New Islands Act

Lexology, December 10, 2018

On its 121st session that was held in October 2018, the Croatian Government adopted the wording of the new Islands Act which was referred to the legislative procedure before the Croatian Parliament. The Croatian Parliament adopted the Islands Act on 21 November 2018.

The Croatian Constitution gives the islands special cultural, historical, economic and ecological significance and protection. Because Croatian economy is predominantly dependant on tourism where Adriatic coastline and islands represent major attractions, islands play important economic role. According to available statistics for 2018, over the past year Croatia generated from tourism EUR 1.6 billion and has counted about 20 million visits. It is estimated that islands contribute to these figures with about 25%. New investments in tourist sector counted to EUR 700 million indicating further development of this branch.

The new Islands Act aims at improving quality of life on islands which due to ever increasing emigration face extinction. The Islands Act introduces new classification of islands, strategic planning and the concept of “smart islands” which is all together meant to contribute to improvement of life quality on islands including their demographic and economic revitalisation.

The Islands Act redefines islands and classifies them in 4 categories: (i) islands (78); (ii) islets (524); and (iii) rocks and (iv) ridges, all together counting to 1,244 units. Islands are further divided according to geographic criterion and territorial competence. The Islands Act also defines islands of special regime in respect of which the Government may introduce a package of particular measures with the purpose of mitigating their unfavourable standing.

Similarly to the last Islands Act, the new Islands Act provides for the State’s right of first refusal in case of a sale of a property located on “small, occasionally inhabited and uninhabited islands”. The right of first refusal applies also in case of contribution of a property into the company’s share capital. Every owner wishing to sell property to a private person shall before entering into sale-purchase transaction offer it under the same conditions to the State.

Where the State explicitly refuses the sale offer or fails to respond within the 3 months following the offer, the seller shall offer the property to the county (regional unit) which may accept the offer within the next 30 days. In the case that the county refuses the offer the seller has to address the same offer to the city/municipality which has following 30 days for accepting the offer. Only after the expiry of the said terms (3 months plus 30 days plus 30 days) the owner may conclude the sale-purchase agreement of a property with a private person. Any acquisition of the property exercised without respecting of the right of first refusal in favour of public authorities shall be deemed null and void.

Even though from the perspective of private investments, the right of first refusal seems to be an unacceptable administrative barrier and from the owners’ perspective interference in the ownership rights, due to relatively small number of islands falling under this criterion, we believe that this measure should not significantly affect private owners’ ownership rights nor impede expansion of foreign investments into housing and tourist sector.

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