitly outlined in the 1984 Civil Ordinance, in which he can obtain a verdict within a period of ca. 90 days and




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There is no public register of contaminated land in Israel. Israel’s Knesset approved the Land Contamination Bill at the first reading at the beginning of August 2011, and 2012 saw further discussions regarding its final approval. The proposed law provides a comprehensive response to the treatment of thousands of pollution spots, which constitute a health and environmental hazard. One of the main provisions of the law is granting the Land Registrar the authority to include a notice about the contamination of the land in the Land Registry.At the moment, information regarding contaminated land exists in various authorities, including the local authority (at the environmental department), the water authority, the parks and nature authority, etc. Under the provisions of the 1998 Freedom of Information Law, governmental and public authorities are obliged to publish annual reports and the public is allowed access to the relevant data upon which these reports are based. Furthermore, citizens, as well as public organisations, are allowed access to information held by public agencies and public bodies, which include, amongst others, government Ministries, Israel’s Parliament (the Knesset), courts, local government, governmental corporations and statutory bodies. Despite the fact that the Freedom of Information Law includes provisions which allow the relevant body or authority to deny access to information, it is obliged to release information on “substances that were emitted, discharged or released into the environment”, or “results of measurements of noise, odours or radiation measured on public property”.Furthermore, the 2009 Freedom of Information Regulations (provision of environment-related information to the public) have fundamentally increased the public’s ability to access environment-related information.


Environmental clean-up is indirectly mandatory via orders handed down according to the laws and regulations of the Business Licensing Law, the Hazardous Substance Law and many others.


There are no regulatory requirements for the assessment and/or management of the energy performance of buildings in Israel. However, there are several standards for green and energy-efficiency which are due to become regulatory requirements and are currently being adopted by an ever increasing amount of developers and builders.

13 Climate Change


Under the provisions of the Clean Air Law, carbon dioxide (“CO2”) is regarded as a pollutant and the said law, as well as the

such as the police and the fire prevention authorities, in order to allow the use of the newly erected building and connect it to the existing infrastructure (water, sewage and electricity). As noted, the Licensing of Businesses Law lists ca. 200 businesses which require a permit to operate. This is obtained from the licensing department at the local council but involves an interaction with all the said bodies, namely the local planning and building committee, the Ministry of Health, the Ministry of Environment, the police and the fire prevention authority.


Building and use permits as well as business permits are commonly obtained, albeit there are quite a few problems in the process, especially with regard to obtaining business permits. This is usually a long and bureaucratic process which entails an internal paradox, namely that one has to open a business without a permit, because the law requires that the business is up and running before a permit can be issued. Regardless of the aforementioned, an implied permission cannot be obtained and at most it can assist in avoiding criminal proceedings.


The costs, as well as the time involved in obtaining building/use permits, depend on various factors; amongst others: how complex the project is and whether its size and shape, as well as the planned use, fall within the existing zoning plan framework or not. Obtaining permits is usually a lengthy and bureaucratic procedure which takes anything from a few months to years. This, and the ongoing shortage of residential premises, resulting in very high real estate prices and, subsequently, recent protests in Israel, has brought the government to review the recent Planning and Building Act, which was legislated in the 1960s and which, as noted, is characterised by bureaucratic processes. The new legislation is aimed at substantially shortening the process (and subsequently the period) of obtaining a permit, setting it around 90 days. The costs involved are determined according to the size of the plot and the building, as the tolls, building fees and levies are calculated according to square metres and/or volume. In addition, a land improvement levy may also be imposed in cases where the permit provides an increase in the property’s value, for example, or in a case where the permitted use deviates from the orders contained in the zoning plan.


Israel ratified the Convention for the Protection of World Cultural and Natural Heritage on 6 January 2000, joining the 159 countries who were already party to the convention. Within a short time of ratification, the Israel World Heritage Committee submitted a tentative list of 23 properties which it intended to nominate for inscription, followed by two additional sites in 2002. In addition, the Antiquities Law was enacted in order to protect Israel’s antiquities, which are defined as any object which was made by man before 1700 CE, or any zoological or botanical remains from before the year 1300 CE. Usually the problem entails building upon land which contains archaeological remains, and not in the transfer of rights.



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(2012–2020) on improving air quality in Israel. The programme aims to improve air quality in Israel, while reviewing the existing policy on air pollution prevention from transport, industry, energy and the domestic sector vis-à-vis ambient and target values, and determines future policy on abating air pollution from these sources. The programme will be updated every five years. On 11 December 2011, the Ministry of Environmental Protection distributed Israel’s first ever multi-annual national programme for the prevention and reduction of air pollution. The programme encompasses a wide range of guidelines, the implementation of which should bring about a continuous reduction and prevention of pollutant emissions into the air.


Israel is located in an area which is part of the Afro-Syria rift and is therefore potentially exposed to earthquakes. Since the 1980s, every new construction has to conform to the Israeli standard for earthquakes, and the National Building Scheme Number 38 provides incentives in the form of additional building rights to those who strengthen the construction of buildings which were built before the 1980s.Other measures worth mentioning are the Green Building Standard, which applies both to new buildings and to building renovations, and was introduced by the Ministry of Environmental Protection in July 2011 and, in addition, the Government Housing Administration’s commitment to implementing Israel’s green building standard in all new government constructions and major renovations.

related regulations, are the only existing framework dealing with CO2. Israel, which is classified as a non-Annex I country under the Climate Change Convention, ratified the Kyoto Protocol in February 2004 and founded a Designated National Authority (“NDA”), thus paving the way for implementing CDM projects in its territory. The Israeli NDA is formed out of representatives from a number of Ministries, governmental and public bodies, such as the Ministry of Transportation, the Ministry of Industry and Trade and the Manufacturers’ Association, and its role is to determine whether a proposed CDM project complies with sustainable development criteria, as per the above-mentioned Article 12. The NDA has formulated sustainable development indicators which will be used in the assessment process of the Project Design Document. To date, the NDA has approved several projects for the reduction of greenhouse gas emissions in the fields of waste, renewable energy, production efficiency and wastewater treatment. However, there are no mandatory emissions trading schemes in Israel to date.


At COP15 in Copenhagen, former President S. Peres declared that Israel will do its best to reduce GHG emissions by 20% compared to “business as usual”, by the year 2020. This declaration was formalised by a government decision, in March 2010, that also established an intergovernmental committee comprising the Directors General of relevant Ministries tasked with formulating a national plan to reduce GHG emissions. In addition, it should be noted in this respect that the Clean Air Law calls on the Ministry of Environmental Protection to submit a multi-annual programme




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Moshe MerdlerZiv Lev & Co. Law Office98 Yigal Alon St., Electra TowerTel-Aviv, 6789141Israel

Tel: +972 3643 0301Fax: +972 3643 0302Email: [email protected]: www.lz-law.com

Ziv LevZiv Lev & Co. Law Office98 Yigal Alon St., Electra TowerTel-Aviv, 6789141Israel

Tel: +972 3643 0301Fax: +972 3643 0302Email: [email protected]: www.lz-law.com

Moshe Merdler is a partner at Ziv Lev & Co. Law Office and heads the Litigation and commercial law department. His areas of practice include a wide range of civil and commercial law matters, including Municipal Taxation, Planning Law, Real Estate and Litigation. Moshe provides legal counsel to individuals, corporations (both private and public ones) and governmental entities, and has considerable experience in both non-contentious and contentious work, representing clients before the entire range of Israeli courts. In recent years, Moshe has been involved in many real estate litigation cases and headed Ziv Lev’s protected housing department. He was born in 1973 in Holon, Israel. Moshe is a law graduate of the London School of Economics (LL.B.) and King’s College (LL.M. in Intl. Business Law) and is a member of both the Israel Bar and The Law Society of England & Wales. Moshe is fluent in English, German and Hebrew.

Ziv Lev & Co. Law Office is a commercial and civil law firm, located in the heart of Tel Aviv’s business district. The firm offers the entire range of commercial, corporate and litigation services, with particular emphasis on Real Estate and Commercial Property, Commercial and Corporate Law, Project Finance, Environmental Law and Litigation. The firm represents some of Israel’s most prominent corporations (such as the Elco Group and Liberty Properties), as well as individual entrepreneurs, and also possesses significant international capabilities, with proven experience in the UK, Germany, Eastern Europe, Russia and the US. Ziv Lev & Co.’s Real Estate department has been involved in many high-profile real estate transactions with great success, turning it into one of Israel’s leading firms in this field, as recently acknowledged in the DUN’s 100 rankings. Its work ranges from commercial properties, complicated purchase and planning transactions to yielding properties and its team has all the requisite capabilities to tackle any project or transaction with professional yet intimate and client-oriented service and availability around the clock. The Commercial and Litigation departments comprise, with the Real Estate department, a real ‘one-stop-shop’ to any client’s needs, whilst providing both contentious and non-contentious solutions to any real-estate matter or transaction. In 2016 and 2017, Ziv Lev Law office was involved in several of the leading real estate transactions in Israel, including the closing of the sale transaction of 50% of the rights in the Electra tower (for ca. 650 million NIS), and the closing of sale transaction of the rights in the Elco Complex in Ramat Ha’sharon (for ca. 210 million NIS) as well as a 300 million NIS transaction to build ca. 250 flats in Ramla.

Ziv Lev is the head of our firm and is the founding partner. His practice includes a wide range of civil and commercial law matters, with an emphasis on Land and Real Estate Law, Planning Law, Commercial Property, Insolvency Law and Finance. He frequently advises public authorities and governmental bodies, as well as industrial and commercial firms (private and public), on issues concerning commercial property, infrastructure projects, planning, building and developing commercial property as well as residential projects. Ziv is a highly experienced advocate, who has successfully advised and represented many projects, transactions and cases of high complexity and diversity. Ziv was born in Jerusalem, Israel, in 1965. He is a law graduate of Tel Aviv University and is fluent in English, Spanish and Hebrew.



Chapter 18

Gianni, Origoni, Grippo, Cappelli & Partners Davide Braghini

Italy


Common law has no impact on Italian real estate. Judicial precedents have to be taken into consideration for the interpretation of the law, but are not binding.


Only EU legislation may be relevant to real estate in Italy. International law is not relevant since real estate in Italy is regulated by local law.

2 Ownership


A legal restriction on ownership of real estate applies to foreign persons that are not resident in Italy, based on the “reciprocity” principle, i.e., the acquisition of real estate is not possible in principle for foreigners coming from countries where Italian citizens cannot own real estate and which have not signed reciprocal conventions with Italy.



Real estate assets can be held by:■ freehold, under:

i) full ownership (“proprietà”); orii) joint co-ownership (“comunione”); and

■ various form of title comparable to leasehold, under:i) usufruct (“usufrutto”), which grants rights comparable to

those of the freehold owner for a limited period of time (up to 99 years);

ii) right of use (“uso” and “abitazione”), which grants limited right to a person to use or live in a property;

1 Real Estate Law


The main applicable real estate legislation is:■ The Constitution of the Italian Republic, which states the

right to a private property, subject to possible limitations for public interest.

■ The Italian Civil Code (Royal Decree no. 262 of 16 March 1942), which regulates freehold title (proprietà), other rights on real estate assets, how to acquire and transfer real estate and building rights, co-ownership on real estate, registration of title in the land registry and also contains the general regulations for sale and purchase contracts, leases and mortgages.

■ The Italian Navigation Code (Royal Decree no. 327 of 30 March 1942), which regulates title (in the form of public concession of use) on beaches, marinas, harbours, lagoons, basins, channels and any related assets.

■ The Unified Building Act (Testo Unico dell’Edilizia – Presidential Decree no. 380 of 6 June 2001), which regulates development, construction and refurbishment of real estate.

■ Legislative Decree no. 122 of 20 June 2005, which regulates the acquisition by individuals of properties under development.

■ The Unified Banking Act (Legislative Decree no. 385 of 1 September 1993) which regulates some aspects of mortgage on real estate connected to bank financing.

■ The various legislation regulating the Cadastral system, which maps all Italian real estate properties (Royal Decree no. 2153 of 8 December 1938 on Catasto Terreni, Presidential Decree no. 1142 of 1 December 1949 on Catasto Edilizio Urbano, and Law Decree no. 557 of 30 December 1993 on Catasto Fabbricati).

Finally, the Governmental Social Housing Plan, which regulates the development of government-supported houses for low-income families and individuals is particularly relevant for the residential real estate market.



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Land registries are organised on a local basis and managed by the Agenzia del Territorio, an administrative body controlled by the Ministry of Finance.


There is no state guarantee of title. Title insurance is not commonly used because the legal system fully protects any person acquiring title from the registered owner. Also, any sale of property has to be executed before a notary, who has a duty to perform a legal check on the title.


Any contracts (i) transferring freehold title on a property, (ii) creating or transferring a usufruct or a right to build, (iii) creating a co-ownership on a property, (iv) creating or transferring an easement on a real estate property, (v) waiving any of the above rights, or (vi) granting a lease for a term exceeding nine years, must be registered in the land registry. In the absence of registration the title cannot be opposed to bona fide third parties which may have acquired and validly registered a title on the asset.Also mortgages are compulsorily registrable and registration is required for the validity and existence of the mortgage.


Leases (if their initial term does not exceed nine years), rent-to-buy contracts, financial lease on real estate assets and bailment contracts are not required to be registered in the land registry. All such contracts, however, must be recorded in writing and filed with the local tax office (Agenzia delle Entrate) for registration tax purposes. The lack of registration of a lease may allow the tenant to claim the invalidity of the contract.A preliminary contract by which the parties undertake to sign a sale and purchase contract can be registered in order to grant priority to the future title of the promissory purchaser; however the effects of the registration are limited to three years.


There is only one form of registration of a title and no probationary period applies. Limited to mortgages, it is possible to register more than one mortgage; in this case, the mortgages registered after the first one are granted a right which is subordinated to the first degree mortgage, unless this latter is cancelled and consequently the second registered mortgage acquires all of the benefits of a first registration. In addition, in some cases it is possible anticipating the effects of registration by registering a preliminary sale and purchase contract or the filing of a judicial suit aimed at ascertaining the title on a property; in these cases, when the title is actually transferred or ascertained, the effects date back to the time of the first registration.

iii) right to build (“diritto di superficie”), which grants the right to build on or under a given area and acquire full ownership of the building;

iv) public concession, which grants rights to use and benefit from a governmental owned asset for a limited period of time (up to 99 years);

v) lease (“locazione”), which may have a maximum term of 30 years;

vi) lease of a business (“affitto di azienda”) including real estate assets;

vii) bailment (“comodato”), which is a form of limited use normally without consideration; and

viii) rent-to-buy contracts, which allow a person to use a property while paying price instalments to buy the property.


The general principle is that real estate is indivisible and comprises: (i) land; (ii) buildings; and (iii) everything attached to land or buildings.Land and buildings located on it are registered together on the same title in the competent land registry.The way to split the right over the land and the right over the construction erected thereon (or thereunder) is the right to build (“diritto di superficie”).


In principle there is not a split between legal title and beneficial title under Italian law. However, the Civil Code provides for the possibility to limit the freehold title on real estate assets (which is unlimited in time) by granting a usufruct (“usufrutto”), which allows the beneficiary to make full use of the asset and take any economic benefit of it for a limited period of time (which cannot exceed the life of the beneficiary or, for legal entities, thirty years). The usufruct is recorded in the land registry and can be validly opposed to any third party.Finally, foreign trusts can be recognised in Italy. In this case the title on the assets is recorded in the name of the trustee, indicating his role and the fact that the property shall be managed in the interest of a beneficiary; this annotation, however, can have a maximum duration of 90 years.



Private ownership of land must be registered. Ownership of real estate is evidenced by the corresponding public deed of sale and purchase or other contracts granting a title on real estate. All such contracts, as well lease contracts for a term in excess of nine years, have to be registered in the land registries. When registered, title is enforceable against bona fide third parties with a potential interest in the real estate.

Gianni, Origoni, Grippo, Cappelli & Partners Italy


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with all relevant facts of the property (titleholder and any registered third party rights).


Yes, it is feasible to claim compensation from a land registrar who makes mistakes during the registration process. The registrars are legally liable for all damages and costs they might have caused.


There are no restrictions on public access to the register. Any buyer or other interested person may obtain information on title and any registered encumbrances and also copies of the relevant notarial deed.



Buyers and sellers are usually advised by real estate consultants (one advisor per party) and, in most cases, one of them has acted also as broker of the deal. However, in some cases the broker can be unrelated to either the purchaser or the seller.Technical advisors for the due diligence are also commonly used. A Notary must be involved for the execution of the deed of sale and purchase or the lease agreement (if the terms of the lease exceeds nine years).Legal advisors provide legal support and draft the legal documentation in major transactions, while in minor transactions it is common for the parties to engage directly with the Notary.


Each party bears the costs of its own transaction advisors. These remunerations are freely negotiated with the service providers and may be determined as a percentage of the purchase price or a fixed remuneration. The Notary has to be remunerated by both parties based on a national tariff (which can be negotiated); it is a general principle of law and common practice that the cost of the Notary is paid by the purchaser, who also selects him.Real estate brokers are entitled to claim a fee from both the seller and the purchaser, unless their engagement letter provides differently. If not differently agreed, their fees are in the region of 2–3% of the price.


Foreign equity coming from Sovereign Funds, pension funds and private opportunistic funds has been a main driver of real estate


Transfer of title has to be formalised in a public deed before a notary public. After that, the buyer can register the title with the corresponding land registry to protect the title against third parties.Title transfers on delivery of the real estate to the buyer, which normally occurs (unless agreed otherwise) when a notarial deed is signed. It is possible deferring transfer of title to the satisfaction of a condition precedent or until the price is fully paid.


Registered rights prevail over other rights based on priority in applying for registration to the competent land registry. As indicated in question 4.5 above, in some cases it is possible anticipating the effects of registration.



Italian land registries are organised and maintained on a provincial basis. However, they are managed by the same governmental agency (Agenzia del Territorio) and access is unified through a national virtual portal. In some regions of North-Eastern Italy a somehow different registration system applies (sistema tavolare), which is managed by the local provincial authority.Furthermore, the Cadastral registry (“Catasto”) contains useful information on real estate assets (including indication of the owner/s and a map describing the property), but its purpose is determining the taxable value of a property and not that of certifying the title on the property.


The land registry may indicate the contents of the registry with respect to land titles and other rights – mortgages, liens and attachments – over a property but that does not constitute a title document. Title to real estate is evidenced by the corresponding public deed.


Transactions relating to registered real estate must be completed in writing, by means of a notarial deed (“atto pubblico”) or a notary certificated contract (“scrittura privata autenticata”). Upon signing, the notary is obliged to notify the land registry electronically in order to get priority of registration, but this must be confirmed by delivering the original title deed for registration.Information on ownership can be accessed electronically through a national portal. The competent land registry issues an online excerpt




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subsequent binding offers). Pre-contractual arrangements are fully binding on both parties limited to the above elements, but usually do not bind the parties to execute the sale contract.Vendor due diligenceIn some cases the seller engages consultants to conduct a pre-sale technical assessment of the property, aimed at assessing its compliance with zoning, building and environmental regulations, compliance with the cadastral data, and investigating any existing encumbrances. In many cases a notary is engaged to conduct a search in the land registry and certify the title of the seller and any existing encumbrances on the property.MarketingFor major sale transactions, property companies and institutional investors usually engage a consultancy investment firm to make a pre-assessment of the value of the property, organise marketing materials and conduct the sale process.Commercial negotiationNegotiations usually occur between representatives from both of the parties, supervised by lawyers and real estate advisers. In some circumstances, negotiations are directly executed between the parties’ lawyers and advisers.


The seller must act in good faith without concealing any information that, if known by the buyer, would prevent the buyer from completing the transaction. The Italian Civil Code allows a buyer to challenge the validity of the contract or to claim for a reduction of the price in case the seller has wilfully omitted to disclose elements which may affect materially the value of the property. Also, the Italian Civil Code allows a buyer to bring legal actions against a seller for title defects and lack of conformity of the property. Buyers also have access to public registries (land registry and cadastral office) in order to make their own assessment on the title of the seller.


Yes. Pursuant to the Italian Civil Code a seller is always liable in case it has wilfully omitted to provide information to the buyer which could be relevant for the determination of the price or even for determining the decision to buy.The liability of the seller regarding elements not known to it can be mutually agreed among the parties in the contract. The parties may also agree that the seller is released from any liabilities, other than in case of lack of title (“evizione”).


The Italian Civil Code provides that the seller is liable in case of lack of title (total or partial), third parties right on the properties and lack of conformity of the property (“garanzia per vizi”). However the liability of the seller for lack of conformity under the Civil Code is limited to one year after the sale and claims are subject to a short

transaction in Italy in the last five years. Insurance companies and added-value funds are also a main equity player in Italian real estate.


Real estate investments are currently mainly focused on Milan. Secondary markets are highly considered for logistic, tourism and hospitality assets. High street retail also attracts interest in a few main cities.


Transactions on commercial centres and shopping malls have somehow slowed down, as investors are fousing more and more on those commercial centres that are modernising their business model.



FormalitiesAny contract transferring title on real estate must be executed and recorded in writing. In addition, execution in the presence of a notary is required to file the relevant contract in the land registries (and, for mortgages, for the validity of the title).The contract must contain some mandatory information on the property, including: (a) the cadastral identification; (b) the confirmation of consistency between the cadastral data and the effective conditions of the property; (c) the permitted use of the property; (d) the titles on the basis of which the buildings existing on the property were built; (e) the allegation of the energy performance certification; (f) the allegation of a seismic compliance certification (not yet applicable on a general basis); (g) the means of payment used to pay the price; and (h) the identification of the broker which has intermediated the transaction (if any).The execution of the notarial sale contract is often preceded by the signing of a preliminary contract.Preliminary contractA preliminary sale and purchase contract is usually executed once the parties agree the terms and conditions and satisfactory due diligence have taken place.The preliminary contract contains the transactions terms and conditions, including: (i) the object of the sale; (ii) the purchase price; (iii) any conditions precedent; (iv) the timing for closing; (v) the payment of a security deposit (“caparra confirmatoria”); and (vi) the seller representations, warranties and indemnities.Additional steps of a sale process may include:Pre-contractual arrangementsArrangements are usually related to: (i) confidentiality and non-disclosure; (ii) temporary exclusivity for due diligence and negotiation purposes; and (iii) making offers (initial offers and



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charge over receivable rents; (iii) a charge over all bank accounts into which all rents must be paid; and (iv) a charge over all relevant contracts including leases, insurance policies and construction guarantees.

(b) Corporate guarantees. Corporate guarantees are sometimes demanded by lenders if the borrower is using SPVs.

(c) Insurance coverage. Lenders will require the borrowers to take out appropriate buildings insurance.

(d) Covenants. The loan documentation will also contain both financial covenants (loan to value, debt service cover) and nonfinancial covenants (obligations to maintain the asset in good state of repair or disposal limitations) to be granted by the borrower in order to ensure that the value of the asset is maintained.


As a general rule, the lender with a secured loan needs to start a foreclosure proceeding, where the main step is the public auction of the asset. There are two types of proceedings: (i) judicial proceeding, to be followed before the Italian courts; and (ii) extrajudicial proceedings, to be followed before a Notary Public. The extrajudicial proceeding may only be followed if agreed upon by the parties.According to a recent legislation, a credit facilities contract may provide for the right of the lender to take possession of the mortgaged asset or any other assets in case of payment default and sell it on the market: in case the market value or the sale price exceeds the residual debt, the lender must transfer the excess to the borrower; on the contrary, in case the sale price is less than the residual debt, the borrower is released from any residual obligation.


A mortgage over real estate must be granted in a notarial deed and is only valid when registered with the land registry. The draw of the money under the facilities agreement must also be recorded in a notarial deed, in order to have a direct enforcement title against the borrower, without having to conduct proceedings in court in order to obtain an enforcement title.A charge over income arising from lease tenants is usually notarised, but notarisation is not mandatory. The tenants must be notified of the existence of the pledge in order to make it enforceable against them.In share deals, it is common to grant a pledge over the shares of the SPV acquired by the buyer; this must be granted before a notary public.


The protection of a real estate lender depends on the priority in ranking of the secured loans and this priority is subject to the registration principle, unless mutually agreed between the borrower and the lender. In some cases tax authority claims for unpaid taxes have priority over the lender’s mortgage.

deadline (eight days from discovery). For this reason, it is usual that contracts for major transactions contain a negotiated set of seller’s representations and warranties and indemnification obligations, which add to (or even replace) those provided in the Civil Code.The warranties most frequently given by the seller relate to: (i) powers of the seller to enter into the transaction; (ii) the non-existence of charges and encumbrances other than those registered at the land registry; (iii) tenancy status and validity of the main conditions of the lease; (iv) compliance with applicable planning rules; (v) compliance with environmental legislation; (vi) regular payment of any applicable property tax; (vii) validity of property insurance policies; and (viii) the absence of legal disputes or court proceedings affecting the property.


The warranty on title is provided for by law (the Civil Code) and cannot be waived by the parties. In any event, purchasers are fully protected if, acting as a bona fide purchaser, they acquire a title from a registered owner.


The buyer is responsible to pay the purchase price and any applicable transfer taxes, and pay its portion of the broker fees (if any).



The Italian Civil Code provides general regulation of loans, while the Unified Banking Act (Legislative Decree no. 385 of 1 September 1993) regulates bank financing and some aspects of mortgage loan. Different rules (in particular regarding information duties and enforcement in case of payment default) apply to loans to individual persons acting as ‘consumers’ and corporate entities. There are not different provisions regarding the lending to non-resident persons, but a number of additional formalities may apply (e.g., a non-resident person shall obtain an Italian tax ID code).EU resident banks are also allowed to provide real estate financing at the same conditions as Italian banks, but the payment of interests on loans can be subject to taxation in Italy.


Loans for minor transactions often do not contain any provisions supplementing those provided by the law for mortgage loan, but often the lender seeks additional protection requesting a bank deposit, a personal guarantee by the borrower or any borrower related person and a life and disability insurance on the borrower.Structured financing for major transactions usually include:(a) Security package. A security package for a real estate loan

will usually comprise: (i) a mortgage over the asset; (ii) a




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In case VAT applies, the seller charges VAT to the buyer and the seller then pays the VAT to the tax authorities. In some cases a reverse charge mechanism applies, allowing the buyer not to disburse the VAT amount.The general rate of VAT is 22%. However, a reduced rate of 10% applies to some residential and instrumental buildings; a further reduced 4% rate applies to the sale of residential properties which becomes the primary house of the buyer.


The seller is responsible for income tax on the capital gain. The seller is also jointly liable with the buyer for the payment of transfer taxes.


Taxation of share deals is completely different and, normally, significantly lower. However, tax authorities scrutinise with attention real estate share deals in order to ascertain whether the parties have simulated a share deal only to reduce the taxation of the transaction, while their real purpose was transferring title on a real estate asset or portfolio.


A buyer is always jointly and severally liable with the seller (and the notary) for the payment of the transfer taxes, regardless of any allocation agreement between the seller and the buyer.In case the seller omitted to pay any applicable property tax or transfer tax, the tax authorities may enforce a lien on the relevant property which prevails over a mortgage.



The following laws regulate the lease of business premises:■ the Italian Civil Code; and■ Law no. 392 of 27 July 1978, which regulates leases of urban

properties.


There are mainly three types of business leases:■ leases regulated by the mandatory rules contained in the Law

no. 392/1978;■ major leases (i.e., where the annual rent exceeds Euro

250,000) for which the parties may freely negotiate departing from the mandatory rules of the Law no. 392/1978; and

■ leases of business concerns, to which the Law no. 392/1978 does not apply and are regulated by the Civil Code.


In case bankruptcy of the borrower is declared within 10 days of the creation of the mortgage, the mortgage can be challenged by the bankruptcy officers. Other securities can also be challenged in case of bankruptcy, if it appears that the lender was aware of the insolvency of the borrower.


A borrower can file an objection against the enforcement action by the lender if it is able to demonstrate that no default occurred or that the lender omitted any of the formalities required to commence enforcement proceedings.

9 Tax


Any contract transferring or granting right on real estate is subject to a nominal stamp duty (“imposta di bollo”), to registration tax (“imposta di registro”), which is regulated by the Unified Registration Act (Presidential Decree no. 131 of 26 April 1986) and to mortgage and cadastral taxes (“imposta ipotecaria e catastale”).Stamp duty is applied on a fixed basis and depends on the number of standardised pages composing the contract.Registration tax is normally applied on a percentage basis, on the value or price of the transaction (depending on various circumstances). Standard rates vary from 2% to 9%. Registration tax applies on a fixed nominal basis in case the transaction is subject to VAT.Mortgage tax has a standard rate varying from 2% to 3% and Cadastral tax standard rate is 1%. Such rates are reduced by 50% in case of transactions involving real estate funds or SIIQ (Italian REITs). Mortgage and Cadastral taxes can also apply on a fixed nominal basis in case the transaction is subject to VAT.


Transfer taxes have to be paid within 30 days of transfer. Payment is usually made by the Notary, which is jointly liable with the seller and the buyer for payment.


The capital gain on disposal (i.e., the difference between the sale value and the original acquisition value, including all costs) is fully taxable, unless the asset was used as primary house or was acquired more than five years before the disposal.


VAT is payable subject to option by the seller for all sales or purchases of real estate when the transaction takes place in the framework of a business activity. VAT is compulsory in case the sale is executed by a construction company within five years of the construction or refurbishment of a building.



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In case the tenant assigns the lease, it remains jointly liable with the assignee for any unpaid costs related to period before the assignment.


The main “green obligation” lies with the landlord, since he is obliged to provide an energy performance certificate to the tenant before signing the lease contract.Recent leases of grade “A” properties often contain a best efforts provision by the tenant to maintain energy efficiency policies and to provide information to the landlord on its energy consumption levels.



The following laws regulate the lease of residential business premises:■ the Italian Civil Code; ■ Law no. 392 of 27 July 1978, which regulates leases of urban

properties;■ Law no. 431 of 9 December 1998, which regulates leases of

residential properties;■ Law Decree no. 133 of 12 September 2014, which regulates

rent-to-buy contracts;■ Law no. 208 of 28 December 2015, which regulates financial

leasing of residential properties; and■ Legislative Decree no. 206 of 6 September 2005, which

regulates contracts granting a time share right on a real estate property.


No, the same legislation applies to premises for single tenants and premises intended for multiple residential occupiers.Different regulations may apply with respect to the lease of state or Municipality owned houses offered to low income families, and to temporary leases for touristic purposes.


In leases regulated by the Law no. 392/1978 the following mandatory provisions apply:(a) the term cannot be less than six years, renewable for six-

year periods (nine years for tourism, hospitality and most entertainment properties);

(b) rent increases are ordinarily limited to 75% of the annual consumers’ inflation index;

(c) the tenant’s right to assign the lease or sub-lease is subject to consent by the landlord; however, the tenant can always assign the lease or sub-lease the property jointly with the assignment or lease of its business concern;

(d) property insurance normally has to be paid by the landlord, while the tenant can be requested to buy tenant insurance;

(e) change of control of the tenant and corporate restructuring do not affect the continued validity of the lease, until specific provisions are included in the lease contract; and

(f) the tenant is responsible for ordinary maintenance, while landlord is responsible for any extraordinary maintenance and repairs.


Business leases are subject to registration tax with a standard 2% rate (reduced to 1% in case landlord is subject to VAT).In addition, the landlord may opt for the application of VAT, at the standard 22% rate.


As a general rule, upon expiry of the initial six-year (or nine-year) term only the tenant may avoid the automatic renewal of the lease. The Landlord may avoid the renewal only in case it intends to use the property for its own business or to carry out a major refurbishment of the property.Also, the Law no. 392/1978 provides that only the tenant can be granted an early termination right; such a right can be granted to the landlord only in major leases.The contract can contain provisions allowing either party to terminate the lease in case of material breach of contract by the other party.For retail leases, in case the landlord denies the renewal of the lease, under the provisions of the Law no. 392/1978 the tenant is entitled to receive a compensation for loss of business continuance and has a right of first refusal on any new lease. The tenant has also a right of first refusal in case the landlord intends to sell the leased property.




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■ granting authorisations for special local planning, new constructions, refurbishment of existing buildings and change of the permitted use of land and buildings; and

■ expropriating land for public use.The protection of the environment and the implementation and application of the national environmental law (Legislative Decree no. 152 of 3 April 2006) is also delegated to local agencies and legislation, organised at Regional and Municipality level.


Yes; land owners can be forced to sell land which is included in a planning sector or has to be dedicated to construction of public infrastructure or public service/utility facilities and buildings. The authority to expropriate land is attributed not only to the central Government, but also to Regions, Municipalities and other public agencies.The compensation for the owner is determined by the authority that has promoted the expropriation process on the basis of cadastral values and other publicly available information; the owner may challenge the proposed remuneration, which in such case is finally determined by an expert appointed by the local court. It must be taken into account that in most cases that valuation will not be consistent with the open market value of the land at that time.


As indicated in question 12.1, land and building use and occupation is controlled by the local municipalities and local police. Local agencies at Regional and Municipal level (ARPA – Agenzia Regionale Protezione Ambiente and ASL – Azienda Sanitaria Locale) and the local Fire Brigade are in charge of supervising and controlling the correct application of environmental law and building regulations that are relevant to human health.Buyers may obtain information on the permitted use of a land/building, building permits and local public constraints through access at the local Municipality offices. Obtaining information on the actual status of a property and its environmental compliance is usually more complicated and collaboration by the owner is required.


Building worksPermits required for building works differentiate considerably depending on the relevance of works and their impact on the building/land. The development of a new building is always subject to a prior permit granted by the local Municipality, or to a previous special planning agreement with the Municipality which sets the framework for subsequent construction.Refurbishment of existing buildings can require a building permit if the permitted use of the building is affected, or its total surface or its aspect are materially changed; in most cases, however, construction works can be commenced without requesting a permit, provided that the relevant project is notified to the local authorities before the works are commenced.


The following mandatory provisions apply to residential leases:(a) the initial term cannot be less than four years, renewable for

four-year periods (the initial term may reduce to three years, with a renewal of at least two years, for leases that comply with local agreements aimed at containing rent increases);

(b) rent increases are ordinarily limited to 100% of the annual consumers’ inflation index;

(c) at the end of the initial term the landlord may avoid the renewal only in limited circumstances: direct use of the premises for living purposes; refurbishment of the building; the tenant has another house available in the same Municipality; the landlord intends to sell the premises provided that he does not have other properties available; and provided that he grants the tenant a right of first refusal. At the end of the first renewal period any of the parties may commence a renewal or termination procedure; and

(d) tenant is generally responsible for ordinary maintenance, while landlord is responsible for any extraordinary maintenance and repairs. National agreements between owners’ and tenants’ associations provide criteria for the allocation of operating costs to the tenant and landlord.


The landlord can terminate the lease early in cases where the tenant is in default of payment of the rent (for even only one monthly instalment) by commencing special proceedings (“sfratto per morosità”). However, the tenant may stop proceedings (up to four times in a four-year period) by paying any amount due to the landlord before or during the proceedings. Once the eviction of the tenant is confirmed by the court, if the tenant does not release the premises, the landlord may need to commence an enforcement procedure to obtain vacant possession, which may stay for a number of months.



Regions and municipalities in Italy are responsible for country and town planning in their designated territory. Consequently, there are multiple local planning systems in Italy. However, these systems are inspired by the same planning law system. Therefore, the systems have common institutions and regulations.Municipalities are the most important authorities concerning town planning and are responsible for the following:■ determining the local planning system (“PRG – Piano

Regolatore Generale” or “PGT – Piano di Governo del Territorio”), which provides for the permitted use of land;

■ approving the local building regulation (“Regolamento Edilizio”), which sets the standard to be met in constructions (in compliance with national guidelines and legislation and the general provisions of the Civil Code);



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Legislative Decree no. 152 of 3 April 2006 delegates the Regional authorities to maintain a register of sites interested by an environmental clean-up procedure. However, only major contaminations that were ascertained by or denounced to the competent authorities are recorded in such registers. Access to information on minor contamination is normally limited to the owner.


Environmental clean-up is always mandatory as from the declaration of contamination by the environmental authorities until the remediation is complete. As a general rule the originator of the contamination is responsible for the clean-up; however, under given circumstances the owner of a contaminated site can also be responsible for the clean-up. In addition, in case the parties that are responsible for the clean-up are in default, the public authorities may carry out the clean-up procedure and create a charge on the contaminated land to cover the relevant costs.


Legislative Decree no. 192 of 19 August 2005 provides for the assessment of the energy performance of any building containing electrical and heating systems. The relevant energy performance certificate issued by authorised consultants must be disclosed to the purchaser and to the tenant of a property.In addition, local regulations adopted at Municipality levels may provide for the granting of benefits in terms of additional permitted surface or for discounts on construction costs for new or refurbished buildings that meet specific energy performance requirements.

13 Climate Change


EU Directive no. 31/2019 and Italian Legislative Decree no. 63 of 2013 provide that within the end of 2020 all new buildings must meet the quite “zero energy consumption” standards. The deadline is anticipated to be 2018 for public buildings.Various Italian Regions are implementing local schemes aimed at accelerating the implementation of the above legislation.


Please see question 13.1 above.

Once construction is terminated, certification must be obtained attesting that the building is fit for occupancy, complies with anti-seismic regulation and fire prevention regulation. As to occupancy and seismic compliance, the certification of technical consultants engaged by the developer in most cases replaces the need of a certification by the Municipality, while fire prevention compliance needs to be certified by the local Fire Brigade.Use of real estateUse of real estate may require an authorisation by the local authorities depending on the nature of such real estate (e.g., the use of public areas and other state owned infrastructures or natural resources and areas is subject to a concession) or the activity to be conducted in the property (e.g. restaurant, retail, entertainment, hospitality, health assistance, etc.).


As indicated in question 12.4, in many cases permits and licences can be replaced by a certification of a technical consultants. However, in all cases where a permit or licence must be granted by the Municipality, no implied permissions are allowed.In some cases the procedure to obtain a permit or licence can be facilitated if the law provides that in case the Municipality fails to reply within a given deadline, the permission/licence is intended to be granted (“silenzio-assenso”).


The fees for obtaining the relevant permits are defined locally by municipal authorities and normally include: (a) a contribution for urbanisation works strictly related to the project; (b) a contribution for more general urbanisation works; and (c) a fee remunerating the allowed surface of the building.Contributions under (a) and (b) are often replaced by the undertaking of the developer to carry out the relevant infrastructure works.The standard term for obtaining a building permit is in the region of three months from the complete filing. However, the term can be delayed considerably in case the opinion of different commissions, agencies or entities is required (e.g., opinion on the landscaping impact of the project, opinion of the local agency of the Ministry of Culture in case of historical buildings, opinion of the Fire Brigade, etc.).


The Cultural Heritage and Landscape Act (Codice dei beni culturali e del paesaggio – Legislative Decree no. 42 of 22 January 2004) provides for limitations on the ownership, transfer and refurbishment of real estate assets having historical value and those characterising or having a significant impact on the landscape.In particular, the Ministry of Culture and other local agencies have a right of first refusal in case of transfer of a property which was declared of historical, architectural or landscaping interest; accordingly, the deed of sale must be notified to the relevant authorities, which normally have 60 days to exercise the right of first refusal.




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Davide BraghiniGianni, Origoni, Grippo, Cappelli & PartnersPiazza Belgioioso 220121 MilanItaly

Tel: +39 02 763741Email: [email protected]: www.gop.it

Davide Braghini is an Italian lawyer, member of the Bar of Milan since January 1997, and a partner at law firm Gianni, Origoni, Grippo, Cappelli & Partners, Milan office.

Davide specialises in mergers and acquisition and investments with a focus on the real estate industry. His practice includes negotiating sale and purchase of real estate assets and companies, co-investment and joint venture agreements, real estate investment funds and alternative investment vehicles, negotiating the relevant management agreements and investment agreements, advising on real estate development projects, construction, property management and lease agreements.

He has worked on the legal side of the most complex real estate transactions that have taken place in the last few years, including the development of the Porta Nuova area in Milan.

Davide lectures on a regular basis on real estate law matters.

He is fluent in English and has an excellent knowledge of Spanish and French.

Gianni, Origoni, Grippo, Cappelli & Partners has developed a unique experience in real estate transactions.

The firm real estate group engages in a multi-disciplinary practice. With an integrated network of leading individuals, we have the resources and the know-how to successfully handle all aspects of a real estate transaction. Experts of corporate law and practice, zoning and building regulations, protection of the environment, corporate finance, tax laws and capital markets work together to get the deal done.

Some of the transactions in which we have been involved in the last decade are milestones in the Italian real estate industry. Our integrated approach allows us to assist our clients in a full range of issues including development, financing, listing in capital markets, construction of large-size projects, creation and management of real estate funds, corporate reorganisations and assets spin-offs.



Local regulations adopted at Municipality levels may provide for the granting of benefits in terms of additional permitted surface or for discounts on construction costs for new building that meet specific energy performance requirements.Additional requirements for “green housing” are set by private organisations (e.g. LEED, Casa Clima) and can be adopted on a voluntary basis.


Chapter 19

Nishimura & Asahi

Hideaki Ozawa

Yujin Gen

Japan

securities under the Financial Instruments and Exchange Law and, accordingly, the Financial Instruments and Exchange Law governs the transactions of such trust beneficial interests.9 Resident Lodging Business Act (Jutakushukuhakujigyoho)The Resident Lodging Business Act regulates residential building rental business during the owner’s absence. The act would be enforced by January 2018.


Under the Constitution, local governments are authorised to enact local regulations within the scope of the law, and some of these local regulations substantially affect the use of land.


There are no international laws relevant to real estate in Japan in any material respect.

2 Ownership


In general, there are no legal restrictions on the ownership of real estate by particular classes of persons. However, it should be noted that under the Foreign Exchange and Foreign Trade Law, non-residents in Japan are, in certain cases, required to report real estate transactions to the relevant governmental entity after such non-residents have acquired real estate.



OwnershipUnder Japanese law, land and buildings are considered to be separate and independent real properties and ownership of land

1 Real Estate Law


In Japan, it is mainly the Civil Code that governs real estate transactions. Real estate property rights are subject to the law of property rights in Book 2 of the Civil Code. This law regulates ownership, joint ownership, assignment and other relevant matters. Real estate contract transactions are subject to the law of contracts in Book 3 of the Civil Code. This law regulates the formation of contracts, the rights and duties of the parties and other relevant matters.Other laws relevant to real estate:1 The Commercial CodeThe Commercial Code has several provisions on real estate transactions between companies.2 The Land Lease and House Lease LawThe Land Lease and House Lease Law governs the relationship between the landlord and the tenant. This law applies to leases of business premises, as well as residential premises.3 The Law of Real Estate RegistrationThe Law of Real Estate Registration governs the registration process of real estate.4 The Law for Condominiums (Kubunshoyuho)The Law for Condominiums governs the relationship between unit owners of a building.5 The Real Estate Transactions Business Law

(Takuchitatemonotorihikigyoho)The Real Estate Transactions Business Law governs the brokerage real estate business.6 The Building Standard LawThe Building Standard Law provides standards concerning the construction of buildings.7 The City Planning LawThe City Planning Law regulates land development and zonings.8 Financial Instruments and Exchange LawThe trust beneficial interests under a property trust agreement by which real estate is entrusted to a property trustee are recognised as



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Legal title and beneficial title of real estate cannot be split directly. However, legal title and beneficial interest can be deemed to be split by entrustment of real estate. If real estate is entrusted to a trustee, the legal title of the real estate is acquired by the trustee, and the trust beneficial interest of the real estate is acquired by the trust beneficiary. The entrustment should be registered after the entrustment, and when the trust beneficiary can be identified.



Almost all land is already registered, except for government property. With regard to buildings, such are required to be registered under the Law of Real Estate Registration but, in practice, some buildings remain unregistered until it becomes necessary to perfect the ownership against a third party (e.g. at the time of the purchase of the building).


There is no state guarantee of title. However, under case law, any interests which are registered are deemed to be true and the burden of proof is imposed on the party who argues that the registered interests are null and void.


No rights over land are compulsorily registrable. It should be noted that real estate transactions take effect upon the mutual agreement of the parties and no formalities, including registration, are required. However, the holder of a real estate interest cannot assert its interest in real estate against third parties if such interest is not registered. Therefore, in practice, interests in real estate are likely to be registered.


See the answer to question 4.3 above.


There is no probationary period following first registration and there are no different classes of title on first registration.

and the building which stands on such land can belong to different persons. Accordingly, if A owns land and B owns a building on the land, it is necessary that B leases the land or obtains the superficies (see below) in order to secure his ownership of the building. If B leases the land, this lease is called a land lease.Ownership is defined as a right to use, make a profit from and dispose of real estate under the Civil Code. Ownership is categorised as a real right. A “real right” (bukken) is a right that a person has over a thing and is distinguished from a “right arising out of obligational relationships” (saiken), which arises out of the relationships between persons. Real rights can be claimed against any other persons after their perfection by registration; hence, in this regard, ownership is not purely contractual.Under Japanese law, ownership can be held by several persons. Such ownership is called joint ownership (kyoyu) and is subject to the Civil Code. Unit ownership (kubunshoyu) of a building under condominium ownership is subject to the Law for Condominiums, as well as the Civil Code.Other property rights to use another person’s real estate:1 Superficies(Chijyoken)Superficies is a property right to use another person’s land for the purpose of the buildings and other structures thereon. Superficies can be created for installations underground or above the land. Superficies is not purely contractual due to its character as a property right.2 Servitude (Chiekiken)Servitude is defined as a property right to use another person’s land for the convenience and benefit of one’s own land (e.g. right of way). Servitude is not purely contractual due to its character as a property right as well.Leases:1 Lease with rents (Chintaishaku)A lease is categorised as a contractual right and obligation under the Civil Code. However, under the Land Lease and House Lease Law: (i) a tenant of the land who owns a registered building on the land may assert his right against a new owner of the land; and (ii) a tenant of the building who was given possession of the building may assert his right against a new owner of the building. Hence, in practice, a lease is not purely contractual.2 Lease without consideration (Shiyotaishaku)The Land Lease and House Lease Law does not apply to leases without consideration. Hence, under a lease without consideration, a lessee can only make claims against the lessor.


As described in question 3.1 above, land and buildings are considered to be separate and independent real properties, and therefore, to be accurate, the right to the plot of land does not diverge from the right to a building constructed thereon. However, it is considered that a lessee who leases a building can use the site as well in such a manner as needed for the normal use of the building without a specific lease or superficies for the site. This right of a lessee of a building originates from the right of the lessor of the building to use the site. In that context, we can say that there is a scenario where the right to the plot of land diverges from the right to a building constructed thereon.

Nishimura & Asahi Japan


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Under the State Compensation Law, compensation can be claimed from the registry if the relevant officials make a mistake in the course of registration, either negligently or intentionally.


There are no restrictions on public access to the registry. However, it should be noted that one should examine written agreements in order to obtain all of the information one might need because the details of interests over real estate, including leases or mortgages, do not necessarily fall within the scope of registrable matters.



a) Selling and purchasing agents (or realtors)The real estate broker, named “takuchitatemono-torihikigyosha”, would normally be involved in real estate transactions in Japan. He makes it his business to act as: (i) an intermediary between the seller and buyer; or (ii) an agent of the seller or buyer. Governmental approval is required to engage in such business as a broker. A real estate broker owes a duty of care to his buyer or seller client under the Real Estate Transactions Business Law, including, without limitations, the duty to disclose important information about the subject property. It should be noted that a real estate broker may work for both his buyer client and his seller client simultaneously when he acts as an intermediary and that, in such cases, he may receive fees from both parties.b) LawyersLawyers would normally be involved in real estate transactions which are complicated and sizable in amount.c) NotariesIt is unusual for notaries to be involved in real estate transactions.d) OthersJudicial Scriveners (shihoushosi) are involved in almost all real estate transactions. They are professionals of the registry and it is commonly understood that one cannot complete the registration process without their involvement.


The upper limit of compensation for a real estate broker is: (i) 6% of the amount of a transaction if he acts as an agent; and (ii) 3% of the amount of a transaction if he acts as an intermediary under the Real Estate Transactions Business Law. In the case of (ii), he can be compensated by both the seller and the buyer if both are his clients, hence compensation may amount to 6%.With regard to other persons, it depends on the person as to how and on what basis they are remunerated.


Ownership is transferred to the buyer in accordance with the contract. In practice, sale and purchase agreements normally provide that ownership is transferred to the buyer once the buyer makes full payment of the purchase price.


No real estate interest (except for a building lease interest, which can be perfected by delivery, and certain liens) can be perfected without registration. Namely, no real estate interest has priority until it has been registered over any real estate interests created on the real estate. Further, priority among registered real estate encumbrances (e.g., mortgages) is determined, in general, by the order in which they were registered. Earlier registered encumbrances have priority over later registered encumbrances.



One real estate registry, the Legal Affairs Bureau, operates in Japan.


Yes, the Land Registry issues a physical title document to the owners of registered real estate.


Legally, transactions relating to registered real estate can be completed electronically. However, please note that, in reality, in many cases the transaction cannot be completed electronically because many documents necessary for registration have not yet been digitised.When the ownership of real estate is transferred by sale and purchase, in order to apply for the registration of the transfer of the ownership of the real estate in writing instead of online application, the following are required: (i) information certifying the cause of registration (toki gennin shomei jouhou), such as the sale and purchase agreement or the document summarising the necessary information; (ii) information for registration identification (touki shikibetsu jouhou) or a title document of the seller; (iii) a certificate of a seal impression of the seller; and (iv) a power of attorney from each of the seller and buyer. When the application for the registration is made electronically (i.e., online application), (iii) can be replaced by the electronic certificates.Almost all information on ownership of registered real estate can be accessed electronically.




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The transfer of real estate takes effect upon the mutual agreement of the parties and no formalities are needed.


In general, the seller is not under a duty of disclosure. However, it should be noted that, under the Civil Code, the seller is liable for any latent defects, latent encumbrances and loss of ownership (hereinafter collectively referred to as the “Defects”), even if there are no warranties to cover the Defects. The buyer may seek damages for the Defects and if, as a result of the Defects, the buyer cannot attain the purpose for which he purchased the property, he may also cancel the agreement. In the event that the real estate broker is involved in real estate transactions, such real estate broker shall provide certain material information of real estate in writing to the buyer under the Real Estate Transactions Business Law. From April 1, 2018, the real estate broker is required to provide information concerning whether an inspection of the building was conducted and the inspection report for the building (if any) to its client, if the subject property is an existing building.


If the seller induces the buyer to enter into a real estate transaction by fraudulent misrepresentation, the buyer may cancel such transaction and/or seek damages under the Civil Code.


As we mentioned in question 7.2, the seller is liable for the Defects even if there are no warranties to cover the Defects. Hence, in practice, warranties normally cover those matters about which the buyer has special concerns. The seller is liable for any misrepresentation. It depends on the parties as to whether warranties are a substitute for the buyer carrying out his own due diligence.


As we mentioned in question 7.2, the seller is liable for the Defects or loss of ownership even if this is not expressly provided for in the agreement.


In general, the buyer has no liabilities in addition to paying the sale price.


