Real estate finance law in Slovenia

Yes. Foreign lenders are not restricted from taking and enforcing security rights over property located in Slovenia.

Pursuant to the principle ‘superficies solo cedit’ if a mortgage over land is established, such mortgage extends to the buildings thereon as they are an integral part of the land and follow its legal status. Therefore, generally it is not possible to charge a building without charging the land as well. There is however an exception in case of a building which is built on a land encumbered with a right of superficies (“stavbna pravica”).

2.1 The distinction between mortgages on land and buildings on the land?

There is no distinction between a mortgage on land and a mortgage on buildings on the land. In both instances the mortgagee would have the benefit of comparable rights and means of redress against the mortgagor.

2.2 Are mortgage certificates for a certain value issued? What is the cost? Are they transferable?

In Slovenia, mortgage certificates do not exist. 
Until recently, the non-accessory land charge (zemljiški dolg) could be established as security, however it was omitted due to the fact that is was often abused by debtors.

2.3 Can second ranking security be taken? If so, how is it registered? Is a priority deed also registered?

Second ranking security can be taken over any immovable property (whether land or buildings). A second ranking mortgage is registered in the Land Register following the same procedure as the registration of a first ranking mortgage. Changing the ranking in the Land Register is not possible.

2.4 Can the real estate be transferred to a third party (being still subject to the mortgage) without the lender’s consent?

Yes, mortgaged real estate may be transferred to a third party without the lender’s consent.

A mortgagee and a mortgagor may agree to a prohibition on disposal of property by means of a legal transaction or testament. Such prohibition shall be binding only on such mortgagor and not also on his legal successors, and has effect against third persons only if it is entered in the Land Register. Furthermore, such prohibition may be entered into the Land register only if it is agreed between spouses or cohabiting partners, parents and children (including adopted children and adoptive parents).

2.5 Are there any preferred creditors (other than a prior ranking mortgage holders)?

Yes, there are certain privileged security interests, e.g.: 

• costs of execution proceedings;
• taxes, such as VAT, property transaction tax, charged in case of property sale, and other taxes due and related to property for the last year;
• compensation claims for mental distress suffered owing to a reduction in life activities or reduction or loss of working capacity;
• maintenance claims;
• claims for damage suffered because of the loss of maintenance due to death of provider of such maintenance;
• workers’ claims arising out of employment relationship with the debtor (in case the debtor is the employer);
• claims for payment of social security insurance for the last year.

Priority such claims is recognized regardless of whether they are secured with a mortgage or not.

If the property is sold in the bankruptcy procedure, then also certain costs of bankruptcy procedure are deducted from the real estate gross sale proceeds.

2.6 Can “all monies” mortgages be taken?

An “all monies” mortgage, meaning a mortgage an indebtedness which is not determined at the time the mortgage is created, is not possible under Slovenian law.

However, in case of a maximum mortgage, the parties agree to a maximum amount to which the real estate can be encumbered – in such case, the mortgage secures claims originating from a specific legal relationship (including principal, interest, costs and similar).

2.7 Can a landlord’s right to receive rent be charged, assigned or transferred to a lender by way of security? If so, how?

Yes, claims for rent may be pledged or assigned to a lender by way of a security.

The landlord and the lender shall conclude an agreement assigning landlord´s existing and future claims towards a tenant. For a valid assignment of claims no particular form of the assignment agreement and no notification of the tenant is required.

If not otherwise agreed, it shall be deemed that the lender acquired the assigned claim under the resolutory condition of payment of the secured claim.

Lender’s claims against the landlord may also be secured by way of pledge, which is established on landlord’s claims against the tenant. The pledgee and the pledgor shall conclude a pledge agreement, but the pledge is validly established only when the landlord (as the pledgor) notifies the tenant of the pledge. No particular form is required either for the pledge agreement or for the notification.

