Leasehold and Building Rights in Serbia: Investor Risk or Opportunity?
Serbian law does not recognise the right to build (Erbbaurecht) as a general, transferable and inheritable right over another person’s land, unlike certain leasehold structures known in other jurisdictions.
This concept typically refers to a limited real right over land owned by a third party, entitling the holder to construct, maintain and use a permanent building on that land, while acquiring ownership of the structure for the duration of the right. While not identical, this concept shares certain functional similarities with long-term leasehold arrangements, particularly from an investor’s perspective.
As Serbian law does not recognise the right to build as a distinct proprietary legal institute, it cannot serve as a legal basis for obtaining a construction permit. In jurisdictions where such a right exists, it enables investors to develop land without owning it, thereby reducing initial capital expenditure and financial risk – an attractive feature for cross-border investments.
However, Serbian law does provide alternative mechanisms capable of achieving similar commercial outcomes.
One such mechanism is the long-term lease of construction land in public ownership for development purposes, as provided for under the Law on Planning and Construction. This represents the closest functional equivalent to a leasehold structure under Serbian law.
Publicly owned land may be leased for:
- construction of buildings subject to temporary construction permits (with a maximum lease term of five years),
- implementation of projects of national importance to the Republic of Serbia,
- concession arrangements or the delegation of public utility services, or
- public-private partnership projects.
A long-term land lease constitutes a sufficient legal basis for obtaining construction and other permits required for the development and use of a building. Upon issuance of the use permit, ownership of the building is registered in favour of the lessee.
This model allows investors to use and develop land without acquiring title, while the lease duration depends on the specific legal grounds. From a commercial perspective, such arrangements may be understood as leasehold-type structures, although they differ significantly in their legal nature.
Another option involves a long-term lease agreement with a private landowner, incorporating specific contractual provisions obliging the lessor to construct a building in accordance with the lessee’s specifications prior to commencement of the lease.
Under such an arrangement, the landowner undertakes the construction of the building, which, together with the land, becomes the subject of the lease. The total lease value may be reduced by the cost of construction works if financed by the lessee. Upon expiry of the lease, ownership of the building remains with the lessor, although the parties may agree on an extension.
This structure is contractual in nature and does not constitute a proprietary right. Consequently, it does not provide a valid legal basis for obtaining a construction permit or acquiring ownership. All permits are issued in the name of the lessor, and ownership of the completed building is registered accordingly.
Given this risk profile, investors should carefully assess contractual safeguards before entering into such arrangements.
This model may be particularly relevant for companies that, due to internal policies or procedures, are unable or unwilling to acquire real estate or engage directly in complex development projects in foreign markets.
Investors considering construction projects in Serbia are advised to evaluate these options carefully, supported by a thorough legal analysis of the specific project. It should also be noted that foreign individuals and legal entities are subject to restrictions when acquiring ownership of agricultural and forest land in Serbia.
Proper structuring of leasehold-type or alternative land use arrangements from the outset can significantly mitigate risk and support the creation of long-term value in the Serbian real estate market.
