The exchange of immovable property according to the Law on Obligation Relations or the exchange according to the Law on Property Taxes is a legal matter in which each contracting party – the exchanging party – commits to the other contracting party – the exchanging party – to hand over to them the ownership and possession of the real estate being exchanged, with the ultimate goal of acquiring ownership of the real estate subject to the exchange. It follows from the legal definition that the exchange, with its ultimate goal – the exchange of ownership rights over real estate, has similar characteristics to the sale.

Although the sale represents the transfer of real estate in exchange for money, the exchange still produces the same legal effect – the acquisition of ownership of a thing that is “someone else‘s“ before the conclusion of the exchange agreement. For those reasons, our legislation (Law on Obligation Relations) provides that with the exchange agreement, rights and obligations arise for each contractor that arise for the seller with the sales agreement, so the provisions of the sales agreement are accordingly applied to the exchange.

The main elements and facts that should be known about real estate exchange are:

1) each contractor undertakes the obligation to hand over the ownership and possession of his real estate to the other contractor, as well as the obligation to receive ownership and possession of the other contractor‘s real estate;

2) the exchange (also by the name itself) represents a legal act in which the obligation to pay money as compensation for acquiring ownership of real estate is omitted;

3) just as with the sale, the risk of damage to the real estate is transferred by the act of handing over the real estate to the possession of the other contractor, and each contracting party is responsible for the material defects of its real estate that existed before handing over to the other contracting party;

4) if the contracting parties have not agreed otherwise, the handover of the real estate is carried out simultaneously;

5) the exchange agreement must be concluded in writing and, since the law also provides for notarization, it must be properly taxed before the competent authorities, so that it can then be confirmed by a competent notary (solemnization);

6) the tax liability arises on the day of the conclusion of the contract, the tax basis is the difference in the market values of the real estate that is exchanged determined by the competent authority, and the taxpayer is usually the participant in the exchange who exchanges real estate with a higher value, though the parties can freely agree on which contractor will bear the tax obligations; and

7) if the real estate subject to exchange is located in different cadastral departments/cities, the competent authority for confirming the contract is a notary based in the territory where the real estate is located, and the tax authorities (municipalities) competent for those territories, in mutual administrative cooperation, will carry out the procedure for the assessment of the real estate subject to exchange.

The parties should pay attention to the above–mentioned mandatory conditions established by law when entering into this legal matter. As the most important actions that should be taken and the conditions that should be agreed upon by the parties to the contract, we would single out:

1) inspection of the real estate subject to exchange;

2) review of the title deeds for the real estate subject to exchange and determine that there are no restrictions on the transfer of ownership;

3) to determine if there is a difference in the values of the real estate and the need for a possible surcharge; and

4) to determine which contractor will bear the tax obligations.