2.8 It is customary/possible for a lender to take a charge/security over bank accounts of the borrower? Is it usual for lenders to contractually restrict rights to withdraw funds in accounts until the scheduled interest and capital repayments are made?

It is possible to pledge receivables on the bank accounts. As in the case of the above-mentioned pledge of claims, a pledge agreement and a notification to the bank where the relevant account is held are also required.

The pledgor is obliged to deliver to the pledgee a promissory note and other documents proving the pledged claim (however, that this is not required for a valid establishment of the pledge). In order to enforce the pledge, a promissory note will usually be requested by the bank.

3.1 Consequences of failure to register?

A mortgage established on the basis of a written contract or on the basis of the court decision must be entered in the Land Registry to become effective. Only registered mortgage is protected by the publicity rule and has a legal effect towards third persons.

A statutory mortgage, on the other hand, is established at the moment when all the conditions prescribed by law are fulfilled. Failure to register a statutory mortgage does not invalidate such mortgage.

3.2 Formalities for execution of security and costs?

Formalities for execution of mortgage established on the basis of a written contract are the following:

(a) a written contract that includes an explicit and unconditional permission to enter the security in the Land Registry issued by the mortgagor,

(b) the signature on such permission is verified by a notary public,

(c) a written contract includes identification data on the mortgagor, the mortgagee, the debtor of the secured claim (if the debtor and the mortgagor is not the same person), the legal basis of the mortgage, the land register identification data of the immovable property being pledged and the amount and date of maturity of the secured claim,

(d) the entry in the Land Registry.

If the mortgage is created on the basis of a directly executable notarial deed, such direct executability is noted in the Land Registry.

Costs relating to creation of a mortgage include 

(a) the notary fees and 

(b) fees of the Land Register. 

The notary fee for verification of a signature and for directly executable notary deed varies and depends on the amount of the secured claim (e.g. for EUR 100,000 the notary fee is approximately EUR 200). A 22% VAT rate is also applied to the notary fee.
Court fee for the entry of the mortgage in the land register is EUR 50.

Slovenian law does not recognise the concept of trust. However, it is possible for a security trustee to hold a non-accessory security interests such as land charges (but not accessory security rights such as mortgages and pledges) in its own name but for account of the secured lenders. A parallel debt structure may be used to enable a bank to act as security trustee also in respect of accessory security rights.

4.1 What happens if the lenders change later on e.g. on a transfer? Does new security have to be signed?

If the transfer is made by assignment of claims the security shall be transferred to the new lender together with the claim. Transfer of a mortgage shall take effect only upon its entry in the Land Register. Notwithstanding, in the case of the assignment of a claim secured with a maximum mortgage, the transfer of such mortgage is excluded.

The documentation for the transfer has to include the permission (registration clause) entitling the new lender to enter the security in the Land Register.

A tenant is free to transfer the lease to a new (sub)tenant, if not otherwise agreed and as long as damage is not thereby inflicted on the landlord. A landlord’s consent is not required by law but may be agreed upon in the contract. In such case a landlord may deny his/her consent only on justifiable grounds. If the original tenant transfers the lease without the landlord’s approval the landlord may terminate the lease contract. 
The original tenant guarantees to the landlord that the subtenant will use the leased property according to the lease contract.

6.1 Can a foreign jurisdiction (either a court or arbitral tribunal) be chosen to settle disputes and under what circumstances may such a choice not be recognised?

In general, based on the Council Regulation (EC) No 44/2001 on jurisdiction and the recognition and enforcement of judgements in civil and commercial matters and on Slovenian law, the parties to a contract can choose a foreign jurisdiction. 
However, Slovenian courts have exclusive jurisdiction over the following disputes and matters:

rights in rem on immovable property, disturbance of possession of immovable property and lease of immovable property, if such property is located in Slovenia;

validity of entries in public registers;

enforcement of a writ of execution on the territory of Slovenia.

