Real estate finance law in Slovakia

Foreign corporate lenders are not restricted from taking mortgages over immovable property in Slovakia.

Both land and the buildings on the land can be mortgaged to a lender under Slovak law. However, the principle of “superficies solo cedit” does not apply in Slovakia. It is therefore possible that a mortgage over a land plot differs from a mortgage over the construction built on it.

There is no distinction under Slovak law between a mortgage over land and a mortgage over the buildings on the land. In both instances, the mortgagee would have the same rights and means of redress against the mortgagor.

Mortgage certificates do not exist in Slovakia; only mortgage bonds.

Yes, Slovak legislation allows the creation of multiple mortgages on a single deposit and registration is generally the same as for the first-ranking security. Mortgage ranking depends on the date (and time) when the application to register the mortgage in the Real Estate Register is filed with the relevant Land Office. The concept of a priority deed does not exist under Slovak law, however all affected mortgagees can agree to change the mortgage rankings. Such written agreement takes effect on its registration with the relevant Land Office.

Yes. Even if mortgage agreements usually include a prohibition on selling or otherwise disposing of the encumbered property, this does not prevent its actual disposal and would represent only the breach of a contractual duty. However, in practice, the Land Office sometimes requires the lender’s prior written consent.

In Slovakia there is a system of priority. This means that the creditor whose security is registered first is the prior ranking creditor. The prior ranking creditor is obliged to inform the other creditors in writing of the enforcement of the mortgage. Otherwise, any other preferred creditors, which would be satisfied before the mortgage holders, would be taken into account only in the event of the mortgagor’s insolvency (owner of the real property).

An “all monies mortgage” (i.e. a mortgage where the mortgaged property stands as security for indebtedness that is not determined when the mortgage is created) is not possible under Slovak law because claims must be determined following the principle of speciality. However, the principle of speciality is weakened by a maximum secured amount (its absence triggers the invalidity of the mortgage agreement).

The maximum secured amount is calculated as the sum of the principal amount lent to the mortgagor and an additional amount that is a good faith estimate of all amounts due from the mortgagor to the mortgagee as interest, default interest, fees, charges and any other costs under the loan facility and the related finance documents. This additional amount generally represents up to 50% of the principal amount. It may be varied (upwards or downwards) so as to give the mortgagee the comfort that the claims it may have against the mortgagor can be realised to the maximum extent.

Under Slovak law, receivables can also be pledged or assigned to secure a debt. The landlord and the lender must conclude an agreement on the pledge/assignment of the landlord’s existing and future claims against the tenant(s). To become effective towards the tenant(s), the pledge/assignment has to be either notified to the tenant(s) by the pledgor or proven to the tenant(s) by the pledgee.

However, such pledge/assignment of receivables is not in any way linked to the mortgage and is not registered in the Real Estate Register (this pledge must be registered in the Central Notarial Register of Pledges). In the event of the borrower’s default, the lender may be repaid directly from the pledged/assigned claims if the lender and the landlord so agree.

Yes. It is possible and common for the lender to enter into a pledge agreement regarding receivables from the borrower’s bank accounts. The pledge usually applies not only to the receivables, but also covers any parts, benefits, interest due and other appurtenances of the pledged receivables. The pledge comes into existence only after its registration in the Central Notarial Register of Pledges. However, most general terms and conditions of Slovak banks prohibit a pledge over receivables from bank accounts or only with the prior consent of the relevant bank. Such bank (if not = a lender or from the lender group) may then require a separate contractual arrangement for disposing of such receivables.  

Generally, all real estate property (land and buildings) is registered in the Real Estate Register. For registering either a transfer of ownership right or mortgage over real estate property, a written agreement (all signatures forming part of the same document, i.e. signing in counterparts is not possible in the case of agreements concerning real estate property) is required to be filed with the Real Estate Register. The registration of both the transfer of ownership right and of mortgage is constitutive in nature, i.e. such transfer/mortgage is effective only on its registration in the Real Estate Register.  

For registration purposes, a written contract has to be in the Slovak or Czech language; otherwise, a certified translation is required. Additionally, the signature of the transferor on the contract must be notarized (while the signatures on the agreement on a mortgage over a real estate property do not need to be notarised). 

