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This Real Estate and Construction Newsletter is part of our series covering significant developments in construction, real estate and environmental law.
1. New framework environmental act affects all users of the environment The new General Part of the Environmental Code Act (GPELA) entered into force on 1 August 2014. This framework law finally sets the main definitions, principles, requirements and general provisions as to the issue of environmental permits. In the future, the GPELA will be complemented by a Special Part of the Environmental Code Act which will include specific regulation for various fields.
2. New Industrial Emissions Act and best available techniques The new Industrial Emissions Act (IEA) entered into force on 1 June 2013, repealing the former Integrated Pollution Prevention and Control Act (IPPCA). The IEA transposed the requirements of Industrial Emissions Directive 2010/75/EU. The IEA applies to some 270 plants and installations across Estonia and introduces a number of changes to earlier regulation. Most significantly, conclusions regarding best available techniques (BAT) are compulsory. According to the IEA, administrative agencies must strictly apply the requirements of BAT conclusions when issuing an integrated permit. Meanwhile, the IPPCA allowed administrative agencies to specify higher emission limits than achievable by BAT. BAT conclusions must be adopted as an implementing decision under a regulatory procedure in line with Article 75 of Directive 2010/75/EU. These decisions are implementing acts within the meaning of Article 291 TFEU, so that administrative agencies issuing integrated permits must follow the requirements of BAT conclusions even if these requirements have not yet been transposed into national law. The European Commission adopted four BAT conclusions as implementing decisions in 2012–2013. Under Article 13 (7) of Directive 2010/75/EU and Section 166 of the IEA, BAT reference documents adopted by the European Commission will apply as BAT conclusions until decisions of the European Commission containing BAT conclusions enter into force. An additional BAT conclusion concerning shale oil production is established by an order of the Estonian Minister of the Environment.
3. Amendments to the Chemicals Act The Ministry of Economic Affairs and Communications has issued draft amendments to the Chemicals Act, pending approval. These relate to transposition of an EU directive and are aimed at reducing and preventing suspicious transactions with explosive materials. Besides explosives manufacturers, these amendments concern fertiliser, metal and other industries which also use explosives precursors. According to the draft, persons who do not need chemicals in their economic or professional activities may only acquire and store chemicals that are available in the retail trade and must store and handle these chemicals so as to avoid any hazard to the person storing or handling the chemicals, or to other persons or property or the environment. This means that both natural and legal persons may no longer acquire or store chemicals available in the wholesale trade except for use in economic or professional activities. Another significant amendment is a ban on cash transactions with compounds containing explosives precursors in concentrations exceeding the limits set out in Annex I of Regulation (EU) No 98/2013 of the European Parliament and of the Council. According to Annex I of the Regulation, these include nitrogen hydrogen peroxide, nitromethane, nitric acid, potassium chlorate, sodium chlorate, potassium perchlorate and sodium perchlorate. Furthermore, wholesale traders of compounds exceeding concentration limits set out in Annex I of the Regulation must file an economic activity notice for the wholesale trade in line with the General Part of the Economic Activities Code Act which entered into force on 1 July 2014 (Section 16 (3) and (4) of the draft).
4. Changes introduced by the new EIA Directive On 14 April 2014, the European Commission adopted changes to Directive 2011/92/EU on the assessment of the effects of certain public and private projects on the environment, known as the EIA Directive. The amendments are based on a 2009 survey by the European Commission which indicated the need to strengthen environmental protection, expedite proceedings and reduce costs. In Estonia, the Directive has been transposed as the Environmental Impact Assessment and Environmental Auditing Act (EIAEAA). The following is a list of main amendments affecting the EIAEAA: Changes in EIA procedural requirements
Changes in EIA content requirements
Impartiality and avoidance of conflicts of interest
Under the Directive, member states have three years to transpose the amendments (the deadline is 16 May 2017). Currently no information is available on relevant amendments to the EIAEAA in Estonia. We will let you know about any further developments.
5. Supreme Court explains the meaning of built-up area in detailed plans and legal consequences of illustrations in planning documentation The Supreme Court issued a judgement on 4 June 2014 to address the previously controversial definition of built-up area in detailed plans and the legal consequences of illustrations contained in planning documentation. In the underlying case, the owner of land disputed the detailed plan of neighbouring land where a planned house was accompanied by a 200 m2 terrace which significantly exceeded the maximum built-up area provided in the general plan. The Supreme Court found that the term “maximum area to be occupied by buildings“ used to denote a plot’s total building rights in the Planning Act is not identical to “ground surface area” used in the Building Act and in building permits. The area occupied by buildings concerns buildings only and area restrictions set out in a general plan do not apply to separate structures such as terraces. Nevertheless, the area of terraces should subsequently be indicated in a building permit. The Court also explained the legal consequences of illustrations attached to a planning solution. It found that although an illustration may reflect the intent of the person preparing the plan, it cannot serve as a reliable basis for establishing the connectedness or position of buildings or structures. These illustrative images do not determine the engineering solutions used in a planned building or structure. Nor would an illustration be sufficient to claim that a planning solution violates general plan requirements relating to the permitted building area. The Supreme Court thus found that an illustration of a planning solution is merely visual material which cannot be used to establish the suitability of a detailed plan. In the context of general plan restrictions, this essentially means that the area of planned buildings may be calculated without pools, terraces or other non-building structures, and neighbours will have little chance to successfully dispute that choice. The Supreme Court ruling would also allow for an interpretation that these non-building structures can be designed and constructed outside the built-up area designated in a detailed plan. Furthermore, illustrations attached to a planning solution cannot serve as a basis for establishing the suitability of a detailed plan.
