Buying real estate is one of the biggest financial decisions most people make during their lifetime. This is particularly true for foreign nationals purchasing an apartment, house, holiday apartment, villa or land in Croatia.
In our work with clients from Germany and Austria, we pay particular attention to the legal due diligence of the real estate and documentation before any agreement is signed and before any deposit is paid.
In practice, we frequently encounter situations in which a buyer finds a property, agrees on the purchase price with the seller and receives a preliminary agreement for signature. The seller or real estate agency often requests that the agreement be signed within a short period of time and that a deposit be paid immediately.
The buyer may then feel pressured because they do not want to lose the property they have found.
Our advice is always the same – before signing, the legal status of the property and the contents of the agreement should be checked.
For clients from Germany and Austria, we pay particular attention to this because the buyer is dealing with the Croatian legal system, land registers, cadastral records and documentation that they may not be familiar with from their own legal system.
For this reason, we prepare and explain documentation and agreements for our clients bilingually (Croatian-English) and (Croatian-German), so that the buyer fully understands what they are purchasing, what obligations they are assuming and what legal consequences arise from signing the agreement.
Problems discovered after signing can be significantly more expensive and more complicated to resolve than legal due diligence carried out before the purchase.
Preliminary Agreement for the Sale and Purchase of Real Estate
A preliminary agreement is an agreement by which the parties undertake to enter into the main sale and purchase agreement for the real estate.
In practice, a preliminary agreement is often concluded when the buyer and seller wish to reserve the property, but it is not yet possible or practical to immediately conclude the main sale and purchase agreement, for example because the property has not been fully constructed or has not been divided into separate units and registered in the land register. In such situations, the parties enter into a preliminary agreement for the sale and purchase of real estate under which they undertake to conclude the main sale and purchase agreement under the conditions agreed in advance.
The preliminary agreement should clearly specify at least which property is being purchased, who the seller and buyer are, the purchase price, the amount and method of payment of the deposit, the deadline for concluding the main agreement, the conditions under which the final agreement will be concluded, what happens if either party fails to fulfil its obligations, the deadline for handing over possession of the property, and any other special conditions of the sale and purchase.
The Deposit Is One of the Most Important Elements of the Preliminary Agreement
The deposit (kapara) is an institute regulated by Article 303 of the Croatian Obligations Act and represents a sum of money or another fungible item given by one contracting party to the other at the time the agreement is concluded.
Its basic purpose is twofold. On the one hand, the deposit constitutes evidence that the agreement has been concluded, and on the other hand, it serves as a means of securing the performance of the agreement. For this reason, a deposit is not the same as an ordinary advance payment, but rather an institute that produces specific legal effects from the moment it is given.
It is customary for the deposit to amount to approximately 10% of the purchase price, but its legal effect depends on how it has been agreed. As a rule, the parties may agree on the amount of the deposit themselves.
If the deposit has been agreed as a withdrawal deposit (odustatnina), the consequences of withdrawal may differ for the buyer and the seller.
If the agreement does not specifically provide for a right of withdrawal, the party that has paid the deposit cannot simply withdraw from the agreement and request its return, just as the other party cannot simply terminate the agreement by returning twice the amount of the deposit.
In this way, the deposit serves to stabilise the contractual relationship and limits the possibility of unilaterally withdrawing from an already concluded transaction.
Legal Due Diligence of the Property Before Signing the Preliminary Agreement for the Sale and Purchase of Real Estate
We always advise our clients to carry out legal due diligence of the property before signing the preliminary agreement, and certainly before paying the deposit.
When conducting the review, a lawyer should not only determine whether the seller is registered as the owner.
It is necessary to determine whether the actual legal and factual prerequisites for a safe purchase exist and whether there are circumstances that could make it more difficult or prevent the acquisition and registration of ownership.
1. Who Is the Actual Owner of the Property?
The first step is to check the land register extract.
The land register extract consists of Section A – information about the property, Section B – information about the owner, Section C – encumbrances and rights of third parties.
The encumbrance section may contain, for example, mortgages, easements, notices of disputes, notices of enforcement proceedings, prohibitions on disposal and other third-party rights.
Therefore, it is important for the buyer to check before entering into the preliminary agreement whether the property is safe to purchase.
It is particularly important to check whether the information contained in the agreement corresponds to the information recorded in the land register.
An error in identifying the property may subsequently create serious problems when registering ownership of the property in the land register.
2. Is There a Mortgage, Notice of Dispute or Other Encumbrance on the Property?
Real estate may be encumbered by a mortgage, easement, notice of enforcement proceedings or another third-party right. This does not necessarily mean that the property cannot be sold.
