Is leasing of wind turbines feasible in Serbia?


January 28, 2016





January 28, 2016




By Đorđe Popović, Senior Attorney  and Marija Marošan, Attorney-at-Law, Petrikić & Partneri AOD in cooperation with CMS Reich-Rohrwig Hainz

This article deals with one of the hot topics in renewables in Serbia, namely the legal treatment of leasing arrangements, contemplated by a notable number of financial players on the Serbian market for the purposes of potential financing of renewable energy projects.

At present, a number of financial institutions on the market is contemplating entering wind farm projects as lessors providing wind turbines (and, possibly, other equipment) to renewable project companies as lessees, thus enabling the project companies to complete the construction of a wind farm by, inter alia, installing the wind turbines (and other equipment) so leased from the financial institution.

In particular, the question that is commonly raised on the market in the mentioned context is whether the proposed business transactions are to be treated as equipment leasing or rather as real estate leasing, depending on the equipment that is financed.

Let us state at the beginning that Serbian law does not appear to provide for an explicit answer to the subject matter above and, as a result, both interpretations are generally arguable. That is, that the proposed leasing arrangement within the context of the renewable project may be treated as a real estate leasing and that the proposed leasing arrangement may be treated as a leasing of equipment, whereas both interpretations seem to raise substantive ambiguities. However, after having thoroughly analysed the relevant matter, we are of the view that the legal treatment of the proposed transaction as the real estate leasing would apparently be more grounded in the Serbian law, involving thus relatively fewer risks and potentially being practically operable, as opposed to equipment leasing treatment.

General considerations

Prior to going into more details as to legal treatment of the relevant leasing arrangements, we find it necessary to briefly elaborate on certain general concepts of the Serbian law being of relevance thereof.

(a)     Notion of “structure”

In Serbian law, a “structure” (in Serbian: “objekat) is defined as such a structure (facility, building) that is “connected to the ground and represents a physical, functional, techno-technological or biotechnological entirety (buildings of all kinds, traffic, waterpower and energy structures, infrastructure facilities of electronic communications…)” – Article 2 Paragraph 1 Point 22 of the Law on Planning and Construction (the Construction Law).

Moreover, the Construction Law stipulates that the Serbian Ministry of Construction, Traffic and Infrastructure is in charge of the issuance of construction permits for certain specific structures, including, inter alia, “structures for production of energy from renewable energy resources.

Having these statutory provisions in mind, it follows that the wind power structures (including wind farms) are considered to be “structures” from the standpoint of Serbian law, i. e. separate real estate units connected to the ground for which the construction and occupancy permits are issued and the titles on which are subject to registration with the land registry.

(b)     Notion of mandatory co-ownership over “coupled things”

The Serbian law provides that “if the things [movable or immovable] which are owned by different owners are connected or coupled so as that they cannot any longer be separated without a significant damage or without disproportional costs, on the new thing thus formed there shall be a co-ownership right established in favour of previous owners, and that in proportion to the value of individual things at the moment of such connection or coupling” – (Article 23 Paragraph 1 of the Law on Basic Proprietary Relations).

The very legal institute of co-ownership in the Serbian law essentially implies that two or more entities are co-owners of the same item (thing, title), whereby their relevant shares ratio thereto is “ideal” (in Serbian: “idealni udeo”), i. e. presented in certain percentage as to the entirety of the relevant item (e. g. 30% of the entirety of ownership over a plant is co-owned by one entity whilst the remaining 70% is co-owned by another entity).

If the relevant co-ownership shares of the respective co-owners are not determined, it shall be deemed that they are equal. As a matter of principle, the co-owners of the thing have the right to jointly manage the thing as well as to freely dispose with their respective co-ownership shares, subject to pre-emptive rights of the remaining co-owners.

(c)     General features of the leasing transaction

The Law on Financial Leasing defines the leasing transaction as the arrangement/transaction involving such “financial intermediation performed by the lessor which implies that the lessor, retaining its ownership right over the subject of leasing, transfers to the lessee, for a certain time period, the entitlement to hold and use the object of leasing, with all the risks and all the benefits associated with the ownership title, whilst, in return, the lessee is obliged to pay a leasing fee to the lessor” (Article 2 Paragraph 1 of the said law). The Law on Financial Leasing further differentiates between various modalities of the leasing transaction, including the transfer of ownership over the object of leasing to a lessee or an option for a lessee to acquire the ownership thereto, in all cases only after the total pre-agreed amount of the leasing fee is duly paid by a lessee to a lessor.

It thus follows from the above that at the time of entering into a leasing agreement and up to the lessee’s payment of the total pre-agreed amount of the leasing fee, the lessor remains to be the owner of the object of leasing.

The Law on Financial Leasing further provides that the object of financial leasing may both be “a movable durable thing (equipment, machinery, vehicles) and an immovable thing that may be subject of ownership rights according to the applicable proprietary laws.” In that respect, although the Law on Financial Leasing does not contain an explicit provision thereof, it may firmly be argued that, as a matter of principle, any movable (durable) thing or immovable thing that may be subject of ownership principally qualifies to be the object of leasing, including those subjected to the co-ownership regime (being a modality of the general ownership regime).

Arguments for real estate leasing treatment

Having all the general considerations above in mind as well as the principal structure of the contemplated renewable projects, the question therefore arises whether the leasing of wind turbines (and possibly other equipment) by a financial institution as a lessor to a project company as a lessee would be considered as equipment leasing or as real estate leasing. This question arises precisely because of the fact that at the time of entering into a relevant leasing agreement the object of leasing will be a movable thing whilst throughout the relevant project the wind turbines (and possibly other equipment) are to be installed on the relevant site and therefore potentially represent an immovable thing.

Although, as stated, Serbian law does not provide for a clear answer to the question above, we are of the view that the relevant leasing arrangement should be considered as ultimately resulting in the real estate leasing, and that for the following principal reasons:

(a)     Wind power facility is a structure and therefore an immovable thing

For the reasons stated above, the wind power facility may with a great amount of certainty be qualified as a “structure,” i. e. the real estate, immovable thing that is subject to issuance of the construction and occupancy permits and registration with the relevant land registry (still, we note that in some other European jurisdictions, for example in Germany, there is currently a great discussion ongoing amongst practitioners and relevant stakeholders whether wind power facilities should be treated as movable or immovable things; apparently, the laws of such countries raise ambiguities in that respect whilst the titles on such facilities are not the subject of registration with the relevant land registries).

However, whilst in no doubt under the Serbian law such structures are subjected to issuance of the requisite real estate permits (e. g. a construction permit, an occupancy permit), the practice of registration of such structures with the land registries is currently – to the best of our knowledge – either completely non-existing or extremely scarce in Serbia. In that respect, the relevant Law on State Survey and Cadastre does not contain any provisions specifically relating to the wind power structures but merely provides that titles to “structures” and other real estate units are to be the subject of registration therewith.

(b)     Moment of structure’s formation and acquisition of titles thereto

Subject to qualifications above, the wind power structure should (ultimately) be treated as an immovable thing and from the viewpoint of the proposed leasing transaction it would therefore be essential to determine the exact moment when the respective structure becomes the immovable thing within the context of the project:

  • having in mind the considerations outlined above, it would have followed that at the time when the relevant wind power structure is (fully) assembled thus implying the previous coupling of the wind turbines (and possibly other equipment) that are financial institution’s “thing” leased to a project company but still in the ownership of a financial institution (at least until the payment of the pre-agreed leasing fees by a project company) with other relevant project company’s “things” (ground structures, machineries, cables, switches, racks, etc.), the “newly formed thing” (i. e. the assembled wind power structure) is to be considered a “structure” thereafter and principally to become the subject of co-ownership of both a financial institution and a project company, with their co-ownership shares being pro rata to the values of their respective “things” prior to coupling;


  • under general Serbian rules on (derivative) acquisition of ownership titles over real estate, such titles are considered fully acquired only following the registration of the relevant real estate with the land registry. Had this principal requirement been applicable to the case at hand, it could have been potentially argued that despite the rules mentioned in the previous paragraph the valid acquisition of the relevant co-ownership titles of a project company and a financial institution may be deemed to have occurred only after their registration with the land registry has been duly completed;

on the other hand,

  • it may firmly be argued that the relevant coupling essentially represents an original (in Serbian: “origineran”) modality of the acquisition of ownership and that, therefore, the registration of the relevant co-ownership shares of a project company and a financial institution would primarily be needed for the purposes of claiming/proving the said (co)ownership title to third parties;

however, from the practical perspective:

  • even regardless of the aforesaid ambiguities as to the moment/acquisition of ownership, from the viewpoint of a financial institution and the pertaining risks, it is certainly recommendable that the entire arrangement is structured so as to stipulate that the co-ownership over the relevant real estate unit shall be deemed to have occurred as at the moment when the relevant coupling is completed, irrespectively from the subsequent registration of the wind-power structure and the titles thereon with the relevant land registry, and that essentially to avoid the risk of a project company registering its sole titles thereof by simply submitting the relevant construction and occupancy permit (once issued) to the land registry.

Summing up on this topic, the relevant real estate unit may be considered to be formed once the previously mentioned coupling has been done, irrespectively of the subsequent registration of the titles thereto with the land registry. This further means that certain practical considerations would have to be examined for the purpose of optimizing the relevant renewable projects from the legal perspective:

(c)     Important practical considerations

Firstly, a financial institution has to secure that the relevant leasing agreement principally reflects/address the considerations above. This is to say that as at the moment of entering into the leasing agreement and up to the moment of coupling of the wind power structure the object of lease would still be considered to be a movable thing whereas, after the coupling has been completed, the resulting structure would represent an immovable thing over which the financial institution would have a co-ownership share (together with a project company). As shown above, the leasing arrangement principally requires that the lessor remains the owner of the object of lease (at least until the moment when the pre-agreed leasing fee is duly paid by the lessee). It thus follows that the leasing agreement would have to take this requirement into account and therefore to expressly stipulate that the lessor shall remain the owner of the (movable) object of leasing until the moment of coupling and thereafter it shall be the (co)owner of the object of lease, and that in a certain percentage essentially equalling the relevant proportion as to the value of object of leasing prior to coupling.

Secondly, it would surely be recommendable that a financial institution and a project company also enter into a separate co-ownership agreement (preferably, simultaneously with entering into the very leasing agreement), in which their respective co-ownership shares would be regulated in detail and in which the obligations of the parties relating to the subsequent registration of the relevant wind power structure with the land registry would be set.

Thirdly, as a results of all the ambiguities above and the general absence of the relevant practice in this kind of arrangements on the Serbian market, it would be essential that the full feasibility of this entire scenario is pre-verified (even on an anonymous basis) with the competent land registry (and possibly also with other authorities, e. g. the National Bank of Serbia) prior to entering into any of the two aforesaid agreements. If it eventually appears that the land registry (and possibly other authorities) show their understanding of the proposed transactional steps and are generally willing to enable the full implementation of this scenario, the following should be submitted to the relevant land registry:

  • all the relevant permits (construction and occupancy permit);
  • the leasing agreement;
  • the co-ownership agreement;
  • other standard land registry’s forms and statutory documentation.

Finally, it is worthwhile noting that from the viewpoint of securing the position of a financial institution as (partial) financier of the relevant renewables project, the potential establishment of a mortgage should also be tailored to the pertinent scenario. In particular:

  • the mortgage may be established in favour of a financial institution over the “structure undergoing construction.” Such a mortgage may generally be established under the Serbian law on the structures that are still under construction whereas the mortgage is technically registered over the land on which the structure is being constructed. Once the relevant structure is duly registered in the land registry, the mortgage is then generally to be re-registered over the relevant structure – however, considering that a financial institution in this scenario would have become the co-owner of the relevant real estate and that one may not be a mortgage creditor in respect to the very property it owns, there would be a legal confusion (in Serbian: “konfuzija”) of the part of the mortgage relating to the relevant financial institution’s co-ownership share. This would further mean that the financial institution’s mortgage could be re-registered only over the project company’s co-ownership share following the structure’s registration with the land registry. As well, in the case of enforcement of financial institution’s mortgage over project company’s co-ownership share, a financial institution would be having a statutory pre-emptive right regarding this share as it would be the co-owner of the remaining share in the property;
  • in addition, a financial institution may of course also establish a mortgage over land parcel(s) underlying the wind structures as a collateral for the project’s financing, and that obviously assuming that a project company has duly registered its ownership thereon.
  • with respect to the cables (20 kV cables, or other) that are potentially owned by a project company, it should be noted that a financial institution apparently may not be able to establish a mortgage thereon, and that as a result of the fact that the relevant Cadastre of Lines has not yet become operational in Serbia.

Arguments for equipment leasing treatment

On the other hand, one may try to argue that the proposed arrangement might potentially qualify as the leasing of equipment, essentially on the basis of assertion that at the moment of entering into the relevant leasing agreement the relevant things represent movables under Serbian law.

However, the main problem with this scenario is consisted in the fact that a financial institution could hardly be deemed to be/remain the owner of the object of leasing (wind turbines and possibly other equipment) following their coupling with the remaining “things” owned by a project company.

This is essentially because of the fact that after the said coupling (i) the resulting facility is to be deemed a “structure,” i. e. a real estate unit under Serbian law; (ii) the statutory co-ownership regime shall be considered established under the very law; and (iii) as a result of (i) and (ii), it would be very problematic to validly assert that a financial institution did remain to be the owner of the object of lease, which is essential requirement under the Law on Financial Leasing (as explained above).

In other words, in this scenario a financial institution would be facing a kind of “hybrid” legal concept in which it would seek to claim the existence of the ownership title over the movable object of leasing that had become a part of immovable structure meanwhile and therefore subjected to co-ownership regime. On the other hand, the overall position of a financial institution towards a project company would be significantly weaker because of the problems mentioned above. For instance, a project company could subsequently request the registration of its ownership title over the relevant structure based solely on the construction and occupancy permit (without submitting to the land registry the leasing agreement and/or other documents evidencing that the co-ownership regime should be established). Also, since the relevant co-ownership regime is, as stated above, not sufficiently tested in the Serbian practice, it might even happen that the relevant officials of the land registry simply fail to notice all the legal implications relating to existence of the statutory co-ownership. This is exactly why in the first scenario this should be thoroughly explained to the relevant authorities.

As a result of the above, the only setting in which the proposed leasing arrangement would have potentially been feasible would apparently be the one in which the resulting wind power facility would not be considered to be a “structure” but rather a movable thing composed of parts on which different entities may preserve their respective ownership titles. However – for all the reasons stated above – such an interpretation would apparently be in contravention with the statutory rules of the Serbian law.


In conclusion, neither of the scenarios elaborated above is entirely free from considerable legal risks. Yet, the real estate leasing scenario contemplated above might ultimately appear entirely operable, provided always that (i) from the technical and factual perspective it falls under the aforementioned requirement regarding the “coupling of things” (on the assumption that the relevant parts of the resulting structure “cannot any longer be separated without a significant damage or without disproportional costs”) and, equally important, that (ii) it has been re-confirmed by the relevant authorities prior to any implementation.

On the other hand, the financial leasing scenario seems to lack the required level of legal firmness and, as a result, involves significant legal risks for a financial institution.


Related Articles

The path to sustainable European competitiveness for clean tech, the hydrogen case

The path to sustainable European competitiveness for clean tech: the hydrogen case

11 June 2024 - Regulatory bottlenecks, uncertain investment environments, and international supply chain issues should not be ignored if this priority is to become reality

Energy demand insights Navigating resilient solutions for a sustainable future

Energy demand insights: Navigating resilient solutions for a sustainable future

27 May 2024 - In today's world, the nexus between energy demand, building energy efficiency, and environmental sustainability is crucial. As we navigate the complexities of climate change, finding resilient solutions to manage energy demand and enhance building performance is paramount

Communities leading the Western Balkans' clean heating transition Nataša Kovačević

Communities leading the Western Balkans’ clean heating transition

08 May 2024 - Powering district heating networks with geothermal energy, solar thermal, or other renewable energy sources can help make large-scale heating systems efficient, cost-effective, and flexible, especially when rolled out in tandem with small-scale systems

Dimitris Symeonidis Hybrid Energy-Agriculture Cooperatives The “Passe-Partout” key to unlock a Community-led Net-Zero Future

Hybrid energy-agriculture cooperatives: Passe-partout key to unlock a community-led net-zero future

15 April 2024 - Unleashing the untapped potential of bioenergy in communities is of uttermost importance to decarbonise hard-to-abate sectors, such as heating, cooling and heavy transport, but, most of all, it opens the door to the development of hybrid energy-agriculture cooperative