Case number: U-I-203/93 ECLI: ECLI:SI:USRS:1995:U.I Challenged act: Law on the Slovene Compensation Fund, articles 9, 10, 11 and 12

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1 Case number: U-I-203/93 ECLI: ECLI:SI:USRS:1995:U.I Challenged act: Law on the Slovene Compensation Fund, articles 9, 10, 11 and 12 Operative provisions: The Law on the Slovene Compensation Fund, and its provisions in articles 9, 10, 11 and 12 are not in conflict with the Constitution. Abstract: 1. The legislator legalised exceptional sources of finance for public use for the Republic of Slovenia and municipalities as local communities, for transforming ownership and privatising apartments and residential houses according to the Housing Act, which it quantified with the Law on the Slovene Compensation Fund. 2. Until the quantification of sources for financing the Slovene Compensation Fund, municipalities were not bound to set aside part under the heading of the purchase price of housing sold under the Housing Act for the financing of the Fund because the provision of article 49 of the Law on denationalisation did not quantify their obligations. The retroactive use of the Law on the Slovene Compensation Fund would mean a violation of article 155 of the Constitution. Thesaurus: Exceptional source of financing public use (compensation fund). Ownership transformation and privatisation of apartments and residential houses. Budget Right to private property and inheritance. Property. Dispossession. Legal basis: Constitution, articles 33, 67, 69, 146, 147, 148. Law on denationalisation, article 49 Housing Act, articles 111, 112, 113, 114, 116 and 117 Law on the Constitutional Court, article 21. Cases joined: PDF Format: U-I _English.pdf Full text: U-I-203/ /1-1995

2 JUDGEMENT At a session held on 19/1-1995, in a proceeding for assessing constitutionality initiated at the proposal of the Executive Council of the Assembly of the Municipality of Piran, the Constitutional Court reached the following judgement: The Law on the Slovene Compensation Fund and its provisions of articles 9, 10, 11 and 12 (Official Gazette RS, no. 7/93, 48/94) are not in conflict with the Constitution. Reasoning: A. 1. The proposer claims that the Law on the Slovene Compensation Fund (hereinafter: ZSOS) is in conflict with articles 2, 33, 67, 69, 146, 147, 148 and 155 of the Constitution, and proposes that the Constitutional Court annul it. If the Constitutional Court were not to annul the Law, the proposer subordinately proposes that the provisions of articles 9, 10, 11 and 12 be annulled. The Law is said to encroach on its ownership rights when, in article 9, it defines part of the purchase price obtained by the sale of housing under the Housing Act (Official Gazette RS, no. 18/91) as a source of financing the fund. The proposer further claims that the provision of article 9 is deficient in the technical legal sense, since social housing, according to the conviction of the proposer, no longer existed on the day of validation of the impugned law and this provision can be binding on no one. In article 10, the Law determines that those liable for payment are the owners of former social housing, although the proposer believes that this obligation refers only to the previous holders of rights to the use of social housing and thus not to municipal property because this is the State's. The provision of article 10 is said to be in conflict with articles 33 and 67 of the Constitution. The Housing Act, according to the claims of the proposer, regulated obtaining ownership of housing, and housing thus obtained owners. The impugned provisions of the Law expropriate these owners, according to the claims of the proposer, without the conditions for this under article 69 of the Constitution being met. The impugned provisions of the Law are thus said to have retroactively encroached onto the obtained rights of local communities in conflict with the first and second paragraphs of article 155 of the Constitution. It claims that municipalities became the owners of housing 8 days after the promulgation of the Housing Act and that the purchase price for the sale of housing from the day of concluding the contract of sale is their property. Equally, in the conviction of the proposer, that part of point b of article 9 of the impugned law is anticonstitutional that determines that the purchase price for the sale of nationalised housing shall fall to the Fund if the claimant under the Law on denationalisation (hereinafter: ZDen) has not validated a claim, and the provision of article 10 according to which 10% of the value of the purchase price goes to the Compensation Fund. The proposer further claims that the provision which requires the owner to pay 20% of the purchase price to the Compensation Fund is unreasonable and that it is in conflict with the principle of a legal state. The impugned law is said to expropriate local community resources which they obtained on the basis of the Housing Act.

