The current Serbian Planning and Construction Law (“Planning and Construction Law”) came into force in November 2009. Since that time it has been amended a number of times, including twice in the past seven months. The latest amendments to the Planning and Construction Law became effective in November 2018 and April 2019 respectively.
The amendments reflect the constant upgrading of this legal framework to better respond to the needs of investors and contribute to the further growth of Serbia’s dynamic investment climate.
Introduction of a new legal concept – the Financer
Amendments to the Planning and Construction Law that came into full force in December 2014 introduced a new legal concept in the context of development projects, the Financer.
The Planning and Construction Law describes the Financer as follows:
- an entity (or individual), which, pursuant to a certified agreement concluded with an investor of works (“Finance Agreement”), finances or co-finances the construction, refurbishment or performance of other construction or investment works foreseen under the Planning and Construction Law. Based on a Finance Agreement, the Financer gains certain rights and obligations, which are, pursuant to the Planning and Construction Law, otherwise prescribed for investors of certain works. However, the Financer cannot gain property rights over buildings, which are to be constructed pursuant to arrangements under the relevant Finance Agreement.
The changes and amendments to the Planning and Construction Law that took effect in November 2018 broaden and clarify the relevant articles relating to the Financer to address the following issues:
- Construction permits are issued in the name of the Financer and the investor if the relevant Finance Agreement is submitted together with the application for the issuance of a construction permit. The Finance Agreement must inter alia include clauses whereby the investor agrees that the Financer can also be a bearer of rights and obligations arising from the construction permit.
- The Financer is liable for all obligations towards third parties that are a consequence of actions undertaken in line with the authorisations transferred to the Financer under the Finance Agreement.
- The conclusion of a Finance Agreement and the issuance of a construction permit in the name of the investor and Financer shall mean that the Financer has the right to access the land on which the relevant construction works are to be carried out for the purpose of the construction of the building under the relevant construction permit. Additionally the Financer has the right to transfer its right to access such land to the contractor performing the construction works.
Works under construction permits issued to both investors and Financers
Since late 2014, the legal concept of the Financer has proven to be extremely useful and important in the realisation of certain projects in different sectors. This relates to the fact that, under Serbian law, there are instances where only certain entities can be investors for certain specific types of facilities, or certain parties are precluded from being investors under construction permits due to the lack of property rights over the land where such facilities are to be constructed under the relevant construction permits. In both cases, the concept of the Financer presents a sound and legally viable option for the development and construction of a specific facility as a part of a wider project.
For example, in recent years the development and construction of renewable energy facilities, industrial production facilities and logistic parks has been growing at a steady pace, and the existence of the Financer as a legal option has helped to facilitate the development of such projects.
Renewable energy facilities are mostly power-producing facilities that should be connected to the Serbian power transmission system through the relevant interconnection facilities. However, under the relevant legal framework, only the Serbian transmission system operator (“TSO”) can own such interconnections, and only the Serbian TSO can be the investor for the construction of such interconnections.
Additionally, the Serbian TSO is obliged under the law to allow, under certain legally prescribed conditions, a power producer to build, at its own cost, the relevant interconnections.
In these cases, the existence of the legal concept of the Financer has been invaluable, as it enables renewable energy power producers to enter into the relevant agreements, including Finance Agreements, with the Serbian TSO. The concept of Financer allows the power producers to finance the necessary interconnections and be named as a party in the construction permit for such facilities, which in turn gives them the required authority to engage in the construction of such interconnection facilities.
In addition, as mentioned above, there is a surge in the construction of industrial production facilities in Serbia, many of which will probably require their own transmission stations as parts of interconnection facilities in order to provide sufficient electricity for operations. These transmission stations will need to be connected to the Serbian power transmission system to provide industrial consumers with adequate power supply.
As in the case of interconnection stations for renewable energy power producers, only the Serbian TSO can own the transmission stations for industrial production facilities, and only the Serbian TSO can be the investor for the works on such transmission stations. With the introduction of the concept of Financer, the investors in industrial production facilities can now enter into the relevant agreements, including the Finance Agreement, with the Serbian TSO. This enables them to finance the necessary transmission stations and be named as a party in the construction permit, which gives them the required authority to engage in the construction of such facilities.
Serbia is also experiencing a significant increase in the construction of logistics parks. However, not all locations are in close proximity to major highways. It can be envisaged that at some point in time there will be a necessity on the part of logistics parks investors to reconstruct, strengthen and/or widen local state or municipality roads leading to major highways. In such cases, the existence of the concept of the Financer will again play a significant legal role, as such companies can enter into Finance Agreements with local authorities—who as a rule have all the land rights where the roads are located. As Financer and signatory to the Finance Agreement, logistics park investors can be named in the relevant construction permits, which gives them the required authority to engage in the construction works required for the reconstruction, strengthening and/or widening of the local roads.
The Financer as an employer under a construction contract
Once a Financer is named and referred to in the relevant construction permit, it can enter into construction agreements in the capacity of an employer. Sometimes the situation arises that the land on which the construction works are to be carried out is based on an agreement where the Financer is the employer but not the owner of the land where the construction works are to be performed. In such case, under the amended Planning and Construction Law, the Financer has the right to access the land on which the relevant construction works are to be carried out for the purpose of the construction of the building under the relevant construction permit. Additionally the Financer has the right to transfer its right to access such land to the contractor actually performing the construction works.
The changes and amendments to the Planning and Construction Law that took effect in November 2018 provide a framework whereby the Financer can be an employer under construction agreements and fulfil some of the most important employer obligations under bespoke construction agreements or under FIDIC model contracts (Yellow, Silver, Orange or Red), which are commonly used on the Serbian market.