Property rights are protected by the Constitution and regulated by the following key laws:

• the Law on Property Relations;
• the Law on State Survey and Real Estate Cadastre;
• the Law on Obligations;
• the Law on Spatial Planning;
• the Law on Construction of Structures; and
• the Law on the Legalisation of Illegally Constructed Structures.

Sector-specific laws include:

• the Law on Social Housing;
• the Law on State Property;
• the Law on Agricultural Land;
• the Law on Forests;
• the Law on Nature Protection; and
• the Law on Waters.

Over the past 12 months, Montenegro’s real estate market has remained dynamic, with continued price growth and strong interest from foreign buyers, particularly in coastal areas and Podgorica. Residential prices have continued to rise, with the average price of newly built apartments exceeding EUR2,200 per sq m in 2025, with significantly higher prices in prime coastal locations.

Demand remains largely driven by international buyers and cash transactions, which has helped the market remain relatively resilient despite inflation and higher interest rates in the euro area. In addition, Montenegro’s entry into the SEPA payment system in October 2025 has simplified cross-border euro payments and improved transaction efficiency for EU-based investors.

Investor interest continues to focus on tourism-linked residential developments and branded real estate projects along the coast. Major developments remain concentrated around established luxury destinations such as Porto Montenegro and Luštica Bay, as well as emerging mountain tourism hubs such as Kolašin. A notable milestone during the period was the opening of the SIRO Boka Place hotel in Porto Montenegro in May 2025, the first European property of Kerzner International’s SIRO wellness brand. Montenegro’s hospitality pipeline continues to expand with additional international brands entering the market, including the Mövenpick Hotel & Residences Teuta Kotor Bay, expected to open in 2026, and the Crowne Plaza Kolašin project scheduled for completion in 2026. These developments, together with newly announced tourism-residential projects such as the Porta Rai Beachfront Hotel & Residences in Ulcinj, reflect continued investor focus on luxury tourism, branded residences and integrated resort developments.

Another important structural development is the strategic partnership framework between Montenegro and the United Arab Emirates adopted in 2025, which aims to facilitate large-scale tourism and real estate projects, particularly along the coast and in mountain resort areas. While the full pipeline of projects is still developing, the agreement signals the government’s intention to attract significant international investment into resort and mixed-use developments.

Regulatory developments have also influenced market activity. In particular, the Law on the Legalisation of Illegally Constructed Structures entered into force in 2025, introducing a framework to regularise a large number of existing structures and improve legal certainty in the property market.

Foreign buyer dynamics have also shifted somewhat during the period. Montenegro temporarily suspended the visa-free regime for Turkish citizens in late 2025, later reinstating it with a significantly shorter permitted stay. Together with stricter migration rules, these measures have reduced the ease of relocation for some foreign buyers and may contribute to a gradual adjustment in demand from that segment of the market.

Finally, technological trends such as blockchain, tokenisation or DeFi financing have so far had limited practical impact on Montenegro’s real estate sector. Traditional bank lending and foreign equity investment remain the dominant sources of financing, while developers continue to focus primarily on tourism-oriented residential projects rather than office conversions.

There are several legislative and institutional reforms currently underway in Montenegro – many of which are linked to the country’s EU accession process.

One of the most important developments is the Law on the Legalisation of Illegally Constructed Structures, which entered into force in 2025. The law establishes a framework for the legalisation of a large number of existing structures that were built without proper permits, while introducing stricter measures aimed at preventing new illegal construction. The reform is expected to gradually improve legal certainty in the real estate market by enabling previously informal buildings to be registered in the cadastre and lawfully transferred.

Montenegro is also continuing broader regulatory reforms linked to its EU accession process, including measures aimed at improving legal certainty, transparency and administrative efficiency in the property and land administration system.

In parallel, the authorities are also implementing reforms aimed at modernising the cadastre and land administration system through the further development of the electronic cadastre (“e-cadastre”). The reform includes updating land registry data and expanding online services provided by the Real Estate Administration. While some improvements were planned by the end of 2025, the full transition to a comprehensive digital cadastre covering all real property records in Montenegro is expected to be completed by 2027.

Another important regulatory development is the Law on Brokerage in the Sale and Lease of Real Estate, adopted in 2025, which introduces licensing requirements, professional standards and stricter oversight of real estate agents. The law is expected to enter into force in 2026 and aims to increase transparency and professionalism in the real estate brokerage sector.

As prescribed by the Law on Property Relations, the following categories of property rights can be acquired: ownership rights (including co-ownership and joint ownership), easements (in rem and personal), liens (right of pledge/mortgage), fiduciary ownership and possession.

The transfer of title to real estate in Montenegro is primarily governed by several key laws.

The Law on Property Relations:

• regulates ownership rights and other real rights (eg, usufruct, servitudes);
• covers acquisition, transfer, protection and termination of those rights; and
• sets out modes of acquiring ownership: contract, inheritance, law, court decision, etc.

The Law on State Survey and Real Estate Cadastre:

• governs registration of real estate rights in the real estate cadastre; and
• mandates that title to real estate is transferred only upon registration with the Real Estate Administration.

The Law on Obligations:

• governs contractual relationships related to real estate, including:
1. sale and purchase agreements;
2. gift agreements; and
3. other legal bases for transfer of ownership; and
• prescribes formal requirements and regulates contractual obligations and liabilities.

The Law on Notaries requires that:

• all real estate transfer agreements must be notarised;
• the notary ensures the agreement complies with legal requirements; and
• the notary is responsible for submitting the documentation to the cadastre.

