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 a mortgage extends to the buildings thereon as they are an integral part of the land and share its legal status. Therefore, it is generally 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 land encumbered with a right of superficies (“stavbna pravica”).

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.

The concept of mortgage certificates does not exist under Slovenian law. 

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. The time of registration with the land register determines the ranking of the security. Nevertheless, a holder of a security is free to contractually agree on changing the ranking of the security. An annotation on such an agreement/ranking is then made in the land register.   

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 a prohibition shall be binding only on such a mortgagor and not on their legal successors and has an effect against third persons only if it is entered in the land register. Furthermore, such a 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). 

Yes, under Slovenian law there are certain preferred creditors. When distributing proceeds, the following claims are preferred:

• costs of enforcement proceedings
• taxes such as VAT, a 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
• family maintenance claims
• claims for damage suffered because of the loss of maintenance due to death of the provider of such maintenance
• workers’ claims arising out of an employment relationship with the debtor (in case the debtor is the employer)
• claims for payment of social security insurance.

Priority of these claims is recognised regardless of whether they are secured with a mortgage or not.

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

An “all monies” mortgage (i.e. a mortgage under which an indebtedness 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 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 and costs). 

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

The landlord and the lender must conclude an agreement assigning or pledging the landlord’s existing and future claims against the tenant. To perfect the pledge, however, the landlord (as the pledgor) must notify the tenant of the pledge. No specific form is required for either the pledge agreement or the notification. Regarding the assignment, no specific form of agreement nor any notification of the tenant is required, though in practice tenants are usually notified.

In the event of the borrower’s default, the lender may be repaid directly from the assigned/pledged claims.

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

In practice, due to certain limitations under Slovenian law regarding enforcement of such pledges, lenders as pledgees often require pledgors to deliver bills of exchange to facilitate enforcement. 

Both perfecting a transfer of land and perfecting the creation of security require registration with the land registry.

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

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

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

• an explicit and unconditional permission by the mortgagor to enter the security in the land registry to be included in the contract
• the mortgagor’s signature on such a permission to be notarised by a notary public
• the contract to include 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
• entry in the land registry.

More commonly, however, a mortgage agreement is executed in the form of a notarial deed. If the notarial deed is directly enforceable, such direct enforceability is noted in the land registry.

Costs relating to creation of a mortgage include:

• notarial fees: the fees for verification of a signature and for a directly executable notary deed vary depending on the amount of the secured claim. For notarisation of a signature, the notarial fee can be as high as EUR 114; while for a notarial deed, the fee may be up to EUR 1,140; 22% VAT is also applied to notarial fees

land register fees: the court fee for entry of the mortgage in the land register is EUR 50. 

Slovenian law does not recognise the concept of trust. Thus, concepts of parallel debt and joint and several creditorship are typically used to mitigate such limitations. There is, however, no published court practice testing and/or confirming such concepts. Therefore, it is not certain how courts would decide if such security structures were challenged.

Accessory securities (e.g. pledges, surety) are automatically transferred together with the secured debt. However, to achieve the necessary publicity effect, a change of creditor needs to be registered with the relevant register (e.g. the land register). In practice, a short-form deed is usually executed between the parties, based on which changes are made to the creditor in the relevant registers.

For non-accessory securities (e.g. fiduciary transfer of receivables, fiduciary assignment of claims), a separate agreement on fiduciary transfer/assignment to a new creditor is required.

A tenant is free to transfer the lease to a new tenant or subtenant, if not otherwise agreed and as long as damage is not inflicted on the landlord. A landlord’s consent is not required by law but may be agreed upon in the contract. In such a case, a landlord may deny 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.

Parties to an agreement may, in accordance with Regulation (EU) No. 1215/2012, freely choose jurisdiction of a foreign court or foreign tribunal for settling any disputes on a contract if:

• there is a foreign element
• the subject matter of the contract does not fall within the exclusive jurisdiction of the Slovenian courts or another member state court.

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.

EU member state court judgements will be recognised and enforced by the courts of Slovenia without review of merit in accordance with Regulation (EU) No. 1215/2012, whereas third-country court judgements will be recognised and enforced in line with the Hague Convention on Choice of Courts Agreements of 30 June 2005 and the Slovenian International Private Law and Procedure Act.

A foreign arbitral award will be recognised by Slovenian courts according to the provisions of the Slovenian Arbitration Act and Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 10 June 1958.

If the debtor fails to pay a claim within the deadline, the creditor must file a lawsuit demanding the mortgaged real estate to be sold. Final judgement issued on the basis of the filed lawsuit is an executory title enabling execution of security before a competent court. The mortgaged real estate is sold at public auction, unless the pledgee agrees that the sale should be carried out by public invitation for bids by direct contract.

