By Djordje Dimitrijevic, Head of Real Estate, Dimitrijevic & Partners
Investing in real estate in Bosnia and Herzegovina (BH) can be a lucrative opportunity – especially considering its proximity to the European Union (EU), relatively low property prices (compared to more developed EU countries), favorable tax regimes, lower labor costs, and more. However, BH’s complex legal and regulatory landscape hides challenges that can quickly turn promising investments into costly liabilities.
One of the most overlooked areas is real estate legal due diligence (RLDD). Investors often assume that a clean land registry extract is sufficient to proceed – but in BH, this is just the tip of the iceberg.
I. Why RLDD in BH Is Different
BH has a highly decentralized legal system, consisting of two entities: the Federation of Bosnia and Herzegovina (FBH) and Republika Srpska (RS), as well as the Brcko District, a self-governing administrative unit (not specifically addressed in this article). Furthermore, the FBH is subdivided into 10 cantons. Each of these administrative units – RS, FBH, and Brcko – has its own set of laws governing property, planning, and construction. The FBH is particularly complex, as responsibilities for planning and construction are split between the FBH and its cantons. Additionally, at the BH level, there are special laws governing “state property” as a sui generis category. This fragmentation often leads to legal inconsistency, bureaucratic hurdles, and ultimately, legal uncertainty.
II. Multiple and Outdated Land Records
Real estate in BH – including land, buildings, and industrial facilities – is frequently registered in multiple land records, which are often unsynchronized and outdated. This can result in ownership disputes or delays in closing transactions.
In RS, there is an ongoing reform aimed at establishing a unified land registry system called the Cadastre of Immovables (katastar nepokretnosti), which consolidates data on immovables, in rem rights, and other rights (e.g., long-term leases, concessions). However, this cadastre is only partially implemented, and in many municipalities, the old and often inconsistent land records are still in use.
In FBH, two main land records are still valid: (1) The Land Book (Zemljisna knjiga) – includes information on immovables, in rem rights, and some additional rights (e.g., long-term leases, concessions); and (2) The Cadastre (katastar) – includes information on immovables and possessors but does not reflect in rem rights.
III. Urban Planning and Construction Status
RLDD often fails to account for the urban development status of the land. Every investor should ask the following key questions:
Are the investor’s plans aligned with the applicable planning documentation? For example, if the urban plan allows only residential houses on a particular plot, but the investor wishes to construct a commercial building, a change to the planning documentation would be required – a process that is typically lengthy and may not always be successful.
Are there any ongoing or planned infrastructure projects that could impact the land? Are valid construction and occupancy permits in place? It is not uncommon to encounter buildings that have been used for decades without ever having obtained the required construction and use permits.
IV. Unofficial Users, Informal Rights, and Related Liabilities
Many immovables – especially older buildings – may be used by third parties without any formally registered rights. In addition, leases are not required to be registered in the land records. In fact, only long-term leases (five or more years) are eligible for registration. Generally, the buyer steps into the existing lease agreement as the new landlord. Moreover, the new owner becomes liable for any outstanding obligations tied to the property (e.g., utility bills, taxes related to the immovable, etc.).
V. State Property
Certain immovables are, under mandatory law enacted at the BH level, designated as state property and cannot be used without approval from a special commission at the BH level (e.g., certain forest land, agricultural land, etc.). Ongoing political disputes over the ownership and usage of state property have further complicated access to such assets. These disputes have already hampered significant investment projects, both domestic and foreign.
VI. Conclusion
RLDD in BH requires depth, local expertise, and a proactive approach. Investors who fail to uncover and address these hidden risks may find themselves entangled in lengthy legal battles, regulatory gridlocks, or owning property they cannot legally use. In short: you are only truly covered if you know what to look for – and what to ask.
This article was originally published in Issue 12.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.