Additionally, while the above laws apply uniformly to all types of real estate (residential, commercial, industrial, etc), certain categories of real estate may be subject to sector-specific laws, including:

• the Law on State Property;
• the Law on Agricultural Land;
• the Law on Forests; and
• the Law on Waters.

The most common method to transfer real estate ownership is through a sale and purchase agreement, which must be in writing and notarised by a public notary. Transfers can also happen by operation of law, inheritance or decisions from competent state authorities. The notary verifies the parties’ legal capacity, contract validity and compliance with legal formalities.

Ownership is transferred only when registered in the real estate cadastre, maintained by the Real Estate Administration. This registration has a constitutive effect, meaning the buyer becomes the legal owner only after being recorded in the cadastre, regardless of when the agreement was signed. Usually, the notary submits the registration immediately after notarising the contract.

The cadastre is publicly accessible and records all real estate details, ownership and related rights such as easements, mortgages, long-term leases, pre-emption rights and prohibitions on disposal. It provides a centralised and reliable source of legal certainty for ownership and encumbrances.

The Law on State Survey and Real Estate Cadastre enforces the principle of reliance, meaning that information in the cadastre is presumed accurate and trustworthy. This protects parties from negative consequences based on registered data. Because of this system, title insurance is generally not used or required in Montenegro. However, in high-value or international transactions, foreign investors often conduct thorough legal due diligence or obtain specialised legal opinions instead of relying on title insurance.

Buyers, often through their legal advisers, start by selecting properties that fit their investment criteria and gathering key information like legal status, zoning rules and cadastral data. The depth of due diligence depends on the investment size and the property’s intended use.

During due diligence, it’s crucial to identify risks and hidden liabilities such as encumbrances, unresolved ownership or legal disputes. Verifying ownership history helps avoid future issues, especially with inheritance or shared ownership. On-site inspections confirm cadastral boundaries, the property’s exact location and possession status, ensuring no unauthorised occupants like tenants or informal users are present. Checking that all property taxes, utility bills and communal charges are paid is also important.

If future renovations are planned, zoning and planning regulations must be reviewed for any restrictions. Assessing the surrounding area and infrastructure helps ensure the property aligns with long-term investment goals. Evaluating utility and maintenance costs gives a realistic picture of ongoing expenses.

Legal advisers typically manage the entire purchase process – negotiating contract terms, payment conditions, deadlines and warranties; drafting and reviewing the sale and purchase agreement and related documents; and assisting with financing, including bank loans if needed. They also assist in obtaining necessary permits for construction when applicable. Finally, legal representatives prepare all documentation for title transfer and oversee notarisation and registration in the real estate cadastre to ensure full legal compliance.

Although representations and warranties may differ by transaction, they typically include:

• the parties’ authority to execute the agreement;
• the seller’s confirmation that the property is free from rights of first refusal, unregistered liens or encumbrances, leases or transfers to others;
• the seller’s confirmation that it holds valid building permits and complies with urban planning regulations;
• that there are no ongoing legal or administrative disputes; and
• that there are no known hidden defects.

The seller is liable for any material defects existing at the time of risk transfer to the buyer, regardless of whether the seller was aware of them. This liability also extends to defects that emerge after the transfer if they result from causes that existed beforehand. If a hidden defect – one not reasonably detectable during standard inspection – is discovered, the buyer must notify the seller within eight days (or without delay in commercial transactions), or risk forfeiting the right to claim. The seller’s liability typically lasts six months after handover unless extended by contract. If timely notified, the buyer may request repair, a price reduction or contract termination, and may also seek compensation for resulting damages.

The seller is also legally liable for legal defects – that is, third-party rights that limit or restrict the buyer’s ownership – provided the buyer was unaware of and did not accept the encumbrance. If a third party asserts such a right, the buyer must promptly notify the seller and allow a reasonable period to resolve the issue. Should the third-party claim result in the buyer losing possession, the agreement is automatically terminated. If the buyer’s rights are only partially affected, they may either terminate the contract or seek a proportionate price reduction, with the right to claim damages in either case. Although liability for legal defects may be contractually limited or excluded, such exclusion is invalid if the seller knew or should have known of the defect and failed to disclose it. The buyer’s rights related to legal defects expire one year from the date they became aware of the third-party right. However, if a lawsuit is filed by the third party within that period and the buyer notifies the seller to join the proceedings, the buyer’s claim remains valid until six months after the court’s final decision.

The enforcement of remedies for breaches of representations and warranties in real estate transactions relies primarily on contractual mechanisms. Notarised sale and purchase agreements could include a clause of direct enforceability, allowing the buyer to initiate enforcement without a full court proceeding if the seller fails to fulfil their obligations. Although escrow arrangements, bank guarantees or security deposits are not standard practice, they may be negotiated in larger or more complex transactions, especially those involving foreign investors. Representation and warranty insurance is currently not a common practice in Montenegro. While it may be considered in high-value or cross-border deals, its use is still rare and not well-developed in local practice.

Investors should consider the primary sources of real estate law outlined in 1.1 Main Sources of Law. In addition, foreign investors should be aware of specific restrictions applicable to certain categories of land, such as agricultural and forest land, which may not be freely available for direct acquisition by foreign nationals. These limitations are regulated in more detail in 2.11 Legal Restrictions on Foreign Investors. Depending on the structure of the transaction, finance, corporate and tax laws may also be relevant for consideration.

Environmental liability generally follows the “polluter pays” principle, meaning that the person or entity responsible for causing environmental damage, or creating an imminent risk of such damage, is obligated to bear the costs of implementing both preventive and remedial measures to address and rectify the harm.