While we feel there continues to be a gradually increasing trend in the availability of debt finance, we feel the availability of equity finance is levelling off. The market share prices of the investment equities of J-REITs (investment corporations under the Act on Investment Trusts and Investment Corporations) show a gradually decreasing trend. The reason is that it has become difficult to acquire commercial real estate under the current circumstances for J-REITs. In addition, the Guidelines for IPOs of J-REITs were revised by the Tokyo Stock Exchange, because the performance of the J-REITs that conducted IPOs last year was poor. Accordingly, the validity of the offering price is to be reviewed strictly, and IPOs have become more difficult than ever before. With regard to loans for real estate made by Japanese banks, a year-to-year comparison of new loans in the same period this year as of March, 2017 were higher than those in the previous fiscal year and the total value of new loans has continued to show a gradually increasing trend. The balance of the loans for the real estate industry became the highest ever at the end of March 2017.Our information is based on the survey reports with regard to Japanese real estate issued by the Ministry of Land, Infrastructure, Transport and Tourism and other reports issued by the association for real estate securitisation, trust banks, asset management companies and other companies related to real estate businesses.


Land prices in Tokyo and Nagoya, which are primary real estate markets in Japan, and land prices in secondary real estate markets in Japan (Sapporo, Sendai, Hiroshima and Fukuoka) have shown an upwards trend in residential areas. Land prices in Osaka, which is a primary real estate market in Japan, have not changed compared with last year. Land prices in the primary real estate markets in Japan (Tokyo, Osaka, and Nagoya) and land prices in secondary real estate markets in Japan (Sapporo, Sendai, Hiroshima and Fukuoka) have shown an upwards trend in business areas. In provincial areas, land prices have continued to decrease; however, the rate of such decreases in land prices has slowed, and the range of decrease is the least in 24 years. Recently, the scale of construction and acquisition of hotels and logistics in local areas has been increasing.


We believe that there has been no specific trend indicating a slowdown in particular market sub-sectors.



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property. That is, upon receiving an allegation from the mortgagee, a manager can be appointed by the court to manage the properties under compulsion, and the mortgagee can collect receivables from the earnings (shu-eki shikkou). However, this procedure is not used often due to its high cost of management.


Theoretically, no formalities are required for real estate lending; however, in practice, a written form is usually used in real estate lending transactions.


The main method is a mortgage or base mortgage (neteito) on the real estate under the Civil Code. If the mortgage or base mortgage is registered in the registry, the real estate lender as a mortgagee may assert its rights of mortgage or base mortgage against the borrower or other creditors who do not register their mortgage or base mortgage right prior to the real estate lender’s registration.


Under circumstances where a security on the subject property is established by the property owner to the prejudice of third parties and a third party exercises its right of avoidance of fraudulent actions, the established security may be rescinded under the Civil Code. Under circumstances where a security on the subject property is established by the property owner after the property owner has become unable to pay debts or a petition for the commencement of bankruptcy proceedings has been filed, the established security may be avoided under the Bankruptcy Act, Civil Rehabilitation Act.


Enforcement action under a legal process involving court proceedings is governed by the Civil Execution Act. If the borrower considers that the enforcement action has no grounds, the borrower can object to the enforcement under the Civil Execution Act.

9 Tax


The seller is an individual:1 Income tax and individual inhabitant taxIf the seller is an individual, income tax and individual inhabitant tax are levied on the seller. The tax base of the income tax is broken into two categories: the long-term capital gain; and the short-term capital gain. The long-term capital gain is derived from real estate owned for more than five years and the short-term capital gain is any capital gain other than the long-term capital gain. In the case of the long-term capital gain, the tax rate is 20.315% (15% income tax, 0.315% special income tax for reconstruction and 5% individual inhabitant tax). In the case of the short-term capital gain, the tax rate is 39.63%



In general, under the Money Lending Business Law (kashikingyoho), a grant from the relevant governmental authorities must be obtained in order to engage in the money lending business, including the lending of money to finance real estate. However, there are no regulations concerning the lending of money specifically to finance real estate.


The main method is a mortgage on the real estate under the Civil Code. The base mortgage (neteito) is also a popular method of protecting a lender from default by the borrower. The base mortgage secures the unspecified obligation of the borrower; however, the amount to be secured under the base mortgage is limited to the specified amount (kyokudogaku) prescribed under the mortgage agreement.


There are two types of proceedings for the realisation of mortgaged properties.One way is a foreclosure (keibai) whereby the mortgagee can collect receivables secured by the mortgage from the proceeds of sale of the mortgaged properties through a legal process involving court proceedings. The contribution of the mortgagor is not necessary for the foreclosure. As those who would like to buy mortgaged properties cannot investigate the property (especially inside the building to ascertain whether there is an unlawful occupant) and have no choice but to depend on a simple report on the properties prepared by a court execution officer, they cannot judge the value of the properties (including the risk associated with them) accurately. Therefore, the sale price at an auction tends to be lower than the actual market price.The second way is a voluntary sale (nin-i baikyaku), whereby a mortgagee can call in the receivable from the proceeds of the sale of the mortgaged properties without involving court proceedings. A mortgagor can sell the properties at a price close to the market price. The contribution of the mortgagor is indispensable for this process. Voluntary sales are more advantageous to both mortgagee and mortgagor than foreclosures in the light of cost, number of days necessary for the realisation and the amount of the proceeds of the sale, and therefore, voluntary sales are commonly used.Furthermore, without taking the above procedures, mortgagees can collect their receivable by seizing the rental income of the mortgaged properties at very low expense (butsujo daii). However, as the mortgagees do not have the right to manage the mortgaged properties, if the mortgagor abandons the administration of the properties, it may be difficult for the mortgagee to collect the rent. There is also another way to execute against earnings from the




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As we mentioned in question 9.1, the income tax, individual inhabitant tax, corporation tax, corporate inhabitant tax and enterprise tax may be payable by the seller on the disposal of a property. A registration and licence tax is payable by the seller and the buyer under the law. However, it should be noted that the parties always agree in practice that such tax be borne fully by the buyer.


Theoretically, there is no difference. If the ownership of a company (“Y”) owning real estate is transferred by a parent company (“X”), the corporation tax, corporate inhabitant tax and enterprise tax are levied on X on the basis of the capital gain that results from the transfer of ownership. Capital gains that result from the transfer of ownership by X are theoretically equal to the capital gains that result from the transfer of real estate by Y if Y has no assets other than the real estate. Furthermore, there is no difference theoretically if X is an individual, provided that Y has no assets other than the real estate. It should be noted that in the case of a transfer of ownership which satisfies legal requirements under the Special Taxation Measures Law (e.g. approximately 70% of all assets of a company is real estate), a stakeholder may be taxable as if such stakeholder transfers real estate.


In general, there are no tax issues that a buyer of real estate should always take into consideration/conduct due diligence on, other than the above.



The Land Lease and House Lease Law (hereinafter referred to as the “Law” in this section 10 and section 11) and the Civil Code regulate matters concerning the lease of real estate. The Law applies to land leases for owning buildings and building leases, including office buildings and residential buildings. The Civil Code governs the lease of real estate for the purpose of any temporary use to which the Law does not apply, and land leases for purposes other than owning buildings.


Business premises leases are categorised as follows:Land lease for owning a building1 Ordinary land leaseThe Law specifically regulates matters concerning the period, validity, renewal and legal proceedings related to changes in conditions of the ordinary land lease for owning a building. It should be noted that under the Law, an ordinary land lease for owning a building is automatically renewed and the landlord cannot object to such renewal without a justifiable reason. Such justifiable

(30% income tax, 0.63% special income tax for reconstruction and 9% individual inhabitant tax).2 Stamp taxA stamp tax is levied on the parties to the contract. This tax can be up to 600,000 yen.3 Registration and licence taxA registration and licence tax is levied on the applicant for registration. This tax rate is 2% of the tax base of the value as recorded in the tax rolls (approximately 70% of the market value if the property is land). It should be noted that a tax rate of 1.5% shall apply to the applicant for registration in relation to a transfer of land which occurs between April 1, 2015 and March 31, 2017.4 Real property acquisition taxA real property acquisition tax is levied on the person acquiring the subject property. This tax rate is 4% of the tax base of the value as recorded in the tax rolls. It should be noted that a tax rate of 3% shall apply if the subject property is land or housing acquired between April 1, 2006 and March 31, 2018.The seller is a corporation:1 Corporation tax, Corporate inhabitant tax and Enterprise

taxCorporation taxes, corporate inhabitant taxes and enterprise taxes are levied on net income. The total amount of these tax rates is lower than 30% from April 1, 2016.2 Stamp tax, Registration and licence tax, and Real property

acquisition taxA stamp tax, registration and licence tax, and real property acquisition tax, as we mentioned above, may also apply to the transfer of real estate.


Income taxes and individual inhabitant taxes become due on March 15 of the year following the transfer of the real asset.Corporation taxes, corporate inhabitant taxes and enterprise taxes become due within two months after the end of the corporation’s business year.The stamp tax is paid by affixing a stamp on the documents. Such stamps are sold in post offices. The registration and licence tax is paid on the occasion of an entry. The real property acquisition tax is paid after the transfer by the date specified by the tax bureau.


See the answer to question 9.1 above.


A consumption tax is applied to the transfer of the ownership of a building. The tax rate increased from 5% to 8% (6.3% national consumption tax and 1.7% local consumption tax) on April 1, 2014, and is expected to increase to 10% (7.8% national consumption tax and 2.2% local consumption tax) on October 1, 2019. A taxpayer is an enterprise which transfers taxable assets; however, the tax amount is normally added to the price of the assets and is ultimately borne by consumers. The transfer of land is not taxable and the lease of residential buildings and land is not taxable.



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d) InsuranceIn general, there is no provision in relation to insurance in the lease agreement and both the lessor and the lessee purchase insurance at their own expense to cover their properties.e)(i) Change of control of the tenantThe lease agreement usually does not prohibit the change of control of the tenant.(ii) Transfer of lease as a result of a corporate restructuring

(e.g. merger)The lease agreement usually prohibits the transfer of the lease as a result of a corporate restructuring.f) RepairsThe Civil Code provides that the landlord is liable for all repairs necessary for the use of the premises, and some lease agreements provide for this as well. However, if the parties agree in a way that differs from this provision, their agreement prevails over such provision under the Civil Code. Usually, the lease agreement stipulates that the landlord is required to make repairs.


If the landlord is an individual, income tax and individual inhabitant tax are levied on the landlord. The income tax rate of such tax is progressive.If the landlord is a corporation, corporation taxes, corporate inhabitant taxes and enterprise taxes are levied on the landlord.A consumption tax is applied to business building leases.


CancellationUnder the Civil Code, in the event that a party breaches a lease agreement, the other party can cancel that lease agreement provided that the party has required the breaching party to cure the breach within a reasonable period, if such cure is possible. However, under case law, the landlord cannot cancel a lease agreement if a tenant can establish the existence of any special circumstance under which there still remains a relationship of mutual trust between the landlord and the tenant even after the breach. It should be noted that under case law, non-payment of rent may entitle a landlord to terminate the lease, because such non-payment may destroy a relationship of mutual trust between the landlord and the tenant.RenewalAs we mentioned in question 10.2, under the Law, a landlord of an ordinary lease cannot object to a renewal without a justifiable reason if such renewal is requested by the tenant. Such justifiable reasons are not easily found. Hence, under an ordinary lease, a landlord’s refusal to renew the lease is subject to strict control. It should be noted that an offer of compensation by a landlord may be considered when the court finds that there is a justifiable reason. Hence, in practice, if a landlord desires to reject the renewal of a lease in any way, it is likely that the landlord will make such an offer.On the contrary, a fixed-term lease is not renewable and terminates upon the expiration of the lease term.

reasons are not easily found. Hence, under an ordinary land lease, the landlord’s refusal to renew the lease is subject to strict control.2 Fixed-term land leaseA fixed-term land lease for owning a building is not renewable under the Law. The fixed-term land lease was introduced because of concerns that the strict controls over the landlord’s refusal to renew the lease could inhibit the effective use of real estate. There are three types of fixed-term land lease: (i) the general fixed-term land lease available for both residential purposes and businesses; (ii) the land lease with a special agreement on building assignments; and (iii) the fixed-term land lease for businesses under the Law.Building lease1 Ordinary building leaseUnder the Law, the renewal of an ordinary building lease cannot be rejected by the landlord without a justifiable reason, which is not easily found.2 Fixed-term building leaseA fixed-term building lease is not renewable under the Law.


a) Length of termLand lease for owning a building1 Ordinary land lease Under the Law, the term of the ordinary land lease for owning

a building shall be 30 years, and when a term longer than 30 years has been provided, such term shall be effective.

2 Fixed-term land lease Under the Law, the term of the general fixed-term land lease

for owning a building shall be 50 years or more. With regard to a lease with a special agreement on building assignments, the right to assign the building to the landlord at a reasonable consideration in order to terminate the ordinary lease can be exercised more than 30 years after the commencement of the lease. With regard to the fixed-term land lease for businesses, the term of the lease shall be 10 years or more but less than 50 years.

Building lease1 Ordinary building lease The term of the ordinary building lease depends on the

agreement.2 Fixed-term building lease The term of the fixed-term building lease depends on the

agreement.b) Rent increasesUnder the Law, if rent becomes inadequate (especially if it differs significantly from the market rent), the landlord or tenant may request an increase or decrease in the amount of rent. This applies to both land leases for owning buildings and building leases. The right to request an increase can be modified in the lease agreement. It should be noted that the right to request a decrease cannot be excluded from the agreement, except in the case of fixed-term building leases. The provisions with respect to rent increases or decreases are prepared taking into consideration the above legal restrictions.c) The tenant’s right to sell or sub-leaseThe lease agreement usually prohibits the tenant from assigning the lease or sub-leasing without the consent of the landlord.




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b) Rent increases/controlsThe same answer as set out for question 10.3 above.c) The tenant’s rights to remain in the premises at the end of

the termLand lease for owning a building1 Ordinary land lease A lessee under an ordinary land lease may renew the lease

unless the lessor objects to the renewal with a justifiable reason, which is difficult to establish.

2 Fixed-term land lease A lessee under a fixed-term land lease may not renew the

lease. Building lease1 Ordinary building lease A tenant under an ordinary building lease may renew the lease

unless the landlord objects to the renewal with a justifiable reason, which is difficult to establish. Where the building has deteriorated and the earthquake resistance of the building is not adequate, if the building owner offers to pay adequate compensation for the removal of the tenant, a justifiable reason may be established.

2 Fixed-term building lease A tenant under a fixed-term building lease may not renew the

lease.d) The tenant’s contribution/obligation to the property

“costs”, e.g. insurance and repairThe Civil Code provides that the landlord is liable for all repairs necessary for the use of the premises, and some lease agreements provide for this as well. If the parties agree in a way that differs from this provision, their agreement prevails over the provisions under the Civil Code; however, such an agreement is rare under a lease of residential premises. A tenant would, therefore, not purchase an insurance policy with respect to the property.


See the answer to question 10.5 and 11.3 (c) above regarding the right for a landlord to terminate a residential lease. In general, if a lessee does not vacate a building, a building lessor may appeal to a court to carry out a compulsory execution, which is executed to release the building from the lessee’s possession and have the lessor acquire the possession of such building.



ZoningThe City Planning Law is the main law which governs real property development and zonings. In general, in urbanisation control areas (shigaikachouseikuiki), the development of land is subject to strict control. In areas designated for urbanisation (shigaikakuiki), development may be allowed if such development satisfies the requirements for development under the City Planning Law. The Building Standard Law regulates the land use of the designated area,


No, the landlord and/or the tenant of a business lease do not cease to be liable for their respective obligations under the lease once they have sold their interests, because any obligations arising out of the lease prior to the transfer of the lease cannot be assigned without any specific agreement. They can be responsible in respect of pre-sale non-compliance.


Currently, there are no such “green obligations” commonly found in leases.However, please note that the Tokyo Metropolitan government requires the owners of certain large greenhouse gas emitters, including office buildings, to reduce greenhouse gas emissions. This local regulation also requires tenants to cooperate with the owners of buildings on the reduction of greenhouse gas emissions. Therefore, the owners of buildings may add certain provisions relating to energy efficiency to the leases to impose some “green obligations” on tenants in the future.



Same as the answer to question 10.1 above.


There is no difference in the laws whether or not the premises are intended for multiple, different, residential occupiers.


a) Length of termLand lease for owning a buildingUnder the Law, the term of the ordinary land lease for owning a building shall be 30 years, and when a term longer than 30 years has been provided, such term shall be effective.Building leaseThe same answer as set out for question 10.3 above.



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Yes, there are regulations on the protection of historic monuments in Japan, such as the Act regarding the Protection of Cultural Properties. Under the law, owners of important cultural properties (such as old temples and castles) or registered tangible cultural properties (such as old buildings and monuments) are required to manage and repair them. Even if the owner would like to sell such important cultural properties to a third party for a certain price, they will be required to give a right of first refusal to the Commissioner for Cultural Affairs for the same price. If the Commissioner accepts the offer within 30 days, a sale will be carried out between the seller and the Commissioner. On the other hand, there is no legal restriction on the transfer of the ownership right of registered tangible cultural properties. The seller is only required to deliver the registration certificate of the property initially delivered by the Minister of Education, Culture, Sports, Science and Technology to the buyer.


Information about designated contaminated areas under the Soil Contamination Countermeasures Law is made public at the offices of prefectural governments. Such information is also available on the website of the Ministry of the Environment or other prefectural governments. Please note that under the Soil Contamination Countermeasures Law, while areas containing amounts of contaminating substances greater than the amount stipulated in the relevant criteria detected as a result of legally compulsory investigations shall be designated as contaminated areas, areas containing amounts of contaminating substances exceeding such criteria found as a result of voluntary investigations will not be designated as such areas without the voluntary application for such designation by the owner, the manager or the occupant of the land. As designated contaminated areas have been found usually due to voluntary investigations and cases where such voluntarily applications were made are limited, such designated contaminated areas are only a part of the contaminated areas in Japan. Therefore, buyers should take their own steps to survey land suspected of being contaminated or have the seller survey the land before they purchase it.


Under the Soil Contamination Countermeasures Law, in the case of: (i) the abolition of manufacturing factories using certain hazardous materials; or (ii) a prefectural governor’s order, which may be delivered if the prefectural governor decides that land contamination may injure the health of the inhabitants, land surveys shall be implemented. In addition, under the Soil Contamination Countermeasures Law, if a land owner intends to develop a large area of land (at least 3,000 square metres), the land owner is required to notify the governor of each prefecture of the development at least 30 days before beginning any changes. If the governor determines that the land is possibly contaminated and orders the land owner to investigate, the landowner must comply. If the results of such land surveys do not satisfy the relevant regulations, the prefectural

the ratio of the total floor area to the site area (yosekiritsu), the ratio of the building area to the site area of the building (kenpeiritsu), and other relevant matters.Environmental lawThe Soil Contamination Countermeasures Law is the main environmental law concerning land. Under this Law, if the land is designated as contaminated to an extent that may harm the health of inhabitants in the neighbourhood through underground water, etc., the prefectural governor may order the owner of such land to take appropriate measures, including the clean-up of such land.It should be noted that the owners of buildings are sometimes required to take appropriate measures to remove the health risks to inhabitants of buildings associated with the presence of asbestos.


In general, the state may not force land owners to sell land to the state. However, under the Land Expropriation Law, the state is entitled to take land in exercise of the right of eminent domain in specified cases (e.g., such land is located in the area specified for planned public facilities such as roads). The price process is controlled under the Land Expropriation Law, and the relevant governmental authority may determine such price in accordance with the Land Expropriation Law, considering the fair market prices, etc.


The city, town and village control land/building use and/or occupation, and environmental matters, in accordance with the laws and local regulations. The buyers can obtain information concerning these matters in cities, towns and villages.


In general, confirmations under the Building Standard Law are required for building works and the use of real estate. In the case of land development, permits under the City Planning Law and relevant laws are required. The Agricultural Land Law governs the use of farmland.


A building/use confirmation can be obtained if the building/use satisfies the requirements under the relevant law. In cases where one seeks more benefits for the building/use (e.g., a greater ratio of total floor area to site area), special permits are necessary and such permits are not necessarily easily obtained. Implied permission cannot be obtained.


It depends on each case. It should be noted that under the Building Standard Law, the building official shall give notice that the building plan conforms to the regulations within a specific period, depending on the nature of the building. In addition, qualified private citizens may give confirmation for the building/use.




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Countermeasures and the Energy Saving Law. Under these laws, a company that uses more energy than the equivalent of 1,500 kilolitres of oil in a previous year at its combined business buildings and factories located in Japan, and a franchisor that uses more energy than the equivalent of 1,500 kilolitres of oil in the preceding year at its combined business buildings (including the franchisees’ business buildings) located in Japan, are obliged to submit reports detailing their greenhouse gas emission amounts.Owners of buildings in Tokyo where more energy than the equivalent of 1,500 kilolitres of oil in a previous year was used are required to submit regular reports about greenhouse gas emission amounts to the Tokyo Metropolitan Governor.4 Increase of renewable energyFrom July 1, 2012, the Feed-in Tariff Law, establishing a fixed price buy-back programme for renewable energy, such as solar power, hydraulic power, geothermal power and the like, became effective. Under this programme, electric utilities are obliged to enter into power purchase agreements (“PPAs”) and grid connection agreements when they are requested to do so by a renewable electricity producer, unless electric utilities can establish that they have justifiable reasons described in the related regulation. For three years, beginning from the effective date, special consideration to the profitability of producers will be given when prices and terms to be applied to the PPA are determined. In this regard: (a) 40 yen/kWh (excluding consumption tax) and a 20-year term can be applied to a PPA for solar power generation facilities (having an output of 10kW or more), if (i) certification for the facility has been obtained from the Minister of Economy, Trade and Industry by March 31, 2013, and (ii) submission to an electric utility of a written application for a grid connection agreement is completed by the same date; (b) 36 yen/kWh (excluding consumption tax) and a 20-year term can be applied to a PPA for solar power generation facilities (having an output of 10kW or more), if (i) the certification above has been obtained between April 1, 2013, and March 31, 2014, and (ii) the submission above is completed between the same periods; and (c) 32 yen/kWh (excluding consumption tax) and a 20-year term can be applied to a PPA for solar power generation facilities (having an output of 10kW or more), if (i) the certification above has been obtained between April 1, 2014, and March 31, 2015, and (ii) the submission above is completed between the same periods.After April 1, 2015, the requirement used to determine the prices and terms for a project that has not yet been secured, changed. The prices and terms will be fixed as of the later of: (i) the date the grid connection agreement is executed (or the 270th day after the applicable grid connection application is filed if a grid connection agreement could not be executed due to a reason not attributable to the renewable electricity producer); and (ii) the date the amendment to the certification from the Minister of Economy, Trade and Industry (the “METI Certification”) is issued, if applicable. The prices and terms that can be applied to a PPA for solar power generation facilities (having an output of 10kW or more) will be: (a) 29 yen/kWh (excluding consumption tax) with a 20-year term, if prices and terms are fixed between April 1, 2015, and June 30, 2015; (b) 27 yen/kWh (excluding consumption tax) with a 20-year term if prices and terms are fixed between July 1, 2015, and March 31 2016; and (c) 24 yen/kWh (excluding consumption tax) with a 20-year term if prices and terms are fixed between April 1, 2016, and March 31, 2017.On May 25, 2016, an amendment to the Feed-in Tariff Law (the amendment shall hereinafter be referred to as the “Amended Act”) was enacted and came into force on April 1, 2017. Under the Amended Act and its operations, it should be noted in particular that: (i) if the project has not executed a grid connection agreement

governor can designate such land as a contaminated area. The prefectural governor can order the land owner to clean up such land if it is located within an area designated as contaminated and if there is a risk to the health of people.


The Act on the Improvement of Energy Consumption Performance of Buildings aims to strengthen energy efficiency measures in buildings. When construction clients attempt to undertake new construction/extensions/renovations on buildings at or over a certain size (at least 300 square metres of floor space), they must acquire a certification of conformity with energy efficiency standards, or notify the administrative agency with jurisdiction depending on the use and size and type of the building. Large-scale, non-residential buildings that are not compliant with energy efficiency standards become ineligible for certification of the Building Standards Law.

13 Climate Change


1 Nationwide mandatory emissions trading schemeThere is no nationwide mandatory emissions trading scheme in Japan.2 Regional mandatory emissions trading scheme in TokyoThe Tokyo Metropolitan government requires the owners of greenhouse gas emitters, including office buildings, which have used more energy than the equivalent of 1,500 kilolitres of oil for the previous three successive years, to reduce greenhouse gas emissions from April 1, 2010. The target for the first compliance period (April 2010 to March 2015) was set at 6% or 8% (according to the type of building) below base emissions and the target for the second compliance period (April 2015 to March 2020) has been set at 15% or 17% (according to the type of building) below the base emissions. The Tokyo metropolitan government plans to set subsequent compliance periods every five years, with targets to reduce emissions during each period. In order for the owners of large buildings to fulfil this requirement, they are mandated not only to reduce greenhouse gas emissions from their respective buildings, but also permitted to trade in certain Tokyo Metropolitan government-sanctioned credits (the “Tokyo Credits”). They cannot use the Kyoto Credits (such as CERs) to accomplish their targets. Where the owners of large buildings cannot meet their obligations for greenhouse gas emission reductions, the Governor of Tokyo may order the owner to obtain additional Tokyo Credits according to a formula that multiplies the amount of the unfulfilled obligation by 1.3. Furthermore, where the owners of large buildings fail to obtain these additional Tokyo Credits, they will be punished. In addition, the Governor of Tokyo may publish the fact that the owner has failed to do so, obtain the credits in place of the owners, and subsequently may charge the owner for the cost of the purchase.3 Reporting obligationThe only major legislative preparations that the Japanese government has made with respect to global warming so far are the reporting obligations with respect to the amount of greenhouse gas emissions, pursuant to the Act on Promotion of Global Warming



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if prices and terms are fixed between April 1, 2017, and March 31, 2018. Under the Amended Act, there is a bidding system to fix the applicable FIT price for solar power projects (solar power projects with power generation volume of over 2,000 kWh are initially subject to the bidding system) to address the fact that among other sources of renewable electricity there has been too much focus on solar power projects, and to reduce the increasing economic burden of the consumers of electricity.


On July 17, 2015, the Government of Japan decided to set Japan’s Intended Nationally Determined Contribution for greenhouse gas emissions at the level of a reduction of 26.0% by fiscal year 2030 compared to fiscal year 2013 (25.4% compared to fiscal year 2005) (approximately 1.042 billion t-CO2 eq. as 2030 emissions), and submitted it to the United Nations Framework Convention on Climate Change (UNFCCC) Secretariat.On May 13, 2016, the Government of Japan decided to set Japan’s level of reduction of greenhouse gas emissions at 80.0% by 2050.


The Tokyo Metropolitan government requires owners who intend to construct or refurbish buildings with a total floor space of over 10,000 square metres to take measures to meet certain energy efficiency criteria.

by no later than April 1, 2017, the METI Certification for the project will generally lapse; and (ii) if the project executes a grid connection agreement on and after August 1, 2016, a mandatory commercial operation commencement date will be set for the project (three years from the issue date of the METI Certification, for projects having an output of 10kW or more). Moreover, renewable electricity producers newly applying for a METI Certification must obtain the METI Certification for their business plans, rather than their facilities. Under the Amended Act, renewable electricity producers have to obtain and also maintain the METI Certification of the business plan, and a renewable electricity producer must satisfy certain requirements under the Amended Act, including the following requirements:(i) the business meets certain standards under the applicable

rules;(ii) the business is likely to be conducted with efficiency and

certainty, which includes whether it has obtained the utility’s consent to grid connection; and

(iii) the power generation facility meets certain standards under the applicable rules.

Further, renewable electricity producers which have obtained a METI Certification for their facilities before April 1, 2017, and have secured an interconnection agreement with the relevant utility by the end of March 2017, will be deemed to have received a METI Certification under the Amended Act, and in general, such renewable electricity producers must submit their respective business plans by September 30, 2017. After April 1, 2017, the prices and terms for producers newly applying for a METI Certification will be fixed as of the date the METI Certification is issued. The prices and terms that can be applied to a PPA for solar power generation facilities (having an output of 10kW or more and less than 2,000kW) will be 21 yen/kWh (excluding consumption tax) with a 20-year term,




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Hideaki OzawaNishimura & AsahiOtemon Tower, 1-1-2 OtemachiChiyoda-ku, Tokyo 100-8124Japan

Tel: +81 3 6250 6200Email: [email protected]: www.jurists.co.jp/en

Yujin GenNishimura & AsahiOtemon Tower, 1-1-2 OtemachiChiyoda-ku, Tokyo 100-8124Japan

Tel: +81 3 6250 6200Email: [email protected]: www.jurists.co.jp/en

Nishimura & Asahi is one of Japan’s premier full-service law firms, covering all aspects of domestic and international business and corporate activity. The firm currently has more than 500 Japanese and foreign lawyers and employs over 600 support staff, including tax accountants, and one of the largest teams of paralegals in Japan.

Through the enhancement of professional and organisational synergies, resulting from the firm’s expansion, an unprecedented level of client service is made possible in highly specialised and complex areas of commercial law. Nishimura & Asahi understands its clients’ growing needs and its fully integrated team of lawyers and professional staff are proud to share the same fundamental philosophy: an uncompromising commitment to excellence.

Offices: Tokyo, Nagoya, Osaka, Fukuoka, Bangkok, Beijing, Shanghai, Dubai, Hanoi, Ho Chi Minh City, Jakarta*1, Singapore, and Yangon, Hong Kong*2.

*1 Associate office *2 Affiliate office

Key areas of practice:

Corporate: General Corporate; M&A; Compliance; Start-up Businesses; Labour Law; and Real Estate/Environmental. Finance: Banking, Capital Markets; Asset Management; Structured Finance/Securitisation; Asset Finance; Acquisition Finance; Insurance; and PFI/Project Finance. Restructuring/Insolvency: Restructuring/Insolvency. Cross-Border Practice: International Transactions; International Trade; International Disputes; and International Taxation. Dispute Resolution: Civil & Commercial Disputes; IP Disputes; Administrative Disputes; and Specialised Disputes. IT/IP: IP Transactions; Venture Capital/Entrepreneurial Services; and Telecommunications/Media. Corporate Crisis Management: Corporate Crisis Management. Antitrust: Antitrust. Tax: Tax Counselling; and Tax Controversy and Litigation. Trusts & Estates: Trusts & Estates. Asia: China; Hong Kong; India; Indonesia; Korea; Singapore; Taiwan; Thailand; Vietnam; and Rest of Asia. Middle East: Saudi Arabia; U.A.E.; and Rest of Middle East/Islamic Transactions. Public Interest Activities: Assistance to Administrative Organisations; and Education and Professional Activities.

Managing Partner: Mr. Masaki Hosaka.

Languages: Japanese, English, Chinese (Mandarin) and French.

Total number of lawyers: 568.

Email: [email protected]

PARTNER since 1996.

Admitted: Japan 1980; New York 1992.

Education: Columbia University School of Law (LL.M., 1991). Legal Training and Research Institute of the Supreme Court of Japan. The University of Tokyo (LL.B., 1978; Master of Engineering, 1985).

Professional Experience: Dewey Ballantine, New York, 1991–1992.

Practice Areas: Real Estate, Environmental Law, Construction Law.

Papers/Publications: Author: Real Property for Corporations, Shojihomu, 2017; Hot Spring Law-Special Thesis on Underground Water Law, Hakuyosha, 2013; Soil Contamination Countermeasures Law and Civil Liability, Hakuyosha, 2011; Asbestos in Buildings and the Law, Hakuyosha, 2006; U.S. Condominium Laws, Hanrei Times, Vols. 997, 999, 1999; Very Deep Underground Use System as a Bypass, Jichi-Kenkyu, Vol. 74, No. 9, 1998. Co-Author: Japan Chapter, The ICLG to: Environment & Climate Change Law 2013; Japan Chapter, The ICLG to: Real Estate 2013; Japan Chapter, PLC: The Environment multi-jurisdictional guide 2012/13 (Japan Chapter); Tokyo’s Greenhouse Gas Regulation and Emissions Trading, Hakuyosha, 2009; Corpus Juris Finance Update, Shojihomu, 2006; Corpus Juris Finance, Shojihomu, 2003; Memories of Cities, Hakuyosha, 2002; Fixed Term Building Leases, Jyutaku-shimpo-sha, 2000.

Languages: Japanese and English.

ASSOCIATE since 2015.

Admitted: Japan 2015.

Education: Legal Training and Research Institute of the Supreme Court of Japan (2015). Chuo University (LL.B., 2015).

Practice Areas: Structured Finance, Real Estate Finance, Real Estate.

Languages: Japanese and English.



Chapter 20

Tughans

David Jones

Luke Thompson

Northern Ireland

covenants or inhibitions on the title to individual properties that impose restrictions.



Specific rights over land will include rights of way, rights of support, rights to light and/or air, wayleaves and profit-à-prendres. Rights that are expressly included or implied into a contract will be purely contractual between the parties unless it is stated that they are given by and for the successors to the parties. These rights can also be acquired by necessity or prescription. A grant of a licence or tenancy at will also creates contractual rights over land.


No, there are not.


Yes, there are two ways in which legal title can be held. Firstly, legal title can be held as joint tenants meaning that should one tenant survive the other, the deceased’s share will automatically pass to the survivor by the right of survivorship. However, if the title is held as tenants in common there is a split between the legal and beneficial title and the right of survivorship no longer automatically applies. For example, if property is held as tenants in common the beneficial interest may be held by a beneficiary under a will or a third party under a contract.Trustees can also hold legal title on trust for beneficial owners, who do not appear on the public register.



Not all land in Northern Ireland is registered. From 2003, there has

1 Real Estate Law


The main real estate legislation is the Landlord and Tenant Law Amendment Act (Ireland) 1860 (or “Deasy’s Act”); the Conveyancing Acts, 1881–1911; and the Settled Lands Act 1882–1890. The Prescription Act 1832 deals with prescriptive easements in Northern Ireland; 20 years being the length of time required to acquire an easement through prescription. The most significant modern real estate legislation includes the Property (NI) Orders 1978 & 1997 and the Criminal Damage (Northern Ireland) Order 1977, along with the Business Tenancies (Northern Ireland) Order 1996.


Northern Ireland is a common law jurisdiction and therefore the courts do have an impact on real estate law. The Lands Tribunal has extensive powers to extinguish historic covenants that would “unreasonably” affect the enjoyment of land. The case law of England will also be persuasive, but not binding, in Northern Ireland; save for where Northern Irish law specifically differs.


No, save for certain UK-wide legislation in areas such as tax and competition law that can impact on real estate.

2 Ownership


There are no general restrictions on ownership of property, for example to overseas entities. However, it is possible to have restrictive



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with a fee farm grant or lease made at least 15 years prior to registration and the grantor’s/lessor’s title has been fully examined.Good Fee Farm Grant – title will be registered as good fee farm grant when land is held by way of a fee farm grant that commenced 15 years prior to registration, but the title of the grantor has not been proved. The only difference from absolute fee farm grant title is that registration will not prejudice any estate arising by virtue of any superior grant. Good Leasehold Title – in Northern Ireland, only a lease with a term of more than 21 years remaining outstanding can be registered at the Land Registry, although shorter term leases can still be voluntarily noted against superior titles. A lease will be registered with good leasehold title when the leaseholder has not proved the superior title. The only difference from absolute leasehold title is that registration will not affect the enforcement of any rights adverse to the title of the lessor to grant the lease. Qualified Title – granted to either freehold or leasehold title if the title is unable to meet the requirements for an absolute, good fee farm grant or good leasehold title. The Land Registry may also confer a qualified title if they are not satisfied that registration with an absolute, good fee farm grant or good leasehold title is justified. Possessory Title – granted for an application to register land that has been acquired by way of adverse possession. Possessory title will not affect the enforcement of any right adverse to the title of the owner.


A transfer/conveyance/assignment deed documents a transfer, but does not operate to validly transfer the land until the transferee is registered as the owner at the Land Registry, if such transfer is registrable.If unregistered land is transferred and the transaction meets the criteria for compulsory first registration, an application to register the title must be made within three months. An application not made within this timeframe will become void and title can revert to the seller. Although the seller, having received the purchase money, should then hold the land as a trustee for the buyer; and it is possible that the buyer’s equitable interest in the land can be defeated by prior equitable interests.


Rights affecting registered land will receive priority in the order in which they are registered. This rule of priority does not apply to rights over registered land created prior to first registration of the title or those included in Part 1 of Schedule 5 of the Land Registration Act (Northern Ireland) 1970.



There is only one Land Registry in Northern Ireland. In order to have title to land registered, a solicitor will need to inspect the title and certify it before submitting a registration application to the

been a system of compulsory first registration in place – when a transaction takes place involving unregistered land, the title must be registered at the Land Registry post completion. The exceptions to this rule are: transactions with no consideration; mortgages; leases for a term of less than 21 years; exchanges or partitions of land (involving no consideration); dealings with reversionary interests; and the surrender of leases. There are also a number of burdens as set out in Schedule 5 of the Land Registration Act (Northern Ireland) 1970 that will affect registered land without being registered.


Information contained on the Title Register at the Land Registry is considered to be conclusive evidence of title. This is supported by a state guarantee of title, which enables compensation to be claimed for errors and omissions in the Title Register. However, although the Land Registry provides a map-based system to support the Title Register, the boundaries shown on the Land Registry maps are not guaranteed.


In Northern Ireland, rights in land are registered at the Land Registry as burdens on title. Part 1 of Schedule 6 of the Land Registration Act (Northern Ireland) 1970 has a list of the burdens registrable on the Title Register. If two burdens are created at the same time (after first registration), the burden that is registered first at the Land Registry will receive priority over the other burden and any burden created subsequently. If a registrable burden is not registered, a bona fide purchaser for value without notice will not be subject to it.


In Northern Ireland, rights in land are registered at the Land Registry as burdens on title. Part 1 of Schedule 5 of the Land Registration Act (Northern Ireland) 1970 has a list of the burdens that will affect registered land without registration on the Title Register. As not all land in Northern Ireland is registered, rights in land that affect unregistered land will not be registered.


Depending on the nature of the title held, an applicant for first registration may apply to be registered with one of the following five classes of title:Absolute Title – generally refers to freehold title and is the best class of registered title. It is usually only granted if an applicant can demonstrate that their title commenced with a disposition made at least 15 years previously. A recent practice direction issued by the Registrar of the Land Registry has introduced an exception – where an application is made in relation to freehold land acquired under the Ground Rents Act (NI) 2001, the applicant will receive absolute title.There is also a class of absolute title for land held by way of a fee farm grant or lease. This will only be granted if title commences

Tughans Northern Ireland


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Real estate transactions will also involve a solicitor acting for the buyer, a solicitor acting for the seller and, at times, a surveyor/estate agent.It is a requirement for any conveyance of land to be carried out by a solicitor in this jurisdiction. The role of a solicitor will vary depending on which party they are acting for. In very brief terms, the solicitor for the seller will provide title to the real estate, draft the contract, provide search results and negotiate terms on behalf of the seller. The solicitor acting for the buyer will review and report on the title and negotiate terms on behalf of the buyer. Although it is not a requirement, a seller often uses a surveyor/estate agent, whose role will typically involve valuing and marketing the property and liaising with potential interested buyers at the pre-contractual stage.


Surveyors/estate agents are generally remunerated following completion, based on a percentage of the sale price. In relation to lawyers, a common basis for remuneration is connected to time spent, based on an hourly rate. However, an agreed fee based on a predetermined scope of work is also common. The solicitor and their respective client should agree a basis for payment prior to a transaction commencing, with payment of all such fees generally made upon completion, unless interim billing is necessary.


There is a definite increase in the availability of capital to finance real estate transactions in Northern Ireland. The local banks are starting to appear in the market again, albeit quite tentatively. There is a significant growth in funds, new private investors and mezzanine lenders in the local market, across various sectors.


Both developers and investors are slowly moving back into the secondary and tertiary real estate markets. Tughans has acted in the majority of the most significant examples of such transactions in the last 12–24 months – e.g. the acquisition of the Flagship Shopping Centre, Bangor and the acquisition of the Tower Centre, Ballymena. Castlecourt Shopping Centre in Belfast has also changed hands recently.

Land Registry. Registered titles are considered conclusive and are backed by a state guarantee. However, the mapping system that accompanies the register is not considered conclusive and therefore is not backed by a state guarantee.A branch of the Land Registry is known as the Registry of Deeds, running in tandem with the main land register. The Registry of Deeds is simply a register of deeds. It is not tied to the land; it records details of deeds by noting them against the entities who are parties to the respective documents. This is the only register that can be searched when dealing with unregistered property.


Historically, a Land Registry issued Land Certificate was required when applying to register any dealing with land at the Land Registry. However, following a policy of dematerialisation since 2011, Land Certificates are no longer required. Details of registered land are held within “Folios”, copies of which can be obtained from the Land Registry. However, it is important to note that any copy Folio produced is only a representation of that Folio on the date it was issued.


It is not possible for a transaction relating to land, registered or not, to be completed electronically. The relevant physical documents to any transaction must be executed or signed by the parties to the transaction.If the title is registered, a transfer of ownership will be registered when the Land Registry is provided with a correctly completed transfer in the prescribed form.If the title is unregistered, the process of first registration must be completed, meaning all relevant title to the land must be provided and certified by a solicitor.The information on ownership of registered land is publicly accessible and can be accessed electronically for a fee.


The information contained on the Title Register is considered conclusive title to land and is backed by a state guarantee. Therefore, compensation for loss arising out of a mistake on a registered title is recoverable, but not in relation to the mapping system, as referred to previously.


The information contained at the Land Registry relating to registered land is publicly accessible. Any potential buyer can obtain all the information they should reasonably need regarding encumbrances and other rights to land provided that information is registered. However, there is still a significant amount of unregistered land where it can be impossible to access any details.




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The seller can state that it is transferring its interest in the real estate as beneficial owner and this will imply covenants regarding the nature of its title.


Buyers will be subject to stamp duty land tax, following the same rules as in England and Wales, along with Land Registry registration fees.



The same financial regulations that affect England and Wales apply in Northern Ireland, including the same anti-money laundering regulations.


Lenders will generally seek security through a fixed charge registered against the real estate and in some cases will go further and require debentures, personal guarantees, cross company guarantees, funder warranties from contractors and a professional team, etc.


The most common method is the appointment of a fixed charge receiver, who can sell the property without requiring lengthy court proceedings or a mortgagor contribution. Depending on the nature of the security, an administrator or administrative receiver can also be appointed, or the lender can exercise a power of sale itself.


The minimum formalities are an offer letter/facility letter from the lender, the lender familiarising itself with the title and a mortgage/charge deed.


The principle lender will usually have a first ranking fixed charge registered against the title, along with an inhibition, preventing any dealings with the title without the lender’s consent.


Most sub-sectors are still in recovery/growth mode at present. Although political and economic uncertainty around Brexit and other global factors has created a lull in prime investment activity.



Any sale or purchase of real estate must be completed by way of a written contract. A Law Society produced standard form of contract, tailored by the inclusion of special conditions, is often used on lower value, more straight forward transactions. However, it is really designed for residential conveyancing, rather than commercial.


A seller has a duty to provide a good and marketable title but the principle of ‘caveat emptor’ also applies to real estate transactions. There is a responsibility on the buyer to carry out its own due diligence. Therefore, as a general rule, the seller has no duty of disclosure; but there are exceptions and a degree of disclosure is standard practice. The seller has a duty to disclose latent physical defects or latent defects in its title which it is aware of or should reasonably be aware of. A latent defect is a defect which is not reasonably discoverable from inspection of the property or the materials supplied to the buyer.


For a seller to be liable to the buyer for misrepresentation, three grounds must be proved: (i) the misrepresentation occurred prior to the contract being formed; (ii) the misrepresentation was of fact and not opinion or law; and (iii) the misrepresentation induced the purchaser to enter into the contract. The seller can be liable for either fraudulent or innocent misrepresentation. If liable for fraudulent misrepresentation, the buyer can seek damages or rescission prior to completion of the contract; or apply to have the contract set aside or seek damages after completion. If the seller is liable for innocent misrepresentation, the remedies available are more limited. However, the buyer may still seek rescission and the Misrepresentation Act (NI) 1967 provides the courts with discretion to award damages in lieu of rescission.


In general, save as referred to in question 7.5 below, warranties are only used when there is a corporate element to the transaction – i.e. the transfer of shares in a company that owns the real estate.



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Depending on the seller’s circumstances and the nature of the transaction, capital gains tax or income tax may be payable by the seller. The tax rules follow England and Wales and specialist tax advice should always be sought.


Yes, if the shares in a company are transferred, rather than the real estate itself, stamp duty will be payable by the buyer on the share price at a rate of 0.5% currently.


Yes, a buyer should always consider the value added tax position, the stamp duty land tax position, the availability of capital allowances and capital gains tax implications.



■ Criminal Damage (Northern Ireland) Order 1977 – deals with damage caused to premises as a result of civil unrest; and

■ Business Tenancies (Northern Ireland) Order 1996 – deals with security of tenure rights for business tenants and bringing such leases to an end.


The most typical types of business lease are: a lease of a whole building, with the tenant taking full repairing liability; or a lease of part, with the landlord responsible for looking after the structure and common parts, then recharging a fair and reasonable proportion of such costs to the tenant through a service charge.In both cases, the landlord will generally insure and recharge the premium to the tenant as insurance rent.


(a) Typically three to 20 years depending on the deal.(b) Typically open market or index-linked rent reviews every

five years.(c) Typically permitted, subject to landlord approval and other

restrictions, but subletting is more restricted.(d) Landlord generally insures and charges tenant insurance rent.(e) Leases are often silent on change of control and restructuring.(f) Repairs can be dealt with in a number of ways and are very

deal/property-specific.


Depending on the circumstances, security taken by a lender may be avoided or rendered enforceable where documents have not been executed correctly by the necessary parties. In addition, if security documentation is not registered with the appropriate body (i.e. Land Registry of Northern Ireland and Companies House (if applicable)) it may not have priority over future dealings with the real estate. Also, where independent legal advice is not provided when circumstances dictate (e.g. spouse using the family home as security for capital investment into company).


A borrower may try to frustrate enforcement action by providing evidence in court: of their ability to make repayments; that they were pressurised into executing the security documents; that the lender has treated them unfairly; that the lender has not followed the correct pre-action protocol; or that the security is defective and does entitle the lender to take the proposed action etc.

9 Tax


Stamp duty land tax is payable in accordance with the same legislation as in England and Wales.


Within 30 days following the effective date of the transaction (generally the completion date).


Income tax will only be payable on the sale of real estate by an individual if the individual operates a business for the purpose of buying and selling properties and that individual operates the business as a sole trader or partner.


The rules in Northern Ireland are the same as England and Wales, and so real estate is exempt from VAT. However, an owner can choose to waive the exemption and charge VAT on commercial property, this is called an ‘option to tax’. Once this option is exercised, it cannot be revoked for 20 years, but the option is personal and does not transfer with the property. Commercial property that is under three years old will also be subject to VAT. If payable, VAT will generally be charged at the standard rate, currently 20% and the buyer will pay it on top of the purchase price. The most common exemption from VAT on investment transactions is to treat the deal as a transfer of a going concern.




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(a) Typically short term lettings would have a term of 12 months.(b) No statutory controls, but these can simply be renegotiated at

the end of the term.(c) This depends upon the nature of the occupation.(d) The landlord will usually cover buildings insurance, the

tenant will be obliged to keep the property in repair and rates will be the landlord’s responsibility if the rent is below £800 per month, with tenant paying if the rent is above this figure.


A tenant will have peaceful enjoyment of the land subject to payment of rent and breach of covenants. In the event of non-payment of rent or breach of covenant, the landlord may exercise its power of re-entry and take possession of the property.



The main laws are the Planning Act (Northern Ireland) 2011 and the Planning (Use Classes) Order (Northern Ireland) 2015, along with EU-driven environmental legislation.


Certain public sector bodies have compulsory purchase powers, with compensation based on the rateable value of the property.


The local authorities control the planning system and the NI Environment Agency controls environmental regulation. Buyers obtain reliable information on such issues through the local authority and regional property certificates, along with statutory charge searches that the seller will order and pay for as part of the title pack provided pre-contract.


Planning permission and building regulation approval. In some cases, conservation area consent and listed building consent may also be required.


VAT can be payable, along with income/corporation tax.


Leases can terminate at expiry, following default, upon exercise of a break option, or following a refusal to agree a renewal under the Business Tenancies Order. The Business Tenancies Order provides the tenant with security of tenure rights, allowing it to remain in occupation after the expiry of the term. The landlord can only refuse to grant a new lease to such a tenant on a number of statutory grounds, some of which require compensation to be paid to the tenant. It is not possible to contract out of such security of tenure rights.


The parties are no longer liable once they have transferred their interest.


Tughans has attempted to encourage the use of such leases in Northern Ireland and a couple of landlords have adopted some light-touch aspirational objectives, but nothing too hard-hitting yet.



The main legislation that regulates residential leases is the Landlord and Tenant Law Amendment Act (Ireland) 1860 (or “Deasy’s Act”) and the Conveyancing Acts, 1881–1911. However, following the Property (NI) Orders 1997, a residential lease for a term greater than 50 years can no longer be granted. Typically, long term residential leases are used for apartments given their nature.


No, the laws do not differ.



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The energy performance regulations follow those in England and Wales.

13 Climate Change


The position follows that in England and Wales.


This follows the UK, with separate regional targets.


Building regulations attempt to incorporate some sustainability measures where buildings are being constructed or renovated and legislative changes are due that will prevent buildings with poor energy performance ratings from being sold or let until the rating is improved.Building regulations attempt to incorporate some sustainability measures where buildings are being constructed or renovated and legislative changes are due that will prevent buildings with poor energy performance ratings from being sold or let until the rating is improved.


Generally, planning permission is obtained, but enforcement action cannot be taken once a change of use or development has been in existence for a certain period of time, depending on the circumstances.


The cost and time involved are dependent upon the nature of the application and the timing is very dependent on the particular local authority involved.


Buildings and monuments can be listed to varying degrees, restricting what can be done to them and imposing repairing obligations. Such restrictions run with the property, so will apply to a buyer when the property is transferred.


An environmental survey can be requisitioned prior to entering into contract.


The NI Environment Agency can force pollution to be cleaned up.




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Tughans was established in Belfast in 1896 and is the largest full-service commercial law firm in Northern Ireland, with a full range of clients across all major industry sectors, ranging from the largest global businesses (such as Apple), to local, family owned operations.

The real estate team is the largest in NI and has been involved in 90% of all the major real estate transactions in the jurisdiction, since the market started to recover and major deals started taking place again.

David JonesTughansMarlborough House 30 Victoria Street Belfast BT1 3GGNorthern Ireland

Tel: +44 28 9082 0531Fax: +44 28 9055 0096Email: [email protected]: www.tughans.com

David has experience of all aspects of commercial property in England and Wales and Northern Ireland, including the acquisition and disposal of development and investment properties, leasing and property management (acting for both landlords and tenants) across all sectors.