3 The proposer claims that on the basis of articles 146 to 148 of the Constitution, the State and local communities obtain resources for carrying out their tasks through taxes ands other mandatory dues, and income from their own assets. The provisions of articles 9, 10, 11 and 12 of the impugned law are said to be in conflict with article 146 of the Constitution. The disputed provisions of the Law do not, in the conviction of the proposer, prescribe dues. In article 148, the Constitution determines that all income and expenditure of the state shall be contained in the budget. In accordance with this constitutional provision, the Law on financing public expenditure (Official Gazette RS, no. 48/90, 34/91, 30/92) prescribes that the Republic of Slovenia and municipalities obtain income from taxes and other dues and that the Republic and municipalities independently dispose of their income. In the view of the proposer, the impugned law introduces unsystematic public expenditure and unsystematic disposition of financial sources. The Fund, owned by the Republic, may obtain resources from the founder and from business. The proposer is convinced that it is not possible to bind local communities to finance a fund which they did not found. The proposer further claims that the majority of municipalities adopted their budgets prior to the validation of the impugned law and also included in the budget the purchase price from the sale of housing owned by the municipality. On the basis of planned income, the municipalities have also planned expenditure. The proposer claims that on the basis of the budget with which they distributed intended budget resources by responsible body, it concluded a number of contracts, the realisation of which would be prevented in the event of the implementation of the impugned law. The proposer claims that the law encroaches on the obtained rights of the signatories to the contracts. 2. The National Assembly did not answer to the proposal of the proposer. B. 1. The Housing Act, which took effect on 19/ , by the provisions of chapter VIII terminated social ownership of apartments and residential houses. The municipalities and the Republic of Slovenia became the owners of social apartments and residential houses to which working communities of state bodies, bodies of socio-political communities and former socio-political organisations had the right to use, and apartments and residential houses intended for the bearers of social functions and other social housing to which municipalities and the Republic of Slovenia had the right of use. The municipalities also became the owners of housing which had been obtained with solidarity and reciprocal funds of the housing economy, and social apartments and residential houses which had become general public assets on the basis of regulations on nationalisation cited in articles 3 and 4 of ZDen. The Housing Act thus determined the owners of former social housing and at the same time imposed on them the obligation to sell (the housing) on the demand of the holder of accommodation rights within a time limit of two years. In connection with the sale, the Law prescribed the manner by which the level of purchase price be established, and conditional and unconditional rebates. On 7 December 1991, ZDen (Official Gazette RS-I, no. 27/91) took effect, which determined in article 49 the sources of funds of the future Slovene Compensation Fund. In addition to other sources, it legalised as a source part of the purchase price obtained from the sale of social apartments and residential houses and business premises which matched the share of the joint funds of the Housing Fund at the time of purchase of the new social housing, and the entire purchase price obtained from the sale of nationalised housing, if it is a paid transfer from social ownership to persons who are not claimants (whose claim has been deemed admissible) on the basis of ZDen. The Law did not quantify sources of funds of the Slovene Compensation Fund, and left the regulation of this matter to a special

4 law which would regulate the founding and other questions in connection with the operation of the Fund. This was adopted on 26/ and took effect 15 days after its promulgation, i.e. 19/ In accordance with the Law, the Fund, whose only founder is the Republic of Slovenia, is defined as a financial organisation for settling obligations to claimants under ZDen, the Law on cooperatives and other regulations that arrange the denationalisation of property. Funds for covering the obligations of the Fund from the issue of bonds, shall be formed according to article 9 on the basis of administering and disposing of value papers and from other resources. The impugned Law refers to the provisions of ZDen and defines as a source of the Fund the entire purchase price obtained from the sale of social apartments and residential houses, if the claimant under ZDen does not validate a claim. At the same time, it only quantifies in general terms the defined sources and determines that 10% of the purchase price obtained from the sale of social apartments and residential houses shall also be a source of the Fund (article 10). In accordance with article 12 of the impugned Law, those liable to payment of funds are bound to pay a 10% share from the purchase price into the Compensation Fund by the 10th day in the