The permitted use of a parcel of real estate is governed by the applicable urban planning documentation, which includes the spatial plan, the detailed urban plan or local urban plan and the urban-technical conditions (UTC) issued for specific plots. To determine the permitted use of a specific parcel, a buyer may submit a request for an extract from the planning document to the competent municipal authority to obtain information on the spatial planning parameters applicable to the parcel, including land use designation, construction limits and any applicable restrictions or obligations.

The UTC go further by detailing the specific design, construction and infrastructural requirements for the intended development, serving as a foundation for obtaining building permits. For larger or strategically significant projects, investors may potentially enter into development agreements with public authorities – typically the local municipality or the government, depending on the location and scale of the project. These agreements can facilitate project implementation by addressing zoning adjustments, infrastructure obligations and administrative support, often streamlining the permitting process and aligning public and private development interests.

Expropriation (ie, the compulsory acquisition of private real estate by the state or public entities) is governed by the Law on Expropriation and is permitted when required for a lawfully established public interest – such as infrastructure projects, utilities, urban planning or other purposes expressly defined by the law. The public interest must be established either directly by law, based on the law or by special decision by the government.

The expropriated party is entitled to fair and adequate compensation, which may be provided either in monetary form or by granting ownership or co-ownership of another suitable property. The process begins with a proposal for expropriation submitted by a state or municipal authority (or another authorised beneficiary), after the public interest for expropriation is determined. The competent administrative authority conducts the expropriation proceedings and issues a decision. Once finalised, the beneficiary of the expropriation obtains the right to use or acquire ownership of the property strictly for the purpose stated in the expropriation decision.

In addition, issues relating to illegally constructed buildings may arise in practice. The Law on the Legalisation of Illegal Structures regulates the conditions and procedure under which buildings constructed without the required permits may be legalised. If the statutory requirements are met – including compliance with planning documents and resolution of property rights over the land – the competent authority may issue a legalisation decision, after which the building can be registered in the cadastre and lawfully used. Conversely, if the conditions for legalisation are not satisfied or an application for legalisation is rejected, the competent authority may order the removal (demolition) of the illegal structure in accordance with the law.

In asset deal transactions, the real estate transfer tax (RETT) is applied progressively, depending on the value of the property being transferred. The applicable rates are the following:

• for property values up to EUR150,000, the transfer tax is levied at a rate of 3%;
• for property values between EUR150,000 and EUR500000 the tax is calculated as a fixed amount of EUR4,500, plus 5% on the portion of the value exceeding EUR150,000;
• for property values exceeding EUR500,000, the tax is calculated as a fixed amount of EUR22,000, plus 6% on the portion of the value exceeding EUR500,000.

The statutory taxpayer liable for the RETT is the acquirer (buyer) of the property. The transfer of real estate is generally exempt from VAT, except in the case of the first transfer of ownership or the right of disposal over a newly constructed building, which is subject to VAT at 21% instead of RETT. While there is no stamp duty, notary fees are also applicable and are calculated based on the property’s value, in accordance with the official notary tariff. The fees for registering the new owner in the real estate cadastre are nominal. These costs are typically borne by the buyer.

A share deal is taxed differently from a direct real estate (asset) transaction. RETT is not triggered in a share deal and there is no specific tax on a change of control in a property-owning company. Additionally, share transfers are exempt from VAT. The seller of the shares – a natural person – may be subject to capital gains tax, which is generally 15% on the net gain (as of 2026). If the seller is a Montenegrin legal entity, corporate income tax rules apply (progressive rate from 9% to 15%). However, Montenegro has signed double taxation treaties with numerous countries, which may reduce or exempt this tax liability, depending on the specific treaty provisions. Notarial fees may apply, depending on the structure of the transaction, while registration fees at the Company Registry are nominal.

Foreign persons (natural or legal) are not permitted to acquire ownership rights over certain categories of immovable property.

Specifically, foreign ownership is prohibited for natural resources, publicly used assets, agricultural land, forests and forest land, cultural heritage sites of exceptional or special importance, immovable property within one kilometre of the state border and on islands, and immovable property located in areas designated by law as being of strategic interest for national security.

Exceptionally, a foreign natural person may acquire ownership rights over agricultural land, forests and forest land up to 5,000m², only if the subject of the transfer agreement (sale, gift, exchange, etc) is a residential building located on that land. Foreign investors may still access restricted land through long-term lease, concession agreements, BOT arrangements or other public-private partnership models, under the same conditions as domestic entities, except on the immovable property in areas of strategic interest for national security.

To overcome these limitations, foreign investors typically establish an SPV in Montenegro, which, as a domestic legal entity, may acquire real estate without restriction.

Commercial real estate acquisitions are most commonly financed through bank loans. Larger transactions, such as the purchase of real estate portfolios or companies with substantial property assets, which are not that common in Montenegro, often use syndicated loans. Other financing sources include the buyer’s own equity, capital from real estate funds or private investors. The choice of structure depends on the scale and complexity of the deal.

Security instruments may include the following mechanisms:

• mortgage on real estate;
• pledge on shares or stock in a company;
• security in the form of assignment of rights to lease/insurance agreements;
• security on income from real estate directed to a special escrow account;
• sureties and guarantees; and
• escrow.

When a commercial real estate investor borrows funds to acquire or develop real estate in Montenegro, the most common forms of security granted to lenders include:

• mortgage on real estate, as the primary form of security. This is the most common and legally recognised method of securing a loan with real estate; and
• pledge over movable property, shares or stakes in the company, bank accounts or monetary claims.

