23 Oct, 2015

Conversion of Right of Use Into Ownership Right

As of July 28, 2015, a relatively new piece of real estate legislation, regulating conversion of right of use into ownership right on construction land, came into force (the “Conversion Act”).
The Conversion Act creates possibility for certain, strictly itemized entities (e.g. privatized entities, holders of right of use on the land previously acquired for specific development, sport organizations, public enterprises, entities subject to bilateral succession treaties) to convert right of use into ownership right in exchange for compensation fee payment. Such fee equals the market value of the land, providing that holders are registered with the Real Estate Cadaster accordingly. A relevant municipal authority estimates a conversion fee on the basis of the average price per square meter. This fee is, however, subject to reduction in the certain cases prescribed by the Conversion Act.

On the other side, there are exceptions with regard to certain types of property whereby corresponding rights of use on such properties either cannot be subject to conversion at all or the provisions of Planning and Construction Act apply in such cases. The conversion procedure is formally finalized when a decision, issued by a competent authority, becomes final (e.g. not challenged within prescribed time limit). Only then the applicant may register its ownership title with the Real Estate Cadaster. Yet, a competent authority shall halt conversion procedure, initiated upon request of an applicant, if it determines that restitution procedure regarding such property is underway.

Alternatively, instead of conversion, applicants may opt for a 99-year lease of the land. The amount of annual lease payment equals market value of the land divided by 99 years. A competent authority shall enter into lease agreement within a 15-day period as of the request submission, providing that the criteria set out by the Conversion Act are fully met. Pending conversion requests filed in line with previously applicable acts shall be dismissed and such applicants will be referred to file requests pursuant to this Conversion Act. Finally, the currently existing rights of use shall serve for obtaining construction permits within 12 months as of the day when the Conversion Act came into force.

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