A failure to register a mortgage will prevent the mortgage from coming to existence (being perfected).

A mortgage needs to be established by an agreement concluded between the mortgagor (the owner of the real estate property or the future owner which has secured the consent to create the (future) mortgage from the current owner) and the mortgagee in writing (all signatures forming part of the same document, i.e. signing in counterparts is not possible in the case of agreements concerning real estate property). Subsequently, the mortgage agreement needs to be filed with the Real Estate Register and the mortgage registered to become legally effective.

The costs relating to mortgages include:

• the notary fee is EUR 4.00 for the verification of each signature (if the lender requires verification);
• administrative fees to register the mortgage with the Real Estate Register are EUR 100 (EUR 50 for an electronic submission) for the standard 30-day procedure, or EUR 300 (EUR 150 for an electronic submission) for the accelerated 15-day procedure. 

There is no concept of security trusteeship under Slovak law. For most types of securities (including pledges and mortgages), the secured party must be the creditor of the secured claim. However, if structured correctly from the outset, joint creditorship can be implemented under Slovak law, allowing a “security agent” to hold a mortgage as sole mortgagee for, e.g. a consortium of lenders; nevertheless, this concept has not yet been tested before Slovak courts and may be at risk, especially if the “security agent” is not a lender under the loan agreement but solely holds claims for the purposes of a security agency. 

Unless otherwise regulated in the relevant security document, it is possible to change lenders, for example by way of assignment. There is no obligation to sign new security agreement, because all securities are transferred automatically with the assigned receivables. 

In general, no additional documents regarding the security are required; however, it is customary to execute the transfer certificate mainly for re-registration in the relevant registers in the Slovak Republic. 

Unless otherwise agreed, under Slovak law it is not possible to transfer the agreement. Any changes in tenants is subject to the prior consent/cooperation of the landlord. Without prior consent, the tenant cannot even sublet the premises.

In general, Regulation (EU) No. 1215/2012 on jurisdiction and the recognition and enforcement of judgements in civil and commercial matters applies and the parties to a contract can choose a foreign EU jurisdiction. However, disputes relating to real estate can only be settled by a competent Slovak court. 

If a foreign jurisdiction outside the EU is chosen, the provisions of the Slovak Private International Law Act or any bilateral or multilateral international agreements or treaties to which the Slovak Republic is a party will apply. 

Foreign arbitral awards are acknowledged and enforced in the Slovak Republic according to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the 1958 New York Convention).

Judgments from EU Member State courts are recognised and enforced in compliance with Regulation (EU) No. 1215/2012 of the European Parliament and of the Council of 12 December 2012, concerning jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the 2012 Brussels Recast Regulation).

For state court judgments from non-EU countries, recognition and enforcement follow the Slovak Private International Law Act or relevant bilateral or multilateral international agreements, or treaties to which the Slovak Republic is a party, if applicable.

The mortgagee can enforce its security in a manner agreed in the mortgage agreement (typically a direct sale or a sale through a public tender without the need to obtain an execution title); otherwise, the enforcement based on the Act on Voluntary Auctions or Execution Order is possible. In the case of a property sale other than by voluntary auction, the creditor is obliged to exercise due diligence so that the proceeds from the pledge enforcement are equal to or higher than the proceeds usually obtained from the sale of a similar property in the same area at the same time. Further conditions of the sale process can be agreed.

In addition, after the secured receivables become due, the mortgagor and the mortgagee may agree that the ownership of the mortgaged property will be automatically transferred to the mortgagee (foreclosure; please see section 6.5 below).

The person in possession of the real property during the enforcement of the mortgage cannot do anything which could depreciate the value of the property, other than normal wear and tear. Regarding insurance, the mortgagor is only obliged to take out insurance if stated in the mortgage agreement.

Under Slovak law, if the borrower defaults, ownership of the mortgaged property is not automatically transferred to the mortgagee. In general, any such provision agreed between the mortgagor and the mortgagee before the maturity of the claim would be invalid.

After the secured receivables become due, the mortgagor and the mortgagee can agree in writing that the ownership of the mortgaged property will be transferred to the mortgagee. This method is currently not widely used on the Slovak market, mainly due to several practical questions that have not been settled by practice/case law yet. 