In principle, there are no prohibitions on granting security over real estate in favour of foreign lenders, nor are there restrictions on making repayments to foreign lenders under a security document or loan agreement. This is permitted provided that the foreign lender does not engage in regulated banking or investment activities in Montenegro without the required licence or authorisation.

Taxes are not levied on the granting of security over real estate in Montenegro; however, certain administrative costs apply. These include notary fees for notarising the mortgage agreement and registration fees for recording the mortgage with the real estate cadastre. If the documentation is in a foreign language, a certified translation into Montenegrin is required. No VAT or real estate transfer tax applies, as a mortgage does not involve a change of ownership.

Enforcement may occur via out-of-court public auction or judicial sale. Out-of-court sales are managed by a designated enforcer (eg, lawyer, public bailiff or real estate agent), who is entitled to a fee. Judicial sales incur court fees. Once the debt is repaid, the mortgage is deleted from the cadastre, with only nominal administrative fees for the deletion.

A company must have the proper corporate authority to grant security over its assets. This typically involves obtaining approval from the shareholders or the board of directors, depending on the company’s internal regulations and the value or nature of the transaction.

Furthermore, the principle of corporate benefit is a key consideration. When a company provides security – particularly to guarantee the obligations of a third party, such as a parent, subsidiary or shareholder – it must ensure that the transaction serves the corporate interest. The arrangement should align with the company’s stated business purpose and must not compromise its financial stability or the rights of its shareholders and creditors. Financial assistance restrictions must also be acknowledged; a company is prohibited from directly or indirectly providing financial support – including loans, guarantees, or other security – for the purpose of acquiring its own shares, unless all company members unanimously agree. If a company grants security shortly before entering insolvency, it may be challenged or invalidated as a preferential or fraudulent transaction under Montenegrin insolvency law, which provides for specific clawback periods.

Upon a borrower’s default under a secured loan agreement, a lender may enforce its real estate security but must first comply with formalities prescribed under law. Typically, enforcement may proceed either judicially or extra-judicially, depending on the nature of the security agreement and the lender’s chosen course.

In extra-judicial proceedings, the lender must file a notice of foreclosure with the real estate cadastre and provide the borrower with a minimum statutory cure period (usually 15 days). Should the borrower fail to cure the default, the lender may proceed with the sale of the encumbered property, subject to public notification requirements and observance of procedural timeframes.

In judicial enforcement, the process is generally more protracted, subject to court availability, evidentiary review, and potential appellate delay. Priority among competing creditors is governed strictly by the order of registration in the real estate cadastre – earlier registered interests take precedence unless otherwise contractually subordinated.

The duration of foreclosure proceedings can vary significantly based on several factors, including the complexity of the case, the responsiveness of the borrower, and the efficiency of the enforcement officer. While some cases may be resolved within a few months, others can extend over a year, especially if there are legal challenges or disputes over the property.

There are no COVID-19-related temporary measures currently in force that would restrict the enforcement of security interests or otherwise impede foreclosure proceedings. There is an active secondary market for non-performing loans (NPLs), with banks increasingly offloading distressed debt portfolios to specialised entities as part of broader balance sheet optimisation and risk management strategies. Foreclosure activity has resumed in full, with lenders regularly exercising their rights under secured lending arrangements.

The most common way for existing secured debt to become subordinated to newly created debt is through a contractual agreement between the involved parties. This typically takes the form of a subordination or intercreditor agreement, in which the existing secured creditor expressly agrees to subordinate its security interest or claims to those of a new creditor. Such agreements are valid and enforceable under the Montenegrin Law on Obligations, provided they meet general legal requirements, such as clear intent and mutual consent.

A lender holding security over real estate is highly unlikely to be liable under environmental laws for pollution it did not cause, particularly where it does not possess, use, or exploit the mortgaged property (see 2.7 Soil Pollution or Environmental Contamination).

This position is reinforced by the legal provision stating that a mortgagee has no right to possess the immovable property, collect its fruits, or otherwise use it, unless otherwise provided by law. Accordingly, as long as the mortgagee remains in a passive role – merely holding the mortgage as security – it would not typically be regarded as an operator or user of the property for environmental liability purposes.

Certain security interests granted by a borrower may become void if the borrower enters insolvency. Specifically, security acquired through enforcement or granted within 60 days before the initiation of insolvency proceedings is invalidated, resulting in the loss of secured creditor status.

Additionally, such interests may be subject to clawback – a mechanism that allows insolvency administrators to challenge transactions made prior to insolvency that unfairly favour specific creditors or harm the general creditor pool. These include transactions involving inadequate consideration, dealings with related parties, or actions made with intent to defraud, with look-back periods ranging from six months to five years, depending on the circumstances.

Upon the opening of insolvency proceedings, all enforcement actions are automatically stayed, and secured creditors must submit their claims through the court-supervised insolvency process, following the approved distribution plan.

There is no specific mortgage tax imposed on the creation or registration of mortgage or mezzanine loans. However, standard administrative and notarial fees do apply. Mortgages must be executed as notarial deeds, with fees based on the secured loan amount, following the official Notarial Tariff. For the mortgage to be enforceable against third parties, it must also be registered in the real estate cadastre, which incurs a modest administrative charge. These costs are procedural rather than fiscal in nature and may be allocated between the borrower and lender by agreement.

Land use, spatial development, design and construction in Montenegro are primarily governed by spatial planning and construction legislation. The key legislation includes the Law on Spatial Planning and Construction of Structures (2017, as amended), the Law on Construction of Structures (2025) and the Law on the Legalisation of Illegal Structures (2025, as amended in 2026).

