Buying and selling unregistered property
Buying and selling unregistered property
Issues associated with buying and selling property have become increasingly topical in recent decades, and so have concerns about its registration, in particular options selling and purchasing unregistered real estate and the pitfalls this may entail. Serbian legislation governing this issue has changed on several occasions, as have the authorities’ official opinions. This article sets out to clarify whether and when unregistered property can actually be bought and sold.
Preconditions for buying and selling property
Conveyance of title to property by deed, in other words exclusively by means a sale and purchase agreement (‘translative acquisition’), is almost entirely unknown in civil law jurisdictions, Serbia included. The accepted method of conveyance in Serbia requires a legal transaction, but this is in and of itself not sufficient. One additional requirement must be met: the property, and title to it, must be registered in a public register of property and titles, and this registration has constitutive effect, allowing title to pass from the seller to the buyer.
Under Article 61 of the State Survey and Cadastre Law, the title holder must apply for registration of the property and title with the appropriate land registry (cadastre), maintained by the National Land Survey Authority. Title is deemed to have been transferred once this registration is complete.
In other words, title to property does not pass to the buyer once it has executed the agreement and paid the purchase price and stamp duty. Rather, for this to happen, the title must be registered with the public property register.
In a legal system that acknowledges title only after it has been registered with the cadastre, property outside the register does not exist. As such, Serbian law does not recognise unregistered property.
Nevertheless, the concept of unregistered property is certainly present in the Serbian legal framework, case law, and informal contexts. This is due to the distinction between ‘usage rights’ and title, which persisted for half a century, as well as the incomplete and inconsistent records of title holders, which were kept partly in the form of land registries and partly using the tapija system. Introducing a comprehensive cadastre was a lengthy process, during which buying and selling of real estate continued uninterrupted; the lack of consistency in property records and interests was additionally compounded by construction without proper permitting.
Retrospective permitting regulations also saw frequent change, so the responsible authorities would certify sale and purchase contracts based on evidence that retrospective permitting applications had been made. However, retrospective permitting has proven to be a protracted process, and one in which the courts regularly had to adjudicate disputes over title to built and unbuilt structures and individual housing units.
The term ‘unregistered property’ has thus become commonplace in Serbian case law as a means of extending protection to buyers with duly certified sale and purchase agreements and proof of having paid the purchase price, and who are in possession of the property. In these cases, the registration requirement is replaced by the performance of the sale and purchase contract.
Options and restrictions for buying and selling unregistered property
Stand-alone Article 28 of the Law Amending the Law on Retrospective Construction Permitting (Official Gazette of the Republic of Serbia, No. 83/2018), which entered into effect on 6 November 2018, required authorities responsible for issuing retrospective permits to formally notify the Land Survey Authority of buildings for which retrospective permitting applications had been made to ensure the land registry could insert annotations into the records to prohibit the sale of those properties.
Consequently, buying and selling of buildings awaiting retrospective permits was banned only from 6 November 2018, and owners of such property were required to finalise the retrospective permitting procedure to be able to freely dispose of the buildings and associated land. According to Article 36 of the Law, once the retrospective permit becomes final, title to the property can be registered with the relevant cadastre. The owner will be able to sell the property only after it has been registered by the Land Survey Authority pursuant to a final retrospective permit.
An exception to the general rule: buying and selling unregistered property in enforcement proceedings
General rules that govern how property is acquired are waived in enforcement proceedings to safeguard creditors’ rights. As such, there are no constraints on enforced sale of unregistered property owned by the debtor if this is required for collection.
Article 209 of the Enforcement and Security Law (Official Gazette of the Republic of Serbia, Nos. 106/2015, 106/2016 – Authentic Interpretation, 113/2017 – Authentic Interpretation, and 54/2019) permits unregistered property to be enforced on, as well as bought and sold in the context of enforcement proceedings.
This piece of legislation also indirectly regulates a controversial issue involving the sale of unpermitted buildings awaiting retrospective construction permits. Here, if the enforcement creditor seeks enforcement on a building or a part of such building that are neither registered nor may be registered in the land register, and formally declares that the property cannot be registered, the court will permit enforcement on such unregistered property provided that the creditor has provided or indicated the existence of a building permit in the name of the debtor, or, where there is no permit or the permit is not in the name of the debtor, any other public instrument evidencing the debtor’s unregistered title to the property, such as a sale and purchase or gift agreement, life care agreement, probate decision, and the like.
Under the Enforcement and Security Law, who may order enforcement on unregistered property?