No. 

Yes. Security over shares in a Slovak company can be granted to foreign lenders. The same applies to security over an ownership interest in a limited liability company. 

Second ranking security over shares in Slovakia cannot be taken. Shares that are already pledged cannot constitute the subject of a share pledge agreement.

However, in the case of ownership interest in a limited liability company, second ranking security can be taken, whereby the order of the registration in the Commercial Register is decisive for their satisfaction. 

Certified (document form) shares

A pledge is created on its registration in the Central Securities Depository of the Slovak Republic (Central Depository). On registration of the pledge, the Central Depository records on the share certificates that each share is “on pledge”. Before that, the share certificates must be endorsed, i.e. are to contain the written declaration of the share certificate’s owner made on each relevant share certificate. The written declaration must contain the name, business seat, pledgee’s business identification number, and the pledgor’s signature.

Registration can be undertaken by the pledgor or the pledgee. For registration, certain confirmations regarding the share pledge agreement must be delivered to the Central Depository.

Dematerialised shares

A pledge is perfected on its registration in Central Depository.

Registration can be undertaken by the pledgor or the pledgee. For registration, certain confirmations regarding the share pledge agreement must be provided to the Central Depositary.

Ownership interest in a Limited Liability Company

A pledge is perfected on its registration in the Commercial Register.

If the relevant perfection requirements mentioned above are not met, the security is not validly created, not perfected, and cannot be enforced.

The required confirmations of the content of the share pledge agreement with the notarised signatures must be provided to the Central Depositary together with the registration form and other required documents for registration purposes (e.g. UBO declarations and excerpts from the Commercial Register). Furthermore, the share certificates have to be endorsed. 

The registration cost itself is calculated by reference to the amount of the secured receivables, with a minimum of EUR 30 and a maximum of EUR 5,000; small fees might be added depending on the number of share certificates and registration filing. In the case of accelerated registration (within two business days), the registration costs are double. 

In the case of a pledge over an ownership interest, the agreement has to have notarised signatures and be filed with the Commercial Register. The fee for the registration is EUR 50. 

In addition, the constitutional documents of the company whose shares/ownership interest are being pledged have to be checked to confirm if the prior consent of the corporate body (e.g. shareholders’ meeting) is required for the transfer (and therefore also for the pledge). Such corporate consents must then be included in the registration application with the Central Depository/Commercial Register. 

No. For the creation of security over shares or ownership interest, no transfer is required. 

Yes. Shares as well as the security interest can be sold to a third party, and recourse to the courts is not required as the security can only be enforced based on the valid share pledge agreement/pledge agreement regarding the ownership interest.

Private sales of pledged shares are not permitted. The shares can only be sold by the Securities Trader and at the highest price that can be achieved subject to exercising due diligence.

The ownership interest can be sold in a direct sale, in a public tender, auction, or in any other way agreed in the agreement on pledge of ownership interest. As it is possible to agree any manner of enforcing the pledge, we are of the opinion that a private sale of the ownership interest is possible; however, the lender must exercise due care and the ownership interest must be sold at the price usually quoted for identical or comparable ownership interests under comparable conditions, and at a time and place similar to those of the ownership interest sale.

Loans from shareholders can be contractually subordinated. This is a common practice. 

Shareholders can agree that the repayment of their loans is waived/written off should a default occur. 

Although lease lengths may vary according to the business strategy of the landlord, geographic location, age of the leased premises and type of property, our experience shows that commercial leases are generally entered into for a specific period of time (as opposed to indefinite periods) with a typical length of five to ten years.

No.

Under a lease for non-residential premises, there is no statutory right for renewal or extension of the lease period. However, it is common for the contractual parties to include such option in the contract.

If, on the expiry of the fixed term, the tenant remains in the leased premises and keeps using the premises for at least 30 days, and the landlord does not object within such period by a respective court filing, the lease is automatically extended by operation of law for an additional term (for the same length as the original term, up to one year). This statutory extension is always excluded in institutional/commercial lease agreements.

When ownership of leased premises changes, the tenant is entitled to be released from the obligations owed to the previous owner as soon as it is notified or receives evidence of such change.

The statutes include several reasons for which a tenant may terminate a fixed-term lease. The reasons typically relate to a breach of contract by the landlord.