These laws regulate the spatial planning system, the preparation and adoption of planning documents, the conditions for construction, technical documentation requirements, licensing and supervision of construction activities, as well as procedures for legalising illegally constructed buildings. Spatial planning is guided by principles such as sustainable development, rational land use, protection of cultural heritage and natural resources, seismic safety and environmental protection.

Planning is structured at both national and local levels. At the national level, the Spatial Plan of Montenegro is adopted by the Parliament, while the government adopts spatial plans for special purpose areas and manages certain detailed regulation plans. Local spatial plans and urban development documents are adopted by municipal assemblies.

Planning is structured at both national and local levels. At the national level, the Spatial Plan of Montenegro is adopted by the Parliament, while the government adopts (i) spatial plans for special purpose areas and (ii) State detailed regulation plans. Local spatial plans and urban development documents are adopted by municipal assemblies.

In addition to planning legislation, development projects must comply with a range of sector-specific laws, including the Law on Strategic Environmental Assessment (SEA), the Law on Environmental Impact Assessment (EIA), the Law on Nature Protection and the Law on Cultural Heritage Protection. These laws ensure that environmental, cultural and heritage considerations are integrated into spatial planning and development processes.

Responsibility for administering and enforcing planning and construction rules lies primarily with the ministry responsible for spatial planning and construction at the national level and municipal authorities at the local level. National authorities are typically responsible for projects of national importance and large-scale developments, while municipalities oversee planning compliance and permitting for most local developments.

The Law on Spatial Planning and Construction of Structures (2017), together with the new 2025 Law on Construction of Structures, regulates the manner and conditions for the construction of structures, the performance of construction activities, and other matters of importance for the construction process. Rulebooks on technical standards, issued under these laws, define specific requirements for materials, construction methods, fire protection, accessibility and seismic resilience.

Development rights in Montenegro are obtained through compliance with applicable planning documents and by obtaining the necessary construction approvals under the construction legislation. Under the Law on Construction of Structures, the development process includes the preparation of technical documentation (such as conceptual designs, preliminary designs and the main project), review of the design, issuance of construction permits, construction works, supervision and the issuance of a use permit.

Development on individual parcels must comply with applicable spatial planning documents and urban planning parameters, including land use designation, building height, floor area ratios and other construction parameters. Investors must also obtain relevant approvals and technical conditions from competent authorities and infrastructure providers before construction can commence.

Construction permits are issued either by municipal authorities or by the competent ministry, depending on the nature and scale of the project. Projects with potential environmental impacts may also require an Environmental Impact Assessment (EIA), while projects located in protected natural areas or cultural heritage zones (such as UNESCO-listed sites) require additional approvals from specialised authorities.

Third parties generally do not have a formal right to object during the construction permitting procedure. However, public participation may occur during the preparation of planning documents or environmental impact assessment procedures. Administrative decisions issued by competent authorities may be challenged through administrative appeals and subsequently before the Administrative Court in accordance with the Law on General Administrative Procedure.

Restrictions on development and land use are enforced through inspection supervision, primarily carried out by construction inspectors from the competent ministry or municipal authorities. Inspectors may conduct site inspections, verify compliance with permits and approved designs, and order corrective measures where violations occur.

The Law on the Legalisation of Illegal Structures also plays an important role in the enforcement framework. It regulates the conditions and procedure for legalising buildings constructed without a construction permit or contrary to such permit. A structure may be legalised if it meets statutory conditions, including compliance with planning requirements and the resolution of property rights over the land.

If an illegally constructed building does not meet the legalisation criteria or the application is rejected, the competent authority may order the removal (demolition) of the structure. The legalisation regime therefore represents an additional mechanism for addressing illegal construction while allowing certain existing structures to be integrated into the formal planning and construction system.

The most common structures used by both domestic and foreign investors for real estate holdings are the limited liability company (LLC), which is the most commonly used in practice, and the joint stock company (JSC), which is typically used for real estate holdings tied to large-scale or complex investment projects.

In practice, the LLC is by far the most preferred and efficient structure for acquiring and holding real estate assets in Montenegro, primarily due to its structural simplicity, minimal capital requirements, and the limited liability protections it offers. It is also commonly used to avoid the restrictions on foreign nationals outlined in 2.11 Legal Restrictions on Foreign Investors.

LLC is a legal entity which may be established by one or more (up to 30) natural or legal persons, whether domestic or foreign. The liability of members is strictly limited to the amount of their capital contributions, offering a protective shield over their personal assets. The LLC is constituted through a founding act, which outlines the founders’ rights and obligations, their contributions, company bodies and other significant matters for company operations.

JSC is a more complex corporate form and is generally reserved for complex real estate development projects. It is subject to more rigorous incorporation and governance requirements. While the JSC offers greater potential for large-scale capital formation, it is typically not the preferred structure for individual or small to medium-sized real estate investors due to its complexity and cost of maintenance. Instead, it is best suited for institutional investors, development companies, or real estate funds operating in the Montenegrin market.

There are no major tax differences between the two. For more details on taxes, please see 2.10 Taxes Applicable to a Transaction.

REITs – as they are commonly known in jurisdictions like the US or the UK – are not currently a recognised or commonly used investment vehicle under Montenegrin law, and Montenegro’s legal framework does not provide for specific structures or tax treatment applicable to REITs. Consequently, REITs are neither recognised nor commonly utilised as investment vehicles in Montenegro. Instead, investors typically rely on standard corporate structures, such as LLC or JSC, as well as investment funds, to acquire, hold and manage real estate assets.

