16.06.2019

What are the "clean papers" of a real estate?

What are the "clean papers" of a real estate?

Nobody wants to buy “a pig in a poke”. When you buy something very fast without having considered all the factors that are needed to make the most rational decision you can surprise yourself negatively. Some of the factors may have a significant impact on the viability of the investment itself. You cannot make decisions in the real estate market where you are dealing with large and often lifetime investments, only on the basis of the impression that some property has left on you. 

An ideal property is not just the one that is located on your ideal location, the which layout is designed for you or the one that is suitable to your budget. In addition to the real estate, there are also documents that prove its ownership and legality. We cannot expect that these documents are always in the condition they should be. Often, real estate owners do not take care of their "regularity" and create a barrier for selling the real estate, taking loans, or placing real estate in a business or economic function. In order to avoid such situations, it is necessary to know how to distinguish "clean papers" of a real estate from those who cause headaches to the seller and potential buyer of a property. 

"Clean papers" prove that the property ownership documents are legitimate, that is, it is proved that the laws are respected, and the real estate is legally built and legally used. It is erroneously considered that this term implies only building permit and self-ownership (i.e. property ownership 1/1). It covers multiple documents that include the ownership documentation and technical or construction documentation. Depending on the type of documents, the way in which the „regularity“ of the documentation is assured is different. 


Characteristics of a clean ownership documentation 

When buying a real estate, every customer hopes to have the simplest and fastest transfer of ownership. In the case of buying a house, the fastest transfer of ownership is done if ownership of the house represents self-ownership because only one person is its owner and only this person decides on the sale of the house. For the purchase of a flat, the most ideal is the ownership per floor which represents the ownership of a special part of the building, i.e. a part which is an independent useable unit, such as an apartment or even other secondary room intended for common use. Such rooms in the corresponding co-ownership also represent independent use units. The co-owned part of the common parts of the building and the land also belong to the owner of a special part of the building. 

Besides self-ownership over the house and the ownership per floor, there is also a different form of clean property that refers to the existence of more co-owners. More co-owners, at the same time, slow down and complicate the process of buying and selling a real estate. For a successful sale, all co-owners should agree to sell the real estate and sign a sales contract or authorize one of the co-owners to sign it. In this situation, the role of interpersonal relations and the existence of common interests is important, because the success of the purchase and sale depends on it. 

Clean ownership does not represent only a co-ownership per floor and self-ownership of real estate. There is also a clean ownership in case of a real estate without per floor ownership. This type of ownership includes the ownership of a part of a property that is not defined as an independent useable unit, as in the case of the ownership per floor. Therefore, it is the property of an exact part of the real estate, i.e. the apartment in relation to the building. Ownership over such an ideal part in relation to the entire property is proven by including a special article in the purchase contract. 

Ideal parts have been established, but they have not been given ownership of the apartment that represents the physical part of the building. For example, you are buying an apartment located in a building that does not practice ownership per floor with a total of six apartments. You as a buyer by purchasing this apartment acquire ownership over the ideal part of a 1/6 building, not a separate apartment. As a co-owner of an ideal part of the building you have the right to use a special physical part of the building or apartment if the co-owners do not object. As a rule there is no opposition of co-owners in these type of buildings since all other co-owners of the building are in the same situation. 

Also, if there are more co-owners of an ideal part of the real estate, like two spouses (each owns 1/2 of the ideal part of the property) or more family-related or unrelated persons (e.g., each person owns 1/4 of the ideal part of the property), it is needed a consent of all co-owners when selling the real estate. Regardless of the number of co-owners, such a form of ownership documentation is also clean. However, the process of buying a real estate and registering property ownership in land registers is not as simple and quick as in the case of self-ownership and ownership per floor, because the sale of the real estate is not decided by only one person. 

Ownership of certain real estates can be burdened with the pledge of the bank if the owner has requested a mortgage from the bank. The customers are often distrustful and don't want to purchase such real estate even in cases when they are satisfied with its characteristics and appearance. 

The fact that the properties are burdened with mortgage does not necessarily imply that these real estates are not suitable for sale, i.e. that they have "unclean" or "unclear" ownership documentation. In order to be suitable for sale, the unpaid amount of debts to the bank should be lower than the agreed purchase price of the property. 

Seller of the property shall obtain confirmation from the bank in the form of a "letter of intention for loan closure," which contains the exact amount of the incurred debt. The letter of intention is an official document with which the bank guarantees that in the case that the third or interested party pays the debt, cargo from the ownership of the real estate will be deleted from the land registry. 