The most common reasons for the termination of fixed-term leases by tenants are:

where the premises are not suitable for use according to the lease agreement;

1. if the building or land is transferred;
2. if the tenant loses its licence for the activities it carries out in the leased premises (non-residential premises only);
3. if the landlord grossly breaches its statutory obligations (non-residential premises only).

However, the parties can agree additional grounds for termination or withdrawal in the contract.

In general, if the tenant does not vacate the premises after the lease terminates, the landlord cannot remove the tenant from the premises, but must seek a court order and enforce the order in execution proceedings. The proceedings may take a long time. However, a failure to vacate the premises may be sanctioned in the contract and the landlord’s rights may be better secured by contractual penalties, etc. 

In the case of a tenant’s bankruptcy, the bankruptcy administrator may terminate the lease. Any receivables of the landlord would be settled in the bankruptcy proceedings on a pro-rata basis. 

Rent is usually paid in advance. Monthly or quarterly payments are standard.

Most leases are subject to indexation on an annual basis, usually by reference to the HICP Eurozone index for EUR rent.

Often, indexation is upwards only, depending on the strength of the landlord’s position. Reviews are usually based purely on indexation, not on market rent levels.

No. 

The landlord must provide the premises suitable for the purpose of the lease. Internal maintenance, decoration and repair of the premises is usually the tenant’s responsibility.

Landlords are usually responsible for the maintenance and repair of the building structure, exterior walls, roof, main common utilities and ventilation systems, and the building’s surroundings (gates, communications etc.), unless any damage is caused by the tenant.

Landlords are usually responsible for structural repairs. The tenant may not modify structural parts of the premises/building without prior written approval from the landlord.

In the case of a lease for commercial premises, the landlord usually maintains property insurance for replacement costs of the building. The landlord’s insurance costs are usually recharged to the tenant through service charges. The tenant is usually required to have all risk property insurance for its property installed in the premises and liability insurance for a certain minimum coverage. In the case of a lease for entire buildings, tenants are asked to provide full coverage for all-risk insurance and liability insurance. Business interruption insurance is often also required.

If the landlord is a registered VAT payer, 20% VAT is charged on rent and service charges.

In commercial leases (triple net leases), landlords usually include all payments concerning the lease (maintenance, repair, insurance costs, security services etc.) in the service charges.

See section 3.6. Alternatively, a lump sum is agreed for the payment of service charges, which is not subject of the reconciliation. However, the lump sum is usually subject to indexation.

Landlords usually include outgoings in the service charges. The payments for service charges are normally paid in advance on the basis of the landlord’s estimate. After reconciliation is made, the tenant pays any outstanding amounts; in the case of overpayments, these maybe set off against subsequent security charges. The tenant’s financial obligations (including rent and service charges) are secured by a security deposit or bank/corporate/parent company guarantee. 

The terms of lease agreements are recognised and enforceable by the courts, if in compliance with the mandatory provisions of law. The Slovak judicial system does not rely on case law. However, Slovak courts may refer to previous court judgments, especially those from higher courts. This is common in disputes concerning lease terminations or other important aspects of lease agreements, where courts have made prior decisions and the current case has similar aspects to those from earlier cases.

Slovakia distinguishes between: (i) an expert statement, which is a statement by a qualified person to an issue requested by a court based on a party’s motion, i.e. it is less costly, formalistic and does not necessarily have to be provided by an expert from the lists of licensed experts; and (ii) an expert opinion (report), which can be requested by a court based on a party’s motion or obtained by a party on its own, whereby the opinion has to meet certain formalities and be prepared by an expert from the list of licensed experts. In extremely difficult cases or in case of conflicts between the expert opinions, the expert opinion (report) can be requested from the expert institution. 

In general, foreign appraisals can also be presented to the court as evidence, especially in complex matters, without local experience, or if local experts would be conflicted.

Governmental authorities have the responsibility to monitor compliance with environmental laws. However, they cannot be assigned to prepare environmental reports for private entities or individuals.

In the case of qualified/insured environmental experts, these may produce environmental reports, but their reports are not binding on the environment agency or the courts.

Generally, no, if there is no other connection between the lender and the real estate.