Forced Conversion of Land Use Rights into Ownership Rights May Give Rise to Investment Treaty Claims by Foreign Investors.

The Situation: Serbia’s Land Conversion Law regulates the procedure by which companies convert their land use rights into ownership rights. Although land use rights were previously adequate for companies to obtain construction permits, this is no longer the case under the new legislation. Companies, including those, which were acquired through privatization, must pay substantial consideration to effect this conversion.

The Result: If a company wishes to develop its land, it must possess ownership rights. Companies holding land use rights must therefore instigate the lengthy and expensive conversion process. Companies are effectively required to re-purchase rights they acquired at the time of their initial investment. These legislative changes could diminish the value of investors’ acquired companies in Serbia. 

Looking Ahead: Affected companies may have a cause of action against Serbia under either Serbian laws or a Bilateral Investment Treaty, as a result of expropriation or diminution in value of their assets and the violation of their legitimate expectations at the time of investment.

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