6. Supreme Court clarifies preconditions for demanding access to a public road The Supreme Court recently reversed its practice relating to claims for access to a public road. Courts had previously ruled that the right to claim access over the property of another is conditional upon a clear and physical lack of any access to a public road from the applicant’s property. According to the Supreme Court’s new position, a landowner may file a petition with a court even if access to a public road has been unhindered thus far but the other party has rejected a proposal to formalise the customary access scheme by means of an agreement or for a reasonable fee set by a court. The Supreme Court thus found that courts should also accept precautionary claims in that regard.
7. Supreme Court specifies prerequisites for damages claims relating to repealed detailed plans In a recent judgment, the Supreme Court took a position on the long-standing issue of whether and to what extent a property owner can claim damages from a local government (LG) which has repealed an existing detailed plan. Firstly, the Court found that a right of claim arises if a detailed plan is repealed and a landowner suffers damage due to reliance on the validity of the plan. The Court explained that LG may not arbitrarily cancel implementation of a detailed plan. This would violate the prohibition of arbitrary action by a public authority and result in disproportionate restriction of property rights and free enterprise. Upon repealing previously established detailed plans, LGs should carefully assess the proportionality of restrictions on landowners’ rights and interests with the objectives of repealing a detailed plan. As for the amount of damages, the Supreme Court ruled that full compensation of all material damage caused by repealing a detailed plan is not mandatory. The amount of compensation should have a causal relation to a landowner’s acts in reliance on the validity of the administrative act. As a first measure, confidence damages should be awarded relating to the landowner's acts to exercise its rights in reliance on the plan. This includes the cost of preparing the detailed plan plus design costs relating to consultations with engineers and architects. However, a landowner may not claim damages for the period during which it was already aware of the risk of the administrative act being repealed. The Supreme Court also set guidelines for the procedure for repealing administrative acts. The Court emphasized the importance of the duty to give explanations. It noted that an administrative authority undertaking repeal proceedings should notify affected persons of their right to compensation and gather information and evidence for establishing the amount of damages. If the amount of damages is to be established by a lengthy procedure, an administrative authority may issue a preliminary administrative act to resolve certain issues within the procedure. The Court also stressed that an administrative authority should pay compensatory interest from the time of repealing an administrative act until the time when damages are paid out.
8. Supreme Court explains warranty obligations with regard to third persons In a recent judgment, the Supreme Court considered a builder’s warranty obligations under the Building Act and a contract for services and found that, unless expressly agreed otherwise, the warranty obligations set out in a contract for building works extend to a person who was not a party to the initial contract, such as the subsequent buyer of a building. The Supreme Court explained that the owner of a building also benefits from a statutory warranty under the Building Act. If a building contractor includes a warranty in the contract for services, the terms also extend to each subsequent owner of the building or to a third party. The court found that a warranty contract creates an obligation to ensure that works have agreed properties and no defects. The issuance and validity of the warranty do not depend on the contract for services. This essentially means that a subsequent owner of a building also benefits from the warranty agreed in a contract for services, although the new owner is not a party to the building contract concluded by the former owner (e.g. a developer).
9. Supreme Court restricts use of own-benefit servitudes by developers In a recent judgment, the Supreme Court restricted the common practice by real estate developers of encumbering developments with various restrictions enabling developers to retain control over properties after their sale. In the specific dispute, a developer applied for entry into the land register of a free and time-limited personal right of use requiring each subsequent owner of the property to refrain from certain noise-generating activities. The developer also applied for entry of a restriction which would have banned each subsequent owner from contaminating the property and damaging the biotic community outside the plot. Additionally, the developer applied for entry of a preventive servitude which would have specified the exact nature of buildings permitted on the plot. The Supreme Court found that the entry of these personal rights of use into the land register was not permissible. The Court explained that such an arrangement would essentially obligate the developer itself to refrain from certain acts. The law does not allow applicants to establish real right obligations for themselves, the Court noted. Such a transaction is contrary to the legal essence of a personal right of use and the entry applied for was therefore inadmissible. The Court explained that a thing cannot be encumbered with a personal right of use unless the beneficiary has a legitimate interest requiring protection. Itfound that a personal right of use to the benefit of the developer cannot be established simply because the developer wishes to prevent each subsequent owner’s construction noise during certain hours, contamination of the plot or damage to nature outside the plot. The Court noted that the benefits of refraining from such activities mostly relate to the interests of the owners of neighbouring properties. The Supreme Court decision is, in essence, an opinion regarding the common practice by developers of attempting to control developed properties after selling them. The Court found that developers did not have legitimate interests which could be protected by such personal rights of use and these entries are thus not permitted in the land register.