6.2 Does the local law allow for the enforcement of arbitral awards or foreign judgments without review?

Judgments in civil and commercial matters rendered by courts of Member States of European Union are recognised and enforced in accordance with the Council Regulation (EC) No 44/2001.

Foreign judgments rendered by courts of third countries are recognised and enforced without any special review by Slovenian courts if certain requirements are met (e.g. reciprocity of recognition, no exclusive jurisdiction of Slovenian courts, no violation of public policy, no contradiction with other judgments, etc.).

A foreign arbitral award shall also be recognised by Slovenian courts in accordance with provisions of the New York Convention.

6.3 How can that security be enforced? Can it be sold to a third party? Is it possible for a secured party to appoint receivers/liquidators and if so how and what are their powers? Can security be enforced directly without recourse to the courts and are private sales of security possible? Does it have to be sold by auction?

If the debtor fails to pay a claim within the deadline, the creditor has to file a lawsuit demanding the pledged real estate to be sold. Final judgment issued on the basis of the filed lawsuit is an executory title enabling execution of security before a competent court. The pledged real estate is sold on a public auction, unless the pledgee agrees that the sale is carried out by public invitation for bids or unless the pledgee and other parties to the purchase agreement agree on sale by direct contract.

However, if the mortgage was created on the basis of a directly executable notarial deed, the creditor may directly propose execution before a competent court (filing a lawsuit is therefore not needed). The statute also provides an option of notarial sale, where the creditor may demand that the notary establishes that the claim has matured and carries out a sale of the pledged real estate and repayment the creditor. The notarial sale is carried out by public invitation for bids, followed by conclusion of a purchase agreement between the creditor and the buyer. Transfer of the ownership title is registered in the Land Register. If the sale of the pledged property is not successful, the creditor may take the property into his/her own possession. 
No private sale or appropriation is possible, as recourse to courts or notary is always necessary in the case of mortgage enforcements.

6.4 Is the lender responsible for maintenance and insurance of the real estate after default until sale?

Usually the mortgagor continues using the pledged property even after the default. Following the successful sale of the pledged property the court issues a decision on eviction of the mortgagor. Until then, the mortgagor is responsible for maintenance of the real estate.

6.5 Is there any method of foreclosure (lender obtaining good title to the real estate in satisfaction of all or part of its debt)? If so, does this require a court order and is it only automatically used when the real estate is not sold at public auction?

In case of borrower’s default the ownership over the mortgaged property cannot be transferred to the mortgagee. Such contractual provision agreed prior to maturity of the claim is null and void.

However, the lender is allowed to purchase the mortgaged property in the enforcement procedure for the sale of the property carried out by the court. Moreover, if the notarial sale of the pledged property is not successful, the creditor may take the property into his/her own possession.

The enforcement of mortgage in Slovenia is generally a lengthy process as the court has to issue a set of decisions before a secured lender is able to realize its unpaid claim.

Assuming real estate is held in a locally incorporated single purpose vehicle to provide an alternative to enforcement of the mortgage over real estate:

We shall highlight the specific issues that arise in the context of enforcing security interest taken over the shares in a limited liability company.

Yes, security over shares in a Slovenian company can be granted to foreign lenders.

Yes, second ranking security over shares in a Slovenian company can be taken. The pledgor shall notify the subsequent pledges to the first pledgee. A second ranking security over shares is registered the same way as a first ranking security.

3.1 Consequences of failure to register?

A security interest over shares issued by a Slovenian limited liability company is registered with the Court Register and with the shareholders’ register of that company.

Pursuant to established Slovenian court practice registration of such security interest in the Court Register has only declaratory effect. Therefore, a security interest over shares is validly established by conclusion of a contract in the form of a notary deed and failure to register such security interest with the Court Register renders it non-binding only on third parties.

3.2 Formalities for execution of security and costs?

The security is established by the share pledge agreement in the form of a notary deed. The pledge of shares is then entered in the Court Register. If the pledgor establishes a second ranking security, he/she shall notify the first pledgee of the second pledge.