David also works with colleagues in the corporate department on the property aspects of business and company sales and acquisitions.

David is dual qualified in England and Wales and Northern Ireland and is on the committee of the Northern Ireland Commercial Property Lawyers’ Association, along with being a member of the Institute of Directors.

Trained with City of London firm Nabarro Nathanson (now part of CMS) and qualified into the commercial property department, working at the firm from January 2002 until September 2007, when he moved back to Belfast to work for Tughans. He now leads the real estate team at Tughans.

Luke ThompsonTughansMarlborough House 30 Victoria Street Belfast BT1 3GGNorthern Ireland

Tel: +44 28 9055 3316Fax: +44 28 9055 0096Email: [email protected]: www.tughans.com

Luke began working in Tughans in August 2013. Luke spent two years training in different practice areas before qualifying into the Real Estate department.

Luke has experience in a wide range of real estate transactions. This includes the acquisition and disposal of investment property and the leasing of retail, industrial and office space; acting for both Landlord and Tenants.

Luke works closely with other departments within Tughans, advising on all property aspects. Recently, Luke provided property advice for a high value business acquisition which saw a client purchase a number of wind farms from a leading independent national operator of renewable energy projects.


Chapter 21

Greenberg Traurig Grzesiak sp.k.

Agnieszka Stankiewicz

Barbara Pancer

Poland

2 Ownership


As a rule, real estate law does not impose restrictions on particular categories of persons. The most notable exception to that rule is the law regulating the acquisition of real estate by non-residents under which entities from outside the European Economic Area and Switzerland may only acquire real estate in Poland after being issued a permit by the Minister of Internal Affairs and Administration. There are also certain restrictions in the case of acquisition of agricultural or forest property by foreigners.



The rights over land that are recognised in Poland may be divided into two categories: the first category is rights in rem, which provide stronger protection for their holder, and the second category of purely contractual rights. The main rights in the first category are ownership, perpetual usufruct right (similar to temporary ownership), usufruct rights, easements and mortgages. Purely contractual rights include lease, tenancy, leasing, right to use and timesharing.


In the case of the perpetual usufruct right, a building constructed on land owned by the State Treasury or local government is owned by the holder of the perpetual usufruct right. The ownership of the building expires together with the expiry of the perpetual usufruct right to the land, and the owner of the land becomes the owner of the building after reimbursing the perpetual usufruct right holder for the value of the building.

1 Real Estate Law


The main (and general) legal framework for real estate law is set out by the Civil Code dated 23 April 1964. The general rules of real estate law introduced by the Civil Code are modified by provisions regulating publicly owned real estate, i.e. real estate owned by the State Treasury or local government. The most important act governing publicly owned properties is the Real Estate Management Act dated 21 August 1997. A specific regime applies to agricultural properties and to forest land (the Act on Shaping of the Agricultural System dated 11 April 2003 and the Act on the Protection of Agricultural and Forest Land dated 3 February 1995). Ownership of apartments is governed by the Act on Apartment Ownership dated 24 June 1994.


The legal system in Poland is uniform for the entire country. A key role is played by local master plans, which may affect ownership of real estate, in particular the manner of their development.


The most important role is played by EU legislation; however, there are several international treaties and numerous bilateral agreements to which Poland is a party, including, in particular, bilateral investment treaties that provide protection for real estate ownership rights against unlawful actions by governmental agencies such as unjustified expropriation.



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question 4.3 above) and a lack of registration would result in the failure to acquire or transfer such right.


A sale of land may involve the sale of ownership or the sale of the perpetual usufruct right. A sale of ownership of land is effective upon the execution of a sale agreement. A sale of the perpetual usufruct right occurs only upon the registration of the buyer in the LMR, but such registration is effective from the moment of filing of the application for the registration of the sale of the perpetual usufruct right in the LMR.


The concept of priority applies only to rights in rem other than ownership and the perpetual usufruct right, and does not apply to contractual rights. The concept of priority is based on a basic rule that a right created first has priority over a right created later, whereby priority is decided based on the order of applications for registration in the LMR. Rights for which applications for registration were made at the same time have equal priority.When establishing rights over real estate, an owner (or holder of the perpetual usufruct right) may decide about the priority of such rights in the LMR. In practice, the priority of rights applies mainly to mortgages.



There are two main land registries in Poland: LMRs; and the land and building register. LMRs are maintained by courts. The land and building register is maintained by local authorities. LMRs are created to confirm the legal status of real estate and they carry certain guarantees (please see question 4.2). The land and building register has an informational purpose. However, the land and building register is important for LMRs as a description of the real estate registered in the LMR (its location, area, manner of use) is based on information disclosed in the land and building register.


LMRs are available online. Anybody may print out an excerpt (evidencing all entries in the LMR), which is considered a formal document. Additionally, an excerpt from an LMR may be issued by the LMR court as a formal document.


Transactions relating to real estate may not be completed electronically. The transfer of the title to real estate or the establishment or transfer of a right in rem must be executed in the


There is no such split in Poland.



All land and all apartments that are separately owned must be registered in the land and mortgage registry (LMR). Ownership (including ownership of apartments), perpetual usufruct rights and mortgages are required to be registered in the LMR. The remaining rights (both in rem and contractual) may, but do not have to be, registered in the LMR.


There is no state guarantee of title in Poland; however there is the so-called “principle of the public credibility of LMRs”. This principle gives a guarantee to the person who acquired a right as a result of a legal act performed with the person disclosed in the LMR as the holder of such right. Under the above guarantee the right will be acquired even if the legal status of the real estate disclosed in LMR does not reflect the actual status of such real estate. The principle of public credibility does not protect free-of-charge acquisitions or acquisition by a buyer acting in bad faith (i.e. who knows, or, acting diligently, should have known that the legal status of the real estate disclosed in LMR does not reflect the actual legal status thereof).


The following rights are compulsorily registrable: ownership (including ownership of an apartment), perpetual usufruct rights and mortgages. It should be noted, however, that although the registration of the ownership of real estate is compulsory, failure to do so will not result in failure to acquire ownership (except in the case of ownership of an apartment being established for the very first time).


Any other rights in land (such as easements, usufruct, certain contractual rights such as leasehold, tenancy, right of first refusal, etc.) do not have to be registered in the LMR.


Polish law does not recognise different classes or qualities of title on first registration, nor does it recognise any probationary periods. Some rights require registration in order to be valid (please see

Greenberg Traurig Grzesiak sp.k. Poland


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policy on the basis of its terms. Remuneration for the guarantors of the seller or the buyer is regulated in separate agreements, which are not usually disclosed to the other party.


The volume of real estate capital targeting the sector in Central and Eastern Europe should be perceived as stable in comparison to previous years. The main source of investor interest continues to be from the international real estate private equity sector. Other major regional real estate investors include British, German and South African real estate funds, insurance companies and pension funds.


There is a trend throughout Europe for real estate investors and developers to seek out opportunities in secondary and tertiary markets. There are an increasing number of transactions in cities other than Warsaw (in particular, Wrocław, Kraków and Gdańsk) and such transactions include investments in less popular sectors such as student housing and self-storage.


We have not observed any such slowdown.



The sale and purchase of real estate requires an agreement in the form of a notarial deed or, in the case of the sale of an apartment by the owner of a building (usually a developer), an agreement on the establishment of separate ownership of the apartment and its sale. The registration of the sale is compulsory but only the sale of the perpetual usufruct right and the first sale of an apartment require registration in the LMR in order to be valid.


The seller is obliged to inform the buyer of the facts and legal rights relating to the real estate being sold. There is a rule that the seller is liable for the physical and legal defects in the real estate (so-called statutory warranty); however, the seller is not liable for the defects if the buyer knew about such defects at the time of the property sale agreement. The statutory warranty may be excluded by contract; however, such exclusion is not effective if the seller deceitfully withheld information from the buyer.

form of a notarial deed. A notary may file the application to the LMR electronically. The other interested parties (the owner, holder of the perpetual usufruct right, mortgagee) must file a physical application to the LMR court. The documents attached to the application for entry into the LMR have to support the application, e.g. establishment or transfer or a right. Generally, a document with notarised signatures is sufficient to make an entry into the LMR. However, any application for a transfer of the title to real estate or for the establishment or transfer of a right in rem must be accompanied by an agreement or other document executed in the form of a notarial deed. LMRs available online give information about current and past ownership and other registrable rights and are accessible by the general public.


Yes, compensation can be claimed for damage resulting from a breach of the law by the authority which maintains the registry.


LMRs are available to the general public and the law introduces the presumption that each party to a real estate transaction is aware of the contents of the LMR. Each LMR is accompanied by a file where all documents based on which entries are made in LMRs are archived. Such files may only be reviewed by persons who prove that they have a valid legal interest in doing so and by a notary public.



Apart from the abovementioned parties, the following parties are usually involved in a real estate transaction: (i) an escrow agent (usually a bank), which receives the purchase price for the real estate from the buyer prior to the closing of the transaction and releases such purchase price to the seller after being presented with the agreed proof that the transaction was closed; (ii) a title insurer, which provides a good title policy, as required by default by some buyers, or a specific indemnity policy to cover the title risks disclosed during due diligence; (iii) a provider of Warranty & Indemnity insurance for the representations and warranties made by the seller in the property sale agreement; and (iv) a guarantor (usually a parent company or other affiliate of the seller) for the seller’s obligations to indemnify the buyer under the sale agreement.


Remuneration for the escrow agent is usually structured as a one-off payment, payable immediately after signing an escrow account agreement. Remuneration for title or Warranty & Indemnity insurers takes the form of a premium and is payable after the execution of the




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Lending of money to finance real estate is mainly regulated by the Banking Law dated 29 August 1997. The relevant regulations do not differentiate between resident and non-resident persons or between individuals and corporate entities (except as described below). Under such regulations, in loan agreements banks undertake to lend money to a borrower for a limited period of time and for a defined purpose, and the borrower undertakes to use the money for such purpose and on the other terms set out in the loan agreement, return the money together with interest in accordance with the pre-agreed time schedule and to pay other fees due to the bank. Banks are obliged to assess the creditworthiness of a borrower before lending money.Additional protection is given to individuals under the Consumer Law Act dated 12 May 2011.


Real estate lenders protect themselves against default by the borrower by demanding that various security instruments be provided by the borrower or third parties. In real estate financing, such security instruments are usually a mortgage, a registered pledge over assets and bank accounts, assignment of receivables from income producing agreements (mainly leases), securities granted by tenants and insurance policies, registered pledge over the shares of the borrower and submission to enforcement (an instrument which facilitates and accelerates enforcement). Sometimes, a guarantee from a parent company or other affiliate is sought (especially for development loans).


Foreclosure requires enforcement proceedings run by an enforcement authority and supervised by courts pursuant to the Code of Civil Procedure. Enforcement against real estate is carried out over several stages, including the actual seizure of real estate, its valuation and public tender.


A real estate loan is granted pursuant to a loan agreement in a written form. Additionally, the borrower, and sometimes a third party, must establish the security instruments required by the bank which requires the execution of a written agreement (or, in some cases, an agreement in the form of a notarial deed or a form with notarised signatures) and, with respect to a mortgage and registered pledge, also an entry into the relevant register.


The seller is liable for misrepresentation in the sale and purchase agreement under statutory warranty if such misrepresentation is related to the seller’s title to the property or the nature of the real estate being sold. Statutory warranty is, however, increasingly being excluded by contract and instead the seller is responsible for breach of the given warranties on the basis of freedom of contract, or title insurance and Representations and Warranties insurance is obtained.


In practice, sellers always give contractual warranties to the buyer which relate to the title to the real estate (both in terms of its existence and the absence of encumbrance) in regard to the absence of arrears in the payment of taxes and other public dues related to the real estate, the absence of contamination (usually limited to actual knowledge), compliance with all laws related to real estate, the absence of pending or threatened proceedings or third party claims, the validity of leases concluded for the real estate, the compliance of the buildings developed on the land with the construction laws and laws regulating the maintenance of buildings. Rarely do sellers give warranties regarding the physical status of the real estate. Warranties are given to provide information and describe the real estate being subject to the transaction and almost never substitute due diligence carried out by the buyer.


The seller warrants its ownership by making relevant representations in the sale and purchase agreement. The representations usually refer to the exclusive holding of the title, the absence of encumbrances other than those disclosed in the LMR, the absence of any third party rights which might affect the title and the correctness of entries in the LMR vis-à-vis the actual status of the real estate. Additionally, under statutory warranty the seller is liable if the real estate being sold is not owned (or held in perpetual usufruct) by the seller or is encumbered by a third party right unknown to the buyer at the time of the sale. Additionally, sellers are providing title insurance increasingly often.


In addition to paying the price, the buyer is obliged to take over the real estate, as well as to proportionally refund part of the fee payable for the perpetual usufruct right and, with respect to leased real estate, to refrain from terminating the leases.



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Generally, transfers of real estate by individuals are subject to income tax. Under certain conditions, the capital gains obtained by individuals on real estate can be exempt from income tax (in particular if the real estate is sold after being held for a five-year period).


Generally, VAT is payable on real estate sold by a taxpayer as part of its business activity. If the sale is subject to VAT, the standard VAT rate amounts to 23%. If specific conditions are fulfilled, the sale of residential buildings or separate ownership of apartments can also benefit from a reduced 8% VAT rate (subject to certain exceptions). Transfer of real estate can also benefit from VAT exemption (under certain conditions). VAT is paid to the tax office by the seller.


No other tax is payable by the seller on the disposal of real estate.


Yes. The rules on taxation of a “share deal” are different from taxation of an “asset deal”. In particular, a sale of shares in a Polish company is subject to a 1% transfer tax (calculated based on the market value of the shares) payable by the buyer. Moreover, generally, a share transaction is not subject to Polish VAT (subject to certain exceptions).


A buyer of real estate should verify that the purchased real estate does not constitute an enterprise or an organised part thereof as the tax consequences of such a transfer are different from a transfer of real estate. The transfer of an enterprise or an organised part thereof is outside the scope of VAT and subject to transfer tax to be borne by the buyer. Transfer tax rates vary from 1% (sale of property rights) to 2% (sale of movable and real estate assets). The tax base is the fair market value of the transferred assets without deduction of liabilities or encumbrances. The buyer of an enterprise or an organised part thereof may be held liable for the outstanding tax liabilities of the seller. The buyer (with the seller’s consent) or the seller may submit a formal request to the tax authorities for a certificate listing all the tax liabilities which are transferable to the buyer. The buyer is then liable only up to the value of the tax liabilities presented in the certificate.



Leases of business premises are regulated, as are all other leases, by the Civil Code. The Civil Code leaves a lot of flexibility to


Real estate lenders protect themselves against claims against the borrower or the real estate assets of other creditors by the ranking of the security instrument. Real estate lenders usually require a first ranking mortgage over the financed real estate, a first ranking pledge over rights related to real estate and insist that a claim made by other creditors through court or enforcement procedures constitute an event of default under the loan agreement. In this way lenders make sure that if a claim is made by another creditor and such a claim may diminish the value of the assets that secure the loan, the lenders may accelerate the loan and use the proceeds from the execution of the security instruments before all other creditors. Real estate lenders also make sure that all the income stream is assigned to them and that any affiliated loans are fully subordinated to their loan.


Under the Bankruptcy Law dated 28 February 2003 and the Restructuring Law dated 15 May 2015, some actions of the obligors under the finance documentation (borrowers, pledgors, etc.) made in certain periods of time prior to filing a bankruptcy motion (or declaration of bankruptcy) or application for the opening of remedial proceedings, as the case may be, may be declared ineffective. This applies in particular to: security relating to a not-yet-payable debt; in rem security granted to secure third party debts; assignment of future claims; or security to an extent that exceeds 150% of the secured claim.


Under the Polish Civil Procedure Code dated 17 November 1964, each debtor against which an enforcement proceeding has been initiated may file a counter enforcement lawsuit (in whole or in part) where it (among others): (i) questions the existence of the obligation recognised by the enforcement title (in particular if such enforcement title is not a court decision); or (ii) indicates that an event took place after the enforcement title was issued, as a result of which the obligation expired or cannot be enforced.

9 Tax


If a sale of real estate is not subject to VAT or exempt from VAT, it is subject to transfer tax payable by the buyer. The transfer tax is 2% of the market value of the real estate.


A notary is the remitter of the transfer tax on real estate acquisitions. As a result, the notary will collect the transfer tax prior to the execution of the sale and purchase agreement.




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(such reasons generally may not be modified by contract and mainly relate to a default by the other party or the inability of the landlord (for any reason) to ensure that the premises are suitable for the agreed purpose). Business leases concluded for an undefined period of time may be terminated at any time with three months’ notice. There are no special provisions allowing the tenant to extend or renew the lease but lease agreements often provide for the unilateral right of the tenant to do so. There are no special provisions regarding compensation in case of early termination (general rules shall apply) but parties often provide for contractual penalties in such case.


As a general rule, neither the tenant nor the landlord are permitted to sell or transfer the rights and obligations under the lease to a third party without the consent of the other party, regardless of whether such sale is a part of the sale of a business or an interest or just a sale of the lease. As a result, the agreement between the seller and the buyer of the lease, as well as the consent of the other party to the lease, will determine to what extent the obligations under the lease are transferred to the buyer; they may be transferred in full (including the liability for pre-sale non-compliance) or relate only to the obligations and liabilities commencing as of the date of sale. The only exception to the rule that requires the consent of the other party for the sale of the lease is a sale of real estate by the landlord whereby all leases related to such real estate are transferred to the buyer of the real estate by operation of law. In such a case, the seller remains liable for non-compliance and related damage incurred by the tenant prior to the sale.


Green obligations are still not very common in Poland and they usually relate to certification of a building at a certain level (either BREEAM or LEED certification) in terms of the energy efficiency of the building, and building materials of a certain quality or provenance. Such obligations relate mainly to the construction stage and they appear in the leases more as aspirational objectives.



Leases of residential premises are regulated by the Civil Code and the Act of 21 June 2001 on the Protection of Tenants’ Rights. The Civil Code leaves a lot of flexibility to the parties to the lease agreement to shape their mutual rights and obligations at will. Only a few regulations relating to leases cannot be modified by contract; in particular the length of the termination period (one month for the lease of premises). The Act on the Protection of Tenants’ Rights provides for additional regulations increasing the protection of the

the parties to the lease agreement to shape their mutual rights and obligations at will. Only a few regulations relating to leases cannot be modified by contract, in particular the rules for the termination of a lease.


The Civil Code recognises the lease of premises (including residential premises) and the lease of any other object.


Provisions typical for leases of business premises are as follows: (a) usually leases are concluded for five years; (b) rent is usually increased annually based on the increase in the consumer price index relevant for the currency of the rent; (c) as a general rule, tenants may only sub-let the premises or assign the rights and obligations under a lease with the prior consent of the landlord. Tenants of larger premises are usually able to negotiate the right to sub-lease the premises and to assign the lease to affiliates; (d) the landlord is usually obliged to acquire and maintain third party liability insurance and property insurance for full restitution value. The tenant is required to acquire and maintain tenant third party liability insurance and property insurance for all the tenant’s assets in the premises; (e) (i) change of control provisions are not very common in Poland. Sometimes, a change of control over a tenant may be a prerequisite for termination of the lease, and (ii) as mentioned above, usually a tenant is not permitted to assign its rights and obligations under the lease to a third party, whether such assignment is performed through corporate restructuring or otherwise. However, certain types of restructurings (such as merger, demerger, transformation) will result in a transfer of the rights and obligations under the lease by operation of law; and (f) the landlord is obliged to ensure that the premises are suitable for the agreed use and to that extent is obliged to repair the premises and the building and maintain the building and common areas. The tenant is obliged to maintain the premises and perform minor non-structural repairs in the premises.


As a rule, business leases are subject to 23% VAT. However, lease of residential units for housing purposes is VAT-exempt. Generally, entities conducting rental activity (business lease) are subject to income tax.


Business leases are usually concluded for a defined period of time and as such terminate (automatically) upon expiry but may also be terminated prior to expiry for the reasons described in the lease agreement (which may be related to a default by another party or to any other circumstances) or for reasons described in the Civil Code



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on real estate; (vi) the Act on the Prevention and Remediation of Damage to the Environment dated 13 April 2007; and (vii) the Act on Access to Information Relating to the Environment and its Protection, on Public Participation in the Protection of the Environment and on Environmental Impact Assessments dated 3 October 2008.


Land owners may be deprived of the ownership of land through expropriation. Expropriation is permitted if the land is required for public purposes (mainly roads) and is carried out on the basis of an administrative decision. Regulations governing expropriation provide that the owner of the expropriated land has to receive appropriate compensation reflecting the market value of such land. Therefore, before expropriation-related proceedings are instituted, mediation is organised between the State Treasury or municipality and the owner, during which those parties negotiate the compensation for the land. However, in practice, the compensation for expropriated land is determined based on a valuation ordered by the expropriating authority and is rarely agreed upon by the parties, which have divergent interests. As a result, the compensation received by the expropriated owner rarely reflects the market value of the land expected by such owner. As the appraiser may adopt various methods of assessing the value of land, challenging a valuation in Poland is difficult.


Control of the technical condition of buildings rests with governmental authorities; mainly construction supervision authorities. Control of real estate from the perspective of environmental protection rests with local governments and Regional Directors of Environmental Protection. Based on the Act on Access to Public Information, all information about governmental authorities, including local governments, their powers and duties, decisions issued, etc. may be accessed by anyone and, upon an application, the authorities should provide such information to the enquiring party. Therefore, a buyer may always apply to the competent authorities to obtain information about the land or the buildings that they contemplate acquiring.


The following are the main permits in the construction process: (i) zoning permit (which is not required if there is a binding master plan for the real estate); (ii) decision on environmental assessment; (iii) building permit; and (iv) occupancy permit.


Building permits and occupancy permits are commonly obtained in Poland. Minor construction works (or reconstruction works) do not require such permits (but need to be notified to the competent authorities). If a building has been developed without a building permit, the owner of the building may be required by the construction supervision authorities to execute certain works or to

tenant and limiting the flexibility of the parties. Such regulations include: the frequency of rent increases; restrictions concerning termination of the lease by the landlord; and specific obligations of the landlord regarding repairs to the premises.


No, the laws do not differ if the premises are intended for multiple different residential occupiers.


Provisions typical for leases of residential premises are as follows: (a) leases are usually concluded for an indefinite period or for one- to three-year periods; (b) rent may be increased every six months (however, market practice is that the rent is increased at the beginning of a calendar year or on the anniversary of the lease); (c) the tenant shall leave the premises no later than on the last day of the termination period; and (d) the tenant shall carry out repairs in the premises/if the tenant incurred some costs with the landlord’s prior consent, the tenant is entitled to the respective reimbursement.


The landlord is entitled to terminate a residential lease if the tenant: (i) despite receiving a written notice, uses the premises contrary to the lease agreement or the premises or property are damaged as a result of the tenant’s neglect; (ii) is in arrears in payment of rent for at least three months; or (iii) subleased the premises without the prior written consent of the landlord. To obtain vacant possession, the landlord shall deliver a written notice to the tenant giving a minimum notice of one month.



The main laws governing zoning and related matters include: (i) the Act on Spatial Planning and Development dated 27 March 2003, based on which municipalities prepare and adopt local master plans which define the manner of the use of the land in a given municipality; (ii) the Act on Monument Protection dated 23 July 2003 which imposes limitations on developments in areas classified as protected due to existing monuments; (iii) the Law on the Protection of Agricultural and Forest Land dated 3 February 1995 which imposes limitations on developments on agricultural or forest land; (iv) the Environmental Protection Law dated 21 April 2001 which is the main environmental law in Poland and provides, among others, a procedure for land remediation in case of existing contamination; (v) the Waste Management Act dated 14 December 2012 which imposes certain obligations related to waste generated




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breach of the environmental laws. In such case, an administrative decision may be issued by the competent authorities imposing the obligation to remedy such breach on the entity that contaminated the land. Additionally, remediation of land is mandatory if the contamination represents a threat to the health of people and the environment. In such case, the obligation to carry out land remediation rests with the owner of the land, regardless of whether such owner is responsible for the contamination, and it is limited to removal or decrease of the contaminating substances in the soil, ground and water, controlling or limiting their further spread – all to the extent required to ensure that the contaminated land ceases to constitute a threat to the health of people and the environment.


According to the act of 29 August 2014 on the energy performance of buildings, save for certain exceptions, each building which is to be sold or leased should have an energy performance certificate confirming its rating relating to energy efficiency. Additionally, owners or managers of buildings are obliged to periodically inspect the technical condition of all electrical, gas, heat-producing and air-conditioning equipment to ensure their compliance with the law.

13 Climate Change


The mandatory emissions trading scheme is regulated in the Act of 12 June 2015 on the Greenhouse Gas Emissions Allowance Trading Scheme. A permit for emissions is issued following an application from the operator of an installation. The limit on permits to be issued results from EU regulations.


The national greenhouse gas emission reduction targets result from the EU gas emissions policy. The Emissions Trading System (ETS) covers 45% of the EU’s greenhouse gas emissions. The EU ETS sets a fixed cap on emissions for each year in the period 2013–2020. The 2013 cap on emissions from fixed installations was set at 2,084,301,856 allowances. This cap decreases each year. The remaining 55% of the EU’s greenhouse gas emissions are covered by national emission reduction targets (sectors not covered by ETS). EU countries have taken on binding annual targets until 2020 to cut emissions in these sectors.


The main regulations regarding the above issue are: the Ordinance of the Minister of Infrastructure dated 12 April 2002 regarding the technical conditions buildings and their location should fulfil, and the Ordinance of the Minister of Internal Affairs and Administration regarding the technical conditions for the occupancy of residential buildings dated 16 August 1999. Additionally, there are numerous regulations provided in the broadly understood construction law and environmental law.

prepare documentation with the aim of confirming that the building was built in accordance with the law (the so-called legalisation procedure). If the owner does not or cannot comply with the obligations imposed by the construction supervision authorities, the authorities may require that the building be demolished. If the building is occupied without the necessary occupancy permit, a penalty may be imposed on the occupier. There is no implied building permission or occupancy permission in Poland.


The administrative procedure to obtain a building permit or an occupancy permit is generally free of charge. However, the application for a building permit requires the obtainment of a number of other minor permits and notifications (such as agreements with utility providers, decisions from the road authority), which may carry significant costs. The building permit should be issued within 65 days of an application. The occupancy permit should be issued within 30 days of an application.


The protection of historic monuments is governed by the Act on Monument Protection dated 23 July 2003. The above regulations do not limit the transferability of real estate rights. They mainly deal with limitations and obligations regarding the development of real estate, maintenance and repairs. As a general rule, any actions taken with respect to any change or development of protected real estate require the consent of the authorities responsible for the protection of historic monuments. Additionally, a municipality has the right of first refusal for real estate entered on the register of protected historic monuments if such right of first refusal is disclosed in the LMR.


Based on the Act on Access to Information Relating to the Environment and its Protection, on Public Participation in the Protection of the Environment and on Environmental Impact Assessments dated 3 October 2008, anybody can obtain information about the condition of the environment, including contamination of land. Additionally, based on the Act on the Prevention and Remediation of Damage to the Environment, the General Director of Environmental Protection maintains a register of direct threats to the environment that have occurred in Poland. The General Director of Environmental Protection also maintains a register of historic contaminations (which occurred prior to 30 April 2007). Access to both of the above registers is limited to the governmental authorities charged with protection of environment, however, indirectly, through Act on Access to Information Relating to the Environment and its Protection, the information contained in those registers should also be disclosed to any person applying for disclosure of information about the condition of the environment in a given location.


Remediation of land is mandatory if any entity contaminates land in



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Agnieszka StankiewiczGreenberg Traurig Grzesiak sp.k.Stock Exchange Buildingul. Książęca 400-498 WarsawPoland

Tel: +48 22 690 6142Email: [email protected]: www.gtlaw.com

Barbara PancerGreenberg Traurig Grzesiak sp.k.Stock Exchange Buildingul. Książęca 400-498 WarsawPoland

Tel: +48 22 690 6132Email: [email protected]: www.gtlaw.com

Agnieszka Stankiewicz is a partner in the real estate department of the Warsaw office of Greenberg Traurig.

She has over 20 years of professional experience in corporate finance and real estate transactions. Her practice focuses on assisting a variety of foreign and domestic investors in M&A, takeovers, joint ventures, corporate and organisational restructuring, acquisitions and divestments of real estate or real estate holding companies, the financing and refinancing of real estate acquisitions, forward purchase and leaseback transactions, all aspects of real estate development projects as well as the due diligence of companies and assets and the restructuring of their financial indebtedness.

Agnieszka has been recognised as one of the leading lawyers in Poland in various legal directories including Chambers Europe and EMEA Legal 500. She is also listed as a Who’s Who Legal expert in real estate.

She graduated from the Faculty of Law at Warsaw University. She qualified as an advocate in 2001.

Greenberg Traurig is a law firm with over 2,000 attorneys serving Clients from 38 offices around the world. The Warsaw office has a professional team of more than 100 lawyers and is highly ranked in all major practice areas.

Our real estate team consists of more than 40 top-rated specialists who cover a broad spectrum of core real estate and related practices, including finance, corporate, M&A, tax and capital markets. This team is one of the largest real estate teams in Poland.

We provide a full-service real estate practice, from acquisition, tenant and landlord representation to assisting developers and lenders in seeking to create new real estate development and finance concepts. We also handle dispute resolution arising out of real estate transactions. The team benefits from the support of our market leading real estate practice in the United States.

Barbara Pancer is a senior associate in the real estate department of the Warsaw office of Greenberg Traurig.

Barbara has 15 years of professional experience. She focuses her practice on the investment process, including sale agreements, EPC and other construction contracts (also based on FIDIC templates), development and property management agreements and commercial leases. She also advises on matters connected with the development process, including planning, permit and construction issues. She has broad experience in performing due diligence audits related to the legal aspects of real estate in connection with the sale and purchase of real estate, as well as for banks financing acquisitions or development of real estate.

Barbara has been involved in major real estate and infrastructure projects on the Polish market.

She graduated from the Faculty of Law at Warsaw University. She qualified as a legal advisor in 2012.




Chapter 22

Shepherd and Wedderburn LLP

David Mitchell

Scott Ritchie

Scotland

■ The Climate Change (Scotland) Act 2009 provides powers to impose requirements on owners of residential and commercial buildings to take active steps to improve the energy efficiency of their properties.

■ The Land Registration etc. (Scotland) Act 2012 completely overhauled the system of land registration in Scotland and introduced advance notices providing applicants with a protected priority period for the first time.

■ The Land and Buildings Transaction Tax (Scotland) Act 2013 introduced a new tax on land transfers.

■ The Long Leases (Scotland) Act 2015 converted tenants’ rights under ultra-long leases to outright ownership.

■ The Legal Writings (Counterparts and Delivery) (Scotland) Act 2015 introduced a statutory form of counterpart execution to Scotland and enabled effective electronic delivery of traditional hard copy, wet signature documents.

■ The Private Housing (Tenancies) (Scotland) Act 2016 introduced a new residential tenancy regime and the potential for rent control zones.

■ And in the area of land reform, the Community Empowerment (Scotland) Act 2015:■ enacted a number of provisions designed to empower

communities to have a greater say in the decisions affecting their locality, acquire publicly owned property; and

■ extended the community right to buy to the whole of Scotland,

while the Land Reform (Scotland) Act 2016 set up a new Scottish Land Commission, introduced proposals for registering information about persons with controlling interests in land, and revised and modernised aspects of agricultural tenancies.


Much of Scots real estate law is based on the common law.


There are no international laws which are directly relevant.

1 Real Estate Law


Many aspects of real estate law in Scotland are still affected by conveyancing and other legislation enacted over the last few centuries. The Conveyancing (Scotland) Acts of 1874, 1924 and 1938 continue to be relevant. The Conveyancing and Feudal Reform (Scotland) Act 1970 is largely credited with being the starting point for the modernisation of real estate law in Scotland. The 1970 Act created the “standard security”, which is now the only way in which a fixed charge over heritable property in Scotland can be created. The Land Tenure Reform (Scotland) Act 1974 paved the way for abolition of the feudal system by prohibiting the creation of new feuduties, the Land Registration (Scotland) Act 1979 introduced a state guaranteed system of land registration, the Housing (Scotland) Act 1988 introduced a modern form of residential tenancy, and the Requirements of Writing (Scotland) Act 1995 provided a statutory code for validity and probativity of documents relating to the creation, transfer, variation or extinction of a real right in land.In more recent times, and since the creation of the Scottish Parliament in 1999, much modernising legislation has been enacted, and the Scottish Government’s land reform agenda has also been influential in real estate law-making in Scotland. Of particular note are:■ The Abolition of Feudal Tenure etc. (Scotland) Act

2000, which abolished the feudal system of land holding in Scotland.

■ The Land Reform (Scotland) Act 2003, which created: rights of public access over most land in Scotland; a pre-emptive right to buy for predominantly rural communities; and a crofting community right to buy.

■ The Title Conditions (Scotland) Act 2003, which produced a statutory code for the way in which title burdens affecting land could be created, varied and extinguished.

■ The Tenements (Scotland) Act 2004, which provided a statutory scheme, replacing the common law rules relating to tenements, and providing for a scheme of management for tenements.

■ The Planning etc. (Scotland) Act 2006 sets out the framework for a strategic planning policy.


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unregistered property will induce a first registration into the Land Register and other transactions such as the grant of a new registrable lease, or the grant of a standard security will trigger the requirement for the landlord’s or borrower’s title to be registered in the Land Register, if it is unregistered at the time. Eventually the Register of Sasines will be closed to all deed types. Through this process and voluntary registration in the Land Register of Sasines title, and a process known as Keeper-induced registration, by which the Registers of Scotland can transfer a Sasine title onto the Land Register, it is intended that all title in Scotland will be registered.Some ancient land rights are not registered in either Register. Often these relate to land rights granted by Royal Charter, such as Burgh lands and some lands held by the older Scottish Universities.


Yes. Land registered in the Land Register of Scotland benefits from a state guarantee of title. Titles registered in the Register of Sasines do not. Under the Land Registration (Scotland) Act 1979, this state guarantee was known as indemnity. The state guaranteed that any title registered in the Land Register was a good title, and if any person suffered loss as a result of rectification against them of such a title or in respect of any error or omission in the title, they were entitled to receive compensation in respect of that loss. Under the Land Registration etc. (Scotland) Act 2012, indemnity is replaced by warranty. Warranty is similar to indemnity in respect that any person who suffers loss is entitled to compensation, but the conditions for establishing loss are slightly different. The Keeper’s warranty is that the title sheet of any property is accurate insofar as it shows the owner to be the proprietor of the property and is not inaccurate insofar as there is omitted from it any encumbrance.In certain circumstances, for example where there is a known flaw in the title, indemnity or warranty may be excluded.


There is no compulsion, as such, to register property rights, but registration is the only way that an owner of land or a heritable creditor in a fixed security can obtain a real right of property, as opposed to merely a personal one. A heritable creditor’s rights to enforce a security, for example, can only be exercised if the security is registered, and failure to register a security could also mean that the heritable creditor loses priority to a subsequent security that was registered. Failure to register a title to property would mean that the ownership of that property remained vested in the previous registered or recorded owner.


Commercial leases with a duration of 20 years or less cannot be registered. Residential leases cannot be registered as there is a statutory prohibition against such leases being longer than 20 years. Servitudes can be created other than by express grant, through exercise of the right for a continuous period of at least 20 years, and although they can now be added to the title sheet of a registered title they do not rely on such registration for their validity. Public rights of way do not require registration.

2 Ownership


No, there are no such legal restrictions.



Real estate in Scotland can be held under outright ownership (similar to freehold) or a leasehold title under which a person is entitled to occupy a property under contractual terms agreed with the owner of the property.Other rights include:■ the rights of a heritable creditor to take a standard security

(fixed legal charge) over a property; and■ the rights of a person to exercise servitude rights (easements)

over the land of another or to enforce title burdens such as use restrictions over another property.

Such rights are real rights in property, not contractual and run with the land.


Not generally. Ownership of land includes ownership of any buildings or other structures constructed on the land. An exception to this rule is the law relating to tenements. Unless otherwise specified, the owner of the ground floor flat owns the ground (or “solum”) on which the building is erected, but does not own the whole of the building as a consequence. Each flat in the tenement can be held in separate ownership.


Scots law does not recognise separate estates of legal and beneficial ownership.



No. Scotland currently has two Property Registers which exist side by side: the 400-year-old Register of Sasines and the more modern Land Register of Scotland. Title held in the Register of Sasines is described as both “recorded” or “unregistered”. Title held in the Land Register of Scotland is described as “registered”.A process is currently under way to ultimately transfer all titles in the Register of Sasines onto the Land Register. Any transfer of

Shepherd and Wedderburn LLP Scotland



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Only in limited circumstances at present. For some years the Land Register has operated a system of Automated Registration of Title to Land (ARTL). It was only possible to transact with the whole of titles that were already registered. The Registers of Scotland are currently operating a system for electronic registration of discharges of standard securities, and are developing that system to be able to accept transfers of title (dispositions) and standard securities in the near future.If the transaction involves a first registration into the Land Register, then in addition to the disposition in favour of the applicant, accompanied by a completed application form, all other documents relative to the title have to be submitted. This may include other deeds containing a full description of the property, deeds containing servitudes and burdens, and a plan. If any Land and Buildings Transaction Tax (LBTT) (see Section 9) is payable, payment of this must be confirmed in the application.It is possible to search the Registers through a service provided by the Registers of Scotland, known as Registers Direct. Users of Registers Direct have to be approved or licensed to use it, and charges are made for accessing documents, so it is not a service that is available to the general public. An updated version of Registers Direct known as ScotLIS was introduced during 2017.


Yes, if the person suffers loss as a result of the mistake, and certain conditions apply.


The Registers are open to public inspection and copies of documents registered can be obtained for a fee. A buyer’s solicitor will normally conduct all the necessary searches, inspections and other due diligence required to establish all registered rights and encumbrances, although some rights and encumbrances can exist without registration; for example unregistered leases (with a duration of 20 years or less), or prescriptive servitudes.



Solicitors: usually both the buyer and the seller will instruct their own solicitors to act for them in the negotiation and preparation of the contract. The buyer’s solicitor will conduct all necessary due diligence in relation to the title, any occupational leases, and other ancillary matters, including examining legal reports and other searches. The buyer’s solicitor will attend to submission of an


There is no probationary period following a first registration. For already registered titles there is a type of probationary period in certain very rare cases: this is a protection for good faith purchasers who buy from someone who is not in reality the true owner of the land. Provided that person is registered as the proprietor, and is in possession of the land, the buyer will obtain a good unchallengeable title after a period of one year has elapsed. That one-year period can include the period of possession of the seller, so if the seller has already been in possession for one year, the title is immediately protected.


Title and ownership transfer on registration of the transfer at the Land Register.


The priority of rights is usually determined by the order in which such rights are created, and as a general rule, earlier rights would defeat later competing rights. This can be overturned if the later right was protected by an advance notice, and the earlier right was not, provided the later right is registered within the protected period of the advance notice (35 days).



The Registers of Scotland operate two principal land registers: the older Register of Sasines which is a register of deeds and does not benefit from any state guarantee of title; and the Land Register of Scotland which is a register of rights in land and provides a state guarantee of title. The Land Register is map-based, and property being transferred or secured or over which other rights are being created must be capable of being mapped onto the cadastral map which forms part of the Land Register. There is no mapping requirement in the Register of Sasines.


No. Although under the Land Registration etc. (Scotland) Act 1979 the Land Register would issue a Land Certificate with particulars of the owner, property, and any securities and title conditions affecting the property, under the Land Registration etc. (Scotland) Act 2012, the Land Register operates a policy of dematerialisation. The owner, or the owner’s solicitor, receives by email a PDF plain copy of the title sheet.



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A contract for the sale and purchase of the land must be in writing. In Scotland, the contract is usually adjusted between the solicitors acting for the seller and the buyer, who negotiate and then exchange contract letters (missives) on behalf of their respective clients.Title to the property is transferred by way of a disposition signed by or on behalf of the seller. The purchaser then registers the disposition in the Land Register to complete its title.


The seller does not have a duty of disclosure, in general terms, and the principle of caveat emptor (let the buyer beware) applies, so that the buyer must usually conduct its own due diligence and satisfy itself as to title and other relevant matters in relation to the property.


Yes, if the seller makes a false statement, on the strength of which the buyer is induced to purchase the property, and the buyer suffers loss as a result.


Limited warranties are given in the contract. Some contracts, particularly of residential properties, will contain a warranty from the seller that the title is valid and marketable. However this does not replace the buyers’ own due diligence requirements. Some warranties or confirmations are given by a seller in respect of matters which are only within the knowledge of the seller, and are not otherwise ascertainable from the titles or other searches and reports.


Yes. Usually the seller will grant warrandice in the disposition transferring the title.There are three types of warrandice:Absolute warrandice: A grant of absolute warrandice protects the purchaser from the past and future acts and deeds of the disponer, and from the acts of third parties and is a guarantee from the granter that the title is good, and not subject to unusual conditions of title that are unknown to the disponee. It is expressed by the words: “And I/we grant warrandice.” It is the most common form.Fact and deed warrandice: This is a guarantee against both the future acts or deeds and the past acts or deeds of the granter. In effect it is an undertaking by the disponer that he has not done anything in the past, and will do nothing in the future to prejudice the title granted in the disposition. This type of warrandice is usually given

LBTT return and payment of any LBTT due and to submission of the application for registration and other post completion matters.Agents: selling or letting agents are usually involved in marketing property, and are often responsible for negotiating the principal heads of terms for the sale with the buyers agents.Surveyors: a preliminary step in the purchasing process is to establish the physical condition of the property, and a buyer will instruct a survey to carry out an inspection of the property, either prior to bidding, or will make its offer conditional on receiving a satisfactory survey report.Accountants/financial advisers: particularly if there are complex tax or capital allowances issues, the parties may engage specialist advisers. Specialist tax lawyers may be employed for this purpose.Other specialists may be required according to circumstances.


They will usually render an invoice for their services direct to the client. Agents often operate on a commission basis, agreeing to be paid a certain percentage of the price obtained. Lawyers will usually agree the basis of their fee at the stage of being instructed, and will invariably have been asked to provide a quote for the work. Surveyors are usually paid a fixed fee, often on a scale of fees depending on the value of the property, but not always.


There has not necessarily been a noticeable increase in the availability of capital, but there has been a change in the origin of capital. In recent years UK institutions have not been investing in any great volume in Scotland and have been replaced by global investors. Yield differential with English regions saw a number of trophy assets acquired by investors ranging from the States, Hong Kong and India. A similar sentiment can be said of financing; the traditional UK lenders have a limited appetite and more often than not European lenders are filling the gap.


Secondary/tertiary activity has probably been confined to “flavour of the month” investment classes, e.g. student housing and industrial. Given the onset of Brexit, there may be concerns around sustainability for both (less students and less consumer spending hitting the demand for non-core locations). Hotel investment is also booming given the weak pound (again driven by overseas investors).


The food and beverage market has recently cooled for all but the best locations, presumably driven by a slowdown in consumer spending.




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■ a standard security (perfected by registration at Registers of Scotland) over the asset;

■ an assignation of rental income (perfected by intimation to the underlying tenant(s)) by way of security in relation to rental income receivable from the asset;

■ an assignation in security (perfected by intimation to the relevant counterparty) of the borrower’s rights in any relevant contracts governed by Scots law such as insurance documents, collateral warranties and other construction documentation relative to the asset;

■ a floating charge over all assets of the borrower;■ (occasionally) a share pledge (perfected by execution

and delivery of a stock transfer form in the name of the lender) of the share capital in the borrower, to the extent the borrower is a Scottish-incorporated company; and

■ (occasionally) an assignation in security (perfected by intimation to the account bank) of the borrower’s rights in relation to any Scots law-governed transaction bank accounts.

b) Guarantee – guarantees are sometimes given by the borrower’s parent company or by other companies in the same group.

c) Control accounts – the lender will ensure that any income from the asset is paid into control accounts. Funds from these accounts will only be released to the borrower after interest and amortisation on the loan has been paid.

d) Valuations and LTV covenants – by regularly requiring valuations of the asset and testing the loan to value (LTV) covenant set out in the loan agreement, the lender will ensure that the value of the asset over which it has security remains sufficient in order to repay the loan.

e) Insurance – the lender will require the borrower to take out appropriate buildings insurance.

f) Covenants – the loan agreement will contain both financial covenants (financial targets which the borrower undertakes to meet (for example, an interest cover covenant (and, if the loan is being repaid in instalments, debt service cover covenant)) which aims to ensure that the net rental income from the asset will cover all interest and fees (and any repayments of principal) due under the loan agreement in a given period and non-financial covenants (such as covenants to maintain the asset in good repair or covenants restricting disposal) by the borrower to ensure that the value of the asset is maintained.

g) Tenants and leases – the lender will require detailed undertakings from the borrower in relation to the tenants, the leases and the rental income from the asset (for example, to collect the rent and otherwise enforce the tenants’ lease obligations, not to grant new leases nor to accept surrenders of leases, and to provide regular information to the lender about the tenants, the leases and the rental income).


a) Power of Sale – Pursuant to the standard security granted over the asset, the heritable creditor/lender has statutory powers of sale and foreclosure in relation to the asset under the Conveyancing and Feudal Reform (Scotland) Act 1970. These powers are closely regulated and can only be exercised following the service of a “calling up” notice by the heritable creditor/lender upon the borrower. Service of the “calling up” notice gives the borrower a two-month period in which to repay or satisfy the outstanding debt. If, following expiry of the two-month “calling up” notice period, the borrower has

by granters acting in some representative capacity, such as executors or trustees, in which case generally they will also bind the trust or the executry estate in absolute warrandice. It is expressed by the words: “And I/we grant warrandice from my/our own facts and deeds only.”Simple warrandice: This is usual where the property is being transferred for no consideration, e.g. such as a gift, and is implied in such deeds unless other provision is made. It offers protection from the future voluntary acts or deeds of the granter but not past ones, or third party acts. It is expressed by the words: “And I/we grant simple warrandice.”It is common for no warrandice to be given in sales by insolvency practitioners.


Usually, a buyer does not have any other liabilities to the seller. However, it is the buyer’s responsibility to pay any LBTT due in respect of the transaction, and the registration dues of the disposition in its favour. If the sale price is liable to VAT, the buyer must pay that too.



This section does not address private lending where various consumer protection provisions may apply.The Financial Services and Markets Act 2000 (FSMA) (as amended) provides the framework for the UK regulatory regime. It provides for the establishment, objectives and ongoing functions of the Financial Conduct Authority, an independent, non-governmental body regulating the provision of financial services.The Income Tax Act 2007 requires tax to be withheld on payments of annual interest broadly where that interest is paid by a company or is paid by any person to a non-resident person. Exemptions are available:a) In relation to interest payable on an advance from a bank, if,

at the time when the interest is paid, the person beneficially entitled to the interest is liable to pay UK corporation tax on the interest or would be so liable but for the fact that it is a bank acting through a foreign branch in respect of which the foreign branch exemption applies.

b) If the company paying the interest reasonably believes that the beneficial owner of the interest is a UK-resident company which carries on a trade in the UK through a permanent establishment and is liable to UK corporation tax on the interest or a partnership of which all the partners are such UK-resident or non-UK-resident companies.

c) If the lender has the benefit of a double taxation treaty with the UK reducing withholding tax on interest to zero.


a) Security package – the security package for a facility secured on real estate will usually comprise:



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b) Assignation of rental income – Where the heritable creditor/lender takes an assignation in security of the rental income derived from the asset, this must be perfected by intimation to the underlying tenant(s). Until intimation is given to the tenant(s), there is no perfected assignation and therefore no fixed security over the rental income. The heritable creditor/lender must also demonstrate a sufficient degree of control in respect of the rental income which will ordinarily be achieved by either (a) having the rental income paid by the borrower into a blocked bank account, or (b) where the rental income is collected by a managing agent, having that managing agent enter into a duty of care agreement with the heritable creditor/lender.

c) Other assignations in security – Where the heritable creditor/lender also takes an assignation in security of the borrower’s rights in relation to other contracts or assets governed by Scots law (such as insurance contracts, bank accounts or construction documentation), such assignation in security must be perfected by intimation to the relevant counterparty. Until intimation is given to the relevant counterparty there is no perfected assignation and therefore no fixed security over the relevant rights/contracts. Similar requirements in relation to control as outlined in relation to assignations of rental income will also apply here.

d) Scottish share pledge – In the limited circumstances where the heritable creditor/lender takes a pledge of the share capital in the borrower, this must be perfected by execution and delivery of a stock transfer form in the name of the heritable creditor/lender and registration of the stock transfer form in the borrower’s register of members. An updated register of members and share certificate (showing the heritable creditor/lender as the registered shareholder) should also be obtained. Until the stock transfer forms are executed and delivered, and registered in the register of members of the borrower, the share pledge has not been perfected and there is no fixed security over the share capital.

e) Negative pledge – The loan agreement will contain a negative pledge whereby the borrower agrees not to create any other security interest over the relevant asset (breach of which will be an “event of default”).


Provided the security has been validly created and properly registered, a lender is entitled to take enforcement action in the appropriate circumstances.


In the event of a default under the security, a borrower can take steps to remedy the default before the expiry of the period in any default notice issued by the lender. If the default is remedied, the lender no longer has a right of enforcement in respect of that instance of default.

9 Tax


Land and Buildings Transaction Tax (LBTT) is payable by the buyer of land, and by a tenant of leased property. The tax is charged on a progressive basis; that is to say, it is charged only on the proportion

not repaid or satisfied the outstanding debt then the heritable creditor/lender can enforce its rights under the standard security, unless the asset is used for residential purposes (which can include hotels and student accommodation) in which case the heritable creditor/lender must also apply to court for a decree to sell or foreclose on the asset. Due to the time periods and procedure involved in utilising the powers of sale and foreclosure, it is less common now for heritable creditors/lenders to enforce their rights in this way. Heritable creditors/lenders will often (where the borrower vehicle makes it appropriate) seek to realise their security through appointment or an administrator or liquidator.

b) Appointment of a receiver – Other than in very limited circumstances, a heritable creditor/lender cannot appoint a receiver under Scots law in relation to the asset. Where the borrower holds multiple assets and has granted a limited assets floating charge over a Scottish asset, it may be possible for the heritable creditor/lender to appoint a “Scottish” receiver (under the Insolvency Act) to the Scottish asset. The location and jurisdiction of the borrower will also have an impact on this ability to appoint a Scottish receiver. Where such an appointment is possible, the receiver will have the powers to sell and manage and realise the property in accordance with Schedule 2 to the Insolvency Act, plus any additional powers outlined in the floating charge security.

c) Appointment of an administrator – If the borrower is an appropriate corporate entity then the heritable creditor/lender could apply for the appointment of an administrator, either through the courts or, if the heritable creditor/lender has a qualifying floating charge over the borrower, through an out-of-court procedure. One of the effects of administration is that there is a moratorium on proceedings against the borrower (or its property) or security enforcement without the permission of the court or the consent of the administrator. An administrator is an officer of the court and has wide powers including powers to dispose of assets.


