Julian Juhasz
Over the past 10 years, and particularly in the last one or two, Slovakia has undertaken efforts to reform its legal system and to otherwise solicit foreign direct investment. This is important on many levels, including the need to attract investment capital in light of tight capital markets for Slovak firms, a desire to upgrade Slovak companies through technological advances from abroad, and to find ways of effectively competing in the global market generally, which basically demands co-operation with foreign businesses.
As noted previously in this column, the special valuation for taxation of real property transfers, where the acquirer has any degree of foreign ownership, has been removed. While this shows movement in the right direction, other aspects of real estate law and practice in the Slovak Republic leave room for further improvement.
A common problem with regard to real estate purchases involving foreign investors is the time and trouble required to have their interests registered in the relevant Cadastral office within the 30-day period stipulated by law. One of the primary reasons for this is the sophistication of agreements that are now being filed for registry.
Typically, counsel for large foreign companies spend weeks or even months researching, drafting, negotiating and finalising real estate purchase contracts in order to come up with the proper structure to comply with Slovak law while at the same time accommodating business realities.
Examples of business concerns include determination of a structure that best affords legal protection of title interest or tax efficiencies. Moreover, development contracts now cover ever larger parcels of land with numerous owners, and it is important in certain cases that all contracts for the purchase of real estate cross reference each other so that the investor is protected from hold-out sellers or other unforeseen contingencies. One or two page purchase agreements are no longer the norm.
Additionally, new conventions such as letter-of-credit or escrow terms, conditional payments, representations and warranties, and other obligations on sellers of real property are appearing in real estate purchase contracts on a more frequent basis. The sophistication of the types of contracts that Cadastral offices now receive for registration appears to be creating a problem with timely review and registration of such contracts. More streamlined procedures are necessary to keep up with the tide of change.
Kevin Connor
One interesting feature of the Cadastral system is that employees reviewing registry requests are attorneys who are not under the authority of any specialised legal organisation such as the Slovak Chamber of Advocates or the Chamber of Commercial Lawyers. In contrast, counsel preparing such contracts are licensed and subject to the rules of their respective associations, and therefore they are under strict regulation to properly represent their clients.
Often, purchase agreements are reviewed in aspects that are not relevant to the transfer of title, and based on the complexity of some, there are time delays often due to questions about terms or conditions that have nothing to do with the transfer of title. Based on the purposes of the title registry system (i.e., to ensure that title is legally transferred) and the responsibility of the attorneys who prepare large and often complicated purchase agreements, a policy should be adopted where Cadastral office employees review only those aspects of a purchase contract that directly relate to the conveyance of title. Decisions on title registration should not be delayed because of terms of agreements that are not essential for the conveyance of title, and for which licensed and supervised attorneys are responsible.
Julian Juhasz and Kevin Connor are attorneys with Squire, Sanders & Dempsey. Their column appears monthly. Send comments or questions to propertyinvestor@ssd.com.
