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Up until the adoption of the Laws on Property Rights in Republika Srpska (in 2008) and in the Federation of Bosnia & Herzegovina (in 2013), the only legal basis to obtain a construction permit and erect a lawful building was to first acquire ownership over the land on which the building is to be constructed, usually through a purchase agreement, as, according to the provisions of the applicable Laws of Physical Planning, as well as the general legal framework of Bosnia and Herzegovina, an investor must obtain construction rights over real property to obtain a construction permit for that property.

However, a number of new legal solutions and institutions have been introduced by the two Laws on Property Rights, including the institution of construction rights. As a relatively new legal institution, it is rarely found in local practices. These new construction rights should not be confused with the construction rights formerly granted by public authorities under the socialist legal regime, which are currently being phased out.

According to the provisions of Article 286 of the Law on Property Rights of Republika Srpska and Article 298 of the Law on Property Rights of the Federation of Bosnia & Herzegovina, “construction rights are limited property rights on someone’s land, granting its holder the right to own his own building on the surface of such land, or beneath it, which fact the land owner is obliged to tolerate,” whereby “construction rights are legally equal to the building itself.” From a legal standpoint, constructions rights on plots of land exist separately from the land itself, which results in separate registration of the two. This principle is further detailed by the provisions which proscribe a system of double registration, so that construction rights are simultaneously registered in the land registry sheet of the subject land, as a burden, and in a newly formed land registry sheet as a property right of its holder. Once a building is constructed, it shall be registered in the land registry sheet as separate real estate, legally independent from the land on which it has been constructed. This system allows for the construction rights, and buildings constructed based on such rights, to be sold, mortgaged, or otherwise disposed of, completely independently from the land beneath such buildings. This also allows for separate ownership over the land and the buildings constructed on that land, as an exception to the principle of real estate singularity between land and buildings.

The holder of construction rights is the owner of the building constructed on land burdened by the construction rights, but is also the beneficiary of a usufruct on the burdened land itself, and as such, according to the Law on Property Rights, “is obliged to pay to the land owner a monthly consideration for the land, in an amount equal to the average rent for such land, if not otherwise agreed.” Construction rights may be acquired either by a court decision or by mutual agreement, executed in the form of a notarial deed, processed by a local Notary Public, in local language. Construction rights enjoy the same legal protection as predial servitudes, in relation to the burdened land, and as ownership, in relation to the construction rights themselves and buildings constructed in such a manner.

Construction rights may end through the perishing of the burdened land, or consensually, or by holder’s waiver, or by the expiry of an agreed term of duration, or finally by the fulfilment of an agreed termination condition. Furthermore, if a building is not constructed based on construction rights within ten years of the establishment of those rights, the burdened land owner may request that they be terminated. Also, construction rights shall be terminated where a building constructed based on them is demolished such that its proper use is impossible and the building is not reconstructed within six years of its destruction.

Upon the end of construction rights, the constructed building is legally re-attached to the land beneath it, whereby the owner of formerly burdened land now becomes the owner of the building as well. The landowner is obliged to compensate the former holder of construction rights for an amount equal to the increase in market value of the land arising as a result of the building now existing on such land.

As a new legal institution, construction rights should allow for a new, innovative way of approaching building construction, in all cases where a simple land purchase is not an option. This is of particular importance in times that require innovation, such as the ones we are living through.

By Slaven Dizdar, Head of Real Estate, Marić & Co.

This Article was originally published in Issue 8.2 of the CEE Legal Matters Magazine