The lender will require:a) a report on title (lenders usually require the report to be in

a prescribed format called a certificate of title with both the City of London Law Society or Property Standardisation Group forms being generally accepted);

b) a valuation of the asset; c) a first ranking standard security over the asset; andd) a floating charge over all assets of the borrower (where the

borrower is a special purpose vehicle).


a) Registration of security package – The security package referred to in the response to question 8.2 above will be perfected by the standard security being registered at Registers of Scotland. Prior to the standard security being submitted for registration, the borrower should submit an “advance notice” against the property title in respect of the standard security, which gives the heritable creditor/lender a priority period of 35 days. The heritable creditor/lender will then have priority as against other creditors in respect of the asset for that period. In addition, if the security is granted by a UK company, such security must be registered against the company at Companies House within 21 days of creation, failing which the security will be void against any liquidator or administrator of the company and any third party creditor.




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Even when a property has been opted, there are circumstances in which no tax is payable. This is where the building concerned is held by the seller as a going concern (i.e. it is being operated as a business such as the letting of property). Provided the buyer intends to continue to operate the building in the same way, and also opts to tax, the transaction can qualify as a transfer of a going concern (TOGC), so that VAT is not payable.


UK resident companies pay corporation tax at the rate of 19% (expected to be reduced to 17% in April 2020) on any capital gain which arises from the transfer of property held as an investment. Profits realised from the transfer of property held as trading stock will be subject to corporation tax on income at the same rate.Individuals may be liable to capital gains tax on disposal of property at the rate of 20%, or 28% for gains on chargeable residential property.


Yes. LBTT does not apply to the purchase of shares in a company (or other entity) owning a property asset, unlike the purchase of the asset itself. Stamp duty is payable on the transfer of shares in a UK company at the rate of 0.5%.


A buyer of real estate should always consider the LBTT implications and for commercial property VAT considerations. Certain purchases, such as the acquisition of multiple dwellings, and certain buyers such as charities, registered social landlords, or group company transfers, may qualify for relief.Special LBTT rules apply when works are carried out as part of the consideration for a land transaction. An exemption may apply when works are carried out by the buyer, if certain conditions are met. Particular care is required when works are carried out by the seller. If the works are carried out under a contract which is closely linked with the land contract, LBTT may be payable on the value of the works as well as the price paid for the land.The annual tax on enveloped dwellings (ATED) is not a property transaction tax as such; it is an annual charge on UK residential property owned by non-natural persons, (mainly companies) that own UK residential property valued at more than £500,000. The annual charge ranges on bands from £3,500 (for values of more than £500,000 but less than £1 million) to £220,350 (for values of more than £20 million) depending on the value of the property.



There is very little by way of legislation regulating commercial leases in Scotland. The Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 makes provision for steps that a landlord must take before it can irritate a lease, requiring the tenant to remove due to some breach.

of the price within and at the different rates set for, the relevant band or bands of tax. For leases, the net present value (NPV) of the rent must be ascertained, and the tax is then calculated at 1% of NPVs over £150,000. LBTT may also be payable on chargeable consideration other than rent, such as a premium.The current rates of LBTT for non-residential properties (w.e.f. 1 April 2015) are:

Purchase price LBTT rateUp to £150,000 0%Above £150,000 to £350,000 3%Above £350,000 4.5%

The current rates for residential properties (w.e.f. 1 April 2015) are:

Purchase price LBTT rateUp to £145,000 0%Above £145,000 to £250,000 2%Above £250,000 to £325,000 5%Above £325,000 to £750,000 10%Over £750,000 12%

An additional dwelling supplement (ADS) of 3% applies to purchases of second or additional residential properties.


LBTT is payable within 30 days of the effective date of a transaction. For purchases of property, the effective date usually means the date of completion: when the price is paid. However, it is not possible to register the disposition of the property at the Land Register of Scotland, unless the LBTT has been paid, or there are in place “arrangements satisfactory” to Revenue Scotland for payment of the tax. Arrangements satisfactory mean that payment must be received by Revenue Scotland (by BACS, CHAPs or direct debit) no later than the fifth working day after the date of submission of the LBTT return. For leases, the effective date is the last date of execution of the lease, or if earlier, when “substantial performance” takes place. This will occur if the tenant takes entry to the property or makes payment of all or a substantial proportion of any non-rental consideration, or makes the first payment of rent.


No income tax is payable on transfers of real estate, although, depending on the nature of the seller’s business, they may be liable to pay tax on any profit from the sale.


As a matter of law, real estate is exempt from VAT. However, the owner of commercial property can opt to tax it, so that it can treat any supplies it makes in relation to the property subject to VAT at the standard rate (currently 20%). If the seller has opted to tax the property, then the price on sale will attract VAT. It is quite common for owners of commercial property to have opted to tax. In addition, sales of newly constructed commercial buildings or civil engineering works which are less than three years old will be standard rated.Sale contracts will invariably provide for the price to be exclusive of any VAT, so that if VAT is payable, this must be met by the buyer. It is the liability of the seller to account to HM Customs and Excise for the amount of the VAT paid on the price.



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(f) Repairs: Most business leases will proceed on an FRI basis. How this is effected will depend on the way in which the lease is structured. The lease will invariably impose liability for repairs to the premises on the tenant. If the premises comprise the whole of the building then the tenant will be expected to attend to repairs to both the interior and exterior of the premises.

For leases of part of a larger building, it is usual for the premises to consist of the internal parts of the area let, and the other parts of the building – the common parts and the exterior – will be repaired by the landlord, with a proportion of the cost of those repairs being recovered from the tenants through service charge.


(a) Corporation tax: A UK-resident company landlord will be liable to pay corporation tax on rental profits calculated on an accounts basis, but with certain modifications.

(b) Income tax: all other taxpayers will be liable to pay income tax on rental profits as they arise, also on an accounts basis but with certain modifications.

(c) VAT: if a landlord has opted to tax a commercial property, it must account to the UK tax authority for VAT on any rent and other amounts due to it under a lease of the property. The landlord will normally seek recovery of the VAT from the tenant.

(d) LBTT: Leases may be subject to LBTT. The net present value (NPV) of the rent must be ascertained, and the tax is then calculated at 1% of NPVs over £150,000. LBTT may also be payable on chargeable consideration other than rent, such as a premium. The standard non-residential rates and bands apply to such payments; however the nil rate band does not apply to lease premiums if the average annual rent exceeds £1,000.


For a lease to be terminated on the expiry date, either the tenant or the landlord has to give the other a notice to quit, usually at least 40 days prior to the expiry date. If neither party serves notice, the lease may continue on the same terms and conditions for a further year. This is known as “tacit relocation” and leases can continue this way year by year until one of the parties serves appropriate notice to quit.Most leases will contain an irritancy clause, providing that the landlord will be entitled to terminate the lease in the event of a breach by the tenant, on giving notice. A breach may be a monetary one, such as non-payment of rent, or non-monetary such as a default by the tenant in respect of one or more of its other obligations under the lease, or on the tenant becoming insolvent. The Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 requires that appropriate notice must be given by the landlord to the tenant, and if the breach is a remediable one, the tenant must be given the opportunity to remedy the breach.There is no statutory provision allowing a tenant to extend or renew the lease – it will be a matter of agreement between the parties whether the lease is extended or renewed, and some leases contain an option to extend or renew.There are no rules relating to either party being entitled to compensation from the other on termination. At common law, a tenant is not entitled to compensation from the landlord for improvements. Unless there is specific provision in the lease, any improvements

In very limited circumstances, a statutory right of renewal is available under the Tenancy of Shops (Scotland) Act 1949. This was designed to protect tenants of shop premises, by allowing the tenant to apply to the sheriff court for renewal of the tenancy where a notice to quit has been served on a tenant, and the tenant wants to continue the tenancy, but has been unable to get a renewal of the tenancy from the landlord on satisfactory terms. This is rarely invoked, and it is likely that it will be repealed.For the most part, leases are governed by the terms of the contract between the landlord and the tenant, that constitutes the lease, and by common law.


The terms of business leases are usually negotiated between the parties and so the detail of the provisions can vary. However, most business leases tend to conform to a standard full repairing and insuring (FRI) format. Some sectors of the real estate industry, representing both landlords and tenants are attempting to standardise the terms of leases by adopting the format of the Model Commercial Lease (MCL). The MCL leases were launched in 2014 and consist of suites of leases for office, retail, logistics/industrial and food/drink premises. These leases have been generally well received in England and Wales, and in 2016/2017, the Property Standardisation Group (www.psglegal.co.uk) has been involved in producing Scottish law-compliant versions of the MCL leases. The leases are intended as a starting point for the drafting of a commercial lease, and adopt a balanced approach for both parties.


(a) Length of term: The term of the lease will vary according to what is negotiated between the parties. However, lease terms have been getting shorter over the past decade or so, and the average term is now likely to be less than 10 years.

(b) Rent increases: Leases will usually provide for a regular review of the rent – typically an upwards only review every five years, based on open market rents prevailing at the time of review. Some leases will link the increases to a fixed formula or to the Retail Price Index or Consumer Price Index.

(c) Tenant’s right to sell or sub-lease: The lease will usually set out in some detail what rights the tenant has to assign the lease to a new tenant or to sub-let all or part of the premises. Where permitted, assignation or subletting will be subject to obtaining landlords consent. There is usually a provision that consent is not to be unreasonably withheld, but that will usually be subject to the landlord being satisfied as to the suitability of the proposed assignee or sub-tenant.

(d) Insurance: Usually, the landlord will insure the whole of the premises, or the building or estate in which the premises are located (where the landlord owns the whole building or estate), for full reinstatement value, and for loss of rent for three years. The landlord will then recover the premium and any additional costs from the tenants.

(e) Change of control/corporate restructuring: It is not usual to see any specific provisions in a lease regarding change of control of the tenant or corporate re-structuring involving the tenant.




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of tenancy – the “private residential tenancy” – is the Private Housing (Tenancies) (Scotland) Act 2016, which came into force on 1 December 2017. From that date, all new private residential tenancies must conform to the requirements of the 2016 Act.Most private residential leases entered into before December 2017 were assured tenancies or short assured tenancies under the Housing (Scotland) Act 1988.Other key legislation in this area includes:■ Housing (Scotland) Act 2006 (tolerable standard and

repairing standard for rented accommodation; tenancy deposits; licensing of HMOs).

■ Housing (Scotland) Act 2010 (registered social landlords).■ Private Rented Housing (Scotland) Act 2011 (registration

of private landlords).■ Tenancy Deposit Schemes (Scotland) Regulations 2011

(regulating the treatment of deposits paid by tenants).


Residential tenancies for houses in multiple occupation (HMOs) are regulated by the provisions of the Civic Government (Scotland) Act 1982, and licensing of HMOs became mandatory in 2000 under the Civic Government (Scotland) Act 1982 (Licensing of Houses in Multiple Occupation) Order 2000. The regulation of HMOs was consolidated in the Housing (Scotland) Act 2006, with amendments in the Housing (Scotland) Act 2010 and the Private Rented Housing (Scotland) Act 2011.


(a) Length of term: Under the Housing (Scotland) Act 1988, the most popular form of tenancy was the short assured tenancy. The tenancy is required to be for a minimum of six months, and usually the tenancy agreement will provide for the tenancy to continue on a month-by-month basis until terminated by either party on giving (usually two months’) notice. The attraction of the short assured tenancy for the landlord is that it has the right to terminate the tenancy for no reason other than that the period of the tenancy has come to an end. This type of tenancy will cease to be available under the Private Housing (Tenancies) (Scotland) Act 2016.

The other form of tenancy under the 1988 Act was the assured tenancy. These types of tenancy tended to be for longer periods, as landlords would use the short assured version for shorter term lets.

There is no provision under the Private Housing (Tenancies) (Scotland) Act 2016 for a lease term to be stated. In practice, landlords and tenants may negotiate a fixed term, but if the tenant refuses to leave at the end of the term the landlord will have to establish one of the statutory grounds for eviction before the tenant can be removed (see (c) below).

(b) Rent increases/controls: A landlord can intimate a rent increase to the tenant during the course of a private residential tenancy under the 2016 Act, but not more than once in a 12-month period. Notice of the increase must be served on the tenant and will apply from the date specified in the notice unless the tenant refers the matter to a rent officer, who will then determine the level of rent. There is a right of appeal by either the landlord or the tenant to the First Tier Tribunal (Housing and Property Chamber).

carried out by the tenant and which attach to the premises will fall to be retained by the landlord without compensation.


Once the landlord of a business lease has sold its interest in the property, it will cease to be liable for any obligations under the lease, unless these have been specifically identified in the terms of the sale. Identifying whether there are outstanding liabilities to tenants will form a part of the due diligence of the buyer, who will generally seek contractual confirmations from the seller about any outstanding matters. Usually an outgoing tenant will cease to be liable for any obligations under the lease, and the terms of the assignation to a new tenant will cover the rights and responsibilities of the outgoing and incoming tenants between themselves. In some cases the contractual arrangement between the parties may reserve liability for any antecedent breach that is not known at the date of transfer, but which subsequently comes to light.


“Green obligations” are still not commonly encountered in business leases, although provisions relating generally to energy efficiency or sustainability are starting to appear more often. It would not be unusual to see provisions in a lease or in a licence for works that prohibit the tenant from carrying out any alterations to the premises that might have an adverse effect on the energy efficiency rating of the premises.Green issues are becoming more relevant to landlords of certain larger buildings due to the introduction in September 2016 of the Assessment of Energy Performance of Non-domestic Buildings (Scotland) Regulations 2016. The Regulations affect buildings or building units of more than 1,000 square metres, which do not meet the building standards regulations which had effect on or after 4 March 2002. On the sale or letting of such buildings the owner must obtain an Action Plan, containing recommendations for improvement measures, which must be carried out. Alternatively, operational ratings can be measured and must be reported annually. Either alternative requires the cooperation of the tenant, and the object of the exercise is to improve the energy efficiency of the building and reduce CO2 emissions, based on reduction targets set by the Action Plan. Accordingly landlords are now more inclined to seek to include “green” obligations in new leases. The MCL leases contain provisions relating to sustainability issues.



Residential leases and residential landlords are highly regulated in Scotland. The latest legislation which introduces a new form



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(a) Planning and Building Control■ Town and Country Planning (Scotland) Act 1997 – sets out

the main framework for planning control in Scotland.■ Planning (Scotland) Act 2006 – provides the framework for

planning and development strategy.■ Acquisition of Land (Authorisation Procedure) (Scotland)

Act 1947 applies to most of the compulsory purchase schemes.

■ Building (Scotland) Act 2003 – regulates the building standards system for construction, demolition and alteration works requiring a building warrant.

(b) Environmental■ Environmental Protection Act 1990 – provides for the

identification and remediation of contaminated land. ■ Control of Asbestos Regulations 2012 – imposes a duty of

persons responsible for maintenance of properties to manage any asbestos in those properties.


The Scottish Government and local authorities have powers of compulsory purchase. Generally, the Acquisition of Land (Authorisation Procedure) (Scotland) Act 1947 regulates most uses of compulsory purchase, although there are several forms of compulsory purchase procedures, which may come from private legislation or by an order under the Transport and Works (Scotland) Act 2007. The process is laid down in Scottish Planning Circular 6/2011. Compensation is payable, and is based on valuation. Assessing compensation is governed by continually evolving legislation and case law and is a very complex area. Whether a person is entitled to compensation, and how much compensation they are entitled to, will depend on the circumstances. However, in calculating the amount of compensation, the following may be taken into account:■ The open market value of the interest.■ Compensation for severance and/or injurious affection.■ Compensation for disturbance and other losses not directly

based on the value of the interest. This includes certain reasonable professional fees.

Planning Circular 6/2011 provides basic principles for acquiring authorities to follow when assessing and negotiating the level of compensation due, although specialist valuers are often instructed to progress this aspect.


Overall executive control and responsibility for planning in Scotland rests with the Scottish Ministers. Their role includes: introducing new planning legislation; publication of the National Planning Framework (NPF); producing Scottish planning polices and guidance (including the Scottish Planning Policy (SPP)); Planning Advice Notes (PANs); and planning circulars. Through

The 2016 Act introduces the potential for rent controls by local authorities. A local authority may make an application to the Scottish Ministers, asking for all or any part of the areas for which the authority is responsible to be designated as a Rent Pressure Zone. If an area is so designated, then rent increases may not be applied except in accordance with a capping formula set out in the Act.

(c) Tenant’s rights to remain in the premises at the end of the term: Under a private residential tenancy, the tenant can continue to occupy the premises, even after any contractual expiry date. To remove a tenant who remains in the premises, the landlord will have to establish that one of the grounds for repossession applies. Some of the grounds are mandatory (M) – if established the First Tier Tribunal (Housing and Property Chamber) must grant repossession. Others are discretionary (D). The grounds are:■ The landlord intends to sell the property (M).■ The property has been repossessed by the landlord’s

lender, who intends to sell (M).■ The landlord intends to carry out significantly disruptive

refurbishment work (M).■ The landlord intends to live in the property (M).■ A family member of the landlord intends to live in the

property (D).■ The landlord intends to use the property for a non-

residential purpose (M).■ The property is required for occupation by a person

working for a religious organisation (M).■ The tenant was given the accommodation as an employee

and is no longer an employee (M).■ The tenant no longer has a need for supported

accommodation (D).■ The tenant is not occupying the property (M).■ The tenant has failed to comply with a condition of the

tenancy agreement (D).■ The tenant has been in arrears of rent for three or more

consecutive months (M).■ The tenant has a conviction for an offence committed by

using the property for an immoral or illegal purpose (a “relevant conviction”) (M).

■ The tenant has engaged in anti-social behaviour (D).■ The tenant associates in the property with a person who

has a relevant conviction or has engaged in anti-social behaviour (D).

■ The landlord is not registered (D).■ The landlord’s HMO licence has been revoked (D).■ An overcrowding statutory notice has been served on the

landlord (D).(d) Tenant’s contribution/obligation to the property “costs”:

Usually, the tenant does not have to contribute towards the cost of maintenance and repair of the property or the insurance of the building and any landlord’s contents. The tenant will usually have to meet the cost of utilities: gas, electricity and telephone; and council tax.


See question 11.3(c). The landlord would have to apply to the First Tier Tribunal (Housing and Property Chamber) for repossession of the property, citing one of the grounds. A hearing would then be held, at which relevant evidence to support the ground relied on would have to be produced.




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Local authorities have enforcement powers to deal with breaches of planning control. However, if they fail to take enforcement action, within specified time limits, the development becomes a lawful development under the Town and Country Planning legislation through essentially having implied planning permission. However, these time limits for enforcement action do not apply to breaches of the particular statutory controls of listed buildings, tree preservation orders or advertisement control systems.A four-year time limit applies in situations where there has been a breach of planning control consisting of carrying out without planning permission building, engineering, mining or other operations. The four years starts with the date on which the operations were substantially completed. The four-year time limit is also applicable where the breach consists of a change of use of any building to use as a single dwelling house. For any other breach of planning control, no enforcement action may be taken after the end of the period of 10 years, beginning with the date of the breach. This includes breaches of planning conditions and circumstances where there has been a material change of use to a property.


If planning permission is required for a development, an application has to be submitted to the relevant local authority. This process is governed by the Town and Country Planning (Development Management Procedure) (Scotland) Regulations 2013, which also set out the time limits for determining planning applications. The time limit for determination of national or major developments is four months, with a two-month time limit for all other applications. Various types of planning application can be made: full planning permission; planning permission in principle; approval of matters specified in conditions; variation; retrospective; and planning permission renewal. The fees for a planning application vary depending on the type of application under the Town and Country Planning (Fees for Applications and Deemed Applications) (Scotland) Regulations 2004. Building warrant fees are regulated by the Building (Fees) (Scotland) Regulations 2004.


Historic Environment Scotland (HES) carries out statutory functions to protect historic buildings and monuments. Under the Ancient Monuments and Archaeological Areas Act 1979, HES can schedule sites of national importance and take them into state care. In general, properties that are scheduled as historic buildings and monuments are not the subject of transfers.HES is also authorised under the Planning (Listed Buildings and Conservation Areas) (Scotland) Act 1997 to list structures for their architectural or historic significance. The fact that a property is a listed building does not affect the owner’s ability to transfer ownership of it. Listing does, however, affect what an owner may do with that building and whether they are able to carry out any alterations to it. Any alterations to a listed building, including demolition or extension, which would affect the character of the listed building will require listed building consent from the local authority under the 1997 Act, which is a similar process to that of a planning application.

the Directorate for Planning and Environmental Appeals (DPEA), Scottish Ministers also determine a variety of planning appeals and they may also choose to call in planning applications. Scottish Ministers also have a role in dealing with listing buildings through Historic Environment Scotland. At a local level, implementation of Scottish planning policy is the responsibility of local authorities. They deal with the development of local planning policies (local development plans) for their area, and are responsible for determining planning applications and enforcing planning and building control. While the Scottish Ministers have the overall responsibility for planning in Scotland, the majority of the planning process will be conducted through local authorities, at least in the initial stages. The Scottish Ministers can choose to oversee the development of proposed local development plans and the approval of strategic development plans.All current Scottish planning policies, guidance and local authority development plans are available online through the Scottish Government website or the relevant local authority.A buyer will obtain initial information about the planning position for a particular property from the seller. The seller will be expected to provide a property enquiry certificate (PEC) as part of the due diligence package. A PEC provides details from local authority records about planning applications, whether the property is a listed building or lies in a conservation area or is otherwise designated, for example as a Site of Special Scientific Interest, affected by a tree preservation order, or an Article 4 direction restricting permitted development. The PEC will also provide details of any planning enforcement notices or other orders and whether the property is affected by any planning policies etc. within a draft development plan. A PEC should also detail any recent building control decisions on applications for the property.


Planning permission is required where there is “development”, which is defined as “the carrying out of building, engineering, mining or other operations in, on, over or under land, or the making of any material change in the use of any buildings or other land”.There are limited permitted development rights for works that do not fall within this definition, such as certain development within the curtilage of a dwelling house, the installation of domestic micro generation equipment, and agricultural buildings. There are a number of specific classes of permitted development rights detailed in the Town and Country Planning (General Permitted Development) (Scotland) Order 1992. If planning permission is required for a development, an application has to be submitted to the relevant local authority.The majority of all construction, demolition and other works will also require a building warrant from the Building Control Department of the relevant local authority. This may include works that fall within a class of permitted development. Applying for a building warrant is a separate process from applying for planning permission. The Building (Scotland) Act 2003 and the Building (Procedure) (Scotland) Regulations 2004 are the primary statutory instruments under which the building standards system operates.


Yes – see question 12.4 above.



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The situation has changed for certain non-domestic buildings, due to the introduction in September 2016 of the Assessment of Energy Performance of Non-domestic Buildings (Scotland) Regulations 2016. The Regulations affect buildings or building units of more than 1,000 square metres, which do not meet the building standards regulations which had effect on or after 4 March 2002. On the sale or letting of such buildings, the owner must obtain an Action Plan, containing recommendations for improvement measures, which must be carried out. Alternatively, operational ratings can be measured and must be reported annually. The Action Plan also sets energy efficiency and emissions reduction targets, and the recommended improvement measures must be designed to have the effect over time of meeting those targets.

13 Climate Change


The Carbon Reduction Commitment Energy Efficiency Scheme (CRC) is a mandatory scheme for the purchase of allowances that reflect the amount of emissions that a participant estimates it will make from buildings owned by it. The scheme started in 2010 and applies to large commercial organisations and public sector bodies. The initial qualification criteria – i.e. whether or not the regime applies to an organisation – is based on electricity consumption. Those organisations that use at least 6,000 MWh (megawatt hours) of electricity from half-hourly meters (which affect commercial sites with a large consumption of electricity where a meter reading is taken every half hour – allowing for accurate billing). However, the CRC has not been the success that was hoped for in reducing emissions and changing behaviour. It is to be discontinued. The current Phase which runs until 31 March 2019 will continue, but then the scheme will end.


The Climate Change Act 2008 sets a UK-wide carbon emissions reduction target for at least an 80% reduction in emissions from 1990 levels by 2050. It also sets an interim target of a 26% reduction by 2020. The Climate Change (Scotland) Act 2009 sets the same 2050 target for Scotland, but also sets a more ambitious interim target of 42% reduction in emissions by 2020.The Scottish Government intends to introduce a Climate Change Bill during the 2017/18 parliamentary session. The Bill will propose to increase the ambition of the 2050 target to 90% greenhouse gas emission reduction from the baseline. The Scottish Government also proposes, in line with advice from the independent Committee on Climate Change, to update the interim target for 2020 to at least 56%, and to set new interim targets for at least 66% in 2030 and at least 78% in 2040.


Building standards require newly constructed buildings to meet certain energy efficiency standards. Scottish Ministers announced in June 2015 that they would take long-term action to reduce the energy demand of, and decarbonise the heat


A potential buyer can obtain information about the contamination or pollution of land or buildings from a variety of sources. A PEC can, although usually only to a limited extent, provide useful information on any statutory notices served under environmental protection legislation. This includes information on whether a particular site is registered in the relevant local authority’s contaminated land register. Not all land that is contaminated is registered in a public register, however – such registers will only contain details of land that has been identified as contaminated. A PEC will, however, only provide information available within public registers. Where there is a possibility of contamination at a site, the prudent course of action is to engage a reputable environmental consultant to prepare an in-depth environmental report or a desktop survey, depending on the buyer’s needs. It is essential to be clear what level of reporting is required for each particular transaction so that a site-specific, valuable report is provided.


The environmental regimes relating to water, contaminated land and waste are each governed by separate statutory regimes. All have one element in common, however: they all follow the “polluter pays” principle. This principle seeks to ensure that those who pollute will pay the full costs of any requirement to clean up. Liability for contaminated land and its remediation under the statutory contaminated land regime is contained in Part IIA of the Environmental Protection Act 1990. Under this, local authorities have the duty to inspect land and properties within their council boundaries to identify contaminated land. Following such identification, the local authority will notify the Scottish Environment Protection Agency (SEPA), the owner, any occupier and any “appropriate person”. Liability is on the basis of the “appropriate person” who “caused or knowingly permitted” the contamination. Under Part IIA, the appropriate person is held liable to carry out remediation works. If, after reasonable inquiry, that person cannot be found, liability then falls on the present owner or occupier.


An Energy Performance Certificate (EPC) must be obtained for a building or part of a building when it is sold or let. This applies to both commercial and residential properties.EPCs were introduced by the Energy Performance of Buildings (Scotland) Regulations 2008. An EPC is a document that states the energy efficiency rating and environmental impact of a building by measuring the amount of carbon dioxide estimated to be emitted from the building. The energy efficiency ratings are shown on a scale of A (excellent efficiency) to G (very poor efficiency). The EPC must also indicate current carbon dioxide emissions, potential emissions, the current energy consumption of the building and suggested cost-effective improvements.A recommendation report will also accompany an EPC. This includes a list of cost-effective measures to improve the building’s energy efficiency. It is not mandatory to implement these measures.




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supply to, Scotland’s residential, services and industrial sectors, and designated energy efficiency as a national infrastructure priority. The strategy for this is enshrined in Scotland’s Energy Efficiency Programme (SEEP) which is under development and will be rolled out from 2018. SEEP will be a coordinated programme to improve the energy efficiency of homes and buildings in the commercial, public and industrial sectors and to decarbonise their heat supply, with an initial estimated overall investment in excess of £10 billion.


David MitchellShepherd and Wedderburn LLP1 Exchange CrescentConference SquareEdinburgh EH3 8ULScotland

Tel: +44 131 473 5217Fax: +44 131 228 1222Email: [email protected]: www.shepwedd.com

Scott RitchieShepherd and Wedderburn LLP1 Exchange CrescentConference SquareEdinburgh EH3 8ULScotland

Tel: +44 131 473 5761Fax: +44 131 228 1222Email: [email protected]: www.shepwedd.com

Shepherd and Wedderburn is a leading UK law firm. From offices in Edinburgh, Glasgow, Aberdeen and the City of London, the firm delivers comprehensive multi-jurisdictional legal advice across every business sector as well as offering the full range of private client and wealth management services.

Regarded by many as the go-to firm for specialist advice in: real estate; energy and natural resources; and the financial and banking sectors, Shepherd and Wedderburn also has an impressive track record in advising clients from across other industries and sectors. FTSE and AIM companies, large SMEs, and public service organisations are counted among its clients.

With 81 partners and more than 500 staff, Shepherd and Wedderburn has the expertise, experience and depth of resource to deliver what our clients need.

As a founding member of the World Services Group, Shepherd and Wedderburn is able to respond to clients’ needs swiftly and effectively anywhere in the world. Currently the firm serves clients in 92 jurisdictions.

David is qualified in Scotland and has a broad-based commercial practice. David has particular experience in the field of development having been involved in a number of significant office, retail and mixed use projects across Scotland. In addition, David advises a number of UK banks and Insolvency Practitioners on the property aspects of restructuring and insolvency.

Scott is qualified in Scotland and has extensive experience advising on developments, leasing, asset management, acquisitions and disposals. He is known for his strong technical skills and commercial awareness and advises in high-value complex transactions. Clients include global investors and funders, developers, hospitality and leisure operators, and corporate occupiers.

AcknowledgmentThe authors would like to thank Ann Stewart, a Property and Professional Development Adviser and senior professional support lawyer at Shepherd and Wedderburn LLP, for her invaluable assistance in the preparation of this chapter.


Chapter 23

Konečná & Zacha Mgr. Vladimír Kordoš, LL.M.

Slovakia

the rights in rem to the real estate positioned in the Slovak Republic are governed exclusively by the substantial law of the Slovak Republic. Comparably, Slovak courts possess exclusive jurisdiction over disputes, where the object of such is rights in rem. Thus, there is no or little effect of the national substantive laws on real estate law in Slovakia. Though with respect to that, international treaties and covenants displaying real estate issues can be applicable if necessary.

2 Ownership


Slovak laws permit both natural and legal persons to acquire real estate as they like. An absence of restrictions on ownership of real estate exists, though this is subject to exceptions regarding categories of land (see below). Any natural or legal person, a resident or a foreigner, is entitled to acquire and own real estate. A resident can be defined as an individual or as a natural person who has their permanent residence in the Slovak Republic, or a legal person who has their registered seat in the Slovak Republic. A foreigner is a natural or legal person that is not a resident. The new legal regulation of the Act on acquisition of ownership of agricultural land took over legally binding EU legislation represented by the Council Directive 88/361/EEC of 24 June 1988 for the implementation of Article 67 of the Treaty (Special edition O. J. EU, Chap. 10/Vol. 1; O. J. EC L 178, 8. July 1988). On one hand, the Act precisely specifies the range of potential acquirers of agricultural land by the establishment of the priority right of the persons conducting business in agricultural production. On the other hand, the liberalisation of the Foreign Exchange Act (§ 19 (a)) and the provision § 4 par. 1 of the Act on acquisition of ownership of agricultural land open up the possibilities of acquiring agricultural land in Slovakia for new persons and entities who, up until now, have only been allowed to acquire such land by inheritance (for instance, the donation or the sale of land to close persons not being citizens of the SR and residing outside the territory of the Slovak Republic).Ownership can be restricted furthermore by such special laws consisting of the Water Act, the Road Act, the Mining Act, or the Cultural Monuments Act.

1 Real Estate Law


The governing laws upon real estate in the Slovak Republic consist of: Act No. 40/1964 Coll. the Civil Code; Act No. 513/1991 Coll. the Commercial Code; Act No. 50/1976 Coll. On Territorial Planning and Building Code (the Building Act); Act No. 162/1995 Coll. on the Land Registry and the Registration of Ownership Titles and Other Rights to Real Estate (Cadastral Act); Act No. 182/1993 Coll. on the Ownership of Apartments and Non-residential Premises; Act No. 116/1990 Coll. on the Lease and Sublease of Non-residential Premises; and Act No. 202/1995 Coll. the Foreign Exchange Act; and Act No. 140/2014 Coll. on Acquisition of Ownership of Agricultural Land.


The Slovak Republic is a member of the countries that bestow continental legal systems. Hence, real estate rights are regulated by generally binding legal norms, specifically statutory acts. Albeit, court decisions, specifically decisions made by the Supreme Court of the Slovak Republic and the Constitutional Court of the Slovak Republic in matters involving real estate, may represent a vital source of interpretation of the respective acts of the provisions. Nevertheless, these court decisions, generally, are not legally binding (instead, only binding to the parties to the action in the course where such decision has been executed).


Private international law depicted under Slovak legislation (including EU legislation and as Act No. 97/1963 Coll. on Private and Procedural International Law) allows the parties to have the liberty to select the law governing their contracts, along with the court attaining jurisdiction over any possible dispute. Nonetheless,



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implemented in the Land Registry. Furthermore, some other events relating to real estate shall also be entered into the Land Registry, in particular orders declaring bankruptcy of the owner of a real estate, commencement of an enforcement proceeding by the sale of a real estate, commencement of expropriation proceedings, and interlocutory injunctions prohibiting disposal with real estate. In principle, no contractual rights over real estate shall be entered in the Land Registry, with the exception of rights to lease exceeding at least five years in duration.


In the Slovak Republic, the principle of material publicity (principle of reliability) applies, according to which information registered with the Land Registry is deemed as reliable and binding, unless the contrary is proven. It is worth mentioning, however, that in the past entries in the Land Registry have been known to be untrue. Since the prescription period in the Slovak Republic in the case of real estate amounts to 10 years, it is recommended that prior to purchase ownership titles to the respective real estate are verified for the past 10 years and the closest foregoing acquisition title. Alongside this, there is room to have an acquisition title insured, albeit, this is not common practice.


The rights portrayed in question 4.1 must be registered with the Land Registry. Rights in rem acquire the effects of substantive law upon their registration with the Land Registry. Thus, if an owner (a person in possession of a real estate or a tenant, who is a natural person) fails to notify the Land Registry of any changes of data within the time limits prescribed by law, they may be held liable for committing an administrative offence, for which a fine of up to EUR 33.19 may be imposed.


In principle, only rights in rem (e.g., mortgage or easement) are recommended to be registered with the Land Registry.


Under Slovak law, there is no probationary period following first registration, nor are there different classes or qualities of title on first registration.


In case of a land sale, the ownership title to the land passes from the seller to the buyer at the moment of the decision of the competent Land Registry Administration on authorising registration with the Land Registry becoming final.



The important aspects of rights of land in the Slovak Republic are listed accordingly: i) the right of ownership (the different types of ownership

are exclusive ownership, co-ownership and undivided co-ownership of spouses);

ii) possession; iii) the right to mortgage; iv) the right to lease; and v) the right of back purchase. The right of ownership in relation to land may be restricted by easements such as the right of way or the right to build.The existence of pre-emption rights over the land either based on substantial law or of a purely contractual nature arranged between the parties can be present. The right of lease is solely based upon a purely contractual agreement between the parties.Special rights over land can arise from the administration of property of the State, of municipalities or of regional self-governments.


As illustrated under the Civil Code, buildings do not form part of the land plots. This can be explained by the reasoning that buildings are eligible to transfers of ownership rights independently from the land plots. Thus, making it possible to own a building situated on the land plot that is owned by a different natural or legal person.


There is not a prevailing split between a legal title and a beneficial title under the traditional Slovak system. The legal and beneficial owner is one person, who is registered with the Land Registry. The hiding of ownership may be used by joint stock companies or instead, offshore companies who will act as the owner of the real estate in question.



All land in the Slovak Republic must be registered with the Land Registry, recorded and kept by the respective cadastre administrations that form part of the state administration of the Slovak Republic. Rights over real estate, i.e., ownership rights, easements, mortgage, pre-emptive rights (if they have the effects of an in rem right), right of lease (if it extends or is expected to exceed at least five years in duration) as well as rights occurring from the administration of a state property, municipal property, or the property of regional self-governments shall also be

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Such data from the Land Registry is also available at the internet portal (www.katasterportal.sk) of the Land Registry for use of free of charge, however, its use is exclusively of an informative nature thus cannot be used for legal purposes.


Yes, compensation can be claimed from the registry in the event they make a mistake. In the rare case of the Land Registry issuing a mistake, resulting in damage, the resented person may claim damages from the state pursuant to the Act No. 514/2003 Coll. on Liability for Damage Caused in the Course of Performing Public Authority. The Geodesy, Cartography and Cadastre Authority of the Slovak Republic shall act on behalf of the state.


Information in the Land Registry is publicly available information, i.e., accessible to everyone, including via the internet (see question 5.3). Public access is restricted with regard to the collection of documents which is, in principle, accessible only to owners and their legal predecessors (not taking into account the persons entitled to access it on account of their profession, such as land surveyors). From the above it follows that a buyer may be granted all of the information regarding rights in rem (and also information on leases exceeding five years in duration) relating to a real estate in a given moment, however he/she cannot verify such information retrospectively (please also see question 4.2).



(i) Real estate agenciesReal estate agencies provide various services to clients with respect to the transfer of ownership title to real estate, including market research, real estate research by criteria set by the client/buyer, search for potential buyers for clients/sellers, assistance in acquiring the necessary funds for the purchase of a real estate (in particular, assistance with obtaining bank loans), preparation of contractual documentation, development services, etc.(ii) Lawyers/attorneys-at-lawLawyers mainly provide legal consultancy services before proceeding with the transaction, and legal services in the process of concluding agreements for the transfer of the ownership title to real estate and the registration of rights over real estate with the Land Registry, drafting contracts and other legal documentation.(iii) NotariesNotaries mainly provide the following services: signature authentication (pursuant to Slovak law, the signature of the seller affixed to the deed providing for the transfer of a real estate has to be authenticated), drafting purchase agreements in the form of a notarial deed and also, attestation of significant legal events (e.g., prescription of a real estate).


Due to Slovak law, the principle of priority applies to rights in rem. Rights to the similar real estate shall be registered with the Land Registry in the order in which the contracts, public deeds, or other deeds on the creation, change or cessation of a right to the real estate, were delivered to the Land Registry Administration for registration with the Land Registry. Hence, all Land Registry Administrations maintain files of delivered motions for registration, containing the date, hour and minute of delivery of the motion for registration. Motions for registration sent earlier in time bestow priority.



In the Slovak Republic, there is one Land Registry in place to cover all real estate located in the territory of the Slovak Republic. Institutionally, the competence over the Land Registry is given to District Offices and Cadastral Departments of District towns; “Land Registry Administration”.


The Land Registry shall, upon request, issue a title deed (list v lastnictva) to any natural or legal person. Such effluence is subject to an administrative fee of EUR 8. The title deed issued by the Land Registry can only be used for legal means.


It is possible to perform Land Registry proceedings electronically. In case of filing the motion electronically, all the attachments (in one counterpart only) have to be submitted as an electronic form and furnished with the authenticated electronic signature and appropriate time stamp.For the purpose of ownership right registration, the application for the registration of the ownership right into the Land Registry should be submitted to the Land Registry Administration together with all the following required annexes:i) two copies of particular agreement; ii) public deed or other deed proving title to the real estate;iii) land plots identification; iv) geometrical plan, if the land plot is being divided or joined or

if the easement is being created over the land plot; v) agreement on authorisation (Power of Attorney) if the

proceeding’s participant is represented by the proxy, the proxy’s signature has to be notarised if such authorisation is requested; and

vi) paper notification, in case the application for registration was posted electronically, which shall be provided to the Land Registry upon registration of the ownership right.




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accelerated the development of the Business Services (BPO, SSC, R+D and ITO) and the CEE region as a result of its well-educated workforce and competitive cost base acting as one of its main beneficiaries.



Regarding real estate transfers, the Civil Code needs the visibility of a contract that is concluded in writing and where the transferor(s) (seller(s)) signatures are authenticated by a notary public. Manifestation of intent of the parties must be enclosed in the same document, otherwise the agreement on the transfer of real estate is deemed to be null. The agreement on the transfer of real estate must clarify and identify the parties, the object, the place and time of performance of the legal act in question, the real estate, in accordance with the requirements of the Cadastral Act, and the purchase price. The ownership title to the respective real estate is acquired when the decision of the respective Land Registry Authority on authorising registration with the Land Registry becomes final. There are supplementary requirements contained in Act No. 182/1993 Coll. on the Ownership of Apartments and Non-residential Premises that must be fulfilled with regard to contracts on the transfer of apartments or non-residential premises.


Should it be the case that the property which is subject to a sale has defects of which the seller is aware, the seller is then required to notify the buyer about these defects in the course of negotiating the purchase agreement. These defects may be factual defects (such as defects concerning quality or functionality) or legal defects (such as limitations on the transferability of ownership).


In case the seller assured the buyer that the property had certain qualities or that it had no defects and if such assurance later proves to be untrue, the buyer shall be entitled: (i) to withdraw from the contract; (ii) to have a price reduction from the agreed purchase price, corresponding to the nature and the extent of the defect; (iii) to the reimbursement of necessary expenses incurred in connection with asserting his/her claims regarding the liability for defects; and (iv) to damages pursuant to the general provisions of the Civil Code. In case of apparent defects or defects that can be determined from the respective records of the Land Registry, it is not possible to assert claims for the liability for defects, unless the seller explicitly assured the buyer that the property did not have any defects.


The purchase agreement (i.e., also a contract on the transfer of a real estate) may include various representations and warranties of

(iv) Other personsThere are additional persons who may participate in the transfer of the ownership title to real estate, such as appraisers, land surveyors, tax advisors, technicians, employees of state authorities (e.g., the Public Health Authority, Work Inspectorate), architects, building engineers, banks, insurance companies, and alike.


(i) Real estate agenciesThe remuneration of real estate agencies is, in most cases, agreed in advance in writing. Payment is usually due after the conclusion of the real estate transfer agreement. The fee varies between different real estate agencies, usually representing an amount between 2% and 10% of the purchase price.(ii) Lawyers/attorneys-at-lawIn practice, attorneys’ fees are, in most cases, agreed upon individually.(iii) NotariesNotarial fees are, in principle, regulated by the Ministry of Justice of the Slovak Republic Decree No. 31/1993 Coll. on Notarial Fees and Reimbursement.(iv) Other personsRemuneration of other participants is, in most cases, agreed individually on a contractual basis.


There has been a significant increase in Slovak investment volumes. 2016 investment volumes exceeded a record of EUR 845 million. Prime yields have increased in these specific markets, correlating as appropriate sources of capital in areas such as industry (7.5%), office buildings (6.5%) and shopping centres (6%).


There are fewer barriers to entry, cheaper property, higher returns, less competition and more office space which are acting as prime incentives for investment in these areas.


No, instead there has been an increase in certain areas based upon progressive and customary trends in the modern economy. These trends consist of ‘Globalisation’, ‘Outsourcing’, ‘Offshoring’ and ‘Nearshoring’. These trends also affect real estate and labour costs alongside operational costs. The use of companies’ cost sensitivity supports the decision to move part of the business i.e. back- or mid-office to cost-effective countries. Furthermore, this trend has



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Generally, lenders (banks) require that a mortgage is established over real estate to secure the loan. In most situations, it is possible to get a mortgage in order to finance the purchase of real estate. It is also possible to get a mortgage to finance the purchase of unfinished constructions. Supplementary options are pledging movables or securities, a bill of exchange, life insurance or having the real estate insured, and blocking the respective insurance payment in favour of the bank. Under the Slovak Banks Act, real estate loans may be secured by a mortgage over domestic real estates.


Pursuant to the Slovak Civil Code, there are certain options in place to determine a mortgaged property:(i) the realisation of mortgaged property in the format agreed

by the mortgage agreement. In most situations, this would be a direct sale of the mortgaged property. Such realisation does not require the court to be involved in the realisation of mortgaged property;

(ii) the sale of mortgaged property in voluntary auction under the Act No. 527/2002 Coll. on Voluntary Auctions; it requires no court involvement; or

(iii) the sale under the Act No. 233/1995 Coll. on Court Executors and Execution Activity (Execution Order). This way, however, involves court proceedings as the mortgage agreement by itself is not a title to enforcement needed for mortgage realisation.

Thus, concluding that this direction of realisation is not widely used.


The loan contract on the provision of funds to finance the acquisition of a real estate does not require any special formalities, as compared to other loan contracts. Formalities to be fulfilled by the contract are of a general nature, i.e., mainly that both contracting parties have legal capacity to perform legal acts, thus the contract may not be in breach of the law, circumvent the law, or contravene good morals.Generally, when granting a loan to finance real estate acquisition, in addition to a loan contract, a mortgage contract is also concluded, in order to secure the claim under the loan contract. A mortgage contract has to be made in writing. To create a mortgage over a real estate, the registration of the mortgage with the Land Registry is needed.


The most predominant way of protection is establishing a lien over the borrower’s, or, possibly, a third person’s property. Pursuant to Slovak law, to satisfy a secured creditor, the order of registration of the security interest in the respective registry shall be of decisive importance (in case of real estate, it is the Land Registry). Earlier registration enjoys priority. As already stated above in question 4.2,

the seller, which could serve as a legal basis for asserting claims against the seller regarding its liability for defects of the subject of the contract/subject of transfer or for other breaches of law occurring in connection with the transfer of the ownership title. Representations and warranties may relate to the characteristics of real estate, rights over real estate (such as mortgage and easement) or use of real estate, etc. Representations and warranties mentioned in this section are predominant in transferring real estate of a higher value and serve the purpose of decreasing the buyer’s risks, to the disadvantage of the seller. Legal due diligence is generally performed before purchasing real estate or a company owning (also) a specific real estate of a higher value. It is recommended that legal due diligence is established instead of relying on the representations and warranties, as claiming damages later may be complicated and time-consuming.


Most of the contracts on the transfer of a real estate (purchase agreements) include a representation that the seller is the owner of the real estate and that the real estate is at liberty of third parties’ rights restricting the owner of the real estate (e.g., easements, mortgage), or a representation that such rights exist, although such representations do not form part of the essentials of a contract on transferring the ownership title to a real estate. These facts may be checked with the Land Registry. Land Registry information is, however, binding as long as the contrary is not proven.


Usually, the buyer will bear the costs of registering the ownership title with the Land Registry. He may also bear notaries’ or attorneys’ fees incurred in relation to concluding the contract on the transfer of a real estate; this is, albeit, subject to the agreement of the contracting parties.



The lending of money to finance real estate is governed by the general legal regulations of the Commercial Code (or the Civil Code, respectively). There is an absence of special provisions that would specifically concern the lending of money to finance real estate. The most frequently used contract is the loan contract pursuant to the Commercial Code, under which the lender (in most cases a bank) shall provide funds up to a proposed amount and the borrower undertakes to pay back such funds together with added interest. Legally, there is no distinction made between the individual persons and the corporate entities, or between resident and non-resident persons. Nonetheless, lenders do adjust the conditions for the provision of a loan depending on the fact if the borrowers are individual persons or corporate entities, or resident or non-resident persons, respectively.




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No other taxes are payable by the seller on the disposal of a property.


Real estate transfer tax has been abolished in the Slovak Republic; for the application of VAT and income tax see questions 9.1, 9.4 and 9.5.


Buyers of real estate should always take into consideration and/or conduct due diligence on the following tax issues: income tax; development fees; and real estate (property) tax.



The lease of business premises is regulated by Act No. 116/1990 Coll. on the Lease and Sublease of Non- Residential Premises with subsidiary application of the Civil Code. The Lease and Sublease of Non-Residential Premises Act specifically regulates lease agreements, the rights and duties of landlords and tenants, sub-lease, rent, termination of the lease and other matters relating to the lease of business premises.


Pursuant to Slovak law, there is no separation between the various types of business leases. Instead, Slovak law categorises residential and non-residential leases while the latter in most scenarios cover the term “business lease”.


(a) Length of termThis aspect is regulated by the lease agreement and can be agreed upon for a definite or indefinite term. (b) Rent increasesThis is not regulated by the Act on Lease and Sublease of Non-Residential Premises. The amount of rent, as well as its increase, is determined by the agreement of the contracting parties. Generally, an annual rent indexation is agreed in the lease agreement and it is based on the harmonised consumer price growth index (HICP) of the Euro area.(c) Tenant’s right to sell or sub-leaseAs pursuant to law, the tenant is not permitted to sell the object of the lease. However, the tenant is permitted to sub-lease the object of the lease (as a whole or its part) only with the approval of the landlord.

it is recommended to verify the ownership title to the property used as security – in the case of real estate – 10 years retrospectively, including the first directly preceding acquisition title.


There are various circumstances where security taken by a lender can be avoided or rendered unenforceable such as “unfair practices; breach of public policy; breach of good faith; criminal act; improper form of contract; and violation of a statute during the performance of the contract”.


(i) The defence against execution may be a “proposal to stop execution”, which may be filed 15 days from delivery notification of initiation of an execution. A proposal to stop an execution must be valid.

(ii) A borrower has the option to ask for a postponement for a social reason, for example, in a hard life situation, which will prevent him from fulfilling his/her obligations resulting from execution.

(iii) A borrower may ask an executor to allow fulfilment as an enforced claim for cash payment, distributed in instalments.

9 Tax


Since January 1, 2005, transfer tax on the transfer and transition of real estate is abolished.


Transfer tax is not applicable in the Slovak Republic. Please see question 9.1.


Yes, transfers of real estate by both individuals and legal persons are subject to income tax.


In general, pursuant to Act No. 222/2004 Coll. on Value Added Tax, real estate transfers are considered as delivery of goods, whereby a buyer acquires the right to dispose with such goods as the owner. The Act stipulates events, whereby real estate transfers are exempt from the payment of a tax. The transfers of a land (except for building plots) as well as the delivery of a construction, or its part, including the delivery of a building plot, if such delivery (transfer) is made five years following the issuance of the first occupancy permit for a building or five years following the day of the commencement of the first use of a building, are exempt from the payment of a transfer tax. Occasional transfer of a building, its part or a building plot is exempted as well.The value added tax is currently 20% of the tax base.



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(i) if the tenant uses the business premise in breach of their agreement;

(ii) if the tenant is more than one month late with the payment of the rent or for the provision of services which are connected to the lease;

(iii) if the tenant who has the obligation to provide certain contractually-agreed services to the landlord fails to provide such services duly and in a timely manner;

(iv) if the tenant or the persons using the business premises jointly with the tenant grossly disturb the peace or violate order, in spite of a written warning;

(v) if the use of the business premises is connected to the use of an apartment and the tenant was obliged to vacate the apartment;

(vi) if the removal or alteration of the building, whereby the use of the business premise is disabled, was ordered;

(vii) if the tenant sub-leases the business premises or its part without obtaining the consent of the landlord;

(viii) if the leased business premises are located in real estate that has been released to the entitled person pursuant to Act No. 403/1990 Coll. on Mitigation of Some Property Injustices; and

(ix) if the leased business premises are located in real estate that has been returned to the entitled person pursuant to Act No. 229/1991 Coll. on Modification of Land and other Agricultural Property Ownership.

Whereas, the tenant may terminate the agreement in the following cases:(i) s/he loses the capability to perform the activity for the

performance of which the business premises have been leased;

(ii) the business premises have become unfit for the agreed use, with no fault of the tenant; and

(iii) the landlord grossly violates his duties.Contract for an indefinite termAny of the contracting parties may terminate the lease in writing, without the need for stating the reason for such termination.The Civil Code states that should the tenant continue using the property after the termination of the lease and the landlord does not file a motion for the release of the property or the vacation of the real estate within 30 days, the lease agreement is renewed under the same terms as originally agreed. Leases agreed for a period longer than one year shall be renewed for one additional year each time; leases agreed for a shorter period of time shall be renewed for such shorter period of time.The aggrieved party may assert its claim at the court for unlawful termination of the lease.