If the amount of seller's debt is in reality lower that the purchase price (which in general is a prerequisite for contract signature), then the buyer on the basis of the letter of intent directly pays the bank the outstanding amount of debt. The difference between the amount of debt and the purchase price the buyer pays to the seller. At the end of the process, the bank issues to the buyer, "a cancellation declaration" so he can register himself as an owner in the land registry and erase the burden of the property from the land registry. 

This is a standard and very common procedure when buying a real estate, which can be done by the customer alone or the customer can use services of attorney's office or in a cheaper alternative services of a licensed agency for real estate sales. 


Characteristics of a clean construction documentation 

In practice there are properties that are properly registered in the land registry and seemingly have proper documentation. However, the registration of the ownership in the land register itself is not a proof of the existence of a valid building documentation, i.e. building and use permits. 

The building permit is a document that approves the construction of real estate of certain landfill space in accordance with the spatial plan of a given area. It is issued before the construction begins at the request of the investor. By contrast, the use permit is a document issued after completion of construction. The use permit confirms that the real estate is constructed in accordance with the building permit and legitimizes the position of the property in the area. As such, it represents the highest order document, i.e. the most important document of the overall building documentation. The use permit is a key document and irrefutable proof of the legality of the construction process. 

For buildings built after 2008, the registration of the property into the land register with great probability implies proper construction documentation. The reason for this is that the law, since 2008, obligates the registration of the property in the land register after presenting the use permit. So, the situation is pretty clear for newly built properties and more complex for older ones. 

For properties constructed after 2008, possession of a use permit means quite a certainty of the existence of a legally issued building permit. According to the existing regulations of the last ten years, the building permit in the sequence of issuing documents is a prerequisite for obtaining the use permit issued after completion of construction and performed technical inspection of the facility. Therefore, if the property has an use permit, it is legally implied that a building permit exists even if the owner is unable to present it or even if it has never been issued. The latter can be confusing, but this is a result of frequent changes and complex, vague and often poor legal regulations in the area of construction through closer and further history. 

For many older buildings it is possible to have the use permit or some of its historical valid forms (predecessors) issued under the existence or absence of a building permit. Therefore, the legal force and validity of the use permit as a key proof of the legality of building, can also have a whole series of older documents (predecessors) that are still valid today. 

Equal legal validity as the use permit have the documents; (1) "confirmation of construction inspection that no demolition proceedings are conducted" for buildings constructed between 1968 and 1991, which were previously registered in land registers and cadastre; then (2) "supervisory engineer final report" related to buildings with the size less than 400 m2; and "solution on completed condition" for properties that are subsequently legalized after construction. 

It should also be emphasized that there are many legally treated buildings for which no building permit has ever been issued and have the right to obtain the use permit. This applies in particular to facilities constructed before 1968, provided that they remained in the same size, i.e. that after 1968, they were not illegally upgraded. For such properties with the submission of cadastral "confirmation that the building was built before 1968", the use permit is regularly issued and in practice it is treated legally. 

There is a large number of real estate owners on the market that would without a doubt have been able to bring them into a state of regularity, but because of the negligence they are more inclined to pass this job to the buyers of their real estate, which leads them to an unfavourable position than the customer. Therefore, by knowing and recognizing key documents related to the legality of real estate, the buyers can often obtain a certain advantage when buying a real estate. 

In all these situations without adequate knowledge and experience with the "clean papers" it can happen that you come across a property whose documentation is not proper and so complicate the process of buying and selling it, but also to buy such a property without knowing it. Fast purchases can cause major problems in the future and make the investment not only unprofitable but also with a large burden on the customer in terms of spending money and time on additional "paper cleaning". Also, during the sale, sellers often do not take into account the regularity of all documents either because they are not familiar with all relevant laws, or due to negligence and the desire to very quickly sell the property and transfer the burden to the new buyer. 

If you go through the whole process of finding and buying real estate, it is much more likely that you will encounter such situations than engaging in this process through an intermediary. To avoid such situations, you can ask for help real estate agencies that perform detailed verification of ownership and technical documentation of each property that you may be interested in and take necessary measures to ensure its legality. With their work they guarantee that your investment will be cost-effective at least in relation to the documentation that accompanies it and you as a potential buyer do not have to worry about this issue. As a seller you can also rely on real estate agencies because they will alert you if your ownership and technical documentation are proper or not.