1. Ownership and occupancy

Describe the various categories of legal ownership, leasehold or other occupancy interests in real estate customarily used and recognised in your jurisdiction.

The basic legal ownership category under Slovene law is ownership right, which consists of a right to hold, use, exploit and dispose of a property. In addition to the above-mentioned, the owner also has a right to limit his or her ownership right by transferring one of the listed rights to a third party or parties. One example is leasing the real estate, by which the owner-landlord transfers his or her right to hold and use (and in some cases also exploit) the real estate to the tenant on the basis of the lease agreement. The lease agreement can be concluded for definite or indefinite period of time. If the parties choose the latter, it is recommendable to agree in detail on the terms for termination.

As a rule, burdens on real estate are established by explicit and unconditional statement of the owner allowing such burden to be imposed on the real property. In addition, they must usually be entered in the Land Register in order to gain validity. Signature on statement allowing the establishment of burdens must be notarised.

While condominium regimes have become widely used in Slovenia in recent years, the cooperative ownership agreements are not yet recognised.

Lease agreements are, in general, governed by Code of Obligations. In addition, there are some other acts governing specific types of space (such as the Housing Act for residential premises, Business Buildings and Business Premises Act and the Agricultural Land Act). Provisions of these acts, which concern lease agreements and relationships, mainly differ in respect to obligatory elements of lease contracts, notification periods, manners and reasons for termination and rights and obligations of parties.

2. Pre-contract

Is it customary in your jurisdiction to execute a form on non-binding agreement before the execution of a binding contract of sale? Will the courts in your jurisdiction enforce a non-binding agreement or will the courts confirm that a non-binding agreement is not a binding contract? Is it customary in your jurisdiction to negotiate and agree on a term sheet rather than a letter of intent? Is it customary to take the property off the market while the negotiation of a contract is ongoing?

The Slovene Code of Obligations recognises a pre-contract as a contract by which parties undertake obligation to subsequently conclude the (main) contract. A pre-contract is considered binding if it contains all essential elements of the main contract, and can in such case also be enforced. Nevertheless, a pre-contract shall not be binding if the circumstances materially changed during the gap between conclusion of pre-contract and the main contract.

The options to enter into a letter of intent or term sheet are commonly used in the initial stages of transactions. It is also usual to include in such agreements the obligation to remove the real estate from the market during the negotiation period or not to enter into negotiations with other interested parties for a defined period of time.

3. Contract of sale

What are typical provisions in a contract of sale?

The essential elements of a sale contract under Slovenian legislation are the object of sale and the purchase price. Other elements and provisions are optional.

The parties commonly decide to agree on a down payment, which depends on a total purchase price but usually amounts from 10 per cent to 20 per cent of the purchase price. Use of an escrow account generally depends on total value of the transaction and its complexity.

As the principle of trust in the Land Register fully protects the parties of legal transactions, current extracts from Land Register are used as a proof of a good title of the property. The Land Register is public and available online, therefore no costs arise from verification of proper title. Since the principle of trust in the Land register is fully applicable for legal transactions and as in accordance with this the principle party, trusting in the Land Register, cannot suffer detrimental effects, there is usually no need to include special representations and warranties with respect to the title in the agreements. Nevertheless, such warranties are often included in high-value transactions.

Liabilities for taxes and utilities are transferred to the buyer as of the date of delivery of object of sale, unless agreed otherwise. The same applies for the risk of loss, which is borne by the seller until the delivery of the object of sale to the buyer. After delivery, the risk transfers to the buyer.

4. Environmental clean-up

Who takes responsibility for a future environmental clean-up? Are clauses regarding long-term environmental liability and indemnity that survive the term of a contract common? What are typical general covenants? What remedies do the seller and buyer have for breach?

The environmental responsibility or responsibility to remove the source and its effects is primarily on the polluter, who is also obliged to pay the costs for measures of prevention and reduction of environmental effects. If an environmental effect cannot be assigned to a specific polluter, the liability for its removal and payment of costs for removal is borne by the state (or municipality).

With regard to contractual provisions regarding environmental liability, it is not unusual to negotiate representations and warranties that the property is free of environmental burdens or compliant with environmental legislation. The breach usually results in an obligation to pay a contractual penalty or the possibility of terminating the agreement.

5. Lease covenants and representation

What are typical representations made by sellers of property regarding existing leases? What are typical covenants made by sellers of property concerning leases between contract date and closing date? Do they cover brokerage agreements and do they survive after property sale is completed? Are estoppel certificates from tenants customarily required as a condition to the obligation of the buyer to close under a contract of sale?

The most common representations given by the seller with relation to leases are that the leases are legally binding and enforceable, that the rent was not modified and that there are no pending or threatened terminations. For the time gap between start of negotiations and finalisation of the agreement, the seller usually also warrants not to enter into any other lease agreements and make material changes to the existing ones.

Lease agreements do not usually include brokerage agreements, but are regulated and negotiated separately.

Estoppel certificates are neither required nor common as a condition to the obligation of the buyer to close under the sales contract.

6. Leases and real estate security instruments

Is a lease generally subordinate to a security instrument pursuant to the provisions of the lease? What are the legal consequences of a lease being superior in priority to a security instrument upon foreclosure? Do lenders typically require subordination and non-disturbance agreements from tenants? Are ground (or head) leases treated differently from other commercial leases?

Under Slovene legislation, leases are not subordinated to security instruments and do not cease to exist upon foreclosure. By purchasing the real estate, the buyer becomes the new landlord and undertakes all rights and obligations under the existing lease agreement.