In the event of a change of ownership of the leased real estate, the acquirer of the real estate shall proceed forward in the legal position of the landlord. The lease shall advance between the former tenant and the new owner as landlord. In principle, the new landlord takes over the rights and the obligations of the original landlord. Without having reviewed the lease agreement in question, nonetheless, one cannot establish with pure certainty that the original landlord ceased to be liable for all of its accountability under the lease (for instance, it might have been contractually agreed that assigned obligations should be performed directly by the original landlord). The same

(d) InsuranceIn relation to business premises, this can be concluded both by the landlord and the tenant, subject to their agreement. This insurance contract usually covers the following insurance risks: damage endured from unforeseeable events; such as natural disasters, fire, burglary; damage caused in connection to the performance of activities in the object of the lease; and losses inflicted upon the object of the lease.(e) (i) Change of control of the tenantAs explained under Slovak law, this does not affect the lease. The contracting parties may, nonetheless, agree to certain requirements on the tenant’s part or certain rights on the landlord’s part in their contract in the event of change of control of the tenant. (ii) Transfer of lease as a result of a corporate restructuring

(e.g. merger)Again, under Slovak law, this does not affect the lease. The contracting parties may, withal, agree in their contract for such cases, for instance an obligation of the tenant to contact the landlord or some other requirements of the tenant, or specific rights of the landlord vis-à-vis the tenant. In the case of a change of the ownership to a real estate, the lessee has the right to terminate the agreement even if it was agreed for a definite term. It is disputable if such right can be effectively waived by the tenant under the lease contract.(f) RepairsUnless agreed upon otherwise, the landlord is compelled to maintain the business premises in a proper condition for its agreed or customary use, at its own costs.


(i) Income TaxThe landlord is an income tax payer. The tax rate is 21% in case of legal persons and 19–25% in case of natural persons of the tax base. (ii) Value Added TaxThe lease of real estate or its part are exempt from value added tax, with such exceptions of a lease and sub-lease of accommodation facilities (hotels, guesthouses, etc.), parking facilities, permanently installed devices and machines, safe-deposit boxes, which are subject to value added tax. A payer of value added tax that leases real estate or its part to another payer of value added tax may determine that the lease is not exempt from the tax. The tax rate is 20% of the tax base (see question 9.3) and is paid by the landlord.(iii) Real Estate TaxThe landlord, as the owner of the building is, additionally, a real estate tax payer (see question 9.4).


The Act on the Lease and Sublease of Business Premises provides for a list of methods by which business leases can be terminated.Contract for a definite termIn the case of a lease for a definite term, the landlord may terminate the lease early by written termination notice in the following situations:




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The new law also provides a list of reasons entitling both the landlord and the tenant to terminate the contract. It is a demonstrative list since the provision concerned explicitly states that parties may agree upon other reasons for termination in the lease agreement. However, the grounds for termination agreed in the lease agreement must be of such a nature that the parties cannot reasonably be expected to continue their relationship under the lease agreement. If the apartment is not vacated or handed over to the landlord within 10 days of termination of the lease agreement or within five days of rescission of the lease agreement, the landlord has a right of retention with regard to the tenant’s movable items in the apartment, except for items excluded for reasons of debt collection and where the remaining part of the deposit is insufficient to satisfy the outstanding receivables due from the tenant.



The main legislative provisions in place governing zoning and the use of land, is Act No. 50/1976 Coll. on Territorial Planning and Building Code (the Building Act) and related ordinances. The territorial planning documentation, especially the zoning plan of a municipality and of a region, emanates a basis for rendering a zoning decision. There are four specific types of zoning decisions which are distinguished, whereas their aim is to define rules for sitting and the functional use of a territory, harmonise the interests and activities which have an impact on territorial development, the environment and ecological stability. Environmental protection is further regulated by Act No. 17/1992 Coll. on the Environment, Act No. 543/2002 Coll. on the Protection of Nature and Landscape, Act No. 24/2006 Coll. on Environmental Impact Assessment, and Act No. 478/2002 Coll. on Air Protection.


The Building Act regulates expropriation, through which the state can attain plots of land and buildings that are appropriate for constructing buildings and adopting measures in the public interest (expropriation is also regulated by the Constitution of the Slovak Republic and the Civil Code). Expropriation is only allowed in the public interest and solely for those uses as enumerated in the Building Act (the reasons are also mentioned in other legislative acts, such as the Mining Act and the Aviation Act), for example, the building of motorways. Expropriation must be precisely compensated, in cases concerning plots of land and buildings, resolute as a sum of money corresponding to the market price as created by an expert opinion. The market price is the price of a homogenous or a comparable real estate at the same time and place and of comparable quality. Competent compensation can also be implemented by giving a plot of land or a building of such quality proportionate to the expropriated real estate.

is applicable to the liability for the pre-sale non-compliance after the sale. The change of ownership of the leased premises may be a reason for terminating the lease by the tenant, even in cases where the lease was agreed for a definite term. In such a case, a notice of termination must be given in the next termination period, unless agreed otherwise. A change simply in the ownership composition of the landlord shall have no effect on the continuation of the lease.


As regulated by Act No. 555/2005 Coll. on Energy Performance of Buildings, when leasing a building, an energy performance certification is needed, i.e., a classification by energy categories. The energy performance certificate, valid for a maximum of 10 years, is an attestation of carrying out the prescribed energy performance certification. Further “green obligations” may be prescribed in the lease agreement (pursuant to the principle of the freedom of contract of the parties). A contractual obligation that is possible to be performed and is permitted by law, which is not breaching or circumventing the law, agreed between the landlord and the tenant, shall represent an obligation that may be legally asserted.



Civil Code and Act No. 98/2014 Coll. on short term lease of an apartment.


No, the same laws would apply where the premises are intended for multiple different residential occupiers.


According to the Act on the Short-term Lease of Apartments, a short-term lease is based on a written lease agreement for a fixed term of a maximum of two years. During the lease, the lease agreement may – with the agreement of both contracting parties – be extended by two years on no more than two occasions under the same conditions. Hence, the total maximum duration of a short-term lease is six years.Typically, automatic rent increases and a tenant’s rights to remain in the premises at the end of the term do not apply.On the other hand it is very common to include a provision that a tenant repairs minor defects which can occur in the apartment during the lease term up to certain fixed amount (for example, up to EUR 50 per month).



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longer in case of larger and/or complex projects, in particular if EIA is required. The costs of issuing zoning decisions or building permits are influenced by the scale of the applicable administrative fees. The administrative fees are in general very low. The cost relating to the above-mentioned proceedings may be more so increased by additional expenses affiliated with attaining the prescribed documentation. It is important to mention the relatively new Act No. 447/2015 on Local Development Fee. As it is evident from its name, the Act implements Development Fees. Land buildings in the territory of the municipality, for which a valid building permit has been issued to permit the construction, are subject to Development Fees. The liability to pay commences on the final validity date of the building permit. The Development Fee is calculated using the floor area of the above-ground part of the building in m2. The floor area of the above-ground part of the building means the sum of the floor area of all rooms in above-ground storeys of the building. The Development Fee rate ranks from EUR 10 to EUR 35 per each m2, or a part thereof, of the floor area of the above-ground part of the building. It is up to the municipalities to set Development Fee rates for various buildings.


Such historical monuments are guaranteed under Act No. 49/2002 Coll. on Protection of Monuments and Historic Sites. Pursuant to this act, the state (Slovak Republic) has a pre-emption right to buy culture heritage monuments, which binds the seller to offer the culture heritage monument to the state.


As pursuant to the Ordinance No. 340/2010 Coll. (which amended Ordinance No. 51/2008 Coll.), the Registry of Environmental Burdens was established. The registry is available on the internet and maintained by the Ministry of Environment. The register contains three main parts. Part A exhibits records on likely environmental burdens, part B includes records on environmental burdens, and part C includes records on regeneration and reclaimed sites. Its use is free of charge. Information therein does not combine the latest information for all monitored areas. Hence, it is always recommended to carry out your own research and request the latest information from the responsible state authorities.


According to the Act No. 409/2011 Coll. on Some Measures in the Field of Environmental Burden the rules for the classification of a person liable for the environmental burden were enacted. The liable person under this Act can either be the originator or an obliged person in case the originator has ceased to exist. An obliged person is designated based on the decision of the Regional Office for the Environment and it is usually the legal successor of the originator. The inheritor or person who had their real estate returned subject to a certain statutory act (e.g. on the basis of restitutions) is not assumed to be a legal successor. The act sets forth rights and obligations for the originator and obliged person in connection with the removal of environmental burdens as well as exceptions for a


The body controlling land/building use and/or occupation and environmental regulation within the Slovak Republic, are the building authorities, which are the municipalities. For certain buildings (motorways, airports, etc.) a clear-cut entity acts as the building authority, in most cases the respective Regional Building Authority. Among the competences of building authorities are provisions for a change of land use, administering building proceedings, the supply of building permits, and levying respective administrative sanctions.The Slovak Environmental Inspection Authority, through its inspectorates, supervises compliance with generally binding environmental legal regulations.Buyers can obtain the necessary information on building proceedings from the respective building authorities that are obliged to provide information on their activities pursuant to Act No. 211/2000 Coll. on Free Access to Information (subject to certain restrictions).


The location of buildings is permitted upon the issuance of a zoning decision by the respective building authority. In certain cases EIA proceeding is required.The construction of a building, their changes and maintenance works on these, may be carried out only upon the issuance of a building permit by the building authority or on the basis of a notification to the building authorities (notification is sufficient in cases of simple constructions, etc.).After constructing a building that needed a building permit, it can be used only upon obtaining the occupancy permit from the competent building authority.A permit from the building authority is also required in case of changing the use of a building, its removal or ground works.


Due to fixed exceptions bound by law (e.g., simple constructions where a notification shall suffice), it is appropriate to secure a zoning decision and a building permit for all constructions. Furthermore, a building permit is needed to carry out changes in buildings, mainly for additional buildings or parts. In such events, a finished building may be used only upon attaining an occupancy permit (see question 11.4).In such cases where a building has been built without a building permit or in breach thereof, proceedings for further authorisation of a building can commence. The building authority shall make an assessment whether to issue an additional building permit or to order the demolition of such a building.


The breadth of the procedures for issuing zoning decisions or building permits may vary and depend on numerous factors. Relatively, both proceedings take two to three months, but can last




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13 Climate Change


Currently, the following acts and ordinances regulate reducing carbon dioxide emissions, including trading emissions: Act No. 414 2012 Coll. on Emission Allowance Trading; Ordinance of the Ministry of Environment No. 271/2011 Coll. on criteria on permanent sustainability and target for greenhouse gas emission reduction; and Ordinance No. 85/2014 Coll. which states maximum amounts of pollutants.


As a member of the EU, the Slovak Republic will respect all enacted EU legislation. One of the targets is to reduce gas emissions in the transport and agricultural sectors and in energy efficiency of buildings by 12 percent by 2030. The Slovak Republic in general does not have problems with fulfilling the acquired objectives.


In addition to Act No. 555/2005 Coll. on Energy Performance of Buildings (see question 10.7 and question 11.10), there is Act No. 314/2012 on the Checking of Heating and Air-Conditioning Systems.

non-considered person to be an obliged person. However, in some cases it is impossible to assign liability to the originator or their legal successor, the owner of the real estate is usually liable for the clean-up of the environmental burden on the basis of a decision of the Regional Office for the Environment.


In the Slovak Republic, the subject is regulated by Act No. 555/2005 Coll. on Energy Performance of Buildings, altering Directive 2002/91/EC of the European Parliament and of the Council on the Energy Performance of Buildings of December 16, 2002 into Slovak legislation. Under this prescribed Act, every new building has to meet the minimum requirements for the energy performance of buildings (set forth by technical norms). If it is functionally, technically and economically feasible, the existing buildings have to meet the minimum requirements for the energy performance of new buildings, upon carrying out major repairs. The act further sets up the commitment of an energy performance certification (i.e., classification by energy categories) in the event of a sale or a lease of a building or upon the construction of a new building or performing major reconstructions to an existing building. In other circumstances, a certification can be voluntary. The energy performance certificate, valid for a maximum period of 10 years, constitutes an attestation of completion of the energy performance certification. Another act regulating requisites for the assessment and management of the energy performance of buildings is Act No. 476/2008 Coll. on Efficiency in Energy Use (Energy Efficiency Act) and number of ordinances.



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Mgr. Vladimír Kordoš, LL.M.Konečná & ZachaVentúrska 12811 01 BratislavaSlovakia

Tel: +421 905 838 337Email: [email protected]: www.konecna-zacha.com

Konečná & Zacha, s.r.o. is a distinguished law firm operating as a part of a regional network of law firms in Czech Republic, Romania, Bulgaria and Russia under common brand Konečná & Zacha, Attorneys at Law. Since 2000 it has been providing top quality legal services to both international and local clients, specialising in commercial law, especially in the fields of real estate law, dispute resolutions, intellectual property, mergers and acquisitions, project financing and restructuring, energy, telecommunications, transportation and others.

Konečná & Zacha is usually ranked by international agencies (such as Chambers Europe, ACQ Law, DealMakers, The Lawyers World, InterContinental Finance Magazine) among leading law firms and has been constantly expanding its team with top experts in order to satisfy a growing interest in its services.

Konečná & Zacha is an active member of The Association of European Lawyers (AEL), associating high-quality, progressive and independent law firms throughout the Europe. The main aim of this prestigious association is to increase the quality and efficiency of provision of legal services through its member firms. Our membership in this association provides us with broad international experience and contacts, which further increases our opportunities of international development in terms of our clientele. The law firm also enjoys benefits of its membership in The Association for Real Estate Market Development (ARTN) and the Czech Transport Law Society, of which it is a founding member.

Mgr. Vladimír Kordoš LL.M. (Tilburg) studied at Comenius University in Bratislava and earned his LL.M. degree in Tilburg, The Netherlands, where he specialised in international and European business law and competition law. Currently, Mr. Kordoš is a Real Estate Partner at Konečná & Zacha in Bratislava. Mr. Kordoš’ first language is Slovak. He is also fluent in business English and has a basic knowledge of German.

He focuses on providing legal advice to clients on M&A, insolvency, regulatory and real estate law and is also in charge of commercial and corporate matters. Mr Kordoš is an active member of INSOL – The European organisation of professionals who specialise in insolvency, business reconstruction and recovery, and CIArb – International Centre of Excellence for the Practice and Profession of Alternative Dispute Resolution (ADR).

He has strong communication skills, leadership and management skills. Clients appreciate his individual approach and sensitivity to the specific needs of the client.




Chapter 24

Brulc Gaberščik & Partners, Law Firm, Ltd.

Damijan Brulc

Marjetka Kenda

Slovenia

■ EU nationals, citizens of member countries of the OECD and European Economic Area (no limitations);

■ nationals of candidate countries for EU accession (reciprocity required); and

■ citizens of third countries (can only inherit real estate in Slovenia; reciprocity is required).



The rights over land are exhaustively listed in the Law of Property Code and are the following:■ ownership (lastninska pravica);■ mortgage (hipoteka);■ servitudes (služnosti);■ encumbrance (pravica stvarnega bremena); and■ building rights (stavbna pravica).These rights exist only if they are registered in the land registry and therefore have erga omnes effect. Apart from the above, parties can freely agree upon contractual rights over land. Some of those can be registered (e.g. lease, option rights) and in this way become effective with regard to third parties as well.Certain facts related to real estate can be annotated in the Land Registry (e.g. annotation of a dispute over real estate, annotation of priority); the purpose of annotations is to protect the rank of a right that might later be entered into the registry.


There are two such options: the building right (stavbna pravica) – the right to own a building above or under somebody else’s land (can be established for 99 years maximum); and condominium (etažna lastnina) – the combination of sole ownership of one part of the building (apartment) and co-ownership of shared parts of the building (including the land below it).

1 Real Estate Law


Real estate is mainly governed by the Law of Property Code (Stvarnopravni zakonik), the Land Register Act (Zakon o zemljiški knjigi), the Real Estate Recording Act (Zakon o evidentiranju nepremičnin), the Agricultural Land Act (Zakon o kmetijskih zemljiščih), the Housing Act (Stanovanjski zakon) and the Protection of Buyers of Apartments and Single Occupancy Buildings Act (Zakon o varstvu kupcev stanovanj in enostanovanjskih stavb).


Slovenia is a civil law country and the impact of local common law is therefore relevant only for the interpretation of statutory law.


The Constitution of the Republic of Slovenia (Ustava Republike Slovenije) provides that foreign nationals may acquire ownership right to real estate only under conditions provided by law or a treaty ratified by the National Assembly. International agreements that enable foreign nationals (apart from nationals of EU members) to acquire real estate in Slovenia are therefore relevant in this aspect.

2 Ownership


As explained above, foreign nationals may acquire ownership right to real estate only under conditions provided by law or a treaty ratified by the National Assembly. In general, there are three different categories of foreign nationals with regard to these limitations:


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The ownership of real estate can only be transferred by registration in the Land Registry. The buyer therefore obtains the title when he is registered as the owner.


The prior tempore, potior iure rule applies for rights of the same kind. This is especially relevant for mortgages – in the case of execution, the debts secured by mortgages will be repaid in the same order the liens were registered in the Land Registry. Once a procedure of registration in the Land Registry is initiated, it is published in the Land Registry with a special entry.



Only one Land Registry, as a register of rights, exists in Slovenia. The factual features of the land (location, dimensions, value, etc.) are registered in the cadaster.


The Land Registry is in electronic form and can be accessed online. The registry court and notaries can issue physical documents of title.


Transactions of rights over real estate are conducted in stages. A sales contract, for example, is first signed by the parties (written form is mandatory), and then the seller’s signature on the grant deed for transfer of the title over the land to the buyer (clausula intabulandi) must be notarised. With these documents, the buyer has three options to register the transfer of ownership right:■ the buyer can submit the request for registration electronically

(the Land Register Act poses certain requirements regarding the security of a digital signature);

■ if the buyer is not represented by an attorney, they can submit the request for registration to the court in physical form; even in this case, the court clerk then converts the request to electronic form; or

■ the request can be submitted via an attorney in the real estate agency which organised the transaction, or a notary public (most commonly) – both of these require the request to be submitted in electronic form.

The documents that need to be provided to the Land Registry are: the contract, including the obligation of the seller to transfer their ownership right to the buyer; the grant deed to transfer the title over the land to the buyer with a notarised signature (the deed is usually already part of the contract); a certificate of intended use of the land (issued by the municipality); and a tax payment confirmation.


The legal title or legal ownership is separate from the beneficial title or beneficial ownership, and the legal owner will not necessarily be the same as the beneficial owner. A person who has a beneficial title enjoys the benefits of ownership, even though legal title is in another name.The legal title belongs to the person, who is registered in the Land Registry. It provides the right to possess, use and control the property. Owners with legal title can take legal action against parties who breach their ownership rights.Non-registered rights cannot be exercised or enforced against third persons who obtained their right relying on information in the Land Registry.



All land in Slovenia is required to be registered.


The Land Register Act stipulates that a person that acts in good faith and relies on information from the Land Registry shall not suffer any adverse consequences because of this. The said rule ensures that the transfer of the registered title is efficient.


Under the Land Register Act, rights in rem over real estate are acquired the moment they are registered in the Land Registry, and also cease from the moment they are deleted from the Registry. Non-registered rights can therefore not be exercised or enforced against third persons who obtained their right relying on information in the Land Registry.


Rights that are not listed as rights in rem in the Law of Property Code (see the answer to question 3.1) are not required to be registered – i.e. contractual rights that can only be enforced inter partes (for example, a lease).


All land in Slovenia should be registered in the Land Registry. Cases of unregistered land are uncommon and can arise only as a consequence of administrative mistakes.

Brulc Gaberščik & Partners, Law Firm, Ltd. Slovenia



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(Notarska tarifa), and the remuneration of attorneys by the Attorney Tariff (Odvetniška tarifa). By both tariffs, the price of the service is determined by the value of the transaction. The remuneration of real estate agencies is limited by the Real Estate Agencies Act (Zakon o nepremičninskem posredovanju) to 4% (+ VAT) of the purchase price.


The banks and savings banks slightly relaxed their credit standards on housing loans in 2017. The main sources of capital for purchasing real estate in primary real estate market are housing loans and savings. The secondary market (used real estate property) in Slovenia is heavily driven by recent foreclosures and bankruptcy proceedings. Many properties are put on the market at auction, as the Bank Assets Management Company (Družba za upravljanje terjatev bank), a government-owned “Bad Bank”, and privately held banks are actively managing the liquidation of their real estate portfolios. The main sources of capitals for purchasing real estate in the secondary real estate market are investments of foreign and domestic companies.


Several purchases of non-performing bank loans (NPLs) have been made by foreign funds, which came with a sizeable portfolio of real estate collateral or real estate property. Active management of those portfolios brought a systematic institutional approach to secondary market transactions. Most of the secondary market is therefore driven by asset liquidation policies. A notable exception to this rule is the hotel industry real estate market, where due to industry standards in acquisitions, asset deals are prevalent. Fragmentation of ownership in industrial zones and housing, and a restrictive regulatory framework, inhibit redevelopment ventures.


At the moment, there is no slow-down in any particular sector.



See the answer to question 5.3.

Information of ownership of real estate, as well as of all other rights over land, can be accessed at: https://evlozisce.sodisce.si/esodstvo/index.html without charge; registration of an email address is required.


The Land Registry is administrated by the courts. As the employer of court personnel, the state is liable for damages that occur as a consequence of their wrongful actions. There have already been cases in which compensation was awarded to plaintiffs that relied on erroneous information in the Land Registry and suffered adverse consequences because of it.


The Land Registry can be accessed without restriction, as explained in question 5.3. On the electronic portal of the court, it is possible to get all the essential information about real estate – ownership, encumbrances, other rights in rem, as well as historical data about real estate (previous owners, previously existing encumbrances, etc.). Documents relating to entries (contracts, court decisions, etc.) are not publicly available. The court can grant access to those documents to persons with a legitimate interest upon written request. Intent to buy real estate is considered a legitimate interest in this regard.



The only party that is indispensable for a real estate transaction is a notary public, since the seller’s signature on the grant deed must be notarised. As explained in question 5.3, the notary public is usually also authorised to file the request to transfer the ownership to the Land Registry. It might also draft the entire sales contract or give an already drafted contract the form of a notary deed. In these two cases, the notary public also examines the validity of the contract in relation to mandatory statutory requirements. Real estate agencies are involved in less than half of real estate transactions. Their role is determined in the agency contract and is typically limited to finding buyers for certain real estate or vice versa, and advising their clients about the terms of transaction, and the legal and factual state of the real estate. Contracts for real estate transactions are typically drafted by attorneys, especially for institutional and corporate buyers. Their mandate often also includes an examination of the legal and administrative status of real estate.The role of an escrow agent is usually taken by a notary public, or less commonly, by attorneys or real estate agents.


The remuneration of notaries is regulated by the Notary Tariff



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Any loan-giving may be considered a business model that requires a banking or a savings bank licence.


The most commonly used collateral is mortgage, as well as, to a lesser extent, sureties and bank guarantees.


The mortgage can be established in an ordinary contract (which has to contain a notarised grant deed allowing the registration of the mortgage in the land registry) or in the form of a directly enforceable notary deed.To avoid the litigation phase, the mortgage is usually established in an agreement in the form of a directly enforceable notary deed. In this case, the mortgagor expressly agrees that after the default of the claim, the real estate will be sold, and handed over empty of persons and things within one month from the sale and the date the mortgagee’s claim is repaid. With this type of mortgage, the mortgagee can initiate the execution procedure directly which significantly shortens the duration of the process. Otherwise, the mortgagee has to file a lawsuit demanding that the real estate is sold and the claim that is collateralised with mortgage on that real estate is repaid. Standard litigation procedure needs to be carried out. After the decision of the court is final and binding, the mortgagee has to initiate a procedure in which the real estate is first evaluated and then sold, usually in a public auction.For the moment, there are no options that would enable the mortgagee to avoid court involvement in the procedure of realisation of the mortgaged property.


The Code of Obligations (Obligacijski zakonik) does not require any formality for credit agreements. Contracts of suretyship and the establishment of mortgages are required to be in written form (in which case the signature of the mortgagor must also be notarised). If there is real estate lending as an ongoing business activity, a banking or loan-house licence is required. In practice, corporate lenders always conclude loan agreements in writing, usually even in the form of a directly enforceable notary deed.In the case that the loan is given to an individual person, the mandatory provisions of the Consumer Credit Act (Zakon o potrošniških kreditih) apply. The credit agreement must be concluded in writing and must contain numerous clauses and data, listed in the said act. If the loan is secured with a mortgage, the agreement must have the form of a notary deed.


That depends entirely upon the collateral given for the loan. In the case of a mortgage, the prior tempore, potior iure rule applies –


The seller is obligated to transfer to the buyer the object of the sales contract in the agreed upon state. This indirectly creates a duty of disclosure, since it gives the buyer the right to remedies for a breach of contract in case any defects of the sold real estate were not disclosed to the buyer at the time of the conclusion of the contract.


The Code of Obligations (Obligacijski zakonik) provides that in the case of misrepresentation, the aggrieved party can demand the termination of the contract and claim compensation for damages arising out of misrepresentation.


The interests of the buyer are to a large extent already protected by the law (see the answer to question 7.2). Additional contractual warranties are therefore common only in complex transactions. In such cases, the buyer can efficiently rely upon the contractual warranties.


Warranty of ownership is implied in the sales contract unless explicitly excluded. Since the Land Registry is easily accessible, the buyer usually verifies the ownership of the seller by itself before the conclusion of the contract. The sales contract can, however, be validly concluded by a non-owner.


The buyer may be liable for damages, and is usually liable for costs and taxes connected to the property if he does not take possession.



Financing of real estate is not specifically regulated; general regulations for lending of money apply. There are no relevant differences between residents and non-residents.Individual persons, however, enjoy a higher level of protection by the law in comparison to corporate entities. Loans given to individual persons are subject to mandatory provisions of the Consumer Credit Act (Zakon o potrošniških kreditih). Securitisation with mortgage bonds is only possible for public entities.




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building (i.e. the transfer is made before the building is first used or within the first two years of its use), or land suited for construction.The tax rate depends upon the use of the building: ■ for the sale of residential buildings measuring up to 120m²

(apartments) or 250m² (houses), the tax rate is 9.5%; and■ for other buildings and land suited for construction, the tax

rate is 22%.The payment of VAT is the liability of the seller.


In 2012, the Fiscal Balance Act (Zakon o uravnoteženju javnih financ) introduced a new tax on profits arising from sales of real estate that was not suited for construction at the time of its acquisition and obtained that purpose before its disposal. The tax base is the difference between the value of the land at its disposal (diminished for the costs of disposal) and the value of the land at its acquisition (increased for the costs of acquisition).The tax rate depends upon the time that has passed between the date that the purpose of the land was changed and the date of transfer. It is currently:■ 25% if that time period was shorter than one year;■ 15% if that time period was longer than one but shorter than

three years; and■ 5% if that time period was longer than three but shorter than

10 years.


Taxation of the transfer of business shares or stock is entirely independent from the real estate owned by the respective company. It is common practice in B2B real estate deals to use special purpose vehicles, namely holding companies, for larger transactions.


There are no tax issues that a buyer of real estate should take into consideration, except if so agreed.



The main law regulating the lease of business premises is the Act on Business Buildings and Business Premises (Zakon o poslovnih stavbah in poslovnih prostorih). The Code of Obligations applies subsidiarily for the issues that are not governed by the said Act.


The Act on Business Buildings and Business Premises does not provide for more types of lease. Apart from standard lease contracts, financial leasing contracts that provide a transfer of ownership with the payment of the last annuity are in use, although declining.

the loan, secured with a mortgage that has a priority order, will be repaid from the sale proceeds first. If no collateral is given and an insolvency procedure takes place, the real estate lender has no priority over other creditors.


If the loan agreement has all the necessary components and is composed in the form of a notarial record, the borrowers can delay the payment but ultimately cannot avoid the final payment.


Borrowers may only file an objection against the enforcement order, but its objections are very limited. The borrowers can only claim to have repaid the loan in cash or in some other way (e.g. netting).

9 Tax


Transfers of ownership of real estate or building rights (for definitions, see the answer to question 3.2) are subject to taxation, governed by the Real Property Transaction Tax Act (Zakon o davku na promet nepremičnin). The tax rate is 2% of the purchase price of real estate. The tax must be paid by the seller if the sales contract does not provide otherwise. Newly built objects are subject to VAT, and not to real property transaction tax.


The seller (or, if so agreed, the buyer) must report the intended transfer of real estate to the tax office within 15 days of the conclusion of the contract, and provide the obligation to transfer the ownership or establish or transfer the building right. The tax must be paid within 30 days after the tax assessment is served to the seller (or, if so agreed, the buyer). In addition, the Land Register Act stipulates that the confirmation of payment of real property transaction tax must attached to the request for registration of the transfer in the Land Registry.


Under the Personal Income Tax Act (Zakon o dohodnini), the income of tax residents from the transfer of real estate is considered as capital gain if it was held as a private asset for less than 20 years. The tax base is calculated as the difference between the value of real estate in the moment of disposal and its value at the moment of acquisition.The tax rate depends upon the years of ownership of real estate before disposal. If the real estate is disposed in the first five years of ownership, the tax rate is 25%; after five years it drops to 15%; after 10 years to 10%; and after 15 years to 5%.


Transfers of real estate are subject to VAT if the real estate is a new



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out of breach of contract is governed by the general provisions of the Code of Obligations.


The sale of the object of a lease contract is subject to provisions of the Code of Obligations. If the tenant has already started using the premises when they are sold, the new owner steps into the legal position of the previous owner and is bound by the lease contract. The previous owner remains liable for obligations of the new owner (that arose before the transfer) as a guarantee.


The environmental issues are not yet a common element of lease contracts.



The main law regulating the lease of residential premises is the Housing Act (Stanovanjski zakon). The Code of Obligations and the Law of Property Code (Stvarnopravni zakonik) apply subsidiarily, for the issues that are not governed by the said Act.


The laws do not differ if the premises are intended for multiple different residential occupiers. The Housing Act regulates all types of residential buildings.


Typical provisions are the following:(a) for length of term: there are no provisions that could be

characterised as typical; (b) rent increases: if rent increases are provided for in the

contract, they usually follow the consumer price index, defined by the Statistical Office of the Republic of Slovenia;

(c) tenant’s right to remain in the premises at the end of the term: the tenant cannot remain in the premises at the end of the term without the landlord’s consent; If the tenant keeps using after the expiry, the landlord must file a demand for the


Typical provisions are the following:(a) for length of term: usually definite (2–10 years); (b) rent increases: if rent increases are provided for in the

contract, they usually follow the consumer price index, defined by the Statistical Office of the Republic of Slovenia;

(c) tenant’s right to sell or sub-lease: the tenant cannot transfer the lease contract without the landlord’s consent; sub-lease is only possible if it is expressly allowed for in the contract, which is not common;

(d) insurance: the costs of insurances are subject to negotiation;(e) (i) change of control of the tenant: typically not dealt with in

the lease contract; (ii) transfer of lease as a result of a corporate restructuring:

typically not dealt with in the lease contract; and(f) repairs: there are no provisions that could be characterised

as typical in this aspect; the default provision of the law is that the owner of the building or premises bears the costs of investment-type repairs. The tenant usually bears the costs of standard maintenance (cleaning, paint jobs).


There are no taxes on rent payable by the tenant of a business lease.The income of individual persons who are leasing their real estate is subject to income tax, at a rate of 25%.The income of business entities from rent is generally not subject to VAT, yet this is often agreed upon by the parties of the lease contract, since such agreement enables the landlord to deduct input tax. Such agreement is allowed under the condition that the tenant uses the leased premises for business activity that is subject to VAT and that the tenant has the right to deduct input VAT. The tax rate in this case is 22%.


If a business lease is concluded for an indefinite term, it can be terminated by either party with a termination period set out in the lease contract that cannot be shorter than one year. If a lease is concluded for a definite term, it expires with the lapse of time. However, if the tenant keeps using the premises after the expiry, the landlord must file a demand for the emptying of the premises to the court within one month. If the landlord fails to do so, the duration of the contract is by law converted to an indefinite term. Apart from this, the tenant cannot extend or renew the lease unilaterally.Apart from the possibility of termination of the contract concluded for an indefinite term, the lease contract can only be terminated on the grounds that are listed in the Act on Business Buildings and Business Premises.A lawful termination of the contract itself is not a basis for claims for compensation from either party. The liability for damages arising




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Before the beginning of building works, a building permit must be obtained (simple buildings are exempt). After the conclusion of the building works, their compliance with the building permit is confirmed in an operating permit.Under specific circumstances (buildings with greater environmental impact), an environmental permit must be obtained as well.


A building permit and operating permit must always be obtained; the law does not provide for any possibility of an implied permit.


The administrative fee for the building permit and operating permit is relatively low (maximum EUR 272, depending upon the value of the project), especially in comparison with the municipal contribution that can amount to several thousand euros and has to be paid before the building permit can be obtained. The time necessary to obtain the building permit depends on whether any permits or consents are required for it to be issued. Usually the permit should be issued within one or two months (depending on certain factual features of the building); however, this is rarely the case in practice.


Historic monuments are subject to a special regime of protection under the Cultural Heritage Protection Act (Zakon o varstvu kulturne dediščine). Real estate that is classified as a cultural monument or as land in the effective area of the monument is subject to pre-emptive right of the state or municipality. In the case that archaeological remains are found on real estate, the owner must allow archaeological excavations to take place.


No public register of polluted land exists in Slovenia, nor does any other centralised collection of data relating to pollution. Reports on pollution of land (especially agricultural) are often issued by municipalities. Monitoring of pollution of land and water is also regularly done by the Agency of Republic of Slovenia for Environment, which can represent a source of information on the environmental situation of a certain area.


Environmental clean-up can be mandatory in a variety of different circumstances, ranging from agricultural protection, to public health and safety, to protection of drinking water, etc.

emptying of the premises. If the landlord fails to do so, the duration of the contract is by law converted to an indefinite term. Apart from this, the tenant cannot extend or renew the lease unilaterally;

(d) insurance and repair: the costs of insurances are subject to negotiation; and

(e) repairs: there are no provisions that could be characterised as typical in this aspect; the default provision of the law is that the owner of the residential premise bears the costs of investment-type repairs. The tenant usually bears the costs of standard maintenance (cleaning, paint jobs).


If a residential lease is concluded for an indefinite term, it can be terminated by a landlord with a termination period that cannot be shorter than 90 days. The lease contract can only be terminated for the guilty grounds that are listed in the Housing Act. Any other reasons must be listed in the lease contract or alternatively, the landlord must provide another suitable residential premises. To achieve vacant possession, the landlord must file a demand for the emptying of the premises to the court.



The use and occupation of land is mainly governed by the Spatial Management Act (Zakon o urejanju prostora), Spatial Planning Act (Zakon o prostorskem načrtovanju), the Construction Act (Zakon o graditvi objektov), the Environment Protection Act (Zakon o varstvu narave), the Nature Conservation Act (Zakon o ohranjanju narave) and the Waters Act (Zakon o vodah).


The right of the state to compulsory purchase is set out in the Constitution and is only permissible for the public good; an appropriate compensation (monetary or in the form of equivalent land) must be given, which is subject to expert evaluation (standardised real estate evaluation methods are applied). Compulsory purchase is governed in detail by the Spatial Management Act.


The main bodies of control over those issues are the Construction, Surveying and Housing Inspectorate and the Inspectorate for Agriculture and the Environment, both under the responsibility of the Ministry of the Environment and Spatial Planning. Architectural bureaus usually offer specialised reports of spatial planning limitations; information can also be obtained from the local authorities, i.e. municipalities and state administrative units.



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Damijan Brulc, Ph.D., Brulc Gaberščik & Partners, Law Firm, Ltd.Dunajska cesta 91000 LjubljanaSlovenia

Tel: +386 59 119 900Email: [email protected]: www.bgp.si

Marjetka KendaBrulc Gaberščik & Partners, Law Firm, Ltd.Dunajska cesta 91000 LjubljanaSlovenia

Tel: +386 59 119 900Email: [email protected]: www.bgp.si

Damijan Brulc completed his studies at the Faculty of Law in Ljubljana in 2004 with honours and founded his own law firm four years later, which later in 2010 expanded to today’s Brulc, Gaberščik & Partners, Law Firm. His initial focus was civil, corporate and labour law. The core of his practice today lies in real estate, corporate law and overall legal support for business and finance. Real estate is also the centre of his academic engagements – in 2016 he obtained a doctorate degree at the European Faculty of Law in the field of real estate law.

Brulc Gaberščik & Partners, Law Firm is a team of legal experts covering all major private law fields. The core of the team is the partners Damijan Brulc and Luka Gaberščik. Att. Brulc mainly works for pharmaceutical and chemistry-related companies and is an expert on real estate and property law, Att. Gaberščik works on investment and banking issues. Apart from the cited specialisations, all attorneys cover labour, corporate and general civil matters, with their services ranging from consulting and business support to litigation and transactions. The team is supported by one junior partner, one senior associate and two junior associates and offers services in a variety of languages, from English, German, Spanish and Italian to Croatian and Serbian.

Marjetka Kenda graduated from Faculty of Law in Ljubljana in 2016. In May 2017, she joined the Brulc, Gaberščik & Partners, Law Firm as junior associate, focusing mainly on real estate, corporate law and labour law.

emissions of greenhouse gases will not increase by more than 4% in comparison to the emissions in 2005 and shall not exceed 12.117 kt CO2 ekv³. The programme is focused on the sectors that represent the main sources of pollution outside the European Union Emission Trading Scheme.




One important incentive on the field of sustainability of buildings is the Eco Fund, a Slovenian Environmental Public Fund that provides subsidies and other financial aids for investments in sustainable development such as passive buildings, wastewater treatment plants and heating with renewable energy sources.


In 2014, the Energy Act (Energetski zakon) introduced so-called energy certificates. An energy certificate must be obtained if a building is sold or being leased. It contains information on the energy performance of the building and recommendations for improvement. Apart from that, the Construction Act and Energy Act contain certain mandatory standards for the energy performance of newly built as well as existing buildings.

13 Climate Change


In 2014, the government of the Republic of Slovenia adopted an operative programme for the reduction of emissions of greenhouse gases by 2020. The aim of the programme is to ensure that the




Chapter 25

Norton Rose Fulbright South Africa Inc. Pieter Niehaus

South Africa


As both land and the process of acquiring land involve an attorney’s trust account, it has been noted that certain criminals use the acquisition of land as a means to engage in money laundering activities. Accordingly the US and UK legislation (i.e., FCPA and Bribery Act) are enforced in terms of the Financial Intelligence Centre Act (FICA) in South Africa so as to prevent the same. Furthermore, FATCA (US-based tax legislation) and CRS (Common Reporting Standards) also impact South African property law and especially the finances related thereto.

2 Ownership


At present there are no restrictions on foreign ownership or occupation. However, at the start of 2015 the government mooted legislation to prevent foreigners owning agricultural and rural land, instead favouring long term leasehold tenure for foreigners. The proposed legislation will, however, not apply retrospectively and no draft legislation has been circulated yet. As part of the same discussion, the government also proposed introducing maximum land areas that can be owned by one individual or entity, but again, no draft bills have been tabled for comment.There are formal requirements for a foreign company to register under the Companies Act, 2008 if it wishes to acquire immovable property in South Africa. Ownership of shares by a foreign person in a local entity that owns real property is also permitted, subject to certain tax implications relating to withholding tax, capital gains tax and exchange control.



Freehold, Sectional Title, Leasehold and Long Term Lease are the manner in which an owner can enjoy tenure. Freehold means out-

1 Real Estate Law


The right to property is enshrined under section 25 of the Constitution of the Republic of South Africa, 1996. The registration of rights in land and other immovable property is regulated by the Deeds Registries Act, 1937 which sets out the registration requirements and processes necessary for the transfer of ownership or creation of real rights in respect of land, including the process whereby security is registered in favour of creditors. All regions’ and cities’ planning legislation (called provincial ordinances/laws and bylaws) are now subject to framework legislation that was enacted in terms of the Spatial Planning Land Use Management Act, 2013 (SPLUMA). There is a myriad of other statutes regulating real estate law but the aforementioned are the main pieces of legislation to consider.


Since 1994, the ownership of land in South Africa has been the subject of a number of legal and administrative changes. Most notably, in 2014 government promulgated the restitution of the Land Rights Amendment Act, which reopened the time period within which to submit land claims until 30 June 2019, as part of the redress following the dispossession of rights, and/or land, pursuant to racially discriminatory legislation in effect since 1913. However, in 2016 the Amendment Act was found to be unconstitutional on technical grounds and new legislation is still envisaged by Government to ensure new land claims after the initial cut-off date of 31 December 1998 can be lodged. This process impacts mostly rural and agricultural land, although land claims have, in some instances, also affected urban areas. The Act is clear as to how an existing owner may deal with land that is subject to a claim. Under the land claims process, successful claimants can either be compensated for the land, or rights in land, that were dispossessed, or alternatively the land can be restored in ownership. In both instances though, it is important to note that the current owner’s rights are enshrined in terms of the Constitution and such landowner will be compensated in accordance with the process set out in the Expropriation Act. It has been noted though that since 1994, the majority of claimants preferred compensation instead of restitution of land.


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Yes, save for short term leases (less than nine years and 11 months), which need not be registered unless contractually agreed otherwise between lessor and lessee. Other real rights in land e.g., mortgages, servitudes and restrictive conditions of title must also be registered.


There is no formal state guarantee of title. The constitution enshrines the rights to property and states that no one can be deprived of property except in terms of general law and no law can permit arbitrary deprivation of property.


Ownership and real rights, such as mortgages and servitudes. Consequently, the rights in land, including the risk and benefit of profit and loss, effectively do not transfer.


Short term leases (less than nine years and 11 months in duration) are not required to be registered.


There is no probationary period applicable. In terms of ownership of land, the rights take effect on registration of the deeds in the deeds registry. In terms of leases though, the rights take effect on the date agreed between lessor and lessee in the lease and are not necessarily dependent on the date of registration.


Upon registration in the deeds registry.


In general, South African law recognises a system of first in time is stronger in law. However, our deeds registry and legal system recognises that even the most complete right of all, ownership, can be limited by the real rights of others, such as mortgagee/bond holders and servitude holders and registered lessees, which real rights are registered at the same time as the owner acquires ownership or later.

and-out ownership, subject to the conditions of title and real rights (e.g., a mortgage bond registered in favour of a bank) applicable to the property. Sectional title ownership is a manner in which one owns a defined area in a complex or building, together with proportionate rights to the common property and some exclusive rights to defined areas as designated on a sectional plan. Leasehold is a remnant of our history, in terms whereof the government restricted who could own land, and it is gradually being phased out in urban areas, most notably the townships where all non-white people were allowed to reside. A long term lease is a form where two parties agree that a specific piece of land or entire land area is let to the lessee for a defined period of time against payment of a consideration. This lease must be notarially executed and is tantamount to “land” in terms of the provisions of the Deeds Registries Act (i.e. can be mortgaged). The long term lease is the only purely contractual tenure model, which could influence the lessee’s continued tenure. For example, if the lessee is in breach, the lessor may terminate the lease if the breach is not remedied. The rest mentioned above convey rights in land pursuant to an agreement but once registered in the deeds registry, the contract has been implemented and hence, is fulfilled.


Based on common law principles, the registered owner of the land is also the owner of the buildings and other fixed improvements situated on the land. However, there may be exceptions in terms of certain long term lease structures (whereby certain rights in the domain are retained by one party and another still owns the land). The Sectional Titles Act 1986 also provides great application in certain residential commercial real estate developments. This can result in multiple owners owning defined sections and exclusive use areas within a building or property, together with an undivided share of the common property and specifically denoted exclusive areas assigned to that particular section. The common property in a sectional title setup is controlled by the body corporate. Ownership of the land or the sectional title section and exclusive use area, is recorded in all instances in the 11 deeds registries located throughout South Africa.


With reference to long term lease structures, there is usually a notarial lease registered in the deeds registry where the lessee is entitled to exercise a real right both against the owner of the property and the world at large. The same principle may apply in respect of praedial servitude holders (e.g., right of way). The owner, in dealing with the property (e.g., granting further servitude rights to another third party) may, depending on the wording of the lease or servitude, have to engage the lessee/servitude holder to seek its permission. In another scenario, if the owner sells the property, they may do so without the lessee’s/servitude holder’s permission, but the successor in title to the land will still be bound to the terms of the lease or servitude and thereby the rights afforded to the lessee or servitude holder.

Norton Rose Fulbright South Africa Inc. South Africa



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Estate agents and specialist attorneys known as conveyancers and notaries public in relation to notarial deeds that have to be registered (e.g., notarial leases and notarial deeds of cession of exclusive use areas in sectional title matters or notarial deeds of servitude).


The estate agent industry is governed by the Estate Agency Affairs Board and all estate agents are to be registered members. The commission charged by estate agents varies, depending on the agreement reached with the party paying the commission. If no agreement is reached, the default rate prescribed in terms of the Act and in terms of the regulations is 7.5% plus Value Added Tax (VAT) thereof at 14%. The parties are, however, free to negotiate the agent’s commission (whether a fixed fee or a percentage). Conveyancers and notaries public are governed in terms of the Attorneys Act and the Law Society issues guidelines in respect of conveyancing fees payable which are based on a sliding scale depending on the value of the property or mortgage bond, or deed to be registered.


Yes. Since the introduction of REIT legislation in 2014, the commercial and listed property sector has really shown tremendous growth, with investors looking to invest in a stable and growing asset class. Also, the average property price index has shown steady increases over the last 10 years since the GFC. Property investment, depending on the asset class, varies in relation to the equity and debt.


To the extent relevant, several of South Africa’s biggest REITs have already expanded into other markets in Sub-Saharan Africa and even in European and Australian markets, and although the rewards can be good, investors and developers realise that it will take significant capital, and time, before dividends are available.


No definite trends save to state that investment in underlying real estate assets associated with mining and other commodity-based



There are 11 deeds registries, including the head office in Pretoria. Each deeds office has a specified area of practice, meaning a piece of land may only be recorded in one deeds office. The main services provided by the deeds registry are the registration of land and real rights in land and the provision of land registration information. For more information of South Africa’s land registration system visit http://www.ruraldevelopment.gov.za/.


Yes. Title is evidenced by a deed of transfer (or title deed) and notarial deeds (required for long term leases and other limited real rights such as servitudes) and mortgage bonds (in case of the land being mortgaged as security for the repayment of a debt to a creditor).


No. We still work on a manual system of submission of deeds but South Africa boasts one of the world’s most efficient and sophisticated systems of land registration. Every piece of land is shown on a diagram and ownership is recorded in one of the regional deeds registries, where documents are available for public viewing, both at the deeds registries and online. The system does provide owners with security of title.


No. If a mistake is made in relation to the registration in a deeds registry, the deeds registry and its officials cannot be held liable to pay compensation, based on a specific inclusion in the Deeds Registries Act which exempts it from liability for acts or omissions. The responsibility that the documents are correct lies with the conveyancing attorney signing/executing the deeds.


There are no restrictions on public access to the register. A Buyer may obtain any and all information he might reasonably require regarding encumbrances and other rights affecting real estate.



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Some of the Buyer’s legal responsibilities during include:■ Obtaining a mortgage bond grant, where third party financing

is utilised.■ Paying transfer fees including Value Added Tax or Transfer

Duty to the South African Revenue Service.■ Paying any other charges (e.g., due diligence and inspection

costs) that may have been agreed upon in the sale agreement.



Financing of the acquisition of large real estate portfolios or companies holding real estate varies, depending on the value of the transaction and the parties involved. Non-residents may only borrow up to the value of the equity they inject into the property (i.e., half of the value can be financed and half must be equity). The National Credit Act (NCA) protects primarily individual persons who are borrowers against unscrupulous lending practices.


Lenders providing finance usually require security packages consisting of one or more of the following forms of security:■ Mortgage bonds over the immovable property.■ Suretyship and/or guarantee by parent company or directors,

or even shareholders.■ Notarial bonds (both general and special in nature over

movable property such as plant and equipment).■ Cession of rental income and any other proceeds derived

from the property.■ Pledge of shares in the property owning entity.In addition to security packages, lenders usually require a portion of the acquisition to be equity funded, the percentage varying depending of the nature of the property or the project.


A lender cannot enforce a system of summary execution in respect of the repossession of immovable property over which they hold a registered mortgage. The lender will have to obtain a court judgment against the borrower to proceed to a sale in execution of the immovable property. As a result of a mortgage bond in its favour, the lender will, however, not have to first execute against the movables of the borrower, but can apply for an order of special executability against the property and proceed with a sale in execution.

products has declined slightly due to depressed world commodity prices. The investment in traditional agricultural land has been slightly depressed but the Renewable Energy sector has had a real positive influence on the value that owners can gain for their land.



The Alienation of Land Act, 1981 prescribes the essentialia; an agreement, in writing, signed by the Buyer and the Seller, where the property, price payable and payment terms are clearly set out.


Yes. The Seller has the “duty to disclose” any defects that are prevalent, especially those which are not obvious. If the Seller hides defects in the property on purpose, the Seller will not be protected. Therefore, the voetstoots clause will not protect a Seller who knows of a defect in the property but does not tell the Buyer about the defect.


Yes. Proper recourse is to institute an action for damages against the Seller.


The most common warranties are:■ warranty of ownership or right to dispose of the property. A

person or entity is entitled to sell something that does not vest in ownership in that person in terms of common law but the requirement for transfer of ownership is delivery, which is evidenced only by registration in the deeds registry;

■ that there is no prior agreement, which may be stronger in law, to grant any rights to other persons relating to disposal of the property;

■ that the buildings on the property are built in accordance with municipal approved plans; and/or

■ that on registration of the property in the deeds registry, vacant and undisturbed occupation and possession, free from encumbrances, will be granted and given to the Buyer.


Yes. Based on our Roman Dutch law principles, no one can transfer more rights than they possess so there is always an implied warranty of ownership which is evidenced by the deeds registry records.




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debts of a related company and the necessary Financial Assistance provisions of the Companies Act, 2008 (sections 44 and 45) having not been complied with.


A borrower enjoys the rights afforded to them in terms of the common law and if enforcement is done through the Courts or through Arbitration, the borrower will be a defendant and may then use the rules of Court or Arbitration Rules to defend the action taken against them to the fullest extent.

