Real Estate COVID-19 Help Desk in Slovenia

Slovenian real estate market started developing in 1990 when Slovenia became an independent country. However, in the first decade the development and growth were relatively slow, which is mainly attributable to unresolved ownership issues (and many pending court proceedings related therewith) and tax regulation valid at that time. From the late 90-ies onwards (and especially after 2004 when Slovenia became an EU member state) the Slovenian real estate market enjoyed continued and constant growth until 2008 when the market peak was reached (in terms of number and value of transactions). This was followed by a sudden collapse of the real estate market in 2009 which occurred as a result of the global financial crisis and the internal real estate bubble burst. Although some signs of recovery of the market showed at the beginning of year 2010, we suffered further setback in the following years all until 2015 (this was mainly due to the credit crunch, decreased demand, bankruptcy of many big construction companies which resulted in excessive supply of real estate in the market).

As from 2015 we have enjoyed a continued growth of the Slovenian real estate market which reached record number of transactions in 2017. Until the COVID 19 crisis our real estate market was stable, attracting interest from both institutional and private investors. Safe business environment and good location attracted both, domestic and foreign investors in nearly all sectors of the market (e.g. residential, office, retail, hotel and leisure, logistics market; also investments into production facilities). There was and still is a lack of availability of residential and office real estate. Insufficient availability of land with greater surface area at attractive locations (which would be appropriate for construction of bigger residential and business buildings or industrial facilities), lengthy and burdensome proceedings related to acquisition of permits and low liquidity in the Slovenian real estate market allegedly prevent its further significant growth.

The current COVID 19 crisis already affected the Slovenian real estate market. Real estate agencies reported huge drop of real estate transactions and it is foreseen that the hotel, accommodation, and leisure sector will be among the most affected ones. The consequences of the COVID 19 crisis may not yet be estimated at this time and would depend also on the effectiveness of measures adopted by the government with respect to COVID 19. However, numerous institutions and reputable experts agree that the COVID 19 crisis will lead to severe global economic recession. As regards Slovenia the forecasts published by the Institute of Macroeconomic Analysis and Development and the Bank of Slovenia show that the decrease in the Slovenian GDP may amount to up to 16% and that Slovenia will face a recession as a result of COVID 19 crisis. This will undoubtedly have a significant impact also on the Slovenian real estate market.

Majority of companies and entrepreneurs offering products and services to consumers who needed to temporarily shut down their businesses faced a drastic decline in turnover. For most of those entities a rent under the commercial lease agreements presents a major cost.

Since there is no explicit provision under the Slovenian law by which one party would be granted the right to withdraw from the agreement or to request the rent to be (at least temporarily) reduced in case of force majeure or other similar event (and hence it is not clear whether such right may be enforced based on the valid legislation), obligations under the commercial lease agreements present one of the most problematic aspects for the affected entities. The Slovenian parliament adopted emergency law under which the lessees (which fulfil certain conditions) under the commercial lease agreements concluded with the state or municipality as lessor are released from payment of rent during the period between 13 March 2020 and until the epidemic announcement is revoked (i.e. 31 May 2020). This interim measure does, however, not apply to lease arrangements with private or other public entities acting as lessors. Under certain conditions, the rules on e.g. changed circumstances (rebus sic stantibus) or inability to fulfill the contract may be applicable for the commercial lease arrangements. It shall however be noted that the circumstances occurred as a result of COVID 19 epidemy are not adequately or clearly addressed in Slovenian legislation. Accordingly, it seems that it would often be in the parties’ best interest to enter into negotiations and find a mutually acceptable solution.

The possibility to cancel, suspend or modify the Lease Agreements due to the COVID-19 crisis would primarily depend on the content of each individual lease arrangement. In absence of any contractual provision in this respect, it shall be noted that it is not clear whether the right to cancel or modify the lease agreement due to a force majeure or similar event may be enforced based on the valid Slovenian legislation. Statutory provisions on changed circumstances may be applicable. However, the party which invokes the rule may only request the agreement to be rescinded and may not (without the consent of the other party) request its change. Intervention of the court is also required (the agreement is rescinded by the final court’s judgement) and it also remains open whether the rebus sic stantibus doctrine may be applied when the changed circumstances are temporary. Due to described reasons the application of provisions on changed circumstances would often be impractical. Under the Slovenian law the parties may at any amend or cancel the lease agreement unanimously by a written instrument executed by all the parties.