However, the buyer must know exactly what they are purchasing and when a particular encumbrance will be removed.
If there is a bank mortgage, for example, the agreement should precisely regulate the procedure for its deletion and link the payment of the purchase price to the relevant documentation.
3. Has the House or Apartment Been Legally Constructed?
When purchasing a house, villa, apartment or other building, it is not sufficient to check only the land register.
The relevant construction documentation should also be checked.
Namely, the buyer should check whether the property has an occupancy permit and a building permit. The seller may be registered as the owner in the land register, while the property, particularly in the case of a house, may not have a building permit or an occupancy permit.
4. Does What You Are Buying Correspond to What Is Registered?
In the case of real estate, it is not uncommon for differences to exist between the information contained in different records.
There may be differences concerning the surface area, parcel number, buildings or manner of use.
It is not enough merely to purchase the property. It is necessary to ensure that the acquired ownership can be properly registered.
Sale and Purchase Agreement for Real Estate
Once the legal due diligence has been completed and the parties have agreed on all the terms, the sale and purchase agreement is concluded.
The sale and purchase agreement should be tailored to the specific transaction.
There is no single standard agreement that is equally safe for every real estate purchase.
When drafting the agreement, particular attention should be paid to the purchase price, the method of payment of the purchase price, handover of the property, existing encumbrances and the tabular statement, without which you cannot register yourself as the owner of the property in the land register despite having paid the Seller the entire purchase price.
Accordingly, the sale and purchase agreement must clearly specify the amount of the purchase price, when it is to be paid and in what manner.
If part of the purchase price is paid before signing, part after signing and the remainder after certain conditions have been fulfilled, the agreement should precisely define each step.
Furthermore, the sale and purchase agreement should specify when the Seller will hand over the property to the buyer.
The agreement may also regulate the condition in which the property is handed over, the handover of keys, payment of utility bills and other matters relating to the handover.
If there are mortgages or other encumbrances, the agreement should clearly specify how and when they will be resolved. For example, a bank mortgage may be registered in the land register, which mortgage the Seller will resolve after the Buyer has paid the purchase price.
Tabular Statement
A tabular statement, i.e. a tabular instrument, is a statement by the seller whereby, subject to the applicable conditions, the seller permits the buyer to register ownership in the land register.
It may form an integral part of the agreement or constitute a separate document.
Signing the agreement does not automatically mean that you have become the owner. This is one of the most important things every buyer should know.
Ownership of real estate is acquired by registration in the land register, under the conditions prescribed by law. Therefore, the process does not end with the signing of the agreement. After the agreement has been concluded, it is necessary to ensure the registration of ownership.
An application for registration may be submitted electronically through authorised users of the information system, including a lawyer or notary public.
Under Croatian land registration law, registration is possible only on the basis of public documents or private documents with a certified signature.
Private documents on the basis of which registration is permitted must, in addition to all requirements prescribed by the Land Registry Act or another special law, also contain:
a) an exact designation of the land or right in respect of which registration is sought;
b) an explicit statement by the person whose right is being restricted, encumbered, terminated or transferred to another person that they consent to the registration. Such a statement may also be given in a separate document, but in such cases the document must contain all the elements required for registration.
In other words: without a tabular statement – there is no registration.
Particularly Important for Buyers from Germany and Austria
The purchase of real estate in Croatia by citizens of Germany and Austria can be straightforward when the process is properly prepared. However, a foreign buyer is often dealing with the Croatian land register system, the cadastre, construction documentation and the ownership registration procedure for the first time.
Differences in the legal system, language and the way the procedure is conducted may present an additional challenge. For this reason, we pay particular attention to legal due diligence of the property and documentation for our clients from Germany and Austria before signing the preliminary agreement and paying the deposit.
We prepare and process documentation and agreements in Croatian, German and English, depending on the needs of the individual client, so that the buyer clearly understands what they are purchasing, what obligations they are assuming, when and under what conditions they are required to pay the purchase price, when they will take possession of the property and how ownership registration can be completed.
Our legal support includes verification of ownership, encumbrances and the legal status of the property, review of the relevant documentation, review or drafting of the preliminary agreement and sale and purchase agreement, regulation of the tabular statement and registration of ownership in the land register.
For clients who are located in Germany or Austria, the procedure can also be organised remotely. In this way, we can handle the legal aspects of the purchase from the initial review of the documentation, through the review or drafting of the agreement, to the completion of the transaction and registration of ownership.
The aim of legal due diligence is not merely to safely sign an agreement, but to ensure that the buyer knows what they are purchasing, what obligations they are assuming and that their ownership can be properly transferred and registered in the land register.