10. Supreme Court acknowledges apartment owner’s right to exercise claims against co-owners in respect of an apartment association In a recent judgement, the Supreme Court took a position in the debated issue of whether an apartment owner with claims against other owners would be entitled to offset those claims against an apartment association. In the dispute, an apartment association filed a claim against an apartment owner for unpaid utility and management bills. The apartment owner argued that he was not obliged to pay the bills as he had repaired the roof of the apartment building at his own expense and was entitled to offset those costs against utility and management charges. The Supreme Court agreed with the logic that an apartment owner who has claims against other owners can exercise those claims in relation to the apartment association, for example by offsetting the claims against an apartment association’s claims for utility and management charges. Also significantly, the Court upheld the notion that if the roof of a building is dilapidated and an apartment association fails to take appropriate measures within a reasonable period, an apartment owner may order the required repairs itself without prior authorisation from the apartment association or other apartment owners.
11. When does an investment club become an investment fund? Collective investments in real estate or development projects are rather common in Estonia. One party with a plot and designs and another with money or a group of friends investing together are just some examples. These joint activities are sometimes referred to as investment clubs. Amendments to the Investment Funds Act, which entered force in May, aligned Estonian legislation with the Alternative Investment Fund Managers Directive. However, even relatively modest investment clubs may now fall under the extensive and vague definition of alternative funds provided in the Directive and the Act. Under the Act, an alternative fund is a pool of assets, or a person established for collective investment, which does not fall under the definition of other investment funds. As for investment clubs, significant exceptions include pools of assets actively managed by the owners of the assets or assets pooled by families or similar groups. Special attention is required from those developing real estate or other projects with contributions from investors who are not family members or who do not actively participate in project implementation on a daily basis. These persons may have unwittingly become fund managers within the meaning of the amended Act. If an alternative fund does exist, the fund manager must register with the Financial Supervision Authority. Both the manager and the alternative fund must file information for registration. Registry data should be updated once a year. Failure to do so may result in a fine, but also investors’ claims against a fund manager in case of failed investments. The existence of an alternative fund may also have other consequences besides the requirement to register. For example, fund status may create an auditing requirement or prevent deduction of input VAT for some services. The provisions are new and practice is lacking, so that some consequences may be hard to predict. However, the amendments are already in force and should be taken into account when planning new activities. Existing projects should have been brought into compliance with the Act by 22 July. Hopefully, the supervisory agency will issue more specific implementation guidelines to clarify the situation.
12. Urmas Volens co-authors book on the Law of Property Act Urmas Volens, head of the SORAINEN Real Estate & Construction Team and with long experience at the Ministry of Justice, is one of the authors of new books commenting on the Estonian Law of Properties Act (in Estonian, „Asjaõigusseaduse kommenteeritud väljaanne“). The books explain the meaning of the Act’s provisions and offer an overview of court practice as well as guidance on how to apply the Act in conjunction with other legislation. The comments focus on analysis of available Supreme Court judgments and their effect on the Act’s application as well as interrelations with other legislation. “I was honoured to be invited to join the high-profile team authoring the book. My main contribution was to the sections on the extent of and restrictions on immovable property, neighbouring rights and the paragraphs on water and forests. The update of the book was well timed, as a significant amount of new court practice applying the Act and new legal situations have expanded and added new know-how to interpret the meaning of the Act,” notes Volens. The Law of Property Act entered into force on 1 Dec 1993 as one of the five laws constituting the Estonian Civil Code. Publisher Juura, unique in Estonia in its focus on quality legal materials, published the first comments on the Law of Property Act in 1996 and an updated version in 2004. The comments in the new books first explain the goal of each section, describing its sources and analysing the content. Much attention is paid to how the paragraphs of the Act are linked both to each other and with other acts (e.g. Law of Obligations Act, Bankruptcy Act, Code of Enforcement Procedure) as well as issues with applying the Act in different fields of law. Volume I of comments on the Law of Property Act was published in April 2014, covering general comments, holding, land register and property (Sections 1-167 of the Act). In that volume, Urmas Volens authored the comments in subsection 3.3.2 (extent of immovable property, Sections 127-134 of the Act) and comments regarding restrictions on immovable property ownership in subsections 3.3.3.1 (general provisions, Sections 140-142 of the Act), 3.3.3.2 (neighbouring rights, Sections 143-151 of the Act), 3.3.3.4 (bodies of water, Sections 159-161 of the Act) and 3.3.3.5 (forest, Section 167), the introduction to subsection 3 and some comments regarding Section 140 of the Act. Volume II, covering the rest of the Act, hits the shelves in October 2014 and includes comments by Volens in subsections 8.2.1 (possessory pledge, Sections 281-295 of the Act) and 8.2.2 (registered security, Sections 297-303 of the Act) and additional comments regarding the Commercial Pledges Act. |
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