For execution and registration of security each party shall bear their own expenses (such as notarial fees). There are no court fees.

No. No transfer of title to the lender or its nominee is needed.

5.1 Can it be sold to a third party? Is it possible for a secured party to appoint receivers/liquidators and if so how and what are their powers? Can security be enforced directly without recourse to the courts and are private sales of security possible? Does it have to be sold by auction?

The creditor has to file a lawsuit demanding that the pledged shares are sold. Final judgement issued is an executory title enabling an execution of security before a competent court. The pledged shares may be sold either by public auction or by a direct contract. However, the pledgor and the pledgee may also agree that the pledged shares are sold out of court. Such agreement has to be in writing except in case of business contracts where the existence of such agreement is presumed. If the out-of-court sale is agreed upon, the pledgee may sell the pledged shares either by public auction or at an exchange or market price. The pledgee shall notify the pledgor and the debtor (if they are not the same person) on a planned sale.

Please note, through the sale of the pledged shares other shareholders have pre-emption right of shares ahead of third persons. Furthermore, company’s articles of association may provide for additional limitations of transferability of shares (e.g. consent of all/majority of shareholders).

5.2 Are loans from shareholders subordinated? If so, how is this done? Is it customary for such loans to be waived or written off contractually as part of an enforcement of a share pledge should a default occur?

Loans from the shareholders are not automatically subordinated. However, shareholders who granted a loan instead of providing the company their own capital at the time when the shareholders, acting as a good managers, should have provided their own capital to the company, may not pursue a claim against the company for repayment of the loan in an insolvency proceeding. In such case, a loan is considered company’s equity.

Legal issues that would be likely to impact upon the valuation and the security of income from an investment perspective.

1.1 Typical lease length?

The average lease length for commercial leases is five years, however, leases for shorter term or even indefinite term are very common.

1.2 Maximum/minimum lease length if any?

There are no legal limitations regarding the maximum/minimum term of a lease. Lease agreements (ordinary as well as commercial leases) may either be entered into for a fixed term or for an indefinite period of time.

1.3 Statutory controls and obligations re renewal/termination of leases (does tenant have automatic right to renewal or can they apply to the courts for a new lease); also does some form of notice have to be served to terminate a lease to avoid renewal?

If a lease continues (tenant continues to use the leased property) following the expiry of the lease and provided that the lessor does not oppose to such continuation, a new lease agreement for an indefinite period of time is deemed to have been concluded.

In order to terminate a lease to avoid automatic renewal no formal notice is required. A mere opposition to continuation of use of the leased property by the landlord is sufficient.

Commercial leases, concluded for an indefinite period of time, may be terminated only with a minimum notice period of one year.

Additionally, in case of commercial leases, if the landlord wants to terminate the lease, it has to file a claim in the court.

If the commercial lease was concluded for fixed term and the tenant continues to use the premises following the expiry of the lease and the landlord does not file an action for eviction of the business premises with the competent court in one month after the expiration of the lease it shall be deemed that a new lease contract for an indefinite period is concluded.

1.4 Any overriding statutes concerning the ability of the tenant to break a fixed term lease (whether or not included as a term of the lease)?

The tenant has the right to withdraw from the lease contract at any time if the landlord fails to perform his/her obligations under the lease contract, especially if the leased property is not handed over in a contractually agreed condition or if necessary repairs to the leased property hinder its use to a considerable degree.

1.5 Any other security of tenure provisions available to a tenant that would frustrate possession or prevent receipt of market rents?

Generally, under Slovenian law there are no provisions empowering a tenant to occupy leased premises following the expiry of the lease.

However, as stated above, if a tenant continues to use the premises following the expiry of the lease and the landlord does not oppose this, a new lease contract for an indefinite period shall be deemed to be concluded with the same terms and conditions as the previous contract. In such circumstances both parties may terminate the lease through notice of termination, observing the stipulated period of notice of termination.

