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Due diligence: Risks related to site location in land acquisition

Prior to drafting contracts and starting negotiations with the owner of the land that an investor intends to buy for business in Slovakia, due diligence should be conducted to determine all technical, environmental and legal risks connected with the land. Though this first part of the due diligence process is rather technical, and lawyers tend to focus mainly on verifying the chain of title, it involves numerous important legal aspects that should be taken into account to minimise any risk of damage to a client incurred in connection with the site location. Knowledge of risks may also strengthen an investor’s position during negotiations and may be used as leverage to negotiate better conditions. Below we summarise some often omitted issues that a solid due diligence should start with.

(Source: Courtesy of PETERKA & PARTNERS Law Offices)

Prior to drafting contracts and starting negotiations with the owner of the land that an investor intends to buy for business in Slovakia, due diligence should be conducted to determine all technical, environmental and legal risks connected with the land. Though this first part of the due diligence process is rather technical, and lawyers tend to focus mainly on verifying the chain of title, it involves numerous important legal aspects that should be taken into account to minimise any risk of damage to a client incurred in connection with the site location. Knowledge of risks may also strengthen an investor’s position during negotiations and may be used as leverage to negotiate better conditions. Below we summarise some often omitted issues that a solid due diligence should start with.

Zoning plan
One of the first steps in the due diligence process is to assess the zoning plan in the municipality where the land is situated. It consists of a graphic and textual part, but it is
important to keep in mind that only the zone development requirements set in its textual part
approved by the municipality are binding. It is also advisable to ask the municipality for
information on urban planning (exploitability of the location, the ratio of constructability,
maximum and minimum admissible number of storeys, and so on).

Statutory restrictions
Focus should also be placed on limitations imposed on land under national law, especially if the site is located outside an urban area.

Under Slovak law, a foreigner cannot, in general, acquire agricultural and forest land outside urban areas. Nevertheless, a foreign investor may easily overcome this statutory obstacle by establishing a Slovak company and acquiring land through that company.

Further, Slovak law does not allow any division of agricultural or forest land situated outside urban areas that would result in the creation of agricultural land of a certain minimum area. A fee must be paid if agricultural or forest land with an area less than 20,000 m2 is to be created. An investor may avoid these restrictions by excluding agricultural land fromthe agricultural land fund (subject to a fee) and changing it to freely detachable “other surfaces”. This would need to be done by an investor anyway, since agricultural land cannot be used for construction.

Access to land
An investor should have direct undisturbed access to its land. A zoning plan indicates
whether any existing roads lead to the land and whether there are any roads planned to be built close to the land.

If there are roads leading to the land, their type and their ownermust be identified. Inmost cases, roads are identified as local (owned by the Municipality) or functional (can be privately owned). It is strongly advisable to establish an easement over the land a road traverses, even though a functional road is considered open to the public if it is not within closed premises.

Utilities
Identifying all available connections is crucial when deciding whether to buy land. Having to construct utility lines, connections or other necessary facilities (such as a water treatment
plant) may considerably raise the investor’s costs or delay a project.

If the land already has utility connections on it, apart fromchecking their protection and security zones, the Land Registry should also be checked to see if the relevant easements are registered. It is also important to keep in mind statutory easements for gas pipes or electricity cables situated outside an urban area.

If utility connections lead through land owned by a third party, establishing an easement is necessary. Therefore, it is strongly advisable for an investor to check whether easements have been duly created for any existing utility line traversing a third party´s land and which the investor´s plant will be connected to. This can ascertain whether there is any risk of a future claim by the owner of the land without an easement that might hinder the investor´s use of utility connections. In the worst case scenario, however unlikely, the court might rule that a utility connection or line must be removed.

It often happens that instead of an easement a lease for an indefinite or a definite but lengthy period is concluded. However, compared to an easement, a lease is a “weaker” title to a utility located on a third party’s land. According to recent case law, a lease enables only temporary use of land and upon expiry of the lease the owner of the land is entitled to demand that any building situated on it, or utility line, must be removed.

Geological and environmental burdens
It is highly advisable for an investor to have geological and environmental surveys taken on the land to ascertain the feasibility of a project and to examine whether any potentially dangerous substances are present below the ground which may be hazardous to human health or property and may contaminate the soil or underground water. Furthermore, the purchase contract should allocate liability for future pollution between the former owner of the land and the investor.

Attention should also be paid to land situated in noisy areas, where it might be useful to have the level of noise measured by an expert, since local regulationsmight set amaximumlevel of noise for specified types of activities at a specific location.

To avoid any delay, it is recommended to run a preliminary archaeological survey that would examine whether it is likely that an ordinary archaeological survey will be required by the Monuments’ Authority.

It is highly recommended for any investor to consult a lawyer regarding the above risks to site location.

Source: Ján Makara, Partner, Martina Šimková,Junior Attorney at Law, PETERKA & PARTNERS Law Offices

This article is for information purposes only. Under no account can it be considered as either
a legal opinion or advice on how to proceed in particular cases or on how to assess them.
If you need any further information on the issues covered by this article, please contact
PETERKA & PARTNERS, Tel. +421 2 544 18 700;
E-mail: office@peterkapartners.sk;
www.peterkapartners.com

* * *
Founded in 2000, PETERKA & PARTNERS has grown into a full-service law firm with over 100 lawyers and eight offices in Prague, Bratislava, Kyiv, Sofia, Moscow, Bucharest, Warsaw and Minsk and has built up a highly regarded practice within the CEE region.

PETERKA & PARTNERS has been consistently ranked among the best practices in the leading publications on the legal services market, such as Chambers, Legal500 and IFLR1000.

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