9 Tax


Yes. If a Seller is not registered for VAT purposes the Buyer will have to pay transfer duty in addition to the purchase price. The rates for individuals, corporates and trusts are the same, and with effect from 1 March 2017, changed to apply as follows for the following property values:■ ZAR0 to ZAR900,000: Exempt;■ ZAR900,001 to ZAR1,250,000: 3% of the amount (i.e. total

of ZAR10,500);■ ZAR1,250,001 to ZAR1,750,000: 6% of the amount (i.e.

total of ZAR30,000) plus ZAR10,500;■ ZAR1,750,001 to ZAR2,250,000: 8% of the amount (i.e.

total of ZAR40,000) plus ZAR40,500;■ ZAR2,250,001 to ZAR10,000,000: 11% (ZAR852,000) plus

ZAR80,500;■ ZAR10,000,001 and above this threshold: 13% of the amount

exceeding the threshold plus R 852,000.VAT is payable either at the rate of 14% or in some instances 0% (e.g., property is sold as a going concern) or in some instances exemptions may apply, for example, to charitable institutions.


Duty is payable within six months from the date of acquisition (i.e., the signing of the sale agreement). If the Transfer Duty is not paid within this period, Transfer Duty penalties will be levied.


Yes. Upon disposing a property, each property owner is liable for Capital Gains Tax (CGT) unless an exemption applies.


The sale of property attracts either VAT or transfer duty, depending on the VAT status of the Seller. If the Seller is a registered VAT vendor and the sale of the property is a supply subject to the VAT, the Buyer must pay VAT on the purchase price, provided the Buyer’s consideration is set out in the agreement. “Rx plus VAT” or “excluding VAT”. If not then VAT is deemed to be included in the purchase consideration. The applicable rate of VAT is 14%.


A mortgage bond is to be registered. It is perfected by registering it in the same Deeds Registry where the immovable property (over which the bond is granted) is registered. A number of preconditions must be fulfilled before a mortgage bond or real security right can come into existence:■ the parties must have capacity to enter into a legal transaction;

and■ the owner of the property must consent to the creation of

the real right in property by signing a power of attorney and instructing a conveyancer to register the mortgage bond.


To reduce risk to the lender, the law has devised a process which offers some protection to the lender, so that he may recover the money he is owed in the event that the borrower does not meet his obligations. Registration of mortgage bonds are done in terms of a ranking system whereby the first bond registered provides the strongest right to that bondholder. Real security rights give the lender the power to prevent the borrower from disposing of it, as well as a right of preference. Where the borrower is unwilling to repay the principal debt, or is insolvent, the lender may, after the immovable property has been attached and sold in execution, claim the proceeds from that sale on a preferent basis before any other creditor. They confer limited and specific entitlements on their holders and are enforceable against third parties as they are registered in the public deeds registry.Unless otherwise agreed by the parties, a real security right is indivisible, securing the entire debt and binding the borrower until it is paid. Also unless otherwise agreed, a real security right secures not only the principal debt but all its “incidents” as well. These may include:■ costs incurred by the lender in preserving the security;■ interest charged by the lender; and■ costs incurred by the lender in enforcing his rights.Real security rights do not entitle the lender the use and enjoyment of the property, unless otherwise agreed by the parties.


The most important legislative provisions are found in the Insolvency Act, 1936. In terms of section 88 (commonly referred to as hardening periods), in general a mortgage bond passed for the purpose of securing the payment of a debt not previously secured, in which debt was incurred more than two months prior to the lodging of the bond with the registrar of deeds, or for the purpose of securing the payment of a debt incurred in novation of or substitution for any such first-mentioned debt, shall not confer any preference if the estate of the mortgage debtor is sequestrated/liquidated within a period of six months after such lodging. Also, a registered mortgagee (i.e., lender) may run a risk of its bond not being enforceable and even set aside, if the borrower obtained financing for purposes of acquiring a business and the sale of the business was not properly advertised in terms of section 34 of the Insolvency Act. Another instance relates to a mortgagor granting security as a surety/guarantor for the



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referred to as short term leases. Most commercial leases have renewal options included which may take the lease period to longer than 10 years. Long term leases that are to be endorsed against the title deeds must be in writing and need to be executed in front of a notary public so that they can be registered in the deeds registry.Tenants have to contractually negotiate the right to assign the lease or even sub-let the leased premises. Usual provisions state that the tenant can only assign or sub-let with the landlord’s prior written consent and on such terms as the parties may agree. Some commercial leases have more strict change of control provisions included.The Competition Commission authorities generally frown upon exclusivity clauses included in commercial retail leases.


Should the landlord be registered as a vendor in terms of the Value Added Tax Act, 1991 as amended, the tenant shall pay VAT on the monthly rental and on all applicable recoveries payable in terms of the lease.


If the CPA applies, the tenant does have the right to cancel the lease even though he may have signed an agreement to occupy the premises for a specified fixed period. The tenant can do this without giving any legitimate reason; however, tenants are obliged to give the landlord and/or his agent at least 20 business days’ notice and the landlord is empowered to charge a reasonable cancellation penalty. The landlord is fully entitled to recover all reasonable costs and losses incurred through the tenant exercising his right, as per the CPA, to terminate the fixed term agreement (or lease in this case). In general, though, leases terminate based upon the effluxion of time or in case of unremedied default, usually on the part of the tenant.


Yes. The landlord will be absolved as the rights and obligations transfer to the new owner of the property on which the leased premises are located. The tenant’s liability may transfer, subject to the consent of the landlord granting permission for the tenant’s rights and obligations being transferred to a third party.


Please refer to question 13.1.

Exemptions may apply in the following scenarios:■ Certain statutory exemptions apply in relation to intra-group

transfers between companies/entities, or if the Buyer has the requisite public benefit organisation/institution of learning/charity/religious status.

■ The sale of the property may be part of a business being sold as a going concern, which may lead to VAT being levied on the transaction at a zero rate.


Capital Gains Tax (CGT), or if the Seller is a non-resident and the value of the sale is more than ZAR2 million, then a compulsory s35A Withholding Tax applies as provision for the CGT liability.


The Transfer Duty Act was amended to change this and strictly speaking the same taxes as aforementioned apply (VAT or Transfer Duty) unless there are statutory exemptions.


If the Buyer of real estate elects to buy shares in a property owning company as opposed to buying the property, then it is extremely important to do a comprehensive check of ALL the property owning company’s different taxes and tax liabilities. A tax clearance certificate relating to the company’s affairs can be obtained from SARS but it is also important to investigate whether a potential CGT liability arises in case the property is disposed of in the future.



There are various laws which govern the way one does business, particularly when it comes to renting out premises. With the promulgation of the Consumer Protection Act (CPA) there are various rules and requirements which apply to leasing. In a lease agreement, the parties are bound by obligations which include invariable obligations, provisions that the parties have contracted into and residual obligations. The CPA does not necessarily apply to all business premises leases though as there thresholds based on the tenant’s annual turnover or asset value (currently ZAR 2 million).


Commercial, Industrial and Retail leases (short and long term).


Leases for a term shorter than nine years and 11 months are usually




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authorities in terms of the local government planning ordinances. In 2013, the Spatial Planning and Land Use Management Act (SPLUMA) was promulgated. This will serve as a guideline legislation that will provide for the enactment and, where necessary, amendment of provincial and local planning legislation to ensure uniformity. From an environmental perspective the National Environmental Management Act, 1998 (NEMA) is extremely important in relation to use of land and liability for rehabilitation. See also question 12.8 below.


Property can only be expropriated in terms of law of general application for a public purpose or in the public interest, subject to compensation being paid on a basis agreed by those affected, or decided or approved by a court (section 25, Constitution 1996). The amount of compensation payable must be just and equitable, by reflecting an equitable balance between the public interest and those affected by the expropriation.


In almost all instances the local municipal authorities have the relevant jurisdiction but in cases of heritage properties and environmentally sensitive properties, mining properties and/or agricultural properties, various other statutes may apply which will require additional permissions.


Change of land use (or rezoning) approval will require:■ Traffic impact assessments.■ Environmental impact review.■ Consent from adjacent property owners.■ Review of title conditions and other conditions of

establishment relating to the broader township.■ Consideration of what servitudes (or example, access and

egress) may be required over adjacent properties.■ Filing of a proposed site development plan.■ Building plan approval in accordance with the relevant local

authority process and national building guidelines.


In almost all instances of commercial development, rezoning applications will have to be made to ensure that the desired density and bulk is allocated to the property from a services and infrastructure perspective.


The price can vary depending on the development. The time frame also varies depending of the various departments involved.



The Rental Housing Act prescribes mandatory provisions relating to leasing of residential properties. The rights of property owners and tenants are also governed by the Prevention of Illegal Eviction and Unlawful Occupation Act (commonly referred to as PIE Act) which prevents arbitrary and unlawful actions. The common law as adjudicated by the Courts also offers invaluable guidance on what rights and obligations exist between landlord and tenant.


No, the same principles would apply.


a) Residential leases are mostly for a year but can be for longer periods; b) if a lease is for multiple years, an annual escalation depending on market conditions is applied upon anniversary of the lease term; c) tenants who do not vacate at the end of the lease term may be evicted with the landlord using the PIE Act, but most leases have a provision which automatically converts the lease into a month-to-month lease at a higher rental, or a penalty may be applied in addition to the rental payable; and d) it depends on the agreement between the parties what obligations regarding contribution to costs and maintenance and repair exist. Commonly, a tenant pays a fixed monthly amount plus usage and consumption charges in relation to water, gas and electricity and if damage is caused to the leased premises, such amounts may also be recovered from the tenant.


Yes. Breach provisions usually require a landlord to place the recalcitrant tenant on terms to rectify the breach, failing which the landlord may cancel the lease and claim damages and eviction of the tenant. The steps to be taken are detailed in the PIE Act read with the rules of Court in case the tenant fails to vacate as requested. The landlord also enjoys a statutory hypothec in terms whereof they may attach the tenant’s movable property in case of failure to pay rental. The hypothec is usually enforced together with the cancellation, recovering of damages and eviction processes.



Planning in each jurisdiction is currently governed by the local



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The Department of Energy is currently embarking on or developing an EE Target Monitoring System through the Energy Efficiency Monitoring and Implementation Project which is done jointly with the South African Local Government Association (SALGA). This project is supported through a collaboration between the Department of Energy and the Swiss Agency for Development and Cooperation (SDC). The purpose is to introduce and institutionalise an Energy Efficiency Target Monitoring System for measuring and reporting the achievement of the sectoral targets set out in the National Energy Efficiency Strategy. In addition, the Minister of Public Works launched the National Green Building Framework in December 2011, which also has elements of energy efficiency in buildings. The National Building regulations are also being amended to include mandatory energy efficiency standards for new buildings to support the improvement of energy efficiency buildings.

13 Climate Change


Various initiatives, in accordance with international treaties and co-operation agreements have been initiated and post COP21, we expect these objectives to be translated into firmer legislative measures over the next few years, with real sanctions for transgressors.


There are no formal targets yet to reduce greenhouse gas emissions from building in South Africa. The Green Building Council of South Africa is a full member of the World Green Building Council and issues GreenStar ratings in respect of building projects. There are limited legislative requirements at this stage contained in local authorities’ bylaws.


Increasing awareness is prevalent in the development of commercial properties. Tenants, especially global entities, seek to commit developers to more environmentally sustainable building practices, and in some instances even insist on including penalty clauses in development lease agreements if the developer does not meet a required standard. Johannesburg recently hosted the C40 Cities Summit, which targets climate change and plans to mitigate the impact on communities.


The South African Heritage Resources Agency (SAHRA) is the national administrative body responsible for the protection of South Africa’s cultural heritage. According to South African legislation, historical and cultural resources fall within the scope of the natural environment for the purposes of environmental law. The National Heritage Resources Act, No. 25 of 1999 makes provision for the protection of heritage objects. SAHRA is the custodian of the country’s heritage resources which form part of the national estate. Some heritage objects are located in public institutions and others are privately owned. Declaration of a specifically declared heritage object does not change its ownership status.


The National Environmental Management: Waste Act, 59 of 2008 (“NEMWA”) came into operation, in July 2009. NEMWA (section 40(1)) provides that no person may transfer contaminated land without informing the person to whom that land is to be transferred that the land is contaminated and, in the case of a remediation site, without notifying the Minister or the MEC and complying with any conditions that are specified by them. These provisions have direct consequences for alienation of land that may be contaminated, including potentially impacting on the right of freedom to contract for the purchase and sale of the land. In the event of non-compliance with the obligation to provide information on contaminated land in the event of transfer of such land, the same penalty provisions as are applicable to non-compliance with section 36(5), discussed above, will apply.Owners of potentially contaminated land or persons undertaking activities that have the potential to contaminate land are advised to take note of the operation of the Contaminated Land Provisions particularly the issues discussed above.


The general principle applicable is “polluter pays” and any transgression of the environmental legislation and local municipal bylaws require the owner of the property to attend to the environmental remediation. If the current owner was not the polluter, the legislation nonetheless holds the owner liable, who in turn may have a claim against prior owners who were liable for the pollution.




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Pieter H. NiehausNorton Rose Fulbright South Africa Inc. 15 Alice LaneSandton, Johannesburg, 2196South Africa

Tel: +21 11 685 8619Email: [email protected]: www.nortonrosefulbright.com

Pieter is a real estate lawyer and head of the South African real estate practice. He specialises in all property related matters including, amongst others, providing town planning advice, attending to the full spectrum of conveyancing services, property financing (commercial and residential) and general notarial work, with specific reference to notarial bonds, all types of leases, and servitudes.

Pieter presently advises and assists all the major commercial and private banks and some foreign financial institutions in relation to financing and security arrangements, and also provides property advice to a wide range of clients including renewable energy, mining, professional services firms, student accommodation developers, property developers and from time to time also acts on behalf of the local authority in a variety of property-related matters.

In 2015 and 2016 The Legal 500 Europe, Middle East & Africa edition recommended Pieter as a leading lawyer in the field of real estate law.

Norton Rose Fulbright is a global law firm. We provide the world’s preeminent corporations and financial institutions with a full business law service. We have more than 4,000 lawyers and other legal staff based in more than 50 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia.

Recognised for our industry focus, we are strong across all the key industry sectors: financial institutions; energy; infrastructure, mining and commodities; transport; technology and innovation; and life sciences and healthcare. Through our global risk advisory group, we leverage our industry experience with our knowledge of legal, regulatory, compliance and governance issues to provide our clients with practical solutions to the legal and regulatory risks facing their businesses.

Wherever we are, we operate in accordance with our global business principles of quality, unity and integrity. We aim to provide the highest possible standard of legal service in each of our offices and to maintain that level of quality at every point of contact.

Norton Rose Fulbright Verein, a Swiss verein, helps coordinate the activities of Norton Rose Fulbright members but does not itself provide legal services to clients. Norton Rose Fulbright has offices in more than 50 cities worldwide, including London, Houston, New York, Toronto, Mexico City, Hong Kong, Sydney and Johannesburg.



Chapter 26

Hogan Lovells Emilio Gómez Delgado

Spain

■ Act on Urban Leases 29/1994 (Ley de Arrendamientos Urbanos), which regulates leases in urban properties for dwelling and commercial uses.

■ Act on Rural Leases 49/2003 (Ley de Arrendamientos Rústicos), which regulates leases in non-urban properties.

■ Government Housing Plan, which regulates government-supported houses for low-income families and individuals.


Common law has no impact whatsoever on Spanish real estate.


Only EU legislation is relevant to real estate in Spain. International law is not relevant since real estate in Spain is regulated by local law.

2 Ownership


There are no restrictions on foreign investors’ ownership or occupation of real estate.Foreign investment and exit from Spanish real estate (when it exceeds EUR 3,005,060.52) or in Spanish companies must be declared to the Bank of Spain (Banco de España) for statistical purposes. Investments from tax havens must be declared in advance, unless the investment is less than 50% of the share capital of the Spanish company.In Spain, all entities and individuals appearing before a notary public in order to formalise title transfer must have a foreign identification number (Número de Identificación de Extranjero) (NIE):■ Foreign individuals and entities investing in real estate in

Spain.■ Foreign individuals acting as representatives of the

transaction parties.

1 Real Estate Law


The main applicable real estate legislation is:■ The Constitution 1978, which states the right to a private

property and the right of any individual to access a respectable dwelling.

■ The Civil Code 1889, which states general principles for contracts, and regulates leases and other general real estate issues.

■ The Mortgages Act 1946 (Ley Hipotecaria), which regulates the registration of real estate with the Land Registry.

■ The Cadastral Act 1/2004 (Ley del Catastro), which regulates the registration of real estate with the Cadastre.

■ The Consolidated Text of the Land Act 8/2007 (Ley del Suelo), which states the economic and environmental principles for the relationship between individuals and the administration relating to:■ land titles;■ the economic valuation of land; and■ building rights or obligations for land owners.

This consolidated text of the Land Act incorporates and adapts Act 8/2013, of 26 June, of building refurbishment, regeneration and urban renovation.■ The Condominium Act 1960 (Ley de Propiedad Horizontal),

which regulates properties divided into condominiums for separate and independent use and profitability.

■ Planning laws of each autonomous community. The 17 different Spanish regions each have authority to regulate planning in their jurisdictions.

■ The Construction Act 38/1999 (Ley de Ordenación de la Edificación), which regulates construction and the protection of the environment.

■ Technical Construction Code (Código Técnico de la Edificación), which complements the Construction Act and deals with improving energy efficiency in buildings.



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Hogan Lovells Spain



Generally, real estate can be held by:■ Freehold, under:

i. full ownership;ii. joint co-ownership; oriii. a time share.

■ Leasehold, under:i. a lease;ii. usufruct;iii. a public concession contract; oriv. a building lease.


The general principle is that real estate is indivisible (section 334, Civil Code) and comprises:■ land;■ buildings; and■ everything attached to land or buildings.Land and buildings located on such land are registered together on the same title in the competent land registry (registro de la propiedad) (Mortgage Act).A description of land and relevant buildings is also registered with the Cadastre, a different registry under the control of the Ministry of Treasury, which aims to provide a base for property tax assessment.The way to split both the right over the land and the right over the construction erected thereon is the building lease (derecho de superficie).


There is no split between legal title and beneficial title but the purchaser may declare that the acquisition of the property is for the benefit of a third party (as a fiduciary). In any case the registered owner, vis-à-vis third parties, is the entity acquiring legal title.



Title to real estate is evidenced by the corresponding public deed of sale and purchase. Registration at the land registry is not compulsory. However, when registered, title is enforceable against bona fide third parties with a potential interest in the real estate.Land registries are managed by the Registrars Bar, an administrative body controlled by the Ministry of Justice (Ministerio de Justicia).


There is no state guarantee of title. Title insurance is not commonly used because the legal system fully protects a third party acquiring title from the registered owner.


Under Spanish law, a mortgage and a building lease are compulsorily registrable and registration is required for the validity and existence of these rights.


As mentioned in question 4.1 above, land registration is not compulsory; however, if not registered, any right or obligation over land will only remain valid and with full effects among the parties.


First registration is the same for all types of unregistered land. The applicant must provide a detailed description of the property, including:■ A description of the property and its nature.■ The property’s boundaries.■ The ownership title and a chain of registration of title.■ Any charges and encumbrances.■ The date of the registration of title, charges and encumbrances.Owners of adjoining properties and third parties with a potential interest have a trial period to challenge registration or details of such registration within two years (section 207, Mortgages Act).


RegistrationTransfer of title is formalised in a public deed of sale and purchase before a notary public. After that, the buyer can register the title with the corresponding land registry to protect the title against third parties.However, if there is a right of first refusal through an option to purchase, the beneficiary of the option can register his option with the land registry before executing the transaction, to protect his right to acquire the property against other potential buyers.When title transfersTitle transfers on delivery of the real estate to the buyer; this normally occurs (unless agreed otherwise) when a notarial deed is signed (see above, Registration).


Registered rights will prevail over other rights based on priority in applying for registration to the competent land registry.


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The Spanish territory is divided into land districts which are each assigned to a Land Registry. All land districts are governed by the same rules and are subject to the same requirements.


The Land Registry may certify the contents of the registry with respect to land titles and other rights – mortgages, liens and attachments – over a property but that does not constitute a title document. Title to real estate is evidenced by the corresponding public deed of sale and purchase.


No. All transactions relating to real estate will have to be completed in writing, by means of a public deed. Immediately afterwards, the notary is obliged to notify the land registry electronically in order to get priority of registration, but this must be confirmed by delivering the original title deed for registration.Information on ownership can be easily accessed electronically. The competent land registry issues an online excerpt with all relevant facts of the property (titleholder, third party rights and description of the property).


Yes, it is feasible to claim compensation from a land registrar who makes mistakes during the registration process. The registrars will be legally liable for all damages and costs they have caused.


Registered information can be accessed by parties with a lawful interest in finding out the status of a property and its registered rights. If requested, the information may be translated into English and presented in a double column format, with all information in Spanish listed alongside its translated counterpart.



This really depends on the complexity of the transaction. Buyers

and sellers are usually advised by real estate consultants (one advisor per party) and the seller’s advisor acts as broker of the deal. Technical advisors for the due diligence of the property are also commonly used. Legal advisors provide legal support at all stages of the process and take care of drafting the legal documentation (preliminary contracts, SPA, deed of sale and purchase). Parties appoint a Notary Public for the execution of the deed of sale and purchase. Common practice is that the party assuming notarial costs decides on the appointed Notary Public.


Each party bears the costs of its own transaction advisors. These remunerations are freely negotiated with the service providers and may be determined as a percentage of the purchase price or a fixed remuneration. The Spanish Civil Code establishes the general rule that the notary fees are borne by the seller and registry fees are borne by the purchaser, but this rule may be changed by the parties.


Foreign equity has driven the recovery of the Spanish property market; initially the opportunistic international funds put their shoes in the country in 2013, but now the bulk of the investment is driven by Spanish REITs (SOCIMIs) and added-value funds.


Tourism is a key sector in Spain and, as a consequence, the activity in the hotel and leisure industry in secondary areas is really high. Investment in the Canary Islands and Mallorca remains quite active, similar to the South Coast (Malaga area).


Nowadays in Spain, all sub sectors are increasing the levels of activity exponentially. A slowing-down trend has only been seen in some regions like Cataluña due to the political instability of the region in the second half of 2017.



MarketingMajor property companies and institutional investors usually engage a major consultancy investment firm to:



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■ Conduct the sales process.■ Organise the marketing materials.■ Lead marketing actions.Medium-sized companies prefer to conduct the marketing process themselves.Commercial negotiationNegotiations usually occur between representatives from both of the parties, supervised by lawyers and real estate advisers. In some circumstances, negotiations are directly executed between the parties’ lawyers and advisers.Pre-contractual arrangementsArrangements are usually related to:■ Confidentiality.■ Non-disclosure.■ Temporary exclusivity for:

■ due diligence; and■ making offers (initial offers and subsequent binding offers).

Pre-contractual arrangements are fully binding on both parties.Sale contractA private sale and purchase contract, exchanged between the parties, contains the transactions terms and conditions, including:■ Any conditions precedent.■ The timing for closing.■ The conditions for closing.■ The object of the sale (that is the real estate) and the purchase

price.The contract is usually executed once the parties agree the terms and conditions and satisfactory due diligence has taken place.When legally bindingParties are legally bound as soon as they agree (section 1450, Civil Code):■ The object of the sale.■ The price.This applies even if other ancillary elements are not yet fully agreed.In addition, parties can be legally bound by other pre-contractual arrangements, which are usually agreed through a letter of intent. Such arrangements can include:■ Confidentiality.■ A prohibition on disclosing know-how information.


The seller must act in good faith without concealing any information that, if known by the buyer, would prevent the buyer from completing the transaction. The Civil Code allows legal actions against a seller for title defects and buyers also have access to public registries (land registry and cadastral office).


Yes; the terms of this liability are mutually agreed among the parties.


Real estate warranties vary depending on the transaction. However, the warranties most frequently given by the seller relate to:■ Tenancy status and validity of the main conditions of the

lease.■ The non-existence of charges and encumbrances other than

those registered at the land registry.■ Compliance with applicable planning rules.■ Having lawful power of attorney to enter into the sale and

purchase agreement.■ The validity of insurance policies.■ The absence of legal disputes or court proceedings affecting

the real estate.


This warranty on title is provided for by law (the Spanish Civil Code). In any event, a purchaser is fully protected if, acting as a bona fide purchaser, they acquire a title from a registered owner.


The buyer is only responsible to pay the purchase price and applicable taxes.



The Spanish Mortgages Act is the relevant Act setting out the requirements to secure a loan via real estate properties.


(a) Security package. A security package for a real estate loan will usually comprise:■ a mortgage over the asset;■ a charge over receivable rents;■ a charge over all bank accounts into which all rents must

be paid; and■ a charge over all relevant contracts including leases,

insurance policies and construction guarantees.(b) Corporate guarantees. Corporate guarantees are sometimes

demanded by lenders if the borrower is using SPVs.


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(c) Insurance coverage. Lenders will require the borrowers to take out appropriate buildings insurance.

(d) Covenants. The loan documentation will also contain both financial covenants (loan-to-value, debt service cover) and non-financial covenants (obligations to maintain the asset in good state of repair or disposal limitations) to be granted by the borrower in order to ensure that the value of the asset is maintained.


In Spain, the lender with a secured loan needs to start a foreclosure proceeding, where the main step is the public auction of the asset. There are two types of proceedings: (i) judicial proceeding, to be followed before Spanish courts; and (ii) extrajudicial proceedings, to be followed before a Notary Public. This extrajudicial proceeding may only be followed if agreed upon by the parties. The ECJ judgment of 14 March 2013 (C-415/11) ruled that certain provisions of Spanish law do not comply with the Unfair Terms in Consumer Contracts Directive 93/13/EC. As a result of the judgment, enforcement of mortgages against consumer borrowers will be more difficult.


A mortgage over real estate is granted in a public deed and is only valid when registered with the Land Registry.A pledge over income arising from lease tenants is usually notarised, but notarisation is not mandatory. However, it is advisable to notify the tenants of the pledge.In share deals, it is common to grant a pledge over the shares of the SPV acquired by the buyer; this must be granted before a notary public.


The protection of a real estate lender depends on the priority of the ranking of the secured loans, and this priority is subject to the registration principle, unless mutually agreed between the borrower and the lender.


Spanish courts are ruling that the enforcement of a guarantee is not valid unless a material condition of the loan agreement is breached by the borrower.


Remediation of the breach during the enforcement proceeding.

9 Tax


Stamp duty and transfer tax (Impuesto sobre Transmisiones Patrimoniales) are different forms of the same tax.Stamp duty is paid when the transaction is formalised in a notarial, corporate or administrative document. The rates are defined by each regional government (commonly 1% of the real estate value).Transfer tax is payable when the sale or purchase of real estate is exempt from VAT. Rates for transfer tax are also set by each regional government, with a general rate of 7%, except for the Canarias which has a general rate of 6.5%.The buyer pays stamp duty and transfer tax.


Transfer tax is payable when the sale or purchase of real estate is exempt from VAT. Rates for transfer tax are also set by each regional government, with a general rate of 7%, except for the Canarias which has a general rate of 6.5%.The buyer pays transfer tax.


Yes, for the difference between the sale value and the original acquisition value (including all costs).


Generally, VAT is payable for all sales or purchases of real estate when the transaction takes place in the framework of a business activity.The seller charges VAT to the buyer and the seller then pays the VAT to the tax authorities.The general rate of VAT is 21%. However, a reduced rate of:■ 10% applies to residential buildings.■ 4% applies to government-subsidised dwellings (viviendas

de protección oficial).There are exemptions when the transaction relates to the:■ sale or purchase of rural land;■ delivery of plots of land to a compensation committee (Junta

de Compensación) to develop the land; or■ second or subsequent sales or purchases of real estate.The abovementioned transactions are subject to transfer tax. However, the seller can waive the exemption, provided both of the following apply:■ the buyer acquires the real estate as part of its business

activity, for example, if it is a VAT taxable person; and■ the buyer is entitled to a total reduction of the charged VAT.


The seller is responsible for paying a municipal duty (the municipal increase of the cadastral value of the property).



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This has to be analysed on a case-by-case basis. In principle, due to a recent reform, in cases where the object of the transfer is the shares of the company owning the property, the transfer is free of VAT and Transfer Tax if the underlying real property asset is connected to a business activity (e.g. lease activity), unless the Tax Authorities can prove that the sale has been implemented as a share deal, the only purpose of which was to avoid Transfer Tax.


In case of share deal, latent capital gains of the SPV to be acquired and latent tax liabilities are the key area of concern for a buyer. In the event of asset deal, the relevant areas of concern are related to potential application of Real Estate Transfer Tax (RETT) instead of VAT and tax liens and the assessment of potential contingencies arising thereto.



The Act on Urban Leases 29/1994 (Ley de Arrendamientos Urbanos) regulates leases in urban properties for dwelling and commercial uses.


The Act on Urban Leases does not distinguish the legal regime applicable to different types of business leases if the object of the lease is only the real estate property. If the lease includes an industrial or a business activity, then the Act on Urban Leases does not apply, but a different regime governed by the Spanish Civil Code does.


The term of a non-residential lease can be freely agreed by the parties. An initial term of between two and five years is commonly used, with extensions depending on the nature of the lease.In non-residential leases, unless agreed otherwise, the tenant can sublet the premises or assign the lease without the landlord’s approval. It is sufficient to give notice to the landlord of the subletting or the assignment. However, the landlord is then entitled to increase the rent by 10% to 20%. Unless agreed otherwise, business premises can be shared by the tenant with companies belonging to its group by a subletting agreement.In most non-residential leases, the parties agree that the landlord is responsible for structural and major repairs, and the tenant carries out internal repairs and maintenance as well as interior decoration. The Act on Urban Leases for residential leases otherwise applies to non-residential leases.The landlord insures the premises but usually recovers premiums from the tenant as part of the ancillary costs under the lease.


There are two taxes relevant to the occupation of business premises:■ Property Tax (Impuesto sobre Bienes Inmuebles). This

taxes the ownership of Spanish real estate. This tax is calculated in accordance with the cadastral value. It is common to charge the tax to the tenant if the property is leased.

■ Tax on Economic Activities (Impuesto sobre Actividades Económicas). This taxes the economic activity of companies with a gross business income of more than EUR 1 million. Non-resident companies operating in Spain through a permanent establishment and with a gross business income of up to EUR 1 million are exempt.


LandlordLandlords can terminate leases early (both non-residential and residential) on the following grounds (unless agreed otherwise):■ Breach of contract by the tenant.■ Lack of payment of the rent or service charge.■ Carrying out activities which are:

■ aggravating;■ unhealthy;■ harmful;■ dangerous; or■ illegal.

The landlord has the following additional grounds for terminating the lease early in residential leases:■ Lack of payment of statutory deposit.■ Subletting or assignment without the landlord’s prior consent.■ Voluntarily causing damage to the premises.■ Carrying out non-authorised works.■ The dwelling no longer being allocated for residential use.TenantUnder the Act on Urban Leases, the grounds for early termination by the tenant are:■ The landlord’s execution of improvement works in the leased

premises (subject to certain conditions).■ Execution of conservation works or works imposed by the

competent authority, provided these works prevent the tenant from using the leased premises.

■ Breach of contract by the landlord.In addition, in non-residential leases, any grounds for early termination agreed in the lease are enforceable by the tenant.


Yes, unless mutually agreed by the parties in a different way.


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The main “green obligation” lies with the landlord, since he is obliged to provide an energy efficiency certificate to the tenant before signing the lease contract.



The Spanish law on Urban Leases (LAU) provides for the main regulation for residential premises. Touristic activities are governed by Regional governments and some regions have enacted their own rules for this activity.


Not for the rental activities, but in some regions the touristic regulations impose different requirements in case the residential property is totally or partially devoted to touristic apartments.


The length of term is freely agreed by the parties but if this is less than three years the tenant has the statutory right to extend the lease on an annual basis up to three years. Rent increases are linked to the CPI variation (upwards/downwards). There is no right for the tenant to remain in the premises at the end of the term, but the Spanish Civil Code states that if the landlord consents the tenant to retain possession of the property for more than 15 days after expiration, then the lease is extended for an additional term of one year. Landlord’s insurance is not normally charged to the tenant under the lease of a residential property.


In Spain, the legal system is protective of the tenant in case of dispute, so the eviction proceedings take a long time. In addition, tenants have faculties to stop the eviction during the proceedings if the breach of contract is remedied. In turn, Spanish law allows the landlord to immediately recover possession of the residential property in case the landlord or relatives must use the property as its own residence.



Regional governments in Spain are responsible for town and country planning in its designated territory. Consequently, there are 17 different planning law systems in Spain. However, these systems are inspired by the same planning law system which was in force before the Constitution. Therefore, the systems have common institutions and regulations.Regional government legislation is generally confirmed by the corresponding regional Planning Act (Ley Urbanística) and regional Planning Decree (Decreto Urbanístico), which complements the Planning Act. They are passed by the corresponding regional parliament and regional government respectively.Parliament and the government have legislative and executive powers for other planning matters, such as:■ Land valuation.■ Compulsory purchase.■ Protection of coasts and rivers.■ Road legislation.The city councils are the most important authorities concerning town planning and are responsible for the following:■ Initiation and processing of the basic planning regulations

(planeamiento urbanístico general), which are subsequently approved by the competent regional governments.

■ City design and development.■ Classification of the land (clasificación urbanística) into:

■ urban land (suelo urbano);■ land fit for urban development (suelo urbanizable); and■ land protected from urban development (suelo no

urbanizable).■ Defining the permitted uses and construction parameters in

each of the types of land.■ Granting authorisations of constructions and uses.■ Inspections.■ Sanctioning and expropriation.■ Approving supplementary planning regulation (planeamiento

urbanístico de desarrollo).


Yes; land owners can be forced to sell land which is included in a planning sector and is due to be developed with the backing of the majority of the land owners of such sector. Such land owner is compensated with the corresponding indemnity. The land is valued in accordance with the valuation methods established by law. It must be taken into account that in most cases, valuation will not be coincident with the fair market value of the land at that time; such valuation, however, can be challenged by the land owner in court.



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activities carried out by a hotel, factory or a car park). The city council grants an activity licence provided the activity requested by the developer complies with environmental regulations.Opening licence (licencia de apertura). Once the installation of fit-out works has been duly completed to allow the authorised activities to be performed, municipal technicians inspect the property to assess that the fit-out works comply with the activity licence. If they do, the opening licence is granted.Planning licences for carrying out works Works licence (licencia de obras). The developer must apply to the city council for the works licence before the works begin, after the activity licence has been granted. The city council grants the works licence if the construction complies with the urban parameters in the planning regulations.Occupancy licence (licencia de primera ocupación/funcion-amiento). Once the construction works have been duly completed, city council technicians inspect the property to assess that the works comply with the works licence. If they are satisfied, the occupancy licence is granted.




The fees for obtaining the relevant permits are defined locally by municipal authorities.


The Spanish government enacted Law 16/1985 of 25 June to protect Spanish Historical Heritage. Regional governments have also implemented their own regulations for local historical heritage not protected by Spanish national regulations.In addition, town master plans may establish different levels of protection in case demolition, change of uses, refurbishment or fitting-out works of an existing building.


The land registry provides for relevant information if a piece of land has been declared as contaminated land by environmental authorities, or in the event there is an ongoing investigation. In addition, the Ministry of Environment has created a public registry of contaminated land.


Environmental clean-up is always mandatory as from the declaration of contamination by the environmental authorities until the remediation is complete.


Initial consentsIn most cases, the city council grants initial and final planning licences.Third party rightsThird parties do not always have the right to object. This depends on the corresponding regional government. Regional planning legislation generally sets out public information about administrative procedures to grant licences if third parties are affected by the city council’s final decision (for example, an activity licence application to carry out industrial activities in a residential area).In these circumstances, before the city council’s final approval, the application form is published in official gazettes, and the procedure enters a public information stage for about one month, during which any party can:■ study the relevant documentation in the municipal offices;

and■ address written pleadings to the city council to enforce their

own rights and interests concerning the licence.Public inquiriesThe approval of basic planning regulation is always subject to public information, and, in some cases, the granting of licences is subject to public consultation.Initial decisionDepending on the regional planning legislation and the works or activities to be authorised, it takes between one and six months to obtain approval. The city councils must decide and notify the parties within this time.If the maximum term expires and the city council has not notified its decision, the licence is generally deemed to have been granted by positive administrative silence (silencio administrativo positivo).AppealsThere is a right of appeal against a planning decision. Any party can make a judicial appeal in court (recurso contencioso-administrativo) against a public authority decision concerning planning or environmental issues provided the following conditions are met:■ The decision to be appealed must be final, that is, the

administrative procedure for adopting the decision must be concluded, including any appeals to public authorities.

■ The judicial appeal must be lodged at the competent court within two months from the date of notification or the date of publication of the decision in the Official Gazette.


The following are subject to authorisations, or licences (licencias), from the city council:■ Works.■ Constructions.■ Divisions of plots.■ Carrying out any activities.Environmental licences for carrying out activitiesActivity licence (licencia de actividad). The developer applies to the city council for this licence. The licence authorises the activity for which the developed property will be used (for example,


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the Europe 2020 Strategy and under the Kyoto Protocol’s second commitment period (2013–2020). For 2020, the EU has made a unilateral commitment to reduce overall greenhouse gas emissions from its 28 Member States (including Spain) by 20% compared to 1990 levels which is one of the headline targets of the EU 2020 strategy.


Spain’s goal, in relation to the reduction of gas emissions, consists of compliance with the Kyoto Protocol and the objectives established by the EU.


The most relevant measure is Royal Decree 235/2013, which transposed Directive 2010/31/EU, regarding energy efficiency in buildings, which has an impact on real estate transactions and leases.


In Spain, the following regulations have been enacted to transpose Directive 2002/91/EU of the European Parliament and Council of 16 December 2002:■ The new Building Technical Code, approved by virtue of

Royal Decree 314/2006, which envisages specific measures on energy efficiency and integration of renewable energies.

■ The Regulation on Thermic Systems in Buildings, approved by virtue of Royal Decree 1027/2009.

■ The Regulation of the Energy Efficiency in External Lightning, approved by virtue of Royal Decree 1890/2008.

13 Climate Change


Spain, as part of the EU, is on track to meet its targets for cutting greenhouse gas emissions both under its own internal target in

Hogan Lovells Spain



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Emilio Gómez DelgadoHogan LovellsPaseo de la Castellana 36–3828046 MadridSpain

Tel: +34 91 349 82 00Fax: +34 91 349 82 00Email: [email protected]: www.hoganlovells.com

Emilio is a partner in the Real Estate area of Hogan Lovells and heads the Madrid Real Estate practice. He provides broad experience in real estate developments and transactions, particularly in shopping and leisure centres, as well as business parks and hotels.

He is a lecturer at the LL.M. at Universidad de Navarra and at the Planning Law LL.M. at Carlos III University in Madrid. He is also a member of the Advisory Board of the Law Faculty at Universidad de Navarra.

Practices: ■ Real Estate.

■ Hotels & Leisure.

■ REITS.

■ Real Estate Finance.

Education: ■ Doctorate courses, Madrid Complutense University 2004.

■ Master’s in Planning Law, IE Business School, Madrid 2002.

■ Business Degree, University Pontificia Comillas (Madrid) 1999.

■ Law Degree, University Pontificia Comillas (Madrid) 1998.

Memberships: ■ Madrid Bar Association.

■ LAI, honorary society on land economics (www.lai.org).

■ ULI (www.uli.org).

Hogan Lovells is a global legal practice, providing high-quality advice to corporations, financial institutions and governmental entities across the full spectrum of critical business and legal issues, globally and locally. We have over 2,500 lawyers operating in 47 offices in Europe, the United States, Latin America, the Middle East and Asia.

The global real estate group is renowned for first-class legal skills and market knowledge. An integrated, cross-border group, we bring client-focused innovation to bear in pioneering new deal structures and in delivering legal services.

The Madrid Real Estate team, led by partner Emilio Gómez, has broad experience in real estate transactions related to the acquisition, management and leasing of business parks and offices, shopping centres and industrial premises. The team advises property developers, investment funds and property companies in real estate transactions, construction contracts and planning developments. It also advises real estate companies in their investments in Continental Europe, the UK, the Arab Emirates and Asia.

Hogan Lovells Spain


Chapter 27

Meyerlustenberger Lachenal AG

Wolfgang Müller

Christian Eichenberger

Switzerland

made even stricter on the other. It is widely recognised that the Lex Koller is the only effective measure to reduce the demand for Swiss residential properties.The acquisition of residential premises by non-Swiss persons remains restricted while the acquisition of business premises is, as a rule, unrestricted under the Lex Koller. This spring the Swiss Federal Council presented a draft bill suggesting some major amendments. These amendments were discussed intensively during the conciliation proceedings which ended on June 30, 2017. However, the debate regarding the Lex Koller is expected to continue for years to come. Therefore, we assume it will take years until amendments to the Lex Koller, if any, will enter into force.



The most important types of rights over land are ownership, co-ownership (in particular, in the form of the condominium-principled co-ownership), building rights and usufructuary rights on the one hand. On the other hand, lease contracts play a major role, with both residential and commercial properties. The latter are purely contractual between the parties unless they are annotated in the land register.


Yes, in the case of a building right, the right to a real estate diverges from the right to a building constructed thereon. In such a scenario, there are two owners: one that owns the soil; and one that owns the building built thereon.


Beneficial ownership cannot be based on property law provisions, because Swiss law does not know a legal principle comparable to the common law concept of trust (even if trusts under foreign law are under certain conditions recognised under Swiss law – in the case of assets under a trust established abroad that are entered in the name of the trustees in the land register in Switzerland reference

1 Real Estate Law


Switzerland is a civil law country. Real estate is mainly governed by written laws on a federal level, such as the Swiss Civil Code, the Swiss Code of Obligations, the Act on the Acquisition of Real Estate by Persons Abroad (the so-called Lex Koller), the Debt Enforcement and Bankruptcy Act and the Ordinance on the Land Register.


As mentioned above, Switzerland is a civil law country. Hence, there is in principle no common law in Switzerland. Nevertheless, there is case law which offers guidance on the interpretation of written laws. In particular, such case law has an impact in the field of landlord-tenant law, where a lot of cases are produced, in particular in the Western (French-speaking) part of Switzerland.


International laws do not play an important role with respect to real estate in Switzerland. The Agreement on the Free Movement of Persons, however, has impact on the Lex Koller mentioned above.

2 Ownership


The Lex Koller (see the answer to questions 1.1 and 1.3 above) restricts the acquisition of Swiss residential and other non-commercial real estate by foreign (i.e. non-Swiss) persons. In recent years, and in particular since 2007, it has been debated whether the Lex Koller should be abolished altogether on the one hand, or



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No, there is no such probationary period following first registration under Swiss law.


Transfer of title occurs upon the respective entry into the “journal” of the land register, provided, however, that the application is later registered in the “main register” of the land register.


Except for mortgages, which have an assigned rank among each other, irrespective of the time of registration, registered rights obtain priority over other rights in accordance with the “rule of seniority”, which means, in principle, “first in time, first in right”. Such rule, however, can be contracted away.



For land register purposes, the cantons are divided into districts. Hence, the 26 cantons are responsible for setting up the land registries, the demarcation of the districts, the appointment and remuneration of officials and supervision arrangements.


The land register issues (upon request of the owner) an extract from the land register. Such extract does not, however, qualify as a physical title document. Due to the legal assumption that the land register is complete and correct (see the answer to question 4.2 above), it is not necessary to issue a separate title document.


The cantons can allow their land registries to communicate and conduct transactions electronically. The transferor of real estate (e.g. the seller) has to file to the land register an application for the registration of the new owner (e.g. the buyer) and furnish supporting documents (e.g. the purchase and sale deed).

shall be made to the trust relationship by means of an annotation; a trust relationship that is not annotated in the land register in such a way may be considered invalid against bona fide third parties). Any beneficial ownership is therefore of purely contractual nature under Swiss law, which means, in particular, that the right of the beneficiary is not based on an in rem title to the property, but only on a contractual claim against the holder of the property rights. If that holder disposes of the property in violation of the contractual provisions, the beneficiary is limited to a claim for damages. Although a purchase of property on a fiduciary basis is considered to be valid, such fiduciary purchase is void where the parties intended to circumvent legal provisions; this may especially be the case if a non-resident foreigner or a company with registered office abroad, respectively, intends to acquire a Swiss property in breach of the Lex Koller without disposing of the necessary permit (see question 2.1 above). A common method of acquiring a beneficial interest in land is by purchasing shares or the majority of shares in a real estate company; the ownership of the property in an economical sense is transferred simply by conveying the shares of the company owning the property – however, the restrictions of the Lex Koller also apply in such a case.



In principle, all privately owned land is registered in the land register. However, no rights of private ownership apply to public waters or to land not suitable for cultivation, such as rocks and scree, fern and glaciers, or springs rising therefrom, unless proof to the contrary is produced. Immovable property which is not privately owned and is in public use will be recorded in the land register only if rights in rem attaching to such property are to be registered or if cantonal law provides for its registration.


There is no explicit state guarantee of title. However, the land register is assumed to be complete and correct and everyone may in good faith rely on it. Therefore, the state (i.e. the respective canton) is liable for any losses arising from the undue maintenance of the land register.


All acquisition of land ownership must be recorded in the land register. The consequence of non-registration is that the title remains with the seller – hence, the respective transaction is not yet closed. In addition, all rights relating to the property and relevant to everyone (not just to a contractual party) must be registered in the land register.


Emption rights, pre-emption rights, repurchase rights and lease agreements, for example, are rights in land that are not required to be registered.

Meyerlustenberger Lachenal AG Switzerland


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Yes, we have seen investors going off the beaten track of the primary markets by transacting business in secondary or even tertiary markets. For example, there are investments made in real estate development projects in mid-sized Swiss cities such as Lausanne or Solothurn, or in commercial properties in cities like Thun and St. Gallen. Certain foreign investors have been interested in acquiring Swiss hotels or have invested in resorts in the Swiss Alps in recent years (e.g. Bürgenstock or Andermatt).


An example is the vacancy rates regarding office space in some cities and in particular city centres such as Geneva and Zurich which have increased substantially in recent years.



The purchase and sale deed needs to be notarised by a notary public, and the seller (or the notary public, respectively) is to file to the land register an application for the registration of the new owner (i.e. the buyer).


There is no formal duty of disclosure. However, the seller is under a duty to act in good faith which implies, for example, that he has to answer questions of the buyer relating to the transaction truly and accurately.


Yes; if the seller does not disclose important information or gives false information, he/she may be liable for misrepresentation.


According to the Swiss Code of Obligations, the seller is liable to the buyer for any breach of warranty and for any defects that would materially or legally negate or substantially reduce the value of the purchase object or its fitness for the designated purpose. Such warranty is, however, in practice, often contracted away (at


Yes, the state (i.e. the respective canton) is liable for any losses arising from the undue maintenance of the land register.


Any person is entitled to obtain the following information from the register without showing a legitimate interest:1. the name and description of the immovable property;2. the name and identity of the owner; and3. the form of ownership and the date of acquisition.A person showing a legitimate interest is entitled to consult the full land register or to be provided with an extract. Hence, a buyer could also directly obtain from the land register all the information he/she might reasonably need regarding encumbrances and other rights affecting real estate. Furnishing evidence to establish a legitimate interest, however, takes time. In practice, it is thus more convenient for the buyer to get an extract from the land register via the seller.



Lawyers who assist the seller and/or the buyer in conducting a due diligence, drafting and/or reviewing the contract documents are often involved. In addition, notaries public draft and notarise the purchase and sale deed. Other parties involved are, for example, banks, realtors, technical/environmental consultants and appraisers.


The fees of the notaries public are subject to the respective laws of the cantons. Realtors normally receive a certain percentage of the purchase price for their brokerage services. Lawyers, consultants and appraisers are normally remunerated on an hourly basis.


In Switzerland, it has always been possible to access reasonable finance for real estate transactions, even following the 2008 financial crisis. While real estate as an asset class is still attractive to insurance companies and pension funds, new standards put in place by the Swiss National Bank and the Swiss Bankers Association have meant that banks have been forced to be more prudent when lending money to private individuals (see the answer to question 8.1 below).




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In Switzerland, the main method by which a real estate lender seeks to protect itself from default by the borrower is the mortgage.


If the creditor’s debt is secured by a mortgage, the pledged property is seized and sold at auction by the debt enforcement office (the respective foreclosure proceedings are governed by the Debt Enforcement and Bankruptcy Act and its respective ordinances). In a security agreement, the lender and borrower may, however, also agree on the private realisation of the collateral. In the latter case, there are no court proceedings to be initiated to realise the mortgaged property.


The establishment of a new mortgage certificate is to be notarised, and a respective application is to be filed with the land register. At the same time, there are no formalities in place regarding entering into a credit facility.


Mortgages have a certain assigned rank among each other. In general, the claims based on mortgage certificates prevail over unsecured or unprivileged claims.


Under the Swiss Debt Enforcement and Bankruptcy Act, the following acts that disadvantage certain creditors, carried out by the debtor or security provider before the opening of bankruptcy proceedings, can be voidable (anfechtbar):■ The debtor or security provider disposes of assets against no

consideration or against inadequate consideration in the year before the adjudication of bankruptcy or an equivalent event.

■ The debtor or security provider carries out certain acts within one year from the opening of bankruptcy proceedings, while it is over-indebted, including, inter alia, the granting of collateral for previously unsecured debt.

■ The debtor or security provider carries out any act during the five years before the opening of bankruptcy proceedings that has the purpose of disadvantaging creditors or preferring certain creditors to the detriment of others (that is, avoidance is the intent).


According to Art. 17 of the Swiss Debt Enforcement and Bankruptcy Act, an appeal on the grounds of incorrect application of the law or

least to some extent) in real estate asset transactions. However, any agreement to exclude or limit the warranty obligation is void if the seller has fraudulently concealed the failure to comply with the warranty.


According to the Swiss Code of Obligations, the seller is obliged to transfer the purchased real estate to the buyer free from any rights enforceable by third parties against the buyer. In practice, the seller simply provides the buyer with an excerpt from the land register confirming his ownership (see also the answer to question 5.2 above).


In addition to paying the purchase price, the buyer has to pay the fees and taxes, as provided for by law and/or contract.



The Swiss National Bank (SNB) and the Swiss Bankers Association have taken several measures against the continued increase of residential property prices and mortgage loans. These measures taken in 2014 have shown effects and – despite the persisting low interest rate environment, including negative interest rates – a certain slowdown (fewer transactions, decreasing prices) resulted in some areas and some segments of the residential and commercial real estate market (see also the answers to questions 6.3 and 6.5 above). Some players in the market have therefore raised the question as to whether the time has come to abolish or mitigate such measures. However, negative interest rates continue to make investments in real estate attractive and imbalances in the mortgage and real estate markets persist. The SNB has thus reserved the possibility to introduce further measures if deemed required.In 2014, the SNB and the Swiss Federal Council, respectively, increased the countercyclical capital buffer from 1% to 2% of the risk-weighted positions secured by residential property situated in Switzerland. The SNB rules apply to both resident and non-resident persons. Also in 2014, another set of regulations was put in place: the Swiss Bankers Association’s guidelines on the minimum requirements for mortgage financing for owner-occupied residential property. Under these guidelines, a deposit of at least 10% of the loan value must be paid (with funds that do not come from the second pillar) for new purchases and mortgage increases. If the purchase price is higher than the loan value, the difference must be paid in full with own funds that do not come from the second pillar. The mortgage debt must be reduced to 2/3 of the loan value of the property within a maximum period of 15 years, with repayments made on a straight-line basis starting at the latest 12 months from the date on which the deposit was paid.



