Building law and regulation in Croatia during Covid-19

Updated on 14.04.2020

1. Is there construction-relevant COVID-19 regulation?

There is currently no COVID-19 regulation related specifically to the construction industry.

However, the National Civil Protection Directorate has adopted a number of decisions with the aim to prevent the spread of the pandemic among the general population (influencing, therefore, the construction industry as well).

These decisions include measures such as:

  • Limitation of intercity travel – the measure materially affects travelling / transport, as these are limited to certain branches / persons, who have a special permit. Employers are entitled to issue permits to their employees, but the authorities ask not to misuse the permits and issue them only when it is really necessary.
  • Ban on work in trade i.e. a closure of all premises, in which trade is performed, with certain exceptions.
  • Implementation of remote work and short-time working arrangements, where possible.
  • Strict measures for the performance of business activities, which were not suspended e.g. maintaining a safe distance between the employees themselves and ensuring that a safe distance is kept between the customers, setting up disinfection points in the sales premises for the customers, regular cleaning / disinfection / ventilation of the premises, placement of visible instructions and recommendations on general hygiene rules, etc. with regular disinfection and providing personal protective equipment to employees.
  • Limitation on number of people allowed admittance to certain trade premises.
  • Changes to the workhours of trade premises - businesses who were allowed to continue performing their activities have to follow strict / reduced working hours from 08:00 – 17:00.
  • Social distancing – 2 metres in closed spaces / 1 metre in open spaces. Public gatherings of more than 5 people have also been prohibited.

The above list of measures is not exhaustive and is subject to change. Other measures may be introduced, and the existing measures may be revoked or amended. 

In addition to the above decisions, other recommendations have been issued with reference to health and safety on worksites by the Croatian Chamber of Construction Engineers, based on general recommendations by the Croatian Institute of Public Health, which are not binding.

2. Subsidies and other government support for employer, contractor and other involved parties? (generic, high level only).

The Croatian Government has introduced numerous measures with the aim to alleviate the effect of the COVID-19 pandemic on the economy. There are currently no subsidies or other types of government support specific to the construction industry. 

However, the Croatian Parliament has amended the Act on Communal Infrastructure Management to enable the local municipal governments to decide on exemptions for certain subjects from payment of communal fees for business spaces and construction land to be used for business purposes, if deemed necessary.

In addition, there are certain general state subsidies and benefits, which may be granted to employers and entrepreneurs, due to the impact of the current COVID-19 situation to their respective businesses:

  • In relation to tax obligations (including payment of all public levies, save for custom and excise duties) a three-month moratorium has been introduced (with a possible extension for another three months, depending on the circumstances). All taxpayers who can prove a probability of not being able to pay their due tax obligations can benefit from this measure, under the condition that there are no unsettled tax debts on the date of filing the moratorium request. During the moratorium period, taxpayers will be exempt from their obligation to settle their tax obligations. After the moratorium period ends, the taxpayers will be allowed to repay their tax obligations (incurred during the moratorium) in instalments, with no extra costs.
  • Certain categories of employers, whose business has been affected by the COVID -19 pandemic (also employers in construction industry, if they fulfil prescribed conditions), may be eligible for state assistance in the form of a monthly compensation for their employees (in the maximum amount of up to HRK 4,000, i.e. approx. EUR 530).
  • Various types of support schemes in form of loans and payment suspensions have been introduced, especially with reference to SMEs. 

No specific definition of the term “force majeure” exists under Croatian law. However, the Croatian Obligations Act has several provisions relating to force majeure, which imply that a force majeure event is an extraordinary external circumstance, which could not have been predicted nor prevented, avoided or overcome.

To this extent, it is important to make a distinction with reference to bilateral contracts between (i) complete impossibility of performance due to such circumstances and (ii) partial impossibility of performance. 

As to (i) - The obligation of the other party (i.e. the party whose obligation under the contract can still be performed) will also cease. If the other party has performed its obligation partially, it has the right to restitution (i.e. the return of what has been performed). If this is not possible, the other party may request compensation.

As to (ii) – The other party may either unilaterally terminate the contract, or request a reduction in its obligations.

In terms of the rebus sic stantibus principle, if the circumstances under which the contract was entered into significantly change (as opposed to the complete or partial inability to perform obligations under the contract), the contract may be amended (if possible and both parties agree) or terminated (only by court order).

It is currently unclear whether the parties would be able to seek relief under force majeure clauses with reference to the COVID-19 situation, as this depends on the severity of the restrictions imposed by the Government upon the parties, the duration of such restrictions and whether a complete or a partial inability to fulfil the contractual obligations under the agreement occurs due to these restrictions.

In addition, both parties are free to mutually regulate their rights and obligations under the agreement - the same applies for force majeure clauses. In general, it is common for the parties to agree upon such clauses in agreements, as they can regulate force majeure in more detail, e.g. concrete circumstances (such as war, disease) or duty of notification. These provisions should be taken into account when assessing the enforceability of a force majeure clause. 

4. Does the Epidemic give rise to termination rights to either party?

Based on the rebus sic stantibus principle - if the parties do not agree on changes of the agreement (or if one of the parties does not consent to the changes) and the other party still wants to terminate the agreement, it would be obliged to request the court to terminate the agreement. In such a case, the party requesting the termination would be obliged to prove before the court that (i) the circumstances at hand make it excessively onerous for him to fulfil his obligations under the agreement, or (ii) he will suffer an excessive loss due to the subject circumstances. Of course, the probability for the court to confirm that one of the mentioned requirements have been met, depends materially on the specific circumstances.

Furthermore, it is also important to assess whether a complete or partial inability to fulfil one’s contractual obligations occured. Partial inability: If one of the parties is unable to perform the obligation under the agreement for a short(er) period of time, the Croatian law gives the party the possibility to either terminate the agreement (if partial fulfilment does not meet the other parties’ needs, whereby a unilateral statement will suffice) or keep the agreement in place, while asking for a proportional reduction of the obligation.

Individual agreements may contain different termination grounds and should therefore be assessed on a case-by-case basis.

5. Do the measures currently being taken in relation to the Epidemic amount to change in law? What are the price and time consequences?

The majority of the decisions in relation to the COVID-19 situation have been introduced by the National Civil Protection Directorate. These decisions are binding, but do not constitute a change in law and are of a temporary nature.

However, the Croatian Parliament has amended certain laws and regulations, to enable the implementation of the governmental subsidies and benefits, as part of the Government’s package of measures for the economy. 

In relation to the construction industry, apart from the above-mentioned amendment of the Act on Communal Infrastructure Management and the possible exemptions for certain subjects from payment of communal fees for business spaces and construction land to be used for business purposes, no further legislative changes have been made. 

6. Are there any other issues relevant to COVID-19 the construction industry should be aware of?

It is important to note that new measures and decisions are being introduced on a daily basis and the existing measures are subject to change. 

Access to courts and administrative authorities is currently restricted. Most court and administrative proceedings have been suspended and court hearings are only held for urgent matters.
Due to the closure of state borders, foreign workers are unable to enter the country and perform work on local construction sites, which might be troublesome for the industry.

The Croatian Government has announced the implementation of a three-month stand still on all enforcement proceedings against debtors (over bank accounts), which would also impact the construction industry insofar as it could limit the possibility to legally enforce payment of any unpaid fees under existing agreements during such a period.

Portrait ofAna-Marija Skoko
Ana-Marija Skoko
Partner
Zagreb