current month for income in the past month. In the process of transforming the legal and political system in the Republic of Slovenia, the legislator, even prior to regulating the ownership transformation of companies and denationalisation, by the adoption of the Housing Act regulated the ownership transformation and privatisation of apartments and residential houses in social ownership. Housing in social ownership was a social resource with a specific purpose. As a resource administered by a legal subject it served to satisfy common needs. Accommodation rights which rightholders obtained, guaranteed them as an obtained right, permanent use of the housing. In view of such a nature of housing as a social resource, the legislator regulated the ownership transformation of housing separately and independently from the ownership transformation of other social resources or capital. The Housing Act determined in articles 111, 112, 113 and 114 that the Republic of Slovenia, municipalities, the Association of retirement and invalidity insurance and other legal persons who had the right of use to social apartments and residential houses become the owners of these, and citizens the owners of housing if they resolved the housing question with the rearrangement or reconstruction of common spaces in apartment houses. The legislator thus terminated the right to use of apartments and residential houses and changed this right into a property right of legal persons (article 116). At the same time, in article 117 of the Law, the legislator regulated the privatisation of apartments and residential houses. It bound subjects who had become owners of former social housing on the basis of articles 111, 112, the first paragraph of article 113 and article 114, to sell the housing at the demand of the holders of the accommodation rights, under conditions and according to prescribed procedures. Housing or apartment houses in social ownership were, as has been stated, specially intended resources administered by legal subjects. With the recognition of the ownership rights of former bearers of the rights to use of apartments and residential houses, their status from a legalorganisational point of view did not change. The former users of social housing remained subjects with social capital or state resources intended for financing public expenditure. Ownership transformation and privatisation of apartments and residential houses is part of total ownership reform whereby the capital of companies in social ownership obtained owners, and through the motivation of ownership a higher level of economic effectiveness. The process of ownership transformation is thus oriented towards generating active forms of ownership - the greater the share of active ownership in comparison with passive, the greater significance will ownership transformation have. The legislator's decision to arrange the question of ownership transformation, or privatisation of apartments and residential houses separately from the ownership transformation of active social capital is thus in accordance with the aim of the ownership transformation of social property. The

5 legislator arranged ownership transformation and privatisation of apartments and residential houses simultaneously. At the same time, he also determined the manner and conditions of sale through which privatisation was implemented. With the adoption of ZDen, which took effect on 7/ , the legislator envisaged in article 49, the founding of the Slovene Compensation Fund, which will guarantee funds for covering obligations to denationalisation claimants. In the same provision, the legislator envisaged sources for this Fund. It determined as one of the sources part of the purchase price obtained by the sale of social apartments and residential houses and business premises, which matched the share of the joint funds of the Housing Fund at the time of purchase of the new social housing, and the entire purchase price obtained from the sale of nationalised housing if such paid transfers are from the ownership of the former users to persons who are not claimants under ZDen. The ownership transformation of social property is a form of transformation of the economic and legal system in the Republic of Slovenia. The Constitutional Court is not competent to judge the appropriateness of the manner of transforming social property into property with known owners; it considers only whether the regulations which arrange ownership transformation are in accordance with the Constitution. On the basis of the above mentioned, the Constitutional Court considers that the measure from article 49 of ZDen whereby the legislator determined the obligation of owners of former social housing to pay from the purchase price a proportion which matches the share of the joint funds of the Housing Fund at the time of purchase of the new social housing, does not quantify a measure according to which it would be possible to determine the obligation of those liable. The Law determined only the starting point, but did not define the manner by which the share of joint funds of the Housing Fund should be established, nor whether and how the value of this share should be price-adjusted, and nor did it establish the relation to the manner of establishing the sales price of former social apartments and residential houses defined by the Housing