LLC is required to have a minimum share capital of EUR1.00, while a JSC must maintain a minimum share capital of EUR25,000, in accordance with applicable regulations.

While there are no special governance rules specifically for real estate investment entities, all companies must comply with general corporate governance principles under Montenegrin Company Law, including prudent management, proper registration and financial reporting.

Annual entity maintenance and accounting compliance costs vary primarily based on the type of entity and the nature of the underlying real estate investments. As such, these costs cannot be reliably estimated on a general basis.

The most common legal arrangement that permits an individual, company or other entity to occupy real estate for a defined period without acquiring ownership is a lease agreement. Similar rights of use may also be granted through personal easements – such as usufruct, right of use or residential easement.

Commercial lease agreements can cover various types of real estate, including land parcels, commercial spaces (office space, retail store, warehouse, etc), industrial facilities or agricultural land.

The legal framework governing commercial leases is primarily established by the Law on Obligations, which outlines general provisions applicable to all lease agreements, including specific/supplemental provisions for business premises. Beyond this general legislation, specific laws regulate the lease of certain types of properties – particularly those involving state-owned or agricultural lands.

Rents and lease terms are generally subject to free negotiation between the contracting parties. The Law on Obligations governs lease agreements and provides the general legal framework without prescribing mandatory rent limits or fixed lease durations. Parties are free to agree on the rent amount, lease period, renewal conditions and other contractual terms. However, this freedom is subject to mandatory legal rules that aim to protect the fairness and integrity of the lease agreement. For example, the law sets mandatory minimum standards regarding the form of the contract, notice periods, and the conditions for terminating or renewing a lease.

Length of Lease Term

Lease terms for business premises in Montenegro are not strictly regulated and are determined by agreement between the parties. Common durations range from two to ten years for office space and five to 20 years for industrial, warehouse or retail facilities, often with renewal or extension options included.

Maintenance and Repair of the Real Estate Occupied by the Tenant

Unless otherwise agreed, the tenant is responsible for routine maintenance of the leased business premises, including tasks such as cleaning, painting, and minor repairs to installations, as well as paying fees for shared building services. The landlord remains responsible for investment maintenance, which involves major repairs necessary to preserve the structure and functionality of the property or improve its efficiency. If the tenant covers costs that fall under the landlord’s obligations, the landlord must reimburse them.

Frequency of Rent Payments

Unless otherwise agreed, rent is payable semi-annually for leases of one year or more, and at the end of the term for shorter leases. In practice, however, monthly rent payments are most common, while quarterly or other payment intervals are rare but may be contractually arranged.

For fixed-term leases of shorter duration, the rent typically remains unchanged throughout the lease term. Any increase in rent generally occurs only upon extension, subject to mutual agreement between the parties. Conversely, fixed-term leases with longer durations can include mechanisms for rent adjustments.

All rent adjustment terms are subject to the parties’ agreement, as there are no mandatory statutory provisions regulating rent changes during the lease term. The practice varies depending on the lease type and commercial considerations.

If the rent is subject to change or increase during the lease term, the new rent is typically determined based on the terms agreed upon by the parties in the lease agreement. Some common methods include indexation clauses, graduated rent, or rent linked to turnover of the tenant.

If the lease agreement does not specify the method for adjusting rent, any changes typically require mutual agreement between the landlord and tenant, reached through negotiations that consider the prevailing market rent for the type of property involved.

VAT at 21% generally applies to commercial leases, while residential leases over 60 days, as well as leases of agricultural or forest land, are typically exempt. However, VAT applicability may vary based on the lease and parties involved.

In addition to rent, tenants typically pay a security deposit equal to one to three months’ rent to cover damages or unpaid obligations. Notary fees also apply, as lease agreements require notarisation, and these are usually paid by the tenant.

The costs of regular maintenance, necessary and urgent repairs on the residential building and the urban plot are borne by the unit owners. Tenants are not automatically liable, but may be contractually obligated to cover such expenses if agreed in the lease. In non-residential buildings such costs are typically regulated by lease agreements and are often passed on to tenants through service charges or similar mechanisms covering the maintenance of common areas (eg, parking areas and landscaping).

The allocation of costs for shared facilities and common services – such as utilities and telecommunications – can be freely agreed upon between the parties in a lease agreement. Nevertheless, it is common practice for tenants occupying business premises to bear these costs.

In some high-end multi-tenant commercial buildings, it is generally standard practice for the landlord, as the building owner, to handle service contracts and re-invoice tenants proportionally, ensuring streamlined billing and centralised management of shared services.

The responsibility for real estate taxes related to rental properties typically falls on the landlord, as they are the legal owner of the property. This includes the annual property tax and the income tax on rental income. However, if the tenant is a corporate entity and the landlord is a private individual, the tenant may be required to withhold and remit rental income tax on the landlord’s behalf.

The allocation of responsibility for insuring leased real estate is not strictly defined by law and is typically determined by the terms of the lease agreement between the landlord and tenant.

Landlords typically bear the cost of insuring the real estate while tenants are generally responsible for insuring their own contents and equipment. The basic risks covered by property insurance include fire, explosion, storm, hail, lightning strike, civil disturbances and demonstrations, floods and torrents. Additionally, optional coverage can include water leakage from installations, burglary and robbery, glass breakage, installation damage, third-party liability and earthquake.

Lease agreements generally allow the parties to define how the property may be used, with any restrictions typically specified in the contract. While there are no specific statutory limits, the principle of “ordinary use” under the Law on Obligations may apply by default.