The tenant shall also have the right to a reduction in rent in certain cases, e.g. if use of the leased property is limited, if the leased property has defect that cannot be fixed, if the tenant’s right is limited by the third person’s right.

2.1 Rental income receivable quarterly/monthly in-advance/in-arrear?

The tenant and the lessor freely agree on payment terms. However, if neither the law nor the lease agreement provide for the payment terms, such terms as are common in the place where the property is leased shall be respected. In the absence of agreement to the contrary or there are no common terms in that place, the rent shall be paid semi-annually if the agreed upon term of lease is one or more years. If the agreed upon term of a lease is less than a year, the rent shall be paid following the expiry of the lease.

In case of commercial lease the tenant is obliged to pay the rent monthly in advance and no later than by the fifth day in a month, if not agreed otherwise.

2.2 Periodicity of reviews?

Periodicity depends on the contractual agreement, Usually, rent is reviewed annually.

2.3 Basis of review (upwards-only or variable, indexation or market rent)?

Generally, the rent is adjusted in accordance with the Slovenian consumer price index.

2.4 Are rents/reviews subject to statutory control in regard to quantum or increase (i.e. rent control)?

There is no statutory control mechanism applicable to rent reviews.

3.1 Internal maintenance, decoration and repair?

Generally, the landlord. The landlord shall reimburse the tenant if he/she has paid the costs that are to be borne by the landlord.

3.2 External maintenance, decoration and repair?

Generally, the landlord.

3.3 Structural repairs?

The landlord.

3.4 Insurance?

The landlord normally takes out insurance, however, the cost of insurance will usually be passed on to the tenant.

3.5 VAT?

The leasing of immovable property is exempted from VAT. However, a lessor may agree with the lessee (i.e. a taxable person having the right to full deduction of VAT) to charge VAT for the leasing of immovable property, which should be exempted from VAT, at the required rate of 22%.

3.6 Rates?

Rates are subject to an agreement between parties and vary depending on the type and location of each leased property.

3.7 Other typical outgoings?

In order to charge any costs to the tenant, the lease agreement must precisely state each type of costs. Generally, a large part of landlord’s outgoings are charged to the tenant, including management costs.

3.8 The ability to recoup any landlord outgoings (including management costs) by way of service charges?

Normally, the tenant has to pay all service charges.

4.1 Are terms of leases/contracts recognised and supported by case law in the jurisdiction?

Yes, if contract provisions do not oppose the mandatory legal provisions, constitutional provisions and moral principles.

5.1 To be recognised in the courts, does an appraisal have to be prepared by some domestically regulated/qualified party or is an RICS (Royal Institution of Chartered Surveyors)-qualified appraisal report accepted and recognised in each jurisdiction?

Generally, appraisal reports are prepared by experts registered in the court appraisals directory kept by Ministry of Justice. However, the valuation may also be entrusted to a special institution (i.e. Slovenian or foreign institution).

A litigating party can also submit an appraisal report of a foreign expert, however the probative value of such evidence is judged freely.

5.2 Is it possible/customary to obtain environmental reports from a local government agency or a qualified, insured environmental professional?

A local government agency does not keep a public register or database on environmental land status.

However, there are various professional services providers specialising in environmental compliance (i.e. a land surveyor) that can provide reports on specific matter or geographical area upon request.

According to the Environmental Protection Act, environmental impact assessment is obligatory when due to the location, scale, size or other characteristics, activities are expected to affect the environment.

5.3 Is it possible for liability in respect of past or present breaches of environmental laws to attach to a lender by it holding or enforcing a mortgage over real estate?

The person who committed the breach of environmental law is held liable. Thus, a lender holding or enforcing a mortgage cannot be practically held liable for past or present breaches of environmental laws relating to the mortgaged property.