Act. Such a norm, in the view of the Constitutional Court was not implementable. The obligation of owners of former social apartments and residential houses was determined only by the impugned law, which determined that former owners must pay part of the purchase price from the sale of housing, to a level of 10%, to the Slovene Compensation Fund. Until the validation of the impugned law, the obligation of owners of former social housing to pay part of the purchase price from the sale of apartments and residential houses to these right-holders was not determined, so in the view of the Constitutional Court, those liable are bound to divert part of the purchase price to the Slovene Compensation Fund from the validation of the impugned law. The retroactive use of the provision of the impugned law that defines part of the purchase price as a source of the Slovene Compensation Fund (first indent of article 10), in the judgement of the Constitutional Court would be an encroachment on obtained rights of owners of former social housing and would be in conflict with article 155 of the Constitution. The obligation of owners of former social housing defined in article 49 of ZDen, that they pay to the Slovene Compensation Fund the entire purchase price for the sale of nationalised housing if such paid transfers are from social property to persons who are not claimants under ZDen, is determined and the owners so bound from the validation of ZDen onwards. It follows from the above mentioned that articles 9, 10, 11 and 12 of the Law are not in conflict with articles 33, 67 and 69 of the Constitution as claimed by the proposer. The primary application of the proposer was that the Constitutional Court should annul the Law in entirety. However, the proposer's application for the annulment of the entire Law was not argued or was sustained only by claiming the

6 anticonstitutionality of individual articles. He thus even cited that it is the right of the State, in accordance with the Law, to found societies, funds and other legal subjects. For these reasons, the Constitution finds that the proposer's primary proposal for the annulment of the entire Law clearly not founded, and thus rejects the application. 2. The entire Law, and articles 9, 10, 11 and 12 of the Law in particular are also not in conflict with constitutional provisions on public finances, in particular with the provisions of articles 146, 147 and 148 of the Constitution. The Law on financing public expenditure regulated the financing of functions which the Republic of Slovenia and municipalities performed in accordance with the Constitution and Law. For financing public expenditure, income accrued to the Republic and municipalities from taxes and other dues defined by Law, and other income in accordance with specific laws. The Republic and municipalities are competent in accordance with the Constitution to dispose independently of their income, but all income must be embraced in the budget of the Republic, or in budgets of the municipalities. With the ownership transformation and privatisation of apartments and residential houses under the Housing Act, and with the ZDen, in the view of the Constitutional Court the legislator determined a special source for financing the public expenditure of the Republic and the municipalities, and with the impugned Law he quantified that source. By the provision of article 49 of ZDen, the legislator determined the obligation of the owners of former social housing to pay part of the purchase price from the sale of housing under the Housing Act, as a source of funds of the Slovene Compensation Fund, and with the impugned law it determined that that part shall amount to 10%, or the entire purchase price, if the rightful claimant does not apply for denationalisation of the housing, and the apartment or residential house was alienated from persons who are not denationalisation claimants. The Law on financing public expenditure determined original sources for financing the functions of the State and municipalities as local communities. On this basis, the Republic and municipalities make a plan of income and expenditure which they adopt in the form of annual budgets. By the Constitution and Law, specific functions for which a municipality cannot ensure funds from specific regular sources of finance, the Republic guarantees from the budget from funds for financial settlement. Regular sources of financing public expenditure must be defined at the time of preparation and adoption of the budgets of the Republic and municipalities and must remain unchanged during the period for which the budget has been adopted. Such an obligation on the legislator is a condition for ensuring the legal security of the Republic, municipalities, bearers of public functions and third persons who conclude legal relations with these subjects for carrying out planned functions. The obligation on the legislator of the unalterability of budget sources and their levels during the year for which the budget has been adopted in the judgement of the Constitutional Court is not essential in exceptional sources of finance. The legislator, as has been noted, determined such an exceptional source of financing public expenditure to the benefit of the Republic and municipalities with the Housing Act, ZDen and the impugned Law, when it prescribed that as the owners of former social housing, the purchase price from their sale to the level of the remainder after payment of the prescribed share to the Housing and Compensation Funds, goes to them. The Republic and municipalities must respect in forming the budget, the possibility of changes in the financing of public expenditure from exceptional sources, the legal security of users and executors of public expenditure, and take measures which the Law on financing public expenditure envisages in the event of unplanned expenditure of funds. In the case being dealt with, in view of article 49 of the ZDen and in view of the fact that at the time of forming the budget for 1993, the draft of the proposed law was already formed, the obligation of owners of former social housing to pay part of the purchase