There are no special urgent measures adopted by the Slovenian government regulating the situations where you are in the middle of a real estate transaction. Where transaction is still in the negotiation phase, each party may withdraw from the negotiations for justified reasons (COVID 19 crisis may be considered as a justified reason for withdrawal) without any negative consequences. In case the pre-agreement was concluded by which the parties agreed to conclude the main agreement after fulfillment of certain conditions, such pre-agreement is no longer binding on the parties in the event that the changed circumstances occurred (i.e. if the circumstances have altered to such an extent that the pre-agreement would not have been concluded had the circumstances been such at the time). In situations where the binding agreement was already concluded but the transaction was not yet closed, the remedies available would depend on the contractual MAC provision. If the declaration of an epidemic may endanger the fulfillment of all the conditions precedent by the agreed long stop date it is recommended to approach the counterpart in order negotiate on necessary amendments to transaction documents (and some sellers might be prepared to negotiate discounts in view of the urgent need for liquidity).

Where reservation of travel package(s) made with the organizer is cancelled due to unavoidable and extraordinary circumstances caused by COVID 19, the organizer may under the Slovenian intervention law, instead of returning all the payments made, issue to the consumer a transferrable voucher(s) which may be used for the same or other tourist package(s) within 24 months from the issue date, unless the consumer explicitly requests the reimbursement of all the payments made. In the latter case, the paid amounts shall be reimbursed to the consumer within 12 months after the epidemic announcement is revoked. If the voucher is issued and not used by the consumer within the 24-month period, the consumer may request the return of all the amounts paid. In case of reservations made with the service providers directly, the cancellation of reservation(s) without any negative consequences for the customer is possible if the service may not be performed due to e.g. entry and exit regulations or intervention measures prohibiting operation of tourist accommodation facilities or similar (and all the fees paid shall be fully reimbursed). When the performance of service(s) is possible (permitted), but an individual wants to cancel the reservation anyway, such cancellation may be made under the terms and conditions applicable to particular contract.

As a result of the COVID 19 crisis the procedures for issuing the permits for the ongoing construction projects would most likely be further delayed (although the intervention law implemented some solutions with the aim to speed up such proceedings). Ongoing construction projects in the phase of performance of works under the concluded construction contracts continued also during the COVID crisis (whereby the employers implemented some additional measures for protection of employee’s health and safety). According to the intervention law, the deadlines under the construction agreements concluded with the state, local authorities or certain public entities as the ordering parties were prolonged for a period of duration of epidemic and contractual penalties due to delay shall not be payable during epidemic. For construction contracts between private entities, accurate legal analysis would be required. In any event, the contractor might be entitled to (additional) prolongation of deadline or even to price increase if changed circumstanced (resulting from the COVID 19 crisis) can be demonstrated in individual case.

Should the parties fail to resolve the dispute arising out of or in relation to the real estate contracts in an amicable manner, the following courts shall have jurisdiction: In proceedings which have as their object rights in rem in real property or tenancies of real property or disturbance or deprivation of possession, the court where the real property is situated shall have jurisdiction. Otherwise, the competent court where the defendant is domiciled shall have jurisdiction (unless the agreement on jurisdiction between the parties was concluded – in such case the courts agreed between the parties shall have jurisdiction). Those rules apply to both, private and public contract litigations. The expected trial time is from three to five years (but may be longer in case of complex litigations; due to limited activity of the courts during the COVID 19 crisis the proceedings may last even longer). The costs of the proceeding would depend on the disputed amount (the translation costs might also be significant in case the original documents are in foreign languages).

Numerous intervention measures were adopted by the Slovenian parliament to mitigate negative impact of the COVID 19 crisis and to support the economy, including: moratorium on repayment of bank loans under the credit agreements, surety obligation of the state with respect to certain loans, measures available to the employers (relating to the reimbursement of the salary compensation, exemption from social security contributions, exemption from contributions for pension and disability insurance and occupational insurance, monthly crisis allowance..), measures for self-employed, measures with respect to construction law, change of payment and performance deadlines under the contracts with certain public sector entities, measures with respect to customer identification, facilitation of public procurement, extension of deadlines for submission of annual reports, amendments to insolvency legislation and others.