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The real estate transfer tax, if any, is owed in case of an asset or share deal (see the answer to question 9.1 above). It may, however, be possible to reduce or eliminate taxes on capital gains if a company holding a property instead of the property itself is sold.


Real estate transactions regularly require an in-depth analysis with regard to income tax, VAT and tax-optimised financing and structuring. The relevant issues depend on the specific case.



The laws that regulate leases of business premises are, on one hand, the Swiss Code of Obligations (Arts 253 to 301) and, on the other hand, the Ordinance regarding the Lease of Residential and Business Premises. There is no separate Swiss act that deals with the leases of business premises only.


In practice, various types of business leases exist, such as fixed-term leases or leases that last for an indefinite period of time, ordinary leases or leases which come close to double or triple net lease agreements.


(a) Length of term: business leases typically last for five or 10 years, possibly with an option of one additional five-year period.

(b) Rent increases: the parties often agree on indexed rents based on the Swiss consumer price index.

(c) Tenant’s right to sell or sub-lease: subject to the landlord’s approval, the tenant is entitled to sublet the premises.

(d) Insurance: we often see clauses according to which the tenant is to provide liability insurance.

(e) (i) Change of control of the tenant: in principle, change of control does not affect the commercial lease agreement.

(ii) Transfer of lease as a result of corporate restructuring: in a merger, a lease agreement is transferred to the new (restructured) entity. The acquiring legal entity shall, however, secure claims of the creditors involved in the merger, if creditors so demand, within three months after the merger becomes legally effective.

(f) Repairs: generally speaking, and as a basic rule, the landlord is responsible for major repairs; however, exceptions may apply with leases which come close to double and triple net lease agreements.

inappropriate exercise of discretion is, in principle, possible against any order made by a debt enforcement or a bankruptcy office. No charge is made for the respective appeal proceedings (Art. 20a of the Debt Enforcement Act). A party which, however, appeals in temerity or in bad faith, or its legal representative, can be fined up to 1,500 Swiss francs. Against this backdrop, some borrowers seek every opportunity to appeal (without taking a big financial risk) in order to hold up the enforcement action by the lender. We have seen cases in which it took the lender up to five years to enforce a mortgage.

9 Tax


The acquisition of real estate or the majority (in certain cantons even a minority stake) of the shares in a Swiss real estate company may be subject to real estate transfer tax of between 1% and 3%, depending on the canton where the property is located. Certain cantons do not apply a real estate transfer tax, such as Zurich, which abolished real estate transfer tax a few years ago. The tax is normally payable by the buyer. Often, the buyer and seller are jointly and severally liable for the real estate transfer tax. Contractual agreements are possible with respect to the internal allocation of the tax burden between buyer and seller. In certain cantons, tax laws may foresee a lien on the property to secure the transfer taxes. Also, registration fees of the land register may depend on the value of the property.


It depends on the regulations of the respective canton. In an asset deal, the transfer tax is sometimes paid through the notary public. In some cantons, the notary is personally liable for the payment of the transfer tax.


Yes, the gain realised through the real estate transfer is subject to tax either as a special real estate income tax or – in exceptional cases – as normal income tax.


Transfers of real estate are, as a rule, exempt from VAT. However, waiver of exemption and option for VAT on the purchase price of the building(s) is possible, provided that the real estate is not used for private purposes. As a result, the investor will be able to reclaim Swiss input VAT on the purchase price (the current VAT rate is 8% and will be 7.7% as of 1 January 2018). A careful analysis regarding VAT in connection with Swiss real estate transactions is required as VAT consequences can be very relevant in economic terms.


There are no other taxes. It should be noted, however, that the buyer and seller are jointly liable for Swiss income tax on brokerage fees paid to a foreign (non-Swiss) broker involved in the transaction. The tax liability is limited to 3% of the purchase price of the property.




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The typical provisions are as follows: a) an indefinite term with a notice period of three months; b) official benchmark interest rate applies (specific laws can apply in the canton of Geneva); c) it is possible to extend the term for a maximum of four years; and d) insurance and repairs are to be paid by the tenant via net rent or ancillary costs, if agreed upon accordingly.


For valid reasons rendering the performance of the contract intolerable, the landlord may terminate any lease observing a notice period of three months. The landlord has to take court action (eviction proceedings) in order to achieve vacant possession if the circumstances exist for the right to be exercised.



The Swiss system of zoning and planning is performed on four levels (federal, cantonal, regional and local). On each level, respective laws exist. Environmental protection is mainly addressed on a federal level.


If the rules of expropriation are followed, the state can force land owners to sell land to it in order to achieve certain goals which are in the public’s interest. The basic rules of expropriation are as follows: the state needs to establish that (i) there is a sufficient legal basis for the expropriation, (ii) the expropriation is in the public’s interest, (iii) the expropriation is in accordance with the principle of proportionality, (iv) the goal of the state cannot be achieved by other reasonable measures, and (v) the land owner is fully compensated.


Land/building use and/or occupation and environmental regulation are in most cases controlled by authorities determined by the cantons and the communities. In order to get reliable information on these matters, the respective authorities have to be contacted. More and more information is available online.


In most cases, a permit is necessary to build, modify, demolish or change the use of a building.


Under certain circumstances, and if opted for VAT, the rent to be paid for business leases may be subject to VAT (which is currently at 8%; 7.7% as of 1 January 2018).


Depending on the circumstances of the case at hand, business leases can indeed be terminated at expiry, on default or by either party giving notice. The tenant may request the extension of a fixed-term or open-ended lease where termination of the lease would cause a degree of hardship for it that cannot be justified by the interests of the landlord. A commercial lease may be extended by up to six years.


As a basic rule, the lease passes to the acquirer together with ownership of the property sold. The new owner may, however, serve notice to terminate a lease on commercial premises as of the next legally admissible termination date if it claims an urgent need to use the premises itself. If the new owner terminates sooner than is permitted under the contract with the existing landlord, the latter is liable for all resulting losses.


In Switzerland, there are commonly no such provisions in lease agreements.



The laws that regulate leases of business premises are, on one hand, the Swiss Code of Obligations (Arts 253 to 301) and, on the other hand, the Ordinance regarding the Lease of Residential and Business Premises. There is no separate Swiss act that deals with the leases of residential premises only.


No, they do not.



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13 Climate Change


Under the heading “Energy Strategy 2050”, a comprehensive set of documents has been produced in recent years and the topic is currently heavily debated in the Swiss Parliament. As part of the energy strategy 2050, the CO2 Act has been revised and came into force on 1 January 2013 (it will be further revised and become harsher under the new Energy Law. As to the new Energy Law, see the answer to question 13.3 below. Under the revised CO2 Act, subsidies in the amount of 450 billion Swiss francs per year for the reduction of CO2 from buildings will also be made available). The CO2 Act sets out targets for emission reductions until 2020 and contains measures for buildings, transport and industry. Among others, a building programme has been established in order to promote energy efficient technologies for the renovation of buildings and the investment in renewable energies, waste heat recovery and the optimisation of building utilities. There is a plan to replace the existing concept of subsidies with a steering charge.


Based on the Kyoto protocol, the CO2 Act aims at reducing greenhouse gas emissions by 2020 by 20% compared to 1990 levels. The Federal Council may tighten this reduction goal from 20% to 40%.


The Energy Strategy 2050 is being implemented gradually. By approving the revision of the Energy Act in May 2017, Swiss voters gave the go-ahead to the first series of measures to restructure the country’s energy system. These are intended to reduce energy consumption, improve energy efficiency and promote the use of renewable energies. Furthermore, the construction of new nuclear power stations will be prohibited. By applying this strategy Switzerland can reduce its dependency on imported fossil fuels and strengthen domestic renewable energies. It can also create jobs and boost investment in the country.Moreover, the Environmental Protection Law also contains provisions relating to construction work and buildings and the Environmental Compatibility Assessment Law provides that any construction or building measures which materially influence the environment need to undergo an environmental compatibility assessment.


It depends on the circumstances of the case at hand. Implied permission is hardly ever seen.


Time and costs vary from canton to canton and community to community. They range (depending on the project) from several hundred to several hundred thousand Swiss francs.


There are regulations on the protection of historic monuments on a federal, cantonal and community level. They do not directly affect the transfer of rights in real estate. The buyer should, however, be aware that certain modifications to a building may be impossible and/or subject to negotiations with the authorities.


Yes, each canton has a public register of contaminated real estate. More and more of such registers are available online. However, the fact that a property is not entered into such register does not necessarily mean that the property is not contaminated or polluted.


A property must be cleaned up if it is listed in the public register of contaminated real estate as being polluted. When it comes to the sale or division of immovable property located on a site that is entered in the register of polluted sites, an authorisation of the competent authorities must be obtained.


The assessment and management of the energy performance is regulated on a cantonal level. In general, it is not mandatory for the owners to perform respective tests.




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Wolfgang MüllerMeyerlustenberger Lachenal AGSchiffbauplatz8005 ZurichSwitzerland

Tel: +41 44 396 91 91Email: [email protected]: www.mll-legal.com

Christian EichenbergerMeyerlustenberger Lachenal AGSchiffbauplatz8005 ZurichSwitzerland

Tel: +41 44 396 91 91Email: [email protected]: www.mll-legal.com

Dr. Wolfgang Müller is a partner at Meyerlustenberger Lachenal and heads the real estate team. His practice focuses on real estate, in particular real estate M&A, and capital markets. Wolfgang Müller graduated from the University of Zurich in 1990, and in 1992 was conferred a doctoral degree by the University of Zurich (Dr.iur.). He was admitted to the Bar in Switzerland in 1993. After having successfully completed his MBA at the Australian School of Business in Sydney/Australia and the University of Michigan Business School in Ann Arbor/USA, he joined the company in 1997 and has been a partner since 2004.

Wolfgang Müller is, among others, recommended by The Legal 500 as a leading individual for real estate and construction in Switzerland.

Meyerlustenberger Lachenal offers the full range of services relating to real estate and provides comprehensive advice from the acquisition to the sale of properties, and from the planning to the construction and use of buildings and properties. With its 90 lawyers and offices in Zurich, Geneva, Zug, Lausanne and Brussels, Meyerlustenberger Lachenal provides efficient solutions for its domestic and international clients in all areas of business law.

Dr. Christian Eichenberger specialises in real estate and rental law, as well as construction and area planning law. He advises clients and represents them in court and before regulatory authorities.

Christian Eichenberger graduated from the University of Fribourg, Switzerland in 2001. He was admitted to the Bar and licensed as a notary public in Switzerland in 2004. In 2008, Christian Eichenberger was conferred a doctoral degree by the University of Berne (Dr.iur.). He holds an LL.M. from the University of Hawai’i at Mãnoa, William S. Richardson School of Law (2009) and a Master of Advanced Studies in Real Estate from the University of Zurich (2012). He joined Meyerlustenberger Lachenal in 2009. His professional languages are German and English. He is a member of the Royal Institution of Chartered Surveyors (RICS).



Chapter 28

BKA Attorneys at Law

Göktuğ Can Burul

Onur Atakan

Turkey

Turkish companies with foreign capital (i.e. under foreign control) may acquire real estate to carry out the activities set out in their articles of incorporation. This is also subject to a permission process.



In rem rights are the rights of ownership and mortgage, and easement rights such as the right of way.There are also certain rights which are purely contractual. These arise from contracts such as preliminary sale agreements, repurchase agreements, right of first refusal, right of purchase or repurchase agreements. Nevertheless, these agreements may be recorded in the land registries, which makes the rights arising out of such enforceable to third parties. Similarly, the rights to use arising from a lease agreement may also be asserted by the new owner as he automatically becomes a party to the lease agreement.


In a condominium real estate, the ownership of one independent section is a separate right from the ownership of the land. A purchaser, when purchasing a condominium, also acquires a share of ownership of the land on which the condominium is erected jointly with the other right holders.


No, there is no such split.



Except for public lands (unless there is a right established thereover), all land in Turkey is required to be registered.

1 Real Estate Law


In Turkey, the main laws that govern real estate are the Turkish Civil Code (“TCC”) and the Turkish Code of Obligation (“TCO”).


As Turkey is a civil law country, precedential court decisions do not have a binding effect. However, in litigation practice in Turkey, it is important to present precedential court decisions to support your case.


No, local laws are applicable.

2 Ownership


There are certain restrictions for the ownership of real estate by foreign individuals, foreign legal entities, and Turkish companies with foreign capital. The principle of reciprocity was abandoned in 2012. Currently, the Council of Ministers decides which countries’ citizens can acquire real estate in Turkey. In any case, currently a foreign individual may acquire real estate with an area of up to 30 hectares at most in Turkey.On the other hand, foreign legal entities can acquire real estate only within the scope of special laws such as the Tourism Incentive Law.



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Cadastre. The regulations governing the directorates are the same and there are no substantial differences regarding the rules and requirements.


Yes, the land registry issues a title deed to the owner.


It is not possible to complete a transaction related to real estate electronically.For registration of a ownership right, the land registries require a document showing identity (i.e. an identity card or a passport), a special power of attorney in case a party is represented by a proxy, photos for real persons, mandatory earthquake insurance for buildings and a document stating the real estate tax basis which is obtained from the relevant municipalities.Electronic access to information on ownership of a real estate is available for some public institutions and State-owned companies, whereas it is generally not available for other persons or companies.


Yes. The State is liable to compensate damages incurred due to mistakes in the land registries.


Even though in principle the information on the land registries is open to every person who proves a legitimate interest, in practice the land registries do not generally allow third parties to access the information. In practice, buyers usually obtain the information on encumbrances by requesting the seller to obtain a document showing the encumbrances on the title from the land registry.



Real estate agents and appraisers are usually involved in real estate transactions.


Real estate agents are usually remunerated by the buyer based on a percentage of the sale price, which is generally around 6%. Appraisers are paid a fixed fee by the party who hires them.


The State maintains the land registries and guarantees the accuracy of the information contained therein. Therefore, the State is liable for any damages incurred due to errors in the records of the land registers.


In rem rights such as ownership, easements and mortgage are required to be registered. Such rights cannot be established and are deemed void without registration.


Registration of rights other than in rem rights is not compulsory.


There is no probationary period in Turkey. Nevertheless, for unregistered lands, provisional registration is possible.


On land sales, the title is only transferred upon registration in the land registry.


Rights in rem (“RiR”), except the right of ownership, have priority over those established later. Therefore, the principle of “earlier rights defeat later rights” is applicable regarding RiR. With regards to the mortgage, the priority is determined based on their assigned rank. For example, a mortgage established later but assigned to a higher rank would defeat a mortgage which was established earlier but assigned to a lower rank.As for priority between the mortgage and RiR, if the rank of mortgage is reserved earlier (even though the mortgage itself is not yet established), the mortgage will have priority over RiR.



In Turkey, there are 970 land registry directorates and 81 cadastre directorates. These operate under 22 regional units which also operate under the General Directorate of Land Registry and

BKA Attorneys at Law Turkey


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The common warranties are the rightful ownership, absence of encumbrances or expropriation. These are not a substitute for due diligence but generally function to appropriate the risk to the seller.


TCO provides a warranty for quiet enjoyment and unless the buyer is aware of the risk at the time of the sale, the seller would be liable for the seizure of the title of the real estate due to a claim existing at the time of the sale.


The buyer is also usually liable to pay the costs of the sale.



Lending of money is mainly regulated by the Banking Law and the Regulation on Banking Loans. Moreover, real estate financing for consumers is also regulated under the Law on the Protection of Consumers (“LPC”). Foreigners (resident or non-resident) may also use loans from Turkish banks.


The main method for security used by the lenders is a mortgage on the real estate. Seeking security through a guarantor is also common. Moreover, almost all loan agreements include acceleration clauses.


A mortgagee must resort to a court or enforcement office for the foreclosure. The most common method is to initiate enforcement proceedings directly, in which the mortgaged property is sold through public auction. The courts may also be involved in these proceedings if the mortgagor objects to the proceedings.


The borrower should first apply for a loan and sign a loan agreement following the approval. This agreement does not need to be in an official form.


For real estate transactions, it is safe to say that the main source of capital is banks, thus leading to debt. However, there were successful campaigns for the sale of real estate in large residential projects in 2017. Therefore, the records show that sales increased in 2017, which were mostly paid by equity, not debt, in contrast to other years.


The secondary market is very significant in Turkey. As real estate prices constantly increase, transactions in secondary or tertiary markets are still very profitable.


Even though there has been a slowdown in previous years, through successful campaigns in 2017, the attractiveness of housing and construction is a rapidly increasing market, specifically in the Marmara Region. We observe that most of the interest in the real estate market in Turkey is from Middle Eastern States.



The sale and purchase of real estate shall be made with an official agreement to be signed at the land registry. An appointment is required from the relevant land registry.


There is no direct duty of disclosure for the Seller. However, under TCO, the seller is liable for defects decreasing the value, the use or the expected utility of the real estate (unless such defects would have been known upon adequate examination).


Yes, under TCO the seller is liable for misrepresentation.




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There are none.


Yes, share transfers are not subject to income tax in case the shares of a joint stock company are held for two years. Moreover, share transfers are not subject to VAT.


In practice, the seller and buyer usually agree to show the purchase price to be lower than the actual transaction amount to evade higher taxes. In such cases, both parties may face a fine for loss of tax.



The main law that regulates the leases of business premises is TCO. Please note that the effectiveness of some provisions under TCO is delayed. The Regulation on Shopping Centres also stipulates special provisions pertaining to leases in shopping centres.


Under TCO, there may be three types of business lease agreements ((i) land lease (ordinary), (ii) roofed business lease, and (iii) usufructuary lease), each of which is subject to different rules.


(a) Length of term is subject to the agreement between the parties. It may be for a specific or unspecific time. For roofed business leases, the agreement is renewed for one year unless terminated by the tenant 15 days prior to the end of the term.

(b) TCO limits the rent increase to the producer price index of the previous year (“PPI”) for roofed business and residential leases. Nevertheless, the effectiveness of this provision is delayed until July 2020 for roofed business leases. Currently, parties may freely agree on the rate of the increase.

(c) For roofed business and usufructuary leases, the tenant may only sublease with the written consent of the landlord. For ordinary leases, the tenant may sublease unless otherwise agreed.

(d) For roofed business leases, the owner must have mandatory earthquake insurance. Unless otherwise agreed, the tenant is not obliged to have insurance.

(e) (i) The change of control of the tenant does not affect the lease agreement.


The receivable of a mortgagee has priority over other receivables. Therefore, the receivable of the lender with a mortgage right will have priority in the foreclosure proceedings. In addition to that, when a mortgage is registered on real estate, the transfer of the title does not terminate the mortgage right.


Unless established with an official agreement at the relevant land registry, a mortgage will be deemed void and unenforceable. Moreover, in case the mortgage is established over a “matrimonial home”, the lender must obtain the approval of the borrower’s spouse. Otherwise, the mortgage may be rendered unenforceable by the courts.


The type of the enforcement proceedings differs according to the type of the mortgage obtained. Depending on the type of the enforcement proceedings, the borrower may object to the proceedings or apply to the enforcement courts only to prove the debt is paid.

9 Tax


Yes, each party must pay a land registry fee of 2% of the purchase price. Real estate sale transactions are exempt from stamp duty tax.


Transfer tax must be paid before the transaction is made at the relevant land registry.


Yes, transfers of real estate are subject to income tax in case (i) the real estate is obtained against remuneration, (ii) the real estate is sold within five years from the acquisition date, and (iii) the gain generated from the sale is above TL 11,000.00 (as of 2017).


Yes, real estate transactions are subject to VAT and the rate is 18%. However, for certain residential real estates with a net surface area of less than 150 square metres, the VAT rate is 1%. The buyer must pay the VAT to the seller, who in return must pay it to the tax authority.Unless a company is active in real estate business, it would be exempt from VAT depending on certain conditions (i.e. if the real estate is held for two years).



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There are no separate regulations for premises intended for multiple tenants.


(a) Length of term is subject to the agreement between the parties. A lease may be for a specific or unspecific time.

(b) TCO limits the rate of rent increases to PPI for residential premises leases.

(c) The contract is renewed for one year unless terminated by the tenant 15 days prior to the end of the term. Except for in certain situations, the landlord cannot force the tenant to leave the premises.

(d) Unless otherwise agreed, the tenant does not bear the cost of insurance. He is responsible for small repairs and other costs related to the use of the premises.


Landlords’ right to terminate the contract and evacuate the premises is very limited. Some of these are as follows: (a) If the contract is renewed for 10 years, the landlord may

terminate the contract by notifying the tenant three months prior to the renewal of contract.

(b) In case a month’s rent is not paid within 30 days from the landlord’s written notice, the landlord may terminate the contract and evacuate the premises with a court order.

(c) In case the rent is not paid two times within a lease year, the landlord may request termination of the lease and evacuation of the tenant one month prior to the end of the term.

(d) In case the tenant promises in writing to evacuate the premises at a specific date, the landlord may request the evacuation one month prior to the end of the term from the court within one month of the promised date.

(e) In case the new owner needs to use the property for his own or his next of kin, s/he should notify the tenant within one month of the acquisition and s/he may request the evacuation of the tenant six months from the beginning of the lease or within one month from the term’s end.



The main law governing zoning and use of lands is the Zoning Code. The law, in general terms, specifies the conditions of constructing a building or use of land. Moreover, the Bosporus Code regulates Istanbul’s specified Bosporus area and its surroundings, which provides restrictions regarding construction in the area.

(ii) In cases such as a merger, as the company’s actives and passives are automatically transferred pursuant to the law, the written consent of the landlord is not required.

(f) The tenant is liable for small repairs, whereas the landlord is liable for large repairs. The tenant may make changes and renewals if the landlord consents in writing.


For business leases, a stamp duty tax (0.189% of the annual rent) must be paid. Unless otherwise agreed, parties are jointly liable to pay the stamp duty tax. In case the landlord is a corporate entity, VAT (18%) must be paid by the tenant. If the landlord is an individual, the tenant must pay a withholding tax (20%).


For roofed business leases, the landlord may only terminate the contract in very limited cases. The tenant may terminate the contract 15 days prior to the end of the term. Unless duly terminated, the contract is renewed for one year.Under TCO, it is prohibited to stipulate provisions to the detriment of the tenant. However, the effectiveness of this provision is delayed until July 2020. Currently, it is possible to agree on penalty or compensation clauses for early termination. In the absence of such agreement, the landlord is entitled to claim a reasonable amount (three months’ rent) for the loss of rent.


If sold, the new owner of the real estate automatically becomes a party to the lease agreement. However, the tenant would still be liable to the old landlord for the rents of the months before the sale.


Such obligations are uncommon.



The main law that regulates residential leases is TCO. Please note that the effectiveness of some provisions under TCO is delayed.




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the approval of the Ministry of Culture and Tourism. Privately owned historical monuments are also subject to certain restrictions regarding their use.


There is no fully operational and reliable public registry system for contaminated lands. However, information on contaminated areas may be obtained through the information system of the Ministry of Environment and Urbanisation.


The Environment Code (“EC”) prohibits contaminating the environment and, pursuant to the Code, whoever contaminates the environment is liable for clean-up and may face administrative fines and imprisonment. The clean-up liability may also arise due to activities such as construction pursuant to the Regulation on Control of the Excavation of Soil, Construction, and Demolition Wastes.


The energy performance of buildings is mainly regulated under the Energy Efficiency Code and Regulation on Energy Performance of Buildings. These pieces of legislation require the obtainment of an energy identity card for certain buildings and set forth the rules and requirements for the energy efficiency of buildings.

13 Climate Change


There is no regulation providing direct measures for reducing carbon dioxide emissions under Turkish legislation. Several regulations have been enacted with regards to greenhouse gas emission levels without setting specific emission targets or limits. These require reporting from specific industrial enterprises or factories regarding their emission levels. Although the regulations do not specify any limits, they have developed a monitoring system which is a breakthrough for Turkey.


Turkey is a party to the Convention on Climate Change and Kyoto Protocol. In accordance with these agreements, the Regulation on Monitoring Greenhouse Gas Emission Levels was enacted in 2014. However, this regulation does not specify any emission reduction targets. As part of the Paris Convention, Turkey submitted its first Intended Nationally Determined Contribution (“INDC”), which sets out a plan for the reduction of greenhouse gas emissions by up to 21% by 2030.


Yes, under the Expropriation Code the State and certain governmental bodies may expropriate land owned by private persons. For regular expropriation, the Code stipulates that the price for expropriation must first be negotiated with the land owner. In case an agreement cannot be reached, governmental bodies will resort to the courts for the determination of the price and registration of the target real estate. Through an immediate expropriation procedure, governmental bodies may expropriate the land before price negotiations and completion of the procedure. In this case, the courts will determine the expropriation price.During court proceedings, the expropriation price is always determined by experts in related fields.


The Ministry of Environment and Urbanisation is the main body that controls zoning and use of land. Municipalities, governorships, and other public authorities are also involved in zoning and planning. Buyers may obtain information from zoning plans and land registries.


For building works, a construction licence is required before construction. When the building’s foundation is constructed, a surface structure permit must be obtained. Following the completion of construction, a building use permit is required for the lawful use of the building.


Construction permits are commonly obtained. However, application for building use permits are rejected most of the time due to incompatibility with construction permits. There is no implied permission.


The costs for a building use permit depends on the size of the building and the municipality from which the permit needs to be obtained. Usually, around a 30-day period is required after a complete application is made.


Historic monuments are protected under the Law on Protection of Cultural and Natural Properties Code. Historic monuments are mostly owned by the State and these may only be transferred upon



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Göktuğ Can BurulBKA Attorneys at LawNish İstanbul Residence B Blok, K: 5, D: 58Bahçelievler, IstanbulTurkey

Tel: +90 533 717 20 61Email: [email protected]: www.bka-law.com

Onur AtakanBKA Attorneys at LawNish İstanbul Residence B Blok, K: 5, D: 58Bahçelievler, IstanbulTurkey

Tel: +90 530 220 14 59Email: [email protected]: www.bka-law.com

Mr. Burul is a partner of BKA Law, mainly focusing on antitrust, corporate law, contracts, real estate law and dispute resolution matters. He is admitted to the New York State Bar as well as the Istanbul Bar.

He graduated from Istanbul Bilgi University and holds two LL.M. degrees, first in International Business and Economic Law from Georgetown University Law Center and the second in Economic Law from Istanbul Bilgi University. Currently, he is continuing his Ph.D. studies at Istanbul Commerce University.

Göktuğ has extensive experience in dispute resolution, mainly in complex legal matters related to commercial and real estate law and has been involved in many projects including construction, excavation, transportation, and agriculture.

He also provides legal advice and consultancy services in his area of expertise to his clients, which include leading companies in real estate, plastic building materials, organic farming, salt production, industrial products, chemical products, and construction.

BKA Attorneys at Law is a boutique law firm located in Istanbul, Turkey. The firm’s practice mainly focuses on commercial, corporate, real estate, labour law matters and dispute resolution among others. BKA’s clientele includes leading Turkish and international corporations and the firm renders services to its clients with its dynamic and experienced team. The firm aims to be a trusted advisor of its clients as every member of the firm is dedicated to providing outstanding service and desired results. Our main objective is to implement rapid, accurate, up to date, reliable and protective solutions tailored for the needs of our clients in their respective transactions or existing or possible disputes. Keeping the client’s interest paramount, our team’s top priority is to create innovative and effective legal means to fulfil the expectations of our clients.

Mr. Atakan is a partner of the BKA Law. He successfully graduated from the Law Faculty of Istanbul Bilgi University, and focuses on administrative law, corporate law, and intellectual property law. He received his LL.M. degree, specialising in international law, from Boston College Law School. Currently, he is continuing his Ph.D. studies in administrative law at Istanbul Bilgi University.

Onur Atakan is experienced and specialised in Corporate and Business Law, Intellectual Property Law, Labour and Social Security Law, Administrative and Tax Law and Contracts Law, particularly franchise, exclusive distributorship and international sale of goods agreements. He has drafted and reviewed various types of franchising and distributorship agreements for multinational corporations that operate mostly in the textile and automotive sectors.

With his proficiency and experience in intellectual property law, he has represented his clients in trademark, patent and copyright conflicts and has provided consultation for international trademark holders with regards to the Madrid Protocol and Paris Agreements.


There are certain regulations which aim to improve the sustainability of buildings and impose energy efficiency requirements such as the Regulation on Building Energy Performance and Regulation on Certification of Sustainability of Green Zones and Premises.




Chapter 29

BSA Ahmad Bin Hezeem & Associates LLP John Peacock

United Arab Emirates

Law No. 8 of 2007 Concerning Escrow Accounts for Real Estate Development in the Emirate of Dubai afforded protection for a buyer’s money invested in off-plan sales in developments under construction; such protections were later reinforced by the introduction of the Interim Property Register in which off-plan sale contracts were required to be registered.Law No. 26 of 2007, amended by Law No. 33 of 2008, regulates the relationship between landlords and tenants and affords tenants protection against unscrupulous landlords.The Direction for Association Constitutions issued in 2010 in accordance with Law No. 27 of 2007 (jointly, the “Strata Laws”) regulates multi-storey and multi-use property developments. Law No.13 of 2008 and Law No.14 of 2008 created a framework for the registration of lenders’ pre-mortgage interests on the Interim Property Register, as well as mortgages on the main Property Register and mechanisms for the enforcement of the sale of property by public auction. Law No. 9 of 2009 (amending Law. No 13 of 2008) introduced dispute resolution mechanisms to deal with the process and consequences of the cancellation of any real estate or project development contracts. These provisions were confirmed by Executive Council Resolution No. 6 of 2010. Law No. 56 of 2009 established a special tribunal for settling cheque disputes relating to real estate transactions.Law No. 7 of 2013 officially established the Dubai Land Department (“DLD”), initially established by a Declaration in 1960 that established its predecessor, the Tabou (Land) Department.The DIFC has its own real estate laws, based on English Law principles and consists of DIFC Law No. 4 of 2007, known as the Real Property Law, and DIFC Law No. 5 of 2007, known as the Strata Title Law. The DIFC has its own property register and the registration of property transactions for properties situated within the DIFC are dealt with by the DIFC Registrar of Real Property. Emirate of Abu Dhabi:Law No. 3 of 2005 initiated the regulation of the real estate market in Abu Dhabi by establishing a Land Registration Department at the Abu Dhabi and Al Ain Municipalities and requiring that every deed creating, transferring or extinguishing real property rights (including leases with a term exceeding four years) be registered and without which any transaction would be void. Law No. 19 of 2005 (later amended by Law No. 2 of 2007) introduced provisions relating to ownership, development, leasing and mortgaging of land and real estate in Abu Dhabi and differentiated between the rights of UAE, Gulf Community Council (“GCC”) and non-UAE/GCC nationals. This law also introduced the

1 Real Estate Law

1.1 Please briefly describe the main laws that govern real estate in your jurisdiction. Laws relating to leases of business premises should be listed in response to question 10.1. Those relating to zoning and environmental should be listed in response to question 12.1.

The United Arab Emirates (“UAE”) is a federation established in 1971 between seven Emirates, namely Abu Dhabi, Ajman, Dubai, Fujairah, Ras al Khaimah, Sharjah and Umm Al Quwain; all of which adopt a free market economy. The UAE legal system is essentially a civil law jurisdiction influenced by Islamic, Roman and French law, and lately by the principles of Egyptian law. UAE federal law is the law applicable to all of the Emirates; however, each Emirate passes its own legislation regarding mainly administrative issues; such law supplements the federal law. If federal law is silent on an issue, then the provisions of laws issued on Emirate level prevail, and should there still remain doubt as to the legal position, then Islamic Shariah law is applied. UAE federal laws also apply to all free zones and investment zones (essentially, free trade zones offering full ownership to non-UAE nationals of companies accompanied by a tax-free status), except for the Dubai International Financial Centre (“DIFC”) and the Abu Dhabi Global Market (“ADGM”), which have their own independent legal systems and real estate legislation applicable to real estate situate within these free zones. The UAE does not have any specific property legislation at federal level and each emirate’s particular real estate laws are promulgated at Emirate level by way of laws, decrees and resolutions passed at various levels of Emirate governance, and resulting in each Emirate being discussed separately below. The laws were mainly initiated as a result of the federal codes not dealing with the specifics and complexities of real estate transactions which emerged after the opening up of the real estate market to foreigners in the UAE.Emirate of Dubai:In Dubai, the legislative framework relating to real estate developed existentially between 2002 and 2010. With the creation of Dubai’s Real Estate Regulatory Agency (“RERA”) in 2007 by Law No. 7 of 2006, and Law No. 16 of 2007, a strong regulatory authority was created. Regulation No. 3 of 2006 determined the designated areas in Dubai where real estate can be owned by non-UAE nationals. Bylaw No. 85 of 2006 regulated the operation and regulated the real estate broker industry.


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Amiri Decree No. 15 of 2006 permits the registration of mortgages by way of security over long-term leases (i.e. leases with a term exceeding 20 years) in a “Temporary Register” in the Ras Al Khaimah Lands Department. Amiri Decree No. 22 of 2008 established the system for the sale of off-plan properties and of “Guarantee Accounts” similar to escrow accounts. It became compulsory for developers who sell off-plan properties to be registered on the Real Estate Developers Register and to obtain permission/licence for all development projects. Emirate of Ajman:Amiri Decree No. 7 of 2008 was introduced to permit UAE and GCC nationals (and companies/entities owned wholly by them), together with public joint stock companies incorporated in the UAE and public corporations and authorities incorporated in Ajman) to own a freehold right over land in Ajman. Non-UAE nationals are only entitled to own a right of freehold or usufruct, including long leases, for a term of 50 years, with the approval of the Ruler of Ajman. Amiri Decree No. (8) of 2008 requires all developers in Ajman to register as such with the Ajman Land Department, and to open an escrow account for the development project and also regulates the constitution of jointly-owned properties and common areas within such property. Local Order No. 4 of 2008 contains further requirements for, and restrictions on, developers protecting interested parties and even the previous owner of the development property. The Ajman Real Estate Regulatory Authority (“ARRA”) was established in 2008. Emirate of Umm Al Quwain:By way of Law No. 3 of 2006, UAE and GCC nationals and public joint stock companies are allowed to own real estate property anywhere in the Emirate. Non-UAE nationals were granted the right to own “floors” without ownership of the land in terms of a 99-year usufruct right or a 50-year “musataha” right (similar to usufruct right but with development rights) in designated investment areas. Law No. 3 of 2007 prevents any developer from carrying out real estate development unless it is registered in the Developers’ Register at the Survey and Planning Department in Umm Al Quwain. A developer may also only sell units off-plan after applying to open a “Guarantee Account” in the name of the project, to receive funds which are to be used exclusively for the purposes of construction. Emirate of Al Fujairah:There are no specific laws regarding property registration and ownership in the Emirate of Fujairah and the provisions of the Civil Code, along with the instructions of the Ruler, prevail in respect of the real estate sector. There is only one type of freehold property that non-UAE nationals can own and a few areas, such as the Fujairah Free Zone, where long-term leases are available.It can be seen that the real estate laws are somewhat scant and that there is no one comprehensive statute regulating the real estate industry in the UAE.


As explained in question 1.1 above, the UAE is a civil law jurisdiction, and common law has no impact on real estate law in the UAE.

creation of “investment zones” in which GCC and non-UAE/GCC nationals were entitled to own real property rights and specifically excluded ownership rights to land for non-UAE nationals.Executive Council Resolution No. 64 set out specific directions regarding the registration of ownership rights (including the registration of long term leases) and directions to issue registration certificates (title deeds) to non-UAE nationals for property rights located within the “investment zones”. It further dealt with the registration of property rights in respect of property located outside the “investment zones” and the registration of mortgages over property and property rights, both inside or outside the “investment zones”.Law No. (3) of 2015 introduced strata laws in Abu Dhabi and established the requirements for new developments and projects and to protect the interests of investors. This law mandated the establishment of escrow accounts and lead to the establishment of real estate registers for developers, projects and interests therein, including an ‘interim’ real estate register for off-plan sales. The law also established the decennial (10-year) liability on the developer for the structural integrity of a building.The Abu Dhabi Global Market (“ADGM”) is a financial free zone, established on similar principles as the DIFC, whose geographic area of Al Maryah Island is governed by both property regulations and strata title regulations.There is, however, still minimal legislation and regulations regarding property rights within the “investment zones”, and although the laws have established legal principles, they do not yet have sufficient enforcement provisions. Emirate of Sharjah:Through Law No. 10 of 1972 and its implementing regulations, Sharjah established a real estate registration office which allowed for UAE nationals to own property in Sharjah. Exceptions were permitted only with the Ruler’s approval.Law No. 4 of 1980 regulates ownership of multi-storey buildings which provided an early concept of strata ownership. Amiri Decree No. 1 in 1981 further regulated the rights and obligations of owners in multi-owned buildings and provided for the formation of co-owners’ associations. Law No. 5 of 2010 Concerning Real Estate Registration and Executive Council Decisions No. 32 and No. 38 of 2005 extended the scope of Law No. 10 of 1972, thereby permitting GCC nationals the right of ownership of property in Sharjah.In terms of Executive Council Resolution No. 26 of 2014, the sale of usufruct rights was permitted, and non-UAE/GCC nationals were permitted to purchase real estate through a usufruct property right for a maximum period of 100 years, which right may be assigned to a third party subject to the approval of the Sharjah Real Estate Registration Authority. This law also opened the real estate market to non-UAE nationals through what is essentially a long-term leasehold arrangement.Emirate of Ras Al Khaimah:A 2003 law introduced the concept of ownership of apartments and floors in multi-owned buildings and provided a system of registration of strata ownership of apartments and floors within a building. Decision No. 20 of 2005 provided that UAE and GCC nationals could own property in all areas of Ras Al Khaimah and this was expanded to non-UAE nationals by Decision No. 12 of 2007, which specifically allowed non-UAE nationals and corporate bodies owned by them to own freehold title to property in certain “investment projects” such as those owned by RAKIA, Al Hamra and Rakeen.

BSA Ahmad Bin Hezeem & Associates LLP United Arab Emirates



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for a specific duration, but for a maximum of 50 years. The musataha has the same principles as that of a usufruct, but grants an additional development right to the holder. The musataha holder has the right to assign or transfer the right along with any improvements to a third party. Termination of the musataha occurs upon the expiry of the period as agreed between the parties or when the holder buys the property over which the musataha right is held. Two years’ notice may also be given, or the right can be terminated in the event that the musataha holder does not make an agreed payment for a period of two years.

(5) Use and Residence Rights: The UAE Civil Code provides for “use and residence” rights, and states that the rules of usufruct would apply to such rights.

(6) Easements: An easement is a right by one party over the property of another and is usually registerable against the title deed of the property, and includes rights to traverse property or receive the supply of utilities over the property of another.


Yes, in addition to the concept of musataha discussed above, due to the restrictions on commercial activities, owners of real estate who do not have the authority to conduct business as a developer would enter into a developer agreement with a licensed developer, whereby the developer is granted development rights to the property and the right to sell the individual units within the development as provided in the development agreement. The title to the land continues to vest in the owner; however, the transfer of the development right is registered at the DLD against payment of a transfer registration fee.


There is no split between legal title and beneficial title in the UAE with regard to real estate.



Yes, all non-testamentary documents which create, declare, assign, limit or extinguish any right, title or interest to or in any immovable property are subject to compulsory registration with the relevant Emirate’s Land Registry, in accordance with the laws of the respective Emirate. All testamentary documents are registered with the notary public as per the relevant UAE laws.


There is no state guarantee of title in the UAE.


All rights in land are compulsorily registrable as stated in question 4.1 and certain transactions, if not registered, shall be void. There are no penalties for non-registration.


There are no international laws that specifically apply to real estate in the UAE.

2 Ownership


Generally, only UAE and GCC nationals (and companies owned 100% by them) are permitted to own property throughout the UAE, and non-UAE nationals (including non-residents) can acquire the same ownership rights in “designated areas” or within “investment zones” as determined by each Emirate’s government or Ruler.



The UAE Civil Code and various Emirate laws provide for various types of tenure as follows: (1) Freehold/Ownership Rights: Freehold title of real estate is the

most superior form of property right, and allows its owner to enjoy and occupy the property in perpetuity and such right is evidenced by the issue of a title deed by the relevant Emirate’s Land Department.

(2) Leasehold Rights: With leasehold property, “ownership” rights to the property are available to the tenant only for the length of the lease agreement with the freehold owner of that real estate. With the regulatory registration of leases, leaseholders’ rights were elevated from mere contractual rights to rights in rem, allowing the holder of a registered right to deal with property, to a great extent, as a freehold owner would, including the ability to mortgage the leased property. The periods categorising leases requiring registration differ between Emirates. The same provisions regarding “designated areas” and “investment zones” will also determine the ability to register leases by non-UAE nationals; however, the contractual obligations between the parties are not extinguished merely by virtue of the fact that the lease is not registered. There are provisions relating to the registration of short-term leases on simple registers held within the various Emirates, such as the “Ejari” system maintained by the RERA in Dubai.

(3) Usufructuary Rights: Usufructs are where the right to use, enjoy and occupy a property is given by the property owner to another person for a fixed period not exceeding 99 years. The UAE Civil Code adds to the definition of a usufruct the condition that the property subject to the usufruct “must remain in its original condition”, thus transferring the onus for repairs and maintenance to the holder of the usufruct. Usufructs terminate upon expiry of the term, unless otherwise agreed by the parties or terminated as a result of the destruction of the property or by court order due to misuse by the usufructuary.

(4) Musataha Right: A holder of a musataha right has the right to plant on the land of another or to build on the land and thereafter the right holder owns all such buildings on the land



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No; transactions relating to registered real estate cannot be completed electronically and must be executed in person. Apart from the provision of a valid proof of identity, such as a passport or UAE residency identity card of the parties involved and proof of residential address, document requirements differ between Emirates. Some Emirates require “short form sale agreements” in a standard format and the documents are usually in Arabic or bifurcated into Arabic and English. Information on ownership of registered real estate cannot be accessed electronically.


It is possible to challenge the validity of information in the various property registers on the grounds of fraud or forgery. In the event that a party has suffered loss as a result of an error within the land registry by reason of fraud or forgery, they will be entitled to certain compensation; however, this is not legislated, except in the DIFC, where it may be possible to claim compensation for mistakes made by the DIFC Registrar of Real Property.


No, there are no public land registers in the UAE and so a buyer is forced to complete extensive due diligence for any information about encumbrances and other rights affecting the real estate property.



Apart from the buyer, seller and buyer’s finance provider, possible parties that may join as a confirming party to a real estate transaction may include parties holding beneficial rights or family inheritance rights. Generally, the below-mentioned parties are also commonly involved in real estate transactions:(1) Real Estate Brokers: Brokers act as intermediaries that

introduce buyers and sellers and assist in processing the transaction.

(2) Lawyers: Buyers and sellers generally engage lawyers to, on behalf of the buyer, conduct a title due diligence and for both parties to draft, negotiate and finalise the transactional documentation and advise their respective clients on matters relating to the transaction.


As explained in question 4.1, all rights over land are required to be registered, with the exception of certain grants provided by the UAE government to certain businesses or industries that may not require registration; however, such grants will be regulated by statute.


Registered land rights will always prevail over unregistered land rights, and there is no probationary period following first registration of a title.


On a land sale, title (or ownership) is transferred to the buyer upon registration of conveyance with the relevant Emirate’s land department.


In accordance with the UAE Civil Code, property rights must be registered in order to be effective and shall rank in priority according to the time of registration.



Each of the seven Emirates have their own property registry and register the transactions in the relevant Emirate on their own electronic registration systems. In addition, the DIFC and ADGM have their own property registers, independent from the land registries of the Emirate within which they are situated. It follows that each Emirate and certain free zones within these Emirates have established separate rules and requirements pertaining to the process to be followed for the registration of real estate transactions; however, generally, the procedures follow the same format with the signing in person of the conveyancing documentation at the relevant registry and only the supplementary documentation in support of the transaction differing.


Yes, the relevant land department issues a physical title document to the owners of the registered real estate in all cases except for the holder of a musataha right, which is merely registered against the title deed and no separate title is issued.




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agreement (as prescribed by the various land registries) and the registration thereof in the relevant land registry.


Yes, the seller is obliged to disclose any material defect in the property or in the seller’s title of which the seller is aware and the buyer would not be capable of discovering with mere ordinary care.


A seller can be liable to the buyer for misrepresentation in the UAE.


Although not specifically stated within the standard format sale agreements, representations and warranties are given contractually to the buyer by the seller by way of a comprehensive sale contract. Typically, the seller warrants that it is the sole and beneficial owner of and is well and sufficiently entitled to alienate the property without encumbrances, or that it holds full rights to the property. Warranties are mainly included to limit the buyer’s risk as property searches, in the traditional sense, are unavailable without the seller’s consent; the buyer is expected to carry out its own due diligence before committing to the purchase. Some of the land registries have an electronic search mechanism to see if the developer, the project and the units are registered; however, no further information is generally available. Accordingly, the warranties are not a substitute for a due diligence.


Yes, as explained in question 7.4, except for the standard format sale contracts, sale contracts in the UAE almost always contain a specific warranty from the seller on his title to the property and will pass such right free of encumbrances.


In addition to the property purchase price, the buyer will pay the registration fees to the relevant land department. In this regard, according to the laws, both the seller and the buyer are liable for this payment, unless otherwise agreed by them. The buyer will also pay the fees of the Registration Trustees (authorised representatives that electronically process the registrations on behalf of the land registries), the cost for the issue of the title deeds and the costs for the issue of no-objection certificates (“NOCs”) payable to any home owner’s association, developer or master developer.


There are no specific provisions regulating real estate brokers’ or lawyers’ fees within the UAE. Brokers are usually remunerated based on a fixed fee basis, payable by the appointing party, unless otherwise agreed and which may be determined on the basis of “prevailing practice” dependent on the type of transaction and the transaction value.Fees chargeable by lawyers depend on the nature of the work done and the seniority of the lawyer attending to the matter, and may be charged hourly or may be in the form of capped fees as agreed with the lawyer.


There has not been a noticeable increase in availability of capital to finance real estate transactions within the UAE recently. The main active sources of capital are primarily personal or private equity (not institutional). Mortgage financing has been on the rise in recent years.


The appetite for investors and developers in the UAE to look beyond primary real estate markets and transact business in secondary/tertiary markets is on the rise. As an example, within Dubai, demand is increasing in markets such as Dubai International City, Silicon Oasis, Dubai Sports City, and Dubai South, unlike in Downtown Dubai (a primary market) due to higher yield expectations by investors and developers. Similar activity can also be seen in a number of the other Emirates.


There have been periods of decelerated activity in certain real estate market sub-sectors. Retail has slowed down due to lower consumer expenditure and there has also been a lower volume of sale transactions in certain prime locations for residential developments due to lower investment sentiments. Moreover, although the hotel market maintains high occupancies, daily rates have decreased due to an increase in supply of quality hotels.



The minimum formalities for the sale and purchase of real estate in the UAE are the signature of a standard format sale and purchase



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The real estate lender is protected against claims from other creditors of the borrower by virtue of the mortgage being a first charge against the property at execution. The security of mortgage bonds ranks in the order of registration.


Due to both, the strict monitoring of the mortgage registration process, mortgages are absolute and unchallengeable.


The only actions available to a borrower to frustrate enforcement is by court process.

9 Tax


There are no specific tax regulations applied in the UAE relating to real estate. However, transfers of real estate are subject to a transfer registration fee, with the rate varying between Emirates. In the absence of any agreement between the parties, the buyer and the seller are responsible equally for this amount. The standard rate is 4% of the value of the property or the transaction value, whichever is the greater.


With reference to question 9.1, the transfer registration fee is payable on registration; however, in certain registries, a penalty is payable in the event that the payment is not made within 28 days of the date of the sale contract.


Individuals in the UAE are not subject to income tax, however may have capital gains tax implications applied in their home jurisdiction, depending on their nationality.


Currently, there is no VAT or stamp duty payable on real estate in the UAE, however VAT is to be introduced on 1 January 2018 at a rate of 5%. Although the entire UAE VAT law is not available as at time of this publication, from the published provisions, developers will not have to charge VAT on the first disposition, either on sale or lease, of a residential property as these transactions will be zero rated for VAT. Second sales of residential properties will be treated as exempt supplies, however commercial properties sales will attract VAT at the standard rate of 5% as from 1 January 2018.



Mortgages are restricted to banks registered within the UAE, licensed to conduct the activity of mortgage lending by the UAE Central Bank, and subject to the rules and regulations imposed by them. Depending on the relevant Emirate, there are regulations that determine maximum loan to purchase prices percentages and maximum repayment to income percentages. These percentages also differ between first and subsequent properties. There is no distinction between residents and non-residents or individuals or corporate entities; however, there is a distinction between the loan percentages available to UAE and non-UAE lenders.


Under UAE law, security can either be by way of mortgage or pledge (which may be used over bank accounts and shares). It is customary for real estate lenders to ask borrowers to create a mortgage, put into effect pursuant to an authenticated deed which is attested by the notary public and entered in the mortgage registrar with the land department or local municipality of the relevant Emirate. A mortgage is the only form of security over real estate in practice, and can be created over leasehold property and an interest in an off-plan property, provided the interest has been registered in the relevant Emirate’s off-plan sale register. UAE law does not provide for security in the form of a floating charge. Mortgage interests in land in free zones are generally also subject to their own regulations.


There are no statutory rights of enforcement or foreclosure remedies available under UAE law, which means that any enforcement must be undertaken through the courts (a mortgagee cannot exercise self-help remedies and be a mortgagee in possession). If the court orders enforcement of the mortgage, it will organise the sale of the land by public auction. The sale proceeds will be distributed among the creditors in the order of priority set out under UAE law: preferential debts (such as judicial costs of preserving and selling the property, government taxes (if any), employees’ salaries, lessors’ rental payments, and amounts due to contractors), secured creditors (such as mortgages) and then unsecured creditors (such as judgment creditors).


Essentially, the mortgage lender may not lend in excess of the loan to purchase price or the repayment to income percentages as legislated, and the mortgage must be registered by the mortgage lender and the buyer in the registry of the relevant land department.




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(c) Tenant’s right to sell or sub-lease – With long-term leases, if the lease is registered in the relevant Property Register, the lessee has the right in rem to assign the leasehold rights or sub-lease the premises after receiving written approval from the lessor. However, in the case of short-term leases or premises given on a licensed basis, the tenant/licensee is generally not permitted to create any third party rights in respect of the premises without written consent.

(d) Insurance – There are no statutory provisions regulating the insurance of leased premises. The onus of insuring the business premises varies depending on the terms of the contract between the lessor and lessee. However, if such provisions are not explicit in the contract, it is by default the lessor’s responsibility to insure the property. Commercial leases also generally enable the landlord to recover insurance costs from the tenant.

(e) (i) Change of control of the tenant – Lease agreements generally contain provisions whereby the change of control of the tenant may not occur without the landlord’s written consent, and in the event of failure to do so, the landlord will have a right to terminate the lease.