7 was anticipated. The proposer's claims that the impugned law effected legal security and encroached on the obtained rights of users and executors of public functions are not therefore well founded. The obligation that the impugned Law quantified, even in amount, is not such that it could importantly influence the extent of budget resources and the legal security of bearers and users of public expenditure. In accordance with article 148 of the Constitution, all income and expenditure of the State and local communities for financing public expenditure must be embraced in their budgets, although the Compensation Fund is an institution whose function is connected with the changes of the economic and legal order of the Republic of Slovenia and is thus of an exceptional and transitional character. In accordance with the above mentioned, the Constitutional Court finds that the impugned Law is not in conflict with the provisions of articles 146, 147 and 148 of the Constitution as the proposer claims. With the adoption of the Housing Act, the legislator regulated the privatisation of housing which was administered by legal subjects as a specially intended resource. At the same time, the owners of former social housing defined in articles 111 and 112 were obliged to transfer to the Housing Fund part of the purchase price obtained from privatisation of housing (except housing intended for employees of Republican state bodies). The legislator thus ensured intended use of part of the purchase price for implementing housing policies in Slovenia and resolving the housing needs of the young, young families, families with several children, invalids and families with invalid members and citizens who have not yet resolved their accommodation needs. The Constitutional Court rejects the claim of the proposer that by determining an obligation to the Housing and Compensation Funds, the Law expropriated local community resources which they had obtained with the Housing Law. The claim that article 9 of the impugned law is technically deficient and that it binds no one is equally unacceptable. Ownership and privatisation, as has been said, enabled the transformation of social property into private property. The proposer's understanding of article 9 of the impugned law is thus not correct. With the Housing Act, ZDen and the impugned law, the legislator determined an exceptional source of financing public expenditure of the Republic and local communities. The impugned law supplemented the Housing Act and ZDen, on its basis was finally determined the level of purchase price to which the Republic and municipalities are entitled as an exceptional source for financing public expenditure. If, therefore, the obligation of owners of former social housing to transfer a part of the purchase price obtained from the sale of housing under the Housing Act to the Slovene Compensation Fund refers to the period after the validation of the impugned law, this does not encroach on their ownership and is not in conflict with articles 33 and 67, nor with article 69 of the Constitution. Denationalisation is intended, in line with the principle of justice, to repair injustice to those whose property was nationalised. In order for the legislator to perform this task and in order to affect tax payers as little as possible, it defined as a source of funds of the Slovene Compensation Fund part of the purchase price obtained from the sale of housing by owners of former social housing. In the Constitutional Court's view, the legislator did not in this violate the Constitution as the proposer claims and the Constitutional Court is not competent to assess the appropriateness of the level of the source. C. The Constitutional Court adopted this resolution on the basis of article 21 of the Law on the Constitutional Court (Official Gazette RS, no. 15/94), composed of: president Dr. Tone Jerovšek and

8 judges Dr. Peter Jambrek, Mag. Matevž Krivic, mag. Janez Snoj, Dr. Janez Šinkovec, Dr. Lovro Šturm, Franc Testen, Dr. Lojze Ude and Dr. Boštjan M. Zupančič. The resolution was adopted with seven votes against two. Judges Testen and Krivic voted against. President Dr. Tone Jerovšek Type of procedure: ocena ustavnosti in zakonitosti predpisov in drugih splošnih aktov Type of act: zakon Applicant: Executive Council of the Assembly of the Municipality of Piran Date of application: Date of Decision: Type of decision adopted: odločba Outcome of proceedings: ugotovitev ni v neskladju z Ustavo/zakonom Published: Official Gazzete of the RS, no. 18/95 and OdlUS IV, 6 Document: AN00726