7. Delivery of security deposits

What steps are taken to ensure delivery of tenant security deposits to a buyer? How common are security deposits under a lease? Do leases customarily have periodic rent resets or reviews?

Security deposits are not obligatory but are still commonly used in lease relationships. The usual amount for a security deposit is one or two monthly rents, and it is typically provided in cash or by transferring amounts to the landlord’s bank account.

With regard to short-term lease agreements, it is not usual for them to contain provisions on periodic rent resets or reviews. If the contractual parties agree to modify the amount of rent, they usually include an annex to the agreement. On the other hand, long-term lease agreements commonly contain an indexation clause.

8. Due diligence

What is the typical method of title searches and are they customary? How and to what extent may acquirers protect themselves against bad title? Discuss the priority among the various interests in the estate. It is customary to obtain government confirmation, a zoning report or legal opinion regarding legal use and occupancy?

A typical method of title search is obtaining the current extract from the Land Register. Other ways of proving the title are used only in exceptional cases, where the transfers of title were not yet entered into the Land Register.

The principle of trust in the Land Register, as recognised and interpreted in Slovene legislation, fully protects the parties of legal transactions and therefore the party, trusting in Land Register, cannot suffer detrimental effects. The purchaser, in good faith, can accordingly obtain title even if the seller is wrongfully registered as the owner of the respective land.

Extracts from the Land Register and zoning reports are available online free of charge in a user-friendly format. Nevertheless, legal support is still advisable, especially with regard to the correct interpretation of the extracts and verification of rights and obligations entered therein.

9. Structural and environmental reviews

Is it customary to arrange an engineering or environmental review? What are the typical requirements of such reviews? Is it customary to get representations or an indemnity? Is environmental insurance available?

Engineering and environmental reviews are generally not obligatory, but are still advisable, especially in respect to larger transactions. Representations or an indemnity are also only used in larger transactions, where difficulties are expected in this regard.

Environmental liability insurances are available and can be required by the government as financial insurance for payment of costs for environmental nuisance.

10. Review of leases

Do lawyers usually review leases or are they reviewed on the business side? What are the lease issues you point out to your clients?

Leases are most commonly reviewed by lawyers rather than on the business side. Our company highlights provisions on rent indexation, rights and obligations of parties and termination to our clients.

11. Other agreements

What other agreements does a lawyer customarily review?

Alongside lease agreements, lawyers usually review utility supply agreements, property insurance agreements and brokerage agreements. Because easements and mortgages are demonstrated in extracts from the Land Register, agreements on their establishment are not typically subject to review (unless there is doubt regarding the validity of their establishment).

12. Closing preparations

How does a lawyer customarily prepare for a closing of an acquisition, leasing or financing?

Preparations for closing usually include drafting the list of deliverables and reviewing the requirements for transaction to be validly concluded. The latter usually includes verification of representatives and formalities of their authorisations (notarisations, apostille, etc.), while the list of deliverables usually consists of:

• documentation on clients;

• proof of ownership;

• proof of financing (if applicable);

• certificate on use of land; and

• statements on release of mortgages (if applicable).

Authorisations are typically verified by presenting current extracts from the business register. In the case of a client being a foreign entity, it is often required for the official certificate to be translated by court-sworn translator in order for a notary public to notarise its signature. Notarisation of a seller’s signature is a prerequisite for entry of the transfer to the Land Register.

There is usually a time gap between signing of the sales contract and closing, due to tax formalities. After a sale contract is signed, the seller must submit the contract to the tax authorities, which issue a notice of tax assessment.

After the tax in the assessed amount is paid, the seller provides proof of payment to the notary public, who can only then notarise the signature on the contract. The gap can last from one day up to one month, as under relevant legislation the tax authority has 30 days to issue the notice.

Nevertheless, in practice, the tax authorities issue the notice rather quickly, so this gap usually only lasts a few days.

13. Closing formalities

Is the closing of the transfer, leasing or financing done in person with all parties present? Is it necessary for any agency or representative of the government or specially licensed agent to be in attendance to approve or verify and confirm the transaction?

Except for notarisation of the seller’s signature, no other formalities or participation of government representatives are required. The parties may sign the agreement separately.

14. Contract breach

What are the remedies for breach of a contract to sell or finance real estate?

In the event of a breach, the aggrieved party may seek termination, fulfilment of obligations or contractual penalties (if envisaged in contract). If the party seeks fulfilment of obligations or payment of contractual penalties, it first needs to enforce its claim by filing a lawsuit at the competent court. After obtaining a final judgement, the party can initiate enforcement proceedings.

However, if the parties conclude the agreement in a form of directly enforceable notarial deed, the first step (lawsuit) will not be required. The aggrieved party will be able to directly initiate the enforcement proceeding against the other contractual party.

The aggrieved party may, in addition to enforcing the fulfilment of obligation under the contract, also seek compensation for the damages caused by the breach.

15. Breach of lease terms

What remedies are available to tenants and landlords for breach of the terms of the lease? Is there a customary procedure to evict a defaulting tenant and can a tenant claim damages from a landlord? Do general contract or special real estate rules apply? Are the remedies available to landlords different for commercial and residential leases?

In the event of a breach, the aggrieved party may seek termination, fulfilment of obligations (for example payment of the rent) or contractual penalties (if envisaged in contract). The tenant of the residential premises may terminate the lease agreement at any time by written notice and with a 90-day notice period, while the landlord must file a lawsuit in order to terminate the lease. If the tenant occupies the premises even after termination of the agreement, the landlord may seek eviction through customary judicial proceedings.

If the object of lease is a commercial premise and if the premise is leased for indefinite period of time, the agreement may only be terminated by filing lawsuit at competent court and with a minimum notice period of one year.