Ministry’s explanation regarding media releases and applications by representatives of protected tenants and apartment owners

The Ministry of Construction and Physical Planning, based on the binding judgement of the European Court for Human Rights in the Statileo case, and considering the positions of the protected tenants and landlords or apartment owners respectively, prepared amendments to the Apartment Lease Act. Taking into account the complexity of the lease relations for the indicated categories of citizens, the most just possible and sustainable solution of this issue, which failed to be solved over the last twenty years, was proposed in such a way to achieve balance between the competing interests of landlords and tenants.
 
The solutions proposed in the Act allow for a multi-annual transitional period, to provide enough time for every person concerned to decide on their housing modality. In this transitional period protected tenants, besides maintaining over the period of five years from the coming into force of the Act their status of protected tenant with a gradual increase of the rent, obtain, over a period of further five years upon expiration of the current status, also a subsidy for the payment of the market rent (under application of a means and surface area test), as well as primacy over other interested persons in the case of renting out or sale of apartments owned by local or regional self-government units, the Republic of Croatia or under the POS programme.

In addition to the indicated, the Republic of Croatia and local and regional self-government units shall take special care of social welfare system beneficiaries and Croatian veterans. As envisaged in the proposed act, for the payment of the difference between the increased rent and the protected rent, starting as of 1 July 2018 to 30 June 2023, funds shall be allocated in the budgets of local self-government units in the territory of which there are "privately" owned apartments occupied by social welfare system beneficiaries to cover the subsidisation of this difference. Furthermore, for the payment of the difference between the increased rent and the protected rent for beneficiaries occupying the apartment pursuant to the regulation on rights of Croatian veterans, funds shall be allocated in the state budget for the indicated period. In the period from 1 July 2023 to 30 June 2028, the Republic of Croatia shall subsidise, pursuant to the proposed act, the difference between the increased rent and the freely agreed rent to those tenants who pursuant to a special regulation are not permanent social welfare system beneficiaries and do not occupy the apartment pursuant to regulations on the rights of Croatian veterans, based on the criteria of payment possibilities of the family household. Therefore, pursuant to the proposed Act, no one shall remain without apartment or home respectively, and special care was taken regarding this fact.
 
We have also to point out that the apartments concerned have always, up to date, been private property. Private property protection is the foundation of western culture and has been protected by all international treaties, as well as the Constitution of the Republic of Croatia. For this reason, it is not possible to prescribe to owners the obligation of selling their apartments. A regulation which would impose such an obligation would be contrary to the Constitution of the Republic of Croatia and would bring the Republic of Croatia back into the socialistic system which we abandoned upon gaining independence and adopting the new Constitution of the Republic of Croatia. Based on fundamental human rights, by which the right of property is guaranteed, also the judgements of the European Court for Human Rights have been passed, and the Republic of Croatia, as a member of the Council of Europe and of the European Union, is not allowed to ignore them. It is the said limitations, as well as the care for our citizens, all within the possibilities of the state, that have resulted in the proposal of the Act, by which the issues of two entirely opposed parties are resolved in a lawful, just and sustainable manner.
 
In the act that is currently in force, in the part that has not been amended, the obligation of a landlord (owner) who intends to sell the apartment is indicated to give the pre-emption right to the protected tenant.
 

European Court for Human Rights - judgement

Main objections by the European Court for Human Rights:
  • Unlimited duration of the lease contract, due to which the lease relationship can last “over two, sometimes even three generations”;
  • Lack of appropriate process guarantees by which apartment owners (landlords) could realise the protection of their rights, or which would enable the achievement of balance between the competing interests of landlords and tenants;
  • Low rent, the amount of which is in obvious disproportion with the market rent.
By the proposed Act deficiencies of the existing legislation shall be removed, as established by the ECHR in the judgement Statileo vs. the Republic of Croatia.

The Republic of Croatia is solving a 20-year old issue in a lawful, just and sustainable manner, achieving balance between the competing interests of landlords and tenants.
 
The Republic of Croatia is fulfilling its obligations from the dispute before the ECHR.
 

Chronology of adoption of the act

The procedure of adopting legislation in the Republic of Croatia is highly democratic and includes a wide public debate with collection of opinions from all competent state authorities. Consultations with the public concerned regarding the Draft Proposal of the Act on Amendments to Apartment Lease Act was carried out in the period from 2 May 2016 to 1 June 2016. Favourable opinions regarding the Draft Proposal of the Act on Amendments to Apartment Lease Act were delivered by: Ministry of Justice, Ministry of Finance, Ministry of Public Administration, Ministry of Veterans’ Affairs, Ministry of State Property, Ministry of the Interior, Ministry of Labour and Pension System, Ministry of Foreign and European Affairs, Ministry of Environment and Energy, Ministry of Defence, Ministry of Demography, the Family, Youth and Social Policy, State Attorney’s Office, Government Office for Legislation, all ministers and the Prime Minister by voting at the respective government session, to be followed by opinions delivered at committee sessions of the Parliament, and two discussions and debates are to take place with individual voting at the Parliament session. The Ministry shall follow the discussion and debate in the Parliament and take into account the proposals that turn out to be constructive for the legal regulation of lease relations.
 

What do the amendments to the act bring about?

The gradual increase of the protected rent amount is regulated over a period of five years, starting from the entry into force of the act and ending five years thereupon, along with the end of the status of protected tenants. Rents shall thus, over a five-year period, be gradually increased for tenants (the rent, however, is still not equal to the market rent amount).
 
Legal protection of landlords and protected tenants is regulated in case of cancellation of the apartment lease agreement.
 
The right to subsidisation of a freely agreed rent is prescribed for those tenants and protected tenants whose net income per household member is lower or equal to half of the average salary in the Republic of Croatia, over a period of five years upon entry of the act into force.
 
The obligation of payment of the difference between the freely agreed rent and the protected rent is regulated for those apartment users who use a privately owned apartment pursuant to regulations on Croatian veterans’ rights and social welfare beneficiaries (five years).
 
The state shall thus take care of social welfare beneficiaries who occupy privately owned apartments, and no one shall remain homeless.
 
To others the rent of another apartment shall be subsidised for further five years (which is a compromise solution, as owners obtain their properties, and lessees do not leave apartments without obtaining anything).
 

Result

To apartment owners (landlords) the exact date is indicated on which they can freely dispose of their property, and up to that moment the protected rent is gradually increased, reducing thereby the gap in relation to the market rent.
 
Tenants, on the other hand, in addition to maintaining over five years the status of protected tenants¸ obtain over a period of additional five years a state subsidy for the payment of a market rent upon cessation of their existing status.
 


 

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