However, if the mortgage was created by a directly enforceable notarial deed, the creditor may directly propose enforcement before a competent court. (Filing a lawsuit is therefore not needed.) A notarial sale is also possible 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 of the creditor. A 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 mortgaged property is not successful, the creditor may take possession of the property.

No private sale or appropriation is possible. Recourse to courts or a notary is always necessary in case of mortgage enforcements. 

No. Usually the mortgagor continues using the mortgaged property even after the default. Following the successful sale of the mortgaged property, the court issues a decision on eviction of the mortgagor. Until then, the mortgagor is responsible for maintenance of the real estate.

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

However, the lender is allowed to purchase the mortgaged property in the enforcement procedure. Moreover, if the notarial sale of the pledged property is not successful, the creditor may take the property into their own possession. 

The enforcement of a mortgage in Slovenia is generally a lengthy process since the court must issue a set of decisions before a secured lender is able to realise their 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 a foreign lender.

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 (i.e. with the court register).

A security interest over shares issued by a Slovenian limited liability company is registered with the court register.

Registration with the Court Register has only a declaratory effect. Therefore, a security interest over shares is validly established with the conclusion of a share pledge contract in the form of a notarial deed. Failure to register such a security interest with the court register renders it non-binding only on third parties.

This security is established by conclusion of the share pledge agreement in the form of a notarial deed. The pledge of shares is then entered in the court register.

The notarial fee depends on the amount of the secured claim (up to EUR 1,140). 22% VAT is also applied to the notary fee. There are no court fees.

No.

The creditor must file a lawsuit demanding that the pledged shares are sold. The final judgement issued is a title enabling enforcement 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 must be in writing, except in case of B2B contracts where the existence of such an 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 on a planned sale.

Loans from shareholders are not automatically subordinated. However, shareholders who granted a loan instead of providing the company with their own capital at a time when the company was in crisis (meaning that shareholders, acting as good managers, 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, shareholders’ loans are considered company equity.

It is, however, becoming common practice to contractually subordinate loans by shareholders (or other third parties) to any other loans by way of a subordination agreement or an intercreditor agreement.

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

The length of the lease is determined by the parties in accordance with their economic needs. The average lease length for commercial leases is 5 years. However, leases for a shorter term or even an indefinite term are very common.

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.

Leases are governed by the terms of the lease agreements, meaning that conditions for renewals and terminations are agreed within such lease agreements.

If, however, the lease for a definite period of time expires, the tenant continues to use the leased property and the lessor does not oppose such a continuation, a new lease agreement for an indefinite period of time is deemed to have been concluded.

In order to terminate a lease and 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.

The tenant has the right to withdraw from the lease agreement at any time if the landlord fails to perform obligations under the lease agreement, 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.

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 agreement for an indefinite period is deemed to be concluded with the same terms and conditions as the previous agreement. In such circumstances, either party may terminate the lease through notice of termination, observing the stipulated period of termination notice.

The tenant also has 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 a defect that cannot be fixed, if the tenant’s right is limited by the third person’s right, etc.). 

The tenant and the lessor can freely agree on payment terms. However, if neither the law nor the lease agreement specify payment terms, the terms common in the place where the property is leased shall be respected. In the absence of an agreement to the contrary, the rent shall be paid semi-annually if the agreed lease term is one or more years. If the agreed lease term is less than a year, the rent shall be paid following the expiry of the lease.  Retail tenants in shopping centres tend to have a fixed rent plus an additional variable rent (calculated according to a formula relating to turnover).

Periodicity depends on the contractual agreement. Usually, rent is reviewed annually and is subject to indexation.

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

There is no statutory control mechanism applicable to rent reviews. 

Generally, the landlord. The landlord shall reimburse the tenant for paying costs that are to be borne by the landlord. Unless otherwise agreed, the costs of minor repairs caused by regular use of the property, as well as the costs of use itself, are borne by the tenant.

Generally, the landlord.

The landlord.

Insurance cover is not a legal requirement. Generally, tenants are required by the terms of their lease to insure the leased property and all their own assets on the property against all normal commercial risks.

The leasing of immovable property is exempted from VAT. However, the 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%.

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

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

Generally, yes: the tenant must pay all service charges.  

Yes, if contract provisions do not oppose the mandatory legal provisions, constitutional provisions and moral principles. Published case law in Slovenia may be used as a guide but is not binding.

Generally, appraisal reports are prepared by experts registered in the court appraisals directory kept by the 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 the appraisal report of a foreign expert. However, the probative value of such evidence is judged freely.

There is no public register or database on environmental land status. There are, however, various professional service providers specialising in environmental compliance which may provide environmental due diligence reports. Additionally, companies can be appointed to inspect the soil or buildings for contamination.

No, a lender holding or enforcing a mortgage over real estate cannot be held liable for past or present breaches of environmental laws relating to the mortgaged real estate unless the lender purchases the real estate or has caused the contamination.