The tenant is generally expected to return the property in the condition in which it was received. However, the parties may agree that the tenant can improve or adapt the property to suit its needs, as regulated by their agreement.

Lease arrangements are governed by the Law on Obligations, which sets out general provisions applicable to all leases, while providing more detailed rules for the lease of residential apartments and business premises. Furthermore, the Law on Tourism and Hospitality may apply where the leased property is used for hospitality-related activities, and the Law on State Property may be relevant in cases where the leased property is publicly owned.

Opening insolvency proceedings does not automatically end a real estate lease. However, once insolvency begins, the other party to the lease can only claim unpaid amounts or enforce rights from before the proceedings as an insolvency creditor.

The insolvency administrator has the right to terminate the lease with 30 days’ notice, even if the contract says otherwise. In that case, the landlord can claim compensation, but it is limited to six months’ rent.

If the lease continues, the tenant must keep paying rent as agreed, and those payments are treated as priority claims against the insolvency estate.

If insolvency is opened before the tenant takes possession of the leased property, either the administrator or the landlord may cancel the lease entirely.

A tenant does not have the right to remain in the property after the expiry or termination of a commercial lease unless the parties agree otherwise.

If a tenant remains in possession of the leased premises after the expiration of the agreed lease term and the landlord does not raise an objection, it is deemed that a new lease has been formed for an indefinite period, under the same terms and conditions as the original agreement.

Any third-party security provided in connection with the original lease – such as guarantees or sureties – automatically lapses at the end of the initially agreed term, unless its continuation has been expressly stipulated.

Tenants are legally obliged to vacate the premises at lease end, and while landlords cannot pre-arrange eviction, they may claim damages for any delay.

In residential leases, tenants generally may sublease unless the lease explicitly prohibits it. In commercial leases, subleasing or assigning is not allowed unless the lease permits it. In both cases, landlords often require prior written consent and may impose conditions.

In addition to the lease naturally ending upon expiry of its agreed term, both the landlord and the tenant may usually terminate a commercial lease early under certain conditions.

The landlord may terminate if:

• the tenant continues to misuse or damage the premises despite a written warning;
• rent remains unpaid 15 days after a written demand; and
• the landlord is unable to use their own business premises due to reasons beyond their control and needs to use the leased premises.

The tenant may terminate if the landlord fails, within a reasonable period, to bring the premises into the condition they are obligated to deliver or maintain. Termination is also permitted if legal or practical barriers prevent the tenant from using the space, or in cases of force majeure.

Lease agreements must be concluded in written form and notarised; otherwise, they are deemed null and void.

Leases with a term exceeding five years may be registered in the real estate cadastre as an encumbrance in favour of the tenant, providing the effect of publicity. While registration is not required for validity, it enhances the lease’s opposability to third parties.

Notarial and registration fees apply, and the parties typically determine in the lease agreement which party will bear these costs.

For details regarding lease-related taxes, please refer to 8. Tax.

In the event of a default by the tenant, the landlord may terminate the lease agreement and require the tenant to vacate the leased premises even before the originally agreed termination date.

The process typically begins with the landlord issuing a formal notice of default, giving the tenant an opportunity to remedy the breach – usually within 15 days. If the tenant fails to comply, the landlord may proceed to terminate the lease and initiate court proceedings to obtain an eviction order. If the tenant still does not vacate the premises, the landlord must usually obtain a court judgment and enforce it through formal enforcement proceedings. In such cases, the tenant may be held responsible for court fees, damages, and lost profits.

This legal process can take several months, usually between three and twelve months, depending on the complexity of the case, court workload, and whether the tenant contests the claim. Once the court issues a final judgment, the eviction is enforced by a court bailiff, which may also require additional time. However, this step can be bypassed if the lease agreement is executed as a directly enforceable notarial deed, allowing the landlord to initiate enforcement directly without prior court litigation. No eviction moratoriums or similar restrictions were introduced in response to the coronavirus pandemic.

Under certain conditions, the property of landlords may be subject to expropriation by the government or municipal authorities, as outlined in 2.9 Condemnation, Expropriation or Compulsory Purchase.

In such cases, the expropriation beneficiary (the state, municipality or company in whose favour the expropriation is conducted) is required to provide the tenant with other suitable premises.

It is standard practice for landlords to require tenants to furnish a security deposit, typically in the amount of one month’s rent, though higher amounts may be negotiated in cases involving furnished or high-value properties. The deposit functions as a form of financial assurance, intended to cover any outstanding obligations of the tenant, including unpaid rent, utility arrears, or damage exceeding ordinary wear and tear.

Upon termination of the lease, and assuming the tenant has fulfilled all contractual obligations and the property is returned in acceptable condition, the deposit is refunded.

While there are no statutory caps on the types or extent of damages a landlord may seek in the event of a tenant’s breach, enforcement remains subject to the general principles of contract law. Beyond retention of the security deposit, landlords are entitled to pursue eviction and claim any remaining unpaid rent for the balance of the lease term, as well as initiate civil proceedings for further contractual damages where justified.

The dominant pricing model in construction projects is the fixed price contract – ie, “turnkey” contracts, where the total cost is agreed in advance. It offers clarity and cost certainty, making it the preferred structure in most developments, especially when project documentation is complete and detailed.

Cost-plus contracts are used in more complex or uncertain projects where exact scope and duration are hard to define. A unit price contract involves pricing specific types of work per unit (eg, per cubic metre or square metre), with the final cost determined by actual quantities executed. The choice of pricing structure depends on the project’s complexity, the clarity of documentation and how risk is allocated between the parties.