The Law places responsibility for this decision in the hands of both the court and the public enforcement officer (PEO). The court’s responsibility stems from Article 3 of the Enforcement and Security Law, since the court is the sole body responsible for ruling on an enforcement motion made pursuant to an enforceable title or authentic instrument. As such, the court can order enforcement on unregistered real estate at the initial stage of the proceedings, when decisions are made on enforcement motions, as envisaged in Article 209 of the Enforcement and Security Law.
According to Article 3 of the Enforcement and Security Law, PEOs rule on enforcement motions pursuant to authentic instruments in collection of monetary claims arising from the provision of utility and similar services. Here, again, provided that the requirements of Article 209 of the Enforcement and Security Law are met, a PEO may order enforcement on unregistered property if this is sought by the enforcement creditor.
In addition, Article 58 of the Enforcement and Security Law permits PEOs to substitute means of enforcement and assets subject to enforcement for others at the request of the creditor. Consequently, when asked by their creditor clients to do so, PEOs may substitute unregistered real estate for other assets.
Once the court or PEO has adopted a ruling ordering enforcement on unregistered property owned by the enforcement debtor, the PEO formally takes an inventory of the property at an inventory meeting, to which the PEO invites the creditor and the debtor, owners of properties directly bordering the one enforced on, and the actual tenant of the property if other than the enforcement debtor. This inventory has the force of an annotation of enforcement in the property cadastre and is published on the online bulletin board of the Chamber of PEOs. It stands to reason that there is no requirement to record an annotation of enforcement in the cadastre, as the property subject to enforcement is itself not registered with the cadastre.
General rules call for property to be put up for sale at no more than two auctions. The first auction cannot be held less than 15 days or more than 30 days after the conclusion on the auction is published online on the Chamber’s web site or e-auctions portal. If the property is not sold at the first auction, the PEO handling the case must adopt a formal conclusion acknowledging that the auction has failed, and then schedule a second auction to take place not less than 15 nor more than 30 days after the first. At the second auction, the property cannot be sold at under 50 percent of its appraised value.
What are the rights of the winning bidder in a public auction for an unregistered property, and what are the consequences of acquiring title to such property?
The PEO must adopt a conclusion on surrender of the property immediately after the purchase price is paid. This conclusion instructs the tenant of the property to allow the buyer to take possession of it and orders the title to be registered with the relevant cadastre. Hence, the surrender conclusion is the basis for registration of title to the unregistered property with the cadastre, and registration must be preceded by the issuance of a retrospective permit. Registration is particularly important to ensure the title holder’s rights are safeguarded and that the holder can freely dispose of their property.
If the enforcement ruling designates an unregistered building under construction as subject to enforcement, Article 141 of the Planning and Construction Law requires a buyer of that building who may wish to continue construction works to acquire amended planning permission that will be issued in its name. This means that, when applying for amended planning permission, the new investor must include the purchase contract for the land zoned for construction or building under construction, or other instrument evidencing title to the land or building, together with proof of having paid the requisite tax envisaged by legislation governing property taxes. If the statutory requirements are met, the relevant authority will issue the amended planning permission within eight days of receiving the application; the permission will contain the new investor’s name but will otherwise remain unchanged.
If planning permission has expired – which will often be the case for incomplete buildings – the winning bidder must obtain new planning permission, complete the building, then obtain an occupancy permit, and, finally register the property with the cadastre.
These arrangements allow enforcement creditors to seek sale of unregistered real estate. Given the large number of such properties in Serbia, in many cases this was the only option for enforcement creditors to collect on their claims.
The legal framework governing enforcement proceedings and the broad scope of assets that can be enforced against facilitate the primary objective and purpose of enforcement – namely, to reliably and efficiently achieve collection of a monetary or non-monetary claim owed to an enforcement creditor as evidenced by an enforceable title or authentic instrument. Even though this arrangement is an exception to the general rules for buying and selling real estate, clearly the opposite approach would work in favour of debtors without registered title and could hardly be justified.
As such, even though a sale and purchase contract for an unregistered property may not be entered into before a notary public, such a transaction is still possible in enforcement proceedings. Even though title to a property generally gives its holder the right of usufruct and the right to alienate the property, the latter will not accrue to a purchaser of unregistered real estate in enforcement proceedings. However, buyers who acquire property in enforcement for their own use and do not intend to sell it on are undoubtedly an exception rather than the rule.
In any case, the authors believe this exception should not be extended further and that the Serbian legal system ought to focus on retrospective permitting and better regulation of the property cadastre, so as to ensure the highest possible level of legal security in selling and purchasing real estate.