(ii) Transfer of lease as a result of a corporate restructuring (e.g. merger) – As with the change of control of the tenant, information about a transfer of the lease as a result of corporate restructuring will have to be given to the landlord to obtain consent.

(f) Repairs – Generally, minor repairs or adjustments to the business premises will be done at the tenant’s expense after receiving the landlord’s written consent. However, the landlord should be informed of major structural repairs and they should be executed within a specified period.


There are currently no taxes payable on rent either by the landlord or tenant of a business lease, however as of 1 January 2018 all business leases will attract VAT at a rate of 5%, charged by the landlord to tenants of commercial premises.


Business leases may be terminated by consent of the parties at any time during the lease, or by notice to the other party prior to expiry of the specified period of the lease, subject to certain notice periods and grounds given therefor. Notice for eviction in the case of default requires 30 days and can be delivered at any time during the lease period; however, in the absence of default, landlords can only regain possession after notice giving grounds limited to reoccupation thereof by the landlord for personal use, for purposes of sale by the landlord and for purposes of demolition or renovation as may be required by the relevant municipal authorities and given at least 12 months before the eviction date on condition that the eviction date is not within the current lease term.In most Emirates, leases are subject to automatic renewal and a tenant has the right to compensation for breach of the above provisions.

The Executive Regulations to Federal Decree Law No (8) of 2017 on Value Added Tax, once published, will clarify the application of VAT on both residential and business real estate more fully.


No taxes are payable by the seller on the disposal of a property.


Please refer to question 9.1.


Please refer to questions 9.1 and 9.4.



There are no separate laws governing leasing for commercial, residential or industrial properties in the UAE, and a standard format lease exists for all these types of properties.


It is common for businesses to lease premises to conduct their operations; however, there are also other forms of occupancy methods which include space usage agreements, licences and consignment agreements. The type of agreement varies depending on the location of the premises and the purpose for which the premises is required. These do not create any transfer of title in favour of the occupant and are generally not registrable.


(a) Lengths of Term – Business premises are generally leased for a term of five to 10 years, although it may be shorter depending on the agreement with the lessor. Leases are automatically renewed in the event that notice is not given by the parties.

(b) Rent increases – Business premises are subject to annual rent increases as provided for in the relevant contract. In the absence of any agreement in the lease, rent increases on renewals are calculated according to a Rental Increase Index Calculator (such as that maintained by RERA), and the amount of rent increase depends on the tenancy contract expiry date, the location of the premises, the type of premises, the extent of the premises, and the current annual rent.



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relevant contract. In the absence of any agreement in the lease, rent increases on renewals are calculated according to a Rental Increase Index Calculator (such as that maintained by RERA), and the amount of rent increase depends on the tenancy contract expiry date, the location of the premises, the type of premises, the extent of the premises, and the current annual rent.

(c) Tenant’s right to remain in the premises at the end of the term – As previously mentioned, leases are automatically renewed and rental increases are subject to the allowable increase allowed in terms of the Rental Increase Index Calculator.

(d) A tenant’s contribution towards costs (insurance and repairs) – There are no statutory provisions regulating the insurance of leased premises. The onus of insuring the residential premises is typically paid by the landlord, who is also responsible for repairs and maintenance of the residential unit. There is, however, a usual provision that places the burden on the tenant to effect minor repairs.


A landlord is obliged to give a tenant one year notice to vacate the premises and this notice can only be given:(i) in the event that the landlord wishes to himself (or have close

family) occupy the premises;(ii) in the event of a sale by the landlord; and(iii) for purposes of demolition or renovation (however, also

subject to certain provisions – see question 10.5). The landlord may terminate the lease on the grounds of any breach of the terms thereof after giving notice to the tenant to remedy the breach in accordance with the terms of the tenancy agreement.Should the tenant not vacate the premises after notice has been given or failure to remedy a breach of the tenancy agreement, the landlord has the right to approach any rent committee appointed to adjudicate rental disputes or to approach the relevant court with appropriate jurisdiction to obtain and order for eviction.



Each Emirate enacts its own laws to govern zoning and related matters concerning the use and occupation of land and prior to development of any new project, both planning and building approval from the relevant municipal authority is required. Free zone authorities also impose additional planning controls in relation to real estate in their areas. Several Emirates have enacted municipal regulations such as that in Dubai, where the Dubai Municipality issued “Green Building Regulations and Specifications” to be met by governing bodies and private developers, applicable to all new buildings and to extensions or renovations to existing buildings in Dubai (including free zones) with the aim of: reducing the consumption of energy, water and materials; improving public health, safety and general welfare; and enhancing the planning, design, construction and operation of buildings. The specifications that must be complied with include those relating to: ■ access and mobility (including parking and bicycle storage); ■ ecology and landscaping (including the requirement to

include indigenous plants in planted areas);


The obligations of a landlord pass to any landlord taking the previous landlord’s place as in the case of any subsequent owner of a property, and a tenant’s obligations only ceases on termination or expiry of the lease period. The sale by a tenant of its interest does not release the tenant from the obligations under a lease without the consent of the landlord. Furthermore, parties also remain responsible for acts and omissions in the performance of their obligations committed to prior to such sale and transfer.


“Green obligations” are rarely found in lease agreements executed in the UAE, and unless contractually specified between the landlord and tenant they do not amount to enforceable legal obligations.



Each Emirate of the United Arab Emirates has its own real estate laws pertaining to the regulation of residential premises. In the Emirate of Dubai, Law No 26 of 2007 Regulating the Relationship between Landlords and Tenants in the Emirate of Dubai, Law No 33 of 2008 Amending Law No 26 of 2007 Regulating the Relationship between Landlords and Tenants and Decree No 43 of 2013 Determining Rent Increases for Real Property in the Emirate of Dubai govern the regulation of residential premises. In the Emirate of Abu Dhabi, there is only Law No 19 of 2005 that deals with leasing. The other emirates have no law dealing directly with leasing of residential real estate.


No, the same laws apply.


Typical provisions would include the following;(a) Lengths of term – Residential premises are generally leased for

a term of one year; however they are automatically renewed in the event that notice is not given by the parties.

(b) Rent increases – Residential premises (as for business premises) are subject to annual rent increases as provided for in the




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commonly obtained in the UAE and implied permission cannot be obtained in any way.


The cost of building use/permits and the time involved in obtaining them depends heavily on the size and scope of the project and the activities to be carried out. Therefore, it is not possible to make a precise estimate of the same.


Currently, minimal regulations exist at the federal level for the protection of historic monuments in the UAE. However, the federal government is in the process of drafting a federal law for the protection of antiquities, which are to be defined as items of national interest and importance and which include historical monuments.


There is no public register of contaminated land in the UAE. The buyer must carry out his own inspection and assessment regarding contamination and pollution of real estate, and can take the necessary representations, warranties and indemnities on these issues.


There are no direct obligations regulating environmental clean-up in the UAE; however, successors in title inherit this obligation in the event that any spillage or seepage causes damages to adjacent properties or the environment. The environmental standards are mainly applied in oil or industrial entities in relation to the disposal of waste and regulated at a federal level by various laws such as Federal Law No 24 of 1999 regarding the protection and development of the environment.


The UAE has a variety of energy performance regulations and a range of building efficiency measures in place which are designed to improve the sustainability performance of buildings from design through to construction, operation, and tear-down. Such regulations are usually passed at Emirate level such as a programme called Estidama in Abu Dhabi, which regulates the design, construction, and operation of buildings through phased approvals. Estidama also uses an assessment scale called the “Pearl Rating System”, which measures the sustainability performance of villas, buildings, and communities. For Dubai, we refer to the “Green Building Regulations” mentioned in question 10.7.

■ light pollution restrictions; ■ solar reflection requirements for the exterior of buildings; ■ responsible construction methods; ■ having an Environmental Impact Assessment (applicable to

certain buildings only); ■ building vitality (including air quality and ventilation) – in

accordance with the standards of the American Society of Heating, Refrigerating and Air-Conditioning Engineers, and in part refers also to various UK codes of practice;

■ energy performance (including glazing and lighting, electricity and air-conditioning metering and particular requirements for hotel rooms) – in part, this refers to the standard of the Chartered Institution of Building Services Engineers;

■ water performance (including conservation and metering); and ■ materials and waste (including a requirement that for all

new buildings at least 5% of the total volumes of materials used must be recycled and 5% of all material used must be available regionally).


Local and state authorities expropriate real estate if required for the public interest, such as for the construction of highways. Such an approach is equivalent to the “right of eminent domain” in other jurisdictions. The purchase price is generally determined to be the property’s market value.


The local municipality in each Emirate controls the land/building use and/or occupation and environment regulation within the Emirate, and on a localised level the free zones and also master developers regulate additional controls by way of regulation or master development property declarations, which confer contractual responsibilities upon sub-developers and owners. Generally, the municipalities and the free zone authorities publish these regulations and the property declarations are available from the master developers.


All business activities are regulated within the UAE and an enterprise cannot conduct business unless authorised by licence to do so by the relevant economic department of the Emirate concerned. Developers must reflect the “development of land” as an activity on their commercial business licence in order to develop real property. In addition to obtaining municipal approvals for the project and the plans for any building, NOCs are often required from master developers. Most importantly, the relevant Emirate’s land department requires registration of the developer and the development with them prior to the commencement of any building works. Free zone authorities may impose additional planning controls in relation to real estate in their area.


Yes, as explained in question 11.4, building/use licences are



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John Peacock BSA Ahmad Bin Hezeem & Associates LLPLevel 6, Building 3, The Gate Precinct Dubai International Financial CentreDubai

Tel: +971 4 368 5555Email: [email protected] URL: www.bsabh.com

BSA Ahmad Bin Hezeem & Associates LLP was founded in 2001 and is a dynamic law firm whose character has been shaped through the adaptive innovation of its talented lawyers.

Our firm has been a major contributor to the development of the real estate market in the UAE and had advised the public sector and private investors, collective investment funds, developers, real state regulatory authorities and individuals to create, regulate and maximise the investment opportunities of and within the UAE property market.

The real estate department focusses on structuring of mixed-use developments with jointly owned property including strata arrangements. They assist clients with real estate financing, arbitration, litigation and dispute resolution.

Legal services are also offered in licensing and registration of developers, projects and property with the relevant authorities and advising on escrow and the acquisition and disposal of all types of property including all due diligence work.

John Peacock is a Senior Associate with the Corporate and M&A and Real Estate practices, based in our DIFC office in Dubai. An admitted attorney and property conveyancer since 1995, he specialises in a vast range of corporate matters including commercial contracts, and advises on all aspects of property transactions, including strata developments. John has been practising law for over 23 years in both South Africa and the UAE. John is an admitted Attorney and Conveyancer of the High Court of South Africa and registered with the Dubai Legal Affairs Department and the Kwa-Zulu Natal Law Society in South Africa.

John regularly advises on international commercial and property matters, including joint ventures, hotel and restaurant management, trademark licensing and property development transactions. He has assisted clients in the drafting, review, and operation of strata plans for large composite property development.


13 Climate Change


In accordance with the United Nations Framework Convention on Climate Change, the UAE, as a non-Annex 1 country, is not obligated to reduce carbon emissions. The UAE has, however, chosen to implement actions to reduce carbons emissions, albeit without federal legislation therefor.


According to the UAE National strategy 2021, efforts are under way to reduce the UAE’s GHG emissions and the UAE is beginning to monitor and track GHG emissions and assess policies for reducing such emissions.


Each Emirate government is pursuing projects and implementing strategies to improve the sustainability of both newly-constructed and existing buildings.

The Emirates Authority for Standardization and Metrology has regulated the standards for air-conditioning equipment and lighting for the UAE, and uses an international ranking of efficiency that divides the cooling capacity of each air conditioner by the total electrical input to ensure optimal energy efficiency levels and which monitors newly constructed and existing buildings for compliance at a federal level.



Chapter 30

Greenberg Traurig, LLP Christina Braisted Rogers

USA


While international laws do not govern real estate assets in the USA, foreign laws are relevant in a number of circumstances. Those include foreign exchange controls and the ability to sue foreign investors in order to collect on judgments under guaranties, where the assets are in overseas jurisdictions. The other international law element that contributes to the structure of every transaction involving foreign investors is home tax law or tax treaties. The debt and equity investment authority of foreign financial institutions are governed by their respective charters and home-country laws.

2 Ownership


There are few, if any, controls prohibiting a foreigner from owning real estate property in the USA. The one limitation that still exists in certain states pertains to ownership of U.S. agricultural and natural resources.Reporting is required from foreign persons who: ■ purchase (directly or indirectly) at least 10% of a U.S.

business (including real estate ownership), who must file a private report within 45 days (in addition to possible quarterly and annual reports) with the bureau of Economic Analysis of the U.S. Department of Commerce (under the International Investment Survey Act (the International Investment and Trade in Services Survey Act) of 1976), though exemptions are available in certain cases;

■ purchase or transfer U.S. agricultural land, who must file a public report within 90 days with the Secretary of Agriculture (under the Agricultural Foreign Investment Disclosure Act of 1978);

■ hold any direct U.S. real estate investments valued over $50,000 during the previous calendar year, who must file an information return (under the Foreign Investment in Real Estate Property Tax Act of 1980, which also subjects any income of the foreign investor from U.S. real estate transactions to federal taxation); and

■ control a domestic or foreign corporation – the corporation must file an information return annually with the Internal Revenue Service (under the Tax Equity and Fiscal Responsibility Act of 1982).

1 Real Estate Law


Each state within the United States (and the District of Columbia) follows a mix of statutory and common law (Louisiana, however, employs a civil law system, derived from the Napoleonic Code). There are three levels of laws in the USA: federal; state; and local. Under common law, changes in law come by way of case law and new legislation, each of which is given equal weight. Rules on parol evidence, and requirements that agreements be in writing in order to be enforced, vary from state to state. Courts will generally rely on the express terms of the document unless the intent of the parties is unclear. Courts in the USA may take into account the conduct of the parties if the terms of the document in question are ambiguous. In general, contracts for the sale or transfer of real estate should be in writing.


Each case that is decided has an impact on the way transactions are structured or documents are drafted for future transactions. For example, in New York in 2010, there was a State Supreme Court decision which ruled on the language of intercreditor agreements. The large majority of intercreditor agreements between mortgage lenders and mezzanine lenders typically contain language that requires a mezzanine lender to cure “all defaults” under the mortgage loan in certain situations. The issue in the New York case hinged on whether that requirement was a precondition to foreclosure on UCC collateral by a mezzanine lender or whether the failure to cure would simply trigger the mortgage lender’s right to accelerate the payment obligations under the mortgage loan. In this instance, the court ruled that the mezzanine lender could not foreclose without first curing an existing default, which meant paying off the already-accelerated mortgage loan in full. While there is disagreement within the legal community regarding that decision, it should be noted that, in 2011, a federal District Court in Arizona came to a similar conclusion. As a result, the relevant provisions in the common forms of intercreditor agreements are likely to be more heavily negotiated.


USA

is held by the trustee. A deed reflecting the ownership in trust would suffice and be recorded in similar fashion with a typical deed, without need for a separate recording.



While property rights are recorded and not registered, the Torrens system of property registration, and remnants of this system, do still exist. The Torrens system was historically used extensively in Illinois, Massachusetts and Minnesota. Illinois repealed its Torrens Act in 1992 and New York has also repealed its registration of title law. At one time, up to 20 states employed some form of the Torrens system, including Colorado, Georgia, Hawaii, Massachusetts, Minnesota, North Carolina, Ohio and Washington. The Torrens system, until fairly recently at least, was in regular use only in certain parts of Massachusetts, Minnesota and Hawaii. In the jurisdictions in which some form of the Torrens system is still in effect, the system is voluntary, and it functions side by side with the more common title recording system.


No. Most owners obtain “insurance” that they have good title by buying title insurance from title insurance companies, who search and underwrite the title of the property.


Unlike many legal systems, there is no requirement in the USA that title be registered. There is no obligation to record evidence of ownership, leasehold, easement or other rights. The act of recordation protects owners or benefited parties from prior, unknown, unrecorded and subsequently filed/recorded third party claims.


As noted above, there is no requirement in the USA that title be registered.


This is not applicable.


In most jurisdictions, title passes upon the delivery of the deed. Recordation of the conveyance instrument follows to preserve rights and protect against third party claims. Title insurance is utilised in many jurisdictions to protect against any “gap” interests or claims arising between execution and recording of the deed.

Additional reporting may be required under: the Hart-Scott Rodino Antitrust Improvements Act of 1976; the Internal Revenue Code and Executive Order No. 13224 on Terrorist Financing, effective from September 24, 2001, and relating to Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism; and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “Patriot Act”).



Land is usually owned by fee title. Record notice of title is established by recording an instrument of conveyance in the local recording office. Title can be owned in whole by an individual or an entity. Title can be owned by individuals as tenants in common or tenants by the entirety (marital). Legal title can be held by trusts for the benefit of the equitable owners. Parties can hold an interest in land by contract. A lender secures repayment of its loan by obtaining a mortgage (or in some states a deed of trust, or in Georgia a deed to secure debt) (a “mortgage”) granting the lender a security interest in the property or ground lease being financed. A trustee holds title for the benefit of trustors pursuant to a trust agreement. A tenant under a lease holds a contractual interest in the demised premises, which may or may not constitute an interest in real property, depending on the length of the lease term and applicable state law. Parties may also hold the right to use or occupy property under a licence agreement. A licence may give a party an access right over the property of another, but it is easily terminated. The more common form of granting an appurtenant right across the property of another is by a recorded easement. Because most states require a recorded notice to enforce use rights against third parties, even agreements that do not “run with the land” are often recorded to give third parties notice of the rights accorded thereby.


Title to land may diverge from the ownership of a building constructed thereon in the case of a ground lease. In a ground lease, the tenant will typically lease the underlying land for a long term, but, by the terms of the ground lease, the tenant will often own, rather than lease, the temporary or permanent buildings and other objects placed upon it during the term of the ground lease. At the end of the term of the ground lease, title to those improvements typically, by the terms of the ground lease, will revert to the landowner (most often at the end of their useful life). Similarly, development within air rights parcels above the land has become a popular means for utilising excess development rights associated with a parcel and enables developers to build taller towers with highly profitable upper floors.


This distinction arises in the case of a trust where the beneficiary of a trust holds a beneficial interest in the trust property and receives the benefits of ownership. Legal title to the trust property, however,

Greenberg Traurig, LLP USA



USA

Georgia, Hawaii, Idaho, Illinois, Indiana, Kansas, Michigan, Minnesota, Mississippi, Nevada, New Mexico, New York, North Carolina, Oklahoma, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, Washington, D.C., Wisconsin, Wyoming and the U.S. Virgin Islands. The purpose of the Act is to give county clerks and recorders the legal authority to prepare for the electronic recording of real property instruments. Certain municipalities and counties already offer electronic recording systems, which may be accessed and searched by the general public. Typically, recording offices only accept fully executed documents, correctly notarised and meeting certain other requirements, for recording. In order to record a transfer of ownership rights, recording offices typically require, among other things, transfer documentation (deed) and evidence of payment of real estate taxes and real estate assessment valuations.


No. Most documents are submitted to recording offices by third party title insurance companies. In consideration of the payment of a premium, the title insurance companies issue a policy insuring that the deed or mortgage recorded has been validly recorded, subject only to scheduled encumbrances. The title insurance company is liable if there is a mistake, subject to limitations contained in the title insurance policies.


There are no restrictions on public access to the recording office. A buyer can learn certain matters at the recording office. A buyer can identify the owner of the property and research recorded liens, easements, and other encumbrances. The real estate records will not provide information as to whether a building has been built in accordance with local codes and is in compliance with zoning ordinances with valid certificates of occupancy, but this information is also publicly available from the applicable jurisdiction. Additionally, while a search of the records will reveal the existence of easements or other rights or appurtenances, only a survey of the subject property will show the location and the impact of such easements or other rights or appurtenances on any improvements located thereon.



In connection with an acquisition of real estate, different parties may assist depending on the type of asset. In all cases, a broker is likely to be involved. A purchaser will typically engage structural and environmental engineers to evaluate the property and improvements and they will evaluate zoning compliance, matters of title and survey, and any existing leases. An expert in zoning and municipal codes, an architect, and contractors might also be involved to assess the development potential of raw land.


Property rights are protected by recording. In virtually every jurisdiction, recordation in the real estate records establishes priority. A mortgage becomes perfected only upon recordation and it must be recorded within 10 days after execution to become perfected as of the date of delivery. Anything of record at the time of recording will be in right to the document that is recorded later. This basic premise may be altered, however, as follows:■ a significant change in the mortgage, such as the interest rate

and/or maturity date, may result in the priority being brought forward to the date on which the modification is recorded; an intervening lien or encumbrance would have priority (title insurance can be procured to insure priority where appropriate);

■ local taxes have priority over recorded deeds and mortgages irrespective of whether the taxes are due and payable after the recording of the deed or mortgage;

■ federal tax liens may have priority; ■ parties can allocate priority pursuant to intercreditor or other

subordination agreements; or■ the filing and existence of mechanics’ and materialmen’s

liens.



Each county (or parish, in Louisiana) in each state has its own recording office, and certain states have different recording offices/books for conveyances and for mortgages. Requirements are state-specific, and may be county-specific. Some states require signatures in black or blue ink. Every state requires a state-approved form of notary acknowledgment. The variations thereafter range from page size and margins to legends that must be affixed to the document, to some state requirements that an attorney admitted to practise in the state must have prepared the document and/or be the stated party for the return of recorded documents.


After recording an instrument in the official records, the county recording office will typically return an original document with recording information on its face, or a certified copy of the recorded original. These procedures are evolving with the implementation of electronic recording in various jurisdictions.


The Real Property Electronic Recording Act, completed by the Uniform Law Commissioners in 2004, has been enacted by Alabama, Arizona, Arkansas, Connecticut, Delaware, Florida,



USA


It is difficult to identify a particular slowing trend for the entire country. Some asset classes perform better in different regions, and in some areas, a particular asset class may be considered over-built or on the verge of becoming so. Regional malls, power centres and shopping centres serving middle-income households have failed to rebound over the last several years, while top-tier shopping malls and urban/high street retail have prospered, and therefore these assets may be less appealing for development and investment. The hotel sector has thrived in recent years, but growth has flattened as the cycle has matured and labour costs have increased. In addition, suburban office assets have suffered in recent years as a result of a trend of companies relocating from the suburbs into urban centres to attract young, talented employees.



Customarily, the parties enter into a contract of sale, which sets up the mechanics of the closing as well as the conditions and actions that must be satisfied or occur between the date of signing and closing. While a contract is not required, it will protect both parties, neither of whom will be obligated to close if specified conditions precedent are not met. The form of deed must be sufficient to transfer title under the laws of the situs state. It must also be in recordable form so that a title insurance company will issue a policy of owner’s title insurance. Even in the case of a transfer of a single family home, a purchaser will want time to perform due diligence and will require seller representations with respect to the condition, water quality, certificate of occupancy, appliances, etc. For office buildings and other income-producing properties, evaluation of the leases will be an important due diligence consideration. In all cases, the requirements of a lender providing purchase money financing must be satisfied.


The seller does not generally have a duty of disclosure in a commercial transaction. Sales of real estate are “caveat emptor”. However, if a question is asked and the seller answers fraudulently, the seller will be liable for damages. Specific disclosures are customary in the residential context.States and municipalities have laws which do require disclosures in specific instances. In New York City, the existence of lead paint must be disclosed in residential sales. Similarly, the existence of asbestos must be disclosed. A statement regarding the potential presence of radon gas must be included in real estate contracts concerning Florida properties. These types of laws are local in nature.


Yes. The remedies for such misrepresentation will be set forth in the contract of sale. Customarily, a buyer may rescind the contract


The seller normally employs a broker to sell the property. The commission is usually a percentage of the sale price, payable by the seller. The percentage varies by product type and locality. If the purchaser identifies the property through a different broker, the seller’s broker or the listing broker will share its commission with the purchaser’s broker. Other service providers are compensated on the basis of an agreed-upon hourly rate times the hours spent. Brokers are paid at the closing. Other service providers are paid a usual and customary fee for the jurisdiction based on the arrangements made in advance.


The sustained increase in capital allocation toward real estate over the past few years slowed somewhat in both the debt and equity sectors. Capital is readily available for refinancing and acquisition debt, and on a more disciplined basis for development. Regulation under Dodd-Frank and Basel III has required large commercial banks to be more conservative, but there is growth at the community and regional bank level. Life insurance companies make similarly conservative long-term investments, typically in “core assets”. CMBS lending remains a consistently important source of capital, particularly in secondary and tertiary markets, but no longer maintains a large pricing advantage and the lack of flexibility working with servicers can be a disincentive to borrower. Private debt funds and mortgage REITS provide more flexibility than the regulated or core-asset focused lenders, but at a higher price. Equity investment comes from the traditional sources such as institutional investors and REITS, but private equity is one of the fastest growing sources of investment capital. International investment is significant, particularly in the gateway markets, by large institutions such as insurance companies or sovereign wealth funds, and by individuals (including development capital made available under the EB-5 Immigrant Investor Program).


Surplus capital, as well as competition and rising prices in the traditional gateway markets, has led investors to expand their interest in secondary and tertiary markets. These markets tend to have faster growing demographics (as the primary markets become less affordable), diverse job opportunities in desirable industries, and intentional development of urban centres that offer the benefits of urban living at a significantly lower cost. A number of secondary markets in the United States (Austin, Texas; Nashville, Tennessee; San Antonio, Texas; Portland, Oregon; and Seattle, Washington are examples) have become generally considered “hip” on account of their unique culture. While investments in the gateway cities have traditionally provided the perception of security, the wealth of data that is now available to investors enables them to focus more precisely on defined neighbourhoods and asset characteristics in other markets that suit their investment profile.




USA


Most real estate lenders “underwrite” commercial or multi-family properties by looking at the cash flow, the “projected” rent stream, the physical and environmental condition of the property, and the as-is value and the projected value of the property as compared to the amount of the loan. Borrowers look for commercial loans to be non-recourse, meaning that the borrower or its sponsor – individual or entity – will not be personally liable if the loan is not repaid, but lenders will in turn protect themselves with a guaranty from a sponsor triggered by the borrower’s bad acts, such as misappropriation, fraud, malfeasance or voluntary or collusive involuntary bankruptcy. Lenders require more equity if a property is risky; such equity may take the form of upfront capital as well as letters of credit and payment guaranties. In addition, lenders often impose cash management systems with varying levels of control over the property’s cash flow, depending on the type of asset and the underwriting of the property and the borrower, pursuant to which revenues are deposited by tenants or the property manager directly into a controlled account and either applied directly to debt service or disbursed to the borrower, only so long as no default exists and certain loan performance thresholds continue to be met.


Judicial foreclosure is available in every state (and required in many) and entails the foreclosing lender filing a lawsuit against the defaulting borrower. Upon judgment in the lender’s favour, the property is typically subject to a public auction conducted by a court-appointed officer. With the spate of foreclosures in recent years, certain states have attempted to ensure the integrity of the foreclosure process by imposing certain restrictions and requirements on foreclosing lenders. In New York, for example, a foreclosing lender must be careful to comply with all notice requirements, especially as this may concern residential occupants of the subject property, and the attorneys of foreclosing lenders may be required to submit an affirmation that they themselves have taken reasonable steps to verify the accuracy of documents filed in support of residential foreclosures. If non-judicial foreclosure is allowed then, typically, if the borrower fails to cure a default after receipt of a notice of default and intent to foreclose from the lender, or use other lawful means (such as filing for bankruptcy to temporarily stay the foreclosure) to stop the sale, the lender or its representative may conduct a public auction of the property in a manner similar to the auction conducted in connection with a judicial foreclosure. The timeframe necessary to complete any type of foreclosure can vary widely depending on the circumstances and the requirements of the jurisdiction.


In order to have an enforceable loan, most states require that contracts relating to real estate be in writing. In particular, each state’s statute of frauds legislation will be applicable. In order for a lender to have a perfected security interest in the real estate, a mortgage or deed of trust meeting the requirements of state law must be recorded in the

if the misrepresentation is discovered prior to closing; thereafter damages may be sought. Again, the representations must be in writing. Parties will negotiate the period of time after closing that the representations will survive, and may agree to a cap on the seller’s maximum liability for the breach of such representations.


Customarily, purchasers will acquire “as-is”, with certain specific representations given as to matters that are more difficult for a purchaser to discover itself during its inspection period. The specific items warranted, caps on seller liability and the warranty survival period are heavily negotiated. The function of warranties is to apportion risk; however, sellers will attempt to limit liability when possible. In the case of leases, sellers will attempt to get a purchaser to rely on estoppel certificates from tenants rather than provide representation about the leases. Similarly, purchasers will rely on third party assessments as to environmental and structural concerns.


State statutes provide for the use of various types of deeds ranging from full warranty deeds, which warrant title from the beginning of time, to forms that warrant only with respect to acts of the seller, to quit claim deeds which convey bare legal title. Subject to written agreement to the contrary, local custom typically dictates the extent of the warranty of title provided. Purchasers rely on title insurance to guarantee title, as noted above.


Risks are apportioned in the contract of sale. The buyer is obligated to come to the closing table, ready, willing and able to close. That means bringing cash or cash equivalent (i.e., purchase money loan) to the closing. If the buyer breaches its warranties or obligations, the seller will be entitled to damages, often limited to retention of an earnest money deposit. The buyer’s primary responsibility is to come up with funds when required. If the seller is paid in full at closing, it is hard for the seller to show damages. Allocation of closing costs (such as transfer taxes, title insurance and escrow charges) is dictated by local custom and is often negotiable.



With respect to residential real estate, there are both federal and local requirements. At both levels, the purpose of the regulations is to protect the consumer. The federal regulations make sure that lenders fully disclose all costs and expenses of financing; i.e. all interest payments, fees and closing costs over the life of the loan. Localities have regulations dealing with physical risks, such as lead paint, radon gas and asbestos, among others.



USA

more) of real estate are subject to transfer tax. Some states impose their real property transfer tax in cases where an interest in an entity that owns real property in the state is sold (usually requiring the transfer of a controlling interest in the entity). Many states also have mortgage or intangibles taxes payable in connection with indebtedness secured by real estate. The obligation to pay transfer taxes can be allocated by contract, but is typically allocated pursuant to local custom. In some states, the obligation to pay transfer taxes is joint and several, so even if the obligation is allocated to one party, the state is not bound by such allocation, so the state could seek payment from the other party if the proper amount of tax is not paid. Mortgage recording or note intangibles taxes are typically allocated to the borrower. If not paid, recording offices will not record deeds. Both the purchaser and the seller typically have liability.


Payment of the applicable transfer and/or mortgage recording or intangibles tax is a condition precedent to recordation of a deed or mortgage, as applicable. Payments are, however, subject to subsequent audit in many jurisdictions. In states that impose the transfer tax on a transfer of a controlling interest in an entity that owns real property, a return must be filed within a certain time period, typically 30 to 60 days of the transfer.


Unless the transfer of real estate qualifies for special treatment under the U.S. Internal Revenue Code of 1986, as amended (the “Code”), the transfer of real estate by a U.S. person is a taxable transaction. The individual seller will have taxable gain or loss equal to the difference between the fair market value of the consideration received (including any liabilities assumed or to which the real estate transferred is subject) and the tax basis that the individual has in such real estate, which tax basis is reduced by depreciation deductions taken for tax purposes. The gain or loss will be capital in nature if the real estate was held as a capital asset (i.e., generally, held for investment). Long-term capital gains (i.e., gains with respect to capital assets held over 12 months) are currently taxed at significantly more favourable tax rates as compared with the tax rates on ordinary income in the case of individuals and other non-corporate taxpayers. Exclusions from taxable income (up to maximum dollar amounts) are available for gains recognised by individuals on the sale of a principal residence. As mentioned above, if certain requirements are met, the exchange of real property with other real property that is of a like-kind may qualify as an exchange under Section 1031 of the Code. Section 1031 provides an exception to the general rule of current gain recognition and allows owners to postpone paying tax on the gain from the sale of real estate if the owner reinvests the proceeds in similar property that is located in the United States as a part of the like-kind exchange. The gain is deferred until the transferor exits out of its investment in the like-kind property received in the exchange.


There is no VAT in the U.S. Most of the states in the U.S. do impose a transfer tax on the transfer of real estate. The rate is not uniform and it varies from state to state and may have an additional tax imposed by a city, county, or other locality. Many states will

required recording office within 10 days of the execution thereof. In order for a lender to have a perfected security interest over personal property, accounts and receivables among other collateral that is categorised as personal property, the lender must record a financing statement in the place and in the manner required by the Uniform Commercial Code governing the collateral.


If the real estate lender has a properly perfected security interest in the collateral securing loan, the lender’s security interest protects it from claims of other creditors. Title insurance insuring the first priority of the lender’s lien on real estate assets securing a loan is an essential component of a real estate finance transaction. In transactions like mezzanine loans, where control over real estate assets is achieved by a pledge of ownership interests, the priority of filings under the Uniform Commercial Code (“UCC”), adopted in all 50 states, the District of Columbia and the U.S. Territories can also be insured in many instances. It is important that security interests in real property and other assets interests be perfected in compliance with local law and the UCC, and that appropriate filings are kept in effect. Covenants in loan documents generally prohibit additional debt and transfers that might result in claims against the borrower, and guaranties are required to support specific borrower covenants not to take actions that could jeopardise a lender’s security.


Insolvency laws, failure to comply with local law requirements and formalities, and borrower fraud can cause security taken by a lender to be avoided or rendered unenforceable. Lenders protect themselves against these risks by thoroughly investigating the credit status of their borrowers, by engaging local counsel to advise and opine as to specific local requirements and limitations of enforceability of loan covenants, and by obtaining third party guaranties that can be enforced upon a borrower’s breach of specific representations, warranties and covenants.


Filing for bankruptcy protection is the most common method used by borrowers to frustrate enforcement actions. At a minimum the lender will be significantly delayed in exercising its remedies and motivated to reach agreement regarding a forbearance. In jurisdictions where judicial foreclosure is required, borrowers can more readily contest and delay enforcement actions. As noted above, a borrower’s action to frustrate enforcement by a lender will typically trigger recourse to a third party guarantor.

9 Tax


In most jurisdictions, there are state and sometimes local transfer taxes on a deed transfer, which are usually calculated as a percentage of the consideration being exchanged for the deed. In some jurisdictions (New York, for example), long-term leases (49 years or




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valorem property taxes on the transaction, including the amount, schedule for payment, appropriate proration with the seller, and potential for reassessment or application of “rollback” taxes as a result of a transfer or change in use or real property. With respect to the acquisition of certain assets, sales taxes may be an issue as well, and a buyer should obtain a tax clearance certificate from the taxing authority to confirm there are no outstanding tax liabilities that would transfer with the asset. Some jurisdictions have bulk sales laws in place, that require, among other things, a buyer to notify the seller’s creditors if it is acquiring a significant portion of the seller’s business or assets.



In most states, leases are contracts and governed by applicable contract law. Local law governs damages on breach and other remedies, and procedures to evict defaulting tenants. Local law will dictate whether a lease is subordinate to a mortgage, absent a provision in the lease that automatically subordinates the lease to any mortgage. If a landlord or tenant files for bankruptcy, their respective rights will be as set forth in the Federal Bankruptcy Code, which pre-empts state law.


There are “modified gross” leases, generally used in office buildings, which build into the rent a base for real estate taxes and operating expenses; the tenant will be allocated its percentage share of annual increases above that base. A net lease on the other hand, is generally used for long-term leases of entire buildings, industrial/warehouse leases, retail outparcel leases and some retail leases. In this type of lease, the tenant pays directly for utilities, taxes and property insurance, and is responsible for the maintenance of the premises. However, in most cases, they are not responsible for certain structural repairs. A land lease or ground lease is a long term lease by which the tenant rents and uses land, but during the term of such a lease the tenant also owns the improvements it constructs on the land (and is therefore responsible for all maintenance, taxes and other costs related thereto).


These terms are negotiated for each individual lease:a) Length of termThe length of the term can vary. Landlords prefer a longer term with frequent rent increases. Tenants may want to lock in space for 10 years, but will not want rent increases. No right to renew will be afforded to a tenant unless set forth in the lease, and then the tenant must exercise this right in a timely manner.b) Rent increasesSee above. Renewal rents may be stipulated in advance, increased based on an independent factor (such as the Consumer Price Index) or reset based on the prevailing market rental rate.c) Tenant’s right to sell or sub-leaseSee below.

require the purchaser to withhold state income taxes if the seller is not a resident of the state, or if the seller is a pass-through entity for tax purposes, will require the entity to pay the estimated state taxes owed by the partners who are not residents of the state.Many states exempt transfers of real estate, the gain from which would be deferred for U.S. federal income tax purposes under special provisions (for example, the like-kind exchanges discussed above or transfers of real estate to wholly owned entities).


While foreign investors are generally not subject to U.S. income or withholding tax on gains from the sale of U.S. investments (such as stocks and bonds), an exception applies in the case of interests in real property located in the U.S., which are subject to tax pursuant to the Foreign Investment in Real Property Tax Act (“FIRPTA”). In such cases, the gain is treated as income from a U.S. business, and is taxable to the foreign seller in the same manner in which a similar U.S. person (e.g., an individual or a corporation, as applicable) would be taxed. This requires the foreign seller to file a U.S. tax return and to report and pay the tax liability. Foreign sellers of real estate that are corporations are also potentially subject to an additional branch profits tax on the gain at a 30% rate (which may be reduced or eliminated by a tax treaty). Collection of the tax under FIRPTA is enforced through an obligation of the seller or other responsible party to withhold, generally at a rate of 15% of the gross purchase price following a change of law late in 2015. (Prior to the change in law, the withholding rate was 10%.) The difference between the actual tax liability pursuant to FIRPTA and the amount withheld is either paid or refunded in connection with the filing by the foreign seller of its U.S. tax return. Some states, such as Georgia, have enacted similar withholding requirements for the sale of property by non-residents of the state.


If equity interests in an entity that directly or indirectly holds U.S. real estate are sold, apart from transfer tax considerations as discussed above, the seller (or its owners in the case of a seller that is a partnership or other pass-through entity) will generally be subject to income tax on any resultant gain. In the case of foreign investors, gain from the sale of interests in an entity that directly or indirectly holds U.S. real estate, including interests in a real estate investment trust (“REIT”) or other corporation, may be subject to U.S. income tax pursuant to FIRPTA (see discussion in question 9.5 above). A variety of exemptions from FIRPTA are potentially available, including for: (i) shares in corporations that have less than 50% of their business assets throughout a prescribed testing period comprised of interests in U.S. real estate; (ii) small portfolio investors (owning less than 5%, or 10% in the case of a REIT) that sell shares in a public company; (iii) sales of shares of REITs that are domestically controlled (i.e., less than 50%-owned throughout a testing period by non-U.S. investors); and (iv) foreign pension funds that meet certain requirements.


In addition to assessing local transfer and mortgage taxes as described above, a buyer should evaluate the impact of local ad



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The answer to this question will depend on the language of the contract. The tenant signing the lease will be liable for the performance of the obligations thereunder. If the tenant assigns its interest under the lease, it may cause a new tenant to assume its obligations, but the assignment will not release the tenant from acts prior to or after the assignment unless specifically released by the landlord. If the tenant under a lease is a company and the shareholder sells the company, the shareholder will not have personal liability before or after the sale by virtue of the liability limits afforded to such shareholder by the statutes governing entity liability. Leases typically provide that the landlord’s liability is limited to its interest in the property and that the landlord will be released from further liability following a sale of the property. One of the documents executed in a typical real estate sale will address the assignment of leases and assumption of obligations by the purchaser. The contractual terms of an assignment of leases are negotiable as to whether such assumed liability includes liability arising prior to the transfer as well as liability arising from and after the transfer. In some instances, state law may require an explicit assumption of liability for tenant security deposits transferred in connection with a sale.


Green provisions are becoming more prevalent in leases today. Much of the demand for green buildings is being driven by corporate tenants with enterprise-wide sustainability programmes and landlords who are marketing the cost savings provided by “green” and energy-efficient projects and by municipalities tying bids for projects and incentives to similar objectives. Institutional investors have also shown a heightened interest in such projects. “Green” leases regularly include provisions which provide for compliance with established “green” standards such as the LEED Certification standards promulgated by the U.S. Green Building Counsel, the most widely accepted green building standard.



As with commercial leases, in most states, leases of residential premises are contracts and governed by applicable contract law. Local law governs damages on breach and other remedies, and procedures to evict defaulting tenants. Generally, however, local law will provide for more protective treatment of residential tenants than commercial tenants. For example, in some states, security deposits must be held in segregated and or interest-bearing accounts, and must be returned to the tenant within a short period

d) InsuranceTypically, the landlord will obtain property insurance for the building (the cost of which may be passed through to its tenants), and the tenant will provide property insurance for the contents of its premises and its tenant improvements. Each party will obtain liability insurance for its acts or omissions. Other coverages may be required according to the tenant’s use, the location of the property, a lender’s requirements, and as the market dictates.e)(i) Change of control of the tenantSee below.(ii) Transfer of lease as a result of a corporate restructuring (e.g.

merger)Provisions of leases dealing with assignment and subletting as well as mergers or reorganisations or changes of control are significant points of negotiation. In all events, the landlord will want the right to consent to a change of tenant, whether by assignment or subletting or change of control, but a significant tenant will want to preserve its ability to restructure. Minimum net worth requirements for the assignee and continued liability of the assignor are often utilised. The sale of stock of publicly owned companies, however, should not be prohibited by the terms of the lease. State law varies as to whether a change of control constitutes an assignment where a lease is silent or unclear.f) RepairsIn most cases, interior repairs to the premises are the responsibility of the tenant and structural and systems repairs and common areas maintenance are the obligation of the landlord (subject to the ability of the landlord to pass the related costs through to the tenants). The exact allocation of repair obligations will vary by property type and location.


The landlord pays income tax on rental income. Real estate taxes are allocated between the landlord and tenant. State sales taxes on rents, which apply in some states (Florida, for example), are usually allocated to the tenant. New York City has a commercial occupancy tax.


Except in the case of certain financing leases that can be terminated upon payment, leases generally terminate at the end of a lease term. If a tenant fails to vacate its premises at such a time, the landlord can move to evict the tenant and typically has the right to charge a significantly escalated “holdover” rent during such period. Tenants and landlords can typically terminate leases upon a substantial condemnation or casualty. The degree of damage or loss and the time that the tenant is unable to use the demised premises determine a tenant’s right to terminate, and these requirements are heavily negotiated. If the leased premises are being constructed, the tenant may have the negotiated right to terminate the lease if the premises are not completed by a certain date. A tenant may negotiate a right to terminate the lease if services are not provided for a designated period of time. A tenant may also be able to negotiate a termination right at one or more points during the term in exchange for payment of a termination fee to compensate the landlord for unamortised tenant improvement costs and leasing commissions and a portion of future rent.




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water, and disposal on land. Real estate practitioners will want to pay particular attention to restrictions on development in or near wetlands and streams, discharges of storm water during construction and after completion of a project, storage facilities for potentially polluting materials like chemicals or heating oil, and equipment that may cause air pollution such as large space heating boilers or stand-by power generators. Similarly, certain materials raise questions if they are present in existing structures, and generally cannot be used in new buildings; examples include lead-based paints, asbestos, polychlorinated biphenyls, and urea formaldehyde foam insulation.


The state can condemn (force the owner to sell the property to the state) property for public use, but, based on recent cases, the courts are split as to whether economic development is a sufficient public use of the property which would enable them to acquire title and transfer it to a private entity. The state must provide the owner with “just compensation”. The price mechanism will vary from state to state, and from authority to authority taking land (as each may have a different statutory obligation with respect to public uses and compensation).


Federal and state governments have jurisdiction over environmental law. As noted below, there are databases for violations of certain federal laws; states may maintain similar databases. Otherwise, parties hire environmental consultants (third-party experts) to perform Phase I Environmental Site Assessments, which consist of site inspections, interviews with people knowledgeable about current and historical uses of the property, and searches of electronic databases of regulated and contaminated sites. The prior or existing use of the property may require that sampling of soil, groundwater, surface water, or other environmental media be performed. Such sampling is commonly referred to as a “Phase II Environmental Site Investigation”. Purchasers sometimes require the seller to provide extensive representations concerning environmental matters, which may cause the seller to make disclosures of past environmental issues.


Each local governmental entity has its own requirements. As a general matter, a building permit is needed for construction and a certificate of occupancy is needed specifying usage for each separate space in a building. Local ordinances are likely to require other forms of permission within the development stages, such as “site disturbance permits” or permits for water or sewage use.


Permits are obtained locally. Building permits must be issued before construction can take place. Certificates of occupancy, or their local equivalent, must be issued before buildings (and tenant spaces) can be occupied. Requirements relative to reissuance and transfer of certificates of occupancy are governed by local law.

of time following expiration of the lease or penalties will apply to the landlord. Tenants may have a legal right to a walk-through at the beginning and end of a lease term to confirm any damage to the premises for which the tenant could be held responsible.


Local laws often provide exemptions from certain residential tenant-protective requirements for owners leasing fewer than a stipulated number of units.


Subject to requirements of local law, residential leases are typically for one year, with rents to be renegotiated upon renewal. Shorter term leases may require premium rents, depending on inventory and market conditions. A landlord’s acquiescence to a tenant holding over may establish a new tenancy (month to month or otherwise), which requires a landlord to monitor its lease expirations. A typical multi-family residential lease (for an apartment development), would allocate responsibility for maintenance and insurance of the real property to the landlord. A tenant would be responsible for insuring its personal property and for the cost of repairs of damage in excess of ordinary wear and tear at the end of the lease.


Local law governs damages on breach and other remedies, and procedures to evict defaulting tenants, but termination and eviction rights are typically provided to landlords.



The main laws governing construction, zoning, use, and occupation of the land are local in nature. Each state adopts governing legislation. Local land use authorities then have their own ordinances, rules, and regulations. Be aware, however, that not every location in the United States is in an incorporated municipality, and not every locality regulates land use by zoning or land development under any mechanism. In some locations, federal or state law may affect land development or land use, often in special areas. For example, in California, there are specific provisions dealing with coastline property. In Maryland, development around the Chesapeake Bay is specially regulated. In Florida, the Everglades are subject to special rules. Federal and state governments exercise more comprehensive jurisdiction over environmental matters than do local governments, who more typically regulate land development and land use. Under these laws, landowners must comply with a variety of statutes and regulations governing emissions to the air, discharges to



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standards. Some states, including most notably New Jersey, also have laws requiring sellers to verify to state regulatory authorities the environmental condition of certain industrial and commercial property before it is sold, and if the property is contaminated, the seller must remediate it before the transaction can be consummated.


There are no standards at this time.

13 Climate Change


There are none that are applicable to real estate on a nationwide basis, but certain states, such as California, have enacted regulatory measures for reducing carbon dioxide emissions and have begun to implement emissions trading regimes.


There are certain states that have requirements.


Most action taken on this front, thus far, has been taken by state and local governments. For example, New York and other jurisdictions have begun to require the auditing and reporting of energy consumption at the building level. California and Washington have begun requiring owners of non-residential buildings (including hotels) to release energy and water consumption data and ratings to parties in any transaction concerning the sale, lease or financing of a building. Many local jurisdictions in California have green building standards modelled on LEED or other standard building guidelines.


This is totally dependent upon the request, the local requirements, and how busy the office granting the permits is at the time of the request.


The federal government, through the Secretary of the Interior, maintains a National Register of Historic Places and the federal government administers certain grant programmes and encourages the preservation of these sites through various financial incentives. State and local governments will generally have a historic preservation commission that will designate certain sites or districts as historic and this commission will consider preservation interests before issuing building permits and review actions of the zoning and planning boards when historic sites will be affected. A historic designation may affect the use of the property, but generally it does not affect the transfer rights.


Generally, parties hire third party environmental consultants to perform Phase I Environmental Site Assessments, as described in question 11.3 above. The Environmental Protection Agency, a federal agency, maintains a “National Priorities List” of the most contaminated known sites in the country, and many states have developed their own lists of contaminated sites. There are many contaminated sites that are not on federal or state lists, however. Thus, an adequate Phase I Environmental Site Investigation and, if warranted based on the findings of the Phase I, a Phase II Environmental Site Investigation, are the best means for obtaining the most reliable and comprehensive information regarding environmental conditions at a subject property.


This is dependent on statute. Under certain federal and state laws, parties in interest, including some existing and prior owners, are liable for remediating property that is contaminated above applicable




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Christina Braisted RogersGreenberg Traurig, LLP3333 Piedmont Road, NE, Suite 2500Atlanta, Georgia 30305USA

Tel: +1 678 553 2100Fax: +1 678 553 2212Email: [email protected]: www.gtlaw.com

Christina Braisted Rogers focuses her practice on real estate matters, including acquisition, joint venture, disposition, leasing transactions and financing matters involving multifamily residential, office, retail and industrial properties. She represents institutional real estate investors, including investment trusts, pension fund advisors, and construction and permanent lenders and borrowers. Christina is experienced with conduit, traditional, mezzanine and construction lending, representing major financial institutions, conduit lenders and insurance companies.

Ms. Rogers is a member of the State Bar of Georgia, the Atlanta Bar Association, the American Bar Association, the Fellows of the American Bar Association, and Commercial Real Estate Women (CREW). She is a member of the Board of Directors for Cool Girls, Inc., a non-profit organisation dedicated to the self-empowerment of girls and breaking the cycles of poverty, low self-esteem and teen pregnancy. She is listed in Best Lawyers in America, Real Estate, The Legal 500, United States, Real Estate, and Georgia Trend magazine’s “Legal Elite”.

Greenberg Traurig, LLP is an international, multi-practice law firm with approximately 1,900 attorneys serving clients from 38 offices in the United States, Latin America, Europe, Asia, and the Middle East. The firm is No. 1 on the 2015 Law360 Most Charitable Firms list, third largest in the U.S. on the 2015 Law360 400, Top 20 on the 2015 Am Law Global 100, and among the 2015 BTI Brand Elite. More information at: www.gtlaw.com.

Greenberg Traurig provides integrated legal services for clients worldwide. The firm offers multidisciplinary teams that include senior lawyers who have been the chief legal officers at major multinational companies and have spent years solving real-world problems in the business, political and legal arenas. Teams are built around client needs, ensuring lean staffing, front-end planning and flexible billing, where appropriate. The firm’s experience in more than 100 practice areas and our network of contacts throughout the world position us to help clients achieve their objectives both domestically and in the global marketplace.

The Greenberg Traurig Real Estate Practice is a cornerstone of the firm and recognised leader in the industry. Our attorneys deliver diversified and comprehensive legal solutions for property acquisition and investment, development, management and leasing, financing, restructuring, and disposition of all asset classes of real estate. The team draws upon the knowledge and experience of nearly 300 real estate lawyers from around the world, serving clients from key markets in the United States, Europe, the Middle East, and Latin America. Our clientele includes a broad range of property developers, lenders, investment managers, private equity funds, REITs, and private owners. We advise clients on a variety of matters across a broad spectrum of commercial, recreational and residential real estate, including structured equity and debt and the hybrids.


59 Tanner Street, London SE1 3PL, United KingdomTel: +44 20 7367 0720 / Fax: +44 20 7407 5255

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