North Macedonia: Unlocking growth: leveraging long-term leases over private land for business development

With this, Macedonia established a unique system for regulating real estate relations, significantly different from the legislation in neighbouring countries. However, is this system being utilised effectively and contributing to development?

Years later, long-term leasing of state-owned construction land remains preferred to that established over privately owned land. But it is hardly popular. Statistics indicate that, regardless of ownership type, leases over construction land comprised only 1 % of registered leases in 2015 and rose slightly to 3 % by 2020. However, these figures accurately represent the full extent of long-term leases, as there cannot be unregistered leases due to the mandatory nature of such agreements, which produce constitutive effects.

To popularise long-term leasing, it is essential to grasp its fundamental nature. Essentially, it represents a partnership between the landowner (lessor) and the investor (lessee). With durations ranging from five to 99 years, it fosters a sustainable relationship that can outlast changes in ownership, bankruptcy or even the death of the involved parties. As the lessor remains the owner of the construction land, and the lessee become the owner of the building for the duration of the long-term lease period, private long-term leases can be associated with the following features:

• Stability: private long-term leases provide stability for both the lessor and the lessee, allowing for long-range planning and investment.
• Investment incentive: private long-term leases encourage the lessee to invest in improvements to the property, since they have the security of a long-term arrangement.
• Economic development: private long-term leases stimulate economic development by attracting businesses and encouraging infrastructure investment.
• Risk mitigation: private long-term leases reduce the risk of frequent turnover, vacancy, and uncertainty for lessors, providing a steady income stream.
• Community development: private long-term leases foster community development by supporting local businesses and promoting sustainable growth.
• Legal protection: as the private land agreement can be negotiated, private long-term leases ensure legal protection for both parties, outlining rights and responsibilities clearly over an extended period.

It is essential to recognise that upon the expiration of a long-term lease, ownership of the building typically reverts to the lessor, unless otherwise stipulated in the agreement. In instances of early termination, it is advisable for both parties to clearly delineate termination conditions. This is especially important because the lessee, now assuming the role of owner of the building, retains usufructuary rights on the land. Consequently, ensuring the regulation of the ownership becomes imperative, fostering a mutual commitment to maintaining goodwill and promoting ongoing positive interactions between the lessor and lessee.

Finally, the advantage that the Macedonian legal system provides should be properly used. Long-term leases over private land offer indispensable benefits for both lessors and lessees. These arrangements provide stability and predictability, allowing lessees to make significant investments in the property while granting lessors a reliable income stream over an extended period. Moreover, long-term leases encourage responsible stewardship of the land, as lessees are more likely to invest in maintenance and improvements when they have a vested interest in the property's long-term success. Thus, embracing long-term lease agreements represents a prudent and forward-thinking approach to land management that can yield positive outcomes for all parties involved.

authors: Margareta Krsteska, Andrea Lazarevska