The contractor who builds a structure is liable for any serious defects related to the construction itself – especially those affecting the building’s structural integrity – for a period of ten years from the moment the works are completed and formally handed over.

This ten-year liability also includes issues that might arise from the land on which the building was constructed, unless a specialised expert organisation had confirmed the land was suitable for construction and no warning signs appeared during the works.

Importantly, if the defect originates from the design or project documentation, the designer (ie, the architect or engineer) shares the same liability as the contractor. Both the contractor and the designer are responsible not only to the original client who commissioned the works but also to any future owner of the property.

Finally, this legal responsibility cannot be waived or limited by contract – it is mandatory and protects all owners during that ten-year period.

When both the contractor and the designer are liable for damage, their individual responsibility is determined in proportion to their respective fault. If the designer was also responsible for supervising the construction, they may be held liable for defects caused by the contractor if such defects could have been noticed through normal and reasonable supervision. In such cases, the designer may seek reimbursement from the contractor. Likewise, a contractor who compensates for damage caused by construction defects originating from design flaws may recover that amount from the designer to the extent of their responsibility. If a subcontractor is at fault, the main contractor must notify them within two months of being informed of the defect by the client, in order to preserve the right to claim compensation.

Construction risk is typically managed through a combination of practical and financial instruments. Appointing a licensed construction supervisor is key, as they monitor compliance with the design and technical regulations and help prevent costly errors.

Contractors are usually required to have professional liability insurance, which covers risks related to defects or non-performance. It is also standard practice for contractors to provide bank guarantees – such as a performance guarantee and a warranty guarantee – to secure proper execution of works and remedy of any defects during the warranty period.

Schedule-related risk in construction projects is typically managed through contractual penalty clauses for delays. Construction contracts commonly include provisions that impose penalties for missing the final completion date, as well as for failing to meet specific interim milestones.

Project owners commonly require additional security to ensure contractor performance, particularly on high-value or technically complex developments. The most commonly used instruments include performance bonds, letters of credit and parent company guarantees. The need for such security is assessed based on the project’s size, complexity and the contractor’s financial standing.

While it is legally possible for contractors or designers to encumber a property in case of non-payment, this is not a commonly used mechanism. Such encumbrance would require an explicit agreement between the parties and proper registration in the real estate registry to be effective.

Any registered lien can be removed through a deletion statement, typically following payment or a settlement between the parties. In practice, contractors do not usually hold security over the property. Construction contracts are generally structured around progress payments, made upon the investor’s acceptance of certified work stages submitted by the contractor.

A project may be used for its intended purpose only after a use permit has been issued by the authority that granted the construction permit. This permit confirms that the building is suitable for use and is issued following a technical inspection of the completed works.

The technical inspection assesses compliance with the construction permit, the approved design and all applicable standards and regulations. For family residential buildings, a technical inspection is not required; instead, a contractor’s statement confirming compliance is sufficient to establish suitability for use.

VAT at 21% applies to the first sale of newly built properties and the sale of land designated for construction by a VAT-registered entity. In such cases, RETT does not apply. See 2.10 Taxes Applicable to a Transaction.

A 0% VAT rate applies to transactions involving real estate intended for the official use of diplomatic missions, the personal use of foreign diplomatic and consular staff (including family members), and the official or personal use of international organisations and their foreign staff, where such exemption is provided by an international agreement.

Taxes are mandatory, and there is no legal way to fully avoid them. While parties may structure transactions through different mechanisms – such as an asset deal or a share deal – to better align with their commercial or tax planning objectives, some form of tax liability will still be triggered in either case. The choice of structure may influence the type and timing of taxation, but it does not eliminate the obligation entirely.

There is no direct municipal tax equivalent to business rates. Instead, municipalities generate revenue through two primary local taxes: property tax and a municipal surtax on personal income tax. Property tax is levied annually on real estate owners, including businesses, with rates generally ranging from 0.25% to 1% of the property’s market value. The municipal surtax is applied to personal income tax (eg, personal income from rent), with rates varying by municipality – typically 13% to 15%.

Foreign investors earning income from Montenegrin sources are subject to a 15% withholding tax. This applies to various types of income, including dividends, interest, royalties and capital gains.

However, the applicable rate may be reduced under a Double Taxation Treaty (DTT) between Montenegro and the investor’s country of residence. Montenegro has signed DTTs with over 40 countries, including France, Germany, Italy and the UK, but not with the United States or Canada. Rental income is taxed at a flat rate of 15%. Property owners, regardless of residency status, are responsible for this tax. Taxpayers can deduct actual expenses incurred in generating rental income, provided these are documented. Alternatively, standard deductions are available: 30% for long-term rentals, 50% for short-term rentals registered with Montenegro’s tourist tax system and 70% for short-term rentals facilitated through travel agencies. Rental income must be reported in the annual tax return, typically due by 30 April of the following year. Capital gains from the sale of real estate are taxed at 15%. The seller is liable for this tax, and for non-residents, a 15% withholding tax is applied to the capital gain. Certain exemptions apply, such as transfers between spouses, parents and children, and the transfer of property used as the taxpayer’s primary residence.

Tax benefits from owning real estate primarily apply to legal entities rather than individuals. Legal entities can claim depreciation on buildings (excluding land) as a deductible expense, which reduces taxable income over time. Depreciation is calculated using the straight-line method, typically at a rate of 2.5% annually. However, individual property owners do not benefit from depreciation deductions or